-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FKl+f6AHCol3f8L13IwnbTR0c1IG64eMr1iHbqC804BtuLXpi8NdwsIZes/JupuI MPmmD5FUBau5BPrSS19/5A== 0000903893-97-000032.txt : 19970115 0000903893-97-000032.hdr.sgml : 19970115 ACCESSION NUMBER: 0000903893-97-000032 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961130 FILED AS OF DATE: 19970114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NANTUCKET INDUSTRIES INC CENTRAL INDEX KEY: 0000069623 STANDARD INDUSTRIAL CLASSIFICATION: MEN'S & BOYS' FURNISHINGS, WORK CLOTHING, AND ALLIED GARMENTS [2320] IRS NUMBER: 580962699 STATE OF INCORPORATION: DE FISCAL YEAR END: 0225 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08509 FILM NUMBER: 97505350 BUSINESS ADDRESS: STREET 1: 105 MADISON AVE CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 212-889-5656 MAIL ADDRESS: STREET 1: 105 MADISON AVENUE CITY: NEW YORK STATE: NY ZIP: 10016 FORMER COMPANY: FORMER CONFORMED NAME: NANTUCKET LINGERIE INC DATE OF NAME CHANGE: 19690715 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 30, 1996 ------------------ Commission File Number: 1-8509 ------ NANTUCKET INDUSTRIES, INC. -------------------------- (Exact name of registrant as specified in its charter) Delaware 58-0962699 -------- ---------- (State of other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 105 Madison Avenue, New York, New York 10016 - -------------------------------------- ----- (Address of principal executive offices) (Zip Code) (212)889-5656 ------------- (Registrant's telephone number, including area code) 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 ninety days. X YES NO ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: As of January 2, 1997, the Registrant had outstanding 3,238,796 shares of common stock not including 3,052 shares classified as Treasury Stock. NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES ------------------------------------------- QUARTERLY REPORT ---------------- QUARTER ENDED NOVEMBER 30, 1996 ------------------------------- I N D E X --------- PAGE ---- Part I.- FINANCIAL INFORMATION Consolidated balance sheets 3 Consolidated statements of operations 4 Consolidated statements of cash flows 5 Notes to consolidated financial statements 6 - 9 Management's discussion and analysis of financial condition and results of operations 10 - 12 Part II.- OTHER INFORMATION 13 Signature 14 2 NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
November 30, March 2, 1996 1996 --------------------- --------------------- (unaudited) (1) ASSETS CURRENT ASSETS Cash $14,839 $15,085 Accounts receivable, less allowance for doubtful accounts of $122,000 and $40,000, respectively 5,718,878 4,417,033 Inventories (Note 2) 8,558,068 10,156,639 Other current assets 710,846 729,145 --------------------- --------------------- PROPERTY, PLANT AND EQUIPMENT - NET 3,196,731 3,498,825 OTHER ASSETS, NET 341,611 38,413 --------------------- --------------------- $18,540,973 $18,855,140 ===================== ===================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term debt (Note 6) $420,000 $1,275,000 Accounts payable 1,277,208 1,721,852 Accrued salaries and employee benefits 274,066 383,595 Accrued unusual charge (Note 5) 465,000 465,000 Accrued expenses and other liabilities 533,454 392,789 Accrued royalties 247,399 249,792 Income taxes payable 1,909 2,934 --------------------- --------------------- Total current liabilities 3,219,036 4,490,962 LONG-TERM DEBT (Note 6) 8,646,448 8,428,782 ACCRUED UNUSUAL CHARGE (Note 5) 372,872 678,879 CONVERTIBLE SUBORDINATED DEBT (Note 4) 2,760,000 - --------------------- --------------------- 14,998,356 13,598,623 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY (Note 4) Preferred stock, $.10 par value; 500,000 shares authorized, of which 5,000 shares have been designated as non-voting convertible and are issued and outstanding 500 500 Common stock, $.10 par value; authorized 6,000,000 shares; issued 3,241,848 324,185 299,185 Additional paid-in capital 12,364,503 11,556,386 Deferred issuance cost (190,108) Accumulated deficit (8,936,526) (6,579,617) --------------------- --------------------- 3,562,554 5,276,454 Less 3,052 shares at November 30, 1996 and 3,052 at March 2, 1996 of common stock held in treasury, at cost 19,937 19,937 --------------------- --------------------- 3,542,617 5,256,517 --------------------- --------------------- $18,540,973 $18,855,140 ===================== ===================== (1) Derived from audited financial statements The accompanying notes are an integral part of these statements.
