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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2004
Commission File
Number 0-31787
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. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by a check mark whether the registrant is an accelerated filer (as
defined in the Securities Exchange Act of 1934 Rule 12G-2). [X] Yes [ ] 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. [X] Yes [ ] No
The aggregate market value of voting stock held by non-affiliates of the
registrant as of August 2, 2003 was $99.2 million.
The Company had 6,729,236 shares of Common Stock outstanding as of March
12, 2004.
Documents incorporated by reference: the information required by Part III,
Items 10, 11, 12, 13 and 14 is incorporated by reference to the registrant's
Proxy Statement for the registrant's 2004 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 January 31, 2004, the Company operated 47 stores in
major metropolitan markets located in 17 states and the District of Columbia.
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 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.
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The following table shows the percentages of the Company's net sales
attributable to its various product categories for fiscal year 1999 through
fiscal year 2003:
1999 2000 2001 2002 2003
----- ----- ----- ----- -----
Sportswear ................. 47.1% 49.4% 50.4% 50.1% 48.9%
Accessories/intimate apparel 12.9% 12.8% 14.5% 14.9% 15.3%
Dresses and suits .......... 17.1% 14.9% 13.4% 12.3% 13.1%
Men's ...................... 10.4% 10.5% 10.2% 10.2% 9.6%
Shoes ...................... 6.1% 6.4% 6.6% 7.7% 8.8%
Outerwear .................. 4.0% 4.4% 3.9% 3.9% 3.5%
Other ...................... 2.4% 1.6% 1.0% 0.9% 0.8%
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.
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
4
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
Since August, 2002, the Company has opened 6 new stores; Centennial, CO,
Oak Brook, IL, Troy, MI, East Hanover, NJ, Chevy Chase, MD, and Natick, MA. In
addition to these stores, the Company opened its first Loehmann's Shoes store in
San Francisco, CA in a location across from the San Francisco Loehmann's store.
The Company also expanded its stores in San Francisco, CA and East Brunswick, NJ
by 21,000 square feet and 12,000 square feet, respectively.
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 and packaged for delivery 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 2003.
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 580,000 email addresses in the Company's
database. No merchandise is sold via the website. The Company's SEC filings can
be accessed free of charge 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 January 31, 2004, the Company had 1,784 employees, of whom 1,361 were
store sales and clerical employees, 259 performed store managerial functions,
and 164 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.
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 and subsequently on February 12, 2004, these
employment agreements were amended, extending the period of service to 2008. The
loss of services of either of the Company's executive officers could have a
material adverse impact on the Company. The Company's success will depend on its
8
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 January 31, 2004, the Company operated 47 stores in 17 states and the
District of Columbia. The Company does not own any of its stores and has no
manufacturing facilities.
Indicated below is a listing of the regions in which the Company
operates its stores:
Percent of
Number of Fiscal Year 2003
Region Stores Sales
---------------------------------------------------------
California ........... 12 30.4%
New York ............ 7 21.6%
Mid-Atlantic.......... 5 10.8%
New Jersey ........... 5 10.6%
Florida .............. 4 7.7%
Midwest .............. 4 7.2%
Texas ................ 3 3.2%
Other West ........... 3 3.1%
New England .......... 2 2.8%
Other Southeast ...... 2 2.6%
--- ------
47 100.0%
=== ======
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 2004 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
Fiscal Number of Leases Leases with Range in Years
Years Expiring Renewal Options Of Option Periods
- --------------------------- ------------------- -------------------- -------------------
2004 5 4 5
2005 4 3 5
2006 3 3 5
2007 5 4 5-10
2008 3 3 5
2009 and thereafter 27 16 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 initial lease term expires in December 2006. There are two additional
five-year renewal options under the lease.
The Company leases a 44,257 square foot facility, which serves as its
corporate headquarters, in Bronx, NY. The Company made rental payments of
$332,084 in fiscal year 2003. The lease is subject to 2% annual rent increases
and 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 indicated.
Fiscal Quarter Ended High Low
-------------------- ---- ---
Fiscal 2002
-----------
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
Fiscal 2003
-----------
May 3, 2003 17.25 13.41
August 2, 2003 15.50 12.25
November 1, 2003 18.50 13.60
January 31, 2004 19.84 17.37
As of April 7, 2004, there were 522 holders of record and approximately
1,150 beneficial owners of the Company's common stock.
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 Company did not pay any dividends on its common stock in fiscal years
2003 or 2001. The Company does not have any present intention to pay any
dividends in fiscal year 2004.
In October 2000, April 2001 and February 2002, the Company distributed a
total of 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.
The table below sets forth certain information as of the Company's fiscal
year ended January 31, 2004 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 to Weighted-average Number of securities remaining
be issued upon exercise exercise price of available for future issuance
of outstanding options, outstanding options, under equity compensation plans
warrants and rights warrants and rights (excluding securities in the first
column of this table)
----------------------- ------------------- ----------------------------------
Equity Compensation plans approved 630,000 $6.90 500,000
by security holders
Equity Compensation plans not 770,200 $5.85 154,800
approved by security holders
-------------------------- ------------------- ----------------------------------
Total 1,400,200 $6.32 654,800
========================== =================== ==================================
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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. Options to purchase 517,200 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 253,000 shares of common stock have been issued under the 2000
Director Option Plan.
ITEM 6. SELECTED FINANCIAL DATA
(In thousands except per share data) 2003 2002 2001 2000 1999
------- ------- ------- ------- -------
Net sales $ 364,588 $ 348,965 $ 322,524 $ 338,165 $ 374,657
Net income (loss) 7,913 12,597 7,093 31,450 (33,648)
Net income per common share (Basic) 1.18 1.89 1.06 0.39 -
Total assets 139,308 134,979 129,232 119,774 147,073
Long-term obligations - 11,407 26,528 25,000 -
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 for information that materially
affects the comparability of the data in the above table.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Executive Summary
Loehmann's 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 operates 47 stores in 17 states and the District of Columbia
with a concentration of stores in the New York Metro/Mid Atlantic area,
California and Florida.
The Company opened 4 new stores in 2003 in Troy, MI, East Hanover, NJ,
Chevy Chase, DC and Natick, MA as well as expanding its stores in San Francisco,
CA and East Brunswick, NJ. In total, the Company increased its retail square
footage by 14% to 1.2 million square feet. The Company will continue to follow a
conservative strategy by opening 3-5 new stores per year in existing markets.
