SECURITIES AND EXCHANGE COMMISION
WASHINGTON, DC 20549
--------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 1, 2000 COMMISSION FILE NO. 1-9196
THE LESLIE FAY COMPANY, INC.
DELAWARE 13-3197085
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1412 BROADWAY
NEW YORK, NEW YORK 10018
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 221-4000
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 and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
--- ---
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
--- ---
There were 5,073,138 shares of Common Stock outstanding at April 1, 2000.
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THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
INDEX
Page No.
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PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements:
Consolidated Balance Sheets as of April 1, 2000 (Unaudited)
and January 1, 2000, respectively............................................................3
Consolidated Statements of Operations (Unaudited) for the
Thirteen weeks Ended April 1, 2000 and
April 3, 1999, respectively..................................................................4
Consolidated Statements of Cash Flows (Unaudited) for the
Thirteen Weeks Ended April 1, 2000 and
April 3, 1999, respectively..................................................................5
Notes to Consolidated Financial Statements........................................................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................................12
Item 3. Quantitative and Qualitative Disclosures
About Market Risk..............................................................................14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.......................................................................................15
Item 2. Changes in Securities...................................................................................15
Item 3. Defaults Upon Senior Securities.........................................................................15
Item 4. Submission of Matters to a Vote of Security Holders.....................................................15
Item 5. Other Information.......................................................................................15
Item 6. Exhibits and Reports on Form 8-K........................................................................15
SIGNATURES.......................................................................................................16
INDEX TO EXHIBITS..............................................................................................E-1
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THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE SHARE DATA)
<TABLE>
<CAPTION>
UNAUDITED AUDITED
APRIL 1, JANUARY 1,
ASSETS 2000 2000
Current Assets:
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Cash and cash equivalents....................................... $ 867 $ 2,034
Restricted cash and cash equivalents............................ 3,446 3,432
Accounts receivable- net of allowances for possible losses of
$6,775 and $5,468, respectively.............................. 44,357 16,952
Inventories..................................................... 28,611 34,226
Prepaid expenses and other current assets....................... 1,440 2,702
----------------- -----------------
Total Current Assets......................................... 78,721 59,346
Property, plant and equipment, at cost, net of accumulated
depreciation of $1,904 and $1,535, respectively.............. 3,564 3,695
Excess of purchase price over net assets acquired-net of
accumulated amortization of $467 and $357, respectively...... 6,138 4,330
Deferred charges and other assets............................... 2,065 1,629
----------------- -----------------
Total Assets.................................................... $ 90,488 $ 69,000
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short term debt................................................. $ 13,001 $ 1,000
Accounts payable................................................ 15,837 9,454
Accrued expenses and other current liabilities.................. 7,946 8,121
Accrued expenses and other current confirmation liabilities..... 3,447 3,432
Income taxes payable............................................ 181 --
Current portion of capitalized leases........................... 27 40
----------------- -----------------
Total Current Liabilities.................................... 40,439 22,047
Long term note payable.......................................... 3,750 4,000
Excess of revalued net assets acquired over equity under fresh - start
reporting, net of accumulated amortization of $12,954
and $11,811, respectively.................................... 754 1,897
Other long term liabilities..................................... 994 915
----------------- -----------------
Total Liabilities............................................... 45,937 28,859
----------------- -----------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.01 par value; 500 shares authorized, no
shares issued and outstanding................................... -- --
Common stock, $.01 par value; 20,000 shares authorized;
6,890 and 6,870 shares issued, respectively.................... 69 69
Capital in excess of par value....................................... 32,320 31,212
Retained earnings.................................................. 23,785 20,483
----------------- -----------------
Subtotal........................................................ 56,174 51,764
Treasury stock, at cost; 1,817 shares 11,623 11,623
----------------- -----------------
Total Stockholders' Equity...................................... 44,551 40,141
Total Liabilities and Stockholders' Equity......................... $ 90,488 $ 69,000
================= =================
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated balance sheets.
