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 SEPTEMBER 30, 2000
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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 November 10, 2000 was 6,800,000.
55745.0005
<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 September 30, 2000 and January 1, 2000 . . . . . . . . . . . . .3
Condensed Consolidated Statements of Operations for the Thirteen weeks ended
September 30, 2000 and Thirteen weeks ended October 2, 1999 . . . . . . . . . . . . . . . . . .4
Condensed Consolidated Statements of Operations for the Thirty-nine weeks ended
September 30, 2000 and Thirty-nine weeks ended October 2, 1999 . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statements of Cash Flows for the Thirty-nine weeks ended
September 30, 2000 and Thirty-nine weeks ended October 2, 1999 . . . . . . . . . . . . . . . . 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 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</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 SEPTEMBER 30, 2000 JANUARY 1, 2000
----------------------------------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents.............................................. $ 1,268 $ 5,086
Accounts receivable, net............................................... 69,018 26,207
Inventories............................................................ 111,669 95,068
Prepaid expenses and other current assets.............................. 5,108 3,207
Income taxes receivable................................................ 412 2,668
Deferred taxes......................................................... 5,077 5,077
------------------- ----------------
Total Current Assets................................................... 192,552 137,313
------------------- ----------------
Property, Plant and Equipment, at cost less accumulated
depreciation and amortization of $12,040 and $9,004,
respectively........................................................... 21,624 19,803
Reorganization value in excess of identifiable assets, net of
accumulated amortization of $10,862 and $8,418, respectively........... 54,319 56,763
Trademarks, net of accumulated amortization of $7,115 and $4,668,
respectively........................................................... 107,247 109,565
Other Assets, at cost less accumulated amortization of $1,687 and $717,
respectively........................................................... 5,531 6,321
------------------- ----------------
Total Assets........................................................... $381,273 $329,765
=================== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable....................................................... $30,553 $28,753
Accrued expenses and other current liabilities......................... 10,603 8,219
Interest payable....................................................... 7,733 4,032
Deferred income........................................................ 586 1,000
Taxes payable.......................................................... 1,046 594
Reclassified Long-Term Debt............................................ 110,000 --
Bank Revolver.......................................................... 106,508 --
------------------- ----------------
Total Current Liabilities.............................................. 267,029 42,598
Long-Term Liabilities:
Deferred taxes......................................................... 3,064 3,064
Deferred income........................................................ -- 1,000
Long-Term Debt......................................................... -- 110,000
Bank Revolver.......................................................... -- 53,444
Minority interest...................................................... 730 519
------------------- ----------------
Total Liabilities...................................................... 270,823 210,625
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.......................................................... (8,967) (632)
Cumulative Other Comprehensive Income (Loss)................................. (583) (228)
------------------- ----------------
Total Shareholders' Equity................................................... 110,450 119,140
------------------- ----------------
Total Liabilities and Shareholders' Equity................................... $381,273 $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
SEPTEMBER 30, OCTOBER 2,
2000 1999
---------------------- ----------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net Sales.............................................. $122,905 $87,959
Royalty Income......................................... 3,631 2,919
Cost of Sales.......................................... 90,788 60,569
---------------------- ----------------------
Gross Profit........................................... 35,748 30,309
Operating Expenses:
Selling, general and administrative expenses........... 28,489 19,578
Depreciation and Amortization.......................... 2,783 2,615
---------------------- ----------------------
Total operating expenses............................... 31,272 22,193
---------------------- ----------------------
Operating income....................................... 4,476 8,116
Interest and Financing Costs........................... 6,862 6,235
---------------------- ----------------------
(Loss) income before income taxes...................... (2,386) 1,881
Income Taxes........................................... 2,948 790
---------------------- ----------------------
Net (Loss) Income...................................... $ (5,334) $1,091
====================== ======================
Basic (loss) earnings per common share................. $ (.78) $ .16
====================== ======================
Diluted (loss) earnings per common share............... $ (.78) $ .16
====================== ======================
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
SEPTEMBER 30, OCTOBER 2,
2000 1999
---------------------- ----------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net Sales.............................................. $307,390 $242,008
