-----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, Qf931YgSz4r3pbgzxtcU5uMaIvd1q2JijwoYmWKZfqb4LRNOrWLEdfWwgUKne1KM TuIbWXI2yPGjhhsQb4kpfA== 0000070855-96-000018.txt : 19961028 0000070855-96-000018.hdr.sgml : 19961028 ACCESSION NUMBER: 0000070855-96-000018 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19961025 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NCC INDUSTRIES INC CENTRAL INDEX KEY: 0000070855 STANDARD INDUSTRIAL CLASSIFICATION: WOMEN'S, MISSES', CHILDREN'S & INFANTS' UNDERGARMENTS [2340] IRS NUMBER: 620643336 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-03305 FILM NUMBER: 96648080 BUSINESS ADDRESS: STREET 1: 165 MAIN ST CITY: CORTLAND STATE: NY ZIP: 13045 BUSINESS PHONE: 6077562841 MAIL ADDRESS: STREET 1: JOHN E DAILEY STREET 2: 165 MAIN STREET CITY: CORTLAND STATE: NY ZIP: 13045 FORMER COMPANY: FORMER CONFORMED NAME: NCC LEASING INC DATE OF NAME CHANGE: 19701102 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL CREDIT CORP DATE OF NAME CHANGE: 19681126 10-K/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Amendment No. 1 FORM 10-K/A ( MARK ONE ) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________to __________ Commission file Number 0-3305 NCC INDUSTRIES, INC. (Exact name of Registrant as specified in its charter) Delaware 62-0643336 (State or other jurisdiction of ( I.R.S. Employer incorporation of organization) Identification No.) 165 Main Street, Cortland, New York 13045-5428 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 607-756-2841 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1.00 par value per share (Title of Class) Indicate by check mark whether 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 12 months (or for such shorter period that Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form l0-K or any amendment to this Form 10-K. X The aggregate market value of the voting stock held by non-affiliates of Registrant as of March 29, 1996 was $2,608,168. At March 29, 1996, there were outstanding 4,375,492 shares of Registrant's Common Stock, par value $1.00 per share. Documents Incorporated by Reference: None Part I Item 1. Business. General NCC Industries, Inc. (hereinafter referred to as "Registrant") is engaged in the foundation garment business, which consists of the design, manufacture and sale of brassieres, panties and girdles. On April 26, 1995, Maidenform Worldwide, Inc. ("Worldwide") acquired approximately 92.4% of the common stock of Registrant from Triumph International Overseas, Limited, a Liechtenstein corporation ("Triumph"), Guenther Spiesshofer and Frank Magrone, Registrant's Executive Vice President (the "Acquisition"). Following the closing of this Acquisition, Worldwide contributed all of the purchased shares of Registrant's common stock to Maidenform, Inc.("Maidenform"), a wholly owned subsidiary of Worldwide. Simultaneously, Triumph purchased, along with Mr. Magrone, approximately 28% of the outstanding shares of Class A common stock of Worldwide and, therefore, Triumph remains a related party to Registrant. Concurrent with the consummation of the Acquisition, all members of Registrant's Board of Directors (with the exception of Mr. Magrone) resigned and the current board members were elected to replace the resigning directors. Classes of Similar Products The revenues from sales of brassieres and panties and girdles during the years ended December 31, 1995, 1994 and 1993 were as follows: Year Ended December 31 1995 1994 1993 Net Percent Net Percent Net Percent Sales of Sales of Sales of Sales Sales Sales Brassieres $116,221,240 92.2% $117,793,706 92.0% $101,866,614 92.1% Panties and Girdles 9,766,086 7.8% 10,248,716 8.0% 8,731,168 7.9% $125,987,326 100.0% $128,042,422 100.0% $110,597,782 100.0%
Sales Most of the items manufactured by Registrant are popularly priced, but Registrant manufactures some budget priced and higher priced items. Sales are made to department, specialty, discount and chain stores throughout the United States. Registrant owns the following trademarks: "Lilyette," "Minimizer," and "Reflections." In addition, Registrant manufactured brassieres as a contractor under the trademark "Bill Blass". Registrant has been notified by a customer that the "Bill Blass" program has been terminated. This program accounted for approximately 14% of Registrant's total sales in 1995. (See item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations.) Registrant's management believes that this customer will at least partially replace this volume with products in Registrant's current manufacturing lines. Registrant holds a non-exclusive license to manufacture brassieres under the trademark "Revlon". Registrant holds no other trademarks, patents, licenses, franchises or concessions which it deems material. During 1995, approximately 63% of Registrant's total sales were made under Registrant's trademarks (as compared to 61% in 1994 and 1993), and substantially all the balance of sales were made either under customers' names or as unbranded merchandise. Sales of Registrant's trademarked products are made by 23 sales persons who are full time employees of Registrant and by five independent regional sales representatives. Sales of Registrant's unbranded and customers' named merchandise are handled by account executives of Registrant. During 1995, approximately 14% of Registrant's total sales were made to Walmart, Inc. ("Walmart") (as compared to 18% in 1994 and 16% in 1993), approximately 16% of the total sales were made to J.C. Penney Company, Inc. ("Penney") (as compared to 17% in 1994 and 20% in 1993), approximately 4% of the total sales were made to Mast Industries, Inc. ("Mast") (as compared to 10% in 1994 and 8% in 1993) and approximately 11% of total sales were made to Mervyn's Department Stores, Inc. ("Mervyn's)(as compared to 9% in 1994 and 1993). Registrant has no contracts or agreements with any of Walmart, Penney, Mast, or Mervyn's with respect to purchase of merchandise other than standard purchase orders. Although Registrant has made substantial sales to Penney and Mervyn's for many years, to Walmart since 1990, and to Mast since 1989 there can be no assurance that Penney, Walmart, Mast or Mervyn's will continue to purchase Registrant's products in the future. The loss of any of Penney, Walmart, Mast or Mervyn's as a customer, or a substantial decrease in their purchase of Registrant's products, could have a materially adverse effect on Registrant's business. Registrant does not engage in significant sales in foreign markets. Manufacturing Facilities and Purchases of Finished Goods Registrant manufactures a portion of its products in Registrant's plant located in Aguada, Puerto Rico. Registrant