Comparable store sales decreased for the year by 2.5% primarily due to
unseasonably cold weather in the first part of the fiscal year. Sales improved
during the latter part of the fiscal year with a comparable store sales increase
of 0.5% over the last six months of the year. With the additional new stores and
expanded stores, the Company's total sales increased by 4.5%.
Net income per diluted share was $1.05, down from $1.71 in the prior year.
Last year included a gain on the sale of building which increased net income per
diluted share by $0.31 on an after tax basis. The Company has a net operating
loss carryforward of $8.9 million and was able to release its tax valuation
allowance in fiscal year 2003 because of its earnings performance over the last
three years. This resulted in an increase in deferred tax assets in the amount
of $4.7 million and a corresponding reduction in reorganization value in excess
of identifiable assets.
Loehmann's generated cash from operations of $16.7 million and used $8.4
million for capital expenditures and $11.4 million to redeem the outstanding
balance of the 11% Senior notes. As a result of the Senior note redemption the
Company reduced its interest expense by $1.7 million.
The discussion and analysis below further explains the Company results of
operations for fiscal year 2003.
13
Results of Operations
The following table sets forth statement of operations data as a percentage of
net sales for each of the last three fiscal years:
2003 2002 2001
------ ------ ------
% of % of % of
Sales Sales Sales
------ ------ ------
Net sales 100.0% 100.0% 100.0%
Cost of sales 62.0% 61.6% 62.9%
------ ------ ------
Gross margin 38.0% 38.4% 37.1%
Revenue from leased departments 0.5% 0.4% 0.5%
------ ------ ------
Operating profit 38.5% 38.8% 37.6%
Selling, general and administrative
expenses 31.8% 30.5% 31.0%
Depreciation and amortization 2.7% 2.5% 3.0%
Write off of deferred financing fees 0.1% - -
Gain on sale of building - 1.1% -
Charge for store closing - - 0.2%
------ ------ ------
Operating income 3.9% 6.9% 3.4%
Interest expense, net 0.3% 0.8% 1.2%
------ ------ ------
Income before income taxes 3.6% 6.1% 2.2%
Provision for income taxes, net 1.4% 2.5% -
------ ------ ------
Net income applicable to common stock 2.2% 3.6% 2.2%
====== ====== ======
Fiscal Year 2003 Compared to Fiscal Year 2002
Net sales increased $15.6 million, or 4.5%, from $349.0 million in fiscal
2002 to $364.6 million in fiscal 2003. This increase is primarily attributable
to (i) a net increase of $31.0 million in sales related to new stores offset by,
(ii) the comparable store sales decrease of $8.3 million and (iii) a net
decrease of $7.1 million in sales related to three closed stores.
Comparable store sales (stores that were in operation for both periods)
decreased 2.5% during fiscal year 2003 as compared to fiscal year 2002. Included
in the comparable store sales are the expansions to the stores in San Francisco,
CA and East Brunswick, NJ. The decrease was primarily a result of the
unseasonably cold weather in the first and second quarters of fiscal 2003.
Comparable sales for the last six months of the year increased 0.5%.
Gross margin increased $4.6 million from $134.0 million in fiscal 2002 to
$138.6 million in fiscal 2003. The increase is attributable to (i) a net
increase of $11.2 million in margin related to new stores offset by, (ii) the
comparable store margin decrease of $3.9 million and (iii) a decrease of $2.7
million in margin related to three closed stores.
Gross margin percentage was 38.0% compared to 38.4% in the prior fiscal
year. The decrease in the percentage was attributed to an increase of markdowns
offset by an increase in the markup of merchandise mix.
Selling, general and administrative expenses for fiscal year 2003 increased
to $116.0 million, or 31.8% of net sales, from $106.5 million, or 30.5% of net
sales in fiscal year 2002. The increase of $9.5 million was primarily due to a
net increase of $9.2 million of expenses related to the new stores opened within
the past eighteen months. Included in new store expenses were $0.7 million of
one time pre-opening expenses.
Comparable store SG&A expenses for fiscal year 2003 increased 1.7% to
$104.9 million compared to $103.2 million in fiscal year 2002. As a percentage
of net sales, SG&A expenses increased to 31.8% from 30.5% in the prior fiscal
year. The increase of 130 basis points was due primarily to (i) the decrease in
the comparable store sales of 2.5% and (ii) an increase in store occupancy
expenses.
Reconciliation of SG&A expenses to comparable store SG&A expenses:
Fiscal Year Ended
-----------------------
(In thousands) January 31, February 1,
2004 2003
--------- ---------
Total SG&A expenses $ 115,967 $ 106,465
New stores SG&A expenses (11,030) (1,880)
Closed stores SG&A expenses - (1,411)
--------- ---------
Comparable store SG&A expenses $ 104,937 $ 103,174
========= =========
14
Depreciation and amortization for fiscal year 2003 was $9.7 million as
compared to $8.9 million for fiscal year 2002. The increase in depreciation
expense is due primarily to assets placed in service at the new stores opened
within the last 18 months.
As a result of the items explained above, operating income, as a percentage
of sales, decreased to 3.9%, or $14.2 million, in fiscal year 2003 as compared
to 6.9%, or $24.0 million in fiscal year 2002.
Net interest expense for fiscal year 2003 was $1.1 million as compared to
$2.6 million for fiscal year 2002, a decrease of $1.5 million. The decrease was
due primarily to (i) a decrease in note interest expense of $1.7 million
resulting from the Company's repayment of $11.4 million on the Company's 11%
senior notes in fiscal year 2003, and (ii) a decrease in interest earned of $0.3
million on cash invested in cash equivalents.
The Company's effective tax rate for fiscal year 2003 was 39.3%. (See Note
4. of the Notes to Financial Statements.) The Company's provision for income
taxes for fiscal year 2003 was $5.1 million compared to $8.8 million in 2002.
As a result of the items explained above, net income for fiscal year 2003
was $7.9 million, or $1.18 per basic share and $1.05 per diluted share, compared
to fiscal year 2002 of $12.6 million, or $1.89 per basic share and $1.71 per
diluted share. Excluding the gain on the sale of the building, net of income
taxes, net income for fiscal year 2002 would have been $10.3 million, or $1.54
per basic share and $1.40 per diluted share.
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. The Company realized a one-time gain of $3.9
million on the sale of the Bronx, NY building.
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.
15
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. Excluding the gain on the
sale of the building, net of income taxes, net income for fiscal year 2002 would
have been $10.3 million, or $1.54 per basic share and $1.40 per diluted share.
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.
The following table sets forth certain unaudited operating data for the
Company's eight fiscal quarters ended January 31, 2004. The quarterly
information includes all normal recurring adjustments which management considers
necessary for a fair presentation of the information shown.
