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
April 29, 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 April 29, 1995
<PAGE>
ARIS INDUSTRIES, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
a. Consolidated Balance Sheets as of April 29, 1995,
January 28, 1995 and April 30, 1994 ........................ 3
b. Consolidated Statement of Operations for the Thirteen
Weeks Ended April 29, 1995 and April 30, 1994 .............. 4
c. Consolidated Statements of Cash Flows for the
Thirteen Weeks Ended April 29, 1995 and April 30, 1994 ..... 5
d. Condensed Notes to Consolidated Financial Statements ....... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................ 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .......................................... 14
Item 2. Changes in Securities ...................................... 14
Item 3. Defaults upon Senior Securities ............................ 14
Item 4. Submission of Matters to a Vote of Security Holders ........ 14
Item 5. Other Information .......................................... 14
Item 6. Exhibits and Reports on Form 8-K ........................... 14
SIGNATURES ................................................................ 15
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<PAGE>
ARIS INDUSTRIES INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 29, January 28, April 30,
1995 1995 1994
(Unaudited) (Audited) (Unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................ $ 2,912,000 $ 3,086,000 $ 4,265,000
Cash--restricted ......................................... -- 10,000 --
Receivables .............................................. 13,261,000 19,129,000 23,121,000
Inventories .............................................. 38,162,000 35,280,000 27,191,000
Prepaid expenses and other current assets ................ 1,975,000 1,672,000 2,553,000
----------- ----------- -----------
Total current assets ................................. 56,310,000 59,177,000 57,130,000
PROPERTY, PLANT AND EQUIPMENT, NET ......................... 14,500,000 14,144,000 11,920,000
OTHER ASSETS ............................................... 799,000 813,000 580,000
COSTS IN EXCESS OF FAIR VALUE OF NET ASSETS
ACQUIRED ................................................. 24,405,000 24,620,000 25,265,000
----------- ----------- -----------
$96,014,000 $98,754,000 $94,895,000
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade acceptances and notes payable ...................... $ 4,321,000 $ 2,417,000 $ 1,883,000
Accounts payable--trade .................................. 8,998,000 10,108,000 8,915,000
Accrued expenses and other current liabilities ........... 5,154,000 6,694,000 5,588,000
Current portion of long term debt ........................ 4,431,000 4,979,000 2,512,000
----------- ----------- -----------
Total current liabilities ............................ 22,904,000 24,198,000 18,898,000
OTHER LIABILITIES .......................................... 1,664,000 1,706,000 1,621,000
LONG TERM DEBT, LESS CURRENT PORTION ....................... 64,175,000 64,239,000 66,527,000
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 ...................................... (35,659,000) (34,330,000) (35,171,000)
Cumulative foreign currency translation adjustment ....... (1,250,000) (1,239,000) (1,160,000)
----------- ----------- -----------
Total stockholders' equity ........................... 7,271,000 8,611,000 7,849,000
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................. $96,014,000 $98,754,000 $94,895,000
=========== =========== ===========
</TABLE>
See condensed notes to consolidated financial statements
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<PAGE>
ARIS INDUSTRIES INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Thirteen Weeks Ended
April 29, April 30,
1995 1994
----------- -----------
NET REVENUES .................................... $37,387,000 $45,409,000
----------- -----------
OPERATING COSTS:
Cost of sales ................................... 29,875,000 35,226,000
Selling and administrative ...................... 6,763,000 6,928,000
----------- -----------
TOTAL OPERATING COSTS ........................... 36,638,000 42,154,000
----------- -----------
INCOME BEFORE INTEREST AND DEBT EXPENSE,
AND INCOME TAXES .............................. 749,000 3,255,000
INTEREST AND DEBT EXPENSE, NET .................. 2,168,000 1,659,000
----------- -----------
INCOME/(LOSS) BEFORE INCOME TAXES ............... (1,419,000) 1,596,000
INCOME TAXES .................................... (90,000) 221,000
----------- -----------
NET INCOME/(LOSS) ............................... ($ 1,329,000) $ 1,375,000
=========== ===========
PER SHARE DATA:
Net Income/(Loss) ............................. ($0.11) $0.12
====== =====
Weighted average number of common shares ........ 11,925,416 11,925,416
See condensed notes to consolidated financial statements
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<PAGE>
ARIS INDUSTRIES INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Thirteen Weeks Ended
April 29, April 30,
1995 1994
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ($1,329,000) $1,375,000
---------- ----------
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization ................ 805,000 709,000
Change in assets and liabilities:
Decrease in cash - restricted ................ 10,000 35,000
