<PAGE> 1
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: 0-24176
Marisa Christina, Incorporated
(Exact name of registrant as specified in its charter)
Delaware 11-3216809
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
415 Second Avenue New Hyde Park, New York 11040
(Address of principal executive offices) (Zip Code)
(516) 352-5050
(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
--- ---
The number of shares outstanding of the Company's Common Stock on October
31, 1996 were 8,384,769.
<PAGE> 2
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of December 31, 1995
and September 30, 1996 (Unaudited) 2
Consolidated Statements of Earnings for the Three and Nine Months
Ended September 30, 1995 and 1996 (Unaudited) 3
Consolidated Statement of Stockholders' Equity for the Nine Months
Ended September 30, 1996 (Unaudited) 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1995 and 1996 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995(1) 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $20,512,918 $ 1,442,525
Accounts receivable, less allowance for doubtful
accounts of $136,199 in 1995 and $220,272 in 1996 12,055,079 13,219,276
Inventories 9,325,223 11,822,328
Prepaid expenses and other current assets 1,553,225 4,347,556
----------- -----------
Total current assets 43,446,445 30,831,685
Property and equipment, net 2,181,767 2,729,336
Goodwill, less accumulated amortization of $990,473
in 1995 and $2,336,080 in 1996 8,038,798 33,389,186
Other assets 342,429 1,173,635
----------- -----------
Total assets $54,009,439 $68,123,842
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable to banks $ -- $ 6,000,000
Accounts payable 5,504,140 7,380,007
Income taxes payable 757,101 260,155
Accrued expenses and other current liabilities 1,397,335 2,791,159
----------- -----------
Total current liabilities 7,658,576 16,431,321
Other liabilities 128,000 128,000
----------- -----------
Total liabilities 7,786,576 16,559,321
----------- -----------
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized, none issued -- --
Common stock, $.01 par value; 15,000,000 shares
authorized, 8,434,250 shares in 1995 and 8,586,769
in 1996 issued 84,343 85,868
Additional paid-in capital 29,084,978 31,653,186
Retained earnings 17,036,930 21,763,205
Cumulative translation adjustment 16,612 16,612
Less: Treasury stock, 202,000 shares of common
stock, at cost -- (1,954,350)
----------- -----------
Total stockholders' equity 46,222,863 51,564,521
----------- -----------
Total liabilities and stockholders' equity $54,009,439 $68,123,842
=========== ===========
</TABLE>
(1) Amounts were derived from the audited consolidated balance sheet as of
December 31, 1995.
See accompanying notes to consolidated financial statements.
2
<PAGE> 4
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $30,219,677 $33,148,541 $61,247,633 $82,797,236
Cost of goods sold 17,819,742 21,524,340 36,775,260 53,581,250
----------- ----------- ----------- -----------
Gross profit 12,399,935 11,624,201 24,472,373 29,215,986
Selling, general and administrative
expenses 5,927,012 8,650,426 14,207,596 22,551,814
----------- ----------- ----------- -----------
Operating earnings 6,472,923 2,973,775 10,264,777 6,664,172
Other income, net 34,796 803,931 624,442 1,722,247
Interest income (expense), net 128,202 (288,836) 502,588 (644,988)
----------- ----------- ----------- -----------
Earnings before provision
for income taxes 6,635,921 3,488,870 11,391,807 7,741,431
Provision for income taxes 2,577,949 1,388,341 4,462,351 3,015,156
----------- ----------- ----------- -----------
Net earnings $ 4,057,972 $ 2,100,529 $ 6,929,456 $ 4,726,275
=========== =========== =========== ===========
Weighted average shares
outstanding 8,434,100 8,422,128 8,434,033 8,530,076
=========== =========== =========== ===========
Earnings per share $ .48 $ .25 $ .82 $ .55
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 5
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE
COMMON STOCK PAID-IN RETAINED TRANSLATION TREASURY
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL
------ ------ ------- -------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1995 8,434,250 $84,343 $29,084,978 $17,036,930 $16,612 $ -- $ 46,222,863
Issuance of
common
stock in
acquisition
of Adrienne
Vittadini, Inc. 147,679 1,477 2,498,523 -- -- -- 2,500,000
Proceeds from
exercise of
stock options 4,840 48 62,872 -- -- -- 62,920
Other -- -- 6,813 -- -- -- 6,813
Net earnings for
the nine
months ended
September 30,
1996 -- -- -- 4,726,275 -- -- 4,726,275
Purchase of
treasury stock -- -- -- -- -- (1,954,350) (1,954,350)
--------- ------- ----------- ----------- ------- ----------- ------------
Balance at
September 30,
1996 8,586,769 $85,868 $31,653,186 $21,763,205 $16,612 $(1,954,350) $ 51,564,521
========= ======= =========== =========== ======= =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 6
