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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 ____________June 30, 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 August 1,
1997 were 8,384,769.
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MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of December 31, 1996
and June 30, 1997 (Unaudited) 2
Consolidated Statements of Earnings for the Three and Six Months
Ended June 30, 1996 and 1997 (Unaudited) 3
Consolidated Statement of Stockholders' Equity for the Six Months
Ended June 30, 1997 (Unaudited) 4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 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 11
Item 5: Other Information 11
Item 6: Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
DECEMBER 31, JUNE 30,
ASSETS 1996 (1) 1997
------ -------- ----
Current assets:
Cash and cash equivalents $ 1,044,094 $ 1,145,362
Accounts receivable, less allowance for doubtful
accounts of $73,344 in 1996 and $157,866
in 1997 9,080,251 8,513,401
Due from factor, net of allowances 5,967,379 5,057,553
Inventories 10,097,123 10,384,734
Prepaid expenses and other current assets 3,144,683 4,283,345
Prepaid income taxes -- 53,627
------------ ------------
Total current assets 29,333,530 29,438,022
Property and equipment, net 2,672,823 2,780,255
Goodwill, less accumulated amortization of $2,784,616
in 1996 and $3,681,687 in 1997 32,940,650 32,228,380
Other assets 1,252,930 1,158,396
------------ ------------
Total assets $ 66,199,933 $ 65,605,053
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable to banks $ 3,500,000 $ 3,300,000
Accounts payable 5,601,769 5,420,907
Income taxes payable 662,652 --
Accrued expenses and other current liabilities 1,942,725 1,426,534
------------ ------------
Total current liabilities 11,707,146 10,147,441
Other liabilities 278,000 278,000
------------ ------------
Total liabilities 11,985,146 10,425,441
------------ ------------
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 outstanding
in 1996 and 1997 85,868 85,868
Additional paid-in capital 31,653,186 31,653,186
Retained earnings 24,413,471 25,378,296
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 55,179,612
------------ ------------
Total liabilities and stockholders' equity $ 66,199,933 $ 65,605,053
============ ============
(1) Amounts were derived from the audited consolidated balance sheet as of
December 31, 1996.
See accompanying notes to consolidated financial statements.
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MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 1996 AND 1997
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ----------------
1996 1997 1996 1997
------------ ------------ ------------ -----------
Net sales $21,386,789 $ 19,600,192 $ 49,648,695 $45,170,387
Cost of goods sold 14,109,519 13,600,899 32,056,910 31,121,772
------------ ------------ ------------ -----------
Gross profit 7,277,270 5,999,293 17,591,785 14,048,615
Selling, general and administrative
expenses 6,810,841 5,889,458 13,901,388 13,786,525
------------ ------------ ------------ -----------
Operating earnings 466,429 109,835 3,690,397 262,090
Other income, net 399,553 760,245 918,316 1,497,677
Interest expense, net (214,148) (86,964) (356,152) (165,042)
------------ ------------ ------------ -----------
Earnings before provision
for income taxes 651,834 783,116 4,252,561 1,594,725
Provision for income taxes 224,331 308,886 1,626,815 629,900
------------ ------------ ------------ -----------
Net earnings $ 427,503 $ 474,230 $ 2,625,746 $ 964,825
============ ============ ============ ===========
Weighted average shares
outstanding 8,586,058 8,384,769 8,584,050 8,384,769
============ ============ ============ ===========
Earnings per share $ .05 $ .06 $ .31 $ .12
============ ============ ============ ===========
See accompanying notes to consolidated financial statements.
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MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
ADDITIONAL
COMMON STOCK PAID-IN RETAINED TRANSLATION TREASURY
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENTS STOCK TOTAL
------ ------ ------- -------- ----------- ----- -----
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 six
months ended
June 30, 1997 - - - 964,825 - - 964,825
--------- -------- -------------- ------------- ---------- ----------- -----------
Balance at June 30,
1997 8,586,769 $ 85,868 $ 31,653,186 $ 25,378,296 $ 16,612 $(1,954,350) $55,179,612
========= ======== ============== ============= ========== =========== ===========
See accompanying notes to consolidated financial statements.
