<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): August 9, 1996
STARTER CORPORATION
(Exact Name of Registrant as Specified in Charter)
DELAWARE 1-11812 06-0872266
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
370 JAMES STREET, NEW HAVEN, CONNECTICUT 06513
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (203) 781-4000
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On August 9, 1996, Starter Galt, Inc. (the "Buyer"), a wholly-owned
subsidiary of Starter Corporation (the "Registrant"), purchased substantially
all of the assets of Galt Sand Company and its wholly-owned subsidiaries, Galt
Shop Company, Danaggers Company and Galt Sand Canada, Inc. (collectively, the
"Sellers"). In consideration for the sale and delivery of the purchased assets,
the Buyer issued to the Sellers $8,000,000 in common stock of the Registrant,
$.01 par value per share, and assumed approximately $18,000,000 of the Sellers'
liabilities. Pursuant to the terms of the acquisition, 20% of the $8,000,000
issued in common stock of the Registrant is being held in escrow pending the
final settlement of the purchase price. Accordingly, the pro forma financial
statements have been prepared assuming a purchase price of $6,400,000. The
assumption of a portion of the liabilities was funded by a loan from First Union
Bank of Connecticut in the amount of $13,942,000.
The Sellers conduct a wholesale apparel business and are engaged in the
operation of certain factory outlet stores. The Buyer intends to continue the
existing operations of the Sellers without any material changes.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
7(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
1. Audited consolidated financial statements of Galt Sand Company and
Subsidiary as of December 31, 1995, which include the following:
a. Consolidated Balance Sheet;
b. Consolidated Statement of Operations;
c. Consolidated Statement of Changes in Stockholders' Equity;
d. Consolidated Statement of Cash Flows; and
e. Notes to the Audited Consolidated Financial Statements.
2. Unaudited consolidated financial statements of Galt Sand Company as of
June 30, 1996, which include the following:
a. Consolidated Balance Sheets;
b. Consolidated Statements of Operations;
c. Consolidated Statements of Cash Flows; and
d. Notes to the Unaudited Consolidated Financial Statements.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Galt Sand Company and Subsidiary:
We have audited the accompanying consolidated balance sheet of Galt Sand Company
and Subsidiary (Company) as of December 31, 1995 and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
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 audit provides a reasonable basis for our opinion.
In our opinion, the 1995 consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1995, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Des Moines, Iowa
January 26, 1996, except for Notes 4 and 8,
as to which the date is May 17, 1996
<PAGE>
GALT SAND COMPANY AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
CURRENT ASSETS: CURRENT LIABILITIES:
Cash and cash equivalents $ 392,150 Accounts payable $ 998,788
Accounts receivable, net 3,444,582 Accrued expenses, including amount to
Income tax refund receivable 1,155,428 stockholders of $43,911 1,609,286
Inventories 20,406,430 Note payable 16,165,000
Deferred income taxes 59,824 Current portion of capital lease obligations 684,995
Other current assets 328,795 --------------
-------------- Total current liabilities 19,458,069
Total current assets 25,787,209
--------------
LONG-TERM PORTION OF CAPITAL
PROPERTY: LEASE OBLIGATIONS 520,413
--------------
Furniture and fixtures 921,736
Machinery and equipment 1,546,811 Total liabilities 19,978,482
Machinery and equipment under capital leases 2,181,191 --------------
Vehicles 39,486 STOCKHOLDERS' EQUITY:
Leasehold improvements 2,165,244 Common stock, $10 par value; 100,000 authorized
-------------- shares; 9,179 issued and outstanding shares 91,790
6,854,468
Accumulated depreciation, including accumulated Additional paid-in capital 76,560
amortization of $803,423 on machinery and
equipment under capital leases (4,159,010) Retained earnings 8,808,722
-------------- --------------
Property, net 2,695,458 Total stockholders' equity 8,977,072
-------------- --------------
OTHER ASSETS:
Deferred income taxes 333,007
Intangibles, at amortized cost 45,758
Deposits 94,122
--------------
Total other assets 472,887
--------------
TOTAL LIABILITIES AND
TOTAL ASSETS $ 28,955,554 STOCKHOLDERS' EQUITY $ 28,955,554
-------------- --------------
-------------- --------------
See notes to consolidated financial statements.
