-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Nf1bwDogd5Ipq5xRXS3TlP6GaB8MXMX51CcvOyH5alSGvhCflkZtrOlJDouVi/5+ B2Oj7OBWturQqmFEkKPSOw== 0000910680-98-000333.txt : 19980910 0000910680-98-000333.hdr.sgml : 19980910 ACCESSION NUMBER: 0000910680-98-000333 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980404 FILED AS OF DATE: 19980909 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAY LESLIE CO INC CENTRAL INDEX KEY: 0000796226 STANDARD INDUSTRIAL CLASSIFICATION: WOMEN'S, MISSES', AND JUNIORS OUTERWEAR [2330] IRS NUMBER: 133197085 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 001-09196 FILM NUMBER: 98705884 BUSINESS ADDRESS: STREET 1: 1412 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10018 BUSINESS PHONE: 2122214000 MAIL ADDRESS: STREET 1: 1412 BROADWAY STREET 2: 1 PASSAN DRIVE CITY: NEW YORK STATE: NY ZIP: 10018 FORMER COMPANY: FORMER CONFORMED NAME: FAY LESLIE COMPANIES INC DATE OF NAME CHANGE: 19920703 10-Q/A 1 AMENDMENT NO. 1 TO FORM 10-Q ================================================================================ FORM 10-Q/A AMENDMENT NO. 1 TO FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 4, 1998 COMMISSION FILE NO. 1-9196 THE LESLIE FAY COMPANY, INC. Delaware 13-3197085 (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1412 Broadway New York, New York 10018 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 221-4000 Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] There were 3,400,000 shares of Common Stock outstanding at May 15, 1998. ================================================================================ THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES INDEX Page No. PART I - FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Balance Sheets as of April 4, 1998 and January 3, 1998......................................... 3 Consolidated Statements of Operations for the Thirteen Weeks Ended April 4, 1998 and the Fourteen Weeks Ended April 5, 1997.......................... 4 Consolidated Statements of Cash Flows for the Thirteen Weeks Ended April 4, 1998 and the Fourteen Weeks Ended April 5, 1997.......................... 5 Notes to Consolidated Financial Statements...................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................... 18 PART II - OTHER INFORMATION Item 1. Legal Proceedings................................................. 22 Item 2. Changes in Securities............................................. 22 Item 3. Defaults Upon Senior Securities................................... 22 Item 4. Submission of Matters to a Vote of Security Holders............... 22 Item 5. Other Information................................................. 22 Item 6. Exhibits and Reports on Form 8-K.................................. 22 SIGNATURES................................................................... 23 INDEX TO EXHIBITS........................................................... E-1 2 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) (UNAUDITED)
April 4, January 3, 1998 1998 ------- ------- ASSETS Current Assets: Cash and cash equivalents ................................. $ 6,602 $18,455 Restricted cash and cash equivalents ...................... 1,169 1,358 Restricted short term investments ......................... 2,989 2,989 Accounts receivable- net of allowances for possible losses of $3,324 and $3,236, respectively .................... 25,808 9,747 Inventories ............................................... 24,965 26,701 Prepaid expenses and other current assets ................. 650 807 ------- ------- Total Current Assets ................................... 62,183 60,057 Property, plant and equipment, at cost, net of accumulated depreciation of $34 and $14, respectively .. 1,301 845 Deferred charges and other assets ......................... 110 149 ------- ------- Total Assets .............................................. $63,594 $61,051 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable .......................................... $10,162 $11,530 Accrued expenses and other current liabilities ............ 3,721 4,542 Accrued expenses and other current confirmation liabilities 4,158 4,347 Income taxes payable ...................................... 85 25 Current portion of capitalized leases ..................... 95 160 Total Current Liabilities .............................. 18,221 20,604 Excess of revalued net assets acquired over equity under fresh-start reporting, net of accumulated amortization of $3,810 and $2,667, respectively ................... 9,898 11,041 Long term debt-capitalized leases ......................... 53 49 Deferred liabilities ...................................... 202 143 ------- ------- Total Liabilities ...................................... 28,374 31,837 ------- ------- Stockholders' Equity: Preferred stock, $.01 par value; 500 shares authorized; no shares issued and outstanding ...................... -- -- Common stock, $.01 par value; 9,500 shares authorized; 3,400 shares issued and outstanding ................... 34 34 Capital in excess of par value ............................ 28,108 25,871 Accumulated retained earnings ............................. 7,078 3,309 ------- ------- Total Stockholders' Equity ............................ 35,220 29,214 ------- ------- Total Liabilities and Stockholders' Equity ................ $63,594 $61,051 ======= =======
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. 3 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data) (UNAUDITED)
REORGANIZED PREDECESSOR COMPANY COMPANY ------- ------- THIRTEEN FOURTEEN WEEKS ENDED WEEKS ENDED APRIL 4, APRIL 5, 1998 1997 ------------ ------------ Net Sales ........................................ $ 45,258 $ 142,755 Cost of Sales .................................... 33,260 105,987 ------------ ------------ Gross profit .................................. 11,998 36,768 ------------ ------------ Operating Expenses: Selling, warehouse, general and administrative expenses..................................... 7,536 23,102 Depreciation and amortization expense ......... 17 1,246 ------------ ------------ Total operating expenses ................... 7,553 24,348 Other income .................................. (272) (956) Amortization of excess revalued net assets..... (1,143) -- ------------ ------------ Total operating expenses, net ................. 6,138 23,392 ------------ ------------ Operating income .............................. 5,860 13,376 Interest and Financing Costs (excludes contractual interest of $-0-, and $4,508, respectively) ... 190 868 ------------ ------------ Income before reorganization costs and taxes ... 5,670 12,508 Reorganization Costs ............................. -- 468 Income before taxes ............................ 5,670 12,040 Taxes ............................................ 1,901 316 ------------ ------------ Net Income .................................... $ 3,769 $ 11,724 ============ ============ Net Income per Share - Basic ................... $ 1.11 $ 0.62 ============ ============ - Diluted ................. $ 1.07 $ 0.62 ============ ============ Weighted Average Shares Outstanding - Basic..... 3,400,000 18,771,836 ============ ============ - Diluted... 3,521,423 18,771,836 ============ ============
