SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Initial Report (Date of earliest event reported) to which this form
8-K/A is an amendment: October 2, 1998
Commission file numbers 333-42411 and 333-42411-01
--------------------------------------------------
GLENOIT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3862561
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
GLENOIT ASSET CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 51-0343206
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
111 West 40th Street
New York, New York 10018
Telephone: (212) 391-3915
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
1
<PAGE>
GLENOIT CORPORATION
Amendment No. 1 on Form 8-K/A
to
Current Report on Form 8-K
Introduction
This Amendment No. 1 on Form 8-K/A (this "Amendment") is being filed by
Glenoit Corporation and Glenoit Asset Corporation (together the "Company") to
amend Item 7 of the Company's Current Report on Form 8-K dated October 2, 1998
(the "Initial Report") relating to the acquisition on October 2, 1998 of
American Pacific Enterprises, Inc. (the "APE Acquisition"). Pursuant to the
instructions to Item 7 of Form 8-K, the Company is filing this Amendment (not
later than 60 days after the date that the Initial Report was required to be
filed) in order to include the financial statements and proforma financial
information required with respect to the APE Acquisition. Pursuant to Rule
12b-15 of the SEC Rules, the complete text of Item 7, as amended, is set forth
herein.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of businesses acquired.
Independent Auditors' Report...............................F-1
Consolidated Balance Sheets of American Pacific Enterprises,
Inc. and Subsidiary as of December 31, 1997 and
1996....................................................F-2
Consolidated Statements of Net Income of American Pacific
Enterprises, Inc. and Subsidiary for the years ended
December 31, 1997, 1996 and 1995........................F-3
Consolidated Statements of Shareholders' Equity of American
Pacific Enterprises, Inc. and Subsidiary for the years
ended December 31, 1997, 1996 and 1995..................F-4
Consolidated Statements of Cash Flows of American Pacific
Enterprises, Inc. and Subsidiary for the years ended
December 31, 1997, 1996 and 1995........................F-5
Notes to Consolidated Financial Statements of American Pacific
Enterprises, Inc. and Subsidiary........................F-6
Consolidated Balance Sheet of American Pacific Enterprises,
Inc., and Subsidiaries as of October 2, 1998
(Unaudited)............................................F-11
Consolidated Statement of Net Income of American Pacific
Enterprises, Inc. and Subsidiaries for the nine months
ended October 2, 1998 (Unaudited)......................F-12
Consolidated Statement of Shareholders' Equity of American
Pacific Enterprises, Inc. and Subsidiaries for the nine
months Ended October 2, 1998 (Unaudited)...............F-13
Consolidated Statement of Cash Flows of American Pacific
Enterprises, Inc. and Subsidiaries for the nine months
ended October 2, 1998 (Unaudited)......................F-14
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................F-15
2
<PAGE>
(b) The unaudited proforma financial information furnished herein
reflects the effect of the acquisition of American Pacific
Enterprises, Inc. on the consolidated financial statements of
Glenoit Corporation.
Unaudited Proforma Consolidated Statement of Income for the
nine months ended October 3, 1998......................F-21
Unaudited Proforma Consolidated Statement of Income for the
fiscal year ended January 3, 1998......................F-22
(c) The exhibits furnished in connection with this Report are as follows:
Exhibit Number Description
-------------- -----------
2.1 Stock Purchase Agreement, dated October 2, 1998, among
Glenoit Corporation, American Pacific Enterprises, Inc.,
Steven J. Block, Jeffrey J. Block and Gregory D. Block
is hereby incorporated by reference to Exhibit 2.1 of
the Company's Current Report on Form 8-K dated October
2, 1998.
4.1 Second Amendment and Waiver to the Credit Agreement,
dated October 2, 1998, among Glenoit Corporation, the
banks, financial institutions and other institutional
lenders parties to the Credit Agreement and Banque
Nationale de Paris, as Agent is hereby incorporated by
reference to Exhibit 4.1 of the Company's Current Report
on Form 8-K dated October 2, 1998.
23.1 Consent of KPMG Peat Marwick LLP.
99.1 Company Press Release dated October 2, 1998 is hereby
incorporated by reference to Exhibit 99.1 of the
Company's Current Report on Form 8-K dated October 2,
1998.
The Registrant hereby undertakes to furnish supplementally a copy of any
schedule or exhibit to the Stock Purchase Agreement omitted herefrom, as
permitted by Item 601(b)(2) of Regulation S-K, to the Commission upon request.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: December 11, 1998
GLENOIT CORPORATION
By /S/ LESTER D. SEARS
-------------------------------
Lester D. Sears
Executive Vice President and
Chief Financial Officer
(On behalf of the Registrant and as
Principal Financial and Accounting
Officer)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: December 11, 1998
GLENOIT ASSET CORPORATION
By /S/ LESTER D. SEARS
-------------------------------
Lester D. Sears
Executive Vice President and
Chief Financial Officer
(On behalf of the Registrant and as
Principal Financial and Accounting
Officer)
4
<PAGE>
Independent Auditors' Report
To the Shareholders of
American Pacific Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of American Pacific
Enterprises, Inc. and subsidiary as of December 31, 1997 and 1996, and the
related consolidated statements of net income, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997.