(Increase)/decrease in receivables ........... 5,868,000 (6,796,000)
(Increase)/decrease in inventories ........... (2,882,000) 2,688,000
Increase in prepaid expenses and
other current assets ....................... (303,000) (744,000)
Decrease in other assets ..................... 14,000 33,000
Increase/(decrease) in trade acceptances ..... (2,096,000) 84,000
Decrease in accounts payable - trade ......... (1,110,000) (2,615,000)
Decrease in accrued expenses and other
current liabilities ........................ (1,539,000) (490,000)
Decrease in other liabilities ................ (37,000) (24,000)
---------- ----------
Total Adjustments .......................... (1,270,000) (7,120,000)
---------- ----------
Net cash used in operating activities .... (2,599,000) (5,745,000)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ............................. (934,000) (457,000)
-- --
---------- ----------
Net cash used in investing activities .... (934,000) (457,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt ............. (630,000) (462,000)
Proceeds from issuance of note payable ........... 4,000,000 --
---------- ----------
Net cash provided by/(used in)
financing activities ................... 3,370,000 (462,000)
EFFECT OF EXCHANGE RATE CHANGES ON CASH ............ (11,000) (70,000)
NET DECREASE IN CASH AND CASH EQUIVALENTS .......... (174,000) (6,734,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ..... 3,086,000 10,999,000
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ........... $2,912,000 $4,265,000
========== ==========
CASH PAID DURING THE YEAR FOR:
Interest ......................................... $2,107,000 $1,638,000
Income Taxes ..................................... 87,000 226,000
See condensed notes to consolidated financial statements
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<PAGE>
ARIS INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheets as of April 29, 1995 and April 30, 1994, the
consolidated statements of operations for the thirteen-week periods ended April
29, 1995 and April 30, 1994, and the consolidated statements of cash flows for
the thirteen week periods ended April 29, 1995 and April 30, 1994 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 this
period 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
thirteen-week period ended April 29, 1995 are not necessarily indicative of the
operating results for the full fiscal year ending February 3, 1996. Certain
reclassifications have been made to the prior quarter financial statements to
conform with the presentation in the current quarter.
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 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
beginning at the fourth fiscal quarter commencing October 1994.
Additionally, the Company must
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<PAGE>
make annual prepayments equal to 50% of certain "excess cash flow" for the
preceding four fiscal quarters.
Year Amount
---- -----------
1994 $ 1,000,000
1995 3,000,000
1996 4,000,000
1997 6,000,000
1998 8,000,000
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.
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
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<PAGE>
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
April 29, January 28, April 30,
1995 1995 1994
-------- ---------- --------
(In Thousands)
Finished goods .................... $23,447 $18,818 $15,297
Work-in-process ................... 5,495 8,304 5,253
Raw materials ..................... 9,220 8,158 6,641
------- ------- -------
$38,162 $35,280 $27,191
======= ======= =======
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 April 29, 1995, the Company had gross
deferred tax assets of approximately $39,000,000. At this time, the Company has
determined that such 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 increase in net operating loss carryforwards due
to the loss incurred for the thirteen weeks ended April 29, 1995.
6. PER SHARE DATA
Income per share for the thirteen week period ending April 29, 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.
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<PAGE>
7. CONTINGENCIES
A former sales employee of ECI instituted a lawsuit in June, 1992, against ECI
claiming alleged sales commissions in the amount of approximately $1,700,000,
which action is pending in the U.S. District Court for the Eastern District of
Michigan. The Company and ECI believe this claim is entirely without merit and
ECI is vigorously defending this action. However, the Company cannot predict the
ultimate outcome of this litigation.
In addition, 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 April 29, 1995.
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<PAGE>
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 9 of this report.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
As of April 29, 1995, the Company had working capital of approximately
$33,406,000 as compared to $34,979,000 at January 28, 1995 and $38,232,000 at
April 30, 1994. The decrease in working capital from January 28, 1995 to April
29, 1995 is attributable primarily to the Company's operating loss during such
periods.
During the thirteen weeks ended April 29, 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 working
capital facilities are renewed 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.
