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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year-ended February 1, 2003.
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 Identification No.)
Incorporation or Organization)
575 FIFTH AVENUE 10017
NEW YORK, NEW YORK
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 450-8700
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [_] No [X]
[Cover page 1 of 2 pages]
The common stock of the registrant is quoted on the Nasdaq Over-The-Counter
Bulletin Board service. The common stock of the registrant is only traded on a
limited or sporadic basis and there is no established public trading market for
such common stock. As of August 2, 2002, the aggregate market value of the
registrant's voting common equity held by non-affiliates of the registrant,
based on the $3.675 last average bid and asked price of the common stock on
August 2, 2002, as reported on the Over-the-Counter Bulletin Board service, was
approximately $11.8 million. For purposes of this computation, shares of common
stock of the registrant beneficially owned by each officer and director of the
registrant and by each of Whippoorwill Associates, Inc. (on behalf of its
Discretionary Accounts) and Bay Harbour Management L.C. (on behalf of its
Managed Accounts) and their respective affiliates are deemed to be beneficially
owned by affiliates. Such determination should not be deemed an admission that
such officers, directors and such other beneficial owners of common stock of the
registrant are, in fact, affiliates of the registrant.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [x] No [_]
On April 21, 2003, the registrant had outstanding 14,103,227 shares of common
stock, par value $0.01 per share, which is the registrant's only class of common
stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of the registrant's definitive Proxy Statement to be filed
pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended,
in connection with the Annual Meeting of Stockholders of the registrant to be
held on June 20, 2003 are incorporated by reference into Part III of this
report.
[Cover page 2 of 2 pages]
Item 1. Business............................................................................................1
Item 2. Properties..........................................................................................7
Item 3. Legal Proceedings...................................................................................7
Item 4. Submission of Matters to a Vote of Security Holders.................................................8
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..............................10
Item 6. Selected Financial Data............................................................................11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..............15
Item 8. Financial Statements and Supplementary Data........................................................35
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure...............35
Item 10. Directors and Executive Officers of the Registrant.................................................36
Item 11. Executive Compensation.............................................................................36
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.....36
Item 13. Certain Relationships and Related Transactions.....................................................38
Item 14. Controls and Procedures............................................................................38
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................................39
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Unless otherwise expressly stated herein or the context otherwise requires, all
references in this Form 10-K to (i) "Holdings" refer to Barneys New York, Inc.,
a Delaware corporation and the sole shareholder of Barney's, Inc., a New York
corporation, (ii) "Barney's, Inc." refer to such New York corporation and (iii)
"Barneys," "we," "us," "our," "our company" or "the company" refer to Holdings
and its direct and indirect subsidiaries, including Barney's, Inc. and its
subsidiaries.
FORWARD-LOOKING STATEMENTS
Certain statements discussed in Item 1 (Business), Item 3 (Legal Proceedings),
Item 7 (Management's Discussion and Analysis of Financial Condition and Results
of Operations), and elsewhere in this Form 10-K constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Statements that are not historical facts, including statements about
our beliefs and expectations, are forward-looking statements. Forward-looking
statements include statements preceded by, followed by or that include the words
"may," "could," "would," "should," "believe," "expect," "anticipate," "plan,"
"estimate," "target," "project," "intend," or similar expressions. These
statements include, among others, statements regarding our expected business
outlook, anticipated financial and operating results, our business strategy and
means to implement the strategy, our objectives, the amount and timing of future
store openings and capital expenditures, the likelihood of our success in
expanding our business, financing plans, working capital needs and sources of
liquidity.
Forward-looking statements are only estimates or predictions and are not
guarantees of performance. These statements are based on our management's
beliefs and assumptions, which in turn are based on currently available
information. Important assumptions relating to the forward-looking statements
include, among others, assumptions regarding demand for the merchandise we sell,
the introduction of new merchandise, store opening costs, expected pricing
levels, the timing and cost of planned capital expenditures, competitive
conditions and general economic conditions. These assumptions could prove
inaccurate. Forward-looking statements also involve risks and uncertainties,
which could cause actual results to differ materially from those contained in
any forward-looking statement. Many of these factors are beyond our ability to
control or predict. Such factors include, but are not limited to, the following:
o the continued appeal of luxury apparel and merchandise;
o economic conditions and their effect on consumer spending;
o our dependence on our relationships with certain
designers;
o our ability and the ability of our designers to design and
introduce new merchandise that appeals to consumer tastes
and demands;
o events and conditions in the New York City area;
o new competitors entering the market or existing
competitors expanding their market presence;
o our ability to accurately predict our sales;
o the continued service of our key executive officers and
managers;
o our being controlled by our principal stockholders;
o our ability to enforce our intellectual property rights
and defend infringement claims;
o interruptions in the supply of the merchandise we sell;
o changing preferences of our customers;
o our ability to borrow additional funds;
o our substantial indebtedness;
o significant operating and financial restrictions placed on
us by the indenture governing Barney's, Inc.'s 9% senior
secured notes and our credit facility; and
o other factors referenced in this 10-K, including those set
forth under "Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations -
Forward-Looking Statements."
We believe the forward-looking statements in this Form 10-K are reasonable;
however, you should not place undue reliance on any forward-looking statements,
which are based on current expectations. Further, forward-looking statements
speak only as of the date they are made, and we undertake no obligation to
update publicly any of them in light of new information or future events.
PART I
ITEM 1. BUSINESS
GENERAL
We are a leading upscale retailer of men's, women's and children's apparel and
accessories and items for the home. We provide our customers with a wide variety
of merchandise across a broad range of prices, including a diverse selection of
Barneys label merchandise. Our preferred arrangements with established and
emerging designers, combined with our creative merchandising, store designs and
displays, advertising campaigns, publicity events and emphasis on customer
service, have positioned us as a pre-eminent retailer of men's and women's
fashion, cosmetics, jewelry and home furnishings.
We operate 20 inter-related stores in the United States under the "Barneys New
York" trade name which cater to fashion-conscious customers. These stores
include three flagship stores in prime retail locations in New York, Beverly
Hills and Chicago, and three smaller regional stores in Manhasset, NY, Seattle,
WA and Chestnut Hill, MA. Our two CO-OP Barneys New York stores in New York City
are an extension of the CO-OP departments in our flagship stores. They cater to
customers seeking contemporary, urban casual apparel and accessories. Our 12
outlet stores cater to budget-minded yet fashion-conscious customers. In
addition, our noted semi-annual warehouse sale events in New York City and Santa
Monica, California enable us to sell our end-of-the-season residual merchandise
and extend the Barneys New York brand to a wider range of customers. We have
entered into a licensing arrangement pursuant to which a third party operates
two retail stores in Japan and a single in-store department in Singapore, all
under the "Barneys New York" name.
We drive sales by providing our customers with a carefully edited selection of
high-fashion quality merchandise from leading and emerging designers. Our
merchandising philosophy reflects a variety of fashion viewpoints and a culture
of seeking out creative and innovative products. It has established Barneys as a
premiere destination for fashion-conscious customers. We also strive to enhance
our sales by expanding and reallocating existing space within our stores,
attracting new customers, building upon our strong existing customer
relationships and selectively increasing the number of our stores. Our
experienced management team, led by Howard Socol (the former Chairman and Chief
Executive Officer of Burdines, a division of Federated Department Stores, Inc.),
emphasizes disciplined financial management throughout our operations. We
carefully monitor and have significantly reduced operating costs through a
variety of initiatives, including a rationalization of personnel hours, a
reduction in the number of our administrative employees and the renegotiation of
supply, service and benefit plan contracts.
We were founded in 1923 under the name "Barney's Clothes, Inc." Barneys
consummated a plan of reorganization under Chapter 11 of the Bankruptcy Code on
January 28, 1999. Pursuant to the plan, Holdings was formed and all the equity
interests in Barney's, Inc. were transferred to Holdings, making Barney's, Inc.
a wholly-owned subsidiary of Holdings. Holdings has no independent operations
and its primary asset consists of shares of Barney's, Inc.
BUSINESS STRENGTHS
Strong Designer Relationships. We are a preferred distribution channel for such
leading designers as Giorgio Armani, Manolo Blahnik, Marc Jacobs, Prada, Jil
Sander and Ermenegildo Zegna. We were the first to introduce a number of
designers (including both Giorgio Armani and Prada) into the high-fashion market
in the United States. Our stores are also a showcase for emerging designers,
whom we identify and help to develop. By cultivating strong relationships with
emerging designers, we are able to introduce their merchandise to the
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high-fashion market, often on an initially exclusive basis. We further
strengthen our relationships with both established and emerging designers
through design and product suggestions and by providing them with detailed
feedback on their collections that we gather from our customers.
Barneys Label Merchandise. We complement our designer merchandise with a diverse
selection of Barneys label merchandise, including ready-to-wear apparel,
handbags, shoes, dress shirts, ties and sportswear. Barneys label merchandise is
manufactured by independent third parties according to our specifications, and
we are intensively involved in all aspects of the design and manufacture of this
collection. This merchandise complements and is of comparable quality to our
designer merchandise. Our Barneys label merchandise constituted approximately
15% of our net sales for our fiscal year ended February 1, 2003, is generally
less expensive than our designer merchandise and generates higher margins.
Strong Brand Image. We benefit greatly from the strong Barneys New York brand
image as a fashion leader, which we have developed during the past three
decades. We believe that our brand image is further enhanced through our
consistently creative and innovative merchandising, store designs and displays
(including our renowned flagship store windows), advertising campaigns and
publicity events, all of which emphasize taste, luxury and humor. Our flagship
stores reflect the luxury and distinct style of the merchandise we sell and
establish and promote the Barneys New York brand image as a pre-eminent retailer
of men's and women's fashion. In addition to our direct advertising, we receive
frequent press coverage from independent publications, which feature our
merchandise and report our launches of new collections and new designers,
further strengthening our brand image.
Relationship-Driven Customer Service. We maintain a strong focus on providing
consistently high levels of service to our customers. Our sales associates,
particularly those at our flagship stores, maintain customer profile books to
serve specific customers better by providing merchandise suggestions tailored to
their personal tastes and by making them aware of new merchandise and sales
events. These sales associates also receive extensive in-house product training
and participate in vendor clinics to familiarize themselves with the styles,
fabrics and workmanship of our designer collections. In addition, our customer
loyalty program provides incentives to customers who use our proprietary credit
card.
Prime Store Locations. The location of our flagship stores in prime retail
locations (Madison Avenue in New York City, Wilshire Boulevard off Rodeo Drive
in Beverly Hills and Oak Street in Chicago) contributes to the strong Barneys
New York brand image. We believe that our three flagship stores are premiere
destinations for fashion-conscious customers. All of our flagship stores are
leased under long-term leases, with initial terms ranging from ten to twenty
years and multiple ten-year renewal options.
Proven Management Team. We have a strong and dedicated management team with
significant experience in the upscale fashion market and retailing industry. Our
Chief Executive Officer, Howard Socol, brings more than 30 years of industry
experience to Barneys. Mr. Socol previously served as Chairman and Chief
Executive Officer of Burdines Department Stores from 1984 to 1997. During that
time, Burdines' business expanded from 25 stores as of January 28, 1984 to 48
stores as of February 1, 1997 and its sales grew from approximately $692 million
in 1984 to approximately $1.3 billion in 1996. Additionally, Thomas Kalenderian,
our Executive Vice-President -- Men's Merchandising, has been with us for 22
years, and Judith Collinson, our Executive Vice-President -- Women's
Merchandising, has been with us for 15 years. During their tenure with Barneys,
Mr. Kalenderian and Ms. Collinson have been instrumental in developing and
implementing our merchandising strategy, including our relationships with
designers and the design and procurement of Barneys label merchandise.
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BUSINESS STRATEGY
Our business strategy is focused on increasing comparable store sales, reducing
operating expenses and selectively expanding our store base.
Increase Comparable Store Sales. We are focused on maximizing the profitability
of existing space, particularly in our flagship stores. We constantly consider
opportunities to reallocate floor space to merchandise that can provide higher
sales per square foot or higher profit margins. For example, in October 2001 we
moved the restaurant in our New York City flagship store from the lower level to
the then unused ninth floor. This enabled us to expand our main floor women's
accessories business and to utilize the lower level space to expand our more
profitable cosmetics sales area, without adversely affecting the restaurant's
revenues. In June 2002 we also reallocated floor space in our New York City
flagship store to expand our women's shoe department. During the fiscal year
ended February 2, 2002, this department generated approximately three times more
sales per square foot than the merchandise previously sold in the area that has
been incorporated into our expanded women's shoe department. We plan to
implement this strategy of maximizing existing space in our other flagship
stores and regional and outlet locations, tailoring the enhancements to
individual store sales trends and tastes. In addition, our continued focus on
customer service and expanded marketing efforts, including increased
advertising, are designed to increase sales to our existing customers and to
attract new customers.
Reduce Operating Expenses. We have a highly-disciplined approach to managing
expenses throughout our operations. Since February 2001, we have reduced fixed
costs by implementing a number of expense reduction initiatives, including
reducing the number of our administrative personnel (which eliminated
approximately $4.3 million in annual payroll costs), rebidding repair and
maintenance contracts, reducing employee benefits and reducing our packaging and
general office overhead costs (which eliminated approximately $2.0 million in
annual expenses). We also upgraded the inventory controls and security measures
in our stores in an effort to reduce inventory shrinkage. In addition, we
constantly review our operations for opportunities to implement further expense
reduction initiatives.
Limited and Disciplined New Store Openings. In May 2000 we opened a new CO-OP
store in the Chelsea neighborhood of New York City, and in March 2002 we opened
a second new CO-OP store in the SoHo neighborhood of New York City. These
stores, which are an extension of the CO-OP departments in our flagship stores,
achieved aggregate net sales of $8.7 million and aggregate store level
contributions of $0.6 million in the fiscal year ended February 1, 2003
(reflecting twelve months of operations for our Chelsea CO-OP store and eleven
months of operations for our SoHo CO-OP store). Store level contributions equal
(a) net sales less (b) the cost of sales and store specific selling, general and
administrative expenses. We will continue to evaluate opportunities to expand
our CO-OP store base in a selective and financially disciplined manner. We
expect to open approximately ten additional CO-OP stores over the next five
years, including two stores in 2003 at a cost of between $1.0 million and $1.5
million each. We believe that the new CO-OP stores will increase customer
awareness of the Barneys New York name and enhance the strong Barneys New York
brand image.
RETAILING OPERATIONS
We sell to consumers primarily through three inter-related distribution
channels, consisting of full-price stores, outlet stores, and warehouse sale
events. While these three distribution channels differ in both size and
price-points, each is merchandised in its own way, with a wide range of
high-quality merchandise that generally appeals to fashion-conscious customers.
Our inventory supply chain is managed throughout these three distribution
channels, which are discussed in more detail below.
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Full-Price Stores. We operate eight full-price stores consisting of:
Flagship Stores -- We operate three large flagship stores in prime
retail locations in New York, Beverly Hills and Chicago. The three large
flagship stores establish and promote the Barneys New York brand image as a
pre-eminent retailer of men's and women's fashion. These stores offer customers
a wide variety of merchandise, including apparel, accessories, cosmetics and
items for the home, catering to affluent, fashion-conscious customers. We also
seek to ensure that the ambience of our flagship stores reflects the luxury and
distinct style of the merchandise that we sell. The flagship stores in New York
and Beverly Hills also include restaurants managed by third-party contractors.
Regional Stores -- We operate three smaller regional stores in the
following locations: Manhasset, NY, Seattle, WA and Chestnut Hill, MA. The three
smaller regional stores, which provide a limited selection of the merchandise
offered in the flagship stores, cater to similar customers as our flagship
stores in more localized markets.
CO-OP Stores -- We operate two smaller CO-OP stores in New York City.
These free-standing stores are an extension of the CO-OP departments in our
flagship stores and focus on providing customers with a selection of high-end,
contemporary, urban casual apparel and accessories, often at price points that
are slightly lower than our non-CO-OP merchandise. Similar to our CO-OP
departments, our CO-OP stores offer merchandise from established and emerging
designers, as well as our Barneys label.
Outlet Stores. We operate twelve outlet stores across the country. The outlet
stores leverage the Barneys New York brand to reach a wider audience by
providing a lower priced version of the sophistication, style and quality of the
retail experience provided in the full-price stores. These stores, which
typically operate with a low cost structure, also provide a clearance vehicle
for residual merchandise from the full-price stores.
The outlet stores, which sell designer and Barneys label apparel and
accessories, serve budget-minded yet fashion-conscious customers. They are
located in high-end outlet centers and serve a high number of destination
shoppers and tourists.
Warehouse Sale Events. We operate four warehouse sale events annually, one each
spring and fall season in both New York and Santa Monica, California. The
warehouse sale events provide another vehicle for liquidation of end of season
residual merchandise, as well as a low cost extension of the Barneys New York
brand to a wider audience. The events attract a wide range of shoppers, mostly
bargain hunters who value quality and fashion.
LICENSING ARRANGEMENTS
BNY Licensing Corp., a wholly-owned subsidiary of Barneys, is party to licensing
arrangements pursuant to which:
o two retail stores are operated in Japan and a single
in-store department is operated in Singapore under the
name "Barneys New York," each by an affiliate of Isetan
Company Limited; and
o Barneys Asia Co. LLC, which is 70% owned by BNY Licensing
and 30% owned by an affiliate of Isetan, has the exclusive
right to sublicense the Barneys New York trademark
throughout Asia (excluding Japan).
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Licensing agreements governing these arrangements were entered into in
connection with Barneys' emergence from bankruptcy. With regard to the first
licensing arrangement described above, and in accordance with a prior
arrangement, we assigned 90% of certain annual minimum royalties we receive from
this licensing arrangement to Isetan Company Limited until the expiration of the
licensing arrangement in 2015. Under the present arrangement we do not receive
significant annual revenues from this licensing arrangement. On February 5,
2003, this arrangement was amended, and the affiliate of Isetan agreed to pay us
$750,000 in each of February 2003 and February 2004 in consideration of our
consent to certain matters relating to the establishment of an additional
Barneys New York store in Japan by an affiliate of Isetan. Barneys Asia Co. LLC
has not entered into any sublicensing arrangements for the operation of any
stores or departments under the Barneys New York trademark. See note 7(b) to our
consolidated financial statements.
TRADEMARKS AND SERVICE MARKS
We own our trademarks and service marks, including the "Barneys New York" and
"Barneys" marks. Our trademarks and service marks are registered in the United
States and certain countries in Asia. The term of these registrations is
generally ten years, and they are renewable for additional ten-year periods
indefinitely, so long as the marks are still in use at the time of renewal. We
are not aware of any claims of infringement or other challenges to our right to
register or use our marks in the United States. We regard our trademarks and
service marks as valuable assets in the marketing of our products and take
appropriate action when necessary to protect them.
SEASONALITY
The specialty retail industry is seasonal in nature, with a high proportion of
sales and operating income generated in the November and December holiday
season. As a result, our operating results are significantly affected by the
holiday selling season. Seasonality also affects working capital requirements,
cash flow and borrowings as inventories build in September and peak in October
in anticipation of the holiday selling season. Our dependence on the holiday
selling season is mitigated by the sales and income generated by our warehouse
sale events held in February and August.
The following table sets forth net sales and net income (loss) for the fiscal
years ended February 1, 2003 and February 2, 2002. This quarterly financial data
is unaudited but gives effect to all adjustments necessary, in the opinion of
Barneys' management, to present fairly this information.
FISCAL 2002 - QUARTER ENDED FISCAL 2001 - QUARTER ENDED
------------------------------------------------ -----------------------------------------------------
($ in thousands) 5/4/02 8/3/02 11/2/02 2/1/03 5/5/01 8/4/01 11/3/01 2/2/02
----------- ----------- ------------ ----------- ------------ ----------- ------------- --------------
Net Sales $92,475 $81,603 $103,299 $ 105,986 $94,069 $ 85,146 $ 89,408 $ 102,546
As % of period 24% 21% 27% 28% 25% 23% 24% 28%
Net Income (loss) 478 (439) 2,877 5,550 (3,301) (3,860) (8,448) 438
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COMPETITION
The retail industry, in general, and the upscale retail apparel business, in
particular, are intensely competitive. Competition is strong for customers,
sales and vendor resources.
Generally, our flagship, regional and CO-OP stores compete with both specialty
stores and department stores, while our outlet stores and warehouse sale events
compete with off-price and discount stores, in the geographic areas in which
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they operate. Several department store, specialty store, and vendor store
competitors also offer catalog and internet shopping that also compete with us.
We compete for customers principally on the basis of quality, fashion,
assortment and presentation of merchandise, customer service, marketing and, at
times, store ambiance. In our luxury retail business, merchandise assortment is
a critical competitive factor, and retail stores compete for exclusive,
preferred and limited distribution arrangements with key designers. In addition,
we face increasing competition from our designer resources, which have
established or expanded their market presence with their own dedicated stores.
Some of the retailers with which we compete have substantially greater financial
resources than we have and may have other competitive advantages over us.
MERCHANDISING
We are a preferred distribution channel for such leading designers as Giorgio
Armani, Manolo Blahnik, Marc Jacobs, Prada, Jil Sander and Ermenegildo Zegna. We
also offer a diverse selection of unique, Barneys label merchandise (primarily
under the "Barneys New York" and "CO-OP" labels). In the fiscal year ended
February 1, 2003, our ten top designers (including all brands owned by such
designers) accounted for approximately 28% of our total sales, and our two top
designers (including all brands owned by such designers) accounted for
approximately 11% and 4%, respectively, of our total sales. If one or more of
our top designers were to cease providing us with adequate supplies of
merchandise, our business might, in the short term, be adversely affected.
However, management believes that alternative supply sources exist to fulfill
our requirements in the event of a disruption. In addition, if one or more of
our top designers were to increase sales of merchandise through its own stores
or to the stores of our competitors, our business could be materially adversely
affected.
EMPLOYEES
As of February 1, 2003, we employed approximately 1,300 people. Our staffing
requirements fluctuate during the year as a result of the seasonality of the
retail apparel industry, and we add approximately 100 employees during the
holiday selling season. Approximately 500 of our employees are represented by
unions, and we believe that overall our relationship with our employees and
these unions is good. During our more than fifty-year relationship with unions
representing our employees, we have never been subjected to a strike or work
stoppage.
GOVERNMENT REGULATION
Our proprietary credit card operations, as well as those of third-party credit
card providers, are subject to numerous federal and state laws, including laws
that impose disclosure and other requirements upon the origination, servicing
and enforcement of credit accounts and limitations on the maximum amount of
finance charges that may be charged by a credit provider. Any change in these
regulations that would materially limit the availability of credit to our
customers could adversely affect our business, financial condition and results
of operations. Our practices, as well as our competitors' practices, are also
subject to review in the ordinary course of business by the Federal Trade
Commission. We believe that we are currently in material compliance with all
applicable state and federal regulations.
Additionally, we are subject to certain customs, truth-in-advertising and other
laws, including consumer protection regulations and zoning and occupancy
ordinances, that regulate retailers generally and/or govern the importation,
promotion and sale of merchandise and the operation of retail stores and
warehouse facilities. We undertake to monitor changes in these laws and believe
that we are in material compliance with applicable laws with respect to these
practices.
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ITEM 2. PROPERTIES
Our principal facilities include corporate offices, a central alterations
facility, a distribution center and three flagship stores. We lease all of our
facilities. All of our flagship stores are leased under long-term leases, with
initial terms ranging from ten to twenty years and multiple ten-year renewal
options. The following table lists the location, type, and approximate gross and
selling square footage of each of our facilities:
APPROXIMATE APPROXIMATE
GROSS SELLING
LOCATION TYPE SQUARE FEET SQUARE FEET
-------- ---- ----------- -----------
New York, NY................................... Corporate Offices 46,000 --
New York, NY................................... Central Alterations Facility 32,968 --
Lyndhurst, NJ.................................. Distribution Center 180,000 --
New York, NY................................... Flagship Store 240,000 113,920
Beverly Hills, CA.............................. Flagship Store 120,000 60,671
Chicago, IL.................................... Flagship Store 50,000 21,913
Manhasset, NY.................................. Regional Store 19,052 12,646
Chestnut Hill, MA.............................. Regional Store 6,234 4,165
Seattle, WA.................................... Regional Store 11,113 6,406
New York, NY (Wooster Street).................. CO-OP Store 7,000 3,782
New York, NY (17th Street)..................... CO-OP Store 7,038 5,800
Harriman, NY................................... Outlet Store 9,576 7,468
Cabazon, CA.................................... Outlet Store 7,026 4,930
Camarillo, CA.................................. Outlet Store 7,500 5,471
Clinton, CT.................................... Outlet Store 7,525 4,898
Riverhead, NY.................................. Outlet Store 7,500 5,077
Wrentham, MA................................... Outlet Store 7,500 5,012
Waikele, HI.................................... Outlet Store 6,295 4,766
Carlsbad, CA................................... Outlet Store 7,500 4,969
Napa Valley, CA................................ Outlet Store 5,500 3,877
Orlando, FL.................................... Outlet Store 6,000 3,965
Allen, TX...................................... Outlet Store 7,000 4,801
Leesburg, VA................................... Outlet Store 6,000 4,224
We also license, on a short-term basis, facilities for our semi-annual Santa
Monica, CA warehouse sale events. We believe that all of our facilities are
suitable and adequate for the current and anticipated conduct of our operations.
ITEM 3. LEGAL PROCEEDINGS
On or about July 31, 2002, an individual filed a class action complaint against
us 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 us of certain information. The complaint seeks relief on a class basis under
the statutes permitting a plaintiff to recover a fine, in the discretion of the
court, and such other damages which each member of the class may have suffered
as a result of our alleged conduct. The complaint further seeks an accounting of
7
all moneys and profits received by us in connection with the alleged violations
as well as injunctive relief with respect to the alleged practices.
Certification of the class and attorneys fees is sought as well. We believe that
the complaint is without merit, that we have substantial defenses to the claims
and we plan to vigorously defend the lawsuit. A proposed settlement of this
matter received preliminary court approval on May 1, 2003. The settlement is
subject to final court approval on June 20, 2003 as well as satisfaction of
certain other conditions. No assurances can be given that the proposed
settlement will be finalized in accordance with its terms. In management's
judgment, based in part on consultation with legal counsel, neither this case
nor the proposed settlement is expected to have a material adverse effect on our
financial position.
In addition, we are involved in various legal proceedings which are routine and
incidental to the conduct of our business. Management believes that none of
these proceedings, if determined adversely to us, would have a material effect
on our financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages, positions and business backgrounds of all
of the executive officers of Holdings. Except as otherwise indicated, each
executive officer has held his current position for the past five years.
