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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended March 2, 1996
Commission file number 1-8509
NANTUCKET INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-096269
(State or other jurisdiction of (I.R.S. 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)
Common Stock, $.10 par value American Stock Exchange
Securities registered pursuant to Name of each exchange on which registered
Section 12(g) of the Act:
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 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The aggregate market value of the outstanding Common Stock of the registrant
held by non-affiliates of the registrant as of May 21, 1996, based on the
closing price of the Common Stock on the American Stock Exchange on said date
was $9,775,000.
As of May 21, 1996, the Registrant had outstanding 2,988,796 shares of Common
Stock not including 3,052 shares classified as Treasury Stock.
DOCUMENTS INCORPORATED BY REFERENCE.
The following items are incorporated by reference from the proxy statement for
the fiscal year ended March 2, 1996:
PART III - Items 10, 11, 12, 13.
PART I
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ITEM 1. BUSINESS
General
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Nantucket Industries, Inc. (the "Company") produces and distributes popular
priced branded men's' fashion undergarments for sale, throughout the United
States, to mass merchandisers and national chains. Nantucket also produces,
under the GUESS? label, women's innerwear which it sells to department and
specialty stores. This allows the Company to be a major supply source for men's'
and women's undergarments and intimate apparel covering many retail price
points. Production and distribution of the Company's product lines is based in
its facility in Cartersville, Georgia. From November, 1992 to July 1, 1994, when
it was closed, the Company had a manufacturing facility in Rio Grande, Puerto
Rico. In addition, substantial quantities of the Company's products are
manufactured by offshore production contractors located in the Far East,
Caribbean Basin and South America.
Since its founding in 1947, the Company has gradually evolved into a major
manufacturer of high fashion, creatively styled men's' and ladies'
undergarments. With this transition has come an increased emphasis upon quality
control, creative fashion design, innovative marketing and brand name
recognition. With the commencement in fiscal 1994 of the GUESS? Division, the
Company has expanded its customer base from mass merchandisers and chain stores,
to better department stores and specialty stores.
Restructuring Strategy
- ----------------------
In recent years, the Company was burdened with an unprofitable Puerto Rico
facility and low margin product lines which created challenges in its business,
profitability and financial resources. In the fourth quarter of the fiscal year
which ended February 26, 1994 the Company began the implementation of a
restructuring strategy to improve operating results and enhance its financial
resources.
Specific steps taken included:
. The shutdown of the Puerto Rico facility
. Improving the product mix by eliminating unprofitable lines
(women's products other than those sold under the GUESS? license
and socks) and terminating business with Avon Products, the
principal customer of the Puerto Rico facility
. Terminating the employment contracts of its former chairman and
vice chairman,
. Increasing equity through a $1 million private placement to the
new management team and the sale of $2.9 million of treasury
stock to GUESS?.
. Obtaining additional working capital financing through the
restructuring of credit facilities.
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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, 2001. The debentures
will 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. Closing of the transsaction is expected in early June, 1996.
In connection with the implementation of these actions, the Company
reflected, as described in Note 2 of its financial statements for the fiscal
years ended February, 1995 and February, 1994, unusual charges, of $1,252,400
and $5,450,000, respectively. The combined charges for both years include
approximately $760,000 of expenses incurred in closing the Puerto Rico facility,
write-downs and reserves of asset values and other non-cash items ($1.5 million
write-off of goodwill, $2.1 million writedowns of inventory, $530,000 writedowns
of fixed assets) and the accrual for the severance payments to the former
Chairman and Vice Chairman of the Board ($1,765,000). As described below, in
fiscal 1996 the Company recorded an unusual credit of $300,000 related to the
elimination of a subordinated note payable associated with the purchase of the
Puerto Rico facility since the likelihood of payment on such note is considered
remote.
Phoenix Associates, Inc.