also utilizes certain manufacturing facilities of both Maidenform and Triumph and certain of Maidenform's affiliates in the Caribbean, Mexico and Central America, and Triumph's affiliates in the Far East and South America (see "Item 13. Certain Relationships and Related Transactions") and utilizes independent sewing contractors located in the United States, the Dominican Republic, El Salvador and Colombia. During 1993, 1994 and 1995, Registrant significantly expanded its relationship with an independent sewing contractor in the Dominican Republic. Registrant provided loans to such contractor in the aggregate principal amount of $1,950,000 to finance the expansion of its facilities to accommodate such increased demand by Registrant. The principal amount of such loans, together with interest at the prime rate is repayable to Registrant with each shipment of finished products to Registrant. A predetermined amount per garment is deducted from such contractors invoice and applied first, to interest income, and second to the principal balance of the total. At December 31, 1995, the aggregate outstanding principal balance of the loans were $887,834. With regard to Registrant's utilization of Maidenform's and Triumph's manufacturing facilities or those of independent contractors, Registrant operates in three ways. Registrant cuts raw materials in its plant in Cortland, New York and ships such cut materials to the Far East, South America, Puerto Rico and the Dominican Republic for assembly by Triumph's or Maidenform's respective affiliate, or by a licensee, or by independent contractor. The finished products are returned to Registrant for finishing, packaging and sale to customers. Registrant sends raw materials to Maidenform's cutting facility in Jacksonville, Florida, who then cuts the material and ships such cut materials to any of the same affiliates, licensees or contractors for assembly. In addition, Registrant purchases finished goods from Triumph and its affiliates most of which are manufactured in the Far East. The Registrant's foreign manufacturing operations are subject to the risks of doing business abroad, including increased transit time due to documentation and customs clearance requirements, import controls, trade barriers (including quotas), restrictions on the transfer of funds, burdens of complying with foreign laws, as well as political and economic instability in the countries in which it operates. In March 1996, Registrant made a decision to close its subsidiary's two leased Puerto Rican manufacturing facilities and subsequent to that date began a process of notification of employees and the government of Puerto Rico. Although the government of Puerto Rico has made offers to Registrant to retain the facility which Registrant's management is considering, management believes that the facility will be closed and its sewing assembly operations will be transferred to other locations. Registrant's management believes that all equipment from these facilities will be used at other locations; however, the leases on these facilities, which have combined annual rental of approximately $94,000, (representing individual annual rentals of approximately $59,750 and $34.250 do not expire until 1999 and 2002 respectively. Registrant's management has not determined the total expected cost of the closure which will be recorded in 1996. Sources of Raw Materials Registrant purchases its raw materials from various domestic suppliers. Three suppliers account for approximately 30% of the raw materials used by Registrant; however, Registrant believes adequate alternative sources are available for all its raw materials needs. Working Capital Historically, raw materials have been readily available from a number of suppliers and it has not been necessary for Registrant to maintain a substantial inventory in order to fill orders. Registrant has been required to maintain higher work-in-process inventories than other domestic manufacturers because a substantial portion of the products that it manufactures is cut at Registrant's main plant in the United States, shipped to manufacturing facilities outside the continental United States for sewing and then returned for finishing, packaging and sale. In addition, since Registrant has experienced long lead times in obtaining merchandise from the Far East and South America, Registrant carries higher inventories of finished goods to meet its shipment obligations to customers. Registrant endeavors to utilize its domestic production capacity to meet the short-term needs of its customers. Registrant believes that its practices with respect to working capital items are consistent with industry practices of companies whose manner of production, shipment levels or manufacturing sites, as the case may be, are similar to Registrant's. Backlog Registrant's management estimates the dollar amounts of backlogs of unfilled orders as of December 31, 1995 and December 31, 1994 were $9,719,000 and $12,200,000, respectively. Registrant's management believes that all orders received and unfilled as of December 31, 1995 are firm and will be filled within the current fiscal year. Competitive Conditions Marketing efforts by Registrant during 1995 involved mainly catalog and newspaper advertising of its products, including cooperative advertising. While many factors can affect success in the marketplace, those which affect Registrant's product lines include price, cost, quality, style, color, fit and material content. Registrant's management believes that no single factor materially affects its competitive abilities. Registrant endeavors to use creative approaches in the design, manufacture and marketing of its products, and to combine these elements in a manner which Registrant deems suitable for success. Management estimates that during 1995 sales by Registrant accounted for approximately 8% of all domestic sales of brassieres, panties and girdles. In the opinion of management, there are at least five companies, including Maidenform, which are of larger size and which sell more brassieres, panties and girdles to the retail industry in the United States than does Registrant. Employees At December 31, 1995, Registrant employed 1767 persons, of whom 1346 were production employees. The remainder of such employees were engaged in sales, distribution, design and administrative activities. As a result of an organization campaign, Union Needletrade Industrial Textile Employees ("UNITE") is now recognized as the collective bargaining agent and representative of certain production workers at the Cortland facilities. UNITE has demanded the right to negotiate a contract, and Registrant has entered into negotiations with the union. Approximately 30% of the Registrant's employees will be covered by such a contract. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Liquidity and Capital Resources Registrant's working capital decreased to $31,673,000 at December 31, 1995 from $35,149,000 at December 31, 1994 primarily due to repayment of long term debt of $7,000,000 offset by net income of $2,75l,000. Registrant participates in the consolidated cash management system of its ultimate parent, Worldwide, and its subsidiaries, including Maidenform and the Registrant, (collectively "the Maidenform Group"). As such, Registrant is a party to, and its liquidity is dependent upon the Maidenform Group's financing arrangements. In 1995, the Maidenform Group entered into a revolving credit facility for $120,000,000 coupled with a $50,000,000 term loan, and $30,000,000 in senior notes, in connection with each of which Registrant's assets and stock are pledged as collateral. Under the revolving credit facility, the Maidenform Group may borrow, repay, and reborrow through April 25, 1998, the facility expiration date; however, borrowings are limited to certain percentages of the Maidenform Group's trade accounts receivable and inventories. As of December 31, 1995, outstanding borrowings under the revolving credit facility amounted to $81,000,000. In addition, outstanding letters of credit (which reduce the maximum available borrowing) issued by the bank for the account of the Maidenform Group under the facility amounted to approximately $3,000,000. In January and February 1996, the Maidenform Group borrowed the remaining $36,000,000 available under the facility. On March 29, 1996, the bank loan agreement was amended to and Worldwide borrowed an additional $20,000,000 under a new term loan, of which $10,000,000 is repayable on August 15, 1996 and $5,000,000 is repayable on each of October 30 and November 30, 1996. All of the proceeds of this new loan were utilized to pay down certain trade payables of the Maidenform Group. Registrant's management believes that the Maidenform Group's line of credit and debt capacity, together with continued vendor support are adequate to meet its anticipated operating needs. As of December 31, 1995, Registrant did not have any material commitments for capital expenditures. Cash flows provided by operations, for the year ended December 31, 1995 were $19,765,000 representing an increase of $4,350,000 as compared to the year ended December 31, 1994. This increase was primarily due to an increase in Accounts Payable in 1995 of $13,066,000 as compared to an increase in Accounts Payable in 1994 of $1,880,000 and a decrease in other assets in 1995 of $1,226,000 primarily due to repayment during 1995 of the third party contractor loan, and the change in recording investments ($671,382) previously thought to be held to maturity, but at December 31, 1995, were designated to be sold. Such investments were primarily fully-insured United States government securities (GNMAs, FNMAs, and FHLMCs) and mutual funds which were backed by fully-insured United States government securities (GNMAs, FNMAs, and FHLMCs). This increase was partially offset by an increase in inventory of $5,916,000 in 1995 as compared to an decrease in inventory of $9,012,000 in 1994. In connection with the Acquisition, Registrant's previous long and short term bank debt was paid in full by the Maidenform Group as an advance from some of the proceeds of the current bank agreements. (From the date of such repayment by Maidenform through December 31, 1995, the Registrant had paid an aggregate of $13,894,000 to Maidenform as repayment for such advances. At such date, approximately $5.9 million of such advances was outstanding). Cash flows provided by operations for the year ended December 31, 1994 were $15,415,000, representing an increase of $21,582,000 as compared to the year ended December 31, 1993. This increase was due to a decrease in inventory in 1994 of $9,012,000 as compared to an increase in inventory in 1993 of $13,514,000. Such decrease resulted primarily from higher shipments in 1994 as compared to lower than anticipated shipments in 1993. Cash used in investing activities for 1995 was $630,000 representing a decrease of $674,000 in 1995 as compared to 1994. This decrease was primarily due to a reduction in purchase of plant and equipment of $606,000. Cash used in investing activities for 1994 was $1,304,000 representing a decrease of $3,770,000 in 1994 as compared to 1993. This decrease was primarily due to a reduction in purchases of plant and equipment of $1,954,000 and a reduction in loans to an independent sewing contractor of $1,579,000. Cash used in financing activities in 1995 was $19,445,000 representing an increase of $5,916,000 in 1995 as compared to 1994 due to repayment of bank debt by Registrant from funds received from Maidenform. Cash used in financing activities in 1994 was $13,529,000 representing an increase of $23,527,000 in 1994 as compared to 1993 due to a reduction in net borrowings of $13,081,000 in 1994 whereas Registrant's net borrowings increased $10,481,000 in 1993. Results of Operations Net sales for 1995 were approximately 2% lower than in 1994, principally due to a decrease in demand for Registrant's products primarily at Walmart and Mast, partially offset by strength in the Lilyette brand. Registrant's management believes that these customers will at least partially replace this volume with the products in Registrant's current manufacturing lines. As of March 31, 1995, the impact of the cancellation of the Bill Blass trademark merchandise has resulted in a 48% reduction of sales of Bill Blass merchandise to Walmart, Registrant's sole customer of such merchandise. While the cancellation of the Bill Blass trademark continues to affect comparative results, Walmart has partially replaced this lost business with new "Kathy Lee" trademarked styles, resulting in a net decrease of 20% of total sales to Walmart for the second quarter of 1996 as compared to the second quarter of 1995. Registrant's management anticipates continued moderate partial recovery of sales to Walmart in the second half of 1996. Net sales for 1994 were approximately 16% higher than in 1993, principally due to an increase in demand for Registrant's products. Unit volume of goods sold decreased 1% from 1994 to 1995 and increased 12% from 1993 to 1994. Sales mixture (a weighted average of revenue per unit, taking into account the sales levels of Registrant's various products and styles of products) resulted in a decrease in the average revenue per unit sold of less than 1% in 1995 over 1994 and a 2% increase of the average revenue per unit sold