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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended July 31, 2004.
OR
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________
Commission File No. 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 Executive Offices, Including Zip Code)
(718) 409-2000
--------------
(Registrant's Telephone Number, Including Area Code)
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period as the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark whether registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act)
Yes No X
--- ---
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed under Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
--- ---
Below are indicated the number of shares outstanding of each of the registrant's
classes of common stock.
Class Outstanding at September 9, 2004
------ --------------------------------
Common Stock, $.01 par value per share 6,729,236
Loehmann's Holdings Inc.
Contents
Part I--Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets--July 31, 2004, January 31, 2004 (Audited) and
August 2, 2003.................................................................................... 2
Consolidated Statements of Operations--Quarters and six months ended
July 31, 2004 and August 2, 2003.................................................................. 3
Consolidated Statements of Cash Flows--Six months ended July 31, 2004
and August 2, 2003................................................................................ 4
Notes to Consolidated Financial Statements........................................................... 5
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition........................................................................... 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................... 12
Item 4. Controls and Procedures...................................................................... 12
Part II--Other Information
Item 1. Legal Proceedings............................................................................ 12
Item 6. Exhibits..................................................................................... 13
Signature............................................................................................ 14
1
Part 1. Financial Information
Item 1. Financial Statements
Loehmann's Holdings Inc.
Consolidated Balance Sheets
(In thousands)
July 31, January 31, August 2,
2004 2004 2003
-------- -------- --------
(Unaudited) (Audited) (Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 8,869 $ 8,046 $ 1,081
Accounts receivable and other assets 8,016 7,392 7,484
Merchandise inventory 68,767 59,177 58,611
-------- -------- --------
Total current assets 85,652 74,615 67,176
Property, equipment and leaseholds, net 43,834 43,893 44,681
Deferred financing fees and other assets, net 1,495 1,305 1,445
Deferred tax asset 8,252 8,252 2,968
Reorganization value in excess of identifiable assets, net 11,322 11,243 15,988
-------- -------- --------
Total assets $150,555 $139,308 $132,258
======== ======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 30,989 $ 28,330 $ 23,088
Revolving credit facility - - 4,057
Accrued expenses 19,060 19,041 17,635
Income taxes payable 2,729 - 162
-------- -------- --------
Total current liabilities 52,778 47,371 44,942
11% senior notes due December 2005 - - 5,703
Deferred tax liability 3,441 3,441 -
Other noncurrent liabilities 8,958 7,870 6,840
Stockholders' equity:
Common stock, $0.01 par value, 20,000,000 shares authorized; 6,729,236 shares
issued and outstanding at July 31, 2004, January 31, 2004 and
August 2, 2003 67 67 67
Additional paid-in capital 50,361 50,361 50,362
Retained earnings 34,950 30,198 24,344
-------- -------- --------
Total stockholders' equity 85,378 80,626 74,773
-------- -------- --------
Total liabilities and stockholders' equity $150,555 $139,308 $132,258
======== ======== ========
The accompanying notes are an integral part of these financial statements.
2
Loehmann's Holdings Inc.
