================================================================
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 quarter 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 1-9635
------
BISCAYNE APPAREL, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0200397
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1373 BROAD STREET, CLIFTON, NEW JERSEY 07013
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(201) 473-3240
---------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all the
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 [ ]
At October 31, 1996, there were 10,741,540 outstanding shares of the
registrant's Common Stock, $0.01 par value.
================================================================
<PAGE>
BISCAYNE APPAREL, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
-------
Consolidated Balance Sheets
September 30, 1996 and December 31, 1995.................... 2
Consolidated Statements of Operations
Nine Months Ended September 30, 1996 and 1995............... 3
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1996 and 1995............... 4
Notes to Consolidated Financial Statements.................. 5
Management's Discussion and Analysis of
Financial Condition and Results of Operations............... 7
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings.................................. 10
Item 6 - Exhibits and Reports on Form 8-K................... 10
Signatures.................................................. 11
1
<PAGE>
BISCAYNE APPAREL, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 825 $ 312
Trade accounts receivable, less
allowances of $2,502 in 1996 and
$1,967 in 1995.................................... 34,533 18,271
Inventories........................................ 22,270 25,890
Federal income tax receivable...................... 1,145 1,969
Prepaid expenses and other......................... 2,268 1,972
---------- ---------
Total current assets.......................... 61,041 48,414
Property, plant and equipment, less
accumulated depreciation of $2,355
in 1996 and $1,917 in 1995......................... 3,402 3,652
Investment in Hartwell Sports, Inc.................... - 1,627
Goodwill, net......................................... 5,915 6,072
Other assets, net..................................... 660 1,977
---------- ---------
$71,018 $61,742
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 6,176 $ 3,841
Accrued liabilities................................ 5,469 5,914
Notes payable to banks............................. 27,276 17,850
Current portion of long-term debt.................. 1,750 1,250
---------- ---------
Total current liabilities..................... 40,671 28,855
Subordinated notes.................................... 6,444 6,444
Long-term debt........................................ 4,500 6,250
Other liabilities..................................... 282 358
Commitments and contingencies......................... - -
Stockholders' Equity:
Common stock, $0.01 par value;
25,000,000 shares authorized;
10,741,540 issued and outstanding
in 1996 and 10,741,253 in 1995..................... 107 107
Additional paid-in capital............................ 26,310 26,309
Unearned stock award compensation..................... (84) (135)
Retained deficit...................................... (7,212) (6,446)
---------- ---------
Total stockholders' equity.................... 19,121 19,835
---------- ---------
$71,018 $61,742
========== =========
See accompanying notes.
2
<PAGE>
<TABLE>
<CAPTION>
BISCAYNE APPAREL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1996 1995 1996 1995
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net sales .............................................. $ 46,054 $ 40,898 $ 75,183 $ 70,804
Operating costs and expenses:
Cost of goods sold .................................. 33,784 30,291 56,390 53,009
Selling, general and administrative ................. 6,883 7,069 17,827 18,501
----------- ------------ ----------- -----------
Operating income (loss) ................................ 5,387 3,538 966 (706)
Other income and (expenses):
Interest and other expenses ......................... (1,046) (1,033) (2,677) (2,425)
Interest and other income ........................... 293 -- 456 58
Gain on sale and equity in net
income of investee ................................. -- 59 123 142
----------- ------------ ----------- -----------
Income (loss) before provision (benefit) for
income taxes ....................................... 4,634 2,564 (1,132) (2,931)
Provision (benefit) for income taxes ................... 1,804 1,209 (368) (911)
Net income (loss) ...................................... $ 2,830 $ 1,355 $ (764) $ (2,020)
=========== ============ =========== ===========
Net income (loss) per common share ..................... $ 0.26 $ 0.12 $ (0.07) $ (0.19)
=========== ============ =========== ===========
Shares used in computing net loss
per common share .................................... 10,743,535 10,864,004 10,741,540 10,730,943
=========== ============ =========== ===========
</TABLE>
See accompanying notes.
