<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 ACT OF 1934
Date of Report (Date of earliest event reported) FEBRUARY 27, 1995
-------------------
ANDOVER TOGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 0-14674 13-5677957
(State or Other Jurisdiction of (Commission File Number) (I.R.S. Employer Identification Number)
Incorporation or Organization)
</TABLE>
ONE PENN PLAZA
NEW YORK, NEW YORK 10119
(Address of Principal Executive Offices) (Zip Code)
Telephone Number, Including Area Code 212-244-0700
------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired.
- Financial statements of Dobie Industries, Inc.
- - Independent Auditors' Report
- - Statement of Net Assets in Liquidation as of December
31, 1994
- - Balance Sheet as of January 1, 1994
- - Statements of Operations for the years ended December
31, 1994 and January 1, 1994
- - Statements of Shareholders' Equity for the years ended
December 31, 1994 and January 1, 1994
- - Statements of Cash Flows for the years ended December
31, 1994 and January 1, 1994
- - Notes to Financial Statements for the years ended
December 31, 1994 and January 1, 1994
- - Independent Auditors' Report
- - Balance Sheets as of January 1, 1994 and December 26,
1992
- - Statements of Operations for the years ended January
1, 1994 and December 26, 1992
- - Statements of Shareholders' Equity for the years ended
January 1, 1994 and December 26, 1992
- - Statements of Cash Flows for the years ended January
1, 1994 and December 26, 1992
- - Notes to Financial Statements for the years ended
January 1, 1994 and December 26, 1992
(b) Pro Forma Financial Information.
- Pro Forma Consolidated Condensed Financial Statements of
Andover Togs, Inc. ("Andover") and Dobie Industries, Inc.
("Dobie").
- - Unaudited Pro Forma Financial Information
- - Unaudited Pro Forma Consolidated Condensed Balance
Sheet as of November 30, 1994 (Andover) and December
31, 1994 (Dobie)
- - Unaudited Pro Forma Consolidated Condensed Income
Statement for the year ended November 30, 1994
(Andover) and December 31, 1994 (Dobie)
- - Notes to Unaudited Pro Forma Consolidated Condensed
Financial Statements
-2-
<PAGE>
(c) EXHIBITS
2(a) Asset Purchase Agreement dated February 14, 1995 among Dobie
Industries, Inc., Dobie Apparel Group, Inc. and Andover Togs,
Inc., incorporated by reference to Exhibit 10(y) to the
Company's Annual Report on Form 10-K for the fiscal year ended
November 30, 1994 (the "1994 10-K").
4(a) Common Stock Purchase Warrant, dated February 27, 1995, issued
to Dobie Industries, Inc. in respect of 50,000 shares of
Common Stock, incorporated by reference to Exhibit 4(d) to the
1994 10-K.
4(b) Registration Rights Agreement, dated February 27, 1995,
between Andover Togs, Inc. and Dobie Industries, Inc.,
incorporated by reference to Exhibit 4(c) to the 1994 10-K.
*23 Consent of BDO Seidman
- --------
* filed herewith.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ANDOVER TOGS, INC.
(Registrant)
May 12, 1995 By: /s/ Alan Kanis
------------------------------------
Alan Kanis, Treasurer and
Chief Financial Officer
-4-
<PAGE>
DOBIE INDUSTRIES, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 AND JANUARY 1, 1994
<PAGE>
DOBIE INDUSTRIES, INC.
CONTENTS
<TABLE>
<S> <C>
INDEPENDENT AUDITORS' REPORT 3-4
FINANCIAL STATEMENTS:
Statement of net assets in liquidation 5
Balance sheet 6
Statements of operations 7
Statements of shareholders' equity 8
Statements of cash flows 9
Notes to financial statements 10-18
</TABLE>
2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Dobie Industries, Inc.
New York, New York
We have audited the accompanying statement of net assets in liquidation of Dobie
Industries, Inc. as of December 31, 1994. We have also audited the balance sheet
of Dobie Industries, Inc. as of January 1, 1994, and the related statements of
operations, shareholders' equity, and cash flows for the years ended January 1,
1994 and December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1(a) to the financial statements, the Company filed a
petition for reorganization under Chapter 11 of the Federal Bankruptcy Code on
February 15, 1995. The Company has also entered an agreement, which was approved
by the bankruptcy court, to sell its inventory, unfulfilled customer orders,
trade name and other trademarks, its rights under a lease for a manufacturing
facility and the fixed assets located therein, and certain other assets of the
Company. The Company intends to commence a process of liquidating the remaining
net assets of the Company. Since, as of December 31, 1994, liquidation was
imminent, the Company changed its basis of accounting as of and for periods
subsequent to that date from the going concern basis to the liquidation basis.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the statement of net assets in liquidation as of December
31, 1994, the financial position of Dobie Industries, Inc. as of January 1,
1994, and the results of its operations and its cash flows for the years ended
January 1, 1994 and December 31, 1994 in conformity with generally accepted
accounting principles applied on the bases of accounting described in the
preceding paragraph.
3
<PAGE>
As discussed in Note 1(a) to the financial statements, it is not presently
determinable whether the amounts realizable from the disposition of remaining
assets or the amounts that creditors agree to accept in settlement of
liabilities will differ materially from the amounts shown in the accompanying
financial statements. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ BDO SEIDMAN
Certified Public Accountants
New York, NY
January 20, 1995, except for Note 1(a)
which is dated February 22, 1995
4
<PAGE>
DOBIE INDUSTRIES, INC.
