<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1995
----------------------------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________________ to _____________________
COMMISSION FILE NUMBER: 04954
APPAREL AMERICA, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-2648900
- ------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1175 State Street
New Haven, Connecticut 06511
- ----------------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
(203) 777-5531
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code
Not Applicable
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods 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
--- ---
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $.05 par value -- 7,389,554 shares as of June 9, 1995.
<PAGE>
INDEX
-----
FORM 10-Q
APPAREL AMERICA, INC.
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
- ------------------------------ --------
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets -
April 30, 1995 and July 31, 1994 3 - 4
Condensed Statements of Income -
Nine Months Ended April 30, 1995 and 1994 5
Condensed Statements of Income -
Three Months Ended April 30, 1995 and 1994 6
Condensed Statements of Cash Flows -
Nine Months Ended April 30, 1995 and 1994 7
Condensed Statement of Stockholders'
Deficit - Nine Months Ended April 30, 1995 8
Notes to Condensed Financial Statements -
April 30, 1995 9 - 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 15
PART II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES
- ---------- 17
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
APPAREL AMERICA, INC.
CONDENSED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
ASSETS April 30, July 31,
1995 1994
----------------- -----------------
(Unaudited) (Note)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 22 $ 80
Accounts receivable 230 220
Due from factor - net 2,507 4,418
Inventories - Note B 9,003 2,981
Due from affiliates 273 310
Prepaid expenses and other current assets 59 293
Net assets of discontinued operations - Note C -- 334
------- -------
TOTAL CURRENT ASSETS 12,094 8,636
PROPERTY AND EQUIPMENT -- at cost
Machinery and equipment 4,273 3,698
Leasehold improvements 2,406 2,262
------- -------
6,679 5,960
Less accumulated depreciation and amortization 5,024 4,751
------- -------
1,655 1,209
INTANGIBLES AND OTHER ASSETS:
Cost in excess of net assets acquired, less accumulated
amortization of $998 and $878 4,687 4,807
Other assets 10 12
------- -------
4,697 4,819
------- -------
$18,446 $14,664
======= =======
NOTE: The balance sheet at July 31, 1994 has been derived from the audited financial
statements at that date.
See notes to condensed financial statements
</TABLE>
3
<PAGE>
APPAREL AMERICA, INC.
CONDENSED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT April 30, July 31,
1995 1994
----------------- -----------------
(Unaudited) (Note)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $2,732 $843
Current portion of long-term debt -- Note D 1,449 1,315
Current portion of deferred interest -- Note D 604 702
Other current liabilities and accrued expenses 797 698
Accrued compensation 904 684
Due to affiliates 506 447
----------------- -----------------
TOTAL CURRENT LIABILITIES 6,992 4,689
LONG-TERM DEBT, LESS CURRENT PORTION -- NOTE D 6,823 7,430
DEFERRED INTEREST -- LONG TERM PORTION -- NOTE D 1,313 1,755
DIVIDENDS PAYABLE -- NOTE F 2,160 1,755
SUBORDINATED NOTE PAYABLE -- NOTE E 1,000 1,000
$9 CUMULATIVE REDEEMABLE PREFERRED STOCK -- NOTE F 5,738 5,583
STOCKHOLDERS' DEFICIT -- Notes D and F
$12 Preferred Stock, Series E - par value $.05 per share (stated value $100
per share); authorized 300,000 shares; issued and
outstanding 163,833 shares 16,383 16,383
$12 Preferred Stock, Series F - par value $.05 per share (stated
value $100 per share); authorized 100,000 shares; issued and
outstanding 70,221 shares 7,022 7,022
$10 Preferred Stock, Series G - par value $.05 per share (stated
value $100 per share); authorized 200,000 shares; issued and
outstanding 170,793 shares 17,079 17,079
Common stock, par value $.05 per share; authorized 15,000,000
shares; issued 7,410,218 and 7,410,213 371 371
Additional paid-in capital 21,706 21,706
Deficit (40,180) (42,148)
Less:
Treasury stock-at cost - 20,665 shares (129) (129)
Acquisition cost in excess of historical basis of net assets
acquired from an affiliate (27,832) (27,832)
----------------- -----------------
TOTAL STOCKHOLDERS' DEFICIT (5,580) (7,548)
----------------- -----------------
$18,446 $14,664
================= =================
NOTE: The balance sheet at July 31, 1994 has been derived from the audited financial
statements at that date.
