<PAGE>
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 Report (Date of earliest event reported) August 7, 1995
APPAREL AMERICA, INC.
(exact name of registrant as specified in its charter)
DELAWARE 0-4954 13-2648900
(state or other jurisdiction (Commission File Number) (IRS Employer I.D. No.)
of incorporation)
1175 STATE STREET, NEW HAVEN, CT 06511
(Address of principal executive offices)
Registrant's telephone number, including area code (203) 777-5531
N/A
(former name or address, if changed since last report)
<PAGE>
APPAREL AMERICA, INC.
FORM 8-K/A
ITEM 7. FINANCIAL STATEMENTS
a. Financial statements related to Item 2 included in the Form 8-K dated
August 7, 1995.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Milady Brassiere & Corset Co., Inc. for the nine months ended
March 31, 1995 and 1994 (unaudited). . . . . . . . . . . . . . . . . . . . F-1 - F-6
Milady Brassiere & Corset Co., Inc. and Affiliates
for the year ended June 30, 1994 (audited) . . . . . . . . . . . . . . . . F-7 - F-19
Milady Brassiere & Corset Co., Inc. for the year ended
June 30, 1993 (audited). . . . . . . . . . . . . . . . . . . . . . . . . . F-20 - F-35
Milady Brassiere & Corset Co., Inc. for the year ended
June 30, 1992 (audited). . . . . . . . . . . . . . . . . . . . . . . . . . F-36 - F-50
</TABLE>
Prior to the fiscal year ended June 30, 1994, audited financial statements
for Milady Brassiere & Corset Co., Inc. ("Milady") were not combined with
its affiliates. Similarly, for purposes of interim financial reporting,
the financial statements of Milady are not combined with its affiliates.
Milady represents the primary entity that sells the products under the
tradenames acquired by Apparel America, Inc. Accordingly, that entity has
the appropriate sales and direct costs. The affiliates do not materially
affect the sales and direct costs of the acquired business; thus the
inconsistencies in the financial statements do not have a material effect
on this Form 8-K/A.
2
<PAGE>
APPAREL AMERICA, INC.
FORM 8-K/A
ITEM 7. FINANCIAL STATEMENTS
b. Pro forma financial information related to Item 2 included in the Form 8-K
dated August 7, 1995 (Unaudited).
On August 7, 1995, Apparel America, Inc. (the "Registrant") acquired
from Milady Brassiere & Corset Co., Inc. ("Milady") the tradenames
Roxanne, Harbour Casual and Coco Reef. The purchase price for the
tradenames is to be determined based on a percentage of net sales of
goods bearing the tradenames Roxanne and Harbour Casual over the next
seven years, with a minimum guaranteed purchase price of $1,700,000.
The Registrant also (i) purchased approximately $500,000 of inventory
bearing the purchased tradenames as well as assumed matching customer
purchase orders against this inventory and (ii) entered into
employment agreements with two of the principals of Milady.
The pro forma condensed statements of operations for the year ended
July 31, 1994 and the nine months ended April 30, 1995 have been
presented to give effect to the transaction as if it was consummated
at August 1, 1994. The pro forma statements of operations have been
adjusted to (i) eliminate operations related to tradenames not
purchased, (ii) eliminate operating expenses not assumed and (iii)
record amortization of the tradenames purchased. The pro forma
condensed statements of operations are not necessarily indicative of
operating results that would have been achieved had the acquisition
actually been consummated as of August 1, 1994 and should not be
construed as indicative of future operations. The statements of
operations do not reflect improved operating efficiencies that the
Registrant believes will be achieved as a result of synergies between
the two businesses.
The pro forma condensed balance sheet, which has been presented as if
the transaction was consummated as of April 30, 1995, includes
adjustments to (i) record the tradenames based on the minimum purchase
price, (ii) record the inventory acquired, and (iii) eliminate the
remaining net assets of Milady which were not purchased.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Condensed Balance Sheet - April 30, 1995. . . . . . . . . . . . . . . . . . F-51 - F-52
Condensed Statement of Operations -
Nine months ended April 30, 1995. . . . . . . . . . . . . . . . . . . . . F-53
Condensed Statement of Operations -
Year ended July 30, 1994. . . . . . . . . . . . . . . . . . . . . . . . . F-54
Notes to Condensed Financial Statements . . . . . . . . . . . . . . . . . . F-55
</TABLE>
3
<PAGE>
SIGNATURES
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 hereunto duly authorized.
APPAREL AMERICA, INC.
By: /s/ Frederick M. D'Amato
----------------------------------
Frederick M. D'Amato
Vice President-Finance and Chief
Financial Officer
Date: September 27, 1995
-------------------------
4
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1995 AND 1994
(Unaudited)
-----------------------------------------
-----------------------------------------
-1-
F-1
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
CONTENTS
-----------------------------------------
-----------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Balance sheet 3
Statements of operations 4
Statements of cash flows 5
Note to financial statements 6
</TABLE>
-2-
F-2
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
BALANCE SHEET
MARCH 31, 1995
(Unaudited)
(in thousands)
-----------------------------------------
-----------------------------------------
<TABLE>
<S> <C>
ASSETS
Current:
Cash $221
Accounts receivable 6,346
Inventories 3,807
Due from affiliates and related parties 1,239
Prepaid expenses and other current assets 562
-----------
Total current assets 12,175
Property, plant and equipment, net 37
Other assets 237
-----------
$12,449
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Notes payable, bank $7,470
Accounts payable 756
Due to affiliates 1,220
Accrued expenses and other current liabilities 353
-----------
Total current liabilities 9,799
-----------
Stockholders' equity:
Common stock 290
Retained earnings 2,360
-----------
Total stockholders' equity 2,650
-----------
$12,449
-----------
-----------
</TABLE>
See accompanying note to the financial statements.
-3-
F-3
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands)
-----------------------------------
-----------------------------------
<TABLE>
<CAPTION>
Nine months ended March 31,
---------------------------------
1995 1994
------- -------
<S> <C> <C>
Net sales $12,303 $15,457
Cost of goods sold 9,965 12,520
-------- ---------
Gross profit 2,338 2,937
-------- ---------
Operating expenses:
Selling and shipping 3,060 3,224
General and administrative 1,467 1,278
-------- ---------
4,527 4,502
-------- ---------
Loss from operations (2,189) (1,565)
-------- ---------
Other income (expense):
Interest expense (326) (360)
Interest income 2 -
Other 182 29
-------- ---------
(142) (331)
-------- ---------
Net loss $(2,331) $(1,896)
-------- ---------
-------- ---------
</TABLE>
See accompanying note to the financial statements.
-4-
F-4
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
-----------------------------------
-----------------------------------
<TABLE>
<CAPTION>
Nine months ended March 31,
-------------------------------
1995 1994
------------- -------------
<S> <C> <C>
Cash flows from operating activities $(2,890) $(3,184)
Cash flows from financing activities:
Proceeds from short-term financing 1,780 3,350
------------- -------------
Net increase (decrease) in cash (1,110) 166
Cash, beginning of period 1,331 1,228
------------- -------------
Cash, end of period $221 $1,394
------------- -------------
------------- -------------
</TABLE>
See accompanying note to the financial statements.
-5-
F-5
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
-----------------------------------
-----------------------------------
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and 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 normal recurring accruals)
considered necessary for a fair presentation have been included.
For the nine months ended March 31, 1995 and 1994, inventories were calculated
utilizing a gross profit percentage on net sales. The percentage was determined
based on annual historical operating results and management's estimates.
