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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
{ X } Quarterly report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended November 2, 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 December 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 NOVEMBER 2, 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 nine months
ended November 2, 2002 and November 3, 2001 3
Condensed consolidated balance sheets - November 2, 2002 and
February 2, 2002 4
Condensed consolidated statements of cash flows - Nine months
ended November 2, 2002 and November 3, 2001 5
Notes to condensed consolidated financial statements - November 2, 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 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
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PART 1. 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 NINE MONTHS ENDED
NOVEMBER 2, NOVEMBER 3, NOVEMBER 2, NOVEMBER 3,
2002 2001 2002 2001
---------------- ---------------- --------------- ---------------
Net sales $ 103,299 $ 89,408 $ 277,378 $ 268,623
Cost of sales 57,050 52,785 148,503 149,972
---------------- ---------------- --------------- ---------------
Gross profit 46,249 36,623 128,875 118,651
Expenses:
Selling, general and administrative expenses
(including occupancy costs) 39,739 38,820 113,713 115,704
Depreciation and amortization 2,660 4,670 7,914 13,903
Other income - net (1,596) (1,204) (4,463) (3,829)
---------------- ---------------- --------------- ---------------
Income (loss) before interest and
financing costs and income taxes 5,446 (5,663) 11,711 (7,127)
Interest and financing costs, net of interest income 2,471 2,581 8,501 7,873
---------------- ---------------- --------------- ---------------
Income (loss) before income taxes 2,975 (8,244) 3,210 (15,000)
Income taxes 98 204 294 610
---------------- ---------------- --------------- ---------------
Net income (loss) $ 2,877 $ (8,448) $ 2,916 $ (15,610)
================ ================ =============== ===============
Basic and diluted net income (loss) per $ 0.21 $ (0.61) $ 0.21 $ (1.12)
share of common stock ================ ================ =============== ===============
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)
NOVEMBER 2, FEBRUARY 2,
2002 2002
------------------ ------------------
Assets
Current assets:
Cash and cash equivalents $ 5,511 $ 10,835
Restricted cash - 200
Receivables, less allowances of $4,505 and $4,488 31,179 26,689
Inventories 63,364 52,449
Other current assets 8,051 8,616
------------------ ------------------
Total current assets 108,105 98,789
Fixed assets at cost, less accumulated depreciation
and amortization of $34,444 and $26,530 51,986 50,141
Excess reorganization value 149,439 149,439
Other assets 1,468 1,454
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Total assets $ 310,998 $ 299,823
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,700 $ -
Accounts payable 18,641 23,634
Accrued expenses 30,261 32,246
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Total current liabilities 50,602 55,880
Long-term debt 92,809 81,048
Other long-term liabilities 17,549 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 (16,991) (19,907)
------------------ ------------------
Total shareholders' equity 149,538 146,622
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Total liabilities and shareholders' equity $ 310,998 $ 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)
NINE MONTHS ENDED
NOVEMBER 2, NOVEMBER 3,
2002 2001
----------------- ------------------
Cash flows from operating activities:
Net income (loss) $ 2,916 $ (15,610)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 8,939 14,736
Write-off of unamortized bank fees 641 -
Deferred rent 1,774 2,614
(Increase) decrease in:
Receivables (4,490) 235
Inventories (10,915) (3,948)
Other current assets 565 409
(Decrease) increase in:
Accounts payable and accrued expenses (6,878) (7,146)
----------------- ------------------
Net cash used in operating activities (7,448) (8,710)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed asset additions (9,760) (7,759)
Reduction in restricted cash 200 -
----------------- ------------------
Net cash used in investing activities (9,560) (7,759)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Loan origination costs (1,458) -
Proceeds from debt 338,690 304,113
Repayments of debt (325,548) (292,658)
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Net cash provided by financing activities 11,684 11,455
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Net decrease in cash and equivalents (5,324) (5,014)
Cash and equivalents - beginning of period 10,835 17,369
----------------- ------------------
Cash and equivalents - end of period $ 5,511 $ 12,355
================= ==================
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 nine months ended November 2, 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) November 2, 2002 February 2, 2002
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GE Facility $ 35,021 $ -
Revolving Credit Facility - 23,581
$22,500 Subordinated Note 21,999 21,678
Equipment Lessors Notes 35,789 35,789
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Total $ 92,809 $ 81,048
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In addition, $27,751,000 was committed under unexpired letters of
credit at November 2, 2002, under the GE Facility (as defined below). As of
November 2, 2002, the Company was in compliance with each of the covenants
contained in the GE Facility.
