UNITED STATES
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 September 30, 1996 .
------------------------------------------
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 1-9169
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BERNARD CHAUS, INC.
- ------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
New York 13-2807386
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) number)
1410 Broadway, New York, New York 10018
- ------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (212) 354-1280
---------------------
------------------------------
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 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 ____.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Date Class Shares Outstanding
- ---- ----- ------------------
November 4, 1996 Common Stock, $0.01 par value 26,277,274
- -------------------- ----------------------------- ----------------
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) PAGE
Condensed Consolidated Balance Sheets as of
September 30, 1996, June 30, 1996 and
September 30, 1995 3
Condensed Consolidated Statements of Operations
for the Quarters ended September 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows
for the Quarters ended September 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6 - 10
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
2
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except number of shares and per share amounts)
<TABLE>
<CAPTION>
September 30, June 30, September 30,
1996 1996 1995
---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 210 $ 247 $ 217
Accounts receivable, net 23,384 7,995 28,025
Inventories 20,997 21,256 22,083
Prepaid expenses and other current assets 755 783 908
-------- -------- --------
Total current assets 45,346 30,281 51,233
Fixed assets-- net 1,764 1,898 2,246
Other assets 1,056 563 543
-------- -------- --------
$48,166 $32,742 $54,022
======== ======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities
Notes payable-- banks $38,356 $26,077 $36,307
Accounts payable 19,942 17,435 21,427
Accrued expenses 5,776 6,056 5,568
Accrued restructuring expenses 64 196 1,594
-------- -------- --------
Total current liabilities 64,138 49,764 64,896
Subordinated promissory notes 24,264 23,588 21,678
Accrued restructuring expenses -- -- 108
-------- -------- --------
88,402 73,352 86,682
STOCKHOLDERS' DEFICIENCY
Preferred stock, $.01 par value,
authorized shares -- 1,000,000;
outstanding shares -- none
Common stock, $.01 par value;
authorized shares -- 50,000,000;
issued shares -- 26,899,974 at
September 30, 1996, 26,893,724 at
June 30, 1996 and 21,108,641 at
September 30, 1995 269 269 211
Additional paid-in capital 65,463 65,450 49,479
Deficit (104,488) (104,849) (80,870)
Less: Treasury stock, at cost --
622,700 shares (1,480) (1,480) (1,480)
--------- --------- --------
Total stockholders' deficiency (40,236) (40,610) (32,660)
-------- -------- --------
$ 48,166 $ 32,742 $ 54,022
======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except number of shares and per share amounts)
<TABLE>
<CAPTION>
For the quarter ended
September 30, September 30,
1996 1995
------------- -------------
(Unaudited)
<S> <C> <C>
Net sales $48,010 $48,885
Cost of goods sold 35,532 38,141
------------ ------------
Gross profit 12,478 10,744
Selling, general and
administrative expenses 10,255 9,764
------------ ------------
Income from operations 2,223 980
Interest and other income, net 6 108
Interest expense (1,838) (1,419)
------------ ------------
Income (loss) before income taxes 391 (331)
Income taxes 30 76
------------ ------------
Net income (loss) $361 ($407)
============ ============
Net income (loss) per share $0.01 ($0.02)
============ ============
Weighted average number of
common and common
equivalent shares outstanding 26,838,000 20,461,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the quarter ended
September 30, September 30,
1996 1995
------------- -------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $361 ($407)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 268 284
Provision for losses on accounts receivable 20 45
Deferred interest on
subordinated promissory notes 676 612
Changes in operating assets and liabilities:
Accounts receivable (15,409) (20,424)
Inventories 259 (5,880)
Prepaid expenses and other assets (465) 550
Accounts payable 2,507 8,505
Accrued expenses (280) 19
Accrued restructuring expenses (132) (1,102)
-------- --------
Net Cash Used In Operating Activities (12,195) (17,798)
INVESTING ACTIVITIES
Purchases of fixed assets-- net of disposal (134) (138)
-------- --------
Net Cash Used In Investing Activities (134) (138)
FINANCING ACTIVITIES
Net proceeds from short-term bank borrowings 12,279 17,609
Net proceeds from exercise of options 13 126
-------- --------
Net Cash Provided By Financing Activities 12,292 17,735
-------- --------
Decrease in cash and cash equivalents (37) (201)
Cash and Cash Equivalents, Beginning of Quarter 247 418
-------- --------
Cash and Cash Equivalents, End of Quarter $210 $217
======== ========
Cash Paid for:
Taxes 13 11
Interest 996 888
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Quarters Ended September 30, 1996 and September 30, 1995
1. Summary Of Significant Accounting Policies
Basis of Presentation: The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 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.
