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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
{ X } Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended August 2, 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
incorporation or organization) identification number)
575 Fifth Avenue, New York, New York 10017
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 339-7300
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes { X } No { }
Indicate by check mark whether the registrant 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 September 12, 2003 there were 14,103,227 shares of Barneys New
York, Inc. common stock, par value $0.01 per share, outstanding.
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BARNEYS NEW YORK, INC.
FORM 10-Q
QUARTER ENDED August 2, 2003
Table of Contents
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed consolidated statements of operations - Three and six months
ended August 2, 2003 and August 3, 2002 3
Condensed consolidated balance sheets - August 2, 2003 and February 1, 2003 4
Condensed consolidated statements of cash flows - Six months ended
August 2, 2003 and August 3, 2002 5
Notes to condensed consolidated financial statements - August 2, 2003 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 19
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 29
ITEM 4. Controls and Procedures 29
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 30
ITEM 4. Submission of Matters to a Vote of Security Holders 31
ITEM 6. Exhibits and Reports on Form 8-K 32
SIGNATURES 33
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Barneys New York, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
AUGUST 2, AUGUST 3, AUGUST 2, AUGUST 3,
2003 2002 2003 2002
-------------- ------------- -------------- -------------
Net sales $ 88,707 $ 81,603 $ 180,092 $ 174,078
Cost of sales 48,164 41,446 98,761 91,452
-------------- ------------- -------------- -------------
Gross profit 40,543 40,157 81,331 82,626
Expenses:
Selling, general and administrative expenses
(including occupancy costs) 36,975 35,666 74,693 73,974
Depreciation and amortization 2,825 2,700 5,634 5,254
Other income - net (1,229) (1,196) (3,277) (2,866)
-------------- ------------- -------------- -------------
Operating income 1,972 2,987 4,281 6,264
Interest and financing costs, net of interest income 3,924 3,326 7,293 6,029
-------------- ------------- -------------- -------------
(Loss) income before income taxes (1,952) (339) (3,012) 235
Income taxes 150 100 300 196
-------------- ------------- -------------- -------------
Net (loss) income $ (2,102) $ (439) $ (3,312) $ 39
============== ============= ============== =============
Basic and diluted net (loss) income per share of common stock $ (0.15) $ (0.03) $ (0.23) $ 0.00
============== ============= ============== =============
Weighted average number of shares of common
stock outstanding 14,103 13,903 14,103 13,903
============== ============= ============== =============
The accompanying notes are an integral part of these financial statements.
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Barneys New York, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(UNAUDITED)
AUGUST 2, FEBRUARY 1,
2003 2003
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ASSETS
Current assets:
Cash and cash equivalents $ 3,986 $ 7,111
Receivables, less allowances of $4,164 and $4,225 23,909 24,957
Inventories 66,500 62,252
Other current assets 9,495 7,908
-------------------- --------------------
Total current assets 103,890 102,228
Fixed assets at cost, less accumulated depreciation
and amortization of $42,924 and $37,290 46,767 50,463
Excess reorganization value 147,764 147,764
Other assets 8,669 1,338
-------------------- --------------------
Total assets $ 307,090 $ 301,793
==================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ - $ 425
Revolving credit facility 3,054 10,480
Accounts payable 26,898 20,747
Accrued expenses 27,271 33,029
-------------------- --------------------
Total current liabilities 57,223 64,681
Long-term debt 89,085 65,051
Other long-term liabilities 5,450 15,977
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 257 496
Retained deficit (14,753) (11,441)
-------------------- --------------------
Total stockholders' equity 154,832 155,584
-------------------- --------------------
Total liabilities and stockholders' equity $ 307,090 $ 301,793
==================== ====================
The accompanying notes are an integral part of these financial statements.
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Barneys New York, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(UNAUDITED)
SIX MONTHS ENDED
AUGUST 2, AUGUST 3,
2003 2002
---------------------- ------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (3,312) $ 39
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization 7,460 6,054
Write-off of unamortized bank fees 364 641
Deferred compensation 212 -
Deferred rent 1,473 1,190
(Increase) decrease in:
Receivables 1,048 3,339
Inventories (4,248) (8,533)
Other current assets (1,188) (1,839)
Long-term assets (1,664) -
(Decrease) increase in:
Accounts payable and accrued expenses 393 (2,590)
---------------------- ------------------------
Net cash provided by (used in) operating activities 538 (1,699)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed asset additions (1,937) (7,546)
Reduction in restricted cash - 200
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Net cash used in investing activities (1,937) (7,346)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit agreement 215,877 225,882
Repayments of credit agreement (230,877) (220,996)
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) (1,340)
---------------------- ------------------------
Net cash (used in) provided by financing activities (1,726) 3,546
---------------------- ------------------------
Net decrease in cash and cash equivalents (3,125) (5,499)
Cash and cash equivalents - beginning of period 7,111 10,835
---------------------- ------------------------
Cash and cash equivalents - end of period $ 3,986 $ 5,336
====================== ========================
The accompanying notes are an integral part of these financial statements.
