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
September 30, 1998 ------
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
---------------------------------------------------
(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 4,912,210
At September 30, 1998
<PAGE>
ARIS INDUSTRIES, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
a. Consolidated Balance Sheets as of
September 30, 1998, December 31, 1997
and September 30, 1997 3
b. Consolidated Statements of Operations
for the Nine Months Ended September 30,
1998 and September 30, 1997 4
c. Consolidated Statements of Operations
for the Three Months Ended September
30, 1998 and September 30, 1997 5
c. Consolidated Statements of Cash Flows
for the Nine Months Ended September 30,
1998 and September 30, 1997 6
d. Condensed Notes to Consolidated
Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities 24
Item 3. Defaults upon Senior Securities 24
Item 4. Submission of Matters to a Vote of
Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
<PAGE>
ARIS INDUSTRIES, INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
September 30, December 31, September 30,
1998 1997 1997
ASSETS (Unaudited) (Audited) (Unaudited)
------------ ----------- -------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 827,000 $ 1,372,000 $ 955,000
Receivables 42,072,000 26,274,000 39,712,000
Inventories 39,234,000 19,498,000 20,510,000
Prepaid expenses and other current assets 1,649,000 2,215,000 2,962,000
------------ ----------- -----------
Total current assets 83,782,000 49,359,000 64,139,000
PROPERTY, PLANT AND EQUIPMENT, NET 1,287,000 1,463,000 1,323,000
OTHER ASSETS 2,604,000 2,718,000 1,195,000
GOODWILL 19,666,000 20,297,000 17,963,000
------------ ----------- -----------
$107,339,000 $73,837,000 $84,620,000
============ =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade acceptances payable $ 3,850,000 $ 6,292,000 $5,107,000
Accounts payable - trade 3,252,000 3,024,000 4,409,000
Accrued expenses and other current liabilities 5,643,000 7,528,000 5,487,000
Current portion of long term debt 435,000 2,172,000 1,297,000
Line of credit payable 59,400,000 18,605,000 32,500,000
------------ ----------- -----------
Total current liabilities 72,580,000 37,621,000 48,800,000
OTHER LIABILITIES 1,273,000 1,472,000 1,487,000
LONG TERM DEBT, LESS CURRENT PORTION 17,085,000 16,930,000 17,104,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, par value $.01: 50,000,000 shares authorized;
issued and outstanding 14,912,210 at September 30, 1998,
14,905,044 at December 31, 1997 and 14,852,544 at
September 30, 1997 150,000 150,000 149,000
Additional paid-in capital 44,754,000 44,752,000 44,746,000
Accumulated deficit (28,503,000) (27,088,000) (27,666,000)
------------ ----------- -----------
Total stockholders' equity 16,401,000 17,814,000 17,229,000
------------ ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $107,339,000 $73,837,000 $84,620,000
============ =========== ===========
See condensed notes to consolidated financial statements
</TABLE>
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<PAGE>
ARIS INDUSTRIES, INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- - -------------------------------------------------
Nine Nine
Months Ended Months Ended
September 30, September 30,
1998 1997
------------- -------------
<S> <C> <C>
NET REVENUES $80,963,000 $64,085,000
----------- -----------
OPERATING COSTS:
Cost of sales 58,770,000 43,685,000
Selling and administrative 20,643,000 16,580,000
----------- -----------
TOTAL OPERATING COSTS 79,413,000 60,265,000
----------- -----------
INCOME BEFORE INTEREST AND DEBT EXPENSE,
INCOME TAXES AND EXTRAORDINARY ITEM 1,550,000 3,820,000
INTEREST AND DEBT EXPENSE, NET 3,590,000 1,917,000
----------- -----------
(LOSS)/INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (2,040,000) 1,903,000
INCOME TAX (BENEFIT)/EXPENSE (101,000) 148,000
----------- -----------
(LOSS)/INCOME BEFORE EXTRAORDINARY ITEM (1,939,000) 1,755,000
EXTRAORDINARY ITEM:
Gain on debt forgiveness 522,000 --
----------- -----------
NET (LOSS)/INCOME $(1,417,000) $ 1,755,000
=========== ===========
PER SHARE DATA:
Weighted average shares outstanding Basic 14,907,573 12,701,809
Weighted average shares outstanding Diluted 16,298,931 13,624,669
BASIC EARNINGS PER SHARE:
(Loss) income before extraordinary item $ (0.13) $ 0.14
Extraordinary item 0.04 0.00
----------- -----------
Net (Loss) Income $ (0.09) $ 0.14
=========== ===========
DILUTED EARNINGS PER SHARE:
(Loss) income before extraordinary item $ (0.12) $ 0.13
Extraordinary item 0.03 0.00
----------- -----------
Net (Loss) Income $ (0.09) $ 0.13
=========== ===========
See condensed notes to consolidated financial statements
</TABLE>
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<PAGE>
ARIS INDUSTRIES, INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Three
Months Ended Months Ended
September 30, September 30,
1998 1997
------------- -------------
<S> <C> <C>
NET REVENUES $43,140,000 $44,402,000
----------- -----------
OPERATING COSTS:
Cost of sales 30,722,000 30,427,000
Selling and administrative 8,149,000 7,596,000
----------- -----------
TOTAL OPERATING COSTS 38,871,000 38,023,000
----------- -----------
INCOME BEFORE INTEREST AND DEBT EXPENSE,
INCOME TAXES AND EXTRAORDINARY ITEM 4,269,000 6,379,000
INTEREST AND DEBT EXPENSE, NET 1,557,000 941,000
----------- -----------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 2,712,000 5,438,000
INCOME TAXES 74,000 334,000
----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM 2,638,000 5,104,000
EXTRAORDINARY ITEM:
Gain on debt forgiveness -- --
----------- -----------
NET INCOME $ 2,638,000 $ 5,104,000
=========== ===========
PER SHARE DATA:
Weighted average shares outstanding - Basic 14,910,525 14,391,006
Weighted average shares outstanding - Diluted 15,943,110 15,489,111
BASIC EARNINGS PER SHARE:
