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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 3, 2001
Commission File
Number 0-28410
LOEHMANN'S HOLDINGS, INC.
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(Exact name of registration as specified in its charter)
Delaware 13-4129380
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2500 Halsey Street, Bronx, New York 10461
- ------------------------------------------------- ---------------------
(Address of principal offices) (Zip Code)
Registrant's telephone number, including Area Code: (718) 409-2000
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
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, and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes[ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by a check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [X] Yes [ ]No
The aggregate market value of voting stock held by nonaffiliates of
registrant as of April 16, 2001 was $13.3 million.
The Company had 3,333,333 shares of Common Stock outstanding as of
April 16, 2001.
Documents incorporated by reference: the information required by Part
III, Items 10, 11, 12 and 13, is incorporated by reference to the Company's
Proxy Statement for the Company's 2001 annual meeting.
PART I.
ITEM 1. BUSINESS
THE COMPANY
Loehmann's Holdings, Inc. ("Holdings" and collectively with its
subsidiaries, "Loehmann's" or the "Company") is the parent company of
Loehmann's, Inc. Loehmann's, founded in 1921 as the "Original Designer Outlet,"
is a leading national specialty retailer of well known designer and brand name
women's fashion apparel, men's furnishings, accessories, and shoes offered at
prices that are typically 30% to 65% below department store prices. The Company
believes it is one of the largest national upscale off-price specialty retailers
in the industry. The Company has a strong brand name, loyal customer base and
long-standing relationships with leading designers and vendors of quality
merchandise. The Company's target customers are relatively affluent women
between the ages of 30 and 55 who are attracted to designer and other name brand
merchandise offered at exceptional values. As of April 17, 2001, the Company
operated 44 stores in major metropolitan markets located in 17 states.
CHAPTER 11 FILING, EMERGENCE & Corporate Structure
On May 18, 1999 (the "Petition Date") Loehmann's, Inc. filed a petition
for relief under chapter 11 of the Bankruptcy Code (the "Bankruptcy Code") in
the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court").
On July 28, 2000 Loehmann's, Inc. filed a Second Amended Plan of
Reorganization (the "Second POR") with the Bankruptcy Court. The Second POR was
subsequently accepted by the required percentages of those creditors entitled to
vote on the plan. A plan confirmation hearing was held on September 6, 2000 and
the Second POR, as further modified on that date (the "Amended POR"), was
confirmed by the Bankruptcy Court. On October 10, 2000, Loehmann's Operating
Co., a new operating subsidiary of Loehmann's, Inc., entered into a secured
credit facility with Bankers Trust Company (the "New Credit Facility").
Concurrently, Holdings, a newly formed holding company, entered into an
indenture (the "Senior Notes Indenture") for 11% Senior Notes due 2005 (the "New
Senior Notes"). As a result of both of these agreements being finalized, all
conditions precedent to the effectiveness of the Amended POR were met and the
Amended POR become effective on October 10, 2000 (the "Effective Date"), thereby
allowing the Company to formally emerge from bankruptcy. From the Petition Date
until the Effective Date, Loehmann's, Inc. operated as a debtor-in-possession
under the Bankruptcy Code.
Under the Amended POR, Holdings distributed 3,333,333 shares of common
stock, par value $0.01 per share (the "New Common Stock"), and $25,000,000 of
its New Senior Notes to the general unsecured creditors of Loehmann's, Inc.
Distributions to the general unsecured creditors of Loehmann's, Inc. were made
in New Common Stock or in a combination of New Common Stock and New Senior Notes
depending on the elections made by the holders of general unsecured claims. The
Amended POR provided that no stockholders and option holders of Loehmann's, Inc.
common stock received any distribution on account of their shares of common
stock or options to purchase common stock.
In addition to the formation of Holdings, two new wholly-owed
subsidiaries of Loehmann's, Inc. were formed and all of the Company's assets
were transferred to these subsidiaries, Loehmann's Operating Co. and Loehmann's
Real Estate Holdings, Inc.
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INDUSTRY OVERVIEW
Women's Apparel
According to published reports, total retail sales of women's apparel
and accessories in the United States were in excess of $97.0 billion in 2000.
The womenswear industry is served by a variety of distribution channels
including department stores, specialty stores and off-price retailers.
The women's apparel industry has five product classifications:
designer, bridge, better, moderate and budget. Designer merchandise is the most
expensive product classification and is characterized by high fashion styling.
Designer brands include Donna Karan, Calvin Klein and Ralph Lauren. Bridge
products are typically brand name merchandise which may carry designer labels
but are less expensive than the designer classification and allow customers to
purchase designer-like merchandise at below designer prices. Bridge brands
include DKNY, Anne Klein, Dana Buchman and Tahari. Apparel in the better
classification carries brand name labels but is less expensive than bridge
apparel. Better brands include Jones NY, Sigrid Olsen, Laundry and BCBG.
Merchandise in the moderate and budget classifications are less expensive
product categories.
Designer and bridge merchandise is generally sold in finer department
stores such as Bloomingdale's, Neiman Marcus, Nordstroms and Saks Fifth Avenue.
Because manufacturers of designer and bridge merchandise are very concerned
about maintaining the upscale image of their trademarks, they are typically
selective about which retailers carry their products.
Men's
The men's apparel industry includes tailored apparel (suits,
formalwear, slacks, sportcoats and outerwear), sportswear (sportshirts, sweaters
and jackets) and furnishings (dress shirts, ties, belts, suspenders, underwear,
socks, scarves and gloves). Loehmann's offers primarily men's furnishings to its
customers.
The men's furnishings industry is served by a variety of distribution
channels including department stores, specialty menswear stores, off-price
retailers and catalog retailers. The Company offers primarily designer and name
brand men's furnishings, which are generally sold in finer department stores
such as Bloomingdale's, Neiman Marcus, Nordstroms and Saks Fifth Avenue.
BUSINESS STRATEGY
The Company's strategy is to deliver value to its customers by offering
at substantial discounts a wide selection of high quality in-season merchandise.
The Company believes that it differentiates itself from finer department stores
by offering similar merchandise at significantly lower prices and from other
off-price apparel retailers by offering a broader range of designer, bridge and
better merchandise. The principal elements of the Company's business strategy
are as follows:
Emphasis on In-Season High Quality Merchandise
The Company offers a wide selection of in-season, high-quality, name
brand merchandise. The Company, like finer department stores, is known for
carrying name brand merchandise, including Donna Karan, Calvin Klein, Ralph
Lauren, Tahari, Laundry and Dana Buchman.
Value Pricing
The Company provides its customers with exceptional value by offering
its merchandise at prices that are typically 30% to 65% below prices charged by
department stores for the same items and that are comparable to prices charged
by other off-price retailers.
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Capitalize on Long-Standing Vendor Relationships
Loehmann's believes that it is a popular choice for well known
designers who believe that their prestige will be preserved by having their
merchandise offered by Loehmann's because of its high quality image and affluent
customer base. Loehmann's long-standing vendor relationships and its ability to
sell large quantities of goods have provided the Company with ready access to a
wide selection of merchandise.
Broader Merchandise Categories
The Company has broadened its appeal over the past several years by
expanding its merchandise mix to include men's, shoes, young contemporary,
fragrances and a broader range of accessories and intimate apparel.
No-Frills Store Format
In order to provide its customers with exceptional value while
maximizing profitability and cash flow, the Company is focused on maintaining an
efficient, low-cost operating structure. Key elements of this focus include the
Company's no-frills, self-service store format. All stores are low maintenance,
simple, and functional facilities designed to maximize selling space and contain
overhead costs.
Flexible Purchasing Strategy
The Company relies on a flexible purchasing strategy under which it
enters any given month with a substantial portion of its purchasing requirements
unfulfilled. This strategy enables the Company to react to sales trends, fashion
trends and changing customer preferences while enhancing the Company's ability
to negotiate with its vendors and take advantage of market inefficiencies and
opportunities as they may arise.
MERCHANDISING
Selection
The Company offers a wide selection of women's sportswear, dresses,
suits, outerwear, coats, accessories, intimate apparel and shoes, and men's
furnishings. The Company does not offer moderate or budget merchandise in its
stores. Most of the Company's merchandise is in-season and is, therefore,
generally available at Loehmann's during the same selling season as it is
available in department stores. The Company offers name-brand merchandise from
designers such as Calvin Klein, Donna Karan and Ralph Lauren.
The following table shows the percentages of the Company's net sales
attributable to its various product categories for fiscal year 1996 through
fiscal year 2000:
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1996 1997 1998 1999 2000
---- ---- ---- ---- ----
Sportswear ....................... 48.2% 48.3% 48.3% 47.1% 49.4%
Dresses and suits ................ 24.6 23.1 17.8 17.1 14.9
Accessories/intimate apparel ..... 14.6 13.7 13.4 12.9 12.8
Men's ............................ - 2.5 7.8 10.4 10.5
Shoes ............................ 5.8 6.6 6.3 6.1 6.4
Outerwear ........................ 5.0 4.7 4.5 4.0 4.4
Other............................. 1.8 1.1 1.9 2.4 1.6
Total ........................... 100.0% 100.0% 100.0% 100.0% 100.0%
All Loehmann's stores carry items from each of its merchandise
categories. However, the allocation of merchandise among the stores varies based
upon factors relating to the demographics and geographic location of each store
as well as the size of the store and its ability to display adequately the
merchandise.
Pricing
The Company seeks to provide its customers with exceptional value by
offering its merchandise at prices that are typically 30% to 65% below prices
charged by department stores for the same items and that are comparable to or
lower than prices charged by other off-price retailers. The Company's central
buying staff adheres to a disciplined approach of acquiring merchandise that
enables the Company to consistently offer its merchandise at favorable prices.
Each item of merchandise offered by the Company carries a price tag displaying
the Company's price as well as the typical department store's initial price for
the same item.
VENDOR RELATIONSHIPS AND PURCHASING
Many of the Company's most active suppliers have been selling
merchandise to the Company for at least 10 years. Because of these long-standing
vendor relationships and its ability to sell large quantities of goods, the
Company has ready access to a wide selection of merchandise.