NAME AGE AT FEBRUARY 1, 2003 POSITION
- ---- ----------------------- ----------------------------------------------------------------
Howard Socol.................... 57 Chairman, President and Chief Executive Officer
Judith Collinson................ 51 Executive Vice President-- Women's Merchandising
Thomas Kalenderian.............. 45 Executive Vice President-- Men's Merchandising
Marc H. Perlowitz............... 48 Executive Vice President-- General Counsel and Human Resources,
Secretary
Karl Hermanns................... 38 Executive Vice President-- Operations
Michael Celestino............... 46 Executive Vice President-- Store Operations
Steven M. Feldman............... 39 Executive Vice President and Chief Financial Officer
David New....................... 46 Executive Vice President-- Creative Services
Vincent Phelan.................. 37 Senior Vice President-- Treasurer
Howard Socol has been the Chairman, President and Chief Executive Officer of
Holdings since January 8, 2001. Mr. Socol was the Chief Executive Officer of J.
Crew Group, Inc., a retailer of women's and men's apparel, shoes and
accessories, from February 1998 through January 1999. From 1969 to 1997, Mr.
Socol served in various management positions at Burdines, a division of
Federated Department Stores, Inc., becoming President in 1981 and Chairman and
Chief Executive Officer in 1984, a position he held until his retirement in
1997. Mr. Socol is also a director of Guess?, Inc.
Judith Collinson started with Barneys in 1989 as an Accessories Buyer. Prior to
her current position, she had been responsible for Accessories and Private Label
Collections. She was promoted to Executive Vice President and General
Merchandising Manager for all women's merchandising in May 1998. Ms. Collinson
is also responsible for women's shoes and cosmetics.
Thomas Kalenderian has been at Barneys for 22 years. His responsibilities have
increased over time until he was promoted to Executive Vice President and
General Merchandising Manager for all men's merchandising in July 1997. Mr.
Kalenderian is responsible for developing and implementing menswear strategy and
manages many of the key vendor relationships for the menswear, children's and
gifts for the home businesses.
8
Marc H. Perlowitz joined Barneys in September 1985. He was promoted to Executive
Vice President, General Counsel and Human Resources of Barneys in October 1997.
Mr. Perlowitz' responsibilities include direct responsibility for all legal
matters of Holdings and its affiliates. He is responsible for Human Resources
which includes compensation, benefits, labor relations, training, recruiting,
employee policies and procedures and company communications. He is also
responsible for real estate and risk management.
Karl Hermanns has been with Barneys since July 1996 and previously was
responsible for Financial and Strategic Planning. During his tenure, he has
assumed other responsibilities and is currently responsible for Marketing,
Merchandise Planning, Management Information Systems, Distribution, Imports and
our Central Alterations department. Mr. Hermanns was promoted to Executive Vice
President in February 2000. Prior to joining Barneys, Mr. Hermanns spent 10
years with Ernst & Young LLP in their audit and corporate finance practices.
Michael Celestino has been with Barneys since November 1991 and has served in a
number of store operations capacities during that period. Mr. Celestino is
currently responsible for all store operations including full-price stores,
outlet stores and our warehouse sale events. He was promoted to Executive Vice
President in February 2000.
Steven M. Feldman has been with Barneys since May 1996 when he joined as
Controller. During his tenure he assumed additional responsibilities and was
appointed as Chief Financial Officer in May of 1999. Prior to joining Barneys,
Mr. Feldman was a Senior Manager at Ernst & Young LLP principally serving retail
engagements. Mr. Feldman was promoted to Executive Vice President in March 2000.
David New has been with Barneys since 1992 when he joined as Men's Display
Manager of the 17th Street store in New York City. Mr. New's responsibilities
have increased over time and in March of 2000 he was promoted to Executive Vice
President -- Creative Services. In that capacity, Mr. New is responsible for
Store Design, Display, Advertising and Publicity.
Vincent Phelan has been with Barneys since August 1995 when he joined as
Director of Finance. Prior to joining Barneys, Mr. Phelan was the Deputy
Director of Finance at the United States Tennis Association, Inc. in White
Plains, NY from January 1993 to July 1995. Mr. Phelan was promoted to Vice
President -- Treasurer in January 1999 and Senior Vice President in March 2000.
Mr. Phelan is a certified public accountant and is responsible for financial
planning and analysis, cash management, banking relations, taxes and facilities.
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Holdings common stock is quoted on the Nasdaq Over-The-Counter Bulletin Board
service under the symbol "BNNY." Holdings common stock is only traded on a
limited or sporadic basis and there is no established public trading market for
such common stock. The following table sets forth the reported high and low bid
prices of Holdings common stock on the Nasdaq Over-The-Counter Bulletin Board
service for each fiscal quarter during the period from February 4, 2001 through
February 1, 2003. The quotations listed below reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.
HIGH BID LOW BID
-------- -------
FISCAL YEAR ENDED FEBRUARY 2, 2002:
First Quarter (Feb. 4, 2001 - May 5, 2001)............................... $ 8.00 $ 6.00
Second Quarter (May 6, 2001 - August 4, 2001)............................ 7.00 5.75
Third Quarter (August 5, 2001 - November 3, 2001)........................ 6.00 4.25
Fourth Quarter (November 4, 2001 - February 2, 2002)..................... 5.00 1.50
FISCAL YEAR ENDED FEBRUARY 1, 2003:
First Quarter (February 3, 2002 - May 4, 2002)........................... 5.40 1.50
Second Quarter (May 5, 2002 - August 3, 2002)............................ 3.90 3.01
Third Quarter (August 4, 2002 - November 2, 2002)........................ 3.55 2.65
Fourth Quarter (November 3, 2002 - February 1, 2003)..................... 4.26 3.00
HOLDERS
As of April 21, 2003, there were 949 holders of record of Holdings common stock.
DIVIDENDS
The terms of the indenture governing Barney's, Inc.'s 9% Senior Secured Notes
and our credit facility restrict the ability of Barney's, Inc. to make
distributions to Holdings and, consequently, restrict the ability of Holdings to
pay dividends on shares of Holdings common stock. In addition, the guarantee by
Holdings of the credit facility prohibits Holdings from declaring dividends on
shares of its capital stock, with the exception of dividends payable to holders
of shares of Holdings preferred stock. Holdings has no present intention to
declare dividends on shares of its common stock.
RECENT SALES OF UNREGISTERED SECURITIES
Pursuant to an amendment to Howard Socol's employment agreement, dated January
10, 2003, Holdings made a restricted stock award on February 2, 2003 of 200,000
shares of Holdings common stock to Howard Socol, Holdings' Chairman, President
and Chief Executive Officer. The issuance by Holdings of these securities were
not registered under the Securities Act of 1933 pursuant to the exemption
contemplated by Section 4(2) thereof for transactions not involving a public
offering.
10
On April 1, 2003, we completed an offering to sell 106,000 units at a price of
$850 per unit, for gross proceeds of $90.1 million. Each unit consisted of
$1,000 principal amount at maturity of 9% senior secured notes due April 1, 2008
of Barney's, Inc. and one warrant to purchase 3.412 shares of common stock of
Holdings at an exercise price of $0.01 per share. The units were sold in a
private placement to qualified institutional investors pursuant to Rule 144A and
Regulation S of the Securities Act of 1933, as amended, and to institutional
accredited investors within the meaning of Rule 501(a)(1), (2), (3) or (7) under
such statute. Jefferies & Company, Inc. acted as initial purchaser of the units.
In addition to commissions of approximately $2.7 million, which we paid the
initial purchaser in connection with the sale of the units, we also paid
Jeffries & Company, Inc. an approximate $3.3 million fee for certain financial
advisory and investment banking services provided by it to us. Net proceeds to
us were approximately $81.7 million after deducting commissions, financial
advisory fees and estimated expenses of the offering. The warrants are
exercisable at any time after the earliest to occur of:
o 180 days after April 1, 2003;
o the date on which a registration statement for a
registered exchange offer with respect to the 9% senior
secured notes is declared effective under the Securities
Act;
o the date on which a shelf registration statements with
respect to the shares issuable upon exercise of the
warrants is declared effective under the Securities Act;
and
o such date as the initial purchaser of the units in its
sole discretion may determine.
The warrants will expire on April 1, 2008. The exercise price and number of
shares issuable upon exercise of a warrant are subject to adjustment from time
to time upon the occurrence of certain events with respect to the common stock
of Holdings, issuances of options or other convertible securities, dividends and
distributions and certain changes in options and convertible securities of
Holdings.
In connection with the offering we entered into a registration rights agreement
pursuant to which we agreed to file a registration statement within 90 days of
the offering with respect to an exchange offer pursuant to which the holders of
the notes will be able to exchange the notes for freely transferable notes
having terms substantially identical to the notes. In addition, in certain
circumstances we have agreed to file a shelf registration statement that would
allow some or all of the notes to be offered to the public. If we do not comply
with the terms of the registration rights agreement, we will be required to pay
liquidated damages to holders of the notes in the form of additional cash
payments until all defaults under the registration rights agreement have been
cured.
In connection with the offering, Holdings agreed that upon receipt of a written
request from the holders of at least 5% of the shares issuable upon exercise of
the warrants, Holdings will, as promptly as practicable, file a shelf
registration statement covering the resale of the shares issuable upon exercise
of the warrants. Holdings may, at its option, file a registration statement
covering the resale of the shares issuable upon exercise of the warrants.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated historical financial data set forth in the table below
as of and for each of the four fiscal years in the period ended February 1,
2003, for the six months ended January 30, 1999, and the fiscal year ended
August 1, 1998, are derived from our consolidated financial statements for such
periods, as audited by Ernst & Young LLP.
11
The selected consolidated historical financial data set forth below for the
twelve months ended January 30, 1999 and as of and for the six months ended
January 28, 1998 are derived from management's unaudited internal financial
statements.
The selected consolidated historical financial data should be read in
conjunction with the financial statements and the related notes and other
information contained elsewhere in this Form 10-K, including information set
forth herein under "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations."
In conjunction with our emergence from Chapter 11 in January 1999, we changed
our fiscal year-end to the Saturday closest to January 31. Previously, the
fiscal year-end fell on the Saturday closest to July 31. Unless otherwise
specified, all historical information as of or prior to August 1, 1998 reflects
the July fiscal year-end. The six-month period ended January 30, 1999 represents
the six month transition period to the new fiscal year.
As hereinafter used, "Successor Company" refers to Holdings and subsidiaries
subsequent to January 30, 1999 and "Predecessor Company" refers to Barney's,
Inc. and subsidiaries prior to January 30, 1999.
Our consolidated financial statements during the bankruptcy proceedings are
presented in accordance with American Institute of Certified Public Accountants'
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code," known as SOP 90-7. Pursuant to guidance provided by
SOP 90-7, we adopted fresh start reporting as of January 28, 1999 upon our
emergence from bankruptcy.
Under fresh start reporting, a new reporting entity is deemed to be created and
the recorded amounts of assets and liabilities are adjusted to reflect their
estimated fair values at the effective date. Black lines have been drawn to
separate the Successor Company's financial information from that of the
Predecessor Company to signify that they are different reporting entities and
such financial information has not been prepared on the same basis. The
operating results of the Successor Company for the intervening period from
January 28, 1999 to January 30, 1999 were immaterial and therefore included in
the operations of the Predecessor Company.
The balance sheet data as of January 30, 1999 in the following table reflect the
plan of reorganization for Barneys and certain of its affiliates and the
application of the principles of "fresh start" reporting in accordance with the
provisions of SOP 90-7. Accordingly, such financial information is not
comparable to our historical financial information prior to January 28, 1999.
12
PREDECESSOR COMPANY | SUCCESSOR COMPANY
-------------------------------------------------- |--------------------------------------------------
SIX SIX TWELVE | FISCAL FISCAL FISCAL FISCAL
MONTHS MONTHS MONTHS | YEAR YEAR YEAR YEAR
FISCAL YEAR ENDED ENDED ENDED | ENDED ENDED ENDED ENDED
ENDED AUGUST JANUARY 28, JANUARY 30, JANUARY 30, |JANUARY 29, FEBRUARY 3, FEBRUARY 2, FEBRUARY 1,
1, 1998 1998 1999(1,2) 1999(1,2,3) | 2000 2001 2002 2003
------------ ----------- ----------- ----------- |----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) |
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE | (DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AND OPERATING DATA AND RATIOS) | AND OPERATING DATA AND RATIOS)
STATEMENT OF OPERATIONS DATA: |
Net Sales.................... $ 345,935 $ 183,760 $ 182,615 $ 344,790 | $ 366,802 $ 404,321 $ 371,169 $ 383,363
Gross Profit................. 164,212 89,930 86,573 160,855 | 173,515 187,596 162,324 179,348
Selling, General and |
Administrative Expenses |
(including occupancy |
expenses)(4).............. 151,191 78,123 73,634 146,702 | 152,445 161,523 154,818 154,813
Depreciation and |
Amortization.............. 9,635 4,838 4,671 9,468 | 17,440 18,027 18,802 10,760
Other Income-- Net(5)........ (4,675) (3,208) (2,033) (3,500) | (4,355) (4,833) (6,957) (6,327)
Interest and Financing Costs, |
Net of Interest Income.... 11,967 5,578 4,758 11,147 | 12,968 11,723 10,393 11,036
Reorganization Costs......... 15,970 8,683 13,834 21,121 | -- -- -- --
Income Taxes................. 77 39 38 76 | 363 546 439 600
Extraordinary Item-- Gain on |
Debt Discharge............ -- -- (285,905) (285,905) | -- -- -- --
Net (Loss) Income............ (19,953) (4,123) 277,576 261,746 | (5,346) 610 (15,171) 8,466
Basic and Diluted (Loss) |
Earnings Per Share(6)..... | $ (0.42) $ 0.04 $ (1.09) $ 0.61
|
SELECTED OPERATING DATA: |
Comparable Store Net Sales |
Increase (Decrease)....... 9.3% 1.0% 1.0% 4.3% | 9.0% 9.7% (7.7)% 2.9%
Number of Stores............. 20 20 20 20 | 16 18 19 20
|
OTHER FINANCIAL DATA: |
EBITDA(7).................... $ 17,696 $ 15,015 $ 14,972 $ 17,653 | $ 25,425 $ 30,906 $ 14,463 $ 30,862
Net Cash (Used in) Provided |
by Operating Activities... (10,444) (2,009) (18,250) (26,685) | 15,005 23,042 14,011 14,141
Capital Expenditures......... 3,047 2,167 2,112 2,992 | 6,224 8,499 11,982 11,082
PREDECESSOR COMPANY | SUCCESSOR COMPANY
----------------------------- | --------------------------------------------------------------------
AS OF AS OF |
AUGUST 1, JANUARY 28, | JANUARY 30, JANUARY 29, FEBRUARY 3, FEBRUARY 2, FEBRUARY 1,
1998 1998 | 1999(2) 2000 2001 2002 2003
--------- ----------- | ----------- ----------- ----------- ----------- -----------
(UNAUDITED) |
(DOLLARS IN THOUSANDS) | (DOLLARS IN THOUSANDS)
BALANCE SHEET DATA: |
Cash and Cash Equivalents.... $ 3,478 $ 3,977 |$ 6,824 $ 10,333 $ 17,369 $ 10,835 $ 7,111
Fixed Assets at Cost, Less |
Accumulated Depreciation |
and Amortization.......... 114,639 115,837 | 51,356 48,974 48,170 50,141 50,463
Total Assets................. 217,043 212,637 | 343,954 324,482 323,859 299,823 308,448
Total Debt(8)................ 75,437 66,290 | 118,533 105,915 89,315 81,048 75,956
Redeemable Preferred Stock... -- -- | 500 500 500 500 500
Total Stockholders' |
(Deficit) Equity......... (467,634) (451,805) | 154,340 153,996 161,793 146,622 155,584
- ---------------------
(1) Effective January 1999, we changed our fiscal year to coincide with
the Saturday closest to the end of January.
(2) The statement of operations data presented above reflects the results
of operations for the Predecessor Company. The plan of reorganization
for Barneys and certain of its affiliates became effective on January
28, 1999 and the results of operations for the Successor Company for
the two-day period are immaterial and are not shown separately. The
balance sheet data presented as of January 30, 1999 is that of the
Successor Company.
13
(3) For comparison purposes, statement of operations data for the twelve
months ended January 30, 1999 (unaudited) was prepared using
management's internal financial statements for the six months ended
August 1, 1998 (unaudited) and the audited financial statements for the
six-month period ended January 30, 1999.
(4) Selling, General and Administrative Expenses for the fiscal year
ended February 3, 2001 include the benefit of a $1.5 million reversal
of a Predecessor Company liability favorably settled in that fiscal
year.
(5) Other Income -- Net primarily includes finance charge income generated
from our proprietary credit card operations. Other Income -- Net for the
fiscal year ended February 2, 2002 includes a non-recurring gain of $0.9
million related to insurance recoveries associated with the loss of one
of our stores due to the September 11 events and the benefit of a $0.9
million reversal of a Predecessor Company liability favorably settled in
that fiscal year. Other Income -- Net for the fiscal year ended February
1, 2003 includes a non-recurring gain of $0.5 million related to
additional insurance recoveries associated with the loss of one of our
stores in the prior fiscal year due to the September 11 events and the
benefit of a $0.4 million non-recurring gain from the sale of a
trademark.
(6) Basic and Diluted (Loss) Earnings Per Share of the Predecessor Company
has not been included because the computation would not provide
meaningful results, as the capital structure of the Successor Company is
not comparable to that of the Predecessor Company.
(7) EBITDA for each period represents the sum of (a) the respective amounts
of Net (Loss) Income set forth above for such period; plus (b) the
respective amounts of Interest and Financing Costs, Net of Interest
Income, Income Taxes and Depreciation and Amortization and (c) with
respect to the Predecessor Company only, the respective amounts of
Extraordinary Item -- Gain on Debt Discharge and Reorganization Costs.
The following table reconciles Net (Loss) Income to EBITDA:
PREDECESSOR COMPANY | SUCCESSOR COMPANY
--------------------------------------------------- | --------------------------------------------------
FISCAL SIX SIX TWELVE | FISCAL FISCAL FISCAL FISCAL
YEAR MONTHS MONTHS MONTHS | YEAR YEAR YEAR YEAR
YEAR ENDED ENDED ENDED | ENDED ENDED ENDED ENDED
ENDED AUGUST JANUARY 28, JANUARY 30, JANUARY 30, | JANUARY 29, FEBRUARY 3, FEBRUARY 2, FEBRUARY 1,
1, 1998 1998 1999* 1999* | 2000 2001 2002 2003
------------ ----------- ----------- ----------- | ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) |
(DOLLARS IN THOUSANDS) | (DOLLARS IN THOUSANDS)
Net (Loss) Income.......... $ (19,953) $ (4,123) $ 277,576 $ 261,746 | $ (5,346) $ 610 $ (15,171) $ 8,466
Interest and Financing |
Costs, Net of |
Interest Income......... 11,967 5,578 4,758 11,147 | 12,968 11,723 10,393 11,036
Income Taxes............... 77 39 38 76 | 363 546 439 600
Depreciation and |
Amortization............ 9,635 4,838 4,671 9,468 | 17,440 18,027 18,802 10,760
Extraordinary Item-- |
Gain on Debt Discharge.. -- -- (285,905) (285,905) | -- -- -- --
Reorganization Costs....... 15,970 8,683 13,834 21,121 | -- -- -- --
--------- --------- ----------- ----------- | --------- --------- ---------- ---------
EBITDA..................... $ 17,696 $ 15,015 $ 14,972 $ 17,653 | $ 25,425 $ 30,906 $ 14,463 $ 30,862
========= ========= =========== =========== | ========= ========= ========== =========
- ----------------
* See Note (2) above.
EBITDA is not an alternative measure of operating results or cash
flows from operations, as determined in accordance with accounting
principles generally accepted in the United States. We have included
EBITDA because we believe it is an indicative measure of our
operating performance and our ability to meet our debt service
requirements and is used by investors and analysts to evaluate
companies in our industry. EBITDA is also a measure utilized in a
covenant contained in our credit facility and in a covenant in the
indenture governing the 9% senior secured notes that limits our
ability to incur indebtedness.
14
As presented by us, EBITDA may not be comparable to similarly titled
measures reported by other companies. EBITDA should be considered in
addition to, not as a substitute for, operating income, net (loss)
income, cash flow and other measures of financial performance and
liquidity reported in accordance with accounting principles generally
accepted in the United States. In addition, a substantial portion of
our EBITDA must be dedicated to the payment of interest on our
indebtedness and to service other commitments, thereby reducing the
funds available to us for other purposes. Accordingly, EBITDA does
not represent an amount of funds that is available for management's
discretionary use. See "Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations."
(8) Predecessor Company balance sheet data does not include liabilities
subject to compromise set forth on the balance sheet of the
Predecessor Company.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
We are a leading upscale retailer of men's, women's and children's apparel and
accessories and items for the home. We provide our customers with a wide variety
of merchandise across a broad range of prices, including a diverse selection of
Barneys label merchandise.
Barneys consummated a plan of reorganization under Chapter 11 of the Bankruptcy
Code on January 28, 1999. Pursuant to the plan, Holdings was formed and all the
equity interests in Barney's, Inc. were transferred to Holdings, making
Barney's, Inc. a wholly-owned subsidiary of Holdings. Holdings has no
independent operations and its primary asset consists of shares of Barney's,
Inc. In connection with its acquisition of Barney's, Inc., Holdings made an
election under Section 338(g) of the Internal Revenue Code, as a result of which
Barney's, Inc. and its subsidiaries are generally treated, for federal income
tax purposes, as having sold their assets at the time the plan of reorganization
was consummated and thereafter as a new corporation which purchased the same
assets as of the beginning of the following day. Consequently, Barney's, Inc.
recognized a gain at the time of the deemed sale in an amount equal to the
difference between the fair market value of its assets and its collective tax
basis of the assets at the time of the sale. We used existing net operating loss
carryforwards to eliminate the taxable gain recognized as a result of the deemed
sale. Nevertheless, we were subject to alternative minimum tax. Furthermore, as
a result of the Section 338(g) election, Barney's, Inc. surrendered certain
remaining tax attributes, including all unutilized net operating loss
carryforwards, and surrendered certain tax credits. See note 6 to our audited
consolidated financial statements.
RECENT DEVELOPMENTS
On April 1, 2003, we completed an offering to sell 106,000 units at a price of
$850 per unit, for gross proceeds of $90.1 million. Each unit consisted of
$1,000 principal amount at maturity of 9% senior secured notes due April 1, 2008
of Barney's, Inc. and one warrant to purchase 3.412 shares of common stock of
Holdings at an exercise price of $0.01 per share. Net proceeds to us were
approximately $81.7 million after deducting commissions, financial advisory fees
and estimated expenses of the offering. We used the net proceeds to repay a
substantial portion of our outstanding indebtedness and deferred lease
obligations. Holdings and all of our domestic restricted subsidiaries have
guaranteed the 9% senior secured notes on a senior secured basis.
In connection with the offering, we entered into a new revolving credit facility
(the "Restated Credit Facility") on the terms of the existing credit facility as
amended on April 1, 2003. The Restated Credit Facility, which matures on July
15, 2006, is a $70.0 million revolving credit facility under which we may borrow
15
up to $66 million, which may be increased to $70.0 million with the consent of
the required lenders, subject to a borrowing base test.
The Restated Credit Facility and the related guarantees thereof are secured by a
first-priority lien on substantially all of our assets, other than real property
leaseholds. The 9% senior secured notes are guaranteed by Holdings and each of
the existing and future domestic restricted subsidiaries of Barney's, Inc. The
9% senior secured notes and the related guarantees are secured by a
second-priority lien on the same assets as secure the Restated Credit Facility.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements is based on the
application of significant accounting policies, many of which require us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses and related disclosure of contingent assets and
liabilities. See note 2 to our consolidated financial statements. On an ongoing
basis, we evaluate our estimates, including those related to goodwill (including
excess reorganization value and other intangible assets), bad debt, inventory,
taxes, contingencies and litigation. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions and conditions.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.
Excess Reorganization Value. Excess reorganization value represents the amount
of goodwill attributed to a company under accounting principles generally
accepted in the United States upon its emergence from Chapter 11, as adjusted
from time to time pursuant to SFAS No. 142, "Goodwill and Other Intangible
Assets," which was issued in June 2001. As of February 1, 2003, the amount of
excess reorganization value which we recognized in our financial statements was
$147.8 million, and our total stockholders' equity (including such excess
reorganization value) was $155.6 million.
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. This statement was effective for fiscal years
beginning after December 15, 2001. Accordingly, on February 3, 2002, we adopted
SFAS No. 142, and were required to analyze our excess reorganization value for
impairment issues during the first six months of the fiscal year ended February
1, 2003, and then on a periodic basis thereafter. In accordance with SFAS No.
142, in the fiscal year ended February 1, 2003, we completed the required
testing for impairment of our excess reorganization value as of both the
beginning and end of the fiscal year ended February 1, 2003. Based upon our
re-evaluation of the first step of the impairment test which screens for
potential impairment, we concluded that the fair value of the enterprise
exceeded its book value. Accordingly, we did not need to perform the second step
of the test, which measures the amount of the impairment. For the fiscal year
ended February 1, 2003, we did not record an impairment loss related to excess
reorganization value. However, our excess reorganization value was reduced by
approximately $1.7 million during the fiscal year ended February 1, 2003 due to
a reversal of a tax reserve resulting from the resolution of tax contingencies
existing at the time of our emergence from bankruptcy.
16
During the fiscal year ended February 2, 2002 (and prior fiscal years), when
SFAS No. 142 was not in effect, we amortized excess reorganization value over a
twenty-year period. If excess reorganization value had not been amortized during
the fiscal years ended February 3, 2001 and February 2, 2002, our adjusted net
income (loss) and basic and diluted income (loss) per share would have been as
follows:
FISCAL YEAR ENDED FISCAL YEAR ENDED
FEBRUARY 3, 2001 FEBRUARY 2, 2002
------------------------ ------------------------------
(dollars in thousands, except per share data)
BASIC AND BASIC AND
DILUTED DILUTED (LOSS)
NET INCOME NET (LOSS) INCOME PER
INCOME PER SHARE INCOME SHARE
------ --------- ------ -----
As Reported.............................................. $ 610 $ 0.04 $ (15,171) $ (1.09)
Amortization of Excess Reorganization Value.............. 8,741 0.64 8,791 0.63
---------- -------- ----------- ---------
As Adjusted.............................................. $ 9,351 $ 0.68 $ (6,380) $ (0.46)
========== ======== =========== =========
Bad Debt. We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. If our
estimates prove to be incorrect and our allowances are therefore inadequate, we
may be required to make additional allowances, which will reduce our net
earnings, if any.
Inventory. We write down our inventory for estimated obsolescence based upon
assumptions about future demand and market conditions. If our estimates prove to
be incorrect and our write-downs are therefore inadequate, we may be required to
make additional inventory write-downs, which will reduce our net earnings, if
any.
Deferred Taxes. The operating period after emergence from bankruptcy and the
cumulative losses incurred by us make the future utilization of deferred tax
assets uncertain. Accordingly, we record a valuation allowance to reduce our
deferred tax assets to the amount that is more likely than not to be realized.