Income before extraordinary item $ 0.18 $ 0.35
Extraordinary item 0.00 0.00
----------- -----------
Net Income $ 0.18 $ 0.35
=========== ===========
DILUTED EARNINGS PER SHARE:
Income before extraordinary item $ 0.17 $ 0.93
Extraordinary item 0.00 0.00
----------- -----------
Net Income $ 0.17 $ 0.93
=========== ===========
See condensed notes to consolidated financial statements
</TABLE>
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<PAGE>
ARIS INDUSTRIES, INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Nine
Months Ended Months Ended
September 30, September 30,
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) Income $ (1,417,000) $ 1,755,000
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,248,000 1,011,000
Capitalized interest 151,000 982,000
Forgiveness of debt (522,000) --
Change in assets and liabilities :
Increase in receivables (15,798,000) (33,462,000)
Increase in inventories (19,736,000) (7,765,000)
Decrease / (increase) in prepaid expenses and other current assets 701,000 (901,000)
Decrease in other assets 12,000 5,000
Decrease in trade acceptances payable (2,442,000) (495,000)
Increase in accounts payable - trade 229,000 2,150,000
(Decrease) / increase in accrued expenses and other current liabilities (2,018,000) 573,000
Decrease in other liabilities (179,000) (872,000)
------------ ------------
Total Adjustments (38,354,000) (38,774,000)
------------ ------------
Net cash used in operating activities (39,771,000) (37,019,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (267,000) (194,000)
Acquisition of Davco (500,000)
------------ ------------
Net cash used in investing activities (267,000) (694,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt (1,302,000) (110,000)
Net proceeds / (repayments) on bank line of credit 40,795,000 32,500,000
------------ ------------
Net cash provided by financing activities 39,493,000 32,390,000
NET DECREASE IN CASH AND CASH EQUIVALENTS (545,000) (5,323,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,372,000 6,278,000
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 827,000 $ 955,000
============ ============
CASH PAID DURING THE YEAR FOR:
Interest $ 3,042,000 $ 570,000
Income Taxes 60,000 49,000
</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 September 30, 1998 and 1997, the
consolidated statements of operations for the nine months ended September 30,
1998 and 1997, the consolidated statements of operations for the three months
ended September 30, 1998 and 1997 and the consolidated statements of cash flows
for the nine months ended September 30, 1998 and 1997 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 flows 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 year ended December 31, 1997. The operating results for the nine
months ended September 30, 1998 are not necessarily indicative of the operating
results for the year ending December 31, 1998.
Effective July 15, 1997, ECI Sportswear, Inc. ("ECI Sportswear"), an indirect
wholly owned subsidiary of the Company, acquired substantially all of the assets
of Davco Industries, Inc. ("Davco"), a maker of mens' and boys' activewear,
swimwear, loungewear and some sportswear products sold under the "Perry Ellis
America" and/or "Perry Ellis" labels, "Jeffrey Banks" mens' sportswear, "FUBU"
boy's sportswear, activewear and outerwear and "Members Only" mens' and boys'
sportswear and loungewear. The operating results for ECI Sportswear are included
in the Company's results of operations for the nine and three month periods
ended September 30, 1998.
2. DEBT SERVICE
The Company's long-term indebtedness consists of the debt obligations of the
Company to BNY Financial Corporation ("BNY") and AIF-II, L.P., a Delaware
limited partnership and an affiliate of Apollo Advisors, L.P. ("AIF II"). On
January 29, 1998, the Company repaid in full all of its remaining debt
obligations to Heller Financial, Inc. ("Heller"). Such payment amounted to
$1,128,000, which included accrued interest through the date of repayment. In
addition, the Company recorded an extraordinary gain on the early extinguishment
of the Heller debt in the amount of $522,000.
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<PAGE>
o On June 30, 1993, the Company entered into a Series A Junior Secured Note
Agreement with BNY, pursuant to which BNY received a $7 million note,
bearing interest at a rate of 7% per annum, with a final maturity date of
November 3, 2002. BNY shares with AIF-II a first lien on the stock of ECI.
On September 12, 1997, the Company and BNY entered into an amendment of the
BNY Note Agreement providing that (1) scheduled interest accruing under the
BNY Note Agreement for the period February 1, 1996 through January 31, 1998
was not and will not be paid in cash and instead shall be added to
principal and shall be payable on November 3, 2002, (2) scheduled interest
under the BNY Note Agreement accruing for the periods commencing February
1, 1998 will be made in cash on quarterly payment dates commencing May 4,
1998 and (3) the principal on the BNY Note Agreement of $300,000 otherwise
due November 3, 1997 shall be rescheduled and paid quarterly in
installments of $15,000 each on the last day of each calendar quarter
commencing on December 31, 1997, with any remaining balance due on November
3, 2002. The remaining principal of BNY's note is required to be paid in
five annual installments, payable on November 3 of each year commencing in
1998 as follows (by agreement with BNY, the 1998 principal payment will be
due on February 1, 1999):
YEAR AMOUNT
1998 $ 300,000
1999 500,000
2000 600,000
2001 1,100,000
2002 4,200,000
In addition, on November 3, 2002, the Company is obligated to pay BNY
$1,042,000, representing the quarterly interest payments accruing for the
period February 1, 1996 through January 31, 1998, which were not and will
not be paid in cash and instead added to the principal of the BNY Note.