The Company does not engage in significant forward purchasing and a
large portion of its purchasing requirements in any given month intentionally
remains unfulfilled at the beginning of the month. This strategy enables the
Company to react to fashion trends and changing customer preferences while
enhancing the Company's ability to negotiate with its vendors and take advantage
of market inefficiencies and opportunities as they may arise. Although the
Company has always been able to fulfill its inventory needs, its opportunistic
purchasing strategy does not always permit Loehmann's to purchase specific types
of goods. For example, certain types of popular merchandise may be unavailable
in certain sizes or colors depending on market conditions.
The Company purchases a majority of its inventory during the
manufacturer's selling season, enabling the Company to offer merchandise during
the same selling season as it is available in department stores. The Company
also purchases a portion of its inventory at the end of the season, when a
manufacturer's remaining items can be bought at an even steeper discount. This
merchandise is held for distribution in the following season. Vendors who sell
to the Company do not need to build into their price structure any anticipation
of returns, markdown allowances or advertising allowances, all of which are
typical in the department store industry.
The Company purchases its inventory from over 400 suppliers, which in
many cases include separate divisions of a single manufacturer or designer.
These suppliers include a substantial majority of the designer and name brand
apparel manufacturers in the United States. Some purchases are also made
5
in the European market, primarily Italy. The Company does not have any long-term
supply contracts with its suppliers.
The Company maintains its own central buying staff, comprised of 12
experienced off-price buyers, many of who also have extensive experience with
traditional department stores. Historically, the Company has had very low
turnover within its buying group, enabling Loehmann's to capitalize on an
experienced, respected group of buyers capable of enhancing the Company's
already strong vendor relationships.
STORE LAYOUT
The Company's store format and merchandise presentation are designed to
project the image of deep discount and exceptional value, as well as to
emphasize the Company's niche as the off-price equivalent of an upscale
specialty store. The Company's stores are divided into two shopping areas: a
large, open selling area with wall-to-wall merchandise and a smaller, separate,
and more intimate area called The Back Room. All stores are low maintenance,
simple and functional facilities designed to maximize selling space and contain
overhead costs. Store layouts are flexible in that product groupings can be
easily moved or expanded. All stores have two or more communal fitting rooms.
However, in response to customer preferences, private fitting rooms have been
added in most stores. Because Loehmann's is committed to maintaining virtually
all of its in-store inventory on the selling floor, its stores do not require
significant space devoted to inventory storage.
Loehmann's presents better sportswear, dresses and suits, as well as
all outerwear, men's, accessories, intimate apparel and shoes on the main
selling floor. Designer, bridge and import merchandise, including evening
dresses and suits, are displayed in The Back Room. The Back Room provides a key
point of differentiation to the consumer, as it projects the image of designer
goods sold in a no-frills environment and, therefore, at exceptional values.
Although Loehmann's estimates that The Back Room generally accounts for only
approximately 10% to 15% of a typical store's selling space, The Back Room has
historically generated approximately 33% of women's apparel revenues.
DISTRIBUTION
As merchandise arrives at the Company's distribution center, it is
priced, ticketed, assigned to individual stores by the Company's merchandising
systems, packaged for delivery and transported to the stores. During fiscal year
2000, the Company operated two distribution facilities, a 272,000 square foot
centralized distribution center located in Rutherford, New Jersey and a 126,000
square foot facility at the Bronx, New York headquarters. In December 2000, the
Company closed the distribution facility in the Bronx, New York. As of December
2000, all distribution operations are located at the Rutherford, New Jersey
facility.
MARKETING AND ADVERTISING
A significant portion of Loehmann's advertising efforts involve direct
mail announcements to members of The Insider Club, a free membership program.
Members receive notification of special events throughout the year and a 15%
discount on their birthdays. The list of members now includes approximately one
million active customers (those who have shopped at Loehmann's within the past
12 months). Loehmann's has developed a database of customer information from
Insider Club members. This database allows Loehmann's to track the purchase
activity of current customers. These customers accounted for approximately 75%
of total Company sales in fiscal year 2000.
INTERNET
The Company maintains a website at www.loehmanns.com. The website
provides information
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to customers on current promotions, new merchandise available in the stores and
also serves as a portal for gathering the email addresses of customers and
signing up customers as members of the Company's Insider Club. Customers are
offered an incentive in exchange for providing their email addresses. No
merchandise is sold via the website.
STORE OPERATIONS
The Company's stores are organized into several geographic regions,
each with a regional manager. Regional managers monitor the financial
performance of the stores in their respective geographic districts and
frequently visit stores to ensure adherence to the Company's merchandising,
operations and personnel standards. The typical staff for a Loehmann's store
consists of a store manager, a number of associate and department managers,
sales specialists and additional full and part-time hourly associates depending
upon the store's needs.
Senior management meets with the regional managers on a periodic basis
to maintain a clear line of communication. In addition, mystery shoppers shop
the stores to help ensure that sales associates are friendly, helpful and
maintain all of the Company's merchandising, customer service and loss
prevention standards. New store management personnel currently complete a
training program at a designated training store before assuming management
responsibility. Sales specialists receive product and customer service training
at the store level.
INFORMATION SYSTEMS
Each Loehmann's store is linked to the Company's headquarters through a
point-of-sale system that interfaces with an IBM RS6000 computer equipped with
integrated merchandising, distribution and accounting software packages. The
Company's point-of-sale computer system has features that include merchandise
scanning, the capture of customer sales information and on-line credit card
approval. These features improve transaction accuracy, speed and checkout time
as well as increase overall store efficiency.
The Company's information and control systems enable the Company's
corporate headquarters to promptly identify sales trends, identify merchandise
to be marked down and monitor merchandise mix and inventory levels at individual
stores.
EMPLOYEES
As of March 31, 2001, the Company had 1,898 employees, of whom 1,646
were store sales and clerical employees, 117 performed store managerial
functions, and 135 were corporate (managerial and clerical) and warehouse
(managerial) personnel. Warehouse labor is provided by a third party and these
workers are not Company employees. Non-managerial employees are paid on an
hourly basis. None of the Company's employees are represented by a labor union.
The Company believes that its employee relations are good.
TRADEMARK AND SERVICE MARK
Loehmann's name is registered as a trademark and a service mark with
the United States Patent and Trademark Office. Loehmann's believes its trademark
and service mark have received broad recognition and their continued existence
is important to the Company's business.
COMPETITION
The off-price fashion apparel business is highly competitive. The
Company competes primarily with finer department stores by offering a wide
selection of comparable quality merchandise at
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significantly lower prices. Many department stores have increased their
promotional efforts, although such promotions are typically focused on moderate
merchandise.
The Company also faces competition from factory outlet malls and a
variety of off-price and discount retailers, some of which are relatively new
companies, but many of which are established retail chains or divisions thereof.
Such competitors include Marshall's, Saks Off 5th, Syms, Burlington Coat Factory
and T.J. Maxx.
RESTRUCTURING ACTIVITIES
During the bankruptcy period, management of the Company and its
advisors in the bankruptcy proceedings conducted an extensive analysis of
business operations with the objective of making the changes necessary to
improve operating performance. The Company devised a comprehensive strategy to
define, manage and operate the business going forward, which included the
following:
The Back Room
The Back Room is a separate area of each Loehmann's store that is
smaller and more intimate than the large, open selling area. The Back Room
offers a large assortment of bridge and designer apparel and provides a key
point of differentiation for the Company in the women's apparel market. The
Company expanded the Back Room inventory to re-establish its unique niche and
used this more exclusive, high-end merchandise to attract customers and increase
sales.
Consistent Value
The Company derives its competitive advantage from its ability to
consistently offer merchandise at prices 30% to 65% below department stores
prices. In order to promote its positioning as offering the best everyday low
prices, the Company modified its promotional strategies. The Company believes
that it can offer a more consistent and distinguishable value proposition if
merchandise is priced using permanent markdowns as opposed to promotional events
and point-of-sale markdowns. By taking timely permanent markdowns, the Company
is able to better control inventory and gross margins.
Store Closings
During fiscal year 2000, the Company closed eleven under performing
stores and during fiscal year 1999 it closed fourteen stores, all of which were
unprofitable. These closures improved the Company's profitability and liquidity
and allowed the Company to focus on geographic markets where it has a strong
presence.
Cost Reductions
In July 1999 and in January 2000, the Company restructured its
corporate management and as a result reduced corporate expenses by approximately
$5.0 million on an annual basis. The Company also consolidated its distribution
operations in December 2000 into one facility located in Rutherford, New Jersey.
RISK FACTORS
An investment in the Company is subject to certain risks. These risks
are associated with the ongoing competitive pressures in the apparel industry,
changes in the level of consumer spending or preferences in apparel, potential
disruptions in the relationships established with certain vendors, the Company's
history of losses and its reliance on key personnel. Future economic and
industry trends that
8
could potentially impact revenue and profitability are difficult to predict. See
"Special Note Regarding Forward-looking Statements."
History of Losses
The Company incurred net losses in each fiscal year from 1995 to 1999.
There can be no assurance that such losses will not occur again in the future.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Competition
All aspects of the women's apparel industry, including the off-price
retail segment, are highly competitive. The Company competes primarily with
department stores, other off-price retailers, specialty stores, discount stores,
outlet stores and mass merchandisers, many of which have substantially greater
financial and marketing resources than the Company. Finer department stores,
which constitute the Company's principal competitors, offer a broader selection
of merchandise and higher quality service. In addition, many department stores
have become more promotional and have reduced their price points, and certain
finer department stores and certain of the Company's vendors have opened outlet
stores which offer off-price merchandise in competition with the Company.
Accordingly, the Company may face periods of intense competition in the future
which could have an adverse effect on its financial results. See "Competition"
in Item 1. Business.
Adequate Sources of Merchandise Supply
The Company's business is dependent to a significant degree upon its
ability to purchase quality merchandise at substantially below normal wholesale
prices. The Company does not have any long-term supply contracts with its
suppliers. The loss of certain key vendors or the failure to establish and
maintain relationships with popular vendors could have a material adverse effect
on the Company's business. The Company believes it currently has adequate
sources of quality merchandise; however, there can be no assurance that the
Company will be able to acquire sufficient quantities and an appropriate mix of
such merchandise at acceptable prices.
The Company is also dependent upon financing from its trade creditors.
If any such financing were to become unavailable for any reason, there could be
a material adverse effect on the Company.