Royalty Income......................................... 10,469 3,394
Cost of Sales.......................................... 220,004 166,228
---------------------- ----------------------
Gross Profit........................................... 97,855 79,174
Operating Expenses:
Selling, general and administrative expenses........... 78,597 52,786
Depreciation and Amortization.......................... 8,219 6,641
---------------------- ----------------------
Total operating expenses............................... 86,816 59,427
---------------------- ----------------------
Operating income....................................... 11,039 19,747
Interest and Financing Costs........................... 18,596 14,885
---------------------- ----------------------
(Loss) income before income taxes...................... (7,557) 4,862
Income Taxes........................................... 778 2,046
---------------------- ----------------------
Net (Loss) income...................................... $(8,335) $2,816
====================== ======================
Basic (loss) earnings per common share................. $(1.23) $.41
====================== ======================
Diluted (loss) earnings per common share............... $(1.23) $.41
====================== ======================
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
---------------------- ----------------------
SEPTEMBER 30, 2000 OCTOBER 2, 1999
---------------------- ----------------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income............................................................ $ (8,335) $2,816
Adjustments to reconcile net income to net cash (used in) provided by operating
activities:
Depreciation and amortization............................................. 6,453 4,653
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.................................... 211 131
(Increase) decrease in:
Accounts receivable, net.................................................. (42,811) (27,689)
Inventories............................................................... (16,601) 22,295
Prepaid expenses and other current assets................................. (1,901) (607)
Income taxes receivable................................................... 2,256 --
Other assets.............................................................. (309) (4,564)
Increase (decrease) in:
Accounts payable, accrued expenses and other current liabilities.......... 4,184 6,976
Interest payable.......................................................... 3,701 (3,522)
Deferred income........................................................... (1,414) --
Taxes payable............................................................. 452 1,239
Other liabilities......................................................... -- 250
---------------------- ----------------------
Total adjustments............................................................ (43,335) 2,346
---------------------- ----------------------
Net cash (used in) provided by operating activities.......................... (51,670) 5,162
---------------------- ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net................................................. (4,857) (1,882)
Trademark Purchase ....................................................... -- (63,233)
---------------------- ----------------------
Net cash used in investing activities........................................ (4,857) (65,115)
---------------------- ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank Revolver............................................................. 53,064 61,589
---------------------- ----------------------
Net cash provided by financing activities.................................... 53,064 61,589
Effect of exchange rate changes on cash and cash equivalents................. (355) (86)
---------------------- ----------------------
Net (decrease) increase in cash and cash equivalents......................... (3,818) 1,550
Cash and cash equivalents, at beginning of period............................ 5,086 2,437
---------------------- ----------------------
Cash and cash equivalents, at end of period.................................. $1,268 $3,987
====================== ======================
</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:
SEPTEMBER 30, JANUARY 1,
2000 2000
---- ----
(in thousands)
Raw materials $ 44,936 $ 45,849
Finished goods 66,733 49,219
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Total inventories $ 111,669 $ 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 September 30, 2000, there were direct borrowings of $106,508,000
outstanding under the Credit Facility led by The Chase Manhattan Bank (the
"Facility") and approximately $23,963,000 outstanding in letters of credit under
the Facility. The Company had approximately $14,590,000 available for future
borrowings as of September 30, 2000.
7
<PAGE>
On September 29, 2000, the Company announced that it would not make
its semi-annual interest payment of approximately $7.2 million to holders of its
13% Senior Notes (the "Senior Notes"). Accordingly, the Company is currently in
default under the terms of the Senior Notes. In addition, the Company is not in
compliance with certain financial covenants and ratios under the Facility. The
Company is currently engaged in discussions with an ad hoc committee of its
noteholders to formulate a financial restructuring that will address current
liquidity issues and enhance the Company's ability to operate under its short-
and long-term plans. The Company is also negotiating with its lenders under the
Facility to waive defaults and amend certain covenants. Although the Company
expects to reach agreement on the terms of a financial restructuring with the
holders of a substantial majority of the Senior Notes and on the terms for
waivers and amendments of the Facility, there is no assurance that the Company
will be successful in doing so. If the Company is unable to reach such
agreements, it may be compelled to seek relief under the United States
Bankruptcy Code. In the interim, the Company is examining all available options.