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. 4 THE LESLIE FAY COMPANY, INC. AND SUBSIDAIRY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
Reorganized Predecessor Company Company ------- ------- Thirteen Fourteen Weeks Ended Weeks Ended April 4, April 5, 1998 1997 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ........................................... $ 3,769 $ 11,724 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization ..................... 20 1,327 Amortization of excess net assets acquired over equity .................................... (1,143) -- Provision for compensation under stock option grants.......................................... 396 -- Provision for possible loss on account receivable...................................... -- 524 (Gain) loss on sale of fixed assets ............... -- (347) Decrease (increase) in: Accounts receivable ............................. (16,061) (29,737) Inventories ..................................... 1,736 28,286 Prepaid expenses and other current assets........ 157 (15) Deferred charges and other assets ............... 39 (858) (Decrease) increase in: Accounts payable, accrued expenses and other current liabilities .......................... (1,569) (4,711) Income taxes payable ............................ (540) 9 Deferred credits and other noncurrent liabilities................................... 59 136 Changes due to reorganization activities: Reorganization costs ............................ -- 468 Payment of reorganization costs ................. -- (998) Use of pre-consummation deferred taxes........... 1,840 -- -------- -------- Total adjustments ............................ (15,066) (5,916) -------- -------- Net cash (used in) provided by operating activities................................ (11,297) 5,808 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ................................. (476) (2,024) Proceeds from sale of assets ......................... -- 467 -------- -------- Net cash (used in) by investing activities.... (476) (1,557) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Repayment - capitalized leases ....................... (61) -- Payment of obligations under Plan of Reorganization... (208) -- -------- -------- Net cash (used in) financing activities....... (269) -- -------- -------- Net (decrease) increase in cash and cash equivalents . (12,042) 4,251 Cash and cash equivalents, at beginning of period .... 19,813 21,977 -------- -------- Cash and cash equivalents, at end of period .......... $ 7,771 $ 26,228 ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. 5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION: The condensed consolidated financial statements included herein have been prepared by The Leslie Fay Company, Inc. (formerly The Leslie Fay Companies, Inc.) and subsidiaries (The Leslie Fay Company, Inc. being sometimes individually referred to, and together with its subsidiaries collectively referred to, as the "Company" as the context may require), pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from this report, as is permitted by such rules and regulations; however, the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the Fiscal Year ended January 3, 1998 (the "1997 Form 10-K"). Interim taxes were provided based on the Company's estimated effective tax rate for the year. In the opinion of management, the information furnished reflects all adjustments, all of which are of a normal recurring nature, necessary for a fair presentation of the results for the reported interim periods. Results of operations for interim periods are not necessarily indicative of results for the full year, and the seasonality of the business may make projections of full year results based on interim periods unreasonable. Certain reclassifications have been made to the financial statements for the fourteen weeks ended April 5, 1997 to conform to the current quarterly presentation. 2. REORGANIZATION CASE AND FRESH-START REPORTING: On April 5, 1993 ("the Filing Date"), The Leslie Fay Companies, Inc. ("Leslie Fay") and each of Leslie Fay Licensing Corp., Spitalnick Corp. and Hue, Inc., wholly-owned subsidiaries of Leslie Fay (collectively the "Debtors"), filed a voluntary petition under chapter 11 of the Bankruptcy Code (the "Bankruptcy Code"). The Debtors operated their businesses as debtors in possession subject to the jurisdiction and supervision of the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). Pursuant to an order of the Bankruptcy Court, the individual chapter 11 cases were consolidated for procedural purposes only and were jointly administered by the Bankruptcy Court. On November 15, 1995, Leslie Fay Retail Outlets, Inc.; Leslie Fay Factory Outlet (Alabama), Inc.; Leslie Fay Factory Outlet (California), Inc.; Leslie Fay Factory Outlet (Iowa), Inc.; and Leslie Fay Factory Outlet (Tennessee), Inc., all wholly-owned subsidiaries of Leslie Fay (collectively 6 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES referred to as the "Retail Debtors") filed voluntary petitions under chapter 11 of the Bankruptcy Code. The Retail Debtors operated their businesses as debtors in possession following the November 15, 1995 filing date while pursuing an orderly liquidation of their assets, also under chapter 11 of the Bankruptcy Code. In the chapter 11 cases, substantially all liabilities as of the Filing Date were subject to compromise under the Plan. As part of the cases, the Debtors and Retail Debtors notified all known claimants for the purpose of identifying all pre-petition claims against them. Pursuant to orders of the Bankruptcy Court, all proofs of claim were required to be filed by December 10, 1993 against the Debtors and December 12, 1995 against the Retail Debtors. Excluded from the requirement to file by the December 10, 1993 bar date, among others, were certain claims by the Internal Revenue Service ("IRS"), which were required to be filed by March 31, 1995. On April 8, 1996, the Debtors and Retail Debtors filed amended schedules of liabilities with the Bankruptcy Court which established May 8, 1996 as the supplemental bar date for certain creditors. On October 31, 1995, the Debtors and the Committee of Unsecured Creditors (the "Creditors Committee") filed the Plan pursuant to chapter 11 of the Bankruptcy Code. The Plan was subsequently amended on March 13, 1996, December 5, 1996, February 3, 1997 and February 28, 1997. On December 5, 1996, the Debtors filed a Disclosure Statement for the Amended Joint Plan of Reorganization pursuant to chapter 11 of the Bankruptcy Code (the "Disclosure Statement"), which was also subsequently amended on February 3, 1997 and February 28, 1997. The Plan provided for, among other things, the separation of the Debtors' estates and assets into two separate reorganized entities. Under the Plan, stockholders of the Company would not retain or receive any value for their interest. The Debtors obtained Bankruptcy Court approval of the Disclosure Statement on February 28, 1997. The Plan was approved by the creditors and on April 21, 1997, the Bankruptcy Court confirmed the Plan. On June 4, 1997 (the "Consummation Date"), the Plan was consummated by the Company 1) transferring the equity interest in both the Company and Sassco Fashions, Ltd. ("Sassco"), which changed its name to Kasper