SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter ended (Commission File Number): 1-4814
October 28, 1995 ------
ARIS INDUSTRIES, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 22-1715274
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
675 THIRD AVENUE, NEW YORK, NEW YORK 10017
-------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 338-9858
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section 13 or 15 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
--- ---
Number of shares of Common Stock outstanding 11,925,416
At October 28, 1995
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ARIS INDUSTRIES, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
a. Consolidated Balance Sheets as of October 28, 1995,
January 28, 1995 and October 29, 1994. ....................... 3
b. Consolidated Statements of Operations for the Thirty-Nine
Weeks Ended October 28, 1995 and October 29, 1994. ........... 4
c. Consolidated Statements of Operations for Thirteen Weeks
Ended October 28, 1995 and October 29, 1994. ................. 5
d. Consolidated Statements of Cash Flows for the Thirty-Nine
Weeks Ended October 28, 1995 and October 29, 1994. ........... 6
f. Condensed Notes to Consolidated Financial Statements. ........ 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ...................................... 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .............................................. 16
Item 2. Changes in Securities .......................................... 16
Item 3. Defaults upon Senior Securities ................................ 16
Item 4. Submission of Matters to a Vote of Security Holders ............ 16
Item 5. Other Information .............................................. 16
Item 6. Exhibits and Reports on Form 8-K .............................. 16
SIGNATURES .................................................................. 17
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<TABLE>
ARIS INDUSTRIES INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
October 28, January 28, October 29,
1995 1995 1994
ASSETS (Unaudited) (Audited) (Unaudited)
------------- ------------- -------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................. $ 2,024,000 $ 3,086,000 $ 3,015,000
Cash--restricted .......................................... -- 10,000 110,000
Receivables ............................................... 38,684,000 19,129,000 32,581,000
Inventories ............................................... 42,165,000 35,280,000 40,264,000
Prepaid expenses and other current assets ................. 2,818,000 1,672,000 2,547,000
------------ ----------- ------------
Total current assets ............... 85,691,000 59,177,000 78,517,000
PROPERTY, PLANT AND EQUIPMENT, NET ........................... 13,502,000 14,144,000 14,382,000
OTHER ASSETS ................................................. 877,000 813,000 591,000
COSTS IN EXCESS OF FAIR VALUE OF NET ASSETS
ACQUIRED .................................................. 23,975,000 24,620,000 24,835,000
------------ ----------- ------------
TOTAL ASSETS ................................................. $124,045,000 $98,754,000 $118,325,000
============ =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade acceptances and notes payable ....................... $ 31,025,000 $ 2,417,000 $ 17,189,000
Accounts payable--trade ................................... 10,808,000 10,108,000 12,270,000
Accrued expenses and other current liabilities ............ 6,143,000 6,694,000 6,824,000
Current portion of long term debt ......................... 739,000 4,979,000 2,220,000
------------ ----------- ------------
Total current liabilities ............ 48,715,000 24,198,000 38,503,000
OTHER LIABILITIES ............................................ 1,516,000 1,706,000 1,788,000
LONG TERM DEBT, LESS CURRENT PORTION ........................ 67,212,000 64,239,000 68,446,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, par value $.01: 50,000,000 shares authorized;
issued and outstanding 11,925,416 ....................... 119,000 119,000 119,000
Additional paid-in capital ................................ 44,061,000 44,061,000 44,061,000
Accumulated deficit ....................................... (36,343,000) (34,330,000) (33,367,000)
Cumulative foreign currency translation adjustment ........ (1,235,000) (1,239,000) (1,225,000)
------------ ----------- ------------
Total stockholders' equity ............ 6,602,000 8,611,000 9,588,000
------------ ----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................... $ 124,045,000 $98,754,000 $ 118,325,000
============= =========== =============
See condensed notes to consolidated financial statements
</TABLE>
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ARIS INDUSTRIES INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<CAPTION>
Thirty Nine Weeks Ended
------------------------------
October 28, October 29,
1995 1994
------------- ------------
<S> <C> <C>
NET REVENUES ........................... $ 130,016,000 $141,518,000
------------- ------------
OPERATING COSTS:
Cost of sales .......................... 101,805,000 109,405,000
Selling and administrative ............. 22,414,000 23,006,000
Production facility shutdown costs ..... 531,000 --
------------- ------------
TOTAL OPERATING COSTS .................. 124,750,000 132,411,000
------------- ------------
INCOME BEFORE INTEREST AND DEBT EXPENSE,
AND INCOME TAXES .................... 5,266,000 9,107,000
INTEREST AND DEBT EXPENSE, NET ......... 7,150,000 5,382,000
------------- ------------
