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, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 04954
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APPAREL AMERICA, INC.
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(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
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Registrant's telephone number, including area code
Not Applicable
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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
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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 -- 7,689,563 shares as of June 6, 1996.
<PAGE>
INDEX
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FORM 10-Q
APPAREL AMERICA, INC.
Part I. Financial Information Page No.
------------------------------ --------
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets -
April 30, 1996 and July 31, 1995 3 - 4
Condensed Statements of Income -
Nine Months Ended April 30, 1996 and 1995 5
Condensed Statements of Income -
Three Months Ended April 30, 1996 and 1995 6
Condensed Statements of Cash Flows -
Nine Months Ended April 30, 1996 and 1995 7
Condensed Statement of Stockholders'
Deficit - Nine Months Ended April 30, 1996 8
Notes to Condensed Financial Statements -
April 30, 1996 9 - 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13 - 15
Part II. Other Information
---------------------------
Item 4. Submission of Matters to a Vote of Security
Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
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<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,
1996 1995
--------- ----------
(Unaudited) (Note)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $7 $29
Accounts receivable - net 16,397 463
Due from factor - net -- Note C -- 2,249
Inventories -- Note B 12,068 5,517
Due from affiliates 202 256
Prepaid expenses and other current assets 114 307
------- -------
TOTAL CURRENT ASSETS 28,788 8,821
PROPERTY AND EQUIPMENT -- at cost
Machinery and equipment 4,657 4,320
Leasehold improvements 2,531 2,420
------- -------
7,188 6,740
Less accumulated depreciation and amortization 5,480 5,123
------- -------
1,708 1,617
INTANGIBLES AND OTHER ASSETS:
Trademark, less accumulated
amortization of $85 -- Note C 1,615 --
Cost in excess of net assets acquired, less
accumulated amortization of $1,156 and $1,037 4,528 4,647
Other assets 13 10
------- -------
6,156 4,657
------- -------
$36,652 $15,095
======= =======
</TABLE>
NOTE: The balance sheet at July 31, 1995 has been derived from the audited
financial statements at that date.
See notes to condensed financial statements
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,
1996 1995
------------ -----------
(Unaudited) (Note)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt -- Note C $1,053 $1,520
Current portion of deferred interest -- Note C 481 573
Current portion of sub. note -- Note D 50 --
Accounts payable 3,232 1,366
Loan payable - revolver -- Note C 17,297 --
Other current liabilities and accrued expenses 823 690
Accrued compensation 971 859
Due to affiliates -- 525
------------ -----------
TOTAL CURRENT LIABILITIES 23,907 5,533
LONG-TERM DEBT, LESS CURRENT PORTION -- NOTE C 7,091 6,002
DEFERRED INTEREST --LONG TERM PORTION -- NOTE C 831 1,182
DIVIDENDS PAYABLE -- NOTE E 1,575 1,339
SUBORDINATED NOTE PAYABLE -- NOTE D 512 1,000
------------ -----------
TOTAL LIABILITIES 33,916 15,056
------------ -----------
$9 CUMULATIVE REDEEMABLE PREFERRED STOCK -- NOTE E 3,433 3,372
$8.50 CUMULATIVE REDEEMABLE PREFERRED STOCK -- NOTE E 1,118 1,165
STOCKHOLDERS' DEFICIT -- Notes E 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 30,000,000
shares; issued 7,710,228 and 7,410,223 386 371
Additional paid-in capital 23,803 23,803
Deficit (38,527) (41,195)
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 (1,815) (4,498)
------------ -----------
$36,652 $15,095
============ ===========
</TABLE>
NOTE: The balance sheet at July 31, 1995 has been derived from the audited
financial statements at that date.
See notes to condensed financial statements.
4
<PAGE>
APPAREL AMERICA, INC.