</TABLE>
<PAGE>
GALT SAND COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
- -------------------------------------------------------------
NET SALES $ 55,169,130
COST OF GOODS SOLD 43,815,376
-------------
GROSS PROFIT 11,353,754
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 12,518,638
-------------
OPERATING LOSS (1,164,884)
-------------
OTHER EXPENSE:
Interest expense (1,953,676)
Factoring expense (346,063)
-------------
Total other expense (2,299,739)
-------------
LOSS BEFORE INCOME TAXES (3,464,623)
INCOME TAX BENEFIT 1,259,015
-------------
NET LOSS $ (2,205,608)
-------------
-------------
See notes to consolidated financial statements.
<PAGE>
GALT SAND COMPANY AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------------------------
Additional Total
Common Paid-In Retained Stockholders'
Stock Capital Earnings Equity
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $ 91,790 $ 76,560 $ 11,014,330 $ 11,182,680
Net loss (2,205,608) (2,205,608)
-------- ----------- ------------- -------------
BALANCE, DECEMBER 31, 1995 $ 91,790 $ 76,560 $ 8,808,722 $ 8,977,072
-------- ----------- ------------- -------------
-------- ----------- ------------- -------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
GALT SAND COMPANY AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
- ---------------------------------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,205,608)
-------------
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 908,881
Loss on disposal of property 315,191
Deferred income taxes (96,831)
Changes in:
Accounts receivable (1,954,707)
Income tax refund receivable (925,628)
Inventories (630,614)
Other current assets 9,710
Accounts payable 452,054
Accrued expenses (286,200)
-------------
Total adjustments (2,208,144)
-------------
Net cash used in operating activities (4,413,752)
-------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property (113,607)
Proceeds from sale of property 500
Decrease in deposits 10,205
-------------
Net cash used in investing activities (102,902)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable 16,666,000
Payments on note payable (11,324,000)
Principal payments on capital lease obligations (944,174)
-------------
Net cash provided by financing activities 4,397,826
-------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (118,828)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 510,978
-------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 392,150
-------------
-------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (refunded) during the year for:
Interest $ 1,853,747
-------------
-------------
Income taxes $ (251,762)
-------------
-------------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Capital lease obligations incurred for equipment $ 224,278
-------------
-------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
GALT SAND COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
- -------------------------------------------------------------------------------
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - Galt Sand Company and Subsidiary (Company)
operates an apparel wholesale business and distributes its products to
retailers throughout the United States. The Company also operates 19
factory outlet stores in 13 states.
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of Galt Sand Company and its wholly-owned
subsidiaries, Galt Shop Company, Danaggers Company and Galt Sand Canada,
Inc. (Danaggers Company and Galt Sand Canada, Inc. are inactive
subsidiaries). All significant intercompany accounts and transactions have
been eliminated in consolidation.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash Equivalents - For financial statement purposes, the Company considers
all highly liquid debt instruments with a maturity of three months or less
from the date of purchase to be cash equivalents.
Inventories - Inventories are carried at the lower of cost or market using
the first-in, first-out (FIFO) method.
Property - Property is stated at historical cost. For financial statement
purposes, depreciation is computed primarily by accelerated methods over
the estimated useful lives ranging from three to five years. For income tax
purposes, accelerated methods are also used, but the estimated useful lives
range from five to 31 years.
Amortization of equipment under capital lease is computed by the
straight-line method over five years.
Intangibles - Intangibles consist primarily of trademarks and are stated at
cost less accumulated amortization computed by the straight-line method
over their estimated useful lives of ten years.
Fair Value Disclosures - The carrying values of all financial assets and
liabilities approximate their fair values because of the short-term
maturity of those instruments. The carrying value of capital lease
obligations approximates its fair value based on management's estimate of
lease rates currently available to companies of comparable risk for leases
of similar duration.
<PAGE>
2. ACCOUNTS RECEIVABLE
Accounts receivable as of December 31, 1995 consisted of the following:
Due from factor $ 3,230,495
Nonfactored (net of allowance for doubtful accounts
of $14,145) 214,087
-------------
$ 3,444,582
-------------
-------------
The Company has entered into an agreement with a bank to factor eligible
accounts receivable. The Company pays a factoring service charge of .8% of
all monthly factored receivables and interest charges based upon the
difference between the total outstanding receivables of the factor less the
amount due from the factor. Under the agreement 10% of all unpaid accounts
purchased by the factor shall be held as a reserve against which the factor
may at any time charge against any liabilities the Company owes the factor.