A.S.L., Ltd. on November 5, 1997, to its creditors in exchange for relief from the aggregate amount of the claims estimated at $338,000,000; 2) assigning to certain creditors the ownership rights to notes aggregating $110,000,000 payable by Sassco; and 3) transferring the assets (including $10,963,000 of cash) and liabilities of the Company's Sassco Fashions product line to Sassco and the assets and liabilities of its Dress and Sportswear product lines to three wholly-owned subsidiaries of the Company. In addition, the Company retained approximately $41,080,000 in cash of which $23,580,000 was to pay administrative claims as defined in the Plan. As provided for in the Plan, the Company issued seventy-nine (79%) percent of its 3,400,000 new shares to its creditors in July 1997. The remaining twenty-one (21%) percent is being held back pending the resolution of certain litigation before the Bankruptcy Court. The existing stockholders of the Company at June 4, 1997 did not retain or receive any value for their equity interest in the Company. Reference is made to the Exhibits contained in the Company's Form 10-K for the fiscal year ended. January 3, 1998, and Item 1 - Recent Developments contained in the Company's Form 10-K for the 7 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES fiscal year ended December 28, 1996 for a copy of the Plan and a summary of Plan provisions, respectively. In accordance with the Plan, the remaining Liabilities subject to compromise were discharged and the Company recognized a gain of $73,541,000, which is reflected as an Extraordinary Gain on Debt Discharge in the consolidated statement of operations for the twenty-two weeks ended June 4, 1997. Fresh-Start Reporting - --------------------- Pursuant to the guidelines provided by SOP 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code", the Company adopted fresh-start reporting and reflected the consummation distributions under the Plan in the consolidated balance sheet as of June 4, 1997 (the effective date of the consummation of the Plan for accounting purposes). Under fresh-start reporting, the Company's reorganization value of $25,000,000 was allocated to its net assets on the basis of the purchase method of accounting. The significant fresh-start reporting adjustments are summarized as follows: 1. Cancellation of the old common stock pursuant to the Plan against the accumulated deficit. 2. Allocation of the fair market value of the identifiable net assets in excess of the reorganization value (negative goodwill) in accordance with the purchase method of accounting. The negative goodwill amount remaining after reducing non-current assets acquired to zero was recorded as a deferred credit, "Excess of revalued net assets acquired over equity under fresh-start reporting" and is being amortized over three (3) years. The resulting charge of $27,010,000 from all the fresh-start adjustments, including the write-off of all revalued noncurrent assets (but excluding the write-off of the old stock for $56,611,000), is presented as "loss on revaluation of assets pursuant to adoption of fresh-start reporting" in the consolidated statement of operations for the twenty-two weeks ended June 4, 1997. The fresh-start reporting reorganization value of $25,000,000 was established as the midpoint of a range ($20,000,000 - $30,000,000) established by the Company's financial advisors. The calculation of the range was based on a five-year analysis of the Company's projected operations for the remaining operating product lines (fiscal years ended 1996 - 2001), which was prepared by management, and a discounted cash flow methodology was applied to those numbers. The five-year cash flow projections were based on estimates and assumptions about circumstances and events that have not yet taken place. Such estimates and assumptions are inherently subject to significant economic and competitive uncertainties and contingencies beyond the control of the Company, including, but not limited to, those with respect to the future course of the 8 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES Company's business activity. Since fresh-start reporting has been reflected in the accompanying consolidated balance sheet as of January 3, 1998, the consolidated balance sheet as of that date is not comparable in material respects to any such balance sheet for any period prior to June 4, 1997. 3. DISPOSITIONS: As discussed in Note 2, in connection with the consummation of the Plan, the Company sold or transferred all the assets and liabilities of its Sassco Fashions product line on June 4, 1997 for an estimated exchange value of $230,000,000. This value was the estimated reorganization value of the Sassco Fashions Product line which was calculated in a manner similar to the Company's reorganization value (see Note 2). The resulting gain of $89,810,000, net of taxes of $3,728,000, recorded from these transactions is reflected as a Gain on the disposition of the Sassco Fashions product line in the consolidated statement of operations for the twenty-two weeks ended June 4, 1997. In addition, on May 26, 1997, the Company sold the assets and liabilities of its Castleberry product line for $600,000. The resulting loss of $1,398,000 on the sale was previously recorded as reorganization expense in fiscal 1996 and therefore, was applied against Accrued expenses and other current liabilities at the time of the sale. The unaudited pro forma consolidated statement of operations for the fourteen weeks ended April 5, 1997 is presented below and includes adjustments to give effect to the sales and the Plan (see Note 2) as if they occurred as of the beginning of the period presented. The unaudited pro forma financial statement has been prepared in accordance with guidelines established by the Securities and Exchange Commission. The historical balances were derived from the consolidated statement of operations for the fourteen weeks ended April 5, 1997. All significant intercompany transactions have been eliminated. The unaudited pro forma adjustments presented in the statement are as follows: 9 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES Column Heading Explanation - -------------- ----------- Historical Operations The Consolidated Statement of Operations as it existed prior to the adjustments. Disposition of Sassco The operating results of the Sassco Fashions product line have been eliminated to give effect to the disposition as of the beginning of the period presented, including depreciation expense on its property, plant and equipment, an allocated corporate charge based on workload by department related to the Sassco Fashions line and direct charges associated with financing fees on its factoring agreement and fees incurred on letters of credit issued on its behalf. For the April 5, 1997 period, the gain recorded on the disposition of the Sassco Fashions line has been reversed. Sale of Castleberry The operating results of the Castleberry product line have been eliminated to give effect to the disposition as of the beginning of the period presented, including depreciation expense on its property, plant and equipment and an allocated corporate charge based on workload by department related to the Castleberry line. Fresh-Start Reporting To record the estimated effect of the Plan as if it had been effective as of the beginning of period presented. This includes adjustments for the following items: a) The elimination of the historical depreciation and amortization for the remaining product lines, including the amounts in cost of sales, on the beginning of period asset balances and the recording of the amortization credit for the "Excess of revalued net assets acquired over equity under fresh-start reporting" (assuming a three-year amortization period). b) The elimination of historical reorganization expense that will not be incurred subsequent to the Consummation Date. c) The elimination of the fresh-start revaluation charge and the reversal of the gain on debt discharge pursuant to the Plan. 10 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (In thousands, except share and per share data) (UNAUDITED)