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
Quarter Ended Six Months Ended
------------------------- ------------------------
July 31, August 2 July 31, August 2,
2004 2003 2004 2003
-------- -------- -------- --------
Net sales $ 83,189 $ 79,279 $190,208 $169,707
Other revenue 557 423 910 752
Cost of sales 51,232 51,416 114,291 105,417
-------- -------- -------- --------
Gross profit 32,514 28,286 76,827 65,042
Selling, general, and administrative expenses 29,121 26,745 62,116 55,991
Merger related costs 1,648 - 1,648 -
Depreciation and amortization 2,633 2,439 5,068 4,784
-------- -------- -------- --------
Operating (loss) income (888) (898) 7,995 4,267
Interest expense, net 11 319 48 777
-------- -------- -------- --------
(Loss) income before income taxes (899) (1,217) 7,947 3,490
(Benefit) provision for income taxes, net (361) (524) 3,195 1,431
-------- -------- -------- --------
Net (loss) income $ (538) $ (693) $ 4,752 $ 2,059
======== ======== ======== ========
(Loss) earnings per share:
Basic
(Loss) earnings per share $ (0.08) $ (0.10) $ 0.71 $ 0.31
======== ======== ======== ========
Weighted average shares outstanding 6,729 6,673 6,729 6,666
======== ======== ======== ========
Diluted
(Loss) earnings per share $ (0.08) $ (0.10) $ 0.62 $ 0.28
======== ======== ======== ========
Weighted average shares outstanding 6,729 6,673 7,712 7,460
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
3
Loehmann's Holdings Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Six Months Ended
-----------------------
July 31, August 2,
2004 2003
-------- --------
Cash flows provided by (used in) operating activities:
Net income $ 4,752 $ 2,059
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization 4,899 4,784
Adjustments to reorganization value (79) -
Loss on disposal of assets 169 187
Changes in current assets and liabilities:
Accounts receivable and other assets (624) (1,686)
Merchandise inventory (9,590) (7,105)
Accounts payable 2,659 (515)
Accrued expenses 19 (1,673)
Income taxes payable 2,729 (1,189)
-------- --------
Net changes in current assets and liabilities (4,807) (12,168)
Net change in other noncurrent assets and liabilities 793 642
-------- --------
Total adjustments, net 975 (6,555)
-------- --------
Net cash provided by (used in) operating activities 5,727 (4,496)
-------- --------
Cash flows from investing activities:
Capital expenditures (4,358) (4,422)
-------- --------
Net cash used in investing activities (4,358) (4,422)
-------- --------
Cash flows from financing activities:
Borrowings under the credit facility, net - 4,057
Net issuance of common stock - 429
Repayment of 11% senior notes - (5,704)
Other financing activities, net (546) -
-------- --------
Net cash provided by (used in) financing activities (546) (1,218)
-------- --------
Net increase (decrease) in cash and cash equivalents 823 (10,136)
Cash and cash equivalents at beginning of period 8,046 11,217
-------- --------
Cash and cash equivalents at end of period $ 8,869 $ 1,081
======== ========
Supplemental disclosure of cash flow information:
Cash interest paid during period $ 47 $ 997
======== ========
Cash taxes paid during period $ 538 $ 3,354
======== ========
The accompanying notes are an integral part of these financial statements.
4
Loehmann's Holdings Inc.
Notes to Financial Statements
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 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 July 31, 2004, the Company
operated 48 stores in major metropolitan markets located in 17 states and the
District of Columbia.
1. Basis of Presentation
The balance sheet at July 31, 2004 and the statements of operations and
cash flows for the six months ended July 31, 2004 include, in the opinion of
management, all adjustments (consisting of only normal recurring adjustments)
considered necessary for a fair presentation.
The accompanying financial statements have been prepared in accordance
with accounting principles generally accepted in the United States for interim
financial information. Certain information and footnote disclosure normally
included in financial statements required by generally accepted accounting
principles have been omitted. Operating results for the quarter ended July 31,
2004 are not necessarily indicative of the results that may be expected for the
fiscal year ending January 29, 2005. It is suggested that these unaudited
financial statements be read in conjunction with the financial statements and
notes for the fiscal year ended January 31, 2004 included in the Company's
Annual Report on Form 10-K for such year.
2. Proposed Merger
On April 22, 2004, the Company, Designer Apparel Holding Company, a
Delaware corporation ("Parent"), and DAH Merger Corporation, a Delaware
corporation and wholly-owned subsidiary of Parent ("Sub"), entered into an
Agreement and Plan of Merger, dated as of April 22, 2004 (the "Merger
Agreement").