Merchandise Trends
The Company's success depends in part on its ability to anticipate and
respond to changing merchandise trends and consumer preferences in a timely
manner. Accordingly, any failure by the Company to anticipate, identify and
respond to changing fashion trends could adversely affect consumer acceptance of
the merchandise in the Company's stores, which in turn could adversely affect
the Company's business and its image with its customers. If the Company
miscalculates either the market for its merchandise or its customers' purchasing
habits, it may be required to sell a significant amount of unsold inventory at
below average markups over the Company's cost, or below cost, which would have
an adverse effect on the Company's financial condition and results of
operations.
Impact of Economic Conditions on Industry Results
The Company's business is sensitive to customers' spending patterns,
which in turn are subject to prevailing economic conditions. There can be no
assurance that consumer spending will not be affected by economic conditions,
thereby impacting the Company's growth, net sales and profitability. A decline
in economic conditions in one or more of the markets in which the Company's
stores are concentrated, mainly California and the Northeast, could have an
adverse effect on the Company's financial condition
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and results of operations.
Dependence on Key Personnel
The Company's success depends to a significant extent upon the
performance of its senior management team, particularly Robert N. Friedman,
Chief Executive Officer, and Robert Glass, Chief Operating Officer, who entered
into new employment agreements on January 1, 2001. These agreements are filed as
Exhibits 10.2 and 10.3 to this Form 10-K. The loss of services of any of the
Company's executive officers could have a material adverse impact on the
Company. The Company's success will depend on its ability to motivate and retain
its key employees and to attract and retain qualified personnel in the future.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements under the captions "Business," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Form 10-K, constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties, and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions; competition; success of operating initiatives; development and
operating costs; advertising and promotional efforts; brand awareness; the
existence or adherence to development schedules; the existence or absence of
adverse publicity; availability and terms of trade credit and other financing;
availability, locations and terms of sites for store development; changes in
business strategy or development plans; quality of management; availability,
terms and deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employee benefit costs; changes
in, or the failure to comply with, government regulations and construction
costs.
ITEM 2. PROPERTIES
As of April 16, 2001, the Company operated 44 stores in 17 states. The
Company does not own any of its stores and has no manufacturing facilities.
Indicated below is a listing of the regions in which the Company
operates its stores:
Percent of Fiscal
Number of Year 2000 Sales
Region Stores (1)
---------------------------------------------------------
California ........... 12 31.1%
New York ............ 7 23.3
New Jersey ........... 5 10.7
Other Mid-Atlantic ... 4 9.1
Florida .............. 4 8.8
Midwest .............. 3 4.3
Texas ................ 3 3.9
Other West ........... 3 3.4
Other Southeast ...... 2 3.1
New England .......... 1 2.3
------ -----
44 100.0%
====== ======
(1) These percentages exclude sales from the Company's eleven stores closed
in March 2000.
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LEASES
The Company follows the general industry practice of leasing all of its
stores. The Company's stores range in size from 9,000 to 60,000 square feet and
are held under leases expiring from 2001 to 2021, excluding option periods. The
leases for the Company's stores typically provide for a 15- to 20-year term with
three five-year renewals that are automatic unless the Company elects to
terminate the lease. The rental rate is a fixed amount rather than a contingent
payment based on a store's gross sales. The leases typically contain tax
escalation clauses and require the Company to pay insurance, utilities, repair
and maintenance expenses. Increases in the fixed rent payable during the renewal
terms are generally less than 10% to 15% of the base rent (although this
percentage may increase for new stores). The leases have initial or renewal
terms expiring as follows: 2000-2001 (2 stores); 2002-2004 (13 stores);
2005-2007 (11 stores); and 2008 and later (18 stores).
The two leases that expire by year-end fiscal 2001 have renewal
options. The Company has generally been successful in renewing its store leases
as they expire.
The Company leases a 272,000 square foot distribution center located in
Rutherford, NJ, which has served as its only distribution center since December
2000. The current lease provides for annual rental payments of $1,251,200 and
expires on January 31, 2002. The lease has been renewed for the period February
1, 2002 through December 31, 2006 and provides for annual rental payments of
$1,468,800 during that period. There is one additional five-year renewal option
under the lease.
The Company leases the land for its 153,000 square foot facility
located in the Bronx, New York, which serves as its corporate headquarters. This
facility contains approximately 27,000 square feet of office space and
approximately 126,000 square feet of warehouse space. The ground lease with
respect to the land on which the facility is situated provides for aggregate
annual base rental payments of $49,306. The lease expires in 2010, but is
renewable at certain increased rates until 2050. The Company plans to sell or
lease the warehouse space located at the Bronx facility, while retaining the
current office space for it corporate offices.
ITEM 3. LEGAL PROCEEDINGS
The Company formally emerged from bankruptcy on October 10, 2000.
Reference is made to "Chapter 11 Filing, Emergence & Corporate Structure" in
Item 1 of this Form 10-K for a discussion of the Company's bankruptcy
proceedings.
In addition, the Company may be a party to various other legal
proceedings, many of which involve claims for coverage encountered in the
ordinary course of business. Based on information presently available, the final
outcome of all such proceedings should not have a material adverse effect upon
the Company's results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None, during the fiscal year ended February 3, 2001.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock began trading on the NASDAQ OTCBB on March
21, 2001 under the symbol LHMS. The following table sets forth the high bid and
low asked prices for the
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Company's common stock since it began trading on NASDAQ OTCBB.
Period High Low
------ ---- ---
March 2001 $ 7.50 $ 4.00
April 1-16, 2001 4.25 4.00
As of April 12, 2001, there were 327 shareholders of record of the
Company's common stock.
The Company did not pay any dividends on its common stock in fiscal
year 2000.
As of April 12, 2001, 1,988,826 shares of New Common Stock had been
distributed to the general unsecured creditors in the bankruptcy. The remaining
1,344,507 shares are being held in trust by American Stock Transfer for
subsequent distribution.
ITEM 6. SELECTED FINANCIAL DATA
(in thousands except per share data) 2000 1999 1998 1997 1996
Net sales $338,436 $374,657 $420,556 $438,892 $417,284
Net income (loss) 31,450 (33,468) (5,148) (15,672) (1,216)
Net income (loss) per common share 0.78 (3.69) (0.57) (1.75) (0.14)
Total assets 119,774 147,073 188,693 189,226 176,200
Long-term obligations 25,000 139,403 131,360 107,850
Cash dividends declared per common share - - - - -
Reference to "2000" above represents the combined results of
Predecessor Company from January 30, 2000 to October 9, 2000 and Successor
Company from October 10, 2000 to February 3, 2001.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The discussion below compares the results of operations for the 2000
fiscal year to the 1999 fiscal year. For purposes of providing a comparable
period to fiscal 1999, the results of Predecessor Company from January 30, 2000
to October 9, 2000 have been combined with the results of Successor Company from
October 10, 2000 to February 3, 2001 to form the 2000 fiscal year results. These
periods are summarized in the following table:
2000 1999
FISCAL Fiscal
(in thousands) YEAR Year
------------------- -------------------
Net sales $338,436 $374,657
Cost of sales 218,203 257,318
------------------- -------------------
Gross profit 120,233 117,339
Revenue from leased departments 1,749 1,895
------------------- -------------------
Operating profit 121,982 119,234
Selling, general and administrative expenses 100,731 114,886
Depreciation and amortization 10,027 12,019
------------------- -------------------
12
Operating income (loss) 11,224 (7,671)
Interest expense, net 2,104 5,804
------------------- -------------------
Income (loss) before reorganization items,
fresh start adjustments, income taxes and
Extraordinary item 9,120 (13,475)
Reorganization items (20,626) (19,881)
Fresh start adjustments (21,382) -
------------------- -------------------
(Loss) before income taxes and
Extraordinary item (32,888) (33,356)
Provision for income taxes 1,712 112
------------------- -------------------
Net (loss) before extraordinary item (34,600) (33,468)
Extraordinary item - gain on discharge of debt 66,050 -
------------------- -------------------
Net income (loss) applicable to common stock $ 31,450 $ (33,468)
=================== ===================
FISCAL YEAR 2000 COMPARED TO FISCAL YEAR 1999
Comparable store sales (stores that were in operation for both periods)
increased by 1.3% during fiscal year 2000 as compared to fiscal year 1999. As
part of the Company's restructuring activities, eleven stores were closed in
fiscal year 2000 and fourteen stores were closed in fiscal year 1999. Net sales
for fiscal year 2000 were $338.4 million as compared to $374.7 million for
fiscal year 1999, a decrease of approximately $36.2 million, or 9.7%. The
decrease in reported net sales for fiscal year 2000 is the result of the stores
closed during the year partially offset by the improved performance at the
remaining stores. The closed stores had sales of $6.2 million in 2000 and $50.5
million in 1999.
Gross profit for fiscal year 2000 was $120.2 million as compared $117.3
million for fiscal year 1999. Gross margin percent increased to 35.5% from 31.3%
in the prior year. Gross margin for fiscal year 1999 included an inventory
liquidation charge of $6.1 million at the closed stores. Excluding that charge,
gross margin percentage from ongoing operations for fiscal year 1999 was 33.0%.
The increase in gross profit percentage from ongoing operations from 33.0% to
35.5% was due primarily to an increase in the initial markup of merchandise as a
result of a change in the merchandise mix.
Selling, general and administrative expenses for fiscal year 2000 were
$100.7 million as compared to $114.9 million during fiscal year 1999, a decrease
of approximately $14.2 million, or 12.4%. As a percentage of net sales, selling,
general and administrative expense decreased to 29.8% in fiscal year 2000 from
30.7% in the prior year. The dollar decrease in selling, general and
administrative expenses was primarily related to the closing of eleven
non-performing stores in March 2000 as well as reductions in corporate overhead.
Depreciation and amortization for fiscal year 2000 was $10.0 million as
compared to $12.0 million for fiscal year 1999. The decrease of $2.0 million in
depreciation and amortization is due primarily to the closing of the eleven
non-performing stores and also to certain fixed assets becoming fully
depreciated in 2000.
As a result of the items explained above, operating income increased by
$18.9 million to $11.2 million, or 3.3% of sales, in fiscal year 2000 as
compared to an operating loss of $(7.7) million, or (2.0)% of sales, in fiscal
year 1999.
