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
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
January 29,
2011
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number:
000-50563
Bakers Footwear Group,
Inc.
(Exact name of Registrant as
Specified in its Charter)
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Missouri
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43-0577980
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(I.R.S. Employer
Identification Number)
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2815 Scott Avenue,
St. Louis, Missouri
(Address of Principal
Executive Offices)
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63103
(Zip
Code)
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Registrants telephone number, including area code:
(314) 621-0699
Securities registered pursuant to Section 12(b) of the
Act:
Title of each class:
None
Name of each exchange on which registered:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, par value $0.0001 per share
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No þ
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 (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
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 registrants 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. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company þ
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(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
There is no non-voting common equity. The aggregate market value
of the common stock held by nonaffiliates (based upon the
closing price of $0.55 for the shares on the OTC
Bulletin Board) was approximately $1,795,776, as of
July 31, 2010. For this purpose, shares of the
registrants common stock known to the registrant to be
held by its executive officers, directors, certain immediate
family members of the registrants executive officers and
directors and each person known to the registrant to own 10% or
more of the outstanding voting power of the registrant have been
excluded in that such persons may be deemed to be affiliates.
This determination of affiliate status is required by
Form 10-K
and shall not be deemed to constitute an admission that any such
person is an affiliate and is not necessarily conclusive for
other purposes.
As of April 16, 2011 there were 9,295,916 shares of
the registrants common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrants definitive proxy statement for
the Registrants 2011 Annual Meeting of Shareholders to be
filed within 120 days of the end of the Registrants
2010 fiscal year (the 2011 Proxy Statement) are
incorporated by reference in Part III.
PART I
General
We are a national, mall-based, specialty retailer of distinctive
footwear and accessories targeting young women who demand
quality fashion products. We sell both private label and
national brand dress, casual and sport shoes, boots, sandals and
accessories. We strive to create a fun, exciting and fashion
oriented customer experience through an attractive store
environment and an enthusiastic, well-trained sales force. Our
buying teams constantly modify our product offerings to reflect
widely accepted fashion trends. We strive to be the store of
choice for young women between the ages of 16 and 35 who seek
quality, fashionable footwear at an affordable price. We provide
a high energy, fun shopping experience and attentive, personal
service primarily in highly visible fashion mall locations. Our
goal is to position Bakers as the fashion footwear merchandise
authority for young women.
As of January 29, 2011, we operated a total of 232 stores,
including 16 stores in the Wild Pair format. The Bakers stores
target young women between the ages of 16 and 35. We believe
this target customer is in a growing demographic segment, is
extremely appearance conscious and spends a high percentage of
disposable income on footwear, accessories and apparel. The Wild
Pair chain offers edgier, faster fashion-forward footwear that
reflects the attitude and lifestyles of young women between the
ages of 17 and 29. As a result of carrying a greater proportion
of national brands, Wild Pair has somewhat higher average prices
than our Bakers stores. As of April 16, 2011, we operated
231 stores, including 16 Wild Pair stores.
Our fiscal year is the standard retail calendar, which closes on
the Saturday closest to January 31. In this Annual Report
on
Form 10-K,
we refer to the fiscal years ended February 3, 2007,
February 2, 2008, January 31, 2009, January 30,
2010, and January 29, 2011 as fiscal year 2006,
fiscal year 2007, fiscal year 2008,
fiscal year 2009, and fiscal year 2010
respectively. For more information, please see
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations Fiscal
Year, appearing elsewhere herein. When this report uses
the words Company, we, us or
our, these words refer to Bakers Footwear Group,
Inc., unless the context otherwise requires.
Recent
Developments
During fiscal 2010, our net sales increased 0.1% compared to the
prior year, reflecting strong demand for dress shoes and casual
boots in the fall months, partially offset by weakness in demand
for our sandal line in spring and summer. Comparable store sales
in fiscal 2010 increased 1.7%. Gross profit percentage decreased
to 26.7% of sales compared to 28.8% in the prior year,
reflecting increased costs related to the launch of H by Halston
and increased promotional activity. We ended the year with
inventory up 28.1% from a year ago in connection with increased
in-transit
Spring inventory. We recognized noncash impairment expense of
$1.4 million compared to $2.8 million last year.
We incurred net losses of $9.3 million and
$9.1 million in fiscal years 2010 and 2009, but achieved
increases in comparable store sales of 1.7% and 1.3% in fiscal
years 2010 and 2009, respectively. Fiscal year 2010 marked our
third consecutive year of comparable store sales increases. Our
losses in fiscal years after 2005 have had a significant
negative impact on our financial position and liquidity. As of
January 29, 2011, we had negative working capital of
$8.7 million, unused borrowing capacity under our revolving
credit facility of $3.1 million, and a shareholders
deficit of $6.0 million.
In the fall of fiscal year 2010, we launched our exclusive H by
Halston brand in all of our Bakers stores. We were pleased with
our customers initial response, with sales in excess of
$6.0 million. In February 2011, we introduced our exclusive
Wild Pair line in our Bakers stores. In fiscal year 2010, we
generally sold our Wild Pair brand in our Wild Pair stores and
such sales were approximately $9.5 million. During fiscal
year 2011, we expect significant sales of both our H by Halston
and our Wild Pair brands. In our business plan for fiscal year
2011 discussed below, we anticipate that our H by Halston sales
in fiscal year 2011 will be in the range of $20.0 million
to $30.0 million and our Wild Pair sales will be in the
range of $15.0 to $25.0 million. Such sales are expected to
be
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partially incremental to existing sales. Moreover, as these
represent new product launches, our sales estimates are subject
to considerable variability.
Our business plan for fiscal year 2011 is based on mid-single
digit increases in comparable store sales. Through
April 23, 2011, comparable store sales have increased
10.1%. Based on our business plan, we expect to maintain
adequate liquidity for the remainder of fiscal year 2011. The
business plan reflects continued focus on inventory management
and on timely promotional activity. We believe that this focus
on inventory should improve overall gross margin performance
compared to fiscal year 2010. The plan also includes targeted
increases in selling, general and administrative expenses to
support the sales plan. We continue to work with our landlords
and vendors to arrange payment terms that are reflective of our
seasonal cash flow patterns in order to manage availability. The
business plan for fiscal year 2011 reflects continued
improvement in cash flow, but does not indicate a return to
profitability. However, there is no assurance that we will
achieve the sales, margin or cash flow contemplated in our
business plan.
On May 28, 2010, we amended our revolving credit facility.
The amendment extended the maturity of the credit facility to
May 28, 2013, modified the calculation of the borrowing
base, added a new minimum availability or adjusted EBITDA
interest coverage ratio covenant, added an obligation for us to
extend the maturity of our subordinated convertible debentures,
and made other changes to the agreement. We incurred fees and
expenses of approximately $250,000 in connection with this
amendment. The minimum availability or adjusted EBITDA interest
coverage ratio covenant requires that either we maintain unused
availability greater than 20% of the calculated borrowing base
or maintain the ratio of our adjusted EBITDA to our interest
expense (both as defined in the amendment) of no less than
1.0:1.0. The minimum availability covenant is tested daily and,
if not met, then the adjusted EBITDA covenant is tested on a
rolling twelve month basis. The adjusted EBITDA calculation is
substantially similar to the calculation used previously in our
subordinated secured term loan. We did not meet the adjusted
EBITDA covenant for the months of June and July 2010; however,
this covenant violation was waived by the bank in connection
with the August 2010 debt and equity issuance discussed below.
During the third quarter of fiscal year 2010, we met the bank
covenant based on maintaining unused availability greater than
20% on a daily basis. Our business plan for 2011 also
anticipates meeting the bank covenant on this basis. We continue
to closely monitor our availability and continue to be
constrained by our limited unused borrowing capacity. As of
April 23, 2011, the balance on our revolving line of credit
was $15.4 million and our unused borrowing capacity in
excess of the covenant minimum was $1.2 million.
On August 26, 2010, we issued debt and equity to Steven
Madden, Ltd., as investor. In connection with that arrangement,
we sold to the investor a subordinated debenture in the
principal amount of $5,000,000. Under the subordinated
debenture, interest payments are required to be paid quarterly
at an interest rate of 11% per annum. The principal amount is
required to be paid in four annual installments commencing on
August 31, 2017, through the final maturity date of
August 31, 2020. The subordinated debenture is generally
unsecured and subordinate to our other indebtedness. As
additional consideration, Steve Madden, Ltd. also received
1,844,860 shares of our common stock, representing a 19.99%
interest in our common stock on a post-closing basis. In
connection with the transaction, we received aggregate net
proceeds of $4.5 million after transaction and other costs.
We used the net proceeds for working capital purposes. We
received consents from all of our other debt holders to enter
into the transaction.
In January 2011, we repaid in full our subordinated secured term
loan with Private Equity Management Group, Inc. (PEM). The loan
was originally entered into in February 2008 with an initial
principal balance of $7.5 million. We had balances under
the loan of $2.8 million and $4.8 million as of
January 30, 2010 and January 31, 2009, with the loan
providing for 36 monthly installments of principal and
interest at an interest rate of 15% per annum. Originally the
loan agreement contained financial covenants requiring us to
maintain specified levels of tangible net worth and adjusted
EBITDA (as defined in the agreement) each fiscal quarter. We
amended the loan agreement four times (May 2008, April 2009,
September 2009 and March 2010) to modify these covenants in
order to remain in compliance. The March 2010 amendment
completely eliminated these covenants for the remainder of the
term loan.
Based on our business plan for fiscal year 2011, we believe that
we will be able to comply with the minimum availability or
adjusted EBITDA coverage ratio covenant in our revolving credit
facility. However, given the inherent volatility in our sales
performance, there is no assurance that we will be able to do
so. In addition, in light of
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our historical sales volatility and the current state of the
economy, we believe that there is a reasonable possibility that
we may not be able to comply with the financial covenants.
Failure to comply would be a default under the terms of the
revolving credit facility and could result in the acceleration
of all of our debt obligations. If we are unable to comply with
our financial covenants, we will be required to seek one or more
additional amendments or waivers from our lenders. We believe
that we would be able to obtain any required amendments or
waivers, but can give no assurance that we would be able to do
so on favorable terms, if at all. If we are unable to obtain any
required amendments or waivers, our lenders would have the right
to exercise remedies specified in the loan agreements, including
accelerating the repayment of debt obligations and taking
collection action against us. If such acceleration occurred, we
currently have insufficient cash to pay the amounts owed and
would be forced to obtain alternative financing.
We continue to face considerable liquidity constraints. Although
we believe the business plan is achievable, should we fail to
achieve the sales or gross margin levels we anticipate, or if we
were to incur significant unplanned cash outlays, it would
become necessary for us to obtain additional sources of
liquidity or make further cost cuts to fund our operations. In
recognition of existing liquidity constraints, we continue to
look for additional sources of capital at acceptable terms.
However, there is no assurance that we would be able to obtain
such financing on favorable terms, if at all, or to successfully
further reduce costs in such a way that would continue to allow
us to operate our business. See Item 1.
Business Risk Factors If we
cannot maintain generally positive sales trends, we could fail
to maintain a liquidity position adequate to support our ongoing
operations. herein.
For additional information on our loan arrangements, please see
- Liquidity and Capital Resources herein and
Item 1. Business Risk Factors
Our operations could be constrained by our ability to obtain
funds under and terms of our revolving credit facility and
Item 1. Business - Risk Factors The terms
of our revolving credit facility contain certain financial
covenants with respect to our performance and other covenants
that restrict our activities. If we are unable to comply with
these covenants, we would have to negotiate an amendment to the
loan agreement or the lender could accelerate the repayment of
our indebtedness. herein.
Trading of our common stock was suspended on June 18, 2010
for failure to meet the minimum stockholders equity
requirement under Nasdaq Listing Rule 5550(b), and has not
traded on Nasdaq since that time. On August 27, 2010, the
delisting became effective. The Companys common stock has
traded on the OTC Bulletin Board since June 18, 2010
under the symbol BKRS.OB. Please see
Item 1. Business Risk Factors
We were recently delisted from the Nasdaq Stock Market. Our
common stock is not quoted on a national exchange, and there is
relatively limited trading in our common stock, which limits the
ability of our shareholders or potential shareholders to
purchase or sell shares of our common stock and limits our
ability to obtain financing.
Our independent registered public accounting firms report
issued in this Annual Report on
Form 10-K
included an explanatory paragraph describing the existence of
conditions that raise substantial doubt about our ability to
continue as a going concern, including our recent losses and
working capital deficiency. See Note 2 to our financial
statements. Our financial statements do not include any
adjustments relating to the recoverability and classification of
assets carrying amounts or the amount of and classification of
liabilities that may result should we be unable to continue as a
going concern. We have taken several steps that we believe will
be sufficient to allow us to continue as a going concern and to
improve our liquidity, operating results and financial
condition. See Item 1. Business Risk
Factors The report issued by our independent
registered public accounting firm on our fiscal year 2010
financial statements contains language expressing substantial
doubt about our ability to continue as a going concern
herein.
Company
History
We were founded in 1926 as Weiss-Kraemer, Inc., later renamed
Weiss and Neuman Shoe Co., a regional chain of footwear stores.
In 1997, we were acquired principally by our current chief
executive officer, Peter Edison, who had previously served in
various senior management positions at Edison Brothers Stores,
Inc. In June 1999, we purchased selected assets of the Bakers
and Wild Pair chains, including approximately 200 store
locations and inventory from Edison Brothers, which had
previously filed for bankruptcy protection. We retained the
majority of Bakers employees and key senior management and
closed or re-merchandised our stores into the Bakers or Wild
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Pair formats. In February 2001, we changed our name to Bakers
Footwear Group, Inc. In February 2004 we had our initial public
offering.
We operate as one business segment for accounting purposes. See
Item 6. Selected Financial Data and
Item 8. Financial Statements and Supplementary
Data for information regarding our revenues, assets and
other financial information. We are incorporated under the laws
of the State of Missouri. Our executive offices are located at
2815 Scott Avenue, St. Louis, Missouri 63103 and our
telephone number is
(314) 621-0699.
Information on the retail website for our Bakers stores,
www.bakersshoes.com, is not part of this Annual Report on
Form 10-K.
Improving
Comparable Store Sales
We strive to improve our comparable stores sales by focusing on
our exclusive brands, H by Halston and Wild Pair, in our Bakers
stores to provide further differentiation in our offerings and
focusing on increasing customer loyalty and broadening our
customer reach. We also plan to continue to expand our
multi-channel sales presence.
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We attempt to keep our product mix fresh and on target by
constantly testing new fashions and actively monitoring
sell-through rates in our stores. Our team of footwear
retailers, in-house designers and merchants use their industry
experience, relationships with agents and branded footwear
producers, and their participation in industry trade shows to
analyze, interpret and translate fashion trends affecting young
women into the footwear and accessory styles they desire. To
complement the introduction of new merchandise, we view the
majority of our styles as core fashion styles that
carry over for multiple seasons. Our merchants make subtle
changes to these styles each season to keep them fresh, while
reducing our fashion risk exposure.
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We employ a test and react strategy that constantly updates our
product mix while managing inventory risk. This strategy is
supported by our relationships with manufacturers, which allow
our merchandising and buying teams to negotiate short
lead-times, enabling us to test new styles and react relatively
quickly to fashion trends and keep fast-moving inventory in
stock.
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We also seek to improve comparable store sales increases through
branded and private label accessories. Accessories accounted for
12.9% of merchandise sales in fiscal year 2010 and we believe
that there is significant potential to expand our accessory
sales and margins.
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Our stores sell national branded footwear and accessories
because we believe that branded merchandise is important to our
customers, adds credibility to our stores and drives customer
traffic, increasing our overall sales volume and profitability,
while reducing our overall exposure to fashion risk. We believe
the presence of national branded merchandise in our product mix
will also increase the sales of our private label merchandise.
We continue to add sought after brands and to enhance the value
of our private label assortment. Approximately 9.8% of our net
shoe sales for fiscal year 2010 consisted of branded footwear.
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For fiscal year 2010, our multi-channel sales were
$11.7 million, a 9.5% increase over fiscal year 2009. We
believe our Web presence is important in expanding our ability
to reach our target customer base and enhances the services we
provide our customers. Furthermore, we believe our Internet
store and our social media efforts increases customer traffic at
our Bakers stores and enables potential customers to locate our
stores.
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New Store
Strategy
We have limited our store expansion plans until our liquidity
improves. Over the long-term, we believe that there are
substantial opportunities of us to grow our business.
We opened four stores in fiscal year 2010, four stores in fiscal
year 2009 and two stores in fiscal year 2008. We project to open
two new stores in fiscal year 2011. In selecting specific sites,
we look for high traffic locations primarily in regional
shopping malls. We evaluate proposed sites based on the traffic
patterns, type and quality of other tenants, average sales per
square foot achieved by neighboring stores, lease terms and
other factors considered important with respect to a specific
location. We constantly update our search for new locations and
have identified 200 additional locations for potential new
stores.
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Construction costs for new stores currently average
approximately $360,000. In connection with opening a new store,
we typically receive a construction allowance from the landlord,
which can range from $25,000 to over $100,000.
Product
Development and Merchandising
Our merchants analyze, interpret and translate current and
emerging lifestyle trends into footwear and accessories for our
customers. Our merchants and senior management use various
methods to monitor changes in culture and fashion. Our buyers
travel to major domestic and international markets, such as New
York, London and Milan, to gain an understanding of fashion
trends. Our merchants and senior management are also in China on
a consistent basis to monitor changes in sourcing,
manufacturing, pricing, and product development. We attend major
footwear trade shows and analyze various information services
which provide broad themes on the direction of fashion and color
for upcoming seasons. We also monitor current music, television,
movie and magazine themes as they relate to clothing and
footwear styles.
A crucial element of our product development is our test and
react strategy. We typically buy small quantities of new
footwear and deliver merchandise to a cross-section of stores.
We monitor sell-through rates on test merchandise and, if the
tests are successful, quickly re-order product to be distributed
to a larger base of stores. Frequently, we can make initial
determinations as to the results of a product test. Our senior
management team has extensive experience in retail and in
responding to changes in our business.
In addition to our test and react strategy, we also attempt to
moderate our fashion risk exposure through the national branded
component of our merchandise mix. The national brands carried by
our stores tend to focus on fashion basic merchandise supported
by national advertising by the producer of the brand, which
helps generate demand from our target customer. We hope to gain
substantial brand affinity by carrying these lines. We believe
that a customer who enters our store with the intent of shopping
for national branded footwear will also consider the purchase of
our lower price, higher gross margin private label merchandise.
Product
Mix
We sell both casual and dress footwear. Casual footwear includes
sport shoes, sandals, athletic shoes, outdoor footwear, casual
daywear, weekend casual, casual booties and tall-shafted boots.
Dress footwear includes career footwear, tailored shoes, dress
shoes, special occasion shoes and dress booties.
Private
Label.
Our private label merchandise, which comprised approximately
90.2% of our net shoe sales in fiscal year 2010, is generally
sold under the Bakers label as well as H by
Halstontm
and Wild
Pairtm.
The retail prices of our Bakers label footwear generally range
from $39 to $89 with most offerings in the $59 to $79 range. We
are able to offer these prices without sacrificing merchandise
quality, creating a high perceived value, promoting multiple
sale transactions, and allowing us to build a loyal customer
base. Once our management team has arrived at a consensus on
fashion themes for the upcoming season, our buyers translate
these themes into our merchandise. The retail prices for our H
by Halston and Wild Pair label footwear are generally higher
than for our Bakers label.
To produce our private label footwear, we generally begin with a
concept that our buying teams have discovered during their
travels or that is brought to us by one of our commissioned
buying agents. Working with our agents, we develop a prototype
shoe, which we refer to as a sample. We control the process by
focusing on key color, fabric and pattern selections, and
collaborate with our buying agents to establish production
deadlines. Once our buyers have approved the sample, our buying
agents arrange for the purchase of necessary materials and
contract with factories to manufacture the footwear to our
specifications.
We establish manufacturing deadlines in order to ensure a
consistent flow of inventory into the stores, emphasizing
relatively short lead times. Depending upon where the shoes are
produced and where the materials are sourced, we can have shoes
delivered to our stores in four to 17 weeks. For more
information, please see Sourcing and
Distribution.
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Our success depends upon our customers perception of new
and fresh merchandise. We manage our markdown exposure by
re-interpreting our core product. Approximately
10-15% of
our private label mix is core product, which we define as styles
that carry over for multiple seasons. Our buyers make changes to
core products which include colors, fabrications and modified
styling to create renewed interest among our customers. We also
have relationships with some producers of national brands that,
from time to time, produce comparable versions of their branded
footwear under our private label brands.
Our information systems are designed to identify trends by item,
style, color
and/or size.
In response, our merchandise team generates a key-item report to
more carefully monitor and support sales, including reordering
additional units of certain items, if available. Merchandising
teams and buyers work together to develop new styles to be
presented at monthly product review and selection meetings.
These new styles incorporate variations on existing styles in an
effort to capitalize further on the more popular silhouettes and
heel heights or entirely new styles and fabrications that
respond to emerging trends or customer preferences.
H by
Halston.
On January 25, 2010, we entered into a licensing agreement
with the owner of the Halston trademark. Under the terms of this
agreement, we have the exclusive right to manufacture and market
footwear and handbags primarily under the trade name H by
Halston for an initial, renewable term of five years. The
first H by Halston shoes were delivered in May 2010 and our
first significant product rollout of the H by Halston line of
footwear began in September 2010. We were pleased with our
customers initial response, with fiscal year 2010 sales in
excess of $6.0 million. Our intention is to increase our H
by Halston sales and use H by Halston as a new platform for
developing and selling moderate priced designer footwear for
young women. We believe our H by Halston license can add
tremendous value to Bakers with our vendors, employees and
customers. It is part of a long-term trend in retailing where
retailers own a captive piece of a design label. We pay
royalties to the owner of the trademark based on the greater of
a percentage of sales or a minimum annual royalty of $1,500,000,
payable quarterly.
National
Brands.
Our stores carry nationally recognized branded merchandise which
we believe increases the attractiveness of our product offering
to our target customers. Our national branded shoe sales
comprised approximately 9.8% of our net shoe sales for fiscal
year 2010. We believe that national branded merchandise is
important to our customers, adds credibility to our stores and
drives customer traffic resulting in increased customer loyalty
and sales. Important national brands in our stores include
Jessica
Simpson®,
BCBGirls®,
Guess
Sport®,
Rocawear®,
Blowfish®,
Playboy®,
Big
Buddha®,
and Baby
Phat®.
We believe offering nationally recognized brands are a key
element to attracting appearance conscious young women. National
branded merchandise generally sells at a higher price point than
our private label merchandise but at a lower gross margin
percentage, still generating greater gross profit dollars per
pair and leveraging our operating costs.
Accessories.
Our branded and private label accessories include handbags,
jewelry, sunglasses, ear clips and earrings, leggings, scarves
and other items. Our accessory products allow us to offer the
convenience of one-stop shopping to our customers, enabling them
to complement their seasonal
ready-to-wear
clothing with color coordinated footwear and accessories.
Accessories add to our overall sales and typically generate
higher gross margins than our footwear.
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Merchandise
Mix.
The following table illustrates net sales by merchandise
category as a percentage of our total net sales for fiscal years
2008-2010:
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Fiscal Year
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Category
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2008
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2009
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2010
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Private Label Footwear(1)
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72.8
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%
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75.4
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%
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78.6
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%
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National Branded Footwear
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15.5
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%
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12.5
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%
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8.5
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%
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Accessories
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11.7
|
%
|
|
|
12.1
|
%
|
|
|
12.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Private Label includes Bakers, Wild Pair
and H by Halston. |
Planning
and Allocation.
We have developed a micro-merchandising strategy for each of our
Bakers stores through market research and sales experience. We
maintain the level and type of styles demanded by subsets of our
target customers. We have categorized each of our Bakers stores
as being predominantly a mainstream, fashion or urban location,
and if appropriate we identify subcategories for certain stores.
We have implemented a similar micro-merchandising strategy for
our Wild Pair stores.
Our micro-merchandising strategy of classifying multiple stores
and merchandising them similarly based upon customer
demographics and historical sales trends enables our merchants
to provide an appropriate merchandise mix in order to meet that
particular stores customers casual, weekend/club,
career and special occasion needs. In determining the
appropriate merchandise mix and inventory levels for a
particular store, among other factors, we consider selling
history, importance of branded footwear, importance of
accessories, importance of aggressive fashion, the stock
capacity of the store, sizing trends and color preferences.
Our merchandising plan includes sales, inventory and
profitability targets for each product classification. This plan
is reconciled with our store sales plan, a compilation of
individual store sales projections that is developed
semi-annually, but reforecasted monthly. We also update the
merchandising plan on a monthly basis to reflect current sales
and inventory trends. The plan is then distributed throughout
the merchandising department, which analyzes trends on a weekly,
and sometimes daily, basis. We use the reforecasted
merchandising plan to adjust production orders as needed to meet
inventory and sales targets. This process helps to control our
inventory levels and markdowns but mainly to reallocate
inventory acquisitions.
Our buyers typically order merchandise 30 to 120 days in
advance of anticipated delivery. This strategy allows us to
react to both the positive and negative trends and customer
preferences identified through our information systems and other
tracking procedures. Through this purchasing strategy, we can
take advantage of positive trends by quickly replenishing our
inventory of popular products. This strategy can also reduce our
exposure to risk because we are less likely to be overstocked
with less desirable items.
Clearance.
We utilize clearance and markdown procedures to reduce our
inventory of slower moving styles. Our management monitors
pricing and markdowns to facilitate the introduction of new
merchandise and to maintain the freshness of our fashion image.
We have three clearance sales each year, which coincide with the
end of a particular selling season. For more information
regarding our selling seasons, please see Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations Seasonality and Quarterly
Fluctuations. You should also refer to
Seasonality and to
Risk Factors Our overall
profitability is highly dependent upon our fourth quarter
results. During a clearance sale, we systemically lower
the prices in store of the items, and if not sold, to ship them
to one of our 25 stores which have special clearance sections.
We believe that our test and react strategy and our monitoring
of inventories and consumer buying trends help us to reduce
sales at clearance prices.
9
Stores
Store
Locations and Environment.
Our stores are designed to attract customers who are intrigued
by a young and contemporary lifestyle and to create an inviting,
exciting atmosphere in which it is fun for them to shop in
locations where they want to shop. Our stores average
approximately 2,300 square feet and are primarily located
in regional shopping malls. As of January 29, 2011, six of
our stores, which are located in dense urban markets such as New
York City and Chicago, have freestanding street locations. We
believe that we are also able to operate in a wide range of
shopping mall classifications.
Our stores create a clean, upscale boutique environment,
featuring contemporary finishing and sophisticated details.
Glass exteriors allow passersby to see easily into the store
from the high visibility, high traffic locations in the malls
where we have located most of our stores. The open floor design
allows customers to readily view the majority of the merchandise
on display while store fixtures allow for the efficient display
of accessories.
Our customers use cash and third-party credit cards to purchase
our products. We do not issue private credit cards or make use
of complicated financing arrangements.
10
Following is a list of our stores by state as of
January 29, 2011:
|
|
|
|
|
|
|
No.
|
|
|
|
Stores
|
|
|
Alabama
|
|
|
1
|
|
Arizona
|
|
|
2
|
|
Arkansas
|
|
|
2
|
|
California
|
|
|
38
|
|
Colorado
|
|
|
2
|
|
Connecticut
|
|
|
5
|
|
Delaware
|
|
|
1
|
|
Florida
|
|
|
18
|
|
Georgia
|
|
|
12
|
|
Idaho
|
|
|
1
|
|
Illinois
|
|
|
17
|
|
Indiana
|
|
|
2
|
|
Kansas
|
|
|
2
|
|
Kentucky
|
|
|
1
|
|
Louisiana
|
|
|
5
|
|
Maryland
|
|
|
7
|
|
Massachusetts
|
|
|
7
|
|
Michigan
|
|
|
9
|
|
Missouri
|
|
|
6
|
|
Nevada
|
|
|
3
|
|
New Hampshire
|
|
|
1
|
|
New Jersey
|
|
|
13
|
|
New Mexico
|
|
|
1
|
|
New York
|
|
|
21
|
|
North Carolina
|
|
|
4
|
|
Ohio
|
|
|
6
|
|
Oklahoma
|
|
|
2
|
|
Pennsylvania
|
|
|
6
|
|
Rhode Island
|
|
|
2
|
|
South Carolina
|
|
|
2
|
|
Tennessee
|
|
|
1
|
|
Texas
|
|
|
22
|
|
Virginia
|
|
|
8
|
|
Wisconsin
|
|
|
2
|
|
|
|
|
|
|
Total Stores
|
|
|
232
|
*
|
Total States
|
|
|
34
|
|
|
|
|
* |
|
Excludes our Internet site, which is merchandised as a Bakers
store. |
11
Store
Concepts.