At December 31, 1995, the 10% reserve was $622,462. Receivables factored
with recourse totaled approximately $57,130 at December 31, 1995. Interest
is computed at prime rate plus .25% (8.75% at December 31, 1995). Certain
stockholders of the Company have personally guaranteed all liabilities to
the factor and the factor also has first lien on all receivables of the
Company. This agreement is cancelable by either party upon 30 days notice.
3. INVENTORIES
Inventories as of December 31, 1995 were composed of the following:
Raw materials $ 14,857,446
Finished goods 5,211,913
Manufacturing supplies 337,071
-------------
$ 20,406,430
-------------
-------------
4. NOTES PAYABLE
As of December 31, 1995, the Company had a line of credit under a variable
balance promissory note with a bank under which the Company could borrow up
to 65% of its inventory value up to a maximum allowable amount of $25
million. The outstanding balance of the note bore interest at the bank's
prime rate plus .25% (8.75% at December 31, 1995) and the note matured
January 31, 1996. The note was secured by substantially all assets of the
Company and was guaranteed by certain stockholders of the Company. There
was an additional $799,809 available to be borrowed under this agreement at
December 31, 1995. The Company was not in compliance with various covenants
of the underlying loan agreement at December 31, 1995.
On May 1, 1996 the Company entered into a new revolving loan and security
agreement with a bank. Under this new agreement the Company can borrow up
to the lesser of (a) $20 million or (b) up to 50% of the holdback amount on
factored accounts receivable (not to exceed $500,000, plus up to 65% of
qualified inventory value; plus up to $1.25 million; plus up to $2 million
for commercial letters of credit. The amount available against qualified
inventory reduces to $12.5 million at December 31, 1996, at which time a
new limit is established by the lender. The $1.25 million available reduces
periodically through December 1, 1997, at which date it reaches zero.
<PAGE>
The interest rate under the new agreement is 1.5% above prime, except the
rate on the $1.25 million is 2% above prime. The loan is secured by a
general security interest in substantially all assets of the Company. In
addition, two officers of the Company have personally guaranteed $2 million
and $1 million, respectively, of the outstanding borrowings under the
agreement. The Company is obligated to operate under this agreement for two
years. The bank may terminate the agreement at any time upon providing 90
days written notice.
5. LEASES
The Company leases certain machinery and equipment under capital leases.
The leases are for a four-year period; however, at the end of the third
year, the Company can purchase the assets under the lease for 20% of their
original cost or the then fair market value (as defined), whichever is
greater. The leases have been personally guaranteed by certain stockholders
of the Company. The Company also leases several buildings and certain
machinery and equipment under noncancelable agreements (operating leases)
which expire at various times through 2000. These agreements require
various monthly rentals and, under certain of these agreements, the Company
is required to pay utilities, maintenance and a portion of the property
taxes.
At December 31, 1995, minimum rental payments on capital lease obligations
and noncancelable operating leases were as follows:
NONCANCELABLE
OPERATING LEASES
--------------------------
Capital Production Outlet
Leases Facilities Stores
Year ending December 31:
1996 $ 757,531 $ 779,693 $ 984,892
1997 434,395 738,862 779,750
1998 113,854 528,000
1999 312,026
2000 71,565
----------- ---------- ----------
1,305,780 1,518,555 2,676,233
Less amount representing
interest 100,372
----------- ---------- ----------
$ 1,205,408 $1,518,555 $2,676,233
----------- ---------- ----------
The total rental expense for the year ended December 31, 1995 was
$2,585,668.
6. INCOME TAXES
The components of income tax benefit are as follows for the year ended
December 31, 1995:
Current $ 1,162,184
Deferred 96,831
-----------
Total $ 1,259,015
-----------
-----------
<PAGE>
The income tax benefit differs from the benefit computed using the federal
statutory rate primarily as a result of state income taxes, net of federal
taxes and changes in estimates upon final filing of prior year returns.
Deferred income taxes result from the following as of December 31, 1995:
CURRENT NONCURRENT
Deferred tax assets:
Depreciation $ 396,489
Vacation $ 50,120
Other 22,572 8,474
Deferred tax liabilities:
Capital leases (71,956)
Other (12,868)
-------- ---------
Net deferred tax assets $ 59,824 $ 333,007
-------- ---------
-------- ---------
Deferred income taxes are provided on temporary differences between
financial reporting and income tax bases of accounting. The differences
arise primarily due to the nondeductibility of certain accruals for income
tax purposes until paid, differing methods of depreciating assets and
deducting bad debt losses and the treatment of certain capital leases.