Pursuant to the Merger Agreement, following the satisfaction of certain
conditions, including the approval of the Merger (as defined below) by
stockholders of the Company representing a majority of the outstanding shares of
common stock, par value $.01 per share, of the Company (collectively, the
"Shares") entitled to vote, Sub will be merged with and into the Company with
the Company being the surviving corporation (the "Merger"). In the Merger the
stockholders of the Company will be entitled to receive, for each outstanding
Share, $23.00 per Share without interest thereon. After consummation of the
Merger, the Shares will no longer be traded on The NASDAQ National Market or any
other securities exchange and the Company will become a privately-held company.
On April 22, 2004, Parent entered into a Voting Agreement with Alpine
Associates, A Limited Partnership, Alpine Partners, L.P., Alpine Associates
Offshore Fund Ltd. and Palisades Partners, L.P. (collectively "Alpine"),
collectively the beneficial owners of approximately 32.7% of the outstanding
Shares, pursuant to which Alpine has agreed to vote its Shares in favor of the
Merger.
5
On April 22, 2004, the Company entered into new Employment Agreements
with each of Robert N. Friedman and Robert Glass which will be effective upon
consummation of the Merger. On April 22, 2004, the Company entered into
Agreements as to Surrender and Cancellation of Options with each of Robert N.
Friedman and Robert Glass which will be effective upon consummation of the
Merger.
On April 27, 2004, a complaint was filed by Davidco Investments in the
Court of Chancery of the State of Delaware in and for New Castle County against
the Company and its directors. The complaint purports to be brought as a class
action on behalf of the Company's stockholders. The complaint alleges, among
other things, that the members of the board of directors of the Company breached
their fiduciary duties to the Company's stockholders by approving the terms of
the proposed sale of the Company for $23.00 per share. The complaint seeks,
among other things, injunctive relief (including enjoining the proposed sale or
rescission if the proposed sale is consummated) and compensatory and/or
rescissory damages. On April 29, 2004, a complaint was filed by Bernard Shatz in
the Court of Chancery of the State of Delaware in and for New Castle County. The
second complaint is substantially similar to the first complaint but also names
Crescent Capital Investments, Inc. ("Crescent") as a defendant.
On June 10, 2004, plaintiffs in both cases filed a Proposed Order of
Consolidation in the Delaware Court of Chancery. The Proposed Order of
Consolidation was entered on July 29, 2004. The Order of Consolidation provides
that (1) both actions shall be consolidated for all purposes; (2) plaintiffs
will cause a consolidated amended complaint to be filed as soon as practicable;
and (3) defendants need not respond to the complaints or discovery previously
filed in the constituent actions. The defendants have not yet filed answers to
the consolidated complaint. The Company, its directors and Crescent intend to
vigorously defend the allegations set forth in the consolidated complaint.
There will be a special meeting (the "Special Meeting") of the
Company's stockholders on Wednesday, October 13, 2004, at 10:00 a.m. Eastern
Standard Time, at Loehmann's headquarters, 2500 Halsey Street, Bronx, New York.
At the Special Meeting the Company's stockholders as of the record date of
August 26, 2004 will vote on the Merger Agreement.
3. Income Taxes
Income taxes are provided for under the liability method using an
effective tax rate of 40.2% for fiscal 2004 and 39.3% in fiscal 2003.
4. Use of Estimates
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States for interim
financial information requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual amounts could differ from the estimates.
