SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended August 3, 1996
Commission File No. 1-11722
CHIC BY H.I.S, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3494627
(State of Incorporation) (I.R.S. Employer
Identification No.)
1372 Broadway, New York, New York 10018
(Address of principal executive offices) (Zip Code)
(212) 302-6400
Registrant's telephone number,
including area code
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.
Shares
Date Class Outstanding
September 16, 1996 Common Stock, $.01 Par Value 9,753,868
1
<PAGE>
CHIC BY H.I.S, INC.
INDEX
Page
Part I. Financial Information
Item 1: Financial Statements (unaudited, except as noted):
Consolidated Balance Sheets at
August 3, 1996 and November 4, 1995 (audited) 3
Consolidated Statements of Operations
for the thirty-nine weeks ended August 3,
1996 and August 5, 1995 4
Consolidated Statements of Operations
for the thirteen weeks ended August 3,
1996 and August 5, 1995 5
Consolidated Statements of Cash Flows
for the thirty-nine weeks ended
August 3, 1996 and August 5, 1995 6
Consolidated Statements of Stockholders'
Equity for the thirty-nine weeks ended
August 3, 1996 and August 5, 1995 7
Notes to Consolidated Financial Statements 8
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-13
Part II. Other Information
Item 5: Special Note Regarding Forward-Looking Statements 14-15
Subsequent Events 16
Item 6: Exhibits and Reports on Form 8-K 17
Signature Page 18
-2-
<PAGE>
CHIC BY H.I.S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
August 3, 1996 November 4,
(UNAUDITED) 1995
ASSETS
CURRENT:
Cash and cash equivalents $11,045 $ 15,197
Accounts receivable (net of
reserve for possible losses) 50,807 40,181
Inventories 70,965 95,623
Prepaid expenses and other
current assets 9,792 7,638
------- --------
TOTAL CURRENT ASSETS 142,609 158,639
PROPERTY, PLANT, EQUIPMENT, AND
CONSTRUCTION IN PROGRESS
at cost, less accumulated depreciation 71,898 76,017
INTANGIBLE ASSET 528 528
DEFERRED FINANCING COSTS 1,190 3,225
RESTRICTED FUNDS HELD BY TRUSTEE - 409
OTHER ASSETS 1,049 707
------- --------
TOTAL ASSETS $217,274 $239,525
======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT:
Revolver debt $ 5,000 $ 6,500
Obligations under capital leases 891 702
Accounts payable 14,543 13,515
Accrued liabilities:
Payroll, payroll taxes and commissions 4,556 4,191
Income taxes 3,977 1,997
Other 6,184 8,340
-------- --------
TOTAL CURRENT LIABILITIES 35,151 35,245
-------- --------
NONCURRENT:
Long-term debt 74,308 84,663
Obligations under capital leases 1,550 1,598
Pension liability 4,592 4,592
-------- --------
TOTAL NONCURRENT LIABILITIES 80,450 90,853
-------- --------
STOCKHOLDERS' EQUITY 101,673 113,427
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $217,274 $239,525
======== ========
See notes to consolidated financial statements. -3-
<PAGE>
CHIC BY H.I.S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except share and per share data)
Thirty-nine Thirty-nine
weeks ended weeks ended
August 3, August 5,
1996 1995
NET SALES $245,358 $300,735
COST OF GOODS SOLD 193,111 242,158
Gross profit 52,247 58,577
-------- --------
LICENSING REVENUES 4,393 4,270
-------- --------
56,640 62,847
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 43,564 48,900
RESTRUCTURING CHARGES 15,000 0
-------- --------
OPERATING INCOME (LOSS) BEFORE INTEREST
AND FINANCE COSTS (1,924) 13,947
LESS: interest and finance costs 5,173 4,299
-------- --------
Income (loss) before
provision for income
taxes (7,097) 9,648
PROVISION FOR INCOME TAXES 3,719 3,811
-------- --------
NET INCOME (LOSS) $ (10,816) $ 5,837
======== ========
PER SHARE DATA:
Net income (loss) $ (1.11) $ .60
-------- --------
Average outstanding common shares 9,753,868 9,753,868
========= =========
-4-
<PAGE>
CHIC BY H.I.S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except share and per share data)
Thirteen Thirteen