As of January 29, 2011, we operated 216 Bakers stores and
16 Wild Pair stores. As of April 23, 2011, we operated 231
stores including 16 Wild Pair stores. Our Bakers stores focus on
widely-accepted, mainstream fashion and provide a fun,
high-energy shopping environment geared toward young women
between the ages of 16 and 35. Our Wild Pair stores feature
fashion-forward merchandise for faster fashion minded young
women with our target customer between the ages of 17 and 29 and
reflect the attitude and lifestyle of this demographic niche.
The Wild Pair customer demands edgier, faster fashion that
exists further towards the leading edge than does
the typical Bakers customer, which allows us to better monitor
the direction of the fashion-forward look that our Bakers
customer will be seeking. To match the attitude of our Wild Pair
merchandise, we have created a fast, fun, environment within our
Wild Pair stores. Wild Pair stores carry a higher proportion of
national branded merchandise, which generally sells at higher
price points than our Bakers footwear.
The following table compares our Bakers and Wild Pair store
formats:
|
|
|
|
|
|
|
Bakers
|
|
Wild Pair
|
|
Target customer
|
|
Women ages 16-35
|
|
Women ages 17-29
|
Private label sales
|
|
87% 90%
|
|
40% 45%
|
National branded sales
|
|
10% 13%
|
|
55% 60%
|
Fashion content
|
|
Widely-accepted
|
|
Edgy, lifestyle-based
|
Approximate average store size
|
|
2,300 square feet
|
|
2,100 square feet
|
Store
Operations.
Our store operations are organized into three divisions, east,
midwest/central, and west, which are subdivided into 20 regions.
Each region is managed by a regional manager, who is typically
responsible for 10 to 18 stores. Each store is typically staffed
with a manager, assistant manager and floor supervisor, in
addition to approximately five part-time sales associates. In
some markets where stores are more closely located, one of the
store managers may also act as an area manager for the stores in
that area, assisting the regional manager for those stores.
Our regional managers are primarily responsible for the
operation and results of the stores in their region, including
the hiring or promotion of store managers. We develop new store
managers by promoting from within and selectively hiring from
other retail organizations. Our store managers are primarily
responsible for store results, hiring and training store level
staff, payroll control, shortage control, store presentation and
regional marketing. While managers are key in helping to
determine correct product mix for their market, merchandise
selections, inventory management and visual merchandising
strategies for each store are largely determined at the
corporate level and are communicated to the stores generally on
a weekly basis.
Our commitment to customer satisfaction and service is an
integral part of building customer loyalty. We seek to instill
enthusiasm and dedication in our store management personnel and
sales associates through incentive programs and regular
communication with the stores. Sales associates receive
commissions on sales with a guaranteed minimum hourly
compensation. We run various sales contests to encourage our
sales associates to maximize sales volume. Store managers
receive base compensation plus incentive compensation based on
sales, payroll and inventory control. Regional and area managers
receive base compensation plus incentive compensation based on
meeting operational benchmarks. Each of our managers controls
the payroll hours in conjunction with a weekly budget provided
by the regional manager.
We have well-established store operating policies and procedures
and use an in-store training regimen for all store employees. On
a regular basis, our merchandising staff provides the stores
with merchandise presentation instructions, which include
diagrams and photographs of fixture presentations. In addition,
our internal newsletter provides product descriptions, sales
histories and other milestone information to sales associates to
enable them to gain familiarity with our product offerings and
our business. We offer our sales associates a discount on our
merchandise to encourage them to wear our merchandise and to
reflect our lifestyle image both on and off the selling floor.
Our regional managers are responsible for maintaining a loss
prevention program in each of our stores. In addition, we have a
loss prevention department with regional loss prevention staff
who perform individual store visits throughout
12
the year. Our loss prevention efforts also include monitoring
returns, voided transactions, employee sales and deposits, using
software to analyze transactions recorded in our point of sale
system, as well as educating our store personnel on loss
prevention. We track inventory through electronic receipt
acknowledgment to better monitor loss prevention factors, which
allows us to identify variances and further to reduce our losses
due to damage, theft or other reasons.
Sourcing
and Distribution
A key factor in our ability to offer our merchandise at moderate
prices and respond quickly to changes in consumer trends is our
sourcing ability. We source each of our private label product
lines separately based on the individual design, styling and
quality specifications of those products. We do not own or
operate any manufacturing facilities and rely primarily on third
party foreign manufacturers in China, Brazil, Italy, Spain and
other countries for the production of our private label
merchandise. Our buying agents have relationships with these
manufacturers and generally have been successful in minimizing
the lead times for sourcing merchandise. These relationships
have allowed us to work very close to our expected delivery
dates. In addition, our test and react strategy supported by
these strong relationships with manufacturers allows our
merchandising and buying teams to test new styles and react
quickly to fashion trends, while keeping fast-moving inventory
in stock. For more information about risks associated with the
foreign sourcing of our products, you should refer to Risk
Factors Our merchandise is manufactured by foreign
manufacturers; therefore, the availability and costs of our
products may be negatively affected by risks associated with
international trade and Risk Factors Our
reliance on manufacturers in China exposes us to supply
risks.
We believe that this sourcing of footwear products and our short
lead times reduce our working capital investment and inventory
risk, and enables more efficient and timely introduction of new
product designs. We have not entered into any long-term
manufacturing or supply contracts. We believe that a sufficient
number of alternative sources exist for the manufacture of our
products. The principal materials used in the manufacture of our
footwear and accessory merchandise are available from numerous
domestic and international sources.
Management, or our agents, perform an array of quality control
inspection procedures at each stage in the production process,
including examination and testing of prototypes of key products
prior to manufacture, samples and materials prior to production
and final products prior to shipment.
Substantially all merchandise for our stores is initially
received, inspected, processed and distributed through one of
our two distribution centers, each of which is part of a
third-party warehousing system. Merchandise that is manufactured
in China is delivered to our west coast distribution center
located in Los Angeles, California and merchandise manufactured
elsewhere in the world is delivered to our east coast
distribution center located near Philadelphia, Pennsylvania. In
accordance with our micro-merchandising strategy, our allocation
teams determine how the product should be distributed among the
stores based on current inventory levels, sales trends, specific
product characteristics and the buyers input. Merchandise
typically is shipped to the stores as soon as possible after
receipt in our distribution centers using third party carriers,
and any goods not shipped to stores are shipped to our warehouse
facility in St. Louis, Missouri for replenishment purposes.
We also fulfill our Internet store and catalog sales from our
St. Louis facility.
Information
Systems and Technology
Our information systems integrate our individual stores,
merchandising, distribution and financial systems. Daily sales
and cash deposit information is electronically collected from
the stores point of sale terminals nightly. This allows
management to make timely decisions in response to market
conditions. These include decisions about pricing, markdowns,
reorders and inventory management.
Our allocation and replenishment system, in conjunction with our
point of sale system, allows us to execute our
micro-merchandising strategy through efficient management and
allocation of our store inventories. These systems allow us to
respond quickly to fashion trends, identify and reduce our
losses due to damage, theft or other reasons, and to monitor
employee productivity. Our micro-merchandising strategy requires
us to adapt the merchandise mix by location, with different
assortments depending on store level customer demographics. We
have the capability to constantly monitor inventory levels and
purchases by store, enabling us to manage our merchandise mix.
13
We believe that effective use of our systems allow us to manage
our exposure to markdowns. We believe that our systems
facilitate the process of controlling inventory commitments in
light of changes in consumer demand. We believe that our buyers
and inventory management team are able to efficiently adjust our
store inventory levels to effectively control excess inventory
and markdowns.
Marketing
and Advertising
Our marketing includes in-store, high-impact, visual
advertising. Marketing materials are positioned to exploit our
high visibility, high traffic mall locations. Banners in our
windows and signage on our walls and tables may highlight a
particular fashion story, a seasonal theme or a featured piece
of merchandise. We utilize promotional giveaways or promotional
event marketing.
Every three weeks, we provide the stores with specific
merchandise display directions from the corporate office. Our
in-store product presentation utilizes a variety of different
fixtures to highlight the breadth of our product line. Various
fashion themes are displayed throughout the store utilizing
combinations of styles and colors.
To cultivate brand loyalty, we offer our frequent buying card,
the B-Card. This program currently allows our
customers to purchase a B-Card for $25 and receive a 10%
discount on most purchases for a twelve month period. We believe
that this program strengthens customer loyalty.
We also market to customers who have provided us with their
e-mail
addresses via web-bursts,
e-mail
messages from Bakers announcing new product offerings and
promotions.
Competition
We believe that our Bakers stores have no direct national
competitors who specialize in full-service, moderate-priced
fashion footwear for young women. Yet, the footwear and
accessories retail industry is highly competitive and
characterized by low barriers to entry.
Competitive factors in our industry include: brand name
recognition; product styling; product quality; product
presentation; product pricing; store ambiance; customer service;
and convenience.
We believe that we match or surpass our competitors on the
competitive factors that matter most to our target customer. We
offer the convenience of being located in high-traffic,
high-visibility locations within the shopping malls in which our
customer prefers to shop. We have a focused strategy on our
target customer that offers her the fun store atmosphere, full
service and style that she desires.
Several types of competitors vie for our target customer:
|
|
|
|
|
department stores (such as Bloomingdales, Macys,
Dillards and Kohls);
|
|
|
|
national branded wholesalers (such as Nine West, Steve Madden
and Vans);
|
|
|
|
national branded off-price retailers (such as DSW, Rack Room and
Shoe Carnival);
|
|
|
|
national specialty retailers (such as Finish Line,
Journeys, Naturalizer and Aldos);
|
|
|
|
regional chains (such as Cathy Jean and Sheik);
|
|
|
|
discount stores (such as Wal-Mart, Target and K-Mart); and, to a
lesser extent,
|
|
|
|
apparel retailers (such as bebe, Charlotte Russe, Rampage and
Wet Seal).
|
Department stores generally are not located within the interior
of the mall where our target customer prefers to shop with her
friends. National branded wholesalers generally have a narrower
line of footwear with higher average price points and target a
more narrowly focused customer. Specialty retailers also cater
to a different demographic than our target customer. Regional
chains generally do not offer the depth of private label
merchandise that we offer. National branded off-price retailers
and discount stores do not provide the same level of fashion or
customer service. Apparel retailers, if they sell shoes or
accessories, generally offer a narrow line of styles, which can
encourage a customer to come to our store to purchase shoes or
accessories to complement her new outfit. Our competitors sell a
broad assortment of footwear and accessories that are similar
and sometimes identical to those we sell, and at times
14
may be able to provide comparable merchandise at lower prices.
While each of these different distribution channels may be able
to compete with us on fashion, value or service, we believe that
none of them can successfully match or surpass us on all three
of these elements.
Our Wild Pair stores compete on most of the same factors as
Bakers. However, due to Wild Pairs market position, it is
subject to more intense competition from national specialty
retailers and national branded wholesalers.
History
of Bakers Shoe Stores
The first Bakers shoe store opened in Atlanta, Georgia, in 1924.
Bakers grew to be one of the nations largest womens
moderately priced specialty fashion footwear retailers. At its
peak in 1988, Bakers had grown to approximately 600 stores. At
that time, it was one of several footwear, apparel and
entertainment retail specialty chains that were owned and
operated by Edison Brothers, which in 1995 had over 2,500 stores
in the United States, Puerto Rico, the Virgin Islands, Mexico
and Canada. Edison Brothers filed a petition for reorganization
under Chapter 11 of the United States Bankruptcy Code on
November 3, 1995. After an unsuccessful reorganization,
Edison Brothers refiled for bankruptcy on March 9, 1999,
and immediately commenced a liquidation of all its assets. In
June 1999, we purchased selected assets of the Bakers and Wild
Pair chains, approximately 200 store locations and inventory,
from Edison Brothers Stores, Inc. We retained the majority of
Bakers employees and key senior management, merchandise
buyers, store operating personnel and administrative support
personnel. Subsequently, we closed or re-merchandised our prior
stores into the Bakers or Wild Pair formats.
Employees
As of April 23, 2011, we employed approximately
545 full-time and 1,943 part-time employees with
approximately 158 of our employees at our corporate offices and
warehouse, and 2,230 employees at our store locations. The
number of part-time employees fluctuates depending on our
seasonal needs. None of our employees are represented by a labor
union, and we believe our relationship with our employees is
good.
Properties
All of our stores are located in the United States. We lease all
of our store locations. Most of our leases have an initial term
of approximately ten years. In addition to base rent, leases
typically require us to pay property taxes, utilities, repairs,
maintenance, common area maintenance and, in some instances,
merchant association fees. Some of our leases also require
contingent rent based on sales.
We lease approximately 38,000 square feet for our
headquarters, located at 2815 Scott Avenue, St. Louis,
Missouri 63103. The lease has approximately six years remaining.
We also lease an approximately 138,000 square foot
warehouse in St. Louis with a remaining lease term of
approximately five years.
Intellectual
Property and Proprietary Rights
We acquired the right and title to several trademarks in
connection with the Bakers acquisition, including our trademarks
Bakerstm
and Wild
Pair®.
In addition, we currently have several applications pending with
the United States Patent and Trademark Office for
additional registrations. For more information on our
trademarks, please see Risk Factors Our
ability to expand into some territorial and foreign
jurisdictions under the trademarks Bakers and
Wild Pair is restricted and Risk
Factors Our potential inability or failure to renew,
register or otherwise protect our trademarks could have a
negative impact on the value of our brand names.
Seasonality
Our business is highly seasonal. We have five principal selling
seasons: transition (post-holiday), Easter,
back-to-school,
fall and holiday. Our fourth quarter sales volume tends to be
significantly higher than our other quarters because our product
offering during the Holiday season tends to include our higher
price point merchandise such as boots and customer traffic tends
to be substantially higher during the Holiday season.
Consequently, we achieve our greatest leverage on fixed expenses
and can generate our highest profit margin levels during the
fourth
15
quarter. We have two of our five clearance sales during the
third quarter and, consequently, we achieve our least leverage
on fixed expenses and generate our lowest profit levels during
the third quarter. Our working capital requirements fluctuate
during the year, increasing prior to peak shopping seasons as we
increase inventory levels to meet anticipated peak demand. You
should also refer to Risk Factors Our overall
profitability is highly dependent upon our fourth quarter
results, Risk Factors Our operations
could be constrained by our ability to obtain funds under the
terms of our revolving credit facility and
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations
Seasonality and Quarterly Fluctuations.
Cautionary
Note Regarding Forward-Looking Statements and Risk
Factors
This Annual Report on
Form 10-K
includes, and our other periodic reports and public disclosures
may contain, forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 which
involve known and unknown risks and uncertainties or other
factors that may cause our actual results, performance or
achievements to be materially different from any future results,
performance or achievements expressed or implied by these
forward-looking statements. The words believes,
anticipates, plans, expects,
intends, estimates and similar
expressions are intended to identify forward-looking statements.
You should not place undue reliance on those statements, which
speak only as of the date on which they are made. We undertake
no obligation to update any forward-looking statements to
reflect events or circumstances arising after such dates. You
should read this
Form 10-K
completely and with the understanding that our actual results
may be materially different from what we expect. We qualify all
of our forward-looking statements by these cautionary statements.
These risks, uncertainties and other factors may cause our
actual results, performances or achievements to be materially
different from those expressed or implied by our forward-looking
statements:
|
|
|
|
|
our ability to identify and respond to changing consumer fashion
preferences;
|
|
|
|
our ability to comply with the covenants and restrictions under
our lending arrangements;
|
|
|
|
our susceptibility to operating losses;
|
|
|
|
our ability to maintain adequate liquidity to operate our
business as desired;
|
|
|
|
the accuracy of our estimates regarding our capital requirements
and needs for additional financing;
|
|
|
|
the limited trading of our common stock and our ability to
obtain financing;
|
|
|
|
our ability to retain members of our senior management team;
|
|
|
|
our expectations regarding future financial results or
performance;
|
|
|
|
the execution of our business strategy;
|
|
|
|
the effect of a substantial portion of our stock ownership being
concentrated among a relatively small number of shareholders;
|
|
|
|
any of our other plans, objectives, expectations and intentions
contained in this Annual Report on
Form 10-K
that are not historical facts; and
|
|
|
|
changes in general economic and business conditions.
|
Risk
Factors
Our
failure to identify and respond to changing consumer fashion
preferences in a timely manner would negatively impact our
sales, profitability, liquidity and our image as a fashion
resource for our customers.
The footwear industry is subject to rapidly changing consumer
fashion preferences. Our sales, net income and liquidity are
sensitive to these changing preferences, which can be rapid and
dramatic. Accordingly, we must identify and interpret fashion
trends and respond in a timely manner. We continually market new
styles of footwear, but demand for and market acceptances of
these new styles are uncertain. Our failure to anticipate,
identify or react appropriately to changes in consumer fashion
preferences may result in lower sales, higher markdowns to
reduce excess inventories, lower gross profits and negatively
impact our financial liquidity. Conversely, if we fail to
16
anticipate consumer demand for our products, we may experience
inventory shortages, which would result in lost sales and could
negatively impact our customer goodwill, our brand image and our
profitability. Moreover, our business relies on continuous
changes in fashion preferences. Stagnating consumer preferences
could also result in lower sales and would require us to take
higher markdowns to reduce excess inventories. For example, in
prior years our product offerings did not adequately reflect
changes in consumer fashion trends, primarily sandals in the
spring and for boots in the fall, which negatively impacted
sales and profitability. See Item 6. Selected
Financial Data.
If we
cannot maintain generally positive sales trends, we could fail
to maintain a liquidity position adequate to support our ongoing
operations.
Our ability to maintain and ultimately improve our liquidity
position is highly dependent on sustaining the positive sales
trends that began in June 2008 and have continued through April
2011. Our comparable store sales for the last three quarters of
fiscal year 2008 increased 4.7% and our comparable store sales
for fiscal years 2009 and 2010 increased 1.3% and 1.7%,
respectively. Through the first 12 weeks of fiscal year
2011 comparable stores sales increased 10.1%. Our comparable
store sales for fiscal year 2006 and fiscal year 2007 decreased
7.1% and 12.3%, respectively. Our net losses in recent years
have negatively impacted our liquidity and financial position.
As of January 29, 2011, we had negative working capital of
$8.7 million, unused borrowing capacity under our revolving
credit facility of $3.1 million, and a shareholders
deficit of $6.0 million. If positive sales trends do not
continue, or if we were to incur significant unplanned cash
outlays, it would become necessary for us to obtain additional
sources of liquidity, or take additional cost cutting measures.
Any future financing would be subject to our financial results,
market conditions and the consent of our lenders. We may not be
able to obtain additional financing or we may only be able to
obtain such financing on terms that are substantially dilutive
to our current shareholders and that may further restrict our
business activities. If we cannot obtain needed financing, our
operations may be materially negatively impacted and we may be
forced into bankruptcy or to cease operations and you could lose
your investment in the Company.
The
terms of our revolving credit facility contain certain financial
covenants with respect to our performance and other covenants
that restrict our activities. If we are unable to comply with
these covenants, we would have to negotiate an amendment to the
loan agreement or the lender could accelerate the repayment of
our indebtedness.
Our revolving credit facility contains a financial covenant that
requires us to maintain a minimum ratio of adjusted EBITDA to
interest expense (both as defined in the agreement) calculated
monthly on a rolling twelve month basis and includes other
financial and customary covenants which, among other things
require us to maintain a minimum availability, restrict our
business activities and our ability to incur debt, make
acquisitions, pay dividends, and repurchase our stock. A change
in control of our Company, including any person or group
acquiring beneficial ownership of 40% or more of our common
stock or our combined voting power (as defined in the credit
facility), is also prohibited. We are also required to extend
the maturity of our subordinated convertible debentures to a
date beyond the maturity of the revolving credit facility. We
may also meet the minimum adjusted EBITDA covenant by
maintaining unused availability greater than 20% on a daily
basis, instead of maintaining the ratio of our adjusted EBITDA
to our interest expense of no less than 1.0:1.0. We failed to
meet the covenant in June and July of 2010, which violation was
waived by the bank. There is no assurance that we can obtain any
further required waivers.
There is no assurance that we will be able to comply with our
covenants. In light of our historical sales volatility and the
current state of the economy, we believe that there is a
reasonable possibility that we may not be able to comply with
our minimum adjusted EBITDA interest coverage ratio covenant. In
the event that we were to violate any of the covenants in our
credit facility, or if other indebtedness in excess of
$1.0 million could be accelerated, or in the event that 10%
or more of our leases could be terminated (other than solely as
a result of certain sales of our common stock), the lender would
have the right to accelerate repayment of all amounts
outstanding under the credit agreement, or to commence
foreclosure proceedings on our assets. Any acceleration in the
repayment of our indebtedness or related foreclosure could
adversely affect our business.
For more information about our credit facility, please see
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations
Financing Activities.
17
Our
operations could be constrained by our ability to obtain funds
under the terms of our revolving credit facility.
Our business is seasonal, with a substantial portion of our
profitability and cash flow occurring during our fourth quarter.
We rely on draws from our revolving credit facility to fund
seasonal working capital requirements during our year. Draws on
our credit facility are limited by both an overall limit of
$30 million and also by a calculated borrowing base that
varies according to a formula based on inventory and accounts
receivable and is generally less than the $30 million
overall limit. As of January 29, 2011, we had an
outstanding balance on our credit facility of $10.4 million
and unused borrowing capacity, calculated in accordance with the
agreement, of $3.1 million. As of April 23, 2011, we
had an outstanding balance of $15.4 million and unused
borrowing capacity of $1.2 million. To the extent we were
to fail to generate sufficient cash from operating activities or
from other financing activities, we could encounter availability
constraints related to our operating activities. See
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations
Financing Activities.
The
report issued by our independent registered public accounting
firm on our fiscal year 2010 financial statements contains
language expressing substantial doubt about our ability to
continue as a going concern.
The report of our independent registered public accounting firm
for the fiscal year ended January 29, 2011, states that our
recent losses and working capital deficiency raise substantial
doubt about our ability to continue as a going concern. Our
financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset and
liability amounts that might be necessary if we cease to
function as a going concern. See Note 2 to our financial
statements. This audit report could adversely affect our
relationships with our landlords, our suppliers, our ability to
raise additional capital and to execute our business plan, and
could have a material adverse effect on our business, financial
condition and results of operations. Moreover, if we cease to
function as a going concern you may lose your investment in the
Company.
The
departure of members of our senior management team could
adversely affect our business.
The success of our business depends upon our senior management
closely supervising all aspects of our business, in particular,
the operation of our stores and the design, procurement and
allocation of our merchandise. Retention of senior management is
especially important in our business due to the limited
availability of experienced and talented retail executives. If
we were to lose the services of Peter Edison, our Chairman,
Chief Executive Officer and President, or other members of our
senior management, our business could be adversely affected if
we were unable to employ a suitable replacement in a timely
manner. In addition, if Peter Edison ceases to be the
Companys Chief Executive Officer for any reason, we would
be required to offer to redeem our $5 million debenture due
2020 at 101% of the outstanding principal amount. Moreover,
Steven Madden Ltd. currently holds approximately 19.99% of the
companys common stock subject to a voting agreement which
requires the shares to be voted in the same manner as Peter
Edison. If Peter Edison ceases to be CEO, the voting agreement
terminates and the two year restrictions on transferability of
the shares and the debenture terminate.
A
decline in general economic conditions could lead to reduced
consumer demand for our footwear and accessories and could lead
to reduced sales.
In addition to consumer fashion preferences, consumer spending
habits are affected by, among other things, prevailing economic
conditions, levels of employment, salaries and wage rates, gas
prices, consumer confidence and consumer perception of economic
conditions. The current slowdown in the United States economy
and uncertain economic outlook could adversely affect consumer
spending habits, which would likely result in lower net sales
than expected on a quarterly or annual basis.
Our
overall profitability is highly dependent upon our fourth
quarter results.
Our fourth quarter sales volume tends to be significantly higher
than our other quarters because our product offering during the
Holiday season tends to include our higher price point
merchandise such as boots and customer traffic tends to be
substantially higher during the Holiday season. Consequently, we
achieve our greatest leverage on
18
fixed expenses and generate our highest profit levels during the
fourth quarter. Should our product offerings not meet with
customer acceptance during the fourth quarter, it would have a
substantial negative impact on the overall results for the year.
Our
operations are subject to quarterly fluctuations that can impact
our profitability and liquidity.
In addition to customer shopping patterns, our quarterly results
are affected by a variety of other factors, including:
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fashion trends;
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the effectiveness of our inventory management;
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changes in our merchandise mix;
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weather conditions;
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changes in general economic conditions; and
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actions of competitors, mall anchor stores or co-tenants.
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Due to factors such as these, our quarterly results of
operations have fluctuated in the past and can be expected to
continue to fluctuate in the future. For more information,
please see Item 7. Managements Discussion and
Analysis of Financial Condition and Results of
Operations Seasonality and Quarterly
Fluctuations.
We are
subject to risks associated with leasing our stores, including
those stores where we acquired the lease through bankruptcy
auctions.
We lease our store locations under individual leases.
Approximately one-half of our stores are located in properties
managed by two national property management companies. A number
of our leases include termination and default provisions which
apply if we do not meet certain sales levels, specified dilution
in or changes of ownership of our Company occur, or in other
circumstances. In addition, our leases subject us to risks
relating to compliance with changing mall rules and the exercise
of discretion by our landlords on various matters. Moreover,
each year a significant portion of our leases are subject to
renewal or termination. If one or more of our landlords decides
to terminate our leases, or to not allow us to renew, our
business could be materially and adversely affected. We
initially acquired many of our current leases from Edison
Brothers, as
debtor-in-possession,
or from other bankrupt entities through auctions in which a
bankruptcy court ordered the assignment of the debtors
interest in the leases to us. As a result, we have not
separately negotiated many of our leases, which are generally
drafted in favor of the landlord.
Our
market share may be adversely impacted at any time by a
significant number of competitors.
We operate in a highly competitive environment characterized by
low barriers to entry. We compete against a diverse group of
competitors, including national branded wholesalers, national
specialty retailers, regional chains, national branded off-price
retailers, traditional department stores, discounters and
apparel retailers. Many of our competitors are larger and have
substantially greater resources than we do. Our market share and
results of operations could be adversely impacted by this
significant number of competitors or the introduction of new
competitors. For more information about our competition, please
see Business Competition.
We
were recently delisted from the Nasdaq Stock Market. Our common
stock is not quoted on a national exchange, and there is
relatively limited trading in our common stock, which limits the
ability of our shareholders or potential shareholders to
purchase or sell shares of our common stock and limits our
ability to obtain financing.
We were recently delisted from the Nasdaq Stock Market. As a
result, our common stock is not quoted on a national exchange
and is currently quoted on the OTC Bulletin Board. There is
no assurance that our common stock will ever be listed again on
a national securities exchange. As compared to securities quoted
on a national exchange, selling our common stock could be more
difficult because smaller quantities of shares are likely be
bought and sold,
19
transactions could be delayed, security analysts coverage
of us may be reduced, and our common stock may trade at a lower
market price than it otherwise would. In addition,
broker-dealers have certain regulatory burdens imposed upon
them, which may discourage broker-dealers from effecting
transactions in our common stock, further limiting the liquidity
of our common stock. We believe market makers will continue to
quote our common stock on the OTC Bulletin Board, but this
is out of our direct control and we can give no assurance that
our stock will remain so quoted. Also, our shareholders do not
have the benefit of restrictions on dilution and other rules
imposed by national exchanges, and we may engage in potentially
dilutive transactions without complying with shareholder
approval rules imposed by national exchanges. The trading volume
of our common stock is relatively limited, which we expect to
continue. These factors could have a material adverse effect on
the trading price, liquidity, volatility, value and
marketability of our common stock and could have a material
adverse effect on our ability to obtain adequate capital or
financing for the continuation of our operations.