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except share and per share data)
Nine Months Ended
April 30,
---------------------------
1996 1995
------------ -----------
Net sales $40,394 $30,038
Cost of goods sold 29,195 20,565
Gross profit 11,199 9,473
------------ -----------
Operating expenses
Selling, design and promotion 3,474 2,448
Shipping and warehousing 1,271 792
General and administrative 2,943 2,697
------------ -----------
Total operating expenses 7,688 5,937
------------ -----------
Operating income 3,511 3,536
Other non-operating charges:
Interest and financing costs - net 993 582
Other expense -- Note G -- 412
------------ -----------
993 994
------------ -----------
Income before provision for income taxes
and extraordinary item 2,518 2,542
Provision for income taxes 15 15
------------ -----------
Net income before extraordinary item 2,503 2,527
Extraordinary income -- Note D 550 --
------------ -----------
Net income 3,053 2,527
Preferred stock dividends and accretion on
redeemable preferred stock 385 559
------------ -----------
Net income applicable to common stockholders $2,668 $1,968
============ ===========
Income per common share -- Note A:
Income before extraordinary item $0.19 $0.27
Income from extraordinary item $0.05 --
------------ -----------
Net income per common share $0.24 $0.27
============ ===========
Average number of common shares outstanding 10,923,906 7,389,552
============= ===========
See notes to condensed financial statements.
5
<PAGE>
APPAREL AMERICA, INC.
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except share and per share data)
Three Months Ended
April 30,
---------------------------
1996 1995
------------ -----------
Net sales $23,518 $16,967
Cost of goods sold 17,198 12,130
------------ -----------
Gross profit 6,320 4,837
Operating expenses
Selling, design and promotion 1,555 1,048
Shipping and warehousing 563 319
General and administrative 1,100 997
------------ -----------
Total operating expenses 3,218 2,364
------------ -----------
Operating income 3,102 2,473
Other non-operating charges:
Interest and financing costs - net 459 310
------------ -----------
459 310
------------ -----------
Income before provision for income taxes 2,643 2,163
Provision for income taxes 5 5
------------ -----------
Net income 2,638 2,158
Preferred stock dividends and accretion on
redeemable preferred stock 121 180
------------ -----------
Net income applicable to common stockholders $2,517 $1,978
============ ===========
Income per common share -- Note A $0.23 $0.27
============ ===========
Average number of common shares outstanding 10,879,423 7,389,553
============ ===========
See notes to condensed financial statements.
6
<PAGE>
APPAREL AMERICA, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
Nine Months Ended
April 30,
--------------------
1996 1995
-------------- ----------
OPERATING ACTIVITIES:
Net cash used in operating activities ($17,906) ($766)
----------- ----------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (448) (719)
Purchase of trademark (500) --
----------- ----------
Net cash used in investing activities (948) (719)
----------- ----------
FINANCING ACTIVITIES:
Decrease in due from factor 2,249 1,911
Payments on long-term debt (618) (1,040)
Increase in long-term debt 88 556
Increase in loan payable - revolver 17,297 --
Litigation settlement payments (50) --
Payment of redeemable preferred stock dividends (87) --
Redemption of preferred stock (47) --
----------- ----------
Net cash provided by financing activities 18,832 1,427
DECREASE IN CASH AND CASH EQUIVALENTS (22) (58)
----------- ----------
Cash and cash equivalents, at beginning of period 29 80
----------- ----------
Cash and cash equivalents, at end of period $7 $22
=========== ==========
See notes to condensed financial statements.
7
<PAGE>
APPAREL AMERICA, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS' DEFICIT (UNAUDITED)
(in thousands, except share data)
<TABLE><CAPTION>
Preferred Common
Stock Issued Stock Issued Additional
----------------- ----------------- Paid-In
Shares Amount Shares Amount Capital Deficit
-------- ------- --------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, at August 1, 1995 404,847 $40,484 7,410,223 $371 $23,803 $(41,195)
Issuance of common stock 300,000 15
Fractional shares 5
Net income for the nine months
ended April 30, 1996 3,053
Dividends and accretion on Redeemable
Preferred Stock (385)
-------- ------- --------- ---- ---------- ---------
Balance, at April 30, 1996 404,847 $40,484 7,710,228 $386 $23,803 ($38,527)
======== ======= ========= ==== ======= =========
</TABLE>
See notes to condensed financial statements.
8
<PAGE>
APPAREL AMERICA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
April 30, 1996
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, 1995.
The operations of the Company are significantly affected by seasonal
influences. The results for the nine month period ended April 30, 1996 are
not necessarily indicative of the results that may be expected for a full
fiscal year.
