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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
May 4, 1996 ------
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.)
475 FIFTH AVENUE, NEW YORK, NEW YORK 10017
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 686-5050
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 May 4, 1996
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<PAGE>
ARIS INDUSTRIES, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
a. Consolidated Balance Sheets as of May 4,
1996, February 3, 1996 and April 29,
1995 ................................................ 3
b. Consolidated Statement of Operations for
the Thirteen Weeks Ended May 4, 1996 and
April 29, 1995 ...................................... 4
c. Consolidated Statements of Cash Flows for
the Thirteen Weeks Ended May 4, 1996 and
April 29, 1995 ...................................... 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 ................................... 17
Item 2. Changes in Securities ............................... 17
Item 3. Defaults upon Senior Securities ..................... 17
Item 4. Submission of Matters to a Vote of
Security Holders .................................... 17
Item 5. Other Information ................................... 17
Item 6. Exhibits and Reports on Form 8-K .................... 17
SIGNATURES .............................................................. 18
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<PAGE>
<TABLE>
ARIS INDUSTRIES INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
MAY 4, FEBRUARY 3, APRIL 29,
1996 1996 1995
(UNAUDITED) (AUDITED) (UNAUDITED)
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................. $ 1,632,000 $ 2,318,000 $ 2,912,000
Receivables ............................................... 10,765,000 16,970,000 13,261,000
Inventories ............................................... 33,720,000 35,272,000 38,162,000
Prepaid expenses and other current assets ................. 2,013,000 1,312,000 1,975,000
----------- ----------- -----------
Total current assets ............................... 48,130,000 55,872,000 56,310,000
PROPERTY, PLANT AND EQUIPMENT, NET ........................... 13,660,000 13,462,000 14,500,000
OTHER ASSETS ................................................. 911,000 834,000 799,000
GOODWILL ..................................................... 23,545,000 23,760,000 24,405,000
----------- ----------- -----------
$86,246,000 $93,928,000 $96,014,000
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade acceptances payable ................................. $ 131,000 $ 2,007,000 $ 321,000
Accounts payable -- trade ................................ 9,799,000 8,592,000 8,998,000
Accrued expenses and other current liabilities ............ 4,378,000 7,431,000 5,154,000
Current portion of long term debt ......................... 971,000 1,302,000 4,431,000
Line of credit payable .................................... 4,278,000 6,000,000 4,000,000
----------- ----------- -----------
Total current liabilities .......................... 19,557,000 25,332,000 22,904,000
OTHER LIABILITIES ............................................ 1,522,000 1,527,000 1,664,000
LONG TERM DEBT, LESS CURRENT PORTION ......................... 67,021,000 66,505,000 64,175,000
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 ....................................... (44,836,000) (42,387,000) (35,659,000)
Cumulative foreign currency translation adjustment ........ (1,198,000) (1,229,000) (1,250,000)
----------- ----------- -----------
Total stockholders' equity ......................... (1,854,000) 564,000 7,271,000
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................... $86,246,000 $93,928,000 $96,014,000
=========== =========== ===========
</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
----------------------------
MAY 4, APRIL 29,
1996 1995
----------- -----------
NET REVENUES ................................. $35,225,000 $37,387,000
----------- -----------
OPERATING COSTS:
Cost of sales ................................ 28,546,000 29,875,000
Selling and administrative ................... 7,024,000 6,763,000
----------- -----------
TOTAL OPERATING COSTS ........................ 35,570,000 36,638,000
----------- -----------
INCOME (LOSS) BEFORE INTEREST AND
DEBT EXPENSE, AND INCOME TAXES ............. (345,000) 749,000
INTEREST AND DEBT EXPENSE, NET ............... 2,194,000 2,168,000
----------- -----------
LOSS BEFORE INCOME TAXES ..................... (2,539,000) (1,419,000)
INCOME TAXES ................................. (90,000) (90,000)
----------- -----------
NET LOSS...................................... ($ 2,449,000) ($ 1,329,000)
=========== ===========
PER SHARE DATA:
Net Loss.................................... ($0.21) ($0.11)
===== =====
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
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
THIRTEEN WEEKS ENDED
-------------------------------
MAY 4, APRIL 29,
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..................................................................... ($2,449,000) ($1,329,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ........................................... 807,000 805,000
Change in assets and liabilities :
Decrease in cash--restricted ............................................ -- 10,000