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 first lien
on the stock of ECI. On September 12, 1997, the Company and AIF-II entered
into an amendment of the AIF-II Note Agreement providing that (1) scheduled
interest accruing under the AIF-II Note Agreement for the period November
1, 1995 through January 31, 1998 was not and will not be paid in cash and
instead shall be added to principal and shall be payable on November 3,
2002 and (2) scheduled interest under the AIF-II Note Agreement accruing
for periods commencing February 1, 1998 will be made in cash on quarterly
payment dates commencing May 4, 1998. Principal of AIF-II's note is
required to be paid in two equal installments payable on November 3 in each
of 2001 and 2002.
In addition, on November 3, 2002, the Company is obligated to pay AIF-II
$2,502,000, representing the quarterly interest
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<PAGE>
payments accruing for the period November 1, 1995 through January 31, 1998,
which were not and will not be paid in cash and instead added to the
principal of the AIF-II Note.
BNY and AIF-II will also share in mandatory prepayments based upon 50% of
certain "excess cash flows" of the Company as defined in the Company's note
agreements with BNY and AIF-II.
On October 21, 1998, the Company entered into amendments of its agreements with
BNY and AIF-II providing that payment of scheduled interest payments otherwise
due to such lenders on November 3, 1998 and the scheduled principal payment of
$300,000 otherwise due to BNY on November 3, 1998 would be deferred until
February 1, 1999.
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. 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 cash flows.
4. INVENTORIES
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1998 1997 1997
------------ ----------- ------------
(IN THOUSANDS)
Finished goods $39,234 $19,498 $20,510
Work-in process -0- -0- -0-
Raw materials -0- -0- -0-
------- ------- -------
$39,234 $19,498 $20,510
======= ======= =======
5. ACQUISITIONS
Effective July 15, 1997, ECI Sportswear, Inc. ("ECI Sportswear"), an indirect
wholly owned subsidiary of the Company, acquired substantially all of the assets
of Davco Industries, Inc. ("Davco"), at that time a maker of mens' and boys'
activewear, swimwear, loungewear and some sportswear products sold under the
"Perry Ellis America" and/or "Perry Ellis" labels and mens' sportswear sold
under the "Jeffrey Banks" label. The aggregate purchase price, inclusive of
acquisition costs, paid by ECI Sportswear for such assets of $4,373,000
consisted of (a) the issuance to Davco of 3,000,000 shares of restricted Common
Stock of the Company valued at $720,000 and (b) a contingent cash purchase price
to Davco to be computed as the pre-tax net income of the Davco apparel business
as owned by ECI Sportswear from the closing date through December 31, 1997
(subject to certain adjustments), but not to exceed a maximum payment of
$3,600,000, such cash amount payable subsequent to issuance of the Company's
December 31, 1997 audited financial statements. On the closing date, ECI
Sportswear paid to Davco
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<PAGE>
$500,000 as an advance towards the contingent cash purchase price and ECI
Sportswear paid an additional advance of $81,000 following completion of ECI
Sportswear's third fiscal quarter ending September 30, 1997. The acquisition was
accounted for as a purchase and, accordingly, operating results of this business
subsequent to the date of acquisition were included in the Company's
consolidated financial statements. The purchase price was allocated based on
estimated fair values at the date of acquisition. This resulted in an excess of
purchase price over net assets acquired of $3,356,000, which has been recognized
as goodwill and is being amortized on a straight-line basis over 20 years. ECI
Sportswear is a wholly-owned subsidiary of Europe Craft Imports, Inc.("ECI").
The total contingent cash purchase price for the Davco assets derived from ECI
Sportswear's December 31, 1997 financial statements, was $3,483,000. On April
10, 1998, the Company paid $2,660,000 in respect of the contingent purchase
price for the Davco assets, after deducting advances previously paid of $581,000
and reserves for purchase price adjustments of $242,000.
The following unaudited pro forma consolidated results of operations for the
nine months ended September 30, 1997 are presented as if the acquisition of
Davco's assets had been made at the beginning of such period. The unaudited
consolidated results of operations for the nine months ended September 30, 1998
are presented for comparison. Pro forma adjustments have been made to include
the effects of amortization of goodwill and intangible assets. The unaudited pro
forma information is not necessarily indicative of either the results of
operations that would have occurred had the purchase been made during the period
presented or the future results of the combined operations.
- - --------------------------------------------------------------------------------
| | Nine Months | Nine Months |
| | Ended | Ended |
| | September 30, | September 30, |
| | 1997 | 1998 |
| | (Pro Forma) | (Actual) |
|------------------------------------------------------------------------------|
| Net Revenues..................... $81,723,000 $80,963,000 |
| |
| Gross Profit..................... 24,405,000 22,193,000 |
| |
| Income (loss) before taxes and 1,717,000 (2,040,000) |
| extraordinary item |
| |
| |
| Income tax expense (benefit) 158,000 (101,000) |
| |
| Net income (loss)................ 1,559,000 (1,939,000) |
| |
| Basic Earnings (loss) per share 0.10 (0.13) |
| |
| Diluted Earnings (loss) per share 0.10 (0.12) |
- - --------------------------------------------------------------------------------
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<PAGE>
6. INCOME TAXES
Due to significant net operating loss carryforwards, the Company does not
anticipate paying any federal income taxes for the year ending December 31,
1998, except for the alternative minimum income tax which was part of the 1986
Tax Reform Act.
