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 1, 2003
Commission File
Number 0-28410
LOEHMANN'S HOLDINGS, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-4129380
-------------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2500 Halsey Street, Bronx, New York 10461
-------------------------------------- -------------------------------
(Address of principal offices) (Zip Code)
Registrant's telephone number, including Area Code: (718) 409-2000
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 No X
----- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ______
Indicate by a check mark whether the registrant is an accelerated filer (as
defined in the Securities Exchange Act of 1934 Rule 12G-2). Yes X No
----- ----
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
----- ----
The aggregate market value of voting stock held by non-affiliates of the
registrant as of August 3, 2002 was $83.2 million.
The Company had 6,659,236 shares of Common Stock outstanding as of April
17, 2003.
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 2003 annual meeting of stockholders.
PART I.
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 with household incomes greater than $100,000, who
are attracted to designer and other name brand merchandise offered at
exceptional values. As of February 1, 2003, the Company operated 44 stores in
major metropolitan markets located in 16 states.
INDUSTRY OVERVIEW
Women's Apparel And Accessories
The women's apparel 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 Anne Klein II, 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 Apparel and Furnishings
The men's apparel industry includes tailored apparel (suits, formal wear,
slacks, sportcoats and outerwear), sportswear (sportshirts, sweaters and
jackets) and furnishings (dress shirts, ties, belts, 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.
2
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.
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 and 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 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.
3
The following table shows the percentages of the Company's net sales
attributable to its various product categories for fiscal year 1998 through
fiscal year 2002:
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Sportswear ....................... 48.3% 47.1% 49.4% 50.4% 50.1%
Accessories/intimate apparel ..... 13.4 12.9 12.8 14.5 14.9
Dresses and suits ................ 17.8 17.1 14.9 13.4 12.3
Men's ............................ 7.8 10.4 10.5 10.2 10.2
Shoes ............................ 6.3 6.1 6.4 6.6 7.7
Outerwear ........................ 4.5 4.0 4.4 3.9 3.9
Other............................. 1.9 2.4 1.6 1.0 0.9
Total .......................... 100.0% 100.0% 100.0% 100.0% 100.0%
All Loehmann's stores carry items from each of its merchandise categories.
However, the allocation of merchandise among the stores varies based upon
factors relating to the demographics and geographic location of each store as
well as the size of the store and its ability to display adequately the
merchandise.
Pricing
The Company seeks to provide its customers with exceptional value by
offering 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.
4
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 and France. The Company does not have any long-term
supply contracts with its suppliers.
The Company maintains its own central buying staff of 12 experienced
off-price buyers. 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 allowing product groupings to be
easily moved or expanded. Because Loehmann's maintains 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 30% of women's apparel revenues.
STORE EXPANSION INITIATIVES
During fiscal year 2002, the Company opened 2 new stores, one in Denver, CO
replacing a smaller store and the other in Oak Brook, IL. Also, the Company
expanded its store in White Plains, NY and remodeled the Manhattan, NY store.
DISTRIBUTION
The Company operates a 404,000 square foot centralized distribution center
located in Rutherford, NJ. 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 80% of total Company sales in fiscal year 2002.
5
INTERNET
The Company maintains a website at www.loehmanns.com. The website provides
information to customers on current promotions and new merchandise available in
the stores. It 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 500,000 email addresses in the Company's
database. No merchandise is sold via the website. The Company's SEC filings can
be accessed via its 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 of 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 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
monitor compliance with 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 February 1, 2003, the Company had 1,792 employees, of whom 1,373 were
store sales and clerical employees, 257 performed store managerial functions,
and 162 were corporate (managerial and clerical) and warehouse (managerial)
personnel. Warehouse labor is provided by a third party and these workers are
not Company employees. Non-managerial employees are paid on an hourly basis.
None of the Company's employees are represented by a labor union. The Company
believes that its employee relations are good.
TRADEMARK AND SERVICE MARK
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.
6
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.
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
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 6,659,236 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. The
6,659,236 shares of common stock reflect the Company's subsequent dividend in
the nature of a 2-for-1 stock split. 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.
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 and the
Company's 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."
7
Competition
All aspects of the women's and men's apparel industries, 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 greater
financial 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 the section entitled "Competition".
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 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. On May 10, 2002, these employment agreements were amended,
extending the period of service to 2006. The loss of services of any of the
8
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 February 1, 2003, the Company operated 44 stores in 16 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:
NUMBER OF PERCENT OF FISCAL
REGION STORES YEAR 2002 SALES
------------------------------------------------------
California ........... 12 31.6%
New York ............ 7 23.7
New Jersey ........... 5 10.6
Other Mid-Atlantic ... 4 9.3
Florida .............. 4 8.1
Midwest .............. 3 5.1
Texas ................ 3 3.7
Other Southeast ...... 2 2.9
Other West ........... 3 2.7
New England .......... 1 2.3
--- -----
44 100.0%
--- -----
The Company follows the general industry practice of leasing all of its
stores. The Company's stores range in size with an average size of 24,000 square
feet. The stores are held under leases expiring from 2003 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 percentage of a store's sales. The leases typically contain
tax escalation clauses and require the Company to pay insurance, utilities,
repair and maintenance expenses.
9
The following table summarizes lease expirations and any renewal options:
Number of Range in Years
Fiscal Number of Leases Leases with Of Option
Years Expiring Renewal Options Periods
- --------------------- ---------------- ---------------- --------------
2003 1 1 5
2004 5 4 5
2005 4 3 5
2006 3 3 5
2007 6 5 5-10
2008 and thereafter 25 18 5
The Company leases a 404,000 square foot distribution center located in
Rutherford, NJ, which has served as its distribution center since December 2000.
The lease was amended and renewed for the period November 1, 2002 through
December 31, 2006 and provides for an initial annual rental payment of
$2,194,800 during that period and is subject to annual rental increases. There
are two additional five-year renewal options under the lease.
In July 2002, the Company sold its facility in Bronx, NY and realized a
gain on the sale of $3.9 million. The Company subsequently leased 44,257 square
feet at the facility, which serves as its corporate headquarters. The lease
provides for an initial annual rental payment of $331,928, which is subject to
2% annual rent increases. The lease expires in 2012 with two five-year renewal
options.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in legal matters arising in the normal course of
business. In the opinion of management, the outcome of such proceedings and
litigation will not have a material adverse impact on the Company's financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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. On July 29, 2002, The Company's common stock
commenced trading on the Nasdaq National Stock Market, retaining the symbol
LHMS.
