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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 May 1, 2004 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 the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
As of June 15, 2004 there were 14,126,489 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 May 1, 2004
Table of Contents
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed consolidated statements of operations - Three months
ended May 1, 2004 and May 3, 2003 3
Condensed consolidated balance sheets - May 1, 2004 and
January 31, 2004 4
Condensed consolidated statements of cash flows - Three months
ended May 1, 2004 and May 3, 2003 5
Notes to condensed consolidated financial statements - May 1, 2004 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 19
ITEM 4. Controls and Procedures 19
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 20
ITEM 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
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 1, 2004 MAY 3, 2003
-------------- --------------
Net sales $ 112,842 $ 91,385
Cost of sales 62,197 50,597
-------------- --------------
Gross profit 50,645 40,788
Expenses:
Selling, general and administrative expenses (including occupancy costs) 42,209 37,718
Depreciation and amortization 2,780 2,809
Other income - net (2,018) (2,048)
-------------- --------------
Operating income 7,674 2,309
Interest and financing costs, net of interest income 3,900 3,369
-------------- --------------
Income (loss) before income taxes 3,774 (1,060)
Income taxes 225 150
-------------- --------------
Net income (loss) $ 3,549 $ (1,210)
============== ==============
Basic net income (loss) per share of common stock $ 0.25 $ (0.09)
============== ==============
Diluted net income (loss) per share of common stock $ 0.25 $ (0.09)
============== ==============
Weighted average number of shares of common stock outstanding:
Basic 14,111 14,103
============== ==============
Diluted 14,461 14,103
============== ==============
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 1, JANUARY 31,
2004 2004
--------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents $ 10,649 $ 15,566
Receivables, less allowances of $4,228 and $4,077 30,805 28,652
Inventories 65,370 61,535
Other current assets 7,692 9,929
--------------- ---------------
Total current assets 114,516 115,682
Fixed assets at cost, less accumulated depreciation
and amortization of $51,354 and $48,754 47,183 47,769
Excess reorganization value 147,226 147,226
Other assets 7,417 7,923
--------------- ---------------
Total assets $ 316,342 $ 318,600
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 25,094 $ 24,016
Accrued expenses 26,636 32,963
--------------- ---------------
Total current liabilities 51,730 56,979
9.000% Senior secured notes 91,293 90,536
Other long-term liabilities 4,832 4,793
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 14,126,489 and 14,103,227 141 141
Additional paid-in capital 169,187 169,187
Accumulated other comprehensive (loss) income (589) 765
Retained deficit (752) (4,301)
--------------- ---------------
Total stockholders' equity 167,987 165,792
--------------- ---------------
Total liabilities and stockholders' equity $ 316,342 $ 318,600
=============== ===============
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 1, 2004 MAY 3, 2003
-------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,549 $ (1,210)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 4,043 3,422
Write-off of unamortized bank fees - 364
Deferred rent 39 598
Deferred compensation 106 106
(Increase) decrease in:
Receivables (2,153) (3,036)
Inventories (3,835) 691
Other current assets 777 358
Long-term assets - (1,597)
(Decrease) increase in:
Accounts payable and accrued expenses (5,249) (13,268)
-------------- --------------
Net cash used in operating activities (2,723) (13,572)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed asset additions (2,194) (727)
-------------- --------------
Net cash used in investing activities (2,194) (727)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit agreement 203 128,444
Repayments of credit agreement (203) (129,054)
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
-------------- --------------
Net decrease in cash and cash equivalents (4,917) (1,635)
Cash and cash equivalents - beginning of period 15,566 7,111
-------------- --------------
Cash and cash equivalents - end of period $ 10,649 $ 5,476
============== ==============
The accompanying notes are an integral part of these financial statements.
5
BARNEYS NEW YORK, INC.
NOTES TO 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 1, 2004 are not necessarily
indicative of the results for the entire year.
The balance sheet at January 31, 2004 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 January 31, 2004.