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 6,929,456 $ 4,726,275
Adjustments to reconcile net earnings to net cash
used by operating activities:
Depreciation and amortization 616,189 1,926,191
Provision for doubtful accounts 112,295 265,456
Changes in assets and liabilities:
Increase in accounts receivable (13,106,886) (1,729,934)
Increase in inventories (339,317) (1,723)
Increase in prepaid expenses and other current
assets (425,900) (380,742)
Decrease in other assets 67,072 55,706
Increase (decrease) in accounts payable 4,027,575 (1,412,597)
Increase (decrease) in accrued expenses and
other current liabilities 613,589 (3,617,412)
Increase (decrease) in income taxes payable 1,242,050 (496,946)
------------ ------------
Net cash used by operating activities (263,877) (665,726)
------------ ------------
Cash flows used in investing activities:
Acquisitions of property and equipment (388,749) (479,137)
Acquisition of Adrienne Vittadini, Inc. net of cash
acquired (note 3) -- (17,804,994)
------------ ------------
Net cash used in investing activities (388,749) (18,284,131)
------------ ------------
Cash flows from financing activities:
Borrowings from banks, net -- 1,768,963
Proceeds from issuance of common stock 3,250 62,920
Acquisition of treasury stock -- (1,954,350)
Other (10,415) 1,931
------------ ------------
Net cash used in financing activities (7,165) (120,536)
------------ ------------
Net decrease in cash (659,791) (19,070,393)
Cash at beginning of period 10,832,472 20,512,918
------------ ------------
Cash at end of period $ 10,172,681 $ 1,442,525
============ ============
Cash paid during the period for:
Income taxes $ 3,204,950 $ 3,447,425
============ ============
Interest $ 1,074 $ 716,264
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 7
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Marisa Christina, Incorporated (the "Company") and its wholly-owned
subsidiaries. Significant intercompany accounts and transactions have been
eliminated in consolidation.
The unaudited consolidated financial statements do not include all
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles. For
further information, such as the significant accounting policies followed by the
Company, refer to the notes to the Company's audited consolidated financial
statements.
In the opinion of management, the unaudited consolidated financial
statements include all necessary adjustments (consisting of normal, recurring
accruals), for a fair presentation of the financial position, results of
operations and cash flows for the interim periods presented. The results of
operations for the nine months ended September 30, 1995 and 1996 are not
necessarily indicative of the operating results to be expected for a full year.
(2) INVENTORIES
Inventories at September 30, 1995 and 1996 consist of the following:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Piece goods $2,868,825 $ 3,209,800
Work in process 1,031,178 1,246,307
Finished goods 5,457,293 7,366,221
---------- -----------
$9,357,296 $11,822,328
========== ===========
</TABLE>
(3) ACQUISITION OF ADRIENNE VITTADINI, INC.
On January 18, 1996, the Company acquired, through a newly formed
subsidiary, Adrienne Vittadini Enterprises, Inc. ("AVE"), substantially all of
the assets and assumed certain liabilities of Adrienne Vittadini, Inc. ("AVI")
and acquired the trademarks of Vittadini, Ltd., which relate to the business and
operations of AVI for cash in the aggregate of $18,830,000 and 147,679 shares of
the Company's common stock valued at $2,500,000. Additional consideration may be
paid to AVI by the Company based upon profitability achieved by AVE in 1998 and
2000, up to a maximum additional purchase price of $39 million. For the six-year
period beginning January 1, 1996, the Company will pay AVI 10% of net royalty
and commission income received by AVE plus 10% of net earnings before interest,
income taxes and amortization of goodwill of AVE over $3,000,000 per year. In
addition, upon retirement of the two majority shareholders of AVI from the
Company, AVI will receive, in the aggregate, an amount equal to .825% of net
sales of AVE and its trademark licensees for a period ending on the latter of
December 31, 2005 or five years after the death of the last such shareholder.
6
<PAGE> 8
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
The acquisition occurred on January 18, 1996, but was based on asset
values at December 31, 1995. Accordingly, operating results related to the AVI
assets acquired commenced on January 1, 1996 and are consolidated with those of
the Company from that date forward. The acquisition has been accounted for using
the purchase method of accounting. Amounts payable to AVI based on net sales
will be charged to earnings annually. Contingent consideration payable based on
1998 and 2000 results of AVE will be considered as part of the purchase price
and allocated to goodwill.
