UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 29, 2003
--------------
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: 0-24179
-------
KASPER A.S.L., LTD.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 22-3497645
------------------------ --------------------------------
(State of Incorporation) (IRS Employer Identification No)
77 METRO WAY, SECAUCUS, NEW JERSEY 07094
-----------------------------------------------------------------------
(Address and zip code of principal executive office)
(201) 864-0328
-----------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of May 9, 2003 was 6,800,000.
KASPER A.S.L., LTD. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
INDEX
PART I - FINANCIAL INFORMATION
Page No.
--------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at March 29, 2003, December 28, 2002
and March 30, 2002................................................................................. 1
Condensed Consolidated Statements of Operations for the Thirteen weeks ended
March 29, 2003 and March 30, 2002.................................................................. 2
Condensed Consolidated Statements of Cash Flows for the Thirteen weeks ended
March 29, 2003 and March 30, 2002 ................................................................. 3
Notes to Condensed Consolidated Financial Statements .............................................. 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 13
Item 4. Controls and Procedures..................................................................................... 19
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................................................ 20
SIGNATURES.............................................................................................................. 21
CERTIFICATIONS.......................................................................................................... 22
EXHIBIT INDEX........................................................................................................... 24
ITEM 1. FINANCIAL STATEMENTS
KASPER A.S.L., LTD. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
---------------- ----------------- ----------------
ASSETS MARCH 29, 2003 DECEMBER 28, 2002 MARCH 30, 2002
---------------- ----------------- ----------------
(UNAUDITED) (AUDITED) (UNAUDITED)
(RESTATED)
Current Assets:
Cash and cash equivalents............................................ $ 6,279 $ 24,941 $ 46,265
Restricted cash...................................................... 4,000 -- --
Accounts receivable, net of reserves of $36,045, $34,679 and
$42,617, respectively............................................. 44,358 14,479 43,137
Inventories, net..................................................... 40,898 48,302 37,822
Prepaid expenses and other current assets............................ 5,615 5,441 6,951
---------------- --------------- ----------------
Total Current Assets....................................................... 101,150 93,163 134,175
---------------- --------------- ----------------
Property, plant and equipment, at cost less accumulated
depreciation and amortization of $22,827, $21,538 and
$17,457, respectively................................................ 19,265 19,673 15,805
Reorganization value in excess of identifiable assets, net of
accumulated amortization............................................. 19,844 19,844 19,844
Trademarks, net of accumulated amortization................................ 103,162 103,162 103,162
Other assets, at cost less accumulated amortization........................ 2,415 997 990
---------------- --------------- ----------------
Total Assets.............................................................. $245,836 $236,839 $273,976
================ =============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities Not Subject to Compromise:
Accounts payable..................................................... $24,922 $28,592 $15,418
Accrued expenses and other current liabilities....................... 14,579 13,095 17,854
Interest payable..................................................... 111 182 768
Deferred income taxes................................................ 13,814 9,118 4,482
Deferred royalty income.............................................. 5,000 5,098 4,139
---------------- --------------- ----------------
Total Current Liabilities.................................................. 58,426 56,085 42,661
Long-Term Liabilities Not Subject to Compromise:
DIP facility......................................................... -- -- 77,039
Deferred royalty income.............................................. 9,086 10,000 15,000
Other long-term liabilities.......................................... 692 738 --
---------------- --------------- ----------------
Total Liabilities Not Subject to Compromise................................ 68,204 66,823 134,700
Liabilities Subject to Compromise.......................................... 144,476 145,074 145,931
---------------- --------------- ----------------
Total Liabilities.......................................................... 212,680 211,897 280,631
Commitments and Contingencies
Shareholders' Equity (Deficit):
Common Stock, 6,800,000 shares issued and outstanding................ 68 68 68
Preferred Stock, none issued and outstanding......................... -- -- --
Capital in excess of par value....................................... 120,668 120,561 120,244
Accumulated deficit.................................................. (87,036) (95,046) (126,232)
Cumulative other comprehensive loss.................................. (544) (641) (735)
---------------- --------------- ----------------
Total Shareholders' Equity (Deficit)....................................... 33,156 24,942 (6,655)
---------------- --------------- ----------------
Total Liabilities and Shareholders' Equity................................. $245,836 $236,839 $273,976
================ =============== ================
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these balance sheets.
1
KASPER A.S.L., LTD. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
THIRTEEN WEEKS ENDED
----------------------------------------------
MARCH 29, 2003 MARCH 30, 2002
--------------------- ---------------------
(RESTATED)
Net sales.............................................. $ 100,497 $ 113,616
Royalty income......................................... 4,364 3,686
--------------------- ---------------------
Total revenue.......................................... 104,861 117,302
Cost of sales.......................................... 62,525 76,839
--------------------- ---------------------
Gross profit........................................... 42,336 40,463
Operating expenses:
Selling, general and administrative expenses........... 24,928 23,955
Depreciation and amortization.......................... 1,468 1,029
Restructuring and other charges........................ -- 542
--------------------- ---------------------
Total operating expenses............................... 26,396 25,526
--------------------- ---------------------
Operating income....................................... 15,940 14,937
Interest and financing costs (excludes $4,893 and
$2,668 of stayed interest in 2003 and 2002,
respectively)....................................... 982 3,554
--------------------- ---------------------
Income before reorganization costs, income taxes and
cumulative effect of change in accounting principle. 14,958 11,383
Reorganization costs................................... 1,147 1,627
--------------------- ---------------------
Income before income taxes and cumulative effect of
change in accounting principle...................... 13,811 9,756
Income taxes........................................... 5,801 4,098
--------------------- ---------------------
Income before cumulative effect of change in accounting
principle........................................... 8,010 5,658
Cumulative effect of change in accounting principle.... -- 30,400
--------------------- ---------------------
Net income (loss)...................................... $ 8,010 $ (24,742)
===================== =====================
Basic and diluted earnings (loss) per common share..... $ 1.18 $ (3.64)
===================== =====================
Basic and diluted earnings per common share before
cumulative change in accounting principle........... $ 1.18 $ 0.83
===================== =====================
Weighted average number of shares used in computing
basic and diluted earnings (loss) per common share. 6,800,000 6,800,000
===================== =====================
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these financial statements.