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
UNAUDITED
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<CAPTION>
THIRTEEN THIRTEEN
WEEKS ENDED WEEKS ENDED
APRIL 1, APRIL 3,
2000 1999
--------------- ---------------
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Net Sales....................................................... $66,936 $ 61,144
Cost of Sales.................................................. 51,296 44,460
--------------- ---------------
Gross profit................................................. 15,640 16,684
--------------- ---------------
Operating Expenses:
Selling, warehouse, general and
administrative expenses............................... 10,604 10,373
Non-cash stock based compensation............................ 250 301
Depreciation and amortization expense........................ 440 280
--------------- ---------------
Total operating expenses................................. 11,294 10,954
Other income................................................. (346) (349)
Amortization of excess revalued net assets acquired
over equity............................................ (1,143) (1,143)
--------------- ---------------
Total operating expenses, net................................ 9,805 9,462
--------------- ---------------
5,835 7,222
Operating income.............................................
Interest and Financing Costs.................................... 862 669
--------------- ---------------
Income before taxes.......................................... 4,973 6,553
Provision for Taxes............................................. 1,671 2,272
--------------- ---------------
Net Income .................................................. $ 3,302 $4,281
=============== ===============
Net Income per Share - Basic................................. $ .65 $ 0.71
=============== ===============
- Diluted............................... $ .60 $ 0.70
=============== ===============
Weighted Average Shares Outstanding - Basic..................... 5,065,885 6,041,138
=============== ===============
-Diluted................... 5,497,009 6,144,820
=============== ===============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these consolidated financial statements.
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THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
THIRTEEN THIRTEEN
WEEKS ENDED WEEKS ENDED
APRIL 1, APRIL 3,
2000 1999
---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
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Net income ....................................................... $ 3,302 $4,281
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization................................... 479 307
Amortization of excess net assets acquired over equity.......... (1,143) (1,143)
Provision for possible losses on accounts receivable............ (2) (4)
Provision for stock based compensation and stock option grants.. 250 301
Changes in assets and liabilities:
Accounts receivable........................................... (27,403) (17,289)
Inventories................................................... 8,035 10,744
Prepaid expenses and other current assets..................... 1,262 (9)
Deferred charges and other assets............................. (436) 4
Accounts payable, accrued expenses and other current
liabilities............................................... 4,976 (3,750)
Income taxes payable.......................................... 181 1,806
Deferred liabilities.......................................... 85 113
Changes due to reorganization activities:
Use of pre-consummation deferred taxes........................ 795 130
---------------- ---------------
Total adjustments........................................... (12,921) (8,790)
---------------- ---------------
Net cash used in operating activities....................... (9,619) (4,509)
---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................................. (238) (868)
Net cash paid for acquisition..................................... (3,104) --
---------------- ---------------
Net cash used in investing activities....................... (3,342) (868)
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings.......................................... 31,464 5,105
Repayment of borrowings ......................................... (19,463) --
Repayment of notes payable........................................ (250) --
Repayment of capital leases ...................................... (19) (12)
Proceeds from new stock issuance and options exercised ........... 62 --
Proceeds from (Payment of) obligations under Plan of Reorganization 14 (181)
---------------- ---------------
Net cash provided by financing activities............... 11,808 4,912
---------------- ---------------
Net decrease in cash and cash equivalents......................... (1,153) (465)
Cash and cash equivalents, at beginning of period................. 5,466 4,213
---------------- ---------------
Cash and cash equivalents, at end of period....................... $4,313 $ 3,748
================ ===============
</TABLE>
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The accompanying Notes to Consolidated Financial Statements are an
integral part of these consolidated financial statements.