-6-
F-6
<PAGE>
MILADY BRASSIERE & CORSET
CO., INC. AND AFFILIATES
FINANCIAL STATEMENTS
JUNE 30, 1994
BERENSEN & COMPANY
F-7
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
AND AFFILIATES
TABLE OF CONTENTS
YEAR ENDED JUNE 30, 1994
Page
----
Independent Auditors' Report 1
Combined Balance Sheet 2
Combined Statement of Operations 3
Combined Statement of Retained Earnings 4
Combined Statement of Cash Flows 5
Notes to Combined Financial Statements 6-11
BERENSEN & COMPANY
F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
Stockholders
Milady Brassiere & Corset Co., Inc.
and Affiliates
New York, NY
We have audited the accompanying combined balance sheet of Milady Brassiere &
Corset Co., Inc. and affiliates as of June 30, 1994 and the related combined
statements of operations, retained earnings and cash flows for the year then
ended. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the combined financial statements are free of material
misstatements. 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 audit provides a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Milady Brassiere &
Corset Co., Inc. and affiliates as of June 30, 1994, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
Berensen & Company /s/ Berensen & Company
100 Park Avenue ----------------------
Berensen & Company
New York, NY
September 2, 1994
F-9
<PAGE>
Page 2
MILADY BRASSIERE & CORSET CO., INC.
AND AFFILIATES
COMBINED BALANCE SHEET
JUNE 30, 1994
A S S E T S
<TABLE>
<S> <C>
Current assets:
Cash $ 1,583,969
Accounts receivable, net of allowance
for doubtful accounts and advertising
of $477,000 (note 8) 5,519,342
Inventories (note 3) 3,570,632
Prepaid expenses and other current assets 621,847
Income tax refund receivable (note 6) 304,420
Deferred income taxes (note 5) 106,794
Due from affiliates and related parties 47,839
Mortgage receivable (note 7) 105,000
-----------
Total current assets 11,859,843
Property, plant and equipment, net (note 4) 576,762
Deferred income taxes, net of current portion (note 5) 18,496
Security deposits 19,572
-----------
$12,474,673
-----------
-----------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Current liabilities:
Notes payable, bank (note 8) $ 5,690,000
Accounts payable 266,424
Accrued expenses and other current liabilities 548,577
-----------
Total current liabilities 6,505,001
-----------
Commitments (notes 9 and 10)
Stockholders' equity:
Common stock 1,666,500
Additional paid-in capital 2,400
Retained earnings 4,319,039
-----------
5,987,939
Treasury stock, at cost (18,267)
-----------
5,969,672
-----------
$12,474,673
-----------
-----------
</TABLE>
The accompanying notes are an integral part
of the combined financial statements.
BERENSEN & COMPANY
F-10
<PAGE>
Page 3
MILADY BRASSIERE & CORSET CO., INC.
AND AFFILIATES
COMBINED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1994
<TABLE>
<S> <C>
Net sales $22,443,036
Cost of goods sold 18,067,804
-----------
Gross profit 4,375,232
-----------
Operating expenses:
Selling and shipping 4,123,777
General and administrative 1,746,187
Interest 482,572
-----------
6,352,536
-----------
Loss from operations (1,977,304)
-----------
Other income (expenses):
Rental loss, net (77,983)
Interest income 12,097
Royalty income 9,708
Miscellaneous 10,404
Loss on settlement of mortgage receivable (note 7) (144,182)
-----------
(189,956)
-----------
Loss before income tax benefit (2,167,260)
Income tax benefit (note 6) 183,202
-----------
Net loss $(1,984,058)
-----------
-----------
</TABLE>
The accompanying notes are an integral part
of the combined financial statements.
BERENSEN & COMPANY
F-11
<PAGE>
Page 4
MILADY BRASSIERE & CORSET CO., INC.
AND AFFILIATES
COMBINED STATEMENT OF RETAINED EARNINGS
YEAR ENDED JUNE 30, 1994
<TABLE>
<S> <C>
Retained earnings, beginning of year,
as previously reported $6,462,477
Prior period adjustment (note 11) (159,380)
----------
Retained earnings, beginning of year,
as restated 6,303,097
Net loss (1,984,058)
----------
Retained earnings, end of year $4,319,039
----------
----------
</TABLE>
The accompanying notes are an integral part
of the combined financial statements.
BERENSEN & COMPANY
F-12
<PAGE>
Page 5
MILADY BRASSIERE & CORSET CO., INC.
AND AFFILIATES
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 1994
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $(1,984,058)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 72,041
Provision for bad debts 13,843
Income tax benefit (304,420)
Deferred tax expense 94,814
Changes in assets (increase) decrease:
Accounts receivable (877,258)
Inventories 3,518,862
Due from affiliates (33,998)
Prepaid expenses and other current assets (217,930)
Security deposits (2,215)
Mortgage receivable 144,182
Changes in liabilities increase (decrease):
Accounts payable 49,722
Accrued expenses and other current liabilities 38,962
-----------
Net cash provided by operating activities 512,547
Cash flows from investing activities:
Acquisition of property, plant and equipment (17,258)
Cash flows used by financing activities:
Repayment of short-term financing (510,000)
-----------
Net decrease in cash (14,711)
Cash, beginning of year 1,598,680
-----------
Cash, end of year $ 1,583,969
-----------
-----------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 500,179
Income taxes 76,770
</TABLE>
The accompanying notes are an integral part
of the combined financial statements.
BERENSEN & COMPANY
F-13
<PAGE>
Page 6
MILADY BRASSIERE & CORSET CO., INC.
AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1994
1. Nature of business:
The Company manufactures ladies' swimwear, sportswear and foundation
garments for the retail apparel industry. The merchandise is sold through
its showroom and independent sales representatives. The Company grants
credit to customers in the retail industry throughout the nation.
Consequently, the Company's ability to collect the amounts due from
customers is affected by economic fluctuations in retailing.
2. Significant accounting policies:
a. Principles of combination:
The financial statements include the accounts of Milady Brassiere &
Corset Co., Inc. and affiliated companies, as listed below, all of
which have common ownership:
Apex Manufacturing Co., Inc.
Art San Corporation
Harbour Casuals of PA, Ltd.
Neptune Swimsuit Corporation
Roxanne Swimsuit Co., Inc.
Roxanne of NJ, Inc.
Roxanne of PA, Inc.
Tamac Manufacturing Corp.
Carib Manufacturing Corp.
Aqua Realty Corp.
Ellen Howard Corp.
San Mark Realty Corp.
Shell San Realty Corp.
Neptune Fashion Outlet Corp.
Harbour Casuals of PA, Ltd. is the wholly-owned subsidiary of Neptune
Swimsuit Corporation. Significant intercompany accounts and
transactions have been eliminated upon combination for all companies.
b. Inventories:
Inventories are stated at the lower of cost (first-in, first-out
basis) or market.
BERENSEN & COMPANY
F-14
<PAGE>
Page 7
MILADY BRASSIERE & CORSET CO., INC.
AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1994
2. Significant accounting policies: (Continued)
c. Property and equipment:
Property and equipment are stated at cost. Depreciation is computed
by accelerated and straight-line methods over the estimated useful
lives of the assets. Leasehold improvements are amortized over the
term of the lease or estimated life of the asset, whichever is
shorter. Expenditures for maintenance and repairs are charged to
operations as incurred.
d. Income taxes:
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
This change in accounting principle has no effect on the Company's net
income for the current year.