(2) 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 1, 2004, 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 period however, the Company has provided income taxes
principally for state, local and franchise taxes.
(3) Earnings Per Share ("EPS")
Basic EPS is computed as net 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 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 to acquire an aggregate of 506,000 shares of common stock were
not included in the computation of diluted earnings per common share for the
three months ended May 1, 2004 as including them would have been anti-dilutive.
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 months ended May 3, 2003, as including them would have been
anti-dilutive.
6
The following is an analysis of the differences between basic and
diluted earnings per common share in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share".
THREE MONTHS ENDED
--------------------------
MAY 1, MAY 3,
2004 2003
---- ----
(amounts in thousands)
Weighted average common shares outstanding................ 14,111 14,103
Effect of dilutive securities:
Options................................................ 12 -
Warrants............................................... 338 -
------ ------
Weighted average common shares outstanding
and common share equivalents............................. 14,461 14,103
====== ======
(4) 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 1, MAY 3,
2004 2003
---- ----
(amounts in thousands, except per share)
Net income (loss) -as reported............................ $ 3,549 $ (1,210)
--------- ---------
Deduct: Stock-based employee compensation
expense determined under fair value method,
net of related tax effects............................... (98) (274)
--------- ---------
Pro-forma net income (loss)............................... $ 3,451 $ (1,484)
========= =========
Net income (loss) per share:
Basic-- as reported........................................ $ 0.25 $ (0.09)
========= =========
Basic-- pro-forma.......................................... $ 0.24 $ (0.11)
========= =========
Diluted-- as reported...................................... $ 0.25 $ (0.09)
========= =========
Diluted-- pro-forma........................................ $ 0.24 $ (0.11)
========= =========
As of May 1, 2004, 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.
7
(5) Comprehensive Income
Comprehensive income includes net income and the effect of changes in
unrealized gains and losses on forward exchange contracts used to hedge
merchandise commitments, which are reported separately in stockholders' equity.
THREE MONTHS ENDED
---------------------
MAY 1, MAY 3,
2004 2003
---- ----
(amounts in thousands)
Net income (loss).............................. $ 3,549 $(1,210)
Other comprehensive income (loss):
Forward exchange contracts, net............. (1,354) (210)
-------- --------
Total comprehensive income (loss).............. $ 2,195 $(1,420)
======== ========
(6) New Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities ("VIE's"), an interpretation of Accounting
Research Bulletin No. 51" ("Interpretation No. 46"). In December 2003, the FASB
issued a revision to Interpretation No. 46 to make certain technical corrections
and address certain implementation issues that had arisen. 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, as revised, were adopted as of May 1, 2004 and had no impact on the
Company's financial condition or results of operations.
(7) Other
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.
