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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 October 30, 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.
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(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 December 10, 2004 there were 14,210,318 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 October 30, 2004
Table of Contents
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed consolidated statements of operations - Three and nine months
ended October 30, 2004 and November 1, 2003 3
Condensed consolidated balance sheets - October 30, 2004 and January 31,
2004 4
Condensed consolidated statements of cash flows - Nine months ended October
30, 2004 and November 1, 2003 5
Notes to condensed consolidated financial statements - October 30, 2004 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 16
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 23
ITEM 4. Controls and Procedures 23
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 24
ITEM 6. Exhibits 24
SIGNATURES 25
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Barneys New York, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 30, NOVEMBER 1, OCTOBER 30, NOVEMBER 1,
2004 2003 2004 2003
---------- ---------- ---------- ----------
Net sales $ 126,944 $ 111,893 $ 341,750 $ 291,985
Cost of sales 69,934 61,188 185,241 159,949
---------- ---------- ---------- ----------
Gross profit 57,010 50,705 156,509 132,036
Expenses:
Selling, general and administrative
expenses (including occupancy costs) 45,154 40,775 128,179 115,468
Depreciation and amortization 2,901 2,891 8,523 8,525
Other income - net (1,363) (1,209) (4,665) (4,486)
---------- ---------- ---------- ----------
Operating income 10,318 8,248 24,472 12,529
Interest and financing costs, net of interest income 3,914 3,957 11,752 11,250
---------- ---------- ---------- ----------
Income before income taxes 6,404 4,291 12,720 1,279
Income taxes 2,067 150 3,943 450
---------- ---------- ---------- ----------
Net income $ 4,337 $ 4,141 $ 8,777 $ 829
========== ========== ========== ==========
Basic net income per share of common stock $ 0.31 $ 0.29 $ 0.62 $ 0.06
========== ========== ========== ==========
Diluted net income per share of common stock $ 0.28 $ 0.29 $ 0.59 $ 0.06
========== ========== ========== ==========
Weighted average number of shares of common stock outstanding:
Basic 14,154 14,103 14,131 14,103
========== ========== ========== ==========
Diluted 15,317 14,464 14,937 14,384
========== ========== ========== ==========
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)
OCTOBER 30, JANUARY 31,
2004 2004
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 8,133 $ 15,566
Receivables, less allowances of $4,472 and $4,077 35,405 28,652
Inventories 79,486 61,535
Other current assets 8,955 9,929
---------- ----------
Total current assets 131,979 115,682
Fixed assets at cost, less accumulated depreciation
and amortization of $57,195 and $48,754 48,753 47,769
Excess reorganization value 147,226 147,226
Other assets 6,408 7,923
---------- ----------
Total assets $ 334,366 $ 318,600
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 28,848 $ 24,016
Accrued expenses 30,880 32,963
---------- ----------
Total current liabilities 59,728 56,979
Senior secured notes 92,875 90,536
Other long-term liabilities 6,568 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 14,210,318 and 14,103,227 142 141
Additional paid-in capital 169,225 169,187
Accumulated other comprehensive income 852 765
Retained earnings (deficit) 4,476 (4,301)
---------- ----------
Total stockholders' equity 174,695 165,792
---------- ----------
Total liabilities and stockholders' equity $ 334,366 $ 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)
NINE MONTHS ENDED
OCTOBER 30, NOVEMBER 1,
2004 2003
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,777 $ 829
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 12,379 11,592
Write-off of fixed assets 88 -
Write-off of unamortized bank fees - 364
Deferred compensation 320 318
Deferred rent (52) 2,220
Deferred taxes 3,327 -
(Increase) decrease in:
Receivables (6,753) (4,715)
Inventories (17,951) (5,658)
Other current assets (759) (44)
Long-term assets - (1,901)
(Decrease) increase in:
Accounts payable and accrued expenses 2,749 (3,093)
----------- -----------
Net cash provided by (used in) operating activities 2,125 (88)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed asset additions (9,597) (5,619)
----------- -----------
Net cash used in investing activities (9,597) (5,619)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit agreement 12,289 330,881
Repayments of credit agreement (12,289) (340,812)
Proceeds from exercise of stock options 39 -
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 39 3,343
----------- -----------
Net decrease in cash and cash equivalents (7,433) (2,364)
Cash and cash equivalents - beginning of period 15,566 7,111
----------- -----------
Cash and cash equivalents - end of period $ 8,133 $ 4,747
=========== ===========
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 and nine months ended October 30, 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 income taxes based on an estimated annual
effective tax rate. In the third quarter ended October 30, 2004, the Company
increased the annual effective tax rate by 1% to approximately 31%. The impact
of this change in estimate for the first nine months was recorded in the third
quarter ended October 30, 2004.