10
The following table sets forth the high and low bid prices for the
Company's common stock for each full quarterly period since it began trading on
March 21, 2001.
Fiscal Quarter Ended High Low
-------------------- ---- ---
May 5, 2001 $ 3.75 $ 1.88
August 4, 2001 6.40 1.89
November 3, 2001 6.38 2.90
February 2, 2002 5.90 2.95
May 4, 2002 7.93 5.57
August 3, 2002 13.50 7.50
November 2, 2002 13.55 10.25
February 1, 2003 17.70 12.31
As of April 24, 2003, there were 1,502 stockholders of record of the
Company's common stock.
The Company paid a dividend of one share of common stock for each
outstanding share of common stock in fiscal year 2002. 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 2003.
In October 2000, April 2001 and February 2002, the Company distributed
6,659,236 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 POR. The 6,659,236
shares of common stock reflect the Company's subsequent dividend in the nature
of a 2-for-1 stock split. No sales commissions were paid in connection with the
transaction. The shares and notes were issued in reliance upon the exemption
from registration afforded by Section 3(a)(10) of the Securities Act of 1933, as
amended.
In September 2002, the Company's Board of Directors declared a dividend in
the nature of a 2-for-1 stock split of the Company's common stock. Shareholders
of record on September 30, 2002 received one share of the Company's common stock
for each share owned. The distribution of the shares occurred after the close of
business on October 15, 2002. All share and per share amounts have been restated
for all periods to reflect the impact of the dividend.
The table below sets forth certain information as of the Company's fiscal
year ended February 1, 2003 regarding the shares of the Company's common stock
available for grant or granted under stock option plans that (i) were adopted by
the Company's stockholders and (ii) were not adopted by the Company's
stockholders.
Number of securities remaining
Number of securities to Weighted-average available for future issuance
be issued upon exercise exercise price of under equity compensation plans
of outstanding options, outstanding options, (excluding securities in the
warrants and rights warrants and rights first column of this table)
----------------------- -------------------- --------------------------------
Equity Compensation plans approved 700,000 $6.82 500,000
by security holders
Equity Compensation plans not 666,500 $4.22 258,500
approved by security holders
Description Of Plans Not Adopted By Stockholders
The aggregate number of shares of the Company's Common Stock for which
options may be granted under the 2000 Equity Incentive Plan is 525,000. Such
options may be issued to management or key employees of the Company. The 2000
Equity Incentive Plan is administered by the Compensation Committee of the Board
of Directors. The Compensation Committee may grant both incentive stock options
(options which comply with section 422 of the Internal Revenue Code of 1986, as
amended) and non-qualified stock options. Although the Equity Incentive Plan
does not specifically provide for the cashless exercise of options, it permits
the administrators of the plan to provide for the method of exercise of the
options granted under the plan. The form of stock option contract currently
being used allows employees granted options pursuant to the plan to exercise
options on a cashless basis. Options to purchase 438,500 shares of Common stock
have been issued under the 2000 Equity Incentive Plan.
The aggregate number of shares of the Company's Common Stock for which
options may be granted under the 2000 Director Option Plan is 400,000. Such
options may be issued to non-employee directors of the Company. The 2000
Director Option Plan is administered by the Compensation Committee of the Board
of Directors. The Compensation Committee may grant only non-qualified stock
options. The administrators may permit the cashless exercise of options. Options
to purchase 228,000 shares of Common stock have been issued under the 2001
Director Option Plan.
11
ITEM 6. SELECTED FINANCIAL DATA
(In thousands except per share data) 2002 2001 2000 1999 1998
Net sales $348,965 $322,524 $338,165 $374,657 $420,556
Net income (loss) 12,597 7,093 31,450 (33,468) (5,148)
Net income (loss) per common share 1.89 1.06 0.39 - -
Total assets 134,149 129,232 119,774 147,073 188,693
Long-term obligations 11,407 26,528 25,000 - 139,403
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 2002 fiscal
year to the 2001 fiscal year and the 2001 fiscal year to the 2000 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 10, 2000 to February 3, 2001 to form the 2000
fiscal year results.
These periods are summarized in the following table:
2002 2001 2000
FISCAL Fiscal Fiscal
(In thousands) YEAR Year Year
------------------ ------------------ ------------------
Net sales $ 348,965 $ 322,524 $ 338,165
Cost of sales 214,931 202,923 218,204
------------------ ------------------ ------------------
Gross margin 134,034 119,601 119,961
Revenue from leased departments 1,455 1,574 1,749
------------------ ------------------ ------------------
Operating profit 135,489 121,175 121,710
Selling, general and administrative expenses 106,465 99,864 100,459
Depreciation and amortization 8,881 9,800 10,027
Gain on sale of building 3,924 - -
Charge for store closing 45 500 -
------------------ ------------------ ------------------
Operating income 24,022 11,011 11,224
Interest expense, net 2,621 3,918 2,104
------------------ ------------------ ------------------
Income before reorganization items,
fresh start adjustments, income taxes and
extraordinary item 21,401 7,093 9,120
Reorganization items - - (20,626)
Fresh start adjustments - - (21,382)
------------------ ------------------ ------------------
Net income (loss) before income taxes and
extraordinary item 21,401 7,093 (32,888)
Provision for income taxes 8,804 - 1,712
------------------ ------------------ ------------------
Net income (loss) before extraordinary item 12,597 7,093 (34,600)
Extraordinary item - gain on discharge of
debt - - 66,050
------------------ ------------------ ------------------
Net income applicable to common stock $ 12,597 $ 7,093 $ 31,450
================== ================== ==================
12
FISCAL YEAR 2002 COMPARED TO FISCAL YEAR 2001
Comparable store sales (stores that were in operation for both periods)
increased 7.4% during fiscal year 2002 as compared to fiscal year 2001. Net
sales for fiscal year 2002 were $349.0 million as compared to $322.5 million for
fiscal year 2001, an increase of approximately $26.5 million. This was primarily
due to an increase in customer traffic.
