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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
___________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the fiscal year ended June 30, 1994
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from
______________________to________________________.
Commission file number 1-9169
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BERNARD CHAUS, INC.
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(Exact name of registrant as specified in its charter)
New York 13-2807386
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(State or other jurisdiction of (I.R.S employer identification number)
incorporation or organization)
1410 Broadway, New York, New York 10018
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 354-1280
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, $0.01 par value New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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 .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on September 16, 1994 was $27,112,524.
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
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September 16, 1994 Common Stock, $0.01 par value 18,352,331
Documents Incorporated by Reference Location in Form 10-K in which Incorporated
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Portions of registrant's Proxy Part III
Statement for the Annual Meeting
of Shareholders to be held on
November 22, 1994.
The Exhibit Index is located at page _______ of the manually executed
and sequentially numbered copy of this Form 10-K, totalling ________ pages.
PART I
ITEM 1. BUSINESS
Bernard Chaus, Inc., a New York corporation organized in 1975, together
with its subsidiaries, designs, arranges for the manufacture of and
markets an extensive range of women's clothing, principally under the
CHAUS and CHAUS SPORT trademarks. (Hereinafter, Bernard Chaus, Inc. and
its subsidiaries are referred to as the "Company".) The Company
provides apparel appropriate in a business environment as well as
apparel suitable for leisure and active wear. The Company's clothing
embodies "updated" styling, which combines contemporary fashion
influences with traditional or classic design, and is sold within the
"moderate" price category. The Company offers an extensive selection of
styles, colors, fabrics and size categories and directs its product mix
toward well-received styles. The Company believes that the increasing
number of career women contributed in prior years to the Company's
growth and to the growth of the market for updated women's apparel in
general. In recent years the Company has begun to tailor styles and
size categories to a somewhat older and more conservative customer
because the female population over thirty-five years of age is
increasing faster than that under thirty-five as a result of the aging
of the post-war or "baby boom" generation.
In September of 1994, the Company announced a restructuring plan which
entailed several initiatives designed to reduce expenses and improve and
control inventory position. These included overhead reductions,
centralization of certain functions, consolidation and closing of office
space and closing of selected retail outlets. Additionally the Company
announced the hiring of Andrew Grossman, former President of Jones
Apparel Group, as its new Chief Executive Officer.
To further strengthen the Company's operations, Josephine Chaus, Chief
Executive Officer and Chairwoman, has provided additional financial
support to the Company of $14.4 million. Half of the sum is in the form
of an increased letter of credit to provide additional working capital.
The remaining half represents proceeds from a cash infusion (See
Financial Condition, Liquidity And Capital Resources) that will be used
for costs and associated expenses related to the signing of the new
Chief Executive Officer.
PRODUCTS
The Company's four principal product lines are: a broad selection of
related separates, referred to in the apparel industry as career casual
sportswear (marketed under the CHAUS, CHAUS WOMAN and CHAUS PETITE
labels); blouses (marketed under the JOSEPHINE label); dresses (marketed
under the CHAUS DRESSES, CHAUS WOMAN DRESSES and CHAUS PETITE DRESSES
labels); and weekend casual sportswear (marketed under the CHAUS SPORT
and CHAUS JEANSWEAR labels). The Company produces collections of each
of these product lines for each of its six principal selling seasons:
Spring I, Spring II, Summer, Fall I, Fall II and Holiday. Spring and
Fall have been traditionally the Company's major selling seasons.
Career Casual Sportswear. The Company markets an extensive line of
career casual sportswear under the CHAUS label for misses sizes, the
CHAUS WOMAN label for larger sizes and the CHAUS PETITE label for smaller
sizes.
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These labels accounted for approximately 26%, 11% and 6%,
respectively, of the Company's net sales in fiscal 1994. Although the
Company adjusts its product mix to meet anticipated consumer demand, each
sportswear collection typically includes a broad selection of blouses,
jackets, sweaters, pants and skirts, as well as more casual apparel such
as knit tops, shirts, shorts and jumpsuits. Substantially all items in
these collections are sold as "separates" rather than as ensembles such as
suits. However, the collections are harmonized as to styles, color
schemes and fabrics to enable a consumer to assemble outfits consisting of
separate styles which are designed to be worn together.
Blouses. Under the JOSEPHINE label, the Company offers women's blouses
primarily appropriate in a business environment which are intended to
appeal to the more value-conscious consumer. On January 1, 1993, this
operation was consolidated into the Chaus Division to save costs and
refocus the product.
Dresses. The Company offers its line of moderately-priced dresses under
the CHAUS DRESSES, CHAUS WOMAN DRESSES and CHAUS PETITE DRESSES labels.
Dresses accounted for approximately 12% of fiscal 1994 net sales.
Weekend Casual Sportswear. The CHAUS SPORT and CHAUS JEANSWEAR labels,
consisting of casual jackets, sweaters, pants and skirts, knit tops,
shirts, shorts, and denim wearing apparel accounted for approximately 29%
of fiscal 1994 net sales.
The Company from time to time produces and makes available to certain of
its customers on a special order basis a limited number of styles of its
products.
The Company's products and certain of the fabrics from which they are made
are designed by a 29-person in-house staff of fashion designers.
Josephine Chaus, who is instrumental in the design function, and the design
staff meets from time to time with representatives of the Company's sales,
merchandising and production staffs to review the status of each
collection and to discuss adjustments in line composition, fabric and
color selection, garment construction and product mix. While the Company
believes that it has a highly professional design staff, there can be no
assurance that its present level of sales could be maintained if Josephine
Chaus's personal design and supervisory skills were no longer available to
the Company.
SALES AND MARKETING
During fiscal 1994, the Company's products were sold to over 340 trade
customers, principally major multi-unit department stores and retail
outlets throughout the United States. The Company's products are often
displayed together with moderately-priced, updated apparel produced by
competing manufacturers, including, in department stores, such stores' own
private label merchandise.
During fiscal 1994, approximately 74% of the Company's gross sales were
made to the Company's ten largest customers and approximately 87% of gross
sales were made to its 100 largest customers. Certain of these customers
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are under common ownership. For example, ten different multi-unit
department store customers owned by The May Department Stores Company
accounted for approximately 17% of gross sales and six different multi-
unit department store customers owned by Dillards Department Stores
accounted for approximately 17% and six different multi-unit department
store customers owned by Federated Department Stores accounted for
approximately 9% of the Company's gross sales in fiscal 1994. Assuming
the Federated/Macy's merger had occurred for fiscal 1994, sales to
department stores owned by the combined entity would have approximated
12%. Although the Company believes multi-unit department store customers
make their own decisions regarding purchases of the Company's products,
these decisions are affected generally by policies and guidelines adopted
by their parent companies. The Company believes that there is a trend
among such customers toward more centralized buying decisions. The
Company expects that its 100 largest customers will continue to account
for the overwhelming majority of its sales. In addition, during fiscal
1994 the Company generated approximately $9,000,000 in foreign sales.
The Company's selling operation is highly centralized. Sales are made by
the Company's employees primarily through the Company's New York City
showrooms. The Company does not employ outside sales representatives or
operate regional sales offices, but it does occasionally participate in
regional merchandise marts. This sales structure enables management to
control the Company's selling operation more effectively, limit travel
expenses, as well as to deal directly with, and be readily accessible to,
major customers. The Company assists its customers in allocating their
purchasing budgets among the items in the various product lines to enable
consumers to view the full range of the Company's offerings in each
collection. During the course of the retail selling seasons, the Company
monitors its customers' retail sales in order to assess directly, consumer
response to its products.
At June 30, 1994, the Company had 35 retail outlet stores as compared to
32 stores at June 30, 1993. The retail outlet stores operation is now
located throughout the country from New York to California. These outlet
stores are operated in traditional factory outlet centers in locations
intended not to conflict with the Company's major retail department store
customers. As part of the Company's restructuring, one store was closed
in fiscal 1994 and four stores will be closed in fiscal 1995.
The Company maintains a limited cooperative advertising program under
which it reimburses, in certain circumstances, a portion of a customer's
advertising expenditures to promote the Company's products. Except for
this cooperative advertising program, the Company has not engaged in any
direct advertising to the public. The Company's cooperative advertising
expenditures were approximately $1,649,000 in fiscal 1994.
MANUFACTURING
The Company does not own any manufacturing facilities. The Company
obtained substantially all (approximately 85%) of its products directly
from over 260 independent suppliers located primarily in South Korea, Hong
Kong, Taiwan, the Philippines, China, Indonesia and elsewhere in the Far
East. Approximately 15% of the Company's products were manufactured in
Israel, India and the Caribbean Basin. No contractual obligations exist
between the Company and its manufacturers except on an order-by-order
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basis. During fiscal 1994, the Company purchased approximately 47% of its
finished goods from its ten largest manufacturers, including approximately
10% of its finished goods from its largest manufacturer, which is located
in the Philippines and Sri Lanka. Contracting with foreign manufacturers
enables the Company to take advantage of prevailing lower labor rates, to
use a skilled labor force to produce high quality products and to have
more flexibility to provide raw materials (piece goods) to the
manufacturer.
Normally, each manufacturer agrees to produce finished garments on the
basis of purchase orders from the Company, supported by a letter of credit
naming the manufacturer as beneficiary to secure payment for the finished
garments. The manufacturer generally purchases all necessary fabrics and
raw materials from suppliers from which such fabrics and raw materials
have been previously ordered by the Company. The Company itself will
occasionally purchase fabrics and other raw materials.
The Company's technical production support staff located in New York City
produces patterns, prepares production samples from the patterns for
modification and approval by the Company's design staff, and marks and
grades the patterns in anticipation of production. While the factories
have the capability to perform these services, the Company believes that
its personnel can best express its design concepts and efficiently
supervise production to better ensure that a quality product is produced.
Once production fabric is shipped to them, the manufacturers produce
finished garments in accordance with the production samples and obtain
necessary quota allocations and other requisite customs clearances.
Branch offices of the Company's subsidiaries in Korea, Hong Kong, and
Taiwan and the Company's employees based in Italy and India, monitor
production at each manufacturing facility to control quality, compliance
with the Company's specifications and timely delivery of finished
garments, and arrange for the shipment of finished products to the
Company's New Jersey distribution center.
The Company believes that the number and geographical diversity of its
manufacturing sources minimize the risk of adverse consequences that would
result from termination of its relationship with any of its larger
manufacturers. The Company also believes that it would have the ability
to develop, over a reasonable period of time, adequate alternate
manufacturing sources should any of its existing arrangements terminate.
However, should any substantial number of such manufacturers become unable
or unwilling to continue to produce apparel for the Company or to meet
their delivery schedules, or if the Company's present relationships with
such manufacturers were otherwise materially adversely affected, there can
be no assurance that the Company would find alternate manufacturers of
finished goods on satisfactory terms to permit the Company to meet its
commitments to its customers on a timely basis. In such event, the
Company's operations could be materially disrupted, especially over the
short-term. The Company believes that relationships with its major
manufacturers are satisfactory.
The Company uses a broad range of fabrics in the production of its
clothing, which is primarily made from synthetic fibers (including
polyester and acrylic), as well as from natural fibers (including cotton
and wool) and blends of natural and synthetic fibers. The Company does
not have any formal, long-term arrangements with any fabric or other raw
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material supplier. During fiscal 1994, virtually all of the fabrics used
in the Company's products were ordered from the Company's five largest
suppliers, which are located in Japan, Taiwan and Korea. The Company
selects the fabrics to be purchased, which are generally produced for it
in accordance with its own specifications. To date, the Company has not
experienced any significant difficulty in obtaining fabrics or other raw
materials and considers its sources of supply to be adequate.