Net income per common share has been computed, after deducting applicable
preferred stock dividend requirements, based upon the weighted average number
of common shares and equivalents outstanding during each of the respective
periods.
NOTE B--INVENTORIES
The components of inventory consist of the following:
April 30, July 31,
1996 1995
------------ ---------
(000's omitted)
Raw materials $ 2,987 $ 2,791
Work in process 1,758 790
Finished goods 7,323 1,936
-------- ---------
$ 12,068 $ 5,517
======== =========
9
<PAGE>
APPAREL AMERICA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) - continued
April 30, 1996
NOTE C -- LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt consists of the following:
April 30, July 31,
1996 1995
------------- -----------
(000's omitted)
Term loan payable $ 6,473 $ 6,999
Litigation settlement
(see Note G) 193 229
Trademark purchase payable 1,200 -
Other (including $96 and $132
due to a related party) 278 294
--------- ----------
$ 8,144 $ 7,522
Less: current portion (1,053) (1,520)
--------- -----------
$ 7,091 $ 6,002
============= ===========
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 term loan, modified the payment terms and
interest rates and reduced the outstanding principal amount of the debt by
a total of $4,755,000. The loan principal is repayable in varying amounts
through fiscal 2001. Interest is payable monthly on the outstanding loan
balance.
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 is to be amortized against interest expense over the term of the
credit agreement. For the nine months ended April 30, 1996 and 1995,
amortization of deferred interest amounted to $443,000 and $540,000,
respectively.
The amended agreement contains various covenants and limitations on a) the
creation of new debt, b) the amortization of the subordinated debt (see
Note D) and the redemption of the cumulative redeemable preferred stock
(see Note E), 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 June 1996, the Fifth Amended and Restated Credit Agreement was amended
to reflect, among other things, the reduction of the scheduled June 1996
principal repayment of $789,000 by approximately $526,000 and the increase
in the Company's capital expenditure limit by $200,000 for the current
fiscal year.
10
<PAGE>
APPAREL AMERICA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) - continued
April 30, 1996
NOTE C -- LONG TERM DEBT AND CREDIT ARRANGEMENTS - continued
In August 1995, the Company acquired from Milady Brassiere and Corset Co.,
Inc. the trademarks Roxanne and Harbour Casual and the tradename Coco Reef.
The purchase price for the trademarks and tradename is to be determined
based on a percentage of net sales of goods bearing the Roxanne and Harbour
Casual tradenames over the next seven years, with a minimum guaranteed
purchase price of $1,700,000. The Company has paid a $500,000 advance
against such purchase price and the unpaid minimum balance of $1,200,000 is
included in long-term debt. The Company is amortizing the trademark on a
straight line basis over a period of fifteen years.
Other long-term debt is composed of certain equipment loans under which the
Company is to make equal principal payments of $14,720 per month and will
pay interest equal to the prime rate plus 2% on the unpaid principal
balance.
Prior to September 1, 1995 the Company was party to a $15,000,000 factoring
agreement whereby the Company assigned substantially all accounts
receivable to the factor for advances up to 80% of unmatured accounts
receivable and 35% of eligible inventories. The assignment was on a
recourse basis, whereby the Company assumed all credit risk associated with
the factored receivables. Effective September 1, 1995, the Company entered
into a $15,000,000 revolving credit facility under which the Company can
borrow up to 85% of eligible receivables and 50% of eligible inventories
along with specified seasonal overadvances. In January 1996, the maximum
loan amount under the revolving credit facility was increased from
$15,000,000 to $23,000,000. The revolving credit agreement expires on
August 31, 1997.
NOTE D--SUBORDINATED NOTE
Effective November 1, 1995, the Company entered into an agreement for the
exchange of its $1,000,000 Subordinated Note plus accrued and unpaid
interest of $150,000 for an Amended and Restated Subordinated Note in the
aggregate principal amount of $600,000. As a result of this exchange, a
gain of $550,000 was recognized and recorded as extraordinary income in the
current fiscal year. A principal repayment of $50,000 was made in February
1996 on the amended note. The remaining balance is to be repaid as
follows: a) $50,000 on June 30, 1996 and $50,000 on June 30, 1997 subject
to excess cash flow provisions of the Company's term loan agreement (see
Note C) and, b) the unpaid balance on June 30, 1998. Interest accrues on
the unpaid principal balance of the amended note at a rate of 8 1/2% and is
payable on a quarterly basis. Additional interest accrues at the rate of
4% on the unpaid principal balance and is payable on June 30, 1998.
