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BERNARD CHAUS, INC. AND SUBSIDIARIES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 5(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended September 30, 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 1-9169
------
BERNARD CHAUS, INC.
(Exact Name of Registrant as Specified in its Charter)
New York 13-2807386
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) number)
530 Seventh Avenue, New York, New York 10018
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (212) 354-1280
-----------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes X No .
---- ----
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2) Yes No X
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Date Class Shares Outstanding
---- ----- ------------------
November 12, 2003 Common Stock, $0.01 par value 27,332,007
- ---------------------- ----------------------------- -------------------
INDEX
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited) PAGE
Condensed Consolidated Balance Sheets as of
September 30, 2003, June 30, 2003 and
September 30, 2002 3
Condensed Consolidated Statements of Operations for the
Three Months ended September 30, 2003 and 2002 4
Condensed Consolidated Statements of Cash Flows for the
Three Months ended September 30, 2003 and 2002 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
Item 4. Controls and Procedures 19
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 20
CERTIFICATIONS 22
2
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except number of shares and per share amounts)
September 30, June 30, September 30,
2003 2003 2002
--------- --------- ---------
(Unaudited) (*) (Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 102 $ 2,650 $ 123
Accounts receivable - net 33,697 19,996 25,880
Inventories - net 14,376 10,696 11,002
Prepaid expenses and other current assets 937 719 788
--------- --------- ---------
Total current assets 49,112 34,061 37,793
Fixed assets - net 3,723 3,792 4,273
Other assets - net 496 599 731
Goodwill 1,437 1,395 --
--------- --------- ---------
Total assets $ 54,768 $ 39,847 $ 42,797
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Revolving credit borrowings $ 11,604 $ -- $ 7,619
Accounts payable 16,234 12,747 11,024
Accrued expenses 3,344 4,161 3,470
Term loan - current 1,500 1,500 1,500
--------- --------- ---------
Total current liabilities 32,682 18,408 23,613
Deferred rent 462 455 405
Term loan 7,500 7,875 9,000
--------- --------- ---------
Total liabilities 40,644 26,738 33,018
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, -- -- --
authorized shares - 1,000,000;
outstanding shares - none
Common stock, $.01 par value, 274 274 273
authorized shares - 50,000,000; issued shares -
27,394,277 at September 30, 2003, 27,384,277
at June 30, 2003 and 27,284,277 at September
30, 2002
Additional paid-in capital 125,948 125,943 125,476
Deficit (110,124) (111,134) (114,248)
Accumulated other comprehensive loss (494) (494) (242)
Less: Treasury stock at cost -
62,270 shares at September 30, 2003, June
30, 2002 and September 30, 2002 (1,480) (1,480) (1,480)
--------- --------- ---------
Total stockholders' equity 14,124 13,109 9,779
--------- --------- ---------
Total liabilities and stockholders' equity $ 54,768 $ 39,847 $ 42,797
========= ========= =========
*Derived from audited financial statements at June 30, 2003. See accompanying
notes to condensed consolidated financial statements.
3
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except number of shares and per share amounts)
For the Three Months Ended
--------------------------
September 30, September 30,
2003 2002
----------- -----------
(Unaudited)
Net sales $ 38,805 $ 34,791
Cost of goods sold 29,595 25,334
----------- -----------
Gross profit 9,210 9,457
Selling, general and administrative expenses 7,836 7,548
----------- -----------
Income from operations 1,374 1,909
Interest expense, net 272 336
----------- -----------
Income before income tax provision 1,102 1,573
Income tax provision 92 10
----------- -----------
Net income $ 1,010 $ 1,563
=========== ===========
Basic earnings per share $ 0.04 $ 0.06
=========== ===========
Diluted earnings per share $ 0.03 $ 0.05
=========== ===========
Weighted average number of common
shares outstanding- basic 27,325,000 27,222,000
=========== ===========
Weighted average number of common
shares outstanding- diluted 30,986,000 29,502,000
=========== ===========
See accompanying notes to condensed consolidated financial statements.
4
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Three Months Ended
-------------------------------
September 30, September 30,
2003 2002
------------- -------------
(Unaudited)
OPERATING ACTIVITIES
Net income $ 1,010 $ 1,563
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 356 393
Loss on disposal of other assets -- 243
Provision for losses on accounts receivable (20) --
Changes in operating assets and liabilities:
Accounts receivable (13,681) (5,294)
Inventories (3,680) (2,952)
Prepaid expenses and other current assets (224) 546
Accounts payable 3,487 1,275
Accrued expenses and deferred rent (810) 237
-------- --------
Net Cash Used In Operating Activities (13,562) (3,989)
-------- --------
INVESTING ACTIVITIES
Acquisition of business (42) --
Purchases of fixed assets (178) (69)
-------- --------
Net Cash Used In Investing Activities (220) (69)
-------- --------
FINANCING ACTIVITIES
Net proceeds from short-term bank borrowings 11,604 4,028
Principal payments on term loan (375) --
Net proceeds from exercise of stock options 5 3
-------- --------
Net Cash Provided By Financing Activities 11,234 4,031
-------- --------
Decrease in cash and cash equivalents (2,548) (27)
Cash and cash equivalents, beginning of period 2,650 150
-------- --------
Cash and cash equivalents, end of period $ 102 $ 123
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Taxes $ 1 $ 1
======== ========
Interest $ 202 287
======== ========
See accompanying notes to condensed consolidated financial statements.
5
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Three Months Ended September 30, 2003 and September 30, 2002
1. Summary of Significant Accounting Policies
Basis of Presentation: The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
("generally accepted accounting principles") for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. All
significant intercompany balances and transactions were eliminated. Operating
results for the three months ended September 30, 2003 are not necessarily
indicative of the results that may be expected for the year ending June 30, 2004
("fiscal 2004") or any other period. The balance sheet at June 30, 2003 has been
derived from the audited financial statements at that date. For further
information, refer to the financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended June 30, 2003.
Principles of Consolidation:
The consolidated financial statements include the accounts of the
Company and its subsidiaries. Intercompany accounts and transactions have been
eliminated.