The Company has recognized an income tax benefit in the current
period, in connection with the carryback of the current year loss to
prior periods.
The Company and its affiliates file separate federal, state and local
tax returns.
e. Cash:
The Company and its affiliates maintain their cash accounts mainly in
commercial banks located in the United States. The cash balances are
insured by the Federal Deposit Insurance Corporation (FDIC) up to
$100,000 at most of the banks.
3. Inventories:
<TABLE>
<S> <C>
Raw materials $ 482,200
Work-in-process 276,000
Finished goods 2,812,432
----------
$3,570,632
----------
----------
</TABLE>
BERENSEN & COMPANY
F-15
<PAGE>
Page 8
MILADY BRASSIERE & CORSET CO., INC.
AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1994
4. Property, plant and equipment:
<TABLE>
<S> <C>
Land $ 84,820
Building and improvements 1,000,117
Machinery and equipment 1,245,199
Furniture and fixtures 19,199
Computer 34,100
Transportation equipment 204,023
Leasehold improvements 464,727
----------
3,052,185
Less accumulated depreciation
and amortization 2,475,423
----------
$ 576,762
----------
----------
</TABLE>
5. Deferred income taxes:
Effective July 1, 1993, the Company adopted the provisions of SFAS No. 109
"Accounting for Income Taxes." At June 30, 1994, the Company had net
operating loss carryforwards of approximately $2,900,000 that expire in 2009.
The recorded deferred tax asset, representing the expected benefit from the
future realization of the net operating losses and other temporary
differences, net of the valuation allowance, was $-0-, which equals the
cumulative effect of the accounting change on the date of adoption.
Net deferred tax benefits in the accompanying balance sheet as of June 30,
1994 includes the following components:
<TABLE>
<S> <C>
Deferred tax liability $ (96,889)
Deferred tax asset, including $1,145,000
relating to the tax benefit of future
net operating loss carryforwards 1,367,179
Deferred tax asset valuation allowance (1,145,000)
----------
Net deferred tax benefit $ 125,290
----------
----------
</TABLE>
6. Income taxes:
For the year ended June 30, 1994, the Company recorded an income tax benefit
consisting of the following:
<TABLE>
<S> <C>
Current tax provision $(26,404)
Deferred tax expense (94,814)
Income tax benefit arising from
the carryback of current year
losses to prior periods 304,420
---------
$183,202
---------
---------
</TABLE>
BERENSEN & COMPANY
F-16
<PAGE>
Page 9
MILADY BRASSIERE & CORSET CO., INC.
AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1994
7. Mortgage receivable:
The mortgage receivable reflects the amount received in August 1994 which was
$144,182 less than the outstanding balance due.
8. Notes payable:
The notes are payable to several banks at various dates through November
1994. The notes bear interest at the prime rate and were uncollateralized at
June 30, 1994. Subsequent to June 30, 1994, the Company assigned a security
interest in the accounts receivable to the banks. Interest expense related
to these notes for the year ended June 30, 1994 was approximately $436,000.
9. Pension plans:
a. The Company sponsors a defined benefit pension plan that covers all
nonunion employees. The plan calls for benefits to be paid to eligible
employees at retirement based primarily upon years of service with the
Company and compensation rates near retirement. Contributions to the
plan reflect benefits attributed to employees' services to date, as well
as services expected to be earned in the future.
Plan assets consist primarily of common stock, investment-grade corporate
bonds and asset backed securities.
Pension expense for 1994 included the following components:
<TABLE>
<S> <C>
Service cost for the period $ 47,431
Interest cost on the projected benefit
obligation 60,367
Actual return on assets held in the plan (71,652)
Net amortization of prior service cost,
transition liability and net gain 2,120
--------
Pension expense for the year ended
June 30, 1994 $ 38,266
--------
--------
</TABLE>
BERENSEN & COMPANY
F-17
<PAGE>
Page 10
MILADY BRASSIERE & CORSET CO., INC.
AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1994
9. Pension plans: (Continued)
a. Continued
The following sets forth the funded status of the plan and the amounts
recognized in the Company's balance sheet at June 30, 1994:
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Vested benefits $922,865
Nonvested benefits 1,591
---------
Accumulated benefit obligation 924,456
Effect of anticipated future compensation
levels and other events 23,731
---------
Projected benefit obligation 948,187
Fair value of assets held in the plan (979,305)
---------
Excess of plan assets over projected
obligation $(31,118)
---------
---------
The overfunded status consists of the following:
Net unrecognized loss $(93,487)
Unamortized liability at transition 28,109
Pension liability as of June 30, 1994 34,260
---------
$(31,118)
---------
---------
</TABLE>
The weighted average discount rate used to measure the projected benefit
obligation is 7%, the rate of increase in future compensation levels is
5% and the expected long-term rate of return on assets is 8%. The
Company uses the straight-line method of amortization for unrecognized
gains and losses.
Contribution to the plan during the year ended June 30, 1994 was $48,000.
b. The Company participates in a multi-employee union pension plan. The
plan provides benefits to substantially all of the Company's union
employees. For the year ended June 30, 1994, contributions to the plan
amounted to approximately $274,000.
c. The Company has a profit sharing plan covering certain salaried nonunion
employees. No contributions were made to the plan for the year ended
June 30, 1994. The plan covers employees on a noncontributory basis.
BERENSEN & COMPANY
F-18
<PAGE>
Page 11
MILADY BRASSIERE & CORSET CO., INC.
AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1994
10. Lease commitments:
The Company leases its office and showroom facilities under noncancellable
operating leases.
Minimum lease commitments for all noncancellable operating leases having a
remaining term in excess of one year on June 30, 1994 are as follows:
<TABLE>
<S> <C>
Years ending June 30, 1995 $462,000
1996 471,000
1997 353,000
1998 86,000
</TABLE>
Warehouse and manufacturing facilities are leased mainly through the
affiliated real estate companies.
Rental expense for the year ended June 30, 1994 is approximately $654,000.
11. Prior period adjustment:
Retained earnings at the beginning of 1993 has been adjusted on Carib
Manufacturing Corp. to correct an error in their due to affiliates and
related parties account made in prior years.
BERENSEN & COMPANY
F-19
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1993
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
F-20
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
CONTENTS
Page
--------
Independent Auditor's Report 1
Financial Statements:
Balance Sheet 2
Statement of Retained Earnings 3
Statement of Income 4
Statement of Cash Flows 5
Notes to Financial Statements 6 - 11
Supplementary Information:
Schedules of Manufacturing Overhead and Operating
Expenses 12 - 14
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
F-21
<PAGE>
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
215 LEXINGTON AVENUE
NEW YORK, NY 10016
INDEPENDENT AUDITOR'S REPORT
To Milady Brassiere & Corset Co., Inc.:
We have audited the accompanying balance sheet of Milady Brassiere & Corset Co.,
Inc. as of June 30, 1993, and the related statements of income, retained
earnings and cash flows for the year then ended. 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 audit.
We conducted our audit 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
misstatements. 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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Milady Brassiere & Corset Co.,
Inc. as of June 30, 1993 and the results of operations and cash flows for the
year then ended in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the financial
statements taken as a whole. The supplementary information included in the
report (shown on pages 12 to 14) is presented for purposes of additional
analysis and is not a required part of the basic financial statements. Such
information has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, is fairly presented in
all material respects in relation to the basic financial statements taken as a
whole.
/s/ H.J. Behrman & Company
--------------------------
H.J. Behrman & Company
New York, New York
September 1, 1993 1.