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
The consolidated financial statements included herein have been
prepared by The Leslie Fay Company, Inc. and subsidiaries (The Leslie Fay
Company, Inc. being sometimes individually referred to, and together with its
subsidiaries collectively referred to, as the "Company" as the context may
require), pursuant to the rules and regulations of the Securities and Exchange
Commission (the "SEC"). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles 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
consolidated financial statements should be read in conjunction with the
consolidated 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
(the "1999 Form 10-K"). Interim taxes were provided based on the Company's
estimated effective tax rate for the year.
In the opinion of management, the information furnished reflects all
adjustments, all of which are of a normal recurring nature, necessary for a fair
presentation of the results for the reported interim periods. Results of
operations for interim periods are not necessarily indicative of results for the
full year, and the seasonality of the business may make projections of full year
results based on interim periods unreasonable.
2. ACQUISITION:
On February 15, 2000, the Company entered into a license agreement with
the licensing subsidiary of Liz Claiborne, Inc. ("Liz Claiborne") to manufacture
dresses and suits under the Liz Claiborne and Elisabeth trademarks. The Company
also purchased the dress finished goods and raw materials inventory of Liz
Claiborne and agreed to honor related manufacturing commitments that had been
made by Liz Claiborne as of February 15, 2000. Beginning for the Fall 2000
season that begins to ship in June 2000, the Company will design and arrange the
manufacture of Liz Claiborne and Elisabeth dresses. Liz Claiborne and Elisabeth
dresses are sold in department and specialty stores throughout the United States
and, to a much lesser extent, in Canada, Mexico and other parts of the world.
The agreements with Liz Claiborne provide that the Company will pay
royalties including guaranteed minimum average annual royalty payments of up to
approximately $2,000,000 throughout the five year initial term of the agreement
against 6% of the net sales of Liz Claiborne and Elisabeth dresses and suits.
The Company also will reimburse Liz Claiborne for certain operating costs on a
transitional basis.
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THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
This transaction generated Goodwill of $1,887,000, which the Company is
amortizing over the initial five-year period of the agreement ending February
2005. The Liz Claiborne agreement has been accounted for as a purchase, and
accordingly, the operating results of Liz Claiborne Dresses have been included
in the Company's consolidated financial statements since the date of the
acquisition. The purchase price allocation is preliminary and is subject to
refinement during fiscal 2000. Net Sales for the partial quarter ending April 1,
2000, were $6,154,000.
3. INVENTORIES:
Inventories consist of the following:
(Unaudited)
April 1, January 1,
2000 2000
------- -------
(In thousands)
Raw materials $12,823 $14,338
Work in process 2,858 3,654
Finished goods 12,930 16,234
------- -------
Total inventories $28,611 $34,226
======= =======
4. DEBT:
On June 2, 1997, in preparation for the consummation of the Amended
Joint Plan of Reorganization ("the Plan"), a wholly-owned subsidiary of the
Company entered into a two-year financing agreement (the "CIT Credit Agreement")
with CIT which was amended on August 25, 1999 to extend the agreement through
June 2, 2004 to provide direct borrowings and to issue letters of credit on the
Company's behalf. Direct borrowings bear interest at prime minus .25% (8.75% at
April 1, 2000) and the CIT Credit Agreement requires a fee, payable monthly, on
average outstanding letters of credit at a rate of 2% annually. The Company had
a net borrowing availability under the CIT Credit Agreement of $16,722,000 on
April 1, 2000 and peak borrowing during the thirteen weeks ended April 1, 2000
was $19,424,000. There were $12,001,000 in direct borrowings outstanding under
the CIT Credit Agreement and approximately $13,277,000 was committed under
unexpired letters of credit as of April 1, 2000. Additionally, the Company
borrowed, through a five year term note payable, $5,000,000 at an interest rate
of prime plus 200 basis points (11.00% at April 1, 2000) which was used to
repurchase the Company's common stock.