Use of Estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition:
The Company recognizes sales upon shipment of products to customers
since title and risk of loss passes upon shipment. Provisions for estimated
uncollectible accounts, discounts and returns and allowances are provided when
sales are recorded based upon historical experience and current trends.
Credit Terms:
The Company extends credit to the majority of its customers through a
factoring agreement with The CIT Group/Commercial Services, Inc. ("CIT"). Under
the factoring arrangement, the Company receives payment from CIT only after CIT
has been paid by the Company's customers. CIT assumes only the risk of the
Company's customers' insolvency. All other receivable risks are retained by the
Company, including, but not limited to, allowable customer markdowns,
operational chargebacks, disputes, discounts, and returns. The Company expects
the factoring agreement to terminate in March 2004 assuming certain conditions
contained in its credit facility are satisfied. At such time the Company expects
to continue to extend credit to its customers based upon an evaluation of the
customers' financial condition and credit history. At September 30, 2003,
approximately 98% of the
6
BERNARD CHAUS, INC. AND SUBSIDIARIES
Company's accounts receivable are being serviced by CIT under the factoring
arrangement. As a result of the Company's dependence on its major customers,
particularly three single corporate entities (Dillard's Department Stores, TJX
Companies, Inc., and May Department Stores Company), such customers may have the
ability to influence the Company's business decisions. The loss of, or
significant decrease in, business from any of its major customers would have a
material adverse effect on the Company's financial position and results of
operations. In addition, the Company's ability to achieve growth in revenues is
dependent, in part, on its ability to identify new distribution channels.
Accounts Receivable:
Accounts Receivable as shown on the Consolidated Balance Sheets is
net of allowances and anticipated discounts. An allowance for doubtful accounts
is determined through analysis of the aging of accounts receivable at the date
of the financial statements, assessments of collectibility based on historic
trends and an evaluation of the impact of economic conditions. This amount is
not significant primarily due to the Company's bad debt history and the
factoring agreement. An allowance for discounts is based on those discounts
relating to open invoices where trade discounts have been extended to customers.
Costs associated with potential returns of products as well as allowable
customer markdowns and operational charge backs, net of expected recoveries, are
included as a reduction to net sales and are part of the provision for
allowances included in Accounts Receivable. As of September 30, 2003, June 30,
2003 and September 30, 2002, Accounts Receivable was net of allowances of $1.1
million, $1.9 million and $1.6 million, respectively.
Inventories:
Inventories - Inventory is stated at the lower of cost or market,
cost being determined on the first-in, first-out method. Reserves for
slow-moving and aged merchandise are provided based on historical experience and
current product demand. The Company evaluates the adequacy of the reserves
quarterly.
Valuation of Long-Lived Assets and Goodwill:
The Company periodically reviews the carrying value of its
long-lived assets for continued appropriateness. This review is based upon
projections of anticipated future undiscounted cash flows. As of September 30,
2003, no impairments of long-lived assets have been recognized. Goodwill
represents the cost in excess of the fair value of net assets acquired. The
result of the Company's impairment test as of June 30, 2003 indicated that there
were no impairments of goodwill or intangible assets to be recorded. The Company
will continue to conduct impairment tests annually in the fourth quarter of each
fiscal year or sooner if circumstances require. No amortization expense has been
recorded for the three months ended September 30, 2003 and 2002.
Income Taxes:
The Company accounts for income taxes under the asset and liability
method in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 109, Accounting for Income Taxes. Deferred income taxes reflect the future
tax consequences of differences between the tax bases of assets and liabilities
and their financial reporting amounts at year-end. As of September 30, 2003 and
2002 and June 30, 2003, the Company recorded a full valuation allowance on its
deferred tax assets. The Company will recognize a tax benefit as the Company's
net operating loss carryforwards are utilized.
Stock-based Compensation:
The Company has a Stock Option Plan and accounts for the plan under the
recognition and measurement principles of APB 25, "Accounting for Stock Issued
to Employees", and related interpretations. Under this method,
7
BERNARD CHAUS, INC. AND SUBSIDIARIES
compensation cost is the excess, if any, of the quoted market price of the stock
at the grant date or other measurement date over the amount an employee must pay
to acquire the stock. No stock-based employee compensation cost is reflected in
net income because options granted under the plan had an exercise price equal to
the market value of the underlying common stock on the date of grant. Had
compensation costs for the Company's stock option grants been determined based
on the fair value at the grant dates for awards under these plans in accordance
with SFAS No. 123, the Company's net income and earnings per share would have
been reduced to the pro forma amounts as follows (Dollars in thousands, except
share data):
For the Three Months Ended
September 30, September 30,
2003 2002
(Unaudited)
(In thousands except per share amounts)
Net income, as reported $ 1,010 $ 1,563
Deduct: Total stock-based employee compensation expense
determined under fair value based method, net of tax effects (75) (175)
--------- ---------
Proforma net income $ 935 $ 1,388
========= =========
Earnings per share:
Basic-as reported $ 0.04 $ 0.06
========= =========
Basic-proforma $ 0.03 $ 0.05
========= =========
Diluted-as reported $ 0.03 $ 0.05
========= =========
Diluted-proforma $ 0.03 $ 0.05
========= =========
The following assumptions were used in the Black Scholes option pricing model
that was utilized to determine stock-based employee compensation expense under
the fair value based method:
For the Three For the Three
Months Ended Months Ended
September 30, 2003 September 30, 2002
------------------ ------------------
Weighted average fair value of stock options $0.91 $0.73
granted
Risk-free Interest rate 3.42% 3.92%
Expected dividend yield $0.00 $0.00
Expected life of option 10.0 years 5.5 years
Expected volatility 110% 188%
Earnings Per Share: Basic earnings per share has been computed by
dividing the applicable net income by the weighted average number of common
shares outstanding. Diluted earnings per share has been computed for the three
months ended September 30, 2003 and September 30, 2002 by dividing the
applicable net income by the weighted average number of common shares
outstanding and common equivalents.