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.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Pacific
Enterprises, Inc. and subsidiary as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Columbus, Ohio
March 6, 1998
F-1
<PAGE>
AMERICAN PACIFIC ENTERPRISES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1997 and 1996
Assets 1997 1996
------ ---- ----
Current assets:
Cash $ 502,990 $ 597,280
Trade accounts receivable, net 8,341,396 4,742,072
Due from affiliates 134,851 28,090
Inventories 13,419,318 12,255,603
Prepaid expenses and other current assets 262,875 164,586
Refundable income taxes 0 6,397
------------ -----------
Total current assets 22,661,430 17,794,028
------------ -----------
Property and equipment, at cost:
Warehouse and office equipment 1,865,912 1,469,624
Office furniture and fixtures 139,494 262,964
Leasehold improvements 91,138 100,369
------------ -----------
2,096,544 1,832,957
Less accumulated depreciation and
amortization ( 1,307,667 )( 1,121,674)
------------ -----------
788,877 711,283
Deposits and other 77,717 97,351
------------ -----------
Total assets $ 23,528,024 $18,602,662
============ ===========
Liabilities and Shareholders' Equity
Current liabilities:
Line of credit $ 2,655,033 $ 3,112,000
Current portion of notes payable
to related parties 4,010,354 344,940
Current portion of notes payable 0 103,665
Accounts payable 1,621,115 1,470,454
Accrued compensation 521,821 61,804
Accrued liabilities 889,346 526,369
------------ -----------
Total current liabilities 9,697,669 5,619,232
------------ -----------
Notes payable to related parties,
net of current portion 0 3,500,000
------------ -----------
Total liabilities 9,697,669 9,119,232
Shareholders' equity:
Common stock, no par value; 750
shares authorized, 100 shares
issued and outstanding 1,000 1,000
Retained earnings 13,829,355 9,482,430
------------ -----------
Total shareholders' equity 13,830,355 9,483,430
------------ -----------
Contingencies (note 8)
------------ -----------
Total liabilities and shareholders' equity $ 23,528,024 $18,602,662
============ ===========
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
AMERICAN PACIFIC ENTERPRISES, INC. AND SUBSIDIARY
Consolidated Statements of Net Income
Years ended December 31, 1997, 1996, and 1995
1997 1996 1995
---- ---- ----
Net sales $57,907,815 $50,808,545 $56,535,180
Cost of sales 34,727,912 34,698,749 36,869,888
----------- ----------- -----------
Gross profit 23,179,903 16,109,796 19,665,292
Operating expenses 14,958,782 13,735,976 14,079,144
----------- ----------- -----------
Operating income 8,221,121 2,373,820 5,586,148
Interest expense 711,293 908,575 1,732,988
----------- ----------- -----------
Income before income taxes 7,509,828 1,465,245 3,853,160
State and local income tax expense 111,156 65,443 111,813
----------- ----------- -----------
Net income $ 7,398,672 $ 1,399,802 $ 3,741,347
=========== =========== ===========
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
AMERICAN PACIFIC ENTERPRISES, INC. AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Common Stock Total
------------------ Retained Shareholders'
Shares Amount Earnings Equity
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 100 $ 1,000 9,196,131 9,197,131
Distributions to shareholders (2,854,605 ) ( 2,854,605 )
Net income 3,741,347 3,741,347
- ----------------------------------------------------------------------------------------
Balance at December 31, 1995 100 1,000 10,082,873 10,083,873
Distributions to shareholders (2,000,245 ) ( 2,000,245 )
Net income 1,399,802 1,399,802
- ----------------------------------------------------------------------------------------
Balance at December 31, 1996 100 1,000 9,482,430 9,483,430
Distributions to shareholders (3,051,747 ) ( 3,051,747 )
Net income 7,398,672 7,398,672
- ----------------------------------------------------------------------------------------
Balance at December 31, 1997 100 $ 1,000 13,829,355 13,830,355
- ----------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AMERICAN PACIFIC ENTERPRISES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 7,398,672 $ 1,399,802 $ 3,741,347
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of property
and equipment 298,263 411,679 591,093
Loss on disposal of property and equipment 254,686 97,191 5,962
Changes in certain assets and liabilities:
Accounts receivable (3,599,324) 1,539,671 1,400,774
Inventories (1,163,715) 872,283 3,226,299
Prepaid expenses and other
current assets (98,289) (5,310) 47,246
Refundable income taxes 6,397 33,967 77,268
Deposits and other 19,634 71,265 (84,387)
Accounts payable 150,661 (312,619) (123,643)
Accrued liabilities 822,994 (100,079) (433,197)
------------ ------------ ------------
Net cash provided by operating activities 4,089,979 4,007,850 8,448,762
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures for property and
equipment (630,543) (358,004) (183,623)
Advances to affiliates, net (106,761) 681,794 64,978
------------ ------------ ------------
Net cash provided by (used in) investing activities (737,304) 323,790 (118,645)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from borrowings under line of credit 54,846,626 53,723,413 54,746,380
