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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 JULY 1, 2000
------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number: 0-24179
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KASPER A.S.L., LTD.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 22-3497645
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(State of Incorporation) (IRS Employer Identification No)
77 METRO WAY, SECAUCUS, NEW JERSEY 07094
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(Address and zip code of principal executive office)
(201) 864-0328
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(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 August 8, 2000 was 6,800,000.
NY2:\954750\01\KG_%01!.DOC\55745.0003
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at July 1, 2000 and January 1, 2000 .................3
Condensed Consolidated Statements of Operations for the Thirteen weeks ended
July 1, 2000 and Thirteen weeks ended July 3, 1999 ................................4
Condensed Consolidated Statements of Operations for the Twenty-six weeks ended
July 1, 2000 and Twenty-six weeks ended July 3, 1999 ..............................5
Condensed Consolidated Statements of Cash Flows for the Twenty-six weeks ended
July 1, 2000 and Twenty-six weeks ended July 3, 1999 ..............................6
Notes to Condensed Consolidated Financial Statements ......................................7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ...............9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ...................................................................18
SIGNATURES .................................................................................................19
EXHIBIT INDEX ..............................................................................................20
</TABLE>
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
KASPER A.S.L., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
----------------------------------
ASSETS JULY 1, JANUARY 1,
2000 2000
----------------------------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents.................................... $2,995 $ 5,086
Accounts receivable, net..................................... 30,990 26,207
Inventories.................................................. 114,727 95,068
Prepaid expenses and other current assets.................... 5,739 3,207
Income taxes receivable...................................... 4,387 2,668
Deferred taxes............................................... 5,077 5,077
---------------- --------------
Total Current Assets......................................... 163,915 137,313
---------------- --------------
Property, Plant and Equipment, at cost less accumulated
depreciation and amortization of $11,003 and $9,004,
respectively................................................. 21,388 19,803
Reorganization value in excess of identifiable assets, net of
accumulated amortization of $10,048 and $8,418, respectively. 55,133 56,763
Trademarks, net of accumulated amortization of $6,300 and $4,668,
respectively................................................. 107,933 109,565
Other Assets, at cost less accumulated amortization of $1,357 and
$717, respectively........................................... 5,867 6,321
---------------- --------------
Total Assets................................................. $354,236 $329,765
================ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................. $35,996 $28,753
Accrued expenses and other current liabilities............... 9,421 8,219
Interest payable............................................. 3,944 4,032
Deferred income.............................................. 706 1,000
Taxes payable................................................ 181 594
---------------- --------------
Total Current Liabilities.................................... 50,248 42,598
Long-Term Liabilities:
Deferred Taxes............................................... 3,064 3,064
Deferred income.............................................. 500 1,000
Long-Term Debt............................................... 110,000 110,000
Bank Revolver................................................ 73,994 53,444
Minority Interest............................................ 551 519
---------------- --------------
Total Liabilities............................................ 238,357 210,625
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
Accumulated Deficit............................................... (3,631) (632)
Cumulative Other Comprehensive Income (Loss)...................... (490) (228)
---------------- --------------
Total Shareholders' Equity........................................ 115,879 119,140
---------------- --------------
Total Liabilities and Shareholders' Equity........................ $354,236 $329,765
================ ==============
</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
----- -----
JULY 1, JULY 3,
2000 1999
------------------- ------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net Sales...................................... $76,897 $55,760
Royalty Income................................. 3,258 243
Cost of Sales.................................. 55,578 39,371
------------------- ------------------
Gross Profit................................... 24,577 16,632
Operating Expenses:
Selling, general and administrative expenses... 23,945 16,330
Depreciation and Amortization.................. 2,755 2,033
------------------- ------------------
Total operating expenses....................... 26,700 18,363
------------------- ------------------