2
KASPER A.S.L., LTD. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
THIRTEEN WEEKS
ENDED
------------------------------------------------
MARCH 29, 2003 MARCH 30, 2002
---------------------- ----------------------
(RESTATED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................................ $ 8,010 $ (24,742)
Adjustments to reconcile net income (loss) to net cash (used in) provided by
operating activities:
Cumulative effect of change in accounting principle....................... -- 30,400
Depreciation and amortization............................................. 1,468 1,029
Interest rate swap........................................................ -- 259
Deferred income taxes..................................................... 4,696 3,945
Deferred royalty income................................................... (1,012) (861)
Deferred other............................................................ (46) --
Non-cash restructuring and other costs.................................... 131 309
(Increase) decrease in:
Accounts receivable, net.................................................. (29,879) (38,804)
Inventories, net.......................................................... 7,404 35,877
Prepaid expenses and other assets......................................... (1,592) (2,731)
(Decrease) increase in:
Accounts payable, accrued expenses and other current liabilities.......... (785) (1,144)
Interest payable.......................................................... (71) (27,974)
Deferred royalty income................................................... -- 20,000
---------------------- ----------------------
Total adjustments............................................................ (19,686) 20,305
---------------------- ----------------------
Net cash used in operating activities before reorganization items............ (11,676) (4,437)
---------------------- ----------------------
OPERATING CASH FLOWS FROM REORGANIZATION ITEMS:
Payment of liabilities subject to compromise.............................. (598) --
Payment of reorganization items........................................... (1,401) (1,286)
Interest expense not paid................................................. -- 29,052
---------------------- ----------------------
Net cash (used in) provided by operating activities.......................... (13,675) 23,329
---------------------- ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures net of proceeds from sales of fixed assets........... (1,025) (1,401)
---------------------- ----------------------
Net cash used in investing activities........................................ (1,025) (1,401)
---------------------- ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under bank revolver........................................ -- 17,991
---------------------- ----------------------
Net cash provided by financing activities.................................... -- 17,991
---------------------- ----------------------
Effect of exchange rate changes on restricted and unrestricted cash and cash
equivalents............................................................... 38 (59)
---------------------- ----------------------
Net (decrease) increase in restricted and unrestricted cash and cash
equivalents............................................................... (14,662) 39,860
Cash and cash equivalents, at beginning of period............................ 24,941 6,405
---------------------- ----------------------
Restricted and unrestricted cash and cash equivalents, at end of period...... $ 10,279 $ 46,265
====================== ======================
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these financial statements.
3
KASPER A.S.L., LTD. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. GENERAL
The accompanying unaudited condensed consolidated financial statements of Kasper
A.S.L., Ltd. and its wholly-owned subsidiaries (the "Company") have been
prepared in accordance with instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes necessary for a fair presentation of financial position, results of
operations and cash flows in conformity with generally accepted accounting
principles. In the opinion of management, all normal and recurring adjustments
and accruals considered necessary for a fair presentation of the Company's
financial position at March 29, 2003 and the results of operations for the
thirteen weeks ended March 29, 2003 (the "first quarter 2003") and March 30,
2002 (the "first quarter 2002") and cash flows for the first quarter 2003 and
first quarter 2002 have been included. These statements should be read in
conjunction with the audited consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission. Operating results for the first quarter 2003
are not necessarily indicative of the results that may be expected for the
fiscal year ending December 27, 2003. Certain amounts reflected in 2002 have
been reclassified to conform to the presentation of similar items in 2003.
The consolidated financial statements include the accounts of Kasper A.S.L.,
Ltd. and its wholly-owned subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation.
NOTE 2. REORGANIZATION CASE
On February 5, 2002 (the "Filing Date"), the Company and substantially all of
its domestic subsidiaries (collectively, the "Debtors"), filed voluntary
petitions for reorganization under Chapter 11 of the United States Bankruptcy
Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the
Southern District of New York (the "Bankruptcy Court") (Case Nos. 02-B10497,
02-B10500, and 02-B10502 through 10505 (ALG)) (the "Chapter 11 Cases"). Pursuant
to an order of the Bankruptcy Court, the Chapter 11 Cases were consolidated for
procedural purposes only and are being jointly administered by the Bankruptcy
Court. The Company's international subsidiaries were not included in the
filings. The Company expects to continue to operate in the ordinary course of
business as debtor-in-possession under the jurisdiction of the Bankruptcy Court.
The accompanying condensed consolidated financial statements are presented in
accordance with American Institute of Certified Public Accountants Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code" (SOP 90-7), and have been prepared in accordance with
accounting principles generally accepted in the United States applicable to a
going concern, which principles, except as otherwise disclosed, assume that
assets will be realized and liabilities will be discharged in the ordinary
course of business. The Company is currently operating under the jurisdiction of
Chapter 11 of the Bankruptcy Code and the Bankruptcy Court, and continuation of
the Company as a going concern is contingent upon, among other things, its
ability to formulate a plan of reorganization which will gain approval of the
requisite parties under the Bankruptcy Code and confirmation by the Bankruptcy
Court, its ability to comply with the Citicorp DIP Credit Agreement (as defined
below), its ability to generate sufficient cash flows from operations, securing
post-emergence financing and the success of future operations. These conditions
create substantial doubt regarding the ability of the Company to continue as a
going concern. The accompanying condensed consolidated financial statements do
not include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that
might result from the outcome of these uncertainties.
4
While under the protection of Chapter 11, the Company may sell or otherwise
dispose of assets, and liquidate or settle liabilities, for amounts other than
those reflected in the financial statements. Additionally, the amounts reported
on the condensed consolidated balance sheet could materially change because of
changes in business strategies and the effects of a plan of reorganization. In
the Chapter 11 Cases, substantially all unsecured liabilities as of the Filing
Date are subject to compromise or other treatment under a plan of reorganization
which must be confirmed by the Bankruptcy Court after submission to any required
vote by affected parties. For financial reporting purposes, those liabilities
and obligations whose treatment and satisfaction is dependent on the outcome of
the Chapter 11 Cases, have been segregated and classified as liabilities subject
to compromise in the accompanying condensed consolidated balance sheets.
Generally, all actions to enforce or otherwise effect repayment of pre-Chapter
11 liabilities as well as all pending litigation against the Debtors are stayed
while the Debtors continue their business operations as debtors-in-possession.