In the event we were to determine that we would be able to realize our deferred
tax assets in the future in excess of the net recorded amount, an adjustment to
the deferred tax asset would increase income in the period such determination
was made.
Derivative Instruments and Hedging Activities. In June 1998, the Financial
Accounting Standards Board, or FASB, issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and for Hedging
Activities", or SFAS No. 133, which we adopted, as amended, on February 4, 2001.
SFAS No. 133, as amended, establishes accounting and reporting standards for
derivative instruments. Specifically, SFAS No. 133 requires an entity to
recognize all derivative instruments as either assets or liabilities in the
balance sheet and to measure those instruments at fair value. Additionally, the
fair value adjustments will affect either stockholders' equity or net income
depending on whether the derivative instrument qualifies as a hedge for
accounting purposes and, if so, the nature of the hedging activity.
RESULTS OF OPERATIONS
We returned to profitability in the fiscal year ended February 1, 2003, despite
a continued weak economy and retail sector. Our operating results for the fiscal
year ended February 2, 2002 reflect the impact of a weak economy exacerbated by
the events of September 11, 2001. The business disruption caused by the
terrorist attacks and the indirect impact the attacks had on consumer spending
and tourism were significant factors that adversely affected our operating
results for the fiscal year ended February 2, 2002.
The following table includes earnings before Interest and Financing Costs, Net
of Interest Income, Income Taxes and Depreciation and Amortization (or EBITDA)
as a percentage of Net Sales and also includes Net Income (Loss) as a percentage
17
of Net Sales. EBITDA is not an alternative measure of operating results or cash
flows from operations, as determined in accordance with accounting principles
generally accepted in the United States. We have included EBITDA because we
believe it is an indicative measure of our operating performance and our ability
to meet our debt service requirements and is used by investors and analysts to
evaluate companies in our industry. EBITDA is also a measure utilized in a
covenant contained in our credit facility and in a covenant in the indenture
governing the 9% senior secured notes that limits our ability to incur
indebtedness. As presented by us, EBITDA may not be comparable to similarly
titled measures reported by other companies. EBITDA should be considered in
addition to, not as a substitute for, operating income, net income (loss), cash
flow and other measures of financial performance and liquidity reported in
accordance with accounting principles generally accepted in the United States.
In addition, a substantial portion of our EBITDA must be dedicated to the
payment of interest on our indebtedness and to service other commitments,
thereby reducing the funds available to us for other purposes. Accordingly,
EBITDA does not represent an amount of funds that is available for management's
discretionary use.
FISCAL YEAR ENDED
-------------------------------------------
FEBRUARY 3, FEBRUARY 2, FEBRUARY 1,
2001 2002 2003
---- ---- ----
Net Sales........................................................................ 100.0% 100.0% 100.0%
Cost of Sales.................................................................... 53.6 56.3 53.2
------- ------ -------
Gross Profit..................................................................... 46.4 43.7 46.8
Selling, General and Administrative Expenses (Including Occupancy Expenses)(1)... 40.0 41.7 40.4
Other Income-- Net(2)............................................................ (1.2) (1.9) (1.7)
------- ------ -------
Earnings before Interest and Financing Costs, Net of Interest Income,
Income Taxes and Depreciation and Amortization (EBITDA)....................... 7.6 3.9 8.1
Interest and Financing Costs, Net of Interest Income, Income Taxes
and Depreciation and Amortization............................................. 7.4 8.0 5.9
------- ------ -------
Net Income (loss)................................................................ 0.2% (4.1)% 2.2%
======= ====== =======
- ----------
(1) Selling, General and Administrative Expenses for the fiscal year ended
February 3, 2001 include the benefit of a $1.5 million reversal of a
Predecessor Company liability favorably settled in that fiscal year.
Excluding such amount, the category as a percentage of Net Sales would
have been 40.3%.
(2) Other Income -- Net primarily includes finance charge income generated
from our proprietary credit card operations. Other Income -- Net for the
fiscal year ended February 2, 2002 also includes a non-recurring gain of
$0.9 million related to insurance recoveries associated with the loss of
one of our stores due to the September 11 events and the benefit of a
$0.9 million reversal of a Predecessor Company liability favorably
settled in that fiscal year. Excluding such amounts, the category as a
percentage of Net Sales would have been (1.4)%. Other Income -- Net for
the fiscal year ended February 1, 2003 also includes a non-recurring
gain of $0.5 million related to additional insurance recoveries
associated with the loss of one of our stores in the prior fiscal year
due to the September 11 events and the benefit of a $0.4 million
non-recurring gain from the sale of a trademark. Excluding these
amounts, the category as a percentage of Net Sales would have been
(1.4)%.
18
FISCAL YEAR ENDED FEBRUARY 1, 2003 COMPARED TO FISCAL YEAR ENDED
FEBRUARY 2, 2002
Net sales for the fiscal year ended February 1, 2003 were $383.4 million
compared to $371.2 million for the fiscal year ended February 2, 2002, an
increase of 3.3%. Comparable stores sales increased approximately 2.9% in the
fiscal year ended February 1, 2003. Net sales for the fiscal year ended February
1, 2003 benefited from increased full-price sales as compared to the fiscal year
ended February 2, 2002 and particularly benefited from strong third and fourth
quarter sales which had been adversely affected in the prior year by the
business disruption caused by the September 11 events. In addition, in the
fiscal year ended February 1, 2003 sales were positively impacted by, among
other things, continued maximization of retail selling space in our stores,
particularly in our flagship stores, and additional direct mail and print
marketing campaigns throughout the year.
Gross profit on sales increased 10.5% to $179.3 million in the fiscal year ended
February 1, 2003 from $162.3 million in the fiscal year ended February 2, 2002,
primarily due to the increase in sales discussed above and reduced markdowns and
inventory shrinkage. As a percentage of net sales, gross profit was 46.8% in the
fiscal year ended February 1, 2003, compared to 43.7% in the fiscal year ended
February 2, 2002.
Selling, general and administrative expenses, including occupancy expenses, were
$154.8 million in the fiscal year ended February 1, 2003, unchanged from the
fiscal year ended February 2, 2002. In the fiscal year ended February 1, 2003,
personnel and related costs decreased in the aggregate by approximately $0.5
million. This net decrease occurred as we offset higher personnel related costs,
particularly related to our bonus program (which was cancelled during the fiscal
year ended February 2, 2002 in the aftermath of the September 11 events), and
higher commission costs in line with higher sales, by approximately $0.8 million
of savings from a one-time concession related to a renegotiated collective
bargaining agreement and the annualized benefit of the personnel cost reduction
measures implemented in the fiscal year ended February 2, 2002. Various
additional expense reductions of approximately $1.9 million primarily reflect
the benefit of expense reduction initiatives implemented in the prior and
current fiscal year, including, among other things, re-bidding products and
services, and general reductions in consumption of products and services, as
well as a $0.4 million reduction in bad debt expense associated with our
proprietary credit card operations. The above expense reductions were in part
offset by higher variable operating costs commensurate with higher sales,
increased advertising costs of $0.5 million, increased professional fees of $0.2
million, increased insurance premiums of $0.6 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 opening one new CO-OP store in the period.
Other (income) expense, net, which principally includes finance charge income
generated by our proprietary credit card operations, decreased 9.1% in the
fiscal year ended February 1, 2003 to $6.3 million from $7.0 million in the
fiscal year ended February 2, 2002. Other income in the fiscal year ended
February 1, 2003 and the fiscal year ended February 2, 2002 also includes non
recurring gains of $0.5 million and $0.9 million, respectively, related to
insurance recoveries associated with the loss of one of our stores in the fiscal
year ended February 2, 2002 due to the September 11 events. In addition, other
income in the fiscal year ended February 1, 2003 includes a non-recurring gain
of $0.4 million related to the assignment of a subsidiary's interest in a
trademark unrelated to our business.
Depreciation and amortization expense decreased in the fiscal year ended
February 1, 2003 to $10.8 million from $18.8 million in the fiscal year ended
February 2, 2002. This decrease was due to SFAS No. 142, which first became
effective for the fiscal year ended February 1, 2003, and which eliminated the
mandatory amortization of excess reorganization value.
19
Interest expense, net increased 6.2% in the fiscal year ended February 1, 2003
to $11.0 million from $10.4 million a year ago, primarily as a result of our
write-off of approximately $600,000 in unamortized fees associated with the
replacement of our prior revolving credit facility in the second quarter of the
fiscal year ended February 1, 2003. Interest associated with borrowings under
our credit facility declined principally as a result of lower average
borrowings. Average borrowings under the credit facility for the fiscal year
ended February 1, 2003 and the fiscal year ended February 2, 2002 were $30.7
million and $35.2 million, respectively, and the effective interest rate on this
portion of our outstanding debt was 10.52% and 9.94%, respectively, in the
comparable periods.
Our net income for the fiscal year ended February 1, 2003 was $8.5 million
compared to a net loss of $15.2 million for the fiscal year ended February 2,
2002. Basic and diluted net income per common share was $0.61 per common share
for the fiscal year ended February 1, 2003 compared to a $1.09 loss per common
share for the fiscal year ended February 2, 2002.
FISCAL YEAR ENDED FEBRUARY 2, 2002 COMPARED TO FISCAL YEAR ENDED
FEBRUARY 3, 2001
Net sales for the fiscal year ended February 2, 2002 (including $7.8 million
related to new stores) were $371.2 million compared to $404.3 million for the
fiscal year ended February 3, 2001, a decrease of 8.2%. The fiscal year ended
February 3, 2001 included 53 weeks; after adjusting for the impact of the 53rd
week, sales decreased 6.9%. Comparable store sales decreased approximately 7.7%
in the fiscal year ended February 2, 2002 principally due to reduced consumer
spending in response to a weak economy which became more magnified after the
September 11 events.
Gross profit on sales decreased 13.5% to $162.3 million in the fiscal year ended
February 2, 2002 from $187.6 million in the fiscal year ended February 3, 2001,
primarily due to the decline in sales volume. As a percentage of net sales,
gross profit was 43.7% in the fiscal year ended February 2, 2002 compared to
46.4% in the fiscal year ended February 3, 2001. The decline from the fiscal
year ended February 3, 2001 principally relates to the effect of increased
markdowns to both drive sales and cleanse the inventory pipeline in light of
weak consumer demand.
Selling, general and administrative expenses, including occupancy expenses,
decreased 4.2% in the fiscal year ended February 2, 2002 to $154.8 million from
$161.5 million in the fiscal year ended February 3, 2001. Exclusive of certain
non-recurring items, selling, general and administrative expenses declined
approximately $9.4 million. Personnel expense reductions of approximately $6.8
million were driven by position eliminations; reductions in and eliminations of
certain employee benefits, including the annual bonus program; lower commission
expenses commensurate with reduced sales; reduced hours for many employees; and
temporary pay cuts for senior executives. In addition to reductions in other
expenses commensurate with the sales decline, most notably an approximate $0.6
million reduction in third-party credit card fees, we were able to further
reduce other expenses in the fiscal year ended February 2, 2002 by, among other
things, re-bidding products and services including insurance, packaging supplies
(also impacted by the lower sales volume), and maintenance contracts; and by
general reductions in consumption of products and services including office
supply and telephone usage, training, and travel (also impacted by the September
11 events). Expense reductions in these other areas aggregated in excess of $2.0
million. Overall, expense reductions were offset by additional costs to operate
four new outlet stores during the year, as well as higher operating costs
attributable principally to increased real estate taxes, common area maintenance
charges and utilities. Incremental costs in the latter areas approximated $1.0
million. As a percentage of net sales, selling, general and administrative
expenses increased to 41.7% in the fiscal year ended February 2, 2002 from 40.0%
in the fiscal year ended February 3, 2001, reflecting a reduction in the
leveraging of expenses, principally due to the dramatic sales decline in the
period.
20
Other (income) expense, net increased 43.9% in the fiscal year ended February 2,
2002 to $7.0 million from $4.8 million in the fiscal year ended February 3,
2001. This increase was principally driven by a non-recurring gain of $0.9
million related to insurance recoveries associated with the loss of one of our
stores due to the September 11 events and the benefit of a $0.9 million reversal
of a Predecessor Company liability favorably settled in the fiscal year ended
February 2, 2002. Excluding such amounts the increase was approximately 6.7%.
Depreciation and amortization expense increased 4.3% in the fiscal year ended
February 2, 2002 to $18.8 million from $18.0 million in the fiscal year ended
February 3, 2001. This increase was primarily due to higher depreciation on new
assets placed in service.
Interest expense, net decreased 11.3% in the fiscal year ended February 2, 2002
to $10.4 million from $11.7 million in the fiscal year ended February 3, 2001.
Interest associated with borrowings under our credit facility declined
principally as a result of lower average borrowings. Average borrowings under
the credit facility for the fiscal year ended February 2, 2002 and the fiscal
year ended February 3, 2001 were $35.2 million and $44.4 million, respectively,
and the effective interest rate on this portion of our outstanding debt was
9.94% and 11.90%, respectively, in the comparable periods.
Our net loss for the fiscal year ended February 2, 2002 was $15.2 million
compared to net income of $0.6 million in the fiscal year ended February 3,
2001. Basic and diluted net loss per common share for the fiscal year ended
February 2, 2002 was $1.09 per common share compared to net income of $0.04 per
common share for the fiscal year ended February 3, 2001.
LIQUIDITY AND CAPITAL RESOURCES
CASH PROVIDED BY OPERATIONS AND WORKING CAPITAL
For the reporting periods below, Net Cash Provided by Operating Activities, on a
consolidated basis, was as follows:
FISCAL YEAR ENDED
--------------------------------------------
FEBRUARY 3, FEBRUARY 2, FEBRUARY 1,
2001 2002 2003
---- ---- ----
(dollars in thousands)
Net Income (Loss)............................................ $ 610 $ (15,171) $ 8,466
Depreciation and Amortization................................ 19,107 19,994 12,020
Other Non-Cash Charges....................................... 2,999 2,667 2,825
Changes in Current Assets and Liabilities.................... 326 6,521 (9,170)
----------- ------------- -----------
Net Cash Provided by Operating Activities.................... $ 23,042 $ 14,011 $ 14,141
=========== ============= ===========
Our consolidated working capital position at each of the dates shown below was
as follows:
FEBRUARY 3, FEBRUARY 2, FEBRUARY 1,
2001 2002 2003
---- ---- ----
(dollars in thousands)
Working Capital................................................ $ 23,519 $ 19,328 $ 44,202
For the reporting periods below, Net Cash Used in Financing Activities was as
follows:
21
FEBRUARY 3, FEBRUARY 2, FEBRUARY 1,
2001 2002 2003
---- ---- ----
(dollars in thousands)
Net Cash Used in Financing Activities........................... $ (9,750) $ (9,176) $ (6,983)
Net cash used in financing activities for the fiscal year ended February 3, 2001
includes proceeds of approximately $7.2 million from the exercise of stock
options and warrants principally by Bay Harbour and Whippoorwill. Exclusive of
such amounts, the significant decline in the net repayment of debt for the
fiscal year ended February 2, 2002 is directly attributable to the decline in
operating results and the resulting reduction in cash flow during such year.
CAPITAL EXPENDITURES
We have principally funded our capital expenditures through a combination of
borrowings under our prior credit facilities and the use of cash received in
connection with the exercise of options and warrants in the fiscal years ended
February 3, 2001, as described above, and January 29, 2000.
During the fiscal year ended February 1, 2003, we incurred capital expenditures
of approximately $11.1 million. Of the total capital expenditures, $5.8 million
was spent on leasehold improvements, $3.2 million was spent on furniture,
fixtures and equipment and $2.1 million was spent on management information
systems, including new point-of-sale registers. During the fiscal year ended
February 2, 2002, we incurred capital expenditures of approximately $12.3
million, without giving effect to approximately $0.4 million of offsetting
construction allowances which we received from our landlords. Of the total
capital expenditures, $6.9 million was spent on leasehold improvements, $2.8
million was spent on furniture, fixtures and equipment and $2.6 million was
spent on management information systems, including new point of sale registers.
During the fiscal year ended February 3, 2001, we incurred approximately $8.5
million of capital expenditures, net of approximately $0.2 million of offsetting
construction allowances which we received from our landlords, of which $6.1
million was spent on leasehold improvements, $1.6 million was spent on
furniture, fixtures and equipment and $0.8 million was spent on management
information systems. A significant portion of the amounts spent in each fiscal
year pertained to building out and reconfiguring existing retail space and/or
new store openings.
The amount of capital expenditures that we make in any year depends on a number
of factors, including general economic conditions. We currently estimate that
capital expenditures for the fiscal year ending January 31, 2004 will be
approximately $12.4 million, consisting of approximately $8.6 million for
leasehold improvements, approximately $3.0 million for furniture, fixtures and
equipment, and approximately $0.8 million for management information systems.
CREDIT FACILITY
On July 15, 2002, we entered into a $105.0 million credit facility, which
replaced our prior credit facility. At February 1, 2003, we had approximately
$29.8 million of availability under the credit facility and approximately $18.1
million and $28.3 million of loans and letters of credit, respectively,
outstanding. Contemporaneously with the consummation of the offering discussed
under "Recent Developments" above, we repaid the term loan outstanding under our
credit facility and entered into the Restated Credit Facility on the terms of
the existing credit facility as amended on April 1, 2003, to provide for a $70.0
million revolving credit facility pursuant to which we may borrow up to $66.0
million, with a $40.0 million sub-limit for the issuance of letters of credit,
subject to a borrowing base test. With the consent of the required lenders under
the Restated Credit Facility, the maximum borrowing amount may be increased to
up to $70.0 million. After giving effect to the offering as if it occurred on
February 1, 2003 and the restatement of our credit facility, we would have had
approximately $6.2 million and $28.3 million of short-term borrowings and
letters of credit, respectively, outstanding, and approximately $26.6 million of
22
availability under the Restated Credit Facility as of February 1, 2003. In
addition, upon consummation of the offering we wrote off approximately $0.4
million in deferred financing costs relating to the credit facility. A summary
of the financial covenants and other terms of the Restated Credit Facility are
as follows:
Our Restated Credit Facility is secured by a first-priority lien on
substantially all of our assets, other than real property leaseholds. The assets
that secure our Restated Credit Facility include, but are not limited to, our
accounts receivable, inventories, general intangibles (including software),
equipment and fixtures, equity interests of subsidiaries owned by us,
intellectual property and cash. In addition, each borrower under the Restated
Credit Facility is required to cross-guarantee each of the other borrowers'
obligations under the Restated Credit Facility, and the assets of each borrower
secure such borrower's cross guarantee.
Availability under the Restated Credit Facility is calculated as a percentage of
eligible inventory and receivables, including finished inventory covered by
undrawn documentary letters of credit and Barneys private label credit card
receivables, less certain reserves.
Interest rates on borrowings under the Restated Credit Facility are either the
"base rate," as defined in the Restated Credit Facility, plus 1.00% or LIBOR
plus 2.50%, subject to quarterly adjustment after August 2, 2004. The Restated
Credit Facility also provides for a fee of 2.0% per annum on the maximum amount
available to be drawn under each outstanding letter of credit and a tiered
unused commitment fee with a weighted average of approximately 0.45% on the
unused portion of the credit facility.
The Restated Credit Facility contains financial covenants relating to net worth,
earnings (specifically, earnings before interest, taxes, depreciation and
amortization, or "EBITDA"), capital expenditures and minimum excess borrowing
base availability as outlined below. With the exception of the capital
expenditures covenant, with which compliance is measured on an annual basis, and
the minimum excess borrowing base availability covenant, with which we must be
in compliance at all times, the covenants discussed below are required to be
satisfied on a quarterly basis.
o Minimum consolidated net worth -- As of the last day of
every fiscal quarter, starting with the first fiscal
quarter of 2002, consolidated net worth must not be less
than specified minimum amounts. The minimum amount is
$132.0 million at the end of the fiscal year ended
February 1, 2003; $136.0 million at the end of the fiscal
year ending January 31, 2004; $147.0 million at the end of
the fiscal year ending January 29, 2005; and $147.0
million at the end of the fiscal year ending January 28,
2006.
o Minimum consolidated EBITDA -- As of the last day of every
fiscal quarter (for defined trailing periods), starting
with the first quarter of the fiscal year ended February
1, 2003, EBITDA must not be less than certain minimum
amounts, measured on a quarterly basis. The minimum amount
at the end of the fiscal year ended February 1, 2003 is
$16.0 million; $25.0 million at the end of the fiscal year
ending January 31, 2004; $29.0 million at the end of the
fiscal year ending January 29, 2005; and $30.0 million at
the end of the fiscal year ending January 28, 2006.
o Capital expenditures -- Our total capital expenditures for
the fiscal year ended February 1, 2003 were limited to
$5.0 million. For the fiscal year ending January 31, 2004
and thereafter, the limitation on capital expenditures is
$10.0 million per fiscal year, subject to increase if
certain conditions are met.
23
o Minimum excess borrowing base availability-- We are
required to maintain minimum excess borrowing base
availability of $8.0 million at all times.
The Restated Credit Facility matures on July 15, 2006.
Based on our current level of operations, we believe our cash flow from
operations, available cash and available borrowings under our Restated Credit
Facility will be adequate to meet our liquidity needs for at least the next 12
months, including scheduled payments of interest on the 9% senior secured notes
issued in the offering and payments of interest on borrowings under the Restated
Credit Facility. Our ability to make payments on and to refinance our
indebtedness and to fund planned capital expenditures will depend on our ability
to generate cash in the future. This, to a certain extent, is subject to general
economic, financial, competitive, regulatory and other factors that are beyond
our control. See "Forward-Looking Statements -- Due to events that are beyond
our control, we may not be able to generate sufficient cash flow to make
interest payments on our indebtedness" below.
CONTRACTUAL OBLIGATIONS AND OTHER COMMERCIAL COMMITMENTS
After giving effect to the offering described above under "Recent Developments",
our material obligations under firm contractual arrangements, including
commitments for future payments under long-term debt arrangements and operating
lease arrangements, as of February 1, 2003, are summarized below and are more
fully disclosed in notes 4, 5, and 11 of our consolidated financial statements.
Total Debt does not include commitments under unexpired letters of credit under
our credit facility. As of February 1, 2003, we had approximately $28.3 million
of such letters of credit outstanding.
PAYMENTS DUE BY PERIOD
- ------------------------------------------------ --------------------------------------------------------------------------
LESS THAN AFTER 5
CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR 2-3 YEARS 4-5 YEARS YEARS
----------------------- ----- ------ --------- --------- -----
(DOLLARS IN THOUSANDS)
Total Debt...................................... $ 112,177 $ 6,177 $ -- $ -- $ 106,000
Operating Leases................................ 389,890 25,460 47,803 42,731 273,896
----------- ----------- ---------- ---------- -----------
Total Contractual Obligations................... $ 502,067 $ 31,637 $ 47,803 $ 42,731 $ 379,896
=========== =========== ========== ========== ===========
As reflected in the February 1, 2003 balance sheet and inclusive of current
amounts due, we had approximately $18.1 million of loans outstanding under our
credit facility, consisting of approximately $10.5 million of borrowings under
the revolving portion of the facility and $7.6 million in term loan borrowings.
Effective February 2, 2003, we made a principal repayment on the term loan of
approximately $0.4 million. Additionally, at February 1, 2003, long-term debt
also included amounts outstanding under our $22.5 million subordinated note and
approximately $35.8 million of obligations under our 11 1/2 % promissory notes,
all of which were scheduled to mature on January 28, 2004.
We used the net proceeds from the offering discussed above to repay a
substantial portion of our outstanding indebtedness, including our obligations
pursuant to our $22.5 million subordinated note, approximately $35.8 million due
under our 11 1/2 % promissory notes, the remaining portion of term loan
borrowings and a portion of the revolver loans outstanding under our credit
facility and to pay a substantial portion of the deferred lease obligations
discussed below. After giving effect to the offering as if it occurred on
February 1, 2003 and the restatement of our credit facility, we would have had
$88.2 million of long-term debt (representing the issuance of the 9% senior
secured notes) and approximately $6.2 million and $28.3 million of short-term
borrowings and letters of credit, respectively, outstanding under the Restated
Credit Facility as of February 1, 2003. After giving effect to the offering, all
of our long-term debt will mature in approximately five years and the Restated
Credit Facility will expire on July 15, 2006.
24
We lease real property and equipment under agreements that expire at various
dates. After giving effect to the offering, as of February 1, 2003, minimum rent
payments at contractual rates over the next five years aggregated approximately
$389.9 million. In accordance with SFAS No. 13 "Accounting for Leases," we
account for the rental payments due under our operating leases on a
straight-line basis, and record an annual rent expense for each lease by
dividing the total rent payments due during the term of the lease by the number
of years in the term of the respective lease.
We used approximately $12.0 million of proceeds from the offering to pay a
portion of an aggregate $15.0 million of deferred rent payments that we were
required to make on January 28, 2004 pursuant to the terms of the leases for our
flagship stores. This payment resulted in a reduction of our annual cash rent
obligations for the fiscal year ending January 31, 2004. Accordingly, included
in our operating lease obligations set forth in the "Less than 1 year" column in
the table above is the remaining $3.0 million deferred rent payment that we are
required to make on January 28, 2004 pursuant to the terms of the lease for one
of our flagship stores.
Pursuant to an agreement between Holdings and Howard Socol, our Chairman,
President and Chief Executive Officer, Mr. Socol receives a base salary of $1.0
million per year and annual performance bonuses. For the fiscal year ended
February 2, 2002, Mr. Socol was guaranteed and paid a $1.0 million performance
bonus, and for the annual period ended January 31, 2003, he is entitled to a
performance bonus of up to 125% of his base salary. In addition, for the period
commencing on February 1, 2003 and ending on January 31, 2005, Mr. Socol is
entitled to an annual performance bonus based on the amount by which Holdings
exceeds certain financial target amounts, which bonus is not limited to 125% of
his base salary.
OTHER COMMERCIAL COMMITMENTS
At February 1, 2003, our primary commercial commitments included commitments of
approximately $18.0 million under unexpired letters of credit under our credit
facility related to purchases of merchandise primarily from foreign vendors. In
addition, as collateral for performance on certain leases and as credit
guarantees, Barney's, Inc. is contingently liable under standby letters of
credit under our credit facility in the amount of $10.3 million. These standby
letters of credit generally mature within one year and generally contain
provisions for annual renewals. At February 1, 2003, we had total letters of
credit outstanding under our credit facility of approximately $28.3 million,
consisting of the commitments described in this paragraph which include a $3.5
million letter of credit issued to Citibank, N.A. as security for letters of
credit previously issued by us under our prior credit facility.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 145. 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," known as 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 the provisions of SFAS No. 145, we have elected to adopt this
statement early. Accordingly, in connection with the early extinguishment of a
prior revolving credit facility, the unamortized fees of approximately $0.6
million related to such facility were written off and are included in interest
expense.
SFAS No. 146. 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
25
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.