F-22
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
BALANCE SHEET - JUNE 30,1993
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash (Note 9) $1,228,436
Accounts receivable (Note 6) $5,600,408
Less: Provision for discounts, doubtful
accounts and advertising 731,096 4,869,312
------------ -----------
Inventories: (Note 7)
Unallocated 5,834,100
Allocated pursuant to customers' orders 1,055,000 6,889,100
------------
Loan receivable - related party (Note 6) 136,958
Corporate taxes refunds receivable 114,445
Deferred income taxes (Note 3(a)) 242,823
Miscellaneous receivables and prepaid expenses 310,681
-----------
TOTAL CURRENT ASSETS 13,791,755
EQUIPMENT AND LEASEHOLD IMPROVEMENTS NET OF
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
$999,138 (Note 2(b)) 65,955
OTHER ASSETS:
Marketable securities - at cost
(market value $41,245) 23,292
Security deposits 13,257
Deferred income taxes - noncurrent portion
(Note 3(a)) 74,170 110,719
------------ -----------
$13,968,429
-----------
-----------
LIABILITIES
CURRENT LIABILITIES:
Notes payable (Note 4) $6,200,000
Accounts payable 164,007
Contractors payable - related parties (Note 6) 185,254
Accrued expenses 224,611
Loans payable - related parties (Note 6) 781,653
Customers' credit balances 69,831
TOTAL CURRENT LIABILITIES 7,625,356
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY
Common stock - authorized 3,000 shares
no par value, issued 2,900 shares $290,000
Retained earnings 6,053,073
------------
TOTAL SHAREHOLDERS' EQUITY 6,343,073
-----------
$13,968,429
-----------
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS 2.
F-23
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
STATEMENT OF RETAINED EARNINGS
YEAR ENDED JUNE 30, 1993
<TABLE>
<CAPTION>
<S> <C>
Retained earnings - July 1, 1992 $6,014,685
Net income for the year 38,388
-----------
RETAINED EARNINGS - JUNE 30, 1993 $6,053,073
-----------
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS 3.
F-24
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
STATEMENT OF INCOME
YEAR ENDED JUNE 30, 1993
<TABLE>
<CAPTION>
<S> <C> <C>
SALES - LESS RETURNS $22,383,675
LESS: SALES DISCOUNTS 1,319,941
------------
NET SALES 21,063,734
COST OF GOODS SOLD:
Inventories - July 1, 1992 $4,939,600
Purchases 6,806,364
Customs duty and brokerage 306,814
Freight in 91,004
Factory labor 628,842
Contractors' charges 6,561,560
Union expenses 827,826
Packing materials 106,694
Manufacturing overhead (Note 10) 1,556,736
------------
21,825,440
Less: Inventories - June 30, 1993 6,889,100
------------
COST OF GOODS SOLD 14,936,340
------------
GROSS PROFIT ON SALES 6,127,394
OPERATING EXPENSES:
Selling and shipping 3,935,281
General and administrative 1,546,408
Other deductions (income) - net 545,844
TOTAL OPERATING EXPENSES 6,027,533
-------------
NET INCOME BEFORE TAXES ON INCOME 99,861
PROVISION FOR INCOME TAXES: (Note 3)
Current 74,882
Deferred tax benefit (13,409) 61,473
------------ -------------
NET INCOME $38,388
-------------
-------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS 4.
F-25
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 1993
<TABLE>
<CAPTION>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $38,388
Add adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 33,207
Changes in operating assets and liabilities:
Decrease in accounts receivable 2,243,903
(Increase) in inventories (1,949,500)
(Increase) in prepaid expenses and other
receivables (269,571)
(Decrease) in accounts payable and
accrued expenses (788,731)
(Increase) in deferred income taxes (13,409)
(Decrease) in corporate income taxes payable (7,794)
------------
NET CASH USED IN OPERATING ACTIVITIES (713,507)
NET CASH USED IN INVESTING ACTIVITIES:
Purchase of property and equipment (1,642)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable $900,000
Increase in loans payable - related parties 20,814
------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 920,814
------------
NET INCREASE IN CASH 205,665
CASH AT BEGINNING OF YEAR 1,022,771
------------
CASH AT END OF YEAR $1,228,436
------------
------------
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $426,330
Income taxes 211,564
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS 5.
F-26
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1993
NOTE 1 - ORGANIZATION:
Milady Brassiere & Corset Co., Inc. manufactures and sells ladies'
swimwear, sportswear and foundation garments. These products are sold
to customers located primarily throughout the United States of
America.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Inventories are valued at the lower of cost (first-in, first-out) or
market.
(b) Machinery and fixtures, transportation equipment, leasehold
improvements and computer software are stated at cost. Additions and
betterments which substantially extend the useful life are
capitalized.
Depreciation and amortization have been computed using the following
lives and methods:
Depreciation and
Life Amortization Methods
--------------------
Machinery and fixtures 5 and 150%-200% declining balance
10 years and straight-line
Transportation equipment 4 years 200% declining balance
Leasehold improvements Lease life Straight-line
Computer software 5 years Straight-line
The equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
Accumulated
Depreciation
and Book
Cost Amortization Value
------------ ------------ -----------
<S> <C> <C> <C>
Machinery and fixtures $566,166 $559,577 $6,589
Transportation equipment 21,700 21,700 -
Leasehold improvements 443,127 385,726 57,401
Computer software 34,100 32,135 1,965
----------- ---------- -----------
$1,065,093 $999,138 $65,955
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS 6.
F-27
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1993
NOTE 3 - INCOME TAXES:
(a) Deferred Income Taxes:
Deferred income taxes arise by reason of timing differences in
reporting certain expense items in different periods for financial
reporting and income tax reporting and are comprised of the following
components:
Difference in recognition of bad debt expense $137,909
Difference in inventory valuation due to uniform
capitalization rules pursuant to Internal Revenue
Code Section 263A 104,914
Other components 74,170
------------
316,993
Less: Noncurrent portion 74,170
------------
$242,823
------------
------------
(b) Income Tax Rate:
The effective tax rate of 62% in 1993, differs from the effective
statutory rate of 40% principally because of income tax examinations
of the years ended June 30, 1991 and 1990, and the application of
foreign tax credits.
NOTE 4 - NOTES PAYABLE:
The notes payable are payable to banks on demand including interest at
the prime rate. Notes payable are payable at various dates to
September 20, 1993.
The Company's bank debt was reduced from a level of $10,800,000
during the fiscal year ended June 30, 1993 to $4,700,000 on
August 30, 1993.
NOTE 5 - PENSION PLANS:
(a) The Company sponsors a defined benefit pension plan that covers all
nonunion employees. The plan calls for benefits to be paid to
eligible employees at retirement based primarily upon years of service
with the Company and compensation rates near retirement.
Contributions to the plan reflect benefits attributed to employees'
service to date, as well as services expected to be earned in the
future. Plan assets consist of primarily common stock,
investment-grade corporate bonds and asset backed securities.
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS 7.