Payments on borrowings under line of credit (55,303,593) (55,324,640) (58,137,731)
Payments on notes payable (248,605) (930,377) (1,887,312)
Distributions to shareholders (2,741,393) (1,905,305) (2,645,713)
------------ ------------ ------------
Net cash used in financing activities (3,446,965) (4,436,909) (7,924,376)
------------ ------------ ------------
Net increase (decrease) in cash (94,290) (105,269) 405,741
Cash at beginning of year 597,280 702,549 296,808
------------ ------------ ------------
Cash at end of year $ 502,990 $ 597,280 $ 702,549
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AMERICAN PACIFIC ENTERPRISES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997, 1996, and 1995
(1) Organization
American Pacific Enterprises, Inc. (Company) was incorporated in Ohio in
1984. It designs, manufactures through contract manufacturers, and markets
hand-crafted textile home furnishings. The Company's products are
manufactured principally in China. Supervision of contract manufacturers
and other activities in China is provided by Promising Star Textile Arts,
Ltd. (PSTA), a Chinese corporation owned by the Company as of November 21,
1997 and by a shareholder of the Company prior to that date. The Company's
supervision of contract manufacturers in certain other countries is
provided by Grand Avenue Corp. (Grand Ave.), which is owned by the
shareholders of the Company.
On November 21, 1997, the Company purchased for $200,000 the equity
ownership of PSTA that previously was wholly-owned by one of the Company's
shareholders. The purchase price approximated the net assets acquired, and
the Company believes the fair values of PSTA's assets and liabilities
approximate their historical carrying value. As a result of the
transaction, PSTA became a wholly-owned subsidiary of the Company and
PSTA's balance sheet only has been consolidated as of December 31, 1997.
Intercompany balances have been eliminated.
(2) Summary of Significant Accounting Policies
(a) Inventories
Inventories are stated at the lower of cost or market. Finished
goods inventories are valued by the average cost method. Goods in
transit represent merchandise for which the Company has title but
has not yet received. Work-in-process inventories represent piece
goods supplied to the Company's contract manufacturers for
fabrication into finished goods. Goods in transit inventories and
work-in-process inventories are valued by the specific cost
identification method.
The Company's inventories at December 31, 1997 and 1996, consisted
of the following:
1997 1996
---- ----
Finished goods $ 9,683,887 $ 7,398,493
Goods in transit 2,695,686 4,390,390
Work-in-process 444,632 191,934
Raw materials 595,113 274,786
------------ ------------
Total $ 13,419,318 $ 12,255,603
============ ============
F-6
<PAGE>
AMERICAN PACIFIC ENTERPRISES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996, and 1995
(b) Property and Equipment
Property and equipment are stated at cost and are depreciated using
the straight-line method over the estimated useful lives of owned
assets (3 - 5 years for warehouse and office equipment and 5 years
for office furniture and fixtures). Leasehold improvements are
amortized over the estimated useful life of the property or over the
term of the lease, whichever is shorter. Expenditures for repairs
and maintenance are charged against operations as incurred, and
expenditures for major renovations are capitalized.
When property is sold or retired, the cost and related accumulated
depreciation are removed from the accounts, with any resulting gain
or loss reflected in operations.
(c) Revenue Recognition
Sales and the related cost of sales are recognized upon shipment of
products. Reserves for estimated sales returns and allowances are
recorded in the same accounting period as the related revenues. The
total reserve for doubtful accounts, returns, and allowances at
December 31, 1997 and 1996, was $1,549,226 and $1,435,635,
respectively.
(d) Income Taxes
The Company is a Subchapter-S Corporation under provisions of the
Internal Revenue Code for federal and certain state income tax
purposes. As a result, the Company's income, deductions, and credits
are included in the taxable income of the individual shareholders;
accordingly, federal and certain state income tax provisions are not
included in the accompanying statements of net income. It is the
Company's practice to make cash distributions to shareholders in
amounts sufficient for them to meet their personal income tax
obligations resulting from the Company's S-Corporation status. Such
distributions are recognized on the cash basis.
The Company provides for corporate income taxes for the state of
California, the state of New York, New York City, and Grove City
(City of Columbus in 1996 and 1995) based on the liability method.
(e) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
F-7
<PAGE>
AMERICAN PACIFIC ENTERPRISES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996, and 1995
(f) Reclassifications
Certain reclassifications have been made to the December 31, 1996
consolidated balance sheet to conform with the current year presentation.
