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 June 1, 1996
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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: 1-8509
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NANTUCKET INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 58-0962699
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(State of other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
105 Madison Avenue, New York, New York 10016
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(Address of principal executive offices) (Zip Code)
(212)889-5656
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(Registrant's telephone number, including area code)
_________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
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
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. As of July 2, 1996, the
Registrant had outstanding 2,988,796 shares of common stock not including 3,052
shares classified as Treasury Stock.
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
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QUARTERLY REPORT
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QUARTER ENDED JUNE 1, 1996
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I N D E X
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PAGE
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Part I.- FINANCIAL INFORMATION
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Consolidated balance sheets 3
Consolidated statements of operations 4
Consolidated statements of cash flows 5
Notes to consolidated financial statements 6 - 8
Management's discussion and analysis of
financial condition and results of operations 9 - 10
Part II.- OTHER INFORMATION 11
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Signature 12
2
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 1, March 2,
1996 1996
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(unaudited) (1)
ASSETS
CURRENT ASSETS
Cash $15,085 $15,085
Accounts receivable, less allowance for
doubtful accounts of $70,000 and $40,000,
respectively 4,081,638 4,417,033
Inventories (Note 2) 9,207,688 10,156,639
Other current assets 805,225 729,145
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Total current assets 14,109,636 15,317,902
PROPERTY, PLANT AND EQUIPMENT - NET 3,358,903 3,498,825
OTHER ASSETS,NET 35,806 38,413
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$17,504,345 $18,855,140
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt (Note 6) $1,170,000 $1,275,000
Accounts payable 1,297,384 1,721,852
Accrued salaries and employee benefits 511,406 383,595
Accrued unusual charge (Note 5) 465,000 465,000
Accrued expenses and other liabilities 382,584 392,789
Accrued royalties 230,402 249,792
Income taxes payable 1,909 2,934
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Total current liabilities 4,058,685 4,490,962
LONG-TERM DEBT (Note 6) 8,672,664 8,428,782
ACCRUED UNUSUAL CHARGE (Note 5) 576,878 678,879
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13,308,227 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 2,991,848 299,185 299,185
Additional paid-in capital 11,556,386 11,556,386
Accumulated deficit (7,640,016) (6,579,617)
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4,216,055 5,276,454
Less 3,052 shares at June 1, 1996 and 3,052 at March 2, 1996
of common stock held in treasury, at cost 19,937 19,937
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4,196,118 5,256,517
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$17,504,345 $18,855,140
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(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)
Thirteen Weeks Ended
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June 1, May 27,
1996 1995
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Net sales $6,687,913 $10,492,736
Cost of sales 5,711,140 7,886,142
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Gross profit 976,773 2,606,594
Selling, general and administrative
expenses 1,765,483 2,019,026
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Operating (loss) profit (788,710) 587,568
Interest expense 271,689 331,326
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Net (loss) income (1,060,399) 256,242
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Net (loss) income per share ($0.36) $0.09
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Weighted average common shares outstanding 2,988,796 2,981,296
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The accompanying notes are an integral part of these statements.
4
Nantucket Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Thirteen Weeks Ended
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June 1, May 27,
1996 1995
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Cash flows from operating activities
Net (loss) income ($1,060,399) $256,241
Adjustments to reconcile net (loss) income
to net cash provided by (used in) operating activities
Depreciation and amortization 76,218 91,898
Provision for doubtful accounts 30,000 30,000
Provision for obsolete and slow moving inventory 235,000 60,000
Decrease (increase) in assets
Accounts receivable 365,484 (732,755)
Inventories 713,951 197,801
Other current assets (76,080) (38,219)
(Decrease) increase in liabilities
Accounts payable (424,467) 185,515
Accrued expenses and other liabilities 98,216 (311,591)
Income taxes payable (1,026) -
Accrued unusual charge (102,001) (98,788)
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Net cash used in operating activities (145,104) (359,898)
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Cash flows from investing activities
Removals (additions) to property, plant and equipment 3,615 (44,799)
Decrease in other assets 2,607 31,850
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Net cash provided by (used in) investing activities 6,222 (12,949)
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Cash flows from financing activities
Payments of short-term debt (160,000) -
Borrowings under line of credit agreement, net 298,882 372,647
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Net cash provided by financing activities 138,882 372,647
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NET DECREASE IN CASH 0 ($200)
Cash at beginning of period 15,085 32,049
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Cash at end of period $15,085 $31,849
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SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the period:
Interest $165,884 $302,911
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Income taxes - -
=============== =============
The accompanying notes are an integral part of these statements
5
NANTUCKET INDUSTRIES, INC.
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AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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THIRTEEN WEEKS ENDED JUNE 1, 1996 AND MAY 27, 1995
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(unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of June 1, 1996 and the consolidated
statements of operations and statements of cash flows for the thirteen
weeks ended June 1, 1996 and May 27, 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 June 1, 1996 and the results of their operations
and cash flows for the thirteen weeks ended June 1, 1996 and May 27, 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:
June 1, May 27,
1996 1995
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Raw materials $ 1,252,006 $ 1,812,761
Work in process 3,993,808 5,449,009
Finished goods 3,961,874 3,464,625
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$ 9,207,688 $ 10,726,395
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6
NANTUCKET INDUSTRIES, INC.