8
BERNARD CHAUS, INC. AND SUBSIDIARIES
For the Three Months Ended
September 30, September 30,
Denominator for Earnings per share (in millions) 2003 2002
--------------- ---------------
Denominator for basic earnings per share 27.3 27.2
weighted-average shares outstanding
Assumed exercise of potential common shares 3.7 2.3
--------------- ---------------
Denominator for diluted earnings per share 31.0 29.5
=============== ===============
Shipping and handling costs:
Shipping and handling costs are included as a component of Selling,
General, & Administrative Expenses in the Consolidated Statements of Operations.
For the three months ended September 30, 2003 and 2002, shipping and handling
costs approximated $0.2 million and $0.1 million, respectively.
2. Inventories - net
September 30, June 30, September 30,
2003 2003 2002
---------------- ---------------- -------------------
(in thousands)
(unaudited) (unaudited)
Raw materials $ 385 $ 698 $ -
Work-in-process - 140 -
Finished goods 14,938 10,597 11,895
Inventory reserves (947) (739) (893)
---------------- ---------------- -------------------
Total $ 14,376 $ 10,696 $ 11,002
================ ================ ===================
Inventories are stated at the lower of cost, using the
first-in first-out (FIFO) method, or market. Included in inventories is
merchandise in transit of approximately $7.1 million at September 30, 2003, $8.9
million at June 30, 2003 and $5.4 million at September 30, 2002.
3. Financing Agreement
On September 27, 2002, the Company and certain of its subsidiaries
entered into a new three-year financing agreement (the "Financing Agreement")
with CIT to replace the former Financing Agreement discussed below. The
Financing Agreement provides the Company with a $50.5 million facility comprised
of (i) a $40 million revolving line of credit (the "Revolving Facility") with a
$25 million sublimit for letters of credit, a $3 million seasonal overadvance
and certain other overadvances at the discretion of CIT, and (ii) a $10.5
million term loan (the "Term Loan").
At the option of the Company, the Revolving Facility and the Term Loan
each may bear interest either at the JPMorgan Chase Bank Rate ("Prime Rate") or
the London Interbank Offered Rate ("LIBOR"). If the Company chooses the Prime
Rate, the interest (i) on the Revolving Facility accrues at a rate of 1/2 of 1%
above the Prime Rate for fiscal 2003 and until the first day of the month
following delivery of the Company's consolidated financial statements for fiscal
2003 (the "2003 financials") to the Lender (the "Adjustment Date," i.e., October
1, 2003 ) and thereafter at a rate ranging from the Prime Rate to 3/4 of 1%
above the Prime Rate and (ii) on the Term Loan accrues at a rate of 1% above the
Prime Rate for fiscal 2003 and until the Adjustment Date of October 1, 2003 and
thereafter at a rate ranging from 1/2 of 1% above the Prime Rate to 1 1/4 %
above the Prime Rate. If the Company chooses
9
BERNARD CHAUS, INC. AND SUBSIDIARIES
LIBOR, the interest (i) on the Revolving Facility accrues at a rate of 3 1/4%
above LIBOR for fiscal 2003 and until the Adjustment Date of October 1, 2003 and
thereafter at a rate ranging from 2 3/4% above LIBOR to 3 1/2% above LIBOR and
(ii) on the Term Loan accrues at a rate of 3 3/4% above LIBOR for fiscal 2003
and until the Adjustment Date of October 1, 2003 and thereafter at a rate
ranging from 3 1/4% above LIBOR to 4% above LIBOR. All adjustments to interest
rates are based upon the availability under the Revolving Facility and certain
fixed charge coverage ratios and leverage ratios. The Company and CIT have
agreed in principle that there will be no change in the interest rates charged
under the Revolving Facility or the Term Loan at this time. The interest rate as
of September 30, 2003 on the Revolving Facility was 4.50% and on the Term Loan
was 5.00%.
On September 27, 2002, the Company borrowed $18.3 million under the
Revolving Facility and $10.5 million under the Term Loan. These borrowings were
used to pay off the balances under the Former Financing Agreement of $18.3
million and the Former Term Loan of $10.5 million and for working capital
purposes. Commencing October 1, 2002, amortization payments in the amount of
$375,000 are payable quarterly in arrears in connection with the Term Loan. A
balloon payment of $6.0 million is due on September 27, 2005 under the Term
Loan. The Company's obligations under the Financing Agreement are secured by a
first priority lien on substantially all of the Company's assets, including the
Company's accounts receivable, inventory, intangibles, equipment, and
trademarks, and a pledge of the Company's equity interest in its subsidiaries.
The Financing Agreement contains numerous financial and operational
covenants, including limitations on additional indebtedness, liens, dividends,
stock repurchases and capital expenditures. In addition, the Company is required
to maintain (i) specified levels of tangible net worth, (ii) certain fixed
charge coverage ratios, (iii) certain leverage ratios, and (iv) specified levels
of minimum borrowing availability under the Revolving Facility. At September 30,
2003, the Company was in compliance with all of its covenants. The Company is in
discussions with CIT with regard to amending certain financial covenants for
fiscal 2004 (including the fixed charge coverage ratio and the minimum borrowing
availability covenants) to be consistent with the Company's latest business plan
for fiscal 2004. CIT has agreed in principle to support the Company's revised
business plan, subject to the negotiation and execution of a definitive
amendment to the Financing Agreement. In the event of the early termination by
the Company of the Financing Agreement, the Financing Agreement provides that
the Company will be liable for termination fees of (i) if the termination occurs
within twelve months of the closing date, (a) $500,000 plus (b) any unpaid
portion of the $500,000 in minimum factoring commission fees otherwise due in
the first year of the term; or (ii) (a) if termination occurs between the
thirteenth and the twenty-fourth month from the closing date, $350,000 plus (b)
if termination occurs between the thirteenth and eighteenth month from the
closing date, any unpaid portion of the $250,000 minimum factoring commission
fees otherwise due for the first half of the second year of the term or (iii) if
termination occurs after the twenty-fourth month from the closing date,
$150,000. The Company may prepay at any time, in whole or in part, the Term Loan
without penalty. The Financing Agreement expires on September 27, 2005. A fee of
$125,000 was paid in connection with the new Financing Agreement.