INCOME/(LOSS) BEFORE INCOME TAXES ..... (1,884,000) 3,725,000
INCOME TAXES ........................... 129,000 546,000
------------- ------------
NET INCOME/(LOSS) ...................... ($ 2,013,000) $ 3,179,000
============= ============
PER SHARE DATA:
Net Income/(Loss) ................... ($0.17) $0.27
Weighted average number of common
and common equivalent shares ........ 11,925,416 11,925,416
See condensed notes to consolidated financial statements
</TABLE>
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ARIS INDUSTRIES INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<CAPTION>
Thirteen Weeks Ended
-------------------------
October 28, October 29,
1995 1994
----------- -----------
<S> <C> <C>
NET REVENUES ........................... $54,118,000 $50,596,000
----------- -----------
OPERATING COSTS:
Cost of sales .......................... 42,285,000 39,093,000
Selling and administrative ............. 8,496,000 8,446,000
----------- -----------
TOTAL OPERATING COSTS .................. 50,781,000 47,539,000
----------- -----------
INCOME BEFORE INTEREST AND DEBT EXPENSE,
AND INCOME TAXES ..................... 3,337,000 3,057,000
INTEREST AND DEBT EXPENSE, NET ......... 2,530,000 1,974,000
----------- -----------
INCOME BEFORE INCOME TAXES ............. 807,000 1,083,000
INCOME TAXES ........................... 163,000 191,000
----------- -----------
NET INCOME ............................. $ 644,000 $ 892,000
=========== ===========
PER SHARE DATA:
Net Income ........................... $ 0.05 $ 0.07
Weighted average number of common
and common equivalent shares ......... 11,925,416 11,925,416
See condensed notes to consolidated financial statements
</TABLE>
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<TABLE>
<CAPTION>
ARIS INDUSTRIES INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Thirty Nine Weeks Ended
----------------------------
October 28, October 29,
1995 1994
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income/(Loss) ........................................... ($ 2,013,000) $ 3,179,000
Adjustments to reconcile net income/(loss) to net cash
used in operating activities:
Depreciation and amortization .......................... 2,417,000 2,317,000
Change in assets and liabilities:
(Increase)/decrease in cash--restricted ................ 10,000 (75,000)
(Increase) in receivables .............................. (19,555,000) (16,300,000)
(Increase) in inventories .............................. (6,885,000) (10,385,000)
(Increase) in prepaid expenses and
other current assets ................................. (1,146,000) (738,000)
(Increase) in other assets ............................. (64,000) (2,000)
Increase in trade acceptances .......................... 1,108,000 1,390,000
Increase in accounts payable--trade .................... 700,000 630,000
Increase/(decrease) in accrued expenses and other
current liabilities .................................. (551,000) 987,000
Increase/(decrease) in other liabilities ............... (191,000) 127,000
------------ ------------
Total Adjustments ................................. (24,157,000) (22,049,000)
------------ ------------
Net cash used in operating activities ....... (26,170,000) (18,870,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ........................................ (1,260,000) (4,023,000)
Proceeds from sale of property and plant .................... 189,000 --
------------ ------------
Net cash used in investing activities ....... (1,071,000) (4,023,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt ........................ (1,325,000) (1,457,000)
Proceeds from issuance of long term debt .................... -- 2,500,000
Proceeds from issuance of note payable, net ................. 27,500,000 14,000,000
------------ ------------
Net cash provided by financing activities.... 26,175,000 15,043,000
EFFECT OF EXCHANGE RATE CHANGES ON CASH ......................... 4,000 (134,000)
NET DECREASE IN CASH AND CASH EQUIVALENTS ....................... (1,062,000) (7,984,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .................. 3,086,000 10,999,000
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ........................ $ 2,024,000 $ 3,015,000
============ ============
CASH PAID DURING THE YEAR FOR:
Interest ..................................................... $ 7,084,000 $ 5,155,000
Income Taxes ................................................. 184,000 497,000
See condensed notes to consolidated financial statements
</TABLE>
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ARIS INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheets as of October 28, 1995 and October 29,
1994, the consolidated statements of operations for the thirty-nine and thirteen
week periods ended October 28, 1995 and October 29, 1994 respectively, and the
consolidated statements of cash flows for the thirty-nine week periods ended
October 28, 1995 and October 29, 1994 respectively were all prepared by the
Company without audit. In management's opinion, adjustments consisting of only
normal recurring adjustments necessary to present fairly the financial position,
results of operations and changes in cash flow for these periods have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted or abridged in this submission. It is suggested, therefore,
that these consolidated statements be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended January 28, 1995. The operating results for the
thirty-nine and thirteen-week periods ended October 28, 1995 are not necessarily
indicative of the operating results for the full fiscal year ending February 3,
1996.
