SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended February 3, 1996
Commission File No. 1-11722
CHIC BY H.I.S, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-3494627
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(State of Incorporation) (I.R.S. Employer
Identification No.)
1372 Broadway, New York, New York 10018
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(Address of principal executive offices) (Zip Code)
(212) 302-6400
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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
May 6, 1996 Common Stock, $.01 Par Value 9,753,868
<PAGE> Page 2
CHIC BY H.I.S, INC.
INDEX
PAGE
Part I. Financial Information
Item 1: Financial Statements (unaudited):
Consolidated Balance Sheets at
February 3, 1996 and November 5, 1995 3
Consolidated Statements of Operations
for the thirteen weeks ended February 3,
1996 and February 4, 1995 4
Consolidated Statements of Cash Flows
for the thirteen weeks ended
February 3, 1996 and February 4, 1995 5
Consolidated Statements of Stockholders'
Equity for the thirteen weeks ended
February 3, 1996 and February 4, 1995 6
Notes to Consolidated Financial Statements 7
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
Part II. Other Information
Item 6: Exhibits and Reports on Form 8-K 12
Signature Page 13
<PAGE> Page 3
CHIC BY H.I.S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
February 3, November 4,
1996 1995
ASSETS
CURRENT:
Cash and cash equivalents $ 8,482 $ 15,197
Accounts receivable (net of
reserve for possible losses) 41,220 40,181
Inventories 89,334 95,623
Prepaid expenses and other
current assets 9,283 7,638
------- -------
TOTAL CURRENT ASSETS 148,319 158,639
PROPERTY, PLANT AND EQUIPMENT, at
cost, less accumulated depreciation 71,080 76,017
INTANGIBLE ASSETS 628 628
DEFERRED FINANCING COSTS 1,200 3,225
RESTRICTED FUNDS HELD BY TRUSTEE 411 409
OTHER ASSETS 852 607
------- -------
TOTAL ASSETS $ 222,490 $ 239,525
======= =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT:
Foreign bank debt $ 3,557 $ -
Revolver debt 3,000 6,500
Obligations under capital leases 878 702
Accounts payable 10,478 13,515
Accrued liabilities
Payroll, payroll taxes and commissions 4,218 4,191
Restructuring charges 2,940 -
Income taxes 1,285 1,997
Other 6,556 8,340
------- -------
TOTAL CURRENT LIABILITIES 32,912 35,245
------- -------
NONCURRENT:
Long-term debt 84,386 84,663
Obligation under capital leases 2,028 1,598
Pension liability 4,592 4,592
------- -------
TOTAL NONCURRENT LIABILITIES 91,006 90,853
------- -------
STOCKHOLDERS' EQUITY 98,572 113,427
------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 222,490 $ 239,525
========= =========
See notes to consolidated financial statements.
<PAGE> Page 4
CHIC BY H.I.S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except share and per share data)
==================================================
Thirteen weeks Thirteen weeks
ended ended
February 3, February 4,
1996 1995
---------- ----------
NET SALES $ 70,829 $ 76,307
COST OF GOODS SOLD 54,656 59,423
----------- ----------
Gross profit 16,173 16,884
LICENSING REVENUES 1,619 1,202
----------- ----------
17,792 18,086
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 13,416 14,509
RESTRUCTURING CHARGES 15,000 -
---------- ---------
OPERATING INCOME (LOSS) BEFORE INTEREST
AND FINANCE COSTS (10,624) 3,577
LESS: interest and finance cost 1,863 1,048
---------- ---------
Income (loss) before
provision for income taxes (12,487) 2,529
PROVISION FOR INCOME TAXES 1,285 1,105
---------- ---------
NET INCOME (LOSS) ($13,772) $1,424
============= ===========
PER SHARE DATA:
Net income (loss) ( $1.41) $.15
=========== ===========
Average outstanding common shares 9,753,868 9,753,868
========= =========
See notes to consolidated financial statements.