Gross margin percent increased to 38.4% from 37.1% in the prior year, an
increase of 130 basis points. The increase in gross margin percentage was due
primarily to (i) an increase in the initial markup of merchandise resulting from
a favorable change in the merchandise mix, (ii) improved inventory shrinkage
results and (iii) lower freight cost associated with the shipment of merchandise
to stores from the distribution center. Gross margin for fiscal year 2002 was
$134.0 million as compared $119.6 million for fiscal year 2001.
Selling, general and administrative expenses for fiscal year 2002 decreased
to 30.5% in fiscal 2002 from 31.0% in fiscal 2001. The decrease as a percentage
of sales of 50 basis points was primarily due to a decrease in store payroll as
a percentage of sales.
Depreciation and amortization for fiscal year 2002 was $8.9 million as
compared to $9.8 million for fiscal year 2001. In accordance with the adoption
of Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets", the Company no longer amortizes reorganization value in
excess of identifiable assets, which was $790,000 in the prior year period. In
July 2002, the Company sold its building in Bronx, NY, the depreciation
associated with the building was $0.3 million in fiscal year 2002 as compared to
$0.6 million for fiscal year 2001.
As a result of the items explained above, operating income, as a percentage
of sales, increased to 6.9%, or $24.0 million, in fiscal year 2002 as compared
to 3.4%, or $11.0 million in fiscal year 2001.
Net interest expense for fiscal year 2002 was $2.6 million as compared to
$3.9 million for fiscal year 2001, a decrease of $1.3 million. The decrease was
due primarily to (i) a decrease in note interest expense of $0.4 million
resulting from the Company's repayment of $15.0 million on the Company's 11%
senior notes in the fourth quarter of 2002, (ii) a decrease in interest expense
on the Company's revolving line of credit of $0.6 million and (iii) an increase
in interest earned of $0.3 million on cash invested in cash equivalents.
The Company's effective tax rate for fiscal year 2002 was 41.1%. (See Note
4. of the Notes to Financial Statements.)
The Company's provision for income taxes for fiscal year 2002 was $8.8
million compared to $0 in 2001. The provision for fiscal year 2001 was
eliminated as a result of the reversal of certain tax reserves in the fourth
quarter of fiscal year 2001.
Net income for fiscal year 2002 was $12.6 million, or $1.89 per basic share
and $1.71 per diluted share, compared to fiscal year 2001 of $7.1 million, or
$1.06 per basic share and $1.04 per diluted share.
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.
13
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 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 then current Denver, CO store, which closed in 2002 and was 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's provision for income taxes for fiscal year 2001 was $0
compared to $1.7 million in 2000.The provision for fiscal year 2001 was
eliminated by the reversal of certain tax reserves in the fourth quarter of
fiscal year 2001.
Net income for fiscal year 2001 was $7.1 million, or $1.06 per basic share
and $1.04 per diluted share. Net income for fiscal year 2000 was $31.5 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.
QUARTERLY RESULTS AND SEASONALITY
While the Company's net sales do not show significant seasonal variation,
the Company's operating income has traditionally been 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 a large increase 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 1, 2003. The quarterly
information includes all normal recurring adjustments which management considers
necessary for a fair presentation of the information shown.
Fiscal 2001 FISCAL 2002
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....................... $ 87,792 $ 66,859 $ 83,647 $ 84,226 $ 93,397 $ 75,284 $ 94,731 $ 85,553
Gross margin.................... 32,720 24,208 33,340 29,333 36,861 27,597 39,035 30,541
Revenue from leased departments. 342 399 333 500 282 346 303 524
-----------------------------------------------------------------------------------------
Operating profit................ 33,062 24,607 33,673 29,833 37,143 27,943 39,338 31,065
Selling, general and
administrative expenses........ 25,998 22,940 25,615 25,311 27,260 24,772 27,543 26,890
Depreciation and
Amortization................. 2,474 2,462 2,389 2,475 2,155 2,160 2,203 2,363
Gain on sale of building........ - - - - - 3,934 - (10)
Charge for store closing........ - - - 500 - - - 45
-----------------------------------------------------------------------------------------
Operating income (loss)......... 4,590 (795) 5,669 1,547 7,728 4,945 9,592 1,757
Interest expense................ 974 1,039 1,026 879 786 668 743 424
-----------------------------------------------------------------------------------------
Income (loss) before income
taxes........................ 3,616 (1,834) 4,643 668 6,942 4,277 8,849 1,333
Provision for income taxes...... 1,072 (374) 1,813 (2,511) 2,739 1,683 3,458 924
-----------------------------------------------------------------------------------------
Net income (loss)............... $ 2,544 $ (1,460) $ 2,830 $ 3,179 $ 4,203 $ 2,594 $ 5,391 $ 409
=========================================================================================
Earnings per share:
Basic......................... $ 0.38 $ (0.22) $ 0.43 $ 0.48 $ 0.63 $ 0.39 $ 0.81 $ 0.06
=========================================================================================
Diluted....................... $ 0.38 $ (0.22) $ 0.42 $ 0.42 $ 0.60 $ 0.36 $ 0.73 $ 0.05
=========================================================================================
LIQUIDITY AND CAPITAL RESOURCES
The Company has a $60.0 million Credit Facility with Bankers Trust Company
(the "Credit Facility"). 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. On January 31, 2003, the Company
voluntarily reduced the credit facility from $75.0 million to $60.0 million.
The indebtedness under the Credit Facility bears interest at variable rates
based on LIBOR plus 2.5% or the prime rate plus 1.5% on borrowings. 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 ratio, inventory turn ratio and maximum capital expenditure costs. The
Company is in compliance with all of its loan covenants.
During fiscal year 2002, cash flow provided by operations was $19.4 million
compared to $23.5 million in fiscal year 2001. Fiscal year 2001 included a $5.4
million increase in working capital, primarily due to the Company's return to
normal payment terms with its vendors following its emergence from bankruptcy.
Working capital for fiscal year 2002 decreased $0.8 million primarily due to a
decrease in cash of $2.7 million and an increase in accrued expenses of $1.4
million, partially offset by an increase in inventory, net of an increase in
accounts payable, of $3.4 million. This resulted primarily from an increase in
the Company's pack-away inventory (See Note 2. of the Notes to Financial
Statements.)