The aggregate initial purchase price for the assets of AVI is as follows:
<TABLE>
<S> <C>
Cash paid to AVI $10,080,000
Cash used to retire supplier note payable 8,750,000
Fair value, based on quoted market price,
of 147,679 shares of the Company's
common stock issued to AVI 2,500,000
Liabilities assumed 11,535,619
Transaction costs 1,000,000
-----------
Initial purchase price $33,865,619
===========
</TABLE>
The Company funded the cash portion of the initial purchase price with
accumulated cash reserves.
The initial purchase price was allocated to the assets acquired based on
their fair value as follows:
<TABLE>
<S> <C>
Cash $ 1,025,006
Accounts receivable 1,250,361
Inventory 2,495,382
Prepaid expenses and other current assets 862,947
Property and equipment 649,016
Goodwill and other intangible assets 26,695,995
Other assets 886,912
-----------
Initial purchase price $33,865,619
===========
</TABLE>
7
<PAGE> 9
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
Pro forma consolidated net sales, net earnings and earnings per share for
the three and nine months ended September 30, 1995 assuming the acquisition had
occurred on January 1, 1995 are as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, 1995 September 30, 1995
------------------ ------------------
<S> <C> <C>
Net sales $36,314,000 $76,872,000
=========== ===========
Net earnings $ 3,536,000 $ 4,647,000
=========== ===========
Earnings per common share $ 0.41 $ 0.54
=========== ===========
</TABLE>
(4) CREDIT FACILITIES
The Company has line of credit facilities with two banks, aggregating
$35,000,000, which may be utilized for commercial letters of credit, banker's
acceptances, commercial loans and letters of indemnity. Borrowings under the
credit facilities are secured by the Company's accounts receivable and imported
inventory and bear interest at the bank's prime rate or LIBOR plus 1% at the
Company's options. As of September 30, 1996, $6,000,000 of borrowings and
$1,490,172 of commercial letters of credit were outstanding under the credit
facilities. At September 30, 1996, available borrowings under the facility were
$27,509,828.
In connection with the acquisition of the assets of Adrienne Vittadini,
Inc., described in note 3, AVE assumed and retained a factoring arrangement
whereby AVE assigns and sells substantially all of its trade accounts receivable
to a bank, without recourse as to credit risk but with recourse for any claims
by the customer for adjustments in the normal course of business.
8
<PAGE> 10
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
On January 18, 1996, the Company acquired, through a newly formed
subsidiary, Adrienne Vittadini Enterprises, Inc. ("AVE"), substantially all of
the assets and assumed certain liabilities of Adrienne Vittadini, Inc. ("AVI")
and acquired the trademarks of Vittadini, Ltd., which relate to the business and
operations of AVI for cash in the aggregate of $18,830,000 and 147,679 shares of
the Company's common stock valued at $2,500,000. Additional consideration may be
paid to AVI by the Company based upon profitability achieved by AVE in 1998 and
2000, up to a maximum additional purchase price of $39 million. The acquisition
occurred on January 18, 1996, but was based on asset values at December 31,
1995. Operating results related to the AVI assets acquired on January 1, 1996
are consolidated with those of the Company from that date forward. Accordingly,
results for the three and nine months ended September 30, 1996 are not directly
comparable to those for the three and nine months ended September 30, 1995. (See
note 3 to consolidated financial statements).
The following table sets forth information with respect to the percentage
relationship to net sales of certain items of the consolidated statements of
earnings of the Company for the three and nine months periods ended September
30, 1995 and 1996.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
------------------- -------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Gross profit 41.0 35.1 40.0 35.3
Selling, general and administrative expenses 19.6 26.1 23.2 27.2
----- ----- ----- -----
Operating earnings 21.4 9.0 16.8 8.1
Other income, net 0.1 2.4 1.0 2.0
Interest income (expense), net 0.4 (0.9) .8 (0.8)
Provision for income taxes (8.5) (4.2) (7.3) (3.6)
----- ----- ----- -----
Net earnings 13.4% 6.3% 11.3% 5.7%
===== ===== ===== =====
</TABLE>
9
<PAGE> 11
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995
Net sales. Net sales increased by 9.6% from $30.2 million in 1995 to $33.1
million in 1996. This increase was primarily attributable to $11.8 million of
sales by AVE, which was acquired in January 1996, and increased sales by
Flapdoodles primarily as the result of new private label accounts. Sales by the
Marisa Christina division declined significantly in the quarter principally due
to the poor retail environment and lower demand for the Company's fall classic
line in 1996.