(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.
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".
6
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- -------------------------
OCTOBER 30, NOVEMBER 1, OCTOBER 30, NOVEMBER 1,
2004 2003 2004 2003
----------- ----------- ----------- -----------
(amounts in thousands)
Weighted average common shares outstanding......................... 14,154 14,103 14,131 14,103
Effect of dilutive securities:
Options......................................................... 905 - 495 -
Warrants........................................................ 258 361 311 281
----------- ----------- ----------- -----------
Weighted average common shares outstanding and common
share equivalents.............................................. 15,317 14,464 14,937 14,384
=========== =========== =========== ===========
(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 NINE MONTHS ENDED
-------------------------- -------------------------
OCTOBER 30, NOVEMBER 1, OCTOBER 30, NOVEMBER 1,
2004 2003 2004 2003
----------- ----------- ----------- -----------
(amounts in thousands, except per share)
Net income -as reported............................................ $ 4,337 $ 4,141 $ 8,777 $ 829
Deduct: Stock-based employee compensation expense
determined under fair value method, net of related
tax effects..................................................... (68) (274) (203) (822)
----------- ----------- ----------- -----------
Pro-forma net income............................................... $ 4,269 $ 3,867 $ 8,574 $ 7
=========== =========== =========== ===========
Net income per share:
Basic -- as reported............................................... $ 0.31 $ 0.29 $ 0.62 $ 0.06
=========== =========== =========== ===========
Basic -- pro-forma................................................. $ 0.30 $ 0.27 $ 0.61 $ 0.00
=========== =========== =========== ===========
Diluted -- as reported............................................. $ 0.28 $ 0.29 $ 0.59 $ 0.06
=========== =========== =========== ===========
Diluted -- pro-forma............................................... $ 0.28 $ 0.27 $ 0.57 $ 0.00
=========== =========== =========== ===========
As of October 30, 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 NINE MONTHS ENDED
-------------------------- -------------------------
OCTOBER 30, NOVEMBER 1, OCTOBER 30, NOVEMBER 1,
2004 2003 2004 2003
----------- ----------- ----------- -----------
(amounts in thousands)
Net income......................................................... $ 4,337 $ 4,141 $ 8,777 $ 829
Other comprehensive income (loss):
Forward exchange contracts, net of tax.......................... 982 (170) 87 (409)
----------- ----------- ----------- -----------
Total comprehensive income......................................... $ 5,319 $ 3,971 $ 8,864 $ 420
=========== =========== =========== ===========
(6) New Accounting Pronouncements
On October 13, 2004, the Financial Accounting Standards Board reached
a consensus on the effective date for SFAS No. 123R ("SFAS 123R"), "Share-Based
Payment." SFAS 123R requires the Company to measure compensation cost for all
share-based payments at fair value for interim and annual periods beginning
after June 15, 2005. The Company is currently evaluating the requirements and
impact of SFAS 123R on the Company's consolidated financial statements.
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
(8) Subsequent Event
On November 11, 2004, the Company announced the signing of an
Agreement and Plan of Merger, dated as of November 10, 2004, among Jones Apparel
Group, Inc. ("Jones"), Flintstone Acquisition Corp., a wholly owned indirect
subsidiary of Jones ("Merger Sub"), and Holdings. Pursuant to the merger
agreement, upon completion of the merger, each holder of Holdings common stock
(other than stockholders who validly perfect appraisal rights under Delaware law
and Holdings, Jones and Merger Sub) will be entitled to receive $19.00 per share
in cash, without interest, and each holder of Holdings preferred stock (other
than stockholders who validly perfect appraisal rights under Delaware law and
Holdings, Jones and Merger Sub) will be entitled to receive $154.375 per share
in cash, without interest. Upon completion of the merger, Holdings will become a
wholly owned indirect subsidiary of Jones.