15
Cash flows used in investing activities were $6.8 million for fiscal year
2002, which included $11.7 million for capital expenditures offset by net
proceeds from the sale of the building in Bronx, NY, of $4.8 million. Capital
expenditures include costs for two new stores, store remodels and expansions,
systems enhancements and distribution center improvements.
Cash used in financing activities was $15.3 million for fiscal year 2002,
primarily from a repayment of $15.0 million on the Company's 11% senior notes.
At the end of fiscal year 2002, the Company had $10.3 million of cash and cash
equivalents. Excess cash is invested in a money market and other cash
equivalents, primarily commercial paper, with an average S&P rating of AA and an
average maturity of 44 days. In addition to the cash and cash equivalents of
$10.3 million, the Company had borrowing availability under the Credit Facility
of $31.8 million at the end of the fiscal year. Borrowing availability is
calculated based on (i) 75% of eligible inventory plus (ii) 85% of eligible
accounts receivables less borrowings as defined in the Credit Agreement. 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.
CONTRACTUAL OBLIGATIONS
The Company has aggregate contractual obligations of $178.6 million related
to debt repayments and operating leases as follows:
Fiscal Year
---------------------------------------------------------------------------------------------------
(In thousands) 2003 2004 2005 2006 2007 Thereafter Total
---------- ---------- ---------- ---------- ---------- ------------ -----------
11% Senior notes $ - $ - $ 11,407 $ - $ - $ - $ 11,407
Operating Leases 16,010 15,726 15,573 14,332 13,860 91,701 167,202
---------- ---------- ---------- ---------- ---------- ------------ -----------
Total $ 16,010 $ 15,726 $ 26,980 $ 14,332 $ 13,860 $ 91,701 $ 178,609
========== ========== ========== ========== ========== ============ ===========
(See Note 10. of the Notes to Financial Statements.)
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, referred to as
pack-away inventory, that is not immediately available for sale is valued on a
specific cost basis. The pack-away inventory valued on a specific cost basis at
February 1, 2003 and February 2, 2002 was $17.2 million and $12.3 million,
respectively.
The Company takes permanent markdowns to reduce prices 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 physical inventory date to the end of each reporting period. Such estimates
are based on experience and 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 its 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. As of 2001, the Company no longer has
any leased fur department sales.
16
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The Company's outstanding long-term debt as of February 1, 2003 bears
interest at a fixed rate of 11%; therefore, the Company's results of operations
would only be affected by interest rate changes to the extent that fluctuating
rate loans are outstanding under the Company's revolving credit facility.
A hypothetical 100 basis point increase in interest rates relating to the
Company's revolving credit facility for fiscal year 2002 and fiscal year 2001
would have decreased pre-tax income by $62,000 and $136,000, 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 1, 2003 and February 2, 2002.........F-3
Consolidated Statements of Operations for the fiscal years ended
February 1, 2003 and February 2, 2002 ; the period October 10, 2000
through February 3, 2001; and the period January 30, 2000 through
October 9, 2000..............................................................F-4
Consolidated Statement of Changes in Common Stockholders' Equity for
the fiscal years ended February 1,2003 and February 2, 2002; the
period October 10, 2000 through February 3, 2001; and the period
January 30, 2000 through October 9, 2000.....................................F-5
Consolidated Statements of Cash Flows for the fiscal years ended
February 1, 2003 and February 2, 2002; the period October 10, 2000
through February 3, 2001; and the period January 30, 2000 through
October 9, 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
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 2003 annual meeting.
17
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 2003 annual meeting.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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 2003
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 2003
annual meeting.
ITEM 14. CONTROLS AND PROCEDURES
The Company conducted an evaluation, under the supervision and with the
participation of the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures, as defined in Rule 13(a)-14(c) under the
Securities Exchange Act of 1934, as amended, as of a date within 90 days of the
filing date of this Annual Report on Form 10-K. Based upon the evaluation, the
Chief Executive Officer and the Chief Financial Officer have concluded that
these disclosure controls and procedures are effective.
There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect the internal controls
subsequent to the date of the Company's most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
PART IV.
ITEM 15. 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
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.
18
(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 Amendment #1 to the Credit Agreement, dated June 10, 2002, among
Loehmann's Operating Co., as Borrower, the Lenders, and Bankers
Trust Company, as Agent, filed as Exhibit 4.1 to Form 10-Q for
the quarter ended November 2, 2002 (Commission File No. 0-28410)
and incorporated herein by reference.
4.3 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.
4.4 Amended Senior Note Indenture dated March 6, 2002 between the
Company and United States Trust Company of New York filed as
Exhibit 4.3 to Form 10-K for the year ended February 2, 2002
(Commission File No. 0-28410) and incorporated herein by
reference.
10.1 Lease Agreement, dated October 6, 1998, by and between Maurice M.
Weill, Trustee for Rutherford Property and Loehmann's, Inc. filed
as Exhibit 10.6 to the Loehmann's, Inc. Annual Report on Form
10-K for the year ended January 29, 2000 (Commission File No.
0-28410) and incorporated herein by reference.
10.2 Employment Agreement between Loehmann's Holdings, Inc. and Robert
N. Friedman, dated as of January 1, 2001, 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 Amendment to the Employment Agreement between Loehmann's
Holdings, Inc. and Robert N. Friedman, dated as of May 10,
2002.+*
10.4 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.+
19
10.5 Amendment to the Employment Agreement between Loehmann's
Holdings, Inc. and Robert Glass, dated as of May 10, 2002.+*
10.6 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.+
10.7 Amended and restated 2001 Stock Option Plan dated September 21,
2001.+*
10.8 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.*
99.1 Certification Pursuant to Section 906 of the Sarbanes Oxley Act
of 2002.
99.2 Certification Pursuant to Section 906 of the Sarbanes Oxley Act
of 2002.
__________________
* 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
The Company filed a report on Form 8-K, dated April 4, 2003, announcing the
Company's financial results for the fiscal year ended February 1, 2003.