weeks ended weeks ended
August 3, August 5,
1996 1995
NET SALES $90,185 $117,023
COST OF GOODS SOLD 72,641 96,437
-------- --------
Gross profit 17,544 20,586
LICENSING REVENUES 1,495 1,746
-------- --------
19,039 22,332
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 13,770 17,331
-------- --------
OPERATING INCOME BEFORE INTEREST
AND FINANCE COSTS 5,269 5,001
LESS: interest and finance costs 1,692 1,712
-------- --------
Income before provision for income taxes 3,577 3,289
PROVISION FOR INCOME TAXES 1,296 1,251
======== ========
NET INCOME $2,281 $2,038
======== ========
PER SHARE DATA:
Net income $ .23 $ .21
======== ========
Average outstanding common shares 9,753,868 9,753,868
========= =========
See notes to consolidated financial statements. - 5-
<PAGE>
CHIC BY H.I.S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Thirty-nine Thirty-nine
weeks ended weeks ended
August 3, August 5,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(10,816) $5,837
-------- --------
Adjustments to reconcile net income
or loss to net cash used in operating
activities:
Non-cash restructuring charges 9,545 -
Depreciation and amortization 2,520 4,462
Deferred interest - 614
Decrease (increase) in:
Accounts receivable (10,627) (18,347)
Inventories 24,659 (18,174)
Prepaid expenses and other (2,154) (3,310)
Other assets (342) (451)
Increase (decrease) in:
Accounts payable 1,029 (3,767)
Accrued liabilities 115 2,065
-------- --------
Total adjustments 24,745 (36,908)
-------- --------
Net cash provided by
(used in) operating activities 13,929 (31,071)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant, equipment, and
construction in progress (5,010) (23,700)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in loans
under revolver (1,500) 8,000
Increase (decrease) in long-term debt (102) 23,000
Repayment of long-term debt (10,000) (440)
Deferred financing costs (58) (2,014)
Principal payments under capitalized leases (680) (661)
Due from trustee 409 -
Proceeds from industrial development
revenue bonds - 11,543
Net cash provided by (used in)
financing activities (11,931) 39,428
-------- --------
DECREASE IN CASH (3,012) (15,343)
Effect of exchange rates on cash (1,141) 1,712
CASH AND CASH EQUIVALENTS,
beginning of period 15,197 19,952
-------- --------
CASH AND CASH EQUIVALENTS, end of period $11,044 $6,321
======== ========
Non-cash financing activity:
In 1996, the Company incurred capital lease additions of approximately
$821,000.
See notes to consolidated financial statements. -6-
<PAGE>
CHIC BY H.I.S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Excess
of addi-
tional
pension
liability
Foreign over
Retained currency intangible
Common Paid-in earnings translation pension
Total Stock Capital (Deficit) Adjustment Asset
<S> <C> <C> <C> <C> <C> <C>
BALANCE, NOVEMBER 5, 1994 $110,868 $98 $105,526 $ 7,788 $1,857 ($4,401)
Net income for the Thirty-nine
weeks ended August 5, 1995 5,837 - - 5,837 - -
Foreign currency
translation adjustment 1,389 - - 1,389 - -
-----------------------------------------------------------------
BALANCE, AUGUST 5, 1995 $118,094 $98 $105,526 $13,625 $3,246 ($4,401)
=================================================================
BALANCE, NOVEMBER 4, 1995 $113,427 $98 $105,526 $8,800 $3,068 ($4,065)
Net income for the Thirty-nine
weeks ended August 3, 1996 (10,816) - - (10,816) - -
Foreign currency
translation adjustment (938) - - - (938) -
-----------------------------------------------------------------
BALANCE, AUGUST 3, 1996 $101,673 $98 $105,526 ($2,016) $2,130 ($4,065)
=================================================================
</TABLE>
See notes to consolidated financial statements. -7-
<PAGE>
CHIC BY H.I.S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The accompanying unaudited 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
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.