3
<PAGE>
BISCAYNE APPAREL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1996 1995
-------- ----------
Operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . . $ (764) $ (2,020)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Gain on sale of assets . . . . . . . . . . . . . . . (11) (3)
Gain on sale of equity investee. . . . . . . . . . . (123) -
Equity in net income of investee . . . . . . . . . . - (142)
Amortization of unearned stock award compensation. . 51 51
Depreciation expense . . . . . . . . . . . . . . . . 447 436
Amortization expense . . . . . . . . . . . . . . . . 228 63
Provision for losses and sales allowances
on receivables . . . . . . . . . . . . . . . . . . 4,343 3,086
(Increase) decrease in operating assets:
Trade accounts receivable. . . . . . . . . . . . . . (20,915) (10,000)
Inventories. . . . . . . . . . . . . . . . . . . . . 3,368 (15,379)
Prepaid expenses and other . . . . . . . . . . . . . (319) (685)
Federal income tax receivable. . . . . . . . . . . . 824 -
Other assets . . . . . . . . . . . . . . . . . . . . 971 (942)
Increase (decrease) in operating liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . 2,457 1,152
Accrued liabilities. . . . . . . . . . . . . . . . . 310 (773)
Other liabilities. . . . . . . . . . . . . . . . . . - (231)
-------- ----------
Net cash used in operating activities. . . . . . . . (9,133) (25,387)
Investing activities:
Net sale of assets . . . . . . . . . . . . . . . . . 11 9
Capital expenditures . . . . . . . . . . . . . . . . (227) (941)
Proceeds on sale of equity investee. . . . . . . . . 1,750 -
-------- ----------
Net cash provided by (used in) investing activities 1,534 (932)
Financing activities:
Payments under notes payable to banks. . . . . . . . (45,211) (24,025)
Borrowings under notes payable to banks. . . . . . . 54,637 46,775
Proceeds from term loan. . . . . . . . . . . . . . . - 7,500
Principal payments under term loan . . . . . . . . . (1,250) -
Repayment of subordinated notes. . . . . . . . . . . - (6,276)
Principal payments of capital leases . . . . . . . . (64) (16)
Proceeds from exercise of employee stock option. . . - 13
-------- ----------
Net cash provided by financing activities . . . . . 8,112 23,971
Net increase (decrease) in cash and cash equivalents . 513 (2,348)
Cash and cash equivalents at beginning of year . . . . 312 4,178
-------- ----------
Cash and cash equivalents at end of year . . . . . . . $ 825 $ 1,830
======== ==========
Supplemental disclosure information:
Interest expense paid. . . . . . . . . . . . . . . . $ 2,363 $ 2,045
Income taxes paid. . . . . . . . . . . . . . . . . . $ 61 $ 1,608
See accompanying notes.
4
<PAGE>
BISCAYNE APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited consolidated financial statements, which are
for an interim period, do not include all disclosures provided in the
annual consolidated financial statements. These unaudited consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the footnotes with respect thereto, contained in
the Biscayne Apparel, Inc., ("Company") 1995 Annual Report on Form 10-K.
The consolidated financial statements of the Company include the accounts
of the parent company, and its wholly-owned subsidiaries, Biscayne Apparel
International, Inc. ("BAII"), and M&L International, Inc. ("M&L"), which
was acquired in November 1994, and its wholly-owned subsidiaries, Unidex
Garments (Philippines), Inc., Watersports Garment Manufacturing, Inc.,
Teri Outerwear Manufacturing, Inc., GES Sportswear Manufacturing Corp. and
M&L International (H.K.) Limited.
As of March 1, 1996, Unidex, Watersports, Teri and GES ceased operations
due to operating losses caused by labor increases and production
inefficiencies.