STATEMENT OF NET ASSETS IN LIQUIDATION
(IN THOUSANDS)
(NOTE 1(a))
- --------------------------------------------------------------------------------
December 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents (Note 1(f)) $ 299
Receivable from factor (Note 2) -
Inventories (Notes 1(c), 3 and 5) 4,517
Recoverable income taxes 249
Prepaid expenses and other current assets 339
Property, plant and equipment - net (Notes 1(d), 4 and 5) 922
- --------------------------------------------------------------------------------
TOTAL ASSETS 6,326
- --------------------------------------------------------------------------------
LESS LIABILITIES:
Accounts payable 1,408
Notes payable (Note 5) 875
Payable to factor (Note 2) 3,091
Accrued expenses and other current liabilities 631
Deferred income taxes (Note 6) -
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 6,005
COMMITMENTS AND CONTINGENCIES (NOTE 7)
- --------------------------------------------------------------------------------
NET ASSETS IN LIQUIDATION $ 321
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
- --------------------------------------------------------------------------------
DOBIE INDUSTRIES, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT PAR VALUE)
- -------------------------------------------------------------------------------
January 1, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
CURRENT:
Cash and cash equivalents (Note 1(f)) $ 1,217
Receivable from factor (Note 2) 394
Inventories (Notes 1(c), 3 and 5) 5,340
Recoverable income taxes 226
Prepaid expenses and other current assets 120
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 7,297
PROPERTY, PLANT AND EQUIPMENT - NET
(NOTES 1(d), 4 AND 5) 902
OTHER ASSETS 30
- --------------------------------------------------------------------------------
$ 8,229
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,171
Current maturities of long-term debt (Note 5) 360
Payable to factor (Note 2) -
Accrued expenses and other current liabilities 1,490
Deferred income taxes (Note 6) 1,100
- --------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 4,121
- --------------------------------------------------------------------------------
LONG-TERM DEBT (NOTE 5) 875
- --------------------------------------------------------------------------------
COMMITMENTS (NOTE 7)
SHAREHOLDERS' EQUITY (NOTES 1(b) AND 9):
Common stock, $.01 par value - shares authorized
10,000; issued and outstanding 2,000 and 500 20
Additional paid-in capital 3,410
Deficit (197)
- --------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 3,233
- --------------------------------------------------------------------------------
$ 8,229
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
DOBIE INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year ended DECEMBER 31, 1994 January 1, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET SALES (NOTE 8) $ 32,856 $ 48,069
COST OF GOODS SOLD 30,471 37,580
- ------------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 2,385 10,489
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Selling, design, warehouse, general and administrative 6,019 8,272
Amortization of excess of fair value of net assets
acquired over purchase price - (91)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 6,019 8,181
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) (3,634) 2,308
- ------------------------------------------------------------------------------------------------------------------------------------
NONOPERATING CHARGES:
Interest expense 713 657
Nonrecurring charges (Note 10) - 670
- ------------------------------------------------------------------------------------------------------------------------------------
713 1,327
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE PROVISION (CREDIT) FOR
INCOME TAXES (4,347) 981
- ------------------------------------------------------------------------------------------------------------------------------------
PROVISION (CREDIT) FOR INCOME TAXES (NOTE 6):
Provision (credit) for income taxes (1,435) 403
Provision for change in tax status - 1,100
- ------------------------------------------------------------------------------------------------------------------------------------
(1,435) 1,503
- ------------------------------------------------------------------------------------------------------------------------------------
NET LOSS $ (2,912) $ (522)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
DOBIE INDUSTRIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years ended December 31, 1994 and January 1, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Additional Retained Total
Common paid-in earnings shareholders'
stock capital (deficit) equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 26, 1992 $ 5 $ 495 $ 755 $ 1,255
Year ended January 1, 1994:
Sale of common stock (net of expense of
$500, including $265 paid to a related
party) (Note 1(a)) 15 2,485 - 2,500
Net loss - - (522) (522)
Transfer of undistributed S corporation
earnings - 430 (430) -
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 1, 1994 20 3,410 (197) 3,233
Year ended December 31, 1994:
Net loss - - (2,912) (2,912)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 $ 20 $ 3,410 $(3,109) $ 321
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
DOBIE INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year ended DECEMBER 31, 1994 January 1, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,912) $ (522)
- ------------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of excess of fair value of net assets
acquired over purchase price - (91)
Depreciation and amortization 103 106
Amortization of deferred costs 27 9
Deferred income taxes (1,100) 1,100
Decrease (increase) in:
Inventories 823 667
Prepaid income taxes (23) (226)
Prepaid expenses and other current assets (217) (24)
Increase (decrease) in:
Accounts payable 237 (2,209)
Accrued expenses and other current liabilities (859) 562
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS (1,009) (106)
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (3,921) (628)
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (122) (349)
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in receivable from factor 3,485 54
Payment of long-term debt (360) (360)
Sale of common stock, net of expenses - 2,500
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,125 2,194
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (918) 1,217
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,217 -
- ------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 299 $ 1,217
- ------------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 713 $ 657
- ------------------------------------------------------------------------------------------------------------------------------------
Income taxes $ - $ 610
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
DOBIE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF (a) Organization, Other Matters and
ACCOUNTING POLICIES Basis of Presentation
A newly-formed company was
incorporated in the State of New
York on April 8, 1988. On May 2,
1988, this company acquired
certain assets of Dobie
Originals, a division of Cluett,
Peabody & Co. Inc. ("Cluett"). On
June 5, 1989, such company
changed its name to Dobie
Industries, Inc. (the "Company").
The acquisition was accounted for
as a purchase under APB Opinion
No. 16. The fair market value of
net assets acquired in excess of
the purchase price ($5,562,000)
reduced property, plant and
equipment in the amount of
$4,201,000, with the balance
($1,361,000) reflected as a
deferred credit, amortized to
income over 5 years through April
1993.
On February 18, 1993, Dobie
Apparel Group, Inc., a
newly-formed holding company
owned by unrelated parties,
purchased newly issued shares of
common stock of the Company for
$3,000,000. As a result of the
purchase, Dobie Apparel Group,
Inc. became a 75% owner of the
Company.
On February 15, 1995, the
Company filed a petition for
reorganization under Chapter 11
of the Federal Bankruptcy Code.
The Company has also entered an
agreement, which was approved by
the bankruptcy court, to sell its
inventory, unfulfilled customer
orders, trade name and other
trademarks, its rights under a
lease for a manufacturing
facility and the fixed assets
located therein, and certain
other assets of the Company. The
purchase price of the inventory
is based on the lower of cost or
market value, consistent with the
valuation at December 31, 1994.
