<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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 0-14669
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THE ARISTOTLE CORPORATION AND SUBSIDIARY
----------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 06-1165854
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
129 Church Street, Suite 717, New Haven, Connecticut 06510
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 867-4090
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 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
----- -----
As of November 1, 1995, 1,104,590 shares of Common Stock were outstanding.
<PAGE>
THE ARISTOTLE CORPORATION AND SUBSIDIARY
INDEX OF INFORMATION CONTAINED IN FORM 10-Q FOR THE
QUARTER ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Page
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<S> <C>
Part I - Financial Information
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at September 30, 1995
and June 30, 1995 3
Condensed Consolidated Statements of Operations for the Three
Months Ended September 30, 1995 and 1994 4
Condensed Consolidated Statements of Changes in Stockholders'
Equity for the Three Months Ended September 30, 1995 5
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended September 30, 1995 and 1994 6
Notes to Condensed Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K 10
</TABLE>
2
<PAGE>
THE ARISTOTLE CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands, except for share data)
<TABLE>
<CAPTION>
September 30, June 30,
1995 1995
---- ----
ASSETS
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 153 $ 188
Accounts receivable, net of reserves of $151 and $171, respectively 3,448 4,498
Inventories 11,718 11,782
Other current assets 853 867
---------- ----------
Total current assets 16,172 17,335
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Property and equipment, net 1,514 1,517
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Other assets:
Marketable securities held in escrow at market value 4,682 4,682
Employee notes receivable 354 354
Patents and trademarks, net 85 88
Goodwill, less amortization of $65 and $52, respectively 1,881 1,894
Deferred tax asset 725 725
Other noncurrent assets 222 225
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7,949 7,968
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TOTAL $ 25,635 $ 26,820
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable and current maturities of long-term debt $ 383 $ 548
Accounts payable 2,064 2,367
Accrued expenses 1,250 1,304
Deferred tax liability 725 725
---------- ----------
Total current liabilities 4,422 4,944
---------- ----------
Long-term debt, less current maturities 9,567 10,274
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Reserve for potential FDIC tax refund claim 3,982 3,982
---------- ----------
Minority interest in subsidiary's preferred stock 2,454 2,454
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Minority interest in subsidiary's common stock 169 167
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Commitments and contingencies
Redeemable preferred stock, $.01 par value;
3,000,000 shares authorized; 122,691 Series A,
61,345 Series B, 61,345 Series C and 24,998 Series D
issued and outstanding 3 3
---------- ----------
Stockholders' equity:
Common stock, $.01 par value; 3,000,000 shares
authorized; 1,105,801 shares issued and outstanding 11 11
Additional paid-in capital 159,843 159,843
Retained earnings (deficit) ( 154,673) ( 154,713)
Treasury stock at cost - 18,268 shares ( 151) ( 151)
Net unrealized investment gains 8 6
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Total stockholders' equity 5,038 4,996
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TOTAL $ 25,635 $ 26,820
========== ==========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
3
<PAGE>
THE ARISTOTLE CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars in thousands, except for share data)
<TABLE>
<CAPTION>
Three Months
Ended September 30,
1995 1994
---- ----
<S> <C> <C>
Net sales $ 5,969 $ 5,105
Cost of goods sold 4,400 3,545
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Gross profit 1,569 1,560
Operating expenses:
Selling 674 645
General and administrative 540 448
Product development 118 128
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Operating income 237 339
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Other income (expense)
Investment and interest income 79 80
Interest expense ( 219) ( 139)
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Income before income taxes
and minority interest 97 280
Income tax expense - 22
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Income before minority
interest 97 258
Minority interest 57 61
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NET INCOME $ 40 $ 197
========== ==========
Net income per share $ 0.04 $ 0.18
========== ==========
Weighted average shares outstanding 1,120,960 1,107,117
========== ==========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
4
<PAGE>
THE ARISTOTLE CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1995
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Net
Additional Retained Unrealized
Common Paid-in Earnings Treasury Investment
Stock Capital (Deficit) Stock Gains Total
----- ------- -------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Balance - June 30, 1995 $ 11 $159,843 ($ 154,713) ($ 151) $ 6 $ 4,996
Net income - - 40 - - 40
Net change in unrealized
investment gains - - - - 2 2
-------- -------- ----------- ---------- -------- ----------
Balance - September 30, 1995 $ 11 $159,843 ($ 154,673) ($ 151) $ 8 $ 5,038
======== ======== =========== ========== ======== ==========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
5
<PAGE>
THE ARISTOTLE CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months
Ended September 30,
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 40 $ 197
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 131 69
Changes in assets and liabilities:
Accounts receivable 1,050 73
Inventories 64 ( 24)
Other assets 19 18
Accounts payable ( 303) ( 297)
Accrued expenses ( 54) 286
-------- --------
Net cash provided by operating
activities 947 322
-------- --------
Cash flows from investing activities:
Purchase of property and equipment ( 112) ( 105)
Minority interest 2 7
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Net cash used in investing
activities ( 110) ( 98)
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Cash flows from financing activities:
Net payments under line of credit ( 780) ( 218)
Principal payments under note payable ( 92) ( 11)
-------- --------
Net cash used in financing
activities ( 872) ( 229)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS ( 35) ( 5)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 188 12
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 153 $ 7
======== ========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
6
<PAGE>
THE ARISTOTLE CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
The Aristotle Corporation ("Aristotle") is a holding company for its
subsidiary, Aristotle Sub, Inc. ("ASI"). ASI is a holding company for The
Strouse, Adler Company ("Strouse"). Strouse designs, manufactures and markets
women's intimate apparel. Unless the context indicates otherwise, all references
herein to the "Company" include Aristotle, ASI and Strouse.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and notes 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. Operating results for the
three months ended September 30, 1995 are not necessarily indicative of results
that may be expected for the year ending June 30, 1996. For further information,
refer to the consolidated financial statements and notes included in the
Company's Annual Report on Form 10-K for the year ended June 30, 1995.
