SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended OCTOBER 2, 1999
---------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
----------- -----------
Commission file number: 0-24179
-------
KASPER A.S.L., LTD.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 22-3497645
---------------- ----------
(State of Incorporation) (IRS Employer Identification No)
77 METRO WAY, SECAUCUS, NEW JERSEY 07094
-----------------------------------------------------------------------
(Address and zip code of principal executive office)
(201) 864-0328
-----------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS.
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of November 16, 1999 was 6,800,000.
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
<S> <C>
Condensed Consolidated Balance Sheets at October 2, 1999 and January 2, 1999 . . . . . . . . . . . . . . . .3
Condensed Consolidated Statements of Operations for the Thirteen weeks ended
October 2, 1999 and Thirteen weeks ended October 3, 1998 . . . . . . . . . . . . . . . . . . . . .4
Condensed Consolidated Statements of Operations for the Thirty-nine weeks ended
October 2, 1999 and Thirty-nine weeks ended October 3, 1998 . . . . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statements of Cash Flows for the Thirty-nine weeks ended
October 2, 1999 and Thirty-nine weeks ended October 3, 1998 . . . . . . . . . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . .10
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
2
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
------------------ ---- ----------------
ASSETS OCTOBER 2, JANUARY 2, 1999
1999
------------------ ---- ----------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents.............................................. $ 3,987 $ 2,437
Accounts receivable-net of allowances for possible losses of
$17,046 and $16,754, respectively................................. 60,410 32,721
Inventories............................................................ 78,140 100,435
Prepaid expenses and other current assets.............................. 6,675 6,068
------------------ ----------------
Total Current Assets................................................... 149,212 141,661
------------------ ----------------
Property, Plant and Equipment, at cost less accumulated
depreciation and amortization of $7,928 and $5,500,
respectively........................................................... 16,337 16,881
Reorganization value in excess of identifiable assets, net of
accumulated amortization of $7,604 and $5,160, respectively............ 57,577 60,021
Trademarks, net of accumulated amortization of $3,852 and $2,307, respectively... 110,381 48,693
Other Assets, at cost less accumulated amortization of $447 and $1,449,
respectively........................................................... 5,245 2,102
================== ================
Total Assets........................................................... $338,752 $269,358
================== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable....................................................... $19,494 $14,539
Accrued expenses and other current liabilities......................... 8,689 6,668
Interest Payable....................................................... 275 3,797
Income taxes payable................................................... 1,885 646
------------------ ----------------
Total Current Liabilities.............................................. 30,344 25,650
Long-Term Liabilities:
Deferred Taxes......................................................... 1,630 1,630
Long-Term Debt......................................................... 110,000 110,000
Bank Revolver.......................................................... 69,158 7,569
Other liabilities...................................................... 250 --
Minority Interest...................................................... 590 459
------------------ ----------------
Total Liabilities...................................................... 211,972 145,308
Commitments and Contingencies
Shareholders' Equity:
Common Stock, $0.01 par value; 20,000,000 shares
authorized; 6,800,000 shares issued and outstanding............... 68 68
Preferred Stock, $0.01 par value; 1,000,000 shares
authorized; none issued and outstanding........................... -- --
Capital in excess of par value......................................... 119,932 119,932
Retained Earnings...................................................... 6,958 4,142
Cumulative Other Comprehensive Income.................................. (178) (92)
------------------ ----------------
Total Shareholders' Equity............................................. 126,780 124,050
------------------ ----------------
Total Liabilities and Shareholders' Equity............................. $338,752 $269,358
================== ================
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these balance sheets.
3
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
THIRTEEN WEEKS THIRTEEN WEEKS
ENDED ENDED
OCTOBER 2, OCTOBER 3,
1999 1998
---------------------- ----------------------
<S> (Unaudited) (Unaudited)
<C> <C>
Net Sales.............................................. $87,959 $94,080
Royalty Income......................................... 2,919 183
Cost of Sales.......................................... 60,569 63,252
---------------------- ----------------------
Gross Profit........................................... 30,309 31,011
Operating Expenses:
Selling, general and administrative expenses........... 19,578
15,404
Depreciation and Amortization.......................... 2,615 1,971
---------------------- ----------------------
Total operating expenses............................... 22,193 17,375
---------------------- ----------------------
Operating income....................................... 8,116 13,636
Interest and Financing Costs........................... 6,235 4,716
---------------------- ----------------------
Income before provision for income taxes............... 1,881 8,920
Provision for Income Taxes............................. 790 3,745
---------------------- ----------------------
Net Income............................................. $1,091 $ 5,175
====================== ======================
Basic earnings per common share........................ .16 .76
====================== ======================
Diluted earnings per common share...................... .16 .76
====================== ======================
Weighted average number of shares used in computing Basic
earnings per common share........................... 6,800,000 6,800,000
Weighted average number of shares used in computing Diluted
earnings per common share........................... 6,800,000 6,800,000
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these financial statements.
4
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS THIRTY-NINE WEEKS
ENDED ENDED
OCTOBER 2, OCTOBER 3,
1999 1998
---------------------- ----------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net Sales.............................................. $242,008 $252,582
Royalty Income......................................... 3,394 629
Cost of Sales.......................................... 166,228 175,583
---------------------- ----------------------
Gross Profit........................................... 79,174 77,628
Operating Expenses:
Selling, general and administrative expenses........... 52,786 46,569
Depreciation and Amortization.......................... 6,641 5,818
---------------------- ----------------------
Total operating expenses............................... 59,427 52,387
---------------------- ----------------------
Operating income....................................... 19,747 25,241
Interest and Financing Costs........................... 14,885 13,250
---------------------- ----------------------
Income before provision for income taxes............... 4,862 11,991
Provision for Income Taxes............................. 2,046 5,034
---------------------- ----------------------
Net Income............................................. $2,816 $ 6,957
====================== ======================
Basic earnings per common share........................ .41 1.02
====================== ======================
Diluted earnings per common share...................... .41 1.02
====================== ======================
Weighted average number of shares used in computing Basic
earnings per common share........................... 6,800,000 6,800,000
Weighted average number of shares used in computing Diluted
earnings per common share........................... 6,800,000 6,800,000
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these financial statements.
