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 2, 2002
Commission File
Number 0-28410
LOEHMANN'S HOLDINGS, INC.
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(Exact name of registrant 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
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(Address of principal offices) (Zip Code)
Registrant's telephone number, including Area Code: (718) 409-2000
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. Yes X No
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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.
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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. Yes X No
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The aggregate market value of voting stock held by nonaffiliates of
registrant as of April 17, 2002 was $46.7 million.
The Company had 3,332,178 shares of Common Stock outstanding as of
April 30, 2002.
Documents incorporated by reference: the information required by Part
III, Items 10, 11, 12 and 13, is incorporated by reference to the registrant's
Proxy Statement for the registrant's 2002 annual meeting of stockholders.
ITEM 1. BUSINESS
THE COMPANY
Loehmann's Holdings, Inc. ("Holdings" and collectively with its
subsidiaries, "Loehmann's" or the "Company"), a Delaware corporation
incorporated in 2000, 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 30, 2002, 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 percentage of the 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 "Credit Facility").
Concurrently, Holdings, a newly formed holding company, entered into an
indenture (the "Senior Notes Indenture") for 11% Senior Notes due 2005 (the
"Senior Notes"). As a result of the consummation of these agreements, 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 3,332,178 shares of common
stock, par value $0.01 per share (the "New Common Stock"), and $25,000,000 of
its 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 Senior Notes
depending on the elections made by the holders of general unsecured claims. The
Amended POR provided that no stockholder or option holder of the common stock of
Loehmann's, Inc. would receive 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.
INDUSTRY OVERVIEW
Women's Apparel And Accessories
According to published reports, total retail sales of women's apparel
and accessories in the United States were in excess of $89.0 billion in 2001.
The womenswear industry is served by a variety of distribution channels
including department stores, specialty stores and off-price retailers.
The women's apparel and accessories 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 that 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. Loehmann's carries merchandise in the designer, bridge and
better categories.
Designer and bridge merchandise is generally sold in finer department
stores such as Bloomingdale's, Neiman Marcus, Nordstrom 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 as to 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 and
sportswear 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 and sportswear, which are generally sold in finer
department stores such as Bloomingdale's, Neiman Marcus, Nordstrom 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, Anne Klein, Calvin
Klein, Ralph Lauren, Laundry and Dana Buchman.
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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 competitive with other
off-price retailers.
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.
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.
MERCHANDISING
Selection
The Company offers a wide selection of women's sportswear, dresses,
suits, outerwear, accessories, handbags, intimate apparel, shoes, and men's
furnishings and sportswear. The Company does not offer moderate or budget
merchandise in its stores. Most of the Company's merchandise is in-season and,
therefore, is 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 1997 through
fiscal year 2001:
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
Sportswear 48.3% 48.3% 47.1% 49.4% 50.4%
Accessories/intimate apparel 13.7 13.4 12.9 12.8 14.5
Dresses and suits 23.1 17.8 17.1 14.9 13.4
Men's 2.5 7.8 10.4 10.5 10.2
Shoes 6.6 6.3 6.1 6.4 6.6
Outerwear 4.7 4.5 4.0 4.4 3.9
Other 1.1 1.9 2.4 1.6 1.0
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.
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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 500 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 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
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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
The Company operates a 272,000 square foot centralized distribution
center located in Rutherford, New Jersey. 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.
MARKETING AND ADVERTISING
A significant portion of Loehmann's advertising efforts involve direct
mail and email 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. 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 2001.
INTERNET
The Company maintains a website at www.loehmanns.com. The website
provides information 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. Currently, there are 450,000 email addresses in the Company's
database. 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 regularly
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. 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. In addition, mystery shoppers shop
the stores to help ensure that sales
5
associates are friendly, helpful and maintain all of the Company's
merchandising, operations, and customer service standards.
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, 2002, the Company had 1,610 employees, of whom 1,336
were store sales and clerical employees, 114 performed store managerial
functions, and 160 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 is represented by a labor union.
The Company believes that its employee relations are good.
TRADEMARK AND SERVICE MARK
The 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 significantly lower prices. The
Company also faces competition from a variety of off-price and discount
retailers and from factory outlet malls.
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 could potentially affect revenue and profitability are
difficult to predict. See "Special Note Regarding Forward-looking Statements."
6
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 that offer off-price merchandise in competition with the Company.
Accordingly, the Company may face periods of intense competition in the future
that 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 markup 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
7
California and the Northeast, could have an adverse effect on the Company's
financial condition 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,
President and Chief Executive Officer, and Robert Glass, Chief Operating
Officer, Chief Financial Officer and Secretary, who entered into employment
agreements on January 1, 2001. 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 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 30, 2002, 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
NUMBER OF FISCAL YEAR 2001
REGION STORES SALES
----------------------------------------------------------
California ........... 12 31.4%
New York ............ 7 23.5
New Jersey ........... 5 10.7
Other Mid-Atlantic ... 4 9.2
Florida .............. 4 8.2
Midwest .............. 3 4.7
Texas ................ 3 3.9
Other West ........... 3 3.0
Other Southeast ...... 2 3.0
New England .......... 1 2.4
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44 100.0%
===== ======
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In the fourth quarter of fiscal year 2001, the Company made the
decision to close, in 2002, its existing store in Denver, CO and open a new
store at a different location in Denver, CO.
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 with
an average size of 23,000 square feet. The stores are held under leases expiring
from 2002 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 typically 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.
The following table summarizes lease expirations and any renewal
options:
Number of
Fiscal Number of Leases Leases with Range in Years
Years Expiring Renewal Options Of Option Periods
- ------------------- ----------------- ---------------- -----------------
2002 5 5 5
2003 3 2 5
2004 6 5 5
2005 5 3 5
2006 2 2 5
2007 and thereafter 23 17 5-10
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 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. 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. This facility contains
approximately 40,000 square feet of office space and approximately 113,000
square feet of warehouse space. The Company plans to sell or lease the warehouse
space located at the Bronx facility, while retaining the current office space
for its corporate offices. On January 11, 2002, the Company entered into a
purchase option agreement to sell its building for $5,400,000.
