SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
FORM 8/A
AMENDMENT TO APPLICATION OR REPORT
Filed pursuant to Section 12, 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
SUNSTATES CORPORATION
(Exact name of registrant as specified in its charter)
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items
of its Current Report on Form 8-K filed March 21, 1995, as set
forth in the pages attached hereto:
Item 7. Financial Statements and Exhibits
(a) Financial statements of businesses acquired.
(b) Pro forma financial information
(c) Exhibits
(23) Consents of experts and counsel
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this amendment to be
signed on its behalf by the undersigned, thereunto duly
authorized.
Sunstates Corporation
Date May 18, 1995 By /s/ Glenn J. Kennedy
Glenn J. Kennedy
Chief Financial Officer
Item 7(a) Financial statement of businesses acquired
Balfour Healthcare Products Division of
Kayser-Roth Corporation
Statements of Assets Available for Sale as of
December 31,1994, and January 28,1994, and
Statements of Revenues and Selected Expenses for the
Period from January 29,1994, to December 31,1994, and Each of the
Two Fiscal Years in the Period Ended January 28,1994
Together with Report of Independent Public Accountants
ARTHUR ANDERSEN LLP
Report of Independent Public Accountants
To the Board of Directors of
Kayser-Roth Corporation:
We have audited the accompanying statements of assets available for
sale of the Balfour Healthcare Products Division (the Division) of
Kayser-Roth Corporation (a Delaware corporation) (the Company) as of
December 31, 1994, and January 28, 1994, and the related statements
of revenues and selected expenses for the period from January 29,
1994, to December 31, 1994, and for each of the two fiscal years in
the period ended January 28, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
The accompanying statements of assets available for sale and the
statements of revenues and selected expenses have been prepared
pursuant to the Asset Purchase Agreement dated March 6,1995, between
Kayser-Roth Corporation and Alba-Waldensian, Inc. as discussed in
Note 2 and are not intended to be a complete presentation of the
assets, liabilities, revenues or expenses of Kayser-Roth Corporation.
In our opinion, the statements referred to above present fairly, in
all material respects, the assets of the Balfour Healthcare Products
Division of Kayser-Roth Corporation available for sale and the
related revenues and selected expenses pursuant to the Asset Purchase
Agreement dated March 6, 1995, on the basis of accounting as
described in Note 3 to the financial statements.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
May 4,1995.
Balfour Healthcare Products Division of
Kayser-Roth Corporation
Statements of Assets Available for Sale
As of December 31, 1994, and January 28, 1994
(in thousands)
Successor Predecessor
Basis Basis
(Notes 1 (Notes 1
and 3) and 3)
December 31, January 28,
1994 1994
Accounts receivable (Note 5) $1,796 $1,501
Inventories, net (Notes 4 and 6) 1,162 945
Supplies inventories and prepaid
expenses (Note 4) 50 54
----- -----
Total current assets 3,008 2,500
Property, plant and equipment,
net (Notes 4 and 7) 4,075 1,541
----- -----
Total assets available for sale $7,083 $4,041
===== =====
The accompanying notes to financial statements
are an integral part of these statements.
Balfour Healthcare Products Division of
Kayser-Roth Corporation
Statements of Revenues and Selected Expenses
For the Period from January 29, 1994, to December 31, 1994, and
Each of the Two Fiscal Years in the Period Ended January 28,1994
(in thousands)
Successor Basis Predecessor Basis
(Notes 1 and 3) (Notes 1 and 3)
December 31, January 28, January 30,
1994 (11 months) 1994 1993
Net sales (Note 5) $13,785 $14,189 $13,891
Cost of sales (Note 10) 10,345 11,269 11,132
------ ------ ------
Gross profit 3,440 2,920 2,759
------ ------ ------
Selling, marketing and distribution
expenses (Note 11):
Marketing 25 11 33
SeIling 751 785 671
Distribution 532 595 561
----- ----- -----
1,308 1,391 1,265
----- ----- -----
Operating income before interest and taxes
(Note 10) $ 2,132 $1,529 $1,494
===== ===== =====
The accompanying notes to financial statements
are an integral part of these statements.