Net interest expense for fiscal year 2000 was $2.1 million as compared
to $5.8 million for fiscal year 1999, a decreased by $3.7 million. Interest
related to the borrowings under bank credit facilities was $1.2 million,
compared with $1.9 million for the comparable period in the prior year due to
decreased borrowings. In fiscal year 1999, interest expense included $3.3
million for the old 11 7/8% senior notes. No interest has been accrued or paid
on the old 11 7/8% senior notes since the Petition Date.
13
FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998
Net sales were $374.7 million for fiscal year 1999, a decrease of
approximately $45.9 million, or 10.9%, compared to $420.6 million during fiscal
year 1998. Comparable store sales (sales at stores that were in operation for
both periods) decreased by 5.3% during fiscal year 1999 as compared to fiscal
year 1998. The Company opened no new stores in fiscal year 1999 and 3 new stores
in fiscal year 1998, and closed 14 stores in fiscal year 1999 and 10 stores in
fiscal year 1998. The decrease in reported net sales for fiscal year 1999 is the
result of (i) the stores closed during the year, partially offset by increased
sales at the new stores opened in 1998 and (ii) the decrease in comparable store
sales of 5.3% during the year, due, in part, to the business interruption of the
bankruptcy filing.
Gross profit from operations, before markdowns related to closed
stores, decreased by approximately $12.9 million to $123.4 million during fiscal
year 1999 as compared to $136.3 million for fiscal year 1998. Gross margin as a
percentage of net sales, before markdowns related to closed stores, increased to
33.0% for fiscal year 1999 from 32.4% in the prior fiscal year. Gross profit,
including markdowns related to closed stores in fiscal year 1999 and 1998 of
$6.1 million and $1.2 million respectively, decreased by approximately $17.8
million during fiscal year 1999 to $117.3 million as compared to $135.1 million
in fiscal year 1998. Gross margin as a percentage of net sales, after markdowns
related to closed stores, decreased to 31.3% in fiscal year 1999 from 32.1% in
fiscal year 1998.
The decrease in gross margin of (0.8) percentage points from 32.1% to
31.3 % is primarily the result of: (i) a one time charge in fiscal year 1999 for
the liquidation of inventory in fourteen stores closed in 1999 which represents
(1.2) percentage points, offset by a (ii) decrease in markdowns and a change in
merchandise mix toward higher margin categories which represents 0.4 percentage
points.
Selling, general and administrative expenses decreased by approximately
$1.2 million to $114.9 million in fiscal year 1999 as compared to $116.1 million
in fiscal year 1998. As a percentage of net sales, selling, general and
administrative expense increased to 30.7% in fiscal year 1999 from 27.6% in the
prior year. The dollar decrease in selling, general and administrative expenses
was primarily related to a reduction in payroll and advertising related to the
closing of 14 stores.
Depreciation and amortization for fiscal year 1999 decreased by
approximately $0.2 million to $12.0 million as compared to $12.2 million for the
prior fiscal year. The decrease in depreciation and amortization is attributable
to (i) a decrease in depreciation related to the closing of the fourteen stores
in 1999 and, a decrease in depreciation associated with the natural retirement
of certain assets, offset by (ii) a increase in depreciation associated with
$4.5 million of capital expenditures for 1999.
As a result of the items explained above, operating income decreased by
$17.7 million to a loss of $(7.7) million, or (2.0)% of sales, in fiscal year
1999 as compared to an operating income of $10.0 million, or 2.4% of sales, in
fiscal year 1998.
Interest expense decreased by $8.7 million to $5.8 million for fiscal
year 1999 as compared to $14.5 million for fiscal year 1998 due to the
reclassification of the old 11 7/8% senior notes to liabilities subject to
compromise. No interest on the old senior notes has been accrued or paid since
the Petition Date. As a result, interest expense on the Senior Notes was $3.3
million in fiscal year 1999 compared to $11.3 million in 1998.
QUARTERLY RESULTS AND SEASONALITY
While the Company's net sales do not show significant seasonal
variation, the Company's operating income has traditionally been significantly
higher in its first and third fiscal quarters. The Company believes that its
merchandise is purchased primarily by women who are buying for their own
wardrobes rather than as gifts. As a result, the Company does not experience
increases in net sales during
14
the Christmas shopping season. Results of operations during the second and
fourth quarters are traditionally impacted by end of season clearance events.
The following table sets forth certain unaudited operating data for the
Company's eight fiscal quarters ended February 3, 2001. The unaudited quarterly
information includes all normal recurring adjustments which management considers
necessary for a fair presentation of the information shown.
15
Fiscal 1999 Fiscal 2000
----------- -----------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
(unaudited) (In thousands, except per share data)
STATEMENT OF OPERATIONS DATA
Net sales .................... $ 105,296 $ 87,386 $ 92,075 $ 89,900 $ 89,817 $ 73,148 88,560 $ 86,911
Gross profit ................. 33,968 22,839 33,140 27,392 29,173 26,040 33,876 31,144
Revenue from leased
departments .................. 584 347 311 653 383 330 359 677
--------- --------- --------- --------- --------- --------- --------- ---------
Operating profit ............. 34,552 23,186 33,451 28,045 29,556 26,370 34,235 31,821
Selling, general and
administrative expenses ... 31,543 29,611 26,956 26,776 27,180 22,790 24,425 26,336
Depreciation and
amortization 3,190 3,175 2,736 2,918 2,673 2,575 2,291 2,488
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income (loss) ...... (181) (9,600) 3,759 (1,649) (297) 1,005 7,519 2,997
Interest expense 3,660 1,177 525 442 423 244 476 961
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before
reorganization
costs, income taxes and
extraordinary item ........ (3,841) (10,777) 3,234 (2,091) (720) 761 7,043 2,036
Reorganization costs ......... -- 21,064 (2,833) 1,650 8,812 1,730 31,466 --
Provision for income taxes ... 38 28 14 32 50 61 18 1,583
Extraordinary item - gain on
discharge of debt -- -- -- -- -- -- 66,050 --
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss) ............ (3,879) (31,869) 6,053 (3,773) (9,582) (1,030) 41,609 453
========= ========= ========= ========= ========= ========== ========= =========
Earnings per share:
Basic and diluted net income
(loss) .................... -- -- -- -- -- -- -- $ 0.14
=========
LIQUIDITY AND CAPITAL RESOURCES
The Company entered into the New Credit Facility with Bankers Trust
Company on the Effective Date of emergence. On the Effective Date, the Company
paid off the balance owing on the DIP Facility of $9.1 million. The New Credit
Facility provides for a $75.0 million revolving line of credit inclusive of a
letter of credit facility and has a $15.0 million fixed asset sublimit. The
fixed asset sublimit is reduced by $750,000 each quarter commencing January 1,
2001. As of April 1, 2001 the fixed asset sublimit is $13.5 million. The New
Credit Facility is secured by substantially all of the Company's assets and
expires on September 30, 2005. The availability of the revolving line of credit
under the New Credit Facility is subject to certain inventory-related borrowing
base requirements.
In connection with entering into the credit agreement, the Company paid
a fee of $1.1 million to Bankers Trust Company. The indebtedness under the New
Credit Facility bears interest at variable rates based on LIBOR plus 4.0% or the
prime rate plus 3.0% on borrowings less than or equal to the fixed asset
sublimit. For borrowings in excess of the fixed asset sublimit the interest
rates are LIBOR plus 2.5% or the prime rate plus 1.5%. There is an unused line
fee of 0.50% per annum on the unused portion of the facility.
The New Credit Facility contains certain customary covenants, including
limitations on indebtedness, liens, and restricted payments. In addition, the
Company is required to satisfy, among
16
other things, certain financial performance criteria including minimum EBITDA
requirements, fixed charge coverage and inventory turn ratios and maximum
capital expenditure costs. The Company is in compliance with all of its loan
covenants.
During fiscal year 2000, cash flow provided by operations was $10.3
million. Cash flows provided by changes in current operating assets and
liabilities were $4.7 million. Changes in current operating assets and
liabilities were favorably impacted by an increase in accounts payable of $5.5
million which reflects the Company's ability to obtain more favorable credit
terms from its suppliers.
Cash flows used in investing activities were $5.7 million for fiscal
year 2000. This represents capital expenditures and which increased from $4.5
million in fiscal year 1999 and a decrease from $9.9 million in fiscal year
1998. Capital expenditures for fiscal year 2000 include $3.0 million for the
stores, $2.2 million for warehouse improvements and $0.5 million for computer
software and hardware. The warehouse improvements are for the Company's
distribution center in Rutherford, New Jersey. See "Distribution".
Cash used in financing activities was $4.3 million for fiscal year
2000, representing repayments on the Company's DIP facility of $9.1 million,
borrowings on the New Credit Facility of $6.6 million and miscellaneous
financial fees of $1.7 million. In fiscal year 1999, the Company was operating
as a debtor-in-possession and as a result repaid $32.8 million of debt on its
revolving credit agreement and $2.3 million in revenue bonds and notes, for a
total of $35.1 million net cash used in financing activities.
As of April 16, 2001, the Company had borrowings of $12.3 million and
letters of credit of $2.1 million outstanding under the New Credit Facility,
with $45.6 million of remaining unused availability for borrowings. Average
unused cash availability under the New Credit Facility averaged $45.6 million
through the end of the fiscal year. The Company believes that cash generated
from operations and funds available under the New Credit Facility will be
sufficient to satisfy its cash requirements through the remainder of the fiscal
year.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's outstanding long-term debt as of February 3, 2001 bears
interest at a fixed rate of 11%; therefore, the Company's results of operations
would only be affected by interest rate changes to the extent that fluctuating
rate loans are outstanding under the Company's revolving credit facility.