On September 27, 2002 the Company also entered into a factoring
agreement with CIT (the "Factoring Agreement"). The Factoring Agreement provides
for a factoring commission equal to 4/10 of 1% of the gross face amount of all
accounts factored by CIT, plus certain customary charges. The minimum factoring
commission fee per year is $500,000. The Factoring Agreement will be terminated
after eighteen months provided that there is no event of default under the
Factoring Agreement at such time. In such event, the Company shall pay to CIT a
collateral management fee equal to $5,000 a month. Under the Factoring
Agreement, CIT may also require the Company to utilize CIT to continue to
perform certain bookkeeping, collection and management services and the Company
shall pay CIT an additional fee equal to 1/4 of 1% of the gross face amount of
all accounts, with a minimum aggregate commission of $300,000 per annum and a
minimum of $1.50 per invoice. The Company and CIT are in discussions regarding
the transition of the factoring agreement to a collateral management
arrangement. The costs and timing of a substitute arrangement, if any, have not
yet been agreed upon.
10
BERNARD CHAUS, INC. AND SUBSIDIARIES
On November 27, 2002, the Company and CIT agreed to an amendment to the
Financing Agreement in order to facilitate the S.L. Danielle acquisition
discussed below. The Company and CIT agreed to add the Company's newly formed
wholly-owned subsidiary, S.L. Danielle Acquisition, LLC (the "Additional
Borrower"), as a co-borrower under the Financing Agreement and related Factoring
Agreement. Accordingly, the Company and CIT (i) amended the Financing Agreement
pursuant to a joinder agreement, which also constitutes Amendment No. 1 to the
Financing Agreement (the "Amended Financing Agreement") and (ii) entered into a
new factoring agreement with the Additional Borrower, to add the Additional
Borrower as a co-borrower. The Company's and the Additional Borrower's
obligations under the Amended Financing Agreement are secured by a first
priority lien on substantially all of the Company's and the Additional
Borrower's assets, including the Company's and the Additional Borrower's
accounts receivable, inventory, intangibles, equipment, and trademarks and a
pledge of the Company's stock interest and membership interest in the Company's
subsidiaries, including the Additional Borrower.
On September 30, 2003, the Company had $18.2 million of outstanding
letters of credit under the Revolving Facility, total availability of
approximately $6.1 million under the Financing Agreement and $11.6 in revolving
credit borrowings. At September 30, 2002, the Company had $11.0 million of
outstanding letters of credit, total availability of approximately $9.0 million
and borrowings of $7.6 million, , under the Revolving Facility. At June 30,
2003, the Company had $11.6 million of outstanding letters of credit under the
Revolving Facility, total availability of approximately $10.7 million under the
Financing Agreement and no revolving credit borrowings.
Until September 27, 2002, the Company had a financing agreement with
BNY Financial Corporation, a wholly owned subsidiary of General Motors
Acceptance Corp. ("GMAC") (the "Former Financing Agreement"). The Former
Financing Agreement consisted of two facilities: (i) the Former Revolving
Facility which was a $45.5 million five-year revolving credit line (subject to
an asset based borrowing formula) with a $34.0 million sublimit for letters of
credit, and (ii) the Former Term Loan which was a $14.5 million term loan
facility. Each facility had been amended to extend the maturity date until April
1, 2003.
Interest on the Former Revolving Facility accrued at the greater of (i)
6% or (ii) 1/2 of 1% above the lender's prime rate and was payable on a monthly
basis, in arrears. Interest on the Former Term Loan accrued at an interest rate
equal to the greater of (i) 6.0% or (ii) a rate ranging from 1/2 of 1% above the
lender's prime rate to 1 1/2% above the lender's prime rate, which interest rate
was determined, from time to time, based upon the Company's availability under
the Revolving Facility. The interest rate on the Former Term Loan was 6.0%.
4. S.L. Danielle Acquisition
On November 27, 2002, S.L. Danielle Acquisition, LLC ("S.L. Danielle"),
a newly formed subsidiary of the Company acquired certain assets of S.L.
Danielle Inc. The results of S.L. Danielle's operations have been included in
the consolidated financial statements since that date. S.L. Danielle designs,
arranges for the manufacture of, markets and sells a women's apparel line,
principally under private labels.
The aggregate purchase price was approximately $5.1 million, including
cash of $4.4 million, 100,000 shares of common stock of the Company ("Common
Stock") valued at $84,000 and stock options to purchase 500,000 shares of Common
Stock valued at $384,000 and transaction costs of approximately $250,000. The
acquisition was funded by CIT through revolving credit borrowings of $4.6
million. The value of the 100,000 shares of Common Stock was determined based on
the average market price of the Common Stock over the 3-day period before and
after the date of the acquisition. The 500,000 stock options were granted at the
fair market value on the date of the acquisition and were valued using the Black
Scholes option price model. The following table summarizes the estimated fair
values of the assets acquired and liabilities assumed at the date of
acquisition.
11
BERNARD CHAUS, INC. AND SUBSIDIARIES
At November 27, 2002
(in thousands)
Current assets $ 3,567
Property, plant, and equipment 36
Intangible assets 90
Goodwill 1,437
------------------
Total Assets acquired $ 5,130
==================
The following unaudited pro forma information presents financial
information of the Company as though the acquisition had been completed as of
the beginning of the period set forth below.
For the Three
Months Ended
September 30,
2002
---------------------
(Unaudited)
Net sales $ 39,103
Net income (loss) 1,699
Basic income (loss) per share $ 0.06
Diluted income (loss) per share $ 0.06
5. Stock Based Compensation
The Company has a Stock Option Plan (the "Option Plan"). Pursuant to
the Option Plan, the Company may grant to eligible individuals incentive stock
options, as defined in the Internal Revenue Code of 1986, and non-incentive
stock options. Under the Option Plan, 6,750,000 shares of Common Stock are
reserved for issuance. The maximum number of shares that any one eligible
individual may be granted in respect of options may not exceed 4,000,000 shares
of Common Stock. No stock options may be granted subsequent to October 29, 2007.