Gross Profit. Gross profit decreased 6.5%, from $12.4 million in 1995 to
$11.6 million in 1996. As a percentage of net sales, gross profit decreased from
41.0% in 1995 to 35.1% in 1996. The decline in the gross profit percentage for
the quarter was attributable to lower margins due to markdowns at Marisa
Christina division as a result of the poor retail environment.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 45.8%, from $5.9 million in 1995 to $8.6
million in 1996. Selling, general and administrative expenses related to AVE
represent $3.5 million of the increase. As a percentage of net sales of the
Company, selling, general and administrative expenses increased from 19.6% in
1995 to 26.1% in 1996 due to the decreased volume of sales without a
corresponding decrease in expenses.
Other Income, Net. Other income, net consists of royalty, licensing and
copyright infringement income. Other income increased by $769,000 in 1996
compared to 1995 as the result of AVE which had net royalty income of $768,000.
Interest Income (Expense), net. Interest income (expense), net changed
from income of $128,000 in 1995 to expense of $289,000 in 1996 as a result of
less cash available to invest due to the AVI acquisition as well as interest
expense related to bank loans.
Income Taxes . Income taxes decreased from $2.6 million in 1995 to $1.4
million in 1996 as the result of lower earnings. The Company effective income
tax rate for the three months ended September 30, 1996 was 39.8% compared to
38.8% during the same period in 1995.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
Net Sales. Net sales increased 35.3%, from $61.2 million in 1995 to $82.8
million in 1996. This increase was primarily attributable to sales by AVE of
$28.9 million, which was acquired in January 1996, and increased sales by
Flapdoodles primarily attributable to increased sales of private label products.
Sales by the Marisa Christina division declined significantly, principally as a
result of the poor retail environment and lower demand for the Company's fall
classic line in 1996.
Gross Profit. Gross profit increased 19.2%, from $24.5 million in 1995 to
$29.2 million in 1996. As a percentage of net sales, gross profit decreased from
40.0% in 1995 to 35.3% in 1996. The decline in the gross profit percentage was
attributable to lower margins due to markdowns at Marisa Christina division as a
result of the poor retail environment.
10
<PAGE> 12
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 59.2%, from $14.2 million in 1995 to $22.6
million in 1996. Selling, general and administrative expenses related to AVE
represent $8.8 million of the increase. As a percentage of net sales of the
Company, selling, general and administrative expenses increased from 23.2% in
1995 to 27.2% in 1996. This increase is primarily attributable to the
amortization of $1.0 million of goodwill recorded in the AVI acquisition and the
decreased volume of sales without a corresponding decrease in expenses.
Other Income, Net. Other income, net consists of royalty, licensing and
copyright infringement income. Other income increased by $1.1 million in 1996,
compared to 1995 as the result of AVE which had $1.5 million of royalty income.
This more than offset the Company's decline in copyright infringement income.
During the nine months ended September 30, 1996 and 1995, the Company received
$37,000 and $459,000, respectively from settlements of copyright infringement
cases. The timing and amount of future settlements of copyright infringement
cases, if any, are not predictable by management.
During the nine months ended September 30, 1996, AVE's perfume licensee
filed for liquidation. Gross income earned from such licensee for the nine
months ended September 30, 1996 was approximately $200,000. The Company is
presently looking for a new licensee.
Interest Income (Expense), net. Interest income (expense), net changed
from income of $503,000 in 1995 to expense of $645,000 in 1996 as the result of
less cash available to invest due to the AVI acquisition as well as interest
expenses related to bank loans.
Income Taxes . Income taxes decreased from $4.5 million in 1995 to $3.0
million in 1996 as the result of lower earnings. The Company's effective income
tax rate for the nine months ended September 30, 1996 was 38.9% compared to
39.2% during the same period in 1995.
SEASONALITY
The Company's business is seasonal, with a substantial portion of its
revenues and earnings accruing during the second half of the year as a result of
the Back-to-School, Fall and Holiday selling seasons. This is due to both a
larger volume of unit sales in these seasons and traditionally higher prices for
these garments, which generally require more costly materials than the
Spring/Summer and Resort seasons. Merchandise from Holiday and Fall, the
Company's largest seasons, are shipped in the last two fiscal quarters.
Merchandise for Resort, Spring/Summer and Early Fall, the Company's lower volume
seasons, are all shipped primarily in the first two quarters. Sales volume is
typically the lowest in the second quarter with shipments for the Fall season
beginning in the last days of the quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company has line of credit facilities with two banks, aggregating
$35,000,000, which may be utilized for commercial letters of credit, banker's
acceptances, commercial loans and letters of indemnity. Borrowings under the
credit facilities are secured by the Company's accounts receivable and imported
inventory and bear interest at the bank's prime rate or LIBOR plus 1% at the
Company's options. As of September 30, 1996, $6,000,000 of borrowings and
$1,490,172 of commercial letters of credit were outstanding under the credit
facilities. At September 30, 1996, available borrowings under the facility were
$27,509,828.