The ultimate amount of and settlement terms for such liabilities are subject to
approval of a plan of reorganization and accordingly are not presently
determinable. The principal categories of obligations classified as liabilities
subject to compromise under the Chapter 11 Cases as of March 29, 2003 are
identified below:
MARCH 29, 2003
----------------
(in thousands)
13.0% Senior Notes due 2004 $ 110,000
Interest accrued on above Senior Notes 29,096
Accounts payable 3,651
Other accrued expenses 1,729
---------
Total liabilities subject to compromise $ 144,476
=========
For the first quarter 2003 and first quarter 2002, the Company recognized $1.1
million and $1.6 million in reorganization costs, respectively. These amounts
relate primarily to professional fees and, in 2002, bank fees. Interest expense,
including default interest, under the Senior Notes would have amounted to $4.9
million and $4.4 million for the first quarter 2003 and first quarter 2002,
respectively, had it not have been for the Chapter 11 Cases.
At the commencement of the Chapter 11 Cases, the Company filed a preliminary
plan of reorganization. The United States Trustee thereafter appointed the
Official Committee of Unsecured Creditors (the "Creditors' Committee"), and
based on negotiations with the Creditors' Committee, the Company filed a First
Amended and Restated Joint Plan of Reorganization (the "Plan") and First Amended
and Restated Disclosure Statement (the "Disclosure Statement") on November 6,
2002. In essence, the Plan provides for (i) payment in full of federal, state,
and local tax claims and other administrative and priority claims; (ii) payment
in full or refinancing of the DIP Credit Agreement; (iii) reinstatement or
payment in full of, or surrender of collateral securing, allowed miscellaneous
secured claims and capitalized lease obligations; (iv) distributions of shares
of stock in the reorganized Company to the holders of allowed general unsecured
claims and the holders of the Company's Senior Notes due 2004; (v) a
distribution of cash in the amount of 70% of allowed convenience claims; and
(vi) distributions of warrants to purchase shares of stock in the reorganized
Company to the holders of shares of stock in the Company on the record date
established in the Chapter 11 Cases.
A hearing to consider the Plan was scheduled for December 5, 2002 (the
"Scheduled Hearing"). On December 4, 2002, the Company received a proposal to
acquire the Company for $88 million in cash (the "Management Proposal") from a
management group led by John D. Idol, the Company's Chief Executive Officer (the
5
"Management Group"), and Parthenon Capital, LLC ("Parthenon"). The Scheduled
Hearing was postponed to allow the Company to consider the Management Proposal.
Under the Management Proposal, no payment would be made to the Company's
existing stockholders. The Management Proposal was modified on December 10, 2002
to increase the amount of the cash payment to $100 million.
On September 20, 2002, the Board of Directors of the Company formed a special
committee of independent directors (the "Special Committee") in connection with
the Company's exploration of strategic alternatives, including a possible sale
of the Company. The Special Committee was formed in anticipation of potential
offers to purchase the Company, and to avoid potential conflicts of interest in
the event such an offer was made by the Company's management. On December 23,
2002, the Special Committee, consisting of Salvatore Salibello and Denis Taura,
with the support of the Creditor's Committee, engaged Peter J. Solomon Company
("Solomon") to advise the Special Committee in connection with exploring
strategic alternatives. Solomon, on behalf of the Special Committee, is
soliciting proposals from potential purchasers of the Company, including the
Management Group and Parthenon. Such proposals will be considered by the Special
Committee and representatives of the Creditors' Committee. However, there is no
assurance that a transaction will be consummated or that, if consummated, any
revised plan of reorganization submitted to the bankruptcy court in connection
therewith would result in a distribution to equity holders.
A restructuring of the Company's debt, under the Plan, may result in the
cancellation of indebtedness ("COD"), which if it occurs in the course of a
proceeding pursuant to Chapter 11 of the United States Bankruptcy Code, would be
excluded from the Company's gross income in the year of the forgiveness.
However, the Company will be required to reduce its basis in its tax attributes,
which include net operating loss carry-forwards and general business and other
credits and tax basis in its assets by an amount equal to the COD. The reduction
of these tax attributes results in the Company not being able to shelter future
taxable income in the amount equal to the COD.
NOTE 3. INVENTORIES, NET
Inventories, net of reserves, are valued at lower of cost (first-in, first-out)
or market and consist of the following:
MARCH 29, 2003 DECEMBER 28, 2002 MARCH 30, 2002
-------------- ----------------- --------------
(in thousands)
Raw materials $ 6,034 $ 6,482 $ 10,090
Finished goods 34,864 41,820 27,732
--------- --------- ---------
Total inventories $ 40,898 $ 48,302 $ 37,822
========= ========= =========
NOTE 4. REORGANIZATION VALUE IN EXCESS OF IDENTIFIABLE ASSETS AND OTHER
INTANGIBLE ASSETS
In June 2001, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS No. 142"). SFAS No. 142 prohibits the amortization of
goodwill and intangible assets with indefinite useful lives and requires that
these assets be reviewed for impairment upon adoption with completion of testing
within one year of adoption and at least annually thereafter. The Company, as
required, adopted SFAS No. 142 beginning December 30, 2001. SFAS No. 142
requires that the Company's Reorganization Value in Excess of Identifiable
Assets (the "Reorganization Asset") and other indefinitely lived intangible
assets (collectively, the "Intangibles") be tested for impairment using the
two-step process. The first step is to determine the fair value of the reporting
6
unit, which may be calculated using a discounted cash flow methodology, and
compare this value to its carrying value. If the fair value exceeds the carrying
value, no further work is required and no impairment loss would be recognized.
The second step is an allocation of the fair value of the reporting unit to all
of the reporting unit's assets and liabilities under a hypothetical purchase
price allocation. As of the date the Company adopted SFAS No. 142, the Company
was experiencing substantial operating losses; highly leveraged; unable to make
its semi-annual interest payments on its Senior Notes; undergoing a corporate
restructuring of which success was uncertain; had diminimus market
capitalization and; on the verge of filing bankruptcy. These circumstances led
to a significant diminution of the Company's fair vale and the failure of step
one of SFAS No. 142. The Company utilized the discounted cash flow methodology
to estimate fair value. The evaluation of reporting units on a fair value basis,
as required from the implementation of SFAS No. 142, indicated that the implied
Reorganization Asset of the Kasper Wholesale segment was $30.4 million less than
its carrying value. Based on the evaluation, along with continuing difficulties
being experienced in the industry, the Company recorded a non-cash charge of
$30.4 million to reduce the carrying value of the Reorganization Asset to the
estimated fair value as of December 28, 2002, in the first quarter 2002. This
non-cash charge is reported as a cumulative effect of an accounting change in
the accompanying statement of operations for the first quarter 2002. The first
quarter 2002 was restated, as required by SFAS No, 142, to reflect the
impairment charge that was determined prior to the issuance of the Company's
financial statements for the fiscal year ended December 28, 2002.