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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
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 $1,500,000. 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 second quarter 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
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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 November 2, 2002, the Company had approximately $27,033,000 of
availability under the GE Facility, after considering $36,721,000 of loans and
$27,751,000 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. In 2002, the Company
has not recorded a provision for federal income taxes as there are sufficient
net operating loss carry-forwards available to offset current earnings. A
federal income tax benefit was not recorded in 2001, as the future use of net
operating losses generated in that period 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 to acquire an aggregate of 1,734,464 and 1,965,458 shares of
common stock were not included in the computation of diluted earnings per common
share for the three and nine months ended November 2, 2002, and November 3,
2001, respectively, as including them would have been anti-dilutive.
As of November 2, 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 Nine months ended
November 3, 2001 November 3, 2001
---------------------------------- -----------------------------------
Basic and Basic and
Diluted Loss Diluted Loss
Net Loss Per Share Net Loss Per Share
---------------- ----------------- ----------------- -----------------
As Reported $ (8,448) $ (0.61) $ (15,610) $ (1.12)
Amortization of Excess
Reorganization Value (2,198) (0.16) (6,593) (0.47)
---------------- ----------------- ----------------- -----------------
As Adjusted $ (6,250) $ (0.45) $ (9,017) $ (0.65)
================ ================= ================= =================
(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 accordance with
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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) Other
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 judgment, 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
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
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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 November 2, 2002 Compared to the Three Months Ended November
3, 2001
Net sales for the three months ended November 2, 2002 were $103.3
million compared to $89.4 million a year ago, an increase of 15.5%. Comparable
store sales increased 14.9%. The sales in the year ago period were adversely
impacted by the business disruption caused by the September 11th terrorist
attacks and the indirect impact the attacks had on consumer spending and
tourism.
Gross profit on sales increased 26.3% to $46.2 million for the three
months ended November 2, 2002 from $36.6 million in the three months ended
November 3, 2001. This increase is primarily due to the sales increase discussed
above and reduced promotional selling. As a result, gross profit as a percentage
of net sales was 44.8% for the three months ended November 2, 2002 compared to
41.0% in the year ago period.
Selling, general and administrative expenses, including occupancy
expenses, increased 2.4% in the three-month period ended November 2, 2002 to
$39.7 million from $38.8 million in the three month period ended November 3,
2001. This increase is primarily attributed to: higher variable selling costs
including commissions and credit card fees, which combined increased $0.7
million; a significant increase in annual property insurance premiums ($0.3
million impact to the quarter); and increased occupancy and related costs
principally as a result of higher real estate taxes and the costs of operating
one new store in the period ($0.4 million). These increases were partially
offset in the period by the remaining $0.3 million savings related to the
one-time concession received by the Company related to a renegotiated collective
bargaining agreement and the continued benefit of 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.
Particularly as a result of the significant sales growth and the fixed nature of
certain of the Company's operating expenses, selling, general and administrative
expenses decreased to 38.5% of sales in the three months ended November 2, 2002
from 43.4% in the three months ended November 3, 2001.
Depreciation and amortization decreased 43.0% in the three-month
period ended November 2, 2002 to $2.7 million from $4.7 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.
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Interest expense decreased 4.3% in the three months ended November 2,
2002 to $2.5 million from $2.6 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 higher
interest rate associated with the outstanding amount under the Term Loan.
Average borrowings under the credit facility, in effect at the time, for the
three months ended November 2, 2002 and November 3, 2001 were $36.1 million and
$40.5 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 8.75% in the three months ended November 2, 2002 compared
to 8.5% in the comparable period of the prior year.
The Company's net income for the three months ended November 2, 2002
was $2.9 million compared to a net loss of $8.4 million for the three months
ended November 3, 2001. Basic and diluted net income per common share for the
three months ended November 2, 2002 was $0.21. Basic and diluted net loss per
common share for the three months ended November 3, 2001 was $0.61.
Nine months Ended November 2, 2002 Compared to the Nine months Ended November 3,
2001
Net sales for the nine months ended November 2, 2002 were $277.4
million compared to $268.6 million a year ago, an increase of 3.3%. Comparable
store sales increased approximately 3.1%. While the retail selling environment
continues to be challenging, the year over year results benefited from the
significant sales increase experienced in the third quarter against the sales in
the year ago period which were adversely impacted by the business disruption
caused by the September 11th terrorist attacks and the indirect impact the
attacks had on consumer spending and tourism.
Gross profit on sales increased 8.6% to $128.9 million for the nine
months ended November 2, 2002 from $118.7 million in the nine months ended
November 3, 2001, due to reduced markdowns and improved shortage results. As a
result, gross profit as a percentage of net sales was 46.5% for the nine months
ended November 2, 2002 compared to 44.2% in the year ago period.
