<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-----------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to .
----------- -----------
Commission file number 1-9169
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BERNARD CHAUS, INC.
(Exact Name of Registrant as Specified in its Charter)
New York 13-2807386
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) number)
1410 Broadway, New York, New York 10018
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (212) 354-1280
----------------
---------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report
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 .
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Date Class Shares Outstanding
-------------- ----------------------------- ------------------
April 26, 1999 Common Stock, $0.01 par value 27,115,907
-------------- ----------------------------- ------------------
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) PAGE
Condensed Consolidated Balance Sheets as of
March 31, 1999, June 30, 1998 and
March 31, 1998 3
Condensed Consolidated Statements of Operations
for the Quarters and Nine Months ended March 31,
1999 and 1998 4
Condensed Consolidated Statements of Cash Flows
for the Nine Months ended March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 -13
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
2
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except number of shares and per share amounts)
<TABLE>
<CAPTION>
March 31 June 30, March 31,
1999 1998 1998
----------- --------- -----------
(Unaudited) ( * ) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 74 $ 2,039 $ 162
Accounts receivable, net 41,661 17,289 36,972
Inventories 13,836 17,486 16,757
Prepaid expenses 558 362 483
--------- --------- ---------
Total current assets 56,129 37,176 54,374
Fixed assets - net 840 960 900
Other assets 266 876 794
--------- --------- ---------
$ 57,235 $ 39,012 $ 56,068
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable - bank $ 8,131 $ -- $ 12,655
Accounts payable 15,315 13,005 17,297
Accrued expenses 4,683 4,492 4,636
Accrued restructuring expenses -- -- 261
Term loan - current 1,000 1,000 1,000
--------- --------- ---------
Total current liabilities 29,129 18,497 35,849
Term loan 12,750 13,500 13,750
--------- --------- ---------
41,879 31,997 49,599
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value,
authorized shares - 1,000,000,
outstanding shares - none
Common stock, $.01 par value,
authorized shares - 50,000,000;
issued shares - 27,178,177 at March 31,
1999, June 30, 1998 and March 31, 1998 272 272 272
Additional paid-in capital 125,224 125,224 125,224
Deficit (108,660) (117,001) (117,547)
Less: Treasury stock at cost -
62,270 shares at March 31, 1999, June
30, 1998 and March 31, 1998 (1,480) (1,480) (1,480)
--------- --------- ---------
Total stockholders' equity 15,356 7,015 6,469
--------- --------- ---------
$ 57,235 $ 39,012 $ 56,068
========= ========= =========
</TABLE>
*Derived from audited financial statements at June 30, 1998.
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except number of shares and per share amounts)
<TABLE>
<CAPTION>
For the Quarter Ended For the Nine Months Ended
March 31, March 31, March 31, March 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 52,129 $ 49,827 $ 146,471 $ 155,778
Cost of goods sold 37,694 36,105 108,541 116,346
----------- ----------- ----------- -----------
Gross profit 14,435 13,722 37,930 39,432
Selling, general and administrative expenses 9,431 9,480 27,536 29,711
----------- ----------- ----------- -----------
Income from operations 5,004 4,242 10,394 9,721
Interest expense, net 603 1,092 1,880 5,786
----------- ----------- ----------- -----------
Income before provision for income taxes 4,401 3,150 8,514 3,935
Provision for income taxes 89 75 173 170
----------- ----------- ----------- -----------
Net income $ 4,312 $ 3,075 $ 8,341 $ 3,765
=========== =========== =========== ===========
Basic earnings per share $ 0.16 $ 0.15 $ 0.31 $ 0.33
=========== =========== =========== ===========
Diluted earnings per share $ 0.16 $ 0.14 $ 0.31 $ 0.33
=========== =========== =========== ===========
Weighted average number of common shares
outstanding- basic 27,116,000 21,074,000 27,116,000 11,371,000
=========== =========== =========== ===========
Weighted average number of common and common
equivalent shares outstanding- diluted 27,116,000 21,389,000 27,145,000 11,371,000
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the Nine Months Ended
March 31, March 31,
1999 1998
-------- --------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 8,341 $ 3,765
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 1,174 484
Provision for losses on accounts receivable 20 51
Deferred interest on subordinated promissory notes -- 1,751
Non-cash interest expense 23 13
Changes in operating assets and liabilities:
Accounts receivable (24,392) (29,572)
Inventories 3,650 6,989