Our
failure to maintain good relationships with our manufacturers
could harm our ability to procure quality inventory in a timely
manner.
Our ability to obtain attractive pricing, quick response,
ordering flexibility and other terms from our manufacturers
depends on their perception of us and our buying agents. We do
not own any production facilities or have any long term
contracts with any manufacturers, and we typically order our
inventory through purchase orders. Any disruption in our supply
chain could quickly impact our sales. Our failure or the failure
of our buying agents to maintain good relationships with these
manufacturers could increase our exposure to changing fashion
cycles, which may lead to increased inventory markdown rates. It
is possible that we could be unable to acquire sufficient
quantities or an appropriate mix of merchandise or raw materials
at acceptable prices. Furthermore, we have received in the past,
and may receive in the future, shipments of products from
manufacturers that fail to conform to our quality control
standards. In this event, unless we are able to obtain
replacement products in a timely manner, we may lose sales. We
are also subject to risks related to the availability and use of
materials and manufacturing processes for our products,
including those which some may find objectionable.
We
rely on a small number of buying agents and private label
vendors for a substantial portion our merchandise purchases, and
our failure to maintain good relationships with any of them
could harm our ability to source our products.
For fiscal year 2010, five buying agents/private label vendors
accounted for approximately 50% of our merchandise purchases,
with one private label vendor accounting for approximately 17%
of our merchandise purchases. Our buying agents and private
label vendors assist in developing our private label
merchandise, arrange for the purchase of necessary materials and
contract with manufacturers. We execute nonexclusive agreements
with some of our buying agents. These agreements prohibit our
buying agents from sharing commissions with manufacturers,
owning stock or holding any ownership interest in, or being
owned in any way by, any of our manufacturers or suppliers. The
agreements do not prohibit our buying agents from acting as
agents for other purchasers, which could negatively impact our
sales. If they were to disclose our plans or designs to our
competitors, our sales may be materially adversely impacted. The
loss of any of these key buying agents or a breach by them of
our buying agent agreements could adversely affect our ability
to develop or obtain merchandise.
Our
merchandise is manufactured by foreign manufacturers; therefore,
the availability and costs of our products may be negatively
affected by risks associated with international
trade.
Although all of our stores are located in the United States,
virtually all of our merchandise is produced in China, Brazil,
Italy, Spain and other foreign countries. Therefore, we are
subject to the risks associated with international trade, which
include:
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adverse fluctuations in currency exchange rates;
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changes in import tariffs, duties or quotas;
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the imposition of taxes or other charges on imports;
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20
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the imposition of restrictive trade policies or sanctions by the
United States on one or more of the countries from which we
obtain footwear and accessories;
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expropriation or nationalization;
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compliance with and changes in import restrictions and
regulations;
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exposure to different legal standards and the burden of
complying with a variety of foreign laws and changing foreign
government policies;
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international hostilities, war or terrorism and pirates;
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changes in foreign governments, regulations, political unrest,
work stoppages, shipment disruption or delays; and
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changes in economic conditions in countries in which our
manufacturers and suppliers are located.
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Our imported products are subject to United States customs
duties, which make up a material portion of the cost of the
merchandise. If customs duties are substantially increased, it
would harm our profitability. The United States and the
countries in which our products are produced may impose new
quotas, duties, tariffs, or other restrictions, or adversely
adjust prevailing quota, duty, or tariff levels, any of which
could have a harmful effect on our profitability.
Furthermore, when declaring the duties owed on and the
classifications of our imported products, we make various good
faith assumptions. We regularly employ a third party to review
our customs declarations, and we will notify the appropriate
authorities if any erroneous declarations are revealed. However,
the customs authorities retain the right to audit our
declarations, which could result in additional tariffs, duties
and/or
penalties if the authorities believe that they have discovered
any errors.
A
decline in the value of the United States dollar relative to
other currencies, especially the Chinese yuan could negatively
impact our gross margins.
The value of the United States dollar has declined relative to
the Chinese yuan since our initial public offering in 2004.
Although our inventory purchase transactions are denominated in
United States dollars which eliminates exchange rate risks on
established contracts, the decline in the value of the United
States dollar has resulted in increases in the costs of our
Chinese sourced products. In the event of a further decline in
the United States dollar or economy, it may not be possible for
us to increase or maintain an increase in our average selling
prices sufficient to fully or partially reflect these cost
increases. To the extent that we are unable to offset such cost
increases there would be a negative impact on our gross margins.
Our
reliance on manufacturers in China exposes us to supply
risks.
Manufacturing facilities in China produce a significant portion
of our products. Generally, a substantial majority of our
private label footwear units are manufactured in China and
virtually all of our private label accessories are manufactured
in China each year. The Chinese economy is subject to periodic
energy and labor shortages, as well as transportation and
shipping bottlenecks. In prior years, there have been delays at
ports on the West Coast of the United States. These matters,
changes in the Chinese government or economy, or the current
tariff or duty structures or adoption by the United States of
trade policies or sanctions adverse to China, could harm our
ability to obtain inventory in a timely and cost effective
manner.
Our
ability to expand into some territorial and foreign
jurisdictions under the trademarks Bakers and
Wild Pair is restricted.
When we acquired selected assets of the Bakers and Wild Pair
chains from Edison Brothers Stores, Inc. in a bankruptcy auction
in June 1999, we were assigned title to and the right to use the
trademarks Bakers, The Wild Pair,
Wild Pair and other trademarks to the extent owned
by Edison Brothers at that time. Our rights to use the
trademarks are subject to a Concurrent Use Agreement which
recognizes the geographical division of the trademarks between
us and a Puerto Rican company. At approximately the same time as
we acquired our rights
21
and title, Edison Brothers also assigned to the Puerto Rican
company title to and the right to use the trademarks, subject to
the Concurrent Use Agreement. Under the Concurrent Use
Agreement, we and the Puerto Rican company agree that the Puerto
Rican company has the exclusive right to use the trademarks in
the Commonwealth of Puerto Rico, the U.S. Virgin Islands,
Central and South America, Cuba, the Dominican Republic, the
Bahamas, the Lesser Antilles and Jamaica and that we have the
exclusive right to use the trademarks in the United States and
throughout the world, except for the territories and
jurisdictions in which the Puerto Rican company was assigned the
rights. Consequently, we do not have the right to use the
trademarks Bakers and Wild Pair in those
territories and foreign jurisdictions in which the Puerto Rican
company owns the trademark rights, which may limit our growth.
Our
potential inability or failure to renew, register or otherwise
protect our trademarks could have a negative impact on the value
of our brand names.
Because the trademarks assigned to us by Edison Brothers are
subject to the Concurrent Use Agreement, the U.S. trademark
applications and registrations are jointly owned by us and a
Puerto Rican company, which could impair our ability to renew
and enforce the assigned applications and registrations.
Simultaneously with the Puerto Rican company, we have filed
separate concurrent use applications for the Bakers
and Wild Pair trademarks, and we have requested that
existing applications for the trademark Bakers also
be divided territorially. While we are in agreement with the
Puerto Rican company that confusion is not likely to result from
concurrent use of the trademarks in our respective territories,
the United States Patent and Trademark Office may not agree with
our position. If we are not able to register or renew our
trademark registrations, our ability to prevent others from
using trademarks and to capitalize on the value of our brand
names may be impaired. Further, our rights in the trademarks
could be subject to security interests granted by the Puerto
Rican company. Our potential inability or failure to renew,
register or otherwise protect our trademarks and other
intellectual property rights could negatively impact the value
of our brand names.
We
would be adversely affected if our distribution operations were
disrupted.
The efficient operation of our stores is dependent on our
ability to distribute merchandise manufactured overseas to
locations throughout the United States in a timely manner. We
depend on third parties to ship, receive and distribute
substantially all of our merchandise. A third party operating in
China manages the shipping of merchandise from China either to a
third party operating our Los Angeles, California distribution
center or for delivery directly to our stores through Los
Angeles. The third party in Los Angeles, California accepts
delivery of a significant portion of our merchandise from Asia,
and another third party near Philadelphia, Pennsylvania accepts
delivery of our merchandise from elsewhere. These parties
located in the United States have provided these services to us
pursuant to written agreements since 1999 and 2000. One of these
agreements is terminable upon 30 days notice. We also
continue to operate under the terms of an expired agreement with
the remaining third party. Merchandise not shipped to our stores
is shipped to our company operated warehouse. We also rely on
our computer network to coordinate the distribution of our
products. If we need to replace one of our third party service
providers, if our warehouse or computer network is shut down for
any reason or does not operate efficiently, our operations could
be disrupted for a substantial period of time while we identify
and integrate a replacement into our system. Any such disruption
could materially negatively impact our ability to maintain
sufficient inventory in our stores and consequently our
profitability.
The
market price of our common stock may be materially adversely
affected by market volatility.
The market price of our common stock is expected to be highly
volatile, both because of actual and perceived changes in our
financial results and prospects and because of general
volatility in the stock market. The factors that could cause
fluctuations in our stock price may include, among other factors
discussed in this section, the following:
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actual or anticipated variations in comparable store sales or
operating results;
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changes in financial estimates by research analysts;
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actual or anticipated changes in the United States economy or
the retailing environment;
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changes in the market valuations of other footwear or retail
companies; and
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22
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announcements by us or our competitors of significant
acquisitions, strategic partnerships, divestitures, joint
ventures, financing transactions, securities offerings or other
strategic initiatives.
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We are
controlled by a small group of shareholders whose interests may
differ from other shareholders.
A substantial portion of our stock ownership is concentrated
among a relatively small number of mutual funds and hedge funds
whose interests may differ from our other shareholders or could
impact our company including any potential change of control.
Accordingly, these shareholders will continue to have
significant influence in determining the outcome of all matters
submitted to shareholders for approval, including the election
of directors and significant corporate transactions. The
interests of these shareholders may differ from the interests of
other shareholders, and their concentration of ownership may
have the effect of delaying or preventing a change in control
that may be favored by other shareholders. As long as these
people are among our principal shareholders, they will have the
power to significantly influence the election of our entire
board of directors.
Peter Edisons employment agreement entitles him to a one
time payment equal to three times his current base salary (as
defined in the agreement) upon the occurrence of certain events,
including following a change of control of the Company if there
is generally a material reduction in the nature of his duties or
his base salary, or he is not allowed to participate in certain
bonus plans. For this purpose, a change of control generally
includes the acquisition by a person or group of more of our
common stock than that held by Peter Edison. More than one of
our shareholders has filed a Schedule 13D or G reporting
beneficial ownership in an amount in excess of that beneficially
owned by Peter Edison and our current management.
The
public sale of our common stock by selling shareholders could
adversely affect the price of our common stock.
The market price of our common stock could decline as a result
of market sales by our shareholders or the perception that these
sales will occur. These sales also might make it difficult for
us to sell equity securities in the future at a time and at a
price that we deem appropriate.
There
is relatively limited trading in our common stock.
The trading volume of our common stock is relatively limited,
which we expect to continue. Therefore, our stock may be subject
to higher volatility or illiquidity than would exist if our
shares were traded more actively.
Our
charter documents and Missouri law may inhibit a takeover, which
may cause a decline in the value of our stock.
Provisions of our restated articles of incorporation, our
restated bylaws and Missouri law could make it more difficult
for a third party to acquire us, even if closing the transaction
would be beneficial to our shareholders. For example, our
restated articles of incorporation provide, in part, that
directors may be removed from office by our shareholders only
for cause and by the affirmative vote of not less than
two-thirds of our outstanding shares and that vacancies may be
filled only by a majority of remaining directors. Under our
restated bylaws, shareholders must follow detailed notice and
other requirements to nominate a candidate for director or to
make shareholder proposals. In addition, among other
requirements, our restated bylaws require at least a two-thirds
vote of shareholders to call a special meeting. Moreover,
Missouri law and our bylaws provide that any action by written
consent must be unanimous. Furthermore, our bylaws may be
amended only by our board of directors. Certain amendments to
our articles of incorporation require the vote of two-thirds of
our outstanding shares in certain circumstances, including the
provisions of our articles of incorporation relating to business
combinations, directors, bylaws, limitations on director
liabilities and amendments to our articles of incorporation. We
are also generally subject to the business combination
provisions under Missouri law, which allow our board of
directors to retain discretion over the approval of certain
business combinations. In our bylaws, we have elected to not be
subject to the control shares acquisition provision under
Missouri law, which would deny an acquiror voting rights with
respect to any shares of voting stock which increase its equity
ownership to more than specified thresholds. These and other
provisions of Missouri law and our articles of incorporation and
bylaws, our boards authority to issue preferred stock and
the lack of cumulative voting in our articles of incorporation
may have the effect of making it more difficult for shareholders
23
to change the composition of our board or otherwise to bring a
matter before shareholders without our boards consent.
Such items may reduce our vulnerability to an unsolicited
takeover proposal and may have the effect of delaying, deferring
or preventing a change in control, may discourage bids for our
common stock at a premium over its market price and may
adversely affect the market price of our common stock.
Executive
Officers of the Registrant
The information set forth herein under the caption
Item 10. Directors, Executive Officers and Corporate
Governance Executive Officers of the
Registrant is incorporated herein by reference.
Information set forth in Item 1 of this report under
Item 1. Business Cautionary Note
Regarding Forward-Looking Statements and Risk Factors and
under Item 1. Business Risk Factors
is incorporated herein by this reference.
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Item 1B.
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Unresolved
Staff Comments.
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None.
Information relating to properties set forth in Item 1 of
this report under Item 1. Business
Stores is incorporated herein by this
reference. Information relating to properties set forth in
Item 1 of this report under Item 1.
Business Properties is incorporated herein by
this reference. All of our stores are located in the
United States.
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Item 3.
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Legal
Proceedings.
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From time to time, the Company is involved in ordinary routine
litigation common to companies engaged in the Companys
line of business. Currently, the Company is not involved in any
material pending legal proceedings.
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Item 4.
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[Removed
and Reserved]
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PART II
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Item 5.
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Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
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Market
Information and Holders
The common stock of Bakers Footwear Group, Inc. has been quoted
on the OTC Bulletin Board, which is not a national
securities exchange, under the symbol BKRS.OB since
June 18, 2010. Prior to that the common stock was quoted on
the Nasdaq Capital Market under the symbol BKRS
since September 2009 and on the Nasdaq Global Market from
February 5, 2004 to September 2009. Prior to this time,
there was no public market for the Companys common stock.
The closing sales price of Bakers Footwear Group, Inc.s
common stock on the OTC Bulletin Board was $1.05 per share
on April 21, 2011. As of April 21, 2011, we estimate
that there were approximately 36 holders of record and
approximately 1,100 beneficial owners of the Companys
common stock. Please see Item 1. Business
Risk Factors We were recently delisted
from the Nasdaq Stock Market. Our common stock is not quoted on
a national exchange, and there is relatively limited trading in
our common stock, which limits the ability of our shareholders
or potential shareholders to purchase or sell shares of our
common stock and limits our ability to obtain financing.
The following table summarizes the range of high and low sales
prices on Nasdaq and the high and low prices on the OTC
Bulletin Board for the Companys common stock during
fiscal years 2009 and 2010, as applicable. The
24
quotations on the OTC Bulleting Board may reflect inter-dealer
prices, without retail
mark-up,
markdown or commission, and may not necessarily represent actual
transactions.
The following table summarizes the range of high and low sales
prices for the Companys common stock during fiscal years
2009 and 2010.
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High
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Low
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2009
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First quarter (ended May 2, 2009)
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$
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1.47
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$
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0.17
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Second quarter (ended August 1, 2009)
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1.20
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0.63
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Third quarter (ended October 31, 2009)
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0.98
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0.68
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Fourth quarter (ended January 30, 2010)
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1.75
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0.55
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2010
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First quarter (ended May 1, 2010)
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$
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3.55
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$
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0.95
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Second quarter (ended July 31, 2010)
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2.80
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0.55
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Third quarter (ended October 30, 2010)
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1.10
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0.55
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Fourth quarter (ended January 29, 2011)
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1.49
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0.80
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Dividends
We have declared no dividends subsequent to our initial public
offering in 2004. We currently intend to retain our earnings, if
any, for use in our business and do not anticipate paying any
cash dividends in the foreseeable future. Any future payments of
dividends will be at the discretion of our board of directors
and will depend upon factors as the board of directors deems
relevant. Our revolving credit facility and subordinated secured
term loan generally prohibit the payment of dividends, except
for common stock dividends. We give no assurance that we will
pay or not pay dividends in the foreseeable future.
Recent
Sales of Unregistered Securities
None.
Securities
Authorized for Issuance Under Equity Compensation
Plans
The information with respect to Equity Compensation Plan
Information in Item 12 hereof is incorporated herein
by reference.
Purchases
of Equity Securities by the Issuer and Affiliated
Purchasers
During fiscal year 2010, the Company did not repurchase any
Company securities.
25
|
|
Item 6.
|
Selected
Financial Data.
|
The following table summarizes certain selected financial data
for each of the five fiscal years in the period ended
January 29, 2011 and have been derived from our audited
financial statements. Our audited financial statements for the
three fiscal years ended January 29, 2011 are included
elsewhere in this Annual Report on
Form 10-K.
The information contained in these tables should be read in
conjunction with our financial statements and the Notes thereto
and Managements Discussion and Analysis of Financial
Condition and Results of Operations appearing elsewhere in
this Annual Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended(1)
|
|
|
|
|
|
|
February 2,
|
|
|
January 31,
|
|
|
|
|
|
January 29,
|
|
|
|
February 3,
|
|
|
2008
|
|
|
2009
|
|
|
January 30,
|
|
|
2011
|
|
|
|
2007(2)
|
|
|
(3)(4)(5)(6)
|
|
|
(5)(7)(8)
|
|
|
2010(5)(8)
|
|
|
(5)(8)(9)
|
|
|
Net sales
|
|
$
|
204,753,062
|
|
|
$
|
186,279,987
|
|
|
$
|
183,661,789
|
|
|
$
|
185,368,696
|
|
|
$
|
185,625,844
|
|
Gross profit
|
|
|
62,202,028
|
|
|
|
47,461,122
|
|
|
|
50,551,662
|
|
|
|
53,368,600
|
|
|
|
49,571,907
|
|
Loss before income taxes
|
|
|
(2,452,971
|
)
|
|
|
(16,965,898
|
)
|
|
|
(14,910,754
|
)
|
|
|
(9,082,096
|
)
|
|
|
(9,479,199
|
)
|
Provision for (benefit from) income taxes(6)
|
|
|
(909,860
|
)
|
|
|
691,367
|
|
|
|
84,847
|
|
|
|
|
|
|
|
(187,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,543,111
|
)
|
|
$
|
(17,657,265
|
)
|
|
$
|
(14,995,601
|
)
|
|
$
|
(9,082,096
|
)
|
|
$
|
(9,291,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share
|
|
$
|
(0.24
|
)
|
|
$
|
(2.70
|
)
|
|
$
|
(2.13
|
)
|
|
$
|
(1.24
|
)
|
|
$
|
(1.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
83,158,859
|
|
|
$
|
67,558,951
|
|
|
$
|
58,508,192
|
|
|
$
|
48,618,467
|
|
|
$
|
48,005,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital lease obligations, less current
portion
|
|
$
|
57,863
|
|
|
$
|
4,000,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,123,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Because of the changes in the number of stores for each period,
our operating results for each period and future periods may not
be comparable in some significant respects. See
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations for a
reconciliation and discussion of certain store openings and
closings by period. We currently have no plans to pay dividends.
See the information under the caption Item 5. Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Dividends, which is incorporated herein by reference. |
|
(2) |
|
We base our fiscal year on a 52/53 week period. The fiscal
year ended February 3, 2007 was a 53-week period. For more
information regarding our fiscal year, please see
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations Fiscal
Year. |
|
(3) |
|
During fiscal year 2007, we completed a private placement of
$4,000,000 in aggregate principal amount of subordinated
convertible debentures. we received net proceeds of $3,578,752. |
|
(4) |
|
During fiscal year 2007, we entered into an agreement to
terminate a long-term below market operating lease, in exchange
for an immediate $5,050,000 cash payment and the right to
continue occupying the space through January 8, 2009. We
recognized a net gain of $4,700,000 from this transaction in
fiscal year 2007. |
|
(5) |
|
During fiscal years 2007, 2008, 2009 and 2010, we recognized
$3,131,169, $2,609,589, $2,762,273 and $1,415,979, respectively,
in noncash charges related to the impairment of long-lived
assets of underperforming stores. |
|
(6) |
|
During fiscal year 2007, our pretax losses exceeded our
operating loss carryback potential. Therefore, we concluded that
the realizability of net deferred tax assets was no longer more
likely than not, and established a valuation allowance against
its net deferred tax assets. As of February 2, 2008, the
valuation allowance was $7,186,389, resulting in a net provision
for income tax expense of $691,367 for fiscal year 2007. As of
January 31, 2009, January 30, 2010 and
January 29, 2011, the valuation allowance had increased to
$12,896,006, $16,363,420 and $19,742,497, respectively. |
|
(7) |
|
During fiscal year 2008, we obtained net proceeds of
$6.7 million from the entry into a $7.5 million
subordinated secured term loan and the issuance of
350,000 shares of common stock. |
|
(8) |
|
In fiscal years 2008 and 2009, the entire balance of the
subordinated secured term loan and the subordinated convertible
debentures was classified as a current liability because of our
potential inability to comply with |
26
|
|
|
|
|
certain financial covenants contained in the subordinated
secured term loan. With the repayment of the subordinated
secured term loan at the end of fiscal year 2010, the
classification of the subordinated convertible debentures has
been returned to non-current liabilities. |
|
(9) |
|
In fiscal year 2010 we obtained net proceeds of
$4.5 million from the entry into a $5 million
subordinated debenture and the issuance of 1,844,860 shares
of common stock. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
The following Managements Discussion and Analysis of
Financial Condition and Results of Operations contains
forward-looking statements that involve risks and uncertainties.
Our actual results may differ materially from the results
discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those
discussed in Item 1. Business Cautionary
Note Regarding Forward-Looking Statements and Risk Factors
and Item 1. Business Risk Factors
and elsewhere in this annual report. The following section is
qualified in its entirety by this more detailed information and
our Financial Statements and the related Notes thereto, included
elsewhere in this Annual Report on
Form 10-K.
Overview
We are a national, mall-based, specialty retailer of distinctive
footwear and accessories targeting young women who demand
quality fashion products. We feature private label and national
brand dress, casual and sport shoes, boots, sandals and
accessories. As of January 29, 2011, we operated 232
stores, including the 16 store Wild Pair chain that targets
women between the ages of 17 and 29 who desire edgier, fashion
forward footwear. As of April 23, 2011 we operated 231
stores, including 16 Wild Pair stores.
During fiscal 2010, our net sales increased 0.1% compared to the
prior year, reflecting strong demand for dress shoes and casual
boots in the fall months, partially offset by weakness in demand
for our sandal line in spring and summer. Comparable store sales
in fiscal 2010 increased 1.7%. Gross profit percentage decreased
to 26.7% of sales compared to 28.8% in the prior year,
reflecting increased costs related to the launch of H by Halston
and increased promotional activity. We ended the year with
inventory up 28.1% from a year ago in connection with increased
in-transit Spring inventory. We recognized noncash impairment
expense of $1.4 million compared to $2.8 million last
year.
In the fall of fiscal year 2010, we launched our exclusive H by
Halston brand in all of our Bakers stores. We were pleased with
our customers initial response, with sales in excess of
$6.0 million. In February 2011, we introduced our exclusive
Wild Pair line in our Bakers stores. In fiscal year 2010, we
generally sold our Wild Pair brand in our Wild Pair stores and
such sales were approximately $9.5 million. During fiscal
year 2011, we expect significant sales of both our H by Halston
and our Wild Pair brands. In our business plan for fiscal year
2011 discussed below, we anticipate that our H by Halston sales
in fiscal year 2011 will be in the range of $20.0 million
to $30.0 million and our Wild Pair sales will be in the
range of $15.0 to $25.0 million. Such sales are expected to
be partially incremental to existing sales. Moreover, as these
represent new product launches, our sales estimates are subject
to considerable variability.
We incurred net losses of $9.3 million and
$9.1 million in fiscal years 2010 and 2009, We achieved
increases in comparable store sales of 1.7% and 1.3% in fiscal
years 2010 and 2009, respectively. Fiscal year 2010 marked our
third consecutive year of comparable store sales increases. Our
losses since 2005 have had a significant negative impact on our
financial position and liquidity. As of January 29, 2011,
we had negative working capital of $8.7 million, unused
borrowing capacity under our revolving credit facility of
$3.1 million, and shareholders deficit of
$6.0 million.
Our business plan for fiscal year 2011 is based on mid-single
digit increases in comparable store sales. Through
April 23, 2011, comparable store sales have increased
10.1%. Based on our business plan, we expect to maintain
adequate liquidity for the remainder of fiscal year 2011. The
business plan reflects continued focus on inventory management
and on timely promotional activity. We believe that this focus
on inventory should improve overall gross margin performance
compared to fiscal year 2010. The plan also includes targeted
increases in selling, general and administrative expenses to
support the sales plan. We continue to work with our landlords
and vendors to arrange payment terms that are reflective of our
seasonal cash flow patterns in order to manage availability. The
27
business plan for fiscal year 2011 reflects continued
improvement in cash flow, but does not indicate a return to
profitability. However, there is no assurance that we will
achieve the sales, margin or cash flow contemplated in our
business plan.
Debt
Agreements
On May 28, 2010, we amended our revolving credit facility.
The amendment extended the maturity of the credit facility to
May 28, 2013, modified the calculation of the borrowing
base, added a new minimum availability or adjusted EBITDA
interest coverage ratio covenant, added an obligation for us to
extend the maturity of our subordinated convertible debentures,
and made other changes to the agreement. We incurred fees and
expenses of approximately $250,000 in connection with this
amendment. The minimum availability or adjusted EBITDA interest
coverage ratio covenant requires that either we maintain unused
availability greater than 20% of the calculated borrowing base
or maintain the ratio of our adjusted EBITDA to our interest
expense (both as defined in the amendment) of no less than
1.0:1.0. The minimum availability covenant is tested daily and,
if not met, then the adjusted EBITDA covenant is tested on a
rolling twelve month basis. The adjusted EBITDA calculation is
substantially similar to the calculation used previously in our
subordinated secured term loan. We did not meet these covenants
for the months of June and July 2010; however, this covenant
violation was waived by the bank in connection with the August
2010 debt and equity issuance discussed below. During the third
quarter and fourth quarter of fiscal year 2010, we met the bank
covenant based on maintaining unused availability greater than
20% on a daily basis. Our business plan for 2011 also
anticipates meeting the bank covenant on this basis. We continue
to closely monitor our availability and continue to be
constrained by our limited unused borrowing capacity. As of
April 23, 2011, the balance on our revolving line of credit
was 15.4 million and our unused borrowing capacity in
excess of the covenant minimum was $1.2 million.
On August 26, 2010, we issued debt and equity to Steven
Madden, Ltd., as investor. In connection with that arrangement,
we sold to the investor a subordinated debenture in the
principal amount of $5,000,000. Under the subordinated
debenture, interest payments are required to be paid quarterly
at an interest rate of 11% per annum. The principal amount is
required to be paid in four annual installments commencing on
August 31, 2017, through the final maturity date of
August 31, 2020. The subordinated debenture is generally
unsecured and subordinate to our other indebtedness. As
additional consideration, Steve Madden, Ltd. also received
1,844,860 shares of our common stock, representing a 19.99%
interest in our common stock on a post-closing basis. In
connection with the transaction, we received aggregate net
proceeds of $4.5 million after transaction and other costs.
We used the net proceeds for working capital purposes. We
received consents from all of our other debt holders to enter
into the transaction.
