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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 August 31, 1996
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Commission file number 0-14674
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ANDOVER TOGS, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 13-5677957
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1333 Broadway, New York, New York 10018
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 244-0700
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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 22,
1997.
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PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements.
ANDOVER TOGS, INC. AND SUBSIDIARIES
(Debtor-In-Possession)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
- --------------------------------------------------------------------------------
August 31, November 30,
1996 1995
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ASSETS
CURRENT ASSETS:
Cash $ 1,975,000 $ 862,000
Accounts receivable - net 3,970,000 9,696,000
Inventories (Note 3) 5,163,000 13,291,000
Refundable income taxes -- 920,000
Other current assets 360,000 258,000
----------- -----------
Total current assets 11,468,000 25,027,000
PROPERTY, PLANT AND EQUIPMENT - Net 6,822,000 8,229,000
RESTRICTED FUNDS 360,000 360,000
OTHER ASSETS 173,000 365,000
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TOTAL $18,823,000 $33,981,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes Payable - bank $ -- $ 6,200,000
Accounts payable 366,000 4,612,000
Accrued expenses and other current
liabilities 2,034,000 2,034,000
Current portion of long-term debt
and obligations under capital leases -- 2,019,000
----------- -----------
Total current liabilities 2,400,000 14,865,000
LONG TERM DEBT AND LIABILITIES
SUBJECT TO COMPROMISE (Note 2) 7,746,000 4,002,000
OTHER LIABILITIES -- 142,000
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Total liabilities 10,146,000 19,009,000
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STOCKHOLDERS' EQUITY:
Common stock 466,000 466,000
Additional paid-in capital 11,154,000 11,154,000
Retained earnings (accumulated deficit) (2,303,000) 3,992,000
Less treasury stock, at cost (640,000) (640,000)
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Total stockholders' equity 8,677,000 14,972,000
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TOTAL $18,823,000 $33,981,000
=========== ===========
See notes to consolidated financial statements.
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ANDOVER TOGS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED AUGUST 31, 1996 AND 1995
(Unaudited)
- --------------------------------------------------------------------------------
1996 1995
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NET SALES $35,934,000 $58,383,000
COST OF GOODS SOLD (Note 3) 31,615,000 48,735,000
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GROSS PROFIT 4,319,000 9,648,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 6,847,000 10,312,000
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LOSS BEFORE INTEREST AND RESTRUCTURING COSTS (2,528,000) (664,000)
RESTRUCTURING COST (Note 6) 2,848,000 --
----------- -----------
OPERATING LOSS (5,376,000) (664,000)
INTEREST EXPENSE, NET OF INTEREST INCOME
OF $5,000 IN 1996 919,000 955,000
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LOSS BEFORE INCOME TAX BENEFIT (6,295,000) (1,619,000)
INCOME TAX BENEFIT -- (535,000)
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NET LOSS $(6,295,000) (1,084,000)
=========== ===========
LOSS PER SHARE $(1.41) $(.24)
====== =====
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,471,000 4,426,000
========= =========
See notes to consolidated financial statements.
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ANDOVER TOGS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, 1996 AND 1995
(Unaudited)
- --------------------------------------------------------------------------------
1996 1995
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NET SALES $ 9,506,000 $24,616,000
COST OF GOODS SOLD (Note 3) 7,764,000 21,308,000
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GROSS PROFIT 1,742,000 3,308,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,448,000 3,566,000
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INCOME (LOSS) BEFORE INTEREST
AND RESTRUCTURING COST 294,000 (258,000)
RESTRUCTURING COST (Note 6) 2,248,000 --
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OPERATING LOSS (1,954,000) (258,000)
INTEREST EXPENSE, NET OF INTEREST INCOME
OF $3,000 IN 1996 17,000 480,000
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LOSS BEFORE INCOME TAX BENEFIT (1,971,000) (738,000)
INCOME TAX BENEFIT -- (252,000)
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NET LOSS $(1,971,000) $ (486,000)
=========== ===========
LOSS PER SHARE $(.44) $(.11)
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WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,471,000 4,485,000
========= =========
See notes to consolidated financial statements.
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ANDOVER TOGS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED AUGUST 31, 1996 AND 1995
(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>
NINE MONTHS ENDED
AUGUST 31, 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 (6,295,000) (6,295,000)
--------- -------- ----------- ----------- ------- --------- -----------
BALANCE
AUGUST 31, 1996 4,655,490 $466,000 $11,154,000 (2,303,000) 184,675 $(640,000) $ 8,677,000
========= ======== =========== ========== ======= ========= ===========
NINE MONTHS ENDED
AUGUST 31, 1995
BALANCE
DECEMBER 1, 1994 4,542,990 $454,000 $10,870,000 $8,271,000 184,675 $(640,000) $18,955,000
Issuance of Stock
(Note 5) 100,000 10,000 265,000 275,000
Net loss (1,084,000) (1,084,000)
--------- -------- ----------- ----------- ------- --------- -----------
BALANCE,
AUGUST 31, 1995 4,642,990 $464,000 $11,135,000 $ 7,187,000 184,675 $(640,000) $18,146,000
========= ======== =========== ========== ======= ========= ===========
</TABLE>
See notes to consolidated financial statements.