Prepaid expenses and other assets (293) 302
Accounts payable 2,310 (2,528)
Accrued expenses 191 (757)
Accrued restructuring expenses -- (1,358)
-------- --------
Net Cash Used In Operating Activities (8,976) (20,860)
-------- --------
INVESTING ACTIVITIES
Purchases of fixed assets (226) (207)
Purchases of other assets (144) (251)
-------- --------
Net Cash Used In Investing Activities (370) (458)
-------- --------
FINANCING ACTIVITIES
Net proceeds (payments) on short-term bank borrowings 8,131 (12,601)
Net proceeds from issuance of term loan -- 15,000
Principal payments on term loan (750) (250)
Net proceeds from issuance of stock -- 19,001
-------- --------
Net Cash Provided By Financing Activities 7,381 21,150
-------- --------
Decrease in cash and cash equivalents (1,965) (168)
Cash and cash equivalents, beginning of period 2,039 330
-------- --------
Cash and cash equivalents, end of period $ 74 $ 162
======== ========
Cash Paid for:
Taxes 325 7
Interest 1,711 1,483
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Nine Months Ended March 31, 1999 and March 31, 1998
1. Summary of Significant Accounting Policies
Basis of Presentation: The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. All
significant intercompany balances and transactions were eliminated. Operating
results for the quarter and nine months ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the year ending June 30, 1999
or any other period. The balance sheet at June 30, 1998 has been derived from
the audited financial statements at that date. For further information, refer to
the financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K/A for the year ended June 30, 1998.
Earnings Per Share: All share and per share data reflects the 1 for 10
reverse stock split which was effected December 9, 1997. Basic earnings per
share have been computed by dividing the applicable net income by the weighted
average number of common shares outstanding. Diluted earnings per share has been
computed by dividing the applicable net income by the weighted average number of
common shares outstanding and common stock equivalents. At March 31, 1999 and
March 31, 1998, 2,833,000 and 3,079,000 common stock equivalents, respectively,
were not included in the computation of earnings per share as they were
antidilutive.
New Accounting Pronouncements: The Company adopted SFAS No. 130,
Reporting Comprehensive Income, during the current fiscal year. SFAS 130
establishes standards for reporting comprehensive income and its components in a
full set of general-purpose financial statements. This Statement requires that
an enterprise (a) classify items of other comprehensive income by their nature
in a financial statement, and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. Currently,
the Company has no items of other comprehensive income.
The Company adopted Statement of Financial Accounting Standard ("SFAS")
No. 131, Disclosures about Segments of an Enterprise and Related Information,
during the year ending June 30, 1999. The Statement establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
This Statement supersedes Financial Accounting Standards Board ("FASB")
Statement No. 14 Financial Reporting for Segments of a Business Enterprise, but
6
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BERNARD CHAUS, INC. AND SUBSIDIARIES
retains the requirement to report information about major customers. In
accordance with SFAS No. 131, the Company currently operates in one business
segment.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The statement establishes accounting and
reporting standards requiring that derivative instruments (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at fair value. The statement
requires that changes in a derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement and requires that a company
formally document, designate, and assess the effectiveness of transactions that
receive hedge accounting. SFAS No. 133 is effective for fiscal years beginning
after June 15, 1999; however, it may be adopted earlier. It cannot be applied
retroactively to financial statements of prior periods. The Company currently
has no derivative financial instruments.
2. Inventories
Inventories (principally finished goods) are stated at the lower of
cost, using the first-in first-out (FIFO) method, or market. Included in
inventories is merchandise in transit of approximately $7.0 million at March 31,
1999, $7.2 million at June 30, 1998 and $7.8 million at March 31, 1998.
3. Financing Agreement
The Company has a revolving credit facility and term loan (the "Credit
Facility") with BNY Financial Corporation, a wholly owned subsidiary of The Bank
of New York ("BNYF"). The Facility was entered into in October 1997 and last
amended in June 1998.
The Credit Facility provides for a $45.5 million revolving credit line
with a $34.0 million sub-limit for letters of credit and a $14.5 million term
loan facility. Each facility matures on December 31, 2002.