5
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS THIRTY-NINE WEEKS
ENDED ENDED
---------------------- ----------------------
OCTOBER 2, OCTOBER 3,
1999 1998
---------------------- ----------------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................................... $2,816 $ 6,957
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization............................................. 4,653 3,980
Write-off of unamortized financing fees................................... 740 --
Amortization of reorganization value in excess of identifiable
assets............................................................... 2,444 2,444
Income applicable to minority interest.................................... 131 617
Change in allowance for possible losses on accounts receivable............ 292 1,400
(Increase) decrease in:
Accounts receivable....................................................... (27,981) (34,791)
Inventories............................................................... 22,295 (8,481)
Prepaid expenses and other current assets................................. (607) (973)
Other assets.............................................................. (4,564) --
Increase (decrease) in:
Accounts payable, accrued expenses and other current liabilities.......... 6,976
(4,353)
Interest payable.......................................................... (3,522) (3,447)
Income taxes payable...................................................... 1,239 2,369
Other liabilities......................................................... 250 --
---------------------- ----------------------
Total adjustments............................................................ 2,346 (41,235)
---------------------- ----------------------
Net cash provided by (used in) operating activities.......................... 5,162 (34,278)
---------------------- ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net ................................................ (1,882) (4,686)
Trademark Purchase ....................................................... (63,233) --
---------------------- ----------------------
Net cash used in investing activities........................................ (65,115) (4,686)
---------------------- ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank Revolver............................................................. 61,589 24,551
---------------------- ----------------------
Net cash (used in) provided by financing activities.......................... 61,589 24,551
Effect of exchange rate changes on cash and cash equivalents................. (86) (45)
---------------------- ----------------------
Net increase (decrease) in cash and cash equivalents......................... 1,550 (14,458)
Cash and cash equivalents, at beginning of period............................ 2,437 16,677
---------------------- ----------------------
Cash and cash equivalents, at end of period.................................. $3,987 $2,219
====================== ======================
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these financial statements.
6
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. GENERAL
The Condensed Consolidated Financial Statements included herein have
been prepared by Kasper A.S.L., Ltd. and subsidiaries (Kasper A.S.L., Ltd. being
sometimes referred to, and together with its subsidiaries collectively referred
to, as the "Company" or "Kasper" as the context may require) without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "Commission"). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principals have been condensed or omitted from this report; as is
permitted by such rules and regulations; however the Company believes that the
disclosures are adequate to make the information presented not misleading. These
Condensed Consolidated Financial Statements included herein should be read in
conjunction with the Consolidated/Combined Financial Statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the Fiscal Year
ended January 2, 1999.
In the opinion of management, the accompanying interim Condensed
Consolidated Financial Statements contain all material adjustments necessary to
present fairly the Condensed Consolidated financial condition, results of
operations, and changes in financial position of Kasper and its subsidiaries for
the interim periods presented.
On July 9, 1999, the Company completed the purchase of the Anne Klein
Company LLC ("Anne Klein") trademarks (the "Trademark Purchase") including ANNE
KLEIN(R), ANNE KLEIN II(R) and A LINE ANNE KLEIN(TM) and the "Lion Head Design".
The aggregate purchase price for these assets was $67,900,000. As a result of
the Trademark Purchase, the Company began incurring selling, general and
administrative expenses for the ANNE KLEIN(R) and A LINE ANNE KLEIN(TM) Resort
Bridge collections, which were introduced at retail in July. Deliveries of the
Resort Bridge line will commence in the fourth quarter of 1999. Accordingly, the
results of operations for the third quarter and year to-date 1999 reflect the
expenses related to the new Anne Klein division without the benefit of the
corresponding revenues.
NOTE 2. INVENTORIES
Inventories are valued at lower of cost or (first-in, first-out,
"FIFO") market.
Inventories consist of the following:
OCTOBER 2, 1999 JANUARY 2, 1999
--------------- ---------------
(in thousands)
Raw materials $38,635 $38,470
Finished goods 39,505 61,965
--------- ---------
Total inventories $78,140 $ 100,435
========= =========
7
<PAGE>
NOTE 3. INCOME PER SHARE
The computation of income per common share is based upon the weighted
average number of common shares outstanding during the period.
NOTE 4. DEBT
On July 9, 1999, the Company entered into an Amended and Restated
Credit Facility, (the "Facility"), led by The Chase Manhattan Bank ("Chase") in
order to fund Kasper's working capital requirements and to finance the Trademark
Purchase. The Facility provides the Company with a revolving credit line of $160
million.
At October 2, 1999, there were direct borrowings of approximately
$69,158,000 outstanding and approximately $19,295,000 outstanding in letters of
credit under the Facility. The Company has approximately $21,283,000 available
for future borrowings as of October 2, 1999.