NOTE 5. DEBT
CREDIT FACILITY -
On July 9, 1999, the Company entered into a credit facility with a bank group
led by Chase (the "Chase Facility") in order to, among other things, fund the
Company's working capital requirements and to finance the Company's purchase of
the Anne Klein trademarks (the "Trademark Purchase"). On the Filing Date, the
Company obtained a $35 million DIP Revolving Credit Agreement from its existing
bank group (the "Chase DIP"). The Chase DIP also provided for a term loan for
the purpose of refinancing the pre-petition obligations outstanding under the
Chase Facility. On July 12, 2002, the Chase DIP was amended to convert the term
loan to a revolving credit agreement.
The Chase DIP provided, among other things, for the maintenance of certain
financial ratios and covenants, and set limits on capital expenditures and
dividends to shareholders. The Chase DIP was scheduled to expire on February 5,
2003. Availability under the Chase DIP was limited to a borrowing base
calculated upon eligible accounts receivable, inventory, trademarks and letters
of credit. Interest on outstanding borrowings was determined based on stated
margins above the prime rate at Chase.
In connection with the Chase DIP, the Company paid $875,000 in facility,
advisory and structuring fees, along with an annual administrative agency fee of
$100,000 and an annual collateral monitoring fee of $100,000. These fees were
expensed as incurred and included as part of reorganization costs. In connection
with the July 12, 2002 amendment, the Company paid $100,000 in bank fees, which
were capitalized and amortized over the remaining life of the Chase DIP,
totaling $85,000 in 2002.
On January 30, 2003, the Company obtained a $100 million debtor-in-possession
financing facility (the "Citicorp DIP Credit Agreement") from its new bank group
led by Citicorp USA, Inc. ("Citicorp"). The Citicorp DIP Credit Agreement
replaced the Chase DIP and permits up to $60.0 million available for issuance of
letters of credit, of which $15.0 million will be available for stand-by letters
of credit and up to $10.0 million for discretionary swing loans.
7
The Citicorp DIP Credit Agreement provides, among other things, for the
maintenance of certain financial ratios and covenants, and set limits on capital
expenditures and dividends to shareholders. The Citicorp DIP Credit Agreement,
has a term ending on the earliest to occur of (i) the six month anniversary of
the closing date, (ii) the effective date of the Plan, or (iii) the occurrence
of an Event of Default. Availability under the Citicorp DIP Credit Agreement is
limited to a borrowing base calculated upon eligible accounts receivable,
eligible inventory, eligible documentary letters of credit and trademarks, in
each case, less appropriate reserves. Interest on outstanding borrowings is
determined based on stated margins above the Base Rate Loans and Eurodollar Rate
Loans maintained by Citicorp on the terms and subject to the conditions of the
agreement.
The Company paid approximately $1.6 million in commitment and related fees in
connection with the Citicorp DIP Credit Agreement in January 2003. On March 14,
2003 the Company obtained an amendment to the Citicorp DIP Credit Agreement,
which allowed the DIP portion of the credit agreement to be extended to December
31, 2003, as well as amended certain financial covenants. There were no
incremental bank fees associated with this amendment. As of March 29, 2003,
there were no direct borrowings and $35.9 million outstanding in letters of
credit under the Citicorp DIP Credit Agreement. In addition to $6.3 million of
unrestricted cash and cash equivalents on hand, the Company had approximately
$31.7 million available for future borrowings as of March 29, 2003.
NOTE 6. INCOME (LOSS) PER SHARE
The computation of basic and diluted income (loss) per common share is based
upon the weighted average number of common shares outstanding during the period.
The gains and losses resulting from changes in exchange rates from year to year
have been reported in other comprehensive income.
NOTE 7. SEGMENT INFORMATION
The Company's primary segment is the design, distribution and wholesale sale of
women's career suits, dresses and sportswear principally to major department
stores and specialty shops. In addition, as of March 29, 2003, the Company
operated 62 Kasper retail stores, 10 Anne Klein retail stores and one Anne Klein
New York full price store, as another distribution channel for its products. The
Company's licensing operations are also considered a segment for reporting
purposes. For the purposes of decision-making and assessing performance,
management includes its international operations in its wholesale segment, as
they are deemed immaterial for segment reporting.
The Company measures segment profit as earnings before interest, taxes,
depreciation, amortization and reorganization ("EBITDAR"). All intercompany
revenues and expenses are eliminated in computing revenues and EBITDAR.
Information on segments and a reconciliation to the condensed consolidated
financial statements is as follows:
THIRTEEN WEEKS ENDED MARCH 29, 2003:
WHOLESALE RETAIL LICENSING CONSOLIDATED
------------------ ----------------- ----------------- -----------------
(in thousands)
Revenues $ 87,845 $ 12,652 $ 4,364 $ 104,861
------------------ ------------------ ----------------- -----------------
EBITDAR 12,944 818 3,646 17,408
Depreciation and amortization 1,468
-----------------
Operating income $15,940
=================
8
THIRTEEN WEEKS ENDED MARCH 30, 2002:
WHOLESALE RETAIL LICENSING CONSOLIDATED
------------------ ----------------- ----------------- -----------------
(in thousands)
Revenues $ 98,804 $ 14,812 $ 3,686 $ 117,302
------------------ ------------------ ----------------- -----------------
EBITDAR 12,986 593 2,929 16,508
Depreciation and amortization 1,029
Restructuring and other charges 542
-----------------
Operating income $ 14,937
=================
9
NOTE 8. RESTRUCTURING AND OTHER CHARGES
In the fourth quarter of 2000, the Company began preparations for its bankruptcy
filing, and in doing so, incurred various consulting, legal and other fees
related to such filing. These fees, along with other charges taken to exit
certain retail store leases and certain office space prior to the Filing Date,
have been classified as restructuring and other charges on the accompanying
Consolidated Statements of Operations. During the first quarter 2002, the
Company recorded a charge of $542,000 primarily relating to professional fees.
