UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 February 2, 1997
----------------
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: 1-9474
FORSTMANN & COMPANY, INC.
(DEBTOR-IN-POSSESSION)
--------------------------------------------------
(Exact name of registrant as specified in its charter)
GEORGIA 58-1651326
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1155 Avenue of the Americas; New York, New York 10036
----------------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (212) 642-6900
--------------
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. X Yes No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
There were 5,618,799 shares of common stock, $.001 par value,
outstanding as of March 17, 1997.
Total number of pages: 23 pages.
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
FORSTMANN & COMPANY, INC.
(DEBTOR-IN-POSSESSION)
CONDENSED STATEMENTS OF OPERATIONS FOR THE
THIRTEEN WEEKS ENDED FEBRUARY 2, 1997 AND JANUARY 28, 1996
(unaudited)
<CAPTION>
February 2, January 28,
1997 1996
---- ----
<S> <C> <C>
Net sales $31,218,000 $33,306,000
Cost of goods sold 28,375,000 32,323,000
------------ -----------
Gross profit 2,843,000 983,000
Selling, general and administrative expenses 4,254,000 4,589,000
Provision for uncollectible accounts 171,000 266,000
----------- -----------
Operating loss (1,582,000) (3,872,000)
Interest expense (contractual interest of
$3,737,000 for 1997 and
$4,496,000 for 1996) 1,585,000 2,408,000
----------- -----------
Loss before reorganization items and
income taxes (3,167,000) (6,280,000)
Reorganization items 4,151,000 2,859,000
----------- -----------
Loss before income taxes (7,318,000) (9,139,000)
Income tax benefit - -
----------- -----------
Net loss (7,318,000) (9,139,000)
Preferred stock in-kind dividends and
accretion to redemption value - -
----------- -----------
Loss applicable to common shareholders $(7,318,000) $(9,139,000)
=========== ===========
Per share and share information:
Loss per common share $ (1.30) $ (1.63)
=========== ===========
Weighted average common shares outstanding 5,618,799 5,618,799
=========== ===========
See notes to financial statements.
</TABLE>
<TABLE>
FORSTMANN & COMPANY, INC.
(DEBTOR-IN-POSSESSION)
CONDENSED BALANCE SHEETS
FEBRUARY 2, 1997 AND NOVEMBER 3, 1996
(unaudited)
<CAPTION>
February 2, November 3,
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 48,000 $ 48,000
Accounts receivable, net of allowance of
$4,372,000 and $4,205,000 25,755,000 35,890,000
Inventories 54,674,000 44,646,000
Current deferred tax assets - -
Other current assets 171,000 224,000
Property, plant and equipment
held for sale 2,372,000 1,250,000
----------- ------------
Total current assets 83,020,000 82,058,000
Property, plant and equipment, net 58,889,000 65,664,000
Other assets 2,192,000 2,207,000
------------ ------------
Total $144,101,000 $149,929,000
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt $ 49,901,000 $ 48,389,000
Accounts payable 2,566,000 2,173,000
Accrued liabilities 13,820,000 13,399,000
------------ -------------
Total current liabilities 66,287,000 63,961,000
Long-term debt 3,408,000 4,010,000
Deferred tax liabilities - -
------------ -------------
Total liabilities not subject to compromise 69,695,000 67,971,000
Liabilities subject to compromise 88,397,000 88,631,000
Redeemable preferred stock subject to
compromise 2,655,000 2,655,000
Shareholders' Deficit:
Common stock 5,619 5,619
Additional paid-in capital 26,564,381 26,564,381
Excess of additional pension liability
over unrecognized prior service cost (1,107,000) (1,107,000)
Retained deficit since November 2, 1992 (42,109,000) (34,791,000)
------------- -------------
Total shareholders' deficit (16,646,000) (9,328,000)
------------- -------------
Total $144,101,000 $149,929,000
============ =============
See notes to financial statements.
</TABLE>
<TABLE>
FORSTMANN & COMPANY, INC.
(DEBTOR-IN-POSSESSION)
CONDENSED STATEMENTS OF CASH FLOWS FOR THE
THIRTEEN WEEKS ENDED FEBRUARY 2, 1997 AND JANUARY 28, 1996
(unaudited)
<CAPTION>
February 2, January 28,
1997 1996
---- ----
<S> <C> <C>
Net loss $(7,318,000) $(9,139,000)
----------- -----------
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation and amortization 3,112,000 3,041,000
Write-off of Carpini licensing fees - 27,000
Income taxes refunded, net - 21,000
Provision for uncollectible accounts 171,000 266,000
Increase (decrease) in market reserves (952,000) (361,000)
Loss from disposal, abandonment and
impairment of machinery and equipment
and other assets 3,039,000 254,000
Changes in current assets and current
liabilities:
Accounts receivable 9,964,000 12,205,000
Inventories (9,076,000) (2,874,000)
Other current assets 53,000 210,000
Accounts payable 403,000 348,000
Accrued liabilities (179,000) 2,340,000
Accrued interest payable 600,000 924,000
Operating liabilities subject to compromise (234,000) (800,000)
------------- -------------
Total adjustments 6,901,000 15,601,000
------------- ------------
Net cash provided (used) by operations (417,000) 6,462,000
------------- -------------
Cash flows used in investing activities:
Capital expenditures (176,000) (203,000)
Investment in computer information systems (105,000) (167,000)
Net proceeds from disposal of machinery
and equipment 1,000 1,000
------------- -------------
Net cash used by investing activities (280,000) (369,000)
------------- -------------
Cash flows from financing activities:
Net borrowings under the DIP Facility 1,193,000 33,250,000
Net repayments under the GE Capital Facility - (38,626,000)
Repayment of CIT Equipment Facility and
other financing arrangements (283,000) (718,000)
Deferred financing costs (213,000) (2,000)
------------- ------------
Net cash (used) provided by financing activities 697,000 (6,096,000)
------------- ------------
Net decrease in cash - (3,000)
Cash at beginning of period 48,000 52,000
------------- ------------
Cash at end of period $ 48,000 $ 49,000
============= ============
Supplemental disclosure of cash flow information
relating to the Chapter 11 proceeding:
Cash paid during the period for professional
fees for services rendered $ 928,000 $ 374,000
============= ============
Cash paid during the period relating to the
rejection and amendments of executory
contracts $ - $ 744,000
============= ============
Cash paid during the period for other items $ 238,000 $ 29,000
============= ============
See notes to financial statements.
</TABLE>
<TABLE>
FORSTMANN & COMPANY, INC.