The Company intends to commence a
process of liquidating the
remaining net assets of the
Company. Since, as of December
31, 1994, liquidation was
imminent, the Company changed its
basis of accounting as of and for
periods subsequent to that date
from the going concern basis to
the liquidation basis. The
liquidation basis of accounting
presents assets at amounts
expected to be
10
<PAGE>
DOBIE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
realized in liquidation and
liabilities expected to be paid
to creditors. At December 31,
1994, the net realizable value of
the Company's net assets in
liquidation was estimated to be
not less than historical cost,
based on appraisal values and the
terms of the agreement noted
above. Accordingly, the statement
of net assets in liquidation
reflects asset values at their
historical cost. Also, since the
ultimate amount which will be
accepted in settlement of
liabilities is not determinable,
such liabilities are reflected at
their historical recorded
amounts. However, there are no
assurances that the ultimate
amounts realized from the
disposition of the remaining
assets or the amounts that
creditors agree to accept in
settlement of liabilities will
not differ materially from those
reflected in the financial
statements.
(b) Stock Dividend
On October 7, 1993, the Company
declared a stock dividend of
2,499 shares for each share
outstanding. The effect of the
dividend has been reflected in
the financial statements for all
periods presented.
(c) Inventory Valuation
Inventories are valued at the
lower of cost or market. Cost is
determined by the last-in,
first-out (LIFO) method, which
approximates the first-in,
first-out (FIFO) method in both
of the years presented.
(d) Property, Plant and Equipment
Property, plant and equipment are
stated at cost. Depreciation and
amortization are computed on the
straight-line method over the
estimated useful lives of the
related assets.
(e) Fiscal Year
The Company reports its
operations on a 52-53 week year,
which ends on the Saturday
closest to December 31. The year
ended December 31, 1994 consisted
of 52 weeks. The year ended
January 1, 1994 consisted of 53
weeks.
11
<PAGE>
DOBIE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(f) Cash Flows Statements
The Company considers cash and
cash equivalents to include
investments in highly liquid
instruments with an original
maturity of three months or less.
(g) Revenue Recognition
Sales are recognized upon
shipment of products. Allowances
for estimated returns are
provided for when sales are
recorded.
(h) Presentation of Prior Year Data
Certain reclassifications have
been made to conform prior year
data with the current
presentation.
2. RECEIVABLE FROM Pursuant to a factoring
(PAYABLE TO) FACTOR agreement, the Company sells
substantially all of its trade
receivables without recourse, up
to maximum credit limits
established by the factor for
each account. Amounts subject to
recourse at each fiscal year-end
were not material.
The factor has advanced funds and
provided a portion of the
long-term financing to the
Company in connection with its
acquisition of certain assets of
Cluett (see Note 1(a)). Interest
is charged on such advances at
the rate of prime plus 1.5% per
annum. The agreement also
provides for the assignment to
the factor, as collateral,
certain assets of the Company and
stockholders (see Note 5).
3. INVENTORIES Inventories consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, January 1,
1994 1994
- --------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Raw materials $1,952 $2,076
Work-in-process 1,562 864
Finished goods 1,003 2,400
- --------------------------------------------------------------------------------
$4,517 $5,340
- --------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
DOBIE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
4. PROPERTY, PLANT AND Major classes of property, plant
EQUIPMENT and equipment consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, January 1,
1994 1994
- --------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Land, buildings and improvements $ 360 $ 278
Machinery and equipment 972 931
- --------------------------------------------------------------------------------
1,332 1,209
Less: Accumulated depreciation and
amortization 410 307
- --------------------------------------------------------------------------------
$ 922 $ 902
- --------------------------------------------------------------------------------
</TABLE>
5. NOTES PAYABLE The Company's term loan is
payable in equal monthly
principal installments of
$30,000, with a final payment of
$455,000 in March 1996. The loan
bears interest at 2% above prime
and is payable monthly. The
agreement, among other things,
requires the Company to maintain
minimum levels of working capital
and net worth and is
collateralized by all the
property, plant and equipment, a
first lien of $3,000,000 on the
Company's inventory and an
assignment of certain life
insurance policies. At December
31, 1994, the Company was in
violation of its working capital
and net worth covenants.
6. INCOME TAXES Prior to the investment in the
Company by Dobie Apparel Group,
Inc., the Company elected to be
taxed as an S corporation,
whereby the shareholders were
required to report the Company's
taxable income or loss in their
personal income tax returns.
State and local income taxes have
been provided for during the
periods the Company was an S
corporation where applicable.
13
<PAGE>
DOBIE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
As a result of the investment by
Dobie Apparel Group, Inc., the S
corporation status was terminated
and the Company is required to
file corporate tax returns as a C
corporation. Due to this change
in tax status, the Company
provided for a current deferred
tax liability as of February 18,
1993 resulting from differences
between the tax and book bases of
inventories.
Effective December 27, 1992, the
Company adopted Statement of
Financial Accounting Standards
("SFAS") No. 109, "Accounting for
Income Taxes." SFAS No. 109
requires a change from the
deferred method to the asset and
liability method of accounting
for income taxes. The Company has
retroactively applied SFAS No.
109 to the prior period
presented. Under this method,
deferred income taxes are
recognized for the tax
consequences of "temporary
differences" by applying enacted
statutory tax rates applicable to
future years to differences
between the financial statement
carrying amounts and the tax
bases of existing assets and
liabilities.