F-28
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1993
NOTE 5 - PENSION PLANS: (Continued)
<TABLE>
<CAPTION>
<S> <C>
Pension expense for 1993 includes the following components:
Service cost of the current period $46,540
Interest cost on the projected benefit obligation 54,986
Actual return on assets held in the plan (93,835)
Net amortization of prior service cost, transition
liability and net gain 32,303
------------
Pension expense $39,994
------------
The following sets forth the funded status of the plan
and the amounts shown in the accompanying balance sheet
at June 30, 1993:
Actuarial present value of benefit obligations:
Vested benefits $833,186
Nonvested benefits 6,732
------------
Accumulated benefit obligation 839,918
Effect on anticipated future compensation levels and
other events 25,939
Projected benefit obligation 865,857
Fair value of assets held in the plan (903,656)
------------
Excess of plan assets over projected benefit
obligation ($37,799)
------------
------------
The unfunded excess consists of the following:
Net unrecognized loss from past experience
different than assumed ($112,245)
Unamortized liability at transition 30,452
Pension liability included in the balance sheet 43,994
------------
($37,799)
------------
------------
</TABLE>
The weighted average discount rate used to measure the projected
benefit obligation is 7% the rate of increase in future compensation
levels is 6% and the expected long-term rate of return on assets is
8%. The Company uses the straight-line method of amortization for
unrecognized gains and losses.
The contribution to the plan during the year ended June 30, 1993
amounted to $48,000.
(b) The Company participates in a multi-employee union pension plan. The
plan provides benefits to substantially all of the Company's union
employees. Amounts charged to pension plan cost (union expense) and
contributed to the plan for the year ended June 30, 1993 amounted to
$43,851.
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS 8.
F-29
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1993
NOTE 5 - PENSION PLANS: (Continued)
(c) The Company has a profit sharing plan covering certain salaried
nonunion employees. No contributions were made to the plan for
the year ended June 30, 1993. The plan covers employees on a
noncontributory basis.
NOTE 6 - RELATED PARTY TRANSACTIONS:
The Company uses contract labor and rents space and equipment
supplied by related parties and sells merchandise to a related party.
Obligations to or from related parties at June 30, 1993 were as
follows:
<TABLE>
<CAPTION>
<S> <C>
Accounts receivable $213,385
Contractors payable 185,254
Loans payable (at an annual interest rate
of 5%, without stated terms of repayment) 781,653
Contract labor and rentals charged by related parties
were as follows:
Contract labor - manufacturing $4,845,673
- shipping 706,210
Rental of space (Note 8(a)) 101,400
Rental of equipment 221,110
Sale of merchandise 215,906
Interest expense 33,615
</TABLE>
Loan receivable - related party $136,958:
This amount represents monies due from a foreign related
party that supplies contract labor to the Company. The
loan bears no interest and has no stated terms for repayment.
NOTE 7 - INVENTORIES:
(a) Inventory on hand as of the balance sheet date includes $1,055,000
allocated for shipment pursuant to customer purchase orders.
(b) Inventories at June 30, 1993 consist of:
Finished goods $5,712,400
Work in process 97,300
Raw materials 1,079,400
------------
$6,889,100
------------
------------
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS 9.
F-30
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1993
NOTE 8 - COMMITMENTS AND CONTINGENCIES:
(a) Lease Obligations:
The Company leases office, factory and show room space from related
and unrelated parties. Currently, there is no lease with related
parties for space and equipment used by the Company. Rental of these
assets are on a month to month basis.
Minimum future rental payments under noncancelable operating leases
having remaining terms in excess of one year as of June 30, 1993 for
each of the next five years and in the aggregate are:
<TABLE>
<CAPTION>
Year Ended Parties
June 30, Total Related Unrelated
--------- ----------- ------------ -----------
<S> <C> <C> <C>
1994 $422,236 $ - $422,236
1995 366,888 - 366,888
1996 365,501 - 365,501
1997 247,080 - 247,080
1998 97,466 - 97,466
Thereafter 94,536 - 94,536
----------- ----------- -----------
Total minimum future rental $1,593,707 $ - $1,593,707
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Minimum future rentals do not include contingent rentals that may be
received under certain leases for reimbursement of the tenant's
allocable portion of real estate taxes and certain other operating
expenses. Contingent rentals in 1993 paid to unrelated parties were
$15,746.
The Company has leased warehouse space from a related party. The
warehouse property is subject to a mortgage note with an unpaid
balance at June 30, 1993 of $14,237 which the Company has guaranteed.
(b) Notes Payable - Related Party:
The Company has guaranteed notes payable on behalf of a related party
in the amount of $157,200.
NOTE 9 - CASH - CONCENTRATION OF CREDIT RISK:
The Company maintains checking and money market accounts, with banks,
that exceed the amount insured by the Federal Deposit Insurance
Corporation in the amount of $870,000.
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS 10.
F-31
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1993
NOTE 10 - CHANGES IN CLASSIFICATION OF CERTAIN EXPENSES:
The components of manufacturing overhead shown on the statement of
income have been changed from prior years. An allocable portion of
administrative expenses incurred as a result of the Company's
manufacturing activities (previously classified as selling and
administrative expenses) have been included in manufacturing overhead.
These components were included in the overhead applied to inventories
in prior years.
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS 11.
F-32
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
SUPPLEMENTARY INFORMATION
MANUFACTURING OVERHEAD
YEAR ENDED JUNE 30, 1993
<TABLE>
<S> <C>
Salaries:
Executive - allocated $ 96,020
IBM - allocated 70,956
Production and designing 609,267
Rent - allocated 165,560
Telephone - allocated 21,644
Light and power 64,988
Factory supplies and maintenance 41,912
Equipment rental and expenses - allocated 72,965
Payroll taxes - allocated 163,940
Insurance - allocated 74,827
Depreciation charges - allocated 25,301
Sample and designing expenses 149,356
----------
$1,556,736
----------
----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
12.
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
F-33
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
SUPPLEMENTARY INFORMATION
OPERATING EXPENSES
YEAR ENDED JUNE 30, 1993
<TABLE>
<CAPTION>
<S> <C>
SELLING AND SHIPPING:
Executive salary - supervision - allocated $ 240,101
Salesmen's salaries and commissions 1,202,822
Shipping salaries 359,339
Shipping supplies and expenses 759,913
Rent - allocated 340,520
Payroll taxes - allocated 97,981
Insurance - allocated 29,065
Travel and entertainment 134,944
Freight and parcel post 69,551
Advertising 645,493
Depreciation and amortization charges - allocated 2,652
Out of town showroom rents and expenses 52,900
----------
$3,935,281
----------
----------
GENERAL AND ADMINISTRATIVE:
Salaries:
Executive - allocated $ 47,959
Office 423,730
I.B.M. - allocated 165,563
Payroll taxes - allocated 83,836
Stationery and printing 50,790
Equipment rental and expenses - allocated 170,250
Insurance - allocated 9,688
Dues and subscriptions 10,496
Telephone - allocated 122,652
Professional fees 137,861
Postage 22,305
Sundry taxes 26,456
Rent - allocated 15,858
Depreciation and amortization charges - allocated 5,254
Employee benefits 154,278
Miscellaneous 99,432
----------
$1,546,408
----------
----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
13.
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
F-34
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
SUPPLEMENTARY INFORMATION
OPERATING EXPENSES
YEAR ENDED JUNE 30, 1993
<TABLE>
<S> <C>
OTHER DEDUCTIONS (INCOME) - NET:
Interest expense $ 489,559
Charitable contributions 12,750
Contributions to employees' pension plan (Note 5(a)) 39,994
Provision for doubtful accounts 152,067
Purchase discounts (20,845)
Royalty income (114,970)
Miscellaneous income (12,711)
----------
$ 545,844
----------
----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
14.