2. DEBT SERVICE
The Company's principal long-term indebtedness includes the debt
obligations of the Company to Heller Financial, Inc. ("Heller"), BNY Financial
Corporation ("BNY") and AIF-II, L.P., a Delaware limited partnership and an
affiliate of Apollo Advisors, L.P. ("AIF II").
o On June 30, 1993, the Company entered into a Senior Secured Note
Agreement with Heller pursuant to which Heller received a note in the
original principal amount of $50,857,148 to be repaid over seven
years, with interest at 2% over prime. Heller retained a pledge of the
stock (but not the assets) of certain the Company's subsidiaries:
Europe Craft Imports, Inc. ("ECI"), Perry Manufacturing Company
("Perry") and Above the Belt, Inc. ("ATB"). Heller's note will
amortize on the following schedule, which was amended on October 27,
1995 to be more advantageous to the Company. Additionally, the Company
must make annual prepayments equal to 50% of
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certain "excess cash flow" for the preceding four fiscal quarters.
YEAR AMOUNT
---- ------
1994 ......................... $ 1,000,000
1995 ......................... -0-
1996 ......................... 4,000,000
1997 ......................... 7,000,000
1998 ......................... 10,000,000
1999 ......................... 10,000,000
2000 ......................... 18,857,000
o On June 30, 1993, the Company entered into a Series A Junior Secured
Note Agreement with BNY, pursuant to which BNY received a nine-year,
$7 million note, bearing interest at a rate of 7% per annum. BNY
shares with AIF II a second lien on Heller's collateral. BNY's note
will amortize in six annual installments, payable on November 3 of
each year commencing in 1997 as follows:
YEAR AMOUNT
---- ------
1997 ......................... $ 300,000
1998 ......................... 300,000
1999 ......................... 500,000
2000 ......................... 600,000
2001 ......................... 1,100,000
2002 ......................... 4,200,000
o On June 30, 1993 the Company entered into a Series B Junior Secured
Note Agreement with AIF II, pursuant to which AIF II received a $7.5
million note bearing interest at 13% per annum. AIF II shares with BNY
a second lien on Heller's collateral. AIF II's note will be amortized
in two equal installments payable on November 3 in each of 2001 and
2002.
Once the Heller obligations are paid in full, AIF II and BNY will
share in mandatory prepayments based upon 50% of certain "excess cash
flows".
The Company's agreements with Heller, BNY and Apollo contain certain
affirmative and negative covenants on the operation of the Company. The Company
has in the past and recently sought and obtained amendments to certain of these
covenants to adjust to seasonal and other performance factors and the Company
may seek additional amendments in the future.
On September 6 1995, Aris and its wholly owned subsidiary, Marlene
Industries Corporation, completed all required payments under the Composition
Agreement dated October 11, 1991 with Marlene's trade creditors.
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<PAGE>
3. COSTS IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED
Cost in excess of fair value of net assets acquired (goodwill) represents
the unamortized excess of the cost of acquiring a business over the fair values
of the net assets received at the date of acquisition. Amortization expense is
computed by use of the straight-line method over an estimated life of 40 years.
The Company continuously evaluates goodwill for any potential impairment. The
Company assesses the recoverability of goodwill by determining whether the
amortization of the goodwill balance over its remaining life can be recovered
through projected undiscounted future results.
4. INVENTORIES
OCTOBER 28 JANUARY 28 OCTOBER 29
1995 1995 1994
---------- ---------- ----------
(IN THOUSANDS)
Finished goods ......... $25,002 $18,818 $23,942
Work-in process ........ 8,314 8,304 6,235
Raw materials .......... 8,849 8,158 10,087
------- ------- -------
$42,165 $35,280 $40,264
======= ======= =======
5. INCOME TAXES
Due to a significant net operating loss carryforward, the Company does not
anticipate paying any Federal income taxes for the fiscal year ending February
3, 1996, except for the alternative minimum income tax which was part of the
1986 Tax Reform Act. Approximately $92,000,000 of tax net operating loss
carryforwards remain to offset future Federal taxable income.