11
<PAGE> 13
During 1996, the Company has planned capital expenditures of approximately
$1,000,000, primarily to upgrade computer systems. These capital expenditures
will be funded by internally generated funds and, if necessary, bank borrowings
under the Company's line of credit facility. Capital expenditures during the
nine months ended September 30, 1996 were approximately $479,000.
The Company believes that funds generated by operations, if any, and the
bank credit facilities will provide financial resources sufficient to meet all
of its foreseeable working capital and letter of credit requirements.
EXCHANGE RATES
Although it is the Company's policy to contract for the purchase of
imported merchandise in United States dollars, reductions in the value of the
dollar could result in Company paying higher prices for its products. During the
last three fiscal years, however, currency fluctuations have not had an impact
on the Company's cost of merchandise. The Company does not engage in hedging
activities with respect to such exchange rate risk.
12
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no legal proceedings required to be disclosed in response to Item 103
of Regulation S-K.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
4.6 Credit agreement dated August 21, 1996 by and among the Company, Marisa
Christina Apparel, Inc., Flapdoodles, Inc., Adrienne Vittadini
Enterprises, Inc. and The Chase Manhattan Bank, N.A.
4.7 Credit agreement dated August 29, 1996 by and among the Company, Marisa
Christina Apparel, Inc., Flapdoodles, Inc., Adrienne Vittadini
Enterprises, Inc. and The Bank of New York.
27 Financial Data Schedule.
Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended September 30, 1996.
13
<PAGE> 15
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.
Date: November 13, 1996 /s/ S. E. Melvin Hecht
-------------------------------------
S. E. Melvin Hecht
Chief Financial Officer and Treasurer
14
<PAGE> 1
EXHIBIT 4.6
July 24, 1996
Mr. S.E. Melvin Hecht
Chief Financial Officer
Marisa Christina, Inc.
1410 Broadway
New York, New York 10018
Dear Mel:
The Chase Manhattan Bank ("Chase") is pleased to advise that it is
prepared, in its sole discretion, to offer a line of credit to Marisa Christina,
Inc. (the "Company") and its subsidiaries, Marisa Christina Apparel, Inc.,
Flapdoodles, Inc., and Adrienne Vittadirni Enterprises, Inc. (collectively with
the Company, the "Borrowers") subject to the terms and conditions described
below.
Amount: $20,000,000 to be utilized for commercial
letters of credit (maximum tenor 150 days),
bankers' acceptances (maximum tenor 120
days), commercial loans, and letters of
indemnity.
Borrowers (joint and several): Marisa Christina, Inc.
Marisa Christina Apparel, Inc.
Flapdoodles, Inc.
Adrienne Vittadini Enterprises, Inc.
Guarantors: Unlimited cross-collateralized guaranty of
payment of:
Marisa Christina, Inc.,
Marisa Christina Apparel, Inc.,
Flapdoodles, Inc.,
Adrienne Vittadini Enterprises, Inc.,
C.M. Marisa Christina (H.K.) Limited,
Marisa Christina Outlet Holdings, Inc.,
Marisa Christina Outlet Stores of California,
Inc.,
Marisa Christina Outlet Stores of Colorado,
Inc.,
Marisa Christina Outlet Stores of New York,
Inc., and
MF Showroom Holdings, Inc.
Type of Credit: A line of credit repayable on a demand basis.
<PAGE> 2
Use of Proceeds: Working Capital financing. Availability of
commercial letters of credit, bankers'
acceptances, and letters of indemnity will be
limited to Marisa Christina Apparel, Inc.,
Flapdoodles, Inc., and Adrienne Vittadini
Enterprises, Inc.
Interest Rate: All outstanding borrowings under this
arrangement will bear interest equal at all
times to the following:
a. Prime Rate: Chase's Prime Rate in effect
from time to time. Interest is to be computed
on an actual/360-day basis and is payable
monthly.
b. LIBOR Rate: Interest shall be determined
for periods of one, two or three months (as
selected by the Borrowers); provided,
however, no interest period shall extend
beyond the termination of the facility, and
shall be at an annual rate equal to the
London Interbank Offered Rate ("LIBOR") for
corresponding deposits of U.S. dollars (i.e.,
Eurodollars) plus 1.00%. LIBOR will be
determined by the principal London Office of
Chase at start of each interest period.
Interest shall be paid at the end of each
interest period or quarterly, whichever is
earlier, and is to be calculated on the basis
of the actual number of days elapsed in a
year of 360 days. LIBOR drawings shall
require three business days' prior notice and
shall be in minimum amounts of $500,000.
c. Any bankers' acceptances which Chase
agrees to create will be offered at an all-in
rate.