Under the terms of the merger agreement, Jones will fund the
repurchase of all of Barney's, Inc.'s outstanding senior secured notes due 2008,
with a face value of $106.0 million, through a tender offer. Barney's, Inc.
commenced the tender offer on November 17, 2004. As of December 1, 2004, holders
of approximately 96.46% of the notes had tendered their notes.
The boards of both companies have approved the transaction, and Bay
Harbour Management L.P. and Whippoorwill Associates, Inc., who together own
approximately 75% of the Company's common stock, have adopted the merger
agreement and approved the merger and the other transactions contemplated by the
merger agreement by written consent. This action by written consent is
sufficient to adopt the merger agreement without the affirmative vote of any
other Holdings stockholder. Holdings mailed an information statement to its
stockholders on November 30, 2004 describing the transaction. Additionally,
Holdings was notified that it was granted early termination of the Hart Scott
Rodino waiting period for this transaction effective November 30, 2004. Holdings
currently anticipates closing the transaction on or about December 20, 2004,
however, there can be no assurance that the transaction will be completed by
that time or at all.
9
(9) 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 Rule 3-10(d) of Regulation S-X.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED OCTOBER 30, 2004
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BARNEY'S, GUARANTOR NON-GUARANTOR CONSOLIDATED
HOLDINGS INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
---------- ---------- ------------ -------------- ------------ ------------
(In thousands)
Net sales......................... $ -- $ 111,499 $ 15,445 $ -- $ -- $ 126,944
Cost of sales..................... -- 62,834 7,100 -- -- 69,934
---------- ---------- ---------- ---------- ---------- ----------
Gross profit................... -- 48,665 8,345 -- -- 57,010
Expenses:
Selling, general and
administrative expenses
(including occupancy
expense)....................... 106 41,039 4,009 -- -- 45,154
Depreciation and amortization.... -- 2,718 183 -- -- 2,901
Other income -- net.............. -- (1,363) -- -- -- (1,363)
---------- ---------- ---------- ---------- ---------- ----------
Operating (loss) income........ (106) 6,271 4,153 -- -- 10,318
Equity in net income of
subsidiary.................... (6,510) -- -- -- 6,510 --
Interest and financing costs,
net of interest income........... -- 3,914 -- -- -- 3,914
---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes..... 6,404 2,357 4,153 -- (6,510) 6,404
Income taxes...................... 2,067 -- -- -- -- 2,067
---------- ---------- ---------- ---------- ---------- ----------
Net income..................... $ 4,337 $ 2,357 $ 4,153 $ -- $ (6,510) $ 4,337
========== ========== ========== ========== ========== ==========
THREE MONTHS ENDED NOVEMBER 1, 2003
---------------------------------------------------------------------------------------
BARNEY'S, GUARANTOR NON-GUARANTOR CONSOLIDATED
HOLDINGS INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
---------- ---------- ------------ -------------- ------------ ------------
(IN THOUSANDS)
Net sales......................... $ -- $ 98,573 $ 13,320 $ -- $ -- $ 111,893
Cost of sales..................... -- 55,057 6,131 -- -- 61,188
---------- ---------- ---------- ---------- ---------- ----------
Gross profit................... -- 43,516 7,189 -- -- 50,705
Expenses:
Selling, general and
administrative expenses
(including occupancy
expense)....................... 106 36,973 3,696 -- -- 40,775
Depreciation and amortization.... -- 2,705 186 -- -- 2,891
Other income -- net.............. -- (1,209) -- -- -- (1,209)
---------- ---------- ---------- ---------- ---------- ----------
Operating (loss) income........ (106) 5,047 3,307 -- -- 8,248
Equity in net income of
subsidiary.................... (4,397) -- -- -- 4,397 --
Interest and financing costs,
net of interest income........... -- 3,957 -- -- -- 3,957
---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes..... 4,291 1,090 3,307 -- (4,397) 4,291
Income taxes...................... 150 -- -- -- -- 150
---------- ---------- ---------- ---------- ---------- ----------
Net income..................... $ 4,141 $ 1,090 $ 3,307 $ -- $ (4,397) $ 4,141