A valuation allowance is recognized for those deferred tax assets that may not
be realized. At this time, the Company has determined that such a valuation
allowance be equal to the gross federal deferred tax asset, except for the
alternative minimum tax credit carryforwards and a portion of the state net
operating loss carryforwards at ECI and ECI Sportswear. The alternative minimum
tax credit carryforwards do not expire, and in the Company's opinion, it is more
likely than not that these credit carryforward will be realized.
7. PER SHARE DATA
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128), which
was effective for periods ending after December 15, 1997. The Company's prior
years earnings per share ("EPS") results have been restated to conform with the
provisions of this Statement. Under SFAS 128, the Company has presented two
earnings per share amounts. Basic EPS is calculated based on income available to
common shareholders and the weighted-average number of shares outstanding during
the reporting period. Diluted EPS includes additional dilution from potential
common stock issuable pursuant to the exercise of stock options and a warrant
outstanding.
- - ------------------------------------------------------------------------------
| | Income | Shares | Per-Share |
| | (Numerator) | (Denominator) | Amount |
- - ------------------------------------------------------------------------------
| Nine Months Ended 9/30/98 |
| |
| Basic EPS |
| Loss before |
| extraordinary item........... $(1,939,000) 14,907,573 $(0.13) |
| |
| Effect of Dilutive |
| Securities |
| |
| Stock Options -- 811,440 |
| |
| Warrants -- 579,918 |
| ----------- ---------- |
| Diluted EPS |
| Loss before |
| extraordinary item........... $(1,939,000) 16,298,931 $(0.12) |
- - ------------------------------------------------------------------------------
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- - ------------------------------------------------------------------------------
| | Income | Shares | Per-Share |
| | (Numerator) | (Denominator) | Amount |
- - ------------------------------------------------------------------------------
| Nine Months Ended 9/30/97 |
| |
| Basic EPS |
| Income before |
| extraordinary item........... $1,755,000 12,701,809 $0.14 |
| |
| Effect of Dilutive |
| Securities |
| |
| Stock Options -- 347,422 |
| |
| Warrants -- 575,438 |
| ---------- ---------- |
| |
| Diluted EPS |
| Loss before |
| extraordinary item........... $1,755,000 13,624,669 $0.13 |
| |
- - ------------------------------------------------------------------------------
8. 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 position, results of
operations or cash flows at September 30, 1998.
-12-
<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 12 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 The Company's ECI subsidiary, which sells primarily outerwear, is
particularly impacted by unusually warm weather or late arrival of
cold weather. The Company's ECI Sportswear subsidiary can also be
impacted by weather conditions.
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 Retail organizations in the apparel industry have undergone
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 ECI Sportswear subsidiaries
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<PAGE>
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 A substantial portion of the Company's products are manufactured
overseas, subjecting the Company to the generic risks of import and
delivery from distant locations, delays due to U.S. or foreign
government regulation and controls, and customs and transportation
difficulties. In addition, the Company could be adversely affected by
tariffs, embargos and quotas involving countries from which the
Company imports its product lines.
o ECI and ECI Sportswear import their products primarily from
manufacturing plants which they do not own. While ECI and ECI
Sportswear, through their agents, exercise 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
there customers.
o Increasingly, retail customers of the Company are ordering their
products closer to the actual delivery date and selling season. In
order for suppliers to deliver such products on time, they must often
now commit to production in advance of obtaining firm orders from
their 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 brand
name suppliers such as the Company.
o No assurance can be made that the Company's licensors do not change
policies on advertising and distribution which can have a materially
adverse affect on 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".
o At present, political instability in some countries, like Indonesia,
where the Company sources, could have an impact on timely completion
or delivery of finished products.
o A large proportion of the Company's products are manufactured in Asia
by independent contractors, whose businesses, finances and credit
could be seriously impaired by the Asian economic crises which
commenced in the latter half of 1997 and has continued during the
calendar year 1998. If there were a sustained loss of the Company's
Asian sources of supply, the Company's business
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<PAGE>
would be materially adversely affected. The Company is unable to
predict the impact of the Asian economic crises on particular Asian
countries where the Company sources its products or particular
contractors within those countries. As previously reported, the
"Members Only" licensee for apparel products to be sold in the
territory of the People's Republic of China, Hong Kong and Macau
ceased manufacturing products for export; such licensee has now
discontinued domestic operations as well and accordingly is unable to
fulfill its requirements under such license.
Year 2000 Compliance
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields
containing a 2 digit year is commonly referred to as the Year 2000
Compliance issue. As the year 2000 approaches, such systems may be
unable to accurately process certain date based information. The
Company's Year 2000 Project (Project) is addressing the issue of
computer programs and embedded computer chips being unable to
distinguish between the year 1900 and the year 2000.
The Project has been divided into three major areas; 1) IBM AS400, 2)
Application Software, and 3) PC Hardware and software. The general
phases common to all sections are: 1) inventorying Year 2000 items; 2)
assigning priorities to inventoried items; 3) assessing the Year 2000
compliance of items determined to be material to the Company; 4)
repairing or replacing material items that are determined not to be
Year 2000 compliant; 5) testing material items and 6) designing and
implementing contingency and business continuation plans. Internal
resources are being used to make required modifications and test Year
2000 Compliance. The Company target date for completion is June 30,
1999.
The IBM AS400 (Model 300) is the backbone of the Company's computer
system. The Company currently maintains 100% of its inventory
valuation and tracking, order processing and picking/shipping
functions on the AS400. In addition, the Company also maintains the
bulk of its accounting records on the AS400. The IBM AS400 (hardware)
is Year 2000 compliant. The only modification to the AS400 will be a
change in the operating system from a "CISC" (Commercial Instruction
Set Computer) based system to a "RISC" (Reduced Instruction Set
Computer) based system. This change will be necessary to support the
Y2K upgrades to the Company's "PKMS" ((Pick Ticket Management System)
and "RLM" (Ron Lynn Management Accounting Software System) application
software packages which are based on the "RISC" operating system. The
Company has contracted with a third party supplier for installing the
new system and estimates that 100% of the change will be completed in
December 1998 with testing scheduled for the first quarter of 1999.