Decrease in receivables ................................................. 6,205,000 5,868,000
(Increase)/decrease in inventories ...................................... 1,552,000 (2,882,000)
Increase in prepaid expenses and other current assets ................... (702,000) (303,000)
(Increase)/decrease in other assets ..................................... (77,000) 14,000
Decrease in trade acceptances payable ................................... (1,876,000) (2,096,000)
Increase/(decrease) in accounts payable--trade .......................... 1,197,000 (1,110,000)
Decrease in accrued expenses and other current liabilities .............. (3,043,000) (1,539,000)
Increase/(decrease) in other liabilities ................................ 2,000 (37,000)
------------ -----------
Total Adjustments .................................................. 4,065,000 (1,270,000)
------------ -----------
Net cash provided by (used in) operating activities ...... 1,616,000 (2,599,000)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ......................................................... (775,000) (934,000)
------------ -----------
Net cash used in investing activities .................... (775,000) (934,000)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt ......................................... (446,000) (630,000)
Net proceeds/(repayments) on bank line of credit ............................. (1,112,000) 4,000,000
------------ -----------
Net cash provided by/(used in) financing activities ...... (1,558,000) 3,370,000
EFFECT OF EXCHANGE RATE CHANGES ON CASH .......................................... 31,000 (11,000)
NET DECREASE IN CASH AND CASH EQUIVALENTS ........................................ (686,000) (174,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................... 2,318,000 3,086,000
------------ -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ......................................... $1,632,000 $2,912,000
=========== ==========
CASH PAID DURING THE YEAR FOR:
Interest ...................................................................... $1,984,000 $2,107,000
Income Taxes .................................................................. 61,000 87,000
</TABLE>
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. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheets as of May 4, 1996 and April 29, 1995, the
consolidated statements of operations for the thirteen-week periods ended May 4,
1996 and April 29, 1995, and the consolidated statements of cash flows for the
thirteen week periods ended May 4, 1996 and April 29, 1995 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 February 3, 1996. The operating results for the
thirteen-week period ended May 4, 1996 are not necessarily indicative of the
operating results for the full fiscal year ending February 1, 1997.
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"). On May 1, 1996, the loan
agreements relating to such indebtedness were amended to provide less
restrictive financial covenants and to defer certain principal and interest
payments as described below.
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
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the Belt, Inc. ("ATB"). Heller has agreed to loan to the Company the
amounts necessary to pay the quarterly interest payments under such
note due for the period May 6, 1996 through November 4, 1996
inclusive, which additional loan will be due February 3, 1997.
Heller's remaining note of $49,857,000 is required to be paid on the
following schedule, which was amended on May 1, 1996 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.
DATE AMOUNT
---- -----------
June 3, 1997 ................... $ 4,000,000
November 3, 1997 ............... 7,000,000
November 3, 1998 ............... 10,000,000
November 3, 1999 ............... 10,000,000
November 3, 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. With the
consent of BNY, the quarterly interest payments under such note due
for the period May 6, 1996 through February 3, 1997 inclusive will not
be made in cash and instead will be added to the principal of such
note. BNY's note is required to be paid in six annual installments,
payable on November 3 of each year commencing in 1997 as follows:
DATE 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. With the consent of AIF II, the
quarterly interest payments under such note due for the period
February 5, 1996 through February 3, 1997 inclusive will not be made
in cash and instead will be added to the principal of such note. AIF
II's note is required to be paid in two equal installments payable on
November 3 in each of 2001 and 2002.
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<PAGE>
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.
3. GOODWILL
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 periodically 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
MAY 4 FEBRUARY 3 APRIL 29
1996 1996 1995
------- --------- --------
(IN THOUSANDS)
Finished goods ............. $17,613 $18,681 $23,447
Work-in process ............ 8,776 7,493 5,495
Raw materials .............. 7,331 9,098 9,220
------- ------- -------
$33,720 $35,272 $38,162
======= ======= =======
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 1
1997, except for the alternative minimum income tax which was part of the 1986
Tax Reform Act. Approximately $101,000,000 of tax net operating loss
carryforwards remain to offset future federal taxable income.