ITEM 3. LEGAL PROCEEDINGS
The Company may be a party to various 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
The Company held its Annual Meeting of Stockholders on September 21,
2001. The following actions were taken at the Annual Meeting:
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PROPOSAL 1
- ----------
The individuals in the table below were elected directors of the
Company with the votes indicated,
FOR WITHHELD
--- --------
William J. Fox 2,621,589 13,423
Joseph Nusim 2,621,589 13,423
Robert N. Friedman 2,620,200 14,808
Robert Glass 2,620,200 14,808
Carol Gigli-Greer 2,621,589 13,423
Cory Lipoff 2,621,589 13,423
Erwin A. Marks 2,621,589 13,423
PROPOSAL 2
- ----------
An amendment of the Company's amended and restated Certificate of
Incorporation to authorize a class of Preferred Stock. Approval required a
majority of the common shares outstanding; the proposal was not approved.
For 861,534
Against 251,224
Abstain 7,355
Broker non-votes 1,514,895
PROPOSAL 3
- ----------
Adoption of the Company's 2001 Stock Option Plan. This proposal
required a majority of the votes cast in person or by proxy; the proposal was
approved.
For 1,045,767
Against 60,666
Abstain 13,680
Broker non-votes 1,514,895
PROPOSAL 4
- ----------
Ratification of the appointment of Ernst & Young LLP as independent
accountants. This proposal required a majority of the votes cast in person or by
proxy; the proposal was approved.
For 2,622,640
Against 5,944
Abstain 6,424
Broker non-votes -
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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 and low
bid prices for the Company's common stock since it began trading on NASDAQ
OTCBB.
Fiscal Quarter Ended High Low
May 5, 2001 $ 7.50 $ 3.75
August 4, 2001 12.80 3.77
November 3, 2001 12.75 5.80
February 2, 2002 11.80 5.90
As of April 23, 2002, there were 399 shareholders of record of the
Company's common stock.
The Company did not pay any dividends on its common stock in fiscal
years 2001 or 2000. The Company does not have any present intention to pay any
dividends in 2002.
In October 2000, April 2001 and February 2002, the Company distributed
3,333,333 shares of Common Stock and 11% Senior Notes Due 2005 in the aggregate
amount of $25,000,000 to its creditors pursuant to its Second Amended Plan of
Reorganization. No sales commissions were paid in connection with the
transaction. The shares were issued in reliance upon the exemption from
registration afforded by Section 3(a)(10) of the Securities Act of 1933, as
amended.
ITEM 6. SELECTED FINANCIAL DATA
(In thousands except per share data) 2001 2000 1999 1998 1997
- ------------------------------------ ---- ---- ---- ---- ----
Net sales $ 322,524 $ 338,165 $ 374,657 $ 420,556 $ 438,892
Net income (loss) 7,093 31,450 (33,468) (5,148) (15,672)
Net income (loss) per common share 2.13 0.78 (3.69) (0.57) (1.75)
Total assets 129,232 119,774 147,073 188,693 189,226
Long-term obligations 26,528 25,000 -- 139,403 131,360
Cash dividends declared per common share -- -- -- -- --
Fiscal year 2000 above represents the combined results of Loehmann's,
Inc from January 30, 2000 to October 9, 2000 and Loehmann's Holdings, Inc. from
October 10, 2000 to February 3, 2001. See Item 1 and Item 7 for information that
materially affects the comparability of the data in the above table.
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 2001
fiscal year to the 2000 fiscal year and the 2000 fiscal year to the 1999 fiscal
year. For purposes of providing a comparable period for fiscal 2000, the results
of Loehmann's, Inc., the Predecessor Company, from January 30, 2000 to October
9, 2000 have been combined with the results of Loehmann's Holdings, Inc., the
Successor Company, from October
11
10, 2000 to February 3, 2001 to form the 2000 fiscal year results. These periods
are summarized in the following table:
2001 2000 1999
FISCAL Fiscal Fiscal
(In thousands) YEAR Year Year
--------- --------- ---------
Net sales $ 322,524 $ 338,165 $ 374,657
Cost of sales 202,923 218,204 257,318
--------- --------- ---------
Gross margin 119,601 119,961 117,339
Revenue from leased departments 1,574 1,749 1,895
--------- --------- ---------
Operating profit 121,175 121,710 119,234
Selling, general and administrative expenses 99,864 100,459 114,886
Depreciation and amortization 9,800 10,027 12,019
Charge for store closing 500 -- --
--------- --------- ---------
Operating income 11,011 11,224 (7,671)
Interest expense, net 3,918 2,104 5,804
--------- --------- ---------
Income 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) --
--------- --------- ---------
Net income (loss) before income taxes and
extraordinary item 7,093 (32,888) (33,356)
Provision for income taxes -- 1,712 112
--------- --------- ---------
Net income (loss) before extraordinary item 7,093 (34,600) (33,468)
Extraordinary item - gain on discharge of debt -- 66,050 --
--------- --------- ---------
Net income applicable to common stock $ 7,093 $ 31,450 $ (33,468)
========= ========= =========
FISCAL YEAR 2001 COMPARED TO FISCAL YEAR 2000
Comparable store sales (stores that were in operation for both periods)
decreased by 1.7% during fiscal year 2001 as compared to fiscal year 2000. Net
sales for fiscal year 2001 (a fifty-two week year) were $322.5 million as
compared to $338.2 million for fiscal year 2000 (a fifty-three week year), a
decrease of approximately $15.7 million. The decrease is attributable to (i) one
less week in fiscal year 2001 compared to fiscal year 2000, sales for the extra
week being $4.0 million, (ii) the sales in fiscal year 2000 from eleven stores
closed in March 2000, which were $6.2 million and (iii) the comparable store
sales decrease of $5.5 million.