Letter of Credit Fees: Transaction costs for each letter of credit
plus 1/8 of 1% of the amount of each drawing
under each letter of credit. There is a
minimum letter of credit drawing fee of $100.
If a letter of credit is not, in whole or in
part, drawn on, the Borrower will shall, 30
days after the stated expiration date of each
letter of credit, pay to Chase for its own
account, a fee equal to the greater of a) 1/8
of 1% of such undrawn amount or b) $100.
Requests for Advances: Any advances made under this line of credit
will be on the terms and conditions as Chase
may require at the time a Borrower requests
an advance and must be evidenced by documents
in form and substance satisfactory to Chase.
Security: A first priority security interest in all of
the Borrowers' accounts receivable and
imported inventory; and, with respect to
Adrienne Vittadini Enterprises, Inc., an
assignment of all credit balances at BNY
Financial Corporation (the "Factor") and to
any rights and priorities in favor of the
Factor in any such accounts receivable and
credit balances, to the extent set forth in
an assignment of factoring proceeds and inter
creditor
<PAGE> 3
agreement to be entered into between Chase,
The Bank of New York and the Factor which is
acceptable to Chase.
Balance Requirement: The Borrowers shall maintain average net
available demand deposit balances in a
minimum amount sufficient to compensate.
Chase for account activity or alternatively
will be charged the usual fees for services
rendered as determined by the standard fee
schedule of Chase, or as otherwise agreed
upon by the Company and Chase. It shall be
understood that the maintenance of such
deposits will not in any way obligate Chase
to lend.
Additional Conditions: In addition to the above
mentioned terms and conditions, and in order
to enable Chase to perform its ongoing
financial review, the Company will be
required to comply with the following
conditions:
The Company will furnish to Chase:
a. Copies of the Company's Form 10-K,
including annual audited financial statements
prepared in accordance with GAAP consistently
applied by an independent certified public
accounting firm acceptable to Chase, filed
with the Securities and Exchange Commission,
to be delivered within five (S) business days
of the filing, but in any case, no later than
one hundred twenty (120) days after the end
of the Company's fiscal year.
b. Copies of the Company's Form 10-Q,
including quarterly financial statements
prepared in accordance with GAAP consistently
applied, filed with the Securities and
Exchange Commission, to be delivered within
ten (10) business days of the filing, but in
any case no later than sixty (60) days after
the end of each fiscal quarter.
c. Copies of any reports submitted to the
Company or any of the Borrowers by
independent certified public accountants in
connection with the examination of the
Company's and Borrowers' financial statements
made by such accountants.
d. Chase reserves the right to request, and
the Company agrees to provide, such other
information as Chase may determine necessary
in order to exercise its discretion in
honoring requests for advances under this
line of credit
This line of credit does not constitute a commitment or in any way obligate
Chase to lend whether or not the Borrowers satisfy the conditions stated in this
letter, and is issued subject to Chase, in its sole discretion, continuing to be
satisfied with the Borrowers' financial condition and economic prospects, prompt
advice to Chase of any circumstances which might materially or adversely affect
the Borrowers, and the Borrowers' maintenance of a satisfactory
<PAGE> 4
relationship with Chase.
This letter is for the Borrowers' information only and is not to be
shown or relied upon by third parties. This letter constitutes the entire
understanding between Chase and the Borrowers and supersedes all prior
discussions. The terms and conditions set forth in this letter shall survive the
execution of the note evidencing the indebtedness and shall remain in effect so
long as this facility remains in place or any amounts remain outstanding under
this line of credit.
Chase will consider requests for advances hereunder until June 30, 1997
unless this discretionary line of credit is earlier terminated by Chase in its
sole discretion.
<PAGE> 5
Please acknowledge your understanding of the foregoing by signing and
returning the enclosed copy of this letter to the undersigned no later than
August 31,1996.
We at Chase are looking forward to serving you in the coming year and
supporting the Company' s continued success.
Sincerely,
THE CHASE MANHATTAN BANK
Tracy A. Van Riper
Vice President
RECEIPT OF THE FOREGOING LETTER IS HEREBY ACKNOWLEDGED, TOGETHER WITH ASSENT TO
THE TERMS THEREOF:
MARISA CHRISTINA, INC.
By: ___________________ Date:___________
Its:____________________
MARISA CHRISTINA APPAREL, INC.
By:___________________ Date:__________
Its: ___________________
FLAPDOODLES, INC.
By:____________________ Date: ______________
Its: ____________________
ADRIENNE VITTADINI ENTERPRISES, INC.