20
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: May 2, 2003 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 28, 2003
/s/ Robert Glass
- ------------------------
Robert Glass Chief Operating Officer, Chief
Financial Officer and Director May 2, 2003
/s/ William J. Fox
- ------------------------
William J. Fox Co-Chairman and Director May 2, 2003
/s/ Joseph Nusim
- ------------------------
Joseph Nusim Co-Chairman and Director April 21, 2003
/s/ Carol Gigli Greer
- ------------------------
Carol Gigli Greer Director April 21, 2003
/s/ Cory Lipoff
- ------------------------
Cory Lipoff Director April 21, 2003
/s/ Erwin A. Marks
- ------------------------
Erwin A. Marks Director May 2, 2003
21
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert N. Friedman, certify that:
1. I have reviewed this annual report on Form 10-K of Loehmann's Holdings,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: April 28, 2003 /s/ Robert N. Friedman
----------------------------
Name: Robert N. Friedman
Title: President, Chief
Executive Officer and
Director
22
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert Glass, certify that:
1. I have reviewed this annual report on Form 10-K of Loehmann's Holdings,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: April 28, 2003
/s/ Robert Glass
---------------------------------
Name: Robert Glass
Title: Chief Operating Officer,
Chief Financial Officer,
Secretary and Director
Index to Financial Statements
Loehmann's Holdings, Inc.
Contents
Report of Independent Auditors...............................................F-2
Consolidated Balance Sheets at February 1, 2003 and February 2, 2002.........F-3
Consolidated Statements of Operations for the fiscal years ended
February 1, 2003 and February 2, 2002; the period October 10, 2000
through February 3, 2001; and the period January 30, 2000 through
October 9, 2000..............................................................F-4
Consolidated Statement of Changes in Common Stockholders' Equity for
the fiscal years ended February 1, 2003 and February 2, 2002; the
period October 10, 2000 through February 3, 2001; and the period
January 30, 2000 through October 9, 2000 ....................................F-5
Consolidated Statements of Cash Flows for the fiscal years ended
February 1, 2003 and February 2, 2002; the period October 10, 2000
through February 3, 2001; and the period January 30, 2000 through
October 9, 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 1, 2003 and February 2, 2002 and the related
consolidated statements of operations, consolidated statement of changes in
common stockholder's equity (deficit) and cash flows for the years ended
February 1, 2003 and February 2, 2002, the period from October 10, 2000 to
February 3, 2001 (the Successor Company) and the period from January 30, 2000 to
October 9, 2000 (the Predecessor Company). Our audits also included the
financial statement schedule listed in Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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 1, 2003 and February 2, 2002, and the
consolidated results of their operations and their cash flows for the years
ended February 1, 2003 and February 2, 2002 the 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 in conformity with accounting principles generally accepted in
the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the financial information set
forth therein.
As described in the note entitled "Goodwill and Other Intangible Assets," the
Company adopted FASB Statement No. 142, "Goodwill and Other Intangible Assets,"
effective February 3, 2002.
/s/ Ernst & Young LLP
- ---------------------
New York, New York
March 11, 2003
F-2
Loehmann's Holdings, Inc.
Consolidated Balance Sheets
(In thousands)
February February
1, 2003 2, 2002
--------------------------------
Assets
Current assets:
Cash and cash equivalents $ 11,217 $ 13,882
Accounts receivable and other assets 5,798 6,003
Merchandise inventory 51,506 43,972
--------------------------------
Total current assets 68,521 63,857
Property, equipment and leaseholds, net 45,087 43,362
Deferred debt issuance costs and other assets, net 1,585 1,493
Deferred tax asset 2,968 2,357
Reorganization value in excess of identifiable assets, net 15,988 19,381
--------------------------------
Total assets $ 134,149 $ 130,450
================================
Liabilities and common stockholders' equity
Current liabilities:
Accounts payable $ 23,603 $ 19,427
Accrued expenses 18,954 17,596
Accrued interest 354 840
Income taxes payable 1,351 888
--------------- ---------------
Total current liabilities 44,262 38,751
11% Senior notes due 12/31/2005 11,407 26,528
Other noncurrent liabilities 6,195 5,483
Common stockholders' equity:
Common stock, $0.01 par value, 20,000,000 shares authorized and
6,659,236 issued and outstanding 66 66
Additional paid-in capital 49,934 49,934
Retained earnings 22,285 9,688
--------------------------------
Total common stockholders' equity 72,285 59,688
--------------------------------
Total liabilities and common stockholders' equity $ 134,149 $ 130,450
================================
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 Company Predecessor
Company
-------------------------------------------------- ---------------
Fiscal Year Fiscal Year Period From Period From
Ended Ended October 10, January 30,
February 1, February 2, 2000 to 2000 to
2003 2002 February 3, October 9,
2001 2000
-------------------------------------------------- ---------------
Net sales $ 348,965 $ 322,524 $ 105,959 $ 232,206
Cost of sales 214,931 202,923 67,368 150,836
-------------------------------------------------- ---------------
Gross margin 134,034 119,601 38,591 81,370
Revenue from leased departments 1,455 1,574 758 991
-------------------------------------------------- ---------------
Operating profit 135,489 121,175 39,349 82,361
Selling, general, and administrative expenses 106,465 99,864 31,035 69,424
Depreciation and amortization 8,881 9,800 2,949 7,078
Gain on sale of building 3,924 - - -
Charge for store closing 45 500 - -
-------------------------------------------------- ---------------
Operating income 24,022 11,011 5,365 5,859
Interest expense, net 2,621 3,918 1,186 918
-------------------------------------------------- ---------------
Income before reorganization costs, income taxes
and extraordinary item 21,401 7,093 4,179 4,941
Reorganization costs and fresh start adjustments - - - 42,008
-------------------------------------------------- ---------------
Net income (loss) before income taxes and
extraordinary income 21,401 7,093 4,179 (37,067)
Provision for income taxes, net 8,804 - 1,584 128
-------------------------------------------------- ---------------
Net income (loss) before extraordinary item 12,597 7,093 2,595 (37,195)
Extraordinary item - gain on discharge of debt - - - 66,050
-------------------------------------------------- ---------------
Net income applicable to common stock $ 12,597 $ 7,093 $ 2,595 $ 28,855
================================================== ===============
Earnings per share:
Basic $ 1.89 $ 1.06 $ 0.39
==================================================
Diluted $ 1.71 $ 1.04 $ 0.39
==================================================
Weighted average common shares and common share
equivalents used in earnings per share
calculation:
Basic 6,659 6,664 6,666
==================================================
Diluted 7,351 6,806 6,666
==================================================
The accompanying notes are an integral part of these financial statements.