In January 2011, we repaid in full our subordinated secured term
loan with Private Equity Management Group, Inc. (PEM). The loan
was originally entered into in February 2008 with an initial
principal balance of $7.5 million. We had balances under
the loan of $2.8 million and $4.8 million as of
January 30, 2010 and January 31, 2009, with the loan
providing for 36 monthly installments of principal and
interest at an interest rate of 15% per annum. Originally the
loan agreement contained financial covenants requiring us to
maintain specified levels of tangible net worth and adjusted
EBITDA (as defined in the agreement) each fiscal quarter. We
amended the loan agreement four times (May 2008, April 2009,
September 2009 and March 2010) to modify these covenants in
order to remain in compliance. The March 2010 amendment
completely eliminated these covenants for the remainder of the
term loan.
Based on our business plan for fiscal year 2011, we believe that
we will be able to comply with the minimum availability or
adjusted EBITDA coverage ratio covenant in our revolving credit
facility. However, given the inherent volatility in our sales
performance, there is no assurance that we will be able to do
so. In addition, in light of our historical sales volatility and
the current state of the economy, we believe that there is a
reasonable possibility that we may not be able to comply with
the financial covenants. Failure to comply would be a default
under the terms of the revolving credit facility and could
result in the acceleration of all of our debt obligations. If we
are unable to comply with our financial covenants, we will be
required to seek one or more additional amendments or waivers
from our lenders. We believe that we would be able to obtain any
required amendments or waivers, but can give no assurance that
we would be able to do so on favorable terms, if at all. If we
are unable to obtain any required amendments or waivers, our
lenders would have the right to exercise remedies specified in
the loan agreements, including accelerating the repayment of
debt obligations and taking collection action against us. If
such acceleration
28
occurred, we currently have insufficient cash to pay the amounts
owed and would be forced to obtain alternative financing.
We continue to face considerable liquidity constraints. Although
we believe our business plan is achievable, should we fail to
achieve the sales or gross margin levels we anticipate, or if we
were to incur significant unplanned cash outlays, it would
become necessary for us to obtain additional sources of
liquidity or make further cost cuts to fund our operations. In
recognition of existing liquidity constraints, we continue to
look for additional sources of capital at acceptable terms.
However, there is no assurance that we would be able to obtain
such financing on favorable terms, if at all, or to successfully
further reduce costs in such a way that would continue to allow
us to operate our business.
As described in Note 3 to the financial statements and
under Part II Item 1A.
Risk Factors. our common stock has been delisted from the
Nasdaq Stock Market because of our deficit in shareholders
equity. Delisting could limit our ability to raise capital from
the sale of securities. Our stock currently is quoted on the OTC
Bulletin Board.
Our independent registered public accounting firms report
issued in this Annual Report on
Form 10-K
included an explanatory paragraph describing the existence of
conditions that raise substantial doubt about our ability to
continue as a going concern, including our recent losses and
working capital deficiency. See Note 2 to our financial
statements. Our financial statements do not include any
adjustments relating to the recoverability and classification of
assets carrying amounts or the amount of and classification of
liabilities that may result should we be unable to continue as a
going concern. We have taken several steps that we believe will
be sufficient to allow us to continue as a going concern and to
improve our liquidity, operating results and financial
condition. See Item 1. Business Risk
Factors The report issued by our independent
registered public accounting firm on our fiscal year 2010
financial statements contains language expressing substantial
doubt about our ability to continue as a going concern
herein.
We operate on a 52 53 week fiscal year. Fiscal
years 2010, 2009 and 2008 were 52 week periods. For
comparison purposes, we classify our stores as comparable or
non-comparable. A new stores sales are not included in
comparable store sales until the thirteenth month of operation.
Sales from remodeled stores are excluded from comparable store
sales during the period of remodeling. We include our Internet
and catalog sales (Multi-Channel Sales) as one store
in calculating our comparable store sales. Comparable store
sales for fiscal year 2010 compare the fifty-two week period
ended January 29, 2011 to the fifty-two week period ended
January 30, 2010. Comparable store sales for fiscal year
2009 compare the fifty-two week period ended January 30,
2010 to the fifty-two week period ended January 31, 2009.
For comparison purposes, we classify our stores as comparable or
non-comparable. A new stores sales are not included in
comparable store sales until the thirteenth month of operation.
Sales from remodeled stores are excluded from comparable store
sales during the period of remodeling. We include our Internet
and call center sales (Multi-Channel Sales) as one
store in calculating our comparable store sales.
Critical
Accounting Policies
Our financial statements are prepared in accordance with
U.S. generally accepted accounting principles, which
require us to make estimates and assumptions about future events
and their impact on amounts reported in our Financial Statements
and related Notes. Since future events and their impact cannot
be determined with certainty, the actual results will inevitably
differ from our estimates. These differences could be material
to the financial statements. For more information, please see
Note 1 in the Notes to the Financial Statements.
We believe that our application of accounting policies, and the
estimates that are inherently required by these policies, are
reasonable. We believe that the following significant accounting
policies may involve a higher degree of judgment and complexity.
Merchandise
inventories
Merchandise inventories are valued at the lower of cost or
market. Cost is determined using the
first-in,
first-out retail inventory method. Consideration received from
vendors relating to inventory purchases is recorded as a
29
reduction of cost of merchandise sold, occupancy, and buying
expenses after an agreement with the vendor is executed and when
the related inventory is sold. We physically count all
merchandise inventory on hand annually, generally during the
month of January, and adjust the recorded balance to reflect the
results of the physical counts. We record estimated shrinkage
between physical inventory counts based on historical results.
Inventory shrinkage is included as a component of cost of
merchandise sold, occupancy, and buying costs. Markdowns are
recorded or accrued to reflect expected adjustments to retail
prices in accordance with the retail inventory method. In
determining the lower of cost or market for inventories,
management considers current and recently recorded sales prices,
the length of time product is held in inventory, and quantities
of various product styles contained in inventory, among other
factors. The ultimate amount realized from the sale of
inventories could differ materially from our estimates. If
market conditions are less favorable than those projected,
additional inventory markdowns may be required.
Store
closing and impairment charges
Long-lived assets to be held and used are reviewed
for impairment when events or circumstances exist that indicate
the carrying amount of those assets may not be recoverable. We
regularly analyze the operating results of our stores and assess
the viability of under-performing stores to determine whether
they should be closed or whether their associated assets,
including furniture, fixtures, equipment, and leasehold
improvements, have been impaired. Asset impairment tests are
performed at least annually, on a
store-by-store
basis. After allowing for an appropriate
start-up
period, unusual nonrecurring events, and favorable trends, fixed
assets of stores indicated to be impaired are written down to
fair value based on managements estimates of future store
sales and expenses, which are considered Level 3 inputs.
During the years ended January 31, 2009, January 30,
2010 and January 29, 2011, we recorded $2,609,588,
$2,762,273, and $1,415,979, respectively, in noncash charges to
earnings related to the impairment of long-lived assets.
Stock-based
compensation expense
We compensate certain employees with various forms of
share-based payment awards and recognize compensation expense
for stock-based compensation based on the grant date fair value.
Stock-based compensation expense is then recognized ratably over
the service period related to each grant. We determine the fair
value of stock-based compensation using the Black-Scholes option
pricing model, which requires us to make assumptions regarding
future dividends, expected volatility of our stock, and the
expected lives of the options. We also make assumptions
regarding the number of options and the number of shares of
restricted stock and performance shares that will ultimately
vest. The assumptions and calculations are complex and require a
high degree of judgment. Assumptions regarding the vesting of
grants are accounting estimates that must be updated as
necessary with any resulting change recognized as an increase or
decrease in compensation expense at the time the estimate is
changed. Excess tax benefits related to stock option exercises
are reflected as financing cash inflows and operating cash
outflows.
During fiscal year 2009, we granted 84,000 shares of
restricted stock under our 2005 Incentive Compensation Plan.
During fiscal years 2008, 2009, and 2010 we granted 310,500,
72,000 and 227,000 stock options, respectively, under our 2003
Stock Option Plan.
As of January 29, 2011, the total unrecognized compensation
cost related to non vested stock-based compensation is $611,489,
and the weighted-average period over which this compensation is
expected to be recognized is 1.5 years.
Deferred
income taxes
We calculate income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are
recognized based on the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and income tax reporting purposes.
Deferred tax assets and liabilities are measured using the tax
rates in effect in the years when those temporary differences
are expected to reverse. Inherent in the measurement of deferred
taxes are certain judgments and interpretations of existing tax
law and other published guidance as applied to our operations.
30
We regularly assesses available positive and negative evidence
to determine whether it is more likely than not that our
deferred tax asset balances will be recovered from
(a) reversals of deferred tax liabilities,
(b) potential utilization of net operating loss carrybacks,
(c) tax planning strategies and (d) future taxable
income. Accounting standards place significant restrictions on
the consideration of future taxable income in determining the
realizability of deferred tax assets in situations where a
company has experienced a cumulative loss in recent years. When
sufficient negative evidence exists that indicates that full
realization of deferred tax assets is no longer more likely than
not, a valuation allowance is established as necessary against
the deferred tax assets, increasing our income tax expense in
the period that such conclusion is reached. Subsequently, the
valuation allowance is adjusted up or down as necessary to
maintain coverage against the deferred tax assets. If, in the
future, sufficient positive evidence, such as a sustained return
to profitability, arises that would indicate that realization of
deferred tax assets is once again more likely than not, any
existing valuation allowance would be reversed as appropriate,
decreasing our income tax expense in the period that such
conclusion is reached.
Based on our analyses during fiscal year 2009 and fiscal year
2010, we concluded that the realizability of net deferred tax
assets was unlikely, and maintained a full valuation allowance
against our net deferred tax assets. We have scheduled the
reversals of our deferred tax assets and deferred tax
liabilities and have concluded that based on the anticipated
reversals, a valuation allowance is necessary only for the
excess of deferred tax assets over deferred tax liabilities.
We anticipate that until we re-establish a pattern of continuing
profitability, in accordance with the applicable accounting
guidance, we will not recognize any material income tax expense
or benefit in our statement of operations for future periods, as
pretax profits or losses generally will generate tax effects
that will be offset by decreases or increases in the valuation
allowance with no net effect on the statement of operations. If
a pattern of continuing profitability is re-established and we
conclude that it is more likely than not that deferred income
tax assets are realizable, we will reverse any remaining
valuation allowance which will result in the recognition of an
income tax benefit in the period that it occurs.
We regularly analyze filing positions in all of the federal and
state jurisdictions where required to file income tax returns,
as well as all open tax years in these jurisdictions. Our
federal income tax returns subsequent to the fiscal year ended
January 1, 2005 remain open. As of January 29, 2011,
we recorded a tax benefit of $187, 462 as a result of a
carryback of losses against previous federal tax payments. We
did not record any unrecognized tax benefits as of
January 30, 2010. Our policy, if we had unrecognized
benefits, is to recognize accrued interest and penalties related
to unrecognized tax benefits as interest expense and other
expense, respectively.
Fiscal
Year
Our fiscal year is based upon a 52 53 week
retail calendar, ending on the Saturday nearest January 31.
The fiscal years ended January 29, 2011 (fiscal year 2010),
January 30, 2010 (fiscal year 2009) and
January 31, 2009 (fiscal year 2008) are 52 week
periods.
31
Results
of Operations
The following table sets forth our operating results, expressed
as a percentage of sales, for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 31,
|
|
|
January 30,
|
|
|
January 29,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of merchandise sold, occupancy and buying expense
|
|
|
72.5
|
|
|
|
71.2
|
|
|
|
73.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
27.5
|
|
|
|
28.8
|
|
|
|
26.7
|
|
Selling expense
|
|
|
23.0
|
|
|
|
22.0
|
|
|
|
21.8
|
|
General and administrative expense
|
|
|
9.4
|
|
|
|
8.6
|
|
|
|
8.2
|
|
Loss on disposal of property and equipment
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
|
|
Impairment of long-lived assets
|
|
|
1.4
|
|
|
|
1.5
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(6.5
|
)
|
|
|
(3.5
|
)
|
|
|
(4.1
|
)
|
Other income, net
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Interest expense
|
|
|
(1.8
|
)
|
|
|
(1.5
|
)
|
|
|
(1.1
|
)
|
Provision for (benefit from) income taxes
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(8.2
|
)%
|
|
|
(4.9
|
)%
|
|
|
(5.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth our number of stores at the
beginning and end of each period indicated and the number of
stores opened, acquired and closed during each period indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 31,
|
|
|
January 30,
|
|
|
January 29,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Number of stores at beginning of period
|
|
|
249
|
|
|
|
239
|
|
|
|
238
|
|
Stores opened or acquired during period
|
|
|
2
|
|
|
|
4
|
|
|
|
4
|
|
Stores closed during period
|
|
|
(12
|
)
|
|
|
(5
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of stores at end of period
|
|
|
239
|
|
|
|
238
|
|
|
|
232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended January 29, 2011 Compared to Fiscal Year Ended
January 30, 2010
Net sales. Net sales were $185.6 million
in fiscal year 2010, up from $185.4 million for fiscal year
2009, an increase of $0.2 million or 0.1%. Comparable store
sales in fiscal year 2010 increased 1.7% compared to a 1.3%
increase in fiscal year 2009. Sales reflected strong demand for
dress shoes and casual boots during the fall months, partially
offset by weakness in demand for our sandal line in the spring
and summer. Average unit selling prices increased 1.1%
reflecting slightly higher price points compared to fiscal year
2009. Unit sales volume decreased 0.6%. Our multi-channel sales
increased 9.5% to $11.7 million in fiscal year 2010.
Gross profit. Gross profit decreased to
$49.6 million in fiscal year 2010 from $53.4 million
in fiscal year 2009, a decrease of $3.8 million or 7.1%. As
a percentage of sales, gross profit decreased to 26.7% in fiscal
year 2010 from 28.8% in fiscal year 2009, due to increased
promotional activity and costs related to the roll out of the H
by Halston line. Principal components of the decrease in gross
margin dollars in fiscal year 2010 are a $3.7 million
decrease from reduced gross margin percentage, a
$0.5 million decrease from net store closures, partially
offset by a $0.4 million increase in margins from our
comparable store sales increase. Total markdown costs increased
to $28.4 million in fiscal year 2010 compared to
$26.0 million in fiscal year 2009.
Selling expense. Selling expense decreased to
$40.4 million in fiscal year 2010 from $40.8 million
in fiscal year 2009, a decrease of $0.4 million or 1.1%.
The decrease was primarily the result of a $0.6 million
decrease in store depreciation expense, a $0.2 million
decrease in store payroll expenses, partially offset by a
$0.4 million increase in advertising costs.
32
General and administrative expense. General
and administrative expense decreased to $15.3 million in
fiscal year 2010 from $15.9 million in fiscal year 2009, a
decrease of $0.6 million or 4.2%. As a percentage of sales,
general and administrative expense decreased to 8.2% from 8.6%
in fiscal year 2009. The decrease was primarily the result of
$0.3 million of lower group health insurance costs, and
$0.3 million decrease of professional fees.
Gain/loss on disposal of property and
equipment. Loss on disposal of property and
equipment was $0.1 million in fiscal year 2010 compared to
$0.3 million in fiscal year 2009.
Impairment of long-lived assets. During fiscal
year 2010 we recognized $1.4 million in noncash charges
related to the impairment of fixed assets and other assets at
specific underperforming stores. Impairment expense in fiscal
year 2009 was $2.8 million.
Interest expense. Interest expense decreased
to $2.1 million in fiscal year 2010 from $2.7 million
in fiscal year 2009, primarily as a result of the lower balance
on the subordinated secured term loan which was paid off in
fiscal year 2010.
Income tax expense. We recognized an income
tax benefit of $0.2 million for fiscal year 2010 as a
result of a carryback of losses against previous federal tax
payments. We did not recognize an income tax expense in fiscal
year 2009.
Net loss. We had a net loss of
$9.3 million in fiscal year 2010 compared to net loss of
$9.1 million in fiscal year 2009.
Fiscal
Year Ended January 30, 2010 Compared to Fiscal Year Ended
January 31, 2009
Net sales. Net sales were $185.4 million
in fiscal year 2009, up from $183.7 million for fiscal year
2008, an increase of $1.7 million or 0.9%. Comparable store
sales in fiscal year 2009 increased 1.3% compared to a 0.5%
increase in fiscal year 2008. Sales reflected strong sandal
sales during the summer months, favorable sales trends across
all key categories, particularly in boots and booties during the
fall, offset by weakness in closed footwear and early fall
transitional product. Average unit selling prices decreased 1.9%
reflecting slightly lower price points compared to fiscal year
2008. Unit sales volume increased 2.5%. Our multi-channel sales
increased 4.0% to $10.4 million in fiscal year 2009.
Gross profit. Gross profit increased to
$53.4 million in fiscal year 2009 from $50.6 million
in fiscal year 2008, an increase of $2.8 million or 5.6%.
As a percentage of sales, gross profit increased to 28.8% in
fiscal year 2009 from 27.5% in fiscal year 2008. Principal
components of the increase in gross margin dollars in fiscal
year 2009 are a $2.3 million increase from improved gross
margin percentage, a $1.1 million increase from higher
comparable store sales, offset by a $0.6 million decrease
in gross profit from net store closings. Total markdown costs
decreased to $26.0 million in fiscal year 2009 compared to
$26.7 million in fiscal year 2008, reflecting the stronger
regular price sales across all categories of footwear in fiscal
year 2009 and lower inventory levels in 2009.
Selling expense. Selling expense decreased to
$40.8 million in fiscal year 2009 from $42.2 million
in fiscal year 2008, a decrease of $1.3 million or 3.2%.
The decrease was primarily the result of a $0.8 million
decrease in store depreciation expense and a $0.5 million
decrease in direct marketing costs.
General and administrative expense. General
and administrative expense decreased to $15.9 million in
fiscal year 2009 from $17.2 million in fiscal year 2008, a
decrease of $1.3 million or 7.5%. As a percentage of sales,
general and administrative expense decreased to 8.6% from 9.4%
in fiscal year 2008. The decrease was primarily the result of
$0.8 million of lower group health insurance costs,
$0.4 million of lower depreciation and a net
$0.1 million decrease of professional fees, repairs and
maintenance costs.
Loss on disposal of property and
equipment. Loss on disposal of property and
equipment was $0.3 million in fiscal year 2009 and fiscal
year 2008. The loss in fiscal year 2009 relates to expensing
leasehold improvements and store fixtures due to store closings.
Impairment of long-lived assets. During fiscal
year 2009 we recognized $2.8 million in noncash charges
related to the impairment of fixed assets and other assets at
specific underperforming stores. Impairment expense in fiscal
year 2008 was $2.6 million.
33
Interest expense. Interest expense decreased
to $2.7 million in fiscal year 2009 from $3.3 million
in fiscal year 2008, a decrease of $0.6 million. The
decrease in interest expense reflects a decreased average
outstanding balance on the revolving credit agreement. There was
also an additional $250,000 fee incurred in fiscal year 2008,
due to the modification of the subordinated secured term loan,
which was not incurred in fiscal year 2009.
Income tax expense. We did not recognized an
income tax expense in fiscal year 2009 compared to income tax
expense of $0.1 million in fiscal year 2008. The income tax
expense in fiscal year 2008 reflects differences between the
alternative minimum tax and realized operating loss carrybacks
recognized in the income tax provision and the income tax
returns filed for fiscal year 2007.
Net loss. We had a net loss of
$9.1 million in fiscal year 2009 compared to net loss of
$15.0 million in fiscal year 2008.
Seasonality
and Quarterly Fluctuations
The following table sets forth our summary operating results for
the quarterly periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended January 31, 2009(1)
|
|
|
Thirteen
|
|
Thirteen
|
|
Thirteen
|
|
Thirteen
|
|
|
Weeks Ended
|
|
Weeks Ended
|
|
Weeks Ended
|
|
Weeks Ended
|
|
|
May 3,
|
|
August 2,
|
|
November 1,
|
|
January 31,
|
|
|
2008
|
|
2008
|
|
2008
|
|
2009
|
|
Net sales
|
|
$
|
43,537,503
|
|
|
$
|
43,568,099
|
|
|
$
|
41,075,064
|
|
|
$
|
55,481,123
|
|
Gross profit
|
|
|
11,249,973
|
|
|
|
12,879,165
|
|
|
|
8,996,887
|
|
|
|
17,425,637
|
|
Operating expenses
|
|
|
15,319,099
|
|
|
|
14,236,601
|
|
|
|
16,623,909
|
|
|
|
16,148,228
|
|
Operating income (loss)
|
|
|
(4,069,126
|
)
|
|
|
(1,357,436
|
)
|
|
|
(7,627,022
|
)
|
|
|
1,277,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended January 30, 2010(1)
|
|
|
Thirteen
|
|
Thirteen
|
|
Thirteen
|
|
Thirteen
|
|
|
Weeks Ended
|
|
Weeks Ended
|
|
Weeks Ended
|
|
Weeks Ended
|
|
|
May 2,
|
|
August 1,
|
|
October 31,
|
|
January 30,
|
|
|
2009
|
|
2009
|
|
2009
|
|
2010
|
|
Net sales
|
|
$
|
44,976,621
|
|
|
$
|
43,720,271
|
|
|
$
|
39,042,191
|
|
|
$
|
57,629,613
|
|
Gross profit
|
|
|
12,696,440
|
|
|
|
12,922,107
|
|
|
|
6,766,363
|
|
|
|
20,983,690
|
|
Operating expenses
|
|
|
14,600,044
|
|
|
|
14,076,667
|
|
|
|
16,293,982
|
|
|
|
14,853,036
|
|
Operating income (loss)
|
|
|
(1,903,604
|
)
|
|
|
(1,154,560
|
)
|
|
|
(9,527,619
|
)
|
|
|
6,130,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended January 29, 2011(1)
|
|
|
Thirteen
|
|
Thirteen
|
|
Thirteen Weeks
|
|
Thirteen Weeks
|
|
|
Weeks Ended
|
|
Weeks Ended
|
|
Ended
|
|
Ended
|
|
|
May 1,
|
|
July 31,
|
|
October 30,
|
|
January 29,
|
|
|
2010
|
|
2010
|
|
2010
|
|
2011
|
|
Net sales
|
|
$
|
43,524,036
|
|
|
$
|
43,293,127
|
|
|
$
|
40,575,879
|
|
|
$
|
58,232,802
|
|
Gross profit
|
|
|
10,736,296
|
|
|
|
11,932,912
|
|
|
|
6,350,181
|
|
|
|
20,552,518
|
|
Operating expenses
|
|
|
13,646,509
|
|
|
|
13,536,391
|
|
|
|
14,825,328
|
|
|
|
15,095,604
|
|
Operating income (loss)
|
|
|
(2,910,213
|
)
|
|
|
(1,603,479
|
)
|
|
|
(8,475,147
|
)
|
|
|
5,456,914
|
|
|
|
|
(1) |
|
During the third quarters of fiscal year 2008, 2009 and 2010 we
recognized $2,609,588, $2,762,273, and $1,415,979, respectively,
in noncash charges related to the impairment of long-lived
assets of underperforming stores. |
Our operating results are subject to significant seasonal
variations. Our quarterly results of operations have fluctuated,
and are expected to continue to fluctuate in the future, as a
result of these seasonal variances, in particular our principal
selling seasons. We have five principal selling seasons:
transition (post-holiday), Easter,
back-to-school,
fall and holiday. Quarterly comparisons may also be affected by
the timing of sales promotions and costs associated with
remodeling stores, opening new stores or acquiring stores. Sales
and operating results in our third quarter are typically much
weaker than in our other quarters.
34
Liquidity
and Capital Resources
Our cash requirements are primarily for working capital,
principal and interest payments on our debt obligations and
capital expenditures. Historically, these cash needs have been
met by cash flows from operations, borrowings under our
revolving credit facility and sales of securities. As discussed
below in Financing Activities the balance on our
revolving credit facility fluctuates throughout the year as a
result of our seasonal working capital requirements and our
other uses of cash.
We incurred net losses of $9.3 million and
$9.1 million in fiscal years 2010 and 2009. We achieved
increases in comparable store sales of 1.7% and 1.3% in fiscal
years 2010 and 2009, respectively. Our losses since 2005 have
had a significant negative impact on our financial position and
liquidity. As of January 29, 2011, we had negative working
capital of $8.7 million, unused borrowing capacity under
our revolving credit facility of $3.1 million, and
shareholders deficit of $6.0 million.
Our business plan for fiscal year 2011 is based on mid-single
digit increases in comparable store sales. Through
April 23, 2011, comparable store sales have increased
10.1%. Based on our business plan, we expect to maintain
adequate liquidity for the remainder of fiscal year 2011. The
business plan reflects continued focus on inventory management
and on timely promotional activity. We believe that this focus
on inventory should improve overall gross margin performance
compared to fiscal year 2010. The plan also includes targeted
increases in selling, general and administrative expenses to
support the sales plan. We continue to work with our landlords
and vendors to arrange payment terms that are reflective of our
seasonal cash flow patterns in order to manage availability. The
business plan for fiscal year 2011 reflects continued
improvement in cash flow, but does not indicate a return to
profitability. However, there is no assurance that we will
achieve the sales, margin or cash flow contemplated in our
business plan.
Debt
Agreements
On May 28, 2010, we amended our revolving credit facility.
The amendment extended the maturity of the credit facility to
May 28, 2013, modified the calculation of the borrowing
base, added a new minimum availability or adjusted EBITDA
interest coverage ratio covenant, added an obligation for us to
extend the maturity of our subordinated convertible debentures,
and made other changes to the agreement. We incurred fees and
expenses of approximately $250,000 in connection with this
amendment. The minimum availability or adjusted EBITDA interest
coverage ratio covenant requires that either we maintain unused
availability greater than 20% of the calculated borrowing base
or maintain the ratio of our adjusted EBITDA to our interest
expense (both as defined in the amendment) of no less than
1.0:1.0. The minimum availability covenant is tested daily and,
if not met, then the adjusted EBITDA covenant is tested on a
rolling twelve month basis. The adjusted EBITDA calculation is
substantially similar to the calculation used previously in our
subordinated secured term loan. We did not meet these covenants
for the months of June and July 2010; however, this covenant
violation was waived by the bank in connection with the August
2010 debt and equity issuance discussed below. During the third
quarter and fourth quarter of fiscal year 2010, we met the bank
covenant based on maintaining unused availability greater than
20% on a daily basis. Our business plan for 2011 also
anticipates meeting the bank covenant on this basis. We continue
to closely monitor our availability and continue to be
constrained by our limited unused borrowing capacity. As of
April 23, 2011, the balance on our revolving line of credit
was $15.4 million and our unused borrowing capacity in
excess of the covenant minimum was $1.2 million.
On August 26, 2010, we issued debt and equity to Steven
Madden, Ltd., as investor. In connection with that arrangement,
we sold to the investor a subordinated debenture in the
principal amount of $5,000,000. Under the subordinated
debenture, interest payments are required to be paid quarterly
at an interest rate of 11% per annum. The principal amount is
required to be paid in four annual installments commencing on
August 31, 2017, through the final maturity date of
August 31, 2020. The subordinated debenture is generally
unsecured and subordinate to our other indebtedness. As
additional consideration, Steve Madden, Ltd. also received
1,844,860 shares of our common stock, representing a 19.99%
interest in our common stock on a post-closing basis. In
connection with the transaction, we received aggregate net
proceeds of $4.5 million after transaction and other costs.
We are using the net proceeds for working capital purposes. We
received consents from all of our other debt holders to enter
into the transaction.
35
Based on our business plan for fiscal year 2011, we believe that
we will be able to comply with the minimum availability or
adjusted EBITDA coverage ratio covenant in our revolving credit
facility. However, given the inherent volatility in our sales
performance, there is no assurance that we will be able to do
so. In addition, in light of our historical sales volatility and
the current state of the economy, we believe that there is a
reasonable possibility that we may not be able to comply with
the financial covenants. Failure to comply would be a default
under the terms of the revolving credit facility and could
result in the acceleration of all of our debt obligations. If we
are unable to comply with our financial covenants, we will be
required to seek one or more additional amendments or waivers
from our lenders. We believe that we would be able to obtain any
required amendments or waivers, but can give no assurance that
we would be able to do so on favorable terms, if at all. If we
are unable to obtain any required amendments or waivers, our
lenders would have the right to exercise remedies specified in
the loan agreements, including accelerating the repayment of
debt obligations and taking collection action against us. If
such acceleration occurred, we currently have insufficient cash
to pay the amounts owed and would be forced to obtain
alternative financing.