Gross margin percent increased to 37.1% from 35.5% in the prior year,
an increase of 160 basis points. The increase in gross margin percentage was due
primarily to an increase in the initial markup of merchandise as a result of a
change in the merchandise mix and improved shrinkage results partially offset by
increased markdowns for promotional activity necessary in the fourth quarter due
to the general weakness in the retail economy. Gross margin for fiscal year 2001
was $119.6 million as compared $120.0 million for fiscal year 2000.
Selling, general and administrative expenses for fiscal year 2001 were
$99.9 million as compared to $100.5 million during fiscal year 2000, a decrease
of approximately $0.6 million. Eliminating the eleven closed stores from fiscal
year 2000, selling, general and administrative expenses were $98.1 million in
fiscal
12
year 2000 resulting in an increase of $1.8 million on a 44-store basis. The
increase in selling, general and administrative expenses was primarily related
to i) an increase in advertising expense of $0.8 million and ii) an increase in
occupancy costs of $1.0 million.
Depreciation and amortization for fiscal year 2001 was $9.8 million as
compared to $10.0 million for fiscal year 2000.
Included in fiscal year 2001 operating results is a charge of $500,000
for occupancy costs and the write-off of fixed assets in connection with the
closing of the current Denver, CO store, which is expected to close in 2002 and
be replaced by a new store.
As a result of the items explained above, operating income, as a
percentage of sales, increased to 3.4%, or $11.0 million, in fiscal year 2001 as
compared to 3.3%, or $11.2 million in fiscal year 2000.
Net interest expense for fiscal year 2001 was $3.9 million as compared
to $2.1 million for fiscal year 2000, an increase of $1.8 million. The increase
was due to interest on the Company's 11% senior notes which for fiscal year 2001
was $2.9 million compared to $0.9 million in fiscal year 2000. The interest on
the senior notes in fiscal year 2000 of $0.9 million was for a short period from
October 10, 2000 through February 3, 2001, while the interest of $2.9 million in
fiscal year 2001 was for the entire fiscal year.
The Company had no provision for income taxes after recognition of a
deferred tax asset of $2.4 million related to the Company's net operating loss
carryforward of $16.0 million (see Note 4 of the Notes to Financial Statements).
Net income for the year was $7.1 million, or $2.13 per basic share and $2.08 per
diluted share. Excluding the adjustment for the deferred tax asset, net income
assuming a 39% tax rate would have been $4.3 million or $1.27 per diluted share.
Net income in the prior year was $31.8 million which included two non-recurring
items, a gain on the discharge of debt in the bankruptcy of $66.1 million as
well as reorganization expenses of $42.0 million.
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 $338.2 million as compared to $374.7 million for
fiscal year 1999, a decrease of approximately $36.5 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 margin for fiscal year 2000 was $120.0 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 margin 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
$100.5 million as compared to $114.9 million during fiscal year 1999, a decrease
of approximately $14.4 million, or 12.4%. As a percentage of net sales, selling,
general and administrative expense decreased to 29.7% 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.
13
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 decrease of $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.
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 the Christmas shopping season. Results of
operations during the second and fourth quarters are traditionally impacted by
end of season clearance events.
14
The following table sets forth certain unaudited operating data for the
Company's eight fiscal quarters ended February 2, 2002. The fourth quarter of
fiscal year 2000 combines the results of Loehmann's, Inc., the Predecessor
Company, and Loehmann's Holdings, Inc., the Successor Company. The unaudited
quarterly information includes all normal recurring adjustments which management
considers necessary for a fair presentation of the information shown.
Fiscal 2000 FISCAL 2001
----------- -----------
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 $ 89,817 $ 73,148 $ 88,560 $ 86,640 $ 87,792 $ 66,859 $ 83,647 $ 84,226
Gross margin 29,173 26,040 33,876 30,872 32,720 24,208 33,340 29,333
Revenue from leased departments 383 330 359 677 342 399 333 500
-------- -------- -------- -------- -------- -------- -------- --------
Operating profit 29,556 26,370 34,235 31,549 33,062 24,607 33,673 29,833
Selling, general and
administrative expenses 27,180 22,790 24,425 26,064 25,998 22,940 25,615 25,311
Depreciation and
amortization 2,673 2,575 2,291 2,488 2,474 2,462 2,389 2,475
Charge for closed store -- -- -- -- -- -- -- 500
-------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss) (297) 1,005 7,519 2,997 4,590 (795) 5,669 1,547
Interest expense 423 244 476 961 974 1,039 1,026 879
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before reorganization
costs, income taxes and
extraordinary item (720) 761 7,043 2,036 3,616 (1,834) 4,643 668
Reorganization costs 8,812 1,730 31,466 -- -- -- -- --
Provision for income taxes 50 61 18 1,583 1,072 (374) 1,813 (2,511)
Extraordinary item - gain on
discharge of debt -- -- 66,050 -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) (9,582) (1,030) 41,609 453 2,544 (1,460) 2,830 3,179
======== ======== ======== ======== ======== ======== ======== ========
Earnings per share:
Basic -- -- -- $ 0.14 $ 0.76 $ (0.44) $ 0.85 $ 0.95
======== ======== ======== ======== ========
Diluted -- -- -- $ 0.14 $ 0.76 $ (0.44) $ 0.83 $ 0.93
======== ======== ======== ======== ========
LIQUIDITY AND CAPITAL RESOURCES
The Company has a $75.0 million Credit Facility with Bankers Trust
Company (the "Credit Facility"). The facility consists of a revolving line of
credit, which at February 2, 2002 was $65.2 million and a separate fixed asset
sublimit which at February 2, 2002, was $9.8 million. The fixed asset sublimit
is reduced by $750,000 on each January 1, April 1, July 1 and October 1 and is
also reduced by an amount equal to the interest paid on the Senior Notes, if the
interest payment is made in cash. When the fixed asset sublimit is reduced, the
revolving line of credit is increased by the same amount. The 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 Credit
Facility is subject to certain inventory-related borrowing base requirements.