RESTRUCTURING CHARGE. The Company has restructured certain manufacturing
operations due to the continuing softness in the retail market. Such
restructuring includes the closing of a certain manufacturing facility and an
accompanying reduction in the workforce of other facilities. The Company
closed the Hohenwald, Tennessee facility, resulting in the termination of
approximately 400 employees, and reduced the workforce throughout the Company
by a total of 943 employees. In connection with the restructuring, the Company
has taken a restructuring charge against earnings in the amount of $15
million, consisting of the following:
(In 000's)
Write-off of property, plant and equipment $8,300
Write-off of deferred financing costs related to plant expansion 2,000
Write-off costs related to downsizing of production 1,800
Other anticipated plant closing cost to be incurred 2,900
-------
$15,000
=======
Substantially all of the restructuring charge represents non-cash items
related to the write-off of production assets, the revaluation of inventory
and the write-off of deferred financing costs. In recent years, the Company
incurred financing costs related to the issuance of a series of industrial
revenue bonds and senior notes utilized for plant and capacity expansion.
<PAGE>
CHIC BY H.I.S, INC. AND SUBSIDIARIES
Item 2: Management's discussion and
analysis of financial condition
and results of operations
GENERAL
As a designer, manufacturer and marketer of moderately priced, basic style
male and female denim jeans, casual pants and shorts, Chic by H.I.S, Inc. (the
"Company") believes that its products constitute basic apparel and, as such,
generally do not depend upon impulse buying or high fashion trends. The
Company distributes its products primarily through mass merchandisers which
constitute the Company's traditional channel of distribution.
The following discussion provides information and analysis of the results of
operations of the Company for the thirty-nine and thirteen weeks ended August
3, 1996 and August 5, 1995 and its liquidity and capital resources.
<PAGE>
CHIC BY H.I.S, INC. AND SUBSIDIARIES
The following table sets forth selected operating data as a percentage
of net sales for the periods indicated.
Thirty-nine weeks ended Thirteen weeks ended
----------------------- --------------------
August 3, August 5, August 3, August 5,
1996 1995 1996 1995
Net sales:
United States 68.0% 76.0% 72.0% 77.0%
Europe 32.0 24.0 28.0 23.0
Consolidated 100.0 100.0 100.0 100.0
Gross margin:
United States 12.2 12.8 11.3 10.9
Europe 40.5 40.8 40.4 39.8
Consolidated 21.3 19.5 19.5 17.6
Licensing revenues 1.8 1.4 1.7 1.5
Selling, general and administrative
expenses 17.8 16.3 15.3 14.8
Restructuring charges 6.1 0 0 0
Operating income (loss) (.8) 4.6 5.9 4.3
Interest and finance costs 2.1 1.4 1.9 1.5
Income (loss) before provision
for income taxes and
extraordinary item (2.9) 3.2 4.0 2.8
Provision for income taxes 1.5 1.3 1.4 1.1
Net income (loss) (4.4)% 1.9% 2.6% 1.7%
<PAGE>
CHIC BY H.I.S, INC. AND SUBSIDIARIES
Thirty-nine Weeks ended August 3, 1996 Compared to Thirty-nine Weeks ended
August 5, 1995
NET SALES. Net sales for the thirty-nine weeks ended August 3,1996
decreased $55.4 million, or 18.4%, from $300.7 million for the thirty-nine
weeks ended August 5,1995 to $245.3 million. United States sales decreased by
$61.9 million, or 27.1%, to $166.8 million due primarily to the downturn of
retail sales. As of August 3, 1996, the Company had a total backlog of
confirmed domestic purchase orders of $74.5 million, a decrease of 42.8%
compared to $130.3 million on August 5, 1995. In the thirty-nine weeks ended
August 3,1996, European sales increased by $6.5 million, or 9.0%, to $78.5
million due to continued penetration of the European market. As of August 3,
1996, the Company had a backlog of confirmed European purchase orders of 40.9
million deutsche marks, an increase of 9.9% compared to 37.2 million deutsche
marks on August 5, 1995. The confirmed European backlog, when converted into
U.S. currency at the then prevailing rate, was $27.7 million, an increase of
3.4% compared to $26.8 million on August 5, 1995.