We continue to face considerable liquidity constraints. Although
we believe our business plan is achievable, should we fail to
achieve the sales or gross margin levels we anticipate, or if we
were to incur significant unplanned cash outlays, it would
become necessary for us to obtain additional sources of
liquidity or make further cost cuts to fund our operations. In
recognition of existing liquidity constraints, we continue to
look for additional sources of capital at acceptable terms.
However, there is no assurance that we would be able to obtain
such financing on favorable terms, if at all, or to successfully
further reduce costs in such a way that would continue to allow
us to operate our business. See Item 1.
Business Risk Factors If we cannot
maintain generally positive sales trends, we could fail to
maintain a liquidity position adequate to support our ongoing
operations. herein.
For additional information on our loan arrangements, please see
Item 1. Business Risk Factors
Our operations could be constrained by our ability to obtain
funds under the terms of our revolving credit facility and
Item 1. Business Risk Factors
The terms of our revolving credit facility contain certain
financial covenants with respect to our performance and other
covenants that restrict our activities. If we are unable to
comply with these covenants, we would have to negotiate an
amendment to the loan agreement or the lender could accelerate
the repayment of our indebtedness. herein.
Our independent registered public accounting firms report
issued in this Annual Report on
Form 10-K
included an explanatory paragraph describing the existence of
conditions that raise substantial doubt about our ability to
continue as a going concern, including our recent losses and
working capital deficiency. See Note 2 to our financial
statements. Our financial statements do not include any
adjustments relating to the recoverability and classification of
assets carrying amounts or the amount of and classification of
liabilities that may result should we be unable to continue as a
going concern. We have taken several steps that we believe will
be sufficient to allow us to continue as a going concern and to
improve our liquidity, operating results and financial
condition. See Item 1. Business Risk
Factors The report issued by our independent
registered public accounting firm on our fiscal year 2010
financial statements contains language expressing substantial
doubt about our ability to continue as a going concern
herein.
36
The following table summarizes certain key liquidity
measurements as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 29,
|
|
|
|
2010
|
|
|
2011
|
|
|
Cash
|
|
$
|
154,685
|
|
|
$
|
146,263
|
|
Inventories
|
|
|
20,233,207
|
|
|
|
25,911,508
|
|
Total current assets
|
|
|
23,010,037
|
|
|
|
28,513,463
|
|
Property and equipment, net
|
|
|
24,757,395
|
|
|
|
18,405,166
|
|
Total assets
|
|
|
48,618,467
|
|
|
|
48,005,687
|
|
Accounts Payable
|
|
|
10,138,635
|
|
|
|
16,009,847
|
|
Revolving credit facility
|
|
|
10,531,687
|
|
|
|
10,449,299
|
|
Subordinated convertible debentures
|
|
|
4,000,000
|
|
|
|
4,000,000
|
|
Subordinated debenture
|
|
|
|
|
|
|
4,123,327
|
|
Subordinated secured term loan
|
|
|
2,785,112
|
|
|
|
|
|
Total current liabilities
|
|
|
37,294,558
|
|
|
|
37,211,199
|
|
Total shareholders equity (deficit)
|
|
|
2,140,153
|
|
|
|
(5,987,111
|
)
|
Net working capital (deficit)(1)
|
|
|
(14,284,521
|
)
|
|
|
(8,707,737
|
)
|
Unused borrowing capacity(2)
|
|
|
1,928,913
|
|
|
|
3,060,582
|
|
|
|
|
(1) |
|
Subordinated convertible debentures were reclassified from
short-term liabilities at January 30, 2010 to long-term
liabilities at January 29, 2011. |
|
(2) |
|
As calculated under the terms of our revolving credit facility. |
Operating
activities
As a result of the seasonality of our operations, we generate a
significant proportion of our cash from operating activities
during our fourth quarter. For fiscal year 2010, through the end
of our third quarter, cash used in operating activities was
$8.6 million compared to cash used in operating activities
of $0.5 million for the entire fiscal year. For fiscal year
2009, through the end of our third quarter, cash used in
operating activities was $3.0 million compared to cash
provided by operating activities of $3.9 million for the
entire fiscal year.
Cash used in operating activities was $0.5 million in
fiscal year 2010 compared to cash provided by operating
activities of $3.9 million in fiscal year 2009. The net
loss in fiscal year 2010 of $9.3 million included
significant non-cash items such as depreciation expense of
$5.7 million, impairment expense of $1.4 million,
stock-based compensation expense of $0.4 million and
accretion of debt discount of $0.2 million. There was a
$5.7 million increase in inventory and a $6.3 million
increase of accounts payable, accrued expenses and accrued rent
liabilities from the balances at the end of fiscal year 2009,
reflecting incremental in transit inventory and related payables
at the end of fiscal year 2010. We continue to work with our
vendors and landlords to maintain terms that are reflective of
our seasonal cash flow patterns.
Our inventories at January 29, 2011 increased to
$25.9 million from $20.2 million at January 30,
2010. Our increased inventory level at year end reflect the
early receipt of spring goods as well as the introduction of our
exclusive brands, H by Halston and Wild Pair, in our Bakers
stores. We believe that at January 29, 2011, inventory
levels and valuations are appropriate given current and
anticipated sales trends, however, there is always the
possibility that fashion trends could change suddenly. We
monitor our inventory levels closely and will take appropriate
actions, including taking additional markdowns, as necessary, to
maintain the freshness of our inventory.
For fiscal year 2009, cash provided by operating activities
increased significantly to $3.9 million in fiscal year 2009
compared to cash used in operating activities of
$4.0 million in fiscal year 2008 as a result of the
reduction in our net loss and working capital management. The
net loss in fiscal year 2009 of $9.1 million included
significant non-cash items such as depreciation expense of
$6.5 million, impairment expense of $2.8 million, and
stock-based
37
compensation expense of $0.6 million. There was a
$0.7 million decrease in inventory and a $1.4 million
increase of accounts payable, accrued expenses and accrued rent
liabilities from the balances at the end of fiscal year 2008.
We are committed under noncancelable operating leases for all
store and office spaces. These leases expire at various dates
through 2020 and generally provide for minimum rent plus
payments for real estate taxes and operating expenses, subject
to escalations. Some of our leases also require us to pay
contingent rent based on sales. As of January 29, 2011, our
lease payment obligations under these leases totaled
approximately $24.3 million for fiscal year 2011, and an
aggregate of approximately $113.1 million through 2020.
Our ability to meet our current and anticipated operating
requirements will depend on our future performance, which, in
turn, will be subject to general economic conditions and
financial, business and other factors, including factors beyond
our control.
Investing
activities
In fiscal year 2010, cash used in investing activities was
$1.0 million compared to cash used in investing activities
of $0.4 million in fiscal year 2009 and $0.9 million
in fiscal year 2008. During each year, cash used in investing
activities consisted primarily of capital expenditures for
furniture, fixtures and leasehold improvements for both new and
remodeled stores.
We currently anticipate that our capital expenditures in fiscal
year 2011, primarily related to new stores, store remodelings,
distribution and general corporate activities, will be
approximately $1.7 million. We anticipate being able to
fund this level of store expansion from internally generated
cash flow.
Our future capital expenditures will depend primarily on the
number of new stores we open, the number of existing stores we
remodel and the timing of these expenditures. We continuously
evaluate our future capital expenditure plans and adjust planned
expenditures, as necessary, based on business conditions. As of
April 23, 2011, we have not opened any new stores in fiscal
year 2011.
Financing
activities
In fiscal year 2010, net cash provided by financing activities
was $1.5 million compared to net cash used in financing
activities of $3.5 million in fiscal year 2009 and net cash
provided by financing activities of $4.9 million in fiscal
year 2008. The principal source of cash from financing
activities in fiscal year 2010 was the $4.5 million
aggregate net proceeds from the issuance of common stock and the
subordinated debenture, partially offset by $3.0 million of
principal payments on the subordinated secured term loan. The
principal uses of cash in financing activities in fiscal year
2009 was the repayment of $2.5 million on the subordinated
secured term loan and net repayments on our revolving line of
credit of approximately $1.0 million. The principal source
of cash from financing activities in fiscal year 2008 was the
net proceeds of approximately $6.7 million from the entry
into the subordinated term loan and related issuance of
350,000 shares of common stock and net draws of
$0.3 million on our revolving line of credit.
Revolving
Credit Facility
We have a $30 million senior secured revolving credit
facility with Bank of America, N.A. On May 28, 2010, we
amended our revolving credit agreement to extend the maturity of
the credit facility from the end of fiscal year 2010 to
May 28, 2013, modify the calculation of the borrowing base,
add a new minimum availability or adjusted EBITDA interest
coverage ratio covenant, add an obligation for the Company to
extend the maturity of its subordinated convertible debentures
by May 2012, add an early termination fee, and make other
changes to the agreement. The minimum availability or adjusted
EBITDA interest coverage ratio covenant requires that either the
Company maintain unused availability greater than 20% of the
calculated borrowing base or maintain the ratio of our adjusted
EBITDA to our interest expense (both as defined in the
amendment) of no less than 1.0:1.0. The minimum availability
covenant is tested daily, and if not met the adjusted EBITDA
covenant is tested monthly on a rolling twelve month basis. The
adjusted EBITDA calculation is substantially similar to the
calculation used previously in our subordinated secured term
loan. We did not meet these covenants for the months of June and
July
38
2010; however, this covenant violation was waived by the bank in
connection with the issuance of the subordinated debenture
issued in August 2010 discussed below.
Amounts borrowed under the facility bear interest at a rate
equal to the base rate (as defined in the agreement) plus a
margin amount between 3.0% and 3.5%. The base rate equals the
greater of the banks prime rate, the federal funds rate
plus 0.50% or the Libor rate plus 1.0% (all as defined in the
agreement).
The revolving credit facility also allows us to apply an
interest rate based on Libor (as defined in the agreement) plus
a margin amount to a designated portion of the outstanding
balance as set forth in the agreement. The Libor margin (as
defined in the agreement) ranges from 3.5% to 4.0%. Following
the occurrence of any event of default, the bank may increase
the rate by an additional two percentage points.
The unused line fee is 0.75% per annum. The unused line fee is
payable monthly based on the difference between the revolving
credit ceiling and the average loan balance under the agreement.
The aggregate amount that we may borrow under the agreement at
any time is further limited by a formula, which is based
substantially on our inventory level but cannot be greater than
the revolving credit ceiling of $30 million.
Amounts borrowed under the credit facility are secured by
substantially all of our assets. If contingencies related to
early termination of the revolving credit facility were to
occur, or if we request and receive an accommodation from the
lender in connection with the facility, we may be required to
pay additional fees. We may be required to pay an early
termination fee of up to $150,000 in the event we terminate the
facility before May 2012.
The credit facility includes financial, reporting and other
covenants relating to, among other things, use of funds under
the facility in accordance with our business plan, prohibiting a
change of control, including any person or group acquiring
beneficial ownership of 40% or more of our common stock or
combined voting power (as defined in the credit facility),
maintaining a minimum availability, prohibiting new debt,
restricting dividends and the repurchase of our stock, and
restricting certain acquisitions. In the event that we violate
any of these covenants, including the minimum availability or
adjusted EBITDA interest coverage financial covenant or the
obligation to extend the maturity of our subordinated
convertible debentures (both as described above), or if other
indebtedness in excess of $1.0 million could be
accelerated, or in the event that 10% or more of our leases
could be terminated (other than solely as a result of certain
sales of our common stock), the bank would have the right to
accelerate repayment of all amounts outstanding under the
agreement, or to commence foreclosure proceedings on our assets.
We were in compliance with these covenants as of
January 29, 2011 and expect to remain in compliance
throughout fiscal year 2010 based on the expected execution of
our business plan.
We had balances under our revolving credit facility of
$10.4 million and $10.5 million as of January 29,
2011 and January 30, 2010, respectively. We had
approximately $3.1 million and $1.9 million in unused
borrowing capacity calculated under the provisions of our
revolving credit facility as of January 29, 2011 and
January 30, 2010, respectively. During the fiscal years
2010 and 2009, the highest outstanding balances on our revolving
credit facility were $20.1 million and $21.0 million,
respectively. We primarily have used the borrowings on our
revolving credit facility for working capital purposes and
capital expenditures. As of April 23, 2011, we had
outstanding balances on our revolving credit facility of
$15.4 million and unused borrowing capacity of
$1.2 million.
Subordinated
Convertible Debentures
On June 26, 2007, we issued $4 million in aggregate
principal amount of subordinated convertible debentures to seven
accredited investors in a private placement generating net
proceeds of approximately $3.6 million, which were used to
repay amounts owed under our revolving credit facility. The
subordinated convertible debentures are nonamortizing, bear
interest at a rate of 9.5% per annum, payable semi-annually on
each June 30 and December 31, and mature on June 30,
2012. The amendment to our revolving credit facility, discussed
above, requires that we amend the subordinated convertible
debentures on or before May 1, 2012, to extend the maturity
to a date beyond July 27, 2013; however, we have not yet
obtained such amendment. Investors included corporate director
Scott C. Schnuck, former corporate director Andrew N. Baur and
an entity affiliated with Mr. Baur, and advisory directors
Bernard A. Edison and Julian Edison.
The subordinated convertible debentures are convertible into
shares of common stock at any time. The initial conversion price
was $9.00 per share. The conversion price, and thus the number
of shares into which the debentures
39
are convertible, is subject to anti-dilution and other
adjustments. If we distribute any assets (other than ordinary
cash dividends), then generally each holder is entitled to
receive a like amount of such distributed property. In the event
of a merger, consolidation, sale of substantially all of our
assets, or reclassification or compulsory share exchange, then
upon any subsequent conversion each holder will have the right
to either the same property as it would have otherwise been
entitled or cash in an amount equal to 100% principal amount of
the debenture, plus interest and any other amounts owed. The
subordinated convertible debentures also contain a weighted
average conversion price adjustment generally for future
issuances, at prices less than the then current conversion
price, of common stock or securities convertible into, or
options to purchase, shares of common stock, excluding generally
currently outstanding options, warrants or performance shares
and any future issuances or deemed issuances pursuant to any
properly authorized equity compensation plans. The subordinated
convertible debentures contain limitations on the number of
shares issuable pursuant to the subordinated convertible
debentures regardless of how low the conversion price may be,
including limitations generally requiring that the conversion
price not be less than $8.10 per share for subordinated
convertible debentures issued to advisory directors, corporate
directors or the entity that was affiliated with Mr. Baur,
that we do not issue common stock amounting to more than 19.99%
of our common stock in the transaction or such that following
conversion, the total number of shares beneficially owned by
each holder does not exceed 19.999% of our common stock. These
limitations may be removed with shareholder approval.
As a result of the issuance of shares to Steve Madden, Ltd. and
the issuance of shares to PEM (both discussed below), the
weighted average conversion price of the subordinated
convertible debentures decreased from $8.31 to $6.76 with
respect to $1 million in aggregate principal amount of
debentures and to $8.10, the minimum conversion price, with
respect to $3 million in aggregate principal amount of
debentures held by directors and director affiliates. The
debentures are now convertible into a total of
518,299 shares of the Companys common stock.
The subordinated convertible debentures generally provide for
customary events of default, which could result in acceleration
of all amounts owed, including default in required payments,
failure to pay when due, or the acceleration of other monetary
obligations for indebtedness (broadly defined) in excess of
$1 million (subject to certain exceptions), failure to
observe or perform covenants or agreements contained in the
transaction documents, including covenants relating to using the
net proceeds, maintaining legal existence, prohibiting the sale
of material assets outside of the ordinary course, prohibiting
cash dividends and distributions, share repurchases, and certain
payments to our officers and directors. We generally have the
right, but not the obligation, to redeem the unpaid principal
balance of the subordinated convertible debentures at any time
prior to conversion if the closing price of our common stock (as
adjusted for stock dividends, subdivisions or combinations) is
equal to or above $16.00 per share for each of 20 consecutive
trading days and certain other conditions are met. We have also
agreed to provide certain piggyback and demand registration
rights, until two years after the subordinated convertible
debentures cease to be outstanding, to the holders under the
Securities Act of 1933 relating to the shares of common stock
issuable upon conversion of the subordinated convertible
debentures. In April 2010, the debenture documents were amended
to remove our de-listing from the Nasdaq Stock Market as an
event of default.
Subordinated
Debenture
On August 26, 2010, we entered into a Debenture and Stock
Purchase Agreement with Steven Madden, Ltd. In connection with
the agreement, we sold to Steven Madden, Ltd. a debenture in the
principal amount of $5,000,000 (the subordinated
debenture). Under the subordinated debenture, interest
payments are required to be paid quarterly at an interest rate
of 11% per annum. The principal amount is required to be repaid
in four annual installments commencing on August 31, 2017,
through the final maturity on August 31, 2020. As
additional consideration, Steven Madden, Ltd. also received
1,844,860 shares of the our common stock which are subject
to a voting agreement in favor of Peter Edison, representing a
19.99% interest in the Company on a post-closing basis. In
connection with the transaction, we received aggregate net
proceeds of $4.5 million after transaction and other costs.
The transaction documents contain standstill provisions which
generally prohibit Steven Madden, Ltd. from owning more than
19.999% of our outstanding shares of common stock or from
engaging in certain transactions in our common stock for ten
years, subject to certain conditions. Until the earlier of
August 26, 2012 or the termination
40
or departure of Peter A. Edison as our Chief Executive Officer,
Steven Madden, Ltd. is generally prohibited from transferring
the shares issued or the subordinated debenture.
The subordinated debenture is subordinate to our other
indebtedness, and is generally unsecured. We are required to
offer to redeem the subordinated debenture at 101% of the
outstanding principal amount in certain circumstances, including
a change of control of the Company (as defined in the
subordinated debenture), including the termination or departure
of Peter A. Edison as our Chief Executive Officer for any reason.
The subordinated debenture generally provides for customary
events of default, including default in the payment of principal
or interest or other required payments in favor of Steven
Madden, Ltd., breach of representations, and specified events of
bankruptcy or specified judgments against us. Upon the
occurrence of an event of default under the subordinated
debenture, Steven Madden, Ltd. would be entitled to acceleration
of the debt (at between 102% and 100% of principal depending on
when a default occurred) plus all accrued and unpaid interest,
with the interest rate increasing to 13.0% per annum. We may
prepay the debenture at any time, subject to prepayment
penalties of between 1% and 2% of the principal amount over the
first two years. We also granted certain demand and piggy-back
registration rights in respect of the shares covering a period
of ten years.
Subordinated
Secured Term Loan
We had a subordinated secured term loan with Private Equity
Management Group, Inc. (PEM) as arranger and administrative
agent on behalf of the lender, and an affiliate of PEM, as the
lender, originally entered into in February 2008. The loan
matured and was repaid in January 2011. We had balances under
the loan of $2.8 million and $4.8 million as of
January 30, 2010 and January 31, 2009,respectively,
with the loan providing for 36 monthly installments of
principal and interest at an interest rate of 15% per annum.
The loan agreement contained customary and other financial
covenants and representations and warranties, including a
covenant limiting capital expenditures to $1 million per
year. Moreover, originally the loan agreement contained
financial covenants requiring us to maintain specified levels of
tangible net worth and adjusted EBITDA (as defined in the
agreement) each fiscal quarter. We amended the loan agreement
four times (May 2008, April 2009, September 2009 and March
2010) to modify these covenants in order to remain in
compliance. The March 2010 amendment completely eliminated these
covenants for the remainder of the term loan. As consideration
for the initial loan and the May 2008 amendment thereto, PEM
received 400,000 shares of our common stock, an advisory
fee of $300,000 and PEMs costs and expenses. As
consideration for the April 2009 and September 2009 amendments,
we paid fees totaling $265,000 and issued an additional
250,000 shares of our common stock. We did not pay any fees
in connection with the March 2010 amendment. We also entered
into a registration rights agreement with PEM, which has now
lapsed.
Contractual
Obligations
The following table summarizes our contractual obligations as of
January 29, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due in Period
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Long-term debt obligations(1)
|
|
$
|
14,069,056
|
|
|
$
|
935,278
|
|
|
$
|
5,292,111
|
|
|
$
|
1,100,000
|
|
|
$
|
6,741,667
|
|
Operating lease obligations(2)
|
|
|
113,089,551
|
|
|
|
24,272,384
|
|
|
|
41,511,070
|
|
|
|
30,731,849
|
|
|
|
16,574,248
|
|
Purchase obligations(3)
|
|
|
28,784,919
|
|
|
|
24,284,919
|
|
|
|
3,000,000
|
|
|
|
1,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
155,943,526
|
|
|
$
|
49,492,581
|
|
|
$
|
49,803,181
|
|
|
$
|
33,331,849
|
|
|
$
|
23,315,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes principal and interest payments on our subordinated
convertible debentures and our subordinated debenture. |
|
(2) |
|
Includes minimum payment obligations relating to our store
leases. |
|
(3) |
|
Includes merchandise on order, minimum royalty payments related
to the H by Halston license, and payment obligations relating to
store construction and miscellaneous service contracts. |
41
Off-Balance
Sheet Arrangements
At January 29, 2011 and January 30, 2010, we did not
have any relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured
finance or special purpose entities or variable interest
entities, which would have been established for the purpose of
facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes. We are, therefore, not
materially exposed to any financing, liquidity, market or credit
risk that could otherwise have arisen if we had engaged in such
relationships.
Recent
Accounting Pronouncements
None.
Impact of
Inflation
Overall, we do not believe that inflation has had a material
adverse impact on our business or operating results during the
periods presented. We cannot give assurance, however, that our
business will not be affected by inflation in the future.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
Not Required.
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
Our financial statements together with the report of the
independent registered public accounting firm are set forth
beginning on
page F-1
and are incorporated herein by this reference.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.
|
None.
|
|
Item 9A.
|
Controls
and Procedures.
|
Disclosure Controls and Procedures. The
Companys management, with the participation of the
Companys Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the Companys
disclosure controls and procedures (as such term is defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the
Exchange Act)), as of the end of the period covered
by this report. Any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of
achieving the desired control objectives. Based on such
evaluation, the Companys Chief Executive Officer and Chief
Financial Officer have concluded that, as of the end of such
period, the Companys disclosure controls and procedures
provided reasonable assurance that the disclosure controls and
procedures were effective in recording, processing, summarizing
and reporting, on a timely basis, information required to be
disclosed by the Company in the reports that it files or submits
under the Exchange Act and in accumulating and communicating
such information to management, including the Companys
Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required
disclosure.
Managements Annual Report on Internal Control Over
Financial Reporting. The Companys
management is responsible for establishing and maintaining
adequate internal control over financial reporting (as such term
is defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) for the Company. With the participation
of the Chief Executive Officer and the Chief Financial Officer,
management conducted an evaluation of the effectiveness of
internal control over financial reporting based on the framework
and the criteria established in Internal Control
Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this
evaluation, management has concluded that internal control over
financial reporting was effective as of January 29, 2011.
Our internal control system was designed to provide reasonable
assurance to the Companys management and board of
directors regarding the reliability of financial reporting and
the preparation and fair presentation of
42
published financial statements for external purposes in
accordance with generally accepted accounting principles. All
internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined
to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation.
This annual report does not include an attestation report of the
Companys registered public accounting firm regarding
internal control over financial reporting. Managements
report was not subject to attestation by the companys
registered public accounting firm pursuant to rules of the
Securities and Exchange Commission that permit the Company to
provide only managements report in this annual report.
Changes in Internal Control Over Financial
Reporting. The Companys management, with
the participation of the Companys Chief Executive Officer
and Chief Financial Officer, conducted an evaluation of the
Companys internal control over financial reporting to
determine whether any changes occurred during the Companys
fourth fiscal quarter ended January 29, 2011 that have
materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial
reporting. Based on that evaluation, there has been no such
change during the Companys fourth quarter of fiscal year
2010.
|
|
Item 9B.
|
Other
Information.
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
Information set forth in the Companys 2011 Proxy Statement
under the caption Information Regarding Board of Directors
and Committees is hereby incorporated by reference. No
other sections of the 2011 Proxy Statement are incorporated
herein by this reference. The following information with respect
to the executive officers of the Company as of April 1,
2011 is included pursuant to Instruction 3 of
Item 401(b) of
Regulation S-K.
Executive
Officers of the Registrant
Certain information concerning the executive officers of Bakers
is set forth below:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Peter A. Edison
|
|
|
55
|
|
|
Chairman of the Board, Chief Executive Officer and President
|
Mark D. Ianni
|
|
|
50
|
|
|
Executive Vice President and Chief Merchandising Officer
|
Stanley K. Tusman
|
|
|
64
|
|
|
Executive Vice President and Chief Planning Officer
|
Joseph R. VanderPluym
|
|
|
59
|
|
|
Executive Vice President and Chief Operations Officer
|
Charles R. Daniel, III
|
|
|
52
|
|
|
Executive Vice President and Chief Financial Officer,
Controller, Treasurer and Secretary
|
Peter A. Edison has over 30 years of experience in
the fashion and apparel industry. Between 1986 and 1997,
Mr. Edison served as director and as an officer in various
divisions of Edison Brothers Stores, Inc., including serving as
the Director of Corporate Development for Edison Brothers,
President of Edison Big & Tall, and as President of
Chandlers/Sacha of London. He also served as Director of
Marketing and Merchandise Controller, and in other capacities,
for Edison Shoe Division. Mr. Edison received his M.B.A. in
1981 from Harvard Business School, and served as chairman of the
board of directors of Dave & Busters, Inc. until
February 2006. He has served as our Chairman of the Board and
Chief Executive Officer since October 1997 and as our President
since September 15, 2007.
Mark D. Ianni has over 25 combined years with Edison
Brothers and Bakers as an experienced first-cost buyer, having
held various positions, including Merchandiser, Associate Buyer,
Senior Dress Shoe Buyer, Tailored Shoe
43
Buyer and Executive Vice President Divisional
Merchandise Manager of Dress Shoes from June 1999 to July 2002.
Mr. Ianni has served as our Executive Vice President since
July 2002 and our Chief Merchandising Officer since
September 15, 2007.
Stanley K. Tusman has over 30 years of financial
analysis and business experience. Mr. Tusman served as the
Vice President Director of Planning &
Allocation for the 500-store Edison Footwear Group, the Vice
President of Retail Systems Integration for the 500-store
Genesco Retail, Director of Merchandising, Planning and
Logistics for the 180-store Journeys and the Executive
Director of Financial Planning for the 400-store Claires
Boutiques chains. Mr. Tusman has served as our Executive
Vice President since June 1999 and our Chief Planning Officer
since September 15, 2007.
Joseph R. VanderPluym has over 30 years of store
operations experience with a track record of building and
motivating high energy, high service field organizations.
Mr. VanderPluym spent 20 years at the 700-store Merry
Go Round chain, where he served as Executive Vice President of
Stores for Merry Go Round and Boogies Diner Stores. He
served as Vice President of Stores for Edison Footwear Group for
two years and as Vice President of Stores for Lucky Brand
Apparel Stores for approximately six months prior to joining
Bakers. Mr. VanderPluym has served as either our Vice
President Stores or our Executive Vice President
since June 1999 and as Chief Operations Officer since
September 15, 2007.
Charles R. Daniel, III has over 25 years of
accounting experience. Mr. Daniel has served as our
Controller since February 2004. Prior to that time,
Mr. Daniel worked for the accounting firm of Stone
Carlie & Company. Mr. Daniel served as our
Secretary, Treasurer and Vice President Finance
since February 4, 2008 and has served as Executive Vice
President and Chief Financial Officer since March 12, 2009.
Each of the executive officers, except for Mr. Daniel, has
entered into an employment agreement with the Company.
Information with respect to the executive officers set forth in
the Companys 2011 Proxy Statement under the caption
Executive Compensation Employment Agreements
and Termination of Employment is incorporated herein by
this reference.
Section 16(a)
Beneficial Ownership Reporting Compliance
Information with respect to compliance with Section 16(a)
of the Securities Exchange Act of 1934, as amended, set forth in
the Companys 2011 Proxy Statement under the caption
Section 16(a) Beneficial Ownership Reporting
Compliance is incorporated herein by this reference. No
other sections of the 2011 Proxy Statement are incorporated by
this reference.