in 1994 over 1993. Gross margin decreased to $28,185,000 for the year ended December 31, 1995 from $32,539,000 in 1994 and $28,446,000 in 1993. The gross margin percentage to net sales decreased to 22.4% in 1995 from 25.4% in 1994. The gross margin percentage to net sales decreased slightly to 25.4% in 1994 from 25.7% in 1993. Shipping and general and administrative expenses as a percentage of net sales were generally consistent for the years ended December 31, 1995, 1994 and 1993. Selling and advertising expenses were consistent for the years ended December 31,1995 and 1994 and decreased as a percentage of net sales for the year ended December 31, 1994 as compared to the year ended December 31, 1993 because of the non-recurrence in 1994 of expenditures related to a national advertising campaign promoting one of Registrant's related brands in 1993. Interest expense for 1995 was 15% higher than in 1994 due to higher interest rates partially offset by lower average borrowings. Interest expense was generally consistent for 1994 and 1993. Registrant's effective tax rate was generally consistent in 1995, 1994 and 1993. As a result of the above factors, Registrant's net income decreased 54% in 1995 as compared to 1994 and increased 58.9% in 1994 as compared to 1993. In March 1996, the Registrant made a decision to close its leased facilities in Puerto Rico. See Note 13 to the Financial Statements. PART III Item 12. Security Ownership of Certain Beneficial Owners and Management. (a) The following table sets forth certain information with respect to persons known to Registrant to own beneficially more than 5% of Registrant's voting securities, as of March 29, 1996. Percent of Amount and Out- Nature of standing Title of Name and Address of Beneficial Shares Class Beneficial Owner Ownership (1) Owned (2) Common Stock, Maidenform, Inc(3) 4,042,779 92.4% $1 par value 154 Avenue E Bayonne, NJ Elizabeth Coleman(3) 4,049,471 92.5% 72 Westminster Drive Atlanta, GA (1) All persons listed have sole voting and investment power with respect to their shares unless otherwise indicated. (2) Computed on the basis of 4,375,492 shares of Common Stock outstanding. (3) Maidenform is the record owner of 4,042,779 shares of Common Stock. As the sole shareholder of Maidenform, Worldwide beneficially owns indirectly through Maidenform, such 4,042,779 shares of Common Stock. Elizabeth Coleman, as a result of her direct and indirect ownership of the capital stock of Worldwide and certain voting rights and powers with respect to the selection of and decision- making by the Board of Directors of Worldwide, may be deemed to beneficially own the 4,042,779 shares of Common Stock indirectly beneficially owned by Worldwide. Ms. Coleman disclaims the beneficial ownership of all such shares. The amount shown includes 6,692 shares purchased by Ms. Coleman from one of Registrant's shareholders. (b) The following table sets forth certain information with respect to each class of Registrant's equity securities beneficially owned by each director and each executive officer named in the Summary Compensation Table of Registrant and the directors and executive officers of Registrant as a group, as of March 29, 1996 Percent of Amount and Out- Nature of standing Title of Name and Address of Beneficial Shares Class Beneficial Owner Ownership (1) Owned (2) Common Stock, Elizabeth Coleman(3) 4,049,471 92.5% $1 par value David Masket - - Steven Masket - - Ira Glazer - - Frank Magrone - - All executive officers and directors as a group (5 in number) 4,049,471 92.5% (1) All persons listed have sole voting and investment power with respect to their shares unless otherwise indicated. (2) Computed on the basis of 4,375,492 shares of Common Stock outstanding. (3) Maidenform is the record owner of 4,042,779 shares of Common Stock. As the sole shareholder of Maidenform, Worldwide beneficially owns indirectly through Maidenform, such 4,042,779 shares of Common Stock. Elizabeth Coleman, as a result of her direct and indirect ownership of the capital stock of Worldwide and certain voting rights and powers with respect to the selection of and decision- making by the Board of Directors of Worldwide, may be deemed to beneficially own the 4,042,779 shares of Common Stock indirectly beneficially owned by Worldwide. Ms. Coleman disclaims the beneficial ownership of all such shares. Report of Independent Auditors Shareholders and Board of Directors NCC Industries, Inc. We have audited the accompanying consolidated balance sheet of NCC Industries, Inc. and subsidiary as of December 31, 1995, and the related consolidated statements of income, shareholders' equity, and cash flows for the year then ended. Our audit also included the information related to 1995 on the financial statement schedule on page F-20 of this Form 10-K. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of NCC Industries, Inc. and subsidiary at December 3l, 1995, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Ernst & Young LLP Syracuse, New York February 16, 1996, except for Notes 4 and 13 as to which the date is March 29,1996 F-1 Report of Independent Auditors Shareholders and Board of Directors NCC Industries, Inc. We have audited the accompanying consolidated balance sheet of NCC Industries, Inc. and subsidiary as of December 31, 1994 and the related consolidated statements of income, shareholders' equity and cash flows for each of the two years in the period ended December 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of NCC Industries, Inc. and subsidiary at December 31, 1994, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. Coopers & Lybrand LLP Syracuse, New York February 3, 1995 F-2 NCC INDUSTRIES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS ___________ ASSETS December 31, 1995 1994 Current assets: Cash and cash equivalents $ 725,198 $ 1,034,820 Investments 671,382 - Accounts receivable, less allowance for doubtful accounts of $432,000 in 1995 and $350,000 in 1994 15,864,241 16,448,704 Inventories 45,020,477 39,104,654 Prepaid expenses 288,247 396,012 Income taxes refundable - 99,042 Deferred taxes 2,058,824 1,507,863 Total current assets 64,628,369 58,591,095 Property, plant and equipment, net 10,155,629 11,186,318 Other assets 584,744 1,810,590 Total assets $75,368,742 $71,588,003 The accompanying notes are an integral part of the consolidated financial statements. F-3