7. BENEFIT PLAN
The Company provides a 401(k) profit sharing plan for substantially all
full-time employees who have been employed for one year. The plan allows
eligible employees to make contributions up to 15% of their compensation.
Under the plan, the Company may contribute to the plan an amount of
matching contributions which is determined at the discretion of the Board
of Directors. For the year ended December 31, 1995, the Company incurred
expenses of approximately $20,000 for matching contributions to the plan.
8. SUBSEQUENT EVENTS
On May 1, 1996 the Company entered into a new revolving loan and security
agreement as described in Note 4.
On May 17, 1996 the Board of Directors and stockholders of the Company
approved an increase in the number of authorized shares to 1,500,000, a 100
for 1 common stock split, a reduction in the par value of common stock from
$10/share to $.10/share, and a new incentive stock option plan with 200,000
common shares (on a post-split basis) authorized for issuance under this
plan.
* * * * * *
<PAGE>
GALT SAND COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995 JUNE 30, 1995
--------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $(1,189) $ 392 $(1,545)
Accounts receivable 437 3,446 2,242
Inventories 17,821 20,406 26,167
Prepaid Expenses and other assets 609 1,484 649
Deferred income taxes 60 1,219
-------------------------------------------
TOTAL CURRENT ASSETS 17,678 25,788 28,732
PROPERTY, PLANT AND EQUIPMENT:
Plant and equipment 6,805 6,854 6,826
Less accumulated depreciation (4,591) (4,159) (3,703)
-------------------------------------------
2,214 2,695 3,123
OTHER ASSETS:
Other assets (primarily intangibles) 46 140 50
Deferred income tax - 333 250
-------------------------------------------
TOTAL OTHER ASSETS 46 473 300
-------------------------------------------
TOTAL ASSETS $19,938 $28,956 $32,155
-------------------------------------------
-------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
GALT SAND COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995 JUNE 30, 1995
-------------------------------------------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks $12,259 $16,165 $18,024
Accounts payable 1,441 999 3,155
Accrued licensing fees 15 296
Accrued expenses 614 1,609 379
Current portion of long-term debt 486 685 861
--------------------------------------------
TOTAL CURRENT LIABILITIES 14,815 19,458 22,715
LONG-TERM DEBT, LESS CURRENT PORTION 369 520 653
--------------------------------------------
TOTAL LIABILITIES 15,184 19,978 23,368
STOCKHOLDERS' EQUITY:
Common stock 92 92 92
Additional paid in capital 77 77 77
Retained earnings 4,585 8,809 8,618
--------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 4,754 8,978 8,787
--------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $19,938 $28,956 $32,155
--------------------------------------------
--------------------------------------------
</TABLE>
NOTE: THE CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1995 HAS BEEN DERIVED
FROM THE AUDITED FINANCIAL STATEMENTS AT THAT DATE, BUT DOES NOT
INCLUDE ALL OF THE INFORMATION AND FOOTNOTES REQUIRED BY GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES FOR COMPLETE FINANCIAL STATEMENTS.
SEE ACCOMPANYING NOTES.
<PAGE>
GALT SAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1995
-----------------------------
Net Sales $11,534 $16,888
Cost of Sales 9,270 13,124
-----------------------
2,264 3,764
Royalty Income 16 37
Selling, General & Administrative Expenses 5,763 6,579
-----------------------
Loss from Operations (3,483) (2,778)
Other Income 39 11
-----------------------
(3,444) (2,767)
Interest Expense 755 819
-----------------------
Loss before Income Taxes (4,199) (3,586)
Income Taxes (Benefit) 24 (1,190)
-----------------------
Net Loss $(4,223) $(2,396)
-----------------------
-----------------------
SEE ACCOMPANYING NOTES.