The exercise price may not be less than 100% of the fair market value on the
date of grant for incentive stock options.
Information regarding the Company's stock options is summarized below:
Stock Options
---------------------------------------------------------------
Weighted
Average
Number Exercise Exercise
of Shares Price Range Price
----------------- -------------------------- --------------
Outstanding at September 30, 2002 5,584,884 $ .38 - $ 3.50 $ .46
Options granted 550,000 $ .84 - $ .84 $ .84
Options canceled (15,290) $ .50 - $ .75 $ .75
-----------------
Outstanding at June 30, 2003 6,119,594 $ .38 - $ 3.50 $ .49
Options granted 30,000 $ .98 - $ .98 $ .98
Options canceled (50,000) $ .84 - $ .84 $ .84
Options exercised (10,000) $ .50 - $ .50 $ .50
-----------------
Outstanding at September 30, 2003 6,089,594 $ .38 - $ 3.50 $ .49
================= ========================== ==============
12
BERNARD CHAUS, INC. AND SUBSIDIARIES
The following table summarizes information about the Company's outstanding and
exercisable stock options at September 30, 2003:
Outstanding Exercisable
---------------------------------------------- ---------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Contractual Exercise Exercise
Exercise Price Shares Life (Yrs.) Price Shares Price
- -------------------------------------------------------------------------------- ---------------------------
$0.38 3,000,000 2.09 $0.38 2,000,000 $0.38
$0.50 2,179,594 7.06 $0.50 2,002,928 $0.50
$0.69 10,000 6.75 $0.69 7,500 $0.69
$0.75 345,000 8.91 $0.75 86,250 $0.75
$0.84 500,000 4.16 $0.84 - $ -
$0.98 30,000 9.75 $0.98 - $ -
$3.00 10,000 5.75 $3.00 10,000 $3.00
$3.11 10,000 4.40 $3.11 10,000 $3.11
$3.50 5,000 4.75 $3.50 5,000 $3.50
- -------------------------------------------------------------------------------- ---------------------------
6,089,594 4.48 $.49 4,121,678 $0.46
- -------------------------------------------------------------------------------- ---------------------------
The outstanding stock options have a weighted average contractual life
of 4.5 years and 5.5 years as of September 30, 2003 and 2002, respectively. The
number of stock options exercisable at September 30, 2003, June 30, 2003 and
September 30, 2002 were 4,121,678, 3,180,916, and 2,181,061, respectively.
13
BERNARD CHAUS, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales for the quarter ended September 30, 2003 increased by 11.5 %,
or $4.0 million, to $38.8 million from $34.8 million for the quarter ended
September 30, 2002. The increase in net sales for the quarter was primarily due
to the increase in sales of the Company's private label business partially
offset by a decrease in sales of the Company's Chaus product lines. The increase
in net sales of the Company's private label business was partially due to the
Company's S.L. Danielle product lines, which the Company acquired in November
2002. The ongoing difficult women's retail environment, particularly in the
department store channel where the Chaus products are sold, continues to
adversely impact the Company's net sales.
Gross profit for the quarter ended September 30, 2003 decreased $0.3
million to $9.2 million as compared to $9.5 million for the quarter ended
September 30, 2002. As a percentage of net sales, gross profit decreased to
23.7% for the quarter ended September 30, 2003 from 27.2% for the quarter ended
September 30, 2002. The decrease in gross profit dollars and gross profit
percentage was primarily due to the lower sales volume and lower initial mark up
from the Company's Chaus product lines. The decrease in gross profit dollars
were partially offset by the gross profit from the Company's private label
business. The Company's private label business also affected the overall gross
profit percentage since this business generally carries a lower gross profit
percentage.
Selling, general and administrative ("SG&A") expenses increased by $0.3
million to $7.8 million for the quarter ended September 30, 2003 from $7.5
million for the quarter ended September 30, 2002. The increase was primarily due
to SG&A expenses related to the Company's S.L. Danielle product lines acquired
in November 2002. SG&A expenses as a percentage of net sales decreased to 20.2%
for the quarter ended September 30, 2003 compared to 21.7% for the quarter ended
September 30, 2002. The decrease in SG&A expense as a percentage of net sales
was due to the Company's ability to leverage its SG&A expenses on its increased
sales volume.
Interest expense was lower for the quarter ended September 2003 as
compared to the quarter ended September 2002 due to decreased bank borrowings
and lower interest rates.
The provisions for income taxes for the quarter ended September 30,
2003 reflects a provision for certain federal, state and local taxes. For the
quarter ended September 30, 2003, the Company's income tax provision includes
federal alternative minimum taxes (AMT) that are not offset by the Company's net
operating loss (NOL) carryforward from prior years. New Jersey enacted tax
legislation temporarily suspending the use of net operating loss (NOL)
carryforwards against income. Accordingly, for the quarter ended September 30,
2003, the Company has made provisions for additional state income taxes. See
discussion below under Critical Accounting Policies and Estimates regarding
income taxes and the Company's federal net operating loss carryforward.
Financial Position, Liquidity and Capital Resources
General
Net cash used in operating activities was $13.6 million for the three
months ended September 30, 2003 as compared to cash used in operating activities
of $4.0 million for the three months ended September 30, 2002. Cash used in
operating activities for such three month period of fiscal 2004 was primarily
the result of an increase in accounts receivable ($13.7 million) and an increase
in inventories ($3.7 million) partially offset by an increase in accounts
payable ($3.5 million).
14
BERNARD CHAUS, INC. AND SUBSIDIARIES
Cash used in investing activities in the three months ended September
30, 2003 was $0.2 million compared to $0.1 million in the previous year. The
capital expenditures for the three months ended September 30, 2003 consisted
primarily of management information system upgrades. The Company anticipates
additional capital expenditures of approximately $0.3 million for the remainder
of fiscal 2004.
Net cash provided by financing activities was $11.2 million for the
three months ended September 30, 2003 as the result of net proceeds from
short-term borrowing of $11.6 million partially offset by principal payments on
the Term Loan (as defined below) of $0.4 million. Net cash provided by financing
activities was $4.0 million for the three months ended September 30, 2002 as the
result of net proceeds from short-term borrowing.