3 NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Thirty-nine Weeks Ended Thirteen Weeks Ended --------------------------------- --------------------------------- November 30, November 25, November 30, November 25, 1996 1995 1996 1995 --------------- ---------------- --------------- ---------------- Net sales $23,098,054 $27,701,932 $8,435,399 $9,848,694 Cost of sales 18,817,782 20,455,527 6,937,651 7,333,568 --------------- ---------------- --------------- ---------------- Gross profit 4,280,272 7,246,405 1,497,748 2,515,126 Selling, general and administrative expenses 5,755,925 5,746,473 2,032,391 1,974,761 Unusual charge (credit) (Note 5) - (300,000) - (300,000) --------------- ---------------- --------------- ---------------- Operating (loss) profit (1,475,653) 1,799,932 (534,643) 840,365 Interest expense 881,256 998,029 326,866 342,535 --------------- ---------------- --------------- ---------------- Net (loss) income (2,356,909) 801,903 (861,509) 497,830 =============== ================ =============== ================ Net (loss) income per share ($0.78) $0.27 ($0.27) $0.17 =============== ================ =============== ================ Weighted average common shares outstanding 3,086,781 2,983,576 3,238,796 2,986,159 =============== ================ =============== ================ The accompanying notes are an integral part of these statements.
4 NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Thirty-nine Weeks Ended ------------------------------------------ November 30, November 25, 1996 1995 ------------------- ------------------- Cash flows from operating activities Net (loss) income ($2,356,909) $801,903 Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities Depreciation and amortization 229,790 271,908 Provision for doubtful accounts 90,000 90,000 Unusual charge - (300,000) Treasury stock issued in compliance with credit agreement - 30,190 Provision for obsolete and slow moving inventory 340,000 180,000 (Increase) decrease in assets Accounts receivable (1,391,845) (604,099) Inventories 1,258,571 (617,998) Other current assets 18,299 293,960 (Decrease) increase in liabilities Accounts payable (444,644) (824,835) Accrued expenses and other liabilities 28,743 (513,399) Income taxes payable (1,025) 42,554 Accrued unusual charge (306,007) (269,216) ------------------- ------------------- Net cash used in operating activities (2,535,027) (1,419,032) ------------------- ------------------- Cash flows from investing activities Removals (additions) to property, plant and equipment 72,304 (75,800) Decrease in other assets 1,335 97,315 ------------------- ------------------- Net cash provided by investing activities 73,639 21,515 ------------------- ------------------- Cash flows from financing activities Payments of short-term debt (800,000) - Issuance of common stock 643,009 - Proceeds from long-term debt 2,760,000 - Increase in deferred finance costs (304,533) - Net proceeds from sale of treasury stock - 750 Borrowings under line of credit agreement, net 162,666 1,390,496 ------------------- ------------------- Net cash provided by financing activities 2,461,142 1,391,246 ------------------- ------------------- NET DECREASE IN CASH (246) ($6,271) Cash at beginning of period 15,085 32,049 ------------------- ------------------- Cash at end of period $14,839 $25,778 =================== =================== SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION: Cash paid during the period: Interest $705,134 $920,411 =================== =================== Income taxes - - =================== =================== The accompanying notes are an integral part of these statements
5 NANTUCKET INDUSTRIES, INC. -------------------------- AND SUBSIDIARIES ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ THIRTY-NINE WEEKS ENDED NOVEMBER 30, 1996 AND NOVEMBER 25, 1995 --------------------------------------------------------------- (unaudited) 1. CONSOLIDATED FINANCIAL STATEMENTS The consolidated balance sheet as of November 30, 1996 and the consolidated statements of operations for the thirty-nine and thirteen week periods and statements of cash flows for the thirty-nine weeks ended November 30, 1996 and November 25, 1995 have been prepared by the Company without audit. In the opinion of management, all adjustments necessary for a fair presentation of the financial position of the Company and its subsidiaries at November 30, 1996 and the results of their operations for the thirty-nine and thirteen week periods and cash flows for the thirty-nine weeks ended November 30, 1996 and November 25, 1995 have been made on a consistent basis. 