-15-
<PAGE>
The Applications Software section includes both the conversion of
applications software that is not Year 2000 compliant and, where
available from the supplier, the replacement of such software. The
Company currently uses four software application packages which cover
100% of the information systems run on the AS400. The Company has
contracted with the suppliers of the "PKMS" (Pick Ticket Management
System) and the "RLM" (Ron Lynn Management Accounting Software System)
for Y2K compliant upgrades of these packages and estimates that the
upgrades will be installed by December 31, 1998 with testing set for
the first quarter of 1999. The remaining two applications, the "ACS"
Apparel Computer System which is used to process all customer orders,
invoices and inventory controls and the "Premenos" Electronic Document
Interchange Software system, which processes document interchanges
between the Company and retailers, will be upgraded using internal
resources. The Company has identified 100% of the programs/sub-system
routines in these two applications that require modification and has
completed approximately 30% of the Y2K changes required in the "ACS"
system. changes. These upgrades should be finished during the first
quarter of 1999 with testing scheduled to begin upon completion.
The final section of the Project is to determine if all of the
Company's personal computer (PC) hardware and software systems are
Year 2000 compliant. Each PC will be certified to be Y2K compliant.
Any PC that is found to be non-compliant will be replaced. The Company
intends to use internal resources to do the certification. All
software will be noted if its Y2K compliant. All software upgrades
needed to assure Y2K compliance will be completed after all of the
Company's PC's have been certified Y2K compliant. The Company does not
anticipate many Y2K issues in this area since approximately 90% of the
software in use is off the shelf retail software (spreadsheet, word
processing packages etc.) that are already Y2K compliant.
The total cost to the Company of these Year 2000 Compliance activities
is estimated to be approximately $100,000 which includes the cost of a
programmer as well as costs for software upgrades and third party
contractors/suppliers, and will be funded internally through operating
cash flows. These costs and the date on which the Company plans to
complete the Year 2000 modification and testing processes are based on
management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of
certain third party modification plans and other factors. However,
there can be no guarantee that these objectives will be achieved and
actual results could differ from those plans.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities
or operations. Such failures
-16-
<PAGE>
could materially and adversely affect the Company's results of
operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from
the uncertainty of the Year 2000 readiness of third-party suppliers
and customers, the Company is unable to determine at this time whether
the consequences of Year 2000 failures will have a material impact on
the Company's results of operations, liquidity or financial condition.
The Year 2000 Project is expected to significantly reduce the
Company's level of uncertainty about the Year 2000 problem. The
Company believes that with the completion of the Project as scheduled
the possibility of significant interruptions of normal operations
should be reduced.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had working capital of approximately
$11,202,000 as compared to $11,738,000 at December 31, 1997 and $15,339,000 at
September 30, 1997. The decrease in working capital from December 31, 1997 to
September 30, 1998 is due to funding the Company's operating loss in the first
nine months offset by the extraordinary gain of $522,000 recorded by the Company
in connection with the early extinguishment of the New Heller Note. During this
period, the Company financed its capital expenditures principally through
internally generated funds and credit facilities.
The Company's interest payments to its secured lenders, BNY Financial Corp.
("BNY") and AIF II, L.P. ("AIF-II") scheduled for the period January 1, 1998
through January 31, 1998 were paid in kind pursuant to amendments to the
Company's loan agreements with such lenders. The Company's interest payments to
BNY and AIF-II scheduled for the period February 1, 1998 through August 3, 1998
were paid in cash on their due dates. On October 21, 1998, the Company entered
into amendments of its agreements with BNY and AIF-II providing that payment of
scheduled interest payments otherwise due to such lenders on November 3, 1998
and the scheduled principal payment of $300,000 otherwise due to BNY on November
3, 1998 would be deferred until February 1, 1999.
On January 29, 1998, the Company repaid in full all principal and interest of
the Company's debt obligations to Heller Financial, Inc. ("Heller").
On September 12, 1997, the Company entered into amendments of its note
agreements with BNY and AIF-II providing that scheduled interest accruing under
the BNY Note Agreement for the period February 1, 1996 through January 31, 1998
and under the AIF-II Note Agreement for the period November 1, 1995 through
January 31, 1998 was not and will not be paid in cash and instead shall be added
to principal and shall be payable on November 3, 2002.
The September 12, 1997 amendments to the Company's BNY and AIF-II
-17-
<PAGE>
Note Agreements provide that cash payments of scheduled interest to BNY and
AIF-II will resume on quarterly payment dates commencing May 4, 1998, and that
the Company must make principal payments to BNY of $15,000 on the last day of
each calendar quarter commencing December 31, 1997. In addition, the Company is
required to make annual principal payments to BNY in accordance with the
original amortization schedule of the BNY Note Agreement, commencing with a
$300,000 payment on November 3, 1998, which by agreement with BNY has been
deferred until February 1, 1999.