The Company has been advised by its independent public accountants
that should the situation described above remain unresolved at year-end, the
auditors' report on those financial statements will be modified for that
contingency.
As a result of the defaults under the Senior Notes and the Facility,
the indebtedness under the Senior Notes and the Facility have been reclassified
on the Company's balance sheet as short-term obligations.
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 29 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
SEPTEMBER 30, 2000 OCTOBER 2, 1999
---------------------------------------------------- ----------------------------------------------------------
WHOLESALE RETAIL LICENSING TOTAL WHOLESALE RETAIL LICENSING TOTAL
-------------- ------------ ------------ ---------- -------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $103,588 $19,317 $3,631 $126,536 $75,338 $12,621 $2,919 $ 90,878
EBITDA 3,807 337 3,115 7,259 7,073 901 2,757 10,731
Depreciation and
amortization 2,783 2,615
---------- --------------
Operating income $4,476 $ 8,116
8
<PAGE>
THIRTY-NINE WEEKS ENDED THIRTY-NINE WEEKS ENDED
SEPTEMBER 30, 2000 OCTOBER 2, 1999
---------------------------------------------------- ----------------------------------------------------------
WHOLESALE RETAIL LICENSING TOTAL WHOLESALE RETAIL LICENSING TOTAL
-------------- ------------ ------------ ---------- -------------- ------------- -------------- --------------
Revenues $253,918 $53,472 $10,469 $317,859 $205,598 $36,410 $3,394 $245,402
EBITDA 9,650 480 9,128 19,258 20,462 2,694 3,232 26,388
Depreciation and
amortization 8,219 6,641
------------ --------------
Operating income $11,039 $19,747
</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 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. During the period, the Company
has incurred product development costs relating to the ANNE KLEIN Suits and ANNE
KLEIN2 sportswear lines, which commenced deliveries in July 2000. Accordingly,
the results of operations for the thirty-nine weeks ended September 30, 2000
("YTD 2000") reflect nine months of product development costs associated with
these lines, with the benefit of corresponding sales for only three months. In
addition, the financial results for the thirty-nine weeks ended October 2, 1999
("YTD 1999"), include expenses relating to the development of the ANNE KLEIN
bridge line, without any corresponding revenues, as the line began shipping in
the fourth quarter of 1999.
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 up to $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.
10
<PAGE>
On September 29, 2000, the Company announced that it would not make
its semi-annual interest payment of approximately $7.2 million to holders of its
13% Senior Notes (the "Senior Notes"). Accordingly, the Company is currently in
default under the terms of the Senior Notes. In addition, the Company is not in
compliance with certain financial covenants and ratios under the Chase Facility.
The Company is currently engaged in discussions with an ad hoc committee of its
noteholders (the "Ad Hoc Committee") to formulate a financial restructuring that
will address current liquidity issues and enhance the Company's ability to
operate under its short- and long-term plans. The Company is also negotiating
with its lenders under the Chase Facility to waive defaults and amend certain
covenants. Although the Company expects to reach agreement on the terms of a
financial restructuring with the holders of a substantial majority of the Senior
Notes and on the terms for waivers and amendments of the Chase Facility, there
is no assurance that the Company will be successful in doing so. If the Company
is unable to reach such agreements, it may be compelled to seek relief under the
United States Bankruptcy Code. In the interim, the Company is examining all
available options.