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
F-35
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1992
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
F-36
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
CONTENTS
Page
----
Independent Auditor's Report 1
Financial Statements:
Balance Sheet 2
Statement of Retained Earnings 3
Statement of Income 4
Statement of Cash Flows 5
Notes to Financial Statements 6 - 10
Supplementary Information:
Schedules of Manufacturing Overhead and
Operating Expenses 11 - 13
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
F-37
<PAGE>
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
215 LEXINGTON AVENUE
NEW YORK, NY 10016
INDEPENDENT AUDITOR'S REPORT
To Milady Brassiere & Corset Co., Inc.:
We have audited the accompanying balance sheet of Milady Brassiere & Corset Co.,
Inc. as of June 30, 1992, and the related statements of income, retained
earnings and cash flows for the year then ended. 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 audit.
We conducted our audit 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
misstatements. 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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Milady Brassiere & Corset Co.,
Inc. as of June 30, 1992 and the results of operations and cash flows for the
year then ended in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the financial
statements taken as a whole. The supplementary information included in the
report (shown on pages 11 to 13) is presented for purposes of additional
analysis and is not a required part of the basic financial statements. Such
information has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, is fairly presented in
all material respects in relation to the basic financial statements taken as a
whole.
/s/ H.J. Behrman & Company
--------------------------
H.J. Behrman & Company
New York, New York
September 3, 1992 1.
F-38
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
BALANCE SHEET - JUNE 30, 1992
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $1,022,771
Accounts receivable $8,014,241
Less: Provision for discounts, doubtful
accounts and advertising 897,834 7,116,407
-------------
Inventories 4,939,600
Loan receivable - related party (Note 6) 115,020
Miscellaneous receivables and prepaid expenses 177,494
------------
TOTAL CURRENT ASSETS 13,371,292
EQUIPMENT AND LEASEHOLD IMPROVEMENTS NET OF
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
$965,932 (Note 2(b)) 97,519
OTHER ASSETS:
Marketable securities - at cost
(market value $27,371) 20,100
Security deposits 13,257
Deferred income taxes (Note 3) 303,584 336,941
------------- ------------
$13,805,752
------------
------------
LIABILITIES
CURRENT LIABILITIES:
Notes payable (Note 4) $5,300,000
Accounts payable 396,479
Contractors payable - related parties (Note 6) 598,743
Accrued expenses 378,981
Loans payable - related parties (Note 6) 760,839
Customers' credit balances 58,231
Corporate income tax payable 7,794
------------
TOTAL CURRENT LIABILITIES 7,501,067
COMMITMENTS AND CONTINGENCIES (NOTE 7)
SHAREHOLDERS' EQUITY
Common stock - authorized 3,000 shares
no par value, issued 2,900 shares $290,000
Retained earnings 6,014,685
-------------
TOTAL SHAREHOLDERS' EQUITY 6,304,685
------------
$13,805,752
------------
------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS 2.
F-39
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
STATEMENT OF RETAINED EARNINGS
YEAR ENDED JUNE 30, 1992
<TABLE>
<S> <C>
Retained earnings - July 1, 1991 $5,769,047
Net income for the year 245,638
------------
RETAINED EARNINGS - JUNE 30, 1992 $6,014,685
------------
------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS 3.
F-40
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
STATEMENT OF INCOME
YEAR ENDED JUNE 30, 1992
<TABLE>
<S> <C> <C>
SALES - LESS RETURNS $27,228,156
LESS: SALES DISCOUNTS 1,470,003
------------
NET SALES 25,758,153
COST OF GOODS SOLD:
Inventories - July 1, 1991 $3,412,255
Purchases 8,147,746
Customs duty and brokerage 324,504
Freight in 108,657
Factory labor 746,794
Contractors' charges 7,617,188
Union expenses 941,919
Packing materials 153,898
Manufacturing overhead 1,383,483
-------------
22,836,444
Less: Inventories - June 30, 1992 4,939,600
-------------
COST OF GOODS SOLD 17,896,844
------------
GROSS PROFIT ON SALES 7,861,309
OPERATING EXPENSES:
Selling and shipping 4,515,975
General and administrative 1,910,970
Other deductions (income) - net 1,015,492
-------------
TOTAL OPERATING EXPENSES 7,442,437
------------
NET INCOME BEFORE TAXES ON INCOME 418,872
PROVISION FOR INCOME TAXES:
Current 171,815
Deferred (Note 3) 1,419 173,234
------------- ------------
NET INCOME $245,638
------------
------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS 4.
F-41
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 1992
<TABLE>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $245,638
Add adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 55,535
Changes in operating assets and liabilities:
(Increase) in accounts receivable (255,014)
(Increase) in inventories (1,527,345)
Decrease in prepaid expenses and other
receivables 278,490
(Decrease) in accounts payable and
accrued expenses (47,343)
Decrease in deferred income taxes 1,419
Increase in corporate income taxes payable 7,794
------------
NET CASH USED IN OPERATING ACTIVITIES (1,240,826)
NET CASH USED IN INVESTING ACTIVITIES:
Purchase of property and equipment (80,869)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable $1,100,000
(Decrease) in loans payable - related parties (89,932)
-------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,010,068
------------
NET DECREASE IN CASH (311,627)
CASH AT BEGINNING OF YEAR 1,334,398
------------
CASH AT END OF YEAR $1,022,771
------------
------------
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $527,065
Income taxes 115,250
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS 5.
F-42
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1992
NOTE 1 - ORGANIZATION:
Milady Brassiere & Corset Co., Inc. manufactures and sells ladies'
swimwear, sportswear and foundation garments. These products are sold
to customers located primarily throughout the United States of
America.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Inventories are valued at the lower of cost (first-in, first out) or
market.
(b) Machinery and fixtures, transportation equipment, leasehold
improvements and computer software are stated at cost. Additions and
betterments which substantially extend the useful life are
capitalized. Upon sale or other disposition of assets, the cost and
related accumulated depreciation and amortization are moved from the
accounts and the resulting gain or loss, if any is reflected in
income.
Depreciation and amortization have been computed using the following
lives and methods:
<TABLE>
<CAPTION>
Depreciation and
Life Amortization Methods
------------ --------------------
<S> <C> <C>
Machinery and fixtures 5 and 150%-200% declining balance
10 years and straight-line
Transportation equipment 4 years 200% declining balance
Leasehold improvements Lease life Straight-line
Computer software 5 years Straight-line
</TABLE>
The equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
Accumulated
Depreciation
and Book
Cost Amortization Value
------------- ------------- ------------
<S> <C> <C> <C>
Machinery and fixtures $564,524 $564,524 $18,206
Transportation equipment 21,700 21,700 -
Leasehold improvements 443,127 369,707 73,420
Computer software 34,100 28,207 5,893
----------- ----------- ------------
$1,063,451 $984,138 $97,519
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS 6.
F-43
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1992
NOTE 3 - DEFERRED INCOME TAXES:
Deferred income taxes arise by reason of timing differences in
reporting certain expense items in different periods for financial
reporting and income tax reporting and are comprised of the following
components:
Difference in recognition of bad debt expense $186,891
Difference in inventory valuation due to uniform
capitalization rules pursuant to Internal Revenue
Code Section 263A 83,017
Other components 33,676
------------
$303,584
------------
------------
NOTE 4 - NOTES PAYABLE:
The notes payable are payable to banks on demand including interest at
the prime rate. Notes payable are payable at various dates to
September 29, 1992.
The Company's bank debt was reduced from a level of $10,300,000 during
the fiscal year ended June 30, 1992 to $2,850,000 on August 31, 1992.
NOTE 5 - PENSION PLANS:
(a) The Company sponsors a defined benefit pension plan that covers all
nonunion employees. The plan calls for benefits to be paid to
eligible employees at retirement based primarily upon years of service
with the Company and compensation rates near retirement.