- ------------------------
As of November, 1992, the Company acquired all of the stock of Phoenix
Associates, Inc. ("Phoenix") located in Puerto Rico. Phoenix manufactured men's'
and ladies' undergarments and ladies' apparel as an exclusive contractor of the
Company. The purchase price was $1,500,000 plus contingent payments based on
sales and margins of products sold to Avon Products, Inc., a major customer of
Phoenix.
In April, 1993, in connection with the annual audit of the Company's
financial statements for the fiscal year ended February, 1993, the Company
discovered an inventory variance of $1,700,000 at the Phoenix facility. The
Company determined that this was principally attributable to previously
unrecorded manufacturing and material cost variances at the Phoenix facility.
The ongoing manufacturing inefficiencies and cost variances continued and,
in the fourth quarter of fiscal 1994, the Company formulated plans to close this
facility. Operations at this facility ceased as of July, 1994.
For the year ended February, 1994 an unusual charge was recorded which
included $3,308,000 attributable to the shutdown of this facility. A final
assessment associated with this closing required additional write-offs,
reflected as an unusual charge of $1,252,400 in fiscal 1995. These charges,
related to the closing of the Phoenix facility, are as follows:
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Fiscal 1995 Fiscal 1994
Shutdown Costs $160,000 $300,000
Write-off Goodwill $1,478,000
Write-off Inventory $1,092,400 $1,000,000
Write-down of Property, Plant
and Equipment $530,000
In 1993, the Company, and its wholly-owned subsidiary, Nantucket Mills,
Inc. initiated an action against the former owners of the Puerto Rico
facility. In the third quarter of the current fiscal year, the Company
concluded that its claims against the holder of a note payable from Mills
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 being required is
remote. Accordingly the Company has eliminated this payable and reflected
such reduction as an unusual credit in the accompanying financial
statements.
Financing Arrangements
----------------------
Revolving Credit
The company had a $9.5 million secured borrowing facility with
Chemical Bank which expired on February 28, 1994. On March 22, 1994,
the Company entered into a new $15 million three year revolving credit
facility with Congress Financial Corp. The revolving credit agreement
provides for loans based upon eligible accounts receivable and
inventory, a $3,000,000 letter of credit facility and purchase money
term loans of up to 75% of the orderly liquidation value of newly
acquired and eligible equipment. Borrowings bear interest at 1-3/4% to
3% above prime. The agreement requires, among other provisions, the
maintenance of certain working capital and net worth and also contains
restrictions regarding payment of dividends. Borrowings under the
agreement are collateralized by substantially all of the assets of the
Company.
In connection with this refinancing, the Company used
$5,090,000 of the proceeds of the revolving credit facility to reduce
the balance due to Chemical Bank and simultaneously entered into a
$2,000,000 Term Loan Agreement with Chemical Bank. At December 15, 1995
$1,000,000 was outstanding under this loan. Pursuant to an amendment to
this agreement, the Company made payments of $100,000 each on December
31, 1995 and January 31, 1996 and agreed to pay the remaining $800,000
in 15 equal installments commencing March 31, 1996. The amendment also
requires certain prepayments in the event the Company refinances any
existing debt or obtains additional equity or debt financing. Pursuant
to the agreement, the Company issued 10,000 treasury common shares
related to its decision to defer making the mandatory prepayments.
4
Real Estate Financing
On June 8, 1994 the Company borrowed $1,500,000 under a
separate five year term loan with Congress Financial Corp. and repaid a
$1,700,000 Industrial Revenue Bond financing. The Congress loan is
secured by the Company's facility in Cartersville, Georgia.
Capital Investment and Change of Management
- -------------------------------------------
Simultaneously with the financing transactions described above, on March 22,
1994 the Samberg Group, L.L.C. (the "Group"), a limited liability company
organized under the laws of Delaware and comprising as members Stephen M.
