================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
{ X } Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended May 3, 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.
----------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-4040818
-------- ------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
575 Fifth Avenue, New York, New York 10017
------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 339-7300
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes { X } No { }
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes { } No { X }
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes { X } No { }
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
As of June 13, 2003 there were 14,103,227 shares of Barneys New York,
Inc. common stock, par value $0.01 per share, outstanding.
================================================================================
BARNEYS NEW YORK, INC.
FORM 10-Q
QUARTER ENDED May 3, 2003
Table of Contents
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed consolidated statements of operations - Three months
ended May 3, 2003 and May 4, 2002 3
Condensed consolidated balance sheets - May 3, 2003 and
February 1, 2003 4
Condensed consolidated statements of cash flows - Three months
ended May 3, 2003 and May 4, 2002 5
Notes to condensed consolidated financial statements - May 3, 2003 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 16
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 23
ITEM 4. Controls and Procedures 23
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 24
ITEM 2. Changes in Securities and Use of Proceeds 24
ITEM 6. Exhibits and Reports on Form 8-K 26
SIGNATURES 27
2
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Barneys New York, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(UNAUDITED)
THREE MONTHS ENDED
MAY 3, 2003 MAY 4, 2002
------------------- -------------------
Net sales $ 91,385 $ 92,475
Cost of sales 50,597 50,006
------------------- -------------------
Gross profit 40,788 42,469
Expenses:
Selling, general and administrative expenses (including occupancy costs) 37,718 38,308
Depreciation and amortization 2,809 2,554
Other income - net (2,048) (1,670)
------------------- -------------------
Income before interest and financing costs
and income taxes 2,309 3,277
Interest and financing costs, net of interest income 3,369 2,703
------------------- -------------------
(Loss) income before income taxes (1,060) 574
Income taxes 150 96
------------------- -------------------
Net (loss) income $ (1,210) $ 478
=================== ===================
Basic and diluted net (loss) income per share of common stock $ (0.09) $ 0.03
=================== ===================
Weighted average number of shares of common
stock outstanding 14,103 13,903
=================== ===================
The accompanying notes are an integral part of these financial statements.
3
Barneys New York, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(UNAUDITED)
MAY 3, FEBRUARY 1,
2003 2003
------------------ ------------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,476 $ 7,111
Receivables, less allowances of $4,200 and $4,225 27,993 24,957
Inventories 61,561 62,252
Other current assets 14,739 14,563
------------------ ------------------
Total current assets 109,769 108,883
Fixed assets at cost, less accumulated depreciation
and amortization of $40,099 and $37,290 48,381 50,463
Excess reorganization value 147,764 147,764
Other assets 9,089 1,338
------------------ ------------------
Total assets $ 315,003 $ 308,448
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ - $ 425
Revolving credit facility 17,445 10,480
Accounts payable 15,366 20,747
Accrued expenses 25,142 33,029
------------------ ------------------
Total current liabilities 57,953 64,681
Long-term debt 88,357 65,051
Other long-term liabilities 11,230 22,632
Series A Redeemable Preferred Stock - Aggregate liquidation preference $2,000 500 500
Stockholders' equity:
Common stock--$.01 par value; authorized
25,000,000 shares--shares issued 14,103,227 and 13,903,227 141 139
Additional paid-in capital 169,187 166,390
Other comprehensive income 286 496
Retained deficit (12,651) (11,441)
------------------ ------------------
Total stockholders' equity 156,963 155,584
------------------ ------------------
Total liabilities and stockholders' equity $ 315,003 $ 308,448
================== ==================
The accompanying notes are an integral part of these financial statements.