5. Stock-Based Compensation
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure" ("SFAS 148"), which amends
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), 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 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 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:
6
Quarter Ended Six Months Ended
--------------------- --------------------
July 31, August 2, July 31, August 2,
2004 2003 2004 2003
--------- --------- --------- ---------
(In millions, except per share data)
Net (loss) income - as reported $ (0.5) $ (0.7) $ 4.8 $ 2.1
Less total stock-based employee compensation
expense under the fair value method, net of tax 0.2 0.3 0.3 0.4
--------- --------- --------- ---------
Net (loss) income - pro forma $ (0.7) $ (1.0) $ 4.5 $ 1.7
========= ========= ========= =========
Net (loss) income per share:
Basic - as reported $ (0.08) $ (0.10) $ 0.71 $ 0.31
Basic - pro forma (0.10) (0.15) 0.66 0.26
Diluted - as reported (0.08) (0.10) 0.62 0.28
Diluted - pro forma (0.10) (0.15) 0.58 0.23
Item 2. 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 currently operates 48 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 two new stores in 2004: Northbrook, IL and Pasadena,
CA. In July 2004, the Company closed its store in Dallas, TX. The Company will
continue to follow a conservative strategy by opening 3-5 new stores per year in
existing markets.
Comparable store sales increased for the quarter by 2.1% and increased
7.6% for the six months ended July 31, 2004. Net income per diluted share for
the six months ended July 31, 2004 was $0.62, up from $0.28 in the prior year
period.
Loehmann's generated cash from operations of $5.7 million and used $4.4
million for capital expenditures.
The discussion and analysis below further explains the Company's
results of operations for the quarter and six months ended July 31, 2004.
7
Quarter Ended Six Months Ended
----------------------- ----------------------
July 31, August 2, July 31, August 2,
2004 2003 2004 2003
---------- ---------- ---------- ----------
% of Sales % of Sales % of Sales % of Sales
---------- ---------- ---------- ----------
Net sales 100.0% 100.0% 100.0% 100.0%
Other revenue 0.7% 0.6% 0.5% 0.4%
Cost of sales 61.6% 64.9% 60.1% 62.1%
---------- ---------- ---------- ----------
Gross profit 39.1% 35.7% 40.4% 38.3%
Selling, general and administrative expenses 35.0% 33.7% 32.7% 33.0%
Merger related costs 2.0% - 0.8% -
Depreciation and amortization 3.2% 3.1% 2.7% 2.8%
---------- ---------- ---------- ----------
Operating (loss) income
(1.1)% (1.1)% 4.2% 2.5%
Interest expense, net
0.0% 0.4% 0.0% 0.4%
---------- ---------- ---------- ----------
(Loss) income before income taxes (1.1)% (1.5)% 4.2% 2.1%
(Benefit) provision for income taxes, net (0.5)% (0.6)% 1.7% 0.9%
---------- ---------- ---------- ----------
Net (loss) income (0.6)% (0.9)% 2.5% 1.2%
========== ========== ========== ==========
Results of Operations - Comparison of the Quarters Ended July 31, 2004 and
August 2, 2003
Net sales for the quarter ended July 31, 2004 were $83.2 million as
compared to $79.3 million for the comparable period in the prior year. The
increase of $3.9 million is primarily attributable to (i) the comparable store
sales increase of $1.5 million and (ii) a net increase of $2.4 million in sales
related to six new stores.
Comparable store sales increased by 2.1% compared to the same period in
fiscal 2003. The increase in comparable store sales in the second quarter was
primarily attributable to increased sales volume in shoes. Included in the
comparable store base are expanded stores in San Francisco, CA and East
Brunswick, NJ.
Gross profit for the quarter ended July 31, 2004 was $32.5 million as
compared to $28.3 million for the same period in the prior year. Gross profit
percentage increased to 39.1% from 35.7% in the prior year period. The increase
in gross profit percentage is attributable to greater full price sell through
and lower markdowns as a percent of net sales.
Selling, general and administrative ("SG&A") expenses as a percentage
of net sales for the quarter increased to 35.0% of net sales as compared to
33.7% of net sales in the prior period. SG&A expenses for the quarter ended July
31, 2004 increased by $2.4 million to $29.1 million from $26.7 million in the
prior period. The increase of $2.4 million was primarily due to (i) a net
increase of $0.8 million of expenses related to the six new stores opened within
the past twelve months and (ii) an increase of $0.5 million in occupancy
expenses primarily due to the two expanded stores mentioned previously.