EITF No. 02-16. In 2002, the FASB Emerging Issues Task Force ("EITF") issued
EITF No. 02-16, "Accounting by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor." EITF 02-16 addresses the accounting by a
reseller for consideration received from a vendor. A consensus was reached that
cash consideration is presumed to be a reduction in the price of a vendor's
product that should be recognized as a reduction of cost of sales. However, this
presumption can be overcome when the consideration received is for the
reimbursement of specific, identifiable and incremental costs of the reseller.
In that event, the consideration, subject to a threshold, is recognized as a
reduction in selling, general and administrative expenses. The provisions of
EITF 02-16 are effective for all new arrangements, or modifications to existing
arrangements, entered into after December 31, 2002. We are currently evaluating
the potential impact of adopting the provisions of EITF 02-16 on our
consolidated financial position and results of operations.
INFLATION
During recent years, inflation has not had a significant impact on our sales or
profitability.
FORWARD-LOOKING STATEMENTS
Certain statements discussed under the captions "Item 1 - Business," "Item 3 -
Legal Proceedings," "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this Form 10-K constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other important factors that could cause the
actual results, performance or achievements of results to differ materially from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Such risks, uncertainties and other important
factors include, among others:
PURCHASES OF THE MERCHANDISE WE SELL ARE GENERALLY DISCRETIONARY AND ARE
THEREFORE PARTICULARLY SUSCEPTIBLE TO ECONOMIC SLOWDOWNS. IF CURRENT ECONOMIC
CONDITIONS DO NOT IMPROVE, OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF
OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED.
The merchandise we sell generally consists of luxury retail products, the
purchase of which is generally discretionary for consumers. Consumers are
generally more willing to make discretionary purchases, including purchases of
fashion products, during periods in which favorable economic conditions prevail.
Currently, there is a general slowdown in the United States economy, which has
adversely affected consumer confidence and spending habits, as well as our
sales.
The outlook for the United States economy is highly uncertain and is directly
affected by global political factors that are beyond our control. Any escalation
of military action involving the United States could cause increased volatility
in financial markets, further adversely affecting consumer confidence and
spending habits. If current economic conditions do not improve, or if they are
made worse by military action involving the United States or by any other
circumstances, our business, financial condition and results of operations could
be materially adversely affected.
26
OUR BUSINESS IS HIGHLY SENSITIVE TO EVENTS AND CONDITIONS IN THE NEW YORK
CITY AREA.
Our New York City stores generate, in the aggregate, approximately 56% of our
annual revenues. Our business will be materially adversely affected if we
experience a significant decrease in revenues from these stores. Changes in the
demographic or retail environment of our New York City stores, particularly our
Madison Avenue flagship store, could result in a significant decrease in our
revenues. In addition, our New York City store sales are highly sensitive to
events and conditions in the New York City area, and any terrorist event,
prolonged period of extreme or unseasonable weather conditions or sustained
downturn in economic conditions in the New York City area could cause our New
York City stores to suffer a decrease in sales and materially adversely affect
our business, financial condition and results of operations.
THE EVENTS OF SEPTEMBER 11, 2001 CONTINUE TO HAVE A NEGATIVE IMPACT ON OUR
BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The business disruption caused by the terrorist attacks of September 11, 2001
(including the destruction of one of our New York City stores) and the indirect
impact the attacks have had on consumer spending and tourism had, and continue
to have, an adverse effect on our business. These attacks were a significant
factor that adversely affected our operating results for the fiscal year ended
February 2, 2002. Following the events of September 11, 2001, we experienced a
significant decline in sales from the prior fiscal year. Any similar terrorist
attacks could have a similar material adverse effect on our business, financial
condition and results of operations.
THE SUCCESS OF OUR BUSINESS DEPENDS ON OUR ABILITY TO RESPOND TO CONSTANTLY
CHANGING FASHION TRENDS AND CONSUMER DEMANDS.
Our success depends in large part on our ability to identify fashion trends as
well as to anticipate, gauge and react to changing consumer demands in a timely
manner. The products we sell must appeal to consumers whose preferences cannot
be predicted with certainty and are subject to rapid change. Consequently, we
depend in part upon the continuing favorable market response to the creative
efforts of our purchasing and marketing divisions, as well as the design team
for our Barneys label merchandise, to anticipate trends and fashions that will
appeal to our consumer base. Any failure on our part to anticipate, identify and
respond effectively to changing consumer demands and fashion trends will
adversely affect our sales.
IF WE DO NOT ACCURATELY PREDICT OUR SALES AND THEY ARE SIGNIFICANTLY LOWER THAN
WE EXPECT, OUR PROFITABILITY MAY BE MATERIALLY ADVERSELY AFFECTED.
We make decisions regarding the purchase and production of our merchandise well
in advance of the season in which it will be sold, particularly for the November
and December holiday season. We incur significant additional expenses leading up
to the months of November and December in anticipation of higher sales in those
periods, including for acquiring additional inventory, advertising and hiring
additional employees. If our sales during any season, particularly our peak
seasons, are significantly lower than we expect for any reason, we may not be
able to adjust our expenses in a timely fashion and we may be left with a
substantial amount of unsold inventory. If that occurs, we may be forced to rely
on markdowns or promotional sales to dispose of excess inventory. This could
have a material adverse effect on our business, financial condition and results
of operations. At the same time, if we fail to purchase a sufficient quantity of
merchandise, we may not have an adequate supply of products to meet consumer
demand. This may cause us to lose sales.
27
WE ARE DEPENDENT ON OUR RELATIONSHIPS WITH CERTAIN DESIGNERS.
Our relationships with established and emerging designers are a key factor in
our position as a pre-eminent retailer of high-fashion merchandise and a
substantial portion of our revenues is attributable to our sales of designer
merchandise. For example, in the fiscal year ended February 1, 2003, our two top
designers (including all brands owned by such designers) accounted for
approximately 11% and 4%, respectively, of our total retail sales, and our ten
top designers (including all brands owned by such designers) accounted for
approximately 28% of our total retail sales. Hence, our success is in part
dependent on our relationships with our designers. Most of these relationships
are not subject to contractual arrangements, and we have no legal assurance that
these relationships will continue. Moreover, all of the brands of our top
designers are sold by competitor retailers, and nine of our top ten designers
(including both of our top two designers) also have their own dedicated retail
stores. If one or more of our top designers were to cease providing us with
adequate supplies of merchandise or, conversely, were to increase sales of
merchandise through its own stores or to the stores of our competitors, our
business, financial condition and results of operations could be materially
adversely affected. In addition, any decline in the popularity of any of our
designer brands could also have such an effect upon us.
OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS MAY BE ADVERSELY
AFFECTED IF THE MANUFACTURERS OF OUR DESIGNER OR BARNEYS LABEL MERCHANDISE
EXPERIENCE OPERATIONAL DIFFICULTIES.
Our continued supply of designer and Barneys label merchandise is subject to a
number of risks, including:
o operational issues at the manufacturers' facilities or in
the transportation infrastructure;
o a work stoppage or strike by employees of manufacturers or
transporters;
o the failure of manufacturers to provide merchandise of the
requisite quality; and
o the failure of essential manufacturing or transportation
equipment.
If one or more of our more important designers or manufacturers were to
interrupt or cease providing us with merchandise on a timely basis, due to one
of the circumstances described above or otherwise, our business, financial
condition and results of operations could be materially adversely affected.
In addition, certain of our suppliers rely on sole or limited sources of
materials for their merchandise. Their inability to obtain sufficient quantities
of these materials or to develop alternative sources if required may prevent
them from continuing to supply the merchandise in the quantities and at the
quality levels and times we require, or at all. This could result in delays,
increased costs or our inability to maintain our existing level of operations,
which could have a material adverse effect on our business, financial condition
and results of operations.
CONDITIONS IN EUROPE COULD ADVERSELY AFFECT OUR SUPPLY OF MERCHANDISE, WHICH
COULD DECREASE OUR SALES.
A significant portion of our merchandise is manufactured in Europe, particularly
Italy. As a result, political instability or other events resulting in the
disruption of trade from Europe (particularly Italy) or the imposition of
additional regulations relating to imports from Europe could cause significant
delays or interruptions in the supply of our merchandise and have a material
adverse effect on our business. There can be no assurance that we could replace
the merchandise currently sourced in Europe with merchandise produced elsewhere
28
without a material adverse effect on our business, financial condition and
results of operations.
OUR BUSINESS COULD SUFFER IF WE DO NOT RETAIN OUR KEY PERSONNEL.
Our future success depends, in large part, on the continued service of our key
executive officers and managers who possess significant expertise and knowledge
of our business, customers and markets. Further, we do not maintain key person
insurance on any of our executive officers or managers and our executive
officers and managers (other than our Chief Executive Officer) are not bound by
employment contracts. Any loss or interruption of the services of these
individuals could significantly reduce our ability to effectively manage our
operations because there can be no assurance that we would be able to find
appropriate replacements for our key executive officers and managers should the
need arise.
OUR BUSINESS IS SUSCEPTIBLE TO EXTREME AND/OR UNSEASONABLE WEATHER CONDITIONS.
Extreme weather conditions in the areas in which our stores are located could
have a material adverse effect on our business, financial condition or results
of operations. For example, heavy snowfall or other extreme weather conditions
over a prolonged period might make it difficult for our customers to travel to
our stores. Our business is also susceptible to unseasonable weather conditions.
For example, extended periods of unseasonably warm temperatures during the
winter season or cool weather during the summer season could render a portion of
our inventory incompatible with such unseasonable conditions. These prolonged
unseasonable weather conditions could adversely affect our business, financial
condition and results of operations.
OUR BUSINESS IS HIGHLY COMPETITIVE.
The retail industry, in general, and the upscale retail apparel business, in
particular, are intensely competitive. Competition is strong for customers,
sales and vendor resources. In addition, during periods of unfavorable economic
conditions, we also compete with other discretionary goods in general, and
consumers may curtail purchases of certain types of discretionary purchases,
such as fashion merchandise, and instead opt to limit their discretionary
spending to other types of discretionary purchases.
We compete for customers principally on the basis of quality, fashion,
assortment and presentation of merchandise, customer service, marketing and, at
times, store ambiance. In our luxury retail business, merchandise assortment is
a critical competitive factor, and retail stores compete for exclusive,
preferred and limited distribution arrangements with key designers. In addition,
we face increasing competition from our designer resources, which have
established or expanded their market presence with their own dedicated stores.
Some of the retailers with which we compete have substantially greater financial
resources than we have and may have other competitive advantages over us.
THERE CAN BE NO ASSURANCE THAT FUTURE STORE OPENINGS WILL BE SUCCESSFUL.
We expect to open approximately ten additional CO-OP stores over the next five
years, including two stores in 2003. There can be no assurance that these
stores, or any other stores that we might open in the future, will be successful
or that our overall gross profit will increase as a result of opening these
stores. Our failure to predict accurately the demographic or retail environment
at any future store location could have a material adverse effect on our
business, financial condition and results of operations.
From time to time we receive and review proposals with respect to the opening of
additional flagship and regional stores. We do not have any current plan or
intention to open any such stores, but we might consider doing so in the event
29
that a compelling opportunity, consistent with our financial resources and
business objectives, were to come to our attention. If we were to open a new
flagship or regional store, we would have to incur significant expenses to
acquire a facility (either through construction or long-term lease), make the
necessary store improvements and acquire inventory. There can be no assurance
that any such investment would be profitable or otherwise successful.
IF WE ARE UNABLE TO ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS, OR IF WE ARE
ACCUSED OF INFRINGING ON A THIRD PARTY'S INTELLECTUAL PROPERTY RIGHTS, OUR NET
INCOME MAY DECLINE.
We currently own our trademarks and service marks, including the "Barneys New
York" and "Barneys" marks. Our trademarks and service marks are registered in
the United States and in certain countries in Asia. The laws of certain foreign
countries do not protect proprietary rights to the same extent as do the laws of
the United States. Moreover, we are unable to predict the effect that any future
foreign or domestic intellectual property legislation or regulation may have on
our existing or future business. The loss or reduction of any of our significant
proprietary rights could have a material adverse effect on our business,
financial condition and results of operations.
Additionally, third parties may assert claims against us alleging infringement,
misappropriation or other violations of their trademark or other proprietary
rights, whether or not such claims have merit. Such claims may be time consuming
and expensive to defend and could result in our being required to cease using
the trademark or other rights and selling the allegedly infringing products.
This might have a significant impact on our sales and cause us to incur
significant litigation costs and expenses.
BECAUSE A SMALL NUMBER OF STOCKHOLDERS OWN A SIGNIFICANT PERCENTAGE OF OUR
COMMON STOCK, THOSE STOCKHOLDERS CONTROL ALL MAJOR CORPORATE DECISIONS.
Bay Harbour Management L.C. and Whippoorwill Associates, Inc., collectively,
beneficially own approximately 77.7% of the outstanding shares of common stock
of Holdings. As a result, Bay Harbour and Whippoorwill are in a position to
control the outcome of actions requiring stockholder approval, including the
election and removal of directors. Bay Harbour and Whippoorwill have entered
into a stockholders agreement with respect to their ownership and voting of the
capital stock of Holdings. This concentration of ownership could also facilitate
or hinder a negotiated change of control of Holdings.
OUR CREDIT CARD OPERATIONS AND THOSE OF THIRD PARTIES COULD BE AFFECTED BY
REGULATIONS THAT ALTER THE USE OR LIMIT THE AVAILABILITY OF CREDIT TO OUR
CUSTOMERS.
Sales of our merchandise are facilitated by the use of credit cards, including
the use of our proprietary credit card. Our proprietary credit card operations
also generate revenue from fees related to extending credit. Our credit card
operations are affected by numerous federal and state laws that impose
disclosure and other requirements upon the origination, servicing and
enforcement of credit accounts and limitations on the maximum amount of finance
charges that may be charged by a credit provider. In addition to our proprietary
credit card, credit to our customers is provided primarily through third parties
such as American Express(R), Visa(R), MasterCard(R) and Japanese Credit
Bureau(R). Any change in the regulation of credit that would materially limit
the availability of credit to our customer base could adversely affect our
business, financial condition and results of operations. In addition, changes in
credit card use, payment patterns, and default rates may result from a variety
of economic, legal, social, and other factors that we cannot control or predict
with certainty.
30
WE ARE SUBJECT TO NUMEROUS OTHER REGULATIONS THAT COULD AFFECT OUR OPERATIONS.
We are subject to certain customs, truth-in-advertising and other laws,
including consumer protection regulations and zoning and occupancy ordinances,
that regulate retailers generally and/or govern the importation, promotion and
sale of merchandise and the operation of retail stores and warehouse facilities.
Although we undertake to monitor changes in these laws, if these laws change
without our knowledge, or are violated by importers, designers, manufacturers or
distributors, we could experience delays in shipments and receipt of goods or be
subject to fines or other penalties under the controlling regulations, any of
which could have a material adverse effect on our business, financial condition
and results of operations.
OUR BUSINESS IS EXPOSED TO FOREIGN CURRENCY FLUCTUATIONS.
A substantial portion of our inventory purchases is denominated in foreign
currencies. Changes in currency exchange rates may also affect the relative
prices at which we and our competitors sell products in the same market.
Although we hedge some exposures to changes in foreign currency exchange rates
arising in the ordinary course of business, there can be no assurance that
foreign currency fluctuations will not have a material adverse effect on our
business, financial condition and results of operations.
WE HAVE A SUBSTANTIAL AMOUNT OF EXCESS REORGANIZATION VALUE, WHICH IS AN
INTANGIBLE ASSET AND MUST BE TESTED ANNUALLY FOR IMPAIRMENT. IF WE ARE REQUIRED
TO REDUCE OUR EXCESS REORGANIZATION VALUE, WE WILL TREAT THE REDUCTION AS AN
EXPENSE. THIS WOULD REDUCE OUR STOCKHOLDERS' EQUITY BY AN AMOUNT EQUAL TO THE
AMOUNT OF THE REDUCTION.
As of February 1, 2003, the amount of excess reorganization value which we
recognized in our financial statements was $147.8 million, and our total
stockholders' equity was $155.6 million. Pursuant to SFAS No. 142, "Goodwill and
Other Intangible Assets," we must test excess reorganization value annually for
impairment. If we are required to reduce the amount of excess reorganization
value as a result of our annual impairment tests, we will treat the reduction as
an expense. This would reduce our stockholders' equity by an amount equal to the
amount of the reduction. Furthermore, inasmuch as excess reorganization value is
an intangible asset, there can be no assurance that all or any portion thereof
could be realized in the event of a sale or liquidation of our company,
regardless of the value at which it is reported in our financial statements.
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH.
We have a substantial amount of indebtedness. At February 1, 2003, after giving
effect to our issuance of the units described above under "Recent Developments"
and our use of proceeds of the offering, the amount of our outstanding
indebtedness is approximately $94.3 million, which could have important
consequences. For example, it could:
o make it more difficult for us to satisfy our obligations
with respect to our 9% senior secured notes;
o limit our ability to obtain additional financing, if
needed, for working capital, capital expenditures and
general corporate purposes;
o increase our vulnerability to adverse economic and
industry conditions;
31
o require us to dedicate a substantial portion of our cash
flow from operations to payments on our indebtedness,
thereby reducing funds available for working capital,
capital expenditures, expansions and other purposes;
o limit our flexibility in planning for, or reacting to,
changes in our business and/or our industry; and
o place us at a competitive disadvantage compared to our
competitors that have less indebtedness.
The terms of the indenture governing our outstanding 9% senior secured notes
allow us to incur additional indebtedness, subject to certain limitations. Our
Restated Credit Facility permits borrowings under such credit facility of up to
$66.0 million, with a $40.0 million sub-limit for the issuance of letters of
credit, subject to a borrowing base test. Any additional indebtedness incurred
as permitted under the indenture could increase the risks associated with our
substantial leverage.
THE INDENTURE AND OUR CREDIT FACILITY IMPOSE SIGNIFICANT OPERATING AND FINANCIAL
RESTRICTIONS ON US.
The indenture and our credit facility impose significant operating and financial
restrictions on us. These restrictions limit our ability and the ability of our
restricted subsidiaries, among other things, to:
o incur additional indebtedness or issue disqualified
capital stock;
o pay dividends or make other restricted payments;
o issue capital stock of certain subsidiaries;
o enter into transactions with affiliates;
o create or incur liens;
o transfer or sell certain assets;
o incur dividend or other payment restrictions affecting
certain subsidiaries;
o make capital expenditures; and
o consummate a merger, consolidation or sale of all or
substantially all of our or our subsidiaries' assets.
Our ability to comply with these covenants may be affected by events beyond our
control, and any material deviations from our forecasts could require us to seek
waivers or amendments of covenants or 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 us.
In addition to the covenants listed above, our credit facility also limits our
ability to enter into sale and leaseback transactions and requires us to
maintain compliance with specified financial covenants relating to net worth,
earnings, capital expenditures and minimum excess borrowing base availability.
32
A breach of any of the covenants contained in our credit facility, including our
inability to comply with the required financial covenants, could result in an
event of default, which would allow the lenders under our credit facility to
discontinue lending and/or to declare all borrowings outstanding to be due and
payable. We have granted the lenders under our credit facility a first-priority
security interest in substantially all of our assets, other than real property
leaseholds. In the event of any default under our credit facility, the lenders
could elect to foreclose upon the assets pledged to them and to require us to
apply all of our available cash to repay our borrowings. If the maturity of the
indebtedness outstanding under our credit facility or the notes were to be
accelerated, our assets might not be sufficient to repay our indebtedness in
full.
DUE TO EVENTS THAT ARE BEYOND OUR CONTROL, WE MAY NOT BE ABLE TO GENERATE
SUFFICIENT CASH FLOW TO MAKE INTEREST PAYMENTS ON OUR INDEBTEDNESS.
Our ability to make payments on and to refinance our indebtedness, including the
9% senior secured notes, and to fund planned capital expenditures will depend on
our ability to generate cash in the future. This, to a certain extent, is
subject to general economic, financial, competitive, legislative, regulatory and
other factors that are beyond our control. There can be no assurance, however,
that our business will generate sufficient cash flow from operations or that
future borrowings will be available to us under our credit facility in an amount
sufficient to enable us to pay our indebtedness or to fund our other liquidity
needs. A significant reduction in operating cash flow would likely increase the
need for alternative sources of liquidity. If we are unable to generate
sufficient cash flow to make payments on the 9% senior secured notes or our
other indebtedness, we will have to pursue one or more alternatives, such as
reducing or delaying capital expenditures, refinancing the notes or such other
indebtedness, selling assets or raising equity. There can be no assurance that
any of these alternatives could be accomplished on satisfactory terms or that
they would yield sufficient funds to repay the 9% senior secured notes and our
other indebtedness.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to our operations result primarily from changes in
interest rates and foreign exchange rates. To address some of these risks we
enter into various hedging transactions as described below. We do not use
financial instruments for trading purposes and are not a party to any leveraged
derivative transactions.
Foreign Currency Risk. We purchase outside of the United States approximately
40% to 50% of the goods which we sell, and we generally pay for such goods in
foreign currencies (particularly the Euro, but also the British pound). We
periodically enter into foreign exchange forward contracts and option contracts
in order to hedge some of our foreign exchange exposure. Absent our hedging
transactions, a uniform 10% weakening as of February 3, 2002 in the value of the
dollar relative to the currencies in which our purchases are denominated would
have resulted in an $8.1 million decrease in gross profit for the fiscal year
ended February 1, 2003. After factoring in the effect of our hedging
transactions, a uniform 10% weakening as of February 3, 2002 in the value of the
dollar relative to the currencies in which our purchases are denominated would
have resulted in a $1.6 million decrease in gross profit for the fiscal year
ended February 1, 2003. Absent our hedging transactions, a uniform 10% weakening
as of February 4, 2001 in the value of the dollar relative to the currencies in
which our purchases are denominated would have resulted in an $8.3 million
decrease in gross profit for the fiscal year ended February 2, 2002. After
factoring in the effect of our hedging transactions, a uniform 10% weakening as
of February 4, 2001 in the value of the dollar relative to the currencies in
which our purchases are denominated would have resulted in a $1.7 million
decrease in gross profit for the fiscal year ended February 2, 2002. Absent our
hedging transactions, a uniform 10% weakening as of January 30, 2000 in the
33
value of the dollar relative to the currencies in which our purchases are
denominated would have resulted in an $8.7 million decrease in gross profit for
the fiscal year ended February 3, 2001. After factoring in the effect of our
hedging transactions, a uniform 10% weakening as of January 30, 2000 in the
value of the dollar relative to the currencies in which our purchases are
denominated would have resulted in a $1.7 million decrease in gross profit for
the fiscal year ended February 3, 2001.
This calculation assumes that each exchange rate would change in the same
direction relative to the United States dollar. In addition to the direct effect
of changes in exchange rates, which is a changed dollar value of the resulting
purchases, changes in exchange rates also affect the volume of purchases or the
foreign currency purchase price as competitors' prices become more or less
attractive.
Interest Rate Risk. Our earnings are affected by changes in short-term interest
rates as a result of our revolving credit facility. If short-term interest rates
averaged 2% more in the fiscal year ended February 1, 2003, our interest expense
would have increased, and net income before taxes would have decreased by $0.6
million. If short-term interest rates averaged 2% more in the fiscal year ended
February 2, 2002, our interest expense would have increased, and net loss before
taxes would have increased by $0.7 million. If short-term interest rates
averaged 2% more in the fiscal year ended February 3, 2001, our interest expense
would have increased, and income before taxes would have decreased by $0.9
million. In the event of a change of such magnitude, management would likely
take actions to mitigate its exposure to the change. However, due to uncertainty
of the specific actions that would be taken and their possible effects, the
sensitivity analysis assumes no changes in our financial structure.
34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Supplementary Data listed below are included in the
report on the page indicated.
Index
Report of Independent Auditors......................................................................... F-1
Consolidated Balance Sheets as of February 1, 2003 and February 2, 2002................................ F-2
Consolidated Statements of Operations for each of the three fiscal years in the period ended
February 1, 2003.................................................................................... F-3
Consolidated Statements of Changes in Stockholders' Equity for each of the three fiscal years
in the period ended February 1, 2003................................................................ F-4
Consolidated Statements of Cash Flows for each of the three fiscal years in the period ended
February 1, 2003.................................................................................... F-5
Notes to Consolidated Financial Statements............................................................. F-6
Schedule I - Condensed Financial Information of Registrant............................................. F-33
Schedule II - Valuation and Qualifying Accounts........................................................ F-36
All other schedules are omitted either because they are not applicable or the
required information is disclosed in the consolidated financial statements or
notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
35
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information to be set forth in the section entitled
"Election of Directors" in the definitive proxy statement involving the election
of directors in connection with the Annual Meeting of Stockholders of Holdings
to be held on June 20, 2003 (the "Proxy Statement"), which section (other than
the Compensation Committee Report and the Audit Committee Report) is
incorporated herein by reference. The Proxy Statement will be filed with the
Securities and Exchange Commission not later than 120 days after February 1,
2003, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended.
The information required with respect to executive officers is set forth in Part
I of this report under the heading "Executive Officers of the Registrant,"
pursuant to Instruction 3 to paragraph (b) of Item 401 of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information to be set forth in the section entitled
"Election of Directors" in the Proxy Statement, which section (other than the
Compensation Committee Report and the Audit Committee Report) is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Reference is made to the information to be set forth in the section entitled
"Voting Rights and Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement, which section is incorporated herein by
reference.
36
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table provides information on securities that were authorized for
issuance under equity compensation plans as of February 1, 2003:
NUMBER OF SECURITIES REMAINING
NUMBER OF SECURITIES TO BE AVAILABLE FOR FUTURE ISSUANCE
ISSUED UPON EXERCISE OF WEIGHTED-AVERAGE EXERCISE PRICE UNDER EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, WARRANTS OF OUTSTANDING OPTIONS, (EXCLUDING SECURITIES REFLECTED
PLAN CATEGORY AND RIGHTS WARRANTS AND RIGHTS IN COLUMN (A))
(A) (B) (C)
- --------------------------------- ----------------------------- ------------------------------ -------------------------------
EQUITY COMPENSATION PLANS
APPROVED BY SECURITY HOLDERS:
Employee Stock Option Plan 1,357,234 $ 9.80 392,766
EQUITY COMPENSATION PLANS NOT
APPROVED BY SECURITY HOLDERS:
Stock Option Plan for
Non-Employee Directors(1) 270,000 9.47 30,000
Restricted Stock Award
Agreement with Howard Socol(2) 200,000 N/A N/A
----------------------------- ------------------------------ ------------------------------
TOTAL: 1,827,234 9.74 422,766
============================= ============================== ==============================
- ----------------------------------
(1) In the fiscal year ended January 29, 2000, we adopted a stock option
plan that provides for the granting of non-qualified stock options to
non-employee members of Holdings' board of directors. Each "eligible director,"
as defined in the plan, is granted an option to purchase 5,000 shares of
Holdings common stock upon his initial appointment to the board of directors of
Holdings, which is exercisable at the fair market value of Holdings common stock
on the date of grant. At the discretion of the board of directors of Holdings,
additional options may be granted to eligible directors on the date of the
annual meeting of Holdings' stockholders that takes place after the initial
grant, provided the grantee is an eligible director in office immediately
following such annual meeting. The options granted under this plan are
exercisable at the fair market value, as determined by Holdings' board of
directors, and expire ten years after the date of grant. These options are
exercisable:
o as to one-half of the total number of shares subject to
the grant on the date of grant; and
o as to the remaining shares subject to the grant on the
first anniversary of the date of grant.