On June 16, 1999 the Company received consents from a majority of the
aggregate principal amount of its 12.75% Senior Notes due 2004 (the "Senior
Notes") outstanding as of May 21, 1999, to certain proposed amendments to the
Indenture, dated as of June 1, 1997 and effective June 4, 1997 (as amended by
the Supplemental Indenture, dated as of June 30, 1997, the "Indenture"), between
the Company and IBJ Whitehall Bank & Trust Company (f/k/a IBJ Schroder Bank
&Trust Company), as Trustee, governing the Senior Notes, and had executed a
Second Supplemental Indenture (the "Second Supplemental Indenture") with respect
thereto. The primary purpose of the amendments is to enable the Company to
consummate the purchase of certain trademarks and related license agreements and
certain other assets of Anne Klein (the "Trademark Purchase"). On July 9, 1999
as a result of the closing of the Revolving Credit Facility, the Second
Supplemental Indenture, dated as of June 16, 1999, became effective. As a
result, the Company was required to pay to each registered holder of Senior
Notes as of May 21, 1999, $0.02 in cash for each $1.00 in principal amount of
Senior Notes held by such registered holder as of that date. In addition, the
interest rate on the Senior Notes will increase to 13.00%, beginning January 1,
2000.
NOTE 5. ANNE KLEIN TRADEMARK PURCHASE
On March 16, 1999 the Company issued a joint press release with Anne
Klein announcing, among other things, that the Company and Anne Klein signed a
definitive agreement for the Company to purchase Anne Klein's trademarks and
selected related assets. On July 9, 1999, the Company completed the Trademark
Purchase. The trademark purchase was funded by the Facility and included
$3,000,000 previously paid under the expired license agreement between the
Company and Anne Klein. The Company has begun selling ANNE KLEIN(R) and A LINE
ANNE KLEIN(TM) Resort Collections and will commence delivery in the fourth
quarter of 1999.
NOTE 6. SEGMENT INFORMATION
The Company's primary segment is the design, distribution and wholesale
sale of women's career suits, dresses and sportswear principally to major
department stores and specialty shops. In addition, the Company operates 58
retail outlet stores throughout the United States as another distribution
channel for its products. As a result of the Trademark Purchase, the Company now
reports licensing as a separate segment. Prior year information has been
restated to conform to current year presentation. For the purposes of
decision-making and assessing performance, Management includes the operations of
8
<PAGE>
Asia Expert Limited in its wholesale segment. International operations are
immaterial for segment reporting and have been included in the wholesale
segment.
The Company measures segment profit as earnings before interest, taxes,
depreciation and amortization ("EBITDA"). All intercompany revenues and expenses
are eliminated in computing net sales and EBITDA. Information on segments and a
reconciliation to the consolidated financial statements are as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTEEN WEEKS ENDED
OCTOBER 2, 1999 OCTOBER 3, 1998
--------------------------------------------------- ----------------------------------------------------
WHOLESALE RETAIL LICENSING TOTAL WHOLESALE RETAIL LICENSING TOTAL
------------ ------------- ------------------------ ------------- ------------ -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 75,338 $12,621 $ 2,919 $90,878 $ 81,987 $ 12,093 $ 183 $ 94,263
EBITDA 7,073 901 2,757 10,731 14,156 1,268 183 15,607
Depreciation and
amortization 2,615 1,971
------------ ------------
Operating income 8,116 13,636
Interest and
financing costs 6,235 4,716
------------ ------------
Income before
provision for
income taxes 1,881 8,920
Income taxes 790 3,745
============ ============
Net income $ 1,091 $ 5,175
============ ============
THIRTY-NINE WEEKS ENDED THIRTY-NINE WEEKS ENDED
OCTOBER 2, 1999 OCTOBER 3, 1998
--------------------------------------------------- ----------------------------------------------------
WHOLESALE RETAIL LICENSING TOTAL WHOLESALE RETAIL LICENSING TOTAL
------------ ------------- ------------------------ ------------- ------------ -------------------------
Net Sales $ 205,598 $36,410 $ 3,394 $245,402 $ 219,639 $ 32,943 $ 629 $ 253,211
EBITDA 20,462 2,694 3,232 26,388 27,788 2,642 629 31,059
Depreciation and
amortization 6,641 5,818
------------ ------------
Operating income 19,747 25,241
Interest and
financing costs 14,885 13,250
------------ ------------
Income before
provision for
income taxes 4,862 11,991
Income taxes 2,046 5,034
============ ============
Net income $ 2,816 $ 6,957
============ ============
</TABLE>
9
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the foregoing condensed consolidated financial statements and notes
thereto. This discussion contains forward-looking statements based on current
expectations that involve risks and uncertainties. Actual results and the timing
of certain events may differ significantly from those projected in such
forward-looking statements due to a number of factors, including those set forth
at the end of this Item.
OVERVIEW
On July 9, 1999, the Company completed the purchase of the Anne Klein
Company LLC ("Anne Klein") trademarks (the "Trademark Purchase") including ANNE
KLEIN(R), ANNE KLEIN II(R) and A LINE ANNE KLEIN(TM) and the "Lion Head Design".