Operating loss................................. (2,123) (1,731)
Interest and Financing Costs................... 5,894 4,145
------------------- ------------------
Loss before provision for income taxes......... (8,017) (5,876)
Income Tax benefit............................. (3,367) (2,468)
------------------- ------------------
Net Loss....................................... $(4,651) $(3,408)
=================== ==================
Basic loss per common share.................... $ (0.68) $ (0.50)
=================== ==================
Diluted loss per common share.................. $ (0.68) $ (0.50)
=================== ==================
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>
TWENTY-SIX TWENTY-SIX
WEEKS ENDED WEEKS ENDED
----------- -----------
JULY 1, JULY 3,
2000 1999
------------------- ------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net Sales...................................... $ 184,486 $154,046
Royalty Income................................. 6,837 474
Cost of Sales.................................. 129,215 105,660
------------------- ------------------
Gross Profit................................... 62,108 48,860
Operating Expenses:
Selling, general and administrative expenses... 50,110 33,187
Depreciation and Amortization.................. 5,437 4,027
------------------- ------------------
Total operating expenses....................... 55,547 37,214
------------------- ------------------
Operating income............................... 6,561 11,646
Interest and Financing Costs................... 11,731 8,649
------------------- ------------------
(Loss) income before provision for income taxes (5,170) 2,997
Provision for Income Taxes..................... (2,171) 1,258
------------------- ------------------
Net (Loss) income.............................. $(2,999) $ 1,739
=================== ==================
Basic earnings per common share................ $ (0.44) $ 0.26
=================== ==================
Diluted loss per common share.................. $ (0.44) $ 0.26
=================== ==================
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>
TWENTY-SIX TWENTY-SIX
WEEKS ENDED WEEKS ENDED
------------------ ------------------
JULY 1, 2000 JULY 3, 1999
------------------ ------------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income................................................. $ (2,999) $ 1,739
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization.................................. 4,271 2,753
Amortization of reorganization value in excess of identifiable
assets.................................................... 1,630 1,630
Income (Loss) applicable to minority interest.................. 32 (33)
(Increase) decrease in:
Accounts receivable, net....................................... (4,783) 1,070
Inventories.................................................... (19,659) 15,968
Prepaid expenses and other current assets...................... (2,532) (385)
Income taxes receivable........................................ (1,719) --
Other assets................................................... (186) (4,141)
Increase (decrease) in:
Accounts payable, accrued expenses and other current liabilities 8,445 (1,838)
Interest payable............................................... (88) (240)
Deferred income................................................ (794) --
Taxes payable.................................................. (413) 593
------------------ ------------------
Total adjustments................................................. (15,796) 15,377
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Net cash (used in) provided by operating activities............... (18,795) 17,116
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net...................................... (3,584) (1,005)
------------------ ------------------
Net cash used in investing activities............................. (3,584) (1,005)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank Revolver.................................................. 20,550 (7,569)
------------------ ------------------
Net cash provided by financing activities......................... 20,550 (7,569)
Effect of exchange rate changes on cash and cash equivalents...... (262) (93)
------------------ ------------------
Net (decrease) increase in cash and cash equivalents.............. (2,091) 8,449
Cash and cash equivalents, at beginning of period................. 5,086 2,437
------------------ ------------------
Cash and cash equivalents, at end of period....................... $2,995 $10,886
================== ==================
</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 1, 2000.
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.
NOTE 2. INVENTORIES
Inventories are valued at lower of cost or (first-in, first-out,
"FIFO") market.
Inventories consist of the following:
JULY 1, JANUARY 1,
2000 2000
---- ----
(in thousands)
Raw materials $ 51,103 $45,849
Finished goods 63,624 49,219
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Total inventories $114,727 $ 95,068
========= ========
NOTE 3. INCOME (LOSS) PER SHARE
The computation of income (loss) per common share is based upon the
weighted average number of common shares outstanding during the period.
NOTE 4. DEBT
At July 1, 2000, there were direct borrowings of $73,994,000
outstanding under the Chase Facility (the "Facility") and approximately
$27,599,000 outstanding in letters of credit under the Facility. The Company had
approximately $13,755,000 available for future borrowings as of July 1, 2000. In
7
<PAGE>
June 2000, the Facility was amended to modify certain financial ratios and
covenants. The Company is in compliance with these covenants.
