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Leslie Fay Posts Operating Profit, $8.5M Net Loss For Third Quarter

NEW YORK -- The Leslie Fay Cos. reported $1.8 million in operating income for the third quarter ended Oct. 2 but showed an $8.5 million net loss after Chapter 11 expenses and interest charges.<BR><BR>Sales were $200.7 million.<BR><BR>Meanwhile, the...

NEW YORK — The Leslie Fay Cos. reported $1.8 million in operating income for the third quarter ended Oct. 2 but showed an $8.5 million net loss after Chapter 11 expenses and interest charges.

Sales were $200.7 million.

Meanwhile, the bankruptcy court has appointed Charles Stillman, a prominent New York attorney, as examiner to review the investigation of Leslie Fay’s accounting scandal. The company asked for the review to reassure creditors and stockholders of the accuracy of the probe.

Stillman also will look into whether Leslie Fay’s lawyers — Weil, Gotshal & Manges — had a conflict in the firm’s capacity as supervisor of the probe and subsequent representation of the company in bankruptcy proceedings.

The examiner’s findings are due to be filed with the court in mid-March. Leslie Fay disclosed last February that fraudulent accounting entries for the years 1990 to 1992 had substantially inflated results. The scandal led to severely restricted trade credit, and ultimately to the Chapter 11 filing in April.

In September, the company said the false entries resulted in an $81 million overstatement of earnings for the three years.

The restated 1992 results showed a $65.6 million loss on sales of $772.1 million. The company hasn’t broken down the figures on a quarterly basis, so there are no comparable numbers for the most recent third-quarter and nine month results.

Turning to the most recent results, Leslie Fay said it had $9 million in cash at the end of the quarter, and had only used $50 million of its $150 million debtor-in-possession financing line.

John J. Pomerantz, chairman and chief executive officer, said in a statement that the company is in the process of finalizing its three-year business plan, which will form the basis for a reorganization plan. The outline is expected to be presented to creditors by the end of February.

Pomerantz noted that, as a result of its operating plan, Leslie Fay has already cut its head count to 2,500 from 3,500, reduced annual expenses by over $40 million, centralized manufacturing and sourcing functions, strengthened senior management and consolidated its distribution function.

However, the steps are expected to hurt fourth quarter results, the company noted.