4
Barneys New York, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(UNAUDITED)
THREE MONTHS ENDED
MAY 3, 2003 MAY 4, 2002
----------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (1,210) $ 478
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation and amortization 3,422 2,960
Write-off of unamortized bank fees 364 -
Deferred rent 598 605
Deferred compensation 106 -
(Increase) decrease in:
Receivables (3,036) (768)
Inventories 691 1,536
Other current assets 358 (662)
Long-term assets (1,597) -
(Decrease) increase in:
Accounts payable and accrued expenses (13,268) (13,540)
----------------- ------------------
Net cash used in operating activities (13,572) (9,391)
----------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed asset additions (727) (3,577)
----------------- ------------------
Net cash used in investing activities (727) (3,577)
----------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit agreement 128,444 110,400
Repayments of credit agreement (129,054) (99,228)
Proceeds from senior note offering 90,100 -
Repayment of long term debt (58,064) -
Payment of deferred rent obligation (12,000) -
Debt origination costs (6,762) -
----------------- ------------------
Net cash provided by financing activities 12,664 11,172
----------------- ------------------
Net decrease in cash and cash equivalents (1,635) (1,796)
Cash and cash equivalents - beginning of period 7,111 10,835
----------------- ------------------
Cash and cash equivalents - end of period $ 5,476 $ 9,039
================= ==================
The accompanying notes are an integral part of these financial statements.
5
BARNEYS NEW YORK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
Barneys New York, Inc. ("Holdings") and subsidiaries (collectively
the "Company") is a leading upscale retailer of men's, women's and children's
apparel and accessories and items for the home. The accompanying unaudited
condensed consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended May 3, 2003 are not necessarily
indicative of the results for the entire year.
The balance sheet at February 1, 2003 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended February 1, 2003.
(2) Debt
Long-Term Debt consisted of the following at:
May 3, 2003 February 1, 2003
(000's) -----------------------------------------
9% Senior secured notes $ 88,357 $ -
Term loan borrowings - 7,150
$22,500 Subordinated Note - 22,112
Equipment Notes - 35,789
------------------ --------------------
Total $ 88,357 $ 65,051
================== ====================
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
6
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.
Net proceeds to the Company from the offering 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 were deferred and are included in
other assets. Such amount will be amortized to interest expense over the term of
the notes. The net proceeds from the offering 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 lease obligations pursuant to its flagship leases.
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 Company's
credit facility.
(3) Income Taxes
The Company provides United States federal income taxes based on its
estimated annual effective tax rate for the fiscal year. For the three months
ended May 3, 2003 and May 4, 2002, a provision for federal income taxes has not
been recorded due to the significant net operating loss carry-forwards available
to the Company. In the respective periods, however, the Company has provided
income taxes principally for state, local and franchise taxes.
7
(4) Earnings (loss) Per Share ("EPS")
Basic EPS is computed as net (loss) income available to common
stockholders divided by the weighted average number of common shares
outstanding. Diluted EPS reflects the incremental increase in common shares
outstanding assuming the exercise of stock options and warrants that would have
had a dilutive effect on EPS. Net (loss) income attributed to common
stockholders is not materially affected by the 1% dividend on the 5,000 issued
and outstanding shares of preferred stock.
Options and warrants to acquire an aggregate of 1,627,234 and
1,734,464 shares of common stock were not included in the computation of diluted
earnings per common share for the three months ended May 3, 2003 and May 4,
2002, respectively, as including them would have been anti-dilutive.
(5) Stock-based Compensation
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 above.
THREE MONTHS ENDED
------------------
MAY 3, MAY 4,
2003 2002
---------- ----------
Net (loss) income -as reported................................................... $ (1,210) $ 478
Deduct: Stock-based employee compensation expense determined under fair value
method, net of related tax effects............................................ (125) (149)
---------- ----------
Pro-forma net (loss) income ..................................................... $ (1,335) $ 329
========== ==========
Net (loss) income per share:
Basic and diluted-- as reported.................................................. $ (0.09) $ 0.03
Basic and diluted-- pro-forma.................................................... (0.09) 0.02
As of May 3, 2003, the Company's common stock was quoted on the
Nasdaq Over-The-Counter Bulletin Board, but was only traded on a limited or
sporadic basis and there was no established public trading market for such
common stock.
(6) New Accounting Pronouncements
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"). 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
8
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.