BAII operates through two divisions, Andy Johns Fashions International
("Andy Johns") and Varon, and its wholly-owned subsidiaries, Mackintosh of
New England Co., Mackintosh (U.K.) Limited and Amy Industries De Honduras,
S.A. de C.V., which was organized during 1995. The Company had a 20%
interest in Hartwell Sports, Inc. and accounted for this investment, over
which it exercised significant influence, under the equity method in
accordance with Accounting Principle Board Opinion No. 18. All material
intercompany balances and transactions have been eliminated. Certain
amounts included in prior period financial statements have been
reclassified to conform with the 1996 presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation of the financial
statements.
5
<PAGE>
3. The results of operations for the three and nine month periods ended
September 30, 1996 and 1995 are not necessarily indicative of the results
to be expected for the full year.
4. Earnings per common share are based on the weighted average number of
common and common equivalent shares, if dilutive, outstanding during the
period. Common stock equivalents include incremental shares from the
exercise of stock options and warrants under the treasury stock method.
Earnings (loss) per share and weighted average shares have been restated
for the Company's May 1995 stock dividend.
5. Included in accounts payable at September 30, 1996 and September 30, 1995
are the Company's obligations under outstanding letters of credit of
$2,232,000 and $4,092,000, respectively.
6. On March 27, 1996, the Company sold its 20% investment in Hartwell Sports,
Inc. for $1,750,000. The sale resulted in a gain of $123,000 during the
first quarter ended March 31, 1996. Cash proceeds from this sale were used
to reduce Biscayne's outstanding bank indebtedness.
7. On March 28, 1996, Biscayne amended its loan agreements to provide for a
$56,250,000 credit facility. This facility provides financing for working
capital growth and capital expenditures, and includes a revolving credit
facility of $50,000,000 and a $6,250,000 term loan.
8. The Company's management agreement with Trivest, Inc. ("Trivest"), an
affiliate of the Company, was amended effective January 1, 1996 to reduce
the amount of the annual base management fee ("Base Fee") by $200,000
("1996 Reduction Amount") for the calendar year beginning January 1, 1996.
The amount of the Base Fee payable for periods beginning January 1, 1997
and thereafter will be determined as if the foregoing reduction had not
taken effect, provided the Company is in compliance with the terms of its
loan agreements. Otherwise, such prospective payments will be deferred and
subordinated to the Company's senior lenders.
In lieu of the 1996 Reduction Amount, the Company issued to Trivest a
warrant ("Warrant") to purchase an aggregate of 200,000 shares of the
Company's Common stock, $0.01 par value, for an exercise price of $0.75
per share, the market value as of March 26, 1996. The Warrant will be
exercisable in whole or in part at any time during the period beginning
January 1, 1997 and ending at the close of business on December 31, 2001.
Additionally, assuming the Company's Andy Johns Fashion International
Divisions' and Mackintosh of New England, Co. Subsidiary's combined pretax
income plus management fees, corporate expense and amortization of
goodwill ("Operating Income") exceeds 75% of the actual 1993 Operating
Income of $3,400,000, or $2,550,000, Trivest shall have the option to
6
<PAGE>
receive a cash payment of an amount ("Cash Payment of the 1996 Reduction
Amount") equal to 1% of the 1996 Reduction Amount for each 1% of excess
Operating Income earned in 1996, 1997 or 1998 above $2,550,000. The Cash
Payment of the 1996 Reduction Amount shall not exceed the remainder of (X)
the 1996 Reduction Amount minus (Y) the number of shares of stock issuable
under the Warrant.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1996 VERSUS QUARTER ENDED SEPTEMBER 30, 1995
Net sales for the third quarter of 1996 increased by 13% to $46,054,000 from the
third quarter of 1995 net sales of $40,898,000. This increase was attributable
to increases in net sales realized by Andy Johns and Mackintosh.
Cost of goods sold, as a percentage of net sales, decreased to 73% for the nine
months ended September 30, 1996, compared to 74% in 1995, primarily due to lower
production costs realized by M&L.
Selling, general and administrative expenses ("S,G&A") as a percentage of net
sales decreased to 15% for the quarter ended September 30, 1996, compared to 17%
for the quarter ended September 30, 1995. This cost decrease is primarily due to
increased sales and continued cost reductions at Andy Johns and Mackintosh.