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AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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THIRTEEN WEEKS ENDED JUNE 1, 1996 AND MAY 27, 1995
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(continued)
(unaudited)
3. INCOME TAXES
At June 1, 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 caryforward if the ownership
change, as computed under such regulations, exceeds 50%. Through June, 1996
the change in ownership was approximately 40%.
4. STOCKHOLDERS' EQUITY
On March 22, 1994, the Company sold to its Management Group 5,000 shares of
non-voting convertible preferred stock for $1,000,000. These shares are
convertible into 200,000 shares of common stock at the rate of $5.00 per
share. These shares provide for cumulative dividends at a floating rate
equal to the prime rate and approximate $ 180,000 at June 1, 1996. Such
dividends are convertible into common stock at the rate of $5.00 per share.
These preferred shares are redeemable, at the option of the Company, on or
after February 28, 1999 and have a liquidation preference of $200 per
share.
In connection with the Company's refinancing on March 22, 1994, the Company
entered into a $2,000,000 Term Loan Agreement with Chemical Bank. Pursuant
to the agreement, the Company issued to Chemical Bank 10,000 treasury
common shares, 7,500 in the fiscal year ended March 2, 1996 and 2,500 in
the fiscal year ended February 25, 1995, related to its decision to defer
making mandatory prepayments.
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 June 1, 1996, $872,000 of this accrual has been paid;
$770,000 through March 2, 1996 and $102,000 in the current fiscal year
through June 1, 1996
7
6. CREDIT AGREEMENT AMENDMENT
As of 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) the extension of the agreement through March 20,
1998. Renewal date to March 20, 1998.
7. Private Placement
In April, 1996 the Company signed a letter of intent for a $3.5 Million
private placement consisting of 250,000 shares of common stock and $
2,625,000 of 12.5% convertible subordinated debentures due August 31, 1996.
The debentures would be secured by a second mortgage on the Company's
manufacturing and distribution facility in Georgia and are convertible into
467,167 shares of common stock in specified amounts after specified dates
at prices ranging from $5.10 to $6.00. On June 25, 1996 the Company
discontinued negotiations and commenced discussions with a new investor
group. Upon completion of this transaction, the net proceeds will be used
to prepay the balance payable to Chemical Bank. Accordingly, the entire
balance is included in current liabilities. The remaining net proceeds will
be used to reduce the outstanding balance with Congress.
8
NANTUCKET INDUSTRIES, INC.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
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Sales
Net sales for the three months ended June 1, 1996 decreased 36% from prior year
levels to $6,688,000. This decline reflects the planned inventory reductions by
the Company's major customer in anticipation of the second fiscal quarter
introduction of Brittania by Levi's with initial shipments of significant orders
expected at the end of July, 1996. Sales of GUESS? products increased 34% over
prior year levels as retailers made available space for introductions of the
new GUESS? Essentials line which began selling at retail in June, 1996.
Gross Margin
Gross profit margins decreased from prior year levels of 25% to 15%. This
decline is a result of increased manufacturing variances associated with
additional processing costs of imported garments coupled with the impact of
close-out sales in the GUESS? division during the first quarter. Losses
associated with these sales were reserved for in the fourth quarter of the prior
fiscal year.
Selling, general and administrative expenses
Selling, general and administrative expenses decreased 12% to $1,765,000
compared to $2,019,000 for the first quarter of the prior year. The decrease of
$254,000 is primarily the result of a reduction in variable selling costs
related to the changes in net sales. Selling, general and administrative
expenses increased to 26% of sales of the prior year's level of 19% reflecting
the fixed components of these expenses.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Liquidity and Capital Resources
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In March, 1994 the Company was successful in refinancing its credit agreements
with (i) a three year $15,000,000 revolving credit facility, including a
$3,000,000 letter of 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. Additionally, the $1,000,000
investment in the Company by the Management Group and the sale of 490,000 shares
of common treasury stock to GUESS?, Inc. and certain of its affiliates increased
the Company's liquidity and capital resources. The net proceeds of $2.9 million
from the sale of treasury shares was used to prepay $500,000 of bank debt and
the balance provided additional working capital resources.
Under the terms of the $2,000,000 Term Loan Agreement with Chemical Bank,
scheduled installments of $500,000 each 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.
The Company believes that the credit facility provides adequate financing
flexibility to fund its operations at current levels. The company is seeking
additional funding to finance its expected growth.
Working capital decreased $828,000 from year-end levels to $9,998,000. This
decrease is primarily due to a $949,000 decline in inventory levels resulting
from close-out sales. A decrease in accounts receivable was offset by a
decrease in accounts payable.
The Company believes that the moderate rate of inflation over the past few years
has not had significant impact on sales or profitability.
10
PART II
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Item 1. Legal Proceedings
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None
Item 2. Changes in Securities
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None
Item 3. Defaults Upon Senior Securities
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None
Item 4. Submission of Matters to a Vote of Security Holders
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None
Item 5. Other Information
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As of 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) the extension of the agreement through March 20,
1998. Renewal date to March 20, 1998.
Item 6. Exhibits and Reports on Form 8-K
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(c) Exhibits
(10)(ii)(1) Amendment dated May 31, 1996 to the Loan and Filed Herewith
Security Agreement with Congress Financial Corporation
dated March 24, 1994.
(27) Financial Data Schedule for 3 months period ending
June 1, 1996.
(b) Reports on Form 10K None
11
SIGNATURE
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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)
By: /s/ Ronald S. Hoffman
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(Chief Accounting Officer)
Vice President - Finance
July 12, 1996
12