(DEBTOR-IN-POSSESSION)
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
FOR THE THIRTEEN WEEKS ENDED FEBRUARY 2, 1997
(unaudited)
<CAPTION>
Pension
Additional Liability Total
Common Paid-In Over Prior Retained Shareholders'
Stock Capital Service Cost Deficit Deficit
----- ------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C>
Balance, November 3, 1996 $5,619 $26,564,381 $(1,107,000) $(34,791,000) $ (9,328,000)
Loss applicable to
common shareholders - - - (7,318,000) (7,318,000)
------ ------------ ----------- ------------ ------------
Balance, February 2, 1997 $5,619 $26,564,381 $(1,107,000) $(42,109,000) $(16,646,000)
====== ============ =========== ============ ============
See notes to financial statements.
</TABLE>
FORSTMANN & COMPANY, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 2, 1997
(unaudited)
1. Forstmann & Company, Inc. ("the Company") is a leading designer, marketer
and manufacturer of innovative, high quality woolen, worsted and other
fabrics which are used primarily in the production of brand-name and
private label apparel for men and women, as well as specialty fabrics
for use in billiard tables, sports caps and school uniforms. One of the
Company's customers accounted for approximately 22% of the Company's
revenues for the thirteen weeks ended February 2, 1997 and 17% of gross
accounts receivable at February 2, 1997. No other customer represented
more than 8% of revenues or 4% of gross accounts receivable. A majority
(50.4%) of the Company's common stock is owned by Odyssey Partners, L.P.
As described more thoroughly in Note 1 to the Financial Statements of the
Company's Annual Report on Form 10-K for the fiscal year ended November 3,
1996 (the "1996 Form 10-K"), as a result of the continued decline in the
Company's results of operations throughout fiscal year 1995, on September
22, 1995, the Company filed a petition for protection under Chapter 11 of
the United States Bankruptcy Code (the "Bankruptcy Code") with the U.S.
Bankruptcy Court for the Southern District of New York (the "Bankruptcy
Filing"). The decline in the Company's results of operations during fiscal
year 1995 was principally due to rising wool costs, sluggishness of retail
apparel sales and a significant decline in women s outerwear sales, which
were partially offset by the higher volume in sales of fabrics yielding
lower profit margins. This was further compounded by the Company's high
debt leverage and resulted in the Company being unable to meet all of its
principal and interest payments when such became due.
Although the rise in wool costs subsequently stabilized, the continued
sluggishness of retail apparel sales, as well as the continued economic
downturn in the apparel industry further strained the Company's operating
results during fiscal year 1996. Recently such underlying market
conditions, particularly in men's wear and women's outerwear, have somewhat
stabilized. However, management expects that competition from domestic
sources and imports will increase during fiscal year 1997. In response to
these factors, management of the Company has instituted a business plan
that focuses on significantly reducing product offerings; tightening
management of inventory levels; enhancing cost controls; and reducing
capital expenditures. All of these management actions are designed to
improve the Company's cash flows from operations and in total. The Company
successfully improved performance during fiscal year 1996 in each of these
areas and is continuing to refine its strategies in response to evolving
circumstances.
Further, in the fourth quarter of fiscal year 1996, management began
efforts to negotiate and document a plan of reorganization pursuant to
which the Company will emerge from bankruptcy. The Company currently
anticipates that such a plan of reorganization can be confirmed and
consummated in the first half of calendar year 1997. However, there can
be no assurance that the Company will confirm and consummate a plan of
reorganization in such time frame or at all. The Financial Statements, as
of February 2, 1997, do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
Under Chapter 11, absent authorization of the Bankruptcy Court, efforts to
collect on claims against the Company arising prior to the Bankruptcy
Filing are stayed while the Company continues business operations as a
debtor-in-possession. Unsecured claims against the Company in existence
prior to the Bankruptcy Filing are reflected as "Liabilities Subject to
Compromise" (see Note 8 to the Financial Statements). Additional claims
(Liabilities Subject to Compromise) may arise or become fixed subsequent to
the filing date resulting from the rejection of executory contracts,
including leases, from the determination by the Court (or agreed to by
parties in interest) of allowed claims for contingencies and other disputed
and unliquidated amounts and from the determination of unsecured deficiency
claims in respect of claims secured by the Company's assets ("Secured
Claims"). A successful plan of reorganization may require the compromise
of certain liabilities (including Secured Claims) that, as of
February 2, 1997, are not classified as "Liabilities Subject to
Compromise". The Company's ability to compromise Secured Claims without
the consent of the holder is subject to greater restrictions than in the
case of unsecured claims. As of February 2, 1997, the Company estimates
that the amount of Liabilities Subject to Compromise approximates
$88.4 million which primarily included unsecured trade accounts payable
and Subordinated Notes, including interest thereon through the date
of the Bankruptcy Filing (see Note 8 to the Financial Statements). Parties
holding Secured Claims have the right to move the court for relief from the
stay, which relief may be granted upon satisfaction of certain statutory
requirements. Secured Claims are collateralized by substantially all of
the assets of the Company, including, accounts receivable, inventories
and property, plant and equipment.
Resolution of the Company's liquidity and debt leverage problems will most
likely involve a conversion of certain existing indebtedness to equity.
This resolution might result in an ownership change as defined in Section
382 of the Internal Revenue Code of 1986, as amended. Such ownership
change will limit the Company's ability to utilize its net operating
loss and certain other carry forward tax credits.
As a plan of reorganization is developed, the Company may conclude that
additional market reserves and write downs of equipment and other assets
are necessary. Accordingly, the Company may recognize significant expenses
associated with the development and implementation of a plan of
reorganization that are not reflected in the Financial Statements as of
February 2, 1997. Any additional asset impairments or restructuring costs
directly related to reorganization proceedings will be reflected as
reorganization items in the Company's financial statements in the period
the Company becomes committed to plans which impair the valuation of the
Company's assets or incurs a restructuring liability. See Note 9 to the
Financial Statements for a description of reorganization items recognized
during the thirteen-week period ended February 2, 1997.