========== ========== ========== ========== ========== ==========
10
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED OCTOBER 30, 2004
---------------------------------------------------------------------------------------
BARNEY'S, GUARANTOR NON-GUARANTOR CONSOLIDATED
HOLDINGS INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
---------- ---------- ------------ -------------- ------------ ------------
(In thousands)
Net sales......................... $ -- $ 299,644 $ 42,106 $ -- $ -- $ 341,750
Cost of sales..................... -- 163,449 21,792 -- -- 185,241
---------- ---------- ---------- ---------- ---------- ----------
Gross profit.................... -- 136,195 20,314 -- -- 156,509
Expenses:
Selling, general and
administrative expenses
(including occupancy
expense)........................ 318 116,304 11,557 -- -- 128,179
Depreciation and
amortization.................... -- 7,930 593 -- -- 8,523
Other income -- net.............. -- (4,665) -- -- -- (4,665)
---------- ---------- ---------- ---------- ---------- ----------
Operating (loss) income.......... (318) 16,626 8,164 -- -- 24,472
Equity in net income of
subsidiary....................... (13,038) -- -- -- 13,038 --
Interest and financing
costs, net of interest
income........................... -- 11,752 -- -- -- 11,752
---------- ---------- ---------- ---------- ---------- ----------
Income before income
taxes........................... 12,720 4,874 8,164 -- (13,038) 12,720
Income taxes...................... 3,943 -- -- -- -- 3,943
---------- ---------- ---------- ---------- ---------- ----------
Net income..................... $ 8,777 $ 4,874 $ 8,164 $ -- $ (13,038) $ 8,777
========== ========== ========== ========== ========== ==========
NINE MONTHS ENDED NOVEMBER 1, 2003
---------------------------------------------------------------------------------------
BARNEY'S, GUARANTOR NON-GUARANTOR CONSOLIDATED
HOLDINGS INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
---------- ---------- ------------ -------------- ------------ ------------
(IN THOUSANDS)
Net sales......................... $ -- $ 255,925 $ 36,060 $ -- $ -- $ 291,985
Cost of sales..................... -- 140,880 19,069 -- -- 159,949
---------- ---------- ---------- ---------- ---------- ----------
Gross profit.................... -- 115,045 16,991 -- -- 132,036
Expenses:
Selling, general and
administrative expenses
(including occupancy
expense)........................ 318 104,458 10,692 -- -- 115,468
Depreciation and
amortization.................... -- 7,974 551 -- -- 8,525
Other income -- net.............. -- (4,486) -- -- -- (4,486)
---------- ---------- ---------- ---------- ---------- ----------
Operating (loss) income.......... (318) 7,099 5,748 -- -- 12,529
Equity in net income of
subsidiary....................... (1,597) -- -- -- 1,597 --
Interest and financing
costs, net of interest
income........................... -- 11,250 -- -- -- 11,250
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income
taxes........................... 1,279 (4,151) 5,748 -- (1,597) 1,279
Income taxes...................... 450 -- -- -- -- 450
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)............... $ 829 $ (4,151) $ 5,748 $ -- $ (1,597) $ 829
========== ========== ========== ========== ========== ==========
11
CONDENSED CONSOLIDATING BALANCE SHEET
NINE MONTHS ENDED OCTOBER 30, 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...... $ -- $ 7,228 $ 905 $ -- $ -- $ 8,133
Receivables, less allowances
of $4,472..................... -- 35,037 368 -- -- 35,405
Inventories.................... -- 64,419 15,067 -- -- 79,486
Other current assets........... 928 7,585 442 -- -- 8,955
---------- ---------- ---------- ---------- ---------- ----------
Total current assets........ 928 114,269 16,782 -- -- 131,979
Fixed assets at cost, less
accumulated depreciation and
amortization of $57,195........ -- 46,646 2,107 -- -- 48,753
Excess reorganization value..... -- 147,226 -- -- -- 147,226
Investment in and advances to
subsidiary..................... 177,708 29,044 -- -- (206,752) --
Other assets.................... -- 6,397 11 -- -- 6,408
---------- ---------- ---------- ---------- ---------- ----------
Total assets................ $ 178,636 $ 343,582 $ 18,900 $ -- $ (206,752) $ 334,366
========== ========== ========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............... $ -- $ 28,531 $ 317 $ -- $ -- $ 28,848