The following summarizes the
provision (credit) for income
taxes:
<TABLE>
<CAPTION>
DECEMBER 31, January 1,
Year ended 1994 1994
- --------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Current provision (credit) for income taxes:
Federal $ (338) $338
State and local 3 65
Deferred income taxes (1,100) --
- --------------------------------------------------------------------------------
Provision (credit) for income $(1,435) $403
taxes
- --------------------------------------------------------------------------------
</TABLE>
Deferred income taxes result from
temporary differences which are
the result of provisions of the
tax laws that either require or
permit certain items of income or
expense to be reported for tax
purposes in different periods
than they are reported for
financial reporting. The
following is a summary of the
Company's deferred income taxes:
14
<PAGE>
DOBIE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DECEMBER 31, January 1,
1994 1994
- --------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Deferred tax asset:
Net operating loss carryforwards $ 1,083 --
Depreciation 150 231
Accrued vacation pay 30 85
Valuation allowance (1,263) (316)
- --------------------------------------------------------------------------------
Net deferred tax asset -- --
Deferred tax liability:
Inventory -- 1,100
- --------------------------------------------------------------------------------
Net deferred income taxes $ -- $ 1,100
- --------------------------------------------------------------------------------
</TABLE>
At December 31, 1994, the Company
has net operating loss
carryforwards of approximately
$3,187,000 for income tax
purposes that expire in 2009.
Deferred tax assets resulting
from temporary differences have
been fully offset by a valuation
allowance.
The Company's deferred tax
liability in 1993 related to an
inventory tax basis LIFO reserve
attributable to its bargain
purchase of the Cluett assets on
May 2, 1988 (see Note 1(a)).
15
<PAGE>
DOBIE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
7. COMMITMENTS AND The amount that will be paid in
CONTINGENCIES settlement of the following
commitments and contingencies is
subject to the uncertainty
discussed in Note 1 (a).
Leases
Total minimum annual rental
commitments primarily for office,
showroom, manufacturing and
warehouse facilities under all
noncancellable operating leases
at December 31, 1994 are as
follows:
<TABLE>
- --------------------------------------------------------------------------------
(in thousands)
<S> <C>
1995 $ 235
1996 219
1997 224
1998 224
1999 298
Thereafter 739
- --------------------------------------------------------------------------------
$1,939
- --------------------------------------------------------------------------------
</TABLE>
Certain of the leases provide for
renewal options and the payment
of real estate taxes and other
occupancy costs.
Rent expense was $311,000 and
$508,000 for the years ended
December 31, 1994 and January 1,
1994, respectively.
Royalties
Royalty expense was $549,000 and
$1,809,000 for the years ended
December 31, 1994 and January 1,
1994, respectively.
16
<PAGE>
DOBIE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
Stock Option Plan
On October 5, 1993, the Board of
Directors of the Company adopted,
and the shareholders approved,
the Stock Option Plan (the "Stock
Option Plan"). The Stock Option
Plan provides for the grant of
Stock Options (each a "Stock
Option") exercisable to purchase
an aggregate of up to 300,000
common shares. The Stock Option
Plan is designed to provide an
incentive to the officers,
directors and certain key
employees of the Company by
making available to them an
opportunity to acquire a
proprietary interest or to
increase their proprietary
interest in the Company. Any
Stock Option granted under the
Stock Option Plan which is
forfeited, expires or terminates
prior to vesting or exercise will
again be available for grant
under the Stock Option Plan.
Incentive Stock Options and
nonqualified Stock Options may
not be granted at an exercise
price less than 100% of fair
market value of the Common Stock
on the date of grant. Each Stock
Option will be exercisable after
the period or periods specified
in the option agreement, which
will generally not exceed 10
years from the date of grant. No
Stock Options have been granted
under the Stock Option Plan.
Litigation
The Company is subject to certain
claims and legal proceedings
arising in the ordinary course of
business. In the opinion of
management, the ultimate
resolution with respect to such
action will not materially affect
the financial position of the
Company.
Employment and Noncompetition
Agreements
Concurrent with the purchase by
Dobie Apparel Group, Inc. on
February 18, 1993 (see Note
1(a)), certain
officers/shareholders entered
into an incentive compensation
agreement providing for
additional compensation equal to
20% of the annual pretax earnings
of the Company (as defined) in
excess of a base amount. This
agreement runs through the 1997
fiscal year.
In addition, the Company entered
into noncompete agreements with
two of the stockholders providing
for aggregate payments of
$337,500, payable in three annual
installments beginning in
February 1996 to each of them.
17
<PAGE>
8. MAJOR CUSTOMERS Substantially all of the
Company's sales are to retailers
throughout the United States. For
the year ended December 31, 1994,
five customers accounted for 65%
of the net sales. For the year
ended January 1, 1994, one
customer accounted for 37% of the
net sales.
9. SHAREHOLDERS' EQUITY On October 7, 1993, the Company
changed the authorized number of
shares of common stock to
10,000,000 and authorized
2,000,000 shares of $.01 par
value preferred stock. No
preferred stock has been issued.
10. NONRECURRING Nonrecurring charges consist
CHARGES primarily of costs associated
with a planned initial public
offering of the Company's stock.
The public offering has been
suspended and, therefore, these
costs have been expensed in the
year ended January 1, 1994.
18
<PAGE>
DOBIE INDUSTRIES, INC.
FINANCIAL STATEMENTS
YEARS ENDED JANUARY 1, 1994 AND DECEMBER 26, 1992
1
<PAGE>
DOBIE INDUSTRIES, INC.
CONTENTS
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS:
Balance sheets 4
Statements of operations 5
Statements of shareholders' equity 6
Statements of cash flows 7
Notes to financial statements 8-15
2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Dobie Industries, Inc.