GROSS PROFIT. Gross profit for the thirty-nine weeks ended August 3,
1996 decreased $6.4 million, or 10.9%, from $58.6 million in the thirty-nine
weeks ended August 5,1995 to $52.2 million, and gross margin increased to
21.3% from 19.5%. United States gross profit decreased $8.8 million from
$29.2 million for the thirty-nine weeks ended August 5, 1995 to $20.4 million.
The reduction of the gross profit amount and as a percentage of net sales in
the United States was primarily due to the downturn in the retail market and
resultant under utilization of plant capacity. European gross margin
decreased from 40.8% in the thirty-nine weeks ended August 5, 1995 to 40.5%
primarily due to product mix.
LICENSING REVENUES. Licensing revenues for the thirty-nine weeks
ended August 3, 1996 increased $.1 million, or 2.3%, from $4.3 million for the
thirty-nine weeks ended August 5, 1995 to $4.4 million primarily due to an
increase in licensing revenues in the United States.
SG&A EXPENSES. Selling, general and administrative expenses decreased
$5.3 million, or 10.8%, to $43.6 million for the thirty-nine weeks ended
August 3, 1996 primarily due to decreased advertising costs.
RESTRUCTURING CHARGE. The Company has restructured certain
manufacturing operations due to the continuing softness in the retail market.
Such restructuring includes the closing of a certain manufacturing facility
and an accompanying reduction in the workforce of other facilities. The
Company closed the Hohenwald, Tennessee facility, resulting in the termination
of approximately 400 employees, and reduced the workforce throughout the
Company by a total of 943 employees. In connection with the foregoing the
Company has taken a restructuring charge against earnings in the amount of $15
million.
OPERATING INCOME. Operating income for the thirty-nine weeks ended
August 3, 1996 decreased $15.9 million from an operating profit of $13.9
million in the thirty-nine weeks ended August 5,1995 to an operating loss of
$2.0 million and operating margin decreased from 4.6% to (.8)%, primarily due
to the Company's restructuring charges.
INTEREST AND FINANCE COSTS. Interest and finance costs increased $.9
million or 20.9%, from $4.3 million for the thirty-nine weeks ended August 5,
1995 to $5.2 million in the thirty-nine weeks ended August 3, 1996. The
increase in interest cost was primarily due to higher levels of borrowings.
INCOME TAXES. The provisions for income taxes for the thirty-nine
weeks ended August 3, 1996 was $3.7 million as compared to $3.8 million for
the thirty-nine weeks ended August 5, 1995. The provision for income taxes for
the thirty-nine weeks ended August 3, 1996 consists primarily of foreign
income taxes related to the Company's European operation.
<PAGE>
CHIC BY H.I.S, INC. AND SUBSIDIARIES
Thirteen Weeks ended August 3, 1996 (the "1996 Third Quarter") Compared to
Thirteen Weeks ended August 5, 1995 (the "1995 Third Quarter")
NET SALES. Net sales for the 1996 Third Quarter decreased $26.8
million, or 22.9%, from $117.0 million for the 1995 Third Quarter to $90.2
million. United States sales decreased by $25.2 million, or 28.0%, to $64.9
million due primarily to the downturn of retail sales. In the 1996 Third
Quarter, European sales decreased by $1.6 million, or 5.9%, to $25.3 million.
GROSS PROFIT. Gross profit for the 1996 Third Quarter decreased $3.1
million, or 15.0%, from $20.6 million in the 1995 Third Quarter to $17.5
million, and gross margin increased to 19.5% from 17.6%. United States gross
profit decreased $2.6 million from $9.9 million for the 1995 Third Quarter to
$7.3 million. The reduction of the gross profit amount in the United States
was primarily due to the downturn in the retail market which resulted in under
utilization of plant capacity. European gross margin increased from 39.8% in
the 1995 Third Quarter to 40.4% primarily due to product mix.
LICENSING REVENUES. Licensing revenues for the 1996 Third Quarter
decreased $.2 million to $1.5 million for the 1996 Third Quarter as compared
to $1.7 million for the 1995 Third Quarter. Licensing revenues in the United
States remained flat at $1.5 million. European licensing revenues decreased
$.2 million for the 1996 Third Quarter.