SFAS 109 requires a valuation allowance to be recognized for those deferred
tax assets that may not be realized. At October 28, 1995, the Company had gross
deferred tax assets of approximately $39,000,000. At this time, the Company has
determined that a valuation allowance be equal to the gross Federal deferred tax
asset, except for a portion of the alternative minimum tax credit carryforwards.
The alternative minimum tax credit carryforwards do not expire, and in the
Company's opinion, it is more likely than not that a portion of this credit
carryforward will be realized. The valuation allowance was increased by $500,000
in connection with the
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increase in net operating loss carryforwards due to the loss incurred for the
thirty-nine weeks ended October 28, 1995.
6. PER SHARE DATA
Net income per share for the thirteen and thirty-nine week period ended
October 28, 1995 was computed based upon the weighted average number of common
shares outstanding during such period. Anti-dilutive common stock equivalents
were not included in the computation.
7. COMMITMENTS AND CONTINGENCIES
The Company and/or its subsidiaries, in the ordinary course of their
business, from time to time may be the subject of, or a party to, various legal
actions involving private interests. The Company and/or its subsidiaries believe
that any ultimate liability arising from any such actions which may be pending
will not have a material adverse effect on its consolidated financial position
at October 28, 1995.
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ARIS INDUSTRIES, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Introduction
- ------------
The following analysis of the financial condition and results of operations
of Aris Industries, Inc. (the "Company") should be read in conjunction with the
consolidated financial statements, including the notes thereto, included on
pages 3 through 10 of this report.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
As of October 28, 1995 the Company had working capital of approximately
$36,976,000 as compared to $34,979,000 at January 28, 1995 and $40,014,000 at
October 28, 1994. The increase in working capital from January 28, 1995 to
October 28, 1995 is attributable primarily to the reclassification of
amortization payments to Heller Financial, Inc. which have been deferred to
future years pursuant to an amendment between the Company and Heller on October
27, 1995, offset by the Company's operating loss.
During the thirty-nine weeks ended October 28, 1995, the Company financed
its capital expenditures and debt repayments principally through internally
generated funds and credit facilities. The Company believes that its current
cash resources, together with available credit facilities and income from
operations, assuming the Company's present business plans are met and assuming
the Company's current working capital facilities are maintained as they have
been in the past on an annual basis, are sufficient for the Company's capital
expenditure program and debt retirements as well as ongoing working capital
needs, for the remainder of the current fiscal year. The Company's ability to
achieve its business plans may be impacted by a number of factors including the
general retail environment and weather conditions.
DEBT SERVICE AND CAPITAL NEEDS
The Company's principal long-term indebtedness includes the debt
obligations of the Company to Heller Financial, Inc. ("Heller"), BNY Financial
Corporation ("BNY") and AIF-II, L.P., a Delaware limited partnership and an
affiliate of Apollo Advisors, L.P. ("AIF II").
o On June 30, 1993, the Company entered into a Senior Secured Note
Agreement with Heller pursuant to which Heller received a note in the
original principal amount of $50,857,148, to be repaid over seven
years, with interest at 2% over prime. Heller retained a pledge of the
stock (but not the assets) of
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<PAGE>
certain of the Company's subsidiaries: Europe Craft Imports, Inc.
("ECI"), Perry Manufacturing Company ("Perry") and Above the Belt,
Inc. ("ATB"). Heller's note will amortize on the following schedule,
which was amended on October 27, 1995 to be more advantageous to the
Company. Additionally, the Company must make annual prepayments equal
to 50% of certain "excess cash flow" for the preceding four fiscal
quarters.
YEAR AMOUNT
---- ------
1994 ........................ $ 1,000,000
1995 ........................ -0-
1996 ........................ 4,000,000
1997 ........................ 7,000,000
1998 ........................ 10,000,000
1999 ........................ 10,000,000
2000 ........................ 18,857,000
o On June 30, 1993, the Company entered into a Series A Junior Secured
Note Agreement with BNY, pursuant to which BNY received a nine-year,
$7 million note, bearing interest at a rate of 7% per annum. BNY
shares with AIF II a second lien on Heller's collateral. BNY's note
will amortize in six annual installments, payable on November 3 of
each year commencing in 1997 as follows:
YEAR AMOUNT
---- ------
1997 ........................ $ 300,000
1998 ........................ 300,000
1999 ........................ 500,000
2000 ........................ 600,000
2001 ........................ 1,100,000
2002 ........................ 4,200,000
o On June 30, 1993, the Company entered into a Series B Junior Secured
Note Agreement with AIF II pursuant to which AIF II received a $7.5
million note bearing interest at 13% per annum. AIF II shares with BNY
a second lien on Heller's collateral. AIF II's note will be amortized
in two equal installments payable on November 3 in each of 2001 and
2002.