See notes to condensed financial statements.
</TABLE>
4
<PAGE>
APPAREL AMERICA, INC.
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Nine Months Ended
April 30,
--------------------------------------
1995 1994
--------------------------------------
<S> <C> <C>
Net sales $30,038 $26,123
Cost of goods sold 20,565 18,185
----------------- -----------------
Gross profit 9,473 7,938
Operating expenses
Selling, design and promotion 2,448 2,113
Shipping and warehousing 792 692
General and administrative 2,697 2,573
----------------- -----------------
Total operating expenses 5,937 5,378
----------------- -----------------
Operating income 3,536 2,560
Other non-operating charges:
Interest and financing costs - net 582 1,311
Other expense -- Note G 412 --
----------------- -----------------
994 1,311
----------------- -----------------
Income before provision for income taxes
and extraordinary item 2,542 1,249
Provision for income taxes 15 15
----------------- -----------------
Net income before extraordinary item 2,527 1,234
Extraordinary income-Note E - 266
----------------- -----------------
Net income 2527 1,500
Preferred stock dividends and accretion of
redeemable preferred stock 559 405
----------------- -----------------
Net income applicable to common stockholders $1,968 $1,095
================= =================
Income per common share:
Income before extraordinary item $0.27 $0.11
Income from extraordinary item -- 0.04
----------------- -----------------
Net income per common share $0.27 $0.15
================= =================
Average number of common shares outstanding 7,389,552 7,389,541
================= =================
See notes to condensed financial statements.
</TABLE>
5
<PAGE>
APPAREL AMERICA, INC.
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
--------------------------------------
1995 1994
--------------------------------------
<S> <C> <C>
Net sales $16,967 $15,141
Cost of goods sold 12,130 10,396
----------------- -----------------
Gross profit 4,837 4,745
Operating expenses
Selling, design and promotion 1,048 879
Shipping and warehousing 319 259
General and administrative 997 987
----------------- -----------------
Total operating expenses 2,364 2,125
----------------- -----------------
Operating income 2,473 2,620
Other non-operating charges:
Interest and financing costs - net 310 424
----------------- -----------------
310 424
----------------- -----------------
Income before provision for income taxes 2,163 2,196
Provision for income taxes 5 5
----------------- -----------------
Net income 2,158 2,191
Preferred stock dividends and accretion of
redeemable preferred stock 180 135
----------------- -----------------
Net income applicable to common stockholders $1,978 $2,056
================= =================
Net income per common share $0.27 $0.28
================= =================
Average number of common shares outstanding 7,389,553 7,389,542
================= =================
See notes to condensed financial statements.
</TABLE>
6
<PAGE>
APPAREL AMERICA, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
April 30,
------------------------------------
1995 1994
------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities ($766) $771
----------------- -----------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (719) (115)
----------------- -----------------
Net cash used in investing activities (719) (115)
----------------- -----------------
FINANCING ACTIVITIES:
Increase (decrease) in due from factor 1,911 (1,768)
Payments on long-term debt (1,040) (400)
Increase in long-term debt 556 --
----------------- -----------------
Net cash provided by (used in) financing activities 1,427 (2,168)
----------------- -----------------
DECREASE IN CASH AND CASH EQUIVALENTS (58) (1,512)
Cash and cash equivalents, at beginning of period 80 1,651
----------------- -----------------
Cash and cash equivalents, at end of period $22 $139
================= =================
</TABLE>
See notes to condensed financial statements.
7
<PAGE>
APPAREL AMERICA, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' DEFICIT (UNAUDITED)
(in thousands, except share data)
<TABLE>
<CAPTION>
Preferred Common
Stock Stock
Issued Issued Additional
--------------------------- ---------------------------- Paid-In
Shares Amount Shares Amount Capital Deficit
------------- ------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, at August 1, 1994 404,847 $40,484 7,410,213 $371 $21,706 ($42,148)
Fractional shares 5
Net income for the nine months
ended April 30, 1995 2,527
Dividends and accretion of $9 Redeemable
Preferred Stock (559)
------------- ------------- -------------- ------------ ------------ ------------
Balance, at April 30, 1995 404,847 $40,484 7,410,218 $371 $21,706 ($40,180)
============= ============= ============== ============ ============ ============
</TABLE>
See notes to condensed financial statements.