The indebtedness under the Credit Facility bears interest at variable
rates based on LIBOR plus 3.0% or the prime rate plus 2.0% 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 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. The
Company is in compliance with all of its loan covenants.
15
During fiscal year 2001, cash flow provided by operations was $23.5
million. Changes in current operating assets and liabilities were favorably
impacted by an increase in accounts payable of $7.3 million which reflects the
Company's return to normal payment terms with its suppliers in fiscal year 2001
from the accelerated terms in effect at the end of fiscal year 2000.
Cash flows used in investing activities were $4.6 million for fiscal
year 2001, all for capital expenditures. Capital expenditures for fiscal year
2001 include $3.5 million for the stores, $0.6 million for warehouse
improvements and $0.5 million for computer software and hardware.
Cash used in financing activities was $6.6 million for fiscal year
2001, representing a repayment of the borrowings on the Company's Credit
Facility. At the end of fiscal year 2001, the Company had $12.3 million of cash
and cash equivalents. In addition to the cash and cash equivalents of $12.3
million, the Company had unused cash availability under the Credit Facility of
$34.0 million at the end of the fiscal year. The Company believes that cash
generated from operations and funds available under the Credit Facility will be
sufficient to satisfy its cash requirements through the remainder of the fiscal
year.
CRITICAL ACCOUNTING POLICIES
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 2, 2002 and
February 3, 2001 was $12.3 million and $12.7 million, respectively.
The Company uses a cyclical permanent markdown policy to reduce prices
automatically as goods age. The resulting gross margin reduction is recognized
in the period the markdown is recorded.
Shrinkage is estimated as a percentage of sales for the period from the
last inventory date, January 13, 2002, to the end of the fiscal year. Such
estimates are based on experience and the most recent physical inventory
results. Physical inventories are taken twice annually and inventory records are
adjusted accordingly.
Revenue Recognition and Leased Sales
The Company recognizes revenue when goods are sold, at retail, to
customers in their stores. The Company adopted SAB 101 in fiscal year 2000 and
sales from leased departments are not reflected in the net sales reported on the
Company's statements of operations. Fragrances and furs are leased departments.
Gross margin from fragrance and fur sales are shown as revenue from leased
departments on the Company's statements of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's outstanding long-term debt as of February 2, 2002 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.
16
A hypothetical 100 basis point increase in interest rates relating to
the Company's revolving credit facility for fiscal year 2001 and fiscal year
2000 would have decreased pre-tax income by $136,000 and $110,000, 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
Consolidated Balance Sheets at February 2, 2002 and February 3, 2001................................F-3
Consolidated Statements of Operations for the fiscal year ended February 2,
2002; the period October 10, 2000 through February 3, 2001; the period January
30, 2000 through October 9, 2000; and the fiscal year ended January 29,
2000................................................................................................F-4
Consolidated Statement of Changes in Common Stockholders' Equity (Deficit) for
the fiscal year ended February 2, 2002; the period October 10, 2000 through
February 3, 2001; the period January 30, 2000 through October 9, 2000; and the
fiscal year ended January 29, 2000 .................................................................F-5
Consolidated Statements of Cash Flows for the fiscal year ended February 2,
2002; the period October 10, 2000 through February 3, 2001; the period January
30, 2000 through October 9, 2000; and the fiscal year ended January 29, 2000........................F-6
Notes to Financial Statements.......................................................................F-7
Schedule II - Valuation and Qualifying Accounts....................................................F-17
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 2002 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 2002 annual meeting.
17
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 2002 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 2002 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
Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Common Stockholders'
Equity (Deficit)
Consolidated 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 Second Amended Plan of Reorganization of Loehmann's,
Inc. filed as Exhibit 2.1 to the Loehmann's, Inc.
Quarterly Report on Form 10-Q for the quarter ended July
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 99.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 99.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 to
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.
18
4.3 Amended Senior Note Indenture between the Company and
The Bank of New York, successor trustee to the United
States Trust Company of New York.*
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,
filed as Exhibit 10.2 to the Loehmann's, Inc. Annual
Report on Form 10-K for the year ended February 3, 2001
(Commission File No. 0-28410) and incorporated herein by
reference.+
10.3 Employment Agreement between Loehmann's Holdings, Inc.
and Robert Glass, dated as of January 1, 2001, filed as
Exhibit 10.3 to the Loehmann's, Inc. Annual Report on
Form 10-K for the year ended February 3, 2001
(Commission File No. 0-28410) and incorporated herein by
reference.+
10.4 2000 Director Stock Option Plan dated January 10, 2001,
filed as Exhibit 10.4 to the Loehmann's, Inc. Annual
Report on Form 10-K for the year ended February 3, 2001
(Commission File No. 0-28410) and incorporated herein by
reference.+
10.5 2001 Stock Option Plan dated September 21, 2001, filed
as Appendix C to the Company's 2001 Proxy Statement on
Form DEFA14A (Commission File No. 0-28410) and
incorporated herein by reference.+
10.6 2000 Equity Incentive Plan dated September 10, 2000,
filed as Exhibit 4.1 to the Company's Registration
Statement on Form S-8 (Commission File No. 333-85664)
and incorporated herein by reference.+
21 List of Subsidiaries.*
23 Consent of Independent Auditors.*
- ------------------
* Filed herewith
+ Management contract or compensation plan or arrangement required to be noted
as provided in Item 14(a) of the Form 10-K rules.
(b) Reports on Form 8-K
None filed in the fourth quarter.
19
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned thereunto duly authorized.
LOEHMANN'S HOLDINGS, INC.