A valuation allowance is required to be recognized for those deferred tax
assets that may not be realized. At May 4, 1996, the Company had gross deferred
tax assets of approximately $42,500,000. At this time, the Company has
determined that such a valuation allowance be equal to the
-8-
<PAGE>
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 $550,000 in connection with the increase
in net operating loss carryforwards due to the loss incurred for the thirteen
weeks ended May 4, 1996.
6. PER SHARE DATA
Income per share for the thirteen week period ended May 4, 1996 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. 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. While the Company cannot guaranty the
outcome of any litigation, 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 statements at May
4, 1996.
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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.
FORWARD LOOKING STATEMENTS
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations which are not historical in nature, are
intended to be, and are hereby identified as, "forward looking statements" for
purposes of the safe harbor provided by Section 21E of the Securities Exchange
Act of 1934, as amended by Public Law 104-67. The Company cautions readers that
forward looking statements, including without limitation, those relating to the
Company's future business prospects, revenues, working capital, liquidity,
capital needs, interest costs, and income, are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
indicated in the forward looking statements, due to several important factors
herein identified, among others, and other risks and factors identified from
time to time in the Company's reports filed with the SEC:
o The apparel industry in general is volatile and unpredictable due to
cyclical and seasonal swings caused in part by consumer buying
patterns.
o During the past fiscal year and at the current time, there is an
extremely adverse environment in the retail apparel industry, which is
likely to continue to impact the Company, and increase the risk of
reduced orders, loss of particular customers or particular selling
programs of customers, shorter production lead times, reduced margins
and earlier and more extensive borrowing against working capital
lines.
o Trade legislation such as NAFTA and GATT could make the production
sources of the Company's Perry subsidiary, located in the United
States and in Central America, less price competitive.
o The Company's ECI subsidiary, which sells primarily outerwear, is
particularly impacted by unusually warm weather or late arrival of
cold weather.
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<PAGE>
o Interest on the Company's corporate and subsidiary level debt
obligations could increase substantially with changes in the prime
lending rate.
o Virtually all of the Company's corporate cash flow is required to
service its principal long-term debt obligations.
o While in the past two fiscal years, the Company has been able to
obtain the necessary waivers and amendments, and the Company considers
its relationship with its lenders to be good, there are no assurances
that the Company will continue to obtain amendments to its secured
debt obligations to adjust financial covenants and debt service
schedules to offset the impact of the adverse retail apparel
environment and other adverse factors affecting the Company's
financial results.
o Depending upon the performance of the Company's operating
subsidiaries, which in turn are dependent on a number of factors,
including the retail apparel industry environment, the Company may be
required, in the future, to obtain additional waivers under its
existing corporate-level secured debt obligations and/or its
subsidiary working capital lines. There are no assurances that the
Company will be able to obtain such reductions in its debt service
requirements.
o There has been a substantial consolidation of formerly independent
major department store chains such that the consolidated customers
exert greater influence on suppliers such as the Company, resulting in
greater demands for price reductions, advertising support, returns and
markdowns of apparel products.
o Numerous retail organizations in the apparel industry have undergone
Chapter 11 reorganizations, bankruptcy liquidations, downsizing and/or
cessation of business, and others have suffered credit difficulties
whereby factors delay or deny credit to such retail organizations. As
a result, the Company may experience difficulty in obtaining factoring
and credit approval on certain customers.
o Although the Company's ECI and Perry subsidiaries market a wide
variety of products, they must compete with other apparel suppliers
which specialize in particular niche products which may have greater
resources, reputation and efficiencies in such particular product
areas.
o The substantial portion of the Company's products are manufactured
overseas, subjecting the Company to the generic risks of import and
delivery from distant
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<PAGE>
locations, delays due to U.S. or foreign government regulation and
controls, and customs and transportation difficulties. For example, at
the present time, the United States is proposing a 100% tariff on
various categories of Chinese imports to the United States, including
apparel. Should these tariffs go into effect and should they include
outerwear, the Company could be materially adversely affected.