In the three months ended May 3, 2003, the implementation of the
provisions of EITF 02-16 had the effect of increasing selling, general and
administrative expenses and net loss by $458,000 and $58,000, respectively, and
decreasing cost of sales by $400,000. EITF 02-16 had no impact on the Company's
cash flows. Had EITF 02-16 been in effect for the three months ended May 4,
2002, selling, general and administrative expenses would have increased by
approximately $296,000 and cost of sales and net income would have decreased by
approximately $260,000 and $36,000, respectively, for the three months ended May
4, 2002.
(7) Other
On or about July 31, 2002, an individual filed a class action
complaint against the Company in the Superior Court for the State of California,
County of San Diego. The complaint alleges two causes of action for purported
violations of California's Civil Code and Business and Professions Code relating
to the alleged requesting by the Company of certain information. The 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 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. The Company believes that the complaint is without merit,
that it has substantial defenses to the claims and plans 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 or
about June 19, 2003 as well as satisfaction of certain other conditions. No
assurances can be provided 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 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.
9
(8) Condensed Consolidating Financial Information
On April 1, 2003, Barney's, Inc., a subsidiary of Holdings, issued
$106.0 million principal amount of its 9% senior secured notes due April 1,
2008, as more fully discussed in Note 2 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.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MAY 3, 2003
---------------------------------------------------------------------------------------
BARNEY'S, GUARANTOR NON-GUARANTOR CONSOLIDATED
HOLDINGS INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ---- ------------ ------------ ------------ -----
(IN THOUSANDS)
Net sales............................. $ -- $ 80,967 $ 10,418 $ -- $ -- $ 91,385
Cost of sales......................... -- 45,608 4,989 -- -- 50,597
----------- ----------- --------- ------ ---------- ------------
Gross profit....................... -- 35,359 5,429 -- -- 40,788
Expenses:
Selling, general and
administrative expenses
(including occupancy
expense)........................... 106 34,156 3,456 -- -- 37,718
Depreciation and amortization........ -- 2,629 180 -- -- 2,809
Other income-- net................... -- (2,048) -- -- -- (2,048)
----------- ----------- --------- ------ ---------- ------------
(Loss) income before interest
and financing costs,
equity in net loss of
subsidiary and
income taxes...................... (106) 622 1,793 -- -- 2,309
Equity in net loss of
subsidiary........................ 954 -- -- -- (954) --
Interest and financing costs,
net of interest income............... -- 3,369 -- -- -- 3,369
----------- ----------- --------- ------ ---------- ------------
(Loss) income before income taxes.. (1,060) (2,747) 1,793 -- 954 (1,060)
Income taxes.......................... 150 -- -- -- -- 150
----------- ----------- --------- ------ ---------- ------------
Net (loss) income.................. $ (1,210) $ (2,747) $ 1,793 $ -- $ 954 $ (1,210)
=========== =========== ========= ====== ========== ============
10
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MAY 4, 2002
------------------------------------------------------------------------------------------
BARNEY'S, GUARANTOR NON-GUARANTOR CONSOLIDATED
HOLDINGS INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ---- ------------ ------------ ------------ -----
(IN THOUSANDS)
Net sales....................... $ -- $ 82,131 $ 10,344 $ -- $ -- $ 92,475
Cost of sales................... -- 45,169 4,837 -- -- 50,006
------------ ------------ ---------- ------ ---------- -----------
Gross profit................. -- 36,962 5,507 -- -- 42,469
Expenses:
Selling, general and
administrative expenses
(including occupancy
expense)..................... -- 34,692 3,616 -- -- 38,308
Depreciation and
amortization................. -- 2,131 423 -- -- 2,554
Other income-- net............. -- (1,670) -- -- -- (1,670)
------------ ------------ ---------- ------ ---------- -----------
Income before
interest and
financing costs,
equity in net income of
subsidiary and income
taxes........................ -- 1,809 1,468 -- -- 3,277
Equity in net income of subsidiary (550) -- -- -- 550 --
Interest and financing
costs, net of interest
income........................ (24) 2,727 -- -- -- 2,703
------------ ------------ ---------- ------ ---------- -----------
Income (loss) before income
taxes........................ 574 (918) 1,468 -- (550) 574
Income taxes.................... 96 -- -- -- -- 96
------------ ------------ ---------- ------ ---------- -----------