RESULTS OF OPERATIONS
REVENUES BY SEGMENT
(000'S EXCEPT PERCENTAGES)
<TABLE>
<CAPTION>
THIRD QUARTER YEAR-TO-DATE
------------------------------------------------------ -------------------------------------------------------
% % % %
2000 OF TOTAL 1999 OF TOTAL 2000 OF TOTAL 1999 OF TOTAL
-------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Wholesale $103,588 81.9% $75,338 82.9% $253,919 79.9% $205,598 83.8%
Retail 19,317 15.3% 12,621 13.9% 53,472 16.8% 36,410 14.8%
-------------- ------ --------------- ------ --------------- ------ -------------- ------
Net Sales 122,905 97.2% 87,959 96.8% 307,391 96.7% 242,008 98.6%
Licensing 3,631 2.8% 2,919 3.2% 10,469 3.3% 3,394 1.4%
-------------- ------ --------------- ------ --------------- ------ -------------- ------
Total Revenue $126,536 100.0% $90,878 100.0% $317,860 100.0% $245,402 100.0%
</TABLE>
EBITDA BY SEGMENT
(000'S EXCEPT PERCENTAGES)
<TABLE>
<CAPTION>
THIRD QUARTER YEAR-TO-DATE
------------------------------------------- -------------------------------------------
2000 1999 2000 1999
-------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Wholesale $3,807 $7,073 $9,650 $20,462
Retail 337 901 480 2,694
Licensing 3,115 2,757 9,128 3,232
-------------- --------------- --------------- --------------
Total $7,259 $10,731 $19,258 $26,388
</TABLE>
THIRTEEN WEEKS ENDED SEPTEMBER 30, 2000 AS COMPARED TO THIRTEEN WEEKS ENDED
OCTOBER 2, 1999
TOTAL REVENUE
Net Sales for the thirteen weeks ended September 30, 2000 (the "third
quarter 2000") were $122.9 million as compared to $88.0 million for the thirteen
weeks ended October 2, 1999 (the "third quarter 1999"). Wholesale sales grew
$28.3 million over the prior year. The new Anne Klein lines contributed $31.8
million of increased sales. The offsetting decrease is a result of lower Kasper
11
<PAGE>
sales as a result of markdowns and allowances given, due to the highly
promotional level of activity experienced in department stores during the spring
selling season.
Retail sales increased to $19.3 million in the third quarter 2000
from $12.6 million in the third quarter 1999, an increase of $6.7 million due to
the net addition of 7 Kasper retail outlet stores over the last 12 months, along
with 29 newly acquired Anne Klein retail outlet stores. The 65 Kasper retail
outlet stores accounted for $2.2 million of the increase, while the new Anne
Klein retail stores contributed $4.5 million in sales. Comparable Kasper store
sales were $13.4 million in the third quarter 2000 compared to $12.5 million
during the third quarter 1999, an increase of approximately 7.0%.
Royalty income increased to $3.6 million in the third quarter 2000
from $2.9 million in the third quarter 1999.
GROSS PROFIT
Gross Profit as a percentage of total revenue decreased to 28.3% for
the third quarter 2000, compared to 33.4% for the third quarter 1999. Wholesale
gross profit as a percentage of sales decreased to 23.8% in the third quarter
2000 from 29.6% in the third quarter 1999 in part as a result of ongoing
promotional activity in department stores resulting in higher markdowns and
allowances given for the spring product line, and due to off-price Anne Klein
sales.
Retail gross profit as a percentage of sales decreased to 38.7% in
the third quarter 2000 from 40.1% in the third 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 third quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $28.5
million in the third quarter 2000 as compared to $19.6 million in the third
quarter 1999, an increase of $8.9 million. Approximately $5.3 million of this
increase can be attributed to Anne Klein wholesale operations. Included in Anne
Klein wholesale expenses for the third quarter 2000 are costs relating to Anne
Klein suits and Anne Klein2 sportswear lines, which were not incurred during the
third quarter 1999. Kasper wholesale operation expenses increased approximately
$500,000 from the third quarter 1999. Administrative expenses increased
approximately $1.2 million as a result of the increased payroll costs of
approximately $250,000, the reversal of bonus accruals during the third quarter
of 1999 of approximately $550,000, consulting fees relating to systems project
of $150,000 and other increases totaling $250,000. Production expenses increased
by approximately $300,000, primarily as a result of overtime costs. Reducing
selling, general and administrative expenses is approximately $1.0 million of
other income, which represents the reversal of an excess accrual during the
third quarter 2000 relating to the Company's reorganization. (Refer to the
Company's Annual Report on Form 10-K for further discussion of the
reorganization). Retail store expansion, including the net addition of 7 Kasper
retail outlet stores and the 29 Anne Klein retail outlet stores, accounted for
$2.7 million in increased selling, administrative and occupancy costs. Licensing
division operations accounted for approximately $400,000 in additional general
and administrative expenses during the third quarter 2000.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
Earnings before Interest, Taxes, Depreciation and Amortization,
("EBITDA") decreased to $7.3 million in the third quarter 2000 from $10.7
12
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million in the third quarter 1999. Wholesale EBITDA decreased $3.3 million over
the third quarter 1999 primarily as a result of 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 $350,000 in EBITDA over the third quarter 1999.