(8) Condensed Consolidating Financial Information
On April 1, 2003, Barney's, Inc., a subsidiary of Holdings, issued
$106.0 million principal amount of its 9.000% senior secured notes due April 1,
2008. Barney's, Inc. and 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.
8
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MAY 1, 2004
----------------------------------------------------------------------------
BARNEY'S, GUARANTOR NON-GUARANTOR CONSOLIDATED
HOLDINGS INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ---- ------------ ------------ ------------ -----
(In thousands)
Net sales....................... $ -- $ 100,119 $ 12,723 $ -- $ -- $ 112,842
Cost of sales................... -- 56,343 5,854 -- -- 62,197
---------- ---------- ---------- ---------- ---------- ----------
Gross profit................. -- 43,776 6,869 -- -- 50,645
Expenses:
Selling, general and
administrative expenses
(including occupancy
expense)..................... 106 38,391 3,712 -- -- 42,209
Depreciation and amortization.. -- 2,553 227 -- -- 2,780
Other income-- net............. -- (2,018) -- -- -- (2,018)
---------- ---------- ---------- ---------- ---------- ----------
Operating (loss) income...... (106) 4,850 2,930 -- -- 7,674
Equity in net income of
subsidiary.................. (3,880) -- -- -- 3,880 --
Interest and financing costs,
net of interest income......... -- 3,900 -- -- -- 3,900
---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes... 3,774 950 2,930 -- (3,880) 3,774
Income taxes.................... 225 -- -- -- -- 225
---------- ---------- ---------- ---------- ---------- ----------
Net income................... $ 3,549 $ 950 $ 2,930 $ -- $ (3,880) $ 3,549
========== ========== ========== ========== ========== ==========
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)
---------- ---------- ---------- ---------- ---------- ----------
Operating (loss) income........ (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)
========== ========== ========== ========== ========== ==========
9
CONDENSED CONSOLIDATING BALANCE SHEET
MAY 1, 2004
-----------------------------------------------------------------------------
BARNEY'S, GUARANTOR NON-GUARANTOR CONSOLIDATED
HOLDINGS INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ---- ------------ ------------ ------------ -----
(In thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents....... $ -- $ 9,612 $ 1,037 $ -- $ -- $ 10,649
Receivables, less allowances
of $4,228...................... -- 30,485 320 -- -- 30,805
Inventories..................... -- 52,507 12,863 -- -- 65,370
Other current assets............ 2,681 4,632 379 -- -- 7,692
---------- ---------- ---------- ---------- ---------- ----------
Total current assets......... 2,681 97,236 14,599 -- -- 114,516
Fixed assets at cost, less
accumulated depreciation and
amortization of $51,354......... -- 44,747 2,436 -- -- 47,183
Excess reorganization value...... -- 147,226 -- -- -- 147,226
Investment in and advances to
subsidiary...................... 168,961 29,435 -- -- (198,396) --
Other assets..................... -- 7,406 11 -- -- 7,417
---------- ---------- ---------- ---------- ---------- ----------
Total assets................. $ 171,642 $ 326,050 $ 17,046 $ -- $(198,396) $ 316,342
========== ========== ========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................ $ -- $ 24,818 $ 276 $ -- $ -- $ 25,094
Accrued expenses................ 273 20,743 5,620 -- -- 26,636
Net affiliate payable........... -- 123,455 34,804 -- (158,259) --
---------- ---------- ---------- ---------- ---------- ----------
Total current liabilities.... 273 169,016 40,700 -- (158,259) 51,730
Long-term debt................... -- 91,293 -- -- -- 91,293
Other long-term liabilities...... 2,293 3,799 (1,260) -- -- 4,832
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 14,126,489 shares....... 141 -- 341 -- (341) 141
Additional paid-in capital...... 169,187 -- 45,176 -- (45,176) 169,187
Accumulated other
comprehensive loss............ -- (589) -- -- -- (589)
Retained deficit................ (752) 62,531 (68,125) -- 5,594 (752)
---------- ---------- ---------- ---------- ---------- ----------
Total stockholders' equity 168,576 61,942 (22,394) -- (40,137) 167,987
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities and
stockholders' equity............ $ 171,642 $ 326,050 $ 17,046 $ -- $(198,396) $ 316,342
========== ========== ========== ========== ========== ==========
10
CONDENSED CONSOLIDATING BALANCE SHEET
JANUARY 31, 2004
--------------------------------------------------------------------------
BARNEY'S, GUARANTOR NON-GUARANTOR CONSOLIDATED
HOLDINGS INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ---- ------------ ------------ ------------ -----
(In thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents...... $ -- $ 15,029 $ 537 $ -- $ -- $ 15,566
Receivables, less allowances
of $4,077..................... -- 28,354 298 -- -- 28,652
Inventories.................... -- 51,337 10,198 -- -- 61,535
Other current assets........... 2,787 6,769 373 -- -- 9,929