FOURTEEN WEEKS ENDED APRIL 5, 1997 HISTORICAL DISPOSITION SALE OF FRESH-START PRO FORMA OPERATIONS OF SASSCO CASTLEBERRY REPORTING ADJUSTED BALANCE ----------- ----------- ----------- ----------- ----------- Net Sales $ 142,755 ($ 99,230) ($ 2,129) $ -- $ 41,396 Cost of Sales 105,987 (74,223) (1,581) (18) 30,165 ----------- ----------- ----------- ----------- ----------- Gross profit 36,768 (25,007) (548) 18 11,231 ----------- ----------- ----------- ----------- ----------- Operating Expenses: Selling, warehouse, general and administrative expenses 23,102 (15,251) (551) 150 7,450 Depreciation and amortization expense 1,246 (642) (30) (574) -- ----------- ----------- ----------- ----------- ----------- Total operating expenses 24,348 (15,893) (581) (424) 7,450 Other (income) expense (956) 251 -- -- (705) Amortization of excess revalued net Assets acquired over equity -- -- -- (1,143) (1,143) ----------- ----------- ----------- ----------- ----------- Total operating expenses, net 23,392 (15,642) (581) (1,567) 5,602 ----------- ----------- ----------- ----------- ----------- Operating income (loss) 13,376 (9,365) 33 1,585 5,629 Interesting and Financing Costs (excludes Contractual interest) 868 (412) -- -- 456 ----------- ----------- ----------- ----------- ----------- Income (loss) before reorganization costs, taxes, gain on 12,508 (8,953) 33 1,585 5,173 sale, fresh-start revaluation Reorganization Costs 468 -- (50) (418) -- ----------- ----------- ----------- ----------- ----------- Income (loss) before taxes, gain on sale, fresh-start Revaluation 12,040 (8,953) 83 2,003 5,173 Taxes 316 (200) -- 1,577 1,693 ----------- ----------- ----------- ----------- ----------- Net income (loss) before gain on sale, fresh-start revaluation 11,724 (8,753) 83 426 3,480 ----------- ----------- ----------- ----------- ----------- Net Income (loss) per Share - Basic and Diluted * $ 1.02 Weighted Average Shares Outstanding - Basic and Diluted * 3,400,000 =========== ===========
*Earnings per share for the fourteen weeks ended April 5, 1997 is not presented because such presentation would not be meaningful as it is based on the old stock outstanding. The old stock was canceled under the plan of reorganization and new stock was issued. Earnings per share on a pro forma basis is calculated on the new stock outstanding. 11 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES 4. ACCOUNTS RECEIVABLE: On June 2, 1997, a wholly-owed subsidiary of the Company entered into a Factoring Agreement with The CIT Group/Commercial Services, Inc. ("CIT"). Under this agreement, CIT began purchasing the accounts receivable of the Company and remits the proceeds received to the Company as collected. In exchange for collecting the receivables, CIT earns a factoring fee of 0.4% of receivables purchased (with a minimum charge per invoice) as well as an interest charge of prime plus 1% on two days cash collections. 5. INVENTORIES: Inventories consist of the following: April 4, January 3, 1998 1998 ------- ------- (In Thousands) Raw materials $11,340 $ 9,638 Work in process 5,265 4,540 Finished goods 8,360 12,523 ------- ------- Total inventories $24,965 $26,701 ======= ======= 6. DEBT: On June 2, 1997, in preparation for the consummation of the Plan, a wholly- owned subsidiary of the Company entered into a two-year financing agreement (the "CIT Credit Agreement") with CIT to provide direct borrowings and the issuance of letters of credit on the Company's behalf in an aggregate amount not to exceed $30,000,000, with a sublimit on letters of credit of $20,000,000. The CIT Credit Agreement became effective on June 4, 1997 with the consummation of the Plan. Direct borrowings bear interest at prime plus 1.0% (9.5% at April 4, 1998) and the CIT Credit Agreement requires a fee, payable monthly, on average outstanding letters of credit at a rate of 2% annually. There were no direct borrowings outstanding under the CIT Credit Agreement and approximately $9,447,000 was committed under unexpired letters of credit as of April 4, 1998. The CIT Credit Agreement, as amended, contains certain reporting requirements, as well as financial and operating covenants related to capital expenditures, a minimum tangible net worth and the maintenance of a current assets to current liabilities ratio and an interest to earnings ratio and the attainment of minimum earnings. As collateral for borrowings under the CIT Credit Agreement, the Company has granted to CIT a security interest in substantially all of its assets. In addition, the CIT Credit Agreement contains certain restrictive covenants, including limitations on the incurrence of additional liens and indebtedness. The Company is currently in compliance with all requirements contained in the CIT Credit Agreement. 12 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES The Company previously had a facility for a $60,000,000 credit agreement with The First National Bank of Boston ("FNBB") and BankAmerica Business Credit, Inc. ("BABC"), as Facility Agents, and FNBB as Administrative Agent (the "FNBB Credit Agreement"). In connection with the consummation of the Plan, the Company entered into an agreement (the "Paydown Agreement") with its lenders under the FNBB Credit Agreement to paydown any remaining obligations under the FNBB Credit Agreement and terminate the FNBB Credit Agreement on June 4, 1997. The FNBB Credit Agreement had expired on May 31, 1997, but continued in effect until the consummation of the Plan with the consent of both the lenders and the Company. The FNBB Credit Agreement provided for post-petition direct borrowings and the issuance of letters of credit on the Debtors' behalf in an aggregate amount not to exceed $60,000,000. Beginning January 1, 1997, the sublimit on the revolving line of credit was $20,000,000 and the sublimit for letters of credit was $50,000,000. There were no direct borrowings outstanding under the FNBB Credit Agreement and approximately $19,351,000 was committed under unexpired letters of credit as of April 5, 1997. There were no unexpired letters of credit outstanding under the FNBB Credit Agreement at April 4, 1998. Interest on direct borrowings was charged at prime plus 1.5% (10.00% at April 5, 1997), and the FNBB Credit Agreement required a fee, payable monthly, on average outstanding letters of credit at a rate of 2% annually 7. INCOME TAXES: The provision for state and foreign income taxes is $1,901,000 and $316,000 for the thirteen and fourteen weeks ended April 4, 1998 and April 5, 1997, respectively. Federal income taxes for the post-consummation period are primarily offset by the utilization of pre-consummation net operating loss carryovers, which are limited to approximately $1,500,000 in 1998, and post-consummation net operating loss carryforwards without limitation and deductions available for tax purposes. Although there is no 1997 Federal income tax provision currently recognizable on the pre-consummation earnings due to existing net operating loss carryforwards and no Federal income tax benefit currently recognizable, the Company provided $3,728,000 for federal and state income taxes based on the alternative minimum tax regulations for the twenty-two weeks ended June 4, 1997 related to the gain on the sale of the Sassco Fashions product line. These taxes are reflected net of the gain shown in the statement of operations for the twenty-two weeks ended June 4, 1997. 