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 2000 and 1999 totaling approximately $825,000 in each quarter.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization totaled $2.0 million in the third
quarter 2000 and $1.8 million in the third quarter 1999, and consist of the
amortization charges associated with the trademarks, as well as fixed asset
depreciation. The Company incurred $475,000 in trademark amortization in both
the third quarter 2000 and 1999. The trademarks are being amortized over 35
years. The remaining increase relates to depreciation and amortization
associated with capital expenditures, along with approximately $60,000 of
goodwill amortization as a result of the FSA Acquisition.
INTEREST AND FINANCING COSTS
Interest and financing costs increased to $6.8 million in the third
quarter 2000 from $6.2 million in the third 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 third quarter 2000 totaled $3.6 million and
$3.5 million for the third quarter 1999. As previously discussed, the Company
did not make its semi-annual interest payment due September 30, 2000. 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 both the third quarter 2000 and
the third quarter 1999.
Interest under the Chase Facility totaled approximately $2.7 million
in the third quarter 2000, compared to $1.5 million during the third 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 Chase Facility, four and one-half years beginning July 9, 1999 and
resulted in approximately $150,000 of amortization charges in both the third
quarter 2000 and the third quarter 1999. During the third quarter of 1999, the
Company wrote off approximately $750,000 in unamortized bank fees relating to
the old bank facility.
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INCOME TAXES
Provision for income taxes was $2.9 million for the third quarter
2000 compared to $800,000 for the third quarter 2000. 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.
THIRTY-NINE WEEKS ENDED SEPTEMBER 30, 2000 AS COMPARED TO THIRTY-NINE WEEKS
ENDED OCTOBER 2, 1999
TOTAL REVENUE
Net Sales for YTD 2000 were $307.4 million as compared to $242.0
million for YTD 1999. Wholesale sales increased primarily as a result of the
sales contributed by the Anne Klein Bridge and Sportswear lines. Exclusive of
the Anne Klein apparel lines, wholesale sales decreased $5.4 million over YTD
1999. Due to the highly promotional level of activity experienced in department
stores during the spring selling season, additional markdowns and allowances
were given, contributing to the decrease in wholesale sales.
Retail sales increased to $53.5 million for YTD 2000 from $36.4
million for the YTD 1999, an increase of approximately 47.0% due to the net
addition of 7 Kasper retail outlet stores over the last 12 months, along with
the Anne Klein retail outlet stores acquired in November 1999. The 65 Kasper
retail outlet stores accounted for $5.1 million of the increase, while the 29
new Anne Klein retail stores contributed $12.0 million in sales. Comparable
Kasper store sales were $35.9 million for YTD 2000 compared to $34.5 million for
YTD 1999, an increase of approximately 3.9%.
Royalty income increased to $10.5 million for YTD 2000 from $3.4
million for YTD 1999 primarily as a result of the Trademark Purchase completed
on July 9, 1999.
GROSS PROFIT
Gross Profit as a percentage of total revenue decreased to 30.8% for
YTD 2000, compared to 32.3% for YTD 1999. Wholesale gross profit as a percentage
of sales decreased to 26.3% in YTD 2000 from 29.7% for YTD 1999 in part as a
result of ongoing promotional activity in selected seasonal merchandise
offerings resulting in higher spring product line markdowns and allowances, and
due to off-price Anne Klein sales.