(2) Pursuant to an amendment to Mr. Socol's employment agreement, on
January 10, 2003, Holdings agreed to make a restricted stock award of 200,000
shares of Holdings common stock to Mr. Socol on February 2, 2003. Pursuant to
the restricted stock award agreement between Holdings and Mr. Socol, until the
shares vest, the shares will be held in escrow and Mr. Socol may not transfer
the shares. In addition, until the shares vest, the shares are subject to a
right of repurchase by Holdings upon Mr. Socol's resignation without good reason
or termination by Holdings for cause. 100,000 of the shares vest on January 31,
2004 and the other 100,000 shares vest on January 31, 2005, provided that Mr.
37
Socol does not terminate his employment before those dates. In addition, upon a
change of control of Holdings before Mr. Socol's service terminates, if Holdings
terminates Mr. Socol's employment without cause or if Mr. Socol terminates his
employment for good reason, all 200,000 shares will fully vest. In addition, a
portion of the restricted shares will vest upon Mr. Socol's death or disability.
As a restricted stock award, no amounts are payable by Mr. Socol upon the
vesting of such shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information to be set forth in the section entitled
"Election of Directors" in the Proxy Statement, which section (other than the
Compensation Committee Report and the Audit Committee Report) is incorporated
herein by reference.
ITEM 14. CONTROLS AND PROCEDURES
(a) Holdings maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in Holdings' 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
Holdings' management, including its principal executive officer and principal
financial officer, as appropriate, to allow timely decisions regarding required
disclosure. Holdings' 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 annual report on Form 10-K,
Holdings has carried out an evaluation, under the supervision and with the
participation of Holdings' management, including Holdings' principal executive
officer and Holdings' principal financial officer, of the effectiveness of the
design and operation of Holdings' disclosure controls and procedures. Based on
such evaluation, Holdings' principal executive officer and principal financial
officer concluded that Holdings' disclosure controls and procedures are
effective.
(b) There have been no significant changes in Holdings' 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
annual report on Form 10-K.
38
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) - The response to this portion of Item 15 is submitted as a
separate section of this report entitled "List of
Financial Statements and Financial Statement Schedules."
(3) Exhibits:
EXHIBIT NAME OF EXHIBIT
- ------- ---------------
2.1 Second Amended Joint Plan of Reorganization for Barney's, Inc.
and certain of its affiliates proposed by Whippoorwill
Associates, Inc. ("Whippoorwill"), Bay Harbour Management L.C.
("Bay Harbour") and the Official Committee of Unsecured
Creditors dated November 13, 1998 (the "Plan of
Reorganization") (1)
2.2 Supplement to the Plan of Reorganization dated December 8,
1998 (1)
2.3 Second Supplement to the Plan of Reorganization dated December
16, 1998 (1)
3.1 Certificate of Incorporation of Barneys New York, Inc.
("Holdings"), filed with the Secretary of State of the State
of Delaware on November 16, 1998 (1)
3.2 Certificate of Designation for Series A Preferred Stock of
Holdings filed with the Secretary of State of the State of
Delaware on December 24, 1998 (1)
3.3 By-laws of Holdings (1)
4.1 Specimen of Holdings' Common Stock Certificate (1)
4.2 Indenture, dated as of April 1, 2003, among Barney's, Inc.,
Holdings, Barneys America, Inc., Barneys (CA) Lease Corp.,
Barneys (NY) Lease Corp., Basco All-American Sportswear Corp.,
BNY Licensing Corp., Barneys America (Chicago) Lease Corp. and
Wilmington Trust Company (2)
4.3(a) Form of Note (included in Exhibit 4.2 hereto)
4.3(b) Form of Note Guarantee (included in Exhibit 4.2 hereto)
4.4 Registration Rights Agreement, dated April 1, 2003, by and
among Holdings, Barney's, Inc., Barneys America, Inc., Barneys
(CA) Lease Corp., Barneys (NY) Lease Corp., Basco All-American
Sportswear Corp., BNY Licensing Corp., Barneys America
(Chicago) Lease Corp. and Jefferies & Company, Inc. (2)
4.5 Warrant Agreement, dated April 1, 2003, between Holdings and
Wilmington Trust Company (2)
4.6 Form of Warrant Certificate (included in Exhibit 4.5 hereto)
4.7 Equity Registration Rights Agreement, dated April 1, 2003, by
and between Holdings and Jefferies & Company, Inc. (2)
4.8 Security Agreement, dated April 1, 2003, by and among
Barney's, Inc., Barneys America, Inc., Barneys (CA) Lease
Corp., Barneys (NY) Lease Corp., Basco All-American Sportswear
Corp., BNY Licensing Corp., Barneys America (Chicago) Lease
Corp. and Wilmington Trust Company (2)
4.9 Security Agreement, dated April 1, 2003, by and between
Holdings and Wilmington Trust Company (2)
39
EXHIBIT NAME OF EXHIBIT
- ------- ---------------
4.10 Pledge Agreement, dated as of April 1, 2003, by and among
Barney's, Inc., Barneys America, Inc., Barneys (CA) Lease
Corp., Barneys (NY) Lease Corp., Basco All-American Sportswear
Corp., BNY Licensing Corp., Barneys America (Chicago) Lease
Corp. and Wilmington Trust Company (2)
4.11 Pledge Agreement, dated as of April 1, 2003, by and among
Holdings and Wilmington Trust Company (2)
4.12 Intellectual Property Security Agreement, dated as of April 1,
2003, by Barney's, Inc., Barneys America, Inc., Barneys (CA)
Lease Corp., Barneys (NY) Lease Corp., Basco All-American
Sportswear Corp., BNY Licensing Corp., Barneys America
(Chicago) Lease Corp. and Wilmington Trust Company (2)
10.1 Credit Agreement, among Barney's, 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, Citicorp USA,
Inc. ("CUSA"), as Administrative Agent for such lenders, and
General Electric Capital Corporation, as Documentation Agent
(the "1999 Credit Agreement"), dated as of January 28, 1999
(1)
10.2 First Amendment to the 1999 Credit Agreement dated as of March
23, 1999 (1)
10.3 Second Amendment to the 1999 Credit Agreement dated as of June
2, 1999 (3)
10.4 Third Amendment to the 1999 Credit Agreement dated as of
November 30, 1999 (4)
10.5 Fourth Amendment to the 1999 Credit Agreement dated as of
March 17, 2000 (6)
10.6 Fifth Amendment to the 1999 Credit Agreement dated as of March
30, 2001 (9)
10.7 Sixth Amendment to the 1999 Credit Agreement dated as of
December 12, 2001 (8)
10.8 Guarantee by Holdings in favor of CUSA as the Administrative
Agent dated as of January 28, 1999 (1)
10.9 Security Agreement by Holdings in favor of CUSA as the
Administrative Agent dated as of January 28, 1999 (1)
10.10 Pledge Agreement by Holdings in favor of CUSA as the
Administrative Agent dated as of January 28, 1999 (1)
10.11 Pledge Agreement by Barney's, Inc. in favor of CUSA as the
Administrative Agent dated as of January 28, 1999 (1)
10.12 Security Agreement by Barney's, Inc. in favor of CUSA as the
Administrative Agent dated as of January 28, 1999 (1)
10.13 Trademark Security Agreement by Barney's, Inc. and BNY
Licensing Corp. in favor of CUSA as the Administrative Agent
dated as of January 28, 1999 (1)
10.14 Cash Collateral Pledge Agreement by Barney's, Inc. in favor of
CUSA as the Administrative Agent dated as of January 28, 1999
(1)
40
EXHIBIT NAME OF EXHIBIT
- ------- ---------------
10.15 Pledge Agreement by Barneys America, Inc. in favor of CUSA as
the Administrative Agent dated as of January 28, 1999 (1)
10.16 Security Agreement by Barneys America, Inc. in favor of CUSA
as the Administrative Agent dated as of January 28, 1999 (1)
10.17 Security Agreement by PFP Fashions Inc. in favor of CUSA as
the Administrative Agent dated as of January 28, 1999 (1)
10.18 Security Agreement by Barneys (CA) Lease Corp. in favor of
CUSA as the Administrative Agent dated as of January 28, 1999
(1)
10.19 Security Agreement by Barneys (NY) Lease Corp. in favor of
CUSA as the Administrative Agent dated as of January 28, 1999
(1)
10.20 Security Agreement by Basco All-American Sportswear Corp. in
favor of CUSA as the Administrative Agent dated as of January
28, 1999 (1)
10.21 Security Agreement by Barneys America (Chicago) Lease Corp. in
favor of CUSA as the Administrative Agent dated as of January
28, 1999 (1)
10.22 Security Agreement by BNY Licensing Corp. in favor of CUSA as
Administrative Agent dated as of January 28, 1999 (1)
10.23 Subordinated Note issued by Barney's, Inc. and payable to
Isetan of America, Inc. ("Isetan") dated January 28, 1999 (the
"Isetan Note") (1)
10.24 Guarantee by Holdings of the Isetan Note dated January 28,
1999 (1)
10.25 Subordinated Note issued by Barney's, Inc. and payable to
Bi-Equipment Lessors LLC, dated January 28, 1999 (the
"Bi-Equipment Lessors Note") (1)
10.26 Guarantee by Holdings of the Bi-Equipment Lessors Note dated
as of January 28, 1999 (1)
10.27 Security Agreement by Barney's, Inc. in favor of Bi-Equipment
Lessors LLC dated as of January 28, 1999 (1)
10.28 License Agreement among Barney's, Inc., BNY Licensing Corp.
and Barneys Japan Co. Ltd. dated as of January 28, 1999 (1)
10.29 Stock Option Plan for Non-Employee Directors effective as of
March 11, 1999 (1)*
10.30 Employee Stock Option Plan (7)*
10.31 Registration Rights Agreement by and among Holdings and the
Holders party thereto dated as of January 28, 1999 (the
"Registration Rights Agreement") (1)
10.32 Amendment No.1 dated as of February 1, 2000, to the
Registration Rights Agreement (4)
10.33 Letter Agreement, dated January 28, 1999, among Bay Harbour,
Whippoorwill, Isetan and Holdings (5)
41
EXHIBIT NAME OF EXHIBIT
- ------- ---------------
10.34 Employment Agreement between Holdings and Howard Socol
effective as of January 8, 2001 (9)*
10.35 First Amendment to Employment Agreement, effective as of
January 10, 2003, between Holdings and Howard Socol (2)*
10.36 Registration Rights Agreement between Holdings and Howard
Socol dated as of January 8, 2001 (9)
10.37 Restricted Stock Award Agreement, dated February 2, 2003,
between Holdings and Howard Socol (2)*
10.38 Option Award Agreement, dated January 8, 2001, between
Holdings and Howard Socol (2)*
10.39 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 "2002 Credit Agreement") (10)
10.40 Guaranty by Holdings in favor of GE Capital, dated as of July
15, 2002 (10)
10.41 Security Agreement by the Borrowers under the 2002 Credit
Agreement, in favor of GE Capital, dated as of July 15, 2002
(10)
10.42 Pledge Agreement by the Borrowers under the 2002 Credit
Agreement, in favor of GE Capital, dated as of July 15, 2002
(10)
10.43 Security Agreement by Holdings in favor of GE Capital, dated
as of July 15, 2002 (10)
10.44 Pledge Agreement by Holdings in favor of GE Capital, dated as
of July 15, 2002 (10)
10.45 Intellectual Property Security Agreement by the Borrowers
under the 2002 Credit Agreement, in favor of GE Capital, dated
as of July 15, 2002 (10)
10.46 First Amendment, dated as of April 1, 2003, to Security
Agreement by the Borrowers under the 2002 Credit Agreement, in
favor of GE Capital (2)
10.47 Purchase Agreement, dated March 26, 2003, by and among
Holdings, Barney's, Inc., Barneys America, Inc., Barneys (CA)
Lease Corp., Barneys (NY) Lease Corp., Basco All-American
Sportswear Corp., BNY Licensing Corp., Barneys America
(Chicago) Lease Corp. and Jefferies & Company, Inc. (2)
42
EXHIBIT NAME OF EXHIBIT
- ------- ---------------
10.48 Restated Credit Agreement, dated as of April 1, 2003, 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 institutions party thereto from
time to time as lenders, and General Electric Capital
Corporation, for itself, as Lender, and as the Administrative
Agent for such lenders (2)
10.49 Omnibus Amendment and Confirmation of Collateral Documents,
dated as of April 1, 2003, by and among Holdings, 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.,
and General Electric Capital Corporation, as administrative
agent for the lenders (2)
10.50 First Amendment to License Agreement, dated as of February 5,
2003, by and between Barney's, Inc., BNY Licensing Corp. and
Barneys Japan Co., Ltd. (2)
21 Subsidiaries of the Registrant (2)
23 Consent of Independent Auditors (2)
99.1 Certification of Chief Executive Officer required by 18 U.S.C.
Section 1350 (2)
99.2 Certification of Chief Financial Officer required by 18 U.S.C.
Section 1350 (2)
(1) Incorporated by reference to Holdings' Registration Statement on Form
10 (the "Form 10") filed with the Securities and Exchange Commission
(the "Commission") on June 1, 1999.
(2) Filed herewith.
(3) Incorporated by reference to Holdings' Quarterly Report on Form 10-Q
for the quarter ended May 1, 1999.
(4) Incorporated by reference to Amendment No. 2 to the Form 10 filed
with the Commission on February 15, 2000.
(5) Incorporated by reference to Amendment No. 1 to the Form 10 filed
with the Commission on October 13, 1999.
(6) Incorporated by reference to Amendment No. 3 to the Form 10 filed
with the Commission on April 21, 2000.
(7) Incorporated by reference to Exhibit A to the Proxy Statement of
Holdings for its annual meeting of Stockholders held on June 27,
2000.
(8) Incorporated by reference to Holdings' Quarterly Report on Form 10-Q
for the quarter ended November 3, 2001.
(9) Incorporated by reference to Holdings' Annual Report on Form 10-K for
the year ended February 3, 2001.
(10) Incorporated by reference to Holdings' Quarterly Report on Form 10-Q
for the quarter ended August 3, 2002.
* Management contracts or compensatory plans or arrangements.
(b) Reports on Form 8-K - Holdings did not file any reports on Form 8-K
during the quarter ended February 1, 2003.
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BARNEYS NEW YORK, INC.
(Registrant)
By: /s/ Steven M. Feldman
-------------------------------------
Name: Steven M. Feldman
Title: Executive Vice President and
Chief Financial Officer
Date: May 1, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
Name Date
/s/ Shelley F. Greenhaus May 1, 2003
- ------------------------------------------
Shelley F. Greenhaus
Director
/s/ John Halpern May 1, 2003
- ------------------------------------------
John Halpern
Director
/s/ Yasuo Okamoto May 1, 2003
- ------------------------------------------
Yasuo Okamoto
Director
/s/ Allen I. Questrom May 1, 2003
- ------------------------------------------
Allen I. Questrom
Director
/s/ Howard Socol May 1, 2003
- ------------------------------------------
Howard Socol
Chairman, President, Chief
Executive Officer and Director
/s/ Carl Spielvogel May 1, 2003
- ------------------------------------------
Carl Spielvogel
Director
/s/ David A. Strumwasser May 1, 2003
- ------------------------------------------
David A. Strumwasser
Director
44
/s/ Robert J. Tarr, Jr. May 1, 2003
- ------------------------------------------
Robert J. Tarr, Jr.
Director
/s/ Douglas P. Teitelbaum May 1, 2003
- ------------------------------------------
Douglas P. Teitelbaum
Director
/s/ Steven A. Van Dyke May 1, 2003
- ------------------------------------------
Steven A. Van Dyke
Director
/s/ Steven M. Feldman May 1, 2003
- ------------------------------------------
Steven M. Feldman
Executive Vice President and
Chief Financial Officer (Principal
Financial and Accounting Officer)
45
CERTIFICATIONS
I, Howard Socol, certify that:
1. I have reviewed this annual report on Form 10-K of Barneys
New York, Inc.;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual 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
annual report;
4. The registrant's other certifying officer 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 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 annual 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
annual report (the "Evaluation Date"); and
c. Presented in this annual 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 officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the
equivalent functions):
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
46
6. The registrant's other certifying officer and I have
indicated in this annual report whether 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: May 1, 2003
/s/ Howard Socol
------------------------------------------------
Howard Socol
Chairman, President and Chief Executive Officer
47
I, Steven M. Feldman, certify that:
1. I have reviewed this annual report on Form 10-K of Barneys
New York, Inc.;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual 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
annual report;
4. The registrant's other certifying officer 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 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 annual 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
annual report (the "Evaluation Date"); and
c. Presented in this annual 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 officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the
equivalent functions):
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
48
6. The registrant's other certifying officer and I have
indicated in this annual report whether 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: May 1, 2003
/s/ Steven M. Feldman
----------------------------------------------------
Steven M. Feldman
Executive Vice President and Chief Financial Officer
49
Annual Report on Form 10-K
Item 15(a) (1) and (2), (c) and (d)
List of Financial Statements and Financial Statement Schedules
Certain Exhibits
Financial Statement Schedules
Year-ended February 1, 2003
Barneys New York, Inc.
New York, New York
Form 10-K--Item 15(a) (1) and (2)
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
List of Financial Statements and Financial Statement Schedules
The following consolidated financial statements of Barneys New York, Inc. and
subsidiaries, included in the Annual Report on Form 10-K of the Company for the
year ended February 1, 2003, are incorporated by reference in Item 8:
Consolidated Balance Sheets--February 1, 2003 and February 2, 2002
Consolidated Statements of Operations--
Year ended February 1, 2003, February 2, 2002 and February 3, 2001
Consolidated Statements of Changes in Stockholders' Equity--
Year ended February 1, 2003, February 2, 2002 and February 3, 2001
Consolidated Statements of Cash Flows
Year ended February 1, 2003, February 2, 2002 and February 3, 2001
Notes to Consolidated Financial Statements
The following consolidated financial statement schedules of Barneys New York,
Inc. and subsidiaries, are included in Item 15(d):
Schedule I Condensed Financial Information of Registrant
Schedule II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
of Barneys New York, Inc.
We have audited the accompanying consolidated balance sheets of
Barneys New York, Inc. and subsidiaries as of February 1, 2003 and February 2,
2002, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended February 1, 2003. Our audits also included the financial statement
schedules listed in the index at Item 15(a). These financial statements and
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedules based on
our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Barneys
New York, Inc. and subsidiaries as of February 1, 2003 and February 2, 2002, and
the consolidated results of their operations and their cash flows for each of
the three fiscal years in the period ended February 1, 2003, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements,
effective February 3, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets."
ERNST & YOUNG LLP
New York, New York
March 21, 2003, except for the first paragraph of Note 4 and
Note 11, as to which the date is April 1, 2003
F-1
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 1, FEBRUARY 2,
2003 2002
---- ----
(IN THOUSANDS, EXCEPT
SHARE DATA)
ASSETS
Current assets:
Cash and cash equivalents................................................................... $ 7,111 $ 10,835
Restricted cash............................................................................. -- 200
Receivables, less allowances of $4,225 and $4,488........................................... 24,957 26,689
Inventories................................................................................. 62,252 52,449
Other current assets........................................................................ 14,563 8,616
------------- -------------
Total current assets................................................................... 108,883 98,789
Fixed assets at cost, less accumulated depreciation and amortization of $37,290 and $26,530.... 50,463 50,141
Excess reorganization value, less accumulated amortization of $26,372.......................... 147,764 149,439
Other assets................................................................................... 1,338 1,454
------------- -------------
$ 308,448 $ 299,823
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt........................................................ $ 425 $ --
Revolving credit facility................................................................... 10,480 23,581
Accounts payable............................................................................ 20,747 23,634
Accrued expenses............................................................................ 33,029 32,246
------------- -------------
Total current liabilities.............................................................. 64,681 79,461
Long-term debt................................................................................. 65,051 57,467
Other long-term liabilities.................................................................... 22,632 15,773
Series A Redeemable Preferred Stock-- Aggregate liquidation preference $2,000.................. 500 500
Commitments and contingencies
Stockholders' 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
Other comprehensive income..................................................................... 496 --
Retained deficit............................................................................... (11,441) (19,907)
------------- -------------
Total stockholders' equity............................................................. 155,584 146,622
------------- -------------
$ 308,448 $ 299,823
============= =============
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
F-2
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED
-----------------------------------------------
FEBRUARY 1, FEBRUARY 2, FEBRUARY 3,
2003 2002 2001
---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales................................................................ $ 383,363 $ 371,169 $ 404,321
Cost of sales............................................................ 204,015 208,845 216,725
------------- ------------- -------------
Gross profit.................................................. 179,348 162,324 187,596
Expenses:
Selling, general and administrative (including occupancy expense of
$32,421, $31,367, and $29,120)...................................... 154,813 154,818 161,523
Depreciation and amortization...................................... 10,760 18,802 18,027
Other-- net........................................................ (6,327) (6,957) (4,833)
------------- ------------- -------------
Income (loss) before interest and financing costs, and income taxes...... 20,102 (4,339) 12,879
Interest and financing costs, net of interest income..................... 11,036 10,393 11,723
------------- ------------- -------------
Income (loss) before income taxes........................................ 9,066 (14,732) 1,156
Income taxes............................................................. 600 439 546
------------- ------------- -------------
Net income (loss)........................................................ $ 8,466 $ (15,171) $ 610
============= ============= =============
Basic and diluted earnings (loss) per share.............................. $ 0.61 $ (1.09) $ 0.04
============= ============= =============
Weighted average number of common shares................................. 13,903 13,903 13,627
============= ============= =============
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
F-3
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK
ISSUED ADDITIONAL OTHER
------------------- PAID-IN RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT INCOME TOTAL
------ ------ ------- ------- ------ -----
(IN THOUSANDS)
Balances at January 29, 2000................... 13,076 $ 131 $ 159,211 $ (5,346) $ -- $ 153,996
Net income for Fiscal 2000..................... -- -- -- 610 -- 610
Exercise of Stock Options and Warrants......... 827 8 7,179 -- -- 7,187
------ ------ ----------- ----------- -------- -----------
Balances at February 3, 2001................... 13,903 139 166,390 (4,736) -- 161,793
Net loss for Fiscal 2001....................... -- -- -- (15,171) -- (15,171)
------ ------ ----------- ----------- -------- -----------
Balances at February 2, 2002................... 13,903 139 166,390 (19,907) -- 146,622
Forward Contracts.............................. -- -- -- -- 496 496
Net income for Fiscal 2002..................... -- -- -- 8,466 -- 8,466
------ ------ ----------- ----------- -------- -----------
Balances at February 1, 2003................... 13,903 $ 139 $ 166,390 $ (11,441) $ 496 $ 155,584
====== ====== =========== =========== ======== ===========
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
F-4
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED
-------------------------------------------------------
FEBRUARY 1, FEBRUARY 2, FEBRUARY 3,
2003 2002 2001
---- ---- ----
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................... $ 8,466 $ (15,171) $ 610
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization.................................... 12,020 19,994 19,107
Write-off of unamortized bank fees............................... 641 -- --
Deferred rent.................................................... 2,184 2,667 2,999
Decrease (increase) in:
Receivables...................................................... 1,732 1,042 403
Inventories...................................................... (9,803) 8,783 (2,543)
Other current assets............................................. (778) 795 (31)
Long-term assets................................................. -- (4) 19
(Decrease) increase in:
Accounts payable and accrued expenses............................ (321) (4,095) 2,478
-------------- -------------- --------------
Net cash provided by operating activities................... 14,141 14,011 23,042
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed asset additions............................................... (11,082) (11,982) (8,499)
Contributions from landlords........................................ -- 613 --
Restricted cash..................................................... 200 -- 2,243
-------------- -------------- --------------
Net cash used in investing activities....................... (10,882) (11,369) (6,256)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt.................................................. 439,691 397,613 423,745
Repayments of debt.................................................. (445,216) (406,264) (440,682)
Payment of bank fees................................................ (1,458) (525) --
Proceeds from exercise of stock options and warrants................ -- -- 7,187
-------------- -------------- --------------
Net cash used in financing activities....................... (6,983) (9,176) (9,750)
-------------- -------------- --------------
Net (decrease) increase in cash and cash equivalents................ (3,724) (6,534) 7,036
Cash and cash equivalents-- beginning of year....................... 10,835 17,369 10,333
-------------- -------------- --------------
Cash and cash equivalents-- end of year............................. $ 7,111 $ 10,835 $ 17,369
============== ============== ==============
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
F-5
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND 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 Company operates 20 stores
throughout the United States, including its three flagship stores in New York,
Beverly Hills and Chicago. The Company has entered into a licensing arrangement
pursuant to which a third party operates two retail stores in Japan and a single
in-store department in Singapore, all under the "Barneys New York" name.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Holdings and its wholly-owned and majority-owned subsidiaries in which Holdings
has a controlling financial interest and exercises control over their
operations. Intercompany investments and transactions have been eliminated in
consolidation.
(B) FISCAL YEARS
References in these financial statements to "2002", "2001" and "2000"
are for the 52 weeks ended February 1, 2003, the 52 weeks ended February 2, 2002
and the 53 weeks ended February 3, 2001, respectively.
(C) CASH AND CASH EQUIVALENTS
All highly liquid investments with a remaining maturity of three
months or less at the date of acquisition are classified as cash equivalents.
The carrying value approximates their fair value.
(D) ACCOUNTS RECEIVABLE AND FINANCE CHARGES
The Company provides credit to its customers and performs on-going
credit reviews of its customers. Concentration of credit risk is limited because
of the large number of customers. Finance charge income recorded in Fiscal 2002,
2001 and 2000 approximated $4,608,000, $4,661,000 and $4,462,000, respectively,
and is included in other-net in the statement of operations.
(E) INVENTORIES
Merchandise inventories are stated at the lower of FIFO (first-in,
first-out) cost or market, as determined by the retail inventory method.
Merchandise is purchased from many different vendors based throughout the world.
Most of the Company's relationships with its vendors are not subject to
contractual arrangements. In the fiscal year ended February 1, 2003, our ten top
designers (including all brands owned by such designers) accounted for
approximately 28% of our total sales, and out two top designers (including all
brands owned by such designers) accounted for approximately 11% and 4%,
respectively, of our total sales. If one or more of the Company's top designers
were to cease providing the Company with adequate supplies of merchandise, the
Company's business might, in the short term, be adversely affected. However,
management believes that alternative supply sources exist to fulfill the
Company's requirements in the event of a disruption.