8. COMMITMENTS AND CONTINGENCIES: As discussed in Note 2, on the Filing Dates, the Company and several of its subsidiaries filed voluntary petitions in the Bankruptcy Court under chapter 11 of the Bankruptcy Code. All civil litigation commenced against the Company and those referenced subsidiaries prior to that date had 13 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES been stayed under the Bankruptcy Code. By an order dated April 21, 1997 (the "Confirmation Order"), the Bankruptcy Court confirmed the Plan. The Plan was consummated on June 4, 1997. Certain alleged creditors who asserted age and other discrimination claims against the Company, and whose claims were expunged (the "Claimants") pursuant to an Order of the Bankruptcy Court (see below) appealed the Confirmation Order to the United States District Court for the Southern District of New York. The Company moved to dismiss the appeal from the Confirmation Order and the motion was granted and the appeal was dismissed. An appeal to the United States Court of Appeals for the Second Circuit from the Order dismissing the appeal taken by the Claimants subsequently was withdrawn, without prejudice, and may be refiled in the future. In addition, the Claimants and two other persons commenced an adversary proceeding in the Bankruptcy Court to revoke the Confirmation Order. The Company has moved to dismiss the adversary proceeding to revoke the Confirmation Order and that motion has been fully briefed, but has not yet been argued to the Bankruptcy Court. Both prior to and subsequent to the Filing Dates, various class action suits were commenced on behalf of persons who were stockholders of the Company prior to April 5, 1993. Any claims against the Company arising out of these suits were discharged as part of, and in accordance with the terms of, the Plan. The Claimants, who are former employees of the Company who were discharged prior to the filing of the chapter 11 cases, asserted age and other discrimination claims, including punitive damage claims against the Company in the approximate aggregate sum of $80 million. Following a trial on the merits, the Bankruptcy Court expunged and dismissed those claims in their entirety. The Claimants have appealed that decision to the United States District Court for the Southern District of New York, the appeal has been fully briefed and argued and the parties are awaiting a decision. Several former employees, who are included among the Claimants in the above-described pending appeal, have commenced an action alleging employment discrimination against certain former officers and directors of the Company in the United States District Court for the Southern District of New York. The Court has dismissed all of the causes of action arising under federal and state statutes, and the only remaining claims are those arising under the New York City Human Rights Law. Discovery is complete and a pre-trial order has been filed. In addition to, and concurrent with, the proceedings in the Bankruptcy Court, the Company is involved in or settled the following legal proceedings of significance: In November 1992, a class action entitled "Stephen Warshaw and Phillis Warshaw v. The Leslie Fay Companies, Inc. et al." was instituted in the United States District Court for the Southern District of New York. In January 1993 and February 1993, the plaintiffs served amended complaints and thereafter twelve other similar actions were commenced against the Company, certain of its officers and directors and its then auditors, BDO Seidman. The complaints in these cases, which purported to be on behalf of all persons who purchased or acquired stock of the Company during the 14 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES period from February 4, 1992 to and including February 1, 1993, alleged that the defendants knew or should have known material facts relating to the sales and earnings which they failed to disclose and that if these facts had been disclosed, they would have affected the price at which the Company's common stock was traded. A pre-trial order was entered which had the effect of consolidating all of these actions and, in accordance therewith, the plaintiffs have served the defendants with a consolidated class action complaint which, because of the chapter 11 filing by the Company, does not name the Company as a defendant. In March 1994, plaintiffs filed a consolidated and amended class action complaint. This complaint added certain additional parties as defendants, including Odyssey Partners, L.P. ("Odyssey"), and expanded the purported class period from March 28, 1991 to and including April 5, 1993. In March 1995, BDO Seidman filed an answer and cross-claims against certain of the officers and directors of the Company previously named in this action and filed third-party complaints against Odyssey, certain then current and former executives of the Company and certain then current and former directors of the Company. These cross-claims and third-party complaints allege that the Company's senior management and certain of its directors engaged in fraudulent conduct and negligent misrepresentation. BDO Seidman sought contribution from certain of the defendants and each of the third-party defendants if it were found liable in the class action, as well as damages. On March 7, 1997, a stipulation and agreement was signed pursuant to which all parties agreed to settle the above described litigation for an aggregate sum of $34,700,000. The officers' and directors' share of the settlement is covered by the Company's officers' and directors' liability insurance. The settlement specifically provides that the officers and directors deny any liability to the plaintiffs and have entered into the settlement solely to avoid substantial expense and inconvenience of litigation. The Company has no obligations under this settlement. The District Court approved this settlement and signed the final order of dismissal on May 8, 1997. The settlement has been fully consummated. In February 1993, the Securities and Exchange Commission obtained an order directing a private investigation of the Company in connection with, among other things, the filing by the Company of annual and other reports that may have contained misstatements, and the purported failure of the Company to maintain