---------- ---------- ---------- ---------- ---------- ----------
Total current assets........ 2,787 101,489 11,406 -- -- 115,682
Fixed assets at cost, less
accumulated depreciation and
amortization of $48,754........ -- 45,209 2,560 -- -- 47,769
Excess reorganization value..... -- 147,226 -- -- -- 147,226
Investment in and advances to
subsidiary..................... 165,135 29,660 -- -- (194,795) --
Other assets.................... -- 7,912 11 -- -- 7,923
---------- ---------- ---------- ---------- ---------- ----------
Total assets................ $ 167,922 $ 331,496 $ 13,977 $ -- $(194,795) $ 318,600
========== ========== ========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............... $ -- $ 23,747 $ 269 $ -- $ -- $ 24,016
Accrued expenses............... 102 25,997 6,864 -- -- 32,963
Net affiliate payable.......... -- 125,045 33,493 -- (158,538) --
---------- ---------- ---------- ---------- ---------- ----------
Total current liabilities 102 174,789 40,626 -- (158,538) 56,979
Long-term debt.................. -- 90,536 -- -- -- 90,536
Other long-term liabilities..... 2,293 3,825 (1,325) -- -- 4,793
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....... -- 765 -- -- -- 765
Retained deficit............... (4,301) 61,581 (71,055) -- 9,474 (4,301)
---------- ---------- ---------- ---------- ---------- ----------
Total stockholders' equity 165,027 62,346 (25,324) -- (36,257) 165,792
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities and
stockholders' equity........... $ 167,922 $ 331,496 $ 13,977 $ -- $(194,795) $ 318,600
========== ========== ========== ========== ========== ==========
11
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MAY 1, 2004
-------------------------------------------------------------------------------
BARNEY'S, GUARANTOR NON-GUARANTOR CONSOLIDATED
HOLDINGS INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ---- ------------ ------------ ------------ -----
(In thousands)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income....................... $ 3,549 $ 950 $ 2,930 $ -- $ (3,880) $ 3,549
Adjustments to reconcile net
income to net cash
used in operating activities:
Depreciation and amortization.... -- 3,816 227 -- -- 4,043
Deferred rent.................... -- (26) 65 -- -- 39
Deferred compensation............ 106 -- -- -- -- 106
Equity in net income of
subsidiary.................... (3,880) -- -- -- 3,880 --
Decrease (increase) in:
Receivables..................... -- (2,131) (22) -- -- (2,153)
Inventories..................... -- (1,170) (2,665) -- -- (3,835)
Other current assets............ -- 783 (6) -- -- 777
Increase (decrease) in:
Accounts payable and accrued
expenses...................... 171 (4,183) (1,237) -- -- (5,249)
--------- --------- --------- --------- --------- ---------
Net cash used in operating
activities............... (54) (1,961) (708) -- -- (2,723)
--------- --------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Fixed asset additions............ -- (2,091) (103) -- -- (2,194)
Investment in and advances to
subsidiary...................... 54 (1,365) 1,311 -- -- --
--------- --------- --------- --------- --------- ---------
Net cash provided by (used
in) investing activities..... 54 (3,456) 1,208 -- -- (2,194)
--------- --------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from credit agreement... -- 203 -- -- -- 203
Repayments of credit agreement... -- (203) -- -- -- (203)
--------- --------- --------- --------- --------- ---------
Net cash provided by
financing activities............. -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Net (decrease) increase in
cash and cash equivalents....... -- (5,417) 500 -- -- (4,917)
Cash and cash equivalents--
beginning of period......... -- 15,029 537 -- -- 15,566
--------- --------- --------- --------- --------- ---------
Cash and cash equivalents--
end of period................... $ -- $ 9,612 $ 1,037 $ -- $ -- $ 10,649
========= ========= ========= ========= ========= =========
12
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 954 -- -- -- (954) --
subsidiary...................
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
========== ========== ========== ========== ========== ==========
13
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, among
others, 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;
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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 January 31, 2004, 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
Fiscal 2004 first quarter comparable store sales and overall operating
results reflect the continued execution of our core business strategies and the
current momentum in the high-end retail sector, driven in part by stronger
financial markets and consumer confidence. In contrast, fiscal 2003 first
quarter comparable store sales and overall operating results were negatively
impacted by unusually harsh weather in the Northeast, as well as other external
factors including the threat of war in Iraq, continued weakness in the economy
and soft financial markets.