(3) Debt
(a) Line of Credit Agreement
The Company has an agreement with its principal banker which
provides for maximum credit, including revolving loans and
commercial letters of credit, of up to $15 million as of December
31, 1997. Interest is due and payable on a monthly basis, and
principal and all remaining accrued interest are due on maturity in
June 1998.
The interest rate charged on the line of credit during 1997 was the
prime rate minus .6 percent; at December 31, 1997, the interest rate
charged on the line of credit was 7.9 percent. The interest rate
charged on the line of credit during 1996 varied from prime rate
plus .25 percent to prime rate minus .35 percent; at December 31,
1996, the interest rate charged on the line of credit was 7.9
percent. The interest rate charged on the line of credit during 1995
varied from prime rate plus .25 percent to prime rate plus 1
percent.
The borrowings under the revolving credit, as well as the related
bank note payable agreement, are collateralized by substantially all
of the Company's assets including trade accounts receivable,
inventories, and property and equipment. The agreement contains
covenants which, among other things, requires the Company to
maintain a certain minimum net worth.
At December 31, 1997, the Company was contingently liable for
outstanding letters of credit of approximately $251,000 to purchase
inventories.
(b) Notes Payable
Notes payable at December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Note payable to shareholders, non interest bearing
and payable upon demand $ 510,354 $ 94,940
Subordinated notes payable to related parties in annual
installments of $250,000 through 1997;
interest payable monthly at 10% with the balance
due at maturity in December 1998 3,500,000 3,750,000
Bank note payable in quarterly installments of
$50,000 plus interest at prime plus 3/8%,
through June 1997 0 100,000
Note payable to the City of Columbus in monthly
installments of $1,842, including fixed interest
of 4% through February 1997 0 3,665
--------- ---------
4,010,354 3,948,605
Less current portion 4,010,354 448,605
========= =========
$ 0 $3,500,000
========= =========
</TABLE>
F-8
<PAGE>
AMERICAN PACIFIC ENTERPRISES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996, and 1995
(4) Lease Obligations
The Company rents its office and showroom in San Francisco and its Ohio
warehouses under operating lease agreements which expire at various dates
through April 2001. The primary Ohio warehouse lease provides for two
three-year renewal options. Rent expense was approximately $612,000,
$1,016,000, and $1,383,000 for the years ended December 31, 1997, 1996 and
1995, respectively.
Future minimum lease payments under these noncancelable operating leases
at December 31, 1997 are as follows:
Minimum
Year Rentals
---- -------
1998 $ 586,000
1999 511,000
2000 429,000
2001 110,000
---------
Totals $ 1,636,000
=========
(5) Related Party Transactions
Pursuant to a Management Service Agreement between PSTA and the Company,
the Company advanced PSTA, an affiliated company, approximately $335,000,
$490,000, and $315,000 for various costs and services related to the
Company's import/export activities during the years ended December 31,
1997, 1996, and 1995, respectively.
Pursuant to a Management Service Agreement between Grand Ave. and the
Company, the Company advanced Grand Ave., approximately $85,000 and
$130,000 for various costs and services related to supervision of contract
manufacturers during the years ended December 31, 1996, and 1995,
respectively. Grand Ave. was advanced approximately $365,000 during the
year ended December 31, 1997 for such costs and services, other sales
support services, and for the use of a store and showroom in New York. At
December 31, 1997, the Company had a receivable from Grand Ave. of
approximately $126,000, which is included in due from affiliates on the
accompanying consolidated balance sheets; at December 31, 1996, there was
no amount receivable from or payable to Grand Ave. The Company believes
that the fees charged by Grand Ave. for services are comparable to the
fees which would be charged by an independent third party.
The Company received approximately $917,000 from Mecox Lane, Inc., a
former affiliate, during 1996, as payment in full for interest and
principal due on amounts advanced to Mecox Lane, Inc. and its predecessor,
pursuant to notes bearing a 6 percent rate of interest. At December 31,
1997 and 1996, there was no amount receivable from or payable to Mecox
Lane, Inc.
F-9
<PAGE>
AMERICAN PACIFIC ENTERPRISES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996, and 1995
(6) Supplemental Disclosure for Statements of Cash Flows
The Company paid interest of approximately $711,000, $909,000, and
$1,976,000, and paid income taxes of approximately $127,000, $32,000, and
$26,000, for the years ended December 31, 1997, 1996, and 1995,
respectively.
During 1997 and 1996, the Company issued notes payable of $310,354 and
$94,940, respectively, to shareholders in lieu of cash distributions.
(7) Concentration of Risk
The Company supplies its products primarily to customers in the retail
sector, including department and specialty stores, mass merchants, and
catalogs. These customers are located primarily throughout the United
States. In 1997, 1996, and 1995, the Company's top three customers
accounted for approximately 41 percent, 32 percent, and 38 percent,
respectively, of net sales. In 1997, the Company's largest customer
accounted for over 10 percent of its net sales.