New York, New York
We have audited the accompanying balance sheets of Dobie Industries, Inc. as of
January 1, 1994 and December 26, 1992, and the related statements of operations,
shareholders' equity, and cash flows for the years 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 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 financial statements referred to above present fairly, in
all material respects, the financial position of Dobie Industries, Inc. as of
January 1, 1994 and December 26, 1992, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ BDO SEIDMAN
Certified Public Accountants
New York, NY
February 11, 1994
3
<PAGE>
DOBIE INDUSTRIES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
JANUARY 1, 1994 December 26, 1992
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents (Note 1(f)) $ 1,217 -
Receivable from factor (Note 2) 394 448
Inventories (Notes 1(c), 3 and 5) 5,340 6,007
Prepaid income taxes 226 -
Prepaid expenses and other current assets 120 96
- -------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 7,297 6,551
PROPERTY, PLANT AND EQUIPMENT - NET (NOTES 1(d),
4 AND 5) 902 659
OTHER ASSETS 30 39
- -------------------------------------------------------------------------------------------------
$ 8,229 $ 7,249
- -------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,171 $ 3,380
Current maturities of long-term debt (Note 5) 360 360
Accrued expenses and other current liabilities 1,490 928
Deferred income taxes (Note 6) 1,100 -
- -------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 4,121 4,668
- -------------------------------------------------------------------------------------------------
LONG-TERM DEBT (NOTE 5) 875 1,235
- -------------------------------------------------------------------------------------------------
DEFERRED CREDIT (NOTE 1(a)) - 91
- -------------------------------------------------------------------------------------------------
COMMITMENTS (NOTE 7)
SHAREHOLDERS' EQUITY (NOTES 1(b) AND 9):
Common stock, $.01 par value - shares authorized
10,000; issued and outstanding 2,000 and 500 20 5
Additional paid-in capital 3,410 495
Retained earnings (deficit) (197) 755
- -------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 3,233 1,255
- -------------------------------------------------------------------------------------------------
$ 8,229 $ 7,249
- -------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
DOBIE INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Year ended JANUARY 1, 1994 December 26, 1992
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
NET SALES (NOTE 8) $ 48,069 $ 45,815
COST OF GOODS SOLD 37,580 39,795
- -------------------------------------------------------------------------------------------------
GROSS PROFIT 10,489 6,020
- -------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Selling, design, warehouse, general and administrative 8,272 7,135
Amortization of excess of fair value of net assets
acquired over purchase price (91) (272)
- -------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 8,181 6,863
- -------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) 2,308 (843)
- -------------------------------------------------------------------------------------------------
NONOPERATING CHARGES:
Interest expense 657 1,006
Nonrecurring charges (Note 10) 670 -
- -------------------------------------------------------------------------------------------------
1,327 1,006
- -------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 981 (1,849)
- -------------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES (NOTE 6):
Provision for taxes on income 403 22
Provision for change in tax status 1,100 -
- -------------------------------------------------------------------------------------------------
1,503 22
- -------------------------------------------------------------------------------------------------
NET LOSS $ (522) $ (1,871)
- -------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
- -------------------------------------------------------------------------------
DOBIE INDUSTRIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years ended January 1, 1994 and December 26, 1992
- ----------------------------------------------------------------------------------------------------------------------
Additional Retained Total
Common paid-in earnings shareholders'
stock capital (deficit) equity
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 28, 1991 $ 5 $ 495 $ 2,626 $ 3,126
Year ended December 26, 1992:
Net loss - - (1,871) (1,871)
- ----------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 26, 1992 5 495 755 1,255
Year ended January 1, 1994:
Sale of common stock (net of expense of
$500, including $265 paid to a related
party) (Note 1(a)) 15 2,485 - 2,500
Net loss - - (522) (522)
Transfer of undistributed S corporation
earnings - 430 (430) -
- ----------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 1, 1994 $ 20 $ 3,410 $ (197) $ 3,233
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
DOBIE INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Year ended JANUARY 1, 1994 December 26, 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(522) $(1,871)
-----------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Amortization of excess of fair value of net assets
acquired over purchase price (91) (272)
Depreciation and amortization 106 85
Amortization of deferred costs 9 24
Deferred income taxes 1,100 -
Decrease (increase) in:
Receivable from factor 54 (222)
Inventories 667 1,406
Prepaid income taxes (226) -
Prepaid expenses and other current assets (24) 199
Increase (decrease) in:
Accounts payable (2,209) 756
Accrued expenses and other current liabilities 562 297
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS (52) 2,273
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (574) 402
- -----------------------------------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES:
Capital expenditures (349) (73)
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt (360) (360)
Sale of common stock, net of expenses 2,500 -
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 2,140 (360)
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,217 (31)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR - 31
- -----------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,217 $ -
- -----------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 657 $ 965
- -----------------------------------------------------------------------------------------------------------------------------------
Income taxes $ 610 $ 14
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
DOBIE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF (a) Organization and Basis of
ACCOUNTING POLICIES Presentation
A newly-formed company was
incorporated in the State of New
York on April 8, 1988. On May 2,
1988, this company acquired
certain assets of Dobie
Originals, a division of Cluett,
Peabody & Co. Inc. ("Cluett"). On
June 5, 1989, such company
changed its name to Dobie
Industries, Inc. (the "Company").
The acquisition was accounted for
as a purchase under APB Opinion
No. 16. The fair market value of
net assets acquired in excess of
the purchase price ($5,562,000)
reduced property, plant and
equipment in the amount of
$4,201,000, with the balance
($1,361,000) reflected as a
deferred credit, amortized to
income over 5 years through April
1993.
On February 18, 1993, Dobie
Apparel Group, Inc., a
newly-formed holding company
owned by unrelated parties,
purchased newly issued shares of
common stock of the Company for
$3,000,000. As a result of the
purchase, Dobie Apparel Group,
Inc. became a 75% owner of the
Company.
(b) Stock Dividend
On October 7, 1993, the Company
declared a stock dividend of
2,499 shares for each share
outstanding. The effect of the
dividend has been reflected in
the financial statements for
all periods presented.
(c) Inventory Valuation
Inventories are valued at the
lower of cost or market. Cost
is determined by the last-in,
first-out (LIFO) method.
(d) Property, Plant and Equipment
Property, plant and equipment are
stated at cost. Depreciation and
amortization are computed on the
straight-line method over the
estimated useful lives of the
related assets.
8
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DOBIE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(e) Fiscal Year
The Company reports its
operations on a 52-53 week year,
which ends on the Saturday
closest to December 31. The year
ended January 1, 1994 consisted
of 53 weeks. The year ended
December 26, 1992 consisted of 52
weeks.
(f) Cash Flows Statements
The Company considers cash and
cash equivalents to include
investments in highly liquid
instruments with an original
maturity of three months or less.
(g) Revenue Recognition
Sales are recognized upon
shipment of products. Allowances
for estimated returns are
provided for when sales are
recorded.
(h) Presentation of Prior Year Data
Certain reclassifications have
been made to conform prior year
data with the current
presentation.