<PAGE>
GALT SAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1995
----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(4,223) $(2,396)
Adjustments to reconcile net loss
to net cash provided (used) by operating activities:
Depreciation and amortization 432 557
Deferred income taxes 393
Loss on disposal of equipment 49 -
Changes in operating assets and liabilities:
Accounts receivable 3,009 (1,696)
Inventories 2,585 (6,391)
Prepaid expenses and other assets 969 (203)
Accounts payable and accrued expenses (539) 1,388
----------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 2,675 (8,741)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (105)
----------------------
NET CASH USED BY INVESTING ACTIVITIES (105)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on credit arrangements (3,906) 7,201
Other (350) (411)
----------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (4,256) 6,790
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,581) (2,056)
Cash and cash equivalents - beginning of period 392 511
----------------------
DEFICIENCY IN CASH AND CASH EQUIVALENTS - END OF PERIOD $(1,189) $(1,545)
----------------------
----------------------
SEE ACCOMPANYING NOTES.
<PAGE>
GALT SAND COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996
1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Galt Sand
Company and its subsidiaries (the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial
information in accordance with Article 10 of Regulation S-X of the Securities
and Exchange Commission. Accordingly, they do not include all the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included.
The Company has experienced, and expects to continue to experience, variability
in net sales and net income (loss) from quarter to quarter. Therefore, the
results of the interim periods presented herein are not necessarily indicative
of the results to be expected for any other interim period or the full year.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and footnotes thereto for the year ended
December 31, 1995 included in this filing.
2) INVENTORIES
Inventories were as follows (IN THOUSANDS):
JUNE 30, 1996 DECEMBER 31, 1995 JUNE 30, 1995
---------------------------------------------------
Raw materials $13,077 $14,857 $19,941
Finished goods 4,422 5,212 5,801
Manufacturing supplies 322 337 425
---------------------------------------------
$17,821 $20,406 $26,167
---------------------------------------------
---------------------------------------------
3) COMMITMENTS AND CONTINGENCIES
The Company is a party to various lawsuits incidental to its business.
Management believes that these lawsuits will not have a material adverse effect
on the Company's financial position, results of operations or cash flows.
4) INCOME TAXES
The Company has established a valuation allowance ($1,350,000) at June 30, 1996
to offset its net deferred tax assets as management cannot assess that it is
more likely than not that they can utilize the net operating loss carryforwards
and other deferred taxes in future years.
5) SUBSEQUENT EVENTS
On August 9, 1996, Starter Galt, Inc. (the "Buyer"), a wholly-owned subsidiary
of Starter Corporation, purchased substantially all of the assets of the Company
and its wholly-owned subsidiaries. In consideration for the sale and delivery
of the purchased assets, the Buyer issued to the Company $8,000,000 in common
stock of Starter Corporation, subject to adjustments as provided in the
acquisition agreement, and assumed substantially all of the Company's recorded
liabilities. Pursuant to the terms of the acquisition agreement, 20% of the
$8,000,000 issued in common stock of Starter Corporation is being held in
escrow pending the final settlement of the purchase price.
<PAGE>
7(B) PRO FORMA FINANCIAL INFORMATION.
1. Unaudited Pro Forma Financial Information which includes the
following:
a. Unaudited Pro Forma Combined Condensed Balance Sheet as of June
30, 1996;
b. Unaudited Pro Forma Combined Condensed Statement of Operations
for the six months ended June 30, 1996; and
c. Unaudited Pro Forma Combined Condensed Statement of Operations
for the year ended December 31, 1995.
<PAGE>
ACQUISITION OF GALT SAND COMPANY AND SUBSIDIARIES
On August 9, 1996, STARTER Galt, Inc. (the "buyer"), a wholly-owned
subsidiary of STARTER Corporation (the "Company" or "STARTER"), purchased
substantially all of the assets and assumed all recorded liabilities of Galt
Sand Company and its wholly-owned subsidiaries, Galt Shop Company, Danaggers
Company and Galt Sand Canada, Inc. (collectively, "Galt") for approximately
$8,000,000 subject to certain purchase price adjustments as defined (the
"Acquisition). Galt is engaged in the wholesale apparel business and operates
18 factory outlet stores. The Company accounted for the acquisition as a
purchase and accordingly, the purchase price has been allocated to the
acquired assets and liabilities based on their fair values. The historical
recorded values of Galt's assets and liabilities are not materially different
from their fair values. The purchase price, which is subject to certain
adjustments as defined in the asset purchase and sale agreement, was paid
through the issuance of 1,066,666.67 shares of the Company's common stock and
was based upon the closing price ($7.50) of the Company's stock on July 25,
1996. In accordance with the asset purchase and sale agreement, 20% of the
1,066,666.67 shares issued are being held in escrow pending the final
settlement of the purchase price. The following pro forma financial
statements have been prepared assuming the purchase price was $6,400,000
which equals the value of shares (853,333.33) delivered to Galt on the
closing date. Additional shares which have a value (based upon the July 25,
1996 closing price) of $2,100,000 are issuable in 1997 if net worth
requirements, as defined, are met. Accordingly, the purchase adjustments made
in connection with the development of the unaudited pro forma combined
condensed financial statements are preliminary and have been made solely for
the purpose of developing such unaudited pro forma combined condensed
financial statements.