Dated: April 30, 2002 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
-------------------------
Robert N. Friedman Chief Executive Officer and Director April 30, 2002
/s/ Robert Glass
-------------------------
Robert Glass Chief Operating Officer, Chief
Financial Officer and Director April 30, 2002
/s/ William J. Fox
---------------------------
William J. Fox Co-Chairman and Director April 30, 2002
/s/ Joseph Nusim
-------------------------
Joseph Nusim Co-Chairman and Director April 30, 2002
/s/ Carol Gigli Greer
-------------------------
Carol Gigli Greer Director April 30, 2002
/s/ Cory Lipoff
-------------------------
Cory Lipoff Director April 30, 2002
/s/ Erwin A. Marks
-------------------------
Erwin A. Marks Director April 30, 2002
20
Index to Financial Statements
Loehmann's Holdings, Inc.
Contents
Report of Independent Auditors......................................................................F-2
Consolidated Balance Sheets at February 2, 2002 and February 3, 2001................................F-3
Consolidated Statements of Operations for the fiscal year ended February 2,
2002; the period October 10, 2000 through February 3, 2001; the period January
30, 2000 through October 9, 2000; and the fiscal year ended January 29, 2000........................F-4
Consolidated Statement of Changes in Common Stockholders' Equity (Deficit) for
the fiscal year ended February 2, 2002; the period October 10, 2000 through
February 3, 2001; the period January 30, 2000 through October 9, 2000; and the
fiscal year ended January 29, 2000 .................................................................F-5
Consolidated Statements of Cash Flows for the fiscal year ended February 2,
2002; the period October 10, 2000 through February 3, 2001; the period January
30, 2000 through October 9, 2000; and the fiscal year ended January 29,
2000................................................................................................F-6
Notes to Financial Statements.......................................................................F-7
Schedule II - Valuation and Qualifying Accounts....................................................F-17
Report of Independent Auditors
The Board of Directors and Stockholders
of Loehmann's Holdings, Inc.
We have audited the accompanying consolidated balance sheets of
Loehmann's Holdings, Inc. as of February 2, 2002 and February 3, 2001 and the
related consolidated statements of operations, cash flows and changes in
stockholder's equity (deficit) for the year ended February 2, 2002 and the
period from October 10, 2000 to February 3, 2001 (the Successor Company), the
period from January 30, 2000 to October 9, 2000 and the year ended January 29,
2000 of Loehmann's Inc. (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 assurance 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.
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 2, 2002 and February 3, 2001, and the
consolidated results of their operations and their cash flows for the year ended
February 2, 2002 and period from October 10, 2000 to February 3, 2001, and of
Loehmann's Inc. for the period from January 30, 2000 to October 9, 2000, and the
year 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, 2002
F-2
Loehmann's Holdings, Inc.
Consolidated Balance Sheets
(In thousands)
FEBRUARY February
2, 2002 3, 2001
-------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 13,882 $ 1,587
Accounts receivable and other assets 4,785 3,346
Merchandise inventory 43,972 45,731
-------------- -----------------
Total current assets 62,639 50,664
Property, equipment and leaseholds, net 43,362 48,142
Deferred debt issuance costs and other assets, net 1,493 1,490
Deferred tax asset 2,357 -
Reorganization value in excess of identifiable assets, net 19,381 19,478
-------------- -----------------
Total assets $ 129,232 $ 119,774
============== =================
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable $ 19,427 $ 12,120
Accrued expenses 16,378 16,397
Accrued interest 840 931
Income taxes payable 888 1,671
Revolving line of credit - 6,568
-------------- -----------------
Total current liabilities 37,533 37,687
11% Senior notes due 12/31/2005 26,528 25,000
Other noncurrent liabilities 5,483 4,492
Common stockholders' equity:
Common stock, $0.01 par value, 5,500,000 shares authorized and
3,332,178 issued and outstanding 33 33
Additional paid-in capital 49,967 49,967
Retained earnings 9,688 2,595
-------------- -----------------
Total common stockholders' equity 59,688 52,595
-------------- -----------------
Total liabilities and common stockholders' equity $ 129,232 $ 119,774
============== =================
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
------------------------------------------ -----------------------------
FISCAL YEAR Period From Period From
ENDED October 10, 2000 January 30, Fiscal year
FEBRUARY 2, to February 3, 2000 to October ended January
2002 2001 9, 2000 29, 2000
--------------------- ------------------ ------------------------------
Net sales $ 322,524 $ 105,959 $ 232,206 $ 374,657
Cost of sales 202,923 67,368 150,836 257,318
--------------------- ------------------ -----------------------------
Gross margin 119,601 38,591 81,370 117,339
Revenue from leased departments 1,574 758 991 1,895
--------------------- ------------------ -----------------------------
Operating profit 121,175 39,349 82,361 119,234
Selling, general, and administrative expenses 99,864 31,035 69,424 114,886
Depreciation and amortization 9,800 2,949 7,078 12,019
Charge for store closing 500 - - -
--------------------- ------------------ -----------------------------
Operating income (loss) 11,011 5,365 5,859 (7,671)
Interest expense, net 3,918 1,186 918 5,804
--------------------- ------------------ -----------------------------
Income (loss) before reorganization costs,
income taxes and extraordinary item 7,093 4,179 4,941 (13,475)
Reorganization costs and fresh start adjustments - - 42,008 19,881
--------------------- ------------------ -----------------------------
Net income (loss) before income taxes and extraordinary 7,093 4,179 (37,067) (33,356)
Provision for income taxes, net - 1,584 128 112
--------------------- ------------------ -----------------------------
Net income (loss) before extraordinary item 7,093 2,595 (37,195) (33,468)
Extraordinary item - gain on discharge of debt - - 66,050 -
--------------------- ------------------ -----------------------------
Net income (loss) applicable to common stock $ 7,093 $ 2,595 $ 28,855 $ (33,468)
===================== ================== =============================
Earnings per share:
Basic $ 2.13 $ 0.78
===================== ==================
Diluted $ 2.08 $ 0.78
