NEW YORK — Talk about the Grinch who stole Christmas.
LF Brands Inc., formerly known as Leslie Fay Cos., has terminated all of its employees and closed the business until further notice. Employees at headquarters here and the company’s plant in Laflin, Pa., learned about the firings through a voice mail message left at the telephone number of Marvin Davis, LF Brands’ chief restructuring officer.
“As you are aware, no payroll checks were sent out last Wednesday while we continue to negotiate with our lenders to provide funding,” said Davis’ message. “At this point, the company has temporarily shut down until further notice. To protect our employees, we will be terminating all personnel as of today so you can file for unemployment and apply for coverage for health care benefits.”
The message noted that the company’s board of directors and banks would continue to work on a funding plan, including back payroll. It noted that the board may call back a “certain number of employees to transition the business.” Additionally, it said it would leave updated information on Davis’ extension as to when employees can return to the building to pick up their belongings. Furthermore, it advised employees to tell their unemployment office that the company had “temporarily shut down.”
John J. Pomerantz, chairman of LF Brands, didn’t return repeated phone calls seeking comment Monday.
While most employees didn’t receive paychecks last Wednesday, sources said some who did were told not to cash them since the firm didn’t have the funds to cover them. Many employees were on vacation when the news emerged that the company was shutting down.
For the past 10 years, Leslie Fay’s fortunes have been rocked by an accounting scandal in 1993 and a subsequent four-year stay in bankruptcy, from which it never recovered. Once a giant in the apparel industry, the company has become a shrunken version of its former self. Its volume bottomed out at $125 million after it emerged from Chapter 11 bankruptcy in 1997. Last year, its revenues were estimated at about $200 million, a long way from the almost $850 million Leslie Fay reached at its peak during the early Nineties.Yet while LF’s moderate-priced businesses appear to be dissolving, one division claimed it’s business as usual.
Rick Roberts, president of the Cynthia Steffe unit, told WWD that his division “continues to operate at full strength.” He said none of his company’s 35 employees were let go and that he will make an announcement about a new partnership shortly. He declined to discuss further details. In September, LF Brands approached investment bank Financo Inc. to facilitate a search for a minority investor for its $15 million Cynthia Steffe brand.
Just 11 days ago, LF Brands sent out a press release explaining it planned a major repositioning and significant layoffs and was seeking to renegotiate its credit agreements. It said it would focus on its private label operations.Additionally, it said it had hired Atlanta-based turnaround firm Grisanti, Galef & Goldress to explore “restructuring alternatives” and Financo to look into selling off some of the firm’s other names in addition to Steffe.
A call placed to Grisanti, Galef & Goldress was referred to Marvin Davis, who was said to be in New York and working on the restructuring. Gilbert Harrison, chairman of Financo, couldn’t be reached for comment Monday. An official at Three Cities Research, a private investment firm which owns about 75 percent of LF Brands, declined comment Monday. “I can’t comment at this time,” he said. Three Cities Research took LF Brands private in late 2001.
LF Brands, whose chief executive officer, W. John Short, stepped down last month upon a mutual agreement with the board, has been hit hard by the competitive retail environment and economic conditions during the past two years.
The company, whose main label is moderate dress line Leslie Fay, has had difficulty growing its top line and supporting its overhead. In an effort to reduce costs, the company has been cutting back on its own manufacturing and out-sourcing its production, and licensing many of its brands. For example, in September, LF Brands entered into a licensing agreement with Silver Lake Inc. to produce and distribute the David Warren and D.W. Studio dress lines and the Reggio and Rimini eveningwear brands. The four labels were acquired by LF Brands when it purchased The Warren Apparel Group in 1998. In October, Saks Inc. signed an agreement with LF Brands to license and subsequently acquire the previously dormant Breckenridge trademark for exclusive use in a variety of product categories. And last March, LF Brands lost the rights to produce Liz Claiborne dresses, which was picked up by Kellwood Co.One of the biggest moves the company made last year was striking an exclusive agreement with Hong Kong-based Li & Fung, the $4.2 billion global sourcing and supply chain management company. Li & Fung became fully responsible for all of Leslie Fay’s fabric and manufacturing sourcing worldwide. Li & Fung officials didn’t return a phone call seeking comment Monday.
It couldn’t be learned whether LF Brands plans to ship any of its spring lines. As for vendor reaction to LF’s exit from the business, Bill Dillard, chairman of Dillard’s, was taking some time off and couldn’t be reached for comment; a spokeswoman for May Co. said the retailer doesn’t comment on its vendors, and spokeswomen for Saks Inc. and Federated Department Stores didn’t return phone calls seeking comment.
Pomerantz and Leslie Fay have faced many difficulties since February 1993, when an accounting scandal greatly damaged the company. Two months later, Leslie Fay was forced to seek protection from bankruptcy court when its credit dried up. Throughout the mid-Nineties, the company was the target of federal investigations, Congressional hearings, union strikes and lawsuits from stockholders and its former accounting firm.
In 1996, Paul Polishan, Leslie Fay’s former chief financial officer, was found guilty of 18 of the 21 charges lodged against him for orchestrating an elaborate $131 million financial fraud. He was sentenced to a nine-year jail term. The only other Leslie Fay employee to have been indicted in the case was former controller Donald Kenia, who pled guilty in October 1994 to filing false earnings information with the Securities and Exchange Commission in exchange for his testimony against Polishan. He was sentenced on Oct. 9, 2001, to serve a two-year jail term, followed by two years of supervised release and 500 hours of community service.
The firm exited bankruptcy proceedings in June 1997 and was reorganized as a much smaller company headed by Pomerantz. It was forced to spin off its Sassco Fashions division and its core Kasper Suits line, which had accounted for about a third of its volume. It changed its name to LF Brands earlier this year. Last January, Pomerantz was hit by a car and suffered numerous injuries. He has subsequently recovered.Leslie Fay, which was founded in 1947 by Pomerantz’s late father Fred, was originally named for John Pomerantz’s sister. Leslie Fay hit its stride in the Eighties when there were two leveraged buyouts and a public offering. The first leveraged buyout in 1982 took the company private for $54.5 million and allowed then-82-year-old Fred Pomerantz to cash out his 30 percent stock interest in the company. Two years later, as the company prospered even under the heavy debt load of the leveraged buyout, another buyout was engineered for $178.4 million, bringing in Goldome Savings Bank, Odyssey Partners, Merrill Lynch and others as investors. That buyout also parlayed an investment of several hundred thousand dollars by John Pomerantz into a $40 million windfall. In 1986, the company went public again with the sale of 5 million shares at $18, or a total of $270 million. In February 1993, when news of the accounting scandal broke, the stock was trading at about $12 a share. Prior to being delisted in 1995, the stock traded for less than 50 cents a share.
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