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ANDOVER TOGS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED AUGUST 31, 1996 AND 1995
(Unaudited)
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1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(6,295,000) $(1,084,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 918,000 1,011,000
Write-down and sale of fixed assets 630,000 --
Deferred income taxes -- (101,000)
Changes in assets and liabilities
net of acquisition:
Accounts receivable 5,726,000 (2,547,000)
Inventories 8,128,000 (3,019,000)
Other assets 1,010,000 (810,000)
Accounts payable (4,246,000) 1,216,000
Accrued expenses and other liabilities (142,000) (414,000)
Liabilities subject to compromise 3,692,000 --
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Net cash provided by (used in)
operating activities 9,421,000 (5,748,000)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition -- (3,938,000)
Capital expenditures-net (141,000) (338,000)
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Net cash used in investing activities (141,000) (4,276,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in notes payable - bank (6,200,000) 11,500,000
Repayments of debt (1,967,000) (1,155,000)
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Net cash (used in) provided by
financing activities (8,167,000) 10,345,000
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NET INCREASE IN CASH 1,113,000 321,000
CASH, BEGINNING OF PERIOD 862,000 584,000
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CASH, END OF PERIOD $ 1,975,000 $ 905,000
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SUPPLEMENTAL INFORMATION:
Cash paid during the period for:
Interest $ 838,000 $ 810,000
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Income taxes $ 10,000 $ 170,000
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SCHEDULE OF NON CASH INVESTING ACTIVITY:
Acquisition:
Fair value of assets acquired $ 4,213,000
Common Stock issued 275,000
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Total cash paid for the net assets acquired $ 3,938,000
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See notes to consolidated financial statements
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ANDOVER TOGS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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1. BASIS OF PRESENTATION
The consolidated financial statements as of August 31, 1996 and for the
nine month period 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 Reports on Form 10-K for
the years ended November 30, 1995 and 1996.
The results of operations for the period ended August 31, 1996 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. CHAPTER 11
During the year ended November 30, 1995, the Company incurred losses of
$4,279,000 and was unable to comply with certain financial covenants of its
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 (the "Bankruptcy Code"). As a result of the
filing, the Company recorded all liabilities prior to the filing date as
subject to compromise.
3. INVENTORIES
Inventories consist of:
August 31, November 30,
1996 1995
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Raw materials $ 787,000 $ 2,995,000
Work in process 881,000 3,253,000
Finished goods 3,495,000 7,043,000
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$5,163,000 $13,291,000
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Inventories and cost of goods sold at August 31, 1996 are determined based
upon the estimated gross profit method.
4. DIP FACILITY
On March 20, 1996, the Company obtained debtor-in-possession financing with
its existing lender for $11 million due to expire in December 1996. (See
Note 7 below.)
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5. ACQUISITION
On February 27, 1995 the Company acquired the inventory, trade names and
customer orders of Dobie Industries, Inc. ("Dobie"), a manufacturer of
children's and women's apparel. The purchase price was approximately
$3,900,000 in cash, including acquisition fees, 112,500 shares of the
Company's common stock and a warrant to purchase 50,000 additional shares
of stock at $2.50 per share. The acquisition was accounted for as a
purchase and gave rise to $832,000 of cost in excess of net assets
acquired. In November 1995, based on an evaluation of Dobie's projected
future operations, management wrote off the cost in excess of net assets
acquired.
6. RESTRUCTURING COST
Restructuring cost represents professional fees for the period March 20,
1996 to August 31, 1996. Also included is the write down of leasehold
improvements and accrued severance pay.
7. SUBSEQUENT EVENTS
Effective September 15, 1996, the Company negotiated a new lease for its
executive office and showroom located in New York. The new lease expires
December 31, 2001, and provides for minimum annual rental payments ranging
from approximately $224,680 to $267,104.
On September 19, 1996, the Company obtained 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 existing
$11 million credit facility which was due to terminate in December 1996.
(See Note 4 above.)
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
above. The CIT Facility provides for a $10,500,000 revolving credit line of
which $3,000,000 is available for letters of credit.