2. RECEIVABLE FROM Pursuant to a factoring agreement, the
FACTOR Company sells substantially all of its
trade receivables without recourse, up
to maximum credit limits established by
the factor for each account. Amounts
subject to recourse at each fiscal
year-end were not material.
The factor has advanced funds and
provided a portion of the long-term
financing to the Company in connection
with its acquisition of certain assets
of Cluett (see Note 1(a)). Interest is
charged on such advances at the rate of
prime plus 1.5% per annum. The
agreement also provides for the
assignment to the factor, as
collateral, certain assets of the
Company (see Note 5).
9
<PAGE>
DOBIE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
3. INVENTORIES Inventories consist of the following:
<TABLE>
<CAPTION>
JANUARY 1, December 26,
1994 1992
- ----------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Raw materials $2,076 $1,921
Work-in-process 864 2,017
Finished goods 2,400 2,069
- ----------------------------------------------------------------------------------------
$5,340 $6,007
- ----------------------------------------------------------------------------------------
</TABLE>
There would be no effect on the
financial statements in either of the
years presented if inventories were
valued at first-in, first-out (FIFO)
instead of LIFO.
4. PROPERTY, PLANT AND Major classes of property, plant and
EQUIPMENT equipment consist of the following:
<TABLE>
<CAPTION>
JANUARY 1, December 26,
1994 1992
- ----------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Land, buildings and improvements $ 278 $121
Machinery and equipment 931 740
- ----------------------------------------------------------------------------------------
1,209 861
Less: Accumulated depreciation and
amortization 307 202
- ----------------------------------------------------------------------------------------
$ 902 $659
- ----------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
DOBIE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
5. LONG-TERM DEBT Long-term debt consists of the following:
<TABLE>
<CAPTION>
JANUARY 1, December 26,
1994 1992
- ----------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Note payable, factor $1,235 $1,595
Less: Current maturities 360 360
- ----------------------------------------------------------------------------------------
$ 875 $1,235
- ----------------------------------------------------------------------------------------
</TABLE>
The Company's term loan is payable in
equal monthly principal installments of
$30,000, with a final payment of
$455,000 in March 1996. The loan bears
interest at 2% above prime and is
payable monthly. The agreement, among
other things, requires the Company to
maintain minimum levels of working
capital and net worth and is
collateralized by all the property,
plant and equipment, a first lien of
$3,000,000 on the Company's inventory
and an assignment of certain life
insurance policies.
6. INCOME TAXES Prior to the investment in the Company
by Dobie Apparel Group, Inc., the
Company elected to be taxed as an S
corporation, whereby the shareholders
were required to report the Company's
taxable income or loss in their
personal income tax returns. State and
local income taxes have been provided
for during the periods the Company was
an S corporation where applicable.
As a result of the investment by Dobie
Apparel Group, Inc., the S corporation
status was terminated and the Company
is required to file corporate tax
returns as a C corporation. Due to this
change in tax status, the Company
provided for a current deferred tax
liability as of February 18, 1993
resulting from differences between the
tax and book bases of inventories.
Deferred tax assets resulting from
temporary differences have been fully
offset by a valuation allowance.
11
<PAGE>
DOBIE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
Effective December 27, 1992, the
Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." SFAS No.
109 requires a change from the deferred
method to the asset and liability
method of accounting for income taxes.
The Company has retroactively applied
SFAS No. 109 to the prior period
presented. Under the asset and
liability method, deferred income taxes
are recognized for the tax consequences
of "temporary differences" by applying
enacted statutory tax rates applicable
to future years to differences between
the financial statement carrying
amounts and the tax bases of existing
assets and liabilities. Under SFAS No.
109, the effect on deferred taxes of a
change in tax rates is recognized in
income in the period that includes the
enactment date. Under the deferred
method, deferred taxes resulted from
timing differences between financial
reporting and tax purposes.
The following summarizes the provision
for income taxes:
<TABLE>
<CAPTION>
JANUARY 1, December 26,
Year ended 1994 1992
- ----------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Current provision for income taxes:-----------------------------------------------------
Federal $338 $ -
State and local 65 22
- ----------------------------------------------------------------------------------------
Provision for income taxes $403 $22
- ----------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
DOBIE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
Deferred income taxes result from
temporary differences which are the
result of provisions of the tax laws
that either require or permit certain
items of income or expense to be
reported for tax purposes in different
periods than they are reported for
financial reporting. The following is a
summary of the Company's deferred
income taxes as of January 1, 1994:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
<S> <C>
Deferred tax asset: (in thousands)
Depreciation $ 231
Accrued vacation pay 85
Valuation allowance (316)
- -------------------------------------------------------------------------------
Net deferred tax asset -
Deferred tax liability:
Inventory 1,100
- -------------------------------------------------------------------------------
Net deferred income taxes $1,100
- -------------------------------------------------------------------------------
</TABLE>
The Company's deferred tax liability
relates to an inventory tax basis LIFO
reserve (approximately $3,000,000 at
January 1, 1994) attributable to its
bargain purchase of the Cluett assets
on May 2, 1988 (see Note 1(a)).
7. COMMITMENTS Leases
Total minimum annual rental commitments
primarily for office, showroom,
manufacturing and warehouse facilities
under all noncancellable operating
leases at January 1, 1994 are as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
(in thousands)
<S> <C>
1994 $ 241
1995 235
1996 219
1997 224
1998 224
Thereafter 1,038
- -------------------------------------------------------------------------------
$2,181
- -------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
DOBIE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
Certain of the leases provide for
renewal options and the payment of real
estate taxes and other occupancy costs.
Rent expense was $508,000 and $814,000
for the years ended January 1, 1994 and
December 26, 1992, respectively.
Royalties
The Company has entered into licensing
agreements with various licensors which
provide for minimum royalty payments as
follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
(in thousands)
<S> <C>
1994 $200
1995 138
- ----------------------------------------------------------------------------------------
</TABLE>
Several of the agreements provide for
additional renewal periods as specified
in the individual agreements. Royalty
expense was $1,809,000 and $489,000 for
the years ended January 1, 1994 and
December 26, 1992, respectively.