===================== ==================
Weighted average common shares and common share
equivalents used in earnings per
share calculation:
Basic 3,332 3,333
===================== ==================
Diluted 3,403 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)
COMMON STOCK CLASS B COMMON STOCK
------------------------- ------------------------- ADDITIONAL
NUMBER OF NUMBER OF PAID-IN ACCUMULATED
PREDECESSOR COMPANY SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTALS
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 -- $ -- -- $ -- $ - $ - $ -
========== ========== ========== ========== ========== ========== ==========
COMMON STOCK
--------------------- ADDITIONAL
NUMBER OF PAID-IN
SUCCESSOR COMPANY 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
Adjustment to new common shares distributed 1,155 --
-----------------------------------------------------------
Net Income for the fiscal year ended February 2, 2002 -- -- -- 7,093 7,093
-----------------------------------------------------------
Balances as of February 2, 2002 3,332,178 $ 33 $ 49,967 $ 9,688 $ 59,688
===========================================================
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
FISCAL YEAR October 10, January 30, Fiscal Year
ENDED 2000 to 2000 to Ended
FEBRUARY 2, February October 9, January 29,
2002 3, 2001 2000 2000
=============== ================ ==============================
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 7,093 $ 2,595 $ 28,855 $ (33,468)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 9,800 2,949 7,078 12,019
Non=cash PIK interest on 11% senior notes 1,528 - - -
Deferred tax asset (2,357)
Adjustments to reorganization value (694) - - -
Charge for store closing 500 - - -
Reorganization items - - 8,446 10,118
Gain on discharge of debt in bankruptcy - - (66,050) -
Fresh start adjustments - - 21,382 -
Changes in assets and liabilities:
Accounts receivable and other assets (1,439) 1,665 (1,832) 1,495
Merchandise inventory 1,759 9,239 (9,778) 22,931
Accounts payable 7,307 (4,694) 10,229 12,991
Accrued expenses 100 (4,253) 1,560 10,324
Accrued income taxes (783) 1,671 -
Accrued interest (91) 931 - 3,041
=============== ================ ==============================
Net change in current assets and liabilities 6,853 4,559 179 50,782
Net change in other noncurrent assets and liabilities 749 433 (111) 11
=============== ================ ==============================
Total adjustments 16,379 7,941 (29,076) 72,930
=============== ================ ==============================
Net cash provided by (used in) operations 23,472 10,536 (221) 39,462
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,609) (2,731) (2,956) (4,454)
=============== ================ ==============================
Net cash used in investing activities (4,609) (2,731) (2,956) (4,454)
=============== ================ ==============================
CASH FLOWS FROM FINANCING ACTIVITIES:
(Payments) borrowings on DIP credit agreement - - (9,120) 9,120
(Payments) borrowings on revolving credit facility, net (6,568) (9,177) 15,745 (41,880)
Repayments on revenue bonds and notes - - - (2,250)
Other financing activities, net - (75) (1,643) (94)
--------------- ---------------- ------------------------------
Net cash (used in) provided by financing activities (6,568) (9,252) 4,982 (35,104)
--------------- ---------------- ------------------------------
Net increase (decrease) in cash and cash equivalents 12,295 (1,447) 1,805 (96)
Cash and cash equivalents at beginning of period 1,587 3,034 1,229 1,325
--------------- ---------------- ------------------------------
Cash and cash equivalents at end of period $ 13,882 $ 1,587 $ 3,034 $ 1,229
=============== ================ ==============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash interest paid during the period $ 2,414 $ 305 $ 975 $ 2,547
=============== ================ =============================
Cash paid (refunded) for income taxes during the period $ 3,415 $ (87) $ 128 $ 112
=============== ================ =============================
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 "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 the consummation of these agreements, 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 3,332,178 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:
F-7
Loehmann's Holdings, Inc.
Notes to Financial Statements
Period Referred to as
- ------ --------------
Results for the Predecessor Company From
January 30, 2000 to October 9, 2000 "Predecessor Company 2000 254-Day Period"
Results for the Successor Company From
October 10, 2000 to February 3, 2001 "Successor Company 2000 117-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 2, 2002 ("Fiscal Year 2001") had 52
weeks; the fiscal year ended February 3, 2001 ("Fiscal Year 2000") had 53 weeks
and the fiscal year ended January 29, 2000 ("Fiscal Year 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 2, 2002 and
February 3, 2001 was $12.3 million and $12.7 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 in fiscal
year 2000 and sales of leased departments are not reflected in the net sales
reported on the Company's statements of operations. This reclassification had no
effect on the Company's net income or loss for any period.
LEASED DEPARTMENT SALES - Fragrances and furs are leased departments. In
accordance with the adoption of SAB 101, gross margin 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 $10.8 million, $10.6 million, and $16.3 million during
fiscal years 2001, 2000, and 1999, 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 2001, 2000 and 1999.
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. This asset was being amortized over 25 years through
fiscal year 2001. The accumulated amortization at February 2, 2002 and February
3, 2001 was $1.0 million and $0.2 million respectively. In Fiscal Year 2002, the
asset will no longer be amortized in accordance with Statement of Financial
Accounting Standards No. 141, "Business Combinations", and No. 142, "Goodwill
and Other Intangible Assets" (See Note 13. Recent Accounting Pronouncements).
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 both February 2, 2002 and February 3, 2001. Amortization expense for
fiscal years 2001, 2000, and 1999 amounted to $0.2 million, $0.5 million and
$0.9 million, respectively. Total accumulated amortization was $0.3 million at
February 2, 2002 and $0.1 million at February 3, 2001.
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 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.
RECLASSIFICATION - Certain items in Fiscal Year 1999 have been reclassified to
present them on a basis consistent with later periods.