2. Earnings per Common Share
-------------------------
Weighted average shares outstanding are primary; treasury stock has not
been included. At September 30, 1995, the weighted average shares include 33,424
shares of common stock equivalents.
3. Debt Agreement
--------------
On November 3, 1995, Strouse and Fleet Bank, National Association (the
"Bank") entered into a credit agreement (the "Credit Agreement") that provides
for a line-of-credit facility and two term loan facilities (the "Credit
Facilities"). The line-of-credit facility provides for maximum borrowing of
$8,750,000. The principal amounts of the term loans are $2,500,000 and $225,000,
respectively. The Credit Agreement matures on October 31, 1996. Strouse uses the
Credit Facilities for working capital and other general corporate purposes.
Within the maximum limits set forth above, borrowing under the line-of-
credit (the "Borrowing Base") is limited to 80% of eligible accounts receivable,
plus the lesser of (i) the sum of 50% of eligible raw materials, 50% of eligible
finished goods, and 20% of eligible work-in-process, or (ii) the inventory cap
of $5,000,000. In addition, the Credit Agreement permits advances to exceed the
Borrowing Base amount by up to $1,000,000 through December 1995, and to $500,000
at all times thereafter (so long as the total line-of-credit is not more than
the maximum borrowing allowed and Strouse reduces any Overadvance to zero for
any thirty day period between November 3, 1995 and July 31, 1996).
The line-of-credit bears interest at a rate per annum equal to either
1.0% over the Bank's prime rate, the Bank's fixed rate, or 3.0% over LIBOR
(London Interbank Offer Rate), at the option of Strouse. The term loans bear
interest at a rate per annum equal to either 1% over the Bank's prime rate, the
Bank's fixed rate, or 3% over LIBOR, at the option of Strouse. Currently and
through October 1996, the interest rate on the line-of-credit is fixed at 8.3%
per annum for the first $3,500,000 and varies at 1% over the Bank's prime rate
for the remaining balance. The per annum interest rates on the $2,500,000 and
$225,000 term loans were fixed until October 1996 at 8.55% and 7.25%,
respectively.
7
<PAGE>
The Credit Facilities are secured by a lien on all assets of Strouse.
Aristotle and ASI have unconditionally guaranteed the $2,500,000 term loan and
ASI has guaranteed the line-of-credit. To secure ASI's guarantee of the line-of-
credit, ASI has pledged and recourse under the ASI guaranty of the line-of-
credit is limited to, all of the capital stock of Strouse that is owned by ASI.
In addition, the Company will make a prepayment on the Term Loans of a portion
of the amount, if any, of the tax refund received and retained by the Company
after the resolution of the Federal Deposit Insurance Corporation's ("FDIC")
claim that it is entitled to such tax refund. The Credit Agreement further
provides that Strouse may not pay dividends to ASI or Aristotle without the
Bank's prior written consent.
As of November 6, 1995, the balances outstanding on the line-of-credit
was $7,864,000 and the amounts outstanding under the term loans were $2,333,000
and $146,000, respectively. As of November 6, 1995, the additional borrowing
available on the line-of-credit was $886,000.
8
<PAGE>
THE ARISTOTLE CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
The Company's net sales for the first quarter ended September 30, 1995
increased 17% to $5,969,000, compared to net sales of $5,105,000 for the first
quarter ended September 30, 1994. The increase was primarily generated by a
$539,000 volume growth in shapewear products, a $221,000 volume growth in
specialty brassiere products and a $87,000 impact from increased prices.
The Company's gross profit for the first quarter ended September 30,
1995 increased to $1,569,000 from $1,560,000 for the first quarter ended
September 30, 1994, and gross margin percentage decreased to 26.3% from 30.6%.
The increase in gross profit was mainly a result of the sales growth, while the
decrease in the gross margin percentage was mainly a result of increased
subcontracting costs, higher production scrap, growth in the private label
business (which contributes comparable operating income margins comparable to
the branded business, but lower gross margins), and costs incurred relating to
the resourcing of manufacturing operations.