Net income (loss)............ $ 478 $ (918) $ 1,468 $ -- $ (550) $ 478
============ ============ ========== ====== ========== ===========
11
CONDENSED CONSOLIDATING BALANCE SHEET
MAY 3, 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......... $ -- $ 5,185 $ 291 $ -- $ -- $ 5,476
Receivables, less allowances
of $4,200........................ -- 27,702 291 -- -- 27,993
Inventories....................... -- 50,201 11,360 -- -- 61,561
Other current assets.............. 8,906 5,545 288 -- -- 14,739
------------- ----------- ----------- ------ ------------- ------------
Total current assets........... 8,906 88,633 12,230 -- -- 109,769
Fixed assets at cost, less
accumulated depreciation and
amortization of $40,099........... -- 45,574 2,807 -- -- 48,381
Excess reorganization value........ -- 147,764 -- -- -- 147,764
Investment in and advances to
subsidiary........................ 156,876 29,510 -- -- (186,386) --
Other assets....................... -- 9,078 11 -- -- 9,089
------------- ----------- ----------- ------ ------------- ------------
Total assets................... $ 165,782 $ 320,559 $ 15,048 $ -- $ (186,386) $ 315,003
============= =========== =========== ====== ============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facility......... $ -- $ 17,445 $ -- $ -- $ -- $ 17,445
Net affiliate payable............. -- 117,248 42,075 -- (159,323) --
Accounts payable.................. -- 15,197 169 -- -- 15,366
Accrued expenses.................. 516 19,321 5,305 -- -- 25,142
------------- ----------- ----------- ------ ------------- ------------
Total current liabilities...... 516 169,211 47,549 -- (159,323) 57,953
Long-term debt..................... -- 88,357 -- -- -- 88,357
Other long-term liabilities........ 8,089 4,811 (1,670) -- -- 11,230
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 14,103,227 shares......... 141 -- 341 -- (341) 141
Additional paid-in capital........ 169,187 -- 45,176 -- (45,176) 169,187
Other comprehensive income....... -- 286 -- -- -- 286
Retained deficit.................. (12,651) 57,894 (76,562) -- 18,668 (12,651)
------------- ----------- ----------- ------ ------------- ------------
Total stockholders' equity..... 156,677 58,180 (30,831) -- (27,063) 156,963
------------- ----------- ----------- ------ ------------- ------------
Total liabilities and
stockholders' equity.............. $ 165,782 $ 320,559 $ 15,048 $ -- $ (186,386) $ 315,003
============= =========== =========== ====== ============= ============
12
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
============= ============ =========== ====== ============= ============
13
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MAY 3, 2003
-------------------------------------------------------------------------------------------
BARNEY'S, GUARANTOR NON-GUARANTOR CONSOLIDATED
HOLDINGS INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ---- ------------ ------------ ------------ -----
(IN THOUSANDS)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net (loss) income................. $ (1,210) $ (2,747) $ 1,793 $ -- $ 954 $ (1,210)
Adjustments to reconcile net
(loss) income to net cash
(used in) provided by operating
activities:
Depreciation and amortization..... -- 3,242 180 -- -- 3,422
Write-off of unamortized bank
fees............................. -- 364 -- -- -- 364
Deferred rent..................... -- 598 -- -- -- 598
Deferred compensation............. 106 -- -- -- -- 106
Equity in net loss of subsidiary.. 954 -- -- -- (954) --
Decrease (increase) in:
Receivables...................... -- (3,127) 91 -- -- (3,036)
Inventories...................... -- 2,678 (1,987) -- -- 691
Other current assets............. -- 342 16 -- -- 358
Long-term assets................. -- (1,597) -- -- -- (1,597)
Increase (decrease) in:
Accounts payable and accrued
expenses....................... (82) (14,385) 1,199 -- -- (13,268)
----------- ------------- ----------- ------- ---------- ------------
Net cash (used in) provided by
operating activities........... (232) (14,632) 1,292 -- -- (13,572)
----------- ------------- ----------- ------- ---------- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Fixed asset additions............. -- (652) (75) -- -- (727)
Investment in and advances to
subsidiary....................... 232 1,139 (1,371) -- -- --
----------- ------------- ----------- ------- ---------- ------------
Net cash provided by (used in)
investing activities.............. 232 487 (1,446) -- -- (727)
----------- ------------- ----------- ------- ---------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from credit agreement.... -- 128,444 -- -- -- 128,444
Repayments of credit agreement.... -- (129,054) -- -- -- (129,054)
Proceeds from senior note
offering.......................... -- 90,100 -- -- -- 90,100
Repayment of long term debt....... -- (58,064) -- -- -- (58,064)
Payment of deferred rent
obligation....................... -- (12,000) -- -- -- (12,000)
Debt origination costs............ -- (6,762) -- -- -- (6,762)