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BARNEYS NEW YORK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
Barneys New York, Inc. ("Holdings") and subsidiaries (collectively
the "Company") is a leading upscale retailer of men's, women's and children's
apparel and accessories and items for the home. The accompanying unaudited
condensed consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and six months ended August 2, 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 Holdings' Annual Report on Form
10-K for the fiscal year ended February 1, 2003.
(2) Debt
Long-Term Debt consisted of the following at:
(000's) August 2, 2003 February 1, 2003
---------------------------------------------------------
9.000% Senior secured notes $ 89,085 $ -
Term loan borrowings - 7,150
$22,500 Subordinated Note - 22,112
Equipment Notes - 35,789
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Total $ 89,085 $ 65,051
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On April 1, 2003, the Company completed an offering of 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 9.000% senior secured notes
due April 1, 2008 of Barney's, Inc., a wholly owned subsidiary of Holdings, and
one warrant to purchase 3.412 shares of common stock of Holdings at an exercise
price of $0.01 per share. $106.0 million aggregate principal amount at maturity
of notes were issued, together with an aggregate of 106,000 warrants to acquire
an aggregate of 361,672 shares of common stock of Holdings. The warrants expire
on April 1, 2008. Approximately $1.9 million of the proceeds from the offering
was allocated to the warrants and the remainder of the proceeds was allocated to
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the notes. The total debt discount of $17.8 million is being amortized over the
life of the notes. 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 and have that
registration statement declared effective by the SEC within 180 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. On June 30, 2003 the Company
filed the exchange offer registration statement with the SEC.
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 $22.5
million 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
prepayment of the $22.5 million Subordinated Note and the Equipment Notes
aggregated approximately $58.1 million and resulted in a gain on early
extinguishments of debt of approximately $200,000.
The 9.000% 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 9.000% senior secured notes and the related
guarantees are secured by a second-priority lien on the same assets that secure
the Company's credit facility.
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(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 and six
months ended August 2, 2003 and August 3, 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.
(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 1,988,906 shares of
common stock were not included in the computation of diluted earnings per common
share for the three and six months ended August 2, 2003 as including them would
have been anti-dilutive. Options and warrants to acquire an aggregate of
1,734,464 shares of common stock were not included in the computation of diluted
earnings per common share for the three and six months ended August 3, 2002, as
including them would have been anti-dilutive.
(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 SIX MONTHS ENDED
-------------------------- --------------------------
AUGUST 2, AUGUST 3, AUGUST 2, AUGUST 3,
2003 2002 2003 2002
------------ ------------ ------------ ----------
Net (loss) income -as reported............................................$ (2,102) $ (439) $ (3,312) $ 39
Deduct: Stock-based employee compensation expense determined under
fair value method, net of related tax effects.......................... (274) (352) (548) (704)
------------ ------------ ------------ ----------
Pro-forma net loss........................................................$ (2,376) $ (791) $ (3,860) $ (665)
============ ============ ============ ==========
Net (loss) income per share:
Basic and diluted-- as reported...........................................$ (0.15) $ (0.03) $ (0.23) $ 0.00
Basic and diluted-- pro-forma............................................. (0.17) (0.06) (0.27) (0.05)
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As of August 2, 2003, Holdings' common stock was quoted on the
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) Comprehensive Income
Comprehensive income is comprised of net income (loss) and the effect
of changes in unrealized gains and losses on forward exchange contracts used to
hedge merchandise commitments. For the three and six months ended August 2,
2003, the Company's total comprehensive loss amounted to $2.1 million and $3.5
million, respectively.
(7) New Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46,
"Consolidation of Variable Interest Entities, an interpretation of Accounting
Research Bulletin No. 51" ("Interpretation No. 46"). Interpretation No. 46
requires the consolidation of entities in which an enterprise absorbs a majority
of the entity's expected losses, receives a majority of the entity's expected
residual returns, or both, as a result of ownership, contractual or other
financial interests in an entity. Currently, entities are generally consolidated
by an enterprise when it has a controlling financial interest through ownership
of a majority voting interest in the entity. The provisions of Interpretation
No. 46 are required to be adopted by the Company in the third quarter of the
fiscal year ending January 31, 2004. The Company is currently evaluating the
requirements and impact of Interpretation No. 46, however, at the present time,
the Company does not believe there are any additional entities that will require
disclosure or consolidation as a result of the provisions of Interpretation No.
46.
In May 2003, the FASB issued Statement No. 150 "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity". This Statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. The provisions of SFAS No. 150 are required to be adopted by the
Company in the third quarter of the fiscal year ending January 31, 2004. The
Company is currently evaluating the requirements and impact of this statement,
however, at the present time, the Company does not believe the provisions of
SFAS No. 150 will have a material effect on its consolidated financial
statements.
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
provisions of EITF 02-16 are effective for all new arrangements, or
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modifications to existing arrangements, entered into after December 31, 2002.
The implementation of the provisions of EITF 02-16 did not have a
material impact on the Company's operating results for the three months ended
August 2, 2003. For the six months ended August 2, 2003, the implementation of
the provisions of EITF 02-16 had the effect of increasing selling, general and
administrative expenses by $458,000 and decreasing cost of sales by $458,000.