<PAGE> Page 5
CHIC BY H.I.S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Thirteen weeks Thirteen weeks
ended ended
February 3, February 4,
1996 1995
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($13,772) $ 1,424
----------- --------
Adjustments to reconcile net income
to net cash used in operating
activities:
Non-cash restructuring charges 12,436 -
Depreciation and amortization 159 1,499
Deferred interest - 402
Accretion of debt - (60)
Decrease (increase) in:
Accounts receivable (1,039) (372)
Inventories 6,289 (15,456)
Prepaid expenses and other (1,645) (3,448)
Other assets (212) (221)
Increase (decrease) in:
Accounts payable (3,037) (3,396)
Accrued liabilities (2,469) (3,464)
------- --------
Total adjustments 10,482 (24,516)
------- --------
Net cash provided by (used in)
operating activities (3,290) (23,092)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (1,905) (3,945)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in foreign bank debt 3,557 -
Increase (decrease) in loans under revolver(3,500) 13,000
Principal payments under capitalized leases (215) (170)
Due from trustee (2) 1,396
-------- -------
Net cash provided by (used in)
financing activities (160) 14,226
-------- -------
DECREASE IN CASH (5,355) (12,811)
Effect of exchange rates on cash (1,360) (156)
CASH AND CASH EQUIVALENTS, beginning of
period 15,197 19,952
------ ------
CASH AND CASH EQUIVALENTS, end of period $8,482 $6,985
====== ======
See notes to consolidated financial statements.
<PAGE> Page 6
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 1,424 - - 1,424 - -
Foreign currency
translation adjustment (116) - - - (116) -
--------------------------------------------------------
BALANCE, FEBRUARY 4, 1995 $112,176 $98 $105,526 $9,212 $1,741 ($4,401)
========================================================
BALANCE, NOVEMBER 4, 1995 $113,427 $98 $105,526 $8,800 $3,068 ($4,065)
Net loss (13,772) - - (13,772) - -
Foreign currency
translation adjustment (1,083) - - - (1,083) -
-------------------------------------------------------
BALANCE, FEBRUARY 3, 1996 $98,572 $98 $105,526 ($4,972) $1,985 ($4,065)
=======================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE> Page 7
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 decided to restructure 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 intends to close the Hohenwald, Tennessee facility, resulting in the
termination of approximately 400 employees, and reduce 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. The
restructuring, which the Company expects to be completed by May 1, 1996, is
expected to result in cost savings to the Company in excess of $3.6 million
over the next 12 months.
<PAGE> Page 8
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 thirteen weeks ended February 3, 1996 and
February 4, 1995 and its liquidity and capital resources.
<PAGE> Page 9
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.
Thirteen weeks ended
----------------------------
February 3, February 4,
1996 1995
---------- ----------
Net sales:
United States 66.4% 75.9%
Europe 33.6 24.1
---- ----
Consolidated 100.0 100.0
Gross margin:
United States 13.0 15.8
Europe 42.2 42.0
Consolidated 22.8 22.1
Licensing revenues 2.3 1.6
Selling, general and administrative
expenses 18.9 19.0
Restructuring charges 21.2 .0
Operating income (15.0) 4.7
Interest and finance costs 2.6 1.4
Income before provision for
income taxes and extraordinary item (17.6) 3.3
Provision for income taxes 1.8 1.4
Net income (19.4) 1.9
<PAGE> Page 10
CHIC BY H.I.S, INC. AND SUBSIDIARIES
Thirteen Weeks ended February 3, 1996 (the "1996 First Quarter") Compared to
Thirteen Weeks ended February 4, 1995 (the "1995 First Quarter")
NET SALES. Net sales for the 1996 First Quarter decreased $5.5
million, or 7.2%, from $76.3 million for the 1995 First Quarter to $70.8
million. United States sales decreased by $10.9 million, or 18.8%, to $ 47.0
million due primarily to the downturn of retail sales. As of February 3,
1996, the Company had a total backlog of confirmed domestic purchase orders of
$78.5 million, a decrease of 56.4% compared to $180 million on February 4,
1995. In the 1996 First Quarter, European sales increased by $5.4 million, or
29.3%, to $23.8 million due to continued penetration of the market. As of
February 3, 1996, the Company had a backlog of confirmed European purchase
orders of $41.8 million deutsche marks, an increase of 5.0% compared to $39.8
million deutsche marks on February 4, 1995. The confirmed European backlog,
when converted into U.S. currency at the then prevailing rate, was $28.1
million, an increase of 7.7% compared to $26.1 million on February 4, 1995.