F-4
Loehmann's Holdings, Inc.
Consolidated Statement of Changes in Common Stockholders' Equity
(In thousands, except share amounts)
PREDECESSOR COMPANY COMMON STOCK CLASS B COMMON
STOCK
------------------------- ------------------------ ADDITIONAL
NUMBER OF AMOUNT NUMBER OF AMOUNT PAID-IN ACCUMULATED TOTALS
SHARES SHARES CAPITAL DEFICIT
--------------------------------------------------------------------------------------------
Balances as of January 29, 2000 9,053,967 $ 90 26,087 $ 142 $ 81,760 $ (110,840) $ (28,848)
Fresh start adjustments (9,053,967) (90) (26,087) (142) (81,760) 81,985 (7)
Net income for the period ending
October 9, 2000 - - - - - 28,855 28,855
--------------------------------------------------------------------------------------------
Balances as of October 9, 2000 - $ - - $ - $ - $ - $ -
============================================================================================
SUCCESSOR COMPANY COMMON STOCK
------------------------- ADDITIONAL
NUMBER OF PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTALS
-----------------------------------------------------------------
Balances as of October 10, 2000 -- $ -- $ -- $ -- $ --
Distribution of new common shares 6,666,666 66 49,934 -- 50,000
Net income for the 117-day period ended February 3, 2001 -- -- -- 2,595 2,595
--------------------------------------------------------------
Balances as of February 3, 2001 6,666,666 66 49,934 2,595 52,595
Adjustment to new common shares distributed (2,310) -- -- -- --
Net Income for the fiscal year ended February 2, 2002 -- -- -- 7,093 7,093
--------------------------------------------------------------
Balances as of February 2, 2002 6,664,356 66 49,934 9,688 59,688
Adjustment to new common shares distributed (5,120) -- -- -- --
Net Income for the fiscal year ended February 1, 2003 -- -- -- 12,597 12,597
==============================================================
Balances as of February 1, 2003 6,659,236 $ 66 $ 49,934 $ 22,285 $ 72,285
==============================================================
The accompanying notes are an integral part of these financial statements.
F-5
Loehmann's Holdings, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Predecessor
Successor Company Company
------------------------------------------- --------------
Period from Period from
Fiscal Year Fiscal Year October 10, January 30,
Ended Ended 2000 to 2000 to
February 1, February 2, February October 9,
2003 2002 3, 2001 2000
------------------------------------------- --------------
Cash flows from operating activities:
Net income $ 12,597 $ 7,093 $ 2,595 $ 28,855
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 8,881 9,800 2,949 7,078
Non-cash PIK interest on 11% senior notes - 1,528 - -
(Increase) in deferred tax asset (611) (2,357) - -
Adjustments to reorganization value 3,393 (694) - -
Charge for store closing 401 500 - -
Gain on sale of building (3,924) - - -
Reorganization items - - - 8,446
Gain on discharge of debt in bankruptcy - - - (66,050)
Fresh start adjustments - - - 21,382
Changes in assets and liabilities:
Accounts receivable and other assets 205 (221) 1,665 (1,832)
Merchandise inventory (7,534) 1,759 9,239 (9,778)
Accounts payable 4,176 7,307 (4,694) 10,229
Accrued expenses 1,357 (1,118) (4,253) 1,560
Accrued income taxes 463 (783) 1,671 -
Accrued interest (486) (91) 931 -
------------------------------------------- --------------
Net change in current assets and liabilities (1,819) 6,853 4,559 179
Net change in other noncurrent assets and liabilities 505 749 433 (111)
------------------------------------------- --------------
Total adjustments 6,826 16,379 7,941 (29,076)
------------------------------------------- --------------
Net cash provided by (used in) operations 19,423 23,472 10,536 (221)
Cash flows from investing activities:
Capital expenditures (11,656) (4,609) (2,731) (2,956)
Net proceeds from sale of building 4,839 - - -
------------------------------------------- --------------
Net cash used in investing activities (6,817) (4,609) (2,731) (2,956)
------------------------------------------- --------------
Cash flows from financing activities:
Payments on 11% senior notes (15,121) - - -
Payments on DIP credit agreement - - - (9,120)
(Payments) borrowings on revolving credit facility, net - (6,568) (9,177) 15,745
Other financing activities, net (150) - (75) (1,643)
------------------------------------------- --------------
Net cash (used in) provided by financing activities (15,271) (6,568) (9,252) 4,982
------------------------------------------- --------------
Net (decrease) increase in cash and cash equivalents (2,665) 12,295 (1,447) 1,805
Cash and cash equivalents at beginning of period 13,882 1,587 3,034 1,229
------------------------------------------- --------------
Cash and cash equivalents at end of period $ 11,217 $ 13,882 $ 1,587 $ 3,034
=========================================== ==============
Supplemental disclosure of cash flow information
Cash interest paid during the period $ 3,245 $ 2,414 $ 305 $ 975
=========================================== ==============
Cash paid (refunded) for income taxes during the period $ 4,219 $ 3,415 $ (87) $ 128
=========================================== ==============
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. 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 1, 2003 ("Fiscal Year 2002") had 52
weeks; 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.
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 inventory that is not immediately
available for sale, referred to as "pack-away", is valued on a specific cost
basis. The pack-away inventory valued on a specific cost basis at February 1,
2003 and February 2, 2002 was $17.2 million and $12.3 million, respectively.
REVENUE RECOGNITION - The Company recognizes revenue when goods are sold, at
retail, to customers in its 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 is 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 $10.9 million, $10.7 million, and $10.6 million during
fiscal years 2002, 2001, and 2000, respectively.
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
F-7
Loehmann's Holdings, Inc.
Notes to Financial Statements
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
$0.4 million in pre-opening costs in fiscal year 2002 compared to no pre-opening
costs incurred in fiscal years 2001 and 2000.
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. Beginning in
Fiscal Year 2002, the asset was no longer amortized in accordance with Statement
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" (See Note 13. Recent Accounting Pronouncements to the Financial
Statements).
DEFERRED DEBT ISSUANCE COSTS - Deferred debt issuance costs are amortized over
the terms of the related debt agreement. Deferred debt issuance costs were $1.4
million and $1.2 million at February 1, 2003 and February 2, 2002. Amortization
expense for fiscal years 2002, 2001, and 2000 amounted to $0.3 million, $0.2
million and $0.5 million, respectively. Total accumulated amortization was $0.6
million at February 1, 2003 and $0.3 million at February 2, 2002.