NOTE 5. SEGMENT INFORMATION
The Company's primary segment is the design, distribution and wholesale
sale of women's career suits, sportswear and dresses principally to major
department stores and specialty shops. In addition, the Company operates 65
Kasper retail outlet stores and 24 Anne Klein retail outlet stores throughout
the United States as another distribution channel for its products. The
Company's licensing operations are also considered a segment for reporting
purposes. For the purposes of decision-making and assessing performance,
Management includes the operations of 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 is as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTEEN WEEKS ENDED
JULY 1, 2000 JULY 3, 1999
------------------------------------------------ ---------------------------------------------------
WHOLESALE RETAIL LICENSING TOTAL WHOLESALE RETAIL LICENSING TOTAL
------------- ---------- ---------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $58,222 $18,675 $3,258 $80,155 $ 43,079 $ 12,681 $ 243 $ 56,003
EBITDA (2,243) 62 2,813 632 (1,127) 1,186 243 302
Depreciation and
amortization 2,755 2,033
----------- ------------
Operating loss $ (2,123) $(1,731)
TWENTY-SIX WEEKS ENDED TWENTY-SIX WEEKS ENDED
JULY 1, 2000 JULY 3, 1999
------------------------------------------------ ---------------------------------------------------
WHOLESALE RETAIL LICENSING TOTAL WHOLESALE RETAIL LICENSING TOTAL
------------- ---------- ---------------------- ------------ ------------ ------------ ------------
Revenues $150,331 $34,155 $6,837 $191,323 $ 130,257 $ 23,789 $ 474 $ 154,520
EBITDA 5,838 148 6,012 11,998 13,407 1,792 474 15,673
Depreciation and
amortization 5,437 4,027
----------- ------------
Operating income $6,561 $ 11,646
</TABLE>
8
<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 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
trademarks including ANNE KLEIN, ANNE KLEIN II (also referred to herein as ANNE
KLEIN2), and A LINE ANNE KLEIN (the "Trademark Purchase"). The aggregate
purchase price for these assets was $67,900,000. The Company has incurred
product development costs relating to the ANNE KLEIN suits and ANNE KLEIN2
sportswear lines, which are scheduled to commence deliveries for the Fall 2000
season. Accordingly, the results of operations for the first half 2000 reflect
the product development costs associated with these lines, without the benefit
of corresponding sales.
Concurrent with the Trademark Purchase, the Company entered into an
Amended and Restated Credit Facility led by The Chase Manhattan Bank ("Chase")
in order to fund the Company's working capital requirements and to finance the
Trademark Purchase (the "Chase Facility"). The Chase Facility provides the
Company with a revolving credit line of $160 million. The Company paid
$2,364,000 in commitment and related fees in connection with the Chase Facility
in July 1999. These fees will be amortized as interest and financing costs over
the remaining life of the financing agreement at the time of the amendment (four
and one half years).
On June 16, 1999, the Company received consents from a majority of the
aggregate principal amount of its outstanding Senior Notes due 2004 (the "Senior
Notes") as of May 21, 1999, to certain 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. The Second Supplemental Indenture, dated as of June 16,
1999, became effective on July 9, 1999, upon the closing of the Chase Facility.
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, totaling $2.2
million. In addition, the interest rate on the Senior Notes increased to 13.00%,
beginning January 1, 2000.
On November 24, 1999, the Company completed the purchase of
substantially all the assets and the assumption of certain liabilities of 25
Anne Klein retail outlets stores from Fashions of Seventh Avenue, Inc. and
Affiliates (the "FSA Acquisition"). The aggregate purchase price was $3,963,000,
which included a cash payment of $300,000 and assumed liabilities of $3,663,000.