Interest on the revolving credit line accrues at 1/2 of 1% above the
Prime Rate (7.75% at March 31, 1999) and is payable on a monthly basis, in
arrears. Interest on the term loan accrues at an interest rate ranging from 1/2
of 1% above the Prime Rate to 1 1/2% above the Prime Rate, which interest rate
will be determined, from time to time, based upon the Company's availability
under the Credit Facility.
Amortization payments in the amount of $250,000 are payable quarterly
in arrears in connection with the term loan. Three amortization payments have
been made resulting in a balance of $13.8 million at March 31, 1999. A balloon
payment in the amount of $10.25 million is due on December 31, 2002. In the
event of the earlier termination by the Company of the Credit Facility, the
Company will be liable for termination fees initially equal to $2.8 million, and
declining to $2.2 million after October 8, 2000. The Company's obligations under
the Credit Facility are secured by
7
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
a first priority lien on substantially all of the Company's assets, including
the Company's accounts receivable, inventory and trademarks.
The Credit Facility contains financial covenants requiring, among other
things, the maintenance of minimum levels of tangible net worth, working capital
and maximum permitted loss (minimum permitted profit).
4. Restructuring
In June 1997, the Company announced a proposed restructuring program to
be implemented by the Company. In September 1997, the disinterested members of
the Board of Directors of the Company unanimously approved the restructuring
plan which provided for the following: (i) the Company would raise, through an
offer of rights to subscribe ("Rights"), up to $20.0 million, but not less than
$12.5 million, of equity through a rights offering to all shares of Common Stock
of the Company (the "Rights Offering") of up to 13,977,270 shares of Common
Stock of the Company (on a post stock split basis); (ii) the conversion of
approximately $40.6 million of the Company's indebtedness to Ms. Chaus,
consisting of $28.1 million of then existing subordinated indebtedness
(including accrued interest through January 28, 1998) and $12.5 million of
additional indebtedness owed to Ms. Chaus, into 10,510,910 shares of Common
Stock of the Company; (iii) entering into the Credit Facility; (iv) the
implementation of a reverse stock split of the Company's Common Stock such that
every ten (10) shares of Common Stock would be converted into one (1) share of
Common Stock; and (v) the liquidation of the Company's retail outlet stores. On
October 10, 1997, the Company entered into the Credit Facility referred to in
(iii) above. On December 9, 1997, the reverse stock split described in (iv)
above became effective. By mid-January, the Company closed all of its retail
outlet stores as referenced in (v) above. On January 26, 1998, the Rights
Offering described in (i) above was consummated. On January 29, 1998, the
conversion of indebtedness into equity described in (ii) above was completed.
8
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
Item 2. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
Results of Operations
Net sales for the quarter ended March 31, 1999 increased 4.6% or $2.3
million as compared to the quarter ended March 31, 1998. This increase was due
primarily to an increase in sales of the Company's Chaus product lines of $4.7
million, resulting from an increase of 22.1% in units shipped. The increase was
partially offset by a decrease in sales associated with the Company's Nautica
product line of $2.4 million which was terminated in October 1998. Average
selling prices of the Chaus product lines decreased for the quarter ended March
31, 1999 as compared to the same period last year as a result of lower product
costs which were reflected in lower average selling prices and sales of certain
residual goods sold through normal channels below regular wholesale prices.
Net sales for the nine months ended March 31, 1999 decreased by 6.0% or
$9.3 million as compared to the nine months ended March 31, 1998. The sales
decrease was primarily due to a decrease in the Company's retail outlet stores
sales ($10.8 million) resulting from the closing of all but one of the Company's
retail outlet stores in January 1998 and a decrease in sales associated with the
Company's Nautica licensed product line ($8.6 million) which was terminated in
October 1998. Sales of the Company's Chaus product lines increased $10.1 million
resulting from an increase of 12.0% in units shipped. Average selling prices of
the Chaus product lines decreased for the nine months ended March 31, 1999 as
compared to the same period last year, primarily as a result of lower product
costs which were reflected in lower average selling prices while maintaining the
Chaus product lines' gross profit margins.
Gross profit as a percentage of net sales increases to 27.7% for the
quarter ended March 31, 1999 from 27.5% for the quarter ended March 31, 1998.