(In thousands, except per share data) Fiscal Year 2003
---------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
-------- -------- -------- -------- --------
(Unaudited)
Statement of operations data
Net sales .......................... $ 90,428 $ 79,279 $101,041 $ 93,840 $364,588
Gross margin ....................... 36,427 27,863 41,726 32,630 138,646
Revenue from leased departments .... 329 423 439 586 1,777
-------- -------- -------- -------- --------
Operating profit ................... 36,756 28,286 42,165 33,216 140,423
Selling, general and
administrative expenses ......... 29,246 26,745 31,160 28,816 115,967
Depreciation and
amortization .................... 2,345 2,439 2,491 2,471 9,746
Write off of deferred financing fees - - - 548 548
-------- -------- -------- -------- --------
Operating income (loss) ............ 5,165 (898) 8,514 1,381 14,162
Interest expense ................... 458 319 296 48 1,121
-------- -------- -------- -------- --------
Income (loss) before income taxes .. 4,707 (1,217) 8,218 1,333 13,041
Provision for income taxes ......... 1,955 (524) 3,309 388 5,128
-------- -------- -------- -------- --------
Net income (loss) .................. $ 2,752 $ (693) $ 4,909 $ 945 $ 7,913
======== ======== ======== ======== ========
Earnings per share:
Basic ............................ $ 0.41 $ (0.10) $ 0.73 $ 0.14 $ 1.18
======== ======== ======== ======== ========
Diluted .......................... $ 0.37 $ (0.10) $ 0.65 $ 0.12 $ 1.05
======== ======== ======== ======== ========
16
(In thousands, except per share data) Fiscal Year 2002
---------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
-------- -------- -------- -------- --------
(Unaudited)
Statement of operations data
Net sales ..................... $ 93,397 $ 75,284 $ 94,731 $ 85,553 $348,965
Gross margin .................. 36,861 27,597 39,035 30,541 134,034
Revenue from leased departments 282 346 303 524 1,455
-------- -------- -------- -------- --------
Operating profit .............. 37,143 27,943 39,338 31,065 135,489
Selling, general and
administrative expenses .... 27,260 24,772 27,543 26,890 106,465
Depreciation and
amortization ............... 2,155 2,160 2,203 2,363 8,881
Gain on sale of building ...... - 3,934 - (10) 3,924
Charge for store closing ...... - - - 45 45
-------- -------- -------- -------- --------
Operating income .............. 7,728 4,945 9,592 1,757 24,022
Interest expense .............. 786 668 743 424 2,621
-------- -------- -------- -------- --------
Income before income taxes .... 6,942 4,277 8,849 1,333 21,401
Provision for income taxes .... 2,739 1,683 3,458 924 8,804
-------- -------- -------- -------- --------
Net income .................... $ 4,203 $ 2,594 $ 5,391 $ 409 $ 12,597
======== ======== ======== ======== ========
Earnings per share:
Basic ....................... $ 0.63 $ 0.39 $ 0.81 $ 0.06 $ 1.89
======== ======== ======== ======== ========
Diluted ..................... $ 0.60 $ 0.36 $ 0.73 $ 0.05 $ 1.71
======== ======== ======== ======== ========
Liquidity and Capital Resources
On November 25, 2003, the Company entered into a new credit facility with
The CIT Group/Business Credit, Inc. (the "New Credit Facility"). The New Credit
Facility provides for a $50.0 million revolving line of credit. The availability
of the revolving line of credit under the New Credit Facility is subject to
certain inventory-related borrowing base requirements. Repayment of amounts
borrowed under the New Credit Facility is secured by a lien on substantially all
the assets of the Company. Deferred financing fees of $548,000 related to the
Bankers Trust credit facility were written off in fiscal 2003. Prior to November
25, 2003, the Company had a $60.0 million credit facility with Bankers Trust
Company (the "Old Credit Facility"). Repayments of amounts borrowed under the
Old Credit Facility was secured by substantially all of the Company's assets.
The availability of the revolving line of credit under the Old Credit Facility
was subject to certain inventory-related borrowing base requirements.
The indebtedness under the New Credit Facility bears interest at variable
rates based on LIBOR plus 2.0% or the prime rate plus 0.5% on borrowings. There
is an unused line fee of 0.25% per annum on the unused portion of the New Credit
Facility. The indebtedness under the Old Credit Facility bore interest at
variable rates based on LIBOR plus 2.5% or the prime rate plus 1.5% on
borrowings. There was an unused line fee of 0.50% per annum on the unused
portion of the Old Credit Facility. The New Credit Facility contains certain
customary covenants, including capital expenditure limitations, limitations on
indebtedness, liens, and restricted payments, as did the Old Credit Facility.
There are no financial performance covenants under the New Credit Facility.
During fiscal year 2003, net cash provided by operations was $16.7 million
compared to $19.4 million in fiscal year 2002, a decrease of $2.7 million. The
primary source of cash flow provided by operations was net income before
depreciation and amortization, which decreased by $4.7 million. Working capital
increased to $27.2 million from $24.3 million in the prior year.
Merchandise inventory increased $7.7 million during fiscal year 2003. The
increase in inventory is due primarily to (i) an increase of $5.8 million in
pack-away inventory that is not immediately available for sale (See Note 2. of
the Notes to Financial Statements), and (ii) an increase in new store inventory
of $3.0 million partially offset by (iii) a decrease in comparable store
inventory of $1.4 million.
Accounts payable increased $4.7 million in fiscal year 2003. The increase
in accounts payable was primarily the result of increased merchandise purchases,
explained above, and the Company's continued attainment of favorable payment
terms with its vendors following its emergence from bankruptcy.
17
Cash flows used in investing activities were $8.4 million for fiscal year
2003, comprised entirely of capital expenditures. Capital expenditures for
fiscal year 2003 include costs for four new stores, one new shoe store, store
remodels and expansions, systems enhancements and distribution center
improvements. Capital expenditures decreased $3.2 million from fiscal year 2002.
The decrease in capital expenditures was due primarily to two projects completed
in fiscal year 2002, (i) an upgrade to the store equipment used to process
merchandise markdowns costing $1.8 million and (ii) an expansion to the
Company's distribution center in Rutherford, NJ costing $1.2 million.
Cash used in financing activities was $11.4 million for fiscal year 2003,
primarily from a repayment of $11.4 million on the Company's 11% senior notes.
At the end of fiscal year 2003, the Company had $8.0 million of cash and cash
equivalents. In addition to the cash and cash equivalents of $8.0 million, the
Company had borrowing availability under the New Credit Facility of $37.4
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 New 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 for the next
twelve months.
