NEW YORK -- The red ink continued to flow at The Leslie Fay Cos. in the fourth quarter ended Jan. 1 while the company moved to shut all its domestic manufacturing operations to cut costs.
Leslie Fay, which was rocked into Chapter 11 last April 5 amid an accounting scandal that overstated profits by $81 million over three years through 1992, said poor market conditions and restructuring charges led to an operating loss of $18.9 million in the fourth quarter on $123.3 million in sales.
Reorganization charges of $21.4 million, interest and financing costs of $9.9 million and a tax benefit of $1.2 million increased the net loss in the most recent quarter to $49 million. At the same time, the net loss for the total year climbed to $95.2 million.
While the news for the fourth quarter and all of 1993 was decidedly bad, the company said it turned a corner in 1994 and that operations were on target with its internal three-year plan.
The move to end nearly half a century of domestic production, which would eliminate the jobs of about 1,200 workers, had the ILGWU enraged.
"The proposal is a stab in the back to the workers who have built the company," said Jay Mazur, president of the ILGWU. "The solution to Leslie Fay's problems is not 32-cents-an-hour labor in Guatemala. The solution is a company that meets the challenge of the today's market and bargains in good faith with its workers."
The union, which has been fighting with Leslie Fay over proposed cutbacks at the firm's plants in Pennsylvania, would not say what its next step will be, Michael J. Babcock, president and chief operating officer, in a statement, however, pointed out that the company's domestic manufacturing facilities simply cannot compete in a global economy, even if the union were to agree to major concessions. Domestic production represents about half of the company's overall manufacturing.
"The only companies that will survive and prosper into the next century are those that accept reality now and plan accordingly. If we ignore this reality, the inevitable result will be that Leslie Fay will not survive and all 2,500 of our employees will be out of a job," Babcock said.Elsewhere on the expense-cutting front, the company said in the past year it has pared $40 million from annual expenses by centralizing manufacturing and sourcing functions, consolidated its distribution function and laid off about 1,000 employees.
It also has disposed of unprofitable businesses. Most recently, it licensed its Hue hosiery trademark and sold its Hue assets in early March for $7.5 million. Hue had a cash flow loss of $22 million.
Leslie Fay said its cash position, at nearly $77 million at year end, remained "strong"; its DIP loan agreement was reduced by one-third to $100 million to lower interest expense, and the $100 million facility was extended through July 31.
The company also said in a statement that it began 1994 with "clean inventories, a leaner organization, and a clear focus in each of our merchandise lines -- many of which have been redesigned."
Babcock further said that Leslie Fay was meeting its internal business projections but the company would not disclose the projections or comment on the performance of any of its individual divisions. The company, as noted, said this month that it had been talking with J.C. Penney Co. about distributing the Leslie Fay brand to the chain, but declined Wednesday to comment any further on this.
In February, Babcock told a bankruptcy judge here that he expected a $17 million operating profit in 1994 on sales of about $675 million.
In the year ended Jan. 1, Leslie Fay reported an operating loss of $32.6 million compared with an operating loss of $57.6 million in 1992. Results for 1992 have been restated.
Sales in the year dipped 14.3 percent, to $661.8 million from $772.1 million in 1992.
In 1993, reorganization charges of $45.1 million, interest and financing costs of $25.8 million, and a tax benefit of $8.3 million put the net loss at $95.2 million.
At the same time, total Leslie Fay assets slipped by 6.1 percent as of Jan. 1 to $421.3 million from $448.6 million a year earlier while total liabilities grew by 19.8 percent, to $409.5 million from 341.9 million last year.
"Clearly our results in fiscal 1993 were not satisfactory," John J. Pomerantz, chairman and chief executive, said in a statement. However, he said that the company this year was seeing increased demand and improved operations.Last fall, an internal investigation of the accounting scandal cleared Pomerantz of any wrongdoing, according to the company, but the executive was relieved of financial duties.
A court-appointed examiner is studying the internal investigation, a move the company asked for to quell shareholder anxieties. The examiner, New York attorney Charles Stillman, is due to report to the Bankruptcy Court by the end of May. The company's exclusivity period for filing a plan of reorganization runs through June 15.
Discussing its proposal to close domestic production and the negotiations it started with the union Wednesday for that move, Leslie Fay said a retraining program would be created for the affected employees. The program would be funded, it said, with "some of the hundreds of thousands of dollars the company currently pays the ILGWU each year as liquidated damages for imported goods."
The ILGWU's three-year contract with Leslie Fay, covering its manufacturing facilities in Wilkes-Barre and neighboring communities in the Wyoming Valley region of Pennsylvania, expires on May 31.
The production facilities in Pennsylvania have been a part of Leslie Fay for almost half a century. During the late Fifties, employees there presented the late Fred Pomerantz, the company's founder and John Pomerantz's father, with a maroon Rolls-Royce during his annual Christmas visit.
In a telephone interview, Joel Cohen, outside labor council for Leslie Fay and an attorney with the New York law firm of Mudge, Rose, Guthrie, Alexander & Ferdon, said the proposal was presented to ILGWU officials at a negotiating session at the Marriott Hotel in Teaneck, N.J.
"We want to stress that this is not a bargaining ploy, but that we are willing to listen to what the union has to say before we make a final decision," Cohen said.
He said it was possible that the company would challenge the process of liquidated damages in the courts. He said that to the best of his knowledge, no such court challenge has ever been made, and that in his 17 years as a labor lawyer, the ILGWU is the only union that has such a stipulation in its labor contract.
Cohen said there was no official response from the union, and is expecting to hear from them in a couple of days.
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