Stock Option Plan
On October 5, 1993, the Board of
Directors of the Company adopted, and
the shareholders approved, the Stock
Option Plan (the "Stock Option Plan").
The Stock Option Plan provides for the
grant of Stock Options (each a "Stock
Option") exercisable to purchase an
aggregate of up to 300,000 common
shares. The Stock Option Plan is
designed to provide an incentive to the
officers, directors and certain key
employees of the Company by making
available to them an opportunity to
acquire a proprietary interest or to
increase their proprietary interest in
the Company. Any Stock Option granted
under the Stock Option Plan which is
forfeited, expires or terminates prior
to vesting or exercise will again be
available for grant under the Stock
Option Plan.
14
<PAGE>
DOBIE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
Incentive Stock Options and
nonqualified Stock Options may not be
granted at an exercise price less than
100% of fair market value of the Common
Stock on the date of grant. Each Stock
Option will be exercisable after the
period or periods specified in the
option agreement, which will generally
not exceed 10 years from the date of
grant. No Stock Options have been
granted under the Stock Option Plan.
Employment and Noncompetition
Agreements
Concurrent with the purchase by Dobie
Apparel Group, Inc. on February 18,
1993 (see Note 1(a)), three
officers/shareholders entered into an
incentive compensation agreement
providing for additional compensation
equal to 20% of the annual pretax
earnings of the Company (as defined) in
excess of a base amount. This agreement
runs through the 1997 fiscal year.
In addition, the Company entered into
noncompete agreements with two of the
officers/stockholders discussed above
providing for aggregate payments of
$337,500, payable in three annual
installments beginning in February 1996
to each of them.
8. MAJOR CUSTOMERS Substantially all of the Company's
sales are to retailers throughout the
United States. For the year ended
January 1, 1994, one customer accounted
for 37% of the net sales. For the year
ended December 26, 1992, four customers
accounted for 70% of the net sales.
9. SHAREHOLDERS' EQUITY On October 7, 1993, the Company changed
the authorized number of shares of
common stock to 10,000,000 and
authorized 2,000,000 shares of $.01 par
value preferred stock. No preferred
stock has been issued.
10. NONRECURRING Nonrecurring charges consist primarily
CHARGES of costs associated with a planned
initial public offering of the
Company's stock. The public offering
has been suspended and, therefore,
these costs have been expensed in the
year ended January 1, 1994.
15
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION
The accompanying unaudited pro forma consolidated condensed financial
information is presented to illustrate the effects of certain adjustments to the
historical financial statements of Andover Togs, Inc.(the "Company") and Dobie
Industries, Inc. ("Dobie") that would result from the acquisition of Dobie and
is presented as if the acquisition had occurred on the first day of the earliest
period presented in the Pro Forma Consolidated Condensed Operating Data and on
the last day of the current fiscal year for the Pro Forma Consolidated Condensed
Balance Sheet Data.
The unaudited pro forma consolidated condensed financial data should be
read in conjunction with the notes thereto appearing elsewhere herein and also
in conjunction with the respective historical financial statements and notes
thereto of the Company, incorporated by reference herein and of Dobie appearing
elsewhere herein.
The unaudited pro forma consolidated condensed financial data is presented
for informational purposes only and does not purport to represent the actual
results and financial position had the proposed acquisition occurred on the
dates described above, nor is it necessarily indicative of the future operating
results or financial position of the Company after the acquisition.
The acquisition will be accounted for using the purchase method of
accounting. The pro forma adjustments reflected in the Pro Forma Consolidated
Condensed Financial Information are based upon information available as of the
date hereof, while the actual adjustments will ultimately be based upon
appraisals, evaluations and estimates of fair values. Accordingly, there can be
no assurance that the actual adjustments will not differ significantly from the
pro forma adjustments reflected in the Pro Forma Consolidated Condensed
Financial Information.
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Historical
------------------------------ Assets Not
Acquired(1)
Andover Dobie ----------- Pro Forma Pro
Nov. 30, 1994 Dec. 31, 1994 Adjusted Adjustments Forma
------------- ------------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .......... $ 584 $ 299 $ (299) $ 584 $ 584
Accounts receivable - Net .......... 12,659 12,659 12,659
Inventories ........................ 13,972 4,517 (717) 17,772 $ (100)(2) 17,672
Other .............................. 472 588 (588) 472 472
-------- -------- -------- -------- -------- --------
Total Current Assets ............ 27,687 5,404 (1,604) 31,487 (100) 31,387
PROPERTY, PLANT EQUIPMENT-
NET ................................ 8,554 922 (922) 8,554 100 (2) 8,654
OTHER ............................... 639 639 500 (2) 1,139
-------- -------- -------- -------- -------- --------
TOTAL ........................... $ 36,880 $ 6,326 $ (2,526) $ 40,680 $ 500 $ 41,180
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
LIABILITIES AND STOCKHOLDERS Liabilities
EQUITY Not
Assumed(1)
------------
CURRENT LIABILITIES:
Notes payable ...................... $ 2,400 $ 875 $ (875) $ 2,400 $ 3,800 (3) $ 6,200
Accounts payable, accrued
expenses and other
current liabilities .............. 7,681 5,130 (5,130) 7,681 225 (4) 7,906
Current portion of long-
term debt and obliga-
tions under capital
leases .......................... 1,520 1,520 1,520
--------- --------- --------- --------- --------- --------
Total Current Liabilities ....... 11,601 6,005 (6,005) 11,601 4,025 15,626
LONG-TERM DEBT AND OBLIGA-
TIONS UNDER CAPITAL LEASES .......... 5,238 5,238 5,238
OTHER ............................... 1,086 1,086 1,086
--------- --------- --------- --------- --------- --------
Total Liabilities ............... 17,925 6,005 (6,005) 17,925 4,025 21,950
--------- --------- --------- --------- --------- --------
(3,800)(5)
STOCKHOLDER EQUITY .................. 18,955 321 3,479 22,755 275 (6) 19,230
--------- --------- --------- --------- --------- --------
TOTAL ........................... $ 36,880 $ 6,326 $ (2,526) $ 40,680 $ 500 $41,180
--------- --------- --------- --------- --------- --------
--------- --------- --------- --------- --------- --------
</TABLE>
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED INCOME STATEMENT
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Historical
-----------------------------
Andover Dobie
Year Ended Year Ended Pro Forma
Nov. 30, 1994 Dec. 31, 1994 Adjustments Pro Forma
------------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
NET SALES .............. $ 73,767 $ 32,856 $ (4,706)(7) $ 101,917
(1,289)(8)
COST OF GOODS SOLD ..... 60,138 30,471 (4,455)(7) 84,865
---------- ---------- ---------- ----------
GROSS PROFIT ........... 13,629 2,385 1,038 17,052
(549)(7)
(2,706)(9)
SELLING GENERAL AND 5 (10)
ADMINISTRATIVE EXPENSES. 12,481 6,019 33 (11) 15,283
---------- ---------- ---------- ----------
OPERATING INCOME ....... 1,148 (3,634) 4,255 1,769
(498)(12)
INTEREST EXPENSE ....... 1,006 713 300 (13) 1,521
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAX
PROVISION .............. 142 (4,347) 4,453 248
INCOME TAX PROVISION ... 17 (1,435) 1,517 (14) 99
---------- ---------- ---------- ----------
NET INCOME ............. $ 125 $ (2,912) $ 2,936 $ 149
========== ========== ========== ==========
PER SHARE INFORMATION .. $.03
====
WEIGHTED AVERAGE SHARES. 4,458
==========
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
On February 27, 1995, the Company acquired the inventory, trade names,
customer orders and certain machinery and equipment of Dobie Industries, Inc.