Samberg ("Samberg"), Stephen P. Sussman, Robert Polen , Raymond L. Wathen and,
effective January 30, 1995 , Toby Hoffman (collectively, the "Group Members")
purchased 5,000 shares of the Company's Non-Voting Convertible Preferred Stock
("Preferred Stock") for $1,000,000. The Preferred Stock acquired by the Group is
convertible into shares of Common Stock, $.10 par value per share, of the
Company ("Common Stock") at the rate of $5.00 per share.
Also, on March 22, 1994, Samberg, President of the Company, was elected
Chairman of the Board, Chief Executive Officer and Treasurer of the Company by
the board of directors of the Company (the "Board"). Concurrently, George J.
Gold resigned as Chairman of the Board and Treasurer of the Company and Donald
D. Gold resigned as Vice Chairman of the Board and Secretary of the Company.
(George J. Gold and Donald D. Gold are referred to herein collectively as the
"Golds".)
The Golds' existing employment contracts (the terms of which expire on
February 28, 1999) have been canceled and replaced by a Termination and
Severance Agreement pursuant to which the Golds will receive aggregate payments
for severance of approximately $400,000 per year and other benefits for five
years. Included in the unusual charge provided in the financial statements for
the fiscal year ended February 26, 1994 is $1,765,000 attributable to the
accrual of the present value of such severance payments.
Also, effective as of March 22, 1994 Messrs. Philip A. Gold and Drew F.
Wofford resigned as directors. Such vacancies have been filled by electing as
directors Raymond L. Wathen, the President of the Company's GUESS? division, and
Ronald S. Hoffman, who at the date of his election was not affiliated with the
Company. As of July 1, 1994, Mr. Hoffman joined the Company as Vice President
Finance and Chief Financial Officer; he remains a director.
Finally, all of the Golds, The Group, the Group Members and the Company have
entered into a voting trust agreement (the "Voting Trust Agreement") for a term
of five years, providing for the Voting Trustee thereunder to vote shares owned
by such parties as follows:
(i) in all elections for director through the 1996 election, in
favor of the two Golds, the Group Non-Employee Director (as defined
in the Voting Trust Agreement generally to mean a nominee of the
Group who is not an employee of the Company), Samberg,
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Wathen (or replacements therefor designated by the Group), and
Robert M. Rosen and/or one or more other directors who are
neither employees of the Company nor affiliates or close
associates of a competitor or licensor of the Company
("Non-Employee Directors") nominated in accordance with the
Voting Trust Agreement (if any directors so elected fail to
finish their respective three-year terms, the election of their
successor would be subject to the same requirements);
(ii) in all elections for director through the remaining term of the
Voting Trust Agreement, in favor of the two Golds, Samberg and one
other nominee designated by the Group, and with respect to other
nominees in accordance with the direction of the beneficial owners
of the shares in the voting trust with respect to their respective
shares, provided that any such owner wishing to vote against any
nominee must give notice thereof at least 15 days prior to the vote;
(iii) with respect to any merger, sale of assets, share issuance
requiring shareholder approval or similar transaction outside of the
ordinary course of business, as directed by the beneficial holders
of the shares held in the voting trust with respect to their
respective shares; and
(iv) with respect to any other matter in accordance with the vote of
a plurality of the holders of Common Stock other than the shares
held in the voting trust, provided that if fewer than 50% of such
shares in the aggregate are voted (either for or against) with
respect to such matter, the Trustee shall abstain from voting with
respect to such matter.
The total number of shares of Common Stock subject to the Voting Trust
Agreement as of the date hereof is 708,923 which represents approximately 24% of
the outstanding Common Stock and which does not include shares of non-voting
Preferred Stock owned by the Group and convertible to Common Stock.
Products and Sales
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The Company manufactures and sells men's' fashion underwear to mass
merchandisers and, in the case of the GUESS? division, men's' and ladies'
undergarments to better department and specialty stores, primarily through
direct contact by salaried and commissioned Company sales personnel. All sales
are made to customers generally not affiliated with the Company. These goods are
sold under various licensed trademarks as well as under the private label of the
customer. The Company promotes its brand name undergarments with seasonal
marketing programs and sales events. Through the fiscal year ending February 26,
1994, the Company also sold ladies' socks and hosiery.