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 August 31, 1996 vs. 1995
Net sales for the three months ended August 31, 1996 (the "`96 Quarter") were
$9,506,000, a decrease of $15,110,000 or 61.4% from the net sales of $24,616,000
in the comparable period in 1995 (the "`95 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
$2,135,000 in the `96 Quarter compared to the `95 Quarter. Dobie (a division
discontinued in 1995) and big boys
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divisions' sales decreased $3,910,000 and $1,700,000, respectively, in the `96
Quarter compared to the `95 Quarter. The remaining difference 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 18.3% from 13.4% in the
`95 Quarter. Margins were lower in the `95 Quarter, since the Company accepted
business at lower margins in order to keep the factories busy and to maintain
market share. In the first six months of fiscal 1996, the Company attempted to
reduce further margin erosion by terminating employees and closing inefficient
manufacturing facilities. These steps had the effect of reducing the cost of
sales in the '96 Quarter.
Selling, general and administrative expenses for the `96 Quarter were $1,448,000
or 15.2% of sales as compared to $3,566,000 or 14.5% of sales in the `95 Quarter
The decrease in expenses was attributable to reduced salaries and fringes
related to terminated employees, design expenses, travel and entertainment.
Restructuring cost comprises professional fees, write down of leasehold
improvements and accrued severance pay relating to the bankruptcy proceedings.
Interest expense decreased $460,000 in the `96 Quarter compared to the `95
Quarter. The decrease was due to reduced short term borrowings as a result of
reduced inventory levels, and the release of interest payments relating to the
Industrial Revenue Bond on the Scottsboro, Alabama facility.
Nine Months Ended August 31, 1996 vs. 1995
Net sales for the nine months ended August 31, 1996 (the "`96 Period") were
$35,934,000, a decrease of $22,449,000 or 38.5% from the net sales of
$58,383,000 in the comparable period in 1995 (the "`95 Period"). The decrease in
sales volume is attributable to the same factors as indicated above. Import
division sales decreased approximately $2,685,000, in the `96 Period compared to
the `95 Period. Dobie and big boys divisions' sales decreased $5,860,000 and
$2,590,000, respectively, in the `96 Period compared to the `95 Period. The
remaining decrease represents the deterioration of the Company's customer base
as described above.
Gross profit as a percentage of net sales decreased to 12.0% from 16.5% in the
`95 Period. The lower margins in the `96 Period were a reflection of large sales
and markdown allowances to close out inventory in the discontinued divisions and
the closing of inefficient manufacturing facilities that occurred primarily in
the six months ended May 31, 1996.
Selling, general and administrative expenses for the `96 Period were $6,847,000
or 19.1% of sales as compared to $10,312,000 or 17.7% for the `95 Period. The
decrease in expenses is attributable to similar reasons as those noted above
with respect to the three month period.
Interest expense decreased $31,000 in the `96 Period compared to the `95 Period.
The decrease is due to lower short term borrowing in the `96 Period and the
release of interest payments relating to the Industrial Revenue Bond on the
Scottsboro, Alabama facility in the `96 Period, offset by a $250,000 facility
fee charge.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at August 31, 1996 decreased $1,094,000 to
$9,068,000 compared to $10,162,000 at November 30, 1995, due primarily to the
loss for the '96 Period before depreciation, amortization and write-down of
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fixed assets, net of the reclassification of current liabilities to long term
debt and liabilities subject to compromise.
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"). 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.
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.
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 one Current
Report on Form 8-K, dated May 28, 1996, to report that the Registrant had
entered into certain debtor-in-possession financing arrangements.
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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.
Date December 22, 1997 By /s/ William L. Cohen
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William L. Cohen
Chairman of the Board and
Chief Executive Officer
Date December 22, 1997 By /s/ Alan Kanis
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Alan Kanis
Treasurer and Chief Financial
and Accounting Officer
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EXHIBIT INDEX
Exhibit No. Description
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27 Financial Data Schedule
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> AUG-31-1996
<CASH> 1,975,000
<SECURITIES> 0
<RECEIVABLES> 4,270,000
<ALLOWANCES> 300,000
<INVENTORY> 5,163,000
<CURRENT-ASSETS> 11,468,000
<PP&E> 18,529,000
<DEPRECIATION> 11,707,000
<TOTAL-ASSETS> 18,823,000
<CURRENT-LIABILITIES> 2,400,000
<BONDS> 00
<COMMON> 466,000
0
0
<OTHER-SE> 11,154,000
<TOTAL-LIABILITY-AND-EQUITY> 18,823,000
<SALES> 35,934,000
<TOTAL-REVENUES> 35,934,000
<CGS> 31,615,000
<TOTAL-COSTS> 31,615,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 919,000
<INCOME-PRETAX> (6,295,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,295,000)
<EPS-PRIMARY> (1.41)
<EPS-DILUTED> (1.41)
</TABLE>