o ECI imports its products primarily from manufacturing plants which it
does not own. While ECI through its agents exercises quality control
over such factories, there are inherent risks in such manufacturing
which can result in delivery delays and ultimately in cancellation of
orders by ECI's customers.
o Increasingly, retail customers of the Company are ordering their
products closer to the actual delivery date and selling season. In
order for the Company to deliver such products on time, it must often
now commit to production in advance of obtaining hard orders from its
retail customers.
o There is an increasing trend by retail customers to develop their own
private label apparel lines to compete with products supplied by
importers and manufacturers such as the Company.
o The Company's apparel products are sold on the main selling floor
areas of its retail store customers and are facing increasing
competition from such customer's expanded dedication of retail floor
space to "designer collections".
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
As of May 4, 1996, the Company had working capital of approximately
$28,573,000 as compared to $30,540,000 at February 3, 1996 and $33,406,000 at
April 29, 1995. The decrease in working capital from February 3, 1996 to May 4,
1996 is attributable primarily to a reduction of receivables and inventory which
was used to reduce borrowings at both Perry and ECI, accrual of liabilities at
ECI relating to its repositioning program and funding of the Company's operating
loss.
During the thirteen weeks ended May 4, 1996, 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 cash flow from
operations, assuming the
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<PAGE>
Company's present business plans are met, will be sufficient for the Company's
capital expenditure program and amended debt requirements, as well as ongoing
working capital needs, for the fiscal year ending February 1, 1997.
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"). On May 1, 1996, the loan agreements relating
to such indebtedness were amended to provide less restrictive financial
covenants and to defer certain principal and interest payments as described
below.
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 has agreed to loan
to the Company the amounts necessary to pay the quarterly interest
payments under such note due for the period May 6, 1996 through
November 4, 1996, inclusive, which additional loan will be due
February 3, 1997. Heller's remaining note of $49,857,000 is required
to be paid on the following schedule, which was amended on May 1, 1996
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.
DATE AMOUNT
---- -----------
June 3, 1997 ................... $ 4,000,000
November 3, 1997 ............... 7,000,000
November 3, 1998 ............... 10,000,000
November 3, 1999 ............... 10,000,000
November 3, 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. With the
consent of BNY, the quarterly interest payments under such note due
for the period May 6, 1996 through February 3, 1997 inclusive, will
not be made in cash and instead will be added to the principal of such
note. BNY's note is required to be paid in six annual installments,
payable on November 3 of each year commencing in 1997 as follows:
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<PAGE>
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. With the consent of AIF II, the
quarterly interest payments under such note due for the period
February 5, 1996 through February 3, 1997 will not be made in cash and
instead will be added to the principal of such note. AIF II's note is
required to be paid 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.
RESULTS OF OPERATIONS
The Company reported a net loss of $2,449,000 for the thirteen weeks ended
May 4, 1996, compared to a net loss of $1,329,000 for the comparable period in
the prior year. Decreases in net income were experienced at both Perry and ECI,
but Perry continued to report a positive net income for the quarter ended May 4,
1996.
The decrease in net income at Perry was due to a decrease in revenue of
$1,161,000 which caused a related decrease in gross profit. Margins were also
adversely affected by the unusually adverse retail environment that caused
customers to shift orders to future periods resulting in unfavorable
manufacturing variances. In addition, interest costs increased by $49,000 due to
increases in the prime rate from the prior year and additional borrowings from
Perry's factor.
At ECI, the decrease in net income was due to a general slowdown in the
retail apparel environment resulting in a reduction in revenue of $1,001,000
which caused a related decrease in gross profit. Interest costs increased by
$41,000 for the same reasons as at Perry described above.
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<PAGE>
The Company's revenues decreased from $37,387,000 during the thirteen week
period ended April 29, 1995 to $35,225,000 during the thirteen week period ended
May 4, 1996. This revenue decrease of $2,162,000 resulted from the decrease in
revenues at Perry of $1,161,000 and a decrease in revenues at ECI of $1,001,000
for the thirteen week period ended May 4, 1996 compared to the same period in
the prior year. The revenue decrease at Perry was primarily attributable to
shifting of customer orders into future periods due to the unusually adverse
retail environment.