9
<PAGE>
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
REVENUES BY SEGMENT
(000'S EXCEPT PERCENTAGES)
SECOND QUARTER FIRST HALF
---------------------------------------------- ----------------------------------------------
% % % %
2000 OF TOTAL 1999 OF TOTAL 2000 OF TOTAL 1999 OF TOTAL
---- -------- ---- -------- ---- -------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Wholesale $58,222 72.6% $ 43,079 76.9% $150,331 78.5% $ 130,257 84.3%
Retail 18,675 23.3% 12,681 22.6% 34,155 17.9% 23,789 15.4%
------- ------ -------- ------ -------- ------ -------- ------
Net Sales 76,897 95.9% 55,760 99.5% 184,486 96.4% 154,046 99.7%
Licensing 3,258 4.1% 243 0.5% 6,837 3.6% 474 0.3%
------- ------ -------- ------ -------- ------ -------- ------
Total Revenue $80,155 100.0% $ 56,003 100.0% $191,323 100.0% $154,520 100.0%
EBITDA BY SEGMENT
(000'S EXCEPT PERCENTAGES)
SECOND QUARTER FIRST HALF
------------------------------------ ---------------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Wholesale $(2,243) $ (1,127) $5,838 $ 13,407
Retail 62 1,186 148 1,792
Licensing 2,813 243 6,012 474
------------ ------------ ------------ ------------
Total $ 632 $ 302 $11,998 $ 15,673
</TABLE>
THIRTEEN WEEKS ENDED JULY 1, 2000 AS COMPARED TO THIRTEEN WEEKS ENDED JULY 3,
1999
TOTAL REVENUE
Net Sales for the thirteen weeks ended July 1, 2000 (the "second
quarter 2000") were $76.9 million as compared to $55.8 million for the thirteen
weeks ended July 3, 1999 (the "second quarter 1999"). Wholesale sales grew $15.1
million over the prior year. The new Anne Klein bridge line contributed $6.7
million of the increase. First quarter 2000 shipping delays that resulted in a
shortfall of sales in that quarter, were fulfilled during the second quarter
2000, resulting in the majority of the remaining increase.
Retail sales increased to $18.7 million in the second quarter 2000 from
$12.7 million in the second quarter 1999, an increase of $6.0 million due to the
net addition of 7 Kasper retail outlet stores over the last 12 months, along
with the 24 remaining Anne Klein retail outlet stores acquired in November 1999.
The 65 Kasper retail outlet stores accounted for $1.7 million of the increase,
while the new Anne Klein retail stores contributed $4.3 million in sales.
Comparable Kasper store sales were $12.8 million in the second quarter 2000
compared to $12.6 million during the second quarter 1999.
Royalty income increased to $3.3 million in the second quarter 2000
from $243,000 in the second quarter 1999 primarily as a result of the Trademark
Purchase completed on July 9, 1999.
10
<PAGE>
GROSS PROFIT
Gross Profit as a percentage of total revenue increased to 30.7% for
the second quarter 2000, compared to 29.7% for the second quarter 1999. The
improvement over the second quarter 1999 can be attributed to the increase in
licensing revenue from the Trademark Purchase, along with a greater contribution
from retail operations. Wholesale gross profit as a percentage of sales
decreased to 24.9% in the second quarter 2000 from 25.6% in the second quarter
1999 in part as a result of the product development costs relating to the ANNE
KLEIN2 line which will not begin shipment until the third quarter 2000, and the
ongoing promotional activity in department stores.