A hypothetical 100 basis point increase in interest rates relating to
the Company's revolving credit facility for fiscal year 2000 and fiscal year
1999 would have decreased pre-tax income by $110,000 and $257,000, respectively.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are included at the end of this Annual Report
on Form 10-K at the pages indicated below:
Report of Independent Auditors..................................................................... F - 2
Balance Sheets at February 3, 2001 and January 29, 2000............................................ F - 3
17
Statements of Operations for the period October 10, 2000 through February 3,
2001, the period January 30, 2000 through October 9, 2000
and the fiscal years ended January 29, 2000 and January 30, 1999.............................. F - 4
Statements of Changes in Common Stockholders' Equity for the period October 10,
2000 through February 3, 2001, the period January 30, 2000 through October
9, 2000 and the fiscal years ended January 29, 2000
and January 30, 1999.......................................................................... F - 5
Statements of Cash Flows for the period October 10, 2000 through February 3,
2001, the period January 30, 2000 through October 9, 2000
and the fiscal years ended January 29, 2000 and January 30, 1999.............................. F - 6
Notes to Financial Statements...................................................................... F - 7
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company incorporates by reference herein the sections entitled
"Election of Directors" and "Management" in the Company's Proxy Statement to be
mailed to stockholders in connection with the Company's 2001 annual meeting.
ITEM 11. EXECUTIVE COMPENSATION
The Company incorporates by reference herein the section entitled
"Management" in the Company's Proxy Statement to be mailed to stockholders in
connection with the Company's 2001 annual meeting.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company incorporates by reference herein the section entitled
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's Proxy Statement to be mailed to stockholders in connection with the
Company's 2001 annual meeting.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company incorporates by reference herein the sections entitled
"Certain Relationships and Related Transactions" and "Management" in the
Company's Proxy Statement to be mailed to stockholders in connection with the
Company's 2001 annual meeting.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of the report.
(1) List of Financial Statements
18
Report of Independent Auditors
Balance Sheets
Statements of Operations
Statements of Changes in Common Stockholders' Equity (Deficit)
Statements of Cash Flows
Notes to Financial Statements
(2) List of Financial Statement Schedules
Schedule II, Valuation and Qualifying Accounts
Other schedules are omitted because they are either not
applicable or the required information is shown in the
financial statements or notes thereto.
(3) List of Exhibits
2.1 A copy of the Disclosure Statement , as amended, regarding the
Plan of Reorganization, as amended, with certain exhibits
thereto, of Loehmann's Holdings, Inc. filed as Exhibit T3E to
Form-T3 (Commission File No. 0-28410) and incorporated herein
by reference.
2.2 Plan of Reorganization of Loehmann's, Inc. filed as Exhibit
2.1 to the Loehmann's, Inc. Annual Report on Form 10-K for the
year ended January 29, 2000 (Commission File No. 0-28410) and
incorporated herein by reference.
3.1 Amended and Restated Certificate of Incorporation of
Loehmann's Holdings, Inc. filed as Exhibit T3A to Form-T3
(Commission File No. 0-28410) and incorporated herein by
reference.
3.2 Amended and Restated By-Laws of Loehmann's Holdings, Inc.
filed as Exhibit T3B to Form-T3 (Commission File No. 0-28410)
and incorporated herein by reference.
4.1 Credit Agreement, dated as of September 29, 2000, among
Loehmann's Operating Co., as Borrower, the Lenders, and
Bankers Trust Company, as Agent filed as exhibit 10.1 on Form
8-K dated October 17, 2000 (Commission File No. 0-28410) and
incorporated herein by reference.
4.2 Senior Note Indenture between the Company and United States
Trust Company of New York filed as Exhibit T3C to Form-T3
(Commission File No. 0-28410) and incorporated herein by
reference.
10.1 Lease Agreement, dated October 6, 1998, by And between Maurice
M. Weill, Trustee for Rutherford Property and Loehmann's, Inc.
filed as Exhibit 10.6 to the Loehmann's, Inc. Annual Report on
Form 10-K for the year ended January 29, 2000 (Commission File
No. 0-28410) and incorporated herein by reference.
10.2 Employment Agreement between Loehmann's Holdings, Inc. and
Robert N. Friedman, dated as of January 1, 2001.*
10.3 Employment Agreement between Loehmann's Holdings, Inc. and
Robert Glass, dated as of January 1, 2001.*
19
10.4 2000 Director Stock Option Plan dated December 20, 2000.*
23 Consent of Independent Auditors.*
(b) Reports on Form 8-K
None filed in the fourth quarter.
- --------------
* Filed herewith
20
Index to Financial Statements
Loehmann's Holdings, Inc.
Contents
Report of Independent Auditors.......................................................................F-2
Consolidated Balance Sheets at February 3, 2001 and January 29, 2000.................................F-3
Consolidated Statements of Operations for the period October 10, 2000 through
February 3, 2001, the period January 30, 2000 through October 9, 2000 and the
fiscal years ended January 29, 2000 and January 30,
1999..............................................................................................F-4
Consolidated Statement of Changes in Common Stockholders' Equity for the period
October 10, 2000 through February 3, 2001, the period January 30, 2000
through October 9, 2000 and the fiscal years ended January 29, 2000 and
January 30, 1999..................................................................................F-5
Consolidated Statements of Cash Flows for the period October 10, 2000 through
February 3, 2001, the period January 30, 2000 through October 9, 2000 and the
fiscal years ended January 29, 2000 and January 30,
1999..............................................................................................F-6
Notes to Financial Statements.......................................................................F-7
F-1
Report of Independent Auditors
The Board of Directors and Stockholders
of Loehmann's Holdings, Inc.
We have audited the accompanying consolidated balance sheet of
Loehmann's Holdings, Inc. as of February 3, 2001 (the Successor Company), and of
Loehmann's, Inc. as of January 29, 2000 (the Predecessor Company), and the
related consolidated statements of operations, cash flows and changes in
stockholder's equity (deficit) for the period from October 10, 2000 to February
3, 2001 (the Successor Company), the period from January 30, 2000 to October 9,
2000 (the Predecessor Company); and each of the two years in the period ended
January 29, 2000 (the Predecessor Company). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurances about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As more fully described in Note 2 to the consolidated financial
statements, effective October 10, 2000, the Company emerged from protection
under chapter 11 of the U.S. Bankruptcy Code pursuant to a Reorganization Plan
which was confirmed by the Bankruptcy Court on September 6, 2000. Accordingly,
the accompanying February 3, 2001 balance sheet has been prepared in conformity
with the AICPA Statement of Position 90-7 "Financial Reporting for Entities in
Reorganization Under the Bankruptcy Code," for the Successor Company as a new
entity with assets, liabilities and a capital structure having carrying values
not comparable with prior periods as described in Note 2.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Loehmann's Holdings, Inc. as of February 3, 2001, and of Loehmann's, Inc. as of
January 29, 2000, and the consolidated results of their operations and their
cash flows for the period from October 10, 2000 to February 3, 2001, the period
from January 30, 2000 to October 9, 2000, and each of the two years in the
period ended January 29, 2000, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
New York, New York
March 12, 2001
F-2
Loehmann's Holdings, Inc.
Consolidated Balance Sheets
(In thousands)
Successor Predecessor
Company Company
-------------- -----------------
February January
3, 2001 29, 2000
-------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,587 $ 1,229
Accounts receivable and other assets 3,346 3,388
Merchandise inventory 45,731 46,674
-------------- -----------------
Total current assets 50,664 51,291
Property, equipment and leaseholds, net 48,142 56,019
Deferred debt issuance costs and other assets, net 1,490 2,840
Reorganization value in excess of identifiable assets, net 19,478 -
Purchase price in excess of net assets acquired, net - 36,923
-------------- -----------------
Total assets $ 119,774 $ 147,073
============== =================
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES:
Accounts payable $ 12,120 $ 6,530
Accrued expenses 18,068 12,495
Accrued interest 931 57
Revolving line of credit 6,568 -
DIP credit agreement - 9,120
Current portion of long-term debt - 70
-------------- -----------------
Total current liabilities 37,687 28,272
Long-term debt:
11% senior notes due December 2005 25,000 -
Notes payable - 321
-------------- -----------------
Total long-term debt 25,000 321
Liabilities subject to compromise - 143,552
Other noncurrent liabilities 4,492 3,776
Common stockholders' equity (deficit):
Common stock, $0.01 par value, 5,500,000 shares authorized and
3,333,333 issued and outstanding at February 3, 2001 33 -
Common stock, $0.01 par value, 25,000,000 shares authorized and
9,053,967 shares issued and outstanding at January 29, 2000 - 90
Class B convertible common stock, 469,237 shares authorized;
26,087 shares issued and outstanding at January 29, 2000 - 142
Additional paid-in capital 49,967 81,760
Retained earnings (accumulated deficit) 2,595 (110,840)
-------------- -----------------
Total common stockholders' equity (deficit) 52,595 (28,848)
-------------- -----------------
Total liabilities and common stockholders' equity (deficit) $ 119,774 $ 147,073
============== =================
The accompanying notes are an integral part of these financial statements.
F-3
Loehmann's Holdings, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
Successor Predecessor
Company Company
--------------------- -----------------------------------------------
Period From Period From Fiscal year Fiscal year
October 10, 2000 to January 30, 2000 ended January nded January
February 3, 2001 to October 9, 2000 29, 2000 30, 1999
--------------------- -----------------------------------------------
Net sales $ 106,230 $ 232,206 $ 374,657 $ 420,556
Cost of sales 67,367 150,836 257,318 285,425
--------------------- -----------------------------------------------
Gross profit 38,863 81,370 117,339 135,131
Revenue from leased departments 758 991 1,895 1,991
--------------------- -----------------------------------------------
Operating profit 39,621 82,361 119,234 137,122
Selling, general, and administrative expenses 31,307 69,424 114,886 116,096
Depreciation and amortization 2,949 7,078 12,019 12,201
Credit for store closings and impairment of assets - - - (1,216)
--------------------- -----------------------------------------------
Operating income (loss) 5,365 5,859 (7,671) 10,041
Interest expense, net 1,186 918 5,804 14,514
--------------------- -----------------------------------------------
Income (loss) before reorganization costs, income taxes and 4,179 4,941 (13,475) (4,473)
extraordinary item
Reorganization costs and fresh start adjustments - 42,008 19,881 -
--------------------- -----------------------------------------------
Net income (loss) before income taxes and extraordinary item 4,179 (37,067) (33,356) (4,473)
Provision for income taxes, net 1,584 128 112 115
--------------------- -----------------------------------------------
Net income (loss) before extraordinary item 2,595 (37,195) (33,468) (4,588)
Extraordinary gain on discharge of debt - 66,050 - -
Extraordinary loss on early extinguishment of debt - - - (560)
--------------------- -----------------------------------------------
Net income (loss) applicable to common stock $ 2,595 $ 28,855 $ (33,468) $ (5,148)
===================== ===============================================
Earnings per share:
Basic and diluted net income $ 0.78
=====================
Weighted average number of common shares outstanding 3,333
=====================
Weighted average number of common shares and
common share equivalents outstanding 3,333
=====================
The accompanying notes are an integral part of these financial statements.