The aggregate purchase price for these assets was $67,900,000. As a result of
the Trademark Purchase, the Company began incurring selling, general and
administrative expenses for the ANNE KLEIN(R) and A LINE ANNE KLEIN(TM) Resort
collections, which were introduced at retail in July. Deliveries of the Resort
lines will commence in the fourth quarter of 1999. Accordingly, the results of
operations for the third quarter and year-to-date 1999 reflect the expenses
related to the new Anne Klein division without the benefit of the corresponding
revenues.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
TOTAL REVENUES BY SEGMENT
(000'S EXCEPT PERCENTAGES)
THIRD QUARTER YEAR TO DATE
------------------------------------------------------ --------------------------------------------------------
% % % %
1999 OF TOTAL 1998 OF TOTAL 1999 OF TOTAL 1998 OF TOTAL
-------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Wholesale $ 75,338 82.9% $ 81,987 87.0% $ 205,598 83.8% $ 219,639 86.7%
Retail 12,621 13.9% 12,093 12.8% 36,410 14.8% 32,943 13.0%
Licensing 2,919 3.2% 183 0.2% 3,394 1.4% 629 0.3%
-------------- ------ --------------- ------ --------------- ------ -------------- ------
Total revenues $ 90,878 100.0% $ 94,263 100.0% $ 245,402 100.0% $ 253,211 100.0%
EBITDA BY SEGMENT
(000'S EXCEPT PERCENTAGES)
THIRD QUARTER YEAR TO DATE
------------------------------------------- ----------------------------------------------
% % % %
1999 OF TOTAL 1998 OF TOTAL 1999 OF TOTAL 1998 OF TOTAL
-------------- --------------- --------------- --------------
Wholesale $ 7,073 65.9% $ 14,156 90.7% $ 20,462 77.6% $ 27,788 89.5%
Retail 901 8.4% 1,268 8.1% 2,694 10.2% 2,642 8.5%
Licensing 2,757 25.7% 183 1.2% 3,232 12.2% 629 2.0%
-------------- ------ --------------- ------ --------------- ------ -------------- ------
Total $10,731 100.0% $ 15,607 100.0% $ 26,388 100.0% $ 31,059 100.0%
</TABLE>
10
<PAGE>
THIRTEEN WEEKS ENDED OCTOBER 2, 1999 AS COMPARED TO THIRTEEN WEEKS ENDED OCTOBER
3, 1998
TOTAL REVENUES
Total revenues for the thirteen weeks ended October 2, 1999 (the
"third quarter 1999") were $90.9 million as compared to $94.3 million for the
thirteen weeks ended October 3, 1998 (the "third quarter 1998").
Wholesale sales decreased to $75.3 million in the third quarter 1999
from $82.0 million in the third quarter 1998. The Company's suit and dress lines
were negatively impacted by higher markdowns to move current seasonal
merchandise, along with a decrease in production of the Company's Nipon(TM) line
which experienced increased margins as a result. Sales of sportswear increased
$3.0 million in the third quarter 1999 as the trend towards softer dressing
continued.
Retail sales increased to $12.6 million in the third quarter 1999
from $12.1 million in the third quarter 1998, an increase of $.5 million or 4.1%
due primarily to the net addition of 4 retail outlet stores over the last 12
months. Comparable store sales for the third quarter 1999 were $11.0 million
compared to $11.6 million for the third quarter 1998, a decrease of 5.1%. The
decline is a result of reduced traffic experienced in outlet centers in general,
as well as the Company owned stores.
Licensing revenues increased to $2.9 million in the third quarter
1999 compared to $200 thousand in the third quarter 1998 as the royalty income
relating to the Anne Klein trademarks was included in revenues in the third
quarter 1999.
GROSS PROFIT
Gross Profit as a percentage of total revenues increased to 33.4% for
the third quarter 1999, compared to 32.9% for the third quarter 1998.
The improvement over the third quarter 1998 can be attributed
primarily to the licensing revenues generated by the Trademark Purchase, as well
as continued cost benefits as a result of macroeconomic conditions in Asia.
Wholesale gross profit as a percentage of sales decreased to 29.6% in the third
quarter 1999 from 31.3% in the third quarter 1998. Margin was impacted by poor
sell-through of the Company's Kasper(R), Le Suit(TM) and dress lines resulting
in higher markdowns and allowances, as well as line development costs relating
to the Anne Klein lines. These erosions were offset partially by the strong
performance of sportswear, a more profitable Nipon(R) line and the reduced
production costs in Asia.
Retail gross profit as a percentage of sales decreased to 40.1% in
the third quarter 1999 from 42.1% in the third quarter 1998 due to an increase
in markdowns.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $19.6
million in the third quarter 1999 as compared to $15.4 million in the third
quarter 1998, an increase of $4.2 million. Approximately $3.5 million of this
increase is attributed to the new Anne Klein(R) division, which has yet to
benefit from Resort deliveries scheduled to begin in the fourth quarter 1999 and
better suits and sportswear expected to roll out in Fall 2000. An additional
$350 thousand of the increase is due to increased selling, administrative and
occupancy costs related to the net addition of 4 retail outlet stores. The
remaining increase of approximately $350 thousand is associated with Wholesale
operations. The increase is the result of combined modest increases in
administrative, shipping, design and occupancy expenses of approximately $500
thousand offset by a decrease in advertising of approximately $150 thousand.
11
<PAGE>
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
Earnings before Interest, Taxes, Depreciation and Amortization,
("EBITDA") decreased to $10.7 million in the third quarter 1999 from $15.6
million in the third quarter 1998. Wholesale EBITDA decreased during the period
primarily as a result of decreased sales and increased selling, general, and
administrative expenses discussed above, including the impact of expenses
relating to Anne Klein without any corresponding revenues. Retail experienced a
decrease in EBITDA of approximately $400 thousand reflecting increased markdowns
and selling, general and administrative expenses relating to the additional 4
new stores during the third quarter 1999. Licensing contributed $2.8 million in
EBITDA as a result of the Trademark Purchase.
AMORTIZATION OF REORGANIZATION ASSET
As a result of the reorganization of Leslie Fay, the portion of the
Company's reorganization value not attributable to specific identifiable assets
has been reported as "reorganization value in excess of identifiable assets".
This asset is being amortized over a 20-year period beginning June 4, 1997.