Contractual Obligations
The Company has aggregate contractual obligations of $191.7 million related
to operating leases as follows:
Fiscal Year
--------------------------------------------------------------------------------------------------------
(In thousands) 2004 2005 2006 2007 2008 Thereafter Total
-------- -------- -------- -------- -------- -------- --------
Operating leases $ 20,076 $ 20,250 $ 20,155 $ 18,190 $ 17,665 $ 95,369 $191,705
-------- -------- -------- -------- -------- -------- --------
Total .......... $ 20,076 $ 20,250 $ 20,155 $ 18,190 $ 17,665 $ 95,369 $191,705
======== ======== ======== ======== ======== ======== ========
(See Note 9. 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
January 31, 2004 and February 1, 2003 was $23.0 million and $17.2 million,
respectively.
The Company takes permanent markdowns to reduce prices as goods age. The
resulting gross profit 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. Fragrances is a leased department. Gross margin from fragrance
sales are shown as revenue from leased
18
departments on the Company's statements of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A hypothetical 100 basis point increase in interest rates relating to the
Company's revolving credit facility for Fiscal Years 2003, 2002 and 2001 would
have decreased pre-tax income by $57,000, $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 January 31, 2004 and February 1, 2003................................F-3
Consolidated Statements of Operations for the fiscal years ended January 31, 2004,
February 1, 2003 and February 2, 2002...............................................................F-4
Consolidated Statement of Changes in Common Stockholders' Equity for the fiscal
years ended January 31, 2004, February 1,2003 and February 2, 2002..................................F-5
Consolidated Statements of Cash Flows for the fiscal years ended January 31, 2004,
February 1, 2003 and February 2, 2002...............................................................F-6
Notes to Financial Statements.......................................................................F-7
Schedule II - Valuation and Qualifying Accounts....................................................F-18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. 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 January 31, 2004. 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 changes in the Company's internal controls over
financial reporting that has materially affected or is reasonably likely to
materially affect the Company's internal controls over financial reporting.
19
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company incorporates by reference herein the sections entitled
"Election of Directors" and "Management" in the Company's Proxy Statement to be
mailed to stockholders in connection with the Company's 2004 annual meeting.
The Company has adopted a code of ethics that applies to all of its
directors, officers (including its Chief Executive Officer, Chief Financial
Officer, Controller and any person performing similar functions) and employees.
The Company has filed a copy of this code of ethics as Exhibit 14 to this Form
10-K.
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 2004 annual meeting.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDERS MATTERS
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 2004
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 2004
annual meeting.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Company incorporates by reference herein the sections entitled "Audit
Fees", "Audit Related Fees", "Tax Fees" and "All Other Fees" in the Company's
Proxy Statement to be mailed to stockholders in connection with the Company's
2004 annual meeting.
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
20
(2) List of Financial Statement Schedules
Schedule II, Valuation and Qualifying Accounts
Other schedules are omitted because they are either
not applicable or the required information is shown
in the financial statements or notes thereto.
(3) List of Exhibits
2.1 Second Amended Plan of Reorganization of Loehmann's,
Inc. filed as Exhibit 2.1 to the Loehmann's, Inc.
Quarterly Report on Form 10-Q for the quarter ended
July 29, 2000 (Commission File No. 0-28410) and
incorporated herein by reference.
3.1 Amended and Restated Certificate of Incorporation of
Loehmann's Holdings, Inc. filed as Exhibit 99.T3A to
Form-T3 (Commission File No. 022-22475) 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. 022-22475) and incorporated herein by
reference.
4.1 Credit Agreement, dated as of November 25, 2003,
among Loehmann's Operating Co., as Borrower, the
Lenders, and The CIT Group/Business Credit, Inc., as
Agent filed as Exhibit 4.1 to the Loehmann's
Holdings, Inc. Form 8-K dated December 3, 2003
(Commission File No. 0-31787) and incorporated herein
by reference
4.2 Guaranty from Loehmann's Holdings, Inc., Loehmann's,
Inc., and Loehmann's Real Estate Holdings, Inc. to
The CIT Group/Business Credit, Inc., dated as of
November 25, 2003 filed as Exhibit 4.2 to the
Loehmann's Holdings, Inc. Form 8-K dated December 3,
2003 (Commission File No. 0-31787) and incorporated
herein by reference
4.3 Security Agreement among Loehmann's Holdings, Inc.,
Loehmann's, Inc., and Loehmann's Real Estate
Holdings, Inc. and The CIT Group/Business Credit,
Inc., dated as of November 25, 2003 filed as Exhibit
4.3 to the Loehmann's Holdings, Inc. Form 8-K dated
December 3, 2003 (Commission File No. 0-31787) and
incorporated herein by reference
4.4 Pledge Agreement between Loehmann's Holdings, Inc.,
Loehmann's, Inc. and The CIT Group/Business Credit,
Inc., dated as of November 25, 2003 filed as Exhibit
4.4 to the Loehmann's Holdings, Inc. Form 8-K dated
December 3, 2003 (Commission File No. 0-31787) 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.
21
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
Holdings, Inc. Annual Report on Form 10-K for the
year ended February 3, 2001 (Commission File No.
0-31787) 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, filed as Exhibit 10.3 to
the Loehmann's Holdings, Inc. Annual Report on Form
10-K for the year ended February 1, 2003 (Commission
File No. 0-31787) and incorporated herein by
reference.+
10.4 Amendment to the Employment Agreement between
Loehmann's Holdings, Inc. and Robert N. Friedman,
dated as of February 12, 2004.+*
10.5 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 Holdings,
Inc. Annual Report on Form 10-K for the year ended
February 3, 2001 (Commission File No. 0-31787) and
incorporated herein by reference.+
10.6 Amendment to the Employment Agreement between
Loehmann's Holdings, Inc. and Robert Glass, dated as
of May 10, 2002, filed as Exhibit 10.5 to the
Loehmann's Holdings, Inc. Annual Report on Form 10-K
for the year ended February 1, 2003 (Commission File
No. 0-31787) and incorporated herein by reference.+
10.7 Amendment to the Employment Agreement between
Loehmann's Holdings, Inc. and Robert Glass, dated as
of February 12, 2004.+*
10.8 2000 Director Stock Option Plan dated January 10,
2001, filed as Exhibit 10.4 to the Loehmann's
Holdings, Inc. Annual Report on Form 10-K for the
year ended February 3, 2001 (Commission File No.