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 consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1996 Annual Report on Form 10-K. The results of operations for the periods presented are not necessarily indicative of the operating results for the full year. 2. INVENTORIES Inventories are summarized as follows: November 30, November 25, 1996 1995 ------------ ------------ Raw materials $ 1,428,918 $ 1,564,510 Work in process 4,644,080 6,984,183 Finished goods 2,485,070 2,873,501 ------------ ------------ $ 8,558,068 $ 11,422,194 ------------ ------------ 6 NANTUCKET INDUSTRIES, INC. -------------------------- AND SUBSIDIARIES ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ THIRTY-NINE WEEKS ENDED NOVEMBER 30, 1996 AND NOVEMBER 25, 1995 --------------------------------------------------------------- (continued) (unaudited) 3. INCOME TAXES At November 30, 1996 the Company had a net deferred tax asset in excess of $5,500,000 which is fully reserved until it can be utilized to offset deferred tax liabilities or realized against taxable income. The Company had a net operating loss carryforward for book and tax purposes of approximately $12,000,000. Accordingly, no provision for income taxes has been reflected in the accompanying financial statements. Certain tax regulations relating to the change in ownership may limit the Company's ability to utilize it's net operating loss carryforward if the ownership change, as computed under such regulations, exceeds 50%. Through November 30, 1996 the change in ownership was approximately 46%. 4. PRIVATE PLACEMENT On August 15, 1996, the Company completed a $3.5 million private placement with an investment partnership. Terms of this transaction included the issuance of 250,000 shares and $2,760,000 12.5% convertible subordinated debentures which are due August 15, 2001. The convertible subordinated debentures are secured by a second mortgage on the Company's manufacturing and distribution facility located in Cartersville, GA. The debentures are convertible into the Company's common stock over the next five years as follows: Conversion Conversion Shares Price ------ ----- Currently Convertible 305,000 $3.83 After June 15, 1997 318,370 $5.00 The agreement grants the investor certain registration rights for the shares issued and the Conversion Shares to be issued. The difference between the purchase price of the shares issued and their fair market value aggregated $197,500. This was reflected as deferred issue costs and will be amortized over the expected 5 year term of the subordinated convertible debentures. Costs associated with this private placement aggregated $409,000 including $104,000 related to the shares issued which have been charged to paid in capital. The remaining balance of $305,000 will be amortized over the 5 year term of the debentures. 7 NANTUCKET INDUSTRIES, INC. -------------------------- AND SUBSIDIARIES ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ THIRTY-NINE WEEKS ENDED NOVEMBER 30, 1996 AND NOVEMBER 25, 1995 --------------------------------------------------------------- (continued) (unaudited) The Company utilized $533,333 of the proceeds to prepay all of its obligations pursuant to its Credit Agreement dated March 21, 1994 with Chemical Bank. 5. UNUSUAL CHARGE In March, 1994, the Company terminated the employment contracts of its Chairman and Vice Chairman. In accordance with the underlying agreement, they will be paid an aggregate of approximately $400,000 per year in severance, as well as certain other benefits, through February 28, 1999. The present value of these payments, $1,915,000, was accrued at February 26, 1994. Through November 30, 1996, $1,078,000 of this accrual has been paid; $770,000 through March 2, 1996 and $308,000 in the current fiscal year through November 30, 1996 6. CREDIT AGREEMENT AMENDMENT On May 31, 1996, the Company amended its Loan and Security Agreement with Congress Financial Corporation dated March 24, 1994. This amendment provided (a) $ 251,000 in additional equipment term loan financing, (b) extension of the repayment period for all outstanding equipment term loans, (c) supplemental revolving loan availability from March 1st through June 30th of each year and (d) extension of the renewal date to March 20, 1998. 