<PAGE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1997
COMMISSION FILE NUMBER 0-14674
ANDOVER TOGS, INC.
----------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-5677957
- ------------------------------- --------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1333 BROADWAY, NEW YORK, NEW YORK 10018
- --------------------------------------- --------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 244-0700
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
DURING THE PRECEDING TWELVE MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES NO X
---- ---
INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND
REPORTS REQUIRED TO BE FILED BY SECTION 12, 13, OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT. YES NO X
---- ---
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE. 4,470,815 SHARES OF COMMON
STOCK, $.10 PAR VALUE, OF THE REGISTRANT WERE OUTSTANDING AS OF DECEMBER 3,
1997.
<PAGE>
<PAGE>
Part I - FINANCIAL INFORMATION
- ------------------------------
Item 1. - Financial Statements:
ANDOVER TOGS, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
CONSOLIDATED BALANCE SHEETS
- ---------------------------
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
February 28, November 30,
ASSETS 1997 1996
- ------ ------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 4,977,000 $ 4,865,000
Accounts receivable, net 2,366,000 2,870,000
Inventories (Note 2) 2,720,000 3,617,000
Assets held for sale (Note 5) 183,000 2,804,000
Other current assets 254,000 241,000
------------ ------------
Total current assets 10,500,000 14,397,000
PROPERTY, PLANT AND EQUIPMENT -
Net 3,013,000 3,158,000
OTHER ASSETS 70,000 134,000
------------ ------------
TOTAL $ 13,583,000 $ 17,689,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 300,000 $ 861,000
Accrued expenses and other
current liabilities 2,461,000 2,482,000
Liabilities subject
to compromise 1,413,000 4,530,000
------------ -----------
Total current liabilities 4,174,000 7,873,000
OTHER LIABILITIES 131,000 129,000
LIABILITIES SUBJECT TO COMPROMISE 4,527,000 4,527,000
------------ ------------
Total liabilities 8,832,000 12,529,000
------------ ------------
STOCKHOLDERS' EQUITY
Common stock 466,000 466,000
Additional paid-in capital 11,154,000 11,154,000
Retained earnings (accumulated deficit) (6,229,000) (5,820,000)
Less treasury stock, at cost (640,000) (640,000)
------------- ------------
Total stockholders' equity 4,751,000 5,160,000
------------ ------------
TOTAL $ 13,583,000 $ 17,689,000
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements.
- 1 -
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<PAGE>
ANDOVER TOGS, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
NET SALES $ 4,006,000 $12,810,000
COST OF GOODS SOLD (Note 2) 3,296,000 11,424,000
----------- -----------
GROSS PROFIT 710,000 1,386,000
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 906,000 3,028,000
----------- -----------
LOSS BEFORE INTEREST AND RESTRUCTURING COST (196,000) (1,642,000)
RESTRUCTURING COST (Note 5) 266,000 --
----------- -----------
OPERATING LOSS (462,000) (1,642,000)
INTEREST (INCOME) EXPENSE, NET OF INTEREST
EXPENSE OF $8,000 IN 1997 (53,000) 391,000
------------ -----------
NET LOSS $ (409,000) $(2,033,000)
------------ -----------
------------ -----------
LOSS PER SHARE $(.09) $(.45)
------------ -----------
------------ -----------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 4,471,000 4,471,000
------------ -----------
------------ -----------
</TABLE>
See notes to consolidated financial statements.