0-31787) and incorporated herein by reference.+
10.9 Amended and restated 2001 Stock Option Plan dated
September 21, 2001, filed as Exhibit 10.7 to the
Loehmann's Holdings, Inc. Annual Report on Form 10-K
for the year ended February 1, 2003 (Commission File
No. 0-31787) and incorporated herein by reference.+
10.10 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.+
14 Code of Business Conduct and Ethics.*
21 List of Subsidiaries, filed as Exhibit 21 to the
Loehmann's Holdings, Inc. Annual Report on Form 10-K
for the year ended February 1, 2003 (Commission File
No. 0-31787) and incorporated herein by reference.
23.1 Consent of Independent Auditors.*
31.1 Certificate of Chief Executive Officer required by
Section 15d-14(a) of the Rules and Regulations under
the Securities Exchange Act of 1934.*
22
31.2 Certificate of Chief Financial Officer required by
Section 15d-14(a) of the Rules and Regulations under
the Securities Exchange Act of 1934.*
32.1 Certificate of Chief Executive Officer required by 18
U.S.C. Section 1350.*
32.2 Certificate of Chief Financial Officer required by 18
U.S.C. Section 1350.*
- ------------------
* 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 under items 7 and 12 of Form 8-K, dated
December 2, 2003, announcing the Company's financial results for the quarter
ended November 1, 2003.
The Company filed a report on Form 8-K under items 2 and 7 of Form 8-K, dated
December 3, 2003, announcing the Company had entered into a Loan and Security
agreement with The CIT Group/Business Credit, Inc..
The Company filed a report on Form 8-K under items 7 and 12 of Form 8-K, dated
April 13, 2004, announcing the Company's financial results for the quarter and
fiscal year ended January 31, 2004.
23
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned thereunto duly authorized.
LOEHMANN'S HOLDINGS, INC.
Dated: April 7, 2004 /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 7, 2004
/s/ Robert Glass
- ------------------------------------
Robert Glass Chief Operating Officer, Chief April 7, 2004
Financial Officer and Director
/s/ William J. Fox
- ------------------------------------
William J. Fox Co-Chairman and Director April 7, 2004
/s/ Joseph Nusim
- ------------------------------------
Joseph Nusim Co-Chairman and Director April 7, 2004
/s/ Carol Gigli Greer
- ------------------------------------
Carol Gigli Greer Director April 7, 2004
/s/ Cory Lipoff
- ------------------------------------
Cory Lipoff Director April 7, 2004
/s/ Erwin A. Marks
- ------------------------------------
Erwin A. Marks Director April 7, 2004
24
Index to Financial Statements
Loehmann's Holdings, Inc.
Contents
Report of Independent Auditors......................................................................F-2
Consolidated Balance Sheets at January 31, 2004 and February 1, 2003................................F-3
Consolidated Statements of Operations for the fiscal years ended January 31, 2004,
February 1, 2003 and February 2, 2002...............................................................F-4
Consolidated Statements of Changes in Common Stockholders' Equity for the fiscal years
ended January 31, 2004, February 1, 2003 and February 2, 2002.......................................F-5
Consolidated Statements of Cash Flows for the fiscal years ended January 31, 2004,
February 1, 2003 and February 2, 2002...............................................................F-6
Notes to Financial Statements.......................................................................F-7
Schedule II - Valuation and Qualifying Accounts....................................................F-18
Report of Independent Auditors
Board of Directors and Stockholders
Loehmann's Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Loehmann's
Holdings, Inc. as of January 31, 2004 and February 1, 2003 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended January 31, 2004. Our audits also
include the financial statement schedule listed in the Index at Item 14(a).
These financial statements 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. at January 31, 2004 and February 1, 2003 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 31, 2004 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 information set forth therein.
As discussed in Note 2 to the accompanying consolidated financial statements, in
2002 the Company changed its method of accounting for goodwill and other
intangible assets.
/s/ Ernst & Young LLP
---------------------
New York, New York
March 15, 2004
Loehmann's Holdings, Inc.
Consolidated Balance Sheets
(In thousands)
January February
31, 2004 1, 2003
-------- --------
Assets
Current assets:
Cash and cash equivalents $ 8,046 $ 11,217
Accounts receivable and other assets 7,392 6,628
Merchandise inventory 59,177 51,506
-------- --------
Total current assets 74,615 69,351
Property, equipment and leaseholds, net 43,893 45,087
Deferred financing fees and other assets, net 1,305 1,585
Deferred tax asset 8,252 2,968
Reorganization value in excess of identifiable assets, net 11,243 15,988
-------- --------
Total assets $139,308 $134,979
======== ========
Liabilities and common stockholders' equity
Current liabilities:
Accounts payable $ 28,330 $ 23,603
Accrued expenses 19,041 20,138
Income taxes payable - 1,351
-------- --------
Total current liabilities 47,371 45,092
11% Senior notes due December 2005 - 11,407
Deferred tax liability 3,441 -
Other noncurrent liabilities 7,870 6,195
Common stockholders' equity:
Common stock, $0.01 par value, 20,000,000 shares authorized;
6,729,236 shares issued and 6,659,236 shares issued and
outstanding at January 31, 2004 and February 1, 2003,
respectively 67 66
Additional paid-in capital 50,361 49,934
Retained earnings 30,198 22,285
-------- --------
Total common stockholders' equity 80,626 72,285
-------- --------
Total liabilities and common stockholders' equity $139,308 $134,979
======== ========
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)
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
January 31, February 1, February 2,
2004 2003 2002
------- ------- -------
Net sales $364,588 $348,965 $322,524
Cost of sales 225,942 214,931 202,923
------- ------- -------
Gross margin 138,646 134,034 119,601
Revenue from leased departments 1,777 1,455 1,574
------- ------- -------
Operating profit 140,423 135,489 121,175
Selling, general, and administrative expenses 115,967 106,465 99,864
Depreciation and amortization 9,746 8,881 9,800
Write off of deferred financing fees 548 - -
Gain on sale of building - 3,924 -
Charge for store closing - 45 500
------- ------- -------
Operating income 14,162 24,022 11,011
Interest expense, net 1,121 2,621 3,918
------- ------- -------
Net income before income taxes 13,041 21,401 7,093
Provision for income taxes, net 5,128 8,804 -
------- ------- -------
Net income $ 7,913 $ 12,597 $ 7,093
======= ======= =======
Earnings per share:
Basic $ 1.18 $ 1.89 $ 1.06
======= ======= =======
Diluted $ 1.05 $ 1.71 $ 1.04
======= ======= =======
Weighted average common shares and common
share equivalents used in earnings per
share calculation:
Basic 6,698 6,659 6,664
======= ======= =======
Diluted 7,538 7,351 6,806
======= ======= =======
The accompanying notes are an integral part of these financial statements.