books and records that accurately reflected its financial condition and operating results. The Company is cooperating in this investigation. In February 1993, the United States Attorney for the Middle District of Pennsylvania issued a Grand Jury Subpoena seeking the production of documents as a result of the Company's announcement of accounting irregularities. In 1994, Donald F. Kenia, former Controller of the Company, was indicted by a federal grand jury in the Middle District of Pennsylvania and pled guilty to the crime of securities fraud in connection with the accounting irregularities. On or about October 29, 1996, Paul F. Polishan, former Senior Vice President and Chief Financial Officer of the Company, was indicted by the federal grand jury in the Middle District of Pennsylvania for actions relating to the accounting irregularities. The trial of the case against Paul F. Polishan has not yet occurred. In March 1993, a stockholder derivative action entitled "Isidore Langer, derivatively on behalf of The Leslie Fay Companies, Inc. v. John J. Pomerantz et al." (the "Derivative Action") was 15 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES instituted in the Supreme Court of the State of New York, County of New York, against certain officers and directors of the Company and its then auditors. This complaint alleges that the defendants knew or should have known material facts relating to the sales and earnings of the Company which they failed to disclose. The time to answer, move or otherwise respond to the complaint has not yet expired. The plaintiff seeks an unspecified amount of monetary damages, together with interest thereon, and costs and expenses incurred in the action, including reasonable attorneys' and experts' fees. The Company cannot presently determine the ultimate outcome of this litigation, but believes that it should not have any unfavorable impact on the financial statements. Pursuant to the Modification of the Third Amended and Restated Joint Plan of Reorganization filed on April 4, 1997, a Derivative Action Board, comprised of three persons or entities appointed by the Bankruptcy Court, upon nomination by the Creditors' Committee, shall determine by a majority vote whether to prosecute, compromise and settle or discontinue the Derivative Action. On February 23, 1996, Albert Nipon and American Pop Marketing Group, Inc. commenced an action against the Company in the United States Bankruptcy Court, Southern District of New York, seeking, inter alia, a declaratory judgment with respect to the use of the Company's "Albert Nipon" trademark and trade name. The Company has asserted counter claims. Upon a record of stipulated facts and submissions of memorandum of law, an oral argument on this matter was heard on May 9, 1997. On December 23, 1997, the court ruled in favor of the Company finding the plaintiffs in violation of the Federal and New York Trademark Statutes and of unfair competition under common law. The plaintiffs have appealed and the Company has cross appealed to recover its costs and expenses in the litigation. 9. STOCKHOLDERS' EQUITY: As provided under the Plan, the authorized common stock of the reorganized Company consisted of 3,500,000 shares of common stock with a par value $.01 per share. The authorized common stock of the reorganized Company was increased to 9,500,000 shares of common stock with a par value of $.01 per share in November 1997. At June 4, 1997, 3,400,000 shares were issued and outstanding and were being held by the plan administrator in trust. In July 1997, 2,686,127 (approximately 79%) of the shares were distributed. The remaining approximately twenty-one (21%) percent is being held back pending the resolution of certain disputed claims before the Bankruptcy Court. The old common stock was canceled at June 4, 1997 and the old stockholders of the Company did not retain or receive any value for their equity interest. In addition, 500,000 shares of Preferred Stock of the reorganized Company were authorized at June 4, 1997 with a par value of $.01. None of such shares have been issued. 10. STOCK OPTION PLAN: The Plan provides stock options to certain senior management equal to seventeen and one-half (17.5%) percent of the reorganized Company's common stock outstanding (assuming the exercise 16 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES of all options). Of this amount, the first ten (10%) or 412,121 options were granted as of June 4, 1997, one-third of which will vest on each of the first three anniversaries of the Consummation Date. In addition, each initial non-employee director of the Company has been granted 10,000 stock options, vesting one-third each year for a total of 50,000 options, and each subsequent non-employee director, upon becoming a director, has received or will receive stock options to purchase 5,000 shares, vesting one-third each year . The options may be exercised for between $6.18 and $11.50 per share. The Plan provided that additional options (the "Home Run Options") of another two and one-half (2.5%) to seven and one-half (7.5%) percent of common stock (a maximum of 309,091 options) will be granted upon a sale of the Company where the imputed enterprise value exceeds $37,500,000. The Company has adopted the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" effective as of the Consummation Date. Under SFAS No. 123, the Company has recorded $396,000 and $351,000 of non-cash compensation expense included in Selling, warehouse, general and administrative expenses for the thirteen and fifty-three weeks ended April 4, 1998 and January 3, 1998, respectively. These amounts were offset as adjustments to Capital in excess of par value in the consolidated balance sheets at April 4, 1998 and January 3, 1998, respectively. The consummation of the Plan terminated all options under a Stock Option Plan which had provided for the grant of up to an aggregate of 1,000,000 shares of its common stock to its key employees. In December 1992, the Board of Directors approved an increase in the aggregate number of shares which could be granted to 1,500,000. This increase was subject to stockholder approval which was never solicited. Under the plan, incentive stock options were granted to purchase shares of common stock at not less than the fair market value of such shares at the date of the grant. Additionally, non-qualified options were granted to purchase shares of common stock at an amount not less than 98% of the fair market value of such shares at the date of grant. In general, the options vested over a four year period and were exercisable no later than five years from the date of grant. At the April 1998 meeting of the Company's Board of Directors, the Compensation Committee recommended and the Board of Directors approved certain modifications to the terms of the "Home Run" options. In addition the Compensation Committee approved in principle new employment contracts for the Company's four executive officers, John Pomerantz, John Ward, Dominick Felicetti and Warren Wishart. As a result, the Company has recorded $218,000 in additional, non-cash compensation expense for these modifications and has recorded a total of $396,000 of non-cash compensation expense for the first quarter. 