On May 15, 1998, the Company's operating subsidiaries renewed their working
capital credit facilities for the period through April 15, 1999. The working
capital facilities impose limitations on the level of borrowings at different
times during the year, require the operating subsidiaries to maintain certain
levels of net worth during the year, contain other covenants and reporting
requirements, and place certain limitations on the upstreaming of funds from the
operating subsidiaries to the Company. Depending upon the performance of the
Company's operating subsidiaries these covenants and requirements have been
amended, waived or changed from time to time; following completion of the third
quarter ended September 30, 1998, these covenants were amended to conform to the
performance of the Company's operating subsidiaries for the period ended
September 30, 1998 and their revised business plans for the period ending
December 31, 1998. The Company believes that if the operating subsidiaries
achieve their business plans, the applicable working capital covenants and other
requirements will be met and sufficient funds subject to the working capital
lender's permission might be up streamed to enable the Company to make scheduled
payments to BNY and AIF-II on February 1, 1999. No assurances can be given that
operating subsidiaries will achieve their business plans. If the operating
subsidiaries do not achieve the necessary working capital covenants, or the
working capital lender does not permit the upstreaming of funds in sufficient
amounts, or the Company otherwise did not have sufficient cash resources to make
scheduled payments to BNY and AIF-II on February 1, 1999 and on quarterly
payment dates thereafter, the Company would intend to discuss with BNY and
AIF-II the renegotiation of required payments and discuss with its working
capital lender the amendment of covenants and other requirements so as to be in
compliance with its agreements with such lenders. While BNY and AIF-II have in
the past granted consents to the payment of scheduled interest in kind rather
than in cash, and/or the deferral of interest payments and principal
amortization and the working capital lender has in the past granted amendments
of its covenants and other requirements, there are no assurances that the
Company will be able to obtain such consents in the future. If, under such
circumstances, the Company cannot obtain such consents or a
-18-
<PAGE>
renegotiation of payment schedules, the Company could, on February 1, 1999 and
on quarterly payment dates thereafter, be in default of its obligations to BNY
and AIF-II.
Effective July 15, 1997, ECI Sportswear, an indirect wholly owned subsidiary of
the Company, acquired substantially all of the assets of Davco Industries, Inc.
("Davco"), at that time a maker of mens' and boys activewear, swimwear,
loungewear and some sportswear proeucts sold under the "Perry Ellis America"
and/or "Perry Ellis" labels, and mens' sportswear sold under the "Jeffrey Banks"
label. The acquisition was accounted for as a purchase. The aggregate purchase
price paid by ECI Sportswear of $4,373,000 for such assets consisted of (a) the
issuance to Davco of 3,000,000 shares of restricted Common Stock of the Company
valued at $720,000 and (b) a contingent cash purchase price computed as the
pre-tax net income of the Davco apparel business as owned by ECI Sportswear from
the closing date through December 31, 1997 (subject to certain adjustments), but
not to exceed a maximum payment of $3,600,000. Such contingent cash amount is
payable subsequent to the issuance of the Company's December 31, 1997 audited
financial statements. On the closing date, ECI Sportswear paid to Davco $500,000
as an advance towards the contingent cash purchase price and ECI Sportswear paid
an additional advance of $81,000 following completion of ECI Sportswear's third
fiscal quarter ending September 30, 1997. The total contingent cash purchase
price payable to Davco, derived from ECI Sportswear's' December 31, 1997
financial statements, was $3,483,000. On April 10, 1998, the Company paid
$2,660,000 in respect of the contingent purchase price for the acquisition of
assets from Davco, after deducting advances previously paid of $581,000 and
reserves for purchase price adjustments of $242,000. ECI Sportswear's source of
funds for the cash payments of the purchase price were its internally generated
funds and working capital credit lines.
DEBT SERVICE AND CAPITAL NEEDS
The Company's long-term indebtedness consists of the debt obligations of the
Company to BNY Financial Corporation ("BNY") and AIF-II, L.P., a Delaware
limited partnership and an affiliate of Apollo Advisors, L.P. ("AIF II"). On
January 29, 1998, the Company repaid in full all of its remaining debt
obligations to Heller Financial, Inc. ("Heller"). Such payment amounted to
$1,128,000, inclusive of accrued interest through the date of repayment.
o On June 30, 1993, the Company entered into a Series A Junior Secured Note
Agreement with BNY, pursuant to which BNY received a $7 million note,
bearing interest at a rate of 7% per annum, with a final maturity date of
November 3, 2002. BNY shares with AIF II a first lien on the stock of ECI.
On September 12, 1997, the Company and BNY entered into an amendment of the
BNY Note Agreement providing that (1) scheduled interest accruing
-19-
<PAGE>
under the BNY Note Agreement for the period February 1, 1996 through
January 31, 1998 was not and will not be paid in cash and instead shall be
added to principal and shall be payable on November 3, 2002, (2) scheduled
interest under the BNY Note Agreement accruing for the periods commencing
February 1, 1998 will be made in cash on quarterly payment dates commencing
May 4, 1998 and (3) the principal on the BNY Note Agreement of $300,000
otherwise due November 3, 1997 shall be rescheduled and paid quarterly in
installments of $15,000 each on the last day of each calendar quarter
commencing on December 31, 1997, with any remaining balance due on November
3, 2002. The remaining principal of BNY's note is required to be paid in
five annual installments, payable on November 3 of each year commencing in
1998 as follows (by agreement with BNY, the 1998 principal payment will be
due on February 1, 1999):
YEAR AMOUNT
1998 $ 300,000
1999 500,000
2000 600,000
2001 1,100,000
2002 4,200,000
o In addition, on November 3, 2002, the Company is obligated to pay BNY
$1,042,000, representing the quarterly interest payments accruing for the
period February 1, 1996 through January 31, 1998, which were not and will
not be paid in cash and instead added to the principal of the BNY Note.
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 first lien
on the stock of ECI. On September 12, 1997, the Company and AIF-II entered
into an amendment of the AIF-II Note Agreement providing that (1) scheduled
interest accruing under the AIF-II Note Agreement for the period November
1, 1995 through January 31, 1998 was not and will not be paid in cash and
instead shall be added to principal and shall be payable on November 3,
2002 and (2) scheduled interest under the AIF-II Note Agreement accruing
for periods commencing February 1, 1998 will be made in cash on quarterly
payment dates commencing May 4, 1998. Principal of AIF-II's note is
required to be paid in two equal installments payable on November 3 in each
of 2001 and 2002.