F-6
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(F) FIXED ASSETS
Pursuant to American Institute of Certified Public Accountants'
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code" ("SOP 90-7"), property and equipment were restated at
approximate fair market value at January 30, 1999. Fixed assets acquired after
January 30, 1999 are recorded at cost. Depreciation is computed using the
straight-line method. Fully depreciated assets are written off against
accumulated depreciation. Furniture, fixtures and equipment are depreciated over
their useful lives. Leasehold improvements are amortized over the shorter of the
useful life or the lease term.
(G) EXCESS REORGANIZATION VALUE
Excess reorganization value represents the adjustment of the
Company's balance sheet for reorganization value in excess of amounts allocable
to identifiable assets. 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. This
statement was effective for fiscal years beginning after December 15, 2001.
Accordingly, on February 3, 2002, the Company adopted SFAS No. 142, and was
required to analyze its excess reorganization value for impairment issues during
the first six months of Fiscal 2002, and then on a periodic basis thereafter. In
accordance with SFAS No. 142, in Fiscal 2002 the Company completed the required
testing for impairment of its excess reorganization value as of both the
beginning and end of Fiscal 2002. Based upon the Company's re-evaluation of the
first step of the impairment test which screens for potential impairment, the
Company concluded that the fair value of the enterprise exceeded its book value.
Accordingly, the Company did not need to perform the second step of the test,
which measures the amount of the impairment. For the fiscal year ended February
1, 2003, the Company did not record an impairment loss related to excess
reorganization value. However, the excess reorganization value of the Company
was reduced by approximately $1.7 million during the fiscal year ended February
1, 2003 due to a reversal of a tax reserve resulting from the resolution of tax
contingencies existing at the time of the Company's emergence from bankruptcy.
During the fiscal year ended February 2, 2002 (and prior fiscal
years), when SFAS No. 142 was not in effect, the Company amortized excess
reorganization value over a twenty-year period. If excess reorganization value
had not been amortized during the fiscal years ended February 2, 2002 and
February 3, 2001 the Company's adjusted net (loss) income and basic and diluted
(loss) income per share would have been as follows:
FISCAL YEAR ENDED FISCAL YEAR ENDED
FEBRUARY 2, 2002 FEBRUARY 3, 2001
------------------------------ -------------------------
BASIC AND BASIC AND
DILUTED (LOSS) DILUTED
NET (LOSS) INCOME PER NET INCOME PER
INCOME SHARE INCOME SHARE
------ ----- ------ -----
As Reported................................................... $ (15,171) $ (1.09) $ 610 $ 0.04
Amortization of Excess Reorganization Value................... 8,791 0.63 8,741 0.64
------------- --------- ---------- --------
As Adjusted................................................... $ (6,380) $ (0.46) $ 9,351 $ 0.68
============= ========= ========== ========
(H) EARNINGS PER COMMON SHARE ("EPS")
Basic EPS is computed as net income (loss) available to common
stockholders divided by the weighted average number of common shares
outstanding. Diluted EPS reflects the incremental increase in common shares
F-7
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
outstanding assuming the exercise of stock options and warrants that would have
had a dilutive effect on earnings per common share. Options and warrants to
acquire an aggregate of 1,704,834, 1,734,634 and 787,724 shares of common stock
(issued pursuant to the Company's stock option plans and other previously
outstanding options and warrants, all of which are discussed in Notes 8(b), 8(c)
and 9(b)) were not included in the computation of diluted EPS for Fiscal 2002,
2001 and 2000, respectively, as including them would have been anti-dilutive.
Net income (loss) attributed to common stockholders is not materially affected
by the 1% dividend on the 5,000 issued and outstanding shares of preferred
stock.
Pro-forma disclosures, as required by Statement of Financial
Accounting Standard No. 148, "Accounting for Stock-Based Compensation --
Transition and Disclosure", are computed as if the Company recorded compensation
expense based on the fair value for stock-based awards or grants. The following
pro-forma information includes the effects of the options discussed in Note
9(b).
FISCAL 2002 FISCAL 2001 FISCAL 2000
----------- ----------- -----------
Net income (loss)-as reported.................................................... $ 8,466 $ (15,171) $ 610
Deduct: Stock-based employee compensation expense (income) determined under fair
value method, net of related tax effects...................................... 596 699 (369)
--------- ------------- ---------
Pro-forma net income (loss)...................................................... $ 7,870 $ (15,870) $ 979
========= ============= =========
Net income (loss) per share:
Basic and diluted-- as reported.................................................. $ 0.61 $ (1.09) $ 0.04
Basic and diluted-- pro-forma.................................................... 0.57 (1.14) 0.07
(I) IMPAIRMENT OF ASSETS
The Company records impairment losses on long-lived assets (including
excess reorganization value) when events and circumstances indicate that the
assets might be impaired. For purposes of evaluating the recoverability of
long-lived assets (including excess reorganization value through February 2,
2002), the recoverability test is performed using undiscounted net cash flows of
the individual stores and consolidated undiscounted net cash flows for
long-lived assets, not identifiable to individual stores. An impairment loss
recognized will be measured as the amount by which the carrying amount of the
asset exceeds the fair value of the asset. If quoted market prices are not
available, the estimate of fair value will be based on the best information
available under the circumstances, such as prices for similar assets or the
present value of estimated expected future cash flows. Subsequent to February 2,
2002, the Company will determine any impairment in excess reorganization value
in accordance with SFAS No. 142 as discussed in Note 2(g).
In August 2001, SFAS No. 144, "Accounting for the Impairment or
Disposal of Long Lived Assets" was issued. This statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144 is effective for fiscal years beginning after December 15, 2001.
Accordingly, the Company adopted SFAS No. 144 effective Fiscal 2002 and did not
record any impairment as a result of the adoption of SFAS No. 144.
(J) FOREIGN EXCHANGE CONTRACTS
Derivative Instruments and Hedging Activities. In June 1998, the
Financial Accounting Standards Board, or FASB, issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and for
Hedging Activities", or SFAS No. 133, which we adopted, as amended, on February
4, 2001. SFAS No. 133, as amended, establishes accounting and reporting
standards for derivative instruments. Specifically, SFAS No. 133 requires an
F-8
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
entity to recognize all derivative instruments as either assets or liabilities
in the balance sheet and to measure those instruments at fair value.
Additionally, the fair value adjustments will affect either stockholders' equity
or net income depending on whether the derivative instrument qualifies as a
hedge for accounting purposes and, if so, the nature of the hedging activity.
The Company in the normal course of business routinely enters into
forward foreign currency contracts to reduce the risk associated with currency
movements related to committed inventory purchases denominated in foreign
currency. The Company does not enter into these contracts for the purpose of
trading or speculation.
For the fiscal year ended February 2, 2002, the Company did not
designate the forward foreign currency contracts that it entered into as hedges
of the anticipated purchases, and therefore, unrealized gains and losses were
recognized currently in earnings. Accordingly, in connection with these forward
foreign currency contracts outstanding at February 2, 2002, the Company
recognized a loss of approximately $300,000 which was included in cost of sales
in the Statement of Operations and as a reduction to inventory as of February 2,
2002.
For the fiscal year ended February 1, 2003, the Company designated
its forward foreign currency contracts as cash flow hedges. The Company recorded
a gain of approximately $496,000 in other comprehensive income to recognize at
fair value the derivatives that were designated as cash flow hedging instruments
in accordance with SFAS No. 133. No components of the contracts were excluded in
the measurement of the related hedge effectiveness. The critical terms of the
foreign exchange contracts are the same as the underlying forecasted
transactions, therefore, changes in the fair value of the contracts should be
highly effective in offsetting changes in the expected cash flows from the
forecasted transactions. No gains or losses related to ineffectiveness of cash
flow hedges were recognized in earnings during fiscal 2002. At February 1, 2003,
the Company's notional amount of approximately 8,506,000 in Euro forward
exchange contracts and notional amount of approximately 160,000 in British Pound
forward exchange contracts resulted in an aggregate unrealized gain of
approximately $496,000 which was included as an addition to other comprehensive
income in the Statement of Changes in Stockholders' Equity and an increase to
other current assets. The Company expects to reclassify all of the unrealized
gain from other comprehensive income into earnings within the next eight month
period due to the actual usage of foreign exchange contracts to purchase
merchandise and the Company's ultimate sale of that merchandise.
At February 1, 2003 and February 2, 2002, the notional amount and
estimated fair value, utilizing quotes from external sources, of the Company's
outstanding forward foreign currency contracts is detailed below:
FEBRUARY 1, 2003 FEBRUARY 2, 2002
-------------------------------------------- -------------------------------------------
FOREIGN CURRENCY NOTIONAL AMOUNT ESTIMATED FAIR VALUE NOTIONAL AMOUNT ESTIMATED FAIR VALUE
- ---------------- ------------------- ----------------------- ------------------- ----------------------
Euro................................ 8,506,000 9,100,000 18,146,000 17,772,000
British Pound....................... 160,000 153,000 1,625,000 1,549,000
At February 1, 2003, the Company's forward exchange contracts have
maturity dates through September 2003.
(K) REVENUE RECOGNITION
Sales, recognized at the point of sale, consist of sales of
merchandise, net of returns. Net sales in the Statement of Operations include an
estimate for merchandise returns, where a right of return exists, in accordance
with SFAS No. 48, "Revenue Recognition When Right of Return Exists."
F-9
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(L) ADVERTISING EXPENSES
The Company expenses advertising costs upon first showing.
Advertising expenses were approximately $7,120,000, $6,647,000, and $6,558,000
in Fiscal 2002, 2001, and 2000, respectively.
(M) INCOME TAXES
The Company records income tax expense using the liability method.
Under this method, deferred tax assets and liabilities are estimated for the
future tax effects attributable to temporary differences between the financial
statement and tax basis of assets and liabilities.
(N) ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
(O) RECLASSIFICATION
Certain amounts in the prior year have been reclassified to conform
with the current year financial statement presentation.
3. FIXED ASSETS
Fixed assets consist of the following:
FEBRUARY 1, FEBRUARY 2, USEFUL LIFE
2003 2002 (IN YEARS)
---- ---- ----------
($ IN THOUSANDS)
Furniture, fixtures and equipment $ 39,470 $ 31,404 3 to 7
Leasehold improvements............................................ 48,283 45,267 2 to 14
------------- -------------
Total............................................................. 87,753 76,671
Accumulated depreciation and amortization......................... (37,290) (26,530)
------------- -------------
Net fixed assets.................................................. $ 50,463 $ 50,141
============= =============
4. DEBT
On January 28, 2004, as discussed below, the Company's $22,500,000
subordinated note, the equipment notes and a contractual rent payment (discussed
in Note 5(a)) become due. On April 1, 2003, the Company completed an offering of
units and utilized a substantial portion of the net proceeds to refinance these
obligations. Therefore, in accordance with Statement of Financial Accounting
Standards No. 6, "Classification of Short-Term Obligations Expected to be
Refinanced", these obligations have been recorded as long-term liabilities in
the consolidated balance sheet at February 1, 2003. Contemporaneously with the
consummation of the offering, the Company also repaid the term loan and a
portion of the revolver loans outstanding under its credit facility and entered
into a new revolving credit facility (the "Restated Credit Facility") on the
terms of the existing credit facility as amended on April 1, 2003. See Note 11
for a further discussion.
F-10
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(A) REVOLVING CREDIT FACILITY
The Company entered into a $120,000,000 revolving credit facility in
January, 1999 with a $40,000,000 sublimit for the issuance of letters of credit
(the "Credit Agreement") with Citicorp USA, Inc., General Electric Capital
Corporation, BNY Financial Corporation, and National City Commercial Finance,
Inc. maturing on January 28, 2003. In December 2001, the Company entered into an
amendment to its Credit Agreement (the "December Amendment"), which among other
things, amended and/or eliminated certain of the financial covenants contained
therein through fiscal 2002 and decreased the commitment pursuant to that
agreement to $105,000,000. In addition, the maturity of the Credit Agreement was
extended to February 15, 2003. On July 15, 2002, the Company entered into a new
$105,000,000 million credit facility led by General Electric Capital
Corporation, as Administrative Agent (the "GE Facility"), which replaced the
Company's prior credit 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. Average borrowings under the respective credit facilities for the
fiscal year ended February 1, 2003 and the fiscal year ended February 2, 2002
were $30.7 million and $35.2 million, respectively, and the effective interest
rate on this portion of the Company's outstanding debt was 10.52% and 9.94%,
respectively, in the comparable periods.
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 $641,000, associated with the prior revolving credit facility,
were written off in Fiscal 2002 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 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
F-11
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, pursuant
to the GE Facility, the Company was permitted to apply proceeds received in a
prior year in connection with the exercise of options and warrants, towards
increasing the permitted amount of capital expenditures pursuant to this
covenant.
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.
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.
As of February 1, 2003, inclusive of current amounts due, the Company
had approximately $18.1 million of loans outstanding under its credit facility,
consisting of approximately $10.5 million of borrowings under the revolving
portion of the facility and $7.6 million in term loan borrowings. As of February
2, 2002, the Company had approximately $23.6 million of revolving loans
outstanding under its credit facility. In addition, at February 1, 2003 and
February 2, 2002, $17,982,000 and $12,677,000, respectively, was committed under
unexpired letters of credit. Additionally, as collateral for performance on
certain leases and as credit guarantees, Barney's, Inc. is contingently liable
under standby letters of credit under the GE Facility in the amount of
approximately $10,333,000.
Management believes that it will be in compliance with the financial
covenants contained in the GE Facility for the fiscal year ending January 31,
2004. 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.
(B) $22,500,000 SUBORDINATED NOTE
This note bears interest at the stated rate of 10% per annum payable
semi-annually, and matures on January 28, 2004.
The fair value of this note was estimated to be approximately
$20,648,000 at January 30, 1999. This amount was not necessarily representative
of the amount that could be realized or settled. The difference between the face
amount and the fair market value was recorded as a debt discount and is being
amortized using the effective interest method. The fair market value was based
upon a valuation from an investment banking firm utilizing discounted cash flows
and comparable company methodology. After amortization of the debt discount,
F-12
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
this note was recorded at $22,112,000 and $21,678,000 at February 1, 2003 and
February 2, 2002, respectively.
(C) EQUIPMENT NOTES
These promissory notes, totaling $35,789,000, bear interest at the
stated rate of 11 1/2% per annum payable semi-annually, mature on January 28,
2004, and are secured by a first priority lien on the equipment that was the
subject of each of the respective equipment leases. The estimated fair value of
the Equipment Notes approximates face value as estimated by an investment
banking firm utilizing discounted cash flows and comparable company methodology.
Whippoorwill Associates, Inc. ("Whippoorwill"), one of the Company's
principal shareholders, owns an approximate 25% beneficial interest in the
holder of one of the Equipment Notes that has an aggregate principal amount of
$34.2 million.
(D) OTHER
During Fiscal 2002, 2001 and 2000, the Company paid interest of
approximately $9,447,000, $9,835,000 and $12,100,000, respectively.
5. COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company leases real property and equipment under agreements that
expire at various dates. Certain leases contain renewal provisions and generally
require the Company to pay utilities, insurance, taxes and other operating
expenses. In addition, certain real estate leases provide for escalation rentals
based upon increases in the lessor's costs or provide for additional rent
contingent upon the Company increasing its sales. In accordance with SFAS No. 13
"Accounting for Leases," the Company accounts for the rental payments due under
its operating leases on a straight-line basis, and records an annual rent
expense for each lease by dividing the total rent payments due during the term
of the lease by the number of years in the term of the respective lease.
Accordingly, the difference between the cash rent expense and the straight line
rent expense is included in other long-term liabilities on the balance sheet.
At February 1, 2003, total minimum rent payments at contractual rates
are as follows for the respective fiscal years:
($ IN 000'S)
------------
2003............................................ $ 37,460
2004............................................ 24,194
2005............................................ 23,609
2006............................................ 21,615
2007............................................ 21,116
Thereafter...................................... 273,896
-------------
Total minimum rent payments..................... $ 401,890
=============
Included in the 2003 minimum rent payments set forth in the table
above is an aggregate $15.0 million additional rent payment that the Company is
required to make on January 28, 2004 pursuant to the terms of the leases for its
flagship stores. Such payment was included in the determination of the Company's
straight line rent expense.
F-13
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total rent expense in Fiscal 2002, 2001, and 2000, was $32,621,000,
$31,701,000, and $29,464,000, respectively, which included percentage rent of
$60,000, $37,000, and $135,000, in each of the respective periods.
(B) LITIGATION
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
believes that the complaint is without merit, 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.
In addition, the Company is involved in various legal proceedings
which are routine and incidental to the conduct of its business. Management
believes that none of these proceedings, if determined adversely to the Company,
would have a material effect on its financial condition or results of
operations.
6. INCOME TAXES
The Company consummated a plan of reorganization under Chapter 11 of
the Bankruptcy Code on January 28, 1999. Pursuant to the plan, Holdings was
formed and all the equity interests in Barney's, Inc. were transferred to
Holdings, making Barney's, Inc. a wholly-owned subsidiary of Holdings. Holdings
has no independent operations and its primary asset consists of shares of
Barney's, Inc. In connection with its acquisition of Barney's, Inc., Holdings
made an election under Section 338(g) of the Internal Revenue Code, as a result
of which Barney's, Inc. and its subsidiaries are generally treated, for federal
income tax purposes, as having sold their assets at the time the plan of
reorganization was consummated and thereafter as a new corporation which
purchased the same assets as of the beginning of the following day.
Consequently, Barney's, Inc. recognized a gain at the time of the deemed sale in
an amount equal to the difference between the fair market value of its assets
and its collective tax basis of the assets at the time of the sale. The Company
used existing net operating loss carryforwards to eliminate the taxable gain
recognized as a result of the deemed sale. Nevertheless, the Company was subject
to alternative minimum tax. Furthermore, as a result of the Section 338(g)
election, Barney's, Inc. surrendered certain remaining tax attributes, including
all unutilized net operating loss carryforwards, and surrendered certain tax
credits.
Holdings is the parent of a U.S federal consolidated group that
includes Barney's, Inc. and its wholly-owned subsidiaries, collectively referred
to as the Consolidated Subsidiaries. Holdings and the Consolidated Subsidiaries
file a consolidated U.S federal income tax return. Under the U.S federal
consolidated return rules, the Consolidated Subsidiaries generally do not
directly pay U.S federal income taxes. Instead, Holdings remits any tax due with
respect to the consolidated group. To equitably allocate the consolidated income
tax liabilities of the consolidated group between Barney's, Inc., on behalf of
itself and its subsidiaries, and the remainder of the group, on January 28,
1999, Holdings entered into a tax sharing and indemnification agreement with the
Consolidated Subsidiaries. Under this agreement, Barney's, Inc. is obligated,
among other things, to pay to Holdings any taxes attributable to the
Consolidated Subsidiaries, and Holdings may be required to compensate Barney's,
Inc. for Holdings' use of tax benefits attributable to the Consolidated
Subsidiaries.
F-14
For Fiscal 2002, 2001, and 2000, the Company recorded a provision for
income taxes of approximately $600,000, $439,000, and $546,000, respectively,
which principally relates to state and local income and franchise taxes. The AMT
credit carryforward of $69,000 can be carried forward indefinitely, while the
net operating loss carryforwards of $28,063,000 begin to expire in 2020. In the
comparable periods, the Company paid capital, franchise and income taxes, net of
refunds, of approximately $538,000, $359,000, and $542,000, respectively.
A reconciliation of the U.S. statutory tax rate to the Company's
effective tax rate for financial reporting purposes follows:
FISCAL 2002 FISCAL 2001 FISCAL 2000
----------- ----------- -----------
U.S. Statutory Rate.................................................... 35.0% 35.0% 35.0%
State Taxes............................................................ 11.0 2.0 44.0
Tax Benefit Related to Basis Difference due to
Fresh Start Accounting.............................................. -- -- (65.0)
Other.................................................................. (1.0) 3.0 18.0
Valuation Allowance.................................................... (38.0) (43.0) 15.0
------ ----- ------
Effective Tax Rate..................................................... 7.0% (3.0)% 47.0%
====== ===== ======
Deferred tax assets and liabilities reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. The
components of the Company's deferred tax assets and liabilities are as follows
($ in thousands):
FEBRUARY 1, FEBRUARY 2,
2003 2002
---- ----
Deferred tax assets:
Inventory................................................................. $ 323 $ 892
Provision for doubtful accounts........................................... 299 401
Tax credit and loss carryforward.......................................... 11,293 10,330
Other..................................................................... 1,925 1,027
----------- -----------
Gross deferred tax assets................................................. 13,840 12,650
Less: Valuation allowance................................................. (5,684) (9,168)
----------- -----------
Deferred tax assets.......................................................... 8,156 3,482
Deferred tax liabilities:
Depreciation & amortization............................................... 8,087 3,413
----------- -----------
Net deferred tax asset.................................................... $ 69 $ 69
=========== ===========
In each of the years presented above, the total deferred tax assets
and deferred tax liabilities are included in other current assets and other
long-term liabilities, respectively, on the balance sheet.
7. RELATED PARTY TRANSACTIONS
(A) FLAGSHIP STORE LEASES
Until June 26, 2001, subsidiaries of Holdings leased the Madison
Avenue, Beverly Hills and Chicago stores from Isetan Co. Ltd. ("Isetan"), a
minority stockholder of Holdings. Effective on such date, Isetan conveyed its
right, title and interest as lessor pursuant to each of the flagship store
leases to a third party. The lease for the New York store is for a term of
twenty years, with four options to renew of ten years each. The lease for the
F-15
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Chicago store is for a term of ten years, with three options to renew of ten
years each. The lease for the Beverly Hills store is for a term of twenty years,
with three options to renew of ten years each. The leases for the flagship
stores are all triple-net leases. In the case of the Beverly Hills flagship
store, Barneys is also responsible for the rent payable pursuant to the existing
ground lease.
Pursuant to the terms of these leases, the Company is required to pay
base rent, as defined, and all operating expenses. Total rent expense (excluding
operating expenses) related to these leases was approximately $6,536,000 through
June 2001, and $15,635,000 in Fiscal 2000.
(B) LICENSING ARRANGEMENTS
BNY Licensing, a wholly-owned subsidiary of Barneys, is party to
licensing arrangements pursuant to which (i) two retail stores are operated in
Japan and a single in-store department is operated in Singapore under the name
"BARNEYS NEW YORK", each by an affiliate of Isetan, and (ii) Barneys Asia Co.
LLC, which is 70% owned by BNY Licensing and 30% owned by an affiliate of
Isetan, has the exclusive right to sublicense the BARNEYS NEW YORK trademark
throughout Asia (excluding Japan).
Pursuant to the trademark license agreement between BNY Licensing and
Barneys Japan Company ("Barneys Japan") (an affiliate of Isetan), a
royalty-bearing, exclusive right and license to operate retail store locations
in Japan and a royalty-bearing, non-exclusive right and license to operate a
department within a retail store in Singapore, under the trademark and trade
names "BARNEYS NEW YORK" (the "Trademark License Agreement") has been granted to
Barneys Japan. In addition, Barneys Japan has been granted a license to make,
sell and distribute certain products bearing the trademark "BARNEYS NEW YORK"
and to use "BARNEYS NEW YORK" as part of its corporate name. The Trademark
License Agreement expires on December 31, 2015; however, Barneys Japan may renew
the agreement for up to three additional ten year terms provided certain
conditions are met. Under the terms of the agreement, Barneys Japan pays BNY
Licensing or its assignee a minimum royalty of 2.50% of a minimum net sales
figure set forth in the agreement (the "Minimum Royalty") and an additional
royalty of 2.50% of net sales in excess of the minimum net sales and sales
generated from the expansion of Barneys Japan store base (beyond three stores)
and business methods. In accordance with a prior arrangement, Isetan received an
absolute assignment of 90% of the annual minimum royalties.
Pursuant to the license agreement between BNY Licensing and Barneys
Asia Co., BNY Licensing has granted to Barneys Asia, a royalty-free, exclusive
right and license to sublicense the right to operate retail store locations and
departments with retail stores in Taiwan, Korea, Thailand, Malaysia, Hong Kong,
Indonesia, India, China and the Philippines, and a non-exclusive right and
license to sublicense the same activities in Singapore, under the trademark and
trade name "BARNEYS NEW YORK". In addition, Barneys Asia has been granted a
license to sublicense the right to make, sell and distribute certain products
bearing the trademark "BARNEYS NEW YORK". Further, Barneys Asia has been granted
a license to use "BARNEYS NEW YORK" as part of its corporate name. All
sublicenses granted by Barneys Asia under this agreement must be
royalty-bearing. The Barneys Asia License Agreement expires on December 31,
2015; however, Barneys Asia may renew the agreement for up to three additional
ten year terms.
Pursuant to the terms of the trademark license agreement between BNY
Licensing and an affiliate of Isetan, the Company is entitled to receive a
minimum royalty over the term of this agreement ranging from 45,868,000 to
61,195,106 Japanese Yen ($383,000 to $510,800 at the February 1, 2003 conversion
rate of 119.8 Japanese yen to one United States dollar) a year. The minimum
royalty revenue is recognized monthly as the license fee accrues. The Company
recognized approximately $318,000, $326,000 and $330,000 in royalty income for
Fiscal 2002, 2001, and 2000, respectively.
F-16
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
By a first amendment to the above license agreement dated as of
February 5, 2003, the affiliate of Isetan agreed to pay the Company the sum of
$750,000 in each of February 2003 and February 2004 in consideration of the
Company's consent to certain matters relating to the establishment by the
affiliate of Isetan of an additional Barneys New York store in Japan. The
Company received the first such payment in February 2003.
8. STOCKHOLDERS' EQUITY
Holdings' Certificate of Incorporation (the "Charter") provides that
the total number of all classes of stock which Holdings will have authority to
issue is 35,000,000 shares, of which 25,000,000 will be Holdings common stock,
and 10,000,000 shares will be preferred stock (of which 20,000 shares have been
issued (see (d) below)), both having a par value of $0.01 per share. The rights
and preferences of the preferred stock are established by the Company's Board of
Directors upon issuance. Holdings is prohibited by its Charter from issuing any
class or series of non-voting securities.
(A) HOLDINGS COMMON STOCK
Each share of Holdings common stock entitles its holder to one vote.
The holders of record of Holdings common stock will be entitled to participate
equally in any dividend declared by the Board of Directors of Holdings. Each
share of Holdings common stock is entitled to share ratably in the net worth of
Holdings upon dissolution. So long as any shares of preferred stock are
outstanding, no dividends on Holdings common stock may be paid until all accrued
and unpaid dividends on the preferred stock have been paid.
(B) UNSECURED CREDITORS WARRANTS
Pursuant to the Company's plan of reorganization, holders of certain
allowed general unsecured claims were issued warrants (the "Unsecured Creditors
Warrants") to purchase an aggregate of up to 1,013,514 shares of Holdings Common
Stock at an exercise price of $8.68 per share. The Unsecured Creditors Warrants
expired on May 30, 2000. Holders of 826,961 warrants exercised their rights to
acquire an equivalent amount of Holdings common stock. Aggregate proceeds to the
Company were approximately $7,200,000.