By:____________________ Date: ___________
Its: ____________________
<PAGE> 1
EXHIBIT 4.7
August 28, 1996
Mr. S. E. Melvin Hecht
Chief Financial Officer
Marisa Christina, Inc.
Marisa Christina Apparel, Inc. Flapdoodles, Inc.
Adrienne Vittadini Enterprises, Inc.
1410 Broadway, 20th Floor
New York, NY 10018
Dear Melvin,
I am pleased to advise you that the Bank of New York (the "Bank") in its sole
discretion is prepared to offer a line of credit to Marisa Christina, Inc. (the
"Company") and its three wholly owned subsidiaries identified below
(collectively with the Company, the "Borrowers") up to a maximum aggregate
amount of $15,000,000 for import financing and working capital purposes.
Utilization of this demand line of credit is subject to the following terms and
conditions and such other terms and conditions as the Bank may require at the
time an advance is requested.
Borrowers: Marisa Christina, Inc.
Marisa Christina Apparel, Inc.
Flapdoodles, Inc.
Adrienne Vittadini Enterprises, Inc.
Amount: A collateralized line of credit up to a
maximum amount of $15,000,000 to be utilized
as letters of credit, bankers' acceptances
and loans.
Documentation: Any loans, bankers' acceptances, or letters
of credit which the Bank may create, will be
evidenced by documents with the borrowers,
Guarantors and third parties in each instance
in form and substance satisfactory to the
Bank and its counsel.
Collateral: The Bank would have a first priority security
interest in all of the following assets and
property of each and all of the Borrowers,
present and future: (a) all imported
inventory, (b) all accounts receivable, (c)
all credit balances at the Factor(s) of
Adrienne Vittadini Enterprises, Inc.
(including BNY Financial Corporation;
"Factor(s)") and (d) all proceeds thereof,
subject only in the case of (b) and (c)
above, in relation to Adrienne Vittadini
Enterprises, Inc., to any rights and
priorities in favor of Factors(s) in any such
accounts receivable and credit balances, to
the extend set forth in an assignment of
factoring proceeds and inter-creditor
agreement to be entered into between the Bank
and such Factor(s) on a
<PAGE> 2
-2-
mutually acceptable basis.
Availability: Availability of letters of credit and
bankers' acceptances will be limited to
Marisa Christina Apparel, Inc., Flapdoodles,
Inc., and Adrienne Vittadini Enterprises,
Inc.
Interest Rate: Advances for loans will bear interest at the
Borrowers' option at the fluctuating: 1)
Alternate Base Rate of The Bank of New York
("ABR"), such rate to change on the effective
date of any change in the ABR; or 2) London
Interbank Offering Rate (LIBOR), as may be
determined by The Bank of New York, plus one
percent, available for 1,2 or 3 month
interest periods. ABR is defined as a rate
per annum equal to the greater of: (i) the
BNY Prime Rate in effect, or (ii) the Federal
Funds Effective Rate plus 1/2 of 1% (Note:
see attachment for definitions of LIBOR, BNY
Prime Rate and Federal Funds Effective Rate).
Bankers' acceptances will bear interest at
The Bank of New York's Bankers' Acceptance
Rate announced to be in effect from time to
time (the "B/A Rate") plus one percent.
Letters of Credit: Transaction costs for each letter
of credit plus 1/8 of 1% of the amount of
each drawing under a letter of credit. There
is a minimum letters of credit drawing fee of
$85. Associated miscellaneous charges will be
at our then current rates as they may change
from time to time.
Balance Requirements: The Company and other Borrowers shall
maintain average net available demand deposit
balances in a minimum amount sufficient to
compensate the Bank for account activity or
alternatively will be charged the usual fees
for services rendered as determined by the
standard fee schedule of the Bank, or as
otherwise agreed upon by the Company and the
Bank. It shall be understood that the
maintenance of such deposits will not in
anyway obligate the Bank to lend, issue
letters of credit, or to create bankers'
acceptances.
<PAGE> 3
-3-
Guarantees: Unlimited cross-collateralized corporate
guarantees by each of the Borrowers of the
other Borrowers, as well as the unlimited
corporate guarantees of each of the Borrowers
by each of the following:
C.M. Marisa Christina (H.K.) limited,
Marisa Christina Outlet Holdings, Inc.,
Marisa Christina Outlets Stores of
California, Inc.,
Marisa Christina Outlets Stores of Colorado,
Inc.,
Marisa Christina Outlets Stores of New York,
Inc., and
MF Showroom Holdings, Inc.