The decrease in merchandise sales at ECI was primarily attributable to more
private label customers desiring to order directly from Asian suppliers as well
as the general slowdown of the retail apparel environment. ECI acts as a
sourcing agent for certain private label customers and arranges for and oversees
the production of merchandise for such customers; in these situations, ECI has
no ownership or risk in the inventory.
Costs of sales for the thirteen week period ended May 4, 1996 as a
percentage of revenue was 81.0% compared to 79.9% of revenues for the thirteen
week period ended April 29, 1995. This percentage increase was due to lower
margins at Perry. At Perry, 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. At ECI,
margins continued to be affected by the general slowdown in the retail
environment, sale of slow moving inventory and continued pressure to reduce
margins by major retailers.
Selling and administrative expenses as a percentage of revenues for the
thirteen week period ended May 4, 1996 was 19.9% compared to 18.1% for the
thirteen weeks ended April 29, 1995. 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 May
4, 1996 were $7,024,000 compared to $6,763,000 for the thirteen week period
ended April 29, 1995, an increase of $261,000 or 3.9%. Selling and
administrative expenses at Perry increased for the thirteen weeks ended May 4,
1996 over the comparable period last year due to the opening, during the second
quarter of fiscal 1995, of a warehouse and distribution center in Miami,
Florida, near Perry's Caribbean manufacturing base. This facility cost, although
an increase in selling and administrative expenses, is translating into savings
by reducing the cost of goods sold. In addition, Perry hired two new salesmen
who have connections with major retailers which should improve sales. Selling
and administrative expenses at ECI increased for the thirteen weeks ended May 4,
1996 over the comparable period last year due to costs relating to transporting
equipment and inventory from ECI's former California warehouse to its new
warehouse facility in New Jersey,
-15-
<PAGE>
along with additional advertising costs incurred with the intention of
increasing sales.
Interest and debt expense for the thirteen week period ended May 4, 1996
increased by $26,000 or 1.2% compared to the thirteen week period ended April
29, 1995. This increase is primarily due to an increase in the prime lending
rate 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 and to a greater extent this year from their lenders
than for the comparable period last year, resulting in higher average borrowing
levels.
-16-
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
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
-------------------
1. Current Report on Form 8-K dated February 2, 1996 with respect to
amendment to the Company's Series B Junior Secured Note Agreement with AIF-II,
L.P. to permit payment in kind of quarterly interest due February 5, 1996.
2. Current Report on Form 8-K dated May 1, 1996 with respect to 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 and
provided for Heller to loan to the Company (until February 3, 1997) the amounts
necessary to pay scheduled quarterly interest for the period May 6, 1996 through
November 4, 1996, and with respect to amendments to the Company's Series A
Junior Secured Note Agreement with BNY Financial Corporation and Series B Junior
Secured Note Agreement with AIF-II, L.P. to permit payment in kind of quarterly
interest for the period May 6, 1996 through February 3, 1997 inclusive.
-17-
<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, 1996 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
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> MAY-04-1996
<CASH> 1,632,000
<SECURITIES> 0
<RECEIVABLES> 10,765,000
<ALLOWANCES> 0
<INVENTORY> 33,720,000
<CURRENT-ASSETS> 2,013,000
<PP&E> 30,993,000
<DEPRECIATION> 17,333,000
<TOTAL-ASSETS> 86,246,000
<CURRENT-LIABILITIES> 19,557,000
<BONDS> 67,021,000
0
0
<COMMON> 119,000
<OTHER-SE> (1,973,000)
<TOTAL-LIABILITY-AND-EQUITY> 86,246,000
<SALES> 35,225,000
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<CGS> 28,546,000
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<OTHER-EXPENSES> 7,024,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,194,000
<INCOME-PRETAX> (2,539,000)
<INCOME-TAX> (90,000)
<INCOME-CONTINUING> (2,449,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,449,000)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
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