11
<PAGE>
APPAREL AMERICA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) - continued
April 30, 1996
NOTE E -- CUMULATIVE REDEEMABLE PREFERRED STOCK
The Company's $9 Series B Cumulative Redeemable Preferred 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. Accrued
dividends on the Series B Preferred Stock are subject to certain
restricted payment covenants of senior debt. At April 30, 1996, such
accrued dividends amounted to $1,575,000.
In fiscal 1995, the Company entered into agreements providing for the
exchange of 25,000 shares of the $9 Series B Redeemable Preferred Stock and
accrued dividends thereon for 11,650 shares of the Company's $8.50 Series H
Redeemable Preferred Stock plus cash consideration of $85,000. The excess
of the carrying value of the exchanged Series B Preferred Stock and accrued
dividends thereon over the redemption value of the Series H Preferred Stock
and consideration paid has been recorded as a capital contribution of
approximately $2,097,000. Annual dividend and stock redemption payments
related to the Series H Preferred Stock (as permitted under the term loan
agreement) are approximately $200,000 to $250,000 through fiscal year 2002.
For the nine months ended April 30, 1996, dividend payments amounted to
approximately $87,000 and stock redemption amounted to approximately
$47,000 on the Series H Preferred Stock.
NOTE F -- STOCKHOLDERS' EQUITY
In connection with the August 1995 acquisition of the Roxanne and Harbour
Casual trademarks and the Coco Reef tradename, the Company issued 300,000
shares of common stock to the principals of Milady Brassiere and Corset
Co., Inc.
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 settlement, which
involved a former Company executive, an initial payment of $150,000 was
made in December 1994 with the balance payable in semi-annual installments
through December 1997. The settlement has been discounted at an annual
effective rate at 9% to reflect its present value at April 30, 1996.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Nine Months Ended April 30, 1996
--------------------------------
Net sales increased by $10,356,000, or 34.5%, to $40,394,000 for the nine
months ended April 30, 1996 as compared to $30,038,000 for the nine months
ended April 30, 1995. The increase in sales is primarily attributable to
an increase in unit sales volume as unit selling prices rose by
approximately 4% compared to the prior year period. Sales of product
relating to the August 1995 acquisition of the Roxanne and Harbour Casual
trademarks (see Note C to the condensed financial statements) represented
approximately 60% of the increase. The balance of the increase is
primarily attributable to increased "private label" sales to two customers,
Lands' End and Sears.
Gross profit declined to 27.7% for the nine months ended April 30, 1996 as
compared to 31.5% for the nine months ended April 30, 1995. This decrease
is primarily related to increased manufacturing and product development
costs associated with the production of goods under the Roxanne and Harbour
Casual trademarks. Also contributing to the decline in gross profit is a
change in product mix resulting from increased sales of non-branded
(private label) goods as compared to the prior year period.
Operating expenses increased by $1,751,000, or 29.5%, to $7,688,000 for the
nine months ended April 30, 1996 as compared to $5,937,000 for the nine
months ended April 30, 1995. The increase in selling, design and promotion
expenses of $1,026,000 is composed principally of Roxanne and Harbour
Casual sales salaries, commissions, showroom rent and related overhead
expenses. Shipping expenses increased by $479,000 primarily due to staff
additions, additional shipping supplies and maintenance costs and increases
in freight costs necessary to warehouse and ship Roxanne and Harbour Casual
product along with certain variable shipping costs associated with
increased sales volume. The increase in general and administrative
expenses of $246,000 is related to certain accounting and data processing
staff increases along with increases in certain supplies, services, and
operating costs as a result of the acquisition of the Roxanne and Harbour
Casual trademarks. Certain inflationary increases in salaries, supplies
and other operating overhead costs also contributed to this increase.