Operating results for the quarter ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the year ending June 30,
1997 or any other period. The balance sheet at June 30, 1996 has been derived
from the audited financial statements at that date. For further information,
refer to the financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended June 30, 1996.
Net Income (Loss) Per Share: Net income (loss) per share has been
computed by dividing the applicable net income (loss) by the weighted average
number of common shares outstanding. Common equivalent shares for September
30, 1995 were not included as their inclusion would have been antidilutive.
2. Inventories
Inventories (principally finished goods) are stated at the lower of cost,
using the first-in first-out (FIFO) method, or market. Included in inventories
is merchandise in transit of approximately $7.8 million at September 30, 1996,
$9.0 million at June 30, 1996 and $8.4 million at September 30, 1995.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Operating results for the quarter ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the year ending
June 30, 1997 or any other period.
In the quarter ended September 30, 1996, net sales decreased by $0.9
million or 1.8% as compared to the quarter ended September 30, 1995. This
sales decrease was primarily due to a decrease in sales of Chaus products at
regular and incentive prices and the discontinuation of the Chaus dress product
line partially offset by initial regular price sales of the Company's licensed
Nautica(R) product line. Units shipped decreased by approximately 16% which
was offset by an increase in the average selling price.
6
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
In the quarter ended September 30, 1996, gross profit as a percentage of
net sales increased to 26% from 22% in the quarter ended September 30, 1995.
The increase in the gross profit percentage was attributable to initial sales
of the Nautica product line.
Selling, general and administrative expenses increased by $0.5 million in
the quarter ended September 30, 1996 as compared to the quarter ended
September 30, 1995, primarily due to expenses associated with the licensed
Nautica product line, partially offset by decreases in payroll and payroll
related items and a decrease in other selling, general and administrative
expenses as the Company continues to reduce its overhead structure. As a
percentage of net sales, selling, general and administrative expenses increased
to 21.4% for the quarter ended September 30, 1996 from 20% for the comparable
quarter ended September 30, 1995.
Interest expense in the quarter ended September 30, 1996 increased $.4
million as compared with the corresponding quarter of the prior fiscal year
primarily as a result of the cash compensation payable to Josephine Chaus for
credit support provided by her to the Company (see -- "Financial Position,
Liquidity and Capital Resources"), in addition to higher average bank
borrowings.
Financial Position, Liquidity and Capital Resources
General
Net cash used in operating activities was $12.2 million in the quarter
ended September 30, 1996 as compared to $17.8 million in the quarter ended
September 30, 1995. The net cash used in operating activities resulted
primarily from increases in accounts receivable ($15.4 million), partially
offset by an increase in accounts payable ($2.5 million).
Amended Financing Agreement
The Company and BNY Financial Corporation ("BNYF") entered into a
financing agreement in July 1991, which was amended and restated effective as
of February 21, 1995 and further amended, effective as of September 28, 1995
(the "September 1995 Amendment"), May 9, 1996 (the "May 1996 Amendment") and
September 17, 1996 (the "September 1996 Amendment") (collectively, the
"Amended Financing Agreement"). The Amended Financing Agreement provides the
Company with a $70 million credit facility for letters of credit and direct
borrowings, with a sublimit for loans and advances ranging between $40.0 and
$56.0 million. The amount of financing available is based upon a formula
incorporating eligible receivables and inventory, cash balances, other
collateral and permitted overadvances, all as defined in the Amended Financing
Agreement. At September 30, 1996, the Company had availability of
approximately $5.5 million under the Amended Financing Agreement. The Amended
Financing Agreement is collateralized by substantially all of the Company's
assets, including accounts receivable and inventory.