("Dobie"), a manufacturer of children's and ladies apparel. The acquisition did
not include Dobie's licensed products or owned facilities. The purchase price
was approximately $3,800,000 in cash, subject to final adjustments; 100,000
shares of the Company's common stock, valued at $275,000; and a warrant to
purchase 50,000 additional shares of stock at $2.50 per share. The cash portion
of the purchase price was obtained by utilizing the Company's existing line of
credit.
Under certain conditions the holders of the 100,000 shares have the right
to require the Company to purchase the 100,000 shares at $5.00 per share at the
expiration of five years. Additionally, the purchase price includes contingent
payments of up to $4,000,000 over the next five years based on the Company's
consolidated future operations.
(1) To eliminate Dobie assets not acquired and liabilities not assumed.
(2) To adjust assets acquired to estimated fair value and to allocate the
excess of the purchase price over the fair value of assets acquired to cost in
excess of assets acquired.
(3) To reflect the borrowings under existing line of credit.
(4) To accrue estimated acquisition costs.
(5) To eliminate pre-acquisition equity.
(6) To reflect issuance of 100,000 common shares of Andover common stock at
fair market value.
(7) To eliminate net sales, cost of goods sold, and royalty expense related
to Dobie's licensed products that was not acquired.
(8) To eliminate costs and expenses relating to Dobie owned facilities not
acquired by the Company.
<TABLE>
<S> <C>
Payroll and related fringes $ 860,000
Insurance - real and personal property 164,000
Computer data lines 82,000
Maintenance - building, machinery and equipment 68,000
Depreciation - building, machinery and equipment 18,000
Other 97,000
------------
$ 1,289,000
------------
------------
</TABLE>
(9) To reflect the elimination of certain duplicate operating costs which
Andover's management has specifically identified will be eliminated after the
acquisition. The Company did not assume the lease for Dobie's executive office
and showroom, nor did it acquire Dobie's owned cutting, sewing and distribution
facilities.
<TABLE>
<S> <C>
Payroll and related fringes $1,536,000
Distribution center costs 354,000
Rent 208,000
Factoring charges 230,000
Outside computer services 122,000
Professional fees 100,000
Other 156,000
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$2,706,000
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-----------
</TABLE>
<PAGE>
(10) To reflect depreciation expense on assets adjusted to fair value over
10 years.
(11) To reflect amortization on cost in excess of assets acquired over 15
years.
(12) To eliminate interest expense related to repaid debt and interest
rates in excess of Andover's rates.
(13) To reflect interest expense on $3.8 million of borrowings at the
Company's 1994 weighted average interest rate.
(14) To reflect income taxes based on the Company's effective tax rate.
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
<S> <C> <C>
2(a) Asset Purchase Agreement dated February 14, 1995 among Dobie
Industries, Inc., Dobie Apparel Group, Inc. and Andover Togs,
Inc., incorporated by reference to Exhibit 10(y) to the
Company's Annual Report on Form 10-K for the fiscal year ended
November 30, 1994 (the "1994 10-K").
4(a) Common Stock Purchase Warrant, dated February 27, 1995, issued
to Dobie Industries, Inc. in respect of 50,000 shares of
Common Stock, incorporated by reference to Exhibit 4(d) to the
1994 10-K.
4(b) Registration Rights Agreement, dated February 27, 1995,
between Andover Togs, Inc. and Dobie Industries, Inc.,
incorporated by reference to Exhibit 4(c) to the 1994 10-K.
*23 Consent of BDO Seidman
</TABLE>
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* filed herewith.
<PAGE>
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Andover Togs, Inc.
New York, New York
We hereby consent to the incorporation by reference in the Registration
Statement No. 33-33963 of Andover Togs, Inc. on Form S-8 of our reports dated
January 20, 1995 (except for Note 1(a), which is dated February 22, 1995) and
February 11, 1994, relating to the financial statements of Dobie Industries,
Inc. for the years ended December 31, 1994, January 1, 1994 and December 26,
1992 appearing in this current report of Andover Togs, Inc. on Form 8-K/A dated
May 12, 1995. Our report on the financial statements for the year ended December
31, 1994 contains an explanatory paragraph regarding uncertainties as to the
amounts realizable from the disposition of assets and the settlement of
liabilities in liquidation.
/s/ BDO SEIDMAN
BDO SEIDMAN
New York, New York
May 10, 1995