Estimated occupancy
costs, severance and
Professional Fees asset write-downs Total
------------------- -------------------------- ----------------------
(in thousands)
Balance at December 30, 2000 $ --- $ --- $ ---
2001 restructuring and other charges 4,297 4,904 9,201
2001 payments/write-downs (4,196) (1,802) (5,998)
------------ ------------ ------------
Balance at December 29, 2001 $ 101 $ 3,102 $ 3,203
------------ ------------ ------------
2002 restructuring and other charges (credits) 603 (3,098) (2,495)
2002 (payments) reversals (704) 956 252
------------ ------------ ------------
Balance at December 28, 2002 $ --- $ 960 $ 960
============ ============ ============
2003 restructuring charges --- --- ---
2003 payments --- (360) (360)
------------ ------------ ------------
Balance at March 29, 2003 $ --- $ 600 $ 600
============ ============ ============
NOTE 9. NEW ACCOUNTING PRONOUCEMENTS
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which changes the accounting for costs such
as lease termination costs and certain employee severance costs that are
associated with a restructuring, discontinued operation, plant closing, or other
exit or disposal activity initiated after December 31, 2002. The standard
requires companies to recognize the fair value of costs associated with exit or
disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. The Company does not expect the adoption
of this standard to have a material effect on the results of operations. In
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - An Amendment of FASB Statement No.
123." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The Company
adopted the disclosure provisions of SFAS No. 148 effective December 28, 2002.
10
NOTE 10. SUPPLEMENTAL CONDENSED FINANCIAL INFORMATION
The following presents the condensed financial statements of the Company and its
subsidiaries, as of March 29, 2003 and December 28, 2002 and for the thirteen
weeks ending March 29, 2003 and March 30, 2002, that filed voluntary petitions
under Chapter 11:
CONDENSED BALANCE SHEETS March 29, 2003 December 28, 2002
- --------------------------------------------------------------------- ------------------- -------------------
ASSETS (in thousands)
Current Assets:
Restricted and unrestricted cash $9,878 $22,896
Accounts receivable, net 39,580 12,709
Inventories, net 39,333 46,726
Prepaid expenses and other current assets 4,884 4,701
------------------- -------------------
Total Current Assets 93,675 87,032
------------------- -------------------
Property, plant and equipment, net 17,643 18,064
Intangibles and other assets, net 124,438 123,020
Investment in subsidiaries 47,796 47,796
------------------- -------------------
Total Assets $ 283,552 $ 275,912
=================== ===================
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable, accrued expenses and other current liabilities $ 60,313 $58,228
Payable to wholly-owned entities not in bankruptcy 68,941 67,861
Long-term liabilities not subject to compromise 9,087 10,000
Liabilities subject to compromise 144,476 145,074
------------------- -------------------
Total Liabilities 282,817 281,163
Shareholders' Equity 735 (5,251)
------------------- -------------------
Total Liabilities and Equity $ 283,552 $ 275,912
=================== ===================
CONDENSED STATEMENTS OF OPERATIONS First Quarter 2003 First Quarter 2002
- --------------------------------------------------------------------- ------------------- -------------------
(in thousands)
Total revenue $ 102,074 $ 114,705
Cost of sales 64,365 76,615
------------------- -------------------
Gross profit 37,709 38,090
Selling, general and administrative expenses 23,139 22,752
Depreciation and amortization 1,299 886
Restructuring and other charges --- 542
------------------- -------------------
Total operating expenses 24,438 24,180
------------------- -------------------
Operating income 13,271 13,910
Interest and financing costs 950 3,551
Reorganization costs 1,147 1,627
Income taxes 5,291 3,903
Cumulative effect of accounting change --- 30,400
------------------- -------------------
Net income $ 5,883 $ (25,571)
=================== ===================
11
CONDENSED STATEMENT OF CASH FLOWS First Quarter 2003
- ----------------------------------------------------- -------------------
(in thousands)
Cash Flows used in Operating Activities $ (12,140)
Cash Flows used in Investing Activities (878)
Cash Flows used in Financing Activities ---
-------------------
Net decrease in cash and cash equivalents (13,018)
Cash and cash equivalents, beginning of period 22,896
-------------------
Cash and cash equivalents, end of period $ 9,878
===================
12
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
foregoing condensed consolidated financial statements and notes thereto and
management's discussion and analysis of financial condition and results of
operations in the Company's Annual Report on Form 10-K for the year ended
December 28, 2002. This discussion contains forward-looking statements based on
current expectations that involve risks and uncertainties. Actual results and
the timing of certain events may differ significantly from those projected in
such forward-looking statements due to a number of factors, including those set
forth at the end of this Item.
OVERVIEW
On February 5, 2002, the Company and certain of its domestic subsidiaries filed
voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code.
The Company continues to operate in the ordinary course of business as
debtor-in-possession under the jurisdiction of the Bankruptcy.
The Company's ability to continue as a going concern is dependent upon the
acceptance of a plan of reorganization by the Bankruptcy Court and the Company's
creditors, securing exit financing upon emergence from bankruptcy, compliance
with all debt covenants under the Citicorp DIP Credit Agreement, the ability to
generate sufficient cash flows from operations and the success of future
operations. There can be no assurance that the Company will be successful in
resolving these uncertainties. As a result, the independent auditors have
qualified their opinion relative to the uncertainty of the Company to continue
as a going concern. The financial information contained herein does not include
any adjustments relating to the recoverability and classification of recorded
asset amounts or the amount and classification of liabilities or any other
adjustments that might become necessary should the Company be unable to continue
as a going concern in its present form.