Once the Heller obligations are paid in full, AIF II and BNY will share
in mandatory prepayments based upon 50% of certain "excess cash flows".
The Company's agreements with Heller, BNY and AIF II contain certain
affirmative and negative covenants on the operation of the Company. The Company
has in the past and recently sought and obtained amendments to certain of these
covenants to adjust to seasonal and other performance factors and the Company
may seek additional amendments in the future.
On September 6, 1995, Aris and its wholly owned subsidiary, Marlene
Industries Corporation, completed all required payments under the
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Composition Agreement dated October 11, 1991 with Marlene's trade creditors.
RESULTS OF OPERATIONS
The Company reported net income of $644,000 for the thirteen weeks ended
October 28, 1995 compared to net income of $892,000 for the comparable period
last year. For the thirty-nine weeks ended October 28, 1995 the Company reported
a net loss of $2,013,000 as compared to a net profit of $3,179,000 for the
comparable period last year. Income from operations was $3,337,000 and
$5,266,000 for the thirteen and thirty-nine weeks ended October 28, 1995
respectively as compared to $3,057,000 and $9,107,000 for the comparable periods
in the prior year. For the thirteen weeks ended October 28, 1995 as compared to
the thirteen weeks ended October 29, 1994 operating income was higher, however,
due to higher interest charges, as discussed below, net income was lower.
Perry's net income for the thirty-nine weeks ended October 28, 1995 was lower
compared to the thirty-nine weeks ended October 29, 1994 due to a decrease in
sales of $3,357,000 which caused a related loss of gross profit, as reorders by
major customers did not materialize because of the unusually adverse retail
environment, along with the loss of sales from a customer which ceased
operations during the fiscal year ended January 28, 1995. At ECI lower sales and
margins continued due to a general slowdown in the retail apparel environment
during the thirty-nine weeks ended October 28, 1995 as compared to the same
period last year. In addition, higher interest charges for the thirty-nine week
period ended October 28, 1995 increased the net loss.
The Company's revenues increased from $50,596,000 during the thirteen weeks
ended October 29, 1994 to $54,118,000 during the thirteen weeks ended October
28, 1995. The Company's revenues decreased from $141,518,000 during the
thirty-nine weeks ended October 29, 1994 to $130,016,000 during the thirty-nine
week period ended October 28, 1995.
The revenue increase of $3,522,000 for the thirteen weeks ended October 28,
1995 compared to the same period last year resulted from the increase in
revenues at Perry of $4,804,000 offset by a decrease in revenues at ECI of
$1,282,000. The revenue increase at Perry was primarily attributable to
$5,500,000 in sales from two new programs instituted with a major retail chain
during the quarter along with an increase of $1,506,000 in sales to a major
catalog customer offset by a loss of sales of $3,197,000 due to the loss of a
customer which ceased operations last year. ECI's decrease in revenues for the
thirteen weeks ended October 28, 1995 was due to a general slowdown in the
retail apparel environment.
The revenue decrease of $11,502,000 for the thirty-nine weeks ended October
28, 1995 compared to the same period last year resulted from a decrease in
revenues at Perry of $3,357,000 and a decrease
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in revenues at ECI of $8,145,000. The revenue decrease at Perry was
attributable to the loss of a customer which ceased operations and contributed
$8,180,000 in sales during the thirty-nine week period ended October 29, 1994
and the loss of certain reorders of successful programs which were not placed as
a result of the difficult retail environment. These sales losses were partially
offset by an increase of $2,220,000 in sales to a catalog customer and an
increase of $5,500,000 in sales to a major retail chain for two new programs not
previously manufactured. The factors contributing to the significant reduction
of ECI's revenues were the general slowdown in the retail apparel environment.