Code of
Ethics
The Company has adopted a Code of Business Conduct (the
Code of Ethics) that applies to its principal
executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, as well as directors, officers and employees of the
Company. The Code of Ethics has been filed as Exhibit 14.1
to this Annual Report on
Form 10-K.
The information set forth under the caption Information
Regarding Board of Directors and Committees Code of
Business Conduct in the Companys 2011 Proxy
Statement is incorporated herein by this reference. No other
sections of the 2011 Proxy Statement are incorporated by this
reference.
|
|
Item 11.
|
Executive
Compensation.
|
The information set forth in the Companys 2011 Proxy
Statement under the captions Information Regarding Board
of Directors and Committees Compensation of
Directors, Information Regarding Board of Directors
and Committees Compensation Committee Interlocks and
Insider Participation and Executive
Compensation are hereby incorporated by reference. No
other sections of the 2011 Proxy Statement are incorporated
herein by this reference.
44
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
|
The information set forth in the Companys 2011 Proxy
Statement under the caption Stock Ownership of Management
and Certain Beneficial Owners is hereby incorporated by
reference. The information set forth under the caption
Equity Compensation Plan Information in the
Companys 2011 Proxy Statement is hereby incorporated
herein by reference. No other sections of the 2011 Proxy
Statement are incorporated herein by this reference.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
The information set forth under the caption Certain
Relationships and Related Person Transactions and
Information Regarding Board of Directors and
Committees Corporate Governance and Director
Independence in the Companys 2011 Proxy Statement is
hereby incorporated by reference. No other sections of the 2011
Proxy Statement are incorporated herein by this reference.
|
|
Item 14.
|
Principal
Accountant Fees and Services.
|
The section of the 2011 Proxy Statement entitled Principal
Accountant Fees and Services is hereby incorporated by
reference.
No other sections of the 2011 Proxy Statement are incorporated
herein by this reference.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules.
|
(a) Documents filed as part of this Report:
1. Financial Statements: The financial
statements commence on
page F-1.
The Index to Financial Statements on
page F-1
is incorporated herein by reference.
2. Financial Statement Schedules: All
information schedules have been omitted as the required
information is inapplicable, not required, or other information
is included in the financial statement notes.
3. Exhibits: The list of exhibits in the
Exhibit Index to this Report is incorporated herein by
reference. The following exhibits are management contracts and
compensatory plans or arrangements required to be filed as
exhibits to this
Form 10-K:
Exhibits 10.1 through 10.15 and Exhibits 10.17 through
10.21. The exhibits were filed with the SEC but were not
included in the printed version of the Annual Report to
Shareholders.
45
SIGNATURES
Pursuant to the requirements of Section 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.
BAKERS FOOTWEAR GROUP, INC.
Peter A. Edison
Chairman of the Board, Chief Executive Officer
and President (Principal Executive Officer)
April 29, 2011
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ PETER
A. EDISON
(Peter
A. Edison)
|
|
Chairman of the Board, Chief Executive Officer, President and
Director (Principal Executive Officer)
|
|
April 29, 2011
|
|
|
|
|
|
/s/ CHARLES
R. DANIEL, III
(Charles
R. Daniel, III)
|
|
Executive Vice President and Chief Financial Officer,
Controller, Treasurer and Secretary (Principal Financial Officer
and Principal Accounting Officer)
|
|
April 29, 2011
|
|
|
|
|
|
*
(Timothy
F. Finley)
|
|
Director
|
|
April 29, 2011
|
|
|
|
|
|
*
(Harry
E. Rich)
|
|
Director
|
|
April 29, 2011
|
|
|
|
|
|
*
(Scott C. Schnuck)
|
|
Director
|
|
April 29, 2011
|
|
|
|
* |
|
Peter A. Edison, by signing his name hereto, does sign this
document on behalf of the above noted individuals, pursuant to
powers of attorney duly executed by such individuals which have
been filed as an Exhibit to this Report. |
Peter A. Edison
Attorney-in-Fact
46
EXHIBIT INDEX
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
3
|
.1
|
|
Restated Articles of Incorporation of the Company (incorporated
by reference to Exhibit 3.1 to the Companys Annual
Report on
Form 10-K
for the fiscal year ended January 3, 2004 filed on
April 2, 2004 (File
No. 000-50563)).
|
|
3
|
.2
|
|
Restated Bylaws of the Company (incorporated by reference to
Exhibit 3.2 to the Companys Annual Report on
Form 10-K
for the fiscal year ended January 3, 2004 filed on
April 2, 2004
(File No. 000-50563)).
|
|
4
|
.1
|
|
Form of common stock certificate (incorporated by reference to
Exhibit 4.2 to the Companys Annual Report on
Form 10-K
for the fiscal year ended January 31, 2009 filed on
April 24, 2009
(File No. 000-50563)).
|
|
4
|
.2
|
|
Subordinated Convertible Debenture Purchase Agreement dated
June 13, 2007 by and among the Company and the Investors
named therein (incorporated by reference to Exhibit 4.1 to
the Companys Current Report on
Form 8-K
filed on July 2, 2007 (File
No. 000-50563)).
|
|
4
|
.3
|
|
9.5% Subordinated Convertible Debentures issued by the
Company to Investors on June 26, 2007 (incorporated by
reference to Exhibit 4.2 to the Companys Current
Report on
Form 8-K
filed on July 2, 2007 (File
No. 000-50563)).
|
|
4
|
.4
|
|
Subordination Agreement dated June 26, 2007 by and among
the Company, the Investors named therein and Bank of America,
N.A. (incorporated by reference to Exhibit 4.3 to the
Companys Current Report on
Form 8-K
filed on July 2, 2007 (File
No. 000-50563)).
|
|
4
|
.5
|
|
First Amendment to Subordinated Convertible Debentures and
Subordinated Convertible Debenture Purchase Agreement dated
April 20, 2010 (incorporated by reference to
Exhibit 4.3 to the Companys Current Report on
Form 8-K
filed on April 23, 2010 (File
No. 000-50563)).
|
|
4
|
.6
|
|
Registration Rights Agreement dated June 26, 2007 by and
among the Company and the Investors named therein (incorporated
by reference to Exhibit 4.5 to the Companys Current
Report on
Form 8-K
filed on July 2, 2007 (File
No. 000-50563)).
|
|
4
|
.7
|
|
Amendment Number 3 to Loan Documents dated September 3,
2009 by and among the Company, Private Equity Management Group,
Inc. and the Lender named therein (incorporated by reference to
Exhibit 4.11 to the Companys Quarterly Report on
Form 10-Q
filed on September 10, 2009
(File No. 000-50563)).
|
|
4
|
.8
|
|
Amendment Number 4 to Loan Documents dated March 23, 2010
by and among the Company, Private Equity Management Group, Inc.
and the Lender named therein (incorporated by reference to
Exhibit 4.12 to the Companys Current Report on
Form 8-K
filed on March 25, 2010
(File No. 000-50563)).
|
|
4
|
.9
|
|
Amendment Number 5 to Loan Documents dated August 26, 2010
by and among the Company, Private Equity Management Group, Inc.
and the Lender named therein (incorporated by reference to
Exhibit 4.8 to the Companys Quarterly Report on
Form 10-Q
filed on September 14, 2010
(File No. 000-50563)).
|
|
4
|
.10
|
|
Debenture and Stock Purchase Agreement dated August 26,
2010 by and among the Company and Steven Madden, Ltd.
(incorporated by reference to Exhibit 4.1 to the
Companys Current Report on
Form 8-K
filed on August 27, 2010 (File
No. 000-50563)).
|
|
4
|
.11
|
|
Debenture issued by the Company to Steven Madden, Ltd. on
August 26, 2010 (incorporated by reference to
Exhibit 4.2 to the Companys Current Report on
Form 8-K
filed on August 27, 2010
(File No. 000-50563)).
|
|
4
|
.12
|
|
Voting Agreement dated August 26, 2010 by and among the
Company, Peter A. Edison, and Steven Madden, Ltd. (incorporated
by reference to Exhibit 4.3 to the Companys Current
Report on
Form 8-K
filed on August 27, 2010 (File
No. 000-50563)).
|
47
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
4
|
.13
|
|
Registration Rights Agreement dated August 26, 2010 by and
among the Company and Steven Madden, Ltd. (incorporated by
reference to Exhibit 4.4 to the Companys Current
Report on
Form 8-K
filed on August 27, 2010 (File
No. 000-50563)).
|
|
4
|
.14
|
|
Subordination Agreement dated August 26, 2010 by and among
the Company, Bank of America, N.A., and Steven Madden, Ltd.
(incorporated by reference to Exhibit 4.5 to the
Companys Current Report on
Form 8-K
filed on August 27, 2010 (File
No. 000-50563)).
|
|
4
|
.15
|
|
Subordination Agreement dated August 26, 2010 by and among
the Company, Private Equity Management Group, Inc., in its
capacity as administrative agent for GVECR II 2007 E Trust dated
December 17, 2007, and Steven Madden, Ltd. (incorporated by
reference to Exhibit 4.6 to the Companys Current
Report on
Form 8-K
filed on August 27, 2010 (File
No. 000-50563)).
|
|
4
|
.16
|
|
Subordination Agreement dated August 26, 2010 by and among
the Company, the holders of $4 million aggregate principal
amount of the Companys 9.5% Subordinated Convertible
Debentures due June 30, 2012, and Steven Madden, Ltd.
(incorporated by reference to Exhibit 4.7 to the
Companys Current Report on
Form 8-K
filed on August 27, 2010 (File
No. 000-50563)).
|
|
10
|
.1
|
|
Bakers Footwear Group, Inc. 2003 Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.3 to the
Companys Current Report on
Form 8-K
filed on March 21, 2007
(File No. 000-50563)).
|
|
10
|
.1.1
|
|
Form of Nonqualified Option Award Agreement under Bakers
Footwear Group, Inc. 2003 Stock Option Plan (incorporated by
reference to Exhibit 10.2 to the Companys Current
Report on
Form 8-K
filed on March 21, 2007 (File
No. 000-50563)).
|
|
10
|
.2
|
|
Bakers Footwear Group, Inc. Cash Bonus Plan (incorporated by
reference to Exhibit 10.2 of Amendment No. 3 to the
Companys Registration Statement on
Form S-1
filed on January 8, 2004 (File
No. 333-86332)).
|
|
10
|
.3
|
|
Letter to Peter Edison outlining 2010 bonus levels (incorporated
by reference to Exhibit 10.4 to the Companys Current
Report on
Form 8-K
filed on April 23, 2010 (File
No. 000-50563)).
|
|
10
|
.4
|
|
Letter to Joe VanderPluym outlining 2010 bonus levels
(incorporated by reference to Exhibit 10.5 to the
Companys Current Report on
Form 8-K
filed on April 23, 2010 (File
No. 000-50563)).
|
|
10
|
.5
|
|
Letter to Mark Ianni outlining 2010 bonus levels (incorporated
by reference to Exhibit 10.6 to the Companys Current
Report on
Form 8-K
filed on April 23, 2010 (File
No. 000-50563)).
|
|
10
|
.6
|
|
Letter to Stan Tusman outlining 2010 bonus levels (incorporated
by reference to Exhibit 10.7 to the Companys Current
Report on
Form 8-K
filed on April 23, 2010 (File
No. 000-50563)).
|
|
10
|
.7
|
|
Letter to Charlie Daniel outlining 2010 bonus levels
(incorporated by reference to Exhibit 10.8 to the
Companys Current Report on
Form 8-K
filed on April 23, 2010 (File
No. 000-50563)).
|
|
10
|
.8
|
|
Letter to Peter Edison outlining 2011 bonus levels.
|
|
10
|
.9
|
|
Letter to Joe VanderPluym outlining 2011 bonus levels.
|
|
10
|
.10
|
|
Letter to Mark Ianni outlining 2011 bonus levels.
|
|
10
|
.11
|
|
Letter to Stan Tusman outlining 2011 bonus levels.
|
|
10
|
.12
|
|
Letter to Charlie Daniel outlining 2011 bonus levels.
|
|
10
|
.13
|
|
Bakers Footwear Group, Inc. 2005 Incentive Compensation Plan
(incorporated by reference to Appendix A to the
Companys 2005 Proxy Statement filed on April 27, 2005
(File
No. 000-50563)).
|
|
10
|
.13.1
|
|
Form of Notice of Award of Performance Shares under Bakers
Footwear Group, Inc. 2005 Incentive Compensation Plan
(incorporated by reference to Exhibit 10.4 to the
Companys Current Report on
Form 8-K
filed on March 22, 2006 (File
No. 000-50563)).
|
|
10
|
.13.2
|
|
Form of Restricted Stock Award Agreement under Bakers Footwear
Group, Inc. 2005 Incentive Compensation Plan (incorporated by
reference to Exhibit 10.4 to the Companys Current
Report on
Form 8-K
filed on October 9, 2007 (File
No. 000-50563)).
|
48
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
10
|
.14
|
|
Summary of base salaries for specified executive officers
(incorporated by reference to Exhibit 10.25 to the
Companys Annual Report on Form 10-K for the fiscal year
ended February 2, 2008 filed on May 2, 2008 (File
No. 000-50563)).
|
|
10
|
.15
|
|
Summary of April 20, 2010 stock option grants to executive
officers of the Company (incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K filed
on April 23, 2010 (File No. 000-50563)).
|
|
10
|
.16
|
|
Assignment of Rights dated June 23, 1999 between the
Company and Edison Brothers Stores, Inc. (incorporated by
reference to Exhibit 10.10 to the Companys
Registration Statement on
Form S-1
filed on April 16, 2002 (File
No. 333-86332)).
|
|
10
|
.17
|
|
Employment Agreement dated January 12, 2004 by and between
the Company and Peter Edison (incorporated by reference to
Exhibit 10.15 of Amendment No. 4 to the Companys
Registration Statement on
Form S-1
filed on January 20, 2004 (File
No. 333-86332)).
|
|
10
|
.18
|
|
Employment Agreement dated September 16, 2002 by and
between the Company and Stanley K. Tusman (incorporated by
reference to Exhibit 10.20 of Amendment No. 4 to the
Companys Registration Statement on
Form S-1
filed on January 20, 2004 (File
No. 333-86332)).
|
|
10
|
.19
|
|
Employment Agreement dated September 5, 2006 by and between
the Company and Joe VanderPluym (incorporated by reference to
Exhibit 10.4 to the Companys Current Report on
Form 8-K
filed on September 7, 2006 (File
No. 000-50563)).
|
|
10
|
.20
|
|
Employment Agreement dated August 31, 2006 by and between
the Company and Mark Ianni (incorporated by reference to
Exhibit 10.3 to the Companys Current Report on
Form 8-K
filed on September 7, 2006 (File
No. 000-50563)).
|
|
10
|
.21
|
|
Summary of Compensation of Non-management Directors as of
March 15, 2007 (incorporated by reference to
Exhibit 10.12 to the Companys Quarterly Report on
Form 10-Q
for the period ended May 5, 2007 filed on June 19,
2007 (File
No. 000-50563)).
|
|
10
|
.22
|
|
Second Amended and Restated Loan and Security Agreement dated as
of August 31, 2006 by and between Bank of America, N.A. and
the Company (incorporated by reference to Exhibit 10.1 to
the Companys Current Report on
Form 8-K
filed on September 7, 2006 (File
No. 000-50563)).
|
|
10
|
.22.1
|
|
Amended and Restated Revolving Credit Note dated as of
August 31, 2006 by and between Bank of America, N.A. and
the Company (incorporated by reference to Exhibit 10.2 to
the Companys Current Report on
Form 8-K
filed on September 7, 2006 (File
No. 000-50563)).
|
|
10
|
.22.2
|
|
Waiver and Consent Agreement dated as of April 18, 2007 by
and between Bank of America, N.A. and the Company (incorporated
by reference to Exhibit 10.14.2 to the Companys
Annual Report on
Form 10-K
for the fiscal year ended February 3, 2007 filed on
April 24, 2007 (File
No. 000-50563)).
|
|
10
|
.22.3
|
|
First Amendment to Second Amended and Restated Loan and Security
Agreement dated as of May 17, 2007 by and between the
Company and Bank of America, N.A. (incorporated by reference to
Exhibit 10.4 to the Companys Current Report on
Form 8-K
filed on May 18, 2007 (File
No. 000-50563)).
|
|
10
|
.22.4
|
|
Extension Agreement dated June 26, 2007 between the Company
and Bank of America, N.A. (incorporated by reference to
Exhibit 4.4 to the Companys Current Report on
Form 8-K
filed on July 2, 2007 (File
No. 000-50563)).
|
|
10
|
.22.5
|
|
Second Amendment to Second Amended and Restated Loan and
Security Agreement dated February 1, 2008 by and among the
Company and Bank of America, N.A. (incorporated by reference to
Exhibit 10.1 to the Companys Current Report on
Form 8-K
filed on February 4, 2008 (File
No. 000-50563)).
|
|
10
|
.22.6
|
|
Third Amendment to Second Amended and Restated Loan and Security
Agreement dated April 9, 2009 by and among the Company and
Bank of America, N.A. (incorporated by reference to
Exhibit 10.7 to the Companys Current Report on
Form 8-K
filed on April 15, 2009 (File
No. 000-50563)).
|
49
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
10
|
.22.7
|
|
Fourth Amendment to Second Amended and Restated Loan and
Security Agreement dated September 8, 2009 by and among the
Company and Bank of America, N.A. (incorporated by reference to
Exhibit 10.8 to the Companys Quarterly Report on
Form 10-Q
for the period ended August 1, 2009 filed on
September 10, 2009 (File
No. 000-50563)).
|
|
10
|
.22.8
|
|
Fifth Amendment to Second Amended and Restated Loan and Security
Agreement dated May 28, 2010 by and among the Company and
Bank of America, N.A. (incorporated by reference to
Exhibit 10.9 to the Companys Current Report on
Form 8-K
filed on May 28, 2010 (File
No. 000-50563)).
|
|
10
|
.22.9
|
|
Waiver of Bank of America, N.A., dated August 26, 2010
(incorporated by reference to Exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed on August 27, 2010 (File
No. 000-50563)).
|
|
10
|
.22.10
|
|
Consent of Bank of America, N.A., dated August 26, 2010
(incorporated by reference to Exhibit 10.2 to the
Companys Current Report on
Form 8-K
filed on August 27, 2010 (File
No. 000-50563)).
|
|
10
|
.23
|
|
Concurrent Use Agreement dated June 23, 1999 between the
Company and Novus, Inc. (incorporated by reference to
Exhibit 10.9 to the Companys Registration Statement
on
Form S-1
filed on April 16, 2002 (File
No. 333-86332)).
|
|
11
|
.1
|
|
Statement regarding computation of per share earnings
(incorporated by reference from Note 15 of the Financial
Statements).
|
|
14
|
.1
|
|
Code of Business Conduct (incorporated by reference to
Exhibit 14.1 to the Companys Annual Report on
Form 10-K
for the fiscal year ended January 3, 2004 filed on
April 2, 2004 (File
No. 000-50563)).
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
24
|
.1
|
|
Power of Attorney.
|
|
31
|
.1
|
|
Rule 13a-14(a)/15d-14(a)
Certification (pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, executed by Chief Executive Officer).
|
|
31
|
.2
|
|
Rule 13a-14(a)/15d-14(a)
Certification (pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, executed by Chief Financial Officer).
|
|
32
|
.1
|
|
Section 1350 Certifications (pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, executed by Chief Executive
Officer and the Chief Financial Officer).
|
50
INDEX TO
FINANCIAL STATEMENTS
Contents
51
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Bakers Footwear Group, Inc.
We have audited the accompanying balance sheets of Bakers
Footwear Group, Inc. (the Company) as of January 29, 2011
and January 30, 2010, and the related statements of
operations, shareholders equity (deficit), and cash flows
for each of the three years in the period ended January 29,
2011. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (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. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Bakers Footwear Group, Inc. at January 29, 2011 and
January 30, 2010, and the results of its operations and its
cash flows for each of the three years in the period ended
January 29, 2011, in conformity with U.S. generally
accepted accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As
described in Note 2 to the financial statements, the
Company has incurred substantial losses from operations in
recent years and has a significant working capital deficiency.
These conditions raise substantial doubt about its ability to
continue as a going concern. Managements plans in regards
to these matters are also described in Note 2. The
financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and
classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
St. Louis, Missouri
April 29, 2011
F-1
BAKERS
FOOTWEAR GROUP, INC.
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 29,
|
|
|
|
2010
|
|
|
2011
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
154,685
|
|
|
$
|
146,263
|
|
Accounts receivable
|
|
|
1,387,358
|
|
|
|
1,484,809
|
|
Inventories
|
|
|
20,233,207
|
|
|
|
25,911,508
|
|
Prepaid expenses and other current assets
|
|
|
1,234,787
|
|
|
|
970,883
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
23,010,037
|
|
|
|
28,513,463
|
|
Property and equipment, net
|
|
|
24,757,395
|
|
|
|
18,405,166
|
|
Other assets
|
|
|
851,035
|
|
|
|
1,087,058
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
48,618,467
|
|
|
$
|
48,005,687
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
10,138,635
|
|
|
$
|
16,009,847
|
|
Accrued expenses
|
|
|
7,320,595
|
|
|
|
8,519,585
|
|
Subordinated secured term loan
|
|
|
2,785,112
|
|
|
|
|
|
Subordinated convertible debentures
|
|
|
4,000,000
|
|
|
|
|
|
Sales tax payable
|
|
|
1,152,277
|
|
|
|
1,122,024
|
|
Deferred income
|
|
|
1,366,252
|
|
|
|
1,120,444
|
|
Revolving credit facility
|
|
|
10,531,687
|
|
|
|
10,449,299
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
37,294,558
|
|
|
|
37,221,199
|
|
Accrued noncurrent rent liabilities
|
|
|
9,183,756
|
|
|
|
8,648,272
|
|
Subordinated convertible debentures
|
|
|
|
|
|
|
4,000,000
|
|
Subordinated debenture
|
|
|
|
|
|
|
4,123,327
|
|
Shareholders equity (deficit):
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value; 5,000,000 shares
authorized, no shares outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value; 40,000,000 shares
authorized, 7,382,856 and 9,228,916 shares outstanding at
January 30, 2010 and January 29, 2011, respectively
|
|
|
738
|
|
|
|
923
|
|
Additional paid-in capital
|
|
|
39,279,600
|
|
|
|
40,443,888
|
|
Accumulated deficit
|
|
|
(37,140,185
|
)
|
|
|
(46,431,922
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity (deficit)
|
|
|
2,140,153
|
|
|
|
(5,987,111
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity (deficit)
|
|
$
|
48,618,467
|
|
|
$
|
48,005,687
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-2
BAKERS
FOOTWEAR GROUP, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
January 31,
|
|
|
January 30,
|
|
|
January 29,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Net sales
|
|
$
|
183,661,789
|
|
|
$
|
185,368,696
|
|
|
$
|
185,625,844
|
|
Cost of merchandise sold, occupancy, and buying expenses
|
|
|
133,110,127
|
|
|
|
132,000,096
|
|
|
|
136,053,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
50,551,662
|
|
|
|
53,368,600
|
|
|
|
49,571,907
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
|
|
|
42,157,931
|
|
|
|
40,826,820
|
|
|
|
40,364,873
|
|
General and administrative
|
|
|
17,213,142
|
|
|
|
15,928,472
|
|
|
|
15,252,338
|
|
Loss on disposal of property and equipment
|
|
|
347,176
|
|
|
|
306,164
|
|
|
|
70,642
|
|
Impairment of long-lived assets
|
|
|
2,609,588
|
|
|
|
2,762,273
|
|
|
|
1,415,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(11,776,175
|
)
|
|
|
(6,455,129
|
)
|
|
|
(7,531,925
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(3,255,087
|
)
|
|
|
(2,723,566
|
)
|
|
|
(2,074,628
|
)
|
Other income (expense), net
|
|
|
120,508
|
|
|
|
96,599
|
|
|
|
127,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(14,910,754
|
)
|
|
|
(9,082,096
|
)
|
|
|
(9,479,199
|
)
|
Provision for (benefit from) income taxes
|
|
|
84,847
|
|
|
|
|
|
|
|
(187,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(14,995,601
|
)
|
|
$
|
(9,082,096
|
)
|
|
$
|
(9,291,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share:
|
|
$
|
(2.13
|
)
|
|
$
|
(1.24
|
)
|
|
$
|
(1.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-3
BAKERS
FOOTWEAR GROUP, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Issued and
|
|
|
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
|
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
Balance at February 2, 2008
|
|
|
6,655,856
|
|
|
$
|
665
|
|
|
$
|
37,101,923
|
|
|
$
|
(13,062,488
|
)
|
|
$
|
24,040,100
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
609,901
|
|
|
|
|
|
|
|
609,901
|
|
Issuance of common stock
|
|
|
400,000
|
|
|
|
40
|
|
|
|
794,960
|
|
|
|
|
|
|
|
795,000
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,995,601
|
)
|
|
|
(14,995,601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2009
|
|
|
7,055,856
|
|
|
|
705
|
|
|
|
38,506,784
|
|
|
|
(28,058,089
|
)
|
|
|
10,449,400
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
585,341
|
|
|
|
|
|
|
|
585,341
|
|
Issuance of common stock
|
|
|
250,000
|
|
|
|
25
|
|
|
|
187,475
|
|
|
|
|
|
|
|
187,500
|
|
Issuance of restricted stock
|
|
|
77,000
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,082,096
|
)
|
|
|
(9,082,096
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 30, 2010
|
|
|
7,382,856
|
|
|
|
738
|
|
|
|
39,279,600
|
|
|
|
(37,140,185
|
)
|
|
|
2,140,153
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
364,088
|
|
|
|
|
|
|
|
364,088
|
|
Issuance of common stock
|
|
|
1,844,860
|
|
|
|
184
|
|
|
|
799,816
|
|
|
|
|
|
|
|
800,000
|
|
Shares issued in connection with exercise of stock options
|
|
|
1,200
|
|
|
|
1
|
|
|
|
384
|
|
|
|
|
|
|
|
385
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,291,737
|
)
|
|
|
(9,291,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 29, 2011
|
|
|
9,228,916
|
|
|
$
|
923
|
|
|
$
|
40,443,888
|
|
|
$
|
(46,431,922
|
)
|
|
$
|
(5,987,111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-4
BAKERS
FOOTWEAR GROUP, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
January 31,
|
|
|
January 30,
|
|
|
January 29,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(14,995,601
|
)
|
|
$
|
(9,082,096
|
)
|
|
$
|
(9,291,737
|
)
|
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
7,781,462
|
|
|
|
6,535,588
|
|
|
|
5,712,996
|
|
Accretion of debt discount
|
|
|
667,282
|
|
|
|
488,663
|
|
|
|
217,382
|
|
Stock-based compensation expense
|
|
|
609,901
|
|
|
|
585,341
|
|
|
|
364,088
|
|
Interest expense recognized for issuing common stock related to
amending the subordinated secured term loan
|
|
|
|
|
|
|
187,500
|
|
|
|
|
|
Impairment of long-lived assets
|
|
|
2,609,588
|
|
|
|
2,762,273
|
|
|
|
1,415,979
|
|
Loss on disposal of property and equipment
|
|
|
347,176
|
|
|
|
306,164
|
|
|
|
70,642
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
2,294
|
|
|
|
(13,971
|
)
|
|
|
65,918
|
|
Inventories
|
|
|
(2,914,411
|
)
|
|
|
743,145
|
|
|
|
(5,678,301
|
)
|
Prepaid expenses and other current assets
|
|
|
1,657,200
|
|
|
|
(238,969
|
)
|
|
|
263,904
|
|
Other assets
|
|
|
714,785
|
|
|
|
243,150
|
|
|
|
98,021
|
|
Accounts payable
|
|
|
474,770
|
|
|
|
2,581,651
|
|
|
|
5,871,212
|
|
Accrued expenses and deferred income
|
|
|
(596,799
|
)
|
|
|
(587,711
|
)
|
|
|
922,929
|
|
Accrued noncurrent rent liabilities
|
|
|
(395,932
|
)
|
|
|
(591,073
|
)
|
|
|
(535,484
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(4,038,285
|
)
|
|
|
3,919,655
|
|
|
|
(502,451
|
)
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(923,256
|
)
|
|
|
(428,054
|
)
|
|
|
(997,787
|
)
|
Proceeds from disposition of property and equipment
|
|
|
1,468
|
|
|
|
416
|
|
|
|
3,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(921,788
|
)
|
|
|
(427,638
|
)
|
|
|
(994,505
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings (payments) on line of credit
|
|
|
298,483
|
|
|
|
(951,175
|
)
|
|
|
(82,388
|
)
|
Debt issuance costs
|
|
|
(325,542
|
)
|
|
|
|
|
|
|
|
|
Net proceeds from exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
385
|
|
Proceeds from issuance of subordinated secured term loan and
common stock
|
|
|
7,020,000
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of subordinated debenture and common stock
|
|
|
|
|
|
|
|
|
|
|
4,549,704
|
|
Principal payments of subordinated secured term loan
|
|
|
(2,000,000
|
)
|
|
|
(2,520,833
|
)
|
|
|
(2,979,167
|
)
|
Principal payments under capital lease obligations
|
|
|
(57,863
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
4,935,078
|
|
|
|
(3,472,008
|
)
|
|
|
1,488,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(24,995
|
)
|
|
|
20,009
|
|
|
|
(8,422
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
159,671
|
|
|
|
134,676
|
|
|
|
154,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
134,676
|
|
|
$
|
154,685
|
|
|
$
|
146,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
2,098,519
|
|
|
$
|
2,032,627
|
|
|
$
|
1,736,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-5
BAKERS
FOOTWEAR GROUP, INC.