Retail gross profit as a percentage of sales decreased to 36.6 % in the
second quarter 2000 from 42.4% in the second quarter 1999 due to markdowns given
at the Anne Klein outlet stores in an effort to clean-out older merchandise and
strategically position the stores for current product. Margins at the Kasper
outlet stores were up slightly from the prior year second quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $23.9 million
in the second quarter 2000 as compared to $16.3 million in the second quarter
1999, an increase of $7.6 million. Approximately $5.4 million of this increase
can be attributed to the new Anne Klein wholesale operations, which began
incurring expenses in the third quarter 1999. Included in Anne Klein wholesale
expenses for the second quarter 2000 are costs relating to product development
of the ANNE KLEIN suits and ANNE KLEIN2 sportswear lines, which began deliveries
subsequent to the second quarter 2000. Accordingly, no corresponding revenue has
been realized relating to these expenses. Kasper wholesale operation expenses
decreased approximately $600,000 from the second quarter 1999. Retail store
expansion, including the net addition of 7 Kasper retail outlet stores and the
24 Anne Klein retail outlet stores, accounted for $2.4 million in increased
selling, administrative and occupancy costs. Licensing division operations
accounted for approximately $400,000 in general and administrative expenses
during the second quarter 2000 as a result of the Trademark Purchase.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
Earnings before Interest, Taxes, Depreciation and Amortization,
("EBITDA") increased to $630,000 in the second quarter 2000 from $300,000 in the
second quarter 1999. Wholesale EBITDA decreased $1.1 million over the second
quarter 1999 primarily as a result of product development costs relating to the
new Anne Klein lines prior to the realization of sales, along with the overall
expenses contributed by the new Anne Klein division as discussed above. Retail
experienced a decrease in EBITDA reflecting the impact of the FSA Acquisition.
Licensing contributed an additional $2.6 million in EBITDA over the second
quarter 1999 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".
(Refer to the Company's Annual Report on Form 10-K for further discussion of the
reorganization). This asset is being amortized over a 20-year period beginning
June 4, 1997. Accordingly, the Company incurred amortization charges for both
the second quarter 2000 and 1999 totaling approximately $800,000 in each
quarter.
11
<PAGE>
DEPRECIATION AND AMORTIZATION
Depreciation and amortization totaled $2.8 million in the second
quarter 2000 and $2.0 million in the second quarter 1999, and consist of the
amortization charges associated with the trademarks, as well as fixed asset
depreciation. As a result of the Trademark Purchase, the Company incurred an
additional $475,000 in trademark amortization in the second quarter 2000. The
trademarks are being amortized over 35 years. The remaining increase relates to
depreciation and amortization associated with capital expenditures, along with
approximately $150,000 of goodwill amortization and fixed asset depreciation as
a result of the FSA Acquisition.
INTEREST AND FINANCING COSTS
Interest and financing costs increased to $5.9 million in the second
quarter 2000 from $4.1 million in the second quarter 1999. Interest is
attributable to the expense on the Senior Notes and the amortization of the
related bondholder consent fee paid on July 9, 1999, along with interest on the
financing agreement and the amortization of the associated bank fees. Beginning
January 1, 2000, interest on the Senior Notes increased to 13.00% per annum from
12.75%. Interest is payable semi-annually on March 31 and September 30. Interest
relating to the Senior Notes for the second quarter 2000 totaled $3.6 million
and $3.5 million for the second quarter 1999. 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. Amortization of the bondholder consent fee, which is being
amortized over the remaining life of the Senior Notes beginning July 9, 1999,
totaled approximately $115,000 in the second quarter 2000 versus no such expense
in the second quarter 1999.
Interest under the financing agreement totaled approximately $1.8
million in the second quarter 2000, an increase of $1.5 million over the second
quarter 1999 due primarily to the increased borrowings needed to finance the
Trademark Purchase.
The associated bank fees are being amortized over the remaining life of
the financing agreement, four and one-half years beginning July 9, 1999 and
resulted in approximately $130,000 of amortization charges in the second quarter
2000 and approximately $200,000 in the second quarter 1999.
INCOME TAXES
Income tax benefits were $3.4 million and $2.5 million for the second
quarter 2000 and second quarter 1999, respectively. These amounts differ from
the amount computed by applying the federal income tax statutory rate of 34% to
income before taxes because of state and foreign taxes.
TWENTY-SIX WEEKS ENDED JULY 1, 2000 AS COMPARED TO TWENTY-SIX WEEKS ENDED JULY
3, 1999
TOTAL REVENUE
Net Sales for the twenty-six weeks ended July 1, 2000 (the "first half
2000") were $184.5 million as compared to $154.0 for the twenty-six weeks ended
July 3, 1999 (the "first half 1999"). Wholesale sales increased primarily as a
result of the sales contributed by the new Anne Klein bridge line. Exclusive of
the Anne Klein apparel lines, wholesale sales decreased $1.9 million over the
first half 1999. Due to the highly promotional level of activity currently being
12
<PAGE>
experienced in department stores, additional markdowns and allowances were
given, contributing to the decrease in wholesale sales.