- 2 -
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<PAGE>
ANDOVER TOGS, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Unaudited)
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<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings Treasury Stock
----------------- Paid-in (Accumulated ------------------
Shares Amount Capital Deficit) Shares Amount Total
------ ------- ----------- ------------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
FEBRUARY 28, 1997
- -----------------
BALANCE
DECEMBER 1, 1996 4,655,490 $466,000 $11,154,000 $(5,820,000) 184,675 $(640,000) $ 5,160,000
Net loss (409,000) (409,000)
--------- -------- ----------- ------------ -------- ---------- -----------
BALANCE
FEBRUARY 28, 1997 4,655,490 $466,000 $11,154,000 $(6,229,000) 184,675 $(640,000) $ 4,751,000
--------- -------- ----------- ------------ -------- ---------- -----------
--------- -------- ----------- ------------ -------- ---------- -----------
THREE MONTHS ENDED
FEBRUARY 29, 1996
- ------------------
BALANCE
DECEMBER 1, 1995 4,655,490 $466,000 $11,154,000 $ 3,992,000 184,675 $(640,000) $14,972,000
Net loss (2,033,000) (2,033,000)
--------- -------- ----------- ------------ -------- ---------- -----------
BALANCE
FEBRUARY 29 1996 4,655,990 $466,000 $11,154,000 $ 1,959,000 184,675 $(640,000) $12,939,000
--------- -------- ----------- ------------ -------- ---------- -----------
--------- -------- ----------- ------------ -------- ---------- -----------
</TABLE>
See notes to consolidated financial statements.
- 3 -
<PAGE>
<PAGE>
ANDOVER TOGS, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (409,000) $(2,033,000)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization 140,000 316,000
Gain on exchange of property, plant
and equipment (434,000) --
Loss on sale of asset 5,000
Changes in assets and liabilities:
Accounts receivable 504,000 (1,091,000)
Inventories 897,000 (150,000)
Other assets 51,000 (161,000)
Accounts payable (561,000) (4,612,000)
Accrued expenses and
other liabilities (19,000) (667,000)
Liabilities subject --
to compromise 2,792,000
----------- -----------
Net cash provided by (used in)
operating activities 174,000 (5,606,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -- (117,000)
------------ ----------
Net cash used in investing
activities -- (117,000)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in notes payable - bank 6,200,000
Repayments of term debt (62,000) (228,000)
------------- -----------
Net cash (used in) provided by
financing activities (62,000) 5,972,000
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NET INCREASE IN CASH 112,000 249,000
CASH, BEGINNING OF PERIOD 4,865,000 862,000
------------ ----------
CASH, END OF PERIOD $ 4,977,000 $1,111,000
------------ ----------
------------ ----------
SUPPLEMENTAL INFORMATION:
Cash paid during the period for:
Interest $ 5,000 $ 307,000
------------ ----------
------------ ----------
Income taxes $ 8,000 $ 3,000
------------ ----------
------------ ----------
SCHEDULE OF NON-CASH ACTIVITIES:
Exchange of property, plant, & equipment:
Release of Industrial Revenue Bond $ 3,055,000
Property, plant, equipment &
restricted cash 2,621,000
------------
Gain on exchange $ 434,000
------------
------------
See notes to consolidated financial statements.
</TABLE>
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<PAGE>
ANDOVER TOGS, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- -------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The consolidated financial statements as of February 28, 1997 and for
the three month period then ended have been prepared by the Company
without audit. In the opinion of management, all adjustments consisting
of only normal recurring adjustments necessary for a fair presentation
of the financial position of the Company, the results of its
operations, and cash flows have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended November 30, 1996.
The results of operations for the period ended February 28, 1997 are
not necessarily indicative of the operating results for the full year.
Per share information is computed by dividing the net loss amounts by
the weighted average number of shares of common stock outstanding
during each period.
2. INVENTORIES
Inventories consist of:
February 28, November 30,
1997 1996
------------ ------------
Raw materials $ 178,000 $ 765,000
Work in process 588,000 911,000
Finished goods 1,954,000 1,941,000
----------- -----------
$ 2,720,000 $ 3,617,000
----------- -----------
----------- -----------
Inventories and cost of goods sold at February 28, 1997 are determined
based upon the estimated gross profit method.
- 5 -
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<PAGE>
3. CHAPTER 11
During the year ended November 30, 1995, the Company incurred losses of
$4,279,000 and was unable to comply with certain covenants of its
existing debt agreements. Negotiations with the Company's lenders to
obtain waivers in connection with such defaults were unsuccessful.