The condensed Financial Statements presented herein are unaudited and have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission and in accordance with the American
Institute of Certified Public Accountants Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code" ("SOP 90-7"). The accompanying Financial Statements have been
prepared on a going concern basis which assumes continuity of operations
and realization of assets and liquidation of liabilities in the ordinary
course of business. As a result of the reorganization proceeding, the
Company may have to sell or otherwise dispose of assets and liquidate
or settle liabilities for amounts other than those reflected in the
Financial Statements as of February 2, 1997. Further, a plan of
reorganization could materially change the amounts currently recorded in
the Financial Statements. The Financial Statements do not give effect
to all adjustments to the carrying value of the assets, or amounts and
reclassification of liabilities that might be necessary as a result of the
bankruptcy proceeding. The appropriateness of using the going concern
basis is dependent upon, among other things, confirmation of a plan of
reorganization, success of future operations and ability to generate
sufficient cash from operations and financing sources to meet obligations.
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of such
information have been made. These Financial Statements should be read in
conjunction with the Financial Statements and related notes contained in
the Company's 1996 Form 10-K, to which reference is made. Certain
information normally included in financial statements and related notes
prepared in accordance with generally accepted accounting principles has
been condensed or omitted. Because of the seasonal nature of the Company's
business, the results for the interim periods presented are not indicative
of the results for a full fiscal year.
At the Company's request, the Bankruptcy Court established June 28, 1996 as
the deadline for creditors to file all pre-petition claims against the
Company (the "Bar Date"). On or before May 14, 1996, notices were mailed
to all known or potential creditors of the Company advising them that
claims against the Company must be submitted by the Bar Date. Subject to
limited exceptions, creditors who were required to file claims but failed
to meet the deadline are forever barred from voting upon or receiving
distributions under any plan of reorganization. Since the Bar Date, the
Company has been reviewing and reconciling the creditors proofs of claims
that were filed by the creditors. As a result of the reconciliation
process, the Company has filed three Omnibus Objections with the Bankruptcy
Court objecting to certain claims filed against the Company. As a result
of the first two Omnibus Objections, numerous claims have been expunged,
reclassified or reduced. The third Omnibus Objection is scheduled for
hearing by the Bankruptcy Court on March 19, 1997. Differences that cannot
be resolved by negotiated agreements between the Company and the claimant
will be resolved by the Bankruptcy Court.
2. Inventories are stated at the lower of cost, determined principally by the
LIFO method, or market and consist of (in thousands):
February 2, November 3,
1997 1996
---- ----
Raw materials and supplies $ 8,634 $ 7,406
Work-in-process 36,386 32,007
Finished products 15,064 11,595
Less market reserves (5,410) (6,362)
------- -------
Total 54,674 44,646
Difference between LIFO
carrying value and current
replacement cost 3,777 3,936
------- -------
Current replacement cost $58,451 $48,582
======= =======
During the thirteen weeks ended February 2, 1997, the Company sold certain
yarn inventory which had been previously identified as surplus or obsolete
for its net carrying value which was $0.5 million below its gross inventory
value. This transaction resulted in a release of yarn inventory market
reserves of $0.5 million and did not give rise to any loss during the
thirteen weeks ended February 2, 1997.
3. Other assets consist of (in thousands):
February 2, November 3,
1997 1996
---- ----
Computer information systems,
net of accumulated amortization
of $2,347 and $2,270 $1,203 $1,174
Deferred financing costs, net of
amortization of $2,119 and
$1,874 646 679
Other, including $235 and $246 of
net barter credits 343 354
------ ------
Total $2,192 $2,207
====== ======
4. Accrued liabilities consist of (in thousands):
February 2, November 3,
1997 1996
---- ----
Salaries, wages and related
payroll taxes $ 1,086 $ 987
Incentive compensation 1,984 1,289
Vacation and holiday 1,702 1,616
Employee benefits plans 572 617
Interest on long-term debt 3,488 2,888
Medical insurance premiums 1,118 1,330
Professional Fees 2,226 2,346
Environmental remediation 327 339
Other 1,317 1,987
------- -------
Total $13,820 $13,399
======= =======
5. Long-term debt consists of (in thousands):
February 2, November 3,
1997 1996
---- ----
GE Capital DIP Facility $ 17,210 $ 16,017
Senior Secured Notes 26,909 26,909
Subordinated Notes 56,632 56,632
Equipment Facilities 5,921 6,136
Capital lease obligations 3,269 3,337
-------- --------
Total debt 109,941 109,031
Current portion of long-term debt (49,901) (48,389)
Subordinated Notes included in
liabilities subject to compromise (56,632) (56,632)
-------- --------
Total long-term debt $ 3,408 $ 4,010
======== ========
The Company was in default of substantially all of its debt agreements at
February 2, 1997 other than the DIP Facility, hereinafter defined. All
outstanding unsecured debt of the Company has been presented in these
Financial Statements as "Liabilities Subject to Compromise". The Company
has obtained debtor-in-possession (DIP) financing from General Electric
Capital Corporation ("GE Capital") under a revolving facility which was
approved by the Bankruptcy Court (the "DIP Facility"). The DIP Facility
provides up to $85 million in financing (which includes a $10.0 million
letter of credit facility) under a borrowing base formula and expires on
October 31, 1997.
Secured Claims are collateralized by substantially all of the assets of the
Company including accounts receivable, inventories and property, plant and
equipment. The Company has continued to accrue interest on most of its
secured debt obligations as management believes that in most cases the
collateral securing the secured debt obligations is sufficient to cover the
principal and interest portions of scheduled payments on the Company's pre-
petition secured debt obligations. To the extent any claim secured by
assets of the Company is determined to exceed the value of the asset
securing it, such claims will be treated as an unsecured claim and not
entitled to interest accruing after the Bankruptcy Filing.
At February 2, 1997, the Company's loan availability as defined in the DIP
Facility, in excess of outstanding advances and letters of credit, was
approximately $15.5 million.
Proceeds from the Company's operations (as defined) are applied to reduce
the principal amount of borrowings outstanding under the DIP Facility.
Unused portions of the DIP Facility may be borrowed and reborrowed, subject
to availability in accordance with the then applicable commitment and
borrowing base limitations.
Subject to certain exceptions, the DIP Facility restricts, among other
things, the incurrence of indebtedness, the sale of assets, the incurrence
of liens, the making of certain restricted payments, the making of
specified investments, the payment of cash dividends and the making of
certain fundamental corporate changes and amendments to the Company's
corporate organizational and governance instruments. In addition, the
Company is required to satisfy, among other things, certain financial
performance criteria, including minimum EBITDA levels and maximum capital
expenditure levels.
Reference is made to Note 7 to the Company's annual Financial Statements in
the 1996 Form 10-K for a discussion regarding the Company's Senior Secured
Notes. The Company agreed to remit to holders of the Company's Senior
Secured Notes $600,000 on March 21, 1996 and, commencing in April 1996,
$100,000 at the end of each month through October 31, 1996. Such payments
represent "adequate protection" payments, as defined by the Bankruptcy
Code, for the use of the collateral securing the Senior Secured Notes.