Retail gross profit as a percentage of sales decreased to 38.5% in
YTD 2000 from 40.7% for YTD 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 80 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 $78.6
million in YTD 2000 as compared to $52.8 million in the YTD 1999, an increase of
$25.8 million. Approximately $17.2 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 YTD 2000 are
costs relating to product development of the Anne Klein suits and Anne Klein2
sportswear lines, which began deliveries in the third quarter 2000. There were
no such expenses in 1999. In addition, YTD 2000 expenses include a full nine
months of expenses relating to the Anne Klein Bridge line, as compared to only
three months of expenses in YTD 1999. Overall, Kasper wholesale expenses were
comparable to YTD 1999. Increases in production and occupancy were offset by a
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decrease in advertising. Administrative expenses increased as a result of the
reversal of bonus accruals in the third quarter 1999. This increase was offset
by the reversal of an excess accrual during the third quarter 2000 relating to
the Company's reorganization. Retail store expansion, including the net addition
of 7 Kasper retail outlet stores and the 29 Anne Klein retail outlet stores,
accounted for $7.4 million in increased selling, administrative and occupancy
costs. Licensing division operations accounted for an increase of approximately
$1.2 million in administrative expenses during YTD 2000, as YTD 2000 includes
nine months of expenses compared to only three months in YTD 1999.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
EBITDA decreased to $19.3 million for YTD 2000 from $26.4 million in
YTD 1999. Wholesale EBITDA decreased $10.8 million over YTD 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 of $2.2
million reflecting the impact of the FSA Acquisition. Licensing contributed an
additional $5.9 million in EBITDA over YTD 1999 as a result of the Trademark
Purchase.
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 2000 and YTD 1999
totaling approximately $2.5 million in each period.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased to approximately $5.7 million
during YTD 2000 from approximately $4.1 million in YTD 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 over YTD 1999. The trademarks are
being amortized over 35 years. The remaining increase relates to depreciation
and amortization associated with capital expenditures including those acquired
through the FSA Acquisition, along with approximately $180,000 of goodwill
amortization as a result of the FSA Acquisition.
INTEREST AND FINANCING COSTS
Interest and financing costs increased to $18.6 million for YTD 2000
from $14.9 million for YTD 1999, an increase of approximately $3.7 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 Chase Facility 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 YTD 2000 totaled $10.7 million and
$10.5 million for YTD 1999. As previously discussed, the Company did not make
its semi-annual interest payment due September 30, 2000. Amortization of the
bondholder consent fee, which is being amortized over the remaining life of the
Senior Notes beginning July 9, 1999, totaled approximately $345,000 for YTD 2000
versus $115,000 for YTD 1999.
Interest under the Chase Facility totaled approximately $6.3 million
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for YTD 2000, an increase of $4.1 million over YTD 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 Chase Facility, four and one-half years beginning July 9, 1999 and
resulted in approximately $500,000 of amortization charges for YTD 2000 and
approximately $530,000 for YTD 1999. In addition, during YTD 1999, the Company
wrote off approximately $750,000 in unamortized bank fees relating to the old
bank facility.
INCOME TAXES
Provision for income taxes was $780,000 for YTD 2000 compared to $2.0
million for YTD 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.
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, expansion of retail operations and renovation
of department store boutiques and other corporate activities.
Net cash used in operating activities was $51.7 million during YTD
2000 as compared to cash provided by operations of $5.2 million for YTD 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. These
increases along with the decrease in net income were partially offset by an
increase in interest payable as a result of the non-payment of Senior Notes
interest, and the non-recurrence of certain transactions from YTD 1999
associated with the Trademark Purchase. The decrease in cash used in investing
activities is the result of the Trademark Purchase in YTD 1999, offset by higher
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 to fund the development of the Anne
Klein brands and the rollout of the Anne Klein lines as a result of the
Trademark Purchase.
In July 1999, the Chase Facility was established in order to fund the
Company's working capital requirements and to finance the Trademark Purchase.
The Chase Facility is secured by substantially all of the Company's assets, and
provides the Company with a revolving credit line of up to $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. The Chase Facility
provides that the interest rate on all outstanding borrowings under the Chase
Facility would fluctuate based on the Company's operating performance.
Accordingly, as of the third quarter 2000, the interest rate increased by 25
basis points. As of September 30, 2000, there were direct borrowings of $106.5
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million outstanding, $24.0 million in letters of credit outstanding and $14.6
million available for future borrowings.