Negotiations with such lenders and other prospective lenders to obtain
more permanent financing were also unsuccessful. As a result of the
ensuing severe liquidity crisis, on March 19, 1996, the Company filed
for protection under Chapter 11 of the United States Bankruptcy Code.
4. DIP FACILITY
On September 19, 1996 the debtors signed an agreement to obtain
debtor-in-possession financing from the CIT Group/Commercial Services,
Inc. for a two year $15 million revolving credit facility (see Note 6).
5. RESTRUCTURING COSTS
Restructuring costs represent estimated professional fees for the
period off-set by a gain of approximately $434,000 relating to the
exchange of approximately $2,621,000 of property, plant, equipment
(Scottsboro, Alabama facility) and restricted cash, previously included
in assets held for sale, for the release of claims amounting to
$3,055,000 previously included in liabilities subject to compromise,
pertaining to the Industrial Revenue Bond on the Scottsboro, Alabama
facility.
6. SUBSEQUENT EVENT
On May 12, 1997, the Company emerged from Chapter 11 of the Bankruptcy
Code and entered into a two year financing agreement with CIT/Group
Commercial Services, Inc. (the "CIT Facility"), replacing the facility
discussed, in Note 4 above. The CIT Facility provides for a $10,500,000
revolving credit line of which $3,000,000 is available for letters of
credit. Advances under the revolver bear interest at prime plus .85%.
The advances are based on 85% of eligible accounts receivable plus 50%
of eligible inventory and are collateralized by all of the Company's
assets other than its real estate. Under the CIT Facility, the Company
is prohibited, among other restrictions, from pledging assets, creating
additional indebtedness or paying dividends. In addition, the Company
is required to comply with certain financial covenants, including
minimum levels of EBITDA, working capital, tangible net worth and
limits on capital expenditures. The Company has not borrowed on the CIT
Facility.
- 6 -
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<PAGE>
Item 2. -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On March 19, 1996, the Company filed for bankruptcy under Chapter 11 of the
Bankruptcy Code. On May 12, 1997, the Company emerged from Chapter 11. During
the bankruptcy, the Company continued to operate as a debtor-in-possession.
RESULTS OF OPERATIONS
Three Months Ended February 28, 1997 vs 1996
Net sales for the three months ended February 28, 1997 (the "`97 Quarter") were
$4,006,000 a decrease of $8,804,000 or 68.7% as compared with net sales of
$12,810,000 in the comparable period in 1996 (the "'96 Quarter"). The decrease
is attributable to a number of factors. The Company discontinued its import and
big boys divisions, leaving it with girls' sizes infant through 14 and boys
sizes infant through toddler. The Company discontinued its import business
because it was unable to finance letters of credit. The Company's resulting
inability to meet orders for imported merchandise affected the Company's
creditability, and the Company therefore lost programs for merchandise
manufactured domestically and in the Dominican Republic. Import division sales
decreased approximately $3,950,000 in the `97 Quarter compared to the `96
Quarter. Dobie (a division discontinued in 1995) and big boys division sales
decreased $930,000 and $910,000, respectively, in the `97 Quarter compared to
the `96 Quarter. The remaining decrease represents the deterioration of the
Company's customer base as many customers lost confidence in the Company's
ability to deliver goods due to the bankruptcy proceedings.
Gross profit as a percentage of net sales increased to 17.7% from 10.8% in the
`96 Quarter. The lower margins in the `96 Quarter were a reflection of large
sales and markdown allowances to close out inventory in the discontinued
divisions and the closing of inefficient manufacturing facilities.
Selling, general and administrative expenses for the `97 Quarter were $906,000
or 22.6% of sales as compared to $3,028,000 or 23.6% of sales for the `96
Quarter. The decrease in expenses was attributable to reduced salaries and
fringes related to terminated employees, professional fees, depreciation and
amortization and travel and entertainment.