----------- ------------- ----------- ------- ---------- ------------
Net cash provided by financing
activities.................... -- 12,664 -- -- -- 12,664
----------- ------------- ----------- ------- ---------- ------------
Net decrease in cash
and cash equivalents............. -- (1,481) (154) -- -- (1,635)
Cash and cash equivalents--
beginning of period.............. -- 6,666 445 -- -- 7,111
----------- ------------- ----------- ------- ---------- ------------
Cash and cash equivalents-- end
of period........................ $ -- $ 5,185 $ 291 $ -- $ -- $ 5,476
=========== ============= =========== ======= ========== ============
14
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MAY 4, 2002
-----------------------------------------------------------------------------------------
BARNEY'S, GUARANTOR NON-GUARANTOR CONSOLIDATED
HOLDINGS INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ---- ------------ ------------ ------------ -----
(IN THOUSANDS)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)................ $ 478 $ (918) $ 1,468 $ -- $ (550) $ 478
Adjustments to reconcile net
income (loss) to net cash provided by
(used in)
operating activities:
Depreciation and amortization.... -- 2,537 423 -- -- 2,960
Deferred rent.................... -- 605 -- -- -- 605
Equity in net income of
subsidiary....................... (550) -- -- -- 550 --
Decrease (increase) in:
Receivables..................... -- (760) (8) -- -- (768)
Inventories..................... -- 3,001 (1,465) -- -- 1,536
Other current assets............ -- (629) (33) -- -- (662)
Increase (decrease) in:
Accounts payable and accrued
expenses...................... 1,122 (13,460) (1,202) -- -- (13,540)
------------ ------------- ---------- ------ ----------- ------------
Net cash provided by (used in)
operating activities.......... 1,050 (9,624) (817) -- -- (9,391)
------------ ------------- ---------- ------ ----------- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Fixed asset additions............ -- (3,541) (36) -- -- (3,577)
Investment in and advances to
subsidiary...................... (3,576) 2,450 1,126 -- -- --
------------ ------------- ---------- ------ ----------- ------------
Net cash (used in) provided by
investing activities........... (3,576) (1,091) 1,090 -- -- (3,577)
------------ ------------- ---------- ------ ----------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from credit agreement -- 110,400 -- -- -- 110,400
Repayments of credit agreement -- (99,228) -- -- -- (99,228)
------------ ------------- ---------- ------ ----------- ------------
Net cash provided by financing
activities....................... -- 11,172 -- -- -- 11,172
------------ ------------- ---------- ------ ----------- ------------
Net (decrease) increase in cash and
cash equivalents................. (2,526) 457 273 -- -- (1,796)
Cash and cash equivalents--
beginning of period............. 6,797 3,347 678 13 -- 10,835
------------ ------------- ---------- ------ ----------- ------------
Cash and cash equivalents--
end of period................... $ 4,271 $ 3,804 $ 951 $ 13 $ -- $ 9,039
============ ============= ========== ====== =========== ============
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. 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 the Company's expected business outlook,
anticipated financial and operating results, the Company's business strategy and
means to implement the strategy, the Company's objectives, the amount and timing
of future store openings and capital expenditures, the likelihood of the
Company's success in expanding its 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 the Company's
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 the Company sells, 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 the Company's 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 the Company's dependence on its relationships with certain designers;
o the Company's ability and the ability of its 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 the Company's ability to accurately predict its sales;
o the continued service of the Company's key executive officers and
managers;
o the Company being controlled by its principal stockholders;
16
o the Company's ability to enforce its intellectual property rights and
defend infringement claims;
o interruptions in the supply of the merchandise the Company sells;
o changing preferences of the Company's customers;
o the Company's ability to borrow additional funds;
o the Company's substantial indebtedness;
o significant operating and financial restrictions placed on the Company
by the indenture governing Barney's, Inc.'s 9% senior secured notes
and the Company's credit facility; and
o other factors referenced in the Company's Annual Report on Form 10-K
for the fiscal year ended February 1, 2003, including those set forth
under "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations - Forward-Looking Statements."