F-4
Loehmann's Holdings, Inc.
Consolidated Statement of Changes in Common Stockholders' Equity
(In thousands, except share amounts)
Predecessor Company Common Stock Class B Common Stock
--------------------- --------------------Additional
Number of Amount Number of Amount Paid-in Accumulated
Shares Shares Capital Deficit Totals
Balances as of January 31, 1998 8,976,932 $ 89 48,431 $ 244 $ 81,597 $ (72,224) $ 9,706
Exercise of stock options 53,331 1 -- -- 59 -- 60
Conversion of Class B common stock 22,344 -- (22,344) (102) 102 -- --
Net loss for the fiscal year ended January 30, 1999 -- -- -- -- -- (5,148) (5,148)
---------- ---------- ------- -------- -------- ---------- ----------
Balances as of January 30, 1999 9,052,607 $ 90 26,087 $ 142 $ 81,758 $ (77,372) $ 4,618
---------- ---------- ------- -------- -------- ---------- ----------
Exercise of stock options 1,360 -- -- -- 2 -- 2
Net loss for the fiscal year ended January 29, 2000 -- -- -- -- -- (33,468) (33,468)
---------- ---------- ------- -------- -------- ---------- ----------
Balances as of January 29, 2000 9,053,967 $ 90 26,087 $ 142 $ 81,760 $ (110,840) $ (28,848)
---------- ---------- ------- -------- -------- ---------- ----------
Fresh start adjustments (9,053,967) (90) (26,087) (142) (81,760) 81,985 (7)
Net income for the period ending October 9, 2000 -- -- -- -- -- 28,855 28,855
---------- ---------- ------- -------- -------- ---------- ----------
Balances as of October 9, 2000 -- $ -- -- $ -- $ -- $ -- $ --
========== ========== ======= ======== ======== ========== ==========
Successor Company Common Stock
----------------------- Additional
Number of Paid-in Retained
Shares Amount Capital Earnings Totals
-------------------------------------------------------------------
Balances as of October 10, 2000 - $ - $ - $ - $ -
Distribution of new common shares 3,333,333 33 49,967 - 50,000
Net income for the 117-day period ended February 3, 2001 - - - 2,595 2,595
-------------------------------------------------------------------
Balances as of February 3, 2001 3,333,333 $ 33 $ 49,967 $ 2,595 $ 52,595
-------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
F-5
Loehmann's Holdings, Inc.
Consolidated Statements of Cash Flows
(In thousands)
SUCCESSOR Predecessor
COMPANY Company
--------------- ---------------------------------------------
PERIOD FROM Period from
OCTOBER 10, January 30, Fiscal year Fiscal year
2000 TO 2000 to ended ended
FEBRUARY October 9, January January
3, 2001 2000 29, 2000 30, 1999
--------------- ---------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 2,595 $ 28,855 $ (33,468) $ (5,148)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,949 7,078 12,019 12,201
Reorganization items - 8,446 10,118 -
Gain on discharge of debt - (66,050) - -
Fresh start adjustments - 21,382 - -
Write-off of deferred financing fees on early
Extinguishment of debt - - - 60
Changes in assets and liabilities:
Accounts receivable and other assets 1,665 (1,832) 1,495 692
Merchandise inventory 9,239 (9,778) 22,931 (2,084)
Accounts payable (4,694) 10,229 12,991 3,974
Accrued expenses (2,582) 1,560 10,324 (7,601)
Accrued interest 931 - 3,041 192
--------------- ---------------------------------------------
Net change in current assets and liabilities 4,559 179 50,782 (4,827)
Net change in other noncurrent assets and liabilities 433 (111) 11 (443)
--------------- ---------------------------------------------
Total adjustments 7,941 (29,076) 72,930 6,991
--------------- ---------------------------------------------
Net cash provided by (used in) operations 10,536 (221) 39,462 1,843
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (2,731) (2,956) (4,454) (9,938)
--------------- ---------------------------------------------
Net cash used in investing activities (2,731) (2,956) (4,454) (9,938)
--------------- ---------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
(Payments) borrowings on DIP credit agreement - (9,120) 9,120 -
(Payments) borrowings on revolving credit facility, net (9,177) 15,745 (41,880) 8,109
Repayments on revenue bonds and notes - - (2,250) -
Financing fees (75) - (144) (432)
Other financing activities, net - (1,643) 50 (24)
--------------- ---------------------------------------------
Net cash (used in) provided by financing activities (9,252) 4,982 (35,104) 7,653
--------------- ---------------------------------------------
Net (decrease) increase in cash and cash equivalents (1,447) 1,805 (96) (442)
Cash and cash equivalents at beginning of period 3,034 1,229 1,325 1,767
--------------- ---------------------------------------------
Cash and cash equivalents at end of period $ 1,587 $ 3,034 $ 1,229 $ 1,325
=============== =============================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the fiscal year for interest $ 305 $ 975 $ 2,547 $ 14,527
=============== =============================================
Cash (refunded) paid during the fiscal year for income taxes $ (87) $ 128 $ 112 $ 104
=============== =============================================
The accompanying notes are an integral part of these financial statements.
F-6
Loehmann's Holdings, Inc.
Notes to Financial Statements
1. ORGANIZATION
Loehmann's Holdings, Inc. ("Loehmann's" or the "Company"), a Delaware
corporation , was formed pursuant to the Company's emergence from bankruptcy on
October 10, 2000. Loehmann's Holdings, Inc. is the parent company of Loehmann's,
Inc. and owns 100% of its common stock. In addition to the formation of
Loehmann's Holdings. Inc., two new wholly-owned subsidiaries of Loehmann's, Inc.
were formed and all of the Company's assets were transferred to these
subsidiaries, Loehmann's Operating Co. and Loehmann's Real Estate Holdings, Inc.
Loehmann's is a leading upscale off-price specialty retailer of well known
designer and brand name women's fashion apparel, men's furnishing, accessories
and shoes.
2. CHAPTER 11 PROCEEDINGS AND BASIS OF PRESENTATION
On May 18, 1999 (the "Petition Date") Loehmann's, Inc. filed a petition
for relief under chapter 11 of the Bankruptcy Code (the "Bankruptcy Code") in
the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court").
On July 28, 2000 Loehmann's, Inc. filed a Second Amended Plan of
Reorganization (the "Second POR") with the Bankruptcy Court. The Second POR was
subsequently accepted by the required percentages of those creditors entitled to
vote on the plan. A plan confirmation hearing was held on September 6, 2000 and
the Second POR, as further modified on that date (the "Amended POR"), was
confirmed by the Bankruptcy Court. On October 10, 2000, Loehmann's Operating Co.
entered into a secured credit facility with Bankers Trust Company (the "New
Credit Facility"). Concurrently, Loehmann's Holdings, Inc., entered into an
indenture (the "Senior Notes Indenture") for 11% Senior Notes due 2005 (the "New
Senior Notes"). As a result of both of these agreements being finalized, all
conditions precedent to the effectiveness of the Amended POR were met and the
Amended POR become effective on October 10, 2000 (the "Effective Date"), thereby
allowing the Company to formally emerge from bankruptcy. From the Petition Date
until the Effective Date, Loehmann's, Inc. operated as a debtor-in-possession
under the Bankruptcy Code.
Under the Amended POR, Loehmann's Holdings, Inc. was formed and
distributed 3,333,333 shares of common stock, par value $0.01 per share (the
"New Common Stock"), and $25,000,000 of New Senior Notes to the general
unsecured creditors of Loehmann's, Inc. Distributions to the general unsecured
creditors of Loehmann's, Inc. were made in New Common Stock or in a combination
of New Common Stock and New Senior Notes depending on the elections made by the
holders of general unsecured claims. Under the Amended POR no stockholders and
option holders of Loehmann's, Inc. common stock received any distribution
The following table describes the periods presented in the financial
statements, related notes to the financial statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations:
Period Referred to as
- ------ --------------
Results for the Successor Company From
October 10, 2000 to February 3, 2001 "Successor Company 2000 117-Day Period"
F-7
Loehmann's Holdings, Inc.
Notes to Financial Statements
Results for the Predecessor Company From
January 30, 2000 to October 9, 2000 "Predecessor Company 2000 254-Day Period"
Combined Successor Company 2000 117-Day
Period and Predecessor Company 2000
254-Day Period "Fiscal Year 2000"
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
subsidiaries. Intercompany transactions have been eliminated in the
consolidation.
FISCAL YEAR
The Company follows the standard fiscal year of the retail industry,
which is a 52 or 53-week period ending on the Saturday closest to January 31.
The fiscal year ended February 3, 2001 had 53 weeks; the fiscal years ended
January 29, 2000 and January 30, 1999 had 52 weeks.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid marketable securities purchased
with an original maturity of three months or less to be cash and cash
equivalents.
MERCHANDISE INVENTORY
Merchandise inventory is valued at the lower of cost or market as
determined by the retail inventory method, which the Company believes
approximates fair value. However, certain warehoused inventory that is not
immediately available for sale is valued on a specific cost basis. The
merchandise inventory valued on a specific cost basis at February 3, 2001 and
January 29, 2000 was $12.7 million and $11.1 million, respectively.
REVENUE RECOGNITION
The Company recognizes revenue when goods are sold, at retail, to
customers in their stores. The Company has adopted SAB 101 and sales of leased
departments are not reflected in the net sales reported on the Company's
statements of operations. Instead, the revenue from leased departments is shown
as revenue from leased departments on the statements of operations. This
restatement had no effect on the Company's net income or loss for any period.
The Predecessor Company's net sales were reduced by $11.4 million in 1999 and
$11.5 million in 1998.
LEASED DEPARTMENT SALES
Fragrances and furs are leased departments. In accordance with the
adoption of SAB 101, sales of this merchandise are not included in the net sales
shown on the Company's statements of operations. Commissions from fragrance and
fur sales are shown as revenue from leased departments on the Company's
statements of operations.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. Advertising costs were
$10.6 million, $16.3 million, and $17.1 million during fiscal years 2000, 1999,
and 1998, respectively.