In connection with such agreement, the Company also agreed to pay up to
$240,000 in appraisal fees and expenses and legal fees and expenses
incurred by certain of the holders of the Senior Secured Notes and the
trustee. The agreement was amended to provide "adequate protection"
payments in the amount of $125,000 at the end of each month commencing on
November 27, 1996 and ending on the earlier of (i) the date on which a plan
of reorganization is consummated in the bankruptcy case or (ii)
October 31, 1997. In connection with the amended agreement, the Company
also agreed to pay $85,000 in legal fees and expenses incurred by certain
of the holders of the Senior Secured Notes and the trustee. The Company
has applied adequate protection payments made as of February 2, 1997 to
accrued interest. However, final application as to principal and interest
of the adequate protection payments, including appraisal fees and expenses
and legal fees and expenses, is to be subsequently determined pursuant to
the Bankruptcy Code.
As discussed in Note 7 to the Financial Statements in the 1996 Form 10-K,
the Company is a party to a loan and security agreement (the "CIT Equipment
Facility") with the CIT Group/Equipment Financing, Inc. ("CIT") which
provided financing for the acquisition of, and to refinance borrowings
incurred to acquire various textile machinery and equipment. The Company
agreed to provide "adequate protection" payments to CIT in connection with
the CIT Equipment Facility. The agreement required the Company to remit
monthly payments in arrears in the amount of $95,000 at the end of each
month commencing March 31, 1996 through October 31, 1996. The Company also
agreed to pay $81,000 in legal fees and disbursements incurred by CIT. The
agreement was amended to provide "adequate protection" payments in the
amount of $118,750 at the end of each month commencing on November 27, 1996
and ending on the earlier of (i) the date on which a plan of reorganization
is consummated in the bankruptcy case or (ii) October 31, 1997. In
connection with the amended agreement, the Company also agreed to pay
$48,000 in legal fees and expenses incurred by CIT. The Company has
applied adequate protection payments made as of February 2, 1997 first to
accrued interest and secondly to outstanding principal. However, final
application as to principal and interest of the adequate protection
payments is to be subsequently determined pursuant to the Bankruptcy Code.
As discussed in Note 7 to the Financial Statements in the 1996 Form 10-K,
the Company is a party to an equipment lease agreement ("Sanwa Capital
Lease") with Sanwa General Equipment Leasing ("Sanwa") which provided
financing for the acquisition of various textile machinery and equipment.
Sanwa subsequently assigned its rights to the Sanwa Capital Lease to The
Provident Bank ("Provident"). The Company agreed to provide "adequate
protection" payments to Provident in connection with the Sanwa Capital
Lease. The agreement requires the Company to remit monthly payments in
arrears in the amount of $20,000 at the end of each month commencing March
31, 1996 through October 31, 1997. The Company has applied adequate
protection payments made as of February 2, 1997 to outstanding principal.
The Company is no longer accruing interest on the Sanwa Capital Lease as
the Company currently estimates that the equipment value securing the lease
obligation is not sufficient to cover the principal and interest portions
of scheduled payments on the Sanwa Capital Lease. Final application as to
principal and interest of the adequate protection payments is to be
subsequently determined pursuant to the Bankruptcy Code.
6. Per share and share information for the thirteen weeks ended February 2,
1997 and January 28, 1996 are based upon actual loss applicable to common
shareholders and the weighted average shares outstanding during the periods.
7. As discussed in Note 12 to the Financial Statements in the 1996 Form 10-K,
the Company has accrued certain estimated costs for environmental matters.
On December 29, 1995, the Environmental Protection Division of the Georgia
Department of Natural Resources (the EPD ) issued separate administrative
orders to the Company and J. P. Stevens & Co., Inc. ( J.P. Stevens )
(previous owner and operator of the Company's Dublin facility), which
related to three sites at the Company's Dublin facility, one related to
TCE, one related to 1, 1-DCA and another related to the Burn Area.
With respect to the TCE and 1, 1-DCA sites, the orders required the Company
and J.P. Stevens to submit a compliance status report ( CSR ) and
compliance status certification to the EPD that included, among other
things, a description of the release, including its nature and extent, and
suspected or known source, quantity and date of the release. After
on-going discussions between the EPD and the Company, the Company submitted
the CSR and compliance status certification for the TCE and 1, 1-DCA sites.
On February 10, 1997, the Company received a response from the EPD to the
Company's CSR that, among other things, asserted the EPD s position that
the Company is not in compliance with a Type 4 risk reduction standard. A
meeting took place on February 25, 1997 among the Director and EPD staff
members and representatives of the Company to try to resolve the remaining
issues between the Company and the EPD. Based on these discussions, the
Company is currently evaluating its alternatives and is attempting to
document with the EPD those understandings that the Company believes were
reached at the meeting.
The orders relating to the Burn Area required both the Company and J.P.
Stevens to submit a CSR and compliance status certification by April 11,
1996. Throughout fiscal year 1996, the Company, J. P. Stevens and the EPD
had on-going discussions. On December 12, 1996, J. P. Stevens and the EPD
entered into a Consent Order which obligates J.P. Stevens to prepare and
submit to the EPD a CSR for the Burn Area within 180 days of the effective
date of the Consent Order. Among other things, the Consent Order provides
for the imposition of stipulated daily penalties in the event J. P. Stevens
does not comply with the terms of the Consent Order. Furthermore, the
Consent Order provides that in the event the Company does not perform any
action or work required by the EPD for the TCE or 1, 1-DCA sites, the EPD
may direct J.P. Stevens to take such action or work. In consideration for
these commitments, and so long as J. P. Stevens is in compliance with the
Consent Order, the EPD agreed that J.P. Stevens would not be subject to
penalties or to an enforcement action for violations of the administrative
order issued on December 29, 1995. The EPD has offered a similar Consent
Order to the Company. However, since the Company has already submitted the
CSR for the TCE and 1, 1-DCA sites, the Company does not believe it to be
appropriate to enter into a Consent Order at this time.