The Company believes the forward-looking statements in this Form 10-Q
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 the
Company undertakes no obligation to update publicly any of them in light of new
information or future events.
Results of Operations
The Company sells to consumers through three inter-related
distribution channels consisting of full-price stores, outlet stores and
warehouse sale events.
Three Months Ended May 3, 2003 Compared to the Three Months Ended May 4, 2002
Net sales for the three months ended May 3, 2003 were $91.4 million
compared to $92.5 million for the three months ended May 4, 2002, a decrease of
1.2%. Comparable store sales declined 1.5%. Sales in the period were impacted by
a continued weak economic environment, compounded by geo-political events,
including the war in Iraq and unseasonably cool temperatures and extreme weather
conditions, particularly in the Northeast region where a significant portion of
the Company's sales are generated.
Gross profit on sales decreased 4.0% to $40.8 million for the three
months ended May 3, 2003 from $42.5 million in the three months ended May 4,
2002. This decrease is primarily due to the sales decrease discussed above and
increased promotional selling. As a result, gross profit as a percentage of net
sales was 44.6% for the three months ended May 3, 2003 compared to 45.9% for the
three months ended May 4, 2002. Gross profit for the three months ended May 3,
2003 was also favorably impacted by $400,000 in connection with the
implementation of EITF 02-16.
Selling, general and administrative expenses, including occupancy
expenses, decreased 1.5% in the three months ended May 3, 2003 to $37.7 million
from $38.3 million in the three months ended May 4, 2002. Selling, general and
administrative expenses for the three months ended May 3, 2003 were unfavorably
impacted by $458,000 in connection with the implementation of EITF 02-16. In the
17
three months ended May 3, 2003, personnel and related costs decreased in the
aggregate approximately $0.6 million. These savings resulted from various
factors including reductions in hours worked, position eliminations, and reduced
variable personnel costs in line with the reduced sales discussed above.
Excluding the unfavorable impact of EITF 02-16, net advertising costs decreased
$0.5 million from the three months ended May 4, 2002 principally as a result of
timelier billing of contractual vendor contributions associated therewith. These
reductions, as well as other individually less significant reductions in costs
as a result of reduced sales and continued cost reduction focus, were offset by
higher insurance premiums of $0.2 million and higher net occupancy costs of $0.1
million. The higher net occupancy costs were primarily driven by significant
increases in real estate taxes associated with our New York area locations. As a
result of the continued focus on reducing the operating expenses of the Company,
selling, general and administrative expenses, excluding the impact of EITF
02-16, declined to 40.8% of sales in the three months ended May 3, 2003 from
41.4% in the three months ended May 4, 2002.
Depreciation and amortization increased 10.0% in the three months
ended May 3, 2003 to $2.8 million from $2.6 million in the three months ended
May 4, 2002 as a result of the additional depreciation related to the capital
projects completed over the last couple of years, principally in the Company's
Madison Avenue flagship store.
Interest expense, net increased 24.6% in the three months ended May
3, 2003 to $3.4 million from $2.7 million in the three months ended May 4, 2002,
as a result of the increased cost of capital associated with the completion of
the Company's senior notes offering on April 1, 2003 and the write-off of
approximately $0.4 million in unamortized fees associated with the amendment of
the prior GE Facility (as defined below) in connection with the senior notes
offering. Average borrowings under the Company's credit facility for the three
months ended May 3, 2003 and May 4, 2002 were $19.7 million and $32.1 million,
respectively, and the effective interest rate on this portion of the Company's
outstanding debt, inclusive of amortization of bank fees and unused line fees
but exclusive of the $0.4 million write-off referred to above, was 8.0% in the
three months ended May 3, 2003 compared to 11.2% in the three months ended May
4, 2002.