Accordingly, the Company incurred amortization charges for both the third
quarter 1999 and 1998 totaling approximately $825 thousand in each quarter.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization totaled $1.8 million in the third
quarter 1999 and $1.2 million in the third quarter 1998, and consist of the
amortization charges associated with the trademarks as well as fixed asset
depreciation. As a result of the Trademark Purchase on July 9, 1999, the Company
incurred an additional $450 thousand in amortization for the third quarter 1999.
The trademarks are being amortized over 35 years. The remaining increase is
associated with depreciation related to fixed assets purchased during the prior
12 months.
INTEREST AND FINANCING COSTS
Interest and financing costs increased to $6.2 million in the third
quarter 1999 from $4.7 million in the third quarter 1998, an increase of
approximately $1.5 million. Interest is attributable to the expense on the $110
million Senior Notes, which were issued on June 4, 1997, along with interest on
the financing agreement and the amortization of the associated bank fees.
The Senior Notes bear interest at 12.75% per annum and mature on
March 31, 2004. Interest is payable semi-annually on March 31 and September 30.
Interest relating to the Senior Notes for both the third quarter 1999 and 1998
totaled $3.5 million each. There are no principal payments due until maturity.
To the extent that the Company elects to undertake a secondary stock offering or
elects to prepay certain amounts, a premium will be required to be paid.
As a result of the Trademark Purchase, the Company entered into an
Amended and Restated Credit Facility, (the "Chase Facility"), led by The Chase
Manhattan Bank ("Chase"). The Chase Facility provides the Company with a
revolving credit line of $160 million. Interest relating to the Chase Facility
during the third quarter 1999 totaled $1.5 million, an increase of $900 thousand
over the prior year due primarily to the increased borrowings needed to finance
the Trademark Purchase.
12
<PAGE>
The associated bank fees are being amortized over the remaining life
of the financing agreement (four and one half years) and resulted in
approximately $130 thousand of amortization charges for the third quarter 1999
and $200 thousand for the third quarter 1998.
In addition, during the third quarter 1999, the Company wrote off
approximately $750 thousand in unamortized bank fees relating to the original
facility ("the BB Facility"). The offsetting decrease relates to miscellaneous
interest and factoring fees.
INCOME TAXES
Provision for income taxes was $800 thousand for the third quarter
1999. This amount differs from the amount computed by applying the federal
income tax statutory rate of 34% to income before taxes because of state and
foreign taxes.
THIRTY-NINE WEEKS ENDED OCTOBER 2, 1999 AS COMPARED TO THIRTY-NINE WEEKS ENDED
OCTOBER 2, 1998
TOTAL REVENUES
Total revenues for the thirty-nine weeks ended October 2, 1999 ("YTD
1999") were $245.4 million as compared to $253.2 million for the thirty-nine
weeks ended July 4, 1998 ("YTD 1998").
Wholesale sales decreased to $205.6 million for YTD 1999, from $219.6
million for YTD 1998. The discontinuance of Nina Charles(TM) accounted for $2.5
million of the $14.0 million decline in wholesale sales. Kasper(R) Dress enjoyed
an increase in sales of $1.2 million over the YTD 1998, as strong sales for the
first quarter 1999 were only slightly impacted by the downturn that affected the
Company's sales in the second and third quarters of 1999. Sales of sportswear
decreased approximately $500 thousand for YTD 1999 with strong sales in the
third quarter offsetting the planned production cutback in the first half. Sales
of the Company's suit lines accounted for the remaining decrease for YTD 1999
with large markdowns and allowances given as a result of poor sell-through of
the Company's short-sleeve suit line in the second quarter 1999 and the general
slow down of the suit market in the third quarter, along with a decrease in
Nipon(R) production.
Retail sales increased to $36.4 million for YTD 1999 from $32.9
million for YTD 1998, an increase of approximately 10.6% due to the net addition
of 4 retail outlet stores over the last 12 months. Comparable store sales
totaled $29.1 million for both YTD 1999 and 1998.
Licensing revenues increased to $3.4 million for YTD 1999 compared to
$600 thousand for YTD 1998 as the royalty income relating to the Anne Klein
trademarks was included in revenues in YTD 1999.
GROSS PROFIT
Gross Profit as a percentage of net sales increased to 32.3% for YTD
1999, compared to 30.7% for YTD 1998. The improvement over YTD 1998 can be
attributed primarily to the licensing revenues generated by the Trademark
Purchase, as well as continued cost benefits as a result of macroeconomic
conditions in Asia.
Wholesale gross profit as a percentage of sales increased to 29.7%
for YTD 1999 from 28.8% for YTD 1998. The strong performance of sportswear in
the third quarter 1999 along with the scaling back of the line's production in
the first half 1999 resulted in a 100 basis-point increase in margin for the
line. Nipon's(R) decreased production in the third quarter 1999 along with the
discontinuance of Nina Charles(TM) which contributed negative margins in the
13
<PAGE>
first half 1998, also contributed to the increased profitability for the period.
The Company's Kasper(R) suit and dress lines along with Le Suit(TM), experienced
comparable margins in both YTD 1999 and YTD 1998 with the continued production
cost benefits in Asia offsetting the increased markdowns and allowances given to
move merchandise.
Retail gross profit as a percentage of sales decreased to 40.7% for
YTD 1999 from 41.7% for YTD 1998 as a result of increased markdowns.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $52.8
million for YTD 1999 as compared to $46.6 million for YTD 1998, an increase of
$6.2 million. Approximately $3.5 million of this increase is attributed to the
new Anne Klein(R) division, which has yet to benefit from Resort deliveries of
the bridge line scheduled to begin in the fourth quarter 1999 and better suits
and sportswear expected to roll out in Fall 2000. Approximately $950 thousand of
this increase is attributed to increased selling, administrative and occupancy
costs related to the net addition of 4 retail outlet stores.