Comparable Store 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 the pertinent fiscal period, regardless of store relocation
or expansion of existing square footage. Net sales of all stores closed during a
fiscal period are excluded from the determination of the comparable store net
sales increases (decreases) 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 that 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. 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
15
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 cost of sales,
whereas others, like us, exclude these costs from gross margin, including them
instead in selling, general and administrative expenses.
Three Months Ended May 1, 2004 Compared to the Three Months Ended May 3, 2003
Net sales for the three months ended May 1, 2004 were $112.8 million
compared to $91.4 million for the three months ended May 3, 2003, an increase of
23.5%. Comparable store sales increased 22.0%. Sales were strong across all of
our store formats, particularly in our flagship and Co-Op stores, and in
substantially all merchandise categories.
Gross profit on sales increased 24.2% to $50.6 million for the three
months ended May 1, 2004 from $40.8 million in the three months ended May 3,
2003. This net increase is primarily attributable to the following: the sales
increase discussed above impacted our gross profit by approximately $9.0
million; decreased promotional selling impacted our gross profit by
approximately $1.0 million; reduced initial mark-up and foreign exchange losses
(driven by the continued weak U.S. dollar) on settlement of foreign denominated
purchases, impacted our gross profit by approximately $400,000. As a result,
gross profit as a percentage of net sales was 44.9% for the three months ended
May 1, 2004 compared to 44.6% for the three months ended May 3, 2003.
Selling, general and administrative expenses, including occupancy
expenses, increased 11.9% in the three months ended May 1, 2004 to $42.2 million
from $37.7 million in the three months ended May 3, 2003. Personnel and related
costs increased in the aggregate approximately $2.5 million. This increase
resulted primarily from wage increases, higher employee benefit costs, and
increased variable personnel costs in line with the increased sales discussed
above. Other more significant variable costs impacted by the sales increase were
third party credit card fees and our loyalty program expense with aggregate
increases of approximately $400,000. Occupancy costs increased approximately
$1.2 million primarily related to contractual inflationary adjustments,
increased real estate taxes, principally related to our New York City properties
and to a lesser extent, the costs of operating one new Co-Op store. Selling,
general and administrative expenses declined as a percentage of sales to 37.4%
in the three months ended May 1, 2004 from 41.3% in the prior year period.
Interest and financing costs, net increased 15.8% in the three months
ended May 1, 2004 to $3.9 million from $3.4 million in the three months ended
May 3, 2003, as a result of the increased cost of capital associated with
Barney's, Inc.'s senior notes issuance on April 1, 2003.
Other income, net, which primarily includes finance charge income in
connection with the Company's private label credit card operations, also
includes $750,000 in the three months ended May 1, 2004 and May 3, 2003 related
to cash payments received by the Company in connection with a prior amendment to
the existing license agreement and the granting of our consent to matters
relating to the establishment of an additional Barneys New York store in Japan.
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The Company's net income for the three months ended May 1, 2004 was
$3.5 million compared to a net loss of $1.2 million for the three months ended
May 3, 2003. Basic and diluted net income per common share for the three months
ended May 1, 2004 was $0.25. Basic and diluted net loss per common share for the
three months ended May 3, 2003 was $0.09.
LIQUIDITY AND CAPITAL
Liquidity and Capital Resources
At May 1, 2004, the Company had cash and cash equivalents of $10.6
million compared to $5.5 million at May 3, 2003. Cash used in operations for the
three months ended May 1, 2004 and May 3, 2003 was approximately $2.7 million
and $13.6 million, respectively. This reduction from the prior year period is
due in part to a $4.7 million improvement in income. Additionally, at May 1,
2004, inventory increased approximately $3.9 million to $65.4 million from $61.5
million at January 31, 2004. This compares with an approximate $700,000 decrease
in the corresponding period in the prior year. The increase in the current year
is primarily attributed to the sales trend. At May 1, 2004, accounts payable and
accrued expenses decreased approximately $5.3 million to $51.7 million from
$57.0 million at January 31, 2004. This compares with a decrease of
approximately $13.3 million in the corresponding period in the prior year.