Retail sales increased to $34.2 million in the first half 2000 from
$23.8 million in the first half 1999, an increase of approximately 44% due to
the net addition of 7 Kasper retail outlet stores over the last 12 months, along
with the 24 remaining Anne Klein retail outlet stores acquired in November 1999.
The Kasper retail outlet stores accounted for $2.9 million of the increase,
while the new Anne Klein retail stores contributed $7.5 million in sales.
Comparable Kasper store sales were $23.8 million in the first half 2000 compared
to $23.7 million in the first half 1999.
Royalty income increased to $6.8 million in the first half 2000 from
$474,000 in the first half 1999 primarily as a result of the Trademark Purchase
completed on July 9, 1999.
GROSS PROFIT
Gross Profit as a percentage of total revenue increased to 33.7% for
the first half 2000, compared to 31.6% for the first half 1999. The improvement
over the first half 1999 can be attributed to the increase in licensing revenue
from the Trademark Purchase, along with a greater contribution from retail
operations. Wholesale gross profit as a percentage of sales decreased to 28.0%
in the first half 2000 from 29.7% in the first half 1999 in part as a result of
the product development costs relating to the ANNE KLEIN2 line which will not
begin shipment until the third quarter 2000, and promotional activity in
selected seasonal merchandise offerings.
Retail gross profit as a percentage of sales decreased to 38.4% in the
first half 2000 from 41.0% in the first half 1999 due to markdowns given at the
Anne Klein retail outlet stores in an effort to clean-out older merchandise and
strategically position the stores for current product. Margins at the Kasper
outlet stores grew 110 basis points as a result of a broader range of product
offerings with a higher initial markup.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $50.1 million
in the first half 2000 as compared to $33.2 million in the first half 1999, an
increase of $16.9 million. Approximately $12.0 million of this increase can be
attributed to the new Anne Klein wholesale operations, which began incurring
expenses in the third quarter 1999. Included in Anne Klein wholesale expenses
for the first half 2000 are costs relating to product development of the ANNE
KLEIN suits and ANNE KLEIN2 sportswear lines, which began deliveries subsequent
to the first half 2000. Accordingly, no corresponding revenue has been realized
relating to these expenses. Kasper wholesale operation expenses were down
$600,000 from the first half 1999. Retail store expansion, including the net
addition of 7 Kasper retail outlet stores and the 24 Anne Klein retail outlet
stores, accounted for $4.7 million in increased selling, administrative and
occupancy costs. Licensing division operations accounted for approximately
$800,000 in administrative expenses during the first half 2000 as a result of
the Trademark Purchase.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
EBITDA decreased to $12.0 million in the first half 2000 from $15.7
million in the first half 1999. Wholesale EBITDA decreased $7.6 million over the
first half 1999 primarily as a result of product development costs relating to
the new Anne Klein lines prior to the realization of sales. Retail experienced a
decrease in EBITDA reflecting the impact of the FSA Acquisition. Licensing
contributed an additional $5.5 million in EBITDA over the first half 1999 as a
result of the Trademark Purchase.
13
<PAGE>
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 the first half 2000 and 1999
totaling approximately $1.6 million in each half.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased to approximately $5.4 million
in the first half 2000 from approximately $4.0 million in the first half 1999
and consist of the amortization charges associated with the trademarks, as well
as fixed asset depreciation. As a result of the Trademark Purchase, the Company
incurred an additional $950,000 in trademark amortization in the first half
2000. The trademarks are being amortized over 35 years. The remaining increase
relates to depreciation and amortization associated with capital expenditures,
along with approximately $300,000 of goodwill amortization and fixed asset
depreciation as a result of the FSA Acquisition.