In the first quarter of 2003, the Company's revenue decreased 11.6% and its
gross margin increased to 40.4% from 34.5% compared to the first quarter of
2002. The trends evident in the first quarter of 2003 are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 27, 2003.
RESULTS OF OPERATIONS
REVENUES BY SEGMENT
(000'S EXCEPT PERCENTAGES)
FIRST QUARTER % FIRST QUARTER %
2003 OF TOTAL 2002 OF TOTAL
-------------------- --------------------
Wholesale $87,845 83.8% $98,804 84.2%
Retail 12,652 12.0% 14,812 12.7%
-------------------- -------- -------------------- --------
Net sales 100,497 95.8% 113,616 96.9%
Licensing 4,364 4.2% 3,686 3.1%
-------------------- -------- -------------------- --------
Total revenue $ 104,861 100.0% $117,302 100.0%
==================== ======== ==================== ========
THIRTEEN WEEKS ENDED MARCH 29, 2003 AS COMPARED TO THIRTEEN WEEKS ENDED
MARCH 30, 2002
TOTAL REVENUE
Net sales for the thirteen weeks ended March 29, 2003 (the "first quarter 2003")
were $100.5 million as compared to $113.6 for the thirteen weeks ended March 30,
2002 (the "first quarter 2002"). The reduction in sales from the Company's
wholesale operations ("Wholesale") was primarily the result of a decrease in
13
average unit prices resulting from a revised merchandise and pricing strategy in
a business line, late delivery of goods and an overall difficult retail
environment experienced during the first quarter of 2003.
Sales at the Company's retail stores ("Retail") decreased to $12.7 million in
the first quarter 2003 from $14.8 million in the first quarter 2002, due to the
closing of 24 under performing stores, which contributed $1.8 million in sales
during the first quarter of 2002. In addition, comparable store sales decreased
6.9% in the first quarter 2003 compared to the first quarter 2002 as a result of
continued weakness in the retail environment.
Royalty revenue from the Company's licensing activities ("Licensing") increased
to $4.4 million in first quarter 2003 compared to $3.7 million in the first
quarter 2002 as a result of newly renegotiated higher royalty percentage rates
and higher licensee sales volume.
GROSS PROFIT
Gross Profit as a percentage of total revenue increased to 40.3% for the first
quarter 2003, compared to 34.5% for the first quarter 2002. Wholesale gross
profit as a percentage of sales increased to 35.0% in the first quarter 2003
from 30.1% in the first quarter 2002, the result of improved margins on
off-price sales and cost savings from sourcing and internal production process
improvements which favorably impacted cost of goods sold.
Retail gross profit as a percentage of sales increased to 56.5% in first quarter
2003 from 47.2% in first quarter 2002 due to the closing of under performing
stores and the cost savings passed on from wholesale as discussed above.
Licensing contributed to the Company's overall increased gross margin due to the
greater contribution of royalty revenue as a percentage of total revenue.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") increased to approximately
$24.9 million in the first quarter 2003 as compared to $24.0 million in the
first quarter 2002. The variance is attributable to increases in design,
production and shipping costs.
RESTRUCTURING AND OTHER CHARGES
The Company recorded $542,000 in other charges in the first quarter of 2002.
These charges related primarily to professional fees associated with the
Company's pending bankruptcy filing.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization totaled $1.5 million in the first quarter 2003 and
$1.0 million in the first quarter 2002. The increase in depreciation relates to
the implementation of the Company's new management information systems and
capital expenditures relating to department store boutiques and the Company's
new full price retail store.
INTEREST AND FINANCING COSTS
Interest and financing costs decreased to $1.0 million in the first quarter 2003
from $3.6 million in the first quarter 2002. Interest expense is comprised of
the interest expense on the Senior Notes prior to February 5, 2002, along with
interest on the Citicorp DIP Credit Agreement, Chase Facility and Chase DIP (all
defined elsewhere within), factoring fees and changes in fair value of the
Company's interest rate swap.
As a result of the Chapter 11 Cases, interest on the Senior Notes stopped
accruing as of February 5, 2002. Accordingly, the Company did not incur interest
on the Senior Notes in the first quarter 2003 compared to $1.7 million for the
14
first quarter 2002. Included in Senior Notes interest expense for the first
quarter 2002 was approximately $300,000 in unpaid default interest on the Senior
Notes.
Interest under the Chase Facility, Chase DIP and Citicorp DIP Credit Agreement,
as applicable, totaled approximately $535,000 in the first quarter 2003, and
$1.5 million in the first quarter 2002, the result of decreased borrowings. In
the first quarter 2003, the Company paid approximately $1.6 million in bank fees
related to the Citicorp DIP Credit Agreement and resulted in approximately
$100,000 of amortization charges in the first quarter 2003.
The remaining interest expense relates to factoring fees of approximately
$350,000 in the first quarter 2003 and $410,000 in the first quarter 2002. As of
June 29, 2002 the interest rate swap expired and the Company incurred no
interest expense in the first quarter 2003 compared to income of $260,000 in the
first quarter 2002.
REORGANIZATION COSTS
The Company recorded $1.1 million in reorganization costs in the first quarter
of 2003 compared to $1.6 million in the first quarter 2002. These costs related
primarily to professional fees and, in 2002, bank fees associated with the
Company's reorganization as a result of the Chapter 11 Cases.
INCOME TAXES
Provision for income taxes was $5.8 million for the first quarter 2003 compared
to $4.1 million for the first quarter 2002. These amounts differ from the amount
computed by applying the federal income tax statutory rate of 34% to income
before taxes primarily because of state and foreign taxes.
NET INCOME (LOSS)
Net income was $8.0 million in the first quarter 2003 compared to a loss of
$24.7 million in the first quarter 2002, an increase of approximately $32.7
million. The increase is the result of the increased margins, reduced interest
and financing costs along with the cumulative effect of change in accounting
principle recorded in the first quarter 2002. See Notes to Condensed
Consolidated Financial Statements for more information on the cumulative effect
of change in accounting principle.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's main sources of liquidity historically have been cash flows from
operations, vendor credit terms and credit facilities. The Company's capital
requirements primarily result from working capital needs, department store
boutiques, retail stores including full price shops and other corporate
activities.
Net cash used in operating activities was $13.7 million during the first quarter
2003 as compared to cash provided by operating activities of $23.3 million
during the first quarter 2002. The decrease in cash flows from the prior year is
partly the result of the $20.0 million royalty prepayment received during the
first quarter of 2002. In addition, as a result of the Chapter 11 Cases, in 2002
the Company benefited from the non-payment of pre-petition liabilities, which
are generally not settled until a plan of reorganization has been approved.
Inventory levels at the beginning of 2003 were leaner than at the beginning of
2002, resulting in a smaller decrease for the quarter. The decrease in cash used
in investing activities resulted from less capital expenditures in the first
quarter 2003 compared to the first quarter 2002. Cash flows from financing
activities decreased as a result of the decreased borrowings during the first
quarter 2003.