The remaining increase is associated with Wholesale operations.
Administrative expenses increased by approximately $1.1 million as a result of
Year 2000 compliance testing and remediation which was substantially completed
during the period, along with other information system projects and increased
personnel costs. Occupancy costs increased approximately $300 thousand as a
result of additional warehouse space needed as a result of the Trademark
Purchase along with nine months of increased rent relating to the new showroom
versus only three months in the prior year. Increases in production, design and
shipping relating primarily to increased personnel costs were offset by a
decrease in selling expense as a result of the discontinuance of Nina
Charles(TM), along with lower advertising costs and resulted in the remaining
increase in selling, general and administrative expenses of $350 thousand.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
EBITDA decreased to $26.4 million for YTD 1999 from $31.1 million for
YTD 1998. Wholesale EBITDA decreased during the period primarily as a result of
decreased sales and increased selling, general, and administrative expenses
experienced during the third quarter 1999. Approximately half of the decrease in
wholesale EBITDA is the result of costs associated with the development of the
various Anne Klein lines incurred during the third quarter 1999, prior to the
realization of sales which will commence in the fourth quarter 1999. Retail
EBITDA remained comparable to YTD 1998 with increased sales relating to the
additional 4 new stores offset by lower margins and expenses associated with the
store openings.
AMORTIZATION OF REORGANIZATION ASSET
As a result of the Reorganization, the portion of the Company's
reorganization value not attributable to specific identifiable assets has been
reported as "reorganization value in excess of identifiable assets". This asset
is being amortized over a 20-year period beginning June 4, 1997. Accordingly,
the Company incurred amortization charges for both YTD 1999 and YTD 1998
totaling approximately $2.5 million for each period.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization totaled $4.1 million for YTD 1999 and
$3.3 million for YTD 1998, and consist of the amortization charges associated
with the trademarks as well as fixed asset depreciation. As a result of the
14
<PAGE>
Trademark Purchase on July 9, 1999, the Company incurred an additional $450
thousand in amortization for YTD 1999. The trademarks are being amortized over
35 years. The remaining increase is associated with depreciation related to
fixed assets purchased during the prior 12 months.
INTEREST AND FINANCING COSTS
Interest and financing costs increased to $14.9 million for YTD 1999
from $13.3 million for YTD 1998, an increase of approximately $1.6 million.
Interest relating to the Senior Notes for both YTD 1999 and 1998 totaled $10.5
million each.
Interest relating to the combined Chase Facility and BB Facility for
YTD 1999 totaled $2.2 million, an increase of approximately $1.0 million over
the prior year due primarily to the increased borrowings needed to finance the
Trademark Purchase. The associated bank fees resulted in approximately $530
thousand of amortization charges for YTD 1999 and $600 thousand for YTD 1998. In
addition, during the third quarter 1999, the Company wrote off approximately
$750 thousand in unamortized bank fees relating to the BB Facility. The
offsetting decrease relates to miscellaneous interest and factoring fees.
INCOME TAXES
Provision for income taxes was $2.0 million for YTD 1999. This amount
differs from the amount computed by applying the federal income tax statutory
rate of 34% to income before taxes because of state and foreign taxes.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased to $5.2 million
during YTD 1999 as compared to cash usage of $34.3 million for YTD 1998,
primarily as a result of the decrease in inventory from the beginning of the
year. An increase in payables and accrued expenses as a result of the addition
of Anne Klein offset by a decrease in accounts receivable over the prior period
as a result of the lower sales, were responsible for the remaining improvement.
The Company's main sources of liquidity have been cash flows from
operations and credit facilities. Effective June 5, 1997, the Company entered
into a $100 million working capital facility with BankBoston as the agent bank
for a consortium of lending institutions. The BB Facility, as amended, provided
for a sub-limit for letters of credit of $50 million. The BB Facility was
secured by substantially all the assets of the Company. The BB Facility was to
expire in fiscal 2000 and provided for various borrowing rate options, including
rates based upon a fixed spread over LIBOR. The BB Facility provided for the
maintenance of certain financial ratios and covenants and set limits on the
amount of capital expenditures and dividends to shareholders. Availability under
the BB Facility was limited to a borrowing base calculated upon eligible
accounts receivable, inventory and letters of credit. The BB Facility was been
amended to update certain financial ratios, covenants and limits on capital
expenditures.
On July 9, 1999, the BB Facility was amended by the Chase Facility in
order to fund Kasper's working capital requirements and to finance the Trademark
Purchase. The Chase Facility provides Kasper with a revolving credit line of
$160 million. The Chase Facility provides for the maintenance of certain
financial ratios and covenants, sets limits on capital expenditures, and expires
on December 31, 2003.
15
<PAGE>
Pursuant to the Leslie Fay reorganization plan, the Company issued
$110 million aggregate principal amount of its Senior Notes. The Senior Notes
bear interest at 12.75% per annum and mature on March 31, 2004. Interest is
payable semi-annually on March 31 and September 30. Interest relating to the
Senior Notes for YTD 1999 totaled $10.5 million. There are no principal payments
due until maturity. To the extent that the Company elects to undertake a
secondary stock offering or elects to prepay certain amounts, a premium will be
required to be paid.