Accrued expenses............... 380 23,940 6,560 -- -- 30,880
Net affiliate payable.......... -- 127,147 30,310 -- (157,457) --
---------- ---------- ---------- ---------- ---------- ----------
Total current liabilities. 380 179,618 37,187 -- (157,457) 59,728
Long-term debt.................. -- 92,875 -- -- -- 92,875
Other long-term liabilities..... 3,913 3,782 (1,127) -- -- 6,568
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 14,210,318 shares...... 142 -- 341 -- (341) 142
Additional paid-in capital..... 169,225 -- 45,176 -- (45,176) 169,225
Accumulated other
comprehensive income......... -- 852 -- -- -- 852
Retained earnings (deficit).... 4,476 66,455 (62,891) -- (3,564) 4,476
---------- ---------- ---------- ---------- ---------- ----------
Total stockholders' equity.. 173,843 67,307 (17,160) -- (49,295) 174,695
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities and
stockholders' equity........... $ 178,636 $ 343,582 $ 18,900 $ -- $(206,752) $ 334,366
========== ========== ========== ========== ========== ==========
12
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) earnings..... (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
========== ========== ========== ========== ========== ==========
13
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED OCTOBER 30, 2004
---------------------------------------------------------------------------------------
BARNEY'S, GUARANTOR NON-GUARANTOR CONSOLIDATED
HOLDINGS INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
---------- ---------- ------------ -------------- ------------ ------------
(In thousands)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income....................... $ 8,777 $ 4,874 $ 8,164 $ -- $ (13,038) $ 8,777
Adjustments to reconcile net
income to net cash (used in)
provided by operating
activities:
Depreciation and amortization.... -- 11,786 593 -- -- 12,379
Write-off of fixed assets........ -- 88 -- -- -- 88
Deferred compensation............ 320 -- -- -- -- 320
Deferred rent.................... -- (250) 198 -- -- (52)
Deferred taxes................... 3,327 -- -- -- -- 3,327
Equity in net income of
subsidiary.................... (13,038) -- -- -- 13,038 --
Decrease (increase) in:
Receivables..................... -- (6,683) (70) -- -- (6,753)
Inventories..................... -- (13,082) (4,869) -- -- (17,951)
Other current assets............ -- (690) (69) -- -- (759)
Increase (decrease) in:
Accounts payable and accrued
expenses...................... 279 2,726 (256) -- -- 2,749
---------- ---------- ---------- ---------- ---------- ----------
Net cash (used in) provided
by operating activities.......... (335) (1,231) 3,691 -- -- 2,125
---------- ---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Fixed asset additions............ -- (9,456) (141) -- -- (9,597)
Investment in and advances to
subsidiary...................... 335 2,847 (3,182) -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Net cash provided by (used
in) investing activities..... 335 (6,609) (3,323) -- -- (9,597)
---------- ---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from credit agreement... -- 12,289 -- -- -- 12,289
Repayments of credit agreement... -- (12,289) -- -- -- (12,289)
Proceeds from exercise of
stock options................. -- 39 -- -- -- 39
---------- ---------- ---------- ---------- ---------- ----------
Net cash provided by
financing activities............. -- 39 -- -- -- 39
---------- ---------- ---------- ---------- ---------- ----------
Net (decrease) increase in cash
and cash equivalents............ -- (7,801) 368 -- -- (7,433)
Cash and cash equivalents --
beginning of period............. -- 15,029 537 -- -- 15,566
---------- ---------- ---------- ---------- ---------- ----------
Cash and cash equivalents -- end
of period....................... $ -- $ 7,228 $ 905 $ -- $ -- $ 8,133
========== ========== ========== ========== ========== ==========
14
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED NOVEMBER 1, 2003
---------------------------------------------------------------------------------------
BARNEY'S, GUARANTOR NON-GUARANTOR CONSOLIDATED
HOLDINGS INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
---------- ---------- ------------ -------------- ------------ ------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)................ $ 829 $ (4,151) $ 5,748 $ -- $ (1,597) $ 829
