<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 March 31, 1997
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 May 12,
1997 were 8,384,769.
<PAGE> 2
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of December 31, 1996
and March 31, 1997 (Unaudited) 2
Consolidated Statements of Earnings for the Three Months
Ended March 31, 1996 and 1997 (Unaudited) 3
Consolidated Statement of Stockholders' Equity for the Three Months
Ended March 31, 1997 (Unaudited) 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1996 and 1997 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
</TABLE>
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
ASSETS 1996 (1) 1997
------ ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,044,094 $ 1,593,663
Accounts receivable, less allowance for doubtful
accounts of $73,344 in 1996 and $157,727 in 1997 9,080,251 10,729,441
Due from factor, net of allowances 5,967,379 7,081,084
Inventories 10,097,123 9,781,627
Prepaid expenses and other current assets 3,144,683 3,781,112
------------ ------------
Total current assets 29,333,530 32,966,927
Property and equipment, net 2,672,823 2,663,277
Goodwill, less accumulated amortization of $2,784,616
in 1996 and $3,233,151 in 1997 32,940,650 32,667,114
Other assets 1,252,930 1,163,890
------------ ------------
Total assets $ 66,199,933 $ 69,461,208
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable to banks $ 3,500,000 $ 6,800,000
Accounts payable 5,601,769 5,410,028
Income taxes payable 662,652 364,827
Accrued expenses and other current liabilities 1,942,725 1,902,971
------------ ------------
Total current liabilities 11,707,146 14,477,826
Other liabilities 278,000 278,000
------------ ------------
Total liabilities 11,985,146 14,755,826
------------ ------------
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized, none issued -- --
Common stock, $.01 par value; 15,000,000 shares
authorized, 8,586,769 shares issued and 8,384,769
outstanding in 1996 and 1997 85,868 85,868
Additional paid-in capital 31,653,186 31,653,186
Retained earnings 24,413,471 24,904,066
Cumulative translation adjustment 16,612 16,612
Treasury stock, 202,000 common shares at cost (1,954,350) (1,954,350)
------------ ------------
Total stockholders' equity 54,214,787 54,705,382
------------ ------------
Total liabilities and stockholders' equity $ 66,199,933 $ 69,461,208
============ ============
</TABLE>
(1) Amounts were derived from the audited consolidated balance sheet as of
December 31, 1996.
See accompanying notes to consolidated financial statements.
2
<PAGE> 4
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Net sales $ 28,261,906 $ 25,570,195
Cost of goods sold 17,947,391 17,520,873
------------ ------------
Gross profit 10,314,515 8,049,322
Selling, general and administrative expenses 7,090,547 7,897,067
------------ ------------
Operating earnings 3,223,968 152,255
Other income, net 518,763 737,432
Interest expense, net (142,004) (78,078)
------------ ------------
Earnings before provision for income taxes 3,600,727 811,609
Provision for income taxes 1,402,484 321,014
------------ ------------
Net earnings $ 2,198,243 $ 490,595
============ ============
Weighted average shares outstanding 8,582,041 8,384,769
============ ============
Earnings per share $ .26 $ .06
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 5
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN RETAINED TRANSLATION TREASURY
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENTS STOCK TOTAL
--------- ------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 ...... 8,586,769 $85,868 $31,653,186 $24,413,471 $16,612 $(1,954,350) $54,214,787
Net earnings for the three months
ended March 31, 1997 ............ -- -- -- 490,595 -- -- 490,595
--------- ------- ----------- ----------- ------- ----------- -----------
Balance at March 31, 1997 ......... 8,586,769 $85,868 $31,653,186 $24,904,066 $16,612 $(1,954,350) $54,705,382
========= ======= =========== =========== ======= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 6
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,198,243 $ 490,595
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization 626,291 645,975
Provision for doubtful accounts 109,866 120,671
Changes in assets and liabilities, net of effects from
purchase of Adrienne Vittadini, Inc. in 1996:
Increase in accounts receivable (704,275) (1,769,861)
Increase in due from factor -- (1,113,705)
Decrease in inventories 2,531,800 315,496
Increase in prepaid expenses and other
current assets (1,395,324) (636,429)
(Increase) decrease in other assets (62,089) 89,040
Decrease in accounts payable (4,445,125) (191,741)
Increase (decrease) in income taxes payable 456,843 (297,825)
Decrease in accrued expenses and other
current liabilities (3,952,913) (39,754)
------------ -----------
Net cash used in operating activities (4,636,683) (2,387,538)
------------ -----------
Cash flows used in investing activities:
Acquisitions of property and equipment (28,481) (187,893)
Acquisition of assets of Adrienne Vittadini, Inc.