F-4
Loehmann's Holdings, Inc.
Consolidated Statements of Changes in Common Stockholders' Equity
(In thousands, except share amounts)
Common Stock
------------------------- Additional
Number of Paid-in Retained
Shares Amount Capital Earnings Totals
--------- ---------- ---------- ---------- ----------
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
Stock options exercised 70,000 1 427 - 428
Net Income for the fiscal year ended January 31, 2004 - - - 7,913 7,913
========= ========== ========== ========== ==========
Balances as of January 31, 2004 6,729,236 $ 67 $ 50,361 $ 30,198 $ 80,626
========= ========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-5
Loehmann's Holdings, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
January 31, February 1, February 2,
2004 2003 2002
-------- -------- --------
Cash flows from operating activities:
Net income $ 7,913 $ 12,597 $ 7,093
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,746 8,881 9,800
Non-cash PIK interest on 11% senior notes - - 1,528
Increase in deferred tax asset (5,284) (611) (2,357)
Increase in deferred tax liability 3,441 - -
Adjustments to reorganization value 4,745 3,393 (694)
Write off of financing fees 548 - -
Charge for store closing - 401 500
Gain on sale of building - (3,924) -
Write off of fixed assets 135 - -
Changes in assets and liabilities:
Accounts receivable and other assets (764) (625) (221)
Merchandise inventory (7,671) (7,534) 1,759
Accounts payable 4,727 4,176 7,307
Accrued expenses (1,097) 1,701 (1,209)
Accrued income taxes (1,351) 463 (783)
-------- -------- --------
Net change in current assets and liabilities (6,156) (1,819) 6,853
Net change in other noncurrent assets and liabilities 1,632 505 749
-------- -------- --------
Total adjustments 8,807 6,826 16,379
-------- -------- --------
Net cash provided by operations 16,720 19,423 23,472
Cash flows from investing activities:
Capital expenditures (8,446) (11,656) (4,609)
Net proceeds from sale of building - 4,839 -
-------- -------- --------
Net cash used in investing activities (8,446) (6,817) (4,609)
-------- -------- --------
Cash flows from financing activities:
Payments on 11% senior notes (11,407) (15,121) -
Payments on revolving credit facility, net - - (6,568)
Net issuance of common stock 428 - -
Other financing activities, net (466) (150) -
-------- -------- --------
Net cash used in financing activities (11,445) (15,271) (6,568)
-------- -------- --------
Net (decrease) increase in cash and cash equivalents (3,171) (2,665) 12,295
Cash and cash equivalents at beginning of period 11,217 13,882 1,587
-------- -------- --------
Cash and cash equivalents at end of period $ 8,046 $ 11,217 $ 13,882
======== ======== ========
Supplemental disclosure of cash flow information
Cash interest paid during the period $ 1,513 $ 3,245 $ 2,414
======== ======== ========
Cash paid for income taxes during the period $ 3,818 $ 4,219 $ 3,415
======== ======== ========
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 years ended January 31, 2004 ("Fiscal Year 2003");
February 1, 2003 ("Fiscal Year 2002"); and February 2, 2002 ("Fiscal Year 2001")
had 52 weeks.
Cash and Cash Equivalents - The Company considers all highly liquid marketable
securities purchased with an original maturity of three months or less to be
cash and cash equivalents.
Merchandise Inventory - Merchandise inventory is valued at the lower of cost or
market as determined by the retail inventory method, which the Company believes
approximates fair value. However, certain 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 January 31,
2004 and February 1, 2003 was $23.0 million and $17.2 million, respectively.
Revenue Recognition - The Company recognizes revenue when goods are sold, at
retail, to customers in its stores.
Leased Department Sales - Fragrances are a leased department. In accordance with
the adoption of SAB 101, gross margin from fragrance 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 $12.2 million, $10.9 million, and $10.7 million during
Fiscal Years 2003, 2002, and 2001, 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
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.
F-7
Loehmann's Holdings, Inc.
Notes to Financial Statements
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
$0.7 million and $0.4 million in pre-opening costs in Fiscal Years 2003 and
2002, respectively, compared to no pre-opening costs incurred in Fiscal Year
2001.
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 was
$1.0 million. Beginning in Fiscal Year 2002, the Company ceased amortizing this
asset in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets".
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
142, Goodwill and Other Intangible Assets ("Statement 142"), whereby goodwill
and indefinite lived intangible assets are no longer amortized but are reviewed
annually for impairment, or more frequently, if impairment indicators arise. The
Company applied the new rules on accounting for goodwill and other intangible
assets on January 1, 2002, and as such ceased amortizing its reorganization
value in excess of identifiable assets. The Company performed the required
annual reorganization value in excess of identifiable assets impairment test and
determined there was no impairment.
Deferred Debt Issuance Costs - Deferred debt issuance costs are amortized over
the terms of the related debt agreement. Deferred debt issuance costs were $0.5
million and $1.4 million at January 31, 2004 and February 1, 2003. Amortization
expense for Fiscal Years 2003, 2002, and 2001 amounted to $0.8 million, $0.3
million and $0.2 million, respectively. Total accumulated amortization was $0.0
million at January 31, 2004 and $0.6 million at February 1, 2003.
On November 25, 2003, the Company entered into a new credit facility with The
CIT Group/Business Credit, Inc. Deferred financing fees of $0.5 million related
to the old credit facility with Bankers Trust Company were written off in Fiscal
Year 2003 (See Footnote 5. Debt). The Company is currently amortizing $0.5
million of deferred financing fees associated with the new credit facility with
The CIT Group/Business Credit, Inc. over a three year period ending November 24,
2006
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
F-8
Loehmann's Holdings, Inc.
Notes to Financial Statements
stock options outstanding during the period. The Company's common stock was
distributed following the Company's emergence from bankruptcy on October 10,
2000.
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 Financial Accounting Standards
Board ("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 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 SFAS 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:
Fiscal Year Fiscal Year Fiscal Year
2003 2002 2001
-------- --------- --------
(In millions, except per share data)
Net income - as reported $ 7.9 $ 12.6 $ 7.1
Less total stock-based employee compensation expense
under the fair value method, net of tax
0.7 1.3 0.1
-------- --------- --------
Net income - pro forma $ 7.2 $ 11.3 $ 7.0
======== ========= ========
Net income per share:
Basic - as reported $ 1.18 $ 1.89 $ 1.06
Basic - pro forma $ 1.08 $ 1.70 $ 1.05
Diluted - as reported $ 1.05 $ 1.71 $ 1.04
Diluted - pro forma $ 0.96 $ 1.54 $ 1.03
(See Footnote 8. Stock Option Plans.)