The concentration of credit risk with respect to the Company's unsecured
trade receivables is considered to be limited because the Company closely
monitors the creditworthiness of its customers, adjusting credit policies
and limits as needed. However, a substantial portion of its customers'
ability to discharge amounts owed is dependent upon the retail economic
environment. The Company establishes an allowance for doubtful accounts
based upon factors surrounding the credit risk of specific customers,
historical trends, and other information.
(8) Contingencies
At December 31, 1997, the Company has guaranteed certain lease obligations
of Grand Ave., which obligations are expected to be assigned to the
Company during 1998.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on
the Company's financial position, results of operations, or liquidity.
(9) Sales to Suppliers
During 1996, and 1995, the Company sold to certain suppliers components
for making finished products. The terms of these sales generally allowed
the suppliers to purchase the components at or below cost. The Company
recorded sales of approximately $100,000 and $1,100,000 in 1996, and 1995,
respectively, for sales to suppliers. The recorded cost of sales for these
components was also approximately $100,000 and $1,100,000 in 1996, and
1995, respectively; therefore, no gross profit was recognized on these
sales. The difference between the Company's cost for the components and
the sales price to the suppliers was recorded as a component of inventory
cost for the related finished goods. There were no such sales during 1997.
F-10
<PAGE>
AMERICAN PACIFIC ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
As of October 2, 1998
Unaudited
Assets
------
Current assets:
Cash $ 438,881
Trade accounts receivable, net 14,607,144
Due from affiliates 27,101
Inventories 15,780,352
Prepaid expenses and other current assets 343,949
----------
Total current assets 31,197,427
----------
Property and equipment, at cost:
Warehouse and office equipment 2,130,310
Office furniture and fixtures 174,547
Leasehold improvements 147,092
---------
2,451,949
Less accumulated depreciation and amortization (1,529,218)
---------
922,731
Deposits and other 147,096
---------
Total assets $ 32,267,254
==========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Line of credit $ 16,500,000
Current portion of notes payable 0
Accounts payable 1,342,130
Accrued liabilities 1,626,471
----------
Total current liabilities 19,468,601
----------
Shareholders' equity:
Common stock, no par value; 750 shares authorized,
100 shares issued and outstanding 1,000
Retained earnings 12,797,653
----------
Total shareholders' equity 12,798,653
----------
Contingencies (note 7)
Total liabilities and shareholders' equity $ 32,267,254
==========
See accompanying notes to unaudited consolidated financial statements.
F-11
<PAGE>
AMERICAN PACIFIC ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Statements of Net Income
Nine months ended October 2, 1998
Unaudited
Net sales $ 53,326,707
Cost of sales 33,542,394
----------
Gross profit 19,784,313
Operating expenses 12,315,205
----------
Operating income 7,469,108
Interest expense 631,794
----------
Income before income taxes 6,837,314
State and local income tax expense 136,600
----------
Net income $ 6,700,714
==========
See accompanying notes to unaudited consolidated financial statements.
F-12
<PAGE>
AMERICAN PACIFIC ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Statement of Shareholders' Equity
Nine months ended October 2, 1998
Unaudited
- -----------------------------------------------------------------------
Common Stock Total
-------------- Retained Shareholders'
Shares Amount Earnings Equity
- -----------------------------------------------------------------------
Balance at December 31, 1997 100 $ 1,000 13,829,355 13,830,355
Capital contribution (Note 8) 650,000 650,000
Distributions to shareholders (8,382,416) (8,382,416)
Net income 6,700,714 6,700,714
- -----------------------------------------------------------------------
Balance at October 2, 1998 100 $ 1,000 12,797,653 12,798,653
- -----------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements.
F-13
<PAGE>
AMERICAN PACIFIC ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine months ended October 2, 1998
Unaudited
Cash flows from operating activities:
Net income $6,700,714
Adjustments to reconcile net income to net
cash used in operating activities:
Stock compensation 650,000
Depreciation and amortization of property
and equipment 249,325
Gain on disposal of property and equipment ( 2,162)
Changes in certain assets and liabilities:
Accounts receivable (6,265,748)
Inventories (2,361,034)
Prepaid expenses and other current assets ( 81,074)
Deposits and other ( 69,379)
Accounts payable ( 278,985)
Accrued liabilities 215,304
---------
Net cash used in operating activities (1,243,039)
Cash flows from investing activities:
Capital expenditures for property and equipment ( 389,971)
Proceeds from disposal of equipment 8,954
Advances to affiliates, net 107,750
---------
Net cash used in investing activities ( 273,267)
---------
Cash flows from financing activities:
Proceeds from borrowings under line of credit 33,620,617
Payments on borrowings under line of credit (19,775,650)
Payments on notes payable ( 4,010,354)
Distributions to shareholders ( 8,382,416)
---------
Net cash provided by financing activities 1,452,197
---------
Net decrease in cash ( 64,109)
Cash at beginning of period 502,990
---------
Cash at end of period $ 438,881
=========
See accompanying notes to unaudited consolidated financial statements.