The Amended Financing Agreement contains certain financial covenants
including covenants limiting the Company's tangible net worth deficit and
working capital deficiency. In addition to a cap on personal property leases,
the Company is also prohibited from declaring or paying dividends or making
other distributions on its capital stock, with certain exceptions.
7
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
Interest on direct borrowings is payable monthly at an annual rate equal
to the higher of (i) The Bank of New York's prime rate (8.25% at September 30,
1996) plus 0.5% (The Bank of New York prime rate plus 1.5% in the event the
Company's overadvance position exceeds the allowable overadvances) or (ii) the
Federal Funds Rate in effect plus 1% (Federal Funds Rate in effect plus 2% in
the event the Company's overadvance position exceeds the allowable
overadvances). There is an annual commitment fee of 0.375% of the unused
portion of the line, payable monthly, and letter of credit fees equal to
0.125% of the outstanding letter of credit balance, payable monthly. The
Amended Financing Agreement requires the payment of minimum service charges of
$0.6 million per annum. In connection with the May 1996 Amendment, BNYF was
paid a fee of $25,000, and additional fees of $10,000 per month through
December 1996 were provided for, with BNYF agreeing to provide specified
levels of overadvances up to $10.0 million through the same period. In
connection with the September 1996 Amendment, BNYF has agreed to provide
overadvances of up to $15.0 million through June 1997. The Company may
terminate the Amended Financing Agreement upon 90 days' prior written notice
at any time, subject to termination fees. BNYF may terminate after February
20, 1999, upon 60 days' written notice to the Company.
Credit Support
Josephine Chaus has arranged for a letter of credit (the "Letter of
Credit") in various amounts since April 1994 in return for which BNYF has
increased the availability under the Amended Financing Agreement. In
consideration for credit support provided by Ms. Chaus to the Company prior to
February 1995, Ms. Chaus was granted 1,216,500 warrants (the "1994 Warrants"),
exercisable through November 22, 1999, at prices ranging between $2.25 and
$4.62 per share. As part of the negotiations with BNYF in connection with the
Amended Financing Agreement, in February 1995 Josephine Chaus increased the
Letter of Credit to $10.0 million and extended its term to October 31, 1995
(the "February 1995 Increase/Extension"). In addition, in February 1995, Mrs.
Chaus provided a $5.0 million personal guarantee (the "$5.0 Million
Guarantee"), to be in effect during the Amended Financing Agreement's term. In
September 1995, Ms. Chaus further extended the term of the Letter of Credit to
January 31, 1996 (the "September 1995 Extension"). In consideration of her
provision of the February 1995 Increase/Extension, the $5.0 Million Guarantee
and the September 1995 Extension, a special committee consisting of
disinterested members of the Board of Directors of the Company (the "Special
Committee") authorized the issuance to Ms. Chaus of warrants (the "1995
Warrants") to purchase an aggregate of 1,580,000 shares of Common Stock at
prices ranging between $4.05 and $6.75 per share. The issuance of the 1995
Warrants was approved at the 1995 Annual Meeting of Stockholders. The issuance
of the 1994 Warrants, the warrants for the February 1995 Increase/Extension
and the warrants for the $5.0 Million Guarantee was recorded in fiscal 1995 at
a value of $1.1 million, and was included as a charge to interest expense with
a corresponding increase to additional paid-in capital. The issuance of the
warrants for the September 1995 Extension was recorded in the second quarter
of fiscal 1996 at a value of $0.2 million, and was included as a charge to
interest expense with a corresponding increase to additional paid-in capital.