8
<PAGE>
APPAREL AMERICA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1995
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with the generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended July 31, 1994.
The operations of the Company's sole division, Robby Len Fashions, are
significantly affected by seasonal influences. The results for the nine month
period ended April 30, 1995 are not necessarily indicative of the results that
may be expected for a full fiscal year.
NOTE B--INVENTORIES
The components of inventory consist of the following:
<TABLE>
April 30, July 31,
1995 1994
----------- ----------
(000's omitted)
<S> <C> <C>
Raw materials $ 2,675 $ 1,653
Work in process 2,069 350
Finished goods 4,259 978
---------- ---------
$ 9,003 $ 2,981
========== =========
</TABLE>
9
<PAGE>
APPAREL AMERICA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
APRIL 30, 1995
NOTE C--DISCONTINUED OPERATIONS
In November 1992, the Company announced plans for the discontinuance of its
Mayfair division. By January 31, 1993 the Company had ceased substantially all
operations at its Mayfair design, showroom and manufacturing and distribution
facilities. Net assets of the Mayfair discontinued operations as of July 31,
1994 consisted of property, plant and equipment. All Mayfair assets had been
sold by October 31, 1994.
NOTE D--LONG TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt consists of the following:
<TABLE>
April 30, July 31,
1995 1994
----------- ----------
(000's omitted)
<S> <C> <C>
Term loan payable $ 7,855 $ 8,745
Litigation settlement (see Note G) 273 ---
Equipment loan payable $ 144 ---
-------- ---------
$ 8,272 $ 8,745
Less: current portion (1,449) (1,315)
--------- ---------
$ 6,823 $ 7,430
======== =========
</TABLE>
Effective July 31, 1994, the Company and its lenders entered into a Fifth
Amended and Restated Credit Agreement which, among other things, extended the
maturity dates of the loans, modified the payment terms and interest rates and
reduced the outstanding principal amount of the debt by a total of $4,755,000.
Accounting for the amended agreement was based on Statement of Financial
Accounting Standards No. 15, "Accounting by Debtors and Creditors for Troubled
Debt Restructurings." Accordingly, the carrying amount of the debt was reduced
to the equivalent of the total future cash payments (approximately $8,745,000 of
principal and $2,457,000 of estimated future interest), resulting in the
recognition of an extraordinary gain of $4,165,000 in the fourth quarter of
fiscal year 1994. The estimated future interest of $2,457,000 is to be amortized
against interest expense over the term of the credit agreement. For the nine
months ended April 30, 1995, amortization of deferred interest amounted to
$540,000.
The amended agreement contains various covenants and limitations on a) the
creation of new debt, b) the amortization of the subordinated debt (see Note
E) and the redemption of the cumulative redeemable preferred stock (see Note
F), c) the level of capital expenditures, and d) dividends and other
restricted payments, as defined. The amended agreement also contains certain
mandatory repayment provisions.
In April 1995, the Company purchased certain computerized pattern and marker
making equipment for approximately $193,000. The Company obtained financing for
$144,000 of such purchase price. Under the terms of the financing, the Company
is to make equal principal payments of $4,000 per month for a three year period
and will pay interest equal to the prime rate plus 2% on the unpaid principal
balance.
10
<PAGE>
APPAREL AMERICA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
APRIL 30, 1995
NOTE D--LONG TERM DEBT AND CREDIT ARRANGEMENTS (CONTINUED)
The Company is party to a $15,000,000 factoring agreement whereby the Company
assigns substantially all accounts receivable to the factor for advances up to
80% of unmatured accounts receivable and 35% of eligible inventories. The
assignment is on a recourse basis, whereby the Company assumes all credit risk
associated with the factored receivables. At April 30, 1995 the balance due from
factor of $2,507,000 is net of $9,538,000 of loan advances. The factoring
agreement may be terminated by the factor at any time upon sixty days' prior
written notice. The Company may terminate the agreement as of January 1, 1996,
or January 1 in any year thereafter, upon written notice sixty days prior to
termination date.