SG&A EXPENSES. Selling, general and administrative expenses decreased
$3.5 million, or 20.2%, to $13.8 million for the 1996 Third Quarter primarily
due to decreased advertising costs.
OPERATING INCOME. Operating income for the 1996 Third Quarter
increased $.3 million from an operating profit of $5.0 million in the 1995
Third Quarter to an operating profit of $5.3 million and operating margin
decreased from 4.3% to 5.8%, primarily due to the continued softness at
retail.
INTEREST AND FINANCE COSTS. Interest and finance costs for the 1996
Third Quarter was $1.7 million as compared to $1.7 million for the 1995 Third
Quarter.
INCOME TAXES. The provisions for income taxes for the 1996 Third
Quarter was $1.3 million as compared to $1.3 million for the 1995 Third
Quarter.
<PAGE>
CHIC BY H.I.S, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements have been to fund working
capital needs and capital expenditures. The Company has historically relied
primarily on internally generated funds, trade credit, bank borrowings and
other debt offerings to finance these needs.
In the Thirty-nine weeks ended August 3, 1996, net cash of $13.9
million was provided by operations, as compared to $31.1 million net cash used
in the Thirty-nine weeks ended August 5, 1995. The net cash provided by
operations was primarily attributable to the decrease in inventories of $24.7
million and the increase in accounts payable and accrued expenses of $1.1
million, partially offset by the increase in accounts receivable of $10.6
million, and prepaid and other assets of $2.5 million. The increase in account
receivable is primarily attributable to higher shipments in the quarter. The
decrease in accrued expenses is primarily due to the payment of vacation
benefits accrued at the year end in December 1995. The decrease in the
inventories is primarily attributable to a reduction in the quantity and
average unit cost of finished goods. These changes are not believed to
represent a permanent trend in the Company's operations.
Net cash used in investing activities decreased by $18.7 million in
the Thirty-nine weeks ended August 3, 1996 to $5.0 million as compared to
$23.7 million in the Thirty-nine weeks ended August 5, 1995. Cash used in
investing activities has been expended primarily for the acquisition and
renovation of manufacturing, laundry and warehouse facilities. These
investments were primarily financed by the proceeds of industrial development
revenue bonds (IRBs). The Company has no material outstanding capital
expenditure commitments.
Net cash used by financing activities was $11.9 million in the Thirty-
nine weeks ended August 3, 1996, as compared to $39.4 million provided by
financing activities in the Thirty-nine weeks ended August 5, 1995. The cash
used in financing operations in the Thirty-nine weeks ended August 3, 1996 was
used primarily for the repayment of $5 million revolver borrowings and
repayment of $10 million long term debt.
As of August 3, 1996, the Company had credit agreements providing a
$37.5 million revolving line of credit, and $43 million in senior notes. As of
August 3, 1996, the Company had $5 million of borrowings against the revolving
line of credit. In addition, the Company had $21.2 million of IRBs outstanding
at August 3, 1996, the proceeds of which have been used to finance plant
expansions. The Company also has foreign financing agreements with three banks
providing term loans aggregating 7.6 million deutsche marks (approximately $5.2
million, based on the August 3, 1996 foreign currency exchange rate) and lines
of credit aggregating 18 million deutsche marks (approximately $10.4 million,
based on the August 3, 1996 foreign currency exchange rate). Approximately $5.2
million was outstanding against the foreign lines of credit as of August 3,
1996.
The Company is a holding company, and is dependent upon the receipt of
dividends or other payments from its subsidiaries. The Company expects that
cash generated from operations and the credit agreements will provide the
financial resources sufficient to meet its foreseeable working capital and
capital expenditure requirements. There can be no assurance, however, that the
Company will not need to borrow from other sources during such period.
In recent years, certain retail customers have experienced significant
financial difficulties. The Company attempts to minimize its credit risk
associated with these customers by closely monitoring its accounts receivable
balances and their ongoing financial performance and credit status.
Historically, the Company has not experienced material adverse effects from
transactions with these customers. However, considering the customer
concentration of the Company's net sales, any material financial difficulty
experienced by a significant customer could have an adverse effect on the
Company's financial position or results of operations.