On June 16, 1999 the Company received consents from a majority of the
aggregate principal amount of its Senior Notes as of May 21, 1999, to certain
proposed amendments to the Indenture, dated as of June 1, 1997 and effective
June 4, 1997 (as amended by the Supplemental Indenture, dated as of June 30,
1997, the "Indenture"), between the Company and IBJ Whitehall Bank & Trust
Company (f/k/a IBJ Schroder Bank &Trust Company), as Trustee, governing the
Senior Notes, and had executed a Second Supplemental Indenture (the "Second
Supplemental Indenture") with respect thereto. The primary purpose of the
amendments was to enable the Company to consummate the Trademark Purchase. On
July 9, 1999 as a result of the closing of the Chase Facility, the Second
Supplemental Indenture became effective. As a result, the Company paid to each
registered holder of Senior Notes as of May 21, 1999, $0.02 in cash for each
$1.00 in principal amount of Senior Notes held by such registered holder as of
that date. In addition, the interest rate on the Senior Notes will increase to
13.00%, beginning January 1, 2000.
The Company has a factoring/financing agreement with Heller
Financial, Inc. ("Heller"). It provides for Heller to act as the credit and
collection arm of the Company. The Company receives funds from Heller as the
receivables are collected. Any amounts unpaid after 120 days are guaranteed and
paid to the Company by the factor. The agreement had a two-year term expiring in
February 1998. The cost was .4% for the first $240 million in sales and .35% for
sales above that amount. The agreement was amended in January 1998 to add an
additional 18 months to the term of the arrangement and lower the rate to .35%
for the first $250 million in sales and .3% on the excess over that amount.
On October 4, 1999 the Company terminated the factoring agreement
with Heller and entered into a new agreement with The CIT Group/Commercial
Services, Inc. ("CIT"). Under the new agreement CIT purchases the receivables
from the Company and remits the funds to the Company when collected. The
agreement has no expiry date but may be terminated upon 60 days written notice
by either party. For its factoring services CIT will charge the Company $75,000
per month. If during a twelve-month period the number of invoices exceeds
425,000, CIT will be entitled to an additional fee of $1.75 per additional
invoice.
Capital expenditures were $1.9 million and $4.7 million for the YTD
1999 and YTD 1998, respectively. Capital expenditures for YTD 1999 represent
funds spent for new retail stores, information systems and general improvements.
On March 16, 1999 the Company issued a joint press release with Anne
Klein announcing, among other things, that the Company and Anne Klein signed a
definitive agreement for the Company to purchase Anne Klein's trademarks and
selected related assets. On July 9, 1999, the Company completed the Trademark
Purchase. The aggregate purchase price for these assets was $67.9 million. The
Trademark Purchase was funded by the Revolving Credit Facility and included
$3,000,000 previously paid under the expired license agreement between the
Company and Anne Klein. The Company has begun selling ANNE KLEIN(R) and A LINE
ANNE KLEIN(TM) Resort Collections and will commence delivery in the fourth
quarter of 1999.
16
<PAGE>
YEAR 2000 COMPLIANCE
STATE OF READINESS
The Company has conducted a comprehensive review of its computer
systems to identify the systems that could be affected by the "Year 2000" issue.
The Year 2000 problem is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a major system
failure or miscalculations. The Company uses software developed and supported by
third parties for all mission critical applications including order entry,
distribution, shipping, electronic data interchange ("EDI"), and for its retail
operations. Each of these software vendors has assured the Company in writing
that the current version of their software has been tested and is Year 2000
compliant. The Company performed a testing project to verify such assurances.
This testing was completed during the second quarter 1999.
These mission-critical systems were tested and required minimal
remediation. Each of these systems was tested individually as well as in-concert
in comprehensive real-world scenarios. These tests revealed several minor
problems, which were quickly addressed and resolved to be Year 2000 compliant.
It is important to note that it is unfeasible to test every feature of every
system. The Company, however, is confident that the aspects of the systems
tested are comprehensive and representative of total system performance.
The Company is still in the process of remediating a number of
smaller non-mission-critical systems, which include stand-alone PC applications,
computer hardware, time clocks, and alarm systems. In addition, foreign offices
have been contacted, systems inventories completed and vulnerable applications
identified. These non-mission-critical systems are expected to be Year 2000
compliant by year-end.
The Company is also highly dependent on its customers' ability to
transmit and receive EDI documents such as purchase orders, invoices and advance
shipping notices. The Company has worked with all its trading partners to
upgrade all electronic transactions to the VICS 4010 standard, which is Year
2000 compliant. With the exception of several small trading partners, this
process is complete. For these smaller retailers, work-around procedures have
been developed.
In addition, the Company may face some risk to the extent that
suppliers of products and others with whom the Company has a material business
relationship will not be Year 2000 compliant. Accordingly, the Company has
conducted formal communications with significant suppliers and third parties in
order to determine the extent to which the Company may be vulnerable to the
failure of these suppliers and third parties to remediate their own Year 2000
issues. The Company has worked with its major trucking consolidator and has
determined that its system is compliant. Similar efforts are ongoing with the
Company's overseas shippers. The Company will continue to review and evaluate
the responses it receives and periodically monitor the progress of these
suppliers and third parties in addressing their own Year 2000 issues.
With the Anne Klein Trademark Purchase, a new set of potential Year
2000 issues has been introduced. The Company is in the process of integrating
Anne Klein's operations into the Company's network and systems in order to
minimize the potential exposure that Anne Klein's systems may present. A
detailed testing of critical business functions was completed in October.
Remediation is in progress and is expected to be completed by December 1, 1999.
17
<PAGE>
COSTS
The total cost associated with the required testing and modifications
to become Year 2000 compliant is not expected to be material to the Company's
financial position. The estimated total cost of the Year 2000 project, including
the additional testing of Anne Klein systems, is expected to be approximately
$900,000. This cost estimate may change as the Company completes its Year 2000
project and obtains additional information and conducts further testing.