The Company operates under substantial time constraints in producing each
of its collections. Orders from the Company's customers generally precede
the related shipping period by up to five months. However, proposed
production budgets are prepared substantially in advance of the Company's
initial commitments for each collection. In order to make timely delivery
of merchandise which reflects current style trends and tastes, the Company
attempts to schedule a substantial portion of its fabric and manufacturing
commitments relatively late in a production cycle. In order to secure
adequate amounts of quality raw materials, especially greige (i.e.,
"undyed") goods, the Company must make substantial advance commitments to
suppliers of such goods, often as much as seven months prior to the
receipt of firm orders from customers for the related merchandise. Many
of these early commitments are made subject to changes in colors,
assortments and/or delivery dates.
The Company's arrangement with its manufacturers and suppliers are subject
to the risks attendant to doing business abroad, including the
availability of quota and other requisite customs clearances, the
imposition of export duties, political and social instability, currency
revaluations and restrictions on the transfer of funds. Bilateral
agreements between exporting countries, including those from which the
Company imports substantially all of its products, and the United States
imposition of quotas limits the amount of certain categories of
merchandise, including substantially all categories of merchandise
manufactured by the Company, that may be imported into the United States.
Furthermore, the majority of such agreements contain "consultation
clauses" which allow the United States to impose at any time restraints on
the importation of categories of merchandise which, under the terms of the
agreements, are not subject to specified limits. The bilateral agreements
through which quotas are imposed have been negotiated under the framework
established by the Arrangement Regarding International Trade in Textiles,
known as the Multifiber Arrangement.
The United States and the countries in which the Company's products are
manufactured may, from time to time, impose new quotas, duties, tariffs or
other restrictions, or adversely adjust presently prevailing quotas, duty
or tariff levels, with the result that the Company's operations and its
ability to continue to import products at current or increased levels
could be adversely affected. The Company cannot now predict the
likelihood or frequency of any such events occurring.
The Company monitors duty, tariff and quota-related developments, and
seeks continually to minimize its potential exposure to quota-related
risks through, among other measures, geographical diversification of its
manufacturing sources, allocation of production of merchandise categories
where more quota is available and shifts of production among countries and
manufacturers. The expansion in the past few years of the Company's
varied manufacturing sources and the variety of countries in which it has
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manufacturing arrangements, although not the result of specific import
restrictions, have had the result of reducing the adverse effect of any
increase in such restrictions.
Substantially all of the Company's products are subject to United States
customs duties. In the ordinary course of business, the Company, from
time to time, is subject to claims by the United States Customs Service
("Customs") for duties and other charges and is entitled to refunds from
Customs due to overpayment of duties by the Company and may be required to
pay penalties with respect to underpayment of duties. The Company
conducted an internal review, on its own initiative, with respect to the
declared price of certain of its imported finished goods to determine
whether such price had been understated because of a failure to include
the cost of raw materials provided by the Company to certain of its
manufacturers, as well as the cost of shipping such raw materials by air
freight to such manufacturers. During fiscal 1987, the Company made a
voluntary tender to Customs of duties and other charges believed to be due
with regard to such finished goods and as a result, in accordance with
routine administrative procedure in voluntary disclosure and tender
situations, Customs initiated an audit to verify the accuracy of the
Company's submission and records. At the conclusion of the audit, Customs
officials informally advised the Company that further duties in the amount
of approximately $700,000 plus penalties and interest may be assessed
against the Company. The Company believes that these additional duties
relate principally to items of U.S. origin which are not dutiable and
intends to vigorously contest any claims that may be made by Customs. The
Company and Customs have been reviewing the $700,000 duty amount which has
now been substantially reduced; penalties and interest, however, may still
be imposed. In addition to the original 1987 tender of $161,000, the
Company tendered $500,000 to U.S. Customs in December 1991 as an offer-in-
compromise in order to settle this matter. The offer is pending at U.S.
Customs headquarters and the Company is awaiting a decision.
Almost all finished goods are shipped to the Company's New Jersey
distribution center for final inspection, assembly into collections,
allocation and shipment to customers.
BACKLOG
At September 20, 1994, the Company's order book reflected unfilled
customer orders for approximately $62.6 million of merchandise (compared
to a backlog of $44.2 million at September 20, 1993), all of which is
scheduled for delivery during fiscal 1995. The Company does not believe
that cancellations, rejections or returns will materially reduce the
amount of sales realized from such backlog. Order book data at any date
are materially affected by the timing of the initial showing of
collections to the trade, as well as by the timing of recording of orders
and of shipments. Accordingly, order book data do not provide meaningful
period to period comparisons as of specific dates, and comparisons of
backlog information with such information as of specific dates for prior
periods is not necessarily indicative of future results.
TRADEMARKS
CHAUS, CHAUS ESSENTIAL, CHAUS SPORT, CHAUS WOMAN and MS. CHAUS are
registered trademarks of the Company in the United States for use on
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ladies' garments. These trademarks are renewable in the years 2004, 2008,
2002, 2004 and 2005, respectively. JOSEPHINE is also a registered
trademark of the Company in the United States, renewable in the year 2001
for use on ladies' blouses and sweaters. The Company considers its
trademarks to have significant value in the marketing of its products.
The Company has also registered its CHAUS and JOSEPHINE marks for ladies'
gamrments in certain foreign countries and has applied for registration of
its trademarks in certain foreign countries for selected women's
accessories including handbags, small leather goods and footwear.
COMPETITION
The women's apparel industry is highly competitive, both within the United
States and abroad. Many apparel companies are larger in size and have
greater financial resources than the Company. The updated, moderately-
priced apparel which the Company produces constitutes only one of the many
types of women's apparel, and the Company is not aware of any
comprehensive trade statistics to enable it to determine how many
companies in the apparel industry produce garments which compete with the
Company's products. However, management believes, based on its knowledge
of the market, that the Company is one of the largest producers (measured
by sales) of updated, moderately-priced women's sportswear in the United
States.
The Company believes that an ability to effectively anticipate, gauge and
respond to changing consumer demand and tastes relatively far in advance,
as well as an ability to operate within substantial production and
delivery constraints (including obtaining necessary quota allocations), is
necessary to compete successfully in the women's apparel field. Consumer
and customer acceptance and support, which depend primarily upon styling,
pricing, quality (both in material and production), and product identity,
are also important aspects of competition in this industry. The Company
believes that its success will depend upon its ability to remain
competitive in these areas.
Furthermore, the Company's traditional department store customers, which
account for a very substantial portion of the Company's business,
encounter intense competition from so-called "off-price" and discount
retailers, mass merchandisers, and specialty stores. The Company believes
that its ability to increase its present levels of sales will depend on
such department store customers' ability to maintain their competitive
position and the Company's ability to increase its market share of sales
to department stores.
EMPLOYEES
At June 30, 1994, the Company employed 797 full-time employees. Of such
employees, 109 were engaged in management and internal administration; 29
in design; 140 in production and production administration; 275 in
marketing, merchandising and sales (including 222 employees in the retail
outlet store operation); and 107 in shipping. Of the Company's total
employees, approximately 137 were located in the Far East and Europe.
The Company is a party to a collective bargaining agreement with the
Amalgamated Workers Union, Local 88, covering approximately 160 full-time
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employees. This agreement expires in August 1996.
The Company considers its relations with its employees to be satisfactory
and has not experienced any interruption of operations due to labor
disagreements with its employees.
EXECUTIVE OFFICERS
The executive officers of the Company are:
Name Age Position
------ ----- ----------
Richard A. Baker 48 President
Josephine Chaus 43 Chief Executive Officer and Chairwoman of
the Board (1)
Michael Fieman 63 Executive Vice President - Production
Wayne S. Miller 37 Executive Vice President - Finance and
Administration, Chief Financial Officer
Marc A. Zuckerman 43 Treasurer
_____________________
(1) Effective September 28, 1994, Andrew Grossman commences employment as
the Company's Chief Executive Officer and a member of the two-person
Office of the Chairman, which he will share with Josephine Chaus. Since
September 13, 1994, Mr. Grossman has been a director of the Company.
Prior to September 2, 1994, Mr. Grossman was President from 1991-1994 and
Executive Vice President from 1990 to 1991 of Jones Apparel Group and Vice
President of Merchandising for Jones New York from 1987 through 1990.
Prior to joining Jones in 1986, Mr. Grossman was employed by Willi Wear
Ltd., Herbert Grossman Enterprises, the Ralph Lauren Womens Wear division
of Bidermann Industries, Inc. and the Evan Picone division of Palm Beach
Inc.
Executive officers serve at the discretion of the Board of Directors.
Bernard Chaus was Chairman of the Board and Chief Executive Officer since
founding the Company in 1975 until his death on May 31, 1991.
Richard Baker has been the President of the Company since February 15,
1993. From 1986 to 1992 he was employed by Esprit de Corp., a firm
engaged in the apparel business, first as president of Esprit Sport and
then, for five years as president of Esprit de Corp. Womenswear.
Josephine Chaus has been employed by the Company in various capacities
since its inception. She has been a director of the Company since 1977,
President from 1980 through February 1993, Vice Chairman of the Board
from 1982 through 1991 and Chief Executive Officer and Chairwoman of the
Board since July 22, 1991. In September 1994, the Company engaged Andrew
Grossman as its Chief Executive Officer (see note (1) above).
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Michael Fieman joined the Company and was appointed Executive Vice
President - Production in November 1991. Prior to that he was Vice
President - International Operations at Liz Claiborne from 1990 to 1991.
From 1988 to 1990 he was with Leslie Fay as President of the Shapely
Division.
Wayne S. Miller joined the Company and was appointed Executive Vice
President - Finance and Administration and Chief Financial Officer of the
Company in June 1994. From April 1994 to June 1994 he was Crisis Manager
at USA Classic, Inc. From February 1994 to March 1994 he was a consultant
to various apparel companies. From October 1990 to January 1994 he was
President and Chief Executive Officer of Publix Group, L.P. Prior to that
he was Chief Financial Officer at Basco All-American Sportswear Corp.
Marc A. Zuckerman was appointed Treasurer of the Company in October 1989.
He had been employed by the Company from March 1988 to July 1989, as its
Director of Corporate Credit. From July to October 1989, he was Director
of Corporate Credit and then Assistant Treasurer of Warnaco.
ITEM 2. PROPERTIES
The Company's principal executive offices are located in modern, leased
facilities at 1410 Broadway, New York City, consisting of approximately
39,000 square feet. These facilities also house the Company's showrooms
and its sales, design and merchandising staffs. This space is occupied
under several leases expiring through 1996. Net base rental expense
aggregated approximately $2,060,000 (approximately $800,000 of which is
included in restructuring expenses) for fiscal 1994 and are expected to
aggregate approximately $1,165,000 (plus an amount to reflect increases in
the consumer price index) for fiscal 1995.
The Company also leases (pursuant to two leases) approximately 34,000
square feet of space at 520 Eighth Avenue, New York City, which houses its
technical production support facilities (including its sample and pattern
makers). Net base rental expense for this space aggregated approximately
$413,000 for fiscal 1994. The leases for this facility expire in January
1995 and the Company will eliminate one lease, reduce its square feet of
space to 19,000 and expects the aggregate base rental expense to be
approximately $305,000 for fiscal 1995.
The Company leases approximately 455,000 square feet in Secaucus, New
Jersey. Such facilities house the Company's production, administrative,
finance and accounting personnel, computer operations, one retail outlet
store, and serve as its warehouse and distribution centers. The leases
for the Secaucus facilities expire in 1996. Base rental expense for the
Secaucus facilities aggregated approximately $2,382,000 (approximately
$600,000 of which is included in restructuring expenses) for fiscal 1994
and are expected to aggregate approximately $1,403,000 in fiscal 1995.