Balfour Healthcare Products Division of
Kayser-Roth Corporation
Notes to Financial Statements
December 31,1994, and January 28,1994
(in thousands)
1. Organization and Description of Business:
Kayser-Roth Corporation (Kayser-Roth -- or the Company) was
incorporated in Delaware in August 1985 and was subsequently
acquired by Collins & Aikman Group, Inc. (Group or Seller) on
August 1, 1985. The Company manufactures and markets a complete
line of brand name and private label men's and women's hosiery
and hosiery-related products. The Balfour Healthcare Products
Division (the Division) manufactures apparel products for the
health care industry such as footies, cuffs, cloth gloves, joint
pads for patients, etc. in the Company's Rockwood, Tennessee
manufacturing facility. The Division's products are sold
primarily to medical supply companies.
Acquisition of Kayser-Roth
On January 28, 1994, Legwear Acquisition Corporation (Legwear) (a
wholly owned subsidiary of Legwear Holdings Corporation
(Holdings)), acquired 100% of the common stock of Kayser-Roth.
The acquisition was accounted for under the purchase method of
accounting. Accordingly, the aggregate purchase price was
allocated based on the estimated fair value of assets acquired
and liabilities assumed. As part of the purchase allocation,
property, plant and equipment of the Division was recorded at
fair value, which resulted in a step-up of approximately $1,450.
2. Asset Purchase Agreement:
On March 6,1995, the Company entered into an Asset Purchase Agreement
(the Agreement) whereby the operating assets of the Division and the
manufacturing facility were sold to Alba-Waldensian, Inc. (the
Buyer) for $14,956. The accompanying statements of assets available
for sale and statements of revenues and selected expenses have been
prepared pursuant to the Agreement and include only those assets
purchased and liabilities assumed related to the Division, and the
manufacturing facility. Significant excluded assets under the
Agreement include cash, inventory and equipment related to the
Company's sock manufacturing operation, certain computer hardware and
software and intellectual property. Substantially all related
liabilities will not be assumed by the Buyer, including accounts
payable, accrued expenses and debt. The only significant assumed
liability is an obligation under an equipment lease (Notes 12 and
13).
The Agreement provides that the Buyer's indemnification claims
must exceed $250, subject to certain limitations, before they may
be asserted against the Company. The Company's maximum
indemnification obligation is limited to $7,075.
3. Basis of Presentation:
The accompanying financial statements have been prepared on the
basis of accounting as specified in the Agreement and include
only those assets of the Division and the related manufacturing
facility, that were purchased by the Buyer pursuant to the terms
of the Agreement. The statements of assets available for sale as
of January 28, 1994, and related statements of revenues and
selected expenses for each of the two fiscal years in the period
ended January 28,1994, are presented on the historical
predecessor company basis. The statement of assets available for
sale as of December 31, 1994, and the statement of revenues and
selected expenses for the period from January 29, 1994, to
December 31, 1994, are presented on the historical successor
company basis which reflects the purchase accounting adjustments
resulting from the acquisition of Kayser-Roth on January 28, 1994
(see Note 1).
The accompanying statements of revenues and selected expenses
represent those revenues and direct expenses of the Division,
prior to the allocation of corporate-level interest and taxes.
4. Summary of Significant Accounting Policies:
Fiscal Year
Through January 28, 1994, the Division's fiscal year ended on the
last Saturday in January. Fiscal 1993 reflects a 52-week year
which ended on January 28, 1994. Following the acquisition, the
Company adopted a fiscal year ending on the last Saturday in
December. As such, fiscal 1994 reflects a 48-week period which
ended on December 31, 1994.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market and include the costs of raw materials, direct labor and manufacturing
overhead. Allowances are established to reduce the cost of excess and
obsolete inventories to their estimated net realizable value.