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MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(UNAUDITED)
1996 1997
---- ----
Cash flows from operating activities:
Net earnings $ 2,625,746 $ 964,825
Adjustments to reconcile net earnings to net cash provided
(used) by operating activities:
Depreciation and amortization 1,268,499 1,333,858
Provision for doubtful accounts 160,037 200,845
Changes in assets and liabilities, net of effects
from purchase of Adrienne Vittadini, Inc. in 1996:
Decrease in accounts receivable and due from factor 1,810,421 1,275,831
(Increase) decrease in inventories 1,359,013 (287,611)
Increase in prepaid expenses and other current
assets (1,617,027) (1,138,662)
Increase in prepaid income taxes (1,021,500) (53,627)
(Increase) decrease in other assets (24,319) 94,534
Decrease in accounts payable (3,537,571) (180,862)
Decrease in accrued expenses and
other current liabilities (4,373,534) (516,191)
Decrease in income taxes payable (757,101) (662,652)
----------- -----------
Net cash provided (used) by operating activities (4,107,336) 1,030,288
----------- -----------
Cash flows used in investing activities:
Acquisitions of property and equipment (330,118) (544,219)
Acquisition of Adrienne Vittadini, Inc. net of cash
acquired (note 3) (17,804,994) --
Other -- (184,801)
----------- -----------
Net cash used in investing activities (18,135,112) (729,020)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 62,920 --
Borrowings (repayments) from banks, net 2,718,761 (200,000)
Other 1,931 --
----------- -----------
Net cash provided by (used in) financing activities 2,783,612 (200,000)
----------- -----------
Net increase (decrease) in cash and cash equivalents (19,458,836) 101,268
Cash and cash equivalents at beginning of period 20,512,918 1,044,094
------------ -----------
Cash and cash equivalents at end of period $ 1,054,082 $ 1,145,362
============ ===========
Cash paid during the period for:
Income taxes $ 3,338,058 $ 1,280,717
============ ===========
Interest $ 423,964 $ 184,741
============ ===========
See accompanying notes to consolidated financial statements.
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MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 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 and six months ended June 30, 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 June 30, 1997 consist of the
following:
1996 1997
----------- ----------
Piece goods $ 3,028,686 $3,200,279
Work in process 1,612,459 1,568,824
Finished goods 5,455,978 5,615,631
----------- ----------
$10,097,123 $10,384,734
=========== ==========
(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, 1998 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 June 30, 1997, $3,300,000 of borrowings,
bearing interest at an average rate of 6.85%, and $5,717,462 of commercial
letters of credit were outstanding under the credit facilities. At June 30,
1997, available borrowings under the facilities were $25,982,538.
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MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 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 June 30, 1997, the subsidiary had amounts due from the
factor related to such arrangement of $5,057,553, net of allowances.
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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 and six month periods ended June 30, 1996
and 1997.
Three Months Six Months
Ended Ended
June 30, June 30,
----------------------- -------------------
1996 1997 1996 1997
------ ------ ------ ------
Net sales 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------
Gross profit 34.0 30.6 35.4 31.1
Selling, general and administrative expenses 31.8 30.1 28.0 30.5
------ ------ ------ ------
Operating earnings 2.2 0.5 7.4 0.6
Other income, net expense 1.9 3.9 1.9 3.3
Interest income (expense), net (1.0) (.4) (.7) (.4)
Provision for income taxes (1.1) (1.6) (3.3) (1.4)
------ ------ ------ ------
Pro forma net earnings 2.0% 2.4% 5.3% 2.1%
====== ====== ====== ======
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Net sales. Net sales decreased 8.4%, from $21.4 million in 1996 to $19.6
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 17.8%, from $7.3 million in 1996 to
$6.0 million in 1997 as a result of lower sales and gross margin. As a
percentage of net sales, gross profit decreased from 34.0% in 1996 to 30.6% 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
Spring season and is being relaunched and renamed "Vittadini" for Fall 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 13.2%, from $6.8 million in 1996 to $5.9
million in 1997. As a percentage of net sales, selling, general and
administrative expenses decreased from 31.8% in 1996 to 30.1% in 1997. This
decrease is primarily attributable to variable expenses related to lower sales
volume and also to the Company's ongoing efforts to reduce operating expenses.