Financing Agreement
On September 27, 2002, the Company and certain of its subsidiaries
entered into a new three-year financing agreement (the "Financing Agreement")
with The CIT Group/Commercial Services, Inc. ("CIT"), to replace the former
Financing Agreement discussed below. The Financing Agreement provides the
Company with a $50.5 million facility comprised of (i) a $40 million revolving
line of credit (the "Revolving Facility") with a $25 million sublimit for
letters of credit, a $3 million seasonal overadvance and certain other
overadvances at the discretion of CIT, and (ii) a $10.5 million term loan (the
"Term Loan").
At the option of the Company, the Revolving Facility and the Term Loan
each may bear interest either at the JPMorgan Chase Bank Rate ("Prime Rate") or
the London Interbank Offered Rate ("LIBOR"). If the Company chooses the Prime
Rate, the interest (i) on the Revolving Facility accrues at a rate of 1/2 of 1%
above the Prime Rate for fiscal 2003 and until the first day of the month
following delivery of the Company's consolidated financial statements for fiscal
2003 (the "2003 financials") to the Lender (the "Adjustment Date," i.e., October
1, 2003 ) and thereafter at a rate ranging from the Prime Rate to 3/4 of 1%
above the Prime Rate and (ii) on the Term Loan accrues at a rate of 1% above the
Prime Rate for fiscal 2003 and until the Adjustment Date of October 1, 2003 and
thereafter at a rate ranging from 1/2 of 1% above the Prime Rate to 1 1/4 %
above the Prime Rate. If the Company chooses LIBOR, the interest (i) on the
Revolving Facility accrues at a rate of 3 1/4% above LIBOR for fiscal 2003 and
until the Adjustment Date of October 1, 2003 and thereafter at a rate ranging
from 2 3/4% above LIBOR to 3 1/2% above LIBOR and (ii) on the Term Loan accrues
at a rate of 3 3/4% above LIBOR for fiscal 2003 and until the Adjustment Date of
October 1, 2003 and thereafter at a rate ranging from 3 1/4% above LIBOR to 4%
above LIBOR. All adjustments to interest rates are based upon the availability
under the Revolving Facility and certain fixed charge coverage ratios and
leverage ratios. The Company and CIT have agreed in principle that there will be
no change in the interest rates charged under the Revolving Facility or the Term
Loan at this time. The interest rate as of September 30, 2003 on the Revolving
Facility was 4.50% and on the Term Loan was 5.00%.
On September 27, 2002, the Company borrowed $18.3 million under the
Revolving Facility and $10.5 million under the Term Loan. These borrowings were
used to pay off the balances under the Former Financing Agreement of $18.3
million and the Former Term Loan of $10.5 million and for working capital
purposes. Commencing October 1, 2002, amortization payments in the amount of
$375,000 are payable quarterly in arrears in connection with the Term Loan. A
balloon payment of $6.0 million is due on September 27, 2005 under the Term
Loan. The Company's obligations under the Financing Agreement are secured by a
first priority lien on substantially all of the Company's assets, including the
Company's accounts receivable, inventory, intangibles, equipment, and
trademarks, and a pledge of the Company's equity interest in its subsidiaries.
The Financing Agreement contains numerous financial and operational
covenants, including limitations on additional indebtedness, liens, dividends,
stock repurchases and capital expenditures. In addition, the Company is required
to maintain (i) specified levels of tangible net worth, (ii) certain fixed
charge coverage ratios, (iii) certain leverage ratios, and (iv) specified levels
of minimum borrowing availability under the Revolving Facility. At
15
BERNARD CHAUS, INC. AND SUBSIDIARIES
September 30, 2003, the Company was in compliance with all of its covenants. The
Company is in discussions with CIT with regard to amending certain financial
covenants for fiscal 2004 (including the fixed charge coverage ratio and the
minimum borrowing availability covenants) to be consistent with the Company's
latest business plan for fiscal 2004. CIT has agreed in principle to support the
Company's revised business plan, subject to the negotiation and execution of a
definitive amendment to the Financing Agreement. In the event of the early
termination by the Company of the Financing Agreement, the Financing Agreement
provides that the Company will be liable for termination fees of (i) if
termination occurs within twelve months of the closing date, (a) $500,000 plus
(b) any unpaid portion of the $500,000 in minimum factoring commission fees
otherwise due in the first year of the term; or (ii) (a) if termination occurs
between the thirteenth and the twenty-fourth month from the closing date,
$350,000 plus (b) if termination occurs between the thirteenth and eighteenth
month from the closing date, any unpaid portion of the $250,000 minimum
factoring commission fees otherwise due for the first half of the second year of
the term ,; or (iii) if termination occurs after the twenty-fourth month from
the closing date, $150,000. The Company may prepay at any time, in whole or in
part, the Term Loan without penalty. The Financing Agreement expires on
September 27, 2005. A fee of $125,000 was paid in connection with the new
Financing Agreement.
On September 27, 2002 the Company also entered into a factoring
agreement with CIT (the "Factoring Agreement"). The Factoring Agreement provides
for a factoring commission equal to 4/10 of 1% of the gross face amount of all
accounts factored by CIT, plus certain customary charges. The minimum factoring
commission fee per year is $500,000. The Factoring Agreement will be terminated
after eighteen months provided that there is no event of default under the
Factoring Agreement at such time. Once terminated, the Company shall pay to CIT
a collateral management fee equal to $5,000 a month. Under the Factoring
Agreement, CIT may also require the Company to utilize CIT to continue to
perform certain bookkeeping, collection and management services and the Company
shall pay CIT an additional fee equal to 1/4 of 1% of the gross face amount of
all accounts, with a minimum aggregate commission of $300,000 per annum and a
minimum of $1.50 per invoice. The Company and CIT are in discussions regarding
the transition of the factoring agreement to a collateral management
arrangement. The costs and timing of a substitute arrangement, if any, have not
yet been agreed upon.