7. LITIGATION In September 1993, the Company filed an action against the former owners of Phoenix Associates, Inc. ("Phoenix"). The Company is seeking compensatory damages of approximately $4,000,000 plus declaratory and injunctive relief for acts of alleged securities fraud, fraudulent conveyances, breach of fiduciary trust and unfair competition in connection with the acquisition of the common stock of Phoenix. Additionally, the Company has filed a demand for arbitration which seeks compensatory damages of $4,000,000, rescission of the stock purchase agreement, rescission of an employment agreement and other matters, all on account of alleged breaches of the stock purchase agreement, fraudulent misrepresentation and breach of fiduciary duties. In November 1993, the former owners of Phoenix filed counterclaims against the Company alleging improper termination with regard to their employment agreement and breach of the stock purchase agreement. The former owners have filed for damages of approximately 8 NANTUCKET INDUSTRIES, INC. -------------------------- AND SUBSIDIARIES ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ THIRTY-NINE WEEKS ENDED NOVEMBER 30, 1996 AND NOVEMBER 25, 1995 --------------------------------------------------------------- (continued) (unaudited) $9,000,000. The actions remain in their preliminary stage. The Company considers the damages in the claim to be insupportable and believes it will likely prevail on its defenses to such counterclaims. In the third quarter of the 1996 fiscal year, the Company concluded that its counterclaims against the holder of the subordinated note payable to the former owner of Phoenix, are in excess of the $300,000 due and, in the opinion of legal counsel and management, the likelihood of any payment of this note is remote. The Company is subject to other legal proceedings and claims which arise in the ordinary course of its business. In the opinion of management, the Phoenix litigation and other legal proceedings and claims will be successfully defended or resolved without a material adverse effect on the consolidated financial position or results of operation to the Company. No provision has been made by the Company with respect to the aforementioned litigation as November 30, 1996. 9 NANTUCKET INDUSTRIES, INC. -------------------------- AND SUBSIDIARIES ---------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- RESULTS OF OPERATIONS - --------------------- Sales Net sales for the nine months ended November 30, 1996 decreased 17% from prior year levels to $23,098,000. In the third fiscal quarter, sales decreased $1,413,000 from prior year levels, a 14% decline. These declines, associated with lower unit volumes, reflects inventory reductions by Nantucket's customers. The third fiscal quarter declines are generally the result of the Company canceling customer orders for new products due to production delays and quality issues experienced by the Company's foreign manufacturing contractors. Gross Margin Gross profit margins for the nine months ended November 30, 1996 decreased from prior year levels of 26% to 19%. Gross profit margins for the third quarter decreased from 26% to 18%. These declines are a result of increased manufacturing variances associated with reduced unit volumes and additional processing costs of imported garments. In addition, gross profit levels reflect the fully reserved close-out sales of the GUESS? products in the first fiscal quarter. Selling, general and administrative expenses Selling, general and administrative expenses were 25% of sales for the nine months ended November 30, 1996 and 21% of sales for the prior year nine month period. This change considers the impact of the lower sales volume on fixed cost levels. The increase in fixed expenses for the nine month period of $220,000 was generally associated with the addition of executive management and a $102,000 credit during the second quarter of the prior year related to a recovery of a previously expensed insurance claim. Such increases were offset by decreases in variable selling expenses of $221,000 associated with lower sales levels. In the third quarter, selling, general and administrative expenses were 24% and 21% of sales in 1996 and 1995 respectively. Third quarter expenses include an increase in advertising expenses reflecting a retroactive charge pursuant to licensing agreement requirements. 10 NANTUCKET INDUSTRIES, INC. -------------------------- AND SUBSIDIARIES ---------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- (continued) Unusual charge In November, 1992, the Company acquired the Puerto Rico facility, Phoenix Associates, Inc., pursuant to a stock purchase agreement. A portion of the purchase price was debt payable to a related party, the former owners of Phoenix, of which $300,000 was due February 2, 1998. In April, 1993, the Company discovered an inventory variance of $1,700,000 principally attributable to unrecorded manufacturing and material cost variance at the Puerto Rico facility incurred prior to the Company's acquisition of this facility. In connection with the acquisition of the Puerto