This increase in gross profit was primarily due to the termination of the
Nautica licensed product line in October 1998 which carried a lower gross profit
percentage, partially offset by a decreased gross profit percentage for the
Chaus product lines. The decline in the Chaus product lines' gross profit margin
was affected by sales of certain residual goods sold through normal channels
at margins which were below regular wholesale margins.
Gross profit as a percentage of net sales increased to 25.9% for the
nine months ended March 31, 1999 from 25.3% for the nine months ended March 31,
1998. This increase was primarily due to the elimination of the Company's retail
outlet stores in January 1998 and the termination of the Nautica licensed
product line in October 1998, both of which carried lower gross profit margins.
9
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
Selling, general and administrative ("SG&A") expenses of $9.4 million
for the quarter ended March 31, 1999 were essentially unchanged from the
comparable quarter last year. The termination of the Nautica licensed product
line during the second quarter of fiscal 1999 resulted in a decrease in expenses
of $1.4 million, offset by an increase in operating expenses of the Company's
Chaus product lines of $1.4 million. The increase in expenses of the Company's
Chaus product lines was due to expenses associated with the increase in sales
and expenses incurred in support of sales growth planned for fiscal year 2000.
SG&A expenses as a percentage of net sales decreased to 18.1% for the quarter
ended March 31, 1999 as compared to 19.0% for the quarter ended March 31, 1998.
The decrease in SG&A expense as a percent of net sales is primarily due to
leveraging certain expenses against a higher net sales base.
SG&A expenses of $27.5 million for the nine months ended March 31, 1999
represent a decrease of $2.2 million or 7.3% compared with the nine months ended
March 31, 1998. This decrease was primarily due to the closing of all but one of
the Company's retail outlet stores in January 1998 ($2.7 million) and the
termination of the Nautica licensed product line during the second quarter of
fiscal 1999 ($1.8 million). These decreases were partially offset by an increase
in operating expenses ($2.3 million) primarily related to the increase in sales
of the Company's Chaus product lines and expenses incurred in support of sales
growth planned for fiscal year 2000. SG&A expenses as a percentage of net sales
decreased to 18.8% for the nine months ended March 31, 1999 as compared to 19.1%
for the nine months ended March 31, 1998. This decrease was primarily due to the
elimination of the Company's retail outlet stores which carried a higher SG&A
expense as a percentage of net sales.
In connection with the termination of employment of the Company's
former Chief Executive Officer, Andrew Grossman, the Company is obligated to pay
up to $1.66 million over a period of 20 months in consideration of
Mr. Grossman's agreement not to compete for twelve months. Such amounts are
charged to expense ratably over the twelve-month non-competition period. In
addition, the Company is obligated to make bonus payments in an amount equal to
2 1/2% of net profits for fiscal years 1999 and 2000, and the pro rated portion
of fiscal year 2001 (i.e. 1/6 of such year). Such bonus payments are being
expensed over the respective fiscal years.
Interest expense for the quarter and nine months ended March 31, 1999
decreased by $0.5 million and $3.9 million, respectively, from the comparable
periods last year as a result of the conversion of subordinated debt to equity
in connection with the Company's Restructuring (as defined below) which was
completed on January 29, 1998. Decreases in bank borrowings and decreased
interest rates on bank borrowings also contributed to the decrease in interest
expense.
Net income increased to $8.3 million for the nine months ended
March 31, 1999, up 122% over last year's comparable period. This includes a net
loss of $2.9 million, or $0.11 per diluted share, associated with the licensed
Nautica business which was discontinued in the second quarter of fiscal 1999.
10
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BERNARD CHAUS, INC. AND SUBSIDIARIES
Financial Position, Liquidity and Capital Resources
General
Net cash used in operating activities was $9.0 million for the nine
months ended March 31, 1999 as compared to $20.9 million for the nine months
ended March 31, 1998. Cash used in operating activities resulted primarily from
an increase in accounts receivable of $24.4 million offset by net income of $8.3
million, a decrease in inventory of $3.7 million, an increase in accounts
payable of $2.3 million, and depreciation and amortization of $1.2 million.