LIABILITIES AND SHAREHOLDERS' EQUITY December 31, 1995 1994 Current liabilities: Notes payable, banks $ - $12,000,000 Accounts payable 15,638,193 5,352,165 Accrued expenses 5,795,273 3,112,645 Due to affiliates 11,077,154 2,532,502 Current portion of long-term debt 445,000 445,000 Total current liabilities 32,955,620 23,442,312 Long-term debt, less current portion 1,916,415 2,361,415 Long-term notes payable, bank - 7,000,000 Deferred taxes 309,203 628,053 Other liabilities 1,355,753 2,172,575 Total liabilities 36,536,991 35,604,355 Shareholders' equity: $7 cumulative preferred stock, $1 par value; authorized 500,000 shares; issued and outstanding - none Common stock, $1 par value, authorized 10,000,000 shares, issued 4,866,841 shares 4,866,841 4,866,841 Additional paid-in capital 5,077,911 5,077,911 Retained earnings 31,645,396 28,894,732 Minimum pension liability ( 75,369) ( 172,808) Less: Common stock in treasury, 491,349 shares at cost ( 2,683,028) ( 2,683,028) Total shareholders' equity 38,831,751 35,983,648 Total liabilities and shareholders' equity $75,368,742 $71,588,003 F-4 NCC INDUSTRIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME ___________ Years Ended December 31, 1995 1994 1993 Net sales $125,987,326 $128,042,422 $110,597,782 Cost and expenses: Cost of sales 97,802,166 95,503,504 82,151,733 Shipping, selling, general and administrative 22,507,559 22,674,374 21,709,190 Interest, net 1,873,822 1,634,346 1,670,443 122,183,547 119,812,224 105,531,366 Income before income taxes 3,803,779 8,230,198 5,066,416 Income taxes: Current: Federal 1,616,442 1,923,221 1,386,234 State and local 306,485 265,849 247,174 Deferred ( 869,812) 140,116 ( 281,791) 1,053,115 2,329,186 1,351,617 Net income $2,750,664 $5,901,012 $3,714,799 Income per common share $.63 $1.35 $.85 Weighted average number of shares 4,375,563 4,375,563 4,379,721 The accompanying notes are an integral part of the consolidated financial statements.
F-5 NCC INDUSTRIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993 Common Stock Additional Minimum Treasury Stock Number of Paid-In Retained Pension Number Shares Issued Amount Capital Earnings Liability Shares Amount Balance, December 31,1992 4,866,841 $4,866,841 $5,077,911 $19,278,921 486,174 ($2,641,903) Net income $ 3,714,799 Purchase of treasury 4,775 ($ stock 38,025) Minimum pension ($103,558 liability Balance, December 31, 1993 4,866,841 $4,866,841 $5,077,911 $22,993,720 ($103,558) 490,949 ($2,679,928) Net income $5,901,012 Purchase of treasury 400 ($ stock 3,100) Minimum pension ($69,250) liability Balance, December 31, 1994 4,866,841 $4,866,841 $5,077,911 $28,894,732 ($172,808) 491,349 ($2,683,028) Net income $ 2,750,664 Purchase of treasury stock Minimum pension $ 97,439 liability Balance, December 31, 1995 4,866,841 $4,866,841 $5,077,911 $31,645,396 ($75,369) 491,349 ($2,683,028) The accompanying notes are an integral part of the consolidated financial statements. F-6
NCC INDUSTRIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS ___________ Increase (Decrease) in Cash Years Ended December 31, 1995 1994 1993 Cash flows from operating activities: Net income $2,750,664 $5,901,012 $3,714,799 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation l,527,346 1,466,132 1,242,357 Amortization 19,440 22,765 25,897 Deferred income taxes ( 869,812) 140,116 ( 281,791) Provision for losses on accounts receivable 108,000 (16,447) 72,400 Loss on retirement of plant and equipment 32,865 58,550 35,465 Changes in operating assets and liabilities: Accounts receivable 476,463 ( 4,078,586) 2,180,435 Inventories ( 5,915,823) 9,011,729 (13,514,288) Prepaid expenses 107,765 (65,932) 121,029 Income taxes refundable/payable 99,042 133,250 ( 51,037) Other assets 635,024 173,267 202,321 Accounts payable and accrued expenses 13,066,094 1,879,566 ( 171,768) Due to affiliate 8,544,652 544,646 ( 235,313) Other liabilities ( 816,822) 245,309 492,623 Net cash (used in) provided by operating activities 19,764,898 15,415,377 ( 6,166,871) Cash flows from investing activities: Purchase of plant and equipment ( 563,601) ( 1,170,042) ( 3,133,830) Proceeds from sales of fixed assets 34,081 16,500 - Increase in short-term investments - ( 200,548) Funds issued for supplier note receivable ( 100,000) ( 150,000) ( 1,739,589) Net cash used in investing activities ( 629,520) ( 1,303,542) ( 5,073,967) (Continued) F-7 NCC INDUSTRIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS ___________ Increase (Decrease) in Cash Years Ended December 31, 1995 1994 1993 Cash flows from financing activities: Payments to acquire treasury stock $ - ($ 3,100) ($ 38,025) Repayment of long-term debt ( 445,000) ( 445,000) ( 445,000) Net (repayment) borrowings under notes payable, banks ( 19,000,000) ( 13,081,000) 10,481,000 Net cash (used in) provided by financing activities ( 19,445,000) ( 13,529,100) 9,997,975 Net (decrease) increase in cash ( 309,622) 582,735 ( 1,242,863) Cash and cash equivalents, beginning of year 1,034,820 452,085 1,694,948 Cash and cash equivalents, end of year $ 725,198 $ 1,034,820 $ 452,085 Supplemental disclosures of cash flow information (see Note 1): Cash paid during the year for: Interest $ 1,173,235 $ 1,631,230 $1,645,747 Income taxes 251,553 2,271,231 1,572,823 The accompanying notes are an integral part of the consolidated financial statements. F-8 NCC INDUSTRIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ___________ 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business The Company is engaged in the garment business, in which it manufactures and distributes (predominantly to retail businesses) popular priced ladies under-garments. Sales are made to department, specialty and chain stores throughout the United States. Triumph International Overseas Ltd., a Liechtenstein corporation ("Triumph"), was the Company's majority shareholder until April 26, 1995, when Triumph sold its interest, and who, at December 31, 1994 owned approximately 84% of the outstanding shares. Maidenform Worldwide, Inc., ("Worldwide") a Delaware corporation, is the Company's ultimate majority shareholder by ownership of Maidenform Inc. ("Maidenform"), the Company's controlling shareholder, who, at December 3l, 1995 owned approximately 92% of the Company's outstanding common shares. 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 and 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. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Investments In May 1993, Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities", was issued by the Financial Accounting Standards Board. As permitted, the Company implemented this Standard on January 1, 1994. The effect of the adoption was immaterial to the Company. Investments, which are classified as available - for- sale securities, consist primarily of United States government securities (GNMAs, FNMAs, FHLMCs) and mutual funds which are invested in exclusively United States government securities, and are stated at market, which approximates cost. At December 31, 1995 and 1994, gross unrealized holding gains and gross unrealized losses were immaterial. Such United States government securities have maturities due after twenty years. At December 31, 1994, investments were included with other assets. F-9 NCC INDUSTRIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Inventories Inventories are stated at the lower-of-cost or market. Cost is determined on the first-in, first-out basis. Property, Plant and Equipment and Depreciation Property, plant and equipment are stated at cost. Depreciation has been computed by the straight-line method over the estimated useful lives of the assets, as follows: building and building improvements -l0 to 20 years and machinery and equipment - 3 to 10 years. Revenue Recognition The Company's policy of recognizing revenue is to record sales upon shipment of goods. Income Per Common Share Per share amounts are computed based on the weighted average number of shares of common stock outstanding. Income Taxes Income tax expense consists of taxes currently payable and deferred income taxes which are based upon temporary differences between financial accounting and tax bases of assets and liabilities in accordance with SFAS No. 109 as measured by the enacted tax rates which are anticipated to be in effect when these differences reverse. The deferred tax provision is the result of the net change in the deferred tax assets and liabilities. A valuation allowance is established when it is necessary to reduce deferred tax assets to amounts expected to be realized. Under a Tax Allocation Agreement with Maidenform, the Company files a consolidated federal income tax return and a combined New York State return with Maidenform. Current and deferred income tax liabilities have been determined on a separate company basis. That is, each member of the consolidated group will determine its respective current and deferred income taxes as if it had not been included in a consolidated, combined or unitary tax return. The total current tax liabilities of the group determined on a separate company basis may exceed taxes actually due to the respective tax authorities because of the use of losses, (i.e. NOL) or credits of group members. To the extent of such excess, the excess will be payable to those group members whose losses or credits are utilized. Other Assets Other assets consist principally of notes receivable due from a garment processor at December 31, 1995 and 1994 and long-term investments at December 31, 1994. The notes bear interest at the prime rate. Payments are made based on the billings by the processor to the Company. F-10 NCC INDUSTRIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The notes are being repaid by deduction from amounts owed by the Company to the processor for services performed. During 1995 and 1994, the Company deducted $ 453,280 and $528,920 respectively, and applied such deductions to the notes. It is estimated that the notes will be reduced by $400,000 in 1996. Concentration of Credit Risk The Company performs periodic credit evaluations of its customers' financial condition. The Company has granted credit to one customer whose balance owed consisted of 10% of the Company's accounts receivable at December 31, 1995 and 11% of the Company's accounts receivable at December 31, 1994. The Company granted credit to another customer whose balance owed consisted of less than 1% of the Company's accounts receivable at December 31,1995 and 20% of the Company's accounts receivable balance at December 31, 1994. The Company granted credit to a third customer whose balance owed consisted of 10% of the Company's accounts receivable at December 31, 1995 and 5% of the Company's accounts receivable at December 31, 1994. 2. INVENTORIES Inventories by major classifications are as follows: 1995 1994 Raw materials $ 7,566,204 $ 7,287,229 Work-in-process 10,659,170 9,639,312 Finished goods 26,795,103 22,178,113 $45,020,477 $39,104,654 3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at December 31, consisted of the following: 1995 1994 Land $ 239,867 $ 239,867 Building and building 6,334,777 6,334,777 improvements Machinery and equipment 10,201,234 9,798,420 Construction in progress 73,023 190,206 16,848,901 16,563,270 Less: Accumulated depreciation 6,693,272 5,376,952 $10,155,629 $11,186,318 F-11 NCC INDUSTRIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ___________ 4. NOTES PAYABLE, BANKS The Company participates in the consolidated cash management system of its ultimate parent, Worldwide, and its subsidiaries ("the Maidenform Group"). As such the Company is a party to and its liquidity is dependent upon the Maidenform Group's financing arrangements. Substantially all of the Company's non-payroll disbursements are controlled by the Maidenform Group. The Maidenform Group's long term debt includes a revolving credit facility for $120,000,000, a $50,000,000 term loan and $30,000,000 in senior notes for which the Company's assets and stock are pledged as collateral. Under the revolving credit facility, the Maidenform Group may borrow, repay, and reborrow through April 25, 1998, the facility expiration date; however, borrowings are limited to certain percentages of the Maidenform Group's trade accounts receivable and inventories. As of December 31, 1995, outstanding borrowings under the revolving credit facility amounted to $81,000,000. In addition, outstanding letters of credit (which reduce the maximum available borrowings) issued by the bank for the account of the Maidenform Group under the facility amounted to $3,000,000. In January and February 1996, the Maidenform Group borrowed the remaining $36,000,000 available under the facility. On March 29, 1996, the bank loan agreement was amended and the Maidenform Group borrowed an additional $20,000,000 under a new term loan, of which $10,000,000 is repayable on August 15, 1996 and $5,000,000 is repayable on each of October 30 and November 30, 1996. Proceeds of the new loan are to be used to pay trade payables. The term loan is repayable in increasing quarterly principal installments ranging form $2,000,000 to $3,000,000 commencing on June 30, 1996 through maturity on March 31, 2001 and also provides for prepayments of principal (i) from the proceeds received by the Maidenform Group in connection with certain transactions and (ii) based on a percentage of the Maidenform Group's net cash flow, as defined, for each of the three years ending December 31,1995 through 1997, payable no later April 30 of the following year. In addition, the senior notes also provide for similar prepayment at the option of the noteholders. No amounts were subject to prepayment at December 31, 1995. The senior notes are due