Adjustments to reconcile net
income (loss) to net cash
(used in) provided by operating
activities:
Depreciation and amortization.... -- 11,041 551 -- -- 11,592
Write-off of unamortized bank
fees............................ -- 364 -- -- -- 364
Deferred rent.................... -- 1,891 329 -- -- 2,220
Deferred compensation............ 318 -- -- -- -- 318
Equity in net loss of
subsidiary....................... (1,597) -- -- -- 1,597 --
Decrease (increase) in:
Receivables..................... -- (4,788) 73 -- -- (4,715)
Inventories..................... -- (1,930) (3,728) -- -- (5,658)
Other current assets............ -- (50) 6 -- -- (44)
Long-term assets................ -- (1,901) -- -- -- (1,901)
Increase (decrease) in:
Accounts payable and accrued
expenses...................... (56) (4,822) 1,785 -- -- (3,093)
---------- ---------- ---------- ---------- ---------- ----------
Net cash (used in) provided by
operating activities.......... (506) (4,346) 4,764 -- -- (88)
---------- ---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Fixed asset additions............ -- (5,395) (224) -- -- (5,619)
Investment in and advances to
subsidiary...................... 506 3,974 (4,480) -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Net cash provided by (used
in) investing activities..... 506 (1,421) (4,704) -- -- (5,619)
---------- ---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from credit agreement... -- 330,881 -- -- -- 330,881
Repayments of credit agreement... -- (340,812) -- -- -- (340,812)
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............. -- 3,343 -- -- -- 3,343
---------- ---------- ---------- ---------- ---------- ----------
Net (decrease) increase in
cash and cash equivalents........ -- (2,424) 60 -- -- (2,364)
Cash and cash equivalents --
beginning of period............. -- 6,666 445 -- -- 7,111
---------- ---------- ---------- ---------- ---------- ----------
Cash and cash equivalents -- end
of period....................... $ -- $ 4,242 $ 505 $ -- $ -- $ 4,747
========== ========== ========== ========== ========== ==========
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Statements that are not historical facts, including statements about
our beliefs and expectations, are forward-looking statements. Forward-looking
statements include statements preceded by, followed by or that include the words
"may," "could," "would," "should," "believe," "expect," "anticipate," "plan,"
"estimate," "target," "project," "intend," or similar expressions. These
statements include, among others, statements regarding the timing of completion
of the merger with Jones, 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 effects of the transaction with Jones and that the transaction
will not be delayed or terminated;
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;
16
o the continued service of the Company's key executive officers and
managers;
o the Company being controlled by its principal stockholders;
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.
Acquisition by Jones Apparel Group, Inc.
On November 11, 2004, the Company announced the signing of an
Agreement and Plan of Merger, dated as of November 10, 2004, among Jones Apparel
Group, Inc. ("Jones"), Flintstone Acquisition Corp., a wholly owned indirect
subsidiary of Jones ("Merger Sub"), and Holdings. Pursuant to the merger
agreement, upon completion of the merger, each holder of Holdings common stock
(other than stockholders who validly perfect appraisal rights under Delaware law
and Holdings, Jones and Merger Sub) will be entitled to receive $19.00 per share
in cash, without interest, and each holder of Holdings preferred stock (other
than stockholders who validly perfect appraisal rights under Delaware law and
Holdings, Jones and Merger Sub) will be entitled to receive $154.375 per share
in cash, without interest. Upon completion of the merger, Holdings will become a
wholly owned indirect subsidiary of Jones.
Under the terms of the merger agreement, Jones will fund the repurchase
of all of Barney's, Inc.'s outstanding senior secured notes due 2008, with a
face value of $106.0 million, through a tender offer. Barney's, Inc. commenced
the tender offer on November 17, 2004. As of December 1, 2004, holders of
approximately 96.46% of the notes had tendered their notes.