Supplies Inventories
Supplies inventories consist primarily of repair parts and expendable
operating supplies and are carried at the lower of cost or net realizable
value.
Property, Plant and Equipment
Property, plant and equipment are stated at predecessor basis
historical cost at January 28, 1994, and at successor basis
historical cost at December 31, 1994, which reflects the fair value
adjustments resulting from the acquisition of Kayser-Roth.
Depreciation is recorded using the straight-line method for financial
reporting purposes over estimated useful lives ranging from 3 to 40
years.
5. Revenue Recognition and Concentration of Credit Risk:
The Division recognizes revenue upon the shipment of products to its
customers.
The Company provides credit services for the Division. Substantially
all of the Division's accounts receivable are concentrated in the
health care industry. In the normal course of business, the Company
extends credit, on open accounts, to its customers after a credit
analysis based on a number of financial and other criteria. The
Company performs ongoing credit evaluations of its customers'
financial conditions, but generally does not require collateral.
Allowances are maintained for potential credit losses, and such
losses have been within management's expectations.
The Division has three significant customers whose net sales and
accounts receivable are 47%, 53% and 56%, and 34%, 35% and 40%,
respectively, of the Division's totals for periods ending December 31,
1994, January 28, 1994, and January 30, 1993, respectively.
Under the Agreement, the Buyer may require the Company to repurchase at
face value uncollected accounts receivable after 120 days following the
closing date.
6. Inventories:
Inventories consisted of the following at December 31, 1994, and January
28, 1994:
December 31, January 28,
1994 1994
Raw materials $ 279 $ 274
Work in process 140 84
Finished goods 802 643
----- -----
1,221 1,001
Less- Reserves (59) (56)
----- ----
$1,162 $ 945
===== ===
7. Property, Plant and Equipment, Net:
Property, plant and equipment consists of the following:
(Successor (Predecessor
Basis - Notes 1 Basis - Notes 1
and 3) and 3)
December 31, January 28,
1994 1994
Land and land improvements $ 96 $ 154
Buildings 2,500 1,854
Machinery and equipment 1,726 2,336
Construction in process 8 17
----- -----
4,330 4,361
Less - Accumulated depreciation (255) (2,820)
----- -----
$4,075 $1,541
===== =====
Depreciation expense was $146, $158 and $174 for the periods ending
December 31, 1994, January 28, 1994, and January 30, 1993, respectively.
The depreciation expense only relates to the portion of property, plant
and equipment used by the Division.
8. Commitments and Contingencies:
Litigation
The Company is subject to various legal proceedings and claims arising
in the ordinary course of business. In management's opinion, the
outcome of the aforementioned matters is not likely to have a
material adverse effect on the Division's financial position or
results of operations.
Environmental Matters
The Division's operations are subject to environmental regulation in
the jurisdiction in which it operates. The Company believes that the
Division's operations currently comply in all material respects with
the current requirements of environmental laws and regulations.
9. Employee Benefit Plans:
Pension Plan
The Company has a defined benefit pension plan covering substantially
all employees who meet certain eligibility requirements, including
the employees of the Division. This liability was not assumed by the
Buyer. Plan benefits are based primarily on years of service and
employee's compensation. Funding of retirement costs for the plan
complies with the minimum funding requirements specified by the
Employee Retirement Income Security Act. Estimated expenses of the
plan related to the Division and included in the accompanying
statements of revenues and selected expenses, amounted to $60, $75
and $67 for the periods ended December 31, 1994, January 28,1994, and
January 30,1993, respectively.
Defined Contribution Plan
The Company sponsors a defined contribution plan covering employees
who meet certain eligibility requirements. Company contributions are
based on a formula as specified in the plan agreement. This
liability was not assumed by the Buyer. Estimated Company
contributions for the Division related to this plan and included in
the accompanying statements of revenues and selected expenses were
$8, $10 and $8 for the periods ending December 31, 1994, January 28,
1994, and January 30,1993, respectively.