Contributions to the plan reflect benefits attributed to employees'
services to date, as well as services expected to be earned in the
future. Plan assets consist of primarily common stock,
investment-grade corporate bonds and asset backed securities.
Pension expense for 1992 includes the following components:
Service cost of the current period $51,595
Interest cost on the projected benefit obligation 52,284
Actual return on assets held in the plan (112,326)
Net amortization of prior service cost, transition
liability and net gain 60,447
------------
Pension expense $52,000
------------
------------
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS 7.
F-44
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1992
NOTE 5 - PENSION PLANS: (Continued)
The following sets forth the funded status of the plan and the amounts
shown in the accompanying balance sheet at June 30, 1992:
Actuarial present value of benefit obligations:
Vested benefits $795,489
Nonvested benefits 4,949
------------
Accumulated benefit obligation 800,438
Effect of anticipated future compensation levels and
other events 30,438
------------
Projected benefit obligation 830,876
Fair value of assets held in the plan (804,185)
------------
Unfunded excess of projected benefit obligation
over plan assets $26,691
------------
------------
The unfunded excess consists of the following:
Net unrecognized loss from past experience
different than assumed (58,104)
Unamortized liability at transition 32,795
Pension liability included in the balance sheet 52,000
------------
$26,691
------------
------------
The weighted average discount rate used to measure the projected
benefit obligation is 7% the rate of increase in future compensation
levels is 6% and the expected long-term rate of return on assets is
8%. The Company uses the straight-line method of amortization for
unrecognized gains and losses.
The contribution to the plan for the year ended June 30, 1992 amounted
to $52,000.
(b) The Company participates in a multi-employee union pension plan. The
plan provides benefits to substantially all the Company's union
employees. Amounts charged to pension plan cost (union expense) and
contributed to the plan for the year ended June 30, 1992 amounted to
$51,136.
(c) The Company has a profit sharing plan covering certain salaried
nonunion employees. Contributions to the plan for the year ended
June 30, 1992 amounted to $30,000. The plan covers employees on a
noncontributory basis.
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS 8.
F-45
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1992
NOTE 6 - RELATED PARTY TRANSACTIONS:
The Company uses contract labor and rents space and equipment supplied
by related parties and sells merchandise to a related party.
Obligations to related parties at June 30, 1992 were as follows:
Contractors payable $598,743
Loans payable (at an annum interest rate
of 7%, no stated terms of repayment) 760,839
Contract labor and rentals charged by related parties were as follows:
Contract labor - manufacturing $5,801,351
- shipping 762,913
Rental of space (Note 7 (a)) 126,280
Rental of equipment 264,765
Sale of merchandise 255,467
Interest expense 47,723
Loan receivable - related party $115,020:
This amount represents monies due from a foreign related party that
supplies contract labor to the Company. The loan bears no interest
and has no stated terms for repayment.
NOTE 7 - COMMITMENTS AND CONTINGENCIES:
(a) Lease Obligations:
The Company leases office, factory and show room space from related
and unrelated parties.
Minimum future rental payments under noncancelable operating leases
having remaining terms in excess of one year as of June 30, 1992 for
each of the next five years and in the aggregate are:
<TABLE>
<CAPTION>
Parties
Year Ended ----------------------------------
June 30, Total Related Unrelated
----------- ------------- -------------- -------------
<S> <C> <C> <C>
1993 $493,605 $67,500 $426,105
1994 327,634 - 327,634
1995 251,138 - 251,138
1996 259,709 - 259,709
1997 150,653 - 150,653
Thereafter 2,930 - 2,930
------------ ------------ ------------
Total minimum future rental $1,485,669 $67,500 $1,418,169
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS 9.
F-46
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1992
NOTE 7 - COMMITMENTS AND CONTINGENCIES: (Continued)
Minimum future rentals do not include contingent rentals that may be
received under certain leases for reimbursement of the tenant's
allocable portion of real estate taxes and certain other operating
expenses. Contingent rentals in 1992 paid to unrelated parties were
$33,302.
The Company has leased warehouse space from a related party. The
warehouse property is subject to a mortgage note with an unpaid
balance at June 30, 1992 of $117,500 which the Company has guaranteed.
(b) Notes Payable - Related Party:
The Company has guaranteed notes payable on behalf of a related party
in the amount of $413,943.
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS 10.
F-47
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
SUPPLEMENTARY INFORMATION
MANUFACTURING OVERHEAD
YEAR ENDED JUNE 30, 1992
<TABLE>
<S> <C>
Salaries:
Production and designing $ 670,746
Machinists 5,980
Rent - allocated 137,634
Light and power 72,274
Factory supplies and maintenance 78,162
Payroll taxes - allocated 158,651
Insurance - allocated 62,339
Depreciation charges - allocated 43,897
Sample and designing expenses 153,800
-----------
$1,383,483
-----------
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
11.
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
F-48
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
SUPPLEMENTARY INFORMATION
OPERATING EXPENSES
YEAR ENDED JUNE 30, 1992
<TABLE>
<S> <C>
SELLING AND SHIPPING:
Executive salary - supervision $ 390,150
Salesmen's salaries and commissions 1,476,928
Shipping salaries 366,243
Shipping supplies and expenses 801,851
Rent - allocated 352,263
Payroll taxes - allocated 104,430
Insurance - allocated 31,169
Travel and entertainment 127,467
Freight and parcel post 124,193
Advertising 669,341
Depreciation and amortization charges - allocated 5,000
Out of town showroom rents and expenses 66,940
----------
$4,515,975
----------
----------
GENERAL AND ADMINISTRATIVE:
Salaries:
Executive $ 103,850
Office 448,974
I.B.M. 245,728
Payroll taxes - allocated 79,874
Stationery and printing 57,594
Equipment rental and expenses 304,719
Insurance - allocated 10,285
Dues and subscriptions 19,439
Telephone and telegraph 155,394
Professional fees 189,367
Postage 26,201
Sundry taxes 25,820
Rent - allocated 11,185
Depreciation and amortization charges - allocated 6,638
Employee benefits 155,906
Miscellaneous 69,996
----------
$1,910,970
----------
----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
12.
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
F-49
<PAGE>
MILADY BRASSIERE & CORSET CO., INC.
SUPPLEMENTARY INFORMATION
OPERATING EXPENSES
YEAR ENDED JUNE 30, 1992
<TABLE>
<S> <C>
OTHER DEDUCTIONS (INCOME) - NET:
Interest expense $ 535,022
Charitable contributions 5,108
Contributions to employees' pension plan (Note 5(a)) 52,000
Contributions to employees' profit sharing plan (Note 5(c)) 30,000
Provision for doubtful accounts 528,772
Purchase discounts (25,321)
Royalty income (102,312)
Miscellaneous income (7,777)
-----------
$1,015,492
-----------
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
H.J. BEHRMAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
F-50
<PAGE>
APPAREL AMERICA, INC.