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 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.
In September 2002, the Company's Board of Directors declared a dividend in the
nature of a 2-for-1 stock split of the Company's common stock. All share and per
share amounts have been retroactively restated to reflect the impact of the
stock split.
STOCK-BASED COMPENSATION - In December 2002, the FASB issued SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure", which
amends SFAS No. 123, "Accounting for Stock-Based Compensation", to provide
alternative methods of transition for a voluntary change to the fair value
F-8
Loehmann's Holdings, Inc.
Notes to Financial Statements
based method of accounting for stock-based employee compensation. The Company
has not adopted a method under SFAS No. 148 to expense stock options but rather
continues 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 would have been the pro forma
amounts indicated below:
2002 2001
---- ----
(In thousands, except per share data)
Net income - as reported $ 12.6 $ 7.1
Less total stock-based employee
compensation expense under the fair
value method, net of tax 1.5 0.1
-------- -------
Net income - pro forma $ 11.1 $ 7.0
======== =======
Net income per share:
Basic - as reported $ 1.89 $ 1.06
Basic - pro forma 1.67 1.05
Diluted - as reported 1.71 1.04
Diluted - pro forma $ 1.51 $ 1.03
(See Note 9. Stock Option Plans to the Financial Statements).
RECLASSIFICATION - Certain items in Fiscal Year 2001 have been reclassified to
present them on a basis consistent with later periods.
3. 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.
F-9
Loehmann's Holdings, Inc.
Notes to Financial Statements
Under the Amended POR, Loehmann's Holdings, Inc. was formed and
distributed 6,659,236 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. The 6,659,236 shares of common stock
reflect the Company's subsequent dividend in the nature of a 2-for-1 stock
split. 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.
4. INCOME TAXES
Provision for federal, state and local income taxes consisted of the
following:
--------------------------------------------------------------------------------------------------
FEBRUARY 1, 2003 February 2, 2002 February 3, 2001
--------------------------------------------------------------------------------------------------
CURRENT DEFERRED Current Deferred Current Deferred
------------ -------------- ------------ ------------ ------------- -------------
Federal $ 5,815 $ 1,345 $1,093 $ (1,251) $ 1,463 $ --
State and local 1,494 150 364 (206) 121 --
------------ -------------- ------------ ------------- ------------ -------------
$ 7,309 $ 1,495 $1,457 $ (1,457) $ 1,584 $ --
============ ============== ============ ============ ============= =============
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 1, 2003 and
February 2, 2002, the Company had deferred tax assets and deferred tax
liabilities as follows:
FEBRUARY February
1, 2003 2, 2002
---------------- ---------------
(In thousands)
Deferred tax assets:
Net operating loss carryforwards $ 4,745 $ 6,330
Depreciation and amortization 299 1,274
Store closing reserve 110 304
Capitalization of inventory expenses 512 508
Deferred rent 2,305 1,980
Other, net - 711
------------- -------------
Gross deferred tax assets 7,971 11,107
Less: Valuation allowance (4,745) (8,750)
------------- -------------
Deferred tax assets, net 3,226 2,357
Deferred tax liabilities:
Other 258 --
------------- -------------
Net deferred tax assets $ 2,968 $ 2,357
============= =============
F-10
Loehmann's Holdings, Inc.
Notes to Financial Statements
Following is a reconciliation of the statutory federal income tax rate and
the effective income tax rate application to earnings before income taxes:
FEBRUARY February February
1, 2003 2, 2002 3, 2001
------------ -------------- ------------
Statutory tax rate 35.0% 35.0% 35.0%
Realization of predecessor company NOL carryforward -- (33.2) (4.7)
Reversal of post-emergence tax reserve -- (12.7) --
Goodwill -- 3.9 8.3
State taxes 5.9 3.3 3.3
Other, net 0.2 3.7 (2.9)
------ ------ -----
Effective tax rate 41.1% 0.0% 39.0%
====== ====== =====
At February 1, 2003, the Company had a net operating loss carryforward of
approximately $11.7 million for regular tax purposes. Net operating losses begin
to expire in 2019 and future years. As a result of successive ownership changes,
the availability of NOL carryforwards to offset future income is subject to an
annual limitation of $2.8 million in accordance with Internal Revenue Code
Section 382. To the extent that an annual NOL limitation is not used, it is
carried forward to future years.
5. DEBT
The Company's long-term debt consists of:
FEBRUARY February
1, 2003 2, 2002
----------------- ----------------
(In thousands)
11% Senior notes, due 2005 (a) $ 11,407 $ 26,528
----------------- ----------------
Total Debt $ 11,407 $ 26,528
================= ================
(a) The 11% Senior notes due 2005 were issued under the Senior Note Indenture
between Loehmann's Holdings, Inc. and Bank 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 11% Senior notes as part of their distribution. Interest
on the 11% 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 11% Senior notes on April 30, 2001; (2) thereafter, the
Company has the option to pay interest on the 11% Senior notes on each interest
payment date either in cash or through the issuance of additional 11% Senior
notes on the applicable interest payment date; provided that the Company is
required to pay interest on the 11% 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. In November 2002, the Company redeemed $15.0 million of the
11% Senior notes.
F-11
Loehmann's Holdings, Inc.
Notes to Financial Statements
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 1, 2003 2, 2002
--------------------------------------------------
(In thousands) (In years)
Building 20 $ - $ 9,031
Furniture, fixtures and equipment 3-8 38,254 40,423
Leasehold interests 5-29 31,546 34,003
Leasehold improvements 5-29 43,541 38,704
----------------- ---------------
Total property, equipment and leaseholds 113,341 122,161
Accumulated depreciation and amortization (68,254) (78,799)
----------------- ---------------
Property, equipment and leaseholds, net $ 45,087 $ 43,362
================= ===============
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
October 10,
2000 to
FEBRUARY February February 3,
1, 2003 2, 2002 2001
--------------- -------------- --------------
NUMERATOR
Net income $ 12,597 $ 7,093 $ 2,595
--------------- -------------- --------------
Numerator for basic and diluted income per share 12,597 7,093 2,595
=============== ============== ==============
DENOMINATOR
Denominator for basic income per share--weighted average shares 6,659 6,664 6,666
Effect of dilutive securities:
Employee & Director stock options 692 142 -
--------------- -------------- --------------
Denominator for diluted per share--adjusted weighted average
shares and assumed conversions 7,351 6,806 6,666
=============== ============== ==============
Income per share:
Basic $ 1.89 $ 1.06 $ 0.39
=============== ============== ==============
Diluted $ 1.71 $ 1.04 $ 0.39
=============== ============== ==============
9. STOCK OPTION PLANS
All stock options and stock option prices reflect a dividend of one share
of common stock for each outstanding share of common stock, which the Company
paid in the fiscal year ended February 1, 2003.