The Company also leases space in Hong Kong, Korea, Taiwan, the Philippines
(closed in June 1994) and Italy with annual aggregate rental expense of
approximately $715,000 for fiscal 1994. The Company anticipates that
aggregate annual rental expense in fiscal 1995 will be comparable to the
rental expense made in fiscal 1994.
The Company also leases space for its retail outlet operation with the
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average store consisting of approximately 3,000 square feet. The annual
aggregate base rental expense for such facilities in fiscal 1994 was
approximately $3,300,000 (approximately $1,400,000 of which is included in
restructuring expenses) and is expected to be approximately $1,800,000 for
fiscal 1995.
The Company believes that its existing facilities are well maintained and
in good operating condition and will continue to be adequate for its
present and anticipated levels of operations.
See Note 10 of Notes to Financial Statements for further information
regarding the Company's current material lease obligations.
ITEM 3. LEGAL PROCEEDINGS
By order dated September 1, 1992, Federal Judge Shirley Wohl Kram
dismissed with prejudice as time-barred the Amended Complaint against the
Company and others, in the previously reported consolidated class actions
entitled Phifer v. Chaus et al., Goldschlack v. Chaus et al., Susman v.
Chaus et al. and I. Bibcoff Inc. Pension Trust Fund v. Chaus et al. In
such actions, claims were asserted against the Company and others,
including the Company's lead underwriters, for alleged misstatements and
omissions contained in the Company's July 1986 Prospectus delivered in
connection with the Company's initial public offering and its 1986 and
1987 Annual Reports. Plaintiffs's attorneys filed a notice of appeal,
which they subsequently withdrew subject to the right to restore the
appeal by January 8, 1993. No such appeal was made and the action was
automatically deemed dismissed with prejudice.
On April 19, 1993, a Class Action Complaint was filed in the Superior
Court of New Jersey, Hudson County, against the Company and others,
including the lead underwriter of the Company's 1986 initial public
offering, alleging common law fraud and negligent misrepresentation in the
sale of the Company's stock in its initial public offering, allegations
that are substantially similar to the claims that were dismissed with
prejudice in the federal court. One of the plaintiffs from the federal
action was originally a party in this action in state court. On June 18,
1993, the Company received by mail, a copy of Jury Demand Class Action in
the Superior Court of New Jersey, Hudson County entitled Theodore M.
Wietecha and Lisa A. Phifer v. Bernard Chaus, Inc. et al. The complaint
was amended in September 1993 to delete Lisa Phifer as a plaintiff. On
May 27, 1994, the Company moved to dismiss the complaint and/or to deny or
limit class status. The motion is before the court for decision.
While a negative outcome in this action could have a material adverse
effect on the Company, management believes that such action is without
merit and that the Company has both substantive and procedural bases for
contesting this latest action. The Company intends to defend itself
vigorously against this claim. Because the underlying claims asserted in
the action have not been the subject of discovery and because of the
preliminary procedural posture of the action, no estimate of any possible
loss due to this action can presently be made.
The Company has also negotiated an agreement with its directors and
officers liability insurance carrier whereby the Company will obtain
interim reimbursement of certain expenses incurred by the Company in
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connection with these actions because a portion of such expenses may be
attributable to the defense of its directors and officers, with full
reservation of rights under the policy of the Company, the directors and
officers and the insurance carrier upon the ultimate disposition of the
actions.
A claim for indemnification has been asserted by the Company's
former Underwriters against the Company. The indemnification claim
demands repayment of the legal fees and expenses incurred by the
Underwriters in connection with the consolidated class actions entitled
Pfifer v. Chaus, et al. Discussions are ongoing with counsel for the
Underwriters to resolve this claim.
The Company is also involved in various other legal proceedings arising
out of the conduct of its business.
The Company believes that the eventual outcome of the proceedings referred
to above will not have a material adverse effect on the Company's
financial condition.
For a description of certain duties which may be assessed by Customs
against the Company, see "Manufacturing" under Item 1 "Business" above.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
None.
I-11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDERS MATTERS.
The Company's Common Stock is traded on the New York Stock Exchange
("NYSE") under the symbol "CHS". The range of high and low sales prices
for the Common Stock on the New York Stock Exchange composite tape (as
reported by The National Quotation Bureau) through September 16, 1994 is
as follows:
Fiscal 1994 Fiscal 1993
---------------- ----------------
High Low High Low
---------------- ----------------
1st Quarter......... $3.75 $2.625 $ 9.25 $6.125
2nd Quarter......... 3.125 1.75 10.00 6.25
3rd Quarter......... 2.625 1.625 7.25 4.50
4th Quarter......... 3.75 1.75 5.625 3.25
Fiscal 1995
----------------
High Low
----------------
1st Quarter to Sept. 16, 1994 ............ $4.375 $1.75
On September 16, 1994, the last sales price of the Company's Common
Stock, as reported on the New York Stock Exchange Composite Tape (as
reported by The Wall Street Journal), was $4.00.
As of June 30, 1994 the approximate number of record holders of the
Company's Common Stock was 1,300.
The Company does not plan to pay any dividends on its Common Stock
within the foreseeable future. Any such dividend would, in any event,
be subject to compliance with covenants contained in the Company's
Financing Agreement (as defined herein), which currently prohibits
payment of dividends.
I-12
ITEM 6. SELECTED FINANCIAL DATA.
The following financial information is qualified by reference to, and
should be read in conjunction with, the Financial Statements, related
Notes, and Management's Discussion and Analysis of Financial Condition and
Results of Operations contained elsewhere herein.
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA: Fiscal Year Ended June 30,
------------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
Net sales ............$206,332 $235,819 $254,190 $232,444 $291,101
Cost of goods
sold ............... 186,594 187,423 196,415 192,369 233,657
Selling, general
and administra-
tive expenses ....... 55,400 57,410 50,016 51,600 53,190
Restructuring expenses. 5,300
Unusual expenses....... 1,900
Interest expense....... 3,439 2,322 2,474 1,968 2,020
(Loss) income before
income taxes.........(46,491) (10,887) 5,757 (12,839) 2,488
Net (loss) income......(46,755) (10,989) 5,469 (12,004) 1,515
Net (loss) income
per share (1)........ (2.55) (.60) .30 (.66) .08
BALANCE SHEET DATA:
June 30, June 30, June 30, June 30, June 30,
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
Working capital........$ 3,342 $40,923 $51,964 $57,397 $60,055
Total assets .......... 51,619 90,208 86,489 82,571 81,757
Short-term debt,
including current
portion of
long-term debt....... 21,365 17,504 9,910 51
Long-term debt......... 18,789 14,730 14,820 24,730 14,730
Shareholders' (deficit)
equity ..............(13,614) 33,147 43,328 37,683 51,249
____________________
(1) Computed by dividing net (loss) income by the weighted average
number of Common and Common Equivalent Shares outstanding during
the years. For the fiscal years ended 1994, 1993, and 1991, Common
Equivalent Shares were not considered as the inclusion of such
would have been antidilutive.
I-13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, certain items
expressed as a percentage of net sales.
Fiscal Year Ended June 30,
---------------------------
1994 1993 1992
------ ------ -------
Net sales............................... 100.0% 100.0% 100.0%
Cost of goods sold...................... 90.4 79.5 77.3
Selling, general and administrative
expenses.............................. 26.9 24.3 19.7
Restructuring expenses.................. 2.5
Unusual expenses........................ 0.9
Interest and other income............... (0.1) 0.2 0.2
Interest expense........................ 1.7 1.0 1.0
(Loss) income before
extraordinary item.................... (22.7) (4.6) 1.4
Net (loss) income....................... (22.7) (4.6) 2.2
FISCAL 1994 COMPARED TO FISCAL 1993
For the fiscal year ended June 30, 1994, net sales decreased by $29.5
million (12.5%) compared to the prior year. Of this decrease, $7.5
million (58.3%) was attributable to blouses, $7.4 million (11.0%) was
attributable to weekend casual sportswear, $1.3 million (5.0%) was
attributable to dresses, $15.3 million (14.6%) was attributable to
sportswear and $.6 million (13.9%) was attributable to the Company's
Canadian operation, offset somewhat by an increase of $2.6 million (12.1%)
attributable to the retail outlet operation. All percentages in parenthesis
compare net sales in fiscal 1994 to net sales in fiscal 1993. Sales amounts
by product line are exclusive of merchandise sold by the retail outlet
operation.
The sales decrease is primarily due to lower average unit selling prices and
higher promotional allowances to accelerate and increase sell-through at the
retail level. The Company reduced domestic standard selling prices and
anticipated a more favorable business trend which would have enabled it to
increase sales; however, the unanticipated continuation of reduced consumer
spending for women's apparel resulted in less purchasing of the Company's
product. As a result, the Company sold less units at regular price,
liquidated excess inventory at reduced prices and had higher promotional
allowances to accelerate and increase sell-through at the retail level.
During fiscal year 1994, the Company's retail outlet operation increased
from 32 stores on June 30, 1993 to 35 stores on June 30, 1994. The new
stores that were opened contributed approximately $1.7 million of the
$2.6 million increase in retail operation sales. Comparative same store
operations from last year to this year (twenty-one stores) showed a combined
total sales decrease of approximately 3.5%. Pursuant to the Company's
restructuring as indicated below, the Company closed one store during fiscal
1994 and plans to close four stores in fiscal 1995.
I-14
Cost of goods sold as a percentage of net sales increased to 90.4% from
79.5% as compared to the prior year. The increase in such costs, as a
percentage of net sales, was primarily attributable to the disposal of
excess inventories throughout the year at reduced prices, combined with an
increase in promotional allowances.
Selling, general and administrative expenses, as a percent of net sales,
increased to 26.9% from 24.3% as compared to the prior year. The actual
dollar expense decrease of $2.0 million represents expenses recorded as
restructuring and unusual expenses.
In June 1994, the Company recorded restructuring expenses of $5,300,000.
The restructuring expenses primarily relate to the Company's plan to reduce
overhead costs, consolidate its office locations and close selected retail
outlet stores. The restructuring expenses include $2,100,000 for the
closing of selected retail stores, $2,500,000 for the consolidation of
office space in New York, office and warehouse space in New Jersey and the
closing of the Company's Philippines office and $700,000 for employee
severance. The Company believes that its remaining retail stores will not
only provide direct contributions to income but will also enhance the
Company's ability to manage its inventory without affecting its principal
channels of distribution.
In addition, in June 1994, the Company recorded unusual expenses of
$1,900,000. These primarily relate to expenses arising from the
abandonment of fixed assets, legal fees and winding down of the Company's
Canadian joint venture operation.
Interest expense increased compared with last year primarily due to higher
bank borrowings as well as the higher interest rate on subordinated debt.
FISCAL 1993 COMPARED TO FISCAL 1992
For the fiscal year ended June 30, 1993, net sales decreased by $18.4
million (7.2%) compared to the prior year. Of this decrease, $22.1 million
(63.1%) was attributable to blouses, $12.7 million (16.1%) was attributable
to weekend casual sportswear, $7.9 million (24.0%) was attributable to
dresses and $3.1 million (100.0%) was attributable to better sportswear, an
operation that was discontinued in fiscal 1992, offset somewhat by increases
of $15.4 million (17.2%) attributable to sportswear and $8.0 million (59.8%)
attributable to the retail outlet operation. All percentages in parenthesis
compare net sales in fiscal 1993 to net sales in fiscal 1992. Sales amounts
by product line are exclusive of merchandise sold by the retail outlet
operation.