(C) ISETAN WARRANTS
Pursuant to the Company's plan of reorganization, Isetan was issued a
warrant (the "Isetan Warrants") to purchase 287,724 shares of Holdings Common
Stock at an exercise price of $14.68 per share. This warrant expired on January
29, 2002.
(D) PREFERRED STOCK
The 20,000 shares of Series A preferred stock have an aggregate
liquidation preference of $2,000,000 (the "Liquidation Preference"), plus any
accrued and unpaid dividends thereon (whether or not declared). Dividends on the
preferred stock are cumulative (compounding annually) from January 28, 1999 (the
"Effective Date") and are payable when and as declared by the Board of Directors
of Holdings, at the rate of 1% per annum on the Liquidation Preference. No
dividends shall be payable on any shares of Holdings common stock until all
accrued and unpaid dividends on the preferred stock have been paid.
In accordance with SAB No. 64, Redeemable Preferred Stock, the
Company recorded the two separate issuances of redeemable preferred stock at
their respective fair values. The 5,000 shares originally issued to Bay Harbour
F-17
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Management L.C. ("Bay Harbour"), one of the Company's principal shareholders,
were valued at $500,000. The remaining 15,000 shares were issued to the Barneys
Employees Stock Plan Trust (the "Trust"). See Note 9(a) Employees Stock Plan
below.
The shares of preferred stock will not be redeemable prior to the
sixth anniversary of the Effective Date. On or after the sixth anniversary of
the Effective Date, the preferred stock will be redeemable at the option of
Holdings for cash, in whole or in part, at an aggregate redemption price equal
to the Liquidation Preference, plus any accrued and unpaid dividends thereon. In
addition, Holdings will be required to redeem the preferred stock in whole on
the tenth anniversary of the Effective Date at an aggregate redemption price
equal to the Liquidation Preference, plus any accrued and unpaid dividends
thereon.
The shares of preferred stock will be convertible, in whole or in
part, at the option of the holders thereof, any time on or after the earlier of
the fifth anniversary of the Effective Date and the consummation of a rights
offering by Holdings (which offering meets certain conditions), into 162,500
shares of Holdings common stock. Any accrued and unpaid dividends on the
preferred stock will be cancelled upon conversion. Conversion rights will be
adjusted to provide antidilution protection for stock splits, stock
combinations, mergers or other capital reorganization of Holdings. In addition,
upon a sale of Holdings, Holdings' right to redeem the preferred stock and the
holders' right to convert the preferred stock will be accelerated. The preferred
stock has one vote per share and votes together with the Holdings common stock
on all matters other than the election of directors.
(E) RESTRICTED STOCK
Pursuant to an amendment to his employment agreement dated January
10, 2003, Holdings agreed to make a restricted stock award on February 2, 2003
of 200,000 shares of Holdings common stock to Howard Socol, the Company's
Chairman, President and Chief Executive Officer. Pursuant to the restricted
stock award agreement between Holdings and Mr. Socol, until the shares vest, the
shares will be held in escrow and Mr. Socol may not transfer the shares. In
addition, until the shares vest, the shares are subject to a right of repurchase
by Holdings upon Mr. Socol's resignation without good reason or termination by
Holdings for cause. 100,000 of the shares vest on January 31, 2004 and the other
100,000 shares vest on January 31, 2005, provided that Mr. Socol does not
terminate his employment before those dates. The agreement also contains an
accelerated vesting provision upon the occurrence of certain events.
9. EMPLOYEE BENEFIT PLANS
(A) EMPLOYEES STOCK PLAN
Pursuant to the plan of reorganization, Holdings established the
Barneys Employees Stock Plan effective January 28, 1999 for all eligible
employees and 15,000 shares of new Holdings Preferred Stock were contributed to
the Barneys Employees Stock Plan Trust. This Preferred Stock will be issued to
existing employees of Barneys as incentive compensation in connection with
future services to be rendered to the Company. Since the 15,000 shares issued to
the Trust have not yet been issued to existing employees, they are not
considered as issued or outstanding. When such shares are issued to the
employees, the Company will record compensation expense based on the fair value
of the shares at such time. Any difference between the fair value at that time
and the ultimate redemption value will be accreted as a dividend over the period
up through the date on which they must be redeemed. This plan is a profit
sharing plan covering all eligible employees other than those covered by a
collective bargaining agreement. Contributions under this plan are at the
discretion of the Company.
F-18
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(B) STOCK OPTIONS
The Company has a stock option plan that provides for the granting of
stock options to officers and key employees for purchase of Holdings' common
shares. This plan is administered by the compensation committee of the Board of
Directors, whose members are not eligible for grants under this plan. These
options expire ten years from the date of grant and vest 20% on the date of
grant, with the remainder vesting ratably over the next four years. The option
price is determined by the compensation committee, but cannot be less than 100%
of the fair market value of the stock (as defined) at the date the option is
granted. As of February 1, 2003, there were 392,766 shares available for future
grant under this option plan.
In Fiscal 2000, pursuant to his employment agreement with the
Company, Howard Socol, Chairman, President and Chief Executive Officer, was
granted 792,234 options from this plan to purchase an equivalent number of
shares of Holdings common stock which are to vest over the term of his
employment. Pursuant to an amendment to his employment agreement in Fiscal 2002,
Holdings has guaranteed that, as of the date of the first change of control of
Holdings, the aggregate amount of compensation derived from all stock options
(previously or thereafter) granted to Mr. Socol (and the value of any shares of
Holdings common stock acquired upon exercise of such stock options) will be at
least $5.0 million. If Holdings achieves certain financial targets, the
guarantee will increase to as much as $10.0 million. Following the change of
control, Holdings will pay Mr. Socol in cash any shortfall between the aggregate
value of all stock options granted to him and the guaranteed amount.
In addition to the above stock option plan, in Fiscal 1999, the
Company adopted a stock option plan that provides for the granting of
non-qualified stock options to non-employee members of the Company's Board of
Directors. Each Eligible Director (as defined in the option plan) is granted an
option to purchase 5,000 shares of Holdings common stock upon their initial
appointment to the Board of Directors, exercisable at the fair market value of
Holdings common stock at the date of grant. These options expire ten years from
the date of grant and vest 50% on the date of grant, with the remainder on the
first anniversary therefrom. At the discretion of the Board of Directors,
additional options may be granted to Eligible Directors on the date of the
annual stockholders' meeting that takes place after the initial grant. As of
February 1, 2003, 30,000 shares were available for future grants pursuant to
this option plan.
Following is a summary of the stock option plan activity for each of
the respective years:
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------ --------------
Outstanding at February 3, 2001................................ 1,292,234 $ 9.81
Granted........................................................ 489,000 9.62
Canceled....................................................... (46,600) 10.04
-------------
Outstanding at February 2, 2002................................ 1,734,634 9.75
Granted........................................................ -- --
Canceled....................................................... (107,400) 9.89
-------------
Outstanding at February 1, 2003................................ 1,627,234 9.74
=============
At February 1, 2003, the outstanding options have a weighted average
remaining contractual life of 7.9 years, with exercise prices ranging from $8.68
- -- $10.25.
F-19
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Options exercisable at:
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------ --------------
February 3, 2001.......................................... 136,000 $ 9.73
February 2, 2002.......................................... 599,359 9.74
February 1, 2003.......................................... 972,318 9.77
There were no options granted during Fiscal 2002. The weighted
average fair value of options granted during Fiscal 2000 and 2001 estimated on
the date of grant using the Black Scholes option-pricing model was $1.42 and
$1.69, respectively. The fair values were estimated on the date of grant using
the following weighted average assumptions: risk-free interest rate range of
4.38% to 6.66% depending on grant date; dividend yield of 0%; and a weighted
average expected life ranging from two to 10 years. As the Company's stock is
not actively traded, expected volatility was considered not applicable for
purposes of this calculation.
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25") and related
interpretations in accounting for its employee stock options. Under APB No. 25,
no compensation expense is recognized because the exercise price of the stock
options equals the assumed market price of the underlying stock on the date of
grant.
(C) UNION PLAN
Pursuant to agreements with unions, the Company is required to make
periodic pension contributions to union-sponsored multiemployer plans which
provide for defined benefits for all union members employed by the Company.
Union pension expense aggregated $753,000, $771,000 and $768,000 in Fiscal 2002,
2001 and 2000, respectively. The Company, at present, has no intentions of
withdrawing from this plan.
(D) 401(K) AND MONEY PURCHASE PLAN
Through December 2001, the Company maintained both a 401(k) Savings
Plan and a Money Purchase Plan. All employees of the Company, except for certain
employees covered by specific collective bargaining agreements, were eligible to
participate in both plans. Pursuant to the terms of the 401(k) Plan, eligible
participating employees can elect to contribute between 1% and 13% of their
annual compensation up to the annual dollar limits set by the Internal Revenue
Service. The Company will match 50% of the first 6% of the participant's
elective contributions resulting in a maximum of 3% of total compensation.
Effective January 2002, the Company amended the 401(k) Plan and the Money
Purchase Plan. Prior to the effective date of the amendments, contributions to
the Money Purchase Plan were made 100% by the Company in an amount equal to 3%
of a participant's eligible compensation for the year in question, subject to a
specified cap. In addition, the 401(k) included a profit sharing feature whereby
the Company could make a discretionary contribution of up to 3% of a
participant's eligible compensation. The determination of whether or not a
contribution is made and, if so, the amount of same, is determined by the
Compensation Committee. Pursuant to the amendments, the following occurred: 1)
further contributions to the Money Purchase Plan were eliminated commencing with
contributions for the 2002 plan year, 2) the plans were consolidated with the
new plan now called the Barney's, Inc. Retirement Savings Plan, 3) the adding of
a non-discretionary contribution of 1.5% of a participant's eligible
compensation for the year in question subject to a specified cap and 4) an
increase in the maximum discretionary contribution from 3% to 4% of a
participant's eligible compensation.
F-20
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate expense of these plans was $1,560,000, $1,695,000, and
$1,982,000 in Fiscal 2002, 2001 and 2000, respectively.
10. OTHER
Mr. Questrom, a member of the Board of Directors and former Chairman,
President and Chief Executive Officer of the Company is also a member of the
board of Polo Ralph Lauren Corporation. During Fiscal 2002, 2001, and 2000, the
Company purchased at retail approximately $1,245,000, $1,558,000, and
$2,758,000, respectively, of products from Polo Ralph Lauren Corporation.
Bay Harbour and Whippoorwill, who collectively beneficially own
approximately 77% of the outstanding shares of Holdings common stock, are
parties to a Stockholders Agreement, dated as of November 13, 1998 (the
"Stockholders Agreement"), which sets forth their agreement with respect to
certain matters relating to the shares of Holdings common stock held by them.
Pursuant to the Stockholders Agreement, each of Bay Harbour and Whippoorwill
have agreed to (i) grant rights of first offer as well as tag along rights in
the event of a transfer of shares, (ii) grant the right to participate in an
acquisition of additional shares of Holdings common stock by one of them, and
(iii) give the other a right of first refusal to purchase shares of Holdings
common stock which one of them has requested Holdings to register pursuant to
the Registration Rights Agreement entered into on the Effective Date. In
addition, Bay Harbour and Whippoorwill have agreed to take all actions necessary
to elect three designees of each, one designee of Isetan, the chief executive
officer of Holdings, and three independent directors, to the Board of Directors
of Holdings. The Stockholders Agreement also generally prohibits each of Bay
Harbour and Whippoorwill from voting the shares of Holdings common stock held by
it in favor of amending Holdings' Certificate of Incorporation or Bylaws or a
sale of the Company without the consent of the other.
On the Effective Date, pursuant to the plan of reorganization,
Messrs. Greenhaus and Strumwasser, who are principals and officers of
Whippoorwill (which is a stockholder of Holdings), and Messrs. Teitelbaum and
Van Dyke, who are principals of Bay Harbour (which is a stockholder of
Holdings), and Mr. Halpern, became members of the board of directors of
Holdings.
Holdings guaranteed the obligations of Barney's, Inc. and its
subsidiaries under the Company's $22,500,000 subordinated note and the Equipment
Notes (described in Notes 4(b) and (c)), all of which were issued in connection
with the Company's bankruptcy reorganization. In addition, Holdings also
guaranteed the obligations of Barney's, Inc. and its subsidiaries under the
leases for the Company's flagship stores and the licensing arrangements
(described in Note 7(b)).
Approximately 39% of the Company's employees are covered under
collective bargaining agreements.
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," known as 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 the provisions of SFAS No. 145, we have elected to adopt this
statement early. Accordingly, in connection with the early extinguishment of a
prior revolving credit facility, the unamortized fees of approximately $0.6
million related to such facility were written off and are included in interest
expense.
F-21
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
In 2002, the FASB Emerging Issues Task Force ("EITF") issued EITF No.
02-16, "Accounting by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor." EITF 02-16 addresses the accounting by a
reseller for consideration received from a vendor. A consensus was reached that
cash consideration is presumed to be a reduction in the price of a vendor's
product that should be recognized as a reduction of cost of sales. However, this
presumption can be overcome when the consideration received is for the
reimbursement of specific, identifiable and incremental costs of the reseller.
In that event, the consideration, subject to a threshold, is recognized as a
reduction in selling, general and administrative expenses. The provisions of
EITF 02-16 are effective for all new arrangements, or modifications to existing
arrangements, entered into after December 31, 2002. We are currently evaluating
the potential impact of adopting the provisions of EITF 02-16 on our
consolidated financial position and results of operations.
11. SUBSEQUENT EVENT
On April 1, 2003, the Company completed an offering to sell 106,000
units at a price of $850 per unit, for gross proceeds of $90.1 million. Each
unit consisted of $1,000 principal amount at maturity of 9% senior secured notes
due April 1, 2008 of Barney's, Inc. and one warrant to purchase 3.412 shares of
common stock of Holdings at an exercise price of $0.01 per share. Interest is
payable semi-annually on April 1 and October 1 commencing on October 1, 2003.
On or after April 1, 2006 and April 1, 2007, Barney's, Inc., at its
option, may redeem some or all of the notes at a redemption price of 109.894% of
accreted value, and 100% of principal amount at maturity, respectively, in all
cases plus accrued and unpaid interest. Prior to April 1, 2005, Barney's, Inc.
can utilize the proceeds of certain equity offerings to redeem up to 35% of the
aggregate principal amount at maturity of the notes, at a redemption price equal
to 113.192% of accreted value plus accrued and unpaid interest. If Barney's,
Inc. experiences a change of control, each holder of the notes will have the
right to sell to Barney's, Inc. all or a portion of their notes at 101% of their
accreted value, plus accrued and unpaid interest, to the date of repurchase.
The Company has entered into a registration rights agreement relating
to the notes, pursuant to which the Company is required to file one or more
registration statements within specified time periods to provide for the
exchange of the notes for freely tradable notes with substantially identical
terms. If the Company does not comply with the terms of the registration rights
agreement, including the requirement to file an exchange offer registration
statement with the SEC within 90 days after the offering, it will be required to
pay liquidated damages to holders of the notes in the form of additional cash
payments until all defaults under the registration rights agreement have been
cured.
In connection with the offering, Holdings agreed that upon receipt of
a written request from the holders of at least 5% of the shares issuable upon
exercise of the warrants, Holdings will, as promptly as practicable, file a
shelf registration statement covering the resale of the shares issuable upon
exercise of the warrants. Holdings may, at its option, file a registration
statement covering the resale of the shares issuable upon exercise of the
warrants.
F-22
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net proceeds to the Company were approximately $81.7 million after
deducting commissions, financial advisory fees and estimated expenses
(collectively referred to as the "Offering Fees") of the offering. The Offering
Fees of approximately $8.4 million will be deferred and will be included in
other assets. Such amount will be amortized to interest expense over the term of
the notes. The net proceeds were used to repay the $22,500,000 Subordinated
Note; the Equipment Notes; the Term Loan and a portion of the Revolver loans
outstanding under the GE Facility; and a substantial portion of the Company's
deferred rent obligations pursuant to its flagship leases.
Upon consummation of the offering, the Company also entered into the
Restated Credit Facility. The Restated Credit Facility, which matures on July
15, 2006, is a $70.0 million revolving credit facility under which the Company
may borrow up to $66 million, which may be increased to $70.0 million with the
consent of the required lenders, subject to a borrowing base test.
Interest rates on borrowings under the Restated Credit Facility are
either the "base rate," as defined in the Restated Credit Facility, plus 1.00%
or LIBOR plus 2.50%, subject to quarterly adjustment after August 2, 2004. The
Restated Credit Facility also provides for a fee of 2.0% per annum on the
maximum amount available to be drawn under each outstanding letter of credit and
a tiered unused commitment fee with a weighted average of approximately 0.45% on
the unused portion of the credit facility.
The Restated Credit Facility eliminated, among other things, the 30
day clean-down provision and amended the financial covenants in the GE Facility
(as discussed in Note 4(a)), and also added a minimum excess borrowing base
availability covenant, all as outlined below.
o Minimum consolidated net worth-- The minimum amount was
set at $147.0 million at the end of the fiscal year ending
January 28, 2006.
o Minimum consolidated EBITDA--The minimum amount at the end
of Fiscal 2004 was increased to $29.0 million from $28.0
million; and the minimum amount at the end of Fiscal 2005
was set at $30.0 million.
o Capital expenditures--The limitation on capital
expenditures is $10.0 million per fiscal year, subject to
increase if certain conditions are met.
o Minimum excess borrowing base availability-- The Company
is required to maintain minimum excess borrowing base
availability of $8.0 million at all times.
The Restated Credit Facility and the related guarantees thereof are
secured by a first-priority lien on substantially all of the Company's assets,
other than real property leaseholds. The 9% senior secured notes are guaranteed
on a senior secured basis by Holdings and each of the existing and future
domestic restricted subsidiaries of Barney's, Inc. The 9% senior secured notes
and the related guarantees are secured by a second-priority lien on the same
assets as secure the Restated Credit Facility.
F-23
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
On April 1, 2003, Barney's, Inc., a subsidiary of the Company, issued
$106.0 million principal amount of its 9% senior secured notes due April 1,
2008, as more fully discussed in Note 11 above. These notes have been fully and
unconditionally, jointly and severally guaranteed by Holdings and each of the
existing and future domestic restricted subsidiaries of Barney's, Inc. Subject
to certain exceptions, Barney's, Inc. is restricted in its ability to make funds
available to Holdings. The following condensed consolidating financial
information of the Company is being provided pursuant to Article 3-10(d) of
Regulation S-X.
FISCAL YEAR ENDED FEBRUARY 1, 2003
----------------------------------------------------------------------------------------
BARNEY'S, GUARANTOR NON-GUARANTOR CONSOLIDATED
HOLDINGS INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ---- ------------ ------------ ------------ -----
(IN THOUSANDS)
Net sales............................. $ -- $ 336,298 $ 47,065 $ -- $ -- $ 383,363
Cost of sales......................... -- 177,218 26,797 -- -- 204,015
---------- ----------- --------- ----- ---------- -----------
Gross profit....................... -- 159,080 20,268 -- -- 179,348
Expenses:
Selling, general and
administrative expenses
(including occupancy
expense of $32,421)................ -- 139,850 14,963 -- -- 154,813
Depreciation and amortization........ -- 9,233 1,527 -- -- 10,760
Other income-- net................... -- (6,278) (49) -- -- (6,327)
---------- ----------- --------- ----- ---------- -----------
Income before interest
and financing costs,
equity in net income
of subsidiary and
income taxes...................... -- 16,275 3,827 -- -- 20,102
Equity in net income of
subsidiary........................ (9,027) -- -- -- 9,027 --
Interest and financing costs,
net of interest income............... (39) 11,075 -- -- -- 11,036
---------- ----------- --------- ----- ---------- -----------
Income before income taxes......... 9,066 5,200 3,827 -- (9,027) 9,066
Income taxes.......................... 600 -- -- -- -- 600
---------- ----------- --------- ----- ---------- -----------
Net income......................... $ 8,466 $ 5,200 $ 3,827 $ -- $ (9,027) $ 8,466
========== =========== ========= ===== ========== ===========
F-24
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FISCAL YEAR ENDED FEBRUARY 2, 2002
-------------------------------------------------------------------------------------------
BARNEY'S, GUARANTOR NON-GUARANTOR CONSOLIDATED
HOLDINGS INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ---- ------------ ------------ ------------ -----
(IN THOUSANDS)
Net sales....................... $ -- $ 323,722 $ 47,447 $ -- $ -- $ 371,169
Cost of sales................... -- 181,908 26,937 -- -- 208,845
----------- ----------- --------- ----- ---------- -----------
Gross profit................. -- 141,814 20,510 -- -- 162,324
Expenses:
Selling, general and
administrative expenses
(including occupancy
expense of $31,367).......... -- 138,488 16,330 -- -- 154,818
Depreciation and
amortization................. -- 17,070 1,732 -- -- 18,802
Other income-- net............. -- (6,345) (612) -- -- (6,957)
----------- ----------- --------- ----- ---------- -----------
(Loss) income before interest
and financing costs, equity
in net loss of subsidiary
and income taxes............. -- (7,399) 3,060 -- -- (4,339)
Equity in net loss of subsidiary 15,098 -- -- -- (15,098) --
Interest and financing
costs, net of interest
income........................ (366) 7,107 3,652 -- -- 10,393
----------- ----------- --------- ----- ---------- -----------
Loss before income taxes (14,732) (14,506) (592) -- 15,098 (14,732)
Income taxes.................... 439 -- -- -- -- 439
----------- ----------- --------- ----- ---------- -----------
Net loss..................... $ (15,171) $ (14,506) $ (592) $ -- $ 15,098 $ (15,171)
=========== =========== ========= ===== ========== ===========
F-25
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FISCAL YEAR ENDED FEBRUARY 3, 2001
----------------------------------------------------------------------------------------
BARNEY'S, GUARANTOR NON-GUARANTOR CONSOLIDATED
HOLDINGS INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ---- ------------ ------------ ------------ -----
(IN THOUSANDS)
Net sales...................... $ -- $ 352,646 $ 51,675 $ -- $ -- $ 404,321
Cost of sales.................. -- 188,699 28,026 -- -- 216,725
--------- ----------- --------- ----- -------- -----------
Gross profit................ -- 163,947 23,649 -- -- 187,596
Expenses:
Selling, general and
administrative expenses
(including occupancy
expense of $29,120)......... -- 143,793 17,730 -- -- 161,523
Depreciation and
amortization................ -- 16,587 1,440 -- -- 18,027
Other income-- net............ -- (4,261) (572) -- -- (4,833)
--------- ----------- --------- ----- -------- -----------
Income before interest
and financing costs,
equity in net income of
subsidiary and income
taxes....................... -- 7,828 5,051 -- -- 12,879
Equity in net income of
subsidiary................... (554) -- -- -- 554 --
Interest and financing costs,
net of interest income....... (602) 8,455 3,870 -- -- 11,723
--------- ----------- --------- ----- -------- -----------
Income (loss) before
income taxes................ 1,156 (627) 1,181 -- (554) 1,156
Income taxes................... 546 -- -- -- -- 546
--------- ----------- --------- ----- -------- -----------
Net income (loss)........... $ 610 $ (627) $ 1,181 $ -- $ (554) $ 610
========= =========== ========= ===== ======== ===========
F-26
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
FEBRUARY 1, 2003
-------------------------------------------------------------------------------------------
BARNEY'S, GUARANTOR NON-GUARANTOR CONSOLIDATED
HOLDINGS INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ---- ------------ ------------ ------------ -----
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
Current assets:
Cash and cash equivalents........ $ -- $ 6,666 $ 445 $ -- $ -- $ 7,111
Receivables, less allowances
of $4,225....................... -- 24,575 382 -- -- 24,957
Inventories...................... -- 52,879 9,373 -- -- 62,252
Other current assets............. 8,162 6,097 304 -- -- 14,563
------------ ----------- ---------- ----- ------------ -----------
Total current assets.......... 8,162 90,217 10,504 -- -- 108,883
Fixed assets at cost, less
accumulated depreciation and
amortization of $37,290.......... -- 47,550 2,913 -- -- 50,463
Excess reorganization value,
less accumulated amortization
of $26,372....................... -- 147,764 -- -- -- 147,764
Investment in and advances to
subsidiary....................... 156,113 29,659 -- -- (185,772) --
Other assets...................... -- 1,327 11 -- -- 1,338
------------ ----------- ---------- ----- ------------ -----------
Total assets.................. $ 164,275 $ 316,517 $ 13,428 $ -- $ (185,772) $ 308,448
============ =========== ========== ===== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of
long-term debt.................. $ -- $ 425 $ -- $ -- $ -- $ 425
Revolving credit facility........ -- 10,480 -- -- -- 10,480
Net affiliate payable............ -- 115,208 42,547 -- (157,755) --
Accounts payable................. -- 20,521 226 -- -- 20,747
Accrued expenses................. 598 28,382 4,049 -- -- 33,029
------------ ----------- ---------- ----- ------------ -----------
Total current liabilities..... 598 175,016 46,822 -- (157,755) 64,681
Long-term debt.................... -- 65,051 -- -- -- 65,051
Other long-term liabilities....... 8,089 15,313 (770) -- -- 22,632
Series A Redeemable Preferred
Stock -- Aggregate
liquidation preference $2,000.... 500 -- -- -- -- 500
Commitments and contingencies
Stockholders' equity:
Preferred stock.................. -- -- 214 -- (214) --
Common stock-- $.01 par
value; authorized
25,000,000 shares --