17
The boards of both companies have approved the transaction, and Bay
Harbour Management L.P. and Whippoorwill Associates, Inc., who together own
approximately 75% of the Company's common stock, have adopted the merger
agreement and approved the merger and the other transactions contemplated by the
merger agreement by written consent. This action by written consent is
sufficient to adopt the merger agreement without the affirmative vote of any
other Holdings stockholder. Holdings mailed an information statement to its
stockholders on November 30, 2004 describing the transaction. Additionally,
Holdings was notified that it was granted early termination of the Hart Scott
Rodino waiting period for this transaction effective November 30, 2004. Holdings
currently anticipates closing the transaction on or about December 20, 2004,
however, there can be no assurance that the transaction will be completed by
that time or at all.
Results of Operations
GENERAL
Fiscal 2004 year to date 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 sales and
overall operating results during the same period were negatively impacted by
unusually harsh winter weather in the Northeast, as well as other external
factors, particularly in the first six months of the year, including the threat
of and eventual 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 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.
18
Three Months Ended October 30, 2004 Compared to the Three Months Ended November
1, 2003
Net sales for the three months ended October 30, 2004 were $126.9
million compared to $111.9 million for the three months ended November 1, 2003,
an increase of 13.5%. Comparable store sales increased 12.5%.
Gross profit on sales increased 12.4% to $57.0 million for the three
months ended October 30, 2004 from $50.7 million in the three months ended
November 1, 2003. This net increase is primarily attributable to the sales
increase discussed above which impacted our gross profit by approximately $6.0
million. In addition, the prior year included the reversal of an accrual no
longer considered necessary which favorably impacted our gross profit by
approximately $600,000. As a result, gross profit as a percentage of net sales
was 44.9% for the three months ended October 30, 2004 compared to 45.3% for the
three months ended November 1, 2003.
Selling, general and administrative expenses, including occupancy
expenses, increased 10.7% in the three months ended October 30, 2004 to $45.2
million from $40.8 million in the three months ended November 1, 2003. Personnel
and related costs increased in the aggregate approximately $2.6 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. 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 35.6% in the three months ended
October 30, 2004 from 36.4% in the prior year period.
Income taxes increased to $2.1 million in the three months ended
October 30, 2004 from $150,000 in the three months ended November 1, 2003. The
significant increase in expense during the third quarter reflects the Company's
annual effective tax rate which presently is being estimated at approximately
31%. Given the sustained, strong improvement in the operating results this year,
this rate is principally being driven by estimated changes in expected net
income, partially offset by the elimination of the tax valuation allowance
provided in prior years. In addition, the effective rate includes a current
provision principally for state and local taxes.
The Company's net income for the three months ended October 30, 2004
was $4.3 million compared to $4.1 million for the three months ended November 1,
2003. Basic and diluted net income per common share for the three months ended
October 30, 2004 was $0.31 and $0.28, respectively. Basic and diluted net income
per common share for the three months ended November 1, 2003 was $0.29.
Nine Months Ended October 30, 2004 Compared to the Nine Months Ended November 1,
2003
Net sales for the nine months ended October 30, 2004 were $341.8
million compared to $292.0 million for the nine months ended November 1, 2003,
an increase of 17.0%. Comparable store sales increased 15.9%. Sales were strong
particularly in our flagship and Co-Op stores, and in substantially all
merchandise categories.
19
Gross profit on sales increased 18.5% to $156.5 million for the nine
months ended October 30, 2004 from $132.0 million in the nine months ended
November 1, 2003. This net increase is primarily attributable to the following:
the sales increase discussed above impacted our gross profit by approximately
$22.0 million and decreased promotional selling impacted our gross profit by
approximately $3.0 million. As a result, gross profit as a percentage of net
sales was 45.8% for the nine months ended October 30, 2004 compared to 45.2% for
the nine months ended November 1, 2003.
Selling, general and administrative expenses, including occupancy
expenses, increased 11.0% in the nine months ended October 30, 2004 to $128.2
million from $115.5 million in the nine months ended November 1, 2003. Personnel
and related costs increased in the aggregate approximately $7.6 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 $900,000. Occupancy costs increased
approximately $3.2 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 new Co-Op stores.