(Collectively, "Guarantors")
As an ongoing condition of this credit facility, the Bank requires the Company
to furnish the following:
1) Copies of the Company's Form 10-K
including annual audited fiscal statements
prepared in accordance with generally
accepted accounting principles filed with
Securities and Exchange Commission, to be
delivered within five (5) business days of
the filing, but in any case no later than one
hundred twenty (120) days after the end of
fiscal year, together with consolidating
annual fiscal statements.
2) Copies of the Company's Form 10-Q
including quarterly financial statements
prepared in accordance with generally
accepted accounting principles filed with the
Securities and Exchange Commission, to be
received within ten (10) business days of the
filing but in any case no later than sixty
(60) days after the end of the each fiscal
quarter, together with consolidating
quarterly fiscal statements.
3) Copies of any reports, submitted to any of
the Borrowers, by independent certified
public accountants in connection with the
examination in connection with the financial
statements of such Borrowers made by such
accountants.
As you know, lines of credit are discretionary and cancelable by either party at
any time and the making of advances, the creation of bankers' acceptances and
the issuance of letters of credit, if any, is subject to the Bank's review and
exercise of its discretion and to the Bank's satisfaction with the business,
assets, operations and prospects of the Borrowers and the Guarantors at the time
of each drawdown.
The Bank will consider requests for accommodations under the line of credit
subject to these terms until June 30, 1997 unless this discretionary line is
earlier terminated by the Company or the Bank.
<PAGE> 4
-4-
Please acknowledge your understanding of and agreement to the foregoing by
signing and returning the enclosed copy of this letter to the undersigned by no
later than September 15, 1996.
We very much look forward to beginning a long-term relationship with Marisa
Christina.
Sincerely,
THE BANK OF NEW YORK
Ronald R. Reech
Vice President
Accepted and Agreed to:
This 29th day of August, 1996
MARISA CHRISTINA, INC.
By:______________________
Title______________________
MARISA CHRISTINA APPAREL, INC.
By:_______________________
Title:______________________
FLAPDOODLES, INC.
By:_______________________
Title:______________________
ADRIENNE VITTADINI ENTERPRISES, INC.
By:___________________________
Title:__________________________
<PAGE> 5
DEFINITIONS
"BNY PRIME RATE": A rate of interest per annum equal to the rate of interest
publicly announced in New York City by The Bank of New York from time to time as
its prime commercial lending rate, such rate to be adjusted automatically
(without notice) on the effective date of any change in such publicly announced
rate.
"FEDERAL FUNDS EFFECTIVE RATE": for any period, a fluctuating interest rate per
annum equal for each day during such period to the weighted average of the rates
on overnight Federal funds transactions with members of the Federal Reserve
Systems arranged by Federal funds brokers, as published for such day (or, if
such day is not a domestic business day, for the next preceding; domestic
business day) by the Federal Reserve Bank of New York, or, if such rate is not
so published for any day which is a domestic business day, the average (rounded,
if necessary, to the nearest 1/100 of 1%, then to the next higher 1/100 of 1%)
of the quotations for such day on such transactions received by The Bank of New
York from three Federal funds brokers or recognized standing selected by it.
"LIBOR": means, relative to any interest period for which Advances are to be
governed by the London Interbank Offering Rate, the rate of interest equal to
the average (rounded upwards, if necessary, to the nearest 1/100th of 1%) of the
rates per annum on Eurodollar deposits in U.S. Dollars offered to the Bank's
LIBOR Office in the London interbank eurodollar market on the second business
day prior to the beginning of such interest period, for delivery on the first
day of such interest period, and in an amount approximately equal to the amount
of such Advances at LIBOR and for a period approximately equal to such interest
period.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FOR MARISA CHRISTINA, INC.
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND THE CONSOLIDATED
STATEMENT OF EARNINGS FOR THE SIX MONTHS THEN ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30,
1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,442,525
<SECURITIES> 0
<RECEIVABLES> 13,219,276
<ALLOWANCES> 220,272
<INVENTORY> 11,822,328
<CURRENT-ASSETS> 30,831,685
<PP&E> 5,844,331
<DEPRECIATION> 3,114,995
<TOTAL-ASSETS> 68,123,842
<CURRENT-LIABILITIES> 16,431,321
<BONDS> 0
0
0
<COMMON> 85,868
<OTHER-SE> 51,478,653
<TOTAL-LIABILITY-AND-EQUITY> 68,123,842
<SALES> 82,797,236
<TOTAL-REVENUES> 0
<CGS> 53,581,250
<TOTAL-COSTS> 22,286,358
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 265,456
<INTEREST-EXPENSE> 644,988
<INCOME-PRETAX> 7,741,431
<INCOME-TAX> 3,015,156
<INCOME-CONTINUING> 4,726,275
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,726,275
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.55
</TABLE>