The sales decrease was primarily due to a combination of reduced unit sales
and lower average unit selling prices. The Company continued its strategy
of reduced domestic standard selling prices and anticipated a more favorable
business trend which would have enabled it to increase sales; however, weak
retail spending patterns for women's apparel resulted in the Company's
customers ordering less than was anticipated. As a result, the Company sold
less units and had higher than anticipated inventory levels at June 30,
1993.
During fiscal year 1993, the Company continued the expansion of its retail
outlet operation from 23 stores on June 30, 1992 to 32 stores on June 30,
I-15
1993. The new stores that were opened contributed approximately $5.0
million of the $8.0 million increase in retail operation sales. Comparative
same store operations from last year to this year (nine stores) showed a
combined total sales decrease of approximately 8.5%.
Cost of goods sold as a percentage of net sales increased to 79.5% from
77.3% as compared to the prior year. The increase in such costs, as a
percentage of net sales, was primarily attributable to an increase in the
markdown required on our excessive inventory at June 30, 1993 which
increased cost of goods sold combined with an increase in returns and
allowances which reduced net sales.
Selling, general and administrative expenses, as a percent of net sales,
increased to 24.3% from 19.7% as compared to the prior year. The actual
dollar increase of $7.4 million was comprised primarily of increases in the
retail outlet operation due to expansion ($2.8 million), an increase in the
international operation ($1.0 million) and increased design, merchandising
and production costs.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash (used in) provided by operating activities was ($5,020,000) in
fiscal 1994, ($29,053,000) in fiscal 1993 and $16,074,000 in fiscal 1992.
The net cash used in operating activities in the current fiscal year
resulted primarily from the net loss ($46.8 million) and a reduction in
accounts payable ($5.2 million), offset somewhat by decreases in accounts
receivable ($12.7 million) and inventories ($20.5 million).
Historically, the Company has not required major capital expenditures. In
fiscal 1994 and 1993, purchases of fixed assets were $1.4 million and $2.3
million, respectively, consisting primarily of improvements in the Company's
New Jersey warehouse facilities, New York design and showroom facilities,
additional computer and telecommunications equipment, and for the expansion
of the retail outlet operation. In fiscal 1995, the Company anticipates
capital expenditures of approximately $1.5 million, consisting primarily of
expenditures for its warehouses, design facilities and the purchase of
additional computer software systems.
The Company has in place a Restated and Amended Financing Agreement (the
"Financing Agreement") with BNY Financial Corporation ("BNYF"), a wholly
owned subsidiary of The Bank of New York. Effective as of October 1, 1993,
the Financing Agreement provides to the Company a total line of credit up to
an aggregate of $60 million, including letter of credit and direct
borrowings, with a sublimit for loans and advances of $20 million. The
Financing Agreement contains a borrowing base formula which is the sum of
(i) 85% of eligible receivables, less reserves, (ii) 40% of eligible
inventory, up to $27 million and (iii) 100% of excess cash balances, all as
defined in the agreement. However, BNYF may decrease or increase the above
percentages in the borrowing base. The Company's indebtedness under the
Financing Agreement is collateralized by the Company's accounts receivable
and inventory. Such agreement requires the Company to comply quarterly with
various financial tests including tangible net worth of at least $47.5 million,
working capital of at least $40 million and restrictions on payment of
principal and interest on subordinated indebtedness unless certain conditions
are met. Such agreement also requires the Company to comply with various other
restrictions including, but not limited to, a restriction on the payment of
dividends. Interest on direct borrowings is payable monthly at an annual rate
which is the higher of (a) 1/2 of 1% above the prime rate of the Bank of New
York (7.25% at June 30, 1994, and 6.0% at June
I-16
30, 1993) or (b) 1% above the federal funds rate, as defined. Additional
interest at 2-1/2% per annum is due on amounts not paid when due. In
addition, the agreement provides for the payment of minimum service charges
and/or interest which for the fiscal year ended June 30, 1994, aggregated
approximately $900,000. The Financing Agreement may be cancelled by the
Company any time after July 1, 1995, upon 60 days prior written notice to
BNYF or prior to July 1, 1995 upon 60 days written notice to BNYF and the
payment of an early termination fee. The Financing Agreement is cancellable
by BNYF effective July 1, 1995 or any July 1 thereafter, upon 60 days
written notice to the Company.
During all four quarters of fiscal year 1994, the Company was not in
compliance with certain financial covenants. BNYF has waived such
noncompliance.
The Company is currently negotiating with its bank for modification of
certain financial covenants for the future in order to provide the latitude
and resources necessary for future programs. The Company believes that this
negotiation will be successfully completed in the near future. However,
there can be no assurance that the Company will be able to obtain the
necessary modifications.
Josephine Chaus has provided a $7.2 million letter of credit expiring April
15, 1995 (increased from previous amounts provided by her of $3.0 million in
April 1994 and $5.0 million in June 1994 and extended from the previous
expiration date of October 15, 1994) to support the Company's credit
facility. In exchange for this letter of credit, BNYF is providing at least
an additional $12.2 million of credit availability under the Company's
borrowing formula. To compensate Ms. Chaus for the letter of credit, an
independent committee of the Company's Board of Directors has authorized the
issuance to her of warrants to purchase an aggregate of 544,000 shares of
Common Stock at exercise prices ranging from $2.25 to $3.00 (in each case equal
to 120% of the market price on the authorization date) and warrants to
purchase additional shares of Common Stock at an exercise price
equal to 120% of the five days trading average of the closing sale price of
the Company's Common Stock commencing September 27, 1994. The precise number
of such shares shall be set after the exercise price is determinded. Issuance
of the warrants is subject to (i) receipt of an opinion from a nationally
recognized investment banking firm that the terms of the warrants are
commercially reasonable and (ii) shareholder approval.
Josephine Chaus has also agreed to purchase $7.2 million of Common Stock of
the Company at a purchase price determined by the independent committee
equal to the five trading day average of the closing sale price of the
Company's Common Stock commencing September 27, 1994. Issuance of the
shares is subject to (i) receipt of an opinion from a nationally recognized
investment banking firm that the purchase price terms are commercially
reasonable and (ii) shareholder approval. Pending such approval, Ms. Chaus has
loaned the $7.2 million to the Company and the Company has issued a $7.2
million promissory note to Ms. Chaus, bearing interest at 12%. The note
will be exchanged for the shares of Common Stock when the conditions to
issuance have been satisfied. Proceeds from such cash infusion are being
used for costs and associated expenses related to the signing of the new
Chief Executive Officer which costs will be charged to operations in the
quarter ending September 30, 1994.
The Company has outstanding at June 30, 1994 $19,039,000 of subordinated
I-17
promissory notes payable to Josephine Chaus and the Estate of Bernard Chaus,
which were originally issued on June 30, 1986 (the "First Promissory
Notes"). In October 1993 an independent committee of the Board of Directors
agreed in principle with the noteholders to modify the First Promissory
Notes. The maturity date of the notes was extended until July 1, 1995 and,
effective October 18, 1993, it was agreed that the notes would bear interest
at a rate of 12% per annum, payable quarterly. It was further agreed that
interest which had to be deferred as a result of bank covenant requirements
would be added to the New Promissory Note (see below). The noteholder has
agreed that all accrued interest added quarterly to the New Promissory Note
will be payable on July 1, 1995.
In February and March 1991, Bernard Chaus and Josephine Chaus each provided
subordinated financing to the Company in the aggregate amount of $10.0
million (the "Second Promissory Notes"). In September 1993, both Josephine
Chaus and the Estate of Bernard Chaus agreed to convert the remaining
balance of the Second Promissory Notes ($2,623,000) and the interest for the
quarter ended June 30, 1993 for both the First Promissory Notes and the
Second Promissory Notes ($417,432) into a demand note (the "Demand Note") in
the aggregate amount of $3,040,432.
In October 1993, an independent committee of the Board of Directors agreed
in principle with the noteholders to modify the Demand Note. The Demand
Note was converted into new promissory notes (collectively the "New
Promissory Notes"). It was agreed that the New Promissory Notes would bear
interest at the rate of 10% per annum effective from July 1, 1993, and that
such interest would be payable on July 1, 1994. Principal payments on the
New Promissory Notes were made in November 1993 ($500,000), February 1994
($250,000) and August 15, 1994 ($250,000). The noteholder agreed to extend
the maturity date for the remaining principal and interest payments which
were to have been due on July 1, 1994 to July 1, 1995.
Aggregate annual principal payments of subordinated debt as of June 30, 1994
are $250,000 in fiscal year 1995, and $18,789,000 in fiscal year 1996.
The Company has undertaken a number of initiatives to strengthen its
financial position, including a cash infusion of $7.2 million from its
principal shareholder, a letter of credit issued by this shareholder to
facilitate an increase in loan availability, closure of certain retail
operations, consolidation of other office facilities, an overhead reduction
program and the hiring of certain senior management personnel. The Company
believes that these initiatives will have a positive impact on future
operating results.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements are included herein commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Previously reported on Form 8-K filed by the Company on June 16, 1994.
I-18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to the executive officers of the Company is set
forth in Part I of this Annual Report on Form 10-K.
Information with respect to the directors of the Company is incorporated
by reference to the information to be set forth under the heading
"ELECTION OF DIRECTORS" in the Company's definitive proxy statement
relating to its 1994 Annual Meeting of Shareholders to be filed pursuant
to Regulation 14A (the "Company's 1994 Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION.
Information called for by Item 11 is incorporated by reference to the
information to be set forth under the heading "EXECUTIVE COMPENSATION" in
the Company's 1994 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information called for by Item 12 is incorporated by reference to the
information to be set forth under the heading "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" in the Company's 1994 Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information called for by Item 13 is incorporated by reference to the
information to be set forth under the headings "EXECUTIVE COMPENSATION"
and "CERTAIN TRANSACTIONS" in the Company's 1994 Proxy Statement.
I-19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-
K.
(a) Financial Statements and Financial Statement Schedules: See List
of Financial Statements and Financial Statement Schedules on page
F-1.
(b) The Company filed a Form 8-K during the last quarter of its fiscal
year ended June 30, 1994.
(c) Exhibits filed herewith denoted by(*):
Sequentially
Numbered
Page
------------
Exhibit No.
- - -----------
3.1 Restated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit
3.1 of the Company's Registration Statement on
Form S-1,Registration No. 33-5954).
3.2 By-laws of the Company, as amended
(incorporated by reference to Exhibit 3.1 of
the Company's Form 10-Q for the quarter ended
December 31, 1987).
10.1 Restricted Stock Purchase Plan (incorporated
by reference to Exhibit 10.1 of the Company's
Form 10-K for the year ended June 30, 1987).
10.2 1986 Stock Option Plan, as amended and
restated as of January 1, 1987 (incorporated
by reference to Exhibit 10.2 of the Company's
Form 10-K for the year ended July 1, 1989).
10.3 Amendment No. 1 to 1986 Stock Option Plan
(incorporated by reference to Exhibit 10.3 of
the Company's Form 10-K for the year ended
July 1, 1989).
10.4 Incentive Award Plan (incorporated by
reference to Exhibit 10.6 of the Company's
Registration Statement on Form S-1,
Registration No. 33-5954).
10.13 Agreement, dated June 15, 1988, between the
Company and Bernard Chaus and Josephine Chaus,
amending the terms of the Company's
Subordinated Promissory Notes to each of them,
each in the principal amount of $7,365,000,
the form of which was filed as Exhibit 10.13
of the Company's Registration Statement on
IV-20
Form S-1, Registration No. 33-5954
(incorporated by reference to Exhibit 10.11 of
the Company's Form 10-K for the year ended
July 2, 1988).