September 30, 2003, payable in annual principal installments of $4,285,714 on each September 30, commencing 1997 through 2003. Notes payable under the above described financing arrangements are collateralized by the assets of the Maidenform Group, which include the assets of the Company. The above described loan agreements contain covenants that, among other matters, restrict additional borrowings, dividends and other payments with respect to the Maidenform Group's capital stock and provide for the maintenance of minimum consolidated tangible net worth, and certain financial ratios, including current assets (excluding inventory) to current liabilities, debt to equity, fixed charge coverage and debt to operating cash flow ratios (all as defined). At December 31, 1995, no amounts of retained earnings were available for dividends. F-12 NCC INDUSTRIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ___________ 4. NOTES PAYABLE, BANKS (Continued) The Company, based on information supplied by Worldwide, believes that these credit facilities together with continued vendor support are sufficient for it to meet its cash flow needs. As of December 31, 1994, the Company had long-term notes payable of $7,000,000 with interest at rates which were periodically negotiated (rates ranged from 6.82% to 7.49% as of December 31, 1994). At December 31, 1994, the Company also had $12,000,000 outstanding on various lines of credit. The notes payable and lines of credit were repaid during 1995 by Maidenform (see Note 9). 5. LONG-TERM DEBT Long-term debt at December 31, 1995, consisted of $2,361,415 Series "A" Industrial Development Bonds (the Bonds) issued by Cortland County Industrial Development Agency. The Bonds are tax-exempt and bear interest at various rates based on maturity, ranging from 6.6% to 8%, and are payable on September 15 and March 15 of each year. Annual maturities are $445,000 through 1998, $210,000 in 1999, and $205,000 thereafter, through September 15, 2003. The Bonds are collateralized by a first mortgage on the land, facility and certain equipment purchased with the proceeds of the bond financing. The Bonds are also collateralized by an irrevocable letter of credit for $2,542,068 which was issued for the account of the Company in favor of the Bond Trustee for the benefit of the bondholders. The Bond Indenture requires, among other things, that the Company maintain certain financial ratios. 6. INCOME TAXES The temporary differences which give rise to a significant portion of deferred tax assets and liability at December 31, 1995 and 1994 are as follows: 1995 1994 Inventory $1,415,103 $1,003,712 Accounts receivable 251,946 127,085 Depreciation (695,313) (757,354) Accruals 853,627 563,957 Employee benefit plans 595,519 560,149 Other 65,496 41,822 2,486,378 1,539,371 Less: Valuation (736,756) (659,561) allowance $1,749,622 ($ 879,810) F-13 NCC INDUSTRIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ___________ 6. INCOME TAXES (Continued) Net deferred taxes are classified as follows: 1995 1994 Current asset $2,058,824 $1,507,863 Long-term liability 309,203 628,053 $1,749,622 $ 879,810 Reconciliation of federal statutory rate to the effective income tax rate for years ended December 31 follows: 1995 1994 1993 Statutory federal taxes 34.0% 34.0% 34.0% State income taxes, net of federal income tax benefit 4.8 1.8 2.5 Adjustment of the valuation allowance 1.0 .4 3.7 Section 936 incentive credit and other (12.1) ( 7.9) (13.5) 27.7% 28.3% 26.7% 7. RETIREMENT BENEFIT PLANS Pension Plans a. The Company has a noncontributory defined benefit pension plan. Employees may no longer accrue service benefits due to an amendment in 1991, but may continue to receive service benefits for vesting purposes. The Company funds an amount each year that is necessary to keep the plan on a sound actuarial basis. The discount rate used to determine the actuarial present value of the projected benefit obligation was 7.0%, 7.5% and 6.25% at December 31, 1995, 1994 and 1993, respectively. The expected long-term rate of return on assets used to determine the net pension cost was 8%,8% and 7.5% during 1995, 1994 and 1993, respectively. F-14 NCC INDUSTRIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ___________ 7. RETIREMENT BENEFIT PLANS (Continued) A summary of the plan's funded status reconciled to the amounts reported in the Company's consolidated balance sheet at December 31 is as follows: 1995 1994 Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $1,713,533 and $1,571,377. ($1,720,724) ($1,585,552) Projected benefit obligation for service provided to date ($1,720,724) ($1,585,552) Plan assets at fair value, primarily cash equivalents and U. S. government securities 1,436,380 1,193,331 Projected benefit obligation in excess of plan assets ( 284,344) ( 392,221) Unrecognized net loss 75,369 ( 172,808) Accrued pension cost (208,975) (219,413) Minimum pension liability ( 75,369) ( 172,808) Unfunded pension liability included in accrued expenses ($ 284,344) ($ 392,221) 1995 1994 1993 Net pension cost includes: Interest cost $118,216 $108,896 $ 107,265 Actual return on plan (291,830) 106,687 assets (88,403) Net amortization and 198,880 (210,793) 9,765 deferral $ 25,266 $ 4,790 $ 28,627 b. On January 1, 1992, the Company implemented a defined contribution plan covering all participants in the defined benefit plan or active Continental U.S. employees age 21 or older with one year of service except for certain executives. Contributions to the plan are determined at the discretion of the Board of Directors and are based on participants' age and compensation. Salary deferrals may be made by the participants commencing January 1, 1993. Total defined contributions costs for 1995, 1994 and 1993 were $253,500, $247,794, and $223,772, respectively. Postretirement Health Care and Life Insurance Plan The Company provides for certain limited postretirement medical and life insurance benefits covering certain employees hired prior to December 1, 1977. The Accumulated Postretirement Benefit Obligation was determined using a discount rate of 7.0% and 6.5% at December 31, 1995 and 1994, respectively. The assumed healthcare cost trend rate used was 9.5% for 1995; the rate was assumed to decrease gradually to 5% by the year 2008 and remain at that level thereafter. F-15 NCC INDUSTRIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ___________ 7. RETIREMENT BENEFIT PLANS (Continued) A summary of the plan's funded status reconciled to the amounts reported in the company's consolidated balance sheets at December 31, 1995 and 1994 are as follows: 1995 1994 Accumulated Postretirement Benefit Obligation (APBO): Retirees $ 712,830 $ 708,000 Active plan