NOTE E--SUBORDINATED NOTE
In May 1989, the Company issued to a related party a $1,000,000 subordinated
promissory note which bore interest at a rate of 9% per annum, payable
semi-annually, with an original maturity of December 31, 1993. In connection
with one of the prior amendments to the credit agreement, the Company amended
the subordinated note effective December 15, 1993. Under the terms of the
amended subordinated note, a) the maturity was extended from December 31, 1993
to June 30, 1998, b) the interest rate was changed from 9% to 8% and c) accrued
and unpaid interest of $266,250 was forgiven.The subordinated promissory note is
subject to certain restricted prepayment covenants and is subordinate to payment
in full of all senior debt.
NOTE F -- CUMULATIVE REDEEMABLE PREFERRED STOCK
The Company's $9 Cumulative Redeemable Preferred Series B Stock has a redemption
value of $100 per share and is subject to mandatory semi-annual redemption
requirements commencing on June 30, 1995, with a final redemption on December
31, 1997. Such redemptions are subject to certain restricted payment covenants
of senior debt. The shares were issued at a discount which is being amortized
over the redemption period. Dividends accrue on the Series B Preferred Stock at
the rate of $540,000 per annum and are subject to certain restricted payment
covenants of senior debt. At April 30, 1995, such accrued dividends amounted to
$2,160,000.
NOTE G - OTHER EXPENSE
For the nine months ended April 30, 1995, other expense of $412,000 is composed
of expenses related to the settlement of certain litigation to which the Company
was a party. Under the terms of the $460,000 settlement, which involved a former
executive of the discontinued Mayfair division, the Company made an initial
payment of $150,000 in December 1994 and will be obligated to a) four payments
of $50,000 each on June 30 and December 31 of 1995 and 1996 and b) a $50,000
payment on June 30, 1997 and a final payment of $60,000 on December 31, 1997.
The remaining installment payments, which total $310,000 in the aggregate, have
been discounted to reflect their present value at April 30, 1995.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
NINE MONTHS ENDED APRIL 30, 1995
Net sales increased by $3,915,000, or 15.0%, to $30,038,000 for the nine months
ended April 30, 1995 as compared to $26,123,000 for the nine months ended April
30, 1994. The increase in sales is primarily attributable to an approximate 11%
increase in unit volume coupled with an approximate 4% increase in unit selling
prices. The increase is principally related to the introduction of two new
swimwear product lines: 1) the "Sand Dollar" cover - up and beachwear line and
2) the "Lenee" line, which is sold to national and regional discount chains.
Gross profit increased to 31.5% for the nine months ended April 30, 1995 as
compared to 30.4% for the nine months ended April 30, 1994. This increase is
primarily attributable to the increased absorption of manufacturing and
operating overhead as a result of increased production requirements necessary to
fulfill higher levels of sales orders and commitments as compared to the prior
year period. Additionally, the increase in unit selling prices also contributed
to the increase in gross profit. This increase was partially offset, however, by
a change in product mix relating to increases associated with the "Sand Dollar"
and "Lenee" product lines, both of which are sold at lower gross profit margins
than Robby Len "branded" swimwear.
Operating expenses increased by $559,000, or 10.4%, to $5,937,000 for the nine
months ended April 30, 1995 as compared to $5,378,000 for the nine months ended
April 30, 1994. Increases in certain variable selling, shipping and
administrative expenses associated with increased sales volume were primarily
responsible for the operating expense increase. In addition, certain
inflationary increases in salaries, supplies and other operating overhead costs
contributed to the increase in operating expenses. A reduction in outside
consulting fees of approximately $140,000 partially offset the increases in
operating expenses.
The above activities resulted in an increase in operating income of $976,000, or
38.1%, to $3,536,000 for the nine months ended April 30, 1995 as compared to
$2,560,000 for the nine months ended April 30, 1994.