The CIT Credit Agreement has been modified five times through August
25, 1999, to adjust for changes relating to the Company's consolidated balance
sheet as it exited from bankruptcy, reflecting associated "fresh start"
accounting adjustments, increasing the level of capital expenditures to support
the Company's growth and Year 2000 requirements, allowing the acquisition of
certain assets of The Warren Apparel Group Ltd., permitting the Company's stock
buy-back program, extending the CIT Credit Agreement, increasing the Company's
credit line, reducing borrowing costs, and allowing the early termination of the
CIT Credit Agreement at the option of the Company. Key modifications include:
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THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
| | The committed credit line has been increased to $42,000,000 from
$30,000,000. The sub-limit on letters of credit has also been increased
from $20,000,000 to $25,000,000. The limit on inventory based
collateral has been raised from $12,000,000 to $20,000,000 and will
increase by $1,000,000 automatically each fiscal year.
| | The interest rate on direct borrowings has been reduced from prime plus
100 basis points to prime less 25 basis points.
| | The Company may pay dividends or repurchase stock as long as the amount
paid after August 25, 1999 does not exceed, in the aggregate, the sum
of $2,000,000 plus one half of the net income exceeding $1,000,000 on a
cumulative basis for the period commencing with the fiscal quarter
ending April 1, 2000 and ending with the fiscal quarter preceding the
date of the proposed dividend or stock repurchase. Borrowing
availability before and after the making of any such dividend payment
or stock repurchase can not be less than $5,000,000.
| | The Company issued a five-year term note payable in the amount of
$5,000,000 at an interest rate of prime plus 200 basis points.
| | Covenants related to capital expenditures, minimum ratio of
consolidated current assets to consolidated current liabilities,
minimum consolidated tangible net worth and minimum consolidated
working capital have been set at levels appropriate for normal business
conditions and the Company's existing stock repurchase program.
| | The Company may, with CIT's approval, acquire new businesses.
| | The Company may terminate the CIT Credit Agreement early.
| | To support the working capital requirements of the Liz Claiborne
license, the Company is negotiating an increase to the CIT Credit
Agreement.
As collateral for borrowing under the CIT Credit Agreement, the Company
has granted to CIT a security interest in substantially all of its assets. In
addition, the CIT Credit Agreement contains certain restrictive covenants,
including limitations on the incurrence of additional liens and indebtedness.
The Company is currently in compliance with or has obtained written waivers for
all requirements contained in the CIT Credit Agreement.
5. INCOME TAXES:
The provision for federal, state and local income taxes is $1,671,000
and $2,272,000 for the thirteen weeks ended April 1, 2000 and April 3, 1999,
respectively. Federal and state income taxes are partially offset by the
utilization of pre-consummation net operating loss carryforwards. The
utilization of pre-consummation net operating loss carryforwards for federal
income tax purposes is limited to approximately $1,500,000 in 2000.
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THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
6. COMMITMENTS AND CONTINGENCIES:
As noted in the Company's 1999 Form 10-K, the Company and several of
its subsidiaries filed voluntary petitions in the Bankruptcy Court under Chapter
11 of the Bankruptcy Code in April 1993. By order dated April 21, 1997 (the
"Confirmation Order"), the Bankruptcy Court confirmed the Plan. The Plan was
consummated on June 4, 1997. Certain alleged creditors who asserted age and
other discrimination claims against the Company and whose claims were expunged
(the "Claimants") pursuant to an order of the Bankruptcy Court (see below)
appealed the Confirmation Order to the United States District Court for the
Southern District of New York. The Company moved to dismiss the appeal from the
Confirmation Order and the motion was granted and the appeal was dismissed. An
appeal to the United States Court of Appeals for the Second Circuit from the
order dismissing the appeal taken by the Claimants subsequently was withdrawn,
without prejudice, to the right to refile in the future. In addition, the
Claimants and two other persons commenced a separate adversary proceeding in the
Bankruptcy Court to revoke the Confirmation Order. The Company has moved to
dismiss the adversary proceeding to revoke the Confirmation Order and that
motion has been fully briefed, but has not yet been argued to the Bankruptcy
Court. However, both that matter and the right to refile the appeal from the
order dismissing the Claimants' appeal are now moot based upon the proceedings
described in the next paragraph and the Claimants' lack of standing.