Pursuant to the Leslie Fay reorganization plan, the Company issued
$110 million in Senior Notes. The Senior Notes originally 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 YTD 2000 totaled
$10.7 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, a majority of the aggregate principal amount of its
Senior Notes as of May 21, 1999, consented to certain amendments to the
Indenture and had executed the Second Supplemental Indenture. 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.
On September 29, 2000, the Company announced that it would not make
its semi-annual interest payment of approximately $7.2 million to holders of the
Senior Notes. Accordingly, the Company is currently in default under the terms
of the Senior Notes. In addition, the Company is not in compliance with certain
financial covenants and ratios under the Chase Facility. The Company is
currently engaged in discussions with the Ad Hoc Committee to formulate a
financial restructuring that will address current liquidity issues and enhance
the Company's ability to operate under its short- and long-term plans. The
Company is also negotiating with its lenders under the Chase Facility to waive
defaults and amend certain covenants. Although the Company expects to reach
agreement on the terms of a financial restructuring with the holders of a
substantial majority of the Senior Notes and on the terms for waivers and
amendments of the Chase Facility, there is no assurance that the Company will be
successful in doing so. If the Company is unable to reach such agreements, it
may be compelled to seek relief under the United States Bankruptcy Code. In the
interim, the Company is examining all available options.
The Company has been advised by its independent public accountants
that should the situation described above remain unresolved at year-end, the
auditors' report on those financial statements will be modified for that
contingency.
On October 4, 1999, the Company entered into a factoring agreement
with the CIT Group/Commercial Services, Inc. ("CIT"). Under such 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 $4.9 million and $1.9 million for YTD 2000
and YTD 1999, respectively. Capital expenditures represent funds spent for
warehouse expansion, showroom improvements, new retail stores, information
systems, overseas facilities development and general improvements.
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Assuming the Company and its lenders finalize the proposed amendment
under the Chase Facility, 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. In addition,
the ongoing promotional environment of department stores has impacted the
industry. If the current trend persists, the Company's financial results could
continue to be negatively impacted.
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 reach agreement on waivers and amendments
of the Chase Facility and to achieve ongoing amended covenant
requirements in future periods;
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; and
o the ability of the Company to reach agreement with holders of the
Senior Notes on the terms of a financial restructuring of such Notes.
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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.
PART II - OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As described in Part I, Item 2 above under the caption "Liquidity and
Capital Resources", the Company is in default under the Senior Notes and the
Chase Facility, including as a result of (a) failure to make the interest
payment due on September 30, 2000 of approximately $7.2 million, (b) failure to
deliver timely financial statements to the lenders, (c) failure to maintain
minimum levels of net worth, and (d) failure to meet the quarterly interest
coverage ratio covenant. As of October 28, 2000, the Company had $93.0 million
in direct borrowings and $23.5 million in letters of credit outstanding under
the Chase Facility. The lenders under the Chase Facility continue, in their
discretion, to allow the Company to borrow under the Chase Facility to the
extent of the borrowing base, but have not waived current defaults or changed
the covenants. However, the Company is negotiating with its lenders under the
Chase Facility to waive defaults and amend certain covenants. The Company is
currently engaged in discussions with the Ad Hoc Committee to formulate a
financial restructuring that will address current liquidity issues and enhance
the Company's ability to operate under its short- and long-term plans. Although
the Company expects to reach agreement on the terms of a financial restructuring
with the holders of a substantial majority of the Senior Notes and on the terms
for waivers and amendments of the Chase Facility, there is no assurance that the
Company will be successful in doing so. If the Company is unable to reach such
agreements, it may be compelled to seek relief under the United States
Bankruptcy Code. In the interim, the Company is examining all available options.
The Company has been advised by its independent public accountants
that should the situation described above remain unresolved at year-end, the
auditors' report on those financial statements will be modified for that
contingency.
As a result of the defaults under the Senior Notes and the Chase
Facility, the indebtedness under the Senior Notes and the Chase Facility have
been reclassified on the Company's balance sheet as short-term obligations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
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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 14, 2000
/s/ Arthur S. Levine
-----------------------------------------
Arthur S. Levine
Chairman and Chief Executive Officer
/s/ Gwen Gepfert
-----------------------------------------
Gwen Gepfert
Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
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27 EDGAR Data Schedule
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