Selling, general and administrative expenses for the first quarter ended
September 30, 1995 were $1,214,000, compared to $1,093,000 for the corresponding
quarter ended September 30, 1994. The $121,000 increase was principally a result
of increases in advertising and professional fees.
Product development costs for the Company for the first quarter ended
September 30, 1995 were $118,000, compared to $128,000 for the first quarter
ended September 30, 1994. Product development costs primarily included
compensation of company personnel and were incurred by Strouse.
Investment and interest income of $79,000 and $80,000 for the first
quarter ended September 30, 1995 and 1994, respectively, was principally
generated by two escrowed investment accounts with account balances totaling
$4,682,000 for both periods.
Interest expense for the first quarter ended September 30, 1995
increased to $219,000 from $139,000 in the corresponding prior year period. The
increase reflected higher borrowing rates and higher borrowing levels to support
working capital needs and business growth.
Minority interest expense of $57,000 and $61,000 for the first quarter
ended September 30, 1995 and 1994, respectively, was principally due to
preferred dividends paid or accrued during the first quarter.
Liquidity and Capital Resources
Substantially all of the Company's assets are either dedicated to
support Strouse's business needs (primarily inventory of $11,718,000 and
accounts receivable of $3,459,000) or are held in two escrowed accounts
($4,682,000).
Cash required to fund the working capital needs of Strouse is supplied
principally through the Credit Facilities with the Bank, trade credit, and
internally generated funds. See Note 3 of Notes to Condensed Consolidated
Financial Statements.
9
<PAGE>
Cash required to fund the operations of Aristotle is supplied primarily
through earnings generated from the two escrowed accounts, amounts payable to
Aristotle pursuant to certain notes from certain officers of Strouse, and taxes
received from Strouse in connection with a tax sharing agreement between
Aristotle and Strouse. If earnings from the two escrowed accounts and taxes
received from Strouse are below current projections and no funds are generated
through the settlements of the pending stockholder litigation and the FDIC tax
claim, Aristotle's cash flow would not be sufficient to meet its operating
expenses. If the former stockholders of Strouse do not convert certain preferred
stock of ASI that was issued in connection with the acquisition of Strouse (the
"Acquisition"), and if the maximum additional payments to the former
stockholders of Strouse were earned and paid, then Aristotle would have to pay
up to $4,444,000 during the next four fiscal years to such stockholders as part
of the Acquisition. It is not anticipated that current amounts of capital will
be sufficient to satisfy potential commitments related to the Acquisition. Any
default in the payments due to the former stockholders of Strouse could create a
partial unwinding of the Acquisition.
In order to meet its projected capital requirements and potential
commitments to the former stockholders of Strouse, the Company believes that it
must either raise new equity capital or obtain additional financing or both.
There can, however, be no assurance that the Company will be able to raise new
equity capital or obtain additional financing.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-k
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
None.
10
<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.
THE ARISTOTLE CORPORATION
/s/ John J. Crawford
--------------------
John J. Crawford
Its President, Chief Executive Officer
and Chairman of the Board
Date: November 10, 1995
/s/ Paul M. McDonald
--------------------
Paul M. McDonald
Its Chief Financial Officer
and Secretary
Date: November 10, 1995
11
<PAGE>
November 14, 1995
Securities and Exchange Commission / EDGAR
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: The Aristotle Corporation - Quarterly Report on Form 10-Q for
the Three Months Ended September 30, 1995
Gentlemen:
Filed electronically via EDGAR on this date is the quarterly report on
Form 10-Q of The Aristotle Corporation for the three months ended September 30,
1995. The financial statements in the quarterly report do not reflect a change
from the preceding year in any accounting principles or practices, or, in the
method of applying any such principles or practices.
Should you have any questions or comments, please do not hesitate to
contact the undersigned at (203) 777-3484.
Very truly yours,
The Aristotle Corporation
/s/ Paul McDonald
----------------------
Paul McDonald
Chief Financial Officer
MLF: jb
Enclosures
cc/enc: Mr. John J. Crawford
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 153
<SECURITIES> 4,682
<RECEIVABLES> 3,599
<ALLOWANCES> (66)
<INVENTORY> 11,718
<CURRENT-ASSETS> 16,172
<PP&E> 1,933
<DEPRECIATION> (419)
<TOTAL-ASSETS> 25,635
<CURRENT-LIABILITIES> 4,422
<BONDS> 0
<COMMON> 11
2,454
0
<OTHER-SE> 5,027
<TOTAL-LIABILITY-AND-EQUITY> 25,635
<SALES> 5,969
<TOTAL-REVENUES> 6,048
<CGS> 4,400
<TOTAL-COSTS> 1,332
<OTHER-EXPENSES> 57
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 219
<INCOME-PRETAX> 97
<INCOME-TAX> 0
<INCOME-CONTINUING> 40
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40
<EPS-PRIMARY> .04
<EPS-DILUTED> 0
</TABLE>