Other income, which primarily includes finance charge income in
connection with the Company's private label credit card operations, also
includes $0.7 million in the three months ended May 3, 2003 related to a cash
payment received by the Company in connection with an amendment to the existing
license agreement and the granting of its consent to certain matters relating to
the establishment of an additional Barneys New York store in Japan and $0.4
million in the three months ended May 4, 2002 related to the assignment of a
subsidiary's interest in a trademark unrelated to the Company's business.
The Company's net loss for the three months ended May 3, 2003 was
$1.2 million compared to net income of $0.5 million for the three months ended
May 4, 2002. Basic and diluted net loss per common share for the three months
ended May 3, 2003 was $0.09. Basic and diluted net income per common share for
the three months ended May 4, 2002 was $0.03.
18
LIQUIDITY AND CAPITAL
Liquidity and Capital Resources
Cash used in operations for the three months ended May 3, 2003 and
May 4, 2002 was approximately $13.6 million and $9.4 million, respectively. This
increase is partially a result of the earnings decline and increased working
capital requirements primarily related to accounts receivable. The Company's
working capital was $51.8 million at May 3, 2003 compared to $44.2 million at
February 1, 2003. The Company's primary source of liquidity has been borrowings
under its credit facility, although such reliance is easing based on its
operating performance.
The Company incurred capital expenditures of $0.7 million during the
three months ended May 3, 2003. Of the total capital expenditures, $0.4 million
was spent on leasehold improvements, $0.2 million was spent on furniture,
fixtures and equipment and $0.1 million was spent on management information
systems. Pursuant to the covenants contained in the Company's credit facility,
the Company's total capital expenditures for fiscal year 2003 were established
at a base level of $10 million subject to certain permitted adjustments. The
Company will principally fund its capital expenditures through borrowings under
its credit facility.
SENIOR NOTES OFFERING
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
19
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.
Net proceeds to the Company from the offering 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 were deferred and are included in
other assets. Such amount will be amortized to interest expense over the term of
the notes. The net proceeds from the offering 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 lease obligations pursuant to its flagship leases.
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 Company's
credit facility.
REVOLVING CREDIT AGREEMENT
On July 15, 2002, the Company entered into a $105,000,000 Credit
Facility led by General Electric Capital Corporation, as Administrative Agent
(the "GE Facility"). The GE Facility provided 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").
Contemporaneously with the consummation of the senior notes offering, the
Company repaid the term loan outstanding under its credit facility and entered
into a 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 the Company 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. The restated credit facility eliminated, among other things, the 30 day
clean-down provision and amended the financial covenants in the GE Facility, and
also added a minimum excess borrowing base availability covenant, all as
outlined below.
In connection with the origination of the GE Facility, the Company
incurred fees of approximately $1,500,000. In connection with the above
mentioned restatement of that facility, the Company incurred fees of
approximately $384,000 and wrote-off fees associated with the origination of the
GE Facility of $364,000 which amount is included in interest and financing costs
for the three months ended May 3, 2003. The unamoritized portion of such fees is
20
being amortized over the life of the restated credit facility as interest and
financing costs and is included in Other Assets.
A summary of the financial covenants and other terms of the restated
credit facility are as follows:
The restated credit facility is secured by a first-priority lien on
substantially all of the Company's assets, other than real property leaseholds.
The assets that secure the Company's restated credit facility include, but are
not limited to, the Company's accounts receivable, inventories, general
intangibles (including software), equipment and fixtures, equity interests of
subsidiaries owned by the Company, 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 the Company
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
21
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 -- The Company's 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.
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 matures on July 15, 2006.