10.14 Agreement, dated May 17, 1990 between the
Company and Bernard Chaus and Josephine Chaus
amending the terms of the Company's
subordinated Promissory Notes to each of them,
each in the principal amount of $7,365,000,
the form of which was filed as Exhibit 10.13
of the Company's Registration Statement on
Form S-1, Registration No. 33-5954.
10.15 Agreement, dated August 28, 1987, between
Amalgamated Workers Union Local 88,R.W.D.S.U.,
AFL-CIO and Company, and the Collective
Bargaining Agreement, dated September 1, 1984
related thereto (incorporated by reference to
Exhibit 10.3 of the Company's Form 10-K for
the year ended June 30, 1987).
10.16 Agreement, dated September 1, 1990, between
Amalgamated Workers Union Local 88,
R.W.D.S.U., AFL-CIO and Company, and the
Collective Bargaining Agreement, dated
September 1, 1984 related thereto
(incorporated by reference to Exhibit 10.16 of
the Company's Form 10-K for the year ended
June 30, 1990).
10.19 Lease, dated January 29, 1987, between L.H.
Charney Associates and the Company, of space
at the Company's facility at 1410 Broadway,
New York, New York (incorporated by reference
to Exhibit 10.19 of the Company's Form 10-K
for the year ended June 30, 1987).
10.23 Lease, dated July 27, 1987, between L. H.
Charney Associates and the Company, of space
at the Company's facility at 1410 Broadway,
New York, New York (incorporated by reference
to Exhibit 10.23 of the Company's Form 10-K
for the year ended July 2, 1988).
10.31 Agreement dated December 3, 1990 among
Bernard Chaus, Inc., Bernard Chaus, Josephine
Chaus and National Union Fire Insurance
Company of Pittsburgh, Pa., the Company's
directors and officers liability carrier.
10.38 Financing Agreement dated July 1, 1991 between
the Company and BNY Financial Corporation.
10.39 Employment Agreement, dated July 1, 1991,
IV-21
between the Company and Josephine Chaus.
10.43 Distribution Agreement, effective June 1,
1991. between Confeccionistas Unidos, S.A. de
C.V. and Bernard Chaus, Inc.
10.60 Employment Agreement, dated November 4, 1991
between Michael Fieman and the Company
(incorporated by reference to Exhibit 10.60 of
the Company's Form 10-K for the year ended
June 30, 1992).
10.61 Amended and Restated Financing Agreement,
dated September 24, 1992, to the Financing
Agreement dated July 1, 1991 between the
Company and BNY Financial Corporation
(incorporated by reference to Exhibit 10.61 of
the Company's Form 10-K for the year ended
June 30, 1992.
10.68 Waiver and amendment dated May 13, 1993 to the
Restated and Amended Financing Agreement
between the Company and BNY Financial
corporation effective July 1, 1992
(incorporated by reference to Exhibit 10.68 of
the Company's Form 10-Q for the quarter ended
March 31, 1993.
10.71 Employment Agreement, dated February 15, 1993
between Richard A. Baker and the Company
(incorporated by reference to Exhibit 10.71 of
the Company's Form 10-K for the year ended
June 30, 1993).
10.72 Employment Agreement, dated July 1, 1993
between Michael Root and the Company
(incorporated by reference to Exhibit 10.72 of
the Company's Form 10-K for the year ended
June 30, 1993).
10.73 Waiver dated September 1, 1993 to the
Restated and Amended Financing Agreement
between the Company and BNY Financial
Corporation effective July 1, 1992
(incorporated by reference to Exhibit 10.73 of
the Company's Form 10-K for the year ended
June 30, 1993).
10.74 Agreement, dated February 21, 1991 between the
Company and Bernard Chaus and Josephine Chaus
amending the terms of the Company's
Subordinated Promissory Notes to each of them,
each in the principal amount of $7,365,000
(incorporated by reference to Exhibit 10.74 of
the Company's Form 10-K for the year ended
IV-22
June 30, 1993).
10.75 Subordinated Promissory Notes dated March 12,
1991, between the Company and Bernard Chaus
and Josephine Chaus, separately, each in the
amount of $5,000,000 (incorporated by
reference to Exhibit 10.75 of the Company's
Form 10-K for the year ended June 30, 1993).
10.76 Agreement, dated July 31, 1991, between the
Company and the Estate of Bernard Chaus and
Josephine Chaus amending the terms of the
Company's Subordinated Promissory Notes to
each of them, each in the principal amount of
$7,365,000, (incorporated by reference to
Exhibit 10.76 of the Company's Form 10-K for
the year ended June 30, 1993).
10.77 Agreement, dated July 31, 1991, between the
Company and the Estate of Bernard Chaus and
Josephine Chaus amending the terms of the
Company's Subordinated Promissory Notes to
each of them, each in the principal amount of
$5,000,000 (incorporated by reference to
Exhibit 10.77 of the Company's Form 10-K for
the year ended June 30, 1993).
10.78 Agreement, dated July 15, 1992, between the
Company and the Estate of Bernard Chaus and
Josephine Chaus amending the terms of the
Company's Subordinated Promissory Notes to
each of them, each in the principal amount of
$5,000,000 (incorporated by reference to
Exhibit 10.78 of the Company's Form 10-K for
the year ended June 30, 1993).
10.79 Agreement, dated October 30, 1992, between the
Company and the Estate of Bernard Chaus and
Josephine Chaus amending the terms of the
Company's Subordinated Promissory Notes to
each of them, each in the principal amount of
$7,365,000 (incorporated by reference to
Exhibit 10.79 of the Company's Form 10-K for
the year ended June 30, 1993).
10.80 Demand Notes, dated June 30, 1993, between the
Company and the Estate of Bernard Chaus and
Josephine Chaus, each in the principal amount
of $1,520,216 (incorporated by reference to
Exhibit 10.80 of the Company's Form 10-K for
the year ended June 30, 1993).
10.81 Agreement, dated September 21, 1993, between
the Company and the Estate of Bernard Chaus
and Josephine Chaus amending the terms of the
Company's Subordinated Promissory Notes to
IV-23
each of them, each in the principal amount of
$7,365,000 (incorporated by reference to
Exhibit 10.81 of the Company's Form 10-K for
the year ended June 30, 1993).
10.82 Waiver dated September 23, 1993 to the
Restated and Amended Financing Agreement
between the Company and BNY Financial
Corporation effective July 1, 1992
(incorporated by reference to Exhibit 10.82 of
the Company's Form 10-K for the year ended
June 30, 1993).
10.83 Waiver dated November 5, 1993 to the Restated
and Amended Financing Agreement between the
Company and BNY Financial Corporation
(incorporated by reference to Exhibit 10.83 of
the Company's Form 10-Q for the quarter ended
September 30, 1993).
10.84 Amendment, effective October 1, 1993, to the
Restated and Amended Financing Agreement
between the Company and BNY Financial
Corporation (incorporated by reference to
Exhibit 10.84 of the Company's Form 10-Q for
the quarter ended December 31, 1993).
10.85 Waiver dated January 13, 1994 to the Restated
and Amended Financing Agreement between the
Company and BNY Financial Corporation
(incorporated by reference to Exhibit 10.85 of
the Company's Form 10-Q for the quarter ended
December 31, 1993).
10.86 Waiver dated February 10, 1994 to the
Restated and Amended Financing Agreement
between the Company and BNY Financial
Corporation (incorporated by reference to
Exhibit 10.86 of the Company's Form 10-Q for
the quarter ended December 31, 1993).
10.87 Waiver dated May 4, 1994 to the Restated and
Amended Financing Agreement between the
Company and BNY Financial Corporation
(incorporated by reference to Exhibit 10.87 of
the Company's Form 10-Q for the quarter ended
March 31, 1994).
*10.89 Employment Agreement dated June 3, 1994
between the Company and Wayne Miller.
*10.90 Employment Agreement dated September 1, 1994
between the Company and Andrew Grossman with
Stock Option Agreement dated as of September
1, 1994 by and between the Company and Andrew
Grossman.
IV-24
*10.91 Settlement Agreement dated as of September
1994 among Nicole Eskenazi, the Company and
certain others.
*10.92 Severance Agreement dated as of June 16, 1994
between the Company and Anthony M. Pisano.
*10.93 Waiver dated September 20, 1994 to the
Restated and Amended Financing Agreement
between the Company and BNY Financial
Corporation.
*10.94 Subordinated Promissory Notes dated August 1,
1993, between the Company and Josephine Chaus
and the Estate of Bernard Chaus, separately,
each in the amount of $208,716.
*10.95 Subordinated Promissory Note dated August 1,
1993, between the Company and Josephine Chaus
in the amount of $1,311,500.
*10.96 Subordinated Promissory Note dated August 1,
1993, between the Company and the Estate of
Bernard Chaus, in the amount of $1,000,000.
*10.97 Subordinated Promissory Note dated August 1,
1993, between the Company and the Estate of
Bernard Chaus, in the amount of $311,500.
*10.98 Subordinated Promissory Notes dated December
31, 1993, between the Company and Josephine
Chaus and the Estate of Bernard Chaus,
separately, each in the amount of $181,056.
*10.99 Subordinated Promissory Notes dated December
31, 1993, between the Company and Josephine
Chaus and the Estate of Bernard Chaus,
separately, each in the amount of $412,950.
*10.100 Agreements dated September 9, 1993, between
the Company and Josephine Chaus and the Estate
of Bernard Chaus, separately, reflecting
amendments to subordinated promissory notes,
each in the principal amount of $5,000,000.
*10.101 Agreements dated October 18, 1993, between the
Company and Josephine Chaus and the Estate of
Bernard Chaus, separately, reflecting
amendments to subordinated promissory notes,
each in the principal amount of $1,520,216.
*10.102 Agreements dated October 18, 1993, between the
Company and Josephine Chaus and the Estate of
Bernard Chaus, separately, reflecting
amendments to subordinated promissory notes,
each in the principal amount of $7,365,000.
IV-25
*10.103 Agreement dated December 31, 1993, between the
Company and Josephine Chaus reflecting
amendments to a subordinated promissory note,
in the principal amount of $1,311,500.
*10.104 Agreement dated December 31, 1993, between the
Company and the Estate of Bernard Chaus,
reflecting amendments to subordinated
promissory notes in the principal amounts of
$1,000,000 and $311,500.
22 List of Subsidiaries of the Company
(incorporated by reference to Exhibit 22 of
the Company's Registration Statement on Form
S-1, Registration No. 33-5954).
IV-26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized, on September 27, 1994.
BERNARD CHAUS, INC.
By: /s/ Josephine Chaus
------------------------------------
Josephine Chaus
Chairwoman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed below by the following persons
on behalf of the registrant and in the capacities indicated, on September
27, 1994.