The unaudited pro forma combined condensed financial statements are not
necessarily indicative of the results of operations or financial position of the
combined Company that would have occurred had the acquisition occurred at the
beginning of the period presented or on the date indicated, nor are they
necessarily indicative of future operating results or financial position.
PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
are based upon the consolidated financial statements of the Company and Galt,
combined and adjusted to give effect to the acquisition. The unaudited pro
forma combined condensed balance sheet has been prepared as if Galt was acquired
by the Company on June 30, 1996. The following unaudited combined condensed
pro forma statements of operations for the six months ended June 30, 1996 and
the year ended December 31, 1995 give effect to the acquisition as though it
were effective at the beginning of those periods.
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1996
<TABLE>
<CAPTION>
- H I S T O R I C A L -
STARTER GALT SAND PRO FORMA PRO FORMA
CORPORATION COMPANY ADJUSTMENTS COMBINED
----------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS:
Current assets $170,191 $17,678 $150(a) $188,019
Property, plant and
equipment, net 25,385 2,214 27,599
Other assets 4,411 46 1,200(a) 6,553
896(b)
-------- ------- ------ --------
Total assets 199,987 19,938 2,246 222,171
-------- ------- ------ --------
-------- ------- ------ --------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities $103,223 $14,815 $ 600(b) $118,878
240(c)
Long term debt 7,056 369 7,425
Stockholders' equity 89,708 4,754 (240)(c) 95,868
(4,754)(d)
Total liabilities and 6,400(e)
-------- ------- ------ --------
stockholders' equity $199,987 $19,938 $2,246 $222,171
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
Pro forma adjustments giving effect to the Acquisition in the unaudited pro
forma combined condensed balance sheet reflect the following:
(a) Elimination of Galt Sand Company's deferred tax asset valuation allowance.
(b) Excess of purchase consideration over tangible net assets acquired
including $600 accrual net of applicable income taxes related to the
closure of four outlet stores.
(c) Accrual of estimated closing costs of the Company's Pensacola facility
($400) net of applicable income taxes.
(d) Elimination of Galt equity.
(e) Issuance of 853,333.33 shares of common stock at $7.50 per share or 80% of
stated purchase price of $8,000,000. The remaining 20% of shares issuable
(213,333.34) are being held in escrow pending final settlement of the
purchase price as defined.
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
- H I S T O R I C A L -
STARTER GALT SAND PRO FORMA PRO FORMA
CORPORATION COMPANY ADJUSTMENTS COMBINED
----------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net Sales $122,060 $11,534 $(1,836)(a) $131,758
Cost of Goods Sold 84,025 9,270 (1,066)(a) 92,229
-------------------------------------------------------
38,035 2,264 (770) 39,529
Royalty and other income 1,398 55 1,453
Selling, general and
administrative expenses (46,287) (5,763) 732(a) (51,056)
305(b)
(43)(c)
Interest Expense (1,762) (755) 87(d) (2,430)
-------------------------------------------------------
(8,616) (4,199) 311 (12,504)
Income Taxes (benefit) (3,417) 24 (1,609)(e) (5,002)
-------------------------------------------------------
Net Loss $(5,199) $(4,223) $1,920 $(7,502)
-------------------------------------------------------
-------------------------------------------------------
Loss per share $ (.19) $ (.27)(f)
-------- -------
-------- -------
Average common and
common equivalent shares 26,839 27,692
-------- -------
-------- -------
</TABLE>
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
- H I S T O R I C A L -
STARTER GALT SAND PRO FORMA PRO FORMA
CORPORATION COMPANY ADJUSTMENTS COMBINED
----------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net Sales $365,070 $55,169 $(3,864)(a) $416,375
Cost of Goods Sold 249,948 43,815 (1,750)(a) 292,013
-------------------------------------------------------
115,122 11,354 (2,114) 124,362
Royalty and other income 3,426 3,426
Selling, general and
administrative expenses (111,001) (12,519) 1,190(a) (121,823)
593(b)
(86)(c)
Interest Expense (5,259) (2,300) 432(d) (7,127)
-------------------------------------------------------
2,288 (3,465) 15 (1,162)
Income taxes (benefit) 1,065 (1,259) (271)(e) (465)
-------------------------------------------------------
Net income (loss) $ 1,223 $(2,206) $ 286 $ (697)
-------------------------------------------------------
-------------------------------------------------------
Income (loss) per share $ .05 $ (.03)(f)
-------- -------
-------- -------
Average Common and
common equivalent shares 26,826 27,679
-------- -------
-------- -------
</TABLE>
Pro forma adjustments giving effect to the Acquisition in the unaudited pro
forma combined condensed statement of operations reflect the following:
(a) Elimination of four outlet stores' operations as a result of their closure
at the beginning of the year.