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 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
beginning at the fourth fiscal quarter commencing October 1994.
Additionally, the Company must make
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<PAGE>
annual prepayments equal to 50% of certain "excess cash flow" for the
preceding four fiscal quarters.
Year Amount
---- -----------
1994 $ 1,000,000
1995 3,000,000
1996 4,000,000
1997 6,000,000
1998 8,000,000
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 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.
RESULTS OF OPERATIONS
The Company reported a net loss of $1,329,000 for the thirteen weeks ended April
29, 1995, compared to net income of $1,375,000 for the comparable period in the
prior year, and income from operations of $749,000 for the thirteen weeks ended
April 29, 1995, compared to $3,255,000 for the comparable period in the prior
year.
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<PAGE>
As discussed below, these decreases are due to a decrease in sales at Perry
Manufacturing Company of $3,347,000 (causing a related loss of gross profit) as
reorders by major customers did not materialize because of the unusually adverse
retail environment. In addition, lower sales and margins continued at ECI for
the first quarter due to the unseasonably warm weather throughout the United
States which adversely affected retailers and fall and winter related apparel
companies including outerwear companies. ECI's revenues and profits are expected
to continue to be impacted during the second quarter of the current fiscal year
by the abnormal weather difficulties affecting the outerwear apparel industry.
The Company's revenues decreased from $45,409,000 during the thirteen week
period ended April 30, 1994 to $37,387,000 during the thirteen week period ended
April 29, 1995. This revenue decrease of $8,022,000 resulted from the decrease
in revenues at Perry of $3,347,000 and a decrease in revenues at ECI of
$4,675,000 for the thirteen week period ended April 29, 1995 compared to the
same period in the prior year. The revenue decrease at Perry was primarily
attributable to reorders from major retail chains on successful programs which
were not repeated in the thirteen weeks ended April 29, 1995 by these customers
due to the unusually adverse retail environment.
Several factors contributed to the reduction of ECI's revenues during the first
quarter. Revenues decreased at ECI in part due to private label customers
deciding to use ECI only as a sourcing agent in which ECI oversees production of
merchandise for a commission and in which ECI has no ownership or risk in the
inventory; in such transactions, ECI can only record commissions. In the
comparable period in the prior year these private label customers opted to a
greater extent to have ECI perform complete sourcing, financing, production and
distribution for their private label customers, in which transactions ECI
records the full merchandise price as a sale. In addition, due to the
unseasonable spring weather and the general slowdown in the retail apparel
environment, ECI's sales eroded significantly in the thirteen week period ended
April 29, 1995 as compared to the thirteen week period ended April 30, 1994.
Costs of sales for the thirteen week period ended April 29, 1995 as a percentage
of revenue was 79.9% compared to 77.6% of revenues for the thirteen week period
ended April 30, 1994. This was primarily due to lower margins at ECI due to the
unseasonably warm weather throughout the United States, which adversely affected
retailers and fall and winter related apparel companies including outerwear
companies. This was further impacted by the unseasonable spring weather and the
general slowdown in the retail apparel environment. These conditions did not
exist in the comparable period in the prior year.
Selling and administrative expenses as a percentage of revenues for the thirteen
week period ending April 29, 1995 was 18.1% compared
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<PAGE>
to 15.3% for the thirteen weeks ended April 30, 1994. This percentage increase
was due to a decrease in sales that could not be offset by a corresponding
decrease in expenses due to the fixed nature of the Company's expense structure.
Selling and administrative expenses for the thirteen week period ended April 29,
1995 were $6,763,000 compared to $6,928,000 for the thirteen week period ended
April 30, 1994, a decrease of $165,000 or 2.4%.
Interest and debt expense for the thirteen week period ended April 29, 1995
increased by $509,000 or 30.7% compared to the thirteen week period ended April
30, 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 Manufacturing Company had to borrow earlier this year
from its lender than for the comparable period last year.
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<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
A former sales employee of ECI instituted a lawsuit in June, 1992, against ECI
claiming alleged sales commissions in the amount of approximately $1,700,000,
which action is pending in the U.S. District Court for the Eastern District of
Michigan. The Company and ECI believe this claim is entirely without merit and
ECI is vigorously defending this action. However, the Company cannot predict the
ultimate outcome of this litigation.
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 - NONE
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<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: June 12, 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
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