On July 9, 1999, the Company entered into a credit facility (the "Chase
Facility") with a bank group led by JPMorgan Chase ("Chase") in order to, among
other things, fund the Company's working capital requirements and to finance the
Company's purchase of the Anne Klein trademarks (the "Trademark Purchase"). On
the Filing Date, the Company obtained a $35 million DIP Revolving Credit
15
Agreement from its existing bank group (the "Chase DIP"). The Chase DIP also
provided for a term loan for the purpose of refinancing the pre-petition
obligations outstanding under the Chase Facility. On July 12, 2002, the Chase
DIP was amended to convert the term loan to a revolving credit agreement.
The Chase DIP provided, among other things, for the maintenance of certain
financial ratios and covenants, and set limits on capital expenditures and
dividends to shareholders. The Chase DIP was scheduled to expire on February 5,
2003. Availability under the Chase DIP was limited to a borrowing base
calculated upon eligible accounts receivable, inventory, trademarks and letters
of credit. Interest on outstanding borrowings was determined based on stated
margins above the prime rate at Chase.
In connection with the Chase DIP, the Company paid $875,000 in facility,
advisory and structuring fees, along with an annual administrative agency fee of
$100,000 and an annual collateral monitoring fee of $100,000. These fees were
expensed as incurred and included as part of reorganization costs. In connection
with the July 12, 2002 amendment, the Company paid $100,000 in bank fees, which
were capitalized and amortized over the remaining life of the Chase DIP.
On January 30, 2003, the Company obtained a $100 million debtor-in-possession
financing facility (the "Citicorp DIP Credit Agreement") from its new bank group
led by Citicorp USA, Inc. ("Citicorp"). The Citicorp DIP Credit Agreement
replaced the Chase DIP and permits up to $60.0 million available for issuance of
letters of credit, of which $15.0 million will be available for stand-by letters
of credit and up to $10.0 million for discretionary swing loans.
The Citicorp DIP Credit Agreement provides, among other things, for the
maintenance of certain financial ratios and covenants, and set limits on capital
expenditures and dividends to shareholders. The Citicorp DIP Credit Agreement,
has a term ending on the earliest to occur of (i) the six month anniversary of
the closing date, (ii) the effective date of the Plan, or (iii) the occurrence
of an Event of Default. Availability under the Citicorp DIP Credit Agreement is
limited to a borrowing base calculated upon eligible accounts receivable,
eligible inventory, eligible documentary letters of credit and trademarks, in
each case, less appropriate reserves. Interest on outstanding borrowings is
determined based on stated margins above the Base Rate Loans and Eurodollar Rate
Loans maintained by Citicorp on the terms and subject to the conditions of the
agreement.
The Company paid approximately $1.6 million in commitment and related fees in
connection with the Citicorp DIP Credit Agreement in January 2003. On March 14,
2003 the Company obtained an amendment to the Citicorp DIP Credit Agreement,
which allowed the DIP portion of the credit agreement to be extended to December
31, 2003 as well as amended certain financial covenants. There were no
incremental bank fees associated with this amendment. As of March 29, 2003,
there were no direct borrowings and $35.9 million outstanding in letters of
credit under the Citicorp DIP Credit Agreement. In addition to $6.3 million of
unrestricted cash and cash equivalents on hand, the Company had approximately
$31.7 million available for future borrowings as of March 29, 2003. At March 29,
2003, the Company had $4.0 million in restricted cash with Chase,
collateralizing certain cash management activities conducted using the Company's
bank accounts maintained with Chase. During the month of March, the Company
began transferring in the cash management services provided by Citicorp
replacing those provided by Chase. When the transfer is completed and there are
no cash management services provided by Chase, the Company is then no longer
obligated to cash collateralize these activities.
Pursuant to the Leslie Fay reorganization plan, the Company issued $110 million
in Senior Notes due 2004 (the "Senior Notes"). The Senior Notes initially bore
interest at 12.75% per annum and mature on March 31, 2004. Beginning January 1,
2000, the interest rate increased to 13.0%. The Company stopped accruing
interest on the Senior Notes on the Filing Date. Interest was payable
semi-annually on March 31 and September 30. Interest relating the Senior Notes
totaled $1.7 million for the first quarter 2002, including $300,000 in default
16
interest. At March 29, 2003, the Senior Notes have been classified as
liabilities subject to compromise.
On October 4, 1999, the Company entered into a factoring agreement with the CIT
Group/Commercial Services, Inc. ("CIT"). CIT collects the Company's receivables
and in turn remits the funds to the Company. Any amounts unpaid after 90 days on
approved sales are guaranteed to be paid to the Company by CIT. The agreement
has no expiration date but may be terminated upon 90 days written notice by the
Company and upon 60 days written notice by CIT. On November 10, 2000, the
factoring agreement was amended to change the fee structure from a flat rate
monthly fee to a floating rate monthly fee based on a percentage of the amount
of each account factored. For its services, CIT charges the Company 0.30% of the
gross face amount of each account factored and an additional 0.25% of the gross
face amount of each account whose terms exceed 60 days. In addition, for each
six-month period beginning December 1, 2000, there is a minimum factoring fee of
$675,000. On February 5, 2002, the Company entered into an amended agreement
with CIT. The terms of the amended agreement remained substantially the same
with the exception of the reduction of the six-month minimum factoring fee to
$500,000 and the requirement of a 90-day termination notice by CIT, except upon
the occurrence of default by the Company, including a default under the Chase
DIP or failure to pay any obligation under the CIT agreement, for which no
notice is needed. On January 30, 2003, the Company, in connection with the
replacement of the Chase DIP by Citicorp DIP Credit Agreement, entered into an
amendment with CIT. The terms of this amendment were to incorporate the Citicorp
DIP Credit Agreement as part of the factoring agreement, change the fees charged
by CIT for its services to 0.25% of the gross face amount of each account
factored and reduce each six-month period minimum factoring fee to $375,000
beginning February 1, 2003.
Capital expenditures were $1.0 million and $1.4 million for the first quarter
2003 and the first quarter 2002, respectively. Capital expenditures represent
spending associated with information systems, new retail stores including the
Anne Klein New York full price store in the first quarter 2002, department store
boutiques, warehouse and showroom improvements, overseas facilities development
and general improvements.
On March 12, 2002, the Company received a prepayment of royalties of $20.0
million from one of its licensees. The royalty prepayment is non refundable and
is to be applied to guaranteed minimum royalty payments and excess royalties due
through December 31, 2006.