Rico facility, the Company initiated an action against the former owners of that facility as more fully described in the Company's 1996 Annual Report on Form 10-K and in Note 7 of the accompanying consolidated financial statements. In the third quarter of the prior fiscal year, the Company concluded that its counterclaims against the holder of the note payable from a related party incurred in connection with the acquisition of the Puerto Rico facility in November, 1992 are in excess of the $300,000 due. In the opinion of legal counsel and management the likelihood of any payment of this note is remote. Accordingly the Company eliminated this payable and reflected such $300,000 reduction as an unusual credit. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- In March, 1994 the Company was successful in refinancing its credit agreements with (i) a three year $15,000,000 revolving credit facility with Congress Financial, (ii) a $2,000,000 Term Loan Agreement with Chemical Bank and (iii) an additional $1,500,000 Term Loan with Congress replacing the Industrial Revenue Bond financing of the Cartersville, Georgia manufacturing plant. On May 31, 1996, the Company amended its Loan and Security Agreement with Congress Financial Corporation dated March 24, 1994. This amendment provided (a) $251,000 in additional equipment term loan financing, (b) extension of the repayment period for all outstanding term loans, (c) supplemental revolving loan availability from March 1st through June 30th of each year and (d) extension of the renewal date to March 20, 1998. Additionally, the Company has increased its equity over the past three years through (i) a $1,000,000 investment by the Management Group (ii) the $2.9 million sale of 490,000 shares of common treasury stock to GUESS?, Inc. and certain of its affiliates and (iii) the $3.5 million private placement which included the issuance of 250,000 shares and $2,760,000 convertible subordinated debentures. These transactions, combined with its stronger credit facilities, enhanced the Company's liquidity and capital resources. 11 NANTUCKET INDUSTRIES, INC. -------------------------- AND SUBSIDIARIES ---------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- (continued) Under the terms of the $2,000,000 Term Loan Agreement with Chemical Bank, scheduled installments of $500,000 were due on December 15, 1995 and March 15, 1996. As of December 15, 1995 the Company agreed to an amendment providing for payments of $100,000 each on December 31, 1995 and January 31, 1996, with the remaining $800,000 to be paid in 15 equal installments which commenced March 31, 1996. In August, 1996, the Company utilized $533,333 of the proceeds from the private placement to prepay all of its obligations with Chemical Bank. The Company believes that the Congress credit facility, as amended, combined with the $3.5 million private placement, provides adequate financing flexibility to fund its operations at current levels. Working capital increased $957,000 from year-end levels to $11,784,000. Proceeds from the issuance of common stock and subordinated convertible debt were used to prepay the short-term debt to Chemical Bank, reduce accounts payable and reduce the long term debt under the Congress revolving credit facility. A decrease in inventory levels of $1,599,000 was offset by an increase in accounts receivable of $1,302,000 due to holiday sales. The Company believes that the moderate rate of inflation over the past few years has not had significant impact on sales or profitability. 12 PART II ------- ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None Information with respect to the Company's Special Meeting in Lieu of Annual Meeting of Security Holders held on October 7, 1996 was reported on the Company's Form 10Q for the Quarterly period ended August 31, 1996. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K None 13 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 thereunto duly authorized. NANTUCKET INDUSTRIES, INC. (Registrant) January 13, 1997 By: /s/ Ronald S. Hoffman ------------------------ Vice President - Finance (Chief Accounting Officer) EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS INFORMATION EXTRACTED FROM THE STATEMENTS DATED AUGUST 31, 1996 AS FILED IN FORM 10-Q FOR THE QUARTERLY PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1 3-MOS MAR-02-1996 NOV-30-1996 14,839 0 5,840,878 122,000 8,558,068 15,002,631 7,370,051 4,173,318 18,540,973 3,219,036 0 0 500 324,185 3,237,869 18,540,973 8,435,399 8,435,399 6,937,651 6,168,991 2,032,391 30,000 326,866 (861,509) 0 (861,509) 0 0 0 (861,509) (0.27) (0.27)
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