Other Income, Net. Other income consists of royalty, licensing and
copyright infringement income. The increase of $360,000 is due principally to
the Adrienne Vittadini division, which had net royalty income of approximately
$686,000 in 1997.
Interest Expense, Net. Interest expense decreased from $214,000 in 1996 to
$87,000 in 1997, principally as the result of lower average outstanding
borrowings.
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Income Taxes. Income taxes increased from $224,000 in 1996 to $309,000 in
1997 as the result of higher earnings. The Company's effective income tax rates
for the three months ended June 30, 1996 and 1997 were 34.4% and 39.4%,
respectively.
Net Earnings. Net earnings increased by $47,000 in 1997 over 1996
principally as the result of higher royalty income and lower interest expense
offset by lower operating earnings.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Net Sales. Net sales decreased 8.9%, from $49.6 million in 1996 to $45.2
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 20.4%, from $17.6 million in 1996 to
$14.0 million in 1997 as a result of lower sales and gross margin. As a
percentage of net sales, gross profit decreased from 34.5% in 1996 to 31.1% in
1997. The decline in the gross profit percentage for the 1997 six months 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
Spring season and is being relaunched and renamed "Vittadini" for Fall 1997.
Selling, General and Administrative Expense. Selling, general and
administrative expenses decreased 0.7%, from $13.9 million in 1996 to $13.8
million in 1997. As a percentage of net sales of the Company, selling, general
and administrative expenses increased from 28.0% in 1996 to 30.5% in 1997, as a
result of the lower sales volume.
Other Income, Net. Other income consists of royalty, licensing and
copyright infringement income. The increase of $579,000 is due principally to
the Adrienne Vittadini division, which had net royalty income of approximately
$1,365,000 in 1997. Management does not anticipate that the Company will
experience an increase of similar magnitude during the second six months of
1997.
Interest Income, Net. Interest expense decreased from $356,000 in 1996 to
$165,000 in 1997, principally as the result of lower average outstanding
borrowings.
Income Taxes. Income taxes decreased from $1.6 million in 1996 to $0.6
million in 1997 as the result of lower earnings. The Company's effective income
tax rates for the six months ended June 30, 1996 and 1997 were 38.3% and 39.5%,
respectively.
Net Earnings. Net earnings declined by $1.7 million in 1997 as compared to
1996 as the result of lower operating earnings offset by higher royalties and
lower interest expense.
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
Resort, Spring/Summer and Early Fall collections average 5 to 10% lower than in
other selling seasons.
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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 June 30, 1997, $3,300,000 of borrowings and $5,717,462 of
commercial letters of credit were outstanding under the credit facilities. At
June 30, 1997, available borrowings under the facilities were $25,982,538.
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 six months
ended June 30, 1997 were approximately $544,000.
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.
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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 5. OTHER INFORMATION
Peter Boneparth resigned from the Board as a result of accepting a senior
executive position with another apparel company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Reports on Form 8-K - no reports on Form 8-K were filed during the quarter ended
June 30, 1997.
Exhibit 27. Financial Data Schedule
Exhibit 28. Press release dated August 7, 1997
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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: August 13, 1997 /s/ S. E. Melvin Hecht
---------------- ------------------------
S. E. Melvin Hecht
Chief Financial Officer and Treasurer
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