In addition, on November 3, 2002, the Company is obligated to pay AIF-II
$2,502,000, representing the quarterly interest payments accruing for the
period November 1, 1995 through January 31, 1998, which were not and will
not be paid in cash and instead added to the principal of the AIF-II Note.
BNY and AIF-II will also share in mandatory prepayments based upon 50% of
certain "excess cash flows" of the Company as defined in the Company's note
agreements with BNY and AIF-II.
-20-
<PAGE>
On October 21, 1998, the Company entered into amendments of its agreements with
BNY and AIF-II providing that payment of scheduled interest payments otherwise
due to such lenders on November 3, 1998 and the scheduled principal payment of
$300,000 otherwise due to BNY on November 3, 1998 would be deferred until
February 1, 1999.
RESULTS OF OPERATIONS
NET INCOME
The Company reported net income of $2,638,000 and a net loss of $1,417,000 for
the three and nine month periods ended September 30, 1998 respectively, compared
to net income of $5,104,000 and $1,755,000, respectively for the three and nine
month periods ended September 30, 1997.
The decrease in profitability for the three month period was primarily due to
the reduction of revenues at ECI along with a corresponding reduction in margins
which were the result of unseasonably warm weather throughout the US which
adversely affected retailers and fall and winter related apparel companies
including outerwear companies. In addition, there was increase in interest
expense at ECI and ECI Sportswear due to increased borrowings against their
lines of credit.
The Company incurred a loss for the nine month period ended September 30, 1998
compared to a profit for the nine months ended September 30, 1997 primarily due
to the reduction of revenues at ECI along with a corresponding reduction in
margins which were the result of unseasonably warm weather throughout the US
which adversely affected retailers and fall and winter related apparel companies
including outerwear companies. This created additional borrowings against the
Company's line of credit resulting in increased interest expense which was
offset by an extraordinary gain of $522,000 recorded on the early extinguishment
of the New Heller Note, which was paid off on January 29, 1998.
REVENUE
The Company's revenues decreased from $44,402,000 during the three months ended
September 30, 1997 to $43,140,000 during the three months ended September 30,
1998. The revenue decrease of $1,262,000 was due to a decrease of $10,211,000 in
ECI's revenues offset by an increase of $8,949,000 in ECI Sportswear's revenues.
The reduction of revenues at ECI was due to several factors; a) the lackluster
performance of its "Perry Ellis America" division, b) a poor 1997 fall selling
season at many retailers and specialty stores who had carryover inventory and
therefore reduced their spring and fall 1998 purchases of ECI's outerwear
products and c) unseasonably warm weather throughout the US which adversely
affected retailers and fall and winter related apparel companies including
outerwear companies. The increase in ECI Sportswear's revenues was attributed to
a new licensed product line which has performed exceedingly well. ECI Sportswear
acquired the assets of Davco on July 15, 1997.
The Company's revenues increased from $64,085,000 during the nine months ended
September 30, 1997 to $80,963,000 during the nine months ended September 30,
1998. The revenue increase of $16,878,000 was primarily due to the increase of
ECI Sportswear's revenues by
-21-
<PAGE>
$26,124,000 in the current year. ECI Sportswear acquired the assets of Davco on
July 15, 1997 and its operating results are included for the entire nine month
period ended September 30, 1998. ECI Sportswear's revenues were also positively
impacted by a new licensed product line which has performed exceedingly well.
This was offset by a $9,246,000 decrease in ECI's revenues. The reduction of
revenues at ECI was due to several factors; a) the lackluster performance of its
"Perry Ellis America" division, b) a poor 1997 fall selling season at many
retailers and specialty stores who had carryover inventory and therefore reduced
their spring and fall 1998 purchases of ECI's outerwear products and c)
unseasonably warm weather throughout the US which adversely affected retailers
and fall and winter related apparel companies including outerwear companies.
COST OF SALES
Cost of Sales for the three months ended September 30, 1998 as a percentage of
revenue was 71.2% compared to 68.6% for the three months ended September 30,
1997. Cost of Sales were impacted by several factors; a) the lackluster
performance of its "Perry Ellis America" division, b) a poor 1997 fall selling
season at many retailers and specialty stores who had carryover inventory and
therefore reduced their spring and fall 1998 purchases of ECI's outerwear
products, c) unseasonably warm weather throughout the US which adversely
affected retailers and fall and winter related apparel companies including
outerwear companies and d) sales to certain private label customers, who used
ECI this year as a direct merchandise supplier; last year these private label
customers used ECI as a sourcing agent which generated commission income for ECI
without reflecting the corresponding revenue. This year as a direct merchandise
supplier ECI is required to reflect both the revenue and related margin
components which increases the Cost of Sales as a percentage of revenue.