The Claimants, who are former employees of the Company and who were
discharged prior to the filing of the Chapter 11 cases, asserted age and other
discrimination claims, including punitive damage claims against the Company in
the approximate aggregate sum of $80 million. Following a trial on the merits,
the Bankruptcy Court expunged and dismissed those claims in their entirety. The
Claimants appealed that decision to the United States District Court for the
Southern District of New York and, on July 17, 1998, that Court affirmed the
decision of the Bankruptcy Court. The Claimants took a further appeal to the
United States Court of Appeals for the Second Circuit, which affirmed the
decision of the United States District Court in a summary order dated June 28,
1999. On September 27, 1999, the Claimants filed a petition for certiorari
review by the United States Supreme Court for relief. The petition for
certiorari was denied on January 10, 2000.
Five of the Claimants in the above-described appeal commenced an action
alleging employment discrimination against certain former officers and directors
of the Company in the United States District Court for the Southern District of
New York. The Court dismissed all of the causes of action arising under federal
and state statutes, and the only remaining claims are those arising under the
New York City Human Rights Law. Discovery is complete and it is expected that a
summary judgement motion will be filed by the defending officers and directors
in the near future.
In February 1993, the Securities and Exchange Commission obtained an
order directing a private investigation of the Company in connection with, among
other things, the filing by the Company of annual and other reports that may
have contained misstatements, and the purported failure of the Company to
maintain books and records that accurately reflected its financial condition and
operating results. To the Company's knowledge, this investigation has been
dormant for several years.
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
In February 1993, the United States Attorney for the Middle District of
Pennsylvania issued a Grand Jury Subpoena seeking the production of documents as
a result of the Company's announcement of accounting irregularities. In 1994,
Donald F. Kenia, former Controller of the Company, was indicted by a federal
grand jury in the Middle District of Pennsylvania and pleaded guilty to the
crime of securities fraud in connection with the accounting irregularities. In
October 1996, Paul F. Polishan, former Senior Vice President and Chief Financial
Officer of the Company, was indicted by the federal grand jury in the Middle
District of Pennsylvania for actions relating to the accounting irregularities.
The trial of the case against Paul F. Polishan began March 1, 2000.
In March 1993, a stockholder derivative action entitled "Isidore
Langer, derivatively on behalf of The Leslie Fay Companies, Inc. v. John J.
Pomerantz et al." was instituted in the Supreme Court of the State of New York,
County of New York, against certain officers and directors of the Company and
its then auditors. This complaint alleges that the defendants knew or should
have known material facts relating to the sales and earnings of the Company
which they failed to disclose. The time to answer, move or otherwise respond to
the complaint has not yet expired. The plaintiff seeks an unspecified amount of
monetary damages, together with interest thereon, and costs and expenses
incurred in the action, including reasonable attorneys' and experts' fees. The
Company cannot presently determine the ultimate outcome of this litigation, but
believes that it should not have any unfavorable impact on its financial
statements. Pursuant to the Plan, a Derivative Action Board, comprised of three
persons or entities nominated by the Creditors' Committee and appointed by the
Bankruptcy Court, is the only entity authorized to prosecute, compromise and
settle or discontinue the derivative action.
7. STOCKHOLDERS' EQUITY:
At June 4, 1997, 6,800,000 shares, adjusted retroactively for a two for
one stock split effected on July 1, 1998, were issued and outstanding and were
being held by the plan administrator in trust. In July 1997, 5,372,000 (79%) of
the shares were distributed. During the period from February 15, 1999 through
March 5, 1999, approximately 1,250,000 (88%) of the remaining shares were
distributed. The remaining shares are being held back by the plan administrator
until the final disputed claims are settled before the Bankruptcy Court.