Reclassification - Certain items in Fiscal Years 2002 and 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").
F-9
Loehmann's Holdings, Inc.
Notes to Financial Statements
On July 28, 2000 Loehmann's, Inc. filed a Second Amended Plan of
Reorganization (the "Second POR") with the Bankruptcy Court. The Second POR was
subsequently accepted by the required percentages of those creditors entitled to
vote on the plan. A plan confirmation hearing was held on September 6, 2000 and
the Second POR, as further modified on that date (the "Amended POR"), was
confirmed by the Bankruptcy Court. On October 10, 2000, Loehmann's Operating Co.
entered into a secured credit facility with Bankers Trust Company (the "Credit
Facility"). Concurrently, Loehmann's Holdings, Inc. entered into an indenture
(the "Senior Notes Indenture") for 11% Senior Notes due 2005 (the "New Senior
Notes"). As a result of the consummation of these agreements, all conditions
precedent to the effectiveness of the Amended POR were met and the Amended POR
become effective on October 10, 2000 (the "Effective Date"), thereby allowing
the Company to formally emerge from bankruptcy. From the Petition Date until the
Effective Date, Loehmann's, Inc. operated as a debtor-in-possession under the
Bankruptcy Code.
Under the Amended POR, Loehmann's Holdings, Inc. was formed and distributed
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 New 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:
January 31, 2004 February 1, 2003 February 2, 2002
---------------------- ---------------------- -----------------------
Current Deferred Current Deferred Current Deferred
------- ------- ------- ------- ------- -------
(In thousands)
Federal $ 2,659 $ 1,560 $ 5,815 $ 1,345 $ 1,093 $(1,251)
State and local 677 232 1,494 150 364 (206)
------- ------- ------- ------- ------- -------
$ 3,336 $ 1,792 $ 7,309 $ 1,495 $ 1,457 $(1,457)
======= ======= ======= ======= ======= =======
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 January 31, 2004 and
February 1, 2003, the Company had deferred tax assets and deferred tax
liabilities as follows:
F-10
Loehmann's Holdings, Inc.
Notes to Financial Statements
January February
31, 2004 1, 2003
------- -------
(In thousands)
Deferred tax assets:
Net operating loss carryforwards $ 3,633 $ 4,745
Depreciation and amortization - 299
Store closing reserve - 110
Capitalization of inventory expenses 725 512
Deferred rent 2,944 2,305
Other accrued expenses 950 -
------- -------
Gross deferred tax assets 8,252 7,971
Less: Valuation allowance
- (4,745)
------- -------
Deferred tax assets, net 8,252 3,226
Deferred tax liabilities:
Depreciation and amortization 2,539 -
Prepaid rent and insurance 771 -
Other liabilities 131 258
------- -------
Gross deferred tax liabilities 3,441 258
------- -------
Net deferred tax assets $ 4,811 $ 2,968
======= =======
At January 31, 2004, the Company has assessed, based on its current
performance and forecast of future earnings, that in accordance with SFAS No.
109, "Accounting for Income Taxes", it is more likely than not that tax benefits
associated with the utilization of net operating losses will be realized and as
such reversed the valuation allowance of $4.7 million previously established
against these deferred tax assets. In accordance with SOP 90-7, the reversal of
the valuation allowance is appropriately recorded against Reorganization value
in excess of identifiable assets.
Following is a reconciliation of the statutory federal income tax rate and
the effective income tax rate application to earnings before income taxes, for
the fiscal years ended:
January February February
31, 2004 1, 2003 2, 2002
---- ---- ----
Statutory tax rate 35.0% 35.0% 35.0%
Realization of predecessor company NOL carryforward - - (33.2)
Reversal of post-emergence tax reserve - - (12.7)
Goodwill - - 3.9
State taxes 4.5 5.9 3.3
Other, net (0.2) 0.2 3.7
---- ---- ----
Effective tax rate 39.3% 41.1% 0.0%
==== ==== ====
At January 31, 2004, the Company had a net operating loss carryforward of
approximately $8.9 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.
F-11
Loehmann's Holdings, Inc.
Notes to Financial Statements
5. Debt
The Company's long-term debt consists of:
January February
31, 2004 1, 2003
----------------- ----------------
(In thousands)
11% Senior notes, due 2005 $ - $ 11,407
----------------- ----------------
Total Debt $ - $ 11,407
================= ================
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 2003, June 2003, and November 2002, the Company
redeemed $5.7 million, $5.7 million, and $15.0 million, respectively, of the 11%
Senior notes.
On November 25, 2003, the Company entered into a new credit facility with
The CIT Group/Business Credit, Inc. (the "New Credit Facility"). The New Credit
Facility provides for a $50.0 million revolving line of credit. The availability
of the revolving line of credit under the New Credit Facility is subject to
certain inventory-related borrowing base requirements. Repayment of amounts
borrowed under the New Credit Facility is secured by a lien on substantially all
the assets of the Company. Deferred financing fees of $0.5 million related to
the Bankers Trust credit facility were written off in Fiscal Year 2003. Prior to
November 25, 2003, the Company had a $60.0 million credit facility with Bankers
Trust Company (the "Old Credit Facility"). Repayments of amounts borrowed under
the Old Credit Facility was secured by substantially all of the Company's
assets. The availability of the revolving line of credit under the Old Credit
Facility was subject to certain inventory-related borrowing base requirements.
The indebtedness under the New Credit Facility bears interest at variable
rates based on LIBOR plus 2.0% or the prime rate plus 0.5% on borrowings. There
is an unused line fee of 0.25% per annum on the unused portion of the New Credit
Facility. The indebtedness under the Old Credit Facility bore interest at
variable rates based on LIBOR plus 2.5% or the prime rate plus 1.5% on
borrowings. There was an unused line fee of 0.50% per annum on the unused
portion of the Old Credit Facility. The New Credit Facility contains certain
customary covenants, including capital expenditure limitations, limitations on
indebtedness, liens, and restricted payments, as did the Old Credit Facility.
There are no financial performance covenants under the New Credit Facility.
F-12
Loehmann's Holdings, Inc.