net of cash acquired (note 3) (17,804,994) --
Other -- (175,000)
------------ -----------
Net cash used in investing activities (17,833,475) (362,893)
------------ -----------
Cash flows from financing activities:
Borrowings from banks, net 3,767,397 3,300,000
Proceeds from issuance of common stock 33,150 --
Other (2,895) --
------------ -----------
Net cash provided by financing activities 3,797,652 3,300,000
------------ -----------
Net increase (decrease) in cash and cash equivalents (18,672,506) 549,569
Cash and cash equivalents at beginning of period 20,512,918 1,044,094
------------ -----------
Cash and cash equivalents at end of period $ 1,840,412 $ 1,593,663
============ ===========
Cash paid during the period for:
Income taxes $ 888,459 $ 609,917
============ ===========
Interest $ 208,644 $ 94,701
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 7
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
(1) BASIS OF PRESENTATION AND REORGANIZATION
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 are 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 three months ended March 31, 1996 and 1997 are not
necessarily indicative of the operating results to be expected for a full year.
(2) INVENTORIES
Inventories at December 31, 1996 and March 31, 1997 consist of the
following:
<TABLE>
<CAPTION>
1996 1997
----------- ----------
<S> <C> <C>
Piece goods $ 3,028,686 $2,949,484
Work in process 1,612,459 1,567,744
Finished goods 5,455,978 5,264,399
----------- ----------
$10,097,123 $9,781,627
=========== ==========
</TABLE>
(3) 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. The credit facilities
expire on June 30, 1997 when the Company expects the facilities to be renewed.
Borrowings under the credit facilities are secured by the Company's accounts
receivable and imported inventory and bear interest at the prime rate or LIBOR
plus 1% at the Company's option. As of March 31, 1997, $6,800,000 of borrowings,
bearing interest at an average rate of 7.59%, and $2,528,637 of commercial
letters of credit were outstanding under the credit facilities. At March 31,
1997, available borrowings under the facilities were $25,671,363.
6
<PAGE> 8
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
One of the Company's subsidiaries has a factoring arrangement with a bank
whereby the Company's subsidiary assigns and sells substantially all of its
trade accounts receivable to a factor, without recourse as to credit risk but
with recourse for any claims by the customer for adjustments in the normal
course of business. At March 31, 1997, the subsidiary had amounts due from the
factor related to such arrangement of $7,081,084, net of allowances.
7
<PAGE> 9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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 months ended March 31, 1996 and 1997.
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Net sales 100.0% 100.0%
------ ------
Gross profit 36.5 31.5
Selling, general and administrative expenses 25.1 30.9
------ ------
Operating earnings 11.4 0.6
Other income, net 1.8 2.9
Interest expense, net (0.5) (0.3)
Provision for income taxes (4.9) (1.3)
------ ------
Net earnings 7.8% 1.9%
====== ======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Net sales. Net sales decreased 9.5%, from $28.3 million in 1996 to
$25.6 million in 1997. The decrease is attributable primarily to a decline in
sales of the Marisa Christina division which was offset to some extent by
increased sales by the Flapdoodles division.
Gross Profit. Gross profit decreased 22.3%, from $10.3 million in 1996
to $8.0 million in 1997 as a result of lower sales and gross margin. As a
percentage of net sales, gross profit decreased from 36.5% in 1996 to 31.5% in
1997. The decline in the gross profit percentage for the 1997 quarter was
attributable primarily to lower margins with respect to the Adrienne Vittadini
division's "Options" line which had lower than desired sell through for the fall
and spring seasons and is being relaunched and renamed "Vittadini" for fall
1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 11.3%, from $7.1 million in 1996 to $7.9
million in 1997. As a percentage of net sales of the Company, selling, general
and administrative expenses increased from 25.1% in 1996 to 30.9% in 1997. This
increase is primarily attributable to the planned additional advertising and
promotion costs of approximately $1 million to build brand awareness.