Based on the Company's current level of operations, the Company
believes its cash flow from operations, available cash and available borrowings
under its restated credit facility will be adequate to meet its liquidity needs
for at least the next 12 months, including scheduled payments of interest on its
9% senior secured notes and payments of interest on borrowings under the
restated credit facility. The Company's ability to make payments on and to
refinance its indebtedness and to fund planned capital expenditures will depend
on its ability to generate cash in the future. This, to a certain extent, is
subject to general economic, financial, competitive, regulatory and other
factors beyond the Company's control.
At May 3, 2003, the Company had approximately $22,618,000 of
availability under the restated credit facility, after considering $17,445,000
and $24,046,000 of loans and letters of credit, respectively, outstanding and
the minimum excess borrowing base availability of $8,000,000.
Management believes that it will be in compliance with the financial
covenants contained in the restated credit 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.
NEW ACCOUNTING PRONOUNCEMENTS
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"). 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
22
provisions of EITF 02-16 are effective for all new arrangements, or
modifications to existing arrangements, entered into after December 31, 2002.
In the three months ended May 3, 2003, the implementation of EITF
02-16 had the effect of increasing selling, general and administrative expenses
and net loss by $458,000 and $58,000, respectively, and decreasing cost of sales
by $400,000. EITF 02-16 had no impact on the Company's cash flows. Had EITF
02-16 been in effect for the three months ended May 4, 2002, selling, general
and administrative expenses would have increased by approximately $296,000 and
cost of sales and net income would have decreased by approximately $260,000 and
$36,000, respectively, for the three months ended May 4, 2002.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the reported market risks
since the end of the most recent fiscal year.
ITEM 4. CONTROLS AND PROCEDURES
(a) The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the Company's
filings under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the periods specified in the rules and forms of
the Securities and Exchange Commission. Such information is accumulated and
communicated to the Company's management, including its principal executive
officer and principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure. The Company's management, including its
principal executive officer and principal financial officer, recognizes that any
set of controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives.
Within 90 days prior to the filing date of this quarterly report on
Form 10-Q, the Company has carried out an evaluation, under the supervision and
with the participation of the Company's management, including the Company's
principal executive officer and the Company's principal financial officer, of
the effectiveness of the design and operation of the Company's disclosure
controls and procedures. Based on such evaluation, the Company's principal
executive officer and principal financial officer concluded that the Company's
disclosure controls and procedures are effective.
(b) There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect the internal
controls subsequent to the date of their evaluation in connection with the
preparation of this quarterly report on Form 10-Q.
23
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 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 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. The Company believes that the complaint is without merit,
that it has substantial defenses to the claims and plans 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 or
about June 19, 2003 as well as satisfaction of certain other conditions. No
assurances can be provided 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 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.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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. 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 the Company paid the initial purchaser in connection with the
sale of the units, the Company also paid Jeffries & Company, Inc. an approximate
$3.3 million fee for certain financial advisory and investment banking services
24
provided by it to the Company. Net proceeds to the Company 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 the Company entered into a
registration rights agreement pursuant to which the Company 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 the Company has
agreed to file a shelf registration statement that would allow some or all of
the notes to be offered to the public. If the Company does not comply with the
terms of the registration rights agreement, 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.
25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Description
99.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350
99.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350
(b) Reports on Form 8-K
The following Reports on Form 8-K were filed or submitted during the
three months ended May 3, 2003:
A Current Report on Form 8-K, dated March 3, 2003, reporting Item 5
"Other Events"
A Current Report on Form 8-K, dated March 3, 2003, reporting Item 9
"Regulation FD Disclosure"
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: June 17, 2003
BARNEYS NEW YORK, INC.
By: /s/ Steven M. Feldman
--------------------------------
Name: Steven M. Feldman
Title: Executive Vice President,
Chief Financial Officer
27
I, Howard Socol, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Barneys New
York, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying 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 we have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors:
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: June 17, 2003
By: /s/ Howard Socol
-----------------------------
Howard Socol
Chief Executive Officer
28
I, Steven M. Feldman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Barneys New
York, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying 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 we have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors:
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: June 17, 2003
By: /s/ Steven M. Feldman
-------------------------
Steven M. Feldman
Chief Financial Officer
29
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
99.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350
99.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350
30