Accounts payable and accrued expenses is higher this year as compared to May 3,
2003, principally as a result of increased inventory purchases and continued
improvements in vendor terms, including conversion of some vendors from letters
of credit to open terms. The Company's working capital was $62.8 million at May
1, 2004 compared to $58.7 million at January 31, 2004.
The Company incurred capital expenditures of $2.2 million during the
three months ended May 1, 2004. Of the total capital expenditures, $1.5 million
was spent on leasehold improvements, $600,000 was spent on furniture, fixtures
and equipment and $100,000 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 2004 were established at a base level of
$10 million subject to certain permitted adjustments. The Company will
principally fund its capital expenditures through cash generated from operations
or through borrowings under its credit facility.
Cash provided by financing activities was $0 in the three months ended
May 1, 2004 compared to $12.7 million in the three months ended May 3, 2003. In
the prior year period, excess cash was provided through the senior notes
issuance which was utilized for working capital requirements. As a result of the
long term debt structure resulting from the senior notes offering and the
improved operating results from the prior year, the Company expects its primary
source of liquidity to be cash generated from operations.
REVOLVING CREDIT AGREEMENT
The Company's restated credit facility, entered into with General
Electric Capital Corporation, as Administrative Agent, provides 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. This facility matures on July 15, 2006.
17
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. At May 1, 2004, prior to the
$8.0 million minimum excess borrowing base availability covenant, we had
approximately $55.6 million of availability under this facility.
At May 1, 2004, there were no loans outstanding under the restated
credit facility,and approximately $5.7 million was committed under unexpired
letters of credit. Additionally, as collateral for performance on certain leases
and as credit guarantees, Barney's, Inc. is contingently liable under standby
letters of credit under the restated credit facility in the amount of
approximately $11.7 million. Average borrowings under the Company's credit
facility for the three months ended May 3, 2003 were $19.7 million.
As of May 1, 2004, the Company was in compliance with all of the
financial covenants contained in its restated credit facility. Management
believes that it will be in compliance with the financial covenants contained in
the restated credit facility for the fiscal year ending January 29, 2005.
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.
CRITICAL ACCOUNTING POLICIES
Our condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States.
Preparation of these statements requires management to make significant
judgments and estimates. A summary of significant accounting policies which have
a significant impact on our financial statements, and a description of
accounting policies that are considered critical, can be found in Note 2 of the
notes to consolidated financial statements and the Critical Accounting Policies
section of Management's Discussion and Analysis of Financial Condition and
Results of Operations, respectively, in our 2003 Annual Report on Form 10-K.
NEW ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities ("VIE's"), an interpretation of Accounting
Research Bulletin No. 51" ("Interpretation No. 46"). In December 2003, the FASB
issued a revision to Interpretation No. 46 to make certain technical corrections
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and address certain implementation issues that had arisen. 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, as revised, were adopted as of May 1, 2004 and had no impact on our
financial condition or results of operations.
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 May 1, 2004. Based on their evaluation, Holdings' principal
executive and principal financial officer concluded that Holdings' disclosure
controls and procedures were effective as of May 1, 2004.
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 May 1, 2004, 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
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 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 Report on Form 8-K was filed or furnished during the
three months ended May 1, 2004:
A Form 8-K was furnished on March 21, 2004, under Item 12, relating to
Holdings' March 21, 2004 press release setting forth Holdings' fourth quarter
and fiscal 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: June 15, 2004
BARNEYS NEW YORK, INC.
By: /s/ Steven M. Feldman
-------------------------------------
Name: Steven M. Feldman
Title: Executive Vice President and
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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