EITF 02-16 had no impact on the Company's cash flows. Had EITF 02-16 been in
effect for the six months ended August 3, 2002, selling, general and
administrative expenses would have increased by approximately $296,000 and cost
of sales would have decreased by approximately $296,000.
(8) 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 alleged 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
sought 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 sought 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
were sought by the complaint as well. On August 28, 2003, this matter was
settled by order of the court for an immaterial amount.
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.
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(9) Condensed Consolidating Financial Information
On April 1, 2003, Barney's, Inc., a wholly owned subsidiary of
Holdings, issued $106.0 million principal amount of its 9.000% senior secured
notes due April 1, 2008, as more fully discussed in Note 2 above. The guarantor
subsidiaries are 100% owned by Holdings. 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 AUGUST 2, 2003
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BARNEY'S, GUARANTOR NON-GUARANTOR CONSOLIDATED
HOLDINGS INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ---- ------------ ------------ ------------ -----
(IN THOUSANDS)
Net sales............................. $ -- $ 76,385 $ 12,322 $ -- $ -- $ 88,707
Cost of sales......................... -- 40,215 7,949 -- -- 48,164
---------- ----------- --------- --------- ---------- -----------
Gross profit....................... -- 36,170 4,373 -- -- 40,543
Expenses:
Selling, general and administrative
expenses (including occupancy
expense)........................... 106 33,329 3,540 -- -- 36,975
Depreciation and amortization........ -- 2,640 185 -- -- 2,825
Other income-- net................... -- (1,229) -- -- -- (1,229)
---------- ----------- --------- --------- ---------- -----------
Operating (loss) income............ (106) 1,430 648 -- -- 1,972
Equity in net loss of subsidiary...... 1,846 -- -- -- (1,846) --
Interest and financing costs,
net of interest income............... -- 3,924 -- -- -- 3,924
---------- ----------- --------- --------- ---------- -----------
(Loss) income before income taxes.. (1,952) (2,494) 648 -- 1,846 (1,952)
Income taxes.......................... 150 -- -- -- -- 150
---------- ----------- --------- --------- ---------- -----------
Net (loss) income.................. $ (2,102) $ (2,494) $ 648 $ -- $ 1,846 $ (2,102)
========== =========== ========= ========= ========== ===========
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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED AUGUST 3, 2002
-------------------------------------------------------------------------------------------
BARNEY'S, GUARANTOR NON-GUARANTOR CONSOLIDATED
HOLDINGS INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ---- ------------ ------------ ------------ -----
(IN THOUSANDS)
Net sales....................... $ -- $ 70,634 $ 10,969 $ -- $ -- $ 81,603
Cost of sales................... -- 34,362 7,084 -- -- 41,446
----------- ----------- --------- --------- ---------- -----------
Gross profit................. -- 36,272 3,885 -- -- 40,157
Expenses:
Selling, general and
administrative expenses
(including occupancy
expense)..................... -- 31,997 3,669 -- -- 35,666
Depreciation and amortization.. -- 2,274 426 -- -- 2,700
Other income-- net............. -- (1,196) -- -- -- (1,196)
----------- ----------- --------- --------- ---------- -----------
Operating income (loss)........ -- 3,197 (210) -- -- 2,987
Equity in net loss of
subsidiary.................... 354 -- -- -- (354) --
Interest and financing costs,
net of interest income........ (15) 3,341 -- -- -- 3,326
----------- ----------- --------- --------- ---------- -----------
(Loss) income before income
taxes......................... (339) (144) (210) -- 354 (339)
Income taxes.................... 100 -- -- -- -- 100
----------- ----------- --------- --------- ---------- -----------
Net (loss) income............ $ (439) $ (144) $ (210) $ -- $ 354 $ (439)
=========== =========== ========= ========= ========== ===========
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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 2, 2003
-------------------------------------------------------------------------------------------
BARNEY'S, GUARANTOR NON-GUARANTOR CONSOLIDATED
HOLDINGS INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ---- ------------ ------------ ------------ -----
(IN THOUSANDS)
Net sales....................... $ -- $ 157,352 $ 22,740 $ -- $ -- $ 180,092
Cost of sales................... -- 85,823 12,938 -- -- 98,761
----------- ----------- --------- --------- ---------- -----------
Gross profit................. -- 71,529 9,802 -- -- 81,331
Expenses:
Selling, general and
administrative expenses
(including occupancy
expense)..................... 212 67,485 6,996 -- -- 74,693
Depreciation and amortization.. -- 5,269 365 -- -- 5,634
Other income-- net............. -- (3,277) -- -- -- (3,277)
----------- ----------- --------- --------- ---------- -----------
Operating (loss) income........ (212) 2,052 2,441 -- -- 4,281
Equity in net loss of subsidiary 2,800 -- -- -- (2,800) --
Interest and financing costs,
net of interest income........ -- 7,293 -- -- -- 7,293
----------- ----------- --------- --------- ---------- -----------
(Loss) income before income
taxes......................... (3,012) (5,241) 2,441 -- 2,800 (3,012)