Notes to Financial Statements
6. 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 January February
Lives 31, 2004 1, 2003
--------------------------------------------------
(In thousands) (In years)
Furniture, fixtures and equipment 3-8 $ 37,158 $ 38,254
Leasehold interests 5-29 29,711 31,546
Leasehold improvements 5-29 48,883 43,541
----------------- ---------------
Total property, equipment and leaseholds 115,752 113,341
Accumulated depreciation and amortization (71,859) (68,254)
----------------- ---------------
Property, equipment and leaseholds, net $ 43,893 $ 45,087
================= ===============
7. Earnings Per Share
The following table sets forth the computation of basic and diluted loss per
share, for the fiscal years ended:
(In thousands, except per share data) January February February
31, 2004 1, 2003 2, 2002
--------------- -------------- -------------
Numerator
Net income $ 7,913 $ 12,597 $ 7,093
--------------- -------------- -------------
Numerator for basic and diluted income per share $ 7,913 $ 12,597 $ 7,093
=============== ============== =============
Denominator
Denominator for basic income per share--weighted average shares 6,698 6,659 6,664
Effect of dilutive securities:
Employee & Director stock options 840 692 142
--------------- -------------- -------------
Denominator for diluted per share--adjusted weighted average
shares and assumed conversions 7,538 7,351 6,806
=============== ============== =============
Income per share:
Basic $ 1.18 $ 1.89 $ 1.06
=============== ============== =============
Diluted $ 1.05 $ 1.71 $ 1.04
=============== ============== =============
8. 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.
F-13
Loehmann's Holdings, Inc.
Notes to Financial Statements
As of January 31, 2004, options have been granted under the 2000 Equity
Incentive Plan for 517,200 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 January 31, 2004, there were 7,800 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
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 January 31, 2004, 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 January 31, 2004, 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 January 31, 2004, options have been granted
under the 2000 Director Option Plan for 253,000 shares to directors and there
were 147,000 shares available for future grant.
The following information pertains to the Company's stock option plans:
F-14
Loehmann's Holdings, Inc.
Notes to Financial Statements
Fiscal year ended January 31, 2004 February 1, 2003 February 2, 2002
-------------------------- ------------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Shares Exercise
Shares Price Shares Price Shares Price
--------- --------- --------- -------- ------- --------
Outstanding options, beginning of year 1,366,500 $ 5.55 594,500 $ 2.80 525,000 $ 7.50
Granted 117,400 14.96 822,500 7.39 600,500 2.80
Canceled 13,700 5.18 50,500 3.04 531,000 7.45
Exercised 70,000 6.13 - - - -
--------- --------- --------- -------- ------- --------
Outstanding options, end of year 1,400,200 $ 6.32 1,366,500 $ 5.55 594,500 $ 2.80
========= ========= ========= ======== ======= ========
Options exercisable, end of year 583,000 $ 5.53 528,000 $ 5.14 200,000 $ 2.60
========= ========= ========= ======== ======= ========
Options available for future grant 654,800 N/A 758,500 N/A 730,500 N/A
========= ========= ========= ======== ======= ========
The following table summarizes information about stock options outstanding
as of January 31, 2004 (shares in thousands):
Options Outstanding Options Exercisable
--------------------------------- -----------------------------
Weighted Weighted Weighted
Average Average Average
Remaining Exercise Exercise
Range of Exercise Prices Shares Contract Life Price Shares Price
- -------------------------------- ------------- ---------------- ------------- ------------ -------------
$ 2.50 - $ 4.99 537,500 4.4 years $ 2.79 200,000 $ 2.60
$ 5.00 - $ 9.99 675,500 7.9 years 6.98 330,000 6.13
$10.00 - $14.99 95,000 6.4 years 12.76 53,000 12.85
$15.00 - $15.47 92,200 4.3 years 15.46 - -
------------- ------------
Total 1,400,200 6.2 years $ 6.32 583,000 $ 5.53
============= ============
The Company has elected to follow APB 25 and related interpretations in
accounting for stock options and accordingly, has recognized no compensation
expense with respect to options granted to key employees or options granted to
non-employee directors. Had compensation cost been determined based upon the
fair value at grant date for awards consistent with the methodology prescribed
by SFAS Standards No. 123, the Company's net income and net income per share for
the fiscal year ended January 31, 2004 would have decreased to $7.2 million or
$0.96 per diluted share from a reported net income of $7.9 million or $1.05 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 5.11%, expected
life of 4 years, expected volatility of 78.5% and dividend yield of 0%. The
F-15
Loehmann's Holdings, Inc.
Notes to Financial Statements
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.
9. 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 $20.6 million, $16.3 million and $15.0 million for
the Fiscal Years 2003, 2002 and 2001, respectively.
Future minimum payments for the operating leases consisted of the following
at January 31, 2004:
(In thousands)
2004 $20,076
2005 20,250
2006 20,155
2007 18,190
2008 17,665
Thereafter 95,369
---------------
Total $191,705
===============
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.
10. Charge for Store Closings
During Fiscal Year 2002, the Company decided to close its existing store in
Florham Park, NJ and open a new store in East Hanover, NJ in 2003. 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
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 Year 2002 of $0.1
million.
During the fourth quarter of Fiscal Year 2001, the Company developed a plan
to close its existing store and open a new store in Denver, CO in 2002. 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.
F-16
Loehmann's Holdings, Inc.
Notes to Financial Statements
11. 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. The Company
recorded contributions to the plan of $0.2 million in each of the fiscal years
2003, 2002 and 2001.
12. 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
adoption of SFAS 145 during Fiscal Year 2003 had 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 costs related to a disposal or exit
activity since adopting this statement. As such the adoption of SFAS No. 146 had
no impact on the Company's results of operations or financial position.
In 2002, the FASB Emerging Issues Task Force ("EITF") issued EITF No.
02-16, "Accounting by a Customer (including a Reseller) for Certain
Consideration Received from a Vendor" ("EITF 02-16"). EITF 02-16 addresses the
accounting by a reseller for consideration received from a vendor. A consensus
was reached that cash consideration is presumed to be a reduction in the price
of a vendor's product that should be recognized as a reduction of cost of sales.
However, this presumption can be overcome when the consideration received is for
the reimbursement of specific, identifiable and incremental costs of the
reseller. In that event, the consideration, subject to a threshold, is
recognized as a reduction in selling, general and administrative expenses. The
provisions of EITF 02-16 are effective for all new arrangements, or
modifications to existing arrangements, entered into after December 31, 2002.
The release did not have a significant effect on the Company's results of
operations or financial position.
F-17
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 January 31, 2004
- ---------------------------
Reserve for Store Closings $ 315 $ 0 $ 0 $ 315 $ 0
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
- ----------------------------------------------------------------------------------------------------------------------------