8. ACCOUNTING FOR STOCK OPTION COMPENSATION:
Under the provisions of Statement of Financial Accounting Standards
("SFAS") No.123, "Accounting for Stock Based Compensation," the Company has
recorded $250,000 and $279,000 of non-cash stock based compensation expense for
the thirteen weeks ended April 1, 2000 and April 3, 1999, respectively. These
amounts were offset as adjustments to Capital in excess of par value in the
Consolidated Balance Sheets.
9. NET INCOME PER SHARE:
For the thirteen weeks ended April 1, 2000 and April 3, 1999, the basic
weighted average common shares outstanding was 5,065,885 and 6,041,138
respectively, and the weighted average shares outstanding assuming dilution was
5,497,009 and 6,144,820 respectively. The difference of 431,124 and 103,682,
respectively, represents the incremental dilution of shares upon exercise of
dilutive stock options.
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
10. SUBSEQUENT EVENT:
On May 9, 2000, the Company consummated its agreement to purchase
substantially all the assets of Cynthia Steffe, Inc. Cynthia Steffe also
licensed her trade names to the Company. Cynthia Steffe, Inc., markets to both
department and specialty stores in the contemporary and designer sportswear
categories. The 1999 Net Sales for Cynthia Steffe, Inc. were approximately
$7,000,000. Cynthia Steffe and Richard Roberts, principals of Cynthia Steffe,
Inc. have entered into employment agreements with the Company.
-11-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- ------- ----------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
---------------------------------------------
(A) RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED APRIL 1, 2000 AS COMPARED TO
THIRTEEN WEEKS ENDED APRIL 3, 1999
The Company recorded net sales of $66,936,000 for the thirteen weeks
ended April 1, 2000, compared with $61,144,000 for the thirteen weeks ended
April 3, 1999, a net increase of $5,792,000 or 9.5%. The Dress product line's
net sales, excluding $6,154,000 generated by the recently licensed Liz Claiborne
dress brands, increased $1,848,000 or 4.2%. A 39.5% increase in the Warren
brands was offset by a 7.1% decrease in the Leslie Fay dress brands. The Warren
brand sales improvement reflects business growth since acquiring the brands in
the fourth quarter of 1998. The lower level of Leslie Fay dress volume was
caused by additional price concessions to clear product. Net sales for the
Sportswear product lines decreased by $2,210,000 or 12.6%. This resulted from
the restructuring of the Leslie Fay Sportswear brand and the Leslie Fay
Haberdashery brand that was implemented in the fourth quarter of 1999. This
restructuring was expected to reduce sales and improve gross profit.
Gross profit was $15,640,000 and 23.4% of net sales compared with
$16,684,000 and 27.3% for the thirteen weeks ended April 1, 2000 and April 3,
1999, respectively. The gross profit from the Dress line, net of $1,576,000
generated by the recently licensed Liz Claiborne dress brands, decreased
$2,763,000 while the percent to net sales decreased to 21.9% from 29.2% for the
comparable period ended April 3, 1999. The Dress line experienced a decline in
gross profit contribution because of decreased markup and increased price
concessions to clear product. The gross profit produced by the Sportswear line
for the thirteen weeks ended April 1, 2000 increased by $143,000 and the percent
to net sales increased to 26.7% from 22.5% for the comparable period ended April
3, 1999. The increased gross profit as a percentage of net sales resulted from
the restructuring of the Leslie Fay Sportswear and Haberdashery brands.
SG&A expenses were $10,604,000 and 15.8% of net sales and $10,373,000
and 17.0% of net sales for the thirteen weeks ended April 1, 2000 and April 3,
1999, respectively. The expense increase of $231,000 was caused mainly by the
additional design, selling and shipping costs relating to the Liz Claiborne
Dress division.