CONDENSED PRO FORMA BALANCE SHEETS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Apparel
America, Inc. Milady
------------ ----------
April 30, March 31,
ASSETS 1995 1995 Adjustments Pro forma
------ ------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 22 $ 221 $ (221)(1) $ 22
Accounts receivable 230 6,346 (6,346)(1) 230
Due from factor - net 2,507 - (1,000)(2) 1,507
Inventories 9,003 3,807 (3,807)(1) 9,503
500 (2)
Due from affiliates 273 1,239 (1,239)(1) 273
Prepaid expenses and other current assets 59 562 (562)(1) 59
------- ------- -------- -------
TOTAL CURRENT ASSETS 12,094 12,175 (12,675) 11,594
------- ------- -------- -------
PROPERTY AND EQUIPMENT,net 1,655 37 (37)(1) 1,655
------- ------- -------- -------
INTANGIBLES AND OTHER ASSETS:
Tradenames - - 1,700 (2) 1,700
Cost in excess of net assets acquired,
less accumulated amortization 4,687 - - 4,687
Other assets 10 237 (237)(1) 10
------- ------- -------- -------
4,697 237 1,463 6,397
------- ------- -------- -------
$18,446 $12,449 $(11,249) $19,646
------- ------- -------- -------
------- ------- -------- -------
F-51
<PAGE>
APPAREL AMERICA, INC.
CONDENSED PRO FORMA BALANCE SHEETS (UNAUDITED) - CONTINUED
(in thousands)
<CAPTION>
Apparel
America, Inc. Milady
LIABILITIES AND -------------- ---------
STOCKHOLDERS' EQUITY April 30, March 31,
(DEFICIT) 1995 1995 Adjustments Pro forma
- --------------------- -------------- --------- ----------- ---------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Note payable - tradenames $ - $ - $ 1,200 (2) $1,200
Notes payable - banks - 7,470 (7,470)(1) -
Accounts payable 2,732 756 (756)(1) 2,732
Current portion of long-term debt 1,448 - - 1,448
Current portion of deferred
interest 604 - - 604
Other current liabilities and
accrued expenses 798 353 (353)(1) 798
Accrued compensation 904 - - 904
Due to affiliates 506 1,220 (1,220)(1) 506
-------- ------- -------- --------
TOTAL CURRENT LIABILITIES 6,992 9,799 (8,599) 8,192
-------- ------- -------- --------
LONG-TERM DEBT, LESS CURRENT
PORTION 6,823 - - 6,823
DEFERRED INTEREST - LONG-TERM
PORTION 1,313 - - 1,313
DIVIDENDS PAYABLE 2,160 - - 2,160
SUBORDINATED NOTE
PAYABLE 1,000 - - 1,000
$9 CUMULATIVE REDEEMABLE
PREFERRED STOCK 5,738 - - 5,738
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock 40,484 - - 40,484
Common stock 371 290 (290)(1) 371
Additional paid-in capital 21,706 - - 21,706
Deficit (40,180) 2,360 (2,360)(1) (40,180)
Less:
Treasury stock, at cost (129) - - (129)
Acquisition cost in excess of historical
basis of net assets acquired from
an affiliate (27,832) - - (27,832)
-------- ------- -------- --------
TOTAL STOCKHOLDERS' EQUITY
(DEFICIT) (5,580) 2,650 (2,650) (5,580)
-------- ------- -------- --------
$ 18,446 $12,449 $(11,249) $ 19,646
-------- ------- -------- --------
-------- ------- -------- --------
</TABLE>
F-52
<PAGE>
APPAREL AMERICA, INC.
CONDENSED PRO FORMA STATEMENT OF OPERATIONS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Apparel
America, Inc. Milady
------------- -----------
Nine months ended
---------------------------
April 30, March 31,
1995 1995 Adjustments Pro forma
------------ ---------- ----------- ---------
<S> <C> <C> <C> <C>
NET SALES $ 30,038 $ 12,303 $ (3,282)(3) $ 39,059
COST OF GOODS SOLD 20,565 9,965 (2,462)(3) 27,782
(286)(4)
--------- --------- --------- ---------
Gross profit 9,473 2,338 (534) 11,277
--------- --------- --------- ---------
OPERATING EXPENSES:
Selling and shipping 3,240 3,060 (263)(3) 4,118
(1,919)(4)
General and administrative 2,697 1,467 (796)(4) 3,453
85 (5)
--------- --------- --------- ---------
Total operating expenses 5,937 4,527 (2,893) 7,571
--------- --------- --------- ---------
Operating income (loss) 3,536 (2,189) 2,359 3,706
--------- --------- --------- ---------
OTHER INCOME (EXPENSES):
Interest expense (582) (326) 126 (4) (782)
Interest income - 2 (2)(4) -
Other (412) 182 (182)(4) (412)
--------- --------- --------- ---------
(994) (142) (58) (1,194)
--------- --------- --------- ---------
Income (loss) before provision
for income taxes 2,542 (2,331) 2,301 2,512
PROVISION FOR INCOME TAXES (15) - - (15)
--------- --------- --------- ---------
Income (loss) from continuing
operations $ 2,527 $ (2,331) $ 2,301 $ 2,497
--------- --------- --------- ---------
--------- --------- --------- ---------
INCOME FROM CONTINUING
OPERATIONS PER SHARE $ .27 $ .26
--------- ---------
--------- ---------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,389,552 7,389,552
--------- ---------
--------- ---------
F-53
<PAGE>
APPAREL AMERICA, INC.
CONDENSED PRO FORMA STATEMENT OF OPERATIONS
(in thousands, except share and per share data)
<CAPTION>
Apparel
America, Inc. Milady
------------- ----------
Year ended
--------------------------
July 31, June 30,
1994 1994 Adjustments Pro forma
---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
NET SALES $ 34,273 $ 22,443 $ (4,122)(3) $ 52,594
COST OF GOODS SOLD 25,374 18,067 (3,092)(3) 40,031
(318)(4)
--------- --------- --------- ---------
Gross profit 8,899 4,376 (712) 12,563
--------- --------- --------- ---------
OPERATING EXPENSES:
Selling and shipping 3,728 4,124 (330)(3) 5,529
(1,993)(4)
General and administrative 3,596 1,746 (805)(4) 4,650
113 (5)
--------- --------- --------- ---------
Total operating expenses 7,324 5,870 (3,015) 10,179
--------- --------- --------- ---------
Operating income (loss) 1,575 (1,494) 2,303 2,384
--------- --------- --------- ---------
OTHER INCOME (EXPENSES):
Interest expense (1,804) (483) 15 (4) (2,272)
Interest income - 12 (12)(4) -
Other 391 (202) 202 (4) 391
--------- --------- --------- ---------
(1,413) (673) 205 (1,881)
--------- --------- --------- ---------
Income (loss) before provision
for (recovery of) income taxes 162 (2,167) 2,508 503
(PROVISION FOR) RECOVERY OF
INCOME TAXES (20) 183 (183)(4) (20)
--------- --------- --------- ---------
Income (loss) from continuing
operations $ 142 $ (1,984) $ 2,325 $ 483
--------- --------- --------- ---------
--------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS PER SHARE $ (.05) $ .11
--------- ---------
--------- ---------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,389,542 7,389,542
--------- ---------
--------- ---------
F-54
<PAGE>
APPAREL AMERICA, INC.
NOTES TO CONDENSED
PRO FORMA FINANCIAL STATEMENTS
<FN>
(1) To eliminate the net assets of Milady not acquired by the Registrant.
(2) To record the purchase of the tradenames and inventory for $1,700,000 and
$500,000, respectively, financed by $1,000,000 against the factor balance
and $1,200,000 note payable.
(3) To eliminate net sales and related costs associated with Milady tradenames
not purchased by the Registrant.
(4) To adjust (i) cost of sales based on a calculation utilizing negotiated
prices for the purchased product lines and (i) operating expenses for costs
not assumed by the Registrant.
(5) To record amortization of the purchased tradenames using the straight-line
method over 15 years.
</TABLE>
F-55