10. Allocated Expenses:
Corporate general and administrative expenses are allocated to the
Division based on plant production and labor dollars and are included
in cost of sales. Interest and taxes are not includeded in the
corporate allocation.
11. Selling and Distribution Expenses:
Selling and distribution expenses consist primarily of direct payroll
and other costs incurred by the Division and do not include any
allocations from the Company.
12. Lease Commitments:
The Company is obligated under an operating lease on behalf of the
Division for certain knitting equipment used by the Division. The lease
commenced in May 1993 for a term of 60 months and was assumed in the
Agreement. The future minimum lease payments at December 31, 1994, are
as follows:
1995 $100
1996 100
1997 100
1998 33
Rent expense under the operating lease related to the Division and
included in the accompanying statements of revenues and selected
expenses amounted to $91, $75 and $0 for the periods ended December 31,
1994, January 28, 1994, and January 30, 1993, respectively.
13. Assumed Liabilities:
As discussed in Note 2, certain liabilities were to be assumed in
connection with the Agreement. At December 31, 1994, and January
28,1994, accrual requirements related to the liabilities to be assumed
were not significant.
Item 7 (b) Pro forma financial information
SUNSTATES CORPORATION
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to an Asset Purchase Agreement dated March 6, 1995, between
Alba-Waldensian, Inc. ("Alba"), a 50.4% subsidiary of Sunstates
Corporation ("the Company" ), and Kayser-Roth Corporation, Alba
acquired the operating assets an Healthcare Products Division
("Balfour Healthcare Products") (the "Division") for a cash price of
$14,956,000, subject to certain post closing adjustments. Alba
financed the acquisition from borrowings under its credit facility.
The acquisition will be accounted for as a purchase, with net assets
acquired recorded at estimated fair values, and the results of the
Division's operations included in the Company's consolidated
financial statements from the date of acquisition.
The accompanying condensed consolidated financial statements
illustrate the effect of the acquisition ("Pro Forma") on the Company's
financial position and results of operations. The condensed
consolidated balance sheet as of December 31, 1994, is based on the
historical balance sheets of the Company and the Division as of that
date and assumes the acquisition took place on that date. The
condensed consolidated statement of income for the year ended
December 31, 1994, of the Company is based on the historical statement
of income for that period. The condensed consolidated statement of
income for Division is based on the historical statement of income
for the twelve month period ended January 28, 1995. The pro forma
condensed consolidated statement of income assumes the acquisition
took place at the beginning of the period.
The pro forma condensed consolidated financial statements should be
read in connection with the historical financial statements of the
Company and the Division.
<TABLE>
SUNSTATES CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
DECEMBER 31,1994
(in thousands)
Balfour
Sunstates Healthcare Pro Forma
Corporation Products Adjustments Pro Forma
ASSETS
<S> <C> <C> <C> <C> <C>
Real estate $70,511 $4,075 ($1,344) (1) $73,242
Investments 78,906 78,906
Operating assets:
Cash 5,779 44 (1) 5,823
Accounts receivable 30,700 1,796 32,496
Inventories 42,909 1,162 44,071
Other operating assets 2,393 2,393
Cost in excess of assets acquired 6,195 9,217 (1) 15,412
Other assets 9,182 50 9,232
------- ----- -------
Total assets $246,575 $7,083 $261,575
======= ===== =======
LIABILITIES AND STOCKHOLDERS'EQUITY
Debt:
Notes payable $52,677 $52,677
Mortgage notes 16,111 15,000 (1) 31,111
Other liabilities 123,654 123,654
------- -------
Total liabilities 192,442 207,442
Minority interests in subsidiaries 21,892 21,892
Net assets 7,083 (7,083) (1)
Stockholders'equity 32,241 32,241
------- ----- -------
Total liabilities and stockholders' equity $246,575 $7,083 $261,575
======= ===== =======