Non-cash stock based compensation for stock options and outside
director compensation that was granted after the Company's emergence from
bankruptcy for the thirteen weeks ended April 1, 2000 and April 3, 1999 was
$250,000 and $301,000, respectively.
Other income was $346,000 and $349,000 for the thirteen weeks ended
April 1, 2000 and April 3, 1999, respectively.
Depreciation and amortization expense for the thirteen weeks ended
April 1, 2000 and April 3, 1999, was $440,000 and $280,000 respectively. The
increase was due to the acquisition of fixed assets since the Company's June 4,
1997 emergence from bankruptcy. In addition, the Company recognized income of
$1,143,000 for both periods from amortization of excess revalued net assets
acquired over equity under fresh start reporting. The excess of revalued net
assets will be fully amortized in the second quarter of 2000 which will
negatively impact earnings per share compared to prior periods.
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
Interest and financing costs were $862,000 and $669,000 for the
thirteen weeks ended April 1, 2000 and April 3, 1999, respectively. The
additional interest was generated as a result of higher borrowings during the
thirteen weeks ended April 1, 2000, which were invested in building the Liz
Claiborne dress brands' working capital. Also, the Company incurred additional
interest expense during the period ended April 1, 2000 as a result of the
$5,000,000 term note payable incurred on August 25,1999. The financing fees
under the new CIT Credit Agreement were partially offset by income earned on the
cash invested for the thirteen weeks ended April 1, 2000 and April 3, 1999.
The provision for federal, state and local income taxes was $1,671,000
and $2,272,000 for the thirteen weeks ended April 1, 2000 and April 3, 1999,
respectively.
(B) LIQUIDITY AND CAPITAL RESOURCES
The CIT Credit Agreement provides a working capital facility commitment
of $42,000,000, including a $25,000,000 sublimit on letters of credit. As of
April 1, 2000 the Company was utilizing approximately $13,277,000 under the CIT
Credit Agreement for letters of credit, and there was $12,001,000 in outstanding
cash borrowings. The Company had a net borrowing availability under the CIT
Credit Agreement of $16,722,000 on April 1, 2000 and peak borrowing during the
thirteen weeks ended April 1, 2000 was $19,424,000.
At April 1, 2000, the Company's cash and cash equivalents amounted to
$4,313,000, of which $3,446,000 is restricted for payment of the remaining
administrative claims, which are expected to be made prior to the end of the
fiscal year. Working capital increased $983,000 to $38,282,000 for the thirteen
weeks ended April 1, 2000. The changes in the components of working capital
were: a decrease in cash and cash equivalents of $1,153,000; an increase in net
accounts receivable of $27,405,000; a decrease in inventories of $8,035,000
offset by $2,420,000 for the Liz Claiborne Dress inventory acquisition; a
decrease in prepaid expenses and other current assets of $1,262,000 and an
increase of $18,392,000 in total current liabilities. Accounts receivable
increased due to the additional volume generated by the recently licensed Liz
Claiborne Dress brands and the historically high shipment of Spring season
product during the period. Total current liabilities increased as a result of
additional short term borrowings of $12,001,000, increased operating accounts
payable and other accrued liabilities of $6,391,000 resulting mostly from the
higher inventory levels held, and additional income tax liabilities.
Although the Company's results of operations indicated net income of
$3,302,000 for the thirteen weeks ended April 1, 2000, these results are not
indicative of results for an entire year.
Capital expenditures were $238,000 for the thirteen weeks ended April
1, 2000. Capital expenditures are expected to be $3,050,000 for fiscal year
2000. The anticipated capital expenditures for the remainder of the year are
primarily related to improvements in management information systems, the
Company's first phase of a planned web site, improvements in the distribution
facility, as well as the Liz Claiborne Dress showrooms and office space. The
Company believes that its financing arrangements and anticipated level of
internally generated funds will be sufficient to finance its capital spending
during the remainder of 2000.