11. COMPREHENSIVE INCOME: Effective January 4, 1998, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No.130, "Reporting Comprehensive Income" which modifies the financial statement presentation of comprehensive income and its components. Adoption of this standard had no effect on the Company's financial position or operating results during the periods presented. 17 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES 12. NET INCOME (LOSS) PER SHARE: As of April 4, 1998, the basic weighted average common shares outstanding is 3,400,000, and the weighted average shares outstanding assuming dilution is 3,521,423. The difference of 121,423 represents to the incremental shares issuable upon exercise of dilutive stock options. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (A) RESULTS OF OPERATIONS THIRTEEN WEEKS ENDED APRIL 4, 1998 AS COMPARED TO FOURTEEN WEEKS ENDED APRIL 5, 1997 The Company recorded net sales of $45,258,000 for the thirteen weeks ended April 4, 1998, compared with $142,755,000 for the fourteen weeks ended April 5, 1997, a net decrease of $97,497,000 or 68.3%. The primary factors contributing to this decrease were the sale of the Sassco Fashions and Castleberry product lines, the closing of the Outlander product line and the extra week of shipping volume in the first quarter 1997, offset by sales of new product lines in the first quarter 1998. The Sassco, Castleberry and Outlander lines generated $99,230,000, $2,129,000 and $1,997,000, respectively, in net sales for the fourteen weeks ended April 5, 1997. The extra week's shipping volume in the continuing product lines accounted for $1,225,000 in net sales during the fourteen week period ended April 5, 1997. The Company's newly released product line, Haberdashery by Leslie Fay Sportswear, generated net sales of $1,292,000 for the thirteen week period ending April 4, 1998. On a comparable basis, after excluding the effect of the above mentioned businesses, the extra week and $21,000 of returns relating to the closed Outlander product line, the continuing product lines had a net sales increase of $5,813,000, or 15.2%, for the thirteen weeks ended April 4, 1998 as compared to the comparably adjusted period ended April 5, 1997. The Dress product lines generated an increase for the period of $5,531,000 or 22.1% directly as a result of increased production of the Spring season lines to service anticipated increases in customer demand. Net sales for the comparable continuing Sportswear product lines, excluding the Haberdashery line, increased by $282,000 or 2.1%. Gross profit for the thirteen weeks ended April 4, 1998 was $11,998,000 and 26.5% of net sales compared with $36,768,000 and 25.8% for the fourteen weeks ended April 5, 1997. The Sassco Fashions, Castleberry and Outlander product lines generated $25,007,000, $548,000 and ($234,000), respectively, in gross profit for the fourteen weeks ended April 5, 1997. The extra week of shipping during the quarter ended April 5, 1997 generated $443,000 of gross profit. The newly offered Haberdashery line generated gross profit of $403,000 for the thirteen weeks ended April 4, 1998. The comparable continuing businesses increased gross profit by $612,000 for the thirteen weeks ended April 4, 1998 versus the prior year while the gross margin as a percentage of net sales decreased to 26.4% from 28.8%. Increased production of the Spring season as discussed above 18 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES generated the additional gross margin volume in both the Dress and Sportswear product lines. The lower gross profit percentage is due mostly to additional discounts taken in the Dress product line due to higher levels of off-price sales and to discounts offered on late shipments. The gross profit from the Dress line, excluding the effect of the additional week, rose $863,000 but the percentage to net sales fell to 27.9% from 30.6%. The gross profit produced by the Sportswear line for the thirteen weeks ended April 4, 1998, excluding the effect of the extra week and the new product line, decreased by $251,000 and the percentage of net sales decreased to 23.0% from 25.4% for the comparable period ended April 5, 1997. This decrease resulted primarily from the competitive repricing strategy of the Leslie Fay Sportswear product line that was implemented during the second half of 1997. Selling, warehouse, general and administrative expenses were $7,536,000 or 16.7% of net sales and $23,102,000 or 16.2% of net sales for the thirteen and fourteen weeks ended April 4, 1998 and April 5, 1997, respectively. After excluding the costs associated with the product lines sold, the pro forma remaining business had expenses of $7,450,000 or 17.6% of net sales for the fourteen weeks ended April 5, 1997. The expense increase of $86,000 includes an additional accrual for stock based compensation (see Note 10) of $246,000 over the comparable period in 1997. Adjusting for this, all other selling, warehouse, general and administrative expenses were down $160,000 or 2.2% below 1997. This reduced expense relates to costs that were eliminated after the Company exited from bankruptcy. Other income was $272,000 and $956,000 for the thirteen and fourteen weeks ended April 4, 1998 and April 5, 1997, respectively. The decrease is due to the licensing revenues related to trade names which were spun-off with the Sassco Fashions product line, renegotiated minimum payment terms for the HUE legware license and excess 1996 licensing revenues received and recognized as income during the first quarter of 1997. Depreciation and amortization expense for the thirteen weeks ended April 4, 1998 was $20,000 due to the write-off of fixed assets at June 4, 1997 under fresh-start reporting. In addition, the Company realized income of $1,143,000 from amortization of excess revalued net assets acquired over equity (see Note 2). Depreciation and amortization expense for the fourteen weeks ended April 5, 1997 consisted of depreciation on fixed assets of $962,000, including $518,000 related to product lines sold and amortization of the excess purchase price over net assets acquired of $284,000, including $154,000 of amortization related to the lines sold. This amortization expense related to the leveraged buyout of The Leslie Fay Company on June 28, 1984. Interest and financing costs were $190,000 and $868,000 for the thirteen and fourteen weeks ended April 4, 1998 and April 5, 1997, respectively. The financing fees under the new CIT Credit Agreement were offset by income earned on the cash invested for the thirteen weeks ended April 4, 1998. The financing fees incurred were significantly below those incurred during the fourteen weeks ended April 5, 1997 due to the higher line needed to finance the operations of the Sassco Fashions and Castleberry product lines. 