Selling, general and administrative expenses, including occupancy
expenses, decreased 1.7% in the nine month period ended November 2, 2002 to
$113.7 million from $115.7 million in the nine month period ended November 3,
2001. This decline was primarily a result of a $2.0 million reduction in
personnel and related costs. Approximately $0.8 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
primarily the benefit of the personnel reductions, reductions in hours worked
and modifications to certain ancillary benefits implemented in Fiscal 2001
partially offset by higher commission costs in line with the increased sales.
Various additional savings of approximately $1.7 million reflect the benefit of
the range of 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. The above combined savings were in part offset by higher
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variable operating costs commensurate with higher sales, increased professional
fees of $0.2 million, increased insurance premiums of $0.3 million and increased
occupancy and related costs of $0.7 million, principally as a result of higher
real estate taxes and the costs attributed to operating one new store in the
period. Selling, general and administrative expenses were 41.0% of sales in the
nine months ended November 2, 2002 as compared to 43.1% in the nine months ended
November 3, 2001.
Depreciation and amortization expense decreased 43.1% in the
nine-month period ended November 2, 2002 to $7.9 million from $13.9 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 second quarter. Excluding such amount, interest expense was approximately
$7.9 million in both periods. 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, in effect at the time, for
the nine months ended November 2, 2002 and November 3, 2001 were $32.6 million
and $37.0 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 10.6% in the nine months ended November 2, 2002 compared
to 9.9% in the comparable period of the prior year.
Other income for the nine months ended November 2, 2002, which
primarily includes finance charge income in connection with the Company's
Private label credit card, 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 nine months ended November 2, 2002
was $2.9 million compared to a net loss of $15.6 million for the nine months
ended November 3, 2001. Basic and diluted net income (loss) per common share for
the nine months ended November 2, 2002 and November 3, 2001 were $0.21 and
$(1.12), respectively.
LIQUIDITY AND CAPITAL
Liquidity and Capital Resources
Cash used by operations for the nine months ended November 2, 2002
was approximately $7.4 million compared to cash used by operations of $8.7
million in the year ago period. This decrease is a result of the improvement in
earnings offset by increased working capital requirements related to inventories
and accounts receivable. The Company's working capital was $57.5 million at
November 2, 2002 compared to $42.9 million at February 2, 2002. The Company's
primary source of liquidity has been borrowings under its various credit
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facilities, although such reliance is easing with the improving operating
results.
The Company incurred capital expenditures of $9.8 million during the
nine months ended November 2, 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, and men's sportswear as well as the opening of one new Co-Op
Store in New York City. In addition, the current year includes amounts related
to the replacement of 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 has principally
funded its capital expenditures through a combination of borrowings under its
current and prior credit agreement and the use of cash 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
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 $1,500,000. 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
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approximately $600,000, associated with the prior revolving credit facility,
were written off in the second quarter 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 November 2, 2002, the Company had approximately $27,033,000 of
availability under the GE Facility, after considering $36,721,000 of loans and
$27,751,000 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
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.
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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 Nine months ended
November 3, 2001 November 3, 2001
---------------------------------- -----------------------------------
Basic and Basic and
Diluted Loss Diluted Loss
Net Loss Per Share Net Loss Per Share
---------------- ----------------- ----------------- -----------------
As Reported $ (8,448) $ (0.61) $ (15,610) $ (1.12)
Amortization of Excess
Reorganization Value (2,198) (0.16) (6,593) (0.47)
---------------- ----------------- ----------------- -----------------
As Adjusted $ (6,250) $ (0.45) $ (9,017) $ (0.65)
================ ================= ================= =================
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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
(a) The Company maintains disclosure controls and
procedures that are designed to ensure that information required to be
disclosed in the Company's filings under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the periods specified in the
rules and forms of the Securities and Exchange Commission. Such information is
accumulated and communicated to the Company's management, including its
principal executive officer and principal financial officer, as appropriate, to
allow timely decisions regarding required disclosure. The Company's management,
including its principal executive officer and principal financial officer,
recognizes that any set of controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives.
Within 90 days prior to the filing date of this quarterly
report on Form 10-Q, the Company has carried out an evaluation, under the
supervision and with the participation of the Company's management, including
the Company's principal executive officer and the Company's principal financial
officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on such evaluation, the Company's
principal executive officer and principal financial officer concluded that the
Company's disclosure controls and procedures are effective.
(b) There have been no significant changes in the Company's
internal controls or in other factors that could significantly affect
the internal controls subsequent to the date of their evaluation in connection
with the preparation of this quarterly report on Form 10-Q.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Description
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 November 2, 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: December 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;
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;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a. designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's
auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent function):
a. all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: December 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;
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;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a. designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's
auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent function):
a. all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: December 17, 2002
/s/ Steven M. Feldman
------------------------------
Steven M. Feldman
Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Description
----------- -----------
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
- 22 -