-13-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
To support the working capital requirements of the Liz Claiborne
license, the Company is negotiating an increase to the CIT Credit Agreement.
The Company may pay cash dividends or repurchase its stock under the
CIT Credit Agreement as long as those disbursements do not cause the Company to
be in violation of the restrictive covenants, there remains no less than
$5,000,000 of unused borrowing capacity and the cumulative stock repurchase or
distribution of dividends does not exceed the dividend and stock repurchase
basket. At the end of the fiscal quarter ended April 1, 2000 the Company may
borrow up to $4,685,000 for stock repurchase or dividend distribution. The
Company has no plans to pay cash dividends in the foreseeable future.
The Company did not experience any significant year 2000 problems or
disruptions in the business process caused by its own systems or those of
unrelated third parties. The financial condition or results of operations for
the fiscal year ended January 1, 2000 were not affected by any year 2000
problems. Since there was no material difference in the actual cost and that,
which was previously disclosed, there was no remediation dividend affecting
financial comparisons. Additionally, there are no remaining contingencies or
reserves relative to year 2000.
There were no significant changes in the Company's inventory level or
cash flow caused by attempts to mitigate the risk of year 2000 related business
interruptions. The revenue patterns of the Company were not affected by any
unusual customer buying levels, either positively or negatively at the end of
fiscal 1999.
There were no significant information technology projects that were
deferred in fiscal 1999 that will require "catch-up" in the year 2000.
The Company also passed through the critical date of February 29, 2000
with no significant issues. The Company will continue to monitor year 2000
issues and will update disclosures appropriately.
Certain statements contained in this Form 10-Q, including, without
limitation, statements containing the words "believes," "anticipates,"
"expects," and words of similar import, constitute "forward-looking" statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
the effects of future events on the Company's financial performance; the risk
that the Company may not be able to finance its planned growth; risks related to
the industry in which the Company competes, including potential adverse impact
of external factors such as inflation, consumer confidence, unemployment rates
and consumer tastes and preferences; and the risk of potential increase in
market interest rates from current rates. Given these uncertainties, current and
prospective investors are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligation to update any
such factors or to publicly announce the result of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.
None.
-14-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
- ------- ------------------
For information concerning legal proceedings at the end of the first
quarter of 2000, reference is made to Note 6 of the Notes to Consolidated
Financial Statements contained herein.
No other legal proceedings were terminated during the first quarter of
2000 or thereafter, other than ordinary routine litigation incidental to the
business of the Company.
ITEM 2. CHANGES IN SECURITIES.
- ------- ----------------------
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
- ------- --------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------- ----------------------------------------------------
None
ITEM 5. OTHER INFORMATION.
- ------- ------------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------- ---------------------------------
a) Exhibits
Exhibits are set forth on the "Index to Exhibits" on
page E-1 hereof.
-15-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 16, 2000 THE LESLIE FAY COMPANY, INC.
(Company)
By: /s/ Warren T. Wishart
---------------------------------------
Warren T. Wishart
Senior Vice President - Administration
and Finance, Chief Financial Officer
and Treasurer
-16-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
-----------------
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule.
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-2000
<PERIOD-START> JAN-02-2000
<PERIOD-END> APR-01-2000
<CASH> 4,313
<SECURITIES> 0
<RECEIVABLES> 44,357
<ALLOWANCES> 6,775
<INVENTORY> 28,611
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<PP&E> 5,468
<DEPRECIATION> 1,904
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<CURRENT-LIABILITIES> 40,439
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0
0
<COMMON> 69
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<SALES> 66,936
<TOTAL-REVENUES> 66,936
<CGS> 51,296
<TOTAL-COSTS> 9,805
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<INTEREST-EXPENSE> 862
<INCOME-PRETAX> 4,973
<INCOME-TAX> 1,671
<INCOME-CONTINUING> 3,302
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,302
<EPS-BASIC> 0.65
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