issued 13,903,227 shares........ 139 -- 341 -- (341) 139
Additional paid-in capital....... 166,390 -- 45,176 -- (45,176) 166,390
Other comprehensive income....... -- 496 -- -- -- 496
Retained deficit................. (11,441) 60,641 (78,355) -- 17,714 (11,441)
------------ ----------- ---------- ----- ------------ -----------
Total stockholders' equity.... 155,088 61,137 (32,624) -- (28,017) 155,584
------------ ----------- ---------- ----- ------------ -----------
Total liabilities and
stockholders' equity............. $ 164,275 $ 316,517 $ 13,428 $ -- $ (185,772) $ 308,448
============ =========== ========== ===== ============ ===========
F-27
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
FEBRUARY 2, 2002
--------------------------------------------------------------------------------------------
BARNEY'S, GUARANTOR NON-GUARANTOR CONSOLIDATED
HOLDINGS INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ---- ------------ ------------ ------------ -----
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
Current assets:
Cash and cash equivalents......... $ 6,797 $ 3,347 $ 678 $ 13 $ -- $ 10,835
Restricted cash................... -- 200 -- -- -- 200
Receivables, less allowances
of $4,488........................ -- 26,411 278 -- -- 26,689
Inventories....................... -- 43,002 9,447 -- -- 52,449
Other current assets.............. 3,489 4,874 253 -- -- 8,616
------------ ----------- ---------- ----- ------------ -----------
Total current assets........... 10,286 77,834 10,656 13 -- 98,789
Fixed assets at cost, less
accumulated depreciation and
amortization of $26,530........... -- 46,031 4,110 -- -- 50,141
Excess reorganization value,
less accumulated amortization
of $26,372........................ -- 149,439 -- -- -- 149,439
Investment in and advances to
subsidiary........................ 141,294 29,659 -- -- (170,953) --
Other assets....................... -- 1,443 11 -- -- 1,454
------------ ----------- ---------- ----- ------------ -----------
Total assets................... $ 151,580 $ 304,406 $ 14,777 $ 13 $ (170,953) $ 299,823
============ =========== ========== ===== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facility......... $ -- $ 23,581 $ -- $ -- $ -- $ 23,581
Net affiliate payable............. -- 108,850 48,948 -- (157,798) --
Accounts payable.................. -- 23,321 313 -- -- 23,634
Accrued expenses.................. 1,044 24,473 6,729 -- -- 32,246
------------ ----------- ---------- ----- ------------ -----------
Total current liabilities...... 1,044 180,225 55,990 -- (157,798) 79,461
Long-term debt..................... -- 57,467 -- -- -- 57,467
Other long-term liabilities........ 3,414 13,541 (1,182) -- -- 15,773
Series A Redeemable Preferred
Stock--Aggregate
liquidation preference $2,000..... 500 -- -- -- -- 500
Commitments and contingencies
Stockholders' equity:
Preferred stock................... -- -- 214 -- (214) --
Common stock-- $.01 par
value; authorized
25,000,000 shares --
issued 13,903,227 shares......... 139 -- 341 -- (341) 139
Additional paid-in capital........ 166,390 -- 45,176 -- (45,176) 166,390
Retained deficit.................. (19,907) 53,173 (85,762) 13 32,576 (19,907)
------------ ----------- ---------- ----- ------------ -----------
Total stockholders' equity..... 146,622 53,173 (40,031) 13 (13,155) 146,622
------------ ----------- ---------- ----- ------------ -----------
Total liabilities and
stockholders' equity.............. $ 151,580 $ 304,406 $ 14,777 $ 13 $ (170,953) $ 299,823
============ =========== ========== ===== ============ ===========
F-28
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FISCAL YEAR ENDED FEBRUARY 1, 2003
------------------------------------------------------------------------------------------
BARNEY'S, GUARANTOR NON-GUARANTOR CONSOLIDATED
HOLDINGS INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ---- ------------ ------------ ------------ -----
(IN THOUSANDS)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income........................ $ 8,466 $ 5,200 $ 3,827 $ -- $ (9,027) $ 8,466
Adjustments to reconcile net
income to net cash (used in)
provided by operating
activities:
Depreciation and amortization..... -- 10,493 1,527 -- -- 12,020
Write-off of unamortized bank
fees............................. -- 641 -- -- -- 641
Deferred rent..................... -- 1,772 412 -- -- 2,184
Equity in net income of subsidiary (9,027) -- -- -- 9,027 --
Decrease (increase) in:
Receivables...................... -- 1,836 (104) -- -- 1,732
Inventories...................... -- (9,877) 74 -- -- (9,803)
Other current assets............. -- (727) (51) -- -- (778)
Increase (decrease) in:
Accounts payable and accrued
expenses....................... (444) 2,890 (2,767) -- -- (321)
---------- ------------ --------- ------- ---------- ------------
Net cash (used in) provided by
operating activities........... (1,005) 12,228 2,918 -- -- 14,141
---------- ------------ --------- ------- ---------- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Fixed asset additions............. -- (10,752) (330) -- -- (11,082)
Restricted cash................... -- 200 -- -- -- 200
Investment in and advances to
subsidiary....................... (5,792) 8,626 (2,821) (13) -- --
---------- ------------ --------- ------- ---------- ------------
Net cash used in investing
activities.................... (5,792) (1,926) (3,151) (13) -- (10,882)
---------- ------------ --------- ------- ---------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from debt................ -- 439,691 -- -- -- 439,691
Repayments of debt................ -- (445,216) -- -- -- (445,216)
Payment of bank fees.............. -- (1,458) -- -- -- (1,458)
---------- ------------ --------- ------- ---------- ------------
Net cash used in financing
activities.................... -- (6,983) -- -- -- (6,983)
---------- ------------ --------- ------- ---------- ------------
Net (decrease) increase in cash
and cash equivalents............. (6,797) 3,319 (233) (13) -- (3,724)
Cash and cash equivalents--
beginning of period.............. 6,797 3,347 678 13 -- 10,835
---------- ------------ --------- ------- ---------- ------------
Cash and cash equivalents-- end
of period........................ $ -- $ 6,666 $ 445 $ -- $ -- $ 7,111
========== ============ ========= ======= ========== ============
F-29
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FISCAL YEAR ENDED FEBRUARY 2, 2002
-------------------------------------------------------------------------------------------
BARNEY'S, GUARANTOR NON-GUARANTOR CONSOLIDATED
HOLDINGS INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ---- ------------ ------------ ------------ -----
(IN THOUSANDS)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss......................... $ (15,171) $ (14,506) $ (592) $ -- $ 15,098 $ (15,171)
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Depreciation and amortization.... -- 18,262 1,732 -- -- 19,994
Deferred rent.................... 217 2,024 426 -- -- 2,667
Equity in net loss of subsidiary. 15,098 -- -- -- (15,098) --
Decrease (increase) in:
Receivables..................... -- 888 154 -- -- 1,042
Inventories..................... -- 7,105 1,678 -- -- 8,783
Other current assets............ (217) 928 84 -- -- 795
Long-term assets................ -- (4) -- -- -- (4)
Increase (decrease) in:
Accounts payable and accrued
expenses...................... 80 (2,990) (1,185) -- -- (4,095)
----------- ------------ --------- ----- ---------- ------------
Net cash provided by
operating activities......... 7 11,707 2,297 -- -- 14,011
----------- ------------ --------- ----- ---------- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Fixed asset additions............ -- (11,182) (800) -- -- (11,982)
Contributions from landlords..... -- 613 -- -- -- 613
Investment in and advances to
subsidiary...................... (5,216) 7,267 (2,051) -- -- --
----------- ------------ --------- ----- ---------- ------------
Net cash used in investing
activities................... (5,216) (3,302) (2,851) -- -- (11,369)
----------- ------------ --------- ----- ---------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from debt............... -- 397,613 -- -- -- 397,613
Repayments of debt............... -- (406,264) -- -- -- (406,264)
Payment of bank fees............. -- (525) -- -- -- (525)
----------- ------------ --------- ----- ---------- ------------
Net cash used in financing
activities................... -- (9,176) -- -- -- (9,176)
----------- ------------ --------- ----- ---------- ------------
Net decrease in cash and cash
equivalents..................... (5,209) (771) (554) -- -- (6,534)
Cash and cash equivalents--
beginning of period............. 12,006 4,118 1,232 13 -- 17,369
----------- ------------ --------- ----- ---------- ------------
Cash and cash equivalents--
end of period................... $ 6,797 $ 3,347 $ 678 $ 13 $ -- $ 10,835
=========== ============ ========= ===== ========== ============
F-30
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FISCAL YEAR ENDED FEBRUARY 3, 2001
--------------------------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR CONSOLIDATED
HOLDINGS BARNEY'S, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- -------------- ------------ ------------ ------------ -----
(IN THOUSANDS)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss).............. $ 610 $ (627) $ 1,181 $ -- $ (554) $ 610
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and amortization -- 17,667 1,440 -- -- 19,107
Deferred rent.................. -- 2,553 446 -- -- 2,999
Equity in net income of
subsidiary.................... (554) -- -- -- 554 --
Decrease (increase) in:
Receivables................... -- 489 (86) -- -- 403
Inventories................... -- (2,025) (518) -- -- (2,543)
Other current assets.......... 490 (431) (90) -- -- (31)
Long-term assets.............. -- 14 5 -- -- 19
Increase (decrease) in:
Accounts payable and
accrued expenses............. (33) 2,441 70 -- -- 2,478
---------- ----------- --------- ----- -------- ------------
Net cash provided by
operating activities....... 513 20,081 2,448 -- -- 23,042
---------- ----------- --------- ----- -------- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Fixed asset additions.......... -- (6,965) (1,534) -- -- (8,499)
Reduction in restricted cash... -- 2,243 -- -- -- 2,243
Investment in and advances to
subsidiary.................... (719) 626 93 -- -- --
---------- ----------- --------- ----- -------- ------------
Net cash used in investing
activities................. (719) (4,096) (1,441) -- -- (6,256)
---------- ----------- --------- ----- -------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from debt............. -- 423,745 -- -- -- 423,745
Repayments of debt............. -- (440,682) -- -- -- (440,682)
Proceeds from exercise of
stock options and warrants.... 7,187 -- -- -- -- 7,187
---------- ----------- --------- ----- -------- ------------
Net cash provided by (used
in) financing activities... 7,187 (16,937) -- -- -- (9,750)
---------- ----------- --------- ----- -------- ------------
Net increase (decrease) in
Cash and cash equivalents..... 6,981 (952) 1,007 -- -- 7,036
Cash and cash equivalents--
beginning of period........... 5,025 5,070 225 13 -- 10,333
---------- ----------- --------- ----- -------- ------------
Cash and cash equivalents--
end of period................. $ 12,006 $ 4,118 $ 1,232 $ 13 $ -- $ 17,369
========== =========== ========= ===== ======== ============
F-31
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
2002 -- QUARTER ENDED
----------------------------------------------------------
5/4/02 8/3/02 11/2/02 2/1/03
------------ ------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales...................................................... $ 92,475 $ 81,603 $ 103,299 $ 105,986
Gross profit................................................... 42,469 40,157 46,249 50,473
Net income (loss).............................................. 478 (439) 2,877 5,550
Basic and diluted EPS.......................................... 0.03 (0.03) 0.21 0.40
2001 -- QUARTER ENDED
----------------------------------------------------------
5/5/01 8/4/01 11/3/01 2/2/02
------------- ------------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales...................................................... $ 94,069 $ 85,146 $ 89,408 $ 102,546
Gross profit................................................... 43,220 38,808 36,623 43,673
Net (loss) income.............................................. (3,301) (3,860) (8,448) 438
Basic and diluted EPS.......................................... (0.24) (0.28) (0.61) 0.03
F-32
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
FEBRUARY 1, FEBRUARY 2, FEBRUARY 3,
2003 2002 2001
------------- -------------- ------------
(IN THOUSANDS)
Expenses:
Selling, general and administrative expenses......................... $ -- $ -- $ --
Loss before interest and financing costs, equity in net
(income) loss of subsidiary and income taxes...................... -- -- --
Equity in net (income) loss of subsidiary............................ (9,027) 15,098 (554)
Interest and financing costs, net of interest income................. (39) (366) (602)
----------- ------------- ----------
Income (loss) before income taxes................................. 9,066 (14,732) 1,156
Income taxes......................................................... 600 439 546
----------- ------------- ----------
Net income (loss)................................................. $ 8,466 $ (15,171) $ 610
=========== ============= ==========
F-33
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
FISCAL YEAR FISCAL YEAR
ENDED ENDED
FEBRUARY 1, FEBRUARY 2,
2003 2002
-------------- -------------
(IN THOUSANDS, EXCEPT
SHARE DATA)
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ -- $ 6,797
Other current assets.................................................................... 8,162 3,489
------------- -------------
Total current assets.................................................................. 8,162 10,286
Investment in and advances to subsidiary................................................. 156,113 141,294
------------- -------------
Total assets.......................................................................... $ 164,275 $ 151,580
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses........................................................................ $ 598 $ 1,044
------------- -------------
Total current liabilities............................................................. 598 1,044
Other long-term liabilities.............................................................. 8,089 3,414
Series A Redeemable Preferred Stock -- Aggregate liquidation
preference $2,000.................................................................... 500 500
Commitments and contingencies
Stockholders' equity:
Common stock-- $.01 par value; authorized 25,000,000 shares--
issued 13,903,227 shares.............................................................. 139 139
Additional paid-in capital.............................................................. 166,390 166,390
Retained deficit........................................................................ (11,441) (19,907)
------------- -------------
Total stockholders' equity............................................................ 155,088 146,622
------------- -------------
Total liabilities and stockholders' equity............................................... $ 164,275 $ 151,580
============= =============
F-34
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
FEBRUARY 1, FEBRUARY 2, FEBRUARY 3,
2003 2002 2001
------------- -------------- -------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................................. $ 8,466 $ (15,171) $ 610
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Equity in net (income) loss of subsidiary.......................... (9,027) 15,098 (554)
Deferred rent...................................................... -- 217 --
Decrease (increase) in:
Other current assets.............................................. -- (217) 490
Increase (decrease) in:
Accounts payable and accrued expenses............................. (444) 80 (33)
----------- ------------- -----------
Net cash (used in) provided by operating activities............. (1,005) 7 513
----------- ------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in and advances to subsidiary........................... (5,792) (5,216) (719)
----------- ------------- -----------
Net cash used in investing activities........................... (5,792) (5,216) (719)
----------- ------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options and warrants..................... -- -- 7,187
----------- ------------- -----------
Net cash provided by financing activities....................... -- -- 7,187
----------- ------------- -----------
Net (decrease) increase in cash and cash equivalents............... (6,797) (5,209) 6,981
Cash and cash equivalents-- beginning of period.................... 6,797 12,006 5,025
----------- ------------- -----------
Cash and cash equivalents-- end of period.......................... $ -- $ 6,797 $ 12,006
=========== ============= ===========
NOTE TO CONDENSED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The condensed financial statements of the Company are provided in
compliance with the requirements of Rule 5-04 and 12-04 of Regulation S-X.
In the Company's condensed financial statements, the Company's
investment in subsidiaries is stated at cost plus equity in the undistributed
earnings of the subsidiaries. The Company's share of net income (loss) of its
subsidiaries is included in net income (loss) using the equity method of
accounting. The condensed financial statements should be read in conjunction
with the Company's consolidated financial statements.
F-35
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
FEBRUARY 1, 2003
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------------------------------------- -------------- ----------------------------- --------------- -------------
ADDITIONS
-----------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES(A) ACCOUNTS DEDUCTIONS(B) PERIOD
----------- ------ ----------- -------- ------------- ------
(IN THOUSANDS)
YEAR ENDED FEBRUARY 3, 2001
Deducted from asset accounts:
Allowance for returns and doubtful
accounts........................... $ 3,599 $ 2,982 $ -- $ 2,253 $ 4,328
======== ======== ====== ========= ========
YEAR ENDED FEBRUARY 2, 2002
Deducted from asset accounts:
Allowance for returns and doubtful
accounts........................... $ 4,328 $ 1,840 $ -- $ 1,680 $ 4,488
======== ======== ====== ========= ========
YEAR ENDED FEBRUARY 1, 2003
Deducted from asset accounts:
Allowance for returns and doubtful
accounts........................... $ 4,488 $ 1,323 $ -- $ 1,586 $ 4,225
======== ======== ====== ========= ========
- ----------------------
(a) Primarily provisions for doubtful accounts.
(b) Primarily uncollectible accounts charged against the allowance provided
therefor.
F-36
EXHIBIT INDEX
EXHIBIT NAME OF EXHIBIT
- ------- ---------------
2.1 Second Amended Joint Plan of Reorganization for Barney's, Inc.
and certain of its affiliates proposed by Whippoorwill
Associates, Inc. ("Whippoorwill"), Bay Harbour Management L.C.
("Bay Harbour") and the Official Committee of Unsecured
Creditors dated November 13, 1998 (the "Plan of
Reorganization") (1)
2.2 Supplement to the Plan of Reorganization dated December 8,
1998 (1)
2.3 Second Supplement to the Plan of Reorganization dated December
16, 1998 (1)
3.1 Certificate of Incorporation of Barneys New York, Inc.
("Holdings"), filed with the Secretary of State of the State
of Delaware on November 16, 1998 (1)
3.2 Certificate of Designation for Series A Preferred Stock of
Holdings filed with the Secretary of State of the State of
Delaware on December 24, 1998 (1)
3.3 By-laws of Holdings (1)
4.1 Specimen of Holdings' Common Stock Certificate (1)
4.2 Indenture, dated as of April 1, 2003, among Barney's, Inc.,
Holdings, Barneys America, Inc., Barneys (CA) Lease Corp.,
Barneys (NY) Lease Corp., Basco All-American Sportswear Corp.,
BNY Licensing Corp., Barneys America (Chicago) Lease Corp. and
Wilmington Trust Company (2)
4.3(a) Form of Note (included in Exhibit 4.2 hereto)
4.3(b) Form of Note Guarantee (included in Exhibit 4.2 hereto)
4.4 Registration Rights Agreement, dated April 1, 2003, by and
among Holdings, Barney's, Inc., Barneys America, Inc., Barneys
(CA) Lease Corp., Barneys (NY) Lease Corp., Basco All-American
Sportswear Corp., BNY Licensing Corp., Barneys America
(Chicago) Lease Corp. and Jefferies & Company, Inc. (2)
4.5 Warrant Agreement, dated April 1, 2003, between Holdings and
Wilmington Trust Company (2)
4.6 Form of Warrant Certificate (included in Exhibit 4.5 hereto)
4.7 Equity Registration Rights Agreement, dated April 1, 2003, by
and between Holdings and Jefferies & Company, Inc. (2)
4.8 Security Agreement, dated April 1, 2003, by and among
Barney's, Inc., Barneys America, Inc., Barneys (CA) Lease
Corp., Barneys (NY) Lease Corp., Basco All-American Sportswear
Corp., BNY Licensing Corp., Barneys America (Chicago) Lease
Corp. and Wilmington Trust Company (2)
4.9 Security Agreement, dated April 1, 2003, by and between
Holdings and Wilmington Trust Company (2)
4.10 Pledge Agreement, dated as of April 1, 2003, by and among
Barney's, Inc., Barneys America, Inc., Barneys (CA) Lease
Corp., Barneys (NY) Lease Corp., Basco All-American Sportswear
Corp., BNY Licensing Corp., Barneys America (Chicago) Lease
Corp. and Wilmington Trust Company (2)
EXHIBIT NAME OF EXHIBIT
- ------- ---------------
4.11 Pledge Agreement, dated as of April 1, 2003, by and among
Holdings and Wilmington Trust Company (2)
4.12 Intellectual Property Security Agreement, dated as of April 1,
2003, by Barney's, Inc., Barneys America, Inc., Barneys (CA)
Lease Corp., Barneys (NY) Lease Corp., Basco All-American
Sportswear Corp., BNY Licensing Corp., Barneys America
(Chicago) Lease Corp. and Wilmington Trust Company (2)
10.1 Credit Agreement, among Barney's, 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, Citicorp USA,
Inc. ("CUSA"), as Administrative Agent for such lenders, and
General Electric Capital Corporation, as Documentation Agent
(the "1999 Credit Agreement"), dated as of January 28, 1999
(1)
10.2 First Amendment to the 1999 Credit Agreement dated as of March
23, 1999 (1)
10.3 Second Amendment to the 1999 Credit Agreement dated as of June
2, 1999 (3)
10.4 Third Amendment to the 1999 Credit Agreement dated as of
November 30, 1999 (4)
10.5 Fourth Amendment to the 1999 Credit Agreement dated as of
March 17, 2000 (6)
10.6 Fifth Amendment to the 1999 Credit Agreement dated as of March
30, 2001 (9)
10.7 Sixth Amendment to the 1999 Credit Agreement dated as of
December 12, 2001 (8)
10.8 Guarantee by Holdings in favor of CUSA as the Administrative
Agent dated as of January 28, 1999 (1)
10.9 Security Agreement by Holdings in favor of CUSA as the
Administrative Agent dated as of January 28, 1999 (1)
10.10 Pledge Agreement by Holdings in favor of CUSA as the
Administrative Agent dated as of January 28, 1999 (1)
10.11 Pledge Agreement by Barney's, Inc. in favor of CUSA as the
Administrative Agent dated as of January 28, 1999 (1)
10.12 Security Agreement by Barney's, Inc. in favor of CUSA as the
Administrative Agent dated as of January 28, 1999 (1)
10.13 Trademark Security Agreement by Barney's, Inc. and BNY
Licensing Corp. in favor of CUSA as the Administrative Agent
dated as of January 28, 1999 (1)
10.14 Cash Collateral Pledge Agreement by Barney's, Inc. in favor of
CUSA as the Administrative Agent dated as of January 28, 1999
(1)
10.15 Pledge Agreement by Barneys America, Inc. in favor of CUSA as
the Administrative Agent dated as of January 28, 1999 (1)
10.16 Security Agreement by Barneys America, Inc. in favor of CUSA
as the Administrative Agent dated as of January 28, 1999 (1)
EXHIBIT NAME OF EXHIBIT
- ------- ---------------
10.17 Security Agreement by PFP Fashions Inc. in favor of CUSA as
the Administrative Agent dated as of January 28, 1999 (1)
10.18 Security Agreement by Barneys (CA) Lease Corp. in favor of
CUSA as the Administrative Agent dated as of January 28, 1999
(1)
10.19 Security Agreement by Barneys (NY) Lease Corp. in favor of
CUSA as the Administrative Agent dated as of January 28, 1999
(1)
10.20 Security Agreement by Basco All-American Sportswear Corp. in
favor of CUSA as the Administrative Agent dated as of January
28, 1999 (1)
10.21 Security Agreement by Barneys America (Chicago) Lease Corp. in
favor of CUSA as the Administrative Agent dated as of January
28, 1999 (1)
10.22 Security Agreement by BNY Licensing Corp. in favor of CUSA as
Administrative Agent dated as of January 28, 1999 (1)
10.23 Subordinated Note issued by Barney's, Inc. and payable to
Isetan of America, Inc. ("Isetan") dated January 28, 1999 (the
"Isetan Note") (1)
10.24 Guarantee by Holdings of the Isetan Note dated January 28,
1999 (1)
10.25 Subordinated Note issued by Barney's, Inc. and payable to
Bi-Equipment Lessors LLC, dated January 28, 1999 (the
"Bi-Equipment Lessors Note") (1)
10.26 Guarantee by Holdings of the Bi-Equipment Lessors Note dated
as of January 28, 1999 (1)
10.27 Security Agreement by Barney's, Inc. in favor of Bi-Equipment
Lessors LLC dated as of January 28, 1999 (1)
10.28 License Agreement among Barney's, Inc., BNY Licensing Corp.
and Barneys Japan Co. Ltd. dated as of January 28, 1999 (1)
10.29 Stock Option Plan for Non-Employee Directors effective as of
March 11, 1999 (1)*
10.30 Employee Stock Option Plan (7)*
10.31 Registration Rights Agreement by and among Holdings and the
Holders party thereto dated as of January 28, 1999 (the
"Registration Rights Agreement") (1)
10.32 Amendment No.1 dated as of February 1, 2000, to the
Registration Rights Agreement (4)
10.33 Letter Agreement, dated January 28, 1999, among Bay Harbour,
Whippoorwill, Isetan and Holdings (5)
10.34 Employment Agreement between Holdings and Howard Socol
effective as of January 8, 2001 (9)*
10.35 First Amendment to Employment Agreement, effective as of
January 10, 2003, between Holdings and Howard Socol (2)*
10.36 Registration Rights Agreement between Holdings and Howard
Socol dated as of January 8, 2001 (9)
EXHIBIT NAME OF EXHIBIT
- ------- ---------------
10.37 Restricted Stock Award Agreement, dated February 2, 2003,
between Holdings and Howard Socol (2)*
10.38 Option Award Agreement, dated January 8, 2001, between
Holdings and Howard Socol (2)*
10.39 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 "2002 Credit Agreement") (10)
10.40 Guaranty by Holdings in favor of GE Capital, dated as of July
15, 2002 (10)
10.41 Security Agreement by the Borrowers under the 2002 Credit
Agreement, in favor of GE Capital, dated as of July 15, 2002
(10)
10.42 Pledge Agreement by the Borrowers under the 2002 Credit
Agreement, in favor of GE Capital, dated as of July 15, 2002
(10)
10.43 Security Agreement by Holdings in favor of GE Capital, dated
as of July 15, 2002 (10)
10.44 Pledge Agreement by Holdings in favor of GE Capital, dated as
of July 15, 2002 (10)
10.45 Intellectual Property Security Agreement by the Borrowers
under the 2002 Credit Agreement, in favor of GE Capital, dated
as of July 15, 2002 (10)
10.46 First Amendment, dated as of April 1, 2003, to Security
Agreement by the Borrowers under the 2002 Credit Agreement, in
favor of GE Capital (2)
10.47 Purchase Agreement, dated March 26, 2003, by and among
Holdings, Barney's, Inc., Barneys America, Inc., Barneys (CA)
Lease Corp., Barneys (NY) Lease Corp., Basco All-American
Sportswear Corp., BNY Licensing Corp., Barneys America
(Chicago) Lease Corp. and Jefferies & Company, Inc. (2)
10.48 Restated Credit Agreement, dated as of April 1, 2003, 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 institutions party thereto from
time to time as lenders, and General Electric Capital
Corporation, for itself, as Lender, and as the Administrative
Agent for such lenders (2)
10.49 Omnibus Amendment and Confirmation of Collateral Documents,
dated as of April 1, 2003, by and among Holdings, 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.,
and General Electric Capital Corporation, as administrative
agent for the lenders (2)
EXHIBIT NAME OF EXHIBIT
- ------- ---------------
10.50 First Amendment to License Agreement, dated as of February 5,
2003, by and between Barney's, Inc., BNY Licensing Corp. and
Barneys Japan Co., Ltd. (2)
21 Subsidiaries of the Registrant (2)
23 Consent of Independent Auditors (2)
99.1 Certification of Chief Executive Officer required by 18 U.S.C.
Section 1350 (2)
99.2 Certification of Chief Financial Officer required by 18 U.S.C.
Section 1350 (2)
(1) Incorporated by reference to Holdings' Registration Statement on Form
10 (the "Form 10") filed with the Securities and Exchange Commission
(the "Commission") on June 1, 1999.
(2) Filed herewith.
(3) Incorporated by reference to Holdings' Quarterly Report on Form 10-Q
for the quarter ended May 1, 1999.
(4) Incorporated by reference to Amendment No. 2 to the Form 10 filed
with the Commission on February 15, 2000.
(5) Incorporated by reference to Amendment No. 1 to the Form 10 filed
with the Commission on October 13, 1999.
(6) Incorporated by reference to Amendment No. 3 to the Form 10 filed
with the Commission on April 21, 2000.
(7) Incorporated by reference to Exhibit A to the Proxy Statement of
Holdings for its annual meeting of Stockholders held on June 27,
2000.
(8) Incorporated by reference to Holdings' Quarterly Report on Form 10-Q
for the quarter ended November 3, 2001.
(9) Incorporated by reference to Holdings' Annual Report on Form 10-K for
the year ended February 3, 2001.
(10) Incorporated by reference to Holdings' Quarterly Report on Form 10-Q
for the quarter ended August 3, 2002.
* Management contracts or compensatory plans or arrangements.