The above activities resulted in a decline in operating income of $25,000,
or 0.7%, to $3,511,000 for the nine months ended April 30, 1996 as compared
to operating income of $3,536,000 for the nine months ended April 30, 1995.
Interest and financing costs increased to $993,000 for the nine months
ended April 30, 1996 as compared to $582,000 for the prior year period.
This increase is principally related to increased borrowing levels under
the Company's working capital loans necessary to fund the acquisition and
development of the Roxanne and Harbour Casual business and, to a lesser
extent, the growth of the Company's Robby Len business.
Other expense of $412,000 for the nine months ended April 30, 1995 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 income before
provision for income taxes and extraordinary item of $2,518,000 for the
nine months ended April 30, 1996 as compared to income of $2,542,000 before
provision for income taxes and extraordinary item for the nine months ended
April 30, 1995.
Extraordinary income of $550,000 for the nine months ended April 30, 1996
is a result of the restructuring of the subordinated debt described in Note
D to the condensed financial statements.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - continued
Three Months Ended April 30, 1996
---------------------------------
Net sales for the three months ended April 30, 1996 increased by
$6,551,000, or 38.6%, to $23,518,000 as compared to $16,967,000 for the
three months ended April 30, 1995. Sales of goods bearing the Roxanne and
Harbour Casuals trademarks were the primary factors contributing to the
increase in sales. In addition, increases in sales of non-branded (private
label) product also contributed to the sales increase.
Gross profit declined to 26.9% for the three months ended April 30, 1996 as
compared to 28.5% for the three months ended April 30, 1995. Principal
factors in the decline in gross profit for the period were increased
manufacturing and product development costs (including certain staff
additions) related to the production of Roxanne and Harbour Casual goods.
In addition, changes in the product mix, principally relating to increased
sales of non-branded (private label) product, also contributed to the
decline in gross profit.
Operating expenses increased by $854,000, or 36.1%, to $3,218,000 for the
three months ended April 30, 1996 as compared to $2,364,000 for the prior
year period. This increase is primarily attributable to the recently
acquired Roxanne and Harbour Casual trademarks and the resulting increases
in selling, shipping and administrative expenses to develop and market the
products bearing these trademarks. Increases in certain variable selling
and operating expenses associated with increased sales volume of the
Company's Robby Len business also contributed to the increase in operating
expenses.
The above activities resulted in an increase in operating income of
$629,000, or 25.4%, to $3,102,000 for the three months ended April 30, 1996
as compared to operating income for $2,473,000 for the three months ended
April 30, 1995.
For the three months ended April 30, 1996, interest and financing costs
rose by $149,000, or 48.1%, to $459,000 as compared to $310,000 in the
three months ended April 30, 1995. Increased borrowings under the
Company's working capital loan facility necessary to finance the
acquisition, development and production of goods for the Roxanne and
Harbour Casual business were the primary factors contributing to the
increase.
The aggregate effect of the above activities resulted in income of
$2,643,000 before provision for income taxes for the three months ended
April 30, 1996 as compared to income of $2,163,000 before provision for
income taxes in the prior year period.
14
<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 1.20 to 1.00 at April
30, 1996 as compared to 1.59 to 1.00 at July 31, 1995. Working capital
increased by $1,593,000 to $4,881,000 at April 30, 1996 as compared to
$3,288,000 at July 31, 1995. This increase in working capital is primarily
attributable to the net income for the period (before extraordinary income)
which was partially offset by a $500,000 payment in connection with the
purchase of the Roxanne and Harbour Casual trademarks and capital
expenditures of approximately $448,000.
The Company's working capital requirements are affected significantly by the
highly seasonal nature of its business, through which it markets women's
swimwear and related sportswear under the Robby Len, Harbour Casual, Roxanne
and Coco Reef labels, among others. As a leading manufacturer of women's
swimwear, the Company 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 $6,551,000 increase in inventory, $17,297,000 increase in
the revolving loan balance, $15,934,000 increase in accounts receivable,
$2,249,000 decrease in the due from factor balance and $1,866,000 increase in
accounts payable for the nine months ended April 30, 1996 are attributable to
the seasonality of the business. In addition, the increases in the accounts
receivable and revolving loan balance as well as the decrease in the due from
factor balance is related to the September 1995 replacement of the Company's
factoring agreement with a revolving loan agreement (see Note C to the
condensed financial statements). The $17,906,000 of net cash used in
operating activities for the nine months ended April 30, 1996 is primarily
reflected in the increases in inventory, accounts receivable and accounts
payable and the elimination of the Company's factoring agreement.