Signature Title
/s/ Josephine Chaus
- - ----------------------------- Chairwoman of the Board and
Josephine Chaus Chief Executive Officer
/s/ Richard A. Baker
- - ----------------------------- President
Richard A. Baker
/s/ Wayne S. Miller
- - ----------------------------- Executive Vice President -
Wayne S. Miller Finance and Administration, Chief
Financial Officer
/s/ Marc A. Zuckerman
- - ----------------------------- Treasurer
Marc A. Zuckerman
/s/ Jeffrey Goldstein
- - ----------------------------- Controller and Chief Accounting
Jeffrey Goldstein Officer
/s/ Philip G. Barach
- - ----------------------------- Director
Philip G. Barach
/s/ John W. Burden, III
- - ----------------------------- Director
John W. Burden, III
/s/ S. Lee Kling
- - ----------------------------- Director
S. Lee Kling
/s/ Harvey M. Krueger
- - ----------------------------- Director
Harvey M. Krueger
/s/ Andrew Grossman
- - ----------------------------- Director
Andrew Grossman
IV-27
FORM 10-K--ITEM 14(A)(1) AND (2)
BERNARD CHAUS, INC. AND SUBSIDIARIES
INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Bernard Chaus, Inc. and
subsidiaries are included in Item 8:
Reports of Independent Auditors .............................. F- 2
Consolidated Balance Sheets--June 30, 1994
and 1993 ................................................... F- 4
Consolidated Statements of Operations--Years Ended
June 30, 1994, 1993 and 1992 ............................... F- 5
Consolidated Statements of Stockholders' Equity--
Years Ended June 30, 1994, 1993 and 1992.................... F- 6
Consolidated Statements of Cash Flows--Years Ended
June 30, 1994, 1993 and 1992 ............................... F- 7
Notes to Consolidated Financial Statements ................... F- 8
The following consolidated financial statement schedules of Bernard Chaus,
Inc. and subsidiaries are included in Item 14(d):
Schedule II --Amounts Receivable from Related Parties
and Underwriters, Promoters, and
Employees Other than Related Parties ..........F-16
Schedule VIII--Valuation and Qualifying Accounts ...............F-17
Schedule IX --Short-Term Borrowings ...........................F-18
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and, therefore, have been
omitted.
F-1
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Bernard Chaus, Inc.
We have audited the accompanying consolidated balance sheets of Bernard
Chaus, Inc. and subsidiaries as of June 30, 1994 and the related
consolidated statement of operations, stockholders' deficit, and cash flows
for the year then ended. Our audit also included the financial statements
schedules listed in the Index at Item 14(a). These financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial statement schedules
referred to above present fairly, in all material respects, the consolidated
financial position of Bernard Chaus, Inc. and subsidiaries at June 30, 1994,
and the consolidated results of their operations and their cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
New York, New York
September 21, 1994
F-2
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Bernard Chaus, Inc.
We have audited the accompanying consolidated balance sheet of Bernard
Chaus, Inc. and subsidiaries as of June 30, 1993 and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the two years in the period ended June 30, 1993. Our audits
also included the financial statement schedules listed in the index at Item
14 (a) for each of the two years in the period ended June 30, 1993. These
financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Bernard Chaus, Inc. and subsidiaries at June 30, 1993, and the
consolidated results of their operations and their cash flows for each of
the two years in the period ended June 30, 1993, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material
respects the information set forth there in.
ERNST & YOUNG LLP
New York, New York
August 18, 1993
F-3
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, JUNE 30,
1994 1993
- - -------------------------------------------------------------------------------
(In thousands except number of shares)
ASSETS
Current Assets
Cash and cash equivalents................... $ 468 $ 1,367
Accounts receivable, less allowance for
doubtful accounts, sales discounts,
returns and allowances of $6,340
and $4,341 ................................ 17,757 30,562
Inventories................................. 25,503 45,974
Prepaid expenses............................ 3,608 4,629
Refundable and prepaid income taxes......... 135 722
------- -------
Total Current Assets...................... 47,471 83,254
Fixed Assets.................................. 3,612 5,932
Other Assets.................................. 536 1,022
$51,619 $90,208
======= =======
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current Liabilities
Notes payable - banks....................... $21,115 $14,881
Subordinated promissory notes - current .... 250 2,623
Accounts payable............................ 14,290 19,489
Accrued expenses............................ 6,710 5,338
Accrued restructuring expenses.............. 1,764
------- -------
Total Current Liabilities................. 44,129 42,331
Subordinated Promissory Notes................. 18,789 14,730
Accrued Restructuring Expenses................ 2,315
------- -------
65,233 57,061
Stockholders' (Deficit) Equity
Preferred stock, $.01 par value,
authorized shares -- 1,000,000;
outstanding shares -- none
Common stock, $.01 par value;
authorized shares -- 50,000,000;
issued shares -- 18,975,031 at
June 30, 1994 and June 30, 1993 .......... 190 190
Additional paid-in capital................. 40,226 40,232
Deficit .................................. (52,550) (5,795)
Less: Treasury stock, at cost --
622,700 shares.................... (1,480) (1,480)
------- -------
Total Stockholders' (Deficit) Equity..... (13,614) 33,147
------- -------
$51,619 $90,208
======= =======
See accompanying notes.
F-4
BERNARD CHAUS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Year Ended June 30,
-----------------------------
1994 1993 1992
------ ------ ------
(In thousands, except share and per share amounts)
Net sales.............................. $206,332 $235,819 $254,190
Cost of goods sold..................... 186,594 187,423 196,415
-------- -------- --------
Gross profit........................... 19,738 48,396 57,775
Selling, general and
administrative expenses.............. 55,400 57,410 50,016
Restructuring expenses................. 5,300
Unusual expenses....................... 1,900
-------- -------- --------
(42,862) (9,014) 7,759
Interest income........................ 20 293 444
Interest expense....................... (3,439) (2,322) (2,474)
Other income (expense)................. (210) 156 28
-------- -------- --------
(Loss) income before provision
for income taxes & extraordinary item. (46,491) (10,887) 5,757
Provision for income taxes.............. 264 102 2,245
-------- -------- --------
(Loss) income before extraordinary item (46,755) (10,989) 3,512
Extraordinary item:
Benefit from utilization of net
operating loss carryforward .......... 1,957
Net (loss) income....................... ($46,755) ($10,989) $5,469
======== ======== ========
(Loss) income per common share
before extraordinary item.............. ($2.55) ($0.60) $0.19
Income per common share
from extraordinary item............... 0.11
-------- -------- --------
Net (loss) income per share............. ($2.55) ($0.60) $0.30
======== ======== ========
Weighted average number of common and
common equivalent shares outstanding 18,352,000 18,272,000 18,363,000
See accompanying notes.
F-5
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
Common Stock Treasury Stock
--------------- Additional (Deficit) --------------
Number of Paid-in Deferred Retained Number of
Shares Amount Capital Compensation Earnings Shares Amount Total
------ ------ --------- ------------ -------- ------ ------
(In thousands, except number of shares)
Balance at June 30, 1991.... 18,680,738 $187 $39,259 ($8) ($275) 622,700 ($1,480) $37,683
Net income................... 5,469 5,469
Exercise of stock options.... 54,770 168 168
Deferred compensation
amortization .............. 8 8
---------- ---- ------- -- ------- ------- ------ -------
Balance at June 30, 1992 18,735,508 187 39,427 0 5,194 622,700 (1,480) 43,328
Net loss................... (10,989) (10,989)
Exercise of stock options... 239,523 3 805 808
---------- ---- ------- -- ------- ------- ------ -------
Balance at June 30, 1993.... 18,975,031 190 40,232 0 (5,795) 622,700 (1,480) 33,147
Net loss.................... (46,755) (46,755)
Restricted stock purchase
and retirement - net...... (6) (6)
---------- ---- ------- -- ------- ------- ------ -------
Balance at June 30, 1994 18,975,031 $190 $40,226 $0 ($52,550) 622,700 ($1,480) ($13,614)
========== ==== ======= == ======= ======= ====== =======
See accompanying notes.
F-6
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended June 30,
------------------------------
1994 1993 1992
------ ------ ------
(In thousands)
OPERATING ACTIVITIES
Net (loss) income........................ ($46,755) ($10,989) $ 5,469
Adjustments to reconcile net
(loss) income to net cash provided by
(used in) operating activities:
Depreciation and amortization.......... 2,485 1,553 1,737
Loss on disposal of fixed assets....... 1,192
Provision for (recovery of) losses on
accounts receivable................... 117 (25) (951)
Deferred compensation - net............ 8
Unpaid interest on subordinated
promissory notes...................... 2,436
Changes in operating assets and
liabilities:
Accounts receivable................... 12,688 2,764 6,217
Inventories........................... 20,471 (26,097) 4,116
Prepaid expenses and other assets..... 1,507 (2,574) (783)
Income taxes receivable............... 587 (81) 1,988
Accounts payable...................... (5,199) 4,588 (1,214)
Accrued expenses...................... 1,372 1,808 (513)
Accrued restructuring expenses........ 4,079
------- ------- -------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES..................... (5,020) (29,053) 16,074
INVESTING ACTIVITIES
Purchase of fixed assets................. (1,357) (2,275) (2,254)
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES.... (1,357) (2,275) (2,254)
FINANCING ACTIVITIES
Net proceeds from short term bank
borrowings.............................. 6,234 14,881
Principal payments on subordinated
promissory notes........................ (750) (7,377)
Purchase and retirement of restricted
stock................................... (6)
------- ------- -------
Net proceeds from sale of stock.......... 808 168
NET CASH PROVIDED BY FINANCING
ACTIVITIES.............................. 5,478 8,312 168
------- ------- -------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS......................... (899) (23,016) 13,988
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR........................ 1,367 24,383 10,395
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR... $ 468 $ 1,367 $24,383
======= ======= =======
See accompanying notes.
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY: Bernard Chaus, Inc. designs, arranges for the manufacture of and
markets an extensive range of women's clothing. The Company sells its products
primarily to department and specialty stores throughout the United States.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Company and its subsidiaries. Material intercompany accounts
and transactions have been eliminated.
NET (LOSS) INCOME PER SHARE: Net (loss) income per share has been computed by
dividing the applicable net (loss) income by the weighted average number of
common and common equivalent shares outstanding during the year (1994 -
18,352,000, 1993 - 18,272,000 and 1992 - 18,363,000). For the fiscal years
ended 1994 and 1993, common equivalent shares were not considered as the
inclusion of such would have been antidilutive.
REVENUE RECOGNITION: Revenues are recorded at time of merchandise shipment.
CREDIT TERMS: The Company extends credit to its customers based upon an
evaluation of the customer's financial condition and credit history. The
Company generally does not require collateral. There have been minimal net
credit losses in each of the last three fiscal years. The historic level of
credit losses is 0.14% of net sales, and the Company provides for estimated
losses. These losses have consistently been below management's expectations.
At June 30, 1994 and 1993, respectively, there was approximately 41.5% and 36%
of the Company's accounts receivable balance due from the department store
customers.
SALES RETURNS: The Company records sales returns as a reduction to gross
sales.
COOPERATIVE ADVERTISING: The Company records charges for cooperative
advertising as advertising expense, a component of selling, general and
administrative expenses.
FOREIGN CURRENCY TRANSACTIONS: The Company negotiates substantially all of its
purchase orders with foreign manufacturers in United States dollars. The
Company considers the United States dollar to be the functional currency of its
overseas subsidiaries. All foreign currency gains and losses are recorded in
the Statement of Operations.
EMPLOYEE BENEFITS: The Company does not provide postretirement benefits other
than pensions to union employees. Accordingly, Statement of Financial
Accounting Standards No. 106 "Employers' Accounting for Postretirement Benefits
other than Pensions" will not affect the Company's financial statements. The
Company does not typically provide post employment benefits to its employees.
Accordingly, Statement of Financial Accounting Standards No. 112 "Employers'
Accounting for Postemployment Benefits" will not have a material affect on the
Company's financial statements.
INVENTORIES: Inventories are stated at the lower of cost, using the first-in,
first-out method, or market.
FIXED ASSETS: Furniture and equipment are depreciated principally using the
straight-line method over eight years. Leasehold improvements are amortized
using the straight-line method over either the term of the lease or the
estimated useful life of the improvement, whichever period is shorter.
Automobiles are depreciated principally using the straight-line method over
five years. Computer software is depreciated using the straight-line method
over five years.
INCOME TAXES: Effective July 1, 1993, the Company adopted Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes." Under
Statement
F-8
109, the liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Prior to the adoption of Statement 109,
income tax expense was determined using the deferred method. Deferred tax
expense was based on items of income and expenses that were reported in
different years in the financial statements and tax returns and were measured
at the tax rate in effect in the year the difference originated.