Other Income, Net. Other income consists of royalty, licensing and
copyright infringement income. The increase of $219,000 is due principally to
the Adrienne Vittadini division, which had net royalty income of approximately
$679,000 in 1997.
Interest Expense, Net. Interest expense decreased from $142,000 in 1996
to $78,000 in 1997, principally as the result of lower average outstanding
borrowings.
Income Taxes. Income taxes decreased from $1.4 million in 1996 to $0.3
million in 1997 as the result of lower earnings. The Company's effective income
tax rates for the three months ended March 31, 1996 and 1997 were 39% and 39.5%,
respectively.
8
<PAGE> 10
Net Earnings. Net earnings declined 77.7% as a result of lower net
sales and gross margins together with higher costs to build brand awareness.
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, the Company's
largest selling season and Back-to-School and Fall, the Company's next largest
seasons, are shipped in the last two fiscal quarters. Merchandise for Resort,
Spring/Summer and Early Fall, the Company's lower volume seasons, is shipped
primarily in the first two quarters. In addition, prices of products in the
Resorts, Spring/Summer and Early Fall collections average 5 to 10% lower than in
other selling seasons.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a 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 prime rate or LIBOR plus 1% at the Company's
option. As of March 31, 1997, $6,800,000 of borrowings and $2,528,637 of
commercial letters of credit were outstanding under the credit facilities. At
March 31, 1997, available borrowings under the facilities were $25,671,363.
In January 1996 the Company acquired AVI for cash of $19,601,000,
including transaction costs and 147,679 shares of the Company's common stock.
The cash portion of the acquisition was financed with existing cash reserves.
During 1997, the Company has planned capital expenditures of
approximately $1.3 million, primarily to upgrade warehouse and computer systems,
leasehold improvements and in-store shops. 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 three
months ended March 31, 1997 were approximately $188,000.
The Company believes that funds generated by operations, if any, and
the line of credit facilities will provide financial resources sufficient to
meet all of its working capital and letter of credit requirements for at least
the next twelve months.
EXCHANGE RATES
Although it is 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.
9
<PAGE> 11
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
Reports on Form 8-K - no reports on Form 8-K were filed by the Company during
the quarter ended March 31, 1997.
Exhibit 24.1 - Financial Data Schedule.
10
<PAGE> 12
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: May 12, 1997 /s/ S. E. Melvin Hecht
-------------------- ------------------------
S. E. Melvin Hecht
Chief Financial Officer and Treasurer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FOR MARISA CHRISTINA,
INC.'S CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1997 AND THE CONSOLIDATED
STATEMENT OF EARNINGS FOR THE THREE MONTHS THEN ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE COMPANY'S FORM 10-Q FOR THE THREE MONTHS ENDED
MARCH 31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,593,663
<SECURITIES> 0
<RECEIVABLES> 17,968,252
<ALLOWANCES> (157,727)
<INVENTORY> 9,781,627
<CURRENT-ASSETS> 32,966,927
<PP&E> 5,791,047
<DEPRECIATION> (3,127,770)
<TOTAL-ASSETS> 69,461,208
<CURRENT-LIABILITIES> 14,477,826
<BONDS> 0
0
0
<COMMON> 85,868
<OTHER-SE> 54,619,514
<TOTAL-LIABILITY-AND-EQUITY> 69,461,208
<SALES> 25,570,195
<TOTAL-REVENUES> 25,570,195
<CGS> (17,520,873)
<TOTAL-COSTS> (8,017,738)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (120,671)
<INTEREST-EXPENSE> (94,701)
<INCOME-PRETAX> 811,609
<INCOME-TAX> (321,014)
<INCOME-CONTINUING> 490,595
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 490,595
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