Restructuring costs represent estimated professional fees, offset by a gain on
the exchange of assets against liabilities subject to compromise on the
Scottsboro, Alabama facility. See Note 5 of Notes to Consolidated Financial
Statements.
Interest expense decreased $383,000 in the `97 Quarter compared
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<PAGE>
to the `96 Quarter. The decrease was due to the payment of all bank debt in
fiscal 1996 and the release of interest payments relating to the Industrial
Revenue Bond on the Scottsboro, Alabama facility subsequent to filing
bankruptcy.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at February 28, 1997 decreased $198,000 to
$6,326,000 as compared to $6,524,000 at November 30, 1996, due primarily to the
Company's net loss for the period.
On September 19, 1996 the debtors signed an agreement to obtain
debtor-in-possession financing from the CIT Group/Commercial Services, Inc. for
a two year $15 million revolving credit facility. This facility replaced the
Company's prior $11 million credit facility which was due to terminate in
December 1996.
On May 12, 1997, the Company emerged from Chapter 11 of the Bankruptcy Code and
entered into a two year financing agreement with CIT/Group Commercial Services,
Inc. (The "CIT Facility"), replacing the facility discussed in Note 4. The CIT
Facility provides for a $10,500,000 revolving credit line of which $3,000,000 is
available for letters of credit. See Note 6 to the Consolidated Financial
Statements.
CURRENT UNCERTAINTIES
The Company anticipates a substantial decrease in volume for fiscal 1997 as
compared with fiscal 1996. While the Company's overhead has been reduced in
anticipation of a lower sales volume, the Company continues to incur
restructuring costs in 1997 relating to the bankruptcy and losses from
operations. The Company, therefore, anticipates that it will report a loss for
fiscal 1997. One customer currently accounts for approximately 83% of the
Company's orders. Accordingly, the resumption of stable and profitable
operations will require the Company to both increase its total sales and expand
its customer base.
FORWARD LOOKING STATEMENTS
Statements in this report include forward-looking statements that involve a
number of risks and uncertainties. These risks include, among others, the
company's sharp reduction in sales, narrow customer base and the other risks
detailed from time to time in the Company's SEC reports. The Company's actual
results could differ materially from those anticipated in the forward-looking
statements.
Item 3. - Quantitative and Qualitative Disclosures About
Market Risk.
Not applicable.
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<PAGE>
<PAGE>
PART II - OTHER INFORMATION
-----------------
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
Exhibit No. Description
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27 Financial Data Schedule
(b) Reports on Form 8-K:
During the quarter for which this report is filed, the Company filed a
report on Form 8-K dated January 31, 1997 reporting that the Company had filed a
Joint Plan of Reorganization in the bankruptcy court.
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<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, thereunto duly authorized.
ANDOVER TOGS, INC.
(Registrant)
Date December 5, 1997 By /s/ William L. Cohen
------------------------- ------------------------
William L. Cohen
Chairman of the Board and
President
Date December 5, 1997 By /s/ Alan Kanis
------------------------- -------------------------
Alan Kanis
Treasurer and Chief Financial
and Accounting Officer
<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
27 Financial Data Schedule.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-1-1996
<PERIOD-END> FEB-28-1997
<CASH> 4,977,000
<SECURITIES> 0
<RECEIVABLES> 2,666,000
<ALLOWANCES> 300,000
<INVENTORY> 2,720,000
<CURRENT-ASSETS> 10,500,000
<PP&E> 9,033,000
<DEPRECIATION> 6,020,000
<TOTAL-ASSETS> 13,583,000
<CURRENT-LIABILITIES> 4,174,000
<BONDS> 0
<COMMON> 466,000
0
0
<OTHER-SE> 11,154,000
<TOTAL-LIABILITY-AND-EQUITY> 13,583,000
<SALES> 4,006,000
<TOTAL-REVENUES> 4,006,000
<CGS> 3,296,000
<TOTAL-COSTS> 3,296,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (53,000)
<INCOME-PRETAX> (409,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (409,000)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> 0
</TABLE>