Depreciation and amortization expense for the quarter ended July 31,
2004 was $2.6 million as compared to $2.4 million for the same period in the
prior year. The increase in depreciation expense is due primarily to the
accelerated depreciation resulting from the closing of the Company's store in
Dallas, TX.
There was net interest expense of $11,000 for the quarter ended July
31, 2004 as compared to $319,000 for the same period in the prior year. The
reduction in interest expense is due to (i) a reduction of $224,000 in interest
expense due to the redemption in November 2003 of the remaining 11% senior notes
due
8
December 2005 and (ii) reduced interest charges under the Company's Credit
Facility due to the Company's favorable cash position.
Merger related expense for the quarter ended July 31, 2004 was $1.6
million. The $1.6 million in expense consists of professional and legal fees
incurred by the Company associated with the proposed Merger.
As a result of the items explained above, net loss was $(0.5) million,
or (0.6)% of net sales, for the quarter ended July 31, 2004 as compared to a net
loss of $(0.7) million, or (0.9)% of net sales, for the quarter ended August 2,
2003.
Results of Operations - Comparison of the Six Months Ended July 31, 2004 and
August 2, 2003
Net sales for the six-month period ended July 31, 2004 were $190.2
million as compared to $169.7 million for the comparable period in the prior
year. The increase of $20.5 million was primarily attributable to (i) an
increase in comparable store sales of $12.2 million and (ii) an increase of $8.4
million in sales related to six new stores.
Comparable store sales increased by 7.6 % for the six-month period
ended July 31, 2004 compared to the same period in fiscal 2003. The increase in
comparable store sales in the six-month period was largely attributable to
increased sales volume in better sportswear and shoes.
Gross profit for the six-month period ended July 31, 2004 was $76.8
million as compared to $65.0 million for the same period in the prior year.
Gross profit percentage increased to 40.4% from 38.3% in the prior year period.
The increase in gross profit percentage is attributed to (i) more full price
sell through resulting in lower markdowns as a percent of net sales and (ii) the
initial markup of merchandise resulting from a favorable change in the
merchandise mix.
SG&A expenses, as a percent to sales decreased to 32.7% from 33.0% in
the prior six month period. SG&A expenses for the six months ended July 31,
2004, increased to $62.2 million from $56.0 million in the prior period. The
increase of $6.2 million was primarily due to (i) an increase of $2.4 million of
expenses related to the six new stores opened within the past twelve months,
(ii) an increase of $1.3 million in variable sales related expenses resulting
from the $12.2 million increase in comparable store sales for the period and
(iii) an increase of $1.2 million in occupancy expenses incurred at stores open
for at least a year, primarily related to the two expanded stores previously
mentioned. Included in new store expenses were $0.2 million of pre-opening
expenses.
Depreciation and amortization expense for the six-month period ended
July 31, 2004 was $5.1 million as compared to $4.8 million for the same period
in the prior year. The increase in depreciation expense is due primarily to the
accelerated depreciation resulting from the closing of the Company's store in
Dallas, TX.
Net interest expense for the six-month period ended July 31, 2004 was
$48,000 as compared to $777,000 for the same period in the prior year. The
reduction in interest expense is due to (i) a reduction of $540,000 in interest
expense due to the redemption in November 2003 of the remaining 11% senior notes
due December 2005 and (ii) reduced interest charges under the Company's Credit
Facility due to the Company's favorable cash position.
Merger related expense for the six months ended July 31, 2004 was $1.6
million. The $1.6 million in expense consists of professional and legal fees
incurred by the Company associated with the proposed Merger.
9
As a result of the items explained above, net income was $4.8 million,
or 2.5% of sales, for the six months ended July 31, 2004 as compared to net
income of $2.1 million, or 1.2% of sales, for the six months ended August 2,
2003.