Further, during fiscal year 1996, the Company and J.P. Stevens negotiated
an allocation of the work required under the administrative orders relating
to the three sites. Under the terms of the agreement, J. P. Stevens will
prepare and bear the costs of preparing the CSR for the Burn Area site and
the Company will prepare and bear the costs of preparing the CSR for the
TCE and 1,1-DCA sites. The agreement, which was approved by the Bankruptcy
Court and was subsequently revised to include the provision that each party
will waive the right provided in the agreement to attend the other party's
meetings, if any, with the EPD, was signed by J.P. Stevens and the Company
in January 1997. J. P. Stevens has begun the investigation of the Burn
Area.
In January 1997, the Company was notified by a potential buyer of the
Company's Tifton facility that soil and groundwater samples had been
obtained from the Tifton facility. Based on the results of tests conducted
by an environmental consultant engaged by the potential buyer, the Company
was informed that certain contaminants were present in the vicinity of a
septic tank at the Tifton facility. Subsequently, through sampling and
testing performed by the Company's environmental consultants, the Company
confirmed the presence of contaminants in groundwater samples taken in the
vicinity of the septic tank. On February 28, 1997, the Company notified
the EPD of such findings. Currently, the Company is further investigating
the nature and extent of the contamination. On February 28, 1997, the
Company and the potential buyer of the Tifton facility entered into an
extension of the Contract of Sale to provide for a closing on or before
April 30, 1997. Further, the tenant of the Tifton facility (see Note 9 to
the Financial Statements) agreed to share up to $50,000 of the cost of
investigating the nature and extent of the contamination.
At February 2, 1997, the Company had $0.3 million accrued for costs to be
incurred in connection with known environmental matters. The Company,
subject to the resolution of the issues discussed at the meeting with the
EPD relating to the TCE and 1, 1-DCA sites, the results of the J.P. Stevens
investigation of the Burn Area and the results of the investigation of the
Tifton site, believes the accrual for environmental costs at February 2,
1997 is adequate. The Company has also been informed by the EPD that the
EPD may require demonstration of financial assurance upon the conclusion of
the Company's Bankruptcy Filing. However, the EPD has not mentioned this
issue for over one year, and the Company believes that the EPD may no longer
be seeking it.
8. Liabilities subject to compromise consists of (in thousands):
February 2, November 3,
1997 1996
---- ----
Subordinated Notes, including
accrued pre-petition interest $60,330 $60,330
Trade accounts payable 22,390 22,591
Priority tax claim 293 293
Accrued severance 1,295 1,295
Deferred rental and other
lease obligations 2,712 2,735
Accrued additional pension liability
in excess of accumulated benefit
obligation 1,170 1,170
Other 207 217
------- -------
Total $88,397 $88,631
======= =======
9. In accordance with SOP 90-7, professional fees, asset impairments and
restructuring charges directly related to the Bankruptcy Filing and related
reorganization proceedings have been segregated from normal operations
during the thirteen-week periods ended February 2, 1997 and January 28, 1996
and consist of (in thousands):
February 2, January 28,
1997 1996
---- ----
Professional fees $ 977 $1,615
Impairment of assets 3,039 -
Expense incurred due to
the rejection and amendment
of executory contracts - 909
Default interest expense and
professional fees associated with
Senior Secured Notes 177 200
Other (42) 135
------ ------
Total $4,151 $2,859
====== ======
In November 1996, the Company entered into a Contract of Sale with the Tift
County Development Authority (the Development Authority ), providing for
the sale of the Tifton facility for $1.25 million. The Contract of Sale
provided for the transaction to close prior to the end of January 1997. As
a result of delays in obtaining the financing necessary to consummate its
purchase of the facility, the Development Authority requested that the
closing of the transaction be delayed. Accordingly, the Company and the
Development Authority entered into an agreement amending the Contract of
Sale to provide for a closing on or before February 28, 1997. On February
28, 1997, the Contract of Sale was further amended to extend the closing to
a date that is not later than April 30, 1997. The Company and the
Development Authority are working to conclude the sale of the Tifton
facility prior to this date. However, there can be no assurance that the
sale will be consummated in this or any other timeframe.
Also, on February 28, 1997, the Company entered into a lease and
reimbursement agreement (the "Agreement"), which was approved by the
Development Authority, providing for the lease of the Tifton facility to a
third party (the "Tenant"). The Agreement provides for monthly rentals in
the amount of $3,600 and expires on April 30, 1997. The Agreement further
provides for reimbursement of investigation costs associated with
environmental matters at the Tifton facility (see Note 7 to the Financial
Statements) to the Company from the Tenant. Such reimbursement of
investigation costs shall be at an amount that is the lesser of (i) $50,000
or (ii) one-half of the costs actually paid by the Company to investigate
the nature and extent of soil or groundwater contamination at the Tifton
facility. The Agreement also requires the Company to provide to the Tenant
and the Development Authority all test results communicated to the Company
verbally and all written information derived as a result of the
investigation within (3) business days of the Company's receipt thereof.
As of February 2, 1997, $4.2 million was included in construction in
progress relating to certain unerected equipment located at the Tifton
facility. Such equipment is not being sold in connection with the sale of
the Tifton facility. The Company is currently negotiating the sale of such
equipment and, based upon current negotiations, the Company anticipates a
selling price for the related equipment that is $3.0 million below its
current net book value. Accordingly, during the thirteen weeks ended
February 2, 1997, the Company accrued the expected loss of $3.0 million
associated with the sale of such equipment to reorganization expense.
Item 2.
FORSTMANN & COMPANY, INC.
(DEBTOR-IN-POSSESSION)
MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Reference is made to Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in the 1996
Form 10-K for a discussion of the Company s financial condition as of
November 3, 1996, including a discussion of the Company's anticipated liquidity
and working capital requirements during its 1997 fiscal year.-
Forward Looking Statements
- --------------------------
Certain statements contained in this Form 10-Q under Item 2. and certain
statements contained elsewhere herein, are forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 and are thus
prospective. Such statements may relate, among other things, to future economic
performance of the Company, the plans and objectives of management for future
operations, including plans or objectives relating to the products of the
Company, and projections of revenues, income, income loss, earnings, and
earnings loss per share, capital expenditures, capital structure or other
financial terms, and assumptions relating to the foregoing. Such forward
looking statements are subject to risks, uncertainties and other factors which
could cause actual results to differ materially from future results expressed or
implied by such forward- looking statements. Those risks, uncertainties and
other factors include those accompanying such forward-looking statements, the
Company's Bankruptcy proceeding, demand for the Company's products, competition,
the Company's production needs, wool market conditions, expenses associated with
the Company s plan of reorganization, the ability of the Company to obtain
adequate exit financing on favorable terms, the adequacy of the Company's
current financing and any unexpected financing requirements, as well as other
factors contained herein and in the Company's other securities filings.