F-9
4. INCOME TAXES
Provision for federal, state and local income taxes consisted of the
following:
SUCCESSOR COMPANY Predecessor Company
--------------------------------------------------------------- -----------------------------
FEBRUARY 2, 2002 February 3, 2001 January 29, 2000
----------------------------- ---------------------------- -----------------------------
CURRENT DEFERRED Current Deferred Current Deferred
------------- ------------- ------------ ------------ ------------ ------------
Federal $1,093 $(1,251) $1,463 $- $- $-
State and local 364 (206) 121 - 112 -
------------- ------------- ------------ ------------ ------------ ------------
$1,457 $(1,457) $1,584 $- $112 $-
============= ============= ============ ============ ============ ============
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and amounts used for income tax purposes. At February 2, 2002
and February 3, 2001, the Company had deferred tax assets and deferred tax
liabilities as follows:
FEBRUARY February
2, 2002 3, 2001
---------------- ----------------
(In thousands)
Deferred tax assets:
Net operating loss carryforwards $ 6,330 $ 7,390
Depreciation and amortization 1,274 860
Store closing reserve 304 452
Capitalization of inventory expenses 508 613
Deferred rent 1,980 1,570
Other, net 711 953
---------------- ----------------
Total deferred tax assets $ 11,107 $ 11,838
---------------- ----------------
Deferred tax liabilities - -
Net deferred tax assets $ 11,107 $ 11,838
Less valuation allowance (8,750) (11,838)
---------------- ----------------
$ 2,357 $ -
================ ================
Following is a reconciliation of the statutory federal income tax rate
and the effective income tax rate application to earnings before income taxes:
F-10
Loehmann's Holdings, Inc.
Notes to Financial Statements
Predecessor
SUCCESSOR COMPANY Company
----------------------------- -------------
FEBRUARY February January 29,
2, 2002 3, 2001 2000
------------- -------------- -------------
Statutory tax rate 35.0% 35.0% 35.0%
Decrease in valuation allowance (33.2) (4.7) (33.9)
Correction of prior period post-petition tax expense (12.7) - -
Goodwill 3.9 8.3 (1.4)
State taxes 3.3 3.3 -
Other, net 3.7 (2.9) -
------------- -------------- -------------
Effective tax rate 0.0% 39.0% (0.3)%
============= ============== =============
In 2001, the Company amended its tax filing to reallocate its
pre-petition net operating losses resulting in a benefit to the Company of $0.9
million. At February 2, 2002, the Company had a net operating loss carryforward
of approximately $16.0 million for regular tax purposes. Net operating losses
begin to expire in 2019 and future years. The availability of NOL carryforwards
to offset future income is subject to annual limitations imposed by Internal
Revenue Code Section 382 as a result of successive ownership changes. To the
extent that an annual NOL limitation is not used, it carries and accumulates
forward to future years.
5. DEBT
The Company's long-term debt consists of:
FEBRUARY February
2, 2002 3, 2001
----------------- ----------------
(In thousands)
Revolving line of credit (a) $ - $ 6,568
11% senior notes, due 2005 (b) 26,528 25,000
----------------- ----------------
26,528 31,568
Less current maturities - 6,568
----------------- ----------------
Debt $ 26,528 $ 25,000
================= ================
(a) The Company entered into the Credit Facility with Bankers Trust Company on
the Effective Date of emergence from bankruptcy. (See Management's
Discussion And Analysis Of Financial Condition And Results Of Operations -
Liquidity and Capital Resources).
(b) 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 is payable
as follows: (1) the first payment of interest was due on April 30, 2001 and
paid through the addition of such interest to the accreted value of the New
Senior Notes on April 30, 2001; (2) thereafter, the Company has the option
to pay interest on the New Senior Notes on each interest payment date
either in cash or through the issuance of additional New Senior Notes on
the applicable interest payment date; provided that the Company is required
to pay interest on the New
F-11
Loehmann's Holdings, Inc.
Notes to Financial Statements
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 Credit Facility agreement.
6. REORGANIZATION ITEMS
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
=====================
7. 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:
USEFUL FEBRUARY February
LIVES 2, 2002 3, 2001
--------------------------------- ------------------
(In thousands) (In years)
Building 20 $ 9,031 $ 9,031
Furniture, fixtures and equipment 3-8 40,423 38,896
Leasehold interests 5-29 34,003 34,947
Leasehold improvements 5-29 38,704 36,535
----------------- ------------------
Total property, equipment and leaseholds 122,161 119,409
Accumulated depreciation and amortization (78,799) (71,267)
----------------- ------------------
Property, equipment and leaseholds, net $ 43,362 $ 48,142
================= ==================
F-12
Loehmann's Holdings, Inc.
Notes to Financial Statements
8. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
loss per share:
Period From
FEBRUARY October 10, 2000 to
2, 2002 February 3, 2001
------------------- ---------------------
NUMERATOR
Net operating income $ 7,093 $ 2,595
------------------- ---------------------
Numerator for basic and diluted income per share 7,093 2,595
=================== =====================
DENOMINATOR
Denominator for basic income per share--weighted average shares 3,332 3,333
Effect of dilutive securities:
Employee & Director stock options 71 -
------------------- ---------------------
Denominator for diluted per share--adjusted weighted average
shares and assumed conversions 3,403 3,333
=================== =====================
Income per share:
Basic $ 2.13 $ 0.78
=================== =====================
Diluted $ 2.08 $ 0.78
=================== =====================
9. STOCK OPTION PLANS
On April 17, 2001, the Board of Directors adopted the 2001 Stock Option
Plan, which was subsequently approved by a vote of the stockholders on September
21, 2001. Under the 2001 Stock Option Plan, options granted may not exceed
200,000 shares of the Company's common stock. On March 25, 2002, the Board of
Directors approved grants to Robert N. Friedman and Robert Glass of 100,000
shares each at the market price of $12.25. One-half of the options vest
immediately and one-quarter of the options vest on each of October 10, 2002 and
October 10, 2003. The term of each of the grants is ten years.