See Notes to Pro Forma Consolidated Financial Statements (Unaudited)
</TABLE>
<TABLE>
SUNSTATES CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(in thousands,except per share amounts)
Sunstates
Corporation Balfour Healthcare Products
Eleven month One month Twelve month
Year ended period ended period ended period ended
December3l, December 31, January 28, January 28, Pro Forma
1994 1994 1995 1995 Adjustments Pro Forma
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $209,154 $13,785 $1,236 15,021 $224,175
Costs and expenses:
Insurance loss and loss
adjustment expenses 35,843 35,843
Cost of manufacturing
sales 100,337 10,345 895 11,240 (51) (2) 111,526
Cost of real estate sales 13,901 13,901
Selling and operating costs 56,107 1,308 100 1,408 600 (3) 58,115
Corporate expenses 2,966 2,966
Interest expense 3,945 918 (4) 4,863
------- ------ --- ------ -------
Total costs and expenses 213,099 11,653 995 12,648 227,214
Loss before items
shown below (3,945) 2,132 241 2,373 (3,039)
Provision for income taxes (2,039) (337) (5) (2,376)
Minority interest in
income of subsidiaries (1,589) (282) (6) (1,871)
----- ----- --- ----- -----
Net income (loss) ($7,573) $2,132 $241 $2,373 ($7,286)
===== ===== === ===== =====
Net loss applicable to
common stocks ($8,699) ($8,412)
Net loss per common share ($3.39) ($3.28)
==== ====
Weighted average number of
shares outstanding 2,564,584 2,564,584
========= =========
See Notes to Pro Forma Consolidated Financial Statement (Unaudited)
</TABLE>
SUNSTATES CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
Note A - The pro forma adjustments to the condensed consolidated
balance sheet are as follows:
(1) To reflect the acquisition of Balfour Healthcare Products and
the allocation of the purchase price on the basis of the estimated
fair values of the assets acquired.
The components of the purchase price and its allocation to the assets
of Balfour Healthcare Products are as follows (in thousands):
Components of purchase price:
Cash from variable loan rate term loan $ 15,000
Excess cash received from term loan proceeds ( 44)
------
Net purchase price to be allocated 14,956
Allocation of purchase price:
Stockholders equity (7,083)
(Increase) decrease to fair value:
Property, plant and equipment 1,344
-----
Cost in excess of assets acquired $ 9,217
=====
Note B - The pro forma adjustments to the condensed consolidated
statements of income are as follows:
Increase
(Decrease)
Net Income
(2) Adjustments to cost of sales:
Effect on historical expenses of the change in the
carrying amount of net assets resulting from
the allocation of the purchase price as
described in pro forma adjustment (1)
to the pro forma condensed consolidated
balance sheet $ 51
==
(3) Adjustments to selling, general and
administrative expenses:
Amortization of excess cost over fair value
of net assets acquired over 15 years ($ 600)
===
(4) Adjustments to interest expense:
Interest on term loan at LIBOR plus 2%
(average of 6.41%) ($ 918)
===
(5) Adjustments to provision for income taxes:
To adjust tax expense to reflect the
income tax effects at Alba's effective
tax rate of the pro forma adjustments
to income before income taxes. ($ 337)
===
(6) Adjustments to minority interest in income
of subsidiaries:
To reflect minority shareholders' interest
in the earnings of the Balfour
Healthcare Division ($ 282)
===
EXHIBIT 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our
report dated May 4, 1995, covering the Statements of Assets Available
for Sale of the Balfour Healthcare Products Division of Kayser-Roth
Corporation as of December 31, 1994, and January 28, 1994, and
Statements of Revenues and Selected Expenses for the period from
January 29, 1994, to December 31, 1994, and each of the two fiscal
years in the period ended January 28, 1994, included in the Form
8-K/A Commission File Number 1-5300 filed by Sunstates Corporation.
It should be noted that we have not audited any financial statements
of the Balfour Healthcare Products Division of Kayser-Roth
Corporation subsequent to December 31, 1994, or performed any audit
procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
May 18, 1995.