OTHER
Interest and other expenses for the quarter ended September 30, 1996 increased
slightly by $13,000 from the comparable quarter of 1995. The increase is due to
the increased debt resulting from the 1995 losses. The Company reduced its bank
debt by $5,224,000 from September 30, 1995 to September 30, 1996.
Interest and other income increased to $293,000 in the third quarter of 1996
versus 1995 primarily due to direct letter of credit revenue earned by Andy
Johns during the third quarter of 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1996 VERSUS NINE MONTHS ENDED
SEPTEMBER 30, 1995
Net sales for the nine months ended September 30, 1996 increased 6% to
$75,183,000 from $70,804,000 for 1995. This increase is due to a 65% increase,
or $6,918,000 in sales realized by the Andy Johns division in 1996, compared to
1995.
Consolidated sales backlog at September 30, 1996 increased to $37,381,000 from
$28,836,000 at September 30, 1995. All divisions
7
<PAGE>
had increased sales backlog mainly due to improved market conditions and product
development enhancements.
Cost of goods sold as a percentage of net sales remained constant at 75% for the
nine months ended September 30, 1996 and 1995.
Selling, general and administrative expenses ("S,G&A"), as a percentage of net
sales, decreased to 24% for the first nine months of 1996, compared to 26% for
the first nine months of 1995. The decrease is mainly attributable to higher
sales realized by Andy Johns in 1996 versus 1995.
Historically, the apparel industry has been subject to substantial cyclical
fluctuation, with purchases of apparel and related goods tending to decline
during periods when disposable income is low. This trend could have a material
adverse effect on the Company's business.
The weakness of retail sales of outerwear in 1995 and early 1996 adversely
affected the Company's operating results. The Company believes that its
operating results will continue to be adversely affected as long as weakness
continues. In addition, various retailers, including some of Biscayne's
customers, have experienced financial difficulties during recent years which
have increased the risk of extending credit to such retailers.
OTHER
Interest and other expenses for the nine months ended September 30, 1996
increased to $2,677,000, compared to $2,425,000 for the nine months ended
September 30, 1995. The increase is due to increased bank borrowings incurred
during 1996, primarily related to the losses incurred in 1995.
Interest and other income increased to $456,000 for the first nine months of
1996 from $58,000 for the first nine months of 1995, primarily due to direct
letter of credit revenue earned by Andy Johns in the third quarter of 1996 and
license revenues earned by M&L in the first quarter of 1996.
On March 27, 1996, the Company sold its 20% interest in Hartwell Sports, Inc.
for $1,750,000. Proceeds were used to reduce notes payable to banks. The sale
resulted in a gain during 1996 of $123,000.
INCOME TAXES
For the quarters and nine months ended September 30, 1996 and 1995, the
provision (benefit) for income taxes was greater than the provision (benefit)
for income taxes which would have been derived upon application of the federal
statutory rate, primarily because of state income tax benefits and non-taxable
interest income offset by nondeductible amortization of goodwill.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $825,000 and $312,000 at September 30, 1996 and
December 31, 1995, respectively. At September 30, 1996, the Company's working
capital was $20,370,000, representing a current ratio of 1.50 to 1.00. This
compares to working capital of $19,559,000 and a current ratio of 1.68 to 1.00
at December 31, 1995. The decrease in the working capital ratio was due to
year-to-date losses and the seasonality of each of the Company's operations.
As presented in the Consolidated Statements of Cash Flows for the nine months
ended September 30, 1996, the increase of accounts receivable of $20,915,000 and
accounts payable of $2,457,000 and the decrease in inventories of $3,368,000 are
due to the seasonality of the Company's operations. On March 16, 1996 the
Company repaid $1,250,000 of its long-term debt. The Company has reduced its
overall bank debt by $5,224,000 from September 30, 1995 to September 30, 1996.
Capital expenditures for the nine months ended September 30, 1996 decreased to
$227,000 from $941,000 in 1995. The decrease is primarily due to Varon, which in
1995 had invested in equipment for its new Honduran plant.