On November 27, 2002, the Company and CIT agreed to an amendment to the
Financing Agreement in order to facilitate the S.L. Danielle acquisition
discussed below. The Company and CIT agreed to add the Company's newly formed
wholly-owned subsidiary, S.L. Danielle Acquisition, LLC (the "Additional
Borrower"), as a co-borrower under the Financing Agreement and related Factoring
Agreement. Accordingly, the Company and CIT (i) amended the Financing Agreement
pursuant to a joinder agreement, which also constitutes Amendment No. 1 to the
Financing Agreement (the "Amended Financing Agreement"), and (ii) entered into a
new factoring agreement with the Additional Borrower, to add the Additional
Borrower as a co-borrower. The Company's and the Additional Borrower's
obligations under the Amended Financing Agreement are secured by a first
priority lien on substantially all of the Company's and the Additional
Borrower's assets, including the Company's and the Additional Borrower's
accounts receivable, inventory, intangibles, equipment, and trademarks, and a
pledge of the Company's stock interest and membership interest in the Company's
subsidiaries, including the Additional Borrower.
On September 30, 2003, the Company had $18.2 million of outstanding
letters of credit under the Revolving Facility, total availability of
approximately $6.1 million under the Financing Agreement and $11.6 in revolving
credit borrowings. At September 30, 2002, the Company had $11.0 million of
outstanding letters of credit, total availability of approximately $9.0 million
and borrowings of $7.6 million, under the Revolving Facility. At June 30, 2003,
the Company had $11.6 million of outstanding letters of credit under the
Revolving Facility, total availability of approximately $10.7 million under the
Financing Agreement and no revolving credit borrowings.
Until September 27, 2002, the Company had a financing agreement with
BNY Financial Corporation, a wholly owned subsidiary of General Motors
Acceptance Corp. ("GMAC") (the "Former Financing Agreement").
16
BERNARD CHAUS, INC. AND SUBSIDIARIES
The Former Financing Agreement consisted of two facilities: (i) the Former
Revolving Facility which was a $45.5 million five-year revolving credit line
(subject to an asset based borrowing formula) with a $34.0 million sublimit for
letters of credit, and (ii) the Former Term Loan which was a $14.5 million term
loan facility. Each facility had been amended to extend the maturity date until
April 1, 2003.
Interest on the Former Revolving Facility accrued at the greater of (i)
6% or (ii) 1/2 of 1% above the lender's prime rate and was payable on a monthly
basis, in arrears. Interest on the Former Term Loan accrued at an interest rate
equal to the greater of (i) 6.0% or (ii) a rate ranging from 1/2 of 1% above the
lender's prime rate to 1 1/2% above the lender's prime rate, which interest rate
was determined, from time to time, based upon the Company's availability under
the Revolving Facility. The interest rate on the Former Term Loan was 6.0%.
Future Financing Requirements
At September 30, 2003, the Company had working capital of $16.4 million
as compared with working capital of $14.2 million at September 30, 2002 and
working capital at June 30 2003 was $15.7 million. The Company's business plan
requires the availability of sufficient cash flow and borrowing capacity to
finance its product lines. The Company expects to satisfy such requirements
through cash flow from operations and borrowings under its financing agreements.
The Company believes that it has adequate resources to meet its needs for the
foreseeable future assuming that it meets its business plan and satisfies the
covenants set forth in the Financing Agreement , as expected to be amended.
The foregoing discussion contains forward-looking statements which are
based upon current expectations and involve a number of uncertainties, including
the Company's ability to maintain its borrowing capabilities under the new
Financing Agreement, retail market conditions, and consumer acceptance of the
Company's products.
S.L. Danielle Acquisition
On November 27, 2002, S.L. Danielle Acquisition, LLC ("S.L. Danielle"),
a newly formed subsidiary of the Company, acquired certain assets of S.L.
Danielle Inc. The results of S.L. Danielle's operations have been included in
the consolidated financial statements since that date. S.L. Danielle designs,
arranges for the manufacture of, markets and sells a women's apparel line,
principally under private labels. As a result of the acquisition, the Company
expects to increase its sales volume through the sale of S.L. Danielle products
assuming it can maintain existing customers for such lines and/or obtains new
customer relationships for such products.
The aggregate purchase price was approximately $5.1 million, including
cash of $4.4 million, 100,000 shares of common stock of the Company ("Common
Stock") valued at $84,000 and stock options to purchase 500,000 shares of Common
Stock valued at $384,000 and transaction costs of approximately $250,000. The
acquisition was funded by CIT through revolving credit borrowings of $4.6
million. The value of the 100,000 shares of Common Stock was determined based on
the average market price of the Common Stock over the 3-day period before and
after the date of the acquisition. The 500,000 stock options were granted at the
fair market value on the date of the acquisition and were valued using the
Black-Scholes option price model.
Critical Accounting Policies and Estimates
The Company's significant accounting policies are more fully described
in Note 2 to the consolidated financial statements included in the Company's
annual report on Form 10-K for the year ended June 30, 2003. Certain of the
Company's accounting policies require the application of significant judgment by
management in selecting the appropriate assumptions for calculating financial
estimates. By their nature, these judgments are subject to an inherent degree of
uncertainty. These judgments are based on historical experience, observation of
trends in the
17
BERNARD CHAUS, INC. AND SUBSIDIARIES
industry, information provided by customers and information available from other
outside sources, as appropriate. Significant accounting policies include:
Revenue Recognition - The Company recognizes sales upon shipment of
products to customers since title and risk of loss passes upon shipment.
Provisions for estimated uncollectible accounts, discounts and returns and
allowances are provided when sales are recorded based upon historical experience
and current trends. While such amounts have been within expectations and the
provisions established, the Company cannot guarantee that it will continue to
experience the same rates as in the past.