Income taxes.................... 300 -- -- -- -- 300
----------- ----------- --------- --------- ---------- -----------
Net (loss) income............ $ (3,312) $ (5,241) $ 2,441 $ -- $ 2,800 $ (3,312)
=========== =========== ========= ========= ========== ===========
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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 3, 2002
-------------------------------------------------------------------------------------------
BARNEY'S, GUARANTOR NON-GUARANTOR CONSOLIDATED
HOLDINGS INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ---- ------------ ------------ ------------ -----
(IN THOUSANDS)
Net sales....................... $ -- $ 152,765 $ 21,313 $ -- $ -- $ 174,078
Cost of sales................... -- 79,531 11,921 -- -- 91,452
----------- ----------- --------- --------- ---------- -----------
Gross profit................. -- 73,234 9,392 -- -- 82,626
Expenses:
Selling, general and
administrative expenses
(including occupancy
expense)..................... -- 66,689 7,285 -- -- 73,974
Depreciation and amortization.. -- 4,405 849 -- -- 5,254
Other income-- net............. -- (2,866) -- -- -- (2,866)
----------- ----------- --------- --------- ---------- -----------
Operating income............... -- 5,006 1,258 -- -- 6,264
Equity in net income of
subsidiary.................... (196) -- -- -- 196 --
Interest and financing costs,
net of interest income........ (39) 6,068 -- -- -- 6,029
----------- ----------- --------- --------- ---------- -----------
Income (loss) before income
taxes......................... 235 (1,062) 1,258 -- (196) 235
Income taxes.................... 196 -- -- -- -- 196
----------- ----------- --------- --------- ---------- -----------
Net income (loss)............ $ 39 $ (1,062) $ 1,258 $ -- $ (196) $ 39
=========== =========== ========= ========= ========== ===========
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CONDENSED CONSOLIDATING BALANCE SHEET
AUGUST 2, 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......... $ -- $ 3,554 $ 432 $ -- $ -- $ 3,986
Receivables, less allowances
of $4,164........................ -- 23,660 249 -- -- 23,909
Inventories....................... -- 56,482 10,018 -- -- 66,500
Other current assets.............. 2,145 6,988 362 -- -- 9,495
------------ ----------- ---------- --------- ------------ -----------
Total current assets........... 2,145 90,684 11,061 -- -- 103,890
Fixed assets at cost, less
accumulated depreciation and
amortization of $42,924........... -- 44,067 2,700 -- -- 46,767
Excess reorganization value........ -- 147,764 -- -- -- 147,764
Investment in and advances to
subsidiary........................ 154,876 29,360 -- -- (184,236) --
Other assets....................... -- 8,658 11 -- -- 8,669
------------ ----------- ---------- --------- ------------ -----------
Total assets................... $ 157,021 $ 320,533 $ 13,772 $ -- $ (184,236) $ 307,090
============ =========== ========== ========= ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facility......... $ -- $ 3,054 $ -- $ -- $ -- $ 3,054
Net affiliate payable............. -- 119,556 39,463 -- (159,019) --
Accounts payable.................. -- 26,602 296 -- -- 26,898
Accrued expenses.................. 514 21,003 5,754 -- -- 27,271
------------ ----------- ---------- --------- ------------ -----------
Total current liabilities...... 514 170,215 45,513 -- (159,019) 57,223
Long-term debt..................... -- 89,085 -- -- -- 89,085
Other long-term liabilities........ 1,432 5,576 (1,558) -- -- 5,450
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
Accumulated other comprehensive
income......................... -- 257 -- -- -- 257
Retained deficit.................. (14,753) 55,400 (75,914) -- 20,514 (14,753)
------------ ----------- ---------- --------- ------------ -----------
Total stockholders' equity..... 154,575 55,657 (30,183) -- (25,217) 154,832
------------ ----------- ---------- --------- ------------ -----------
Total liabilities and stockholders'
equity.......................... $ 157,021 $ 320,533 $ 13,772 $ -- $ (184,236) $ 307,090
============ =========== ========== ========= ============ ===========
- 15 -
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............. 1,507 6,097 304 -- -- 7,908
------------ ----------- ---------- --------- ------------ -----------
Total current assets.......... 1,507 90,217 10,504 -- -- 102,228
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.................. $ 157,620 $ 316,517 $ 13,428 $ -- $ (185,772) $ 301,793
============ =========== ========== ========= ============ ===========
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....... 1,434 15,313 (770) -- -- 15,977
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
Accumulated 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............. $ 157,620 $ 316,517 $ 13,428 $ -- $ (185,772) $ 301,793
============ =========== ========== ========= ============ ===========
- 16 -
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED AUGUST 2, 2003
-------------------------------------------------------------------------------------------
BARNEY'S, GUARANTOR NON-GUARANTOR CONSOLIDATED
HOLDINGS INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ---- ------------ ------------ ------------ -----
(IN THOUSANDS)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net (loss) income................. $ (3,312) $ (5,241) $ 2,441 $ -- $ 2,800 $ (3,312)
Adjustments to reconcile net
(loss) income to net cash
(used in) provided by operating
activities:
Depreciation and amortization..... -- 7,095 365 -- -- 7,460