F-8
Loehmann's Holdings, Inc.
Notes to Financial Statements
DEPRECIATION AND AMORTIZATION
Building and furniture, fixtures and equipment are depreciated on a
straight-line basis over their estimated useful lives. Leasehold interests
represent the beneficial value of operating leases as determined by an
independent appraisal of the individual leases at the date such leases were
acquired by the Company and such amounts are amortized on a straight-line basis
over the related lease term.
Leasehold improvements are amortized on a straight-line basis over the
shorter of the related lease terms or their useful life.
PRE-OPENING COSTS
Expenses incurred in connection with the opening of new stores are
expensed in the fiscal quarter in which the store opens. There were no
pre-opening costs incurred in fiscal years 2000 and 1999. Pre-opening costs
incurred in fiscal year 1998 were $0.6 million.
REORGANIZATION VALUE IN EXCESS OF IDENTIFIABLE ASSETS
As part of the Company's emergence from bankruptcy, the Company's
reorganization value was established at $75 million. In allocating the
reorganization value, the Company's assets were recorded at their assumed fair
value with the excess of the reorganization value over the value of identifiable
assets reported as reorganization value in excess of identifiable assets, which
is being amortized over 25 years. The accumulated amortization at February 3,
2001 was $0.2 million.
CAPITALIZED INTEREST
Interest on borrowed funds is capitalized during construction of
property and is amortized by charges to earnings over the depreciable lives of
the related assets. There was no capitalized interest in fiscal years 2000 and
1999. Interest of $0.3 million was capitalized during fiscal year 1998.
DEFERRED DEBT ISSUANCE COSTS
Deferred debt issuance costs are amortized over the terms of the
related debt agreement. Deferred debt issuance costs were $1.2 million at
February 3, 2001 and $4.7 million at January 29, 2000. Amortization expense for
fiscal years 2000, 1999, and 1998 amounted to $0.5 million, $0.9 million and
$0.8 million, respectively. Total accumulated amortization at February 3, 2001
and January 29, 2000 amounted to $0.1 million in both periods.
INCOME TAXES
Income taxes are provided using the liability method.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
NET INCOME PER SHARE OF COMMON STOCK
Basic earnings per share ("EPS") is determined by dividing net income
by the weighted average number of shares of Common Stock outstanding during the
period. Diluted EPS is determined by dividing net
F-9
Loehmann's Holdings, Inc.
Notes to Financial Statements
income by the weighted average number of shares of Common Stock and Common Stock
equivalents outstanding during the period. The Company's New Common Stock was
distributed following the Company's emergence from bankruptcy on October 10,
2000. No EPS calculations are shown for periods prior to the distribution of the
new shares.
OTHER COMMENTS
Certain items in fiscal 1999 and fiscal 1998 have been reclassified to
present them on a basis consistent with the Successor Company 2000 117-Day
Period.
4. REORGANIZATION ITEMS AND FRESH START ADJUSTMENTS
In accounting for the effects of the reorganization, the Company
implemented the American Institute of Certified Public Accountant's Statement of
Position 90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code ("SOP 90-7"). SOP 90-7 was applicable because pre-reorganization
shareholders received none of the Company's New Common Stock and the
reorganization value of the assets of the successor company was less than the
total pre-petition liabilities allowed plus post-petition liabilities.
As set forth in the Loehmann's, Inc. Amended POR, the Company's
reorganization value was established at $75.0 million. Two methodologies were
used to derive the reorganization value: (i) a comparison of the Company and its
projected performance to how the market values comparable companies, and (ii) a
calculation of the present value of the free cash flows under the Company's
financial projections, including an assumption of a terminal value.
In allocating the reorganization value, the Company's assets were
recorded at their assumed fair value with the excess of the reorganization value
over the value of identifiable assets reported as reorganization value in excess
of identifiable assets, which is being amortized over 25 years. In applying SOP
90-7, the Company wrote off $36.2 million of purchase price in excess of net
assets acquired relating to a leveraged buyout transaction in 1988.
The net effect of all fresh start adjustments resulted in a charge of
$21.4 million, which is reflected in the statements of operations for the
Predecessor Company for the period from January 30, 2000 to October 9, 2000.
The effect of the Amended POR and the application of fresh start
accounting on the Predecessor Company's October 10, 2000 preconfirmation balance
sheet is as follows:
F-10
Loehmann's Holdings, Inc.
Notes to Financial Statements
Confirmation of Plan
-----------------------------------------
(in thousands) Pre-Fresh Start
Balance Sheet Debt Balance Sheet
October 10, 2000 Discharge Fresh Start October 10, 2000
------------------- --------------- --------------- -------------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,034 $ 3,034
Accounts receivable and other assets 5,220 $ (209)(e) 5,011
Merchandise inventory 56,452 (1,482)(f) 54,970
------------------- -------------------
Total current assets 64,706 63,015
Property, equipment and equipment, net 48,332 (500)(g) 47,832
Deferred debt issuance costs and other
assets, net 3,280 $ (1,541)(a) 1,739
Purchase price in excess of net assets
acquired, net 36,173 (36,173)(h) -
Reorganization value in excess of
identifiable assets - 19,722(i) 19,722
------------------- --------------- --------------- -------------------
Total assets $ 152,491 $ (1,541) $ (18,642) $ 132,308
=================== =============== =============== ===================
LIABILITIES AND COMMON STOCKHOLDERS'
(DEFICIT) EQUITY
Current liabilities:
Accounts payable $ 16,814 $ 16,814
Accrued expenses 13,527 $ 4,360(b) $ 2,740(j) 20,627
Revolving line of credit 15,745 15,745
------------------- -------------------
Total current liabilities 46,086 53,186
11% Senior Notes due 2005 - 25,000(c) 25,000
Liabilities subject to compromise 145,411 (145,411)(d) -
Other noncurrent liabilities 4,122 4,122
Stockholders' equity (deficit) (43,128) 114,510 (21,382) 50,000
------------------- --------------- --------------- -------------------
Total liabilities and stockholders' equity $ 152,491 $ (1,541) $ (18,642) $ 132,308
=================== =============== =============== ===================
(a) Write-off of deferred financing fees on old 11 7/8% senior notes
(b) Reclass portion of liabilities subject to compromise to be paid in
cash. Includes lease cure payments of $966, convenience claims of $137
and reclamation claims of $3,257
(c) Issuance of new 11% Senior notes due 2005
(d) Discharge of debt
(e) Reserve for uncollectible receivables
(f) Adjustment to inventory for discontinued product offerings and a change
in accounting for the capitalization of inventory preparation costs
(g) Write-off of property, plant and equipment due to the exiting of the
Bronx, New York warehouse facility
(h) Elimination of Predecessor Company purchase price in excess of net
assets acquired
(i) Record reorganization value in excess of identifiable assets
(j) Record accrual for sales return of $1,045 in accordance with the
adoption of SAB 101, a reserve for additional severance costs in
connection with the exiting of the Bronx, New York warehouse facility
of $200 and other fresh start adjustments for $1,495
F-11
Loehmann's Holdings, Inc.
Notes to Financial Statements
5. INCOME TAXES
The Company's provision for income taxes primarily represents state and
local minimum and alternative minimum taxes.
Significant components of deferred tax assets and liabilities are as
follows:
Successor Predecessor
Company Company
---------------- -----------------
February January
3, 2001 29, 2000
---------------- ----------------
(in thousands)
Deferred tax assets:
Net operating loss carryforwards $ 10,825 $ 31,213
Excess tax depreciation and amortization 860 3,131
Store closing reserve 459 -
Capitalization of inventory expenses 613 632
Other, net 719 877
---------------- ----------------
Total deferred tax assets 13,476 35,853
---------------- ----------------
Deferred tax liabilities - (272)
Net deferred tax assets 13,476 35,581
Less valuation allowance (13,476) (35,581)
---------------- ----------------
$ - $ -
====================================
Following is a reconciliation of the statutory Federal income tax rate
and the effective income tax rate application to earnings before income taxes:
Successor Predecessor
Company Company
--------------- ---------------
February January
3, 2001 29, 2000
--------------- ---------------
Statutory tax rate 35.0% 35.0%
Valuation allowance adjustment (4.7) (33.9)
Goodwill 8.3 (1.4)
Other, net 0.4 -
--------------- ---------------
Effective tax rate 39.0% (0.3)%
=============== ===============
At February 3, 2000, the Company had a net operating loss carryforward
of approximately $27.7 million for regular tax purposes. Net operating losses
begin to expire in 2019 and future years.
F-12
Loehmann's Holdings, Inc.
Notes to Financial Statements
6. DEBT
The Company's long-term debt consists of:
Successor Predecessor
Company Company
----------------- ----------------
February January
3, 2001 29, 2000
----------------- ----------------
(In thousands)
Revolving line of Credit (a) $ 6,568 $
-
DIP facility (b) - 9,120
11% senior notes, due 2005 (c) 25,000 -
51/2% City of New York note due in varying
installments to 2004 (d) - 391
----------------- ----------------
31,568 9,511
Less current maturities 6,568 9,190
----------------- ----------------
Debt $ 25,000 $ 321
================= ================
(a) The Company entered into the New Credit Facility with Bankers Trust Company
on the Effective Date of emergence. The New Credit Facility provides for a
$75.0 million revolving line of credit and letter of credit facility with a
$15.0 million fixed asset sublimit. The fixed asset sublimit is reduced by
$0.8 million each quarter commencing on January 1, 2001. The New Credit
Facility is secured by substantially all of the Company's assets and
expires on September 30, 2005. The availability of the revolving line of
credit and letters of credit under the New Credit Facility is subject to
certain inventory-related borrowing base requirements. In connection with
entering into the credit agreement, the Company paid a fee of $1.1 million
to Bankers Trust Company. The indebtedness under the New Credit Facility
bears interest at variable rates based on LIBOR plus 4.0% or the prime rate
plus 3.0% on borrowings less than or equal to the fixed asset sublimit. For
borrowings in excess of the fixed asset sublimit the interest rates are
LIBOR plus 2.5% or the prime rate plus 1.5%. There is an unused line fee of
0.50% per annum on the unused portion of the facility.