Accounts Receivable - Accounts Receivable are net of allowances and
anticipated discounts. An allowance for doubtful accounts is determined through
analysis of the aging of accounts receivable at the date of the financial
statements, assessments of collectibility based on historic trends and an
evaluation of the impact of economic conditions. This amount is not significant
primarily due to the Company's bad debt history and the factoring agreement. An
allowance for discounts is based on those discounts relating to open invoices
where trade discounts have been extended to customers. Costs associated with
potential returns of products as well as allowable customer markdowns and
operational charge backs, net of expected recoveries, are included as a
reduction to net sales and are part of the provision for allowances included in
Accounts Receivable. These provisions result from seasonal negotiations as well
as historic deduction trends, net expected recoveries and the evaluation of
current market conditions. As of September 30, 2003, June 30, 2003 and September
30, 2002, Accounts Receivable was net of allowances of $1.1 million, $1.9
million and $1.6 million, respectively.
Inventories - Inventory is stated at the lower of cost or market, cost
being determined on the first-in, first-out method. Reserves for slow moving and
aged merchandise are provided based on historical experience and current product
demand. Inventory reserves were $0.9 million at September 30, 2003 and 2002, and
$0.7 million at June 30, 2003. The increase in inventory reserves at September
30, 2003 is based upon the level of excess and aged inventory and the Company's
estimated recoveries on the sale of the inventory. While markdowns have been
within expectations and the provisions established, the Company cannot guarantee
that it will continue to experience the same level of markdowns as in the past.
Valuation of Long-Lived Assets and Goodwill - The Company periodically
reviews the carrying value of its long-lived assets for continued
appropriateness. This review is based upon projections of anticipated future
undiscounted cash flows. While the Company believes that its estimates of future
cash flows are reasonable, different assumptions regarding such cash flows could
materially affect evaluations. The Company evaluates goodwill whenever events
and changes in circumstances suggest that the carrying amount may not be
recoverable from its estimated future cash flows. To the extent these future
projections or the Company's strategies change, the conclusion regarding
impairment may differ from the current estimates.
Income Taxes - The Company's results of operations have generated a
federal tax net operating loss ("NOL") carryforward of approximately $100
million as of June 30, 2003. Generally accepted accounting principles require
that the Company record a valuation allowance against the deferred tax asset
associated with this NOL if it is "more likely than not" that the Company will
not be able to utilize it to offset future taxes. Due to the size of the NOL
carryforward in relation to the Company's history of unprofitable operations,
the Company does not recognize federal tax benefits of its losses and has
established a valuation allowance for all deferred tax assets. As a result, the
provision for income taxes primarily relates to state and local taxes. It is
possible, however, that the Company could be profitable in the future at levels
which cause management to conclude that it is more likely than not that the
Company will realize all or a portion of the NOL carryforward. Upon reaching
such a conclusion, the Company would record the estimated net realizable value
of the deferred tax asset at that time and would then provide for income taxes
at a rate equal to its combined federal and state effective rates. Subsequent
revisions to the estimated
18
BERNARD CHAUS, INC. AND SUBSIDIARIES
net realizable value of the deferred tax asset could cause the Company's
provision for income taxes to vary from period to period, although its cash tax
payments would remain unaffected until the benefit of the NOL is utilized.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk- The Company is subject to market risk from exposure
to changes in interest rates based primarily on its financing activities. The
market risk inherent in the financial instruments represents the potential loss
in earnings or cash flows arising from adverse changes in interest rates. These
debt obligations with interest rates tied to the prime rate are described in
"Liquidity and Capital Resources", as well as Note 3 of the Notes to the
Consolidated Financial Statements. The Company manages these exposures through
regular operating and financing activities. The Company has not entered into any
derivative financial instruments for hedging or other purposes. The following
quantitative disclosures are based on the prevailing prime rate. These
quantitative disclosures do not represent the maximum possible loss or any
expected loss that may occur, since actual results may differ from these
estimates.
At September 30, 2003 and 2002, the carrying amounts of the Company's
revolving credit borrowings and term loan approximated fair value. As of
September 30, 2003, the Company's revolving credit borrowings bore interest at
4.5% and the term loan bore interest at 5.0%. As of September 30, 2003, a
hypothetical immediate 10% adverse change in prime interest rates relating to
the Company's revolving credit borrowings and term loan would have a $0.1
million unfavorable impact on its earnings and cash flows over a one-year
period.
Item 4. Controls and Procedures.
The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed by the Company in
the reports filed or submitted by it under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms, and include controls and procedures designed to ensure that
information required to be disclosed by the Company in such reports is
accumulated and communicated to the Company's management, including the
Company's Chairwoman and Chief Executive Officer and the Company's Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
Each fiscal quarter the Company carries out an evaluation, under the
supervision and with the participation of the Company's management, including
Company's Chairwoman and Chief Executive Officer along with the Company's Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Exchange Act Rule
13a-15. Based upon the foregoing, the Company's Chairwoman and Chief Executive
Officer along with the Company's Chief Financial Officer, concluded that, as of
September 30, 2003, the Company's disclosure controls and procedures were
effective in timely alerting them to material information relating to the
Company (including its consolidated subsidiaries) required to be included in the
Company's Exchange Act reports.
During the fiscal quarter ended September 30, 2003, there has been no
change in the Company's internal control over financial reporting that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
19
BERNARD CHAUS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
Exhibits.
*31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
for Josephine Chaus.
*31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
for Barton Heminover.
*32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 for Josephine Chaus.
*32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 for Barton Heminover.
* Filed herewith
(b) The Company filed no reports on Form 8-K during the quarter ended
September 30, 2003.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BERNARD CHAUS, INC.
(Registrant)
Date: November 12, 2003 By: /s/ Josephine Chaus
--------------------
JOSEPHINE CHAUS
Chairwoman of the Board, and
Chief Executive Officer
Date: November 12, 2003 By: /s/ Nicholas DiPaolo
---------------------
NICHOLAS DIPAOLO
Vice Chairman of the Board, and
Chief Operating Officer
Date: November 12, 2003 By: /s/ Barton Heminover
---------------------
BARTON HEMINOVER
Chief Financial Officer
20
BERNARD CHAUS, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
EXHIBIT NUMBER EXHIBIT TITLE
- -------------- ---------------------------------------------------------------
31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 for Josephine Chaus.
31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 for Barton Heminover.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for
Josephine Chaus.
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for
Barton Heminover.
21