Write-off of unamortized bank
fees............................. -- 364 -- -- -- 364
Deferred rent..................... -- 1,261 212 -- -- 1,473
Deferred compensation............. 212 -- -- -- -- 212
Equity in net loss of subsidiary.. 2,800 -- -- -- (2,800) --
Decrease (increase) in:
Receivables...................... -- 915 133 -- -- 1,048
Inventories...................... -- (3,603) (645) -- -- (4,248)
Other current assets............. -- (1,130) (58) -- -- (1,188)
Long-term assets................. -- (1,664) -- -- -- (1,664)
Increase (decrease) in:
Accounts payable and accrued
expenses....................... (84) (1,298) 1,775 -- -- 393
----------- ------------ ----------- --------- ---------- ------------
Net cash (used in) provided by
operating activities........... (384) (3,301) 4,223 -- -- 538
----------- ------------ ----------- --------- ---------- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Fixed asset additions............. -- (1,784) (153) -- -- (1,937)
Investment in and advances to
subsidiary....................... 384 3,699 (4,083) -- -- --
----------- ------------ ----------- --------- ---------- ------------
Net cash provided by (used in)
investing activities.......... 384 1,915 (4,236) -- -- (1,937)
----------- ------------ ----------- --------- ---------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from credit agreement.... -- 215,877 -- -- -- 215,877
Repayments of credit agreement.... -- (230,877) -- -- -- (230,877)
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.................... -- (1,726) -- -- -- (1,726)
----------- ------------ ----------- --------- ---------- ------------
Net decrease in cash and cash
equivalents...................... -- (3,112) (13) -- -- (3,125)
Cash and cash equivalents--
beginning of period.............. -- 6,666 445 -- -- 7,111
----------- ------------ ----------- --------- ---------- ------------
Cash and cash equivalents-- end
of period........................ $ -- $ 3,554 $ 432 $ -- $ -- $ 3,986
========== ============ =========== ========= ========== ============
- 17 -
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED AUGUST 3, 2002
-------------------------------------------------------------------------------------------
BARNEY'S, GUARANTOR NON-GUARANTOR CONSOLIDATED
HOLDINGS INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ---- ------------ ------------ ------------ -----
(IN THOUSANDS)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)................ $ 39 $ (1,062) $ 1,258 $ -- $ (196) $ 39
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization.... -- 5,205 849 -- -- 6,054
Deferred rent.................... -- 983 207 -- -- 1,190
Write-off of unamortized bank
fees........................... -- 641 -- -- -- 641
Equity in net income of
subsidiary................... (196) -- -- -- 196 --
Decrease (increase) in:
Receivables..................... -- 3,304 35 -- -- 3,339
Inventories..................... -- (8,700) 167 -- -- (8,533)
Other current assets............ -- (1,748) (91) -- -- (1,839)
Increase (decrease) in:
Accounts payable and accrued
expenses...................... 870 (2,955) (505) -- -- (2,590)
----------- ------------ ---------- -------- ---------- ------------
Net cash provided by (used in)
operating activities.......... 713 (4,332) 1,920 -- -- (1,699)
----------- ------------ ---------- -------- ---------- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Fixed asset additions............ -- (7,364) (182) -- -- (7,546)
Reduction in restricted cash..... -- 200 -- -- -- 200
Investment in and advances to
subsidiary...................... (7,323) 9,242 (1,919) -- -- --
----------- ------------ ---------- -------- ---------- ------------
Net cash (used in) provided by
investing activities....... (7,323) 2,078 (2,101) -- -- (7,346)
----------- ------------ ---------- -------- ---------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from credit agreement... -- 225,882 -- -- -- 225,882
Repayment of credit agreement.... -- (220,996) -- -- -- (220,996)
Debt origination costs........... -- (1,340) -- -- -- (1,340)
----------- ------------ ---------- -------- ---------- ------------
Net cash provided by financing
activities................. -- 3,546 -- -- -- 3,546
----------- ------------ ---------- -------- ---------- ------------
Net (decrease) increase in cash
and cash equivalents............ (6,610) 1,292 (181) -- -- (5,499)
Cash and cash equivalents--
beginning of period............. 6,797 3,347 678 13 -- 10,835
----------- ------------ ---------- -------- ---------- ------------
Cash and cash equivalents--
end of period................... $ 187 $ 4,639 $ 497 $ 13 $ -- $ 5,336
=========== ============ ========== ======== ========== ============
- 18 -
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;
- 19 -
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
9.000% 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. 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
GENERAL
Net Sales
The Company sells to consumers through three inter-related distribution
channels consisting of full-price stores, outlet stores and warehouse sale
events. We determine comparable store net sales increases or decreases using the
net sales of all stores that are open as of the beginning and end of both the
pertinent fiscal period, regardless of store relocation or expansion of existing
square footage. Net sales of all stores closed during a fiscal year are excluded
from the determination of the comparable net store sales increases (decreases)
on a prospective basis effective with the date of closing.