F-14
<PAGE>
AMERICAN PACIFIC ENTERPRISES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
October 2, 1998
(1) Organization
American Pacific Enterprises, Inc. (Company) was incorporated in Ohio in
1984. It designs, manufactures through contract manufacturers, and markets
hand-crafted textile home furnishings. The Company's products are
manufactured principally in China. Supervision of contract manufacturers
and other activities in China is provided by Promising Star Textile Arts,
Ltd. (PSTA), a Chinese corporation wholly owned by the Company. The
Company's supervision of contract manufacturers in certain other countries
is provided by Grand Avenue Corp. (Grand Ave.), which had been owned by
the shareholders of the Company until September 15, 1998, and is owned by
the Company subsequent to that date.
Inter-company balances with respect to PSTA and Grand Ave. have been
eliminated.
(2) Basis of Presentation
On October 2, 1998 ("the Closing Date"), Glenoit Corporation ("Glenoit")
acquired all of the outstanding shares of the Company from the Company's
former shareholders (the "Former Shareholders") pursuant to a certain
Stock Purchase Agreement (the "Agreement"). Pursuant to the Agreement,
Glenoit paid the Former Shareholders approximately $38.1 million in cash
subject to certain post-closing adjustments. In addition, the Agreement
obligates Glenoit to pay additional purchase consideration to the Former
Shareholders in the event the Company attains certain earnings thresholds
during 1998 and 1999.
Concurrent with the closing of the Agreement, Glenoit extinguished
principal and interest owed to the Company's former lender (see Note 4).
The accompanying unaudited financial statements reflect the financial
position and results of operations of the Company immediately preceding
the acquisition that occurred on October 2, 1998 described above.
The accompanying unaudited condensed consolidated financial statements of
the Company have been prepared in accordance with generally accepted
accounting principles for interim financial information. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of only normal
recurring adjustments) considered necessary for a fair presentation have
been included. Operating results for the nine-month period ended October
2, 1998 are not necessarily indicative of the results that may be expected
for the fiscal year ending December 31, 1998. The unaudited financial
statements should be read in conjunction with the audited financial
statements and footnotes thereto for the fiscal year ended December 31,
1997.
F-15
<PAGE>
AMERICAN PACIFIC ENTERPRISES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
October 2, 1998
(3) Summary of Significant Accounting Policies
(a) Inventories
Inventories are stated at the lower of cost or market. Finished
goods inventories are valued by the average cost method. Goods in
transit represent merchandise for which the Company has title but
has not yet received. Work-in-process inventories represent pillow
shells, comforter shells and unkitted accessories. Goods in transit
inventories and work-in-process inventories are valued by the
specific cost identification method.
The Company's inventories consisted of the following:
Unaudited
October 2,
1998
----------
Finished goods $ 11,050,389
Goods in transit 3,619,310
Work-in-process 386,968
Raw materials 723,685
----------
Total $ 15,780,352
==========
(b) Property and Equipment
Property and equipment are stated at cost and are depreciated using
the straight-line method over the estimated useful lives of owned
assets. Leasehold improvements are amortized over the estimated
useful life of the property or over the term of the lease, whichever
is shorter. Expenditures for repairs and maintenance are charged
against operations as incurred, and expenditures for major
renovations are capitalized.
When property is sold or retired, the cost and related accumulated
depreciation are removed from the accounts, with any resulting gain
or loss reflected in operations.
(c) Revenue Recognition
Sales and the related cost of sales are generally recognized upon
shipment of products. Reserves for estimated sales returns and
allowances are recorded in the same accounting period as the related
revenues. The total reserve for doubtful accounts, returns, and
allowances at October 2, 1998, was $1,759,539.
Where right of return exists under guaranteed sales arrangements,
revenue is recognized when the products are sold by the retailer.
F-16
<PAGE>
AMERICAN PACIFIC ENTERPRISES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
October 2, 1998
(d) Income Taxes
Prior to the Closing Date, the Company was a Subchapter-S
Corporation under provisions of the Internal Revenue Code for
federal and certain state income tax purposes. As a result, the
Company's income, deductions, and credits for all periods up until
and including the Closing Date are included in the taxable income of
the Former Shareholders; accordingly, federal and certain state
income tax provisions are not included in the accompanying
statements of net income. Prior to the Closing Date, it was the
Company's practice to make cash distributions to shareholders in
amounts sufficient for them to meet their personal income tax
obligations resulting from the Company's S-Corporation status. Such
distributions are recognized on the cash basis.
The Company provides for corporate income taxes for the state of
California, the state of New York, New York City, and Grove City
(City of Columbus in 1996 and 1995) based on the liability method.
(e) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(4) Debt
(a) Line of Credit Agreement
Prior to the Closing Date, the Company had an agreement with its
principal banker which provided for maximum credit, including
revolving loans and commercial letters of credit, of up to $16.5
million. Under that agreement, interest was due and payable on a
monthly basis, and principal and all remaining accrued interest was
due on maturity in May 1999.