NOTES TO
FINANCIAL STATEMENTS
January 29,
2011
|
|
1.
|
Summary
of Significant Accounting Policies
|
Operations
Bakers Footwear Group, Inc., (the Company) was incorporated in
1926 and is engaged in the sale of shoes and accessories through
over 230 retail stores throughout the United States under the
Bakers and Wild Pair names. The Company is a national
full-service retailer specializing in moderately priced fashion
footwear. The Companys products include private-label and
national brand dress, casual, and sport shoes, boots, sandals
and accessories such as handbags and costume jewelry.
Fiscal
Year
The Companys fiscal year is based upon a 52
53 week retail calendar, ending on the Saturday nearest
January 31. The fiscal years ended January 29, 2011
(fiscal year 2010), January 30, 2010 (fiscal year
2009) and January 31, 2009 (fiscal year 2008) are
52 week periods.
Use of
Estimates
The preparation of the financial statements in conformity with
U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect
reported amounts in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Cash
and Cash Equivalents
The Company considers all highly liquid financial instruments
with a maturity of three months or less at the time of purchase
to be cash equivalents. During periods when the Company has
outstanding balances on its revolving credit agreement,
substantially all cash is held in depository accounts where
disbursements are restricted to payments on the revolving credit
agreement and the Companys disbursing accounts are funded
through draws on the revolving credit agreement. During periods
when the Company does not have outstanding balances on its
revolving credit agreement, it invests cash in a money market
fund as well as in its depository accounts.
Accounts
Receivable
Accounts receivable consist substantially of customer
merchandise purchases paid for with third-party credit cards.
Such purchases generally are approved by the card issuers at the
point of sale and cash is remitted to the Company from the card
issuers within three to five days of the transaction. The
Company does not provide an allowance for doubtful accounts
because the Company has not experienced any credit losses in
collecting these amounts from card issuers.
Inventories
Merchandise inventories are valued at the lower of cost or
market. Cost is determined using the
first-in,
first-out retail inventory method. Consideration received from
vendors relating to inventory purchases is recorded as a
reduction of cost of merchandise sold, occupancy, and buying
expenses after an agreement with the vendor is executed and when
the related inventory is sold. The Company physically counts all
merchandise inventory on hand annually, during the month of
January, and adjusts the recorded balance to reflect the results
of the physical counts. The Company records estimated shrinkage
between physical inventory counts based on historical results.
Inventory shrinkage is included as a component of cost of
merchandise sold, occupancy, and buying expenses. Markdowns are
recorded or accrued to reflect expected adjustments to retail
prices in accordance with the retail inventory method. In
determining the lower of cost or market for inventories,
management considers current and recently recorded sales prices,
the length of time product is held in inventory, and quantities
of various product styles contained in inventory, among other
factors. The ultimate amount realized from the sale of
inventories could differ materially
F-6
BAKERS
FOOTWEAR GROUP, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
from managements estimates. If market conditions are less
favorable than those projected by management, additional
inventory markdowns may be required.
Property
and Equipment
Property and equipment are stated at cost. Depreciation and
amortization is calculated using the straight-line method over
the estimated useful lives ranging from three to ten years.
Leasehold improvements are amortized over the lesser of the
related lease term or the useful life of the assets. Costs of
repairs and maintenance are charged to expense as incurred.
Impairment
of Long-Lived Assets
The Company reviews long-lived assets to be held and
used for impairment when events or circumstances exist
that indicate the carrying amount of those assets may not be
recoverable. The Company regularly analyzes the operating
results of its stores and assess the viability of
under-performing stores to determine whether they should be
closed or whether their associated assets, including furniture,
fixtures, equipment, and leasehold improvements, have been
impaired. Asset impairment tests are performed at least
annually, on a
store-by-store
basis. After allowing for an appropriate
start-up
period, unusual nonrecurring events, and favorable trends, fixed
assets of stores indicated to be impaired are written down to
fair value based on managements estimates of future store
sales and expenses, which are considered Level 3 inputs.
During the years ended January 31, 2009, January 30,
2010 and January 29, 2011, the Company recorded $2,609,588,
$2,762,273, and $1,415,979, respectively, in noncash charges to
earnings related to the impairment of furniture, fixtures, and
equipment, leasehold improvements, and other long-lived assets.
Revenue
Recognition
Retail sales are recognized at the point of sale to the
customer, are recorded net of estimated returns, and exclude
sales tax. Sales through the Companys Web site or call
center are recognized as revenue at the time the product is
shipped and title passes to the customer on an FOB shipping
point basis.
Cost
of Merchandise Sold
Cost of merchandise sold includes the cost of merchandise,
buying costs, and occupancy costs.
Operating
Leases
The Company leases its store premises, warehouse, and
headquarters facility under operating leases. The Company
recognizes rent expense for each lease on the straight line
basis, aggregating all future minimum rent payments including
any predetermined fixed escalations of the minimum rentals,
exclusive of any executory costs, and allocating such amounts
ratably over the period from the date the Company takes
possession of the leased premises until the end of the
noncancelable term of the lease. Likewise, negotiated landlord
construction allowances are recognized ratably as a reduction of
rent expense over the same period that rent expense is
recognized. Accrued noncurrent rent liabilities consist of the
aggregate difference between rent expense recorded on the
straight line basis and amounts paid or received under the
leases.
Store leases generally require contingent rentals based on
retail sales volume in excess of pre-defined amounts in addition
to the minimum monthly rental charge. The Company records
expense for contingent rentals during the period in which the
retail sales volume exceeds the respective targets or when
management determines that it is probable that such targets will
be exceeded.
F-7
BAKERS
FOOTWEAR GROUP, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
Stock-Based
Compensation
The Company recognizes expense for stock-based compensation
based on the grant date fair value ratably over the service
period related to each grant. The Company determines the fair
value of stock-based compensation using the Black-Scholes option
pricing model, which requires the Company to make assumptions
regarding future dividends, expected volatility of its stock,
and the expected lives of the options. The Company also makes
assumptions regarding the number of options and the number of
shares of restricted stock and performance shares that will
ultimately vest. The assumptions and calculations are complex
and require a high degree of judgment. Assumptions regarding the
vesting of grants are accounting estimates that must be updated
as necessary with any resulting change recognized as an increase
or decrease in compensation expense at the time the estimate is
changed. Excess tax benefits related to stock option exercises
are reflected as financing cash inflows and operating cash
outflows.
Advertising
and Marketing Expense
The Company expenses costs of advertising and marketing,
including the cost of newspaper, magazine, and web-based
advertising, promotional materials, in-store displays, and
point-of-sale
marketing as advertising expense, when incurred. The Company
expenses the costs of producing catalogs at the point when the
catalogs are initially mailed. Consideration received from
vendors in connection with the promotion of their products is
netted against advertising expense. Marketing and advertising
expense, net of promotional consideration received, totaled
$1,116,872, $664,475, and $982,219 for the years ended
January 31, 2009, January 30, 2010, and
January 29, 2011, respectively. The Company received
$152,022, $0 and $0 in promotional consideration from vendors
which was accounted for as a reduction of advertising expense
for the years ended January 31, 2009, January 30, 2010
and January 29, 2011, respectively.
Earnings
per Share
Basic earnings per common share is computed using the weighted
average number of common shares outstanding during the period.
Diluted earnings per common share is computed using the weighted
average number of common shares and potential dilutive
securities that were outstanding during the period. Potential
dilutive securities consist of outstanding stock options,
warrants, and convertible debentures.
At the beginning of 2009, the Company was required to begin
using the two-class method to calculate basic and diluted
earnings (loss) per common share attributable to Bakers Footwear
Group, Inc. shareholders as unvested restricted stock awards are
considered participating units because they entitle holders to
non-forfeitable rights to dividends or dividend equivalents
during the vesting term. The two-class method of computing EPS
is an earnings allocation formula that determines EPS for each
class of common stock and participating security according to
dividends declared (or accumulated) and participation rights in
undistributed earnings. Because the Companys restricted
share awards do not contractually participate in its losses, the
Company has not used the two-class method to calculate basis and
diluted EPS.
Income
Taxes
The Company calculates income taxes using the asset and
liability method. Under this method, deferred tax assets and
liabilities are recognized based on the difference between their
carrying amounts for financial reporting purposes and income tax
reporting purposes. Deferred tax assets and liabilities are
measured using the tax rates in effect in the years when those
temporary differences are expected to reverse. Inherent in the
measurement of deferred taxes are certain judgments and
interpretations of existing tax law and other published guidance
as applied to the Companys operations.
The Company recognizes in its financial statements the impact of
a tax position, if that position is more likely than not of
being sustained on audit, based on the technical merits of the
position. The Companys federal income
F-8
BAKERS
FOOTWEAR GROUP, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
tax returns subsequent to the fiscal year ended January 1,
2005 remain open. As of January 29, 2011 and
January 30, 2010, the Company did not record any
unrecognized tax benefits. The Companys policy, if it had
unrecognized benefits, is to recognize accrued interest and
penalties related to unrecognized tax benefits as interest
expense and other expense, respectively.
Deferred
Income
The Company has a frequent buying program where customers can
purchase a frequent buying card generally entitling them to a
10% discount on all purchases for a
12-month
period. The Company recognizes the revenue from the sale of the
card ratably over the
12-month
life of the card and records the related discounts at the point
of sale when the card is used.
The Company recognized income of $2,765,204, $2,901,078, and
$2,711,698 for the years ended January 31, 2009,
January 30, 2010, and January 29, 2011, respectively,
related to the amortization of deferred income for the frequent
buying card program, as a component of net sales. Total
discounts given to customers under the frequent buying program
were $4,073,687, $4,250,360, and $3,890,782 for the years ended
January 31, 2009, January 30, 2010, and
January 29, 2011, respectively.
Business
Segment
The Company has one business segment that offers the same
principal product and service in various locations throughout
the United States.
Shipping
and Handling Costs
The Company incurs shipping and handling costs to ship
merchandise to its customers, primarily related to sales orders
received through the Companys Web site and call center.
Shipping and handling costs are recorded as a component of cost
of merchandise sold, occupancy, and buying expenses. Amounts
paid to the Company by customers are recorded in net sales.
Amounts paid to the Company for shipping and handling costs were
$814,097, $590,506, and $470,712 for the years ended
January 31, 2009, January 30, 2010, and
January 29, 2011, respectively.
Fair
Value Measurements
FASB guidance on fair value measurements and disclosures
specifies a hierarchy of valuation techniques based upon whether
the inputs to those valuation techniques reflect assumptions
other market participants would use based upon market data
obtained from independent sources (observable
inputs) or reflect the Companys own assumptions of
market participant valuation (unobservable inputs).
In accordance with the fair value guidance, the hierarchy is
broken down into three levels based on the reliability of the
inputs as follows:
Level 1 Quoted prices in active markets that
are unadjusted and accessible at the measurement date for
identical, unrestricted assets or liabilities;
Level 2 Quoted prices for identical assets and
liabilities in markets that are not active, quoted prices for
similar assets and liabilities in active markets or financial
instruments for which significant inputs are observable, either
directly or indirectly; and
Level 3 Prices or valuations that require
inputs that are both significant to the fair value measurement
and unobservable.
In determining fair value, the Company utilizes valuation
techniques that maximize the use of observable inputs and
minimize the use of unobservable inputs to the extent possible
as well as considers counterparty credit risk in its assessment
of fair value. Classification of the financial or non-financial
asset or liability within the hierarchy is determined based on
the lowest level input that is significant to the fair value
measurement.
F-9
BAKERS
FOOTWEAR GROUP, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
Reclassifications
Certain reclassifications of prior year presentations have been
made to conform to the current year presentation.
The Companys cash requirements are primarily for working
capital, principal and interest payments on debt obligations,
and capital expenditures. Historically, these cash needs have
been met by cash flows from operations, borrowings under the
Companys revolving credit facility and sales of
securities. The balance on the revolving credit facility
fluctuates throughout the year as a result of seasonal working
capital requirements and other uses of cash.
The Companys losses in fiscal years after 2005 have had a
significant negative impact on the Companys financial
position and liquidity. As of January 29, 2011, the Company
had negative working capital of $8.7 million, unused
borrowing capacity under its revolving credit facility of
$3.1 million, and a shareholders deficit of
$6.0 million.
The Companys business plan for fiscal year 2011 is based
on mid-single digit increases in comparable store sales. Based
on the business plan, the Company expects to maintain adequate
liquidity for the remainder of fiscal year 2011. The business
plan reflects continued focus on inventory management and on
timely promotional activity. The Company believes that this
focus on inventory should improve overall gross margin
performance compared to fiscal year 2010. The plan also includes
targeted increases in selling, general and administrative
expenses to support the sales plan. The Company continues to
work with its landlords and vendors to arrange payment terms
that are reflective of its seasonal cash flow patterns in order
to manage availability. The business plan for fiscal year 2011
reflects continued improvement in cash flow, but does not
indicate a return to profitability. However, there is no
assurance that the Company will achieve the sales, margin or
cash flow contemplated in its business plan.
On May 28, 2010, the Company amended its revolving credit
facility. The amendment extended the maturity of the credit
facility to May 28, 2013, modified the calculation of the
borrowing base, added a new minimum availability or adjusted
EBITDA interest coverage ratio covenant, added an obligation for
the Company to extend the maturity of its subordinated
convertible debentures, and made other changes to the agreement.
The Company incurred fees and expenses of approximately $250,000
in connection with this amendment. The minimum availability or
adjusted EBITDA interest coverage ratio covenant requires that
either the Company maintain unused availability greater than 20%
of the calculated borrowing base or maintain a ratio of adjusted
EBITDA to interest expense (both as defined in the amendment) of
no less than 1.0:1.0. The minimum availability covenant is
tested daily and, if not met, then the adjusted EBITDA covenant
is tested on a rolling twelve month basis. The adjusted EBITDA
calculation is substantially similar to the calculation used
previously in the Companys subordinated secured term loan.
The Company did not meet these covenants for the months of June
and July 2010; however, this covenant violation was waived by
the bank in connection with the Debenture and Stock Purchase
Agreement discussed below. During the third and fourth quarters
of fiscal year 2010, the Company met the bank covenant based on
maintaining unused availability greater than 20% on a daily
basis. The Companys business plan for fiscal year 2011
also anticipates meeting the bank covenant on this basis. The
Company continues to closely monitor its availability and
continues to be constrained by its limited unused borrowing
capacity.
On August 26, 2010, the Company entered into a Debenture
and Stock Purchase Agreement with Steven Madden, Ltd. In
connection with the agreement, the Company sold a subordinated
debenture in the principal amount of $5,000,000. Under the
subordinated debenture, interest payments are required to be
paid quarterly at an interest rate of 11% per annum. The
principal amount is required to be paid in four annual
installments commencing August 31, 2017, and the
subordinated debenture matures on August 31, 2020. The
subordinated debenture is generally unsecured and subordinate to
the Companys other indebtedness. As additional
consideration, Steven Madden, Ltd. also received
1,844,860 shares of the Companys common stock,
representing a 19.99% interest in the
F-10
BAKERS
FOOTWEAR GROUP, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
Company on a post-closing basis. In connection with the
transaction, the Company received aggregate net proceeds of
approximately $4.5 million after transaction and other
costs.
The Company allocated the net proceeds received in connection
with the subordinated debenture and the related issuance of
common stock based on the relative fair values of the debt and
equity components of the transaction. Other expenses incurred by
the Company relative to this transaction were allocated either
to debt issuance costs or as a reduction of additional paid-in
capital based on either specific identification of the
particular expenses or on a pro rata basis. The Company is
accreting the initial value of the debt to the nominal value of
the debt over the term of the loan using the effective interest
method and recognizes such accretion as a component of interest
expense. Likewise, the Company amortizes the related debt
issuance costs using the effective interest method and
recognizes this amortization as a component of interest expense.
In fiscal year 2008, the Company obtained net proceeds of
$6.7 million from the entry into a $7.5 million
subordinated secured term loan which was fully repaid on
January 3, 2011. Originally, the term loan agreement
contained financial covenants requiring the Company to maintain
specified levels of tangible net worth and adjusted EBITDA (as
defined in the agreement) measured each fiscal quarter. The
Company has amended the loan agreement four times (May 2008,
April 2009, September 2009 and March 2010) to modify these
covenants in order to remain in compliance. The March 2010
amendment completely eliminated these covenants for the
remainder of the term loan.
Based on the Companys business plans for fiscal year 2011,
the Company believes that it will be able to comply with the
minimum availability or adjusted EBITDA coverage ratio covenant
in the revolving credit facility. However, given the inherent
volatility in the Companys sales performance, there is no
assurance that the Company will be able to do so. In addition,
in light of the Companys historical sales volatility and
the current state of the economy, the Company believes that
there is a reasonable possibility that the Company may not be
able to comply with its financial covenants. Failure to comply
would be a default under the terms of the Companys
revolving credit facility and could result in the acceleration
of all of the Companys debt obligations. If the Company is
unable to comply with its financial covenants, it will be
required to seek one or more amendments or waivers from its
lenders. The Company believes that it would be able to obtain
any required amendments or waivers, but can give no assurance
that it would be able to do so on favorable terms, if at all. If
the Company is unable to obtain any required amendments or
waivers, the Companys lenders would have the right to
exercise remedies specified in the loan agreements, including
accelerating the repayment of debt obligations and taking
collection action against the Company. If such acceleration
occurred, the Company currently has insufficient cash to pay the
amounts owed and would be forced to obtain alternative financing.
The Company continues to face considerable liquidity
constraints. Although the Company believes the business plan is
achievable, should the Company fail to achieve the sales or
gross margin levels anticipated, or if the Company were to incur
significant unplanned cash outlays, it would become necessary
for the Company to obtain additional sources of liquidity or
make further cost cuts to fund its operations. In recognition of
existing liquidity constraints, the Company continues to look
for additional sources of capital at acceptable terms. However,
there is no assurance that the Company would be able to obtain
such financing on favorable terms, if at all, or to successfully
further reduce costs in such a way that would continue to allow
the Company to operate its business.
The Companys independent registered public accounting
firms report issued in this Annual Report on
Form 10-K
included an explanatory paragraph describing the existence of
conditions that raise substantial doubt about the Companys
ability to continue as a going concern, including recent losses
and working capital deficiency. The financial statements do not
include any adjustments relating to the recoverability and
classification of assets carrying amounts or the amount of and
classification of liabilities that may result should the Company
be unable to continue as a going concern.
F-11
BAKERS
FOOTWEAR GROUP, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
|
|
3.
|
Nasdaq
Capital Market Delisting
|
On August 17, 2010, the Nasdaq Stock Market filed a
Form 25 with the Securities and Exchange Commission to
complete the delisting of the common stock of the Company and
Nasdaq informed the Company of such filing. Trading of the
Companys common stock was suspended on June 18, 2010
for failure to meet the minimum stockholders equity
requirement under Nasdaq Listing Rule 5550(b), and has not
traded on Nasdaq since that time. The delisting became effective
on August 27, 2010, ten days after the filing of the
Form 25. The Companys common stock has traded on the
OTC Bulletin Board since June 18, 2010.
|
|
4.
|
Revolving
Credit Agreement
|
The Company has a revolving credit agreement with a commercial
bank (Bank). This agreement calls for a maximum line of credit
of $30,000,000 subject to the calculated borrowing base as
defined in the agreement, which is based primarily on the
Companys inventory level. The agreement is secured by
substantially all assets of the Company. The credit facility is
senior to the subordinated convertible debentures and the
subordinated debenture. Interest is payable monthly at the
banks base rate plus 3.5%. The weighted average interest
rate approximated 5.1%, 4.8%, and 5.1% for the years ended
January 31, 2009, January 30, 2010 and
January 29, 2011, respectively. An unused line fee of 0.75%
per annum is payable monthly based on the difference between the
maximum line of credit and the average loan balance. At
January 29, 2011, the Company has approximately
$3.1 million (under the terms of the new minimum
availability covenant discussed below) of unused borrowing
capacity under the revolving credit agreement based upon the
Companys borrowing base calculation. The agreement has
certain restrictive financial and other covenants relating to,
among other things, use of funds under the facility in
accordance with the Companys business plan, prohibiting a
change of control, including any person or group acquiring
beneficial ownership of 40% or more of the Companys common
stock or combined voting power (as defined in the credit
facility), maintaining a minimum availability, prohibiting new
debt, restricting dividends and the repurchase of the
Companys stock, and restricting certain acquisitions. The
revolving credit agreement also provides that the Company can
elect to fix the interest rate on a designated portion of the
outstanding balance as set forth in the agreement based on the
LIBOR (London Interbank Offered Rate) plus 4.0%.
On May 28, 2010, the Company amended its revolving credit
agreement. The amendment extended the maturity of the credit
facility from January 31, 2011 to May 28, 2013,
modified the calculation of the borrowing base, added a new
minimum availability or adjusted EBITDA interest coverage ratio
covenant, added an obligation for the Company to extend the
maturity of its subordinated convertible debentures, and made
other changes to the agreement. The Company incurred fees and
expenses of approximately $250,000 in connection with this
amendment. The minimum availability or adjusted EBITDA interest
coverage ratio covenant requires that either the Company
maintain unused availability greater than 20% of the calculated
borrowing base or maintain the ratio of the Companys
adjusted EBITDA to its interest expense (both as defined in the
amendment) of no less than 1.0:1.0. The minimum availability
covenant is tested daily and, if not met, then the adjusted
EBITDA covenant is tested on a rolling twelve month basis. The
adjusted EBITDA calculation is substantially similar to the
calculation used previously in the Companys subordinated
secured term loan.
|
|
5.
|
Subordinated
Debenture
|
On August 26, 2010, the Company entered into a Debenture
and Stock Purchase Agreement with Steven Madden, Ltd. In
connection with the agreement, the Company sold a subordinated
debenture in the principal amount of $5,000,000. Under the
subordinated debenture, interest payments are required to be
paid quarterly at an interest rate of 11% per annum. The
principal amount is required to be paid in four annual
installments commencing August 31, 2017, through the final
maturity date on August 31, 2020. The subordinated
debenture is generally unsecured and subordinate to the
Companys other indebtedness. As additional consideration,
Steven Madden, Ltd. also received 1,844,860 shares of the
Companys common stock, representing a 19.99% interest in
the Company on
F-12
BAKERS
FOOTWEAR GROUP, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
a post-closing basis. In connection with the transaction, the
Company received aggregate net proceeds of approximately
$4.5 million after transaction and other costs.
The Company allocated the net proceeds received in connection
with the subordinated debenture and the related issuance of
common stock based on the relative fair values of the debt and
equity components of the transaction. The fair value of the
1,844,860 shares of common stock issued was estimated based on
the actual market value of the Companys common stock at
the time of the transaction net of a blockage discount based on
the size of the issuance relative to average trading volume in
the Companys common stock and a discount to reflect that
unregistered shares were issued and could not be sold on the
open market. The fair value of the $5.0 million principal
amount of debt was estimated based on publicly available data
regarding the valuation of debt of companies with comparable
credit ratings. The relative fair values of the debt and equity
components were then pro rated into the net proceeds received by
the Company to determine the amounts to be allocated to debt and
to equity. Other expenses incurred by the Company relative to
this transaction were allocated either to debt issuance costs or
as a reduction of additional paid-in capital based on either
specific identification of the particular expenses or on a pro
rata basis. The Company accretes the initial value of the debt
to the nominal value of the debt over the term of the loan using
the effective interest method and recognizes such accretion as a
component of interest expense. Likewise, the Company amortizes
the related debt issuance costs using the effective interest
method and recognizes this amortization as a component of
interest expense.
|
|
6.
|
Property
and Equipment
|
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
Useful
|
|
|
January 30,
|
|
|
January 29,
|
|
|
|
Lives
|
|
|
2010
|
|
|
2011
|
|
|
Furniture, fixtures, and equipment
|
|
|
3 to 8 years
|
|
|
$
|
29,285,427
|
|
|
$
|
28,758,171
|
|
Leasehold improvements
|
|
|
up to 10 years
|
|
|
|
41,710,865
|
|
|
|
40,817,876
|
|
Computer equipment and software
|
|
|
3 years
|
|
|
|
4,354,093
|
|
|
|
4,121,172
|
|
Construction in progress
|
|
|
|
|
|
|
398,333
|
|
|
|
426,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,748,718
|
|
|
|
74,124,058
|
|
Less accumulated depreciation and amortization
|
|
|
|
|
|
|
50,991,323
|
|
|
|
55,718,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,757,395
|
|
|
$
|
18,405,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property and equipment was,
$7,781,462, $6,535,587, and $5,712,996 for the years ended
January 31, 2009, January 30, 2010, and
January 29, 2011, respectively.
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 29,
|
|
|
|
2010
|
|
|
2011
|
|
|
Employee compensation and benefits
|
|
$
|
1,974,366
|
|
|
$
|
1,934,943
|
|
Accrued rent
|
|
|
303,723
|
|
|
|
304,136
|
|
Other
|
|
|
5,042,506
|
|
|
|
6,280,506
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,320,595
|
|
|
$
|
8,519,585
|
|
|
|
|
|
|
|
|
|
|
F-13
BAKERS
FOOTWEAR GROUP, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
The Company leases property and equipment under noncancelable
operating leases expiring at various dates through 2020. Certain
leases have scheduled future rent increases, escalation clauses,
or renewal options. Rent expense, including occupancy costs, was
$40,403,205, $40,519,956, and $39,779,699 for the years ended
January 31, 2009, January 30, 2010, and
January 29, 2011, respectively. Certain leases provide for
contingent rent based on sales. Contingent rent, a component of
rent expense, was $122,824, $204,361, and $173,010 for the years
ended January 31, 2009, January 30, 2010, and
January 29, 2011, respectively.
Future minimum lease payments, excluding executory costs, at
January 29, 2011 are as follows:
|
|
|
|
|
Fiscal year:
|
|
|
|
|
2011
|
|
$
|
24,272,384
|
|
2012
|
|
|
22,187,655
|
|
2013
|
|
|
19,323,415
|
|
2014
|
|
|
17,253,470
|
|
2015
|
|
|
13,478,379
|
|
Thereafter
|
|
|
16,574,248
|
|
|
|
|
|
|
|
|
$
|
113,089,551
|
|
|
|
|
|
|
|
|
9.
|
Subordinated
Convertible Debentures
|
The Company completed a private placement of $4,000,000 in
aggregate principal amount of subordinated convertible
debentures on June 26, 2007 and received net proceeds of
approximately $3.6 million. The debentures bear interest at
a rate of 9.5% per annum, payable semi-annually. The principal
balance of $4,000,000 is payable in full on June 30, 2012.