Interest and financing costs declined by $729,000, or 55.6%, to $582,000 for the
nine months ended April 30, 1995 as compared to $1,311,000 for the prior year
period. Primary factors contributing to this decrease were reduced term debt
borrowing levels principally related to term debt forgiveness associated with
the Fifth Amended and Restated Credit Agreement effective July 31, 1994 and the
accounting for future estimated interest payments as of that date. An increase
in working capital loan interest of approximately $200,000 (due to increased
borrowing levels and increased interest rates compared to the prior year period)
partially offset the decrease in interest expense.
Other expense of $412,000 is related to the settlement of certain litigation
described in Note G to the condensed financial statements.
The aggregate effect of the above activities resulted in an increase in income
before provision for income taxes and extraordinary item of $1,293,000, or
103.5%, to $2,542,000 for the nine months ended April 30, 1995 as compared to
income before provision for income taxes and extraordinary item of $1,249,000
for the nine months ended April 30, 1994.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
THREE MONTHS ENDED APRIL 30, 1995
Net sales for the three months ended April 30, 1995 increased by $1,826,000, or
12.1%, to $16,967,000 as compared to $15,141,000 for the three months ended
April 30, 1994. An increase in unit volume of approximately 15% was partially
affected by a decrease in unit selling prices of approximately 3%. The unit
volume increase is principally attributable to the introduction of the "Sand
Dollar" beachwear and "Lenee" discount chain product lines. The decrease in
unit selling prices is also primarily related to the increased sales of the
"Sand Dollar" and "Lenee" product lines as these products are sold at lower
price points than Robby Len "branded" swimwear.
Gross profit declined to 28.5% for the three months ended April 30, 1995 from
31.3% for the three months ended April 30, 1994. The primary factor
contributing to this decline is a change in product mix related to increased
sales in the "Sand Dollar" and "Lenee" divisions. These product areas carry
lower selling prices and reduced gross profit margins than traditional Robby Len
"branded" swimwear.
Operating expense increased by $239,000, or 11.2%, to $2,364,000 for the three
months ended April 30, 1995 as compared to $2,125,000 for the prior year period.
This increase is related primarily to certain variable selling, shipping and
administrative expense increases associated with higher sales volume levels.
Additionally, inflationary increases in certain operating salaries, supplies and
other operating overhead expenses also contributed to the increase in operating
expenses.
The above activities resulted in a decline in operating income of $147,000, or
5.6%, to $2,473,000 for the three months ended April 30, 1995 as compared to
$2,620,000 for the three months ended April 30, 1994.
For the three months ended April 30, 1995, interest and financing costs
decreased by $114,000, or 26.9%, to $310,000 as compared to $424,000 for the
prior year period. Reduced term indebtedness (principally related to debt
forgiveness associated with the Fifth Amended and Restated Credit Agreement
effective July 31, 1994) and the accounting for future interest payments on such
term debt were primary factors contributing to this decrease. Partially
offsetting this decrease was an approximate $100,000 increase in working capital
loan interest. This increase was due primarily to increased interest rates as
well as increased borrowing levels necessary to finance additional inventory
requirements related to sales increases.
The aggregate of the above activities resulted in income before provision for
income taxes and extraordinary item of $2,163,000 for the three months ended
April 30, 1995. This represented a decline of $33,000, or 1.5%, as compared to
income before provision for income taxes and extraordinary item of $2,196,000
for the three months ended April 30, 1994.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
The ratio of current assets to current liabilities was 1.73 to 1.00 at April 30,
1995 as compared to 1.84 to 1.00 at July 31, 1994. Working capital increased by
$1,155,000 to $5,102,000 at April 30, 1995 as compared to $3,947,000 at July 31,
1994. This increase in working capital is primarily attributable to the net
income for the period which was partially offset by the reduction of long-term
debt from proceeds related to the sale of the Company's Hamburg, PA facility
(from its discontinued Mayfair division).