The interest rate charged on the line of credit during 1998 varied
from the prime rate minus .6 percent to prime rate minus .75
percent; at October 2, 1998, the interest rate charged on the line
of credit was 7.5 percent.
The borrowings under the revolving credit were collateralized by
substantially all of the Company's assets including trade accounts
receivable, inventories, and property and equipment. The agreement
contained covenants which, among other things, required the Company
to maintain a certain minimum net worth.
F-17
<PAGE>
AMERICAN PACIFIC ENTERPRISES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
October 2, 1998
At October 2, 1998, the Company was contingently liable for
outstanding letters of credit of approximately $250,000 to purchase
inventories.
(5) Lease Obligations
The Company rents its office and showroom in San Francisco and its Ohio
warehouses under operating lease agreements which expire at various dates
through 2002. The primary Ohio warehouse lease provides for two three-year
renewal options. Rent expense was approximately $750,000 for the nine
months ended October 2, 1998.
Future minimum lease payments under these noncancelable operating leases
as of October 2, 1998, for the remainder of 1998 and for the years ended
December 31, 1999 through 2002, are as follows:
Unaudited
Minimum
Year Rentals
---- -------
1998 $ 176,000
1999 802,000
2000 711,000
2001 400,000
2002 98,000
---------
Totals $ 2,187,000
=========
(6) Concentration of Risk
The Company supplies its products primarily to customers in the retail
sector, including department and specialty stores, mass merchants, and
catalogs. These customers are located primarily throughout the United
States. During the nine months ended October 2, 1998, the Company's top
three customers accounted for approximately 40 percent of net sales. The
Company's largest customer accounted for approximately 15 percent of its
net sales.
The concentration of credit risk with respect to the Company's unsecured
trade receivables is considered to be limited because the Company closely
monitors the creditworthiness of its customers, adjusting credit policies
and limits as needed. However, a substantial portion of its customers'
ability to discharge amounts owed is dependent upon the retail economic
environment. The Company establishes an allowance for doubtful accounts
based upon factors surrounding the credit risk of specific customers,
historical trends, and other information.
F-18
<PAGE>
AMERICAN PACIFIC ENTERPRISES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
October 2, 1998
(7) Contingencies
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on
the Company's financial position.
(8) Stock Compensation
The Company had a phantom stock award agreement with three employees.
During 1998, the Former Shareholders terminated the agreement with the
employees for cash compensation of approximately $650,000. The Company
recorded this amount as expense during the nine months ended October 2,
1998.
F-19
<PAGE>
Proforma Consolidated Financial Data
The following Unaudited Pro Forma Statement of Income of Glenoit
Corporation (the "Company") for the nine months ended October 3, 1998 reflects
the APE Acquisition as if it had occurred at the beginning of the nine month
period.
The following Unaudited Pro Forma Statement of Income of the Company for
the year ended January 3, 1998 reflects (i) the issuance by the Company of the
11% Senior Subordinated Notes due 2007 (the "Notes") and refinancing of the
Company's existing credit facilities (together, the "Refinancing") and (ii) the
APE Acquisition as if the relevant transactions had occurred at the beginning of
the year.
The above mentioned Unaudited Pro Forma Statements of Income do not
reflect (i) any additional expense related to the write up of inventory to fair
market value by an estimated amount of $3.0 million, or net of tax of $1.8
million, which will negatively impact the Company's fourth quarter of 1998
operating results as that inventory is sold and (ii) any potential compensation
expense associated with additional consideration to be paid based on APE's 1998
and 1999 operating results in connection with the Stock Purchase Agreement.
A Pro Forma Consolidated Balance Sheet is not included in this filing
since the Company filed a Form 10-Q for the quarter ended October 3, 1998 and
included in that filing is a Consolidated Balance Sheet of the Company which
reflects the APE Acquisition.
The Pro Forma Statements do not purport to represent what the Company's
financial position or results of operations would actually have been if the
relevant transactions had occurred at the beginning of each period presented or
to project the Company's consolidated results of operations or financial
position at any future date or for any future period.