(b) Elimination of operating expenses related to the closure of STARTER's
Pensacola facility.
(c) Amortization of purchase consideration over net assets acquired on a
straight line basis over 15 years.
(d) Reduction in interest expense resulting from the elimination of Galt Sand
Company's factor fees and lower borrowing rates as a result of replacing
Galt's financing arrangements with those of STARTER.
(e) Income tax effect of pro forma adjustments based on statutory rates and
STARTER's tax position.
(f) Earnings per share based upon the weighted average number of shares of
STARTER Corporation outstanding during the periods presented, including the
853,333.33 shares delivered to Galt at the closing date as if they had been
issued at the beginning of the period presented.
(g) The above pro forma statements of operations do not include the closing
costs associated with STARTER's Pensacola facility in connection with this
transaction. Such costs would have increased the pro forma net loss for
the six months ended June 30, 1996 and year ended December 31, 1995 by
$240.
<PAGE>
7(C) EXHIBITS.
The following exhibits are included as part of this Report:
2.1+ Asset Purchase and Sale Agreement, dated July 31, 1996, by and among
Starter Galt, Inc., Galt Sand Company, Galt Shop Company, Galt Sand
Canada, Inc., Danaggers Company and the Shareholders named therein.
2.2+ Registration Rights Agreement, dated as of August 9, 1996, by and
among the Registrant, Galt Sand Company, Galt Shop Company, Galt Sand
Canada, Inc. and Danaggers Company.
23.1 Consent of Deloitte & Touche LLP.
99.1+ Press release of the Registrant, dated August 19, 1996.
__________________________
+ Previously filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
STARTER CORPORATION
Date: October 22, 1996 By:/s/ Lawrence C. Longo, Jr.
-----------------------------
Lawrence C. Longo, Jr.
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1+ Asset Purchase and Sale Agreement, dated July 31, 1996, by and
among Starter Galt, Inc., Galt Sand Company, Galt Shop Company,
Galt Sand Canada, Inc., Danaggers Company and the Shareholders
named therein.
2.2+ Registration Rights Agreement, dated as of August 9, 1996, by and
among the Registrant, Galt Sand Company, Galt Shop Company, Galt
Sand Canada, Inc. and Danaggers Company.
23.1 Consent of Deloitte & Touche LLP.
99.1+ Press Release of the Registrant, dated August 19, 1996.
__________________________
+ Previously filed.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-77072) pertaining to the Starter Corporation 401(k) Plan, the
Registration Statement (Form S-8 No. 33-77076) pertaining to the Starter
Corporation 1993 Stock Option Plan, the Registration Statement (Form S-8 No.
33-80976) pertaining to the Starter Corporation 1994 Stock Option Plan for
Non-Employee Directors, and the Registration Statement (Form S-8 No. 33-80978)
pertaining to the Starter Corporation Employee Stock Purchase Plan, of our
report dated January 26, 1996, except for Notes 4 and 8, as to which the date is
May 17, 1996, with respect to the 1995 consolidated financial statements of Galt
Sand Company and Subsidiary included in Amendment No. 1 of Form 8-K/A of Starter
Corporation dated August 9, 1996.
DELOITTE & TOUCHE LLP
Des Moines, Iowa
October 21, 1996