Selling, general and administrative expenses declined as a percentage of sales
to 37.5% in the nine months ended October 30, 2004 from 39.5% in the prior year
period.
Interest and financing costs, net increased 4.5% in the nine months
ended October 30, 2004 to $11.8 million from $11.3 million in the nine months
ended November 1, 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 nine months ended October 30, 2004 and November 1, 2003
related to cash payments received by the Company in connection with a prior
amendment to our trademark license agreement with an affiliate of Isetan and the
granting of our consent to matters relating to the establishment of an
additional Barneys New York store in Japan.
Income taxes increased to $3.9 million in the nine months ended
October 30, 2004 from $450,000 in the nine months ended November 1 2003. The
significant increase in expense during the nine months reflects the Company's
annual effective tax rate which presently is being estimated at approximately
31%. Given the sustained, strong improvement in the operating results this year,
this rate is principally being driven by estimated changes in expected net
income, partially offset by the elimination of the tax valuation allowance
provided in prior years. In addition, the effective rate includes a current
provision principally for state and local taxes.
The Company's net income for the nine months ended October 30, 2004
was $8.8 million compared to $829,000 for the nine months ended November 1,
2003. Basic and diluted net income per common share for the nine months ended
October 30, 2004 was $0.62 and $0.59, respectively. Basic and diluted net income
per common share for the nine months ended November 1, 2003 was $0.06.
20
LIQUIDITY AND CAPITAL
Liquidity and Capital Resources
At October 30, 2004, the Company had cash and cash equivalents of
$8.1 million compared to $4.7 million at November 1, 2003. Cash provided by
operations for the nine months ended October 30, 2004 was approximately $2.1
million compared to cash used in operations of $88,000 for the nine months ended
November 1, 2003. This increase from the prior year period is principally a
result of a $7.9 million improvement in net income. The Company's working
capital was $72.3 million at October 30, 2004 compared to $58.7 million at
January 31, 2004. At October 30, 2004, the largest changes in our working
capital pertained to inventory and accounts receivable. Inventory increased
approximately $18.0 million to $79.5 million from $61.5 million at January 31,
2004. The increase in the current year is primarily attributed to meeting the
needs of the current sales trend. At October 30, 2004, accounts receivable
increased approximately $6.8 million to $35.4 million from $28.7 million at
January 31, 2004. Accounts receivable is higher this year principally as a
result of the strong sales trend.
The Company incurred capital expenditures of $9.6 million during the
nine months ended October 30, 2004. Of the total capital expenditures, $6.7
million was spent on leasehold improvements, $2.5 million was spent on
furniture, fixtures and equipment and $400,000 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 $39,000 in the nine months
ended October 30, 2004 compared to $3.3 million in the nine months ended
November 1, 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 in the current and prior year, the Company's
primary source of liquidity has been 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.
21
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 October 30, 2004, prior to
the $8.0 million minimum excess borrowing base availability covenant, we had
approximately $49.6 million of availability under this facility.
At October 30, 2004, there were no loans outstanding under the
restated credit facility, and approximately $10.4 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 $13.1 million.
As of October 30, 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
On October 13, 2004, the Financial Accounting Standards Board reached a
consensus on the effective date for SFAS No. 123R ("SFAS 123R"), "Share-Based
Payment." SFAS 123R requires the Company to measure compensation cost for all
share-based payments at fair value for interim and annual periods beginning
after June 15, 2005. The Company is currently evaluating the requirements and
impact of SFAS 123R on the Company's consolidated financial statements.
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
22
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 October 30, 2004. Based on their evaluation, Holdings' principal
executive and principal financial officers concluded that Holdings' disclosure
controls and procedures were effective as of October 30, 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 October 30, 2004, that has
materially affected, or is reasonably likely to materially affect, Holdings'
internal control over financial reporting.
23
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
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 Section 906 of the Sarbanes-Oxley
Act of 2002
32.2 Certification of Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: December 14, 2004
BARNEYS NEW YORK, INC.
By: /s/ Steven M. Feldman
------------------------------------
Name: Steven M. Feldman
Title: Executive Vice President and
Chief Financial Officer
25
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 Section 906 of the Sarbanes-Oxley
Act of 2002
32.2 Certification of Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
26