<PAGE>
CHIC BY H.I.S, INC. AND SUBSIDIARIES
Part II OTHER INFORMATION
Item 5: SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Except for the historical information
contained in this filing, the matters discussed herein are forward-looking
statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results,
performance, or achievements of the Company, or industry results, to be
materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, those set forth below under the heading "Additional Cautionary
Statements" as well as the following: general economic and business
conditions; industry capacity; fashion, apparel and other industry trends;
competition; overseas expansion; the loss of major customers; changes in
demand for the Company's products; cost and availability or raw materials;
changes in business strategy or development plans; quality of management; and
availability, terms and deployment of capital. Special attention should be
paid to the forward-looking statements contained herein including, but not
limited to, statements relating to the Company's ability to obtain sufficient
financial resources to meet its capital expenditure and working capital needs,
financial risks associated with customers experiencing financial difficulties,
the benefits expected to be derived from the restructuring described in this
report, international expansion and competition.
Additional Cautionary Statements
DEPENDENCE ON MAJOR CUSTOMERS. The Company's two largest customers,
Kmart Corporation ("K-Mart") and Target, a division of Dayton Hudson
Corporation ("Target"), together accounted for approximately 35% and 37% of
the Company's consolidated net sales during fiscal 1994 and fiscal 1995,
respectively. Each of these customers accounted for more than ten percent of
the Company's consolidated net sales in such periods. The loss of either K-
Mart or Target could have an adverse effect on the results of the Company's
operations. In addition, several of the Company's licensees sell products
bearing the Company's trademarks to the same retailers, including K-Mart. The
Company has no long-term commitments or long-term contracts with any of its
customers.
RECENT APPAREL INDUSTRY TRENDS. Competition in the apparel industry
has been exacerbated by the recent consolidations and closings of major
stores. Like many of its competitors, the Company sells to certain retailers
who have recently experienced financial difficulties and some of whom are
currently operating under the protection of the federal bankruptcy laws.
Although the Company monitors the financial condition of its customers, the
Company cannot predict what effect, if any, the financial condition of such
customers will have on the Company. The Company believes that developments to
date within these companies have not had a material adverse effect on the
Company's financial position or results of operations. Although the Company
currently does not manufacture in foreign countries for the domestic market,
as new opportunities arise for manufacturing in foreign countries for the
domestic market (either through subcontractors or on a direct basis), such as
opportunities presented by the North American Free Trade Agreement or changes
in international economic conditions, the Company and its competitors may
avail themselves of any advantages of manufacturing in foreign countries,
which may tend to increase competition. In this regard, the Company is
currently establishing manufacturing operations in Mexico.
<PAGE>
CHIC BY H.I.S, INC. AND SUBSIDIARIES
NATURE OF INDUSTRY; DEPENDENCE ON JEANS. The apparel industry is
highly competitive and characterized generally by ease of entry. Many of the
Company's competitors are substantially larger and have greater financial,
marketing and other resources than the Company. The Company's revenues are
derived principally from sales of jeans products. Although the Company's
products for the domestic market have historically been less sensitive to
fashion trends than higher fashion lines, the apparel industry is subject to
rapidly changing consumer preferences, which may have an adverse effect on the
results of the Company's operations if the Company materially misjudges such
preferences.
DEPENDENCE ON KEY PERSONNEL. The Company depends on the services of
certain key personnel, including Mr. Burton M. Rosenberg, the Chairman of the
Board and Chief Executive Officer of the Company. The Company believes that
the loss of the services of any of these key personnel could have an adverse
effect on the results of the Company's operations.
RISKS OF DOING BUSINESS OVERSEAS. The Company's sales and earnings
attributable to its European operations have generally been increasing in
recent years and may in the future constitute a greater proportion of the
Company's sales and earnings. In general, the Company believes that the demand
for jeans in foreign markets is more susceptible to changes in fashion
preferences than in the domestic market. In addition, it is not possible to
predict accurately the effect that the continued elimination of trade barriers
among members of the European Union will have on the Company's operations in
Europe. The Company is also expanding its activities in Eastern Europe, where
economic, political and financial conditions are changing rapidly, and is
currently establishing manufacturing operations in Mexico. In general, there
can be no assurance that the results of the Company's European operations or
the operations in Mexico that the Company is establishing will not be
adversely affected by factors such as restrictions on transfer of funds,
political instability, competition, the relative strength of the U.S. dollar,
changes in fashion preferences and general economic conditions.