Cost of Sales for the nine months ended September 30, 1998 as a percentage of
revenue was 72.6% compared to 68.2% for the nine months ended September 30,
1997. Cost of Sales were impacted by several factors; a) the lackluster
performance of its "Perry Ellis America" division, b) a poor 1997 fall selling
season at many retailers and specialty stores who had carryover inventory and
therefore reduced their spring and fall 1998 purchases of ECI's outerwear
products, c) unseasonably warm weather throughout the US which adversely
affected retailers and fall and winter related apparel companies including
outerwear companies and d) sales to certain private label customers, who used
ECI this year as a direct merchandise supplier; last year these private label
customers used ECI as a sourcing agent which generated commission income for ECI
without reflecting the corresponding revenue. This year as a direct merchandise
supplier ECI is required to reflect both the revenue and related margin
components which increases the Cost of Sales as a percentage of revenue.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and Administrative expenses as a percentage of revenues for the three
and nine month periods ended September 30, 1998 were 18.9% and 25.5%
respectively, compared to 17.1% and 25.9 for the three and
-22-
<PAGE>
nine month periods ended September 30, 1997, respectively. The increase in
Selling and Administrative expenses as a percentage of revenue for the three
month period ended September 30, 1998 as compared to the three month period
ended September 30, 1997 was due primarily to the increase in revenues at ECI
Sportswear along with a corresponding increase in its fixed and variable
expenses. The decrease in Selling and Administrative expenses as a percentage of
revenue for the nine month period ended September 30, 1998 as compared to the
nine month period ended September 30, 1997 was due primarily to the inclusion of
revenue from private label customers, who used ECI this year as a direct
merchandise supplier decreasing the percentage this year as compared to last
year when ECI had the same fixed expenses but no related revenue.
Selling and Administrative expenses for the three months ended September 30,
1998 were $8,149,000 compared to $7,596,000 for the three months ended September
30, 1997, an increase of $553,000 or 7.3%. The increase in Selling and
Administrative expenses was due primarily to the increase in revenues at ECI
Sportswear along with a corresponding increase in its fixed and variable
expenses. This was offset by a decrease in Selling and Administrative expenses
at ECI due to a decrease in "Perry Ellis America" sales which resulted in lower
contractual advertising obligations and lower salesmans commissions.
Selling and Administrative expenses for the nine months ended September 30, 1998
were $20,643,000 compared to $16,580,000 for the nine months ended September 30,
1997, an increase of $4,063,000 or 24.5%. The increase in Selling and
Administrative expenses was due to the inclusion of ECI Sportswear's Selling and
Administrative expenses of $6,186,000. ECI Sportswear acquired the assets of
Davco on July 15, 1997 and its operating results are included for the entire
nine month period ended September 30, 1998. This offset a decrease in Selling
and Administrative expenses at ECI of $2,009,000 due primarily to a decrease in
"Perry Ellis America" sales which resulted in lower contractual advertising
obligations and lower salesmans commissions.
INTEREST AND DEBT EXPENSE
Interest and debt expense for the three month period ended September 30, 1998
increased by $616,000 or 65.5% compared to the three month period ended
September 30, 1997. This increase is due to the inclusion of new borrowings of
ECI Sportswear in 1998, since the acquisition of Davco on July 15, 1997 along
with an increase in interest expense at ECI due to increased borrowings against
its line of credit.
Interest and debt expense for the nine month period ended September 30, 1998
increased by $1,673,000 or 87.3% compared to the nine month period ended
September 30, 1997. This increase is due to the inclusion of ECI Sportswear and
its related borrowings for the entire period, since the acquisition of Davco on
July 15, 1997, along with an increase in interest expense at ECI due to
increased borrowings against its line of credit.
-23-
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
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
At the Annual Meeting of Stockholders of Aris Industries, Inc., held on July 9,
1998, all of the current five members of the Board of Directors, Charles S.
Ramat, John Hannan, Edward M. Yorke, Robert A. Katz and David N. Schreiber, were
re-elected by the stockholders. The votes were as follows:
Charles S. Ramat: 13,585,066 for; 16,203 against.
John Hannan: 13,585,658 for; 15,611 against.
Edward M. Yorke: 13,585,648 for; 15,621 against.
Robert A. Katz: 13,585,628 for; 15,641 against.
David N. Schreiber: 13,585,578 for; 15,691 against.
In addition, at such Annual Meeting of Stockholders, the other three proposals
were approved by the stockholders with votes as follows:
Ratification of the appointment of Deloitte & Touche LLP, as
independent auditors of the Company for the fiscal year ending
December 31, 1998; 13,591,475 shares voted in favor, 6,097
against, and 3,697 abstentions.
Ratification of the amendment of the Aris 1993 Stock Incentive
Plan, to increase the shares reserved for grants and awards under
such Plan from 1,200,000 to 3,500,000; 11,550,601 shares voted in
favor, 69,504 against, and 7,787 abstentions.
Ratification of the grant of 750,000 stock options (subject to
achievement of vesting requirements) under the Aris 1993 Stock
Incentive Plan to Charles S. Ramat, Chairman of the Board, Chief
Executive Officer and President of Aris; 11,550,033 shares voted
in favor, 67,089 against, and 10,170 abstentions.
ITEM 5. OTHER INFORMATION
NONE
-24-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - NONE
(b) Reports on Form 8-K - NONE
-25-
<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: November 12, 1998 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
-26-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 827,000
<SECURITIES> 0
<RECEIVABLES> 42,072,000
<ALLOWANCES> 0
<INVENTORY> 39,234,000
<CURRENT-ASSETS> 1,649,000
<PP&E> 6,322,000
<DEPRECIATION> (5,035,000)
<TOTAL-ASSETS> 107,339,000
<CURRENT-LIABILITIES> 72,580,000
<BONDS> 17,085,000
<COMMON> 150,000
0
0
<OTHER-SE> 16,251,000
<TOTAL-LIABILITY-AND-EQUITY> 107,339,000
<SALES> 80,963,000
<TOTAL-REVENUES> 80,963,000
<CGS> 22,193,000
<TOTAL-COSTS> 22,193,000
<OTHER-EXPENSES> 20,643,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,590,000
<INCOME-PRETAX> (2,040,000)
<INCOME-TAX> (101,000)
<INCOME-CONTINUING> (1,939,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 522,000
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