Financing Agreement
The Company has a revolving credit facility and term loan (the "Credit
Facility") with BNY Financial Corporation, a wholly owned subsidiary of The Bank
of New York. The Credit Facility was entered into in October 1997 and last
amended in June 1998.
The Credit Facility provides for a $45.5 million five-year revolving
credit line with $34.0 million sub-limit for letters of credit and $14.5 million
term loan facility. Each facility matures on December 31, 2002. Three
amortization payments have been made resulting in a balance of $13.8 million at
March 31, 1999. See Note 3 to Condensed Consolidated Financial Statements. At
March 31, 1999, the Company had availability of approximately $8.3 million
(inclusive of overadvance availability) under the Credit Facility Agreement.
The Credit Facility contains financial covenants requiring, among other
things, the maintenance of minimum levels of tangible net worth, working capital
and maximum permitted loss (minimum permitted profit).
Restructuring Program
In June 1997, the Company announced a proposed restructuring program to
be implemented by the Company. In September 1997, the disinterested members of
the Board of Directors of the Company unanimously approved the restructuring
plan (the "Restructuring") which provided for the following: (i) the Company
raised, through an offer of rights to subscribe ("Rights"), up to $20.0 million,
but not less than $12.5 million, of equity through a rights offering to all
shares of Common Stock of the Company (the "Rights Offering") of up to
13,977,270 shares of Common Stock of the Company (on a post stock split basis);
(ii) the conversion of approximately $40.6 million of the Company's indebtedness
to Ms. Chaus, consisting of $28.1 million of then existing subordinated
indebtedness (including accrued interest through January 28, 1998) and $12.5
million of additional indebtedness owed to Ms. Chaus, into 10,510,910 shares of
Common Stock of the Company; (iii) entering into the Credit Facility ; (iv) the
implementation of a reverse stock split of the Company's Common Stock such that
every ten (10) shares of Common Stock would be converted into one (1) share of
Common Stock; and (v) the liquidation of the Company's retail outlet stores. On
October 10, 1997, the Company entered into the Credit Facility referred to in
(iii) above. On December 9, 1997, the reverse stock split described in (iv)
above became effective. By mid-January 1998, the
11
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BERNARD CHAUS, INC. AND SUBSIDIARIES
Company closed all of its retail outlet stores as referenced in (v) above. On
January 26, 1998, the Rights Offering described in (i) above was consummated. On
January 29, 1998, the conversion of indebtedness into equity described in (ii)
above was completed.
New Accounting Pronouncements
The Company adopted SFAS No. 130, Reporting Comprehensive Income,
during the current fiscal year. SFAS 130 establishes standards for reporting
comprehensive income and its components in a full set of general-purpose
financial statements. This Statement requires that an enterprise (a) classify
items of other comprehensive income by their nature in a financial statement,
and (b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section of a
statement of financial position. Currently, the Company has no items of other
comprehensive income.
The Company adopted Statement of Financial Accounting Standard ("SFAS")
No. 131, Disclosures about Segments of an Enterprise and Related Information,
during the year ending June 30, 1999. The Statement establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
This Statement supersedes Financial Accounting Standards Board ("FASB")
Statement No. 14 Financial Reporting for Segments of a Business Enterprise, but
retains the requirement to report information about major customers. In
accordance with SFAS No. 131, the Company currently operates in one business
segment.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The statement establishes accounting and
reporting standards requiring that derivative instruments (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at fair value. The statement
requires that changes in a derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement and requires that a company
formally document, designate, and assess the effectiveness of transactions that
receive hedge accounting. SFAS No. 133 is effective for fiscal years beginning
after June 15, 1999; however, it may be adopted earlier. It cannot be applied
retroactively to financial statements of prior periods. The Company currently
has no derivative financial instruments.
Nautica License Agreement
On October 23, 1998, the Company discontinued its license agreement
with Nautica Enterprises, Inc. under which it had an exclusive license to
manufacture, market, distribute and sell licensed product for women under the
Nautica brand name.