As permitted by Statement 109, the Company has elected not to restate the
financial statements of any prior years. There was no cumulative effect of the
change, as well as there being no effect on pre-tax loss for the year ended
June 30, 1994.
CASH EQUIVALENTS: Cash equivalents are short-term, highly liquid investments
purchased with an original maturity of three months or less.
2. INVENTORIES
Inventories consist of:
June 30, June 30,
1994 1993
-------- --------
(In thousands)
Finished goods ................ $25,075 $43,666
Work-in-process ............... 124 526
Raw materials ................. 304 1,782
------- -------
$25,503 $45,974
======= =======
Inventories include merchandise in transit (principally finished goods) of
approximately $11,176,000 at June 30, 1994 and $15,709,000 at June 30, 1993.
3. FIXED ASSETS
Fixed assets at cost, net of accumulated depreciation and amortization, consist
of:
June 30, June 30,
1994 1993
-------- --------
(In thousands)
Furniture and equipment ...... $11,781 $12,348
Leasehold improvements ....... 9,303 9,412
Automobiles .................. 340 484
------- -------
21,424 22,244
Less accumulated depreciation and
amortization ............... 17,812 16,312
------- -------
$3,612 $5,932
======= =======
F-9
4. INCOME TAXES
Effective July 1, 1993, the Company adopted Financial Accounting Standards
Board Statement No. 109, "Accounting for Income Taxes". Under Statement 109,
the liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and
operating loss carryforwards are measured using enacted tax rates and laws that
will be in effect when the differences are expected to reverse. Prior to the
adoption of Statement 109, income tax expense was based on items of income and
expenses that were reported in different years in the financial statements and
tax returns and were measured at the tax rate in effect in the year the
difference originated.
As permitted by Statement 109, the Company has elected not to restate the
financial statements of any prior years. There was no cumulative effect of the
change, as well as there being no effect on pre-tax loss for the year ended
June 30, 1994.
Significant components of the Company's net deferred tax assets as of June 30,
1994 are as follows:
(in thousands)
Deferred tax assets:
Net operating loss carryforwards $20,300
Costs capitalized to inventory for
tax purposes 1,000
Allowance for doubtful accounts 100
Book over tax depreciation 1,300
Restructuring reserves not currently deductible 1,600
Other nondeductible accruals 800
-------
25,100
Valuation allowance for deferred tax assets (25,100)
-------
Net deferred tax asset $ 0
=======
There was a change in the valuation allowance for the year ended June 30, 1994
of $19,600,000.
Fiscal Year Ended June 30,
--------------------------------
1994 1993 1992
------ ------ ------
(In thousands)
(Credit) provision for federal
income taxes at the stat-
utory rate of 35.0% in 1994 34.5%
in 1993 and 34% in 1992.......... ($16,272) ($3,756) $1,957
State and local income taxes
net of federal tax benefit....... 264 102 288
Effect of unrecognized tax loss
carryforwards.................... 16,272 3,756
------- ------ ------
Provision for income taxes........ $ 264 $ 102 $2,245
======= ====== ======
At June 30, 1994, the Company has a federal net operating loss carryforward for
income tax purposes of approximately $50 million, which will expire between
2006 and 2009.
F-10
5. FINANCIAL AGREEMENTS
The Company has in place a Restated and Amended Financing Agreement (the
"Financing Agreement") with BNY Financial Corporation ("BNYF"), a wholly owned
subsidiary of The Bank of New York. Effective as of October 1, 1993, the
Financing Agreement provides to the Company a total line of credit up to an
aggregate of $60 million, including letter of credit and direct borrowings,
with a sublimit for loans and advances of $20 million. The Financing Agreement
contains a borrowing base formula which is the sum of (i) 85% of eligible
receivables, less reserves, (ii) 40% of eligible inventory, up to $27 million
and (iii) 100% of excess cash balances, all as defined in the agreement.
However, BNYF may decrease or increase the above percentages in the borrowing
base. The Company's indebtedness under the Financing Agreement is
collateralized by the Company's accounts receivable and inventory.
Such agreement requires the Company to comply quarterly with various financial
tests including tangible net worth of at least $47.5 million, working capital
of at least $40 million and restrictions on payment of principal and interest
on subordinate indebtedness unless certain conditions are met. Such agreement
also requires the Company to comply with various other
restrictions including, but not limited to, a restriction on the payment of
dividends. Interest on direct borrowings is payable monthly at an annual rate
which is the higher of (a) 1/2 of 1% above the prime rate of the Bank of New
York (7.25% at June 30, 1994, and 6.0% at June 30, 1993) or (b) 1% above the
federal funds rate, as defined. Additional interest at 2-1/2% per annum is due
on amounts not paid when due. In addition, the agreement provides for the
payment of minimum service charges and/or interest which for the fiscal year
ended June 30, 1994, aggregated approximately $900,000. The Financing
Agreement may be cancelled by the Company any time after July 1, 1995, upon 60
days prior written notice to BNYF or prior to July 1, 1995 upon 60 days written
notice to BNYF and the payment of an early termination fee. The Financing
Agreement is cancellable by BNYF effective July 1, 1995 or any July 1
thereafter, upon 60 days written notice to the Company.
During all four quarters of fiscal year 1994, the Company was not in compliance
with certain financial covenants. BNYF has waived such noncompliance.
The Company is currently negotiating with its bank for modification of certain
financial covenants for the future in order to provide the latitude and
resources necessary for future programs. The Company believes that this
negotiation will be successfully completed in the near future. However, there
can be no assurance that the Company will be able to obtain the necessary
modifications.
Josephine Chaus has provided a $7.2 million letter of credit expiring April 15,
1995 (increased from previous amounts provided by her of $3.0 million in April
1994 and $5.0 million in June 1994 and extended from the previous expiration
date of October 15, 1994) to support the Company's credit facility. In
exchange for this letter of credit, BNYF is providing at least an additional
$12.2 million of credit availability under the Company's borrowing formula. To
compensate Ms. Chaus for the letter of credit, an independent committee of the
Company's Board of Directors has authorized the issuance to her of warrants to
purchase an aggregate of 544,000 shares of Common Stock at exercise prices
ranging from $2.25 to $3.00 (in each case equal to 120% of the market price on
the authorization date) and warrants to purchase additional shares of Common
Stock at an excerise price equal to 120% of the five days trading average of
the closing sale price of the Company's Common Stock commencing September 27,
1994. The precise number of such shares shall be set after the exercise price
is determined. Issuance of the warrants is subject to (i) receipt of an opinion
from a nationally recognized investment banking firm that the terms of the
warrants are commercially reasonable and (ii) shareholder approval.
Josephine Chaus has also agreed to purchase $7.2 million of Common Stock of the
Company at a purchase price determined by the independent committee equal to
the five trading day average of the closing sale price of the Company's Common
Stock commencing September 27, 1994. Issuance of the shares is subject to
(i) receipt of an opinion from a nationally recognized investment banking firm
that the purchase price terms are commercially reasonable and (ii) shareholder
approval. Pending such approval, Ms. Chaus has loaned the $7.2 million to the
Company and the Company has issued a $7.2 million promissory note to Ms. Chaus,
bearing interest at 12%. The note will be exchanged for the shares of Common
Stock when the conditions to
F-11
issuance have been satisfied. Proceeds from such cash infusion are being used
for costs and associated expenses related to the signing of the new Chief
Executive Officer which costs will be charged to operations in the quarter
ending September 30, 1994.
6. SUBORDINATED PROMISSORY NOTES
The Company has outstanding at June 30, 1994 $19,039,000 of subordinated
promissory notes payable to Josephine Chaus and the Estate of Bernard Chaus,
which were originally issued on June 30, 1986 (the "First Promissory Notes").
In October 1993 an independent committee of the Board of Directors agreed in
principle with the noteholders to modify the First Promissory Notes. The
maturity date of the notes was extended until July 1, 1995 and, effective
October 18, 1993, it was agreed that the notes would bear interest at a rate of
12% per annum, payable quarterly. It was further agreed that interest which
had to be deferred as a result of bank covenant requirements would be added to
the New Promissory Note (see below). The noteholder has agreed that all
accrued interest added quarterly to the New Promissory Note will be payable on
July 1, 1995.
In February and March 1991, Bernard Chaus and Josephine Chaus each provided
subordinated financing to the Company in the aggregate amount of $10.0 million
(the "Second Promissory Notes"). In September 1993, both Josephine Chaus and
the Estate of Bernard Chaus agreed to convert the remaining balance of the
Second Promissory Notes ($2,623,000) and the interest for the quarter ended
June 30, 1993 for both the First Promissory Notes and the Second Promissory
Notes ($417,432) into a demand note (the "Demand Note") in the aggregate amount
of $3,040,432.
In October 1993, an independent committee of the Board of Directors agreed in
principle with the noteholders to modify the Demand Note. The Demand Note was
converted into new promissory notes (collectively the "New Promissory Notes").
It was agreed that the New Promissory Notes would bear interest at the rate of
10% per annum effective from July 1, 1993, and that such interest would be
payable on July 1, 1994. Principal payments on the New Promissory Notes were
made in November 1993 ($500,000), February 1994 ($250,000) and August 15, 1994
($250,000). The noteholder agreed to extend the maturity date for the
remaining principal and interest payments which were to have been due on July
1, 1994 to July 1, 1995.
Aggregate annual principal payments of subordinated debt as of June 30, 1994
are $250,000 in fiscal year 1995, and $18,789,000 in fiscal year 1996.
7. EMPLOYEE BENEFIT PLANS
PENSION PLAN: Pursuant to a collective bargaining agreement, all of the
Company's union employees are covered by a defined benefit pension plan.
Pension expense (recovery) amounted to approximately $61,000, $28,000 and
($33,000) in fiscal 1994, 1993 and 1992, respectively. As of December 31,
1993, the actuarial present value of the accumulated vested and non-vested plan
benefits amounted to $415,000 and net assets available for benefits amounted to
$308,000.
SAVINGS PLAN: The Company has a savings plan (the "Savings Plan") under which
eligible employees may contribute a percentage of their compensation which the
Company (subject to certain limitations) will match 50% of the employee's
contribution. Company contributions will be invested half in the Common Stock
of the Company and half in investment funds selected by the participant and are
subject to vesting provisions of the Savings Plan. Expense under the plan was
approximately $301,000, $287,000 and $204,000 in fiscal 1994, 1993 and 1992,
respectively. An aggregate of 100,000 shares of Common Stock has been reserved
for issuance under the Savings Plan.
INCENTIVE AWARD PLAN: Eligible participants in the Incentive Award Plan may be
allocated additional compensation from an annual bonus pool and, in the case of
participating sales executives, from their divisions' net sales performance as
determined in accordance with the Incentive Award Plan. On January 22, 1992,
however, the Incentive Award Plan was terminated by the Board of Directors and
F-12
replaced by a simplified plan (the "Simplified Plan"). Under the Simplified
Plan, bonuses may be awarded if net earnings of the Company reach a pre-
determined level. In fiscal 1994 no additional compensation was awarded under
the Simplified Plan.
RESTRICTED STOCK PLAN: In November 1987, the Company's shareholders approved
the adoption of a restricted stock plan (the "Plan"). Pursuant to the Plan,
250,000 restricted shares of the Company's Common Stock were reserved for
allocation to key employees of the Company. The restrictions on the shares
terminate as to 25 percent of such shares on each anniversary of their date of
allocation. As of June 30, 1994, all restricted shares previously allocated
have been vested and purchased by certain officers and employees of the
Company. The difference between the market value of the shares on the date of
allocation and the purchase price has been reflected as deferred compensation
on the Company's balance sheet and was amortized over the vesting period of
such shares.