Recent Events
- -------------
As more thoroughly described in Note 1 to the Financial Statements contained in
Item 1. of this Form 10-Q, on September 22, 1995, the Company filed a petition
for protection under Chapter 11 of the United States Bankruptcy Code (the
Bankruptcy Code ) with the U.S. Bankruptcy Court for the Southern District of
New York (the Bankruptcy Filing ). During the fourth quarter of fiscal year
1996, management began efforts to negotiate and document a plan of
reorganization pursuant to which the Company will emerge from bankruptcy. The
Company currently anticipates that a plan of reorganization can be confirmed and
consummated in the first half of calendar 1997. However, there can be no
assurance that the Company will confirm and consummate a plan of reorganization
in such time frame or at all.
Financial Condition and Liquidity
- ---------------------------------
The Company's business is seasonal, with the vast majority of orders for woolen
fabrics placed from December through April for apparel manufacturers to produce
apparel for retail sale during the fall and winter months. This results in a
seasonal sales order and billing pattern which historically generates higher
sales during the Company's second and third fiscal quarters compared to the
Company's first and fourth fiscal quarters. This sales pattern places seasonal
constraints on the Company's manufacturing operations which, during the first
fiscal quarter, the Company has traditionally lessened by manufacturing certain
components of inventory in advance of actual sales orders. Further, the
industry practice of providing coating fabric customers with favorable billing
terms (referred to as "dating") which permit payment 60 (sixty) days from July 1
for invoices billed in January through June encourages such coating fabric
customers to place orders in advance of their actual need. This enables the
Company to manufacture and bill certain coating fabric customers during the
Company's first fiscal quarter.
During the thirteen-week period ended February 2, 1997 (the 1997 Period ),
operations used $0.4 million, whereas $6.5 million was provided by operations
during the thirteen-week period ended January 28, 1996 (the 1996 Period ).
This $6.9 million decrease in cash provided by operations in the 1997 Period was
primarily due to a $6.2 million increase in cash used by inventory during the
1997 Period as compared to the 1996 Period. Traditionally, because of the
seasonal nature of the Company's business, the Company replenishes its year-end
inventory levels during its first fiscal quarter in order to meet the higher
sales demand of the Company's second and third fiscal quarters. During the 1996
Period, as a result of the Bankruptcy Filing, the Company's liquidity was
severely strained and sales orders were initially depressed. Accordingly, the
Company curtailed its manufacturing operations and began liquidating certain
obsolete and slow-moving inventory. This resulted in the Company's inventory
increasing only $2.9 million in the 1996 Period as compared to a $9.1 million
increase in the 1997 Period. Accounts receivable provided $10.0 million during
the 1997 Period, whereas $12.2 million was provided by accounts receivable
during the 1996 Period. This is due to $4.3 million less being collected during
the 1997 Period than was collected during the 1996 Period, which was somewhat
offset by $2.1 million in lower sales during the 1997 Period as compared to the
1996 Period. As a result of the Bankruptcy Filing, collections initially slowed
during the fourth quarter of fiscal year 1995. This resulted in an increase in
slow paying customers which were subsequently collected during the first quarter
of fiscal year 1996. See Results of Operations in this Form 10-Q for an
explanation of the sales decline during the 1997 Period. Accounts receivable at
February 2, 1997 included $4.2 million of accounts receivable with dating, an
increase of $1.6 million compared to January 28, 1996. Such increase in dated
accounts receivable during the 1997 Period is primarily due to a $2.3 million
increase in coating fabric sales during the 1997 Period as compared to the 1996
Period, the majority of which were sold with dating terms. Combined, the
increase in inventory which was offset by the decline in accounts receivable
during the 1997 Period resulted in $1.0 million being provided in the 1997
Period as compared to $9.3 million being provided in the 1996 Period. This $8.3
million decrease in cash flow from accounts receivable and inventory was
somewhat offset by improved operating results net of other changes in current
assets and current liabilities. As more fully described in this Form 10-Q in
Results of Operations, the Company's net loss declined from $9.1 million in
the 1996 Period to $7.3 million in the 1997 Period. As a result of the
foregoing and a $1.5 million increase in current long-term debt maturities,
working capital at February 2, 1997 was $16.7 million as compared to $18.1
million at January 28, 1996.
Investing activities used $0.3 million in the 1997 Period as compared to $0.4
million in the 1996 Period. Since the Bankruptcy Filing, the Company has
curtailed its capital expenditures. Under the terms of the Company's DIP
Facility, capital expenditures can not exceed $5.0 million in fiscal year 1997
and the Company is prohibited from entering into any additional capital lease
obligations. Further, the DIP Facility prohibits the Company from entering into
any operating lease obligations other than for replacement of existing operating
lease obligations where the minimum annual rental payments under the new
operating lease does not exceed the old operating lease by $50,000 or more.
Capital additions, for plant and equipment and investment in other assets,
principally computer information systems, were $1.9 million for fiscal year
1996. The Company expects spending for capital expenditures, principally plant
and equipment, in fiscal year 1997 to be greater than fiscal year 1996 due to
renewals or betterments of plant and equipment and compliance with environmental
regulations. The Company is currently reassessing its investment in computer
information systems and has slowed the development and implementation of
additional computerized applications. Accordingly, the Company expects spending
for computer information systems to be somewhat lower in fiscal year 1997 as
compared to fiscal year 1996.
The Company obtained debtor-in-possession (DIP) financing from GE Capital under
a facility (the DIP Facility ) which provides up to $85.0 million (including a
$10.0 million letter of credit facility) under a borrowing base formula, less
outstanding advances and letters of credit. The DIP Facility is subject to
certain borrowing base limitations and expires on October 31, 1997. The
Company s operations and investing activities are funded through a combination
of borrowings under the DIP Facility and internally generated funds. During the
1997 Period, the Company s net borrowing under the DIP Facility was $1.2
million, whereas, during the 1996 Period the Company reduced its net borrowing
under the DIP Facility (including the repayment of the GE Capital Facility) by
$5.4 million. The Company repaid $0.3 million in borrowings outstanding under
the CIT Equipment Facility and other financing arrangements during the 1997
Period, whereas, during the 1996 Period, $0.7 million was repaid under such
financing arrangements. Further, during the 1997 period $0.2 million in
deferred financing costs was incurred. This is primarily due to the Company's
on-going efforts to obtain new financing which will be used to fund the
Company's plan of reorganization. As a result of the foregoing, during the 1997
Period, $0.7 million was provided by financing activities whereas during the
1996 Period, $6.1 million was used by financing activities.
The Company believes that cash generated from operations and borrowings under
the DIP Facility will be sufficient to fund its fiscal year 1997 working capital
and capital expenditures requirements. However, expected cash flows from
operations is dependent upon achieving sales expectations during fiscal year
1997 which are influenced by market conditions, including apparel sales at
retail, that are beyond the control of the Company. Due to the seasonal nature
of the Company's core woolen and worsted business, the Company's borrowings
under its DIP facility will tend to increase during the first three quarters of
the Company's fiscal year until the fourth quarter, when, at year-end,
borrowings tend to be the lowest. However, borrowings at the end of fiscal year
1997 may be higher than at the beginning of fiscal year 1997 or higher during
various times within fiscal year 1997 than comparable periods within fiscal year
1996.