Ms. Chaus received warrant compensation for her provision of the $5.0 Million
Guarantee only through October 31, 1995. Thereafter, for each three month
period of the $5.0 Million Guarantee, she has received cash compensation of
$50,000, as authorized by the Special Committee.
In connection with the September 1995 Amendment, Ms. Chaus provided the
Company with an option to further extend the Letter of Credit to July 31, 1996
(the "July 1996 Option"), subject to
8
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
the consummation of the Company's November 1995 public offering of Common
Stock. In January 1996, the Company exercised the July 1996 Option to extend
the Letter of Credit to July 31, 1996 (the "July 1996 Extension"). In
consideration of her provision of the July 1996 Extension, the Special
Committee authorized the issuance to Ms. Chaus, subject to approval of the
stockholders of the Company at its November 14, 1996 Annual Meeting of
Stockholders, of warrants (the "1996 Warrants") to purchase an aggregate of
682,012 shares of Common Stock at a price of $4.20 per share. Because Ms.
Chaus possesses the power to vote more than 50% of the outstanding shares of
Common Stock, Ms. Chaus's affirmative vote in favor of the issuance of the
1996 Warrants to her is sufficient to approve such issuance without the vote
of any other stockholders. Ms. Chaus has advised the Company that she intends
to vote all of her shares in favor of such issuance. As a result, the Company
reflected the issuance of the 1996 Warrants at March 31, 1996. The value of
the 1996 Warrants ($0.3 million) was included as a charge to interest expense
with a corresponding increase to additional paid-in capital.
In connection with the May 1996 Amendment, Ms. Chaus agreed to extend the
Letter of Credit to January 31, 1997 (the "January 1997 Extension") and
additionally provided a collateralized increase of $5.0 million in the $5.0
million Guarantee to $10.0 million (the "$10.0 Million Guarantee"). In
connection with the January 1997 Extension, the Special Committee approved the
payment of cash compensation to Ms. Chaus of $100,000 for each three month
period of the Letter of Credit as extended from July 31, 1996 to January 31,
1997. For her provision of the $10.0 Million Guarantee, the Special Committee
approved an increase in the amount of cash compensation payable to Ms. Chaus
for her guaranty, to $100,000 for each three month period of the $10.0 Million
Guarantee.
In connection with the September 1996 Amendment, Ms. Chaus agreed to
extend the Letter of Credit to July 31, 1997 (the "July 1997 Extension"),
increase the amount of the $10.0 Million Guarantee by $2.5 million to $12.5
million (the "$12.5 Million Guarantee") and fully collateralize the $12.5
Million Guarantee. In connection with the July 1997 Extension, the Special
Committee approved the payment of cash compensation to Ms. Chaus of $100,000
for each additional three month period of the Letter of Credit as extended
from January 31, 1997 to July 31, 1997. For her provision of the $12.5 Million
Guarantee, the Special Committee approved an increase in the amount of cash
compensation payable to Ms. Chaus for her guaranty, to $125,000 for each three
month period of the $12.5 Million Guarantee.
Subordinated Debt
The Company has outstanding at September 30, 1996, $24.3 million of
subordinated notes payable to Josephine Chaus (the "Subordinated Notes"). In
connection with the Company's November 1995 public offering (see "-- Nautica
License Agreement"), Josephine Chaus extended the maturity date of the
Subordinated Notes (which were to mature on July 1, 1996) to July 1, 1998. The
Company has been unable to pay principal or interest, with certain exceptions,
under the Subordinated Notes as a result of covenants in the Amended Financing
Agreement (see "-- Amended Financing Agreement").
9
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
Nautica License Agreement
In September 1995, the Company entered into a license agreement with
Nautica Apparel, Inc. (the "Nautica License Agreement"), pursuant to which the
Company has an exclusive license to arrange for the manufacture of, market,
distribute and sell a new women's career and casual sportswear line under the
Nautica(R) name. The Nautica License Agreement runs through December 31, 1999.