INTEREST AND FINANCING COSTS
Interest and financing costs increased to $11.7 million in the first
half 2000 from $8.6 million in the first half 1999, an increase of approximately
$3.1 million. Interest is attributable to the expense on the Senior Notes and
the amortization of the related bondholder consent fee paid on July 9, 1999,
along with interest on the financing agreement and the amortization of the
associated bank fees. Beginning January 1, 2000, interest on the Senior Notes
increased to 13.00% per annum from 12.75%. Interest is payable semi-annually on
March 31 and September 30. Interest relating to the Senior Notes for the first
half 2000 totaled $7.2 million and $7.0 million for the first half 1999.
Amortization of the bondholder consent fee, which is being amortized over the
remaining life of the Senior Notes beginning July 9, 1999, totaled approximately
$230,000 in the first half 2000 versus no such expense in the first half 1999.
Interest under the financing agreement totaled approximately $3.6
million in the first half 2000, an increase of $2.7 million over the first half
1999 due primarily to the increased borrowings needed to finance the Trademark
Purchase.
The associated bank fees are being amortized over the remaining life of
the financing agreement, four and one-half years beginning July 9, 1999 and
resulted in approximately $260,000 of amortization charges in the first half
2000 and approximately $400,000 in the first half 1999.
INCOME TAXES
Provision for income taxes was $(2.2) million for the first half 2000
and $1.3 million for the first half 1999. These amounts differ from the amount
computed by applying the federal income tax statutory rate of 34% to income
before taxes because of state and foreign taxes.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's main sources of liquidity have been cash flows from
operations and credit facilities. The Company's capital requirements primarily
result from working capital needs, retail expansion and renovation of department
store boutiques and other corporate activities.
Net cash used in operating activities was $18.8 million during the
first half 2000 as compared to cash provided by operations of $17.1 million for
the first half 1999, primarily as a result of increases in piece goods and
finished good inventory levels with the addition of the new Anne Klein lines and
the leaner inventory levels at the beginning of the year compared to the
beginning of 1999. Increases in accounts receivable and payables are the result
of increases in sales and transactions from the Anne Klein wholesale and
licensing divisions. The increase in cash used in investing activities resulted
from capital expenditures relating to the warehouse expansion for the increased
space needed for the Anne Klein product lines and for Anne Klein showroom
improvements. The increase in cash flows from financing activities is the direct
result of the increased financing needed for the Trademark Purchase.
Effective June 4, 1997, the Company entered into a $100 million working
capital facility with BankBoston as the agent bank for a consortium of lending
institutions ("the Original Facility"). The Original Facility, as amended,
provided for a sub-limit for letters of credit of $50 million. The Original
Facility was secured by substantially all the assets of the Company.
On July 9, 1999, the Original Facility was amended by the Chase Facility
in order to fund the Company's working capital requirements and to finance the
Trademark Purchase. The Chase Facility provides the Company with a revolving
credit line of $160 million, and provides for the maintenance of certain
financial ratios and covenants, sets limits on the amount of capital
expenditures and dividends to shareholders and expires on December 31, 2003. The
Company paid $2,364,000 in commitment and related fees in connection with the
Chase Facility in July 1999. These fees will be amortized as interest and
financing costs over the remaining life of the Chase Facility at the time of the
amendment (four and one half years). In addition, the Company wrote off
approximately $750,000 in unamortized bank fees remaining under the Original
Facility.
The Chase Facility was amended on December 22, 1999 and June 29, 2000
to modify certain conditions, financial ratios and covenants. As of July 1,
2000, the Company was in compliance with these covenants. The Chase Facility
provides that the interest rate on all outstanding borrowings under the Chase
Facility would fluctuate based on the Company's financial performance.
Accordingly, as of the third quarter 2000, the interest rate increased by 25
basis points. As of July 1, 2000, there were direct borrowings of $74.0 million
outstanding, $27.6 million in letters of credit outstanding and $13.8 million
available for future borrowings.