Expense classification
Cost of sales includes the cost of merchandise sold as well as costs
associated with the purchase of our merchandise primarily including inbound
freight and duty costs, buying agent costs, foreign exchange gains and losses on
settlement of foreign denominated purchases, sample costs and label costs. In
the current year, cost of sales also includes the impact of the implementation
of EITF 02-16 as discussed below. All other expenses, except depreciation and
amortization, interest and income taxes, but including internal transfer costs
and warehousing and distribution expenses, are included in selling, general and
administrative expenses, because the predominant costs associated with these
expenses, most notably occupancy costs and personnel costs, are general and
administrative in nature. Based on these classifications, our gross margins may
not be comparable to those of other entities, since some entities include the
costs related to their distribution network and retail store rent expenses in
- 20 -
cost of sales and others, like us, exclude them from gross margin, including
them instead in selling, general and administrative expenses.
Three Months Ended August 2, 2003 Compared to the Three Months Ended
August 3, 2002
Net sales for the three months ended August 2, 2003 were $88.7
million compared to $81.6 million for the three months ended August 3, 2002, an
increase of 8.7%. Comparable store sales increased 8.7%. Sales in the period
benefited from a more aggressive promotional environment as well as an improving
economic and retail atmosphere.
Gross profit on sales increased 1.0% to $40.5 million for the three
months ended August 2, 2003 from $40.2 million in the three months ended August
3, 2002. This net increase is primarily attributable to the following: the sales
increase discussed above favorably impacted our gross profit by approximately
$3.0 million; increased promotional selling unfavorably impacted our gross
profit by approximately $900,000; foreign exchange losses (driven by the weak US
dollar) on settlement of foreign denominated purchases, unfavorably impacted our
gross profit by approximately $800,000 and an increase in our inventory shortage
unfavorably impacted our gross profit by approximately $700,000. As a result,
gross profit as a percentage of net sales was 45.7% for the three months ended
August 2, 2003 compared to 49.2% for the three months ended August 3, 2002.
Selling, general and administrative expenses, including occupancy
expenses, increased 3.7% in the three months ended August 2, 2003 to $37.0
million from $35.7 million in the three months ended August 3, 2002. In the
three months ended August 2, 2003, personnel and related costs increased in the
aggregate approximately $500,000. This increase resulted from various factors
including raises and higher variable personnel costs in line with the increased
sales discussed above and higher benefit costs as compared to the prior year
quarter which included an approximate $500,000 benefit related to a one-time
concession received by the Company related to a renegotiated collective
bargaining agreement. In addition, insurance expense increased approximately
$400,000, due primarily to higher premiums, net occupancy costs increased
approximately $300,000, primarily driven by significant increases in real estate
taxes associated with our New York area locations and net advertising expense
increased approximately $300,000. These increases, as well as other individually
less significant increases, driven in part by increased sales, were offset by
reductions in various overhead expenses resulting from the Company's continued
cost reduction efforts. As a percentage of sales, selling, general and
administrative expenses declined to 41.7% in the three months ended August 2,
2003 from 43.7% in the three months ended August 3, 2002.
Depreciation and amortization increased 4.6% in the three months
ended August 2, 2003 to $2.8 million from $2.7 million in the three months ended
August 3, 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.
- 21 -
Interest expense, net increased 18.0% in the three months ended
August 2, 2003 to $3.9 million from $3.3 million in the three months ended
August 3, 2002, as a result of the increased cost of capital associated with
Barney's, Inc.'s senior notes issued on April 1, 2003. Interest expense in the
three months ended August 3, 2002 included a $600,000 write-off of the
unamortized fees associated with a prior revolving credit facility which was
replaced in that period. There were no comparable charges in the three months
ended August 2, 2003. The Company's dependence on borrowings from its credit
facility are largely seasonal in nature, especially with the new long-term debt
in place. Accordingly, average borrowings under the Company's credit facility
for the three months ended August 2, 2003 declined to $4.2 million from $29.4
million at August 3, 2002.
Other income, which primarily includes finance charge income in
connection with the Company's private label credit card operations, approximated
$1.2 million in both the current and prior year period.
The Company's net loss for the three months ended August 2, 2003 and
August 3, 2002 was $2.1 million and $439,000, respectively. Basic and diluted
net loss per common share for the three months ended August 2, 2003 and August
3, 2002 were $0.15 and $0.03, respectively.
Six Months Ended August 2, 2003 Compared to the Six Months Ended August 3, 2002
Net sales for the six months ended August 2, 2003 were $180.1 million
compared to $174.1 million in the year ago period, an increase of 3.5%.
Comparable store sales increased approximately 3.3%. An improving economic and
retail atmosphere as well as a more aggressive promotional environment in the
second quarter helped increase sales in the second quarter. This stronger sales
trend exhibited throughout the second quarter, reversed the sales declines of
the first quarter which were impacted by the weak economy, the war in Iraq and
unusually severe weather conditions, particularly in the northeast.
Gross profit on sales decreased 1.6% to $81.3 million for the six
months ended August 2, 2003 from $82.6 million in the six months ended August 3,
2002. This net decrease is primarily attributable to the following: the sales
increase discussed above favorably impacted our gross profit by approximately
$2.7 million; increased promotional selling unfavorably impacted our gross
profit by approximately $1.6 million; foreign exchange losses (driven by the
weak US dollar) on settlement of foreign denominated purchases and a declining
initial mark-up, unfavorably impacted our gross profit by approximately $1.9
million; an increase in our inventory shortage unfavorably impacted our gross
profit by approximately $400,000; and the implementation of EITF 02-16 favorably
impacted our gross profit by $458,000. As a result, gross profit as a percentage
of net sales was 45.2% for the six months ended August 2, 2003 compared to 47.5%
in the year ago period.