ABSENCE OF DIVIDENDS. The Company has not, in recent years, paid any
cash or other dividends on its Common Stock, and there can be no assurance
that the Company will pay cash dividends in the foreseeable future. As a
holding company, the ability of the Company to pay dividends is dependent upon
the receipt of dividends or other payments from its subsidiaries. The
Company's domestic credit agreements (the "Loan Agreements") contain certain
limitations on the Company's ability to pay dividends In addition, an
agreement between h.i.s sportswear GmbH, the Company's wholly owned German
subsidiary ("Sportswear"), and one of its lenders would prohibit Sportswear
from paying dividends to the Company under certain circumstances.
LEVERAGE AND FINANCIAL COVENANTS. Although the Company's initial
public offering in February 1993 and the other components of its refinancing
plan (the "Refinancing Plan") improved the Company's operating and financial
flexibility, the Company continues to have indebtedness that could adversely
affect its ability to respond to changing business and economic conditions. At
August 3, 1996, the Company had an aggregate of approximately $81.8 million of
indebtedness (including capital leases) outstanding and the Company's
stockholders' equity was approximately $101.7 million. In addition, the
Company's Loan Agreements contain covenants that impose certain operating and
financial restrictions on the Company. Such restrictions affect, and in many
respects limit or prohibit, among other things, the ability of the Company to
incur additional indebtedness, create liens, sell assets, engage in mergers or
acquisitions, make capital expenditures and pay dividends.
<PAGE>
CHIC BY H.I.S, INC. AND SUBSIDIARIES
SUBSEQUENT EVENTS
The Company has decided to establish some manufacturing in Mexico for
its domestic market. The Company established a Mexican Maquiladora Company
and purchased a building which will be renovated into a sewing manufacturing
facility.
The Company has decided to expand its operations into Eastern Europe.
The Company has established a subsidiary in Poland, HIS POLSKA. The Polish
operation will merchandise, market, and, distribute within the Polish retail
market. The manufacturing of the merchandise to be sold will be contracted
through HIS GmbH. The selection of Poland was based upon market research,
logistic accessibility and a total population of approximately 40 million
consumers.
The Company's German subsidiary has decided to discontinue its
existing licensing agreement in the Czech Republic. The Company has
established an office in Prague, which will merchandise, market, and directly
distribute the Company's own products.
<PAGE>
CHIC BY H.I.S, INC. AND SUBSIDIARIES
Item 6.EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURE
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.
CHIC BY H.I.S, INC.
Dated: September 16, 1996 By: /s/ Burton M. Rosenberg
-----------------------
Burton M. Rosenberg
Chief Executive Officer
Dated: September 16, 1996 By: /s/ John Chin
-----------------------
John Chin
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND THE
CONSOLIDATED STATEMENT OF OPERATIONS
AS FILED AS PART OF THE QUARTERLY REPORT ON FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
<MULTIPLIER> 1,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-4-1995
<PERIOD-END> AUG-3-1996
<CASH> 11,045
<SECURITIES> 0
<RECEIVABLES> 51,153
<ALLOWANCES> 346
<INVENTORY> 70,965
<CURRENT-ASSETS> 142,609
<PP&E> 130,750
<DEPRECIATION> 58,852
<TOTAL-ASSETS> 217,274
<CURRENT-LIABILITIES> 35,151
<BONDS> 75,857
<COMMON> 98
0
0
<OTHER-SE> 101,575
<TOTAL-LIABILITY-AND-EQUITY> 217,274
<SALES> 245,358
<TOTAL-REVENUES> 249,751
<CGS> 193,111
<TOTAL-COSTS> 43,526
<OTHER-EXPENSES> 15,000
<LOSS-PROVISION> 38
<INTEREST-EXPENSE> 5,173
<INCOME-PRETAX> (7,097)
<INCOME-TAX> 3,719
<INCOME-CONTINUING> (10,816)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,816)
<EPS-PRIMARY> (1.11)
<EPS-DILUTED> 0
</TABLE>