The Company's working capital requirements are affected significantly by the
highly seasonal nature of Robby Len Fashions, its sole operating division. As a
leading manufacturer of women's swimwear, Robby Len builds inventory during the
first five months of the fiscal year (August - December) in order to meet its
shipping requirements in January through June (approximately 80% of annual sales
are shipped in this time period). The $6,022,000 increase in inventory,
$1,911,000 reduction in the due from factor balance, and $1,889,000 increase in
accounts payable and accrued expenses for the nine months ended April 30, 1995
are attributable to the seasonality of the business. The $766,000 of net cash
used in operating activities for the nine months ended April 30, 1995 is
primarily reflected in the changes in inventory, due from factor and accounts
payable and accrued expenses.
The Company's investing activities consist primarily of purchases of machinery
and equipment. During the nine months ended April 30, 1995, the Company
purchased computerized fabric cutting equipment at a cost of approximately
$300,000, which was financed primarily through a loan from the Company's factor,
as well as approximately $193,000 of computerized pattern making and grading
equipment. This equipment was financed by the wife of the Chairman of the
Board and Chief Executive Officer of the Company on terms and conditions
similar to the equipment financed by the Company's factor. See Note D to the
condensed financial statements for further information on this equipment
financing. The remaining $226,000 of capital expenditures for the period
(primarily related to leasehold improvements necessary for the installation of
the computer cutting equipment) were financed by internally generated funds.
The Company expects to finance its remaining capital expenditures in the next
twelve months through internally generated funds or short-term borrowings.
The Company's primary ongoing cash needs are for working capital requirements,
capital expenditures and term debt amortization. The two present sources for the
Company's liquidity needs are internally generated funds and short-term
borrowing available under its factoring agreement (see Note D to the condensed
financial statements). Through this agreement, the Company finances its
inventory and receivables build-up during the first five months of the fiscal
year and repays these borrowings over the remainder of the fiscal year. The
outstanding loan advance balance under the factor agreement at April 30, 1995
was $9,538,000. The balance due from factor net of loan advances was $2,507,000
at April 30, 1995.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
As discussed in Note D to the condensed financial statements, the Company
entered into a Fifth Amended and Restated Credit Agreement effective July 31,
1994. Among other things, the amended agreement extended the maturity of the
loans from 1998 to 2001, modified interest rates and payment terms and
discharged approximately $4,755,000 of the outstanding principal balance. The
amended agreement has enhanced the capital structure of the Company and has
resulted in a significant reduction in the service of the Company's term debt
and related interest obligations.
Management believes that the current financial resources available to the
Company (short-term borrowing under the factor agreement and funds from
operations) are expected to be adequate to meet its foreseeable liquidity
requirements, including scheduled repayments of term indebtedness, in the next
twelve months.
15
<PAGE>
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company was a party to certain litigation to which a settlement was reached
in December 1994. For further information relating to this settlement refer to
Note G to the condensed financial statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits -- none
b) Reports on Form 8-K -- none
16
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
APPAREL AMERICA, INC.
------------------------------
Registrant
Date JUNE 13, 1995 /S/ FREDERICK M. D'AMATO
----------------- ----------------------------------------
Frederick M. D'Amato, Vice President - Finance,
both on behalf of the Registrant and as its
Principal Financial Officer
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED BALANCE SHEET AS OF APRIL 30, 1995 AND THE CONDENSED STATEMENT OF
INCOME FOR THE NINE MONTHS ENDED APRIL 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> APR-30-1995
<CASH> 22
<SECURITIES> 0
<RECEIVABLES> 230
<ALLOWANCES> 199
<INVENTORY> 9,003
<CURRENT-ASSETS> 12,094
<PP&E> 6,679
<DEPRECIATION> 5,024
<TOTAL-ASSETS> 18,446
<CURRENT-LIABILITIES> 6,992
<BONDS> 11,296
<COMMON> 371
5,738
40,484
<OTHER-SE> (46,435)
<TOTAL-LIABILITY-AND-EQUITY> 18,446
<SALES> 30,038
<TOTAL-REVENUES> 30,038
<CGS> 20,565
<TOTAL-COSTS> 20,565
<OTHER-EXPENSES> 6,272
<LOSS-PROVISION> 77
<INTEREST-EXPENSE> 582
<INCOME-PRETAX> 2,542
<INCOME-TAX> 15
<INCOME-CONTINUING> 2,527
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,527
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