Selling, general and administrative expenses, including occupancy
expenses, increased 1.0% in the six-month period ended August 2, 2003 to $74.7
million from $74.0 million in the six month period ended August 3, 2002. In the
six months ended August 2, 2003, personnel and related costs were approximately
equal with those costs of the prior year. The Company incurred increases in
- 22 -
personnel costs due to raises and higher variable costs due to the sales
increases discussed above. Additionally, the Company's benefit costs were higher
in the first six months of the year as compared to the prior year period, which
included an approximate $500,000 benefit related to a one-time concession
received by the Company related to a renegotiated collective bargaining
agreement. These increases were offset by the benefits of personnel reductions,
reductions in hours worked and reduced expenses associated with certain
ancillary benefits. In addition, insurance expense increased approximately
$550,000, due primarily to higher premiums, net occupancy costs increased
approximately $400,000, primarily driven by significant increases in real estate
taxes associated with our New York area locations and net advertising expense
increased approximately $300,000. This increase in net advertising expense was
primarily attributed to the implementation of EITF 02-16 whereby the Company
recorded approximately $458,000 of vendor cooperative advertising contributions
to cost of sales in the current year thereby decreasing cost of sales and
increasing advertising expense. The increases discussed above, as well as other
individually less significant increases, driven in part by increased sales, were
offset by reductions in various overhead expenses resulting from the Company's
continued cost reduction efforts. As a percentage of sales, selling, general and
administrative expenses declined to 41.5% in the six months ended August 2, 2003
from 42.5% in the six months ended August 3, 2002.
Depreciation and amortization increased 7.2% in the six-month period
ended August 2, 2003 to $5.6 million from $5.3 million in the prior year period
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 21.0% in the six months ended August
2, 2003 to $7.3 million from $6.0 million in the six months ended August 3,
2002, principally as a result of the increased cost of capital associated with
Barney's, Inc.'s senior notes issued on April 1, 2003. The Company's dependence
on borrowings from its credit facility are largely seasonal in nature,
especially with the new long-term debt in place. Accordingly, average borrowings
under the Company's credit facility for the six months ended August 2, 2003
declined to $12.0 million from $30.8 million at August 3, 2002.
Other income, which primarily includes finance charge income in
connection with the Company's private label credit card operations, increased
14.3% to $3.3 million in the six months ended August 2, 2003 from $2.9 million
in the six months ended August 3, 2002. Other income for the six months ended
August 2, 2003 also includes $750,000 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. Other income for the six months
ended August 3, 2002 also includes $400,000 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 six months ended August 2, 2003 was
$3.3 million compared to net income of $39,000 for the six months ended August
3, 2002. Basic and diluted net (loss) income per common share for the six months
ended August 2, 2003 and August 3, 2002 were $(0.23) and $0.00, respectively.
- 23 -
LIQUIDITY AND CAPITAL
Liquidity and Capital Resources
Cash provided by operations for the six months ended August 2, 2003
was approximately $538,000 compared with cash used by operating activities of
$1.7 million for the six months ended August 3, 2002. This increase is primarily
a result of reduced working capital requirements primarily related to inventory
and accounts payable. The Company's working capital was $46.7 million at August
2, 2003 compared to $37.5 million at February 1, 2003. The Company's primary
source of liquidity has been borrowings under its credit facility, although such
reliance has been lessened with the new long term debt structure resulting from
the senior notes offering and Holdings' operating performance.
The Company incurred capital expenditures of $1.9 million during the
six months ended August 2, 2003. Of the total capital expenditures, $1.1 million
was spent on leasehold improvements, $600,000 was spent on furniture, fixtures
and equipment and $300,000 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 of 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 9.000% senior secured notes
due April 1, 2008 of Barney's, Inc., a wholly owned subsidiary of Holdings, and
one warrant to purchase 3.412 shares of common stock of Holdings at an exercise
price of $0.01 per share. $106.0 million aggregate principal amount at maturity
of notes were issued, together with an aggregate of 106,000 warrants to acquire
an aggregate of 361,672 shares of common stock of Holdings. The warrants expire
on April 1, 2008. Approximately $1.9 million of the proceeds from the offering
was allocated to the warrants and the remainder of the proceeds was allocated to
the notes. The total debt discount of $17.8 million is being amortized over the
life of the notes. 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.
- 24 -
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 and have that
registration statement declared effective by the SEC within 180 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. On June 30, 2003 the Company
filed the exchange offer registration statement with the SEC.
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 $22.5
million 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
prepayment of the $22.5 million Subordinated Note and the Equipment Notes
aggregated approximately $58.1 million and resulted in a gain on early
extinguishments of debt of approximately $200,000.
The 9.000% 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 9.000% 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
- 25 -
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 six months ended August 2, 2003. The unamoritized portion of such fees
is 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
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$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 -- 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
9.000% 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 August 2, 2003, the Company had approximately $27.4 million of
availability under the restated credit facility, after considering $3.1 million
and $29.5 million of loans and letters of credit, respectively, outstanding and
the minimum excess borrowing base availability of $8.0 million.