On January 10, 2001, 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 the 2000 Director Option Plan, the aggregate number
of shares as to which options may be exercised, 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 on February 27, 2001 at an
exercise price of $5.00 per share; options to purchase 25,000 shares were
granted on October 30, 2001 at an exercise price of $5.80.
Upon the Company's emergence from bankruptcy, the Company adopted an
Equity Incentive Plan (the "2000 Equity Incentive Plan") for senior management
by which 425,000 shares of the Company's new common stock was 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. These grants were
subsequently rescinded effective September 21, 2001 and these shares become
available for new grants under the 2000 Equity Incentive Plan. The number of
shares available for grant under the 2000 Equity Incentive Plan was reduced by
162,500 shares, leaving a balance available for grant of 262,500 shares.
F-13
Loehmann's Holdings, Inc.
Notes to Financial Statements
As of February 2, 2002, options have been granted under the 2000 Equity
Incentive Plan for 200,250 shares to key employees (the "Participants") at an
exercise price of $5.80. These options were granted on October 30, 2001, have a
term of five years from the date of grant and become exercisable on August 31,
2004, provided the Participant is still employed on that date; 3,000 options
were canceled during Fiscal Year 2001. Along with the grant of the option,
certain Participants may become entitled to a cash award under an Incentive
Award Program (the "Award Program") based on the value of the options on August
30, 2004. The cash award is based on a percentage of the Participant's base
salary in the year 2001, provided that the Company's cumulative EBITDA for the
fiscal years 2001, 2002 and 2003 exceeds $60 million with a minimum EBITDA in
any of the three fiscal years of $17 million. However, the cash award is reduced
by an amount equal to (a) the difference between (i) the closing market price of
the common stock on August 30, 2004 and (ii) the exercise price multiplied by
(b) the number of shares exercisable under the option. The cash award is payable
on August 31, 2004 provided that the Participant is still employed by the
Company.
The following information pertains to the Company's stock option plans:
FISCAL YEAR ENDED FEBRUARY 2, 2002 FEBRUARY 3, 2001
-------------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
-------------------------------------------------------
Outstanding options, beginning of year 262,500 $ 15.00 - -
Granted 300,250 5.60 262,500 $ 15.00
Canceled 265,500 14.90 - -
Exercised - - - -
-------------------------------------------------------
Outstanding options, end of year 297,250 $ 5.60 262,500 $ 15.00
=======================================================
Options exercisable, end of year 100,000 $ 5.20 65,625 $ 15.00
=======================================================
Options available for future grant 365,250 N/A 362,500 N/A
=======================================================
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. Had compensation cost been determined based upon the
fair value at grant date for awards consistent with the methodology prescribed
by Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", the Company's net income and net income per share for
the fiscal year ended February 2, 2002 would have decreased to $7.0 million or
$2.06 per diluted share, respectively. The options granted to directors on
February 27, 2001 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.
The fair value of each option grant is estimated on the date of each
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 2001: risk-free interest rates of 4.73%,
expected life of 4 years, expected volatility of 130.50% and dividend yield of
0%. The fair value generated by the Black-Scholes model may not be indicative of
the future benefit, if any, that may be received by the option holder.
F-14
Loehmann's Holdings, Inc.
Notes to Financial Statements
10. 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 $15.0 million, $14.5 million and $18.0 million for
the fiscal years 2001, 2000 and 1999, respectively.
Future minimum payments for the operating leases consisted of the
following at February 2, 2002:
(In thousands)
2002 $15,100
2003 14,787
2004 14,450
2005 14,013
2006 12,677
Thereafter 94,273
---------------
Total $165,300
===============
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.
11. CHARGE FOR STORE CLOSINGS
During the fourth quarter of fiscal 2001, the Company developed a plan
to open a new store in Denver, CO in 2002 and close its existing store. The
charge for the store closing consisted of write-offs of property, plant and
equipment, costs associated with net lease obligations and other expenses of
$0.5 million.
During the first quarter of fiscal 2000, the Company implemented a plan
to close eleven underperforming stores and, as a result, recorded a $7.5 million
charge to reorganization costs. These closures were intended to improve the
Company's future profitability and 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 consisted of write-offs of property, plant and
equipment, costs associated with net lease obligations and other expenses of
$4.0 million, $2.8 million and $0.9 million, respectively.
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.
F-15
Loehmann's Holdings, Inc.
Notes to Financial Statements
12. EMPLOYEE BENEFIT PLANS
In October 1996, the Company established a defined contribution
retirement savings plan (401 (k)) covering all eligible employees. 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 2001, 2000 and 1999, the Company recorded contributions of $0.2 million,
$0.3 million and $0.2 million, respectively, to the plan.
13. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141, "Business Combinations", and No. 142,
"Goodwill and Other Intangible Assets" ("FAS 142"), effective for fiscal years
beginning after December 15, 2001. Under the new rules, reorganization value in
excess of identifiable assets will no longer be amortized but will be subject to
annual impairment tests in accordance with the above referenced statements.
Other intangible assets will continue to be amortized over their useful lives.
The Company will apply the new rules on accounting for Goodwill and
Other Intangible Assets beginning in the first quarter of fiscal 2002.
Application of the non-amortization provisions of FAS 142 is expected to result
in an increase in net income of $792,000 or $0.24 per share for the year. During
fiscal 2002, the Company will perform the first of the required impairment tests
of reorganization value in excess of identifiable assets and indefinite lived
intangible assets as of February 3, 2002 and has not yet determined what the
effect of these tests will be on the earnings and financial position of the
Company.
F-16
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
Beginning of Cost and Other Balance at
Description Period Expense Accounts Deductions End of Period
Year ended February 2, 2002
Reserve for Store Closings $1,159 $500 $0 $885 $774
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
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(a) Payments for leasehold obligation expenses and other store closing expenses.
F-17