The New Credit Facility contains certain customary covenants, including
limitations on indebtedness, liens and restricted payments. In addition,
the Company is required to satisfy, among other things, certain financial
performance criteria including minimum EBITDA requirements, fixed charge
coverage and inventory turn ratios and maximum capital expenditure costs.
(b) On June 7, 1999, the Bankruptcy Court entered a final order approving a
$75.0 million debtor possession financing (the "DIP Facility") with
Congress Financial Corporation. The DIP Facility provided for a revolving
line of credit and a letter of credit facility aggregating $75.0 million.
On the Effective Date, the Company paid off the balance owing on the DIP
Facility of $15.7 million.
(c) The 11% Senior Notes due 2005 were issued under the Senior Note Indenture
between Loehmann's Holdings, Inc. and United States Trust Company of New
York, the trustee, dated October 10, 2000. In the initial distribution to
creditors, $25.0 million of notes were issued to those general unsecured
creditors of Loehmann's, Inc. who elected to receive the New Senior Notes
as part of their distribution. Interest on the New Senior Notes shall be
payable as follows: (1) the first payment of interest due on April 30, 2001
shall be paid through the addition of such interest to the accreted value
of the New Senior Notes on such date; (2) thereafter, the Company shall
have the option to pay interest on the Senior Notes on each interest
payment date either in cash or through the addition of such interest to the
accreted value of the Senior Notes on the applicable interest payment date;
provided that the Company shall be required to pay interest on the Senior
Notes in cash on any particular interest payment date if, as of such
interest payment date, the Company would have had, on a pro forma basis,
positive free cash flow as defined in the New Credit Facility agreement.
F-13
Loehmann's Holdings, Inc.
Notes to Financial Statements
(d) This note was paid off in 2000.
7. LIABILITIES SUBJECT TO COMPROMISE AND REORGANIZATION ITEMS
As part of fresh start accounting, liabilities subject to compromise in
the amount of $145.4 million were written off as part of the discharge of debt
in the bankruptcy. These liabilities consisted of the following:
(in thousands)
11 7/8% Senior notes $ 95,000
Accounts payable - trade 30,727
Accrued interest on senior notes 5,740
Reserve for lease rejection claims 7,789
Other liabilities 6,155
-----------------
Total liabilities subject to compromise $ 145,411
=================
The Company in accordance with SOP 90-7, recorded all transactions
incurred as a result of the chapter 11 filing separately as reorganization
items. Accordingly, reorganization items included in the statements of
operations include the following:
Period From
January 30, 2000 to
October 9, 2000
------------------
(in thousands)
Fresh start adjustments $ 21,382
Write off of assets at closed stores 4,010
Professional fees 3,925
Accrued lease rejection claims 2,840
Other 9,851
------------------
Total reorganization costs $ 42,008
=================
8. PROPERTY, EQUIPMENT AND LEASEHOLDS, NET
Property, equipment and leaseholds are recorded at cost less
accumulated depreciation and amortization. The components of property, equipment
and leaseholds are as follows:
F-14
Loehmann's Holdings, Inc.
Notes to Financial Statements
SUCCESSOR Predecessor
COMPANY Company
-------------------------------- ---------------
USEFUL FEBRUARY January
LIVES 3, 2001 29, 2000
-------------------------------- ---------------
(In thousands) (In years)
Building 20 $ 9,031 $ 9,031
Furniture, fixtures and equipment 3-8 38,896 49,714
Leasehold interests 5-29 34,947 39,277
Leasehold improvements 5-29 36,535 35,896
--------------- ---------------
Total property, equipment and leaseholds 119,409 133,918
Accumulated depreciation and amortization (71,267) (77,899)
--------------- ---------------
Property, equipment and leaseholds, net $ 48,142 $ 56,019
=============== ===============
9. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
loss per share:
Period From
October 10, 2000
to February 3,
2001
------------------
NUMERATOR
Net operating income $ 2,595
------------------
Numerator for basic and diluted income per share 2,595
==================
DENOMINATOR
Denominator for basic income per share--weighted average shares 3,333
------------------
Denominator for diluted per share--adjusted weighted average shares and
assumed conversions 3,333
==================
Basic & diluted income per share $ 0.78
==================
Options to purchase 232,500 shares of Common Stock at an average price
of $15.00 per share were outstanding at February 3, 2001, but were not included
in the computation of diluted income per share because the options exercise
price is greater than the fair market value of the common shares.
10. STOCK OPTION PLANS
On December 20, 2000, the Company's Board of Directors approved a stock
option plan for the Company's non-employee directors (the "2000 Director Option
Plan"). Under the terms of such plan, the aggregate number of shares granted may
not exceed 200,000 shares. Options are granted at the discretion of the Board of
Directors at an exercise price equal to the fair market price of the shares on
the date the option is granted. Options are immediately exercisable in whole or
in part and have a ten year term subject to early termination as provided in the
2000 Director Option Plan. Options to purchase 75,000 shares were granted under
2000 Director Option Plan on February 27, 2001 at an exercise price of $5.00 per
share.
F-15
Loehmann's Holdings, Inc.
Notes to Financial Statements
Upon the Company's emergence from bankruptcy, the Company adopted an
Equity Incentive Plan for key senior management. 425,000 shares of its new
common stock were reserved for future issuance upon the exercise of stock
options granted or to be granted pursuant to such plan. On the Effective Date,
the Company granted options to purchase an aggregate of 262,500 shares of common
stock at an exercise price of $15.00 per share to certain key senior management
employees. One quarter of these options vested on the Effective Date and an
additional quarter will vest on each of the first three anniversaries of the
Effective Date.
The Company has elected to follow APB 25 and related interpretations in
accounting for stock options and accordingly, has recognized no compensation
expense with respect to options granted to key employees or options granted to
non-employee directors. The options granted to key employees were granted at a
time when there was no trading in the Company's stock on any securities exchange
and the option price was consistent with the valuation of the Company in its
plan of reorganization. The options granted to directors were granted at a price
determined by the Board of Directors to be equal to the fair market value of
such shares based upon trading in shares of the Company's stock at the time of
grant.
11. COMMITMENTS AND CONTINGENCIES
The Company is the lessee under various long-term operating leases for
store locations and equipment rentals for up to 29 years, including renewal
options. The leases typically provide for three five-year renewals that are
automatic unless the Company elects to terminate the lease. Rent expense related
to these leases amounted to $14.5 million, $18.0 million and $18.4 million for
the fiscal years ended February 3, 2001, January 29, 2000, and January 30, 1999,
respectively.
Future minimum payments for the operating leases consisted of the
following at February 3, 2001:
(In thousands)
2001 $ 14,167
2002 14,596
2003 14,258
2004 13,895
2005 13,396
Thereafter 88,966
--------------------
Total $ 159,278
====================
The Company is involved in litigation arising in the normal course of
business. In the opinion of management the expected outcome of litigation will
not have a material adverse effect on the Company's financial position.
12. CHARGE FOR STORE CLOSINGS
During the first quarter of fiscal 2000, the Company implemented a plan
to close eleven underperforming stores. These closures were intended to improve
the Company's future profitability and
F-16
Loehmann's Holdings, Inc.
Notes to Financial Statements
liquidity. During the year ended February 3, 2001, certain of the leases of the
closed stores were sold at a Bankruptcy Court authorized auction. The net
proceeds from the sales were $0.2 million. The charge for store closings for the
year ended February 3, 2001 consisted of:
(In thousands)
Write-offs of property, plant and equipment $ 4,010
Lease rejection claims 2,840
Proceeds from the sale of leases (218)
Other expenses 888
------------
Charge for store closings $ 7,520
============
During the second quarter of fiscal 1999, the Company implemented a
plan to close fourteen underperforming stores and, as a result, recorded a $12.9
million charge to reorganization costs. These closures were intended to improve
the Company's future profitability and liquidity. The charge for store closings
consisted of write-offs of property, plant and equipment, costs associated with
net lease obligations and other expenses of $10.1 million, $2.3 million and $0.5
million, respectively.
13. EMPLOYEE BENEFIT PLANS
In October 1996, the Company established a defined contribution
retirement savings plan (401 (k)) covering all eligible employees. This plan
succeeds the previously discretionary profit sharing plan with all prior
individual account balances and vesting terms transferred to the new plan. The
plan allows participants to defer a portion of their annual compensation and
receive a matching employer contribution on a portion of that deferral. During
fiscal years 2000, 1999 and 1998, the Company recorded contributions of $0.3
million, $0.2 million and $0.3 million, respectively, to the plan.
F-17
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amendment to its
Annual Report on Form 10-K to be signed on its behalf by the undersigned
thereunto duly authorized.
LOEHMANN'S HOLDINGS, INC.
Dated: May 2, 2001 By: /s/ Robert Glass
---------------------------------
Robert Glass, Chief Operating
Officer, Chief Financial Officer,
Secretary and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert N. Friedman
------------------------------ Chief Executive Officer and Director May 2, 2001
Robert N. Friedman
/s/ Robert Glass
------------------------------ Chief Operating Officer, Chief
Robert Glass Financial Officer and Director May 2, 2001
/s/ William J. Fox Co-Chairman and
------------------------------ Director May 2, 2001
William J. Fox
/s/ Joseph Nusim
------------------------------ Co-Chairman and Director May 2, 2001
Joseph Nusim
/s/ Carol Gigli Greer
------------------------------ Director May 2, 2001
Carol Gigli Greer
/s/ Cory Lipoff
------------------------------ Director May 2, 2001
Cory Lipoff
/s/ Erwin A. Marks
--------------------------- Director May 2, 2001
Erwin A. Marks
21
SCHEDULE II
LOEHMANN'S HOLDINGS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Column A Column B Column C Column D Column E
Additions
---------------------------
Balance at Charged to Charged to Balance at
Beginning Cost and Other end of
Description of Period Expense Accounts Deductions Period
Year ended February 3, 2001
---------------------------
Reserve for Store Closings $0 $1,249 $0 $90 $1,159
Year ended January 29, 2000
---------------------------
Reserve for Store Closings $307 $1,237 $0 $1,544 (a) $0
Year ended January 30, 1999
---------------------------
Reserve for Store Closings $7,130 0 0 $6,823 (a) $307
--------------------------------- ------------- ------------- -------------- ------------- ------------
(a) Payments for leasehold obligation expenses and other store closing expenses.
22