As of August 2, 2003, the Company was in compliance with all of the
financial covenants contained in its restated credit facility. Management
believes that it will continue to be in compliance with the financial covenants
contained in the restated credit facility for the remainder of 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
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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 January 2003, the FASB issued Interpretation No. 46,
"Consolidation of Variable Interest Entities, an interpretation of Accounting
Research Bulletin No. 51" ("Interpretation No. 46"). Interpretation No. 46
requires the consolidation of entities in which an enterprise absorbs a majority
of the entity's expected losses, receives a majority of the entity's expected
residual returns, or both, as a result of ownership, contractual or other
financial interests in an entity. Currently, entities are generally consolidated
by an enterprise when it has a controlling financial interest through ownership
of a majority voting interest in the entity. The provisions of Interpretation
No. 46 are required to be adopted by the Company in the third quarter of the
fiscal year ending January 31, 2004. The Company is currently evaluating the
requirements and impact of Interpretation No. 46, however, at the present time,
the Company does not believe there are any additional entities that will require
disclosure or consolidation as a result of the provisions of Interpretation No.
46.
In May 2003, the FASB issued Statement No. 150 "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity". This Statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. The provisions of SFAS No. 150 are required to be adopted by the
Company in the third quarter of the fiscal year ending January 31, 2004. The
Company is currently evaluating the requirements and impact of this statement,
however, at the present time, the Company does not believe the provisions of
SFAS No. 150 will have a material effect on its consolidated financial
statements.
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
provisions of EITF 02-16 are effective for all new arrangements, or
modifications to existing arrangements, entered into after December 31, 2002.
In the six months ended August 2, 2003, the implementation of EITF
02-16 had the effect of increasing selling, general and administrative expenses
by $458,000 and decreasing cost of sales by $458,000. EITF 02-16 had no impact
on the Company's cash flows. Had EITF 02-16 been in effect for the six months
ended August 3, 2002, selling, general and administrative expenses would have
increased by approximately $296,000 and cost of sales would have decreased by
approximately $296,000.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the reported market risks
since the end of the most recent fiscal year.
ITEM 4. CONTROLS AND PROCEDURES
Holdings' management evaluated, with the participation of Holdings'
principal executive and principal financial officers, the effectiveness of
Holdings' disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), as of August 2, 2003. Based on their evaluation, Holdings' principal
executive and principal financial officer concluded that Holdings' disclosure
controls and procedures were effective as of August 2, 2003.
There has been no change in Holdings' internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
that occurred during Holdings' fiscal quarter ended August 2, 2003, that has
materially affected, or is reasonably likely to materially affect, Holdings'
internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about July 31, 2002, Maggie MacBeth filed an action against the
Company in the Superior Court for the State of California, County of San Diego
on behalf of herself and all others similarly situated. The complaint alleged
that the Company violated Civil Code Section 1747.8(a)(2) by requesting personal
information from customers who use credit cards to make store purchases. The
complaint further alleged the alleged violations took place on July 16, 2002 and
on numerous dates before that date and that by virtue of the purported
violations of Section 1747.8(a)(2), Barneys was engaged in unlawful acts and
practices in violation of California's unfair competition law. The complaint
sought 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 sought 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
were sought by the complaint, as well. On August 28, 2003, this matter was
settled by order of the court for an immaterial amount.
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.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders of Holdings was held on June 20,
2003.
(b) Each of the Directors listed in item (c) below was elected a Director
at the Annual Meeting for a one-year term.
(c) Voting for the election of directors of Holdings to serve until the
next Annual Meeting:
FOR WITHHELD
(including broker
non-votes)
Shelley F. Greenhaus 13,109,974 --
John Halpern 13,109,974 --
Yasuo Okamoto 13,109,974 --
Allen I. Questrom 13,109,974 --
Howard Socol 13,109,904 70
Carl Spielvogel 13,109,904 70
David A. Strumwasser 13,109,974 --
Robert J. Tarr, Jr. 13,109,904 70
Douglas P. Teitelbaum 13,109,974 --
Steven A. Van Dyke 13,109,974 --
Other Matters:
13,109,822 shares were voted in favor of the proposal to ratify the appointment
of Ernst & Young LLP as independent auditors of the Company for the fiscal year
ending January 31, 2004, with 821 shares voted against, 70 abstentions and no
broker non-votes. Reference is made to Holdings' Proxy Statement dated May 19,
2003 for its 2003 Annual Meeting for additional information concerning the
matters voted on at the meeting.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Description
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
The following Reports on Form 8-K were filed or furnished
during the three months ended August 2, 2003:
A Form 8-K was furnished on June 17, 2003, under Item 9 (pursuant to
Item 12), relating to Holdings' June 17, 2003 press release setting
forth Holdings' first quarter 2003 earnings.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: September 16, 2003
BARNEYS NEW YORK, INC.
By: /s/ Steven M. Feldman
---------------------------------------
Name: Steven M. Feldman
Title: Executive Vice President,
Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Description
----------- -----------
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
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