The Company currently anticipates that it will be in a position to satisfy its
ongoing cash requirements, in the near term, through cash from operations,
borrowings under the Citicorp DIP Credit Agreement and, from time to time,
amounts received in connection with strategic transactions, including, among
other things, licensing arrangements. Events that may impact the Company's
ability to meet its ongoing cash requirements in the near term include, but are
not limited to, failure to have the Plan approved by the Bankruptcy Court,
future events that may have the effect of reducing available cash balances (such
as unexpected operating losses, or increased capital or other expenditures), and
future circumstances that might reduce or eliminate the availability of external
financing. In addition, the ongoing promotional environment of department stores
has impacted the industry. If the current trend persists, the Company's
financial results could continue to be negatively impacted.
DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION
The statements contained in this Quarterly Report on Form 10-Q that are not
historical facts are "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Act of 1934, as amended. Those statements appear in a number of places in this
report, including in "Management's Discussion and Analysis of Financial
Conditions and Results of Operations," and include all discussions of trends
affecting the Company's financial conditions and results of operations and the
17
Company's business and growth strategies as well as statements that contain such
forward-looking statements as "believes," "anticipates," "could," "estimates,"
"expects," "intends," "may," "plans," "predicts," "projects," "will," and
similar terms and phrases, including the negative thereof. In addition, from
time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing. Furthermore, forward-looking
statements may be included in our other filings with the Securities and Exchange
Commission as well as in press releases or oral statements made by or with the
approval of the Company's authorized executive officers.
We caution you to bear in mind that forward-looking statements, by their very
nature, involve assumptions and expectations and are subject to risks and
uncertainties. Although we believe that the assumptions and expectations
reflected in the forward-looking statements contained in this report are
reasonable, no assurance can be given that those assumptions or expectations
will prove to have been correct. Important factors that could cause actual
results to differ materially from our expectations include but are not limited
to, the following cautionary statements ("Cautionary Statements"):
o the success of the Company's overall business strategy, including
successful implementation of the Company's restructuring plan and
successful implementation of the Company's plan of reorganization;
o the impact that the continuation of the Company's Chapter 11 proceedings
may have on the Company's relationships with its principal customers and
suppliers;
o the risk that the bankruptcy court overseeing the Company's Chapter 11
proceedings may not confirm any reorganization plan proposed by the
Company;
o actions that may be taken by creditors and other parties-in-interest that
may have the effect of preventing or delaying confirmation of a plan of
reorganization in connection with the Company's Chapter 11 proceedings;
o the risk that the cash generated by the Company from operations and the
cash received by the Company under its Citicorp DIP Credit Facility
(defined elsewhere herein) will not be sufficient to fund the operations of
the Company until such time as the Company's plan of reorganization is
approved by the bankruptcy court;
o the ability of the Company to achieve its covenants under the Citicorp DIP
Credit Agreement;
o the ability of the Company to adapt to changing consumer preferences and
tastes;
o the risk of global political unrest including terrorism and war and its
impact on consumer confidence and spending and disruption in the receipt
and delivery of merchandise;
o the risk of work stoppages by any Company suppliers or service providers;
o the risk of significant disruption in the Company's relationships with its
suppliers, manufacturers and employees;
o potential fluctuations in the Company's operating costs and results;
o the risk that the Internal Revenue Service will prevail in its proposed
adjustment resulting in additional income taxes and interest in prior years
thereby necessitating a reduction in net operating loss carryforwards, the
write-down of certain tax assets, and the payment of interest;
o potential exchange rate fluctuations;
o the Company's concentration of revenues in department stores located in the
United States;
o the Company's dependence on a limited number of suppliers; and
o unforeseen difficulties or significant delays resulting from the Company's
implementation or operation of existing or new management information
systems, including the integration of management and other personnel or the
training of personnel.
All subsequent written or oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Statements.
18
ITEM 4.
CONTROLS AND PROCEDURES
(a) The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's filings
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the periods specified in the rules and forms of the Securities
and Exchange Commission. Such information is accumulated and communicated to the
Company's management, including its principal executive officer and principal
financial officer, as appropriate, to allow timely decisions regarding required
disclosure. The Company's management, including the principal executive officer
and the principal financial officer, recognizes that any set of controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives.
Within 90 days prior to the filing date of this quarterly report on Form 10-Q,
the Company has carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's principal
executive officer and the Company's principal financial officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based on such evaluation, the Company's principal executive
officer and principal financial officer concluded that the Company's disclosure
controls and procedures are effective.
(b) There have been no significant changes in the Company's internal controls or
in other factors that could significantly affect the internal controls
subsequent to the date of their evaluation in connection with the preparation of
this quarterly report on Form 10-Q.
19
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
See Index to Exhibits following the signatures and certifications
hereto.
(b) Reports on Form 8-K:
No Reports on Form 8-K were filed by the Company during the
quarter ended March 29, 2003.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KASPER A.S.L., LTD.
(Registrant)
Dated: May 13, 2003
/s/ John D. Idol
---------------------------------------
John D. Idol
Chairman and Chief Executive Officer
/s/ Joseph B. Parsons
---------------------------------------
Joseph B. Parsons
Executive Vice President -
Chief Financial Officer
21
CERTIFICATIONS
--------------
I, John D. Idol, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Kasper A.S.L.,
Ltd.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 13, 2003
/s/ John D. Idol
--------------------------------
John D. Idol
Chief Executive Officer
22
I, Joseph B. Parsons, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Kasper A.S.L.,
Ltd.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 13, 2003
/s/ Joseph B. Parsons
-----------------------------------
Joseph B. Parsons
Chief Financial Officer
23
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
10.1 Surrender Agreement and Amendment dated as of December 31,
1999 between 11 West 42 Limited Partnership, as Landlord,
and the Company as Tenant
10.2 Second Amendment and Surrender Agreement dated as of May
1, 2003 between 11 West 42 Limited Partnership, as
Landlord, and the Company as Tenant
99.1 Certification of the Chief Executive Officer of the
Company pursuant to 18 U.S.C.ss.1350, as adopted by
Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of the Chief Financial Officer of the
Company pursuant to 18 U.S.C.ss.1350, as adopted by
Section 906 of the Sarbanes-Oxley Act of 2002
24