F-20
<PAGE>
Unaudited Pro Forma Consolidated Statement of Income
Nine Months Ended October 3, 1998
(all amounts in thousands)
<TABLE>
<CAPTION>
Glenoit American Acquisition Pro forma
actual Pacific adjustments as adjusted
------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 133,067 $ 53,327 $ $186,394
Cost of sales 91,073 33,543 43 a 124,659
------- ------- ----------- -----------
Gross profit 41,994 19,784 ( 43) 61,735
------- ------- ----------- -----------
Operating expenses 19,610 12,315 675 b 32,600
------- ------- ----------- -----------
Income from operations 22,384 7,469 ( 718) 29,135
Other income (expense):
Interest expense ( 9,608) ( 632 )( 2,606) c ( 12,846)
Amortization of deferred
financing costs ( 479) 0 ( 228) d ( 707)
Other ( 182) 0 0 ( 182)
------- ------- ----------- -----------
Total other ( 10,269) ( 632 )( 2,834) ( 13,735)
------- ------- ----------- -----------
Income before taxes
and extraordinary items 12,115 6,837 ( 3,552) 15,400
Income tax expense 4,444 137 1,177 e 5,758
------- ------- ----------- -----------
Income before extraordinary
items $ 7,671 $ 6,700 $( 4,729) $ 9,642
======= ======= ========== ==========
</TABLE>
(a) Adjustment to reflect additional depreciation expense related to the write
up of APE's equipment to fair value.
(b) Adjustment to reflect the amortization of $22.5 million of goodwill over
an estimated useful life of 25 years.
(c) Adjustment to reflect additional interest expense related to the $55.7
million of borrowings under the Company's acquisition facility used in
connection with the APE Acquisition offset by savings from APE's debt that
was paid off.
(d) Adjustment to reflect the amortization of approximately $1.0 million of
fees associated with the borrowings made under the Company's acquisition
facility.
(e) Adjustments to reflect income taxes related to the total of the historical
APE results and proforma adjustments at an effective rate of 40% less
amounts previously reported in APE's historical results.
F-21
<PAGE>
Unaudited Pro Forma Consolidated Statement of Income
Year Ended January 3, 1998
(all amounts in thousands)
<TABLE>
<CAPTION>
APE for
Adjustments As adjusted year ended APE Pro Forma
Glenoit for the for the December 31, Acquisition as
Actual Refinancing Refinancing 1997 adjustments adjusted
-------- ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales $146,921 $ $146,921 $ 57,908 $ $204,829
Cost of sales 98,062 98,062 34,728 57 f 132,847
-------- ----------- --------- -------- --------- --------
Gross profit 48,859 48,859 23,180 ( 57) 71,982
-------- ----------- --------- -------- --------- --------
Operating expenses 22,932 22,932 14,959 898 g 38,789
-------- ----------- --------- -------- --------- --------
Income from operations 25,927 25,927 8,221 ( 955) 33,193
Other income (expense):
Interest expense (10,938) 1,930 a (11,853) ( 711) ( 3,778) h ( 16,342)
( 2,845) b
Amortization of ( 304) i ( 940)
deferred financing (646) 160 c ( 636)
costs ( 150 ) d
Other ( 87) ( 87) ( 87)
-------- ----------- --------- -------- --------- --------
Total other (11,671) ( 905) (12,576) (711) ( 4,082) (17,369)
-------- ----------- --------- -------- --------- --------
Income before taxes and
extraordinary loss 14,256 ( 905) 13,351 7,510 ( 5,037) 15,824
Income tax expense 5,391 ( 362) e 5,029 111 878 j 6,018
-------- ----------- --------- -------- --------- --------
Income before
extraordinary loss $8,865 $( 543) $ 8,322 $7,399 $( 5,915) $ 9,806
======== =========== ========= ======== ========== ========
</TABLE>
(a) Adjustment to eliminate interest expense incurred under the former credit
facility that was paid off in connection with the Refinancing.
(b) Adjustment to reflect interest expense associated with the Notes for the
period prior to the Refinancing.
(c) Adjustment to eliminate amortization expense for deferred financing costs
related to the former credit facility and debt that was paid off with
proceeds from the Refinancing.
(d) Adjustment to reflect amortization of underwriting discounts and other
expenses associated with the offering of the Notes and the Refinancing.
(e) Adjustment to income tax expense for impacts of the adjustments from the
sale of the Notes and the Refinancing at an effective rate of 40%.
(f) Adjustment to reflect additional depreciation expense related to the
write-up of APE's equipment to fair value.
(g) Adjustment to reflect the amortization of $22.5 million of goodwill over an
estimated useful life of 25 years.
(h) Adjustment to reflect additional interest expense related to the $55.7
million of borrowings under the Company's acquisition facility used in
connection with the APE Acquisition offset by savings from APE's debt that
was paid off.
(i) Adjustment to reflect the amortization of approximately $1.0 million of fees
associated with the borrowings made under the Company's acquisition
facility.
(j) Adjustment to reflect income taxes related to the total of the historical
APE results and pro forma adjustments at an effective rate of 40% less
amounts previously reported in APE's historical results.
F-22
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors of American Pacific Enterprises, Inc.
We consent to the inclusion of our report dated March 6, 1998, with respect to
the consolidated balance sheets of American Pacific Enterprises, Inc. and
subsidiary as of December 31, 1997 and 1996, and the related consolidated
statements of net income, shareholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1997, which report appears in
the Form 8-K of Glenoit Corporation dated December 11, 1998.
Columbus, Ohio /s/KPMG Peat Marwick LLP
December 11, 1998