RISKS
Despite all efforts, however, there is no assurance that these
systems will be Year 2000 compliant under all the circumstances and volume
stresses that may actually be required. The possible consequences of the Company
or its key vendors, suppliers and customers not being fully year 2000 compliant
by January 1, 2000 include, among other things, delays in the delivery of
products, delays in the receipt of goods, invoice and collection errors and
inventory obsolescence. Consequently, the business and results of operations of
the Company could be materially adversely affected by a temporary inability of
the Company to conduct its business in the ordinary course for a period of time
until after January 1, 2000.
CONTINGENCY PLANS
As an additional precaution, the Company is finalizing contingency
plans to mitigate the possible disruption in business operations that may
result. Once developed, contingency plans and related cost estimates will be
continually refined as additional information becomes available.
DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION
The statements contained in this Quarterly Report on Form 10-Q that
are not historical facts are "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and section 21E of the
Securities Act of 1934, as amended. Those statements appear in a number of
places in this report, including in "Management's Discussion and Analysis of
Financial Conditions and Results of Operations," and include all discussions of
trends affecting the Company's financial conditions and results of operations
and the Company's business and growth strategies as well as statements that
contain such forward-looking statements as "believes," "anticipates," "could,"
"estimates," "expects," "intends," "may," "plans," "predicts," "projects,"
"will," and similar terms and phrases, including the negative thereof. In
addition, from time to time, the Company or its representatives have made or may
make forward-looking statements, orally or in writing. Furthermore,
forward-looking statements may be included in our other filings with the
Securities and Exchange Commission as well as in press releases or oral
statements made by or with the approval of the Company's authorized executive
officers.
We caution you to bear in mind that forward-looking statements, by
their very nature, involve assumptions and expectations and are subject to risks
and uncertainties. Although we believe that the assumptions and expectations
reflected in the forward-looking statements contained in this report are
reasonable, no assurance can be given that those assumptions or expectations
will prove to have been correct. Important factors that could cause actual
results to differ materially from our expectations include but are not limited
to, the following cautionary statements ("Cautionary Statements"):
18
<PAGE>
o general economic conditions;
o the ability of the Company to adapt to changing consumer preferences
and tastes;
o the Company's limited operating history;
o potential fluctuations in the Company's operating costs and results;
o the Company's concentration of revenues;
o challenges facing the Company related to its rapid growth;
o the Company's dependence on a limited number of suppliers;
o the ability of the Company and third parties, including customers or
suppliers, to adequately address Year 2000 issues; and
o the ability of the Company to successfully integrate the Purchase
Transaction into the Company's existing businesses.
All subsequent written or oral forward-looking statements attributable to
the Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Statements.
19
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on
September 28, 1999 for the purpose of: (1) approving an amendment to the Amended
and Restated Certificate of Incorporation of the Company; and (2) ratifying the
appointment of Arthur Andersen LLP as the Company's independent certified public
accountants for the fiscal year ending January 1, 2000. Proxies for the meeting
were solicited pursuant to Regulation 14A of the Exchange Act and there was no
solicitation in opposition.
First, the proposal to approve the amendment to the Amended and
Restated Certificate of Incorporation of the Company was approved by the
following vote: (a) 5,077,191 votes were cast "for" the matter; (b) 9,468 votes
were cast "against" the matter; and (c) 901 votes "abstained" from voting on the
matter. There were 1,077,825 broker non-votes.
Second, the proposal to ratify the appointment of Arthur Andersen LLP
as the Company's independent certified public accountants for the fiscal year
ending January 1, 2000 was approved by the following vote: (a) 4,821,781 votes
were cast "for" the matter; (b) 76,642 votes were cast "against" the matter; and
(c) 1,083 votes "abstained" from voting on the matter.
The election of Directors and a proposal to amend the Company's stock
option plan were deferred to a later date.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
During the quarter ended October 2, 1999, a
Current Report on Form 8-K, dated July 13, 1999 and amended
on September 22, 1999, was filed with the Commission by the
Company announcing the completion of the Anne Klein
Trademark Purchase.
The Company also announced that it had entered
into an Amended Revolving Credit Facility with the Chase
Manhattan Bank in order to refinance its existing
$100,000,000 revolving credit facility, fund the Company's
working capital requirements and finance the purchase of
certain trademarks and certain other assets of Anne Klein.
In addition the Company announced that the Second
Supplemental Indenture had become effective.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KASPER A.S.L., LTD.
(Registrant)
Dated: November 16, 1999
/s/ Arthur S. Levine
--------------------------------------
Arthur S. Levine
Chairman and Chief Executive Officer
/s/ Mary Ann Domuracki
--------------------------------------
Mary Ann Domuracki
Executive Vice President -
Finance and Administration
21
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
27 EDGAR Data Schedule
22
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> OCT-02-1999
<CASH> 3,987
<SECURITIES> 0
<RECEIVABLES> 77,456
<ALLOWANCES> 17,046
<INVENTORY> 78,140
<CURRENT-ASSETS> 149,212
<PP&E> 24,265
<DEPRECIATION> 7,928
<TOTAL-ASSETS> 338,752
<CURRENT-LIABILITIES> 30,344
<BONDS> 0
0
0
<COMMON> 68
<OTHER-SE> 126,712
<TOTAL-LIABILITY-AND-EQUITY> 338,752
<SALES> 87,959
<TOTAL-REVENUES> 90,878
<CGS> 60,569
<TOTAL-COSTS> 21,367
<OTHER-EXPENSES> 826
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,235
<INCOME-PRETAX> 1,881
<INCOME-TAX> 790
<INCOME-CONTINUING> 1,091
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,091
<EPS-BASIC> 0.16
<EPS-DILUTED> 0.16
</TABLE>