Year 2000 Compliance
The Company has prepared a plan to become Year 2000 compliant. Pursuant
to the
12
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BERNARD CHAUS, INC. AND SUBSIDIARIES
Company's Year 2000 Plan, major segments (approximately 95%) of the Company's
information technology ("IT") and non-IT systems have been upgraded and tested
for Year 2000 compliance. The Company anticipates that the remaining IT and
non-IT systems will be upgraded and tested to be Year 2000 compliant by June 30,
1999. The total costs of these system upgrades are projected to approximate $0.3
million. As of March 31, 1999, the Company has incurred approximately $0.2
million of these costs. The remaining costs will be funded out of existing cash
flows from operations. Given that the Company expects to be Year 2000 compliant
by the end of June 1999, the Company has not prepared a contingency plan and
does not currently believe that a contingency plan is necessary.
In some cases, the Company's computer systems are linked to its major customers
and the Company is in the process of assessing its customers' compliance. The
Company has had correspondence from its major customers regarding Year 2000
compliance. The Company's major customers have advised the Company that they
generally comply with VICS (Voluntary Interindustry Commerce Standards)
standards. VICS establishes standards that simplify the flow of product and
information in the general merchandise retail industry for retailers and
suppliers alike. The Company is compliant with VICS Year 2000 Electronic Data
Interchange standards and expects to complete testing with its major customers
by June 1999. The Company has virtually no computer interfaces with its vendors;
however, it does not know the extent to which its vendors, or its customers,
would be impaired by their own Year 2000 issues and its impact on the Company.
The costs of assessing compliance are expected to be minimal. Although the
Company believes it is adequately addressing its Year 2000 issues, the failure
to correct a material Year 2000 problem or the failure of a customer or a vendor
to achieve compliance could result in an interruption in, or a failure of,
certain normal business activities or operations. Such failure could materially
adversely affect the Company's results of operations, liquidity and financial
condition.
Future Financing Requirements
At March 31, 1999, the Company had working capital of $27.0 million.
The Company's business plan requires the availability of sufficient cash flow
and borrowing capacity to finance its product lines. The Company expects to
satisfy such requirements through cash flow from operations and borrowings under
the Credit Facility.
Although there can be no assurance, the Company believes that it has
adequate resources to meet its needs for the foreseeable future, assuming it
meets its business plan.
The foregoing discussion contains forward-looking statements which are
based upon current expectations and involve a number of uncertainties, including
the Company's ability to maintain its borrowing capabilities under the Credit
Facility, retail market conditions and consumer acceptance of the Company's
products.
13
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BERNARD CHAUS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Attached hereto as Exhibits are the following:
27 Financial Data Schedules
(b) The Company filed no reports on Form 8-K during the quarter
ended March 31, 1999.
14
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
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.
BERNARD CHAUS, INC.
(Registrant)
Date: May 12, 1999 By: /s/ Josephine Chaus
----------------------------------------
JOSEPHINE CHAUS
Chairwoman of the Board,
President and Chief Executive Officer,
Office of the Chairman
Date: May 12, 1999 By: /s/ Stuart S. Levy
----------------------------------------
STUART S. LEVY
Chief Financial Officer and
Secretary
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> U. S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1999
<PERIOD-START> JAN-1-1999 JAN-1-1998
<PERIOD-END> MAR-31-1999 MAR-31-1999
<EXCHANGE-RATE> 1 1
<CASH> 74 74
<SECURITIES> 0 0
<RECEIVABLES> 43,367 43,367
<ALLOWANCES> 1,706 1,706
<INVENTORY> 13,836 13,836
<CURRENT-ASSETS> 56,129 56,129
<PP&E> 4,960 4,960
<DEPRECIATION> 4,120 4,120
<TOTAL-ASSETS> 57,235 57,235
<CURRENT-LIABILITIES> 29,129 29,129
<BONDS> 0 0
0 0
0 0
<COMMON> 272 272
<OTHER-SE> 15,084 15,084
<TOTAL-LIABILITY-AND-EQUITY> 57,235 57,235
<SALES> 52,129 146,471
<TOTAL-REVENUES> 52,129 146,471
<CGS> 37,694 108,541
<TOTAL-COSTS> 47,125 136,077
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 603 1,880
<INCOME-PRETAX> 4,401 8,514
<INCOME-TAX> 89 173
<INCOME-CONTINUING> 4,312 8,341
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,312 8,341
<EPS-PRIMARY> .16 .31
<EPS-DILUTED> .16 .31
</TABLE>