The Company expects that cash on hand, cash from operations, and borrowings
under its revolving credit agreement will be sufficient to fund current
operations and to enable the Company to meet its obligations as they become due.
EFFECT OF INFLATION AND SEASONALITY
The Company believes that inflation will not significantly effect its profit
margins, or have a material effect on the prices of other goods and services
used in its business operations. Further, in connection with increases in wool
and cotton costs over the last several years, the Company has increased offshore
production.
Sales of women's and children's outerwear are seasonal. Historically, Andy
Johns, Mackintosh, M&L and Varon have significantly higher revenues in the third
and fourth quarters than in the first and second quarters. Therefore, the
results of any interim period are not necessarily indicative of the results
which might be expected during a full year. Additionally, there is a risk
inherently related to the outerwear industry, resulting from dependence on
consumer reactions to weather patterns, which have recently had a material
effect on the Company's sales and profitability.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is, from time to time, involved in routine litigation.
None of such litigation in which the Company is presently involved is material
to its financial position or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 11 - Computation of Per Share Earnings
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K:
During the quarter for which this Quarterly Report on Form
10-Q is filed, the Registrant did not file any Current Reports
on Form 8-K.
10
<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:
BISCAYNE APPAREL, INC.
Date: November 11, 1996 By: /S/ JOHN E. POLLACK
-----------------------------------
John E. Pollack
President and Chief
Executive Officer
Date: November 11, 1996 By: /S/ PETER VANDENBERG, JR.
-----------------------------------
Peter Vandenberg, Jr.
Vice President, Treasurer and
Chief Financial Officer
11
<TABLE>
<CAPTION>
EXHIBIT 11
BISCAYNE APPAREL, INC.
COMPUTATION OF PER SHARE EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Net earnings (loss) ........................................ $ 2,830 $ 1,355 $ (764) $ (2,020)
=========== =========== =========== ============
PRIMARY:
Common and common equivalent shares:
Weighted average common shares outstanding ............... 10,741,540 10,732,373 10,741,540 10,730,943
Potential dilution upon exercise of stock
options and warrants .................................... 1,995 131,631 -- --
----------- ----------- ---------- ------------
Shares used in computing net earnings (loss)
per common share......................................... 10,743,535 10,864,004 10,741,540 10,730,943
=========== =========== =========== ============
PER SHARE AMOUNTS:
Net earnings (loss) per share............................... $ 0.26 $ 0.12 $ (0.07) $ (0.19)
=========== =========== =========== ============
FULLY DILUTED:
Common and common equivalent shares:
Weighted average common shares outstanding ............... 10,741,540 10,732,373 10,741,540 10,730,943
Potential dilution upon exercise of
stock options and warrants .............................. 1,995 131,631 -- --
----------- ----------- ---------- ------------
Shares used in computing of earnings loss
per common share.......................................... 10,743,535 10,864,004 10,741,540 10,730,943
=========== =========== =========== ============
PER SHARE AMOUNTS:
Net earnings (loss) per share............................... $ 0.26 $ 0.12 $ (0.07) $ (0.19)
=========== =========== =========== ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 825
<SECURITIES> 0
<RECEIVABLES> 37,035
<ALLOWANCES> (2,502)
<INVENTORY> 22,270
<CURRENT-ASSETS> 61,041
<PP&E> 5,757
<DEPRECIATION> (2,355)
<TOTAL-ASSETS> 71,018
<CURRENT-LIABILITIES> 40,671
<BONDS> 0
0
0
<COMMON> 107
<OTHER-SE> 19,014
<TOTAL-LIABILITY-AND-EQUITY> 71,018
<SALES> 75,183
<TOTAL-REVENUES> 75,183
<CGS> 56,390
<TOTAL-COSTS> 56,390
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,677
<INCOME-PRETAX> (1,132)
<INCOME-TAX> (368)
<INCOME-CONTINUING> (764)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (764)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