GROSS PROFIT. Gross profit for the 1996 First Quarter decreased $.7
million, or 4.2%, from $16.9 million in the 1995 First Quarter to $16.2
million, and gross margin increased to 22.8% from 22.1%. United States gross
profit decreased $3.1 million from $9.2 million for the 1995 First Quarter to
$6.1 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 increased from 40.2% in the 1995 First Quarter to 42.2% primarily due
to product mix and increased market share.
LICENSING REVENUES. Licensing revenues for the 1996 First Quarter
increased $.4 million, or 33.3%, from $1.2 million for the 1995 First Quarter
to $1.6 million primarily due to an increase in licensing revenues in the
United States from $1.0 million to $1.4 million for the 1996 First Quarter.
SG&A EXPENSES. Selling, general and administrative expenses
decreased $1.1 million, or 7.6%, to $13.4 million for the 1996 First Quarter
primarily due to decreased advertising costs.
RESTRUCTURING CHARGE. The Company has decided to restructure
certain manufacturing operations due to the continuing downturn in the retail
market. Such restructuring includes the closing of certain manufacturing
facilities and an accompanying reduction in the workforce. In connection with
the foregoing the Company has taken a restructuring charge against earnings in
the amount of $15 million. The Company believes that these actions will result
in cost savings to the Company in excess of $3,600,000 over the next 12
months.
OPERATING INCOME. Operating income for the 1996 First Quarter
decreased $14.2 million from an operating profit of $3.6 million in the 1995
First Quarter to an operating loss of $10.6 million and operating margin
decreased from 4.7% to (15.0%), primarily due to the Company's restructuring
charges.
INTEREST AND FINANCE COSTS. Interest and finance costs increased
$.8 million or 80.0%, from $1.0 million for the 1995 First Quarter to $1.8
million in the 1996 First Quarter. The increase in interest cost was primarily
due to higher levels of borrowings.
INCOME TAXES. The provisions for income taxes for the 1996 First
Quarter was $1.3 million as compared to $1.1 million for the 1995 First
Quarter.
<PAGE> Page 11
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 1996 First Quarter, net cash of $3.3 million was used in
operations, as compared to $23.1 million in the 1995 First Quarter. The net
cash used in operations was primarily attributable to the net loss of $1.2
million, net of non-cash restructuring charges and depreciation and
amortization, the decrease in accounts payable and accrued expenses of $5.5
million and the increase in accounts receivable of $1.0, which was partially
offset by the decrease in inventories of $6.3 million. The increase in
accounts receivable is primarily attributable to late shipments in the quarter.
The decrease in the 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 $2.0 million in
the 1996 First Quarter to $1.9 million as compared to $3.9 million in the 1995
First Quarter. Cash used in investing activities has been primarily
attributable to 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 $.2 million in the 1996
First Quarter, as compared to $14.2 million provided by financing activities in
the 1995 First Quarter. The cash provided by financing operations in the 1995
First Quarter was primarily attributable to the increase in borrowings under
the Company's domestic revolving credit line of $13.0 million. During the 1996
First Quarter, the Company reduced borrowings under its domestic revolving
credit line by approximately $3.5 million, which was offset by increases in its
borrowings against its foreign financing agreements.
As of February 3, 1996, the Company had credit agreements providing
a $37.5 revolving line of credit, a $10.0 million in senior term loan, and
$43.0 million in senior notes payable. As of February 3, 1996, $3.0 million
was outstanding on the revolving line of credit. In addition, the Company had
$26.2 million of IRBs outstanding at February 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
7,750,000 deutsche marks (approximately $5,230,000, based on the February 3,
1996 foreign currency exchange rate) and lines of credit aggregating 18 million
deutsche marks (approximately $12,150,000, based on the February 3, 1996
foreign currency exchange rate). Approximately $3.5 million was outstanding
against the foreign lines of credit as of February 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> Page 12
CHIC BY H.I.S, INC. AND SUBSIDIARIES
Part II OTHER INFORMATION
Item 6.EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
<PAGE> Page 13
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: May 6, 1996 By: /S/ BURTON M. ROSENBERG
---------------------------------
Burton M. Rosenberg
Chief Executive Officer
Dated: May 6, 1996 By: /S/ JOHN CHIN
---------------------------------
John Chin
Chief Financial Officer