STOCK OPTION PLAN: Pursuant to the Stock Option Plan, the Company may grant
to eligible individuals incentive stock options, as defined in the Internal
Revenue Code, and non incentive stock options. At the annual meeting of
shareholders in November 1993, the shareholders approved the increase in the
number of shares of Common Stock with respect to which options may be granted
from 1,500,000 shares to 2,500,000 shares. No stock options may be granted
subsequent to 1996 and the exercise price may not be less than 100% of the fair
market value on the date of grant for incentive stock options and 85% of the
fair market value on the date of grant for non incentive stock options.
Nonincentive
Stock Options
-------------------------------
Number Exercise
of Shares Price Range
--------- -----------
Outstanding at
June 30, 1991 606,116 $2.125 - $6.50
Options granted
in fiscal 1992......... 935,726 $2.375 - $4.25
Options cancelled........ (200,964) $2.125 - $4.88
Options exercised........ (54,770) $2.125 - $4.88
--------- ---------------
Outstanding at
June 30, 1992.......... 1,286,108 $2.375 - $6.50
Options granted
in fiscal 1993......... 86,906 $2.875 - $9.375
Options cancelled........ (21,027) $4.25 - $5.375
Options exercised........ (239,523) $2.375 - $6.50
--------- ---------------
Outstanding at
June 30, 1993.......... 1,112,464 $2.375 - $9.375
Options granted
in fiscal 1994......... 630,000 $1.875 - $4.750
Options cancelled........ (323,316) $2.875 - $6.50
--------- ---------------
Outstanding at
June 30, 1994.......... 1,419,148 $1.875 - $9.375
========= ===============
The stock options become exercisable one year after issuance as to 25%; an
additional 25% becomes exercisable on each of the next three anniversary dates.
As of June 30, 1994 options to purchase approximately 597,000 shares were
exercisable.
At June 30, 1994, approximately 2,546,000 shares of Common Stock were reserved
for issuance under the Stock Option, Savings and Restricted Stock plans
combined.
F-13
8. LICENSE AGREEMENTS
In fiscal year 1992 the Company terminated its two licensing agreements
("Agreements") originally entered into in fiscal year 1990, whereby the Company
had granted certain manufacturers an exclusive right to use the Company's
trademarks in connection with the manufacture, sale and promotion of ladies
footwear, handbags and small leather accessories.
During fiscal year 1992, the Company recognized royalties of approximately
$700,000 under these agreements.
9. RESTRUCTURING AND UNUSAL EXPENSES
The Company has undertaken a number of initiatives to strengthen its financial
position, including a cash infusion of $7.2 million from its principal
shareholder, a letter of credit issued by this shareholder to facilitate an
increase in loan availability, closure of certain retail operations,
consolidation of other office facilities, an overhead reduction program and the
hiring of certain senior management personnel. The Company believes that these
initiatives will have a positive impact on future operating results.
Relative to the initiatives described, in June 1994, the Company recorded
restructuring expenses of $5,300,000. The restructuring expenses primarily
relate to the Company's plan to reduce overhead costs, consolidate its office
locations and close selected retail outlet stores. The restructuring expenses
include $2,100,000 for the closing of selected retail stores, $2,500,000 for
the consolidation of office space in New York, office and warehouse space in
New Jersey and the closing of the Company's Philippines office and $700,000 for
employee severance. The Company believes that its remaining retail stores will
not only provide direct contributions to income but will also enhance the
Company's ability to manage its inventory without affecting its principal
channels of distribution.
In addition, in June 1994, the Company recorded unusual expenses of $1,900,000.
These primarily relate to expenses arising from the abandonment of fixed
assets, legal fees and winding down of the Company's Canadian joint venture
operation.
10. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
The Company leases showroom, distribution and office facilities, retail outlet
facilities and equipment under various noncancellable operating lease
agreements which expire through 2005. Rental expense for the years ended June
30, 1994, 1993 and 1992 was approximately $12,909,000 (approximately $4,100,000
of which is included in restructuring expenses), $8,066,000 and $6,772,000,
respectively.
The minimum aggregate rental commitments at June 30, 1994 are as follows:
Fiscal year ending: (In thousands)
1995 .................................. 6,001
1996 .................................. 4,649
1997 .................................. 2,648
1998 .................................. 1,795
1999 .................................. 1,567
Subsequent to 1999 .......................... 4,242
-------
$20,902
=======
The Company is contingently liable under letters of credit issued by banks to
cover contractual commitments for merchandise purchases of approximately
$17,000,000 at June 30, 1994.
F-14
By order dated September 1, 1992, Federal Judge Shirley Wohl Kram dismissed
with prejudice as time-barred the Amended Complaint against the Company and
others, in the previously reported consolidated class actions entitled Phifer
v. Chaus et al., Goldschlack v. Chaus et al., Susman v. Chaus et al. and I.
Bibcoff Inc. Pension Trust Fund v. Chaus et al. In such actions, claims were
asserted against the Company and others, including the Company's lead
underwriters, for alleged misstatements and omissions contained in the
Company's July 1986 Prospectus delivered in connection with the Company's
initial public offering and its 1986 and 1987 Annual Reports. Plaintiffs's
attorneys filed a notice of appeal, which they subsequently withdrew subject to
the right to restore the appeal by January 8, 1993. No such appeal was
made and the action was automatically deemed dismissed with prejudice.
On April 19, 1993, a Class Action Complaint was filed in the Superior Court of
New Jersey, Hudson County, against the Company and others, including the lead
underwriter of the Company's 1986 initial public offering, alleging common law
fraud and negligent misrepresentation in the sale of the Company's stock in its
initial public offering, allegations that are substantially similar to the
claims that were dismissed with prejudice in the federal court. One of the
plaintiffs from the federal action was originally a party in this action in
state court. On June 18, 1993, the Company received by mail, a copy of Jury
Demand Class Action in the Superior Court of New Jersey, Hudson County entitled
Theodore M. Wietecha and Lisa A. Phifer v. Bernard Chaus, Inc. et al. The
complaint was amended in September 1993 to delete Lisa Phifer as a plaintiff.
On May 27, 1994, the Company moved to dismiss the complaint and/or to deny or
limit class status. The motion is before the court for decision.
While a negative outcome in this action could have a material adverse effect on
the Company, management believes that such action is without merit and that the
Company has both substantive and procedural bases for contesting this latest
action. The Company intends to defend itself vigorously against this claim.
Because the underlying claims asserted in the action have not been the subject
of discovery and because of the preliminary procedural posture of the action,
no estimate of any possible loss due to this action can presently be made.
The Company has also negotiated an agreement with its directors and officers
liability insurance carrier whereby the Company will obtain interim
reimbursement of certain expenses incurred by the Company in connection with
these actions because a portion of such expenses may be attributable to the
defense of its directors and officers, with full reservation of rights under
the policy of the Company, the directors and officers and the insurance carrier
upon the ultimate disposition of the actions.
A claim for indemnification has been asserted by the Company's
former Underwriters against the Company. The indemnification claim
demands repayment of the legal fees and expenses incurred by the
Underwriters in connection with the consolidated class actions entitled
Pfifer v. Chaus, et al. Discussions are ongoing with counsel for the
Underwriters to resolve this claim.
The Company is also involved in various other legal proceedings arising out of
the conduct of its business. The Company believes that the eventual outcome of
the proceedings referred to above will not have a material adverse effect on
the Company's financial condition or results of operations.
Advertising expenses for the fiscal years ended June 30, 1994, 1993, and 1992,
were approximately $1,649,000, $1,914,000 and $1,740,000.
The Company's gross sales in fiscal 1994 to department store customers owned by
three single corporate entities were approximately $38,000,000, $38,000,000 and
$21,000,000. The Company's gross sales in fiscal 1993 to these department
store customers were $52,000,000, $34,000,000 and $22,000,000. In fiscal 1992
gross sales to these department store customers were approximately $63,000,000,
$35,000,000 and $24,000,000.
Taxes paid (refunded) amounted to ($361,000) in fiscal 1994, $180,000 in fiscal
1993 and ($2,000,000) in fiscal 1992. Interest paid amounted to $1,400,000 in
fiscal 1994, $1,900,000 in fiscal 1993 and $2,470,000 in fiscal 1992.
F-15
SCHEDULE II
BERNARD CHAUS, INC. & SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
Balance at Deductions Balance
Beginning Amounts at End
Name of Debtor of Year Additions Collected of Year
- - -------------- ---------- --------- ---------- -------
(In thousands)
Year ended June 30, 1994:
Jeffrey Chaus (1) $51 $138 $178 $11
=== ==== ==== ====
Richard Baker (2) $83 $364 $301 $146
=== ==== ==== ====
Year ended June 30, 1993:
Jeffrey Chaus (1) $40 $123 $112 $51
=== ==== ==== ====
Year ended June 30, 1992:
Jeffrey Chaus (1) $19 $132 $111 $40
=== ==== ==== ====
Tina Ferraro (1) $72 $89 $113 $48
=== ==== ==== ====
_____________________
Note (1): Represents trade accounts receivable from entities controlled by
these individuals with usual repayment terms. See "Certain
Transactions" in the Company's 1994 Proxy Statement.
Note (2): See "Certain Transactions" in the Company's 1994 Proxy Statement.
F-16
SCHEDULE VIII
BERNARD CHAUS, INC. & SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance at Charged to Balance
Beginning Costs and at End
Description of Year Expenses Deductions of Year
- - ----------- ---------- ---------- ---------- -------
(In thousands)
Year ended June 30, 1994
Allowance for doubtful accounts $ 412 $ 117 $ 174 1 $ 355
====== ======= ======= =======
Reserve for sales discounts and
customer allowances and deductions $3,929 $33,955 $31,899 2 $ 5,985
====== ======= ======= =======
Accrued restructuring expenses $ 0 $ 5,300 $ 1,221 $ 4,079
====== ======= ======= =======
Year ended June 30, 1993
Allowance for doubtful accounts $ 305 $ (25) $ (132)1 $ 412
====== ======= ======= =======
Reserve for sales discounts and
customer allowances and deductions $3,711 $22,958 $22,740 2 $ 3,929
====== ======= ======= =======
Year ended June 30, 1992
Allowance for doubtful accounts $ 342 $ (951) $ (914)1 $ 305
====== ======= ======= =======
Reserve for sales discounts and
customer allowances and deductions $5,977 $21,429 $23,695 2 $ 3,711
====== ======= ======= =======
F-17
SCHEDULE IX
BERNARD CHAUS, INC. & SUBSIDIARIES
SHORT-TERM BORROWINGS
Maximum Average
Weighted Amount Amount Weighted Average
Balance Average Outstanding Outstanding Interest Rate
Category of Aggregate at End Interest During During the During the
Short-Term Borrowings of Year Rate the Year Year (1) Year (2)
- - --------------------- ------- -------- ----------- ----------- ----------------
(In thousands)
Year ended June 30, 1994:
Banks $21,115 6.7% $35,557 $19,916 6.7%
======= ==== ======= ======= ====
Year ended June 30, 1993:
Banks $14,881 6.5% $24,170 $ 6,430 6.5%
======= ==== ======= ======= ====
Year ended June 30, 1992:
Banks $0 N/A $ 6,715 $ 213 8.7%
======= ==== ======= ======= ====
___________________________
(1) The average amount outstanding during the year was computed
by dividing the total of the average daily balances by the
number of days in the year.
(2) The weighted average interest rate during the year was
computed by dividing the actual interest expense by average
short-term borrowings outstanding.
F-18