The sales order backlog at March 2, 1997 was $70.9 million whereas at the
comparable time a year earlier the sales order backlog was $68.1 million. The
composition of the sales order backlog at March 2, 1997 reflects a stronger
woolen fabrics order position which is somewhat offset by a weaker worsted
fabrics order position. The improvement in the woolen fabric backlog position
at March 2, 1997 is attributable to the Company regaining certain men's wear
woolen orders which were lost to imports in the prior year, improved coating
fabric market conditions for domestic suppliers and the favorable market
conditions for women's wear woolen fabrics which the Company used to its benefit
by forming strategic alliances with certain customers during the Company's
fiscal fourth quarter of 1996. This improvement was somewhat offset by a
decline in the worsted fabrics order position, particularly in women's wear
worsted fabrics. The decline in the women's wear worsted sales order position
reflects the Company's more focused product offerings in response to a more
competitive, price sensitive market. The Company expects the women's wear
worsted market to become even more competitive during the remainder of fiscal
year 1997 due, in part, to an over capacity in global worsted wool manufacturing
which is attributable to the continuing reduction in demand for men's worsted
products.
The Company purchases a significant amount of its raw wool inventory from
Australia. Since all of the Company's forward purchase commitments for raw wool
are denominated in U.S. dollars, there is no actual currency exposure on
outstanding contracts. However, future changes in the relative exchange rates
between the United States and Australian dollars can materially affect the
Company's results of operations for financial reporting purposes. Based on wool
costs incurred during the 1997 Period and the Company's forward purchase
commitments, the company expects wool costs to decrease approximately 3 % in
fiscal year 1997 as compared to fiscal year 1996.
Results of Operations
- ---------------------
The 1997 Period Compared to the 1996 Period
The Company's business is seasonal, accordingly, results for these interim
periods are not indicative of results for a full fiscal year. Net sales for the
1997 Period were $31.2 million, a decrease of 6.3% from the 1996 Period. Total
yards of fabric sold decreased 6.7% during the 1997 Period. However, the
average per yard selling price increased to $7.12 per yard from $7.09 per yard
due to shifts in product mix. The decrease in sales was primarily due to a
sales decrease in the women's apparel product lines which were offset by
stronger sales in the men's wear and women's outerwear product lines. The
increase in men's woolen and women's outerwear sales reflects favorable market
conditions. The men's woolen sales growth is attributable to the Company
renewing relationships with certain of its customers to recapture orders which
were lost to imports as a result of the Bankruptcy Filing. Women's outerwear
sales increased during the 1997 Period, as market conditions for domestic
suppliers began to rebound from import pressures felt during the 1996 Period.
The decrease in women's woolen sales relates to the Company offering
certain strategic customers favorable competitive pricing and terms on purchases
of certain woolen fabrics during the fourth quarter of its fiscal year 1996.
This resulted in some sales which historically occur in the Company's first
quarter being recognized in the previous quarter. These strategic sales allowed
the Company to plan its production scheduling with more certainty which
generally results in improved operating efficiencies. As a result of these
orders and their use of manufacturing capacity, the Company was unable to accept
certain orders in the first quarter that would have resulted in higher per yard
selling prices than the orders received in the Company's fourth quarter of
fiscal year 1996. The decrease in women's worsted sales and men's worsted sales
reflects a more competitive, price sensitive market due, in part, to an over
capacity in global worsted wool manufacturing. Further, the decrease in sales
in the 1997 Period compared to the 1996 Period is also attributable to the
Company's on-going product rationalization implemented in late 1995.
The product rationalization process involves a style by style review of
product offerings which assesses a particular product's potential sales volume,
complexity to manufacture, margin contribution and other product specific
factors. Through the product rationalization process, the Company has
identified numerous products which fall outside of acceptable guidelines for
inclusion in the Company's product lines. The Company is beginning to realize
the effect of the product rationalization as evidenced by the Company's lower
sales volume and improved gross profit which has also been significantly
impacted by cost reductions implemented since the Bankruptcy Filing. As a
result of the product rationalization process, the Company has eliminated or is
phasing out three product lines as well as numerous styles within product lines
which the Company is still servicing. During the first quarter, sales were
lower by approximately $0.5 million due to the discontinued product lines:
career uniforms, converting and international. Such product rationalization is
expected to reduce sales throughout the remainder of fiscal year 1997 when
compared to fiscal year 1996. Excluding government sales ($1.4 million in the
1997 Period and $0.6 million in the 1996 Period), net sales for the 1997 Period
decreased 8.7% from the 1996 Period.
Cost of goods sold decreased $3.9 million to $28.4 million during the 1997
Period primarily as a result of manufacturing cost reductions and the decline in
sales. Gross profit increased $1.9 million or 189.2% to $2.8 million in the
1997 Period, and gross profit margin for the 1997 Period was 9.1% compared to
3.0% for the 1996 Period. In the 1996 Period, the Company sold $0.9 million of
off price goods at a loss of $1.2 million in order to reduce inventory levels as
a result of product rationalization relating to the discontinued product lines
undertaken during 1995 and 1996. In the 1997 Period, $1.1 million of off price
goods were sold at a loss of $0.5 million. The Company also slowed its
manufacturing operations during the 1997 Period in response to lower sales and
the uncertainty in the retail apparel market. Such reduced manufacturing levels
resulted in gross inventories net of LIFO reserves being approximately $20.9
million lower at February 2, 1997 as compared to January 28, 1996.
Additionally, the Company reduced its manufacturing overhead costs in the 1997
Period compared to the 1996 Period in response to lower sales volume.