Pursuant to the Leslie Fay reorganization plan, the Company issued $110
million in Senior Notes. The Senior Notes initially bore interest at 12.75% per
annum and mature on March 31, 2004. Beginning January 1, 2000, the interest rate
increased to 13.0%. Interest is payable semi-annually on March 31 and September
30. Interest relating the Senior Notes for the first half 2000 totaled $7.2
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
amendments to the Indenture and had executed the Second Supplemental Indenture.
15
<PAGE>
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 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, totaling $2.2 million (the "Consent
Fee"). The Consent Fee is being amortized over the remaining life of the Senior
Notes and is included in interest and financing costs.
The Company had a factoring/financing agreement with Heller Financial,
Inc. ("Heller"). It provided for Heller to act as the credit and collection arm
of the Company. The Company received funds from Heller as the receivables were
collected. Any amounts unpaid after 120 days were guaranteed and paid to the
Company by Heller. 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. Any amounts unpaid
after 120 days are guaranteed to be paid to the Company by CIT. The agreement
has no expiry date but may be terminated upon 60 days written notice by either
party. For its services CIT charges the Company $75,000 per month. If during a
twelve-month period the number of invoices exceeds 425,000, CIT is entitled to
an additional fee of $1.75 per additional invoice.
Capital expenditures were $3.6 million and $1.0 million for the first
half 2000 and first half 1999, respectively. Capital expenditures represent
funds spent for warehouse expansion, showroom improvements, new retail stores,
information systems, overseas facilities development and general improvements.
The Company anticipates that it will be able to satisfy its ongoing
cash requirements for the foreseeable future, primarily with cash flow from
operations, supplemented by borrowings under the Chase Facility and, from time
to time, amounts received in connection with strategic transactions, including
licensing arrangements. Events that may impact this include, but are not limited
to, future events that may have the effect of reducing available cash balances
(such as unexpected operating losses, or increased capital or other
expenditures), as well as future circumstances that might reduce or eliminate
the availability of external financing, including the effect of such
circumstances on the Company's compliance with the obligations under the Chase
Facility. In addition, the ongoing promotional environment of department stores
continues to impact the industry. If the current trend persists, the Company's
financial results could be negatively impacted.
16
<PAGE>
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"):
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 potential exchange rate fluctuations;
o the Company's concentration of revenues;
o the Company's dependence on a limited number of suppliers;
o the Company's dependence on its financing arrangement under the Chase
Facility and its ability to achieve ongoing amended covenant
requirements in future periods; and
o the ability of the Company to successfully integrate the Trademark
Purchase, the FSA Acquisition and any future acquisitions 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.
17
<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 June 21,
2000 for the purpose of: (1) electing seven directors; and (2) ratifying the
appointment of Arthur Andersen LLP as the Company's independent certified public
accountants for the fiscal year ending December 30, 2000. Proxies for the
meeting were solicited pursuant to Regulation 14A of the Exchange Act and there
were no solicitations in opposition.
First, the following directors were elected by the following vote:
Votes
-----
For Withheld
--- --------
Arthur S. Levine 5,498,216 1,249
H. Sean Mathis 5,498,216 1,249
Salvatore M. Salibello 5,498,216 1,249
Lester E. Schreiber 5,498,216 1,249
Denis J. Taura 5,498,216 1,249
Olivier Trouveroy 5,498,216 1,249
Martin Bloom 5,498,216 1,249
Second, the proposal to ratify the appointment of Arthur Andersen LLP
as the Company's independent certified public accountants for the fiscal year
ending December 30, 2000 was approved by the following vote: (a) 5,498,457 votes
were cast "for" the matter; (b) 765 votes were cast "against" the matter; and
(c) 243 votes "abstained" from voting on the matter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Amendment Agreement No. 2 to the Amended and Restated Credit
Agreement, dated June 29, 2000
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
18
<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: August 8, 2000
/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
19
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EXHIBIT INDEX
-------------
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
10.1 Amendment Agreement No. 2 to the Amended and Restated Credit Agreement,
dated June 29, 2000
27 EDGAR Data Schedule
20