Liquidity and Capital Resources
The Company has a $50.0 million credit facility with The CIT
Group/Business Credit, Inc. (the "Credit Facility"). The availability of the
revolving line of credit under the Credit Facility is subject to certain
inventory-related borrowing base requirements. Repayment of amounts borrowed
under the Credit Facility is secured by a lien on substantially all the assets
of the Company.
The indebtedness under the 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 Credit
Facility.
The Credit Facility contains certain customary covenants, including
capital expenditure limitations, limitations on indebtedness, liens, and
restricted payments. There are no financial performance covenants under the
Credit Facility.
As of July 31, 2004, the Company had no borrowings and documentary
letters of credit of $7.8 million outstanding with $42.2 million of unused
availability under the Credit Facility.
Net cash provided by operations for the six months ended July 31, 2004
was $5.7 million compared to $4.5 million used in operations in the prior year.
Net cash provided by operations benefited from the increase in net income of
$2.7 million over the prior period and the increase in income taxes payable of
$3.9 million over the prior period resulting from decreased estimated tax
payments related to the Company initiatives to accelerate depreciation expense
taken for tax purposes.
Inventory at the end of the second quarter increased by $10.2 million
compared to the same period in the prior year primarily due to (i) an increase
in inventory related to an earlier transition to the fall selling season than
the prior year period , (ii) an increase in pack-away inventory and (iii) an
increase in inventory related to new stores not open in the prior period.
Accounts receivable and other current assets for the six months ended
July 31, 2004 were $8.0 million compared to $7.4 million at January 31, 2004.
The increase was due primarily to an increase in prepaid advertising expenses
for upcoming fall season events.
Accounts payable increased $2.7 million in the first six months of
fiscal year 2004. The increase in accounts payable was primarily the result of
an increase in favorable payment terms with the Company's vendors as compared to
the same period in the prior year.
Capital expenditures for the six months were $4.4 million. The opening
of a shoe store in White Plains, NY, new stores in Northbrook, IL and Pasadena,
CA, the purchase of new POS register equipment and additional storage capacity
at our distribution center accounted for $3.7 million of the $4.4 million.
Income taxes payable for the six months ended July 31, 2004 were $2.7
million compared to no amount payable at January 31, 2004. The increase is
primarily due to an increase in the provision for income taxes to $3.2 million
as a result of the increase in the earnings of the Company, less $0.5 million of
cash taxes paid during the period for estimated prior year and estimated state
and federal taxes.
10
The Company believes that cash generated from operations and funds
available under the Credit Facility will be sufficient to satisfy its cash
requirements through the remainder of the fiscal year.
This Quarterly Report on Form 10-Q and, in particular, Management's
Discussion and Analysis of Financial Condition and Results of Operations contain
forward-looking statements within the Securities Exchange Act of 1934. The
Company's actual results of operations and future financial condition may differ
materially from those expressed or implied in any such forward-looking
statements as a result of many factors, including factors that may be beyond the
Company's control. Other factors that may cause actual results of operations and
future financial condition to differ from those expressed or implied in any
forward-looking statements contained herein include adverse changes in
relationships with key vendors, changes in consumer preferences, competition
from existing and potential competitors and general economic conditions.
Investors are also directed to the discussion of risks and uncertainties
associated with forward-looking statements contained in our Annual Report on
Form 10-K filed with the Securities and Exchange Commission.
The Company cautions that the foregoing list of important factors is
not exclusive. The Company does not undertake to update any forward-looking
statements contained herein or that may be made from time to time by or on
behalf of the Company.
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 merchandise inventory valued on a specific cost basis
at July 31, 2004 and August 2, 2003 was $24.0 million and $20.6 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 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 Other Revenue
The Company recognizes revenue when goods are sold, at retail, to
customers in its stores. Sales from fragrances, a leased department, and
internet sales through a partnership with Smart Bargains, a leading internet
provider of off-price merchandise, are not reflected in the net sales reported
on the Company's statements of operations. The gross profit from both fragrance
and internet sales are shown as other revenue on the Company's statements of
operations.