Selling, general and administrative expenses, excluding the provision for
uncollectible accounts, decreased 7.3% to $4.3 million in the 1997 Period
compared to $4.6 million in the 1996 Period. The majority of the decrease in
the 1997 Period is due to lower human resource related expenses as a result of
the Company s continuing efforts to reduce its overhead in response to reduced
sales, a decrease in professional services related expenses and a decrease in
royalties expense. The Company has reduced human resource expenses by
approximately 18% in the 1997 Period as compared to the 1996 Period. Such
reduction is attributable to the Company re-assigning certain functions within
the organization to allow the employees who are closer to the manufacturing and
selling processes more control over their areas of responsibility. Royalty
expense decreased 100% as the Company is no longer accruing any royalty expense
in connection with the rejected Carpini contract whereas in the 1996 Period the
Company was still accruing such expense. Such decrease was somewhat offset by
higher incentive compensation expense in the 1997 Period relating to the
Company's Incentive Compensation and Retention Program which is more fully
described in Note 10 to the Company's Financial Statements in the 1996 Form 10-
K.
The provision for uncollectible accounts decreased from $0.3 million in
the 1996 Period to $0.2 million in the 1997 Period. Such decrease is primarily
attributable to the Company decreasing its allowance for uncollectible accounts
during the 1997 Period in response to lower sales.
Interest expense for the 1997 Period was $1.6 million or $0.8 million
lower than the 1996 Period. This decrease is attributable to lower interest
rates in effect under the DIP Facility and Senior Secured Notes during the 1997
Period compared to the 1996 Period, as well as lower average borrowings under
the DIP Facility.
During fiscal year 1995, the Company fully utilized its net operating loss
carrybacks as permitted by the Internal Revenue Code. Accordingly, for the 1997
Period and for fiscal year 1996, no income tax benefit can be recognized from
the realization of net operating losses.
Preferred stock in-kind dividends and accretion to redemption value was
zero in both the 1997 Period and the 1996 Period. As a result of the Bankruptcy
Filing, the Company is no longer accruing the dividend due under the redeemable
preferred stock and accreting the recorded balance to redemption value. The
redeemable preferred stock is subject to compromise in the Bankruptcy Filing.
The loss applicable to common shareholders was $7.3 million in the 1997 Period
compared to $9.1 million in the 1996 Period.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Note 7 to the Financial Statements contained in Item
1 of Part 1 to this Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
11.1 Statement re computation of per share earnings - not required since
such computation can be clearly determined from the material
contained herein.
15.1 Independent Accountants' Review Report, dated February 27, 1997
from Deloitte & Touche LLP to Forstmann & Company, Inc.
23.1 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule.
(b) Current Reports on Form 8-K
None
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.
FORSTMANN & COMPANY, INC.
(Registrant)
/s/ Rodney Peckham
------------------------------
Rodney Peckham
Chief Financial Officer
March 17,1997
- -------------
Date
EXHIBIT INDEX
Exhibit Sequential
No. Description Page No.
- ------------------------------------------------------------------------------
11.1 Statement re computation of per share earnings -
not required since such computation can be
clearly determined from the material contained
herein.
15.1 Independent Accountants' Review Report, dated
February 27, 1997, from Deloitte & Touche
LLP to Forstmann & Company, Inc.
23.1 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule
Exhibit 15.1
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
BOARD of Directors and Shareholders
FORSTMANN & Company, Inc. (Debtor-in-Possession):
We have reviewed the accompanying condensed balance sheet of Forstmann &
Company, Inc. (Debtor-in-Possession) as of February 2, 1997 and the related
condensed statements of operations and cash flows for the thirteen weeks ended
February 2, 1997 and January 28, 1996, and the condensed statement of changes in
shareholders' deficit for the thirteen weeks ended February 2, 1997. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data, and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed financial statements for them to be in conformity with
generally accepted accounting principles.
As discussed in Notes 1 and 5 to the condensed financial statements, the Company
filed for reorganization under Chapter 11 of the Federal Bankruptcy Code on
September 22, 1995. The accompanying condensed financial statements do not
purport to reflect or provide for the consequences of the bankruptcy
proceedings. In particular, such condensed financial statements do not purport
to show (a) as to assets, their realizable value on a liquidation basis or their
availability to satisfy liabilities; (b) as to prepetition liabilities, the
amounts that may be allowed for claims or contingencies, or the status and
priority thereof; (c) as to stockholder accounts, the effect of any changes that
may be made in the capitalization of the Company; or (d) as to operations, the
effect of any changes that may be made in its business.
The accompanying condensed financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
condensed financial statements, the Company's losses from operations,
shareholders' deficiency, and its ability to obtain confirmation of a plan of
reorganization with its creditors raise substantial doubt about its ability to
continue as a going concern. Management's plans concerning these matters are
also discussed in Note 1. The condensed financial statements do not include
adjustments that might result from the outcome of this uncertainty.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Forstmann & Company, Inc. as of November 3, 1996
and the related statements of operations, shareholders' deficit, and cash flows
for the fifty-three weeks then ended (not presented herein); and in our report
dated December 20, 1996, we expressed an unqualified opinion on those financial
statements and included explanatory paragraphs concerning bankruptcy matters and
other matters that raise substantial doubt about the Company's ability to
continue as a going concern. In our opinion, the information set forth in
accompanying condensed balance sheet as of November 3, 1996 is fairly stated, in
all material respects, in relation to the balance sheet from which it has been
derived.
/s/ Deloitte & Touche LLP
February 27, 1997
Atlanta, Georgia
Exhibit 23.1
February 27, 1997
Forstmann & Company, Inc.
1185 Avenue of the Americas
New York, NY 10036
Dear Sirs:
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of Forstmann & Company, Inc. (Debtor-in-Possession) for the periods
ended February 2, 1997 and January 28, 1996, as indicated in our report dated
February 27, 1997 (which included explanatory paragraphs concerning bankruptcy
matters and matters that raise substantial doubt about the Company's ability to
continue as a going concern); because we did not perform an audit, we expressed
no opinion on that information.
We are aware that our report referred to above, which was included in your
Quarterly Report on Form 10-Q for the quarter ended February 2, 1997, is
incorporated by reference in Registration Statement No. 33-57643 on Form S-8 and
Registration Statement No. 33-56367 on Form S-3.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act, is not considered a part of the Registration Statement
prepared or certified by an accountant or a report prepared or certified by an
accountant within the meaning of Sections 7 and 11 of that Act.
Yours truly,
/s/Deloitte & Touche LLP
Atlanta, Georgia
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