2000 Equity Incentive Plan
Upon the Company's emergence from bankruptcy, the Company adopted an
Equity Incentive Plan (the "2000 Equity Incentive Plan") for management or key
employees. 850,000 shares of the Company's new common stock were reserved for
future issuance upon the exercise of stock options granted or to be granted
pursuant to such plan. The number of shares available for grant under the 2000
Equity Incentive Plan was subsequently reduced by 325,000 shares, leaving a
balance available for grant of 525,000 shares.
As of February 1, 2003, options have been granted under the 2000 Equity
Incentive Plan for 438,500 shares to key employees (the "Participants") These
options have a term of five years from the date of grant and become exercisable
three years from the date of grant, provided the Participant is still employed
on that date. As of February 1, 2003, there were 86,500 shares available for
future grant.
Along with the grant of the option, certain Participants may become
entitled to a cash award under an Incentive Award Program (the "Award Program")
subject to an adjustment 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. The cash award is reduced by an amount equal
to (a) the difference between (i) the closing market price of the common stock
F-13
Loehmann's Holdings, Inc.
Notes to Financial Statements
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.
2001 Stock Option Plan
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. On June 26, 2002 the Board of Directors approved an amendment to the
2001 Stock Option Plan to increase the number of shares of common stock
available under the Plan to 1,200,000. Such amendment was approved by a vote of
the stockholders on September 10, 2002. As of February 1, 2003, options have
been granted under the 2001 Stock Option Plan for 700,000 shares to key
employees. Of these shares, 300,000 vested in fiscal year 2002 and 100,000
shares vest in each of the fiscal years 2003 through 2006. The term of each of
the grants is ten years. As of February 1, 2003, there were 500,000 shares
available for future grant.
2000 Director Option Plan
On January 10, 2001, the Company's Board of Directors adopted 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 options granted
may not exceed 400,000 shares. 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. As of February 1, 2003, options have been granted
under the 2000 Director Option Plan for 228,000 shares to directors and there
were 172,000 shares available for future grant.
The following information pertains to the Company's stock option plans:
FISCAL YEAR ENDED FEBRUARY 1, 2003 FEBRUARY 2, 2002 FEBRUARY 3, 2001
---------------- ---------------- ----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------------------------------------------------------------------------------
Outstanding options, beginning of year 594,500 $ 2.80 525,000 $ 7.50 -- $ --
Granted 822,500 7.39 600,500 2.80 525,000 7.50
Canceled 50,500 3.04 531,000 7.45 -- --
Exercised -- -- -- -- -- --
------------------------------------------------------------------------------
Outstanding options, end of year 1,366,500 $ 5.55 594,500 $ 2.80 525,000 $ 7.50
==============================================================================
Options exercisable, end of year 528,000 $ 5.14 200,000 $ 2.60 131,250 $ 7.50
==============================================================================
Options available for future grant 758,500 N/A 730,500 N/A 725,000 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
F-14
Loehmann's Holdings, Inc.
Notes to Financial Statements
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 1, 2003 would have decreased to $11.1 million or
$1.51 per diluted share from a reported net income of $12.6 million or $1.71 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 2002: risk-free interest rates of 5.02%, expected
life of 4 years, expected volatility of 91.4% 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.
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 $16.3 million, $15.0 million and $14.5 million for
the fiscal years 2002, 2001 and 2000, respectively.
Future minimum payments for the operating leases consisted of the
following at February 1, 2003:
(In thousands)
2003 $16,010
2004 15,726
2005 15,573
2006 14,332
2007 13,860
Thereafter 91,701
---------------
Total $167,202
===============
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 fiscal 2002, the Company decided to open a new store in E. Hanover,
NJ in 2003 and close its existing store in Florham Park, NJ. The charge for
store closing consisted of write-offs of property, plant and equipment, costs
associated with net lease obligations and other expenses of $0.3 million.
Additionally, the Company recorded a recovery of expenses, of approximately $0.2
F-15
Loehmann's Holdings, Inc.
Notes to Financial Statements
million, related to the $0.5 million charge for the Denver, CO store closing in
2001, resulting in a net charge for store closing in fiscal 2002 of $0.1
million.
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.
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 2002, 2001 and 2000, the Company recorded contributions of $0.2 million,
$0.2 million and $0.3 million, respectively, to the plan.
13. RECENT ACCOUNTING PRONOUNCEMENTS
The FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections,' in April
2002. This statement addresses the determination as to whether a transaction
should be reported as an extraordinary item or reported in normal earnings. The
Company expects that the adoption of SFAS 145 during fiscal 2003 will have no
impact on the Company's financial position or results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," effective for disposal activities
initiated after December 31, 2002. SFAS No. 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized, at fair value,
when the liability is incurred rather than at the time an entity commits to a
plan. The Company did not incur any new liability related to a disposal cost or
exit activity between adoption of this statement on January 1, 2003, and the end
of the fiscal year on February 1, 2003. The Company does not expect the adoption
of SFAS No. 146 to have a significant impact on its results of operations or
financial position.
The Emerging Issues Task Force released Issue No. 02-16, "Accounting by a
Customer (including a Reseller) for Certain Consideration Received from a
Vendor" in November 2002, applicable to fiscal years beginning after December15,
2002. The Company records vendor allowances and discounts in the income
statement when the purpose for which those monies were designated is fulfilled.
As such, the Company does not expect the release to have a significant effect on
its results of operations or financial position.
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 1, 2003
---------------------------
Reserve for Store Closings $ 774 $ 285 $ 0 $ 744 $ 315
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
---------------------------------------------------------------------------------------------------------
F-17
23