The Company is required to devote at least $7.0 million to the fulfillment of
the Company's obligations under the Nautica License Agreement, including
related capital expenditures. The Company's obligations also include minimum
royalty and advertising payments.
Under the Nautica License Agreement, the Company was obligated to raise
$10.0 million in equity capital. On November 22, 1995, the Company consummated
an underwritten public offering of 5,750,000 shares of Common Stock at a price
of $3.00 per share. Net proceeds, after expenses and commissions of $1.8
million, were $15.4 million.
Future Financing Requirements
At September 30, 1996, the Company had a working capital deficiency of
$18.8 million. The Company requires the availability of sufficient cash flow
and borrowing capacity to finance its existing product lines and to develop
and market its licensed Nautica product lines. The Company expects to satisfy
such requirements through cash flows from operations, its line of credit under
the Amended Financing Agreement, and, in the near term, continued credit
support from Josephine Chaus. The Company anticipates that its future
operations will be financed in the same manner, but is also exploring
additional sources of financing.
The Company will seek to satisfy its operating requirements without
utilizing additional credit support from Ms. Chaus, although there can be no
assurance that it will be successful in doing so. In September 1996, Ms. Chaus
increased her credit support by providing the July 1997 Extension and the
$12.5 Million Guarantee. In consideration for her credit support, BNYF has
provided the Company with specified levels of overadvances up to a maximum of
$15.0 million through June 30, 1997. The Company has no understanding with Ms.
Chaus pursuant to which Ms. Chaus would extend the Letter of Credit beyond
July 31, 1997. In addition, although BNYF historically has waived compliance
with certain covenants and permitted certain overadvances and has, pursuant to
the September 1996 Amendment, agreed to relax such covenants and permit
specified levels of overadvances through June 30, 1997, there can be no
assurance that it will continue to do so in the future. Moreover, growth of
the Company's existing product lines and/or the development of the Company's
licensed Nautica product line could increase the amount of the potential
shortfall in borrowing availability after the current fiscal year.
The foregoing discussion contains forward-looking statements. Certain
important factors could cause actual results to differ materially from those
anticipated. Among these factors are retail market conditions; consumer and
customer acceptance of the Company's products; BNYF's willingness to continue
to support the Company; and Josephine Chaus's willingness to continue to
provide the Company with credit support.
10
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Attached hereto as Exhibits are the following:
27 Financial Data Schedule
(b) The Company filed no reports on Form 8-K during the quarter
ended September 30, 1996.
11
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
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.
BERNARD CHAUS, INC.
(Registrant)
Date: November 13, 1996
By: /s/ Josephine Chaus
--------------------
JOSEPHINE CHAUS
Chairwoman of the Board and
Office of the Chairman
Date: November 13, 1996
By: /s/ Andrew Grossman
--------------------
ANDREW GROSSMAN
Chief Executive Officer and
Office of the Chairman
Date: November 13, 1996
By: /s/ Wayne S. Miller
--------------------
WAYNE S. MILLER
Executive Vice President --
Finance and Administration and
Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 210
<SECURITIES> 0
<RECEIVABLES> 30,961
<ALLOWANCES> 7,577
<INVENTORY> 20,997
<CURRENT-ASSETS> 45,346
<PP&E> 18,395
<DEPRECIATION> 16,631
<TOTAL-ASSETS> 48,166
<CURRENT-LIABILITIES> 64,138
<BONDS> 0
269
0
<COMMON> 0
<OTHER-SE> (40,505)
<TOTAL-LIABILITY-AND-EQUITY> 48,166
<SALES> 48,010
<TOTAL-REVENUES> 48,010
<CGS> 35,532
<TOTAL-COSTS> 45,787
<OTHER-EXPENSES> (6)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,838
<INCOME-PRETAX> 391
<INCOME-TAX> 30
<INCOME-CONTINUING> 361
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 361
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