Costs of sales for the thirteen week period ended October 28, 1995 as a
percentage of revenue was 78.1% compared to 77.3% of revenues for the thirteen
week period ended October 29, 1994. This was due to lower margins at ECI. At
ECI, margins were adversely affected by the general slowdown in the retail
apparel environment as discussed above. At Perry, margins were adversely
affected by the loss of a customer which accounted for $3,197,000 of sales
during the thirten weeks ended October 29, 1994 at a significant gross margin
percentage.
Cost of sales for the thirty-nine week period ended October 28, 1995 as a
percentage of revenue was 78.3% compared to 77.3% of revenues for the
thirty-nine week period ended October 29, 1994. This was due to lower margins at
both ECI and Perry. At ECI, margins were affected by the general slowdown in the
retail apparel environment which put additional pressure on selling margins.
Perry's margins were adversely affected by the unusually adverse retail
environment that caused customers to shift orders to future periods which in
turn caused some unfavorable manufacturing variances, in addition to the loss of
a customer which accounted for $8,180,000 of sales during the thirty-nine weeks
ended October 29, 1994 at a significant gross margin percentage.
Selling and administrative expenses as a percentage of revenues for the
thirteen and thirty-nine week periods ended October 28, 1995 was 15.7% and 17.2%
compared to 16.7% and 16.3% for the thirteen and thirty-nine weeks ended October
29, 1994. The percentage increase for the thirty-nine weeks ended October 28,
1995 as compared to the same period last year was due to a decrease in sales
that could not be offset by a corresponding decrease in expenses due to the
fixed nature of much of the Company's expense structure.
Perry's selling and administrative expenses increased due to Perry, whose
manufacturing base is in the Caribbean, opening a warehouse and distribution
center in Miami during the current fiscal year. This facility is being used to
direct ship certain customers, eliminating the cost of a shipping broker,
eliminating expensive trucking cost to North Carolina and allowing advantageous
trim buying from local suppliers in Miami. This facility cost, although an
increase in selling and administrative expense, will translate
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into greater savings by reducing the cost of goods sold. This facility cost
increase has been offset by the gain on the sale by Perry of a manufacturing
facility in North Carolina. Perry has also added two new salesmen who have
strong ties with major retailers which should improve sales.
ECI's selling and administrative expense increased during the thirteen
weeks ended October 28, 1995, as compared to the same period last year, due to
the public warehouse being used by ECI in California having encountered
financial difficulties, which required ECI simultaneously to utilize a second
warehouse while it shipped and removed goods from the troubled warehouse. This
created duplication of warehouse expenses along with legal and professional fees
necessary to terminate our relationship with the original warehouse.
Selling and administrative expenses for the thirty-nine week period ended
October 28, 1995 were $22,414,000 compared to $23,006,000 for the thirty-nine
week period ended October 29, 1994, a decrease of $592,000 or 2.6%. Selling and
administrative expenses for the thirteen week period ended October 28, 1995 were
$8,496,000 compared to $8,446,000 for the thirteen week period ended October 29,
1994, an increase of $50,000 or 0.6%.
Perry has restructured one of its Latin American facilities whose
production capacity has been wound down and continues to function as a
warehouse. Management continues to evaluate the feasibility of a continued
presence in this location.
Interest and debt expense for the thirteen and thirty-nine week periods
ended October 28, 1995 increased by $556,000 or 28.2% and $1,768,000 or 32.9%
compared to the thirteen and thirty-nine week periods ended October 29, 1994.
This increase is primarily due to increases in the prime lending rate by as much
as 300 basis points from the comparable period last year for both Aris' and
Perry's variable rate debt. In addition, due to the softness in the retail
environment, Perry and ECI had to borrow earlier this year from their lenders
than for the comparable period last year.
-15-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The lawsuit instituted by a former sales employee of ECI in June, 1992 in
the U.S. District Court for the Eastern District of Michigan was discontinued
with prejudice in November, 1995.
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--NONE
(b) Reports on Form 8-K--Current Report on Form 8-K filed October 27, 1995
with respect to an amendment to the Company's Senior Secured Note Agreement with
Heller Financial, Inc., which amendment adjusted certain financial covenants and
modified the amortization schedule so that they would be more advantageous to
the Company.
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ARIS INDUSTRIES, INC.
(Registrant)
Date: December 11, 1995 By /s/ PAUL SPECTOR
------------------------------
Paul Spector,
Senior Vice President
Chief Financial Officer
By /s/ VINCENT F. CAPUTO
------------------------------
Vincent F. Caputo,
Vice President
Assistant Secretary and
Assistant Treasurer
-17-
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