The Company's investing activities consist primarily of purchases of
machinery and equipment. During fiscal years 1995 and 1996, the Company
purchased certain production and pattern making equipment financed primarily
through long-term arrangements (see Note D to the condensed financial
statements for further information). The Company expects to finance its
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, dividends and redemption of Series H
Preferred Stock and term debt amortization (both principal and interest). The
two present sources for the Company's liquidity needs are internally
generated funds and short-term borrowing available under its revolving loan
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 balance under the
agreement at April 30, 1996 was $17,297,000.
In January 1996, the maximum loan balance under the revolving credit facility
was increased from $15,000,000 to $23,000,000 in order to support increased
borrowing requirements (including certain seasonal overadvances) principally
related to the acquisition, development and production of goods under the
newly acquired Roxanne and Harbour Casual trademarks.
Management believes that the current financial resources available to the
Company (short-term borrowings under revolving credit facility and funds from
operations) are expected to be adequate to meet its foreseeable liquidity
requirements, including scheduled repayments of term indebtedness along with
dividends and redemption of Series H Preferred Stock, in the next twelve
months.
15
<PAGE>
PART II.- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
On February 28, 1996, the Company held its annual meeting of
shareholders. Matters voted on at the meeting included
the election of directors, appointment of independent public
accountants and an amendment to the Company's Certificate of
Incorporation to increase the Company's authorized common stock.
All directors elected at the annual meeting with the exception of
Bernard Tessler were serving in that capacity prior to the
meeting. Following is a tabulation of the votes for the election
of directors:
Votes for Votes Against Absentions
--------- ------------- ----------
Burton I. Koffman 5,778,100 3,076 -
Richard E. Koffman 5,778,224 2,912 -
Arthur G. Cohen 5,778,265 2,911 -
Jeffrey P. Koffman 5,778,296 2,880 -
Bernard Tessler 5,778,232 2,944 -
Eric T. Weitz 5,778,262 2,914 -
Votes for the appointment of BDO Seidman, LLP as independent public
accountants of the Company for the fiscal year 1996 were as follows:
For: 5,777,190
---------
Against: 1,446
-----
Absentions: 2,537
-----
The final matter submitted to a vote was for an approval to an
Amendment to the Company's Certificate of Incorporation
to increase the Company's authorized common stock from 15,000,000
shares to 30,000,000 shares in order to provide greater flexibility
in financing the Company's operations in the future. Results of the
vote on this matter were as follows:
For: 5,768,169
---------
Against: 6,253
-----
Absentions: 6,754
-----
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, 1996 /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>
<ARTICLE> 5
<LEGEND>
The condensed balance sheet as of April 30, 1996 and the Statement of
Income for the nine months ended April 30, 1996
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> APR-30-1996
<CASH> 7
<SECURITIES> 0
<RECEIVABLES> 16,662
<ALLOWANCES> 265
<INVENTORY> 12,068
<CURRENT-ASSETS> 28,788
<PP&E> 7,188
<DEPRECIATION> 5,480
<TOTAL-ASSETS> 36,652
<CURRENT-LIABILITIES> 23,907
<BONDS> 10,009
386
4,551
<COMMON> 40,484
<OTHER-SE> (42,685)
<TOTAL-LIABILITY-AND-EQUITY> 36,652
<SALES> 40,394
<TOTAL-REVENUES> 40,394
<CGS> 29,195
<TOTAL-COSTS> 29,195
<OTHER-EXPENSES> 7,564
<LOSS-PROVISION> 124
<INTEREST-EXPENSE> 993
<INCOME-PRETAX> 2,518
<INCOME-TAX> 15
<INCOME-CONTINUING> 2,503
<DISCONTINUED> 0
<EXTRAORDINARY> 550
<CHANGES> 0
<NET-INCOME> 3,053
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