participants fully eligible 271,467 320,600 Other active plan participants 293,920 264,500 Total APBO 1,278,217 1,293,100 Plan assets at fair value - - APBO in excess of plan assets 1,278,217 1,293,100 Unrecognized net gain 77,536 30,200 Accrued postretirement benefit obligation included in other liabilities $1,355,753 $1,323,300 1995 1994 1993 Net Periodic Post- retirement Benefit Expense: Service cost $ 10,300 $ 12,200 $ 14,400 Interest cost 85,200 84,400 99,200 Amortization of gains in excess of corridor (7,100) - - Net periodic postretire- ment benefit expense $ 88,400 $ 96,600 $113,600 A discount rate of 7.0%, 7.5% and 8% was used to determine the net periodic postretirement benefit expense for December 31, 1995, 1994 and 1993. Increasing the assumed healthcare cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1995 by $53,600 and increase the aggregate of the service cost and interest cost of net periodic postretirement benefit expense by $4,800. F-16 NCC INDUSTRIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ___________ 8. COMMITMENTS Leases Rent expense was approximately $467,000, $262,000 and $428,000 for the years ended December 31, 1995, 1994 and 1993, respectively. Minimum lease commitments, exclusive of real estate taxes and other expenses, under all noncancelable real property operating leases at December 31, 1995 are as follows: 1996 $552,962 1997 562,148 1998 583,960 1999 561,848 2000 527,738 Thereafter 1,141,625 The leases provide for the payment of increases in real estate taxes and other costs. 9. RELATED PARTY TRANSACTIONS During 1995, 1994 and 1993, the Company purchased merchandise and contracted labor from Triumph and its affiliates amounting to $25,601,000, $17,900,000, and $25,500,000, respectively. During 1995, Triumph agreed to extend terms of payment to the Company and began charging interest on the amounts owed which aged beyond 30 days payment terms. The rate of interest charged is 9% and the amounts paid in 1995 were $206,000. As of December 31, 1995 and 1994 the payable to Triumph was $5,172,771 and $2,532,502, respectively. The Company's sales to Maidenform from April 26, 1995 to December 31, 1995 were $2,595,000. The Company also has remitted to Maidenform $13,894,000 as repayment of the advances made by Maidenform used to satisfy the Company's bank debt on April 26, 1995. The Company is charged a rate which approximates prime plus 1% on its intercompany balance with Maidenform. As of December 31, 1995, $5,904,383 was payable to Maidenform. Until July 1993, Triumph guaranteed certain notes payable and lines of credit, for which the Company incurred loan guarantee fees amounting to approximately $80,000 in 1993. In July 1986, the Company's former President acquired 250,000 shares of the Company's common stock for $1 per share, which approximated market value, in exchange for a $250,000 promissory note. The promissory note called for semi-annual interest payments at an annual interest rate of 7.5%, with principal due on October 31, 1994. The former President's employment agreement also included a bonus of $550,000 which was paid upon expiration of the agreement on October 31, 1994. At such time the aforementioned note was paid in full. F-17 NCC INDUSTRIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ___________ 10. MAJOR CUSTOMERS The Company had sales to one customer which approximated 16% in 1995, 17% in 1994, and 20% in 1993. Sales to another customer approximated 14% in 1995, 18% in 1994, and 16% in 1993 and sales to a third customer approximated 11% in 1995, and 9% in 1994. 11. CONTINGENCIES The Company is subject to actions that arise in the ordinary course of its business activities. Management believes that any resolution of such matters will not materially affect the financial position or results of operations of the Company. Management believes that they have meritorious defenses and intends to vigorously defend such actions. 12. FAIR VALUES OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and cash equivalents: The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value. Investment securities: The fair value for marketable debt and equity securities are based on quoted market prices. Fair value approximates carrying value at December 31, 1995. Long term debt: The Company believes the fair value of its long-term debt approximates its carrying value as the debt is at a fixed rate that approximates the rate at which the company could currently borrow similar funds in the same jurisdiction. 13. SUBSEQUENT EVENTS In March 1996, the Company made a decision to close its subsidiary's two leased Puerto Rican manufacturing facilities and subsequent to that date began a process of notification of employees and the government of Puerto Rico. Although the government of Puerto Rico has made offers to the Company to retain the facility, which Registrant's management is considering, management believes that the facility will be closed and its sewing assembly operations will be transferred to other locations. Management believes that all equipment from these facilities will be used at other locations; however, the leases on these facilities, which have combined annual rental of approximately $94,000, do not expire until 1999 and 2003. Management has not determined the total expected cost of the closure which will be recorded in 1996. F-18 INDEPENDENT AUDITORS' REPORT The Board of Directors NCC Industries, Inc. Cortland, New York Our report on the consolidated financial statements of NCC Industries, Inc. and Subsidiary is included on page F-2 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the respective years financial statement schedule on page F-20 of this Form 10-K. In our opinion, the financial statement schedule for the respective years referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Syracuse, New York February 3, 1995 F-19 NCC INDUSTRIES, INC. AND SUBSIDIARY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 ___________ Col. A Col. B Col. C Col. D Col. E Additions Balance at Charged to Balance at Beginning Costs and End Description of Period Expenses Deductions of Period 1995 Allowance for doubtful accounts receivable $350,000 $108,000 $ 26,000 (a) $432,000 1994 Allowance for doubtful accounts receivable $350,000 ($ 16,447) ($ 16,447) (b) $350,000 1993 Allowance for doubtful accounts receivable $312,700 $ 72,400 $ 35,100 (a) $350,000
(a) Uncollectible accounts written off. (b) Uncollectible accounts written off net of bad debt recoveries. F-20 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. By: /s/ Elizabeth Coleman Elizabeth Coleman Date: 10/25/96 Chairman, President, and Chief Executive Officer F-21 -----END PRIVACY-ENHANCED MESSAGE-----