19 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES The provision for state and foreign income taxes was $1,901,000 and $316,000 for the thirteen and fourteen weeks ended April 4, 1998 and April 5, 1997, respectively. The expense was lower for the fourteen weeks period ended April 5, 1997 due to the expected availability of the net operating loss carryforwards available in full for the period up to and including the June 4, 1997 Consummation Date (see Note 7). (B) LIQUIDITY AND CAPITAL RESOURCES On June 2, 1997, the Company obtained $30,000,000 of post-emergence financing (see Note 6), which became effective with the consummation of the Plan on June 4, 1997. The CIT Credit Agreement provides a working capital facility commitment of $30,000,000, including a $20,000,000 sublimit on letters of credit. As of April 4, 1998 the Company was utilizing approximately $9,447,000 of the CIT Credit Agreement for the letters of credit. At April 4, 1998, there were no cash borrowings outstanding under the CIT Credit Agreement, and the Company's cash and cash equivalents amounted to $7,771,000. Of this amount, $1,169,000 will be restricted to pay remaining administrative claims as defined in the Plan. Working capital increased $4,509,000, to $43,962,000 for the thirteen weeks ended April 4, 1998. The primary changes in the components of working capital were a decrease in cash and cash equivalents of $12,042,000 offset by: an increase in accounts receivable of $16,061,000, a decrease in inventories of $1,736,000, a decrease of $1,569,000 in accounts payable, accrued expenses and other current liabilities and a decrease of $540,000 in income taxes payable. Accounts receivable increased due to historically large first quarter shipments while inventories sold in the thirteen weeks were mostly offset by new inventory purchases to accommodate the upcoming Summer and Fall seasons. Although, the Company's results of operations indicated an Operating income of $5,860,000 for the thirteen weeks ended April 4, 1998, these results are not necessarily indicative of results for an entire year. Capital expenditures were $476,000 for the thirteen weeks ended April 4, 1998. Capital expenditures are expected to be $3,000,000 for the fiscal year 1998. The anticipated capital expenditures of $2,524,000 for the remainder of the year are primarily related to improvements in management information systems and fixturing the Company's in-store shops that are planned to be opened in 1998. The Company believes that its financing arrangements and anticipated level of internally generated funds will be sufficient to finance its capital spending during 1998. At its April 14, 1998 meeting, the Company's Board of Directors authorized the repurchase of up to $5,000,000 of the Company's common stock. The repurchase will be based upon the trading price of the stock and will be supervised by a subcommittee of the Board of Directors. While there is no assurance that any stock will be repurchased, any repurchase made would adversely affect the overall liquidity of the Company. 20 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES Other than the capital expenditures described above, no other long-term investment or financing activities are anticipated throughout the remainder of 1998. The Company is not restricted from paying cash dividends or repurchasing its stock under the CIT Credit Agreement as long as those disbursements do not cause the Company to be in violation of the restrictive covenants, as amended, and they do not exceed $5,000,000 in either fiscal years 1998 or 1999. (Reference is made to the 1997 Form 10-K Note 6(a) to the Consolidated Financial Statements.) The Company has no plans to pay cash dividends in the foreseeable future. A number of statements contained herein are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the applicable statements. These risks and uncertainties include, but are not limited to, the uncertainty of potential manufacturing difficulties, the dependence on key personnel, the possible impact of competitive products and pricing, the Company's continued ability to finance its operations, general economic conditions and the achievement and maintenance of profitable operations and positive cash flow. The Company is dependent on a number of automated systems to communicate with its customers and suppliers, to efficiently design, manufacture, import, and distribute its product, as well as to plan and manage the overall business. The Company recognizes the critical importance of maintaining the proper functioning of its systems. In the fourth quarter of 1997, the Company began a review of its systems and technology to address all business requirements, including Year 2000 compliance. This review is substantially completed and a plan has been developed to meet these needs. Overall, the plan identifies numerous changes required to make the Company's systems Year 2000 compliant. These changes will be implemented through 1999 at an estimated cost of approximately $1,500,000 plus the utilization of internal staff and other resources. On May 4, 1998, the Company implemented the first phase of its plan by placing in operation a new purchase order management and invoicing system. The Company is also dependent on the efforts of its customers, suppliers and software vendors. The Company's upgrade of its electronic data intercharge software will need to be tested with the Company's customers to confirm proper functioning. The Company's customers and suppliers are also required to implement projects to make their systems and communications Year 2000 compliant. Failure to complete their efforts in a timely way could disrupt the Company's operations including the ability to receive and ship its product as well as to invoice its customers. Finally, the Company's plan is based upon the representation of the vendors that market the software packages selected by the Company. There is no guarantee that these new systems will be compliant under all the circumstances and volume stresses that may actually be required by the Company's operations through Year 2000. 21 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company has previously reported the proceedings under chapter 11 of the Bankruptcy Code and other pending legal proceedings in Item 3. - "Legal Proceedings" in the 1997 Form l0-K. The Company's Plan of Reorganization was approved by the creditors and on April 21, 1997, the Bankruptcy Court confirmed the Plan. On June 4, 1997, the Plan was consummated and the Company no longer operates under chapter 11. For information concerning legal proceedings at the end of the first quarter of 1998, reference is made to Note 8 of the Notes to Consolidated Financial Statements contained herein. No other legal proceedings were terminated during the first quarter of 1998 or thereafter, other than ordinary routine litigation incidental to the business of the Company. ITEM 2. CHANGES IN SECURITIES. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. a) Exhibits Exhibits are set forth on the "Index to Exhibits" on page E-1 hereof. 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. Date: September 9, 1998 THE LESLIE FAY COMPANY, INC. ---------------------------- (Company) By: /s/ Warren T. Wishart ------------------------- Warren T. Wishart Senior Vice President - Administration and Finance, Chief Financial Officer and Treasurer INDEX TO EXHIBITS Exhibit No. Description - ----------- ----------- 27 Financial Data Schedule. E-1 EX-27 2 FDS -- QE 4/4/98
5 0000796226 THE LESLIE FAY COMPANY, INC. 3-MOS JAN-02-1999 JAN-04-1998 APR-04-1998 7,771 2,989 29,132 3,324 24,965 62,183 1,335 34 63,594 18,221 0 0 0 34 28,108 63,594 45,258 45,258 33,260 6,138 0 0 190 5,670 1,901 3,769 0 0 0 3,769 1.11 1.07
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