As disclosed in Note 4, the Companys revolving credit
facility requires that the Company amend the debentures on or
before May 1, 2012 to extend their maturity beyond that of
the credit facility. The initial conversion price was $9.00 per
share. The conversion price is subject to anti-dilution and
other adjustments, including a weighted average conversion price
adjustment for certain future issuances or deemed issuances of
common stock at a lower price, subject to limitations as
required under rules of the Nasdaq Stock Market. The Company can
redeem the unpaid principal balance of the debentures if the
closing price of the Companys common stock is at least
$16.00 per share, subject to the adjustments and conditions in
the debentures.
The debentures contain a weighted average conversion price
adjustment that is triggered by issuances or deemed issuances of
the Companys common stock. As a result of the issuance of
shares of common stock, effective February 4, 2008, the
weighted average conversion price of the debentures decreased
from $9.00 to $8.64 and on May 9, 2008, the weighted
average conversion price of the debentures decreased from $8.64
to $8.59. As a result of the issuance of shares on April 9,
2009, the weighted average conversion price of the debentures
decreased from $8.59 to $8.31. Effective August 26, 2010,
the conversion price of the debentures decreased from $8.31 to
$6.76 with respect to $1 million in aggregate principal
amount of debentures and to $8.10, the minimum conversion price,
with respect to $3 million in aggregate principal amount of
debentures held by directors and director affiliates as a result
of the issuance of the 1,844,860 shares and subordinated
debenture discussed in Note 2.
The Company uses FASB guidance in ASC 815 Derivatives
and Hedging related to determining whether an instrument (or
embedded feature) is indexed to an entitys own stock and
established a two-step process for making such determination.
The Company accounts separately for the fair value of the
conversion feature of the convertible debentures. As of
January 30, 2010 and January 29, 2011, the Company
determined that the fair value of the conversion feature was de
minimis. Significant future increases in the value of the
Companys common stock would result in an increase in the
fair value of the conversion feature which would result in
expense recognition in future periods.
F-14
BAKERS
FOOTWEAR GROUP, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
|
|
10.
|
Subordinated
Secured Term Loan
|
Effective February 4, 2008, the Company consummated a
$7.5 million three-year subordinated secured term loan (the
Loan) and issued 350,000 shares of the Companys
common stock as additional consideration. The Loan required
36 monthly payments of principal and interest at an
interest rate of 15% per annum and was fully repaid in January
2011. Net proceeds to the Company after transaction costs were
approximately $6.7 million. The Company used the net
proceeds to repay amounts owed under its senior revolving credit
facility and for working capital purposes. The Loan was secured
by substantially all of the Companys assets and was
subordinate to the Companys revolving credit facility but
had priority over the Companys subordinated convertible
debentures.
Prior to an amendment in March 2010, the Loan agreement
contained financial covenants which required the Company to
maintain specified levels of tangible net worth and adjusted
EBITDA, both as defined in the loan agreement, each fiscal
quarter and annual limits on capital expenditures, as defined in
the loan agreement, of no more than $1.0 million each for
fiscal years 2009 and 2010. Upon the occurrence of an event of
default as defined in the loan agreement, the Lender would have
been entitled to acceleration of the debt plus all accrued and
unpaid interest, subject to the Senior Subordination Agreement,
with the interest rate increasing to 17.5% per annum. The March
2010 amendment eliminated these financial covenants.
The Company allocated the net proceeds received in connection
with this loan and the related issuance of common stock based on
the relative fair values of the debt and equity components of
the transaction. The fair value of the 350,000 shares of
common stock issued was estimated based on the actual market
value of the Companys common stock at the time of the
transaction net of a discount to reflect that unregistered
shares were issued and could not be sold on the open market
until the related registration statement, discussed below,
covering these shares was declared effective by the SEC, which
occurred on May 21, 2008. The fair value of the
$7.5 million of debt was estimated based on publicly
available data regarding the valuation of debt of companies with
comparable credit ratings. The relative fair values of the debt
and equity components were then pro rated into the net proceeds
received by the Company to determine the amounts to be allocated
to debt and to equity. Other expenses incurred by the Company
relative to this transaction were allocated either to debt
issuance costs or as a reduction of additional paid-in capital
based on either specific identification of the particular
expenses or on a pro rata basis. Based on this analysis, the
Company allocated $6,150,000 to the initial value of the
subordinated secured term loan and allocated $715,000 to the
value of the 350,000 shares of common stock. The Company
accreted the initial value of the debt to the nominal value of
the debt over the term of the loan using the effective interest
method and recognizes such accretion as a component of interest
expense. Likewise, the Company amortized the related debt
issuance costs using the effective interest method and
recognizes this amortization as a component of interest expense.
The aggregate scheduled principal payments on the Companys
subordinated debenture (Note 5) and the Companys
subordinated convertible debentures January 29, 2011 are as
follows:
|
|
|
|
|
Fiscal year:
|
|
|
|
|
2011
|
|
$
|
|
|
2012
|
|
|
4,000,000
|
|
2013
|
|
|
|
|
2014
|
|
|
|
|
2015
|
|
|
|
|
Thereafter
|
|
|
4,123,327
|
|
|
|
|
|
|
|
|
$
|
8,123,327
|
|
|
|
|
|
|
|
|
11.
|
Employee
Benefit Plan
|
The Company has a 401(k) savings plan which allows full-time
employees age 21 or over with at least one year of service
to make tax-deferred contributions of 1% of compensation up to a
maximum amount allowed under
F-15
BAKERS
FOOTWEAR GROUP, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
Internal Revenue Service guidelines. The plan provides for
Company matching of employee contributions on a discretionary
basis. The Company made no matching contributions for the years
ended January 31, 2009, January 30, 2010, or
January 29, 2011.
|
|
12.
|
Commitments
and Contingencies
|
On January 25, 2010, the Company entered into a licensing
agreement with the owner of the Halston trademark. Under the
terms of this agreement, the Company has the exclusive right to
manufacture and market footwear and handbags primarily under the
trade name H by Halston for an initial, renewable
term of five years. The Company pays royalties to the owner of
the trademark based on the greater of a percentage of sales or a
minimum annual royalty of $1,500,000, payable quarterly. The
initial quarterly minimum royalty payment was made at the
commencement of the agreement, subsequent royalty payments are
payable quarterly in arrears. At January 29, 2011, the
remaining contractual minimum royalty payments under the
licensing agreement was $6,000,000.
The Company has certain contingent liabilities resulting from
litigation and claims incident to the ordinary course of
business. Management believes the probable resolution of such
contingencies will not materially affect the financial position
or results of operations of the Company. The Company, in the
ordinary course of store construction and remodeling, is subject
to mechanics liens on the unpaid balances of the
individual construction contracts. The Company obtains lien
waivers from all contractors and subcontractors prior to or
concurrent with making final payments on such projects.
In accordance with ASC 740, Income Taxes, the
Company regularly assesses available positive and negative
evidence to determine whether it is more likely than not that
its deferred tax asset balances will be recovered from
(a) reversals of deferred tax liabilities,
(b) potential utilization of net operating loss carrybacks,
(c) tax planning strategies and (d) future taxable
income. There are significant restrictions on the consideration
of future taxable income in determining the realizability of
deferred tax assets in situations where a company has
experienced a cumulative loss in recent years. When sufficient
negative evidence exists that indicates that full realization of
deferred tax assets is no longer more likely than not, a
valuation allowance is established as necessary against the
deferred tax assets, increasing the Companys income tax
expense in the period that such conclusion is reached.
Subsequently, the valuation allowance is adjusted up or down as
necessary to maintain coverage against the deferred tax assets.
If, in the future, sufficient positive evidence, such as a
sustained return to profitability, arises that would indicate
that realization of deferred tax assets is once again more
likely than not, any existing valuation allowance would be
reversed as appropriate, decreasing the Companys income
tax expense in the period that such conclusion is reached.
Management believes it is more likely than not that it will not
be able to realize benefits of net deferred tax assets and
therefore has established a valuation allowance against its net
deferred tax assets. As of January 29, 2011, the Company
has increased the valuation allowance to $19,742,497. The
Company has scheduled the reversals of its deferred tax assets
and deferred tax liabilities and has concluded that based on the
anticipated reversals a valuation allowance is necessary only
for the excess of deferred tax assets over deferred tax
liabilities.
During fiscal year 2008, the Company received federal and state
income tax refunds of $1.8 million from the carryback of
net operating losses. The Company recognized $0.1 million
of income tax expense during fiscal year 2008 related to
differences between the alternative minimum tax and the
realization of state loss carrybacks recognized in the income
tax provision and the federal and state income tax returns filed
for fiscal year 2007. During fiscal year 2010, the Company
received a federal income tax refund of $0.2 million from
the carryback of net operating losses which was reflected as
income tax benefit in the statement of operations. As of
January 29, 2011, the Company has approximately
$28.2 million of net operating loss carryforwards that
expire in 2022 available to offset future taxable income.
F-16
BAKERS
FOOTWEAR GROUP, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
Significant components of the provision for income taxes are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
January 31,
|
|
|
January 30,
|
|
|
January 29,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(3,007,729
|
)
|
|
$
|
(1,250,116
|
)
|
|
$
|
(1,595,111
|
)
|
State and local
|
|
|
(840,435
|
)
|
|
|
(311,435
|
)
|
|
|
(565,290
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
(3,848,164
|
)
|
|
|
(1,561,551
|
)
|
|
|
(2,160,401
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(1,491,342
|
)
|
|
|
(1,612,653
|
)
|
|
|
(1,392,386
|
)
|
State and local
|
|
|
(285,264
|
)
|
|
|
(293,210
|
)
|
|
|
(253,161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(1,776,606
|
)
|
|
|
(1,905,863
|
)
|
|
|
(1,645,547
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
5,709,617
|
|
|
|
3,467,414
|
|
|
|
3,618,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision (benefit) for income taxes
|
|
$
|
84,847
|
|
|
$
|
|
|
|
$
|
(187,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The differences between the provision for income taxes at the
statutory U.S. federal income tax rate of 35% and those
reported in the statements of operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
January 31,
|
|
|
January 30,
|
|
|
January 29,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Federal income tax at statutory rate
|
|
$
|
(5,218,763
|
)
|
|
$
|
(3,178,734
|
)
|
|
$
|
(3,317,720
|
)
|
Impact of federal alternative minimum tax
|
|
|
214,907
|
|
|
|
|
|
|
|
|
|
Impact of NOL carryback refunds
|
|
|
(137,651
|
)
|
|
|
|
|
|
|
(187,462
|
)
|
Impact of graduated Federal rates
|
|
|
149,107
|
|
|
|
90,821
|
|
|
|
94,792
|
|
State and local income taxes, net of Federal income taxes
|
|
|
(651,802
|
)
|
|
|
(401,655
|
)
|
|
|
(419,218
|
)
|
Change in valuation allowance
|
|
|
5,709,617
|
|
|
|
3,467,414
|
|
|
|
3,618,486
|
|
Permanent differences
|
|
|
19,432
|
|
|
|
22,154
|
|
|
|
23,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision (benefit) for income taxes
|
|
$
|
84,847
|
|
|
$
|
|
|
|
$
|
(187,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes arise from temporary differences in the
recognition of income and expense for income tax purposes and
were computed using the liability method reflecting the net tax
effects of temporary differences between the carrying amounts of
assets and liabilities for financial statement purposes and the
amounts used for income tax purposes.
F-17
BAKERS
FOOTWEAR GROUP, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
Components of the Companys deferred tax assets and
liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 29,
|
|
|
|
2010
|
|
|
2011
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
8,894,200
|
|
|
$
|
10,775,110
|
|
Vacation accrual
|
|
|
396,524
|
|
|
|
405,473
|
|
Inventory
|
|
|
989,396
|
|
|
|
1,191,540
|
|
Stock-based compensation
|
|
|
1,116,518
|
|
|
|
1,258,512
|
|
Accrued rent
|
|
|
3,581,665
|
|
|
|
3,372,826
|
|
Property and equipment
|
|
|
1,496,584
|
|
|
|
2,842,665
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
16,474,887
|
|
|
|
19,846,126
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(111,467
|
)
|
|
|
(103,629
|
)
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(16,363,420
|
)
|
|
|
(19,742,497
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.
|
Stock-Based
Compensation
|
The Company has established the Bakers Footwear Group, Inc. 2003
Stock Option Plan (the 2003 Plan) and the Bakers Footwear Group,
Inc. 2005 Incentive Compensation Plan (the 2005 Plan).
2003
Stock Option Plan
Under the 2003 Plan, as amended in connection with a
June 1, 2006 shareholder vote, qualified or
nonqualified stock options to purchase up to
1,368,992 shares of the Companys common stock are
authorized for grant to employees or non-employee directors at
an option price determined by the Compensation Committee of the
Board of Directors, which administers the 2003 Plan. The 2003
Plan also covers options that were issued under the predecessor
stock option plan. All of the option holders under the
predecessor plan agreed to amend their option award agreements
to have their options governed by the 2003 Plan on generally the
same terms and conditions. Generally, options have terms not
exceeding 10 years from the date of grant and vest ratably
over three to five years on each annual anniversary of the
option grant date. The Company has issued new shares of stock
upon exercise of stock options through fiscal year 2010 and
anticipates that it will continue to issue new shares of stock
upon exercise of stock options in future periods.
In June 2009, the executive officers, members of the
Companys Board of Directors, and certain other corporate
officers surrendered, for no current or future consideration,
224,073 stock options with exercise prices ranging from $7.75 to
$20.06. In accordance with ASC 718, the Company recognized
$171,966 of non-cash stock-based compensation expense as a
result of these surrenders.
F-18
BAKERS
FOOTWEAR GROUP, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
The Company uses the Black-Scholes option pricing model to
determine the fair value of stock-based compensation. The number
of options granted, their grant-date weighted-average fair
value, and the significant assumptions used to determine
fair-value during the years ended January 31, 2009,
January 30, 2010 and January 29, 2011, are as follows:
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Year Ended
|
|
Year Ended
|
|
|
January 31,
|
|
January 30,
|
|
January 29,
|
|
|
2009
|
|
2010
|
|
2011
|
|
Options granted
|
|
310,500
|
|
72,000
|
|
227,000
|
Weighted-average fair value of options granted
|
|
$0.86
|
|
$0.18
|
|
$1.96
|
Assumptions:
|
|
|
|
|
|
|
Dividends
|
|
0%
|
|
0%
|
|
0%
|
Risk-free interest rate
|
|
2.83% - 3.69%
|
|
2.2%
|
|
2.8%
|
Expected volatility
|
|
46%
|
|
54%
|
|
97%
|
Expected option life
|
|
6 years
|
|
6 years
|
|
6 years
|
Stock option activity through January 29, 2011 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
Non Vested
|
|
|
Total
|
|
|
|
Number of
|
|
|
Weighted Average
|
|
|
Number of
|
|
|
Weighted Average
|
|
|
Number of
|
|
|
Weighted Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Balance at February 2, 2008
|
|
|
175,778
|
|
|
$
|
9.90
|
|
|
|
512,448
|
|
|
$
|
9.45
|
|
|
|
688,226
|
|
|
$
|
9.56
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
310,500
|
|
|
|
1.79
|
|
|
|
310,500
|
|
|
|
1.79
|
|
Vested
|
|
|
156,498
|
|
|
|
9.67
|
|
|
|
(156,498
|
)
|
|
|
9.67
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(12,154
|
)
|
|
|
10.62
|
|
|
|
(24,999
|
)
|
|
|
6.98
|
|
|
|
(37,153
|
)
|
|
|
8.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2009
|
|
|
320,122
|
|
|
|
9.76
|
|
|
|
641,451
|
|
|
|
5.78
|
|
|
|
961,573
|
|
|
|
7.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
72,000
|
|
|
|
0.33
|
|
|
|
72,000
|
|
|
|
0.33
|
|
Vested
|
|
|
211,063
|
|
|
|
7.41
|
|
|
|
(211,063
|
)
|
|
|
7.41
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(258,156
|
)
|
|
|
10.49
|
|
|
|
(70,662
|
)
|
|
|
10.52
|
|
|
|
(328,818
|
)
|
|
|
10.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 30, 2010
|
|
|
273,029
|
|
|
$
|
7.26
|
|
|
|
431,726
|
|
|
$
|
3.31
|
|
|
|
704,755
|
|
|
$
|
4.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
227,000
|
|
|
|
2.50
|
|
|
|
227,000
|
|
|
|
2.50
|
|
Vested
|
|
|
125,909
|
|
|
|
4.55
|
|
|
|
(125,909
|
)
|
|
|
4.55
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,200
|
)
|
|
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
(1,200
|
)
|
|
|
0.32
|
|
Forfeited
|
|
|
(8,000
|
)
|
|
|
9.08
|
|
|
|
(5,100
|
)
|
|
|
4.72
|
|
|
|
(13,100
|
)
|
|
|
7.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 29, 2011
|
|
|
389,738
|
|
|
$
|
6.37
|
|
|
|
527,717
|
|
|
$
|
2.65
|
|
|
|
917,455
|
|
|
$
|
4.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock based compensation expense was $609,901, $585,341
and $364,088 for the years ended January 31, 2009,
January 30, 2010 and January 29, 2011, respectively.
The total intrinsic value of the options exercised during the
year ended January 29, 2011, measured as the difference
between the fair value of the Companys stock on the date
of exercise and the exercise price of the options exercised, was
$2,142. No options were exercised during the years ended
January 31, 2009 or January 30, 2010. The Company
recognizes income tax deductions equal to the intrinsic value of
stock options exercised. For the year ended January 29,
2011, such deductions resulted in an income tax benefit of $828,
which, as a result of the Companys net operating loss
carryforward position, will not be recognized for financial
reporting purposes until realized on a future income tax return.
Cash payments received from option holders upon exercise of
options during the year ended January 29, 2011 were $385.
F-19
BAKERS
FOOTWEAR GROUP, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
The following table summarizes information about vested stock
options as of January 29, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Number of
|
|
|
Contractual Life
|
|
|
Exercise
|
|
|
Aggregate
|
|
Range of Exercise Prices
|
|
Options
|
|
|
(Years)
|
|
|
Price
|
|
|
Intrinsic Value
|
|
|
$0.01 $0.77
|
|
|
17,719
|
|
|
|
6.8
|
|
|
$
|
1.10
|
|
|
$
|
11,560
|
|
$1.43 $4.52
|
|
|
191,792
|
|
|
|
7.0
|
|
|
|
7.90
|
|
|
|
|
|
$7.75
|
|
|
72,720
|
|
|
|
3.0
|
|
|
|
7.75
|
|
|
|
|
|
$9.30 $13.80
|
|
|
87,254
|
|
|
|
5.0
|
|
|
|
11.00
|
|
|
|
|
|
$20.06
|
|
|
20,253
|
|
|
|
5.1
|
|
|
|
20.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ($0.01 $20.06)
|
|
|
389,738
|
|
|
|
5.7
|
|
|
|
6.38
|
|
|
$
|
11,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about vested stock
options and stock options expected to vest as of
January 29, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Number of
|
|
|
Contractual Life
|
|
|
Exercise
|
|
|
Aggregate
|
|
Range of Exercise Prices
|
|
Options
|
|
|
(Years)
|
|
|
Price
|
|
|
Intrinsic Value
|
|
|
$0.01 $0.77
|
|
|
69,719
|
|
|
|
7.8
|
|
|
$
|
0.31
|
|
|
$
|
41,000
|
|
$1.43 $4.52
|
|
|
603,600
|
|
|
|
7.8
|
|
|
|
10.40
|
|
|
|
|
|
$7.75
|
|
|
73,820
|
|
|
|
3.0
|
|
|
|
7.75
|
|
|
|
|
|
$9.30 $13.80
|
|
|
108,983
|
|
|
|
5.2
|
|
|
|
10.81
|
|
|
|
|
|
$20.06
|
|
|
28,233
|
|
|
|
5.1
|
|
|
|
20.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ($0.01 $20.06)
|
|
|
884,355
|
|
|
|
7.6
|
|
|
|
4.42
|
|
|
$
|
41,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 29, 2011, the total unrecognized compensation
cost related to non vested stock-based compensation is $611,489,
and the weighted-average period over which this compensation is
expected to be recognized is 1.5 years.
2005
Incentive Compensation Plan
Under the 2005 Plan, up to 250,000 performance shares,
restricted shares and other stock-based awards are available to
be granted to employees or non-employee directors under terms
determined by the Compensation Committee of the Board of
Directors, which administers the 2005 Plan.
Restricted
Shares
During fiscal years 2007 and 2009, the Company granted 69,000
and 84,000 restricted shares of common stock with a grant date
fair value of $4.52 and $0.32 per share, respectively.
Compensation expense related to restricted shares is recognized
ratably over the 60 month vesting periods based on the
grant date fair value of the restricted shares expected to vest
at the end of the vesting period. As of January 30, 2010,
the Company estimated that 137,000 restricted shares would vest
at the end of the vesting periods. The number of restricted
shares expected to vest is an accounting estimate and any future
changes to the estimate will be reflected in stock based
compensation expense in the period the change in estimate is
made. As of January 30, 2010 and January 29, 2011, the
aggregate intrinsic value of restricted shares expected to vest
was $150,700 and, $123,300, respectively.
F-20
BAKERS
FOOTWEAR GROUP, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
The following table sets forth the computation of basic and
diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
January 31,
|
|
|
January 30,
|
|
|
January 29,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(14,995,601
|
)
|
|
$
|
(9,082,096
|
)
|
|
$
|
(9,291,737
|
)
|
Numerator for basic earnings (loss) per share
|
|
|
(14,995,601
|
)
|
|
|
(9,082,096
|
)
|
|
|
(9,291,737
|
)
|
Interest expense related to convertible debentures
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for diluted earnings (loss) per share
|
|
$
|
(14,995,601
|
)
|
|
$
|
(9,082,096
|
)
|
|
$
|
(9,291,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings (loss) per share
weighted average shares
|
|
|
7,040,609
|
|
|
|
7,328,087
|
|
|
|
8,174,465
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock purchase warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debentures
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings (loss) per share
adjusted weighted average shares and assumed conversions
|
|
|
7,040,609
|
|
|
|
7,328,087
|
|
|
|
8,174,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The diluted earnings per share calculation for the year ended
January 29, 2011 excludes incremental shares of 33,529
related to outstanding stock options and incremental shares of
497,286 related to shares underlying convertible debentures
because they are antidilutive. The diluted earnings per share
calculation for the year ended January 30, 2010 excludes
incremental shares of 18,979 related to outstanding stock
options and incremental shares of 478,417 related to shares
underlying convertible debentures because they are antidilutive.
The 384,000 outstanding stock purchase warrants were excluded
from the diluted earnings per share calculation for the year
ended January 30, 2010 because they had exercise prices
that were greater than the average closing price of the
Companys common stock for the period.
During the first quarter of 2009, the Company adopted updated
provisions of ASC 260 Earnings per Share relating to
determining whether instruments granted in share-based payment
transactions are participating securities which addresses
whether instruments granted in share-based payment awards that
entitle their holders to receive non-forfeitable dividends or
dividend equivalents before vesting should be considered
participating securities and need to be included in the earnings
allocation in computing EPS under the two-class
method. The two-class method of computing EPS is an
earnings allocation formula that determines EPS for each class
of common stock and participating security according to
dividends declared (or accumulated) and participation rights in
undistributed earnings. This guidance requires all prior period
EPS data to be adjusted retrospectively. Because the
Companys restricted share awards do not contractually
participate in its losses, the Company has not used the
two-class method to calculate basis and diluted EPS.
F-21
BAKERS
FOOTWEAR GROUP, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
|
|
16.
|
Fair
Value Measurement
|
The carrying values and fair values of the Companys
financial instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30, 2010
|
|
|
January 29, 2011
|
|
|
|
Carrying
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Cash and cash equivalents
|
|
$
|
154,685
|
|
|
$
|
154,685
|
|
|
$
|
154,685
|
|
|
$
|
154,685
|
|
Revolving credit facility
|
|
|
10,531,687
|
|
|
|
10,531,687
|
|
|
|
10,531,687
|
|
|
|
10,531,687
|
|
Subordinated debenture
|
|
|
|
|
|
|
|
|
|
|
4,123,327
|
|
|
|
4,039,445
|
|
Subordinated secured term loan
|
|
|
2,785,112
|
|
|
|
2,811,386
|
|
|
|
|
|
|
|
|
|
Subordinated convertible debentures
|
|
|
4,000,000
|
|
|
|
2,578,638
|
|
|
|
4,000,000
|
|
|
|
3,052,837
|
|
The carrying amount of cash equivalents approximates fair value
because of the short maturity of those instruments. The carrying
amount of the revolving credit facility approximates fair value
because the facility has a floating interest rate. The fair
values of the subordinated secured term loan and the
subordinated convertible debentures have been estimated based on
Level 3 inputs in the fair value hierarchy as there is no
relevant publicly available data regarding the valuation of debt
of similar size and maturities of companies with comparable
credit ratings.
|
|
17.
|
Related
Party Transactions
|
Among the investors in the subordinated convertible debentures
described in Note 9 are Scott Schnuck, who is a director of
the Company, Bernard Edison and Julian Edison, who are advisory
directors to the Company, Andrew Baur, who prior to his death in
2011 was a director of the company, and an entity affiliated
with Mr. Baur. Each of Messrs. Baur, Schnuck, B.
Edison and J. Edison received fees and other compensation from
time to time in their capacities with the Company. Mr. B.
Edison beneficially owned in excess of 5% of the Companys
common stock during part of fiscal year 2010.
The investor in the subordinated debenture described in
Note 5, Steven Madden, Ltd. through its subsidiaries, sells
footwear to the Company and also serves as one of the
Companys buying agents. In fiscal year 2010, the Company
purchased $10.5 million in footwear and paid
$0.7 million in buying agent fees to Steven Madden, Ltd. or
its subsidiaries.
|
|
18.
|
Quarterly
Financial Data
Unaudited
|
Summarized quarterly financial information for fiscal years 2009
and 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks
|
|
|
Thirteen Weeks
|
|
|
Thirteen Weeks
|
|
|
Thirteen Weeks
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
May 2,
|
|
|
August 1,
|
|
|
October 31,
|
|
|
January 30,
|
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
Fiscal year 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
44,976,621
|
|
|
$
|
43,720,271
|
|
|
$
|
39,042,191
|
|
|
$
|
57,629,613
|
|
Gross profit
|
|
|
12,696,440
|
|
|
|
12,922,107
|
|
|
|
6,766,363
|
|
|
|
20,983,690
|
|
Net income (loss)(1)
|
|
|
(2,768,668
|
)
|
|
|
(1,736,643
|
)
|
|
|
(10,166,980
|
)
|
|
|
5,590,195
|
|
Basic earnings (loss) per share
|
|
|
(0.39
|
)
|
|
|
(0.24
|
)
|
|
|
(1.38
|
)
|
|
|
0.76
|
|
Diluted earnings (loss) per share
|
|
|
(0.39
|
)
|
|
|
(0.24
|
)
|
|
|
(1.38
|
)
|
|
|
0.72
|
|
F-22
BAKERS
FOOTWEAR GROUP, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks
|
|
|
Thirteen Weeks
|
|
|
Thirteen Weeks
|
|
|
|
Thirteen Weeks
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Ended May 1,
|
|
|
July 31,
|
|
|
October 30,
|
|
|
January 29,
|
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
Fiscal year 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
43,524,036
|
|
|
$
|
43,293,127
|
|
|
$
|
40,575,879
|
|
|
$
|
58,232,802
|
|
Gross profit
|
|
|
10,736,296
|
|
|
|
11,932,912
|
|
|
|
6,350,181
|
|
|
|
20,552,518
|
|
Net income (loss)(1)
|
|
|
(3,450,817
|
)
|
|
|
(2,075,142
|
)
|
|
|
(8,934,981
|
)
|
|
|
5,169,203
|
|
Basic earnings (loss) per share
|
|
|
(0.47
|
)
|
|
|
(0.28
|
)
|
|
|
(1.03
|
)
|
|
|
0.56
|
|
Diluted earnings (loss) per share
|
|
|
(0.47
|
)
|
|
|
(0.28
|
)
|
|
|
(1.03
|
)
|
|
|
0.54
|
|
|
|
|
(1) |
|
During the third quarter of fiscal year 2009 and 2010, the
Company recognized $2,762,273, and $1,415,979 respectively in
noncash charges related to the impairment of long-lived assets
of underperforming stores. |
F-23