Proposed Merger
On April 22, 2004, the Company, Parent and Sub entered into the Merger
Agreement.
Pursuant to the Merger Agreement, following the satisfaction of certain
conditions, including the approval of the Merger by stockholders of the Company
representing a majority of the Shares entitled to vote, Sub will be merged with
and into the Company with the Company being the surviving corporation. In the
Merger the stockholders of the Company will be entitled to receive, for each
outstanding Share,
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$23.00 per Share without interest thereon. After consummation of the Merger, the
Shares will no longer be traded on The NASDAQ National Market or any other
securities exchange and the Company will become a privately-held company.
On April 22, 2004, Parent entered into a Voting Agreement with Alpine,
the beneficial owner of approximately 32.7% of the outstanding Shares, pursuant
to which Alpine has agreed to vote its Shares in favor of the Merger.
On April 22, 2004, the Company entered into new Employment Agreements
with each of Robert N. Friedman and Robert Glass which will be effective upon
consummation of the Merger.
On April 22, 2004, the Company entered into Agreements as to Surrender
and Cancellation of Options with each of Robert N. Friedman and Robert Glass
which will be effective upon consummation of the Merger.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has assessed its vulnerability to certain market risks,
including interest rate risk associated with financial instruments included in
cash and cash equivalents. Due to the short-term nature of these investments the
Company has determined that the risks associated with interest rate fluctuations
related to these financial instruments do not pose a material risk to the
Company.
Item 4. Controls and Procedures
The Company maintains a system of disclosure controls and procedures
that is designed to provide reasonable assurance that information that is
required to be disclosed by the Company in the reports that it files or submits
under the Securities Exchange Act of 1934, as amended, is accumulated and
communicated to management in a timely manner. The Company's Chief Executive
Officer and Chief Financial Officer have evaluated this system of disclosure
controls and procedures as of the end of the period covered by this quarterly
report, and believe that the system is operating effectively to ensure
appropriate disclosure. There have been no changes in the Company's internal
control over financial reporting during the most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
The Company filed a report on Form 8-K under items 5 and 7 of Form 8-K,
dated April 28, 2004, reporting that on April 27, 2004, a complaint was filed by
Davidco Investments in the Court of Chancery of the State of Delaware in and for
New Castle County against the Company and its directors. The complaint purports
to be brought as a class action on behalf of the Company's stockholders. The
complaint alleges, among other things, that the members of the board of
directors of the Company breached their fiduciary duties to the Company's
stockholders by approving the terms of the proposed sale of the Company for
$23.00 per share. The complaint seeks, among other things, injunctive relief
(including enjoining the proposed sale or rescission if the proposed sale is
consummated) and compensatory and/or rescissory damages. On April 29, 2004, a
complaint was filed by Bernard Shatz in the Court of Chancery of the State of
Delaware in and for New Castle County. The second complaint is substantially
similar to the first complaint but also names Crescent as a defendant.
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On June 10, 2004, plaintiffs in both cases filed a Proposed Order of
Consolidation in the Delaware Court of Chancery. The Proposed Order of
Consolidation was entered on July 29, 2004. The Order of Consolidation provides
that (1) both actions shall be consolidated for all purposes; (2) plaintiffs
will cause a consolidated amended complaint to be filed as soon as practicable;
and (3) defendants need not respond to the complaints or discovery previously
filed in the constituent actions. The defendants have not yet filed answers to
the consolidated complaint. The Company, its directors and Crescent intend to
vigorously defend the allegations set forth in the consolidated complaint.
Item 6. Exhibits
Exhibits
(a) Exhibits
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.
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.
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Loehmann's Holdings Inc.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: September 9, 2004
Loehmann's Holdings Inc.
By /s/ Robert Glass
-----------------------------------------------------
Robert Glass
Chief Operating Officer, Chief Financial Officer and
Secretary
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