The Company operates as a single business segment. Net sales and operating
profits or losses for each of fiscal years ending March, 1996, February, 1995
and February, 1994 are presented in the accompanying financial statement
captioned "Consolidated Statements of Operations".
6
Mens' Undergarments
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The Company's men's' fashion briefs are sold primarily under the licensed
trademarks "BRUT", "BRUT 33", "BRITTANIA", "ARROW", "BOTANY 500" and "GUESS?".
The Company targets undergarments marketed under each of these trademarks to
different segments of the market.
GUESS? Division
- ---------------
The Company sells ladies' innerwear and men's undergarments under the
licensed trademark "GUESS?". These products are distributed through better
department and specialty stores. Sales of GUESS? products commenced at the end
of the third fiscal quarter of fiscal 1994 and did not account for a significant
percentage of the Company's consolidated net sales during that year. Sales in
fiscal 1996 and 1995 of GUESS? products aggregated $ 4.9 million and $3.1
million respectively.
Eliminated Product Lines
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Ladies' Undergarments and Outerwear
-----------------------------------
The ladies' undergarment and outerwear division manufactured and
sold a number of products including panties, crop tops, bodysuits, sports
bras, thermal underwear, sweatshirts, night shirts, boxer shorts, and
specially designed panties for incontinent women. During fiscal 1994, the
Company ceased operations at this division in order to focus its resources on
the higher margin Mens' and GUESS? divisions.
The Company continues to design, manufacture and sell ladies'
innerwear through the GUESS? division.
Ladies' undergarments and outerwear accounted for approximately 3%
of the Company's consolidated net sales in fiscal 1994.
Women's Sock Division
---------------------
The women's sock division shipped basic, sports and fashion sock
styles in single and multi-pair packages to mass merchants, specialty stores
and shoe chains. The Company did not manufacture any socks or hosiery and
acquired all its product from independent domestic sources. During fiscal
1994, the Company ceased operations at this division.
Sales of women's socks and hosiery accounted for approximately 10%
of the Company's consolidated net sales in fiscal 1994.
7
Avon Products, Inc.
-------------------
The principle customer of the Company's Phoenix facility in Puerto
Rico was Avon Products, Inc. In conjunction with the shutdown of this
facility, the Company terminated its business with Avon. Sales to Avon
represented 12% of the Company's consolidated net sales in fiscal 1994.
Sources of Materials
- --------------------
The Company uses primarily cotton and synthetic fabrics (nylon, polyester and
acetate) for its undergarment products. At present, adequate supplies of raw
materials are available from numerous sources. The Company purchases raw
material from numerous domestic sources and purchases complete garments from
foreign manufacturers located in the Far East, Mexico and the Caribbean Basin
and has products sewn in the Caribbean basin and Colombia. Such foreign
manufacturers account for production of approximately 70% of all the Company's
products.
The Company does not have any long term contracts with any of its foreign
manufacturers.
Licenses and Trademarks
- -----------------------
On December 7, 1992, the Company signed an agreement with GUESS?, Inc. for
the exclusive United States rights to produce and sell undergarments bearing the
"GUESS?" trademark and variations thereof. Effective May 31, 1996, the license
was extended through the period ended May 31, 1999. Minimum royalties of $70,000
for the 18-month period ended May 31, 1994, $105,000 for the 12 month period
ended May 31, 1995 and $140,000 for the period to end May 31, 1996 were
exceeded. Minimum royalties will increase by $35,000 in each 12-month period
thereafter. The license is subject to termination prior to its expiration if
certain minimum sales goals are not met. Such minimum sales goals of $1 million
for the 18-month period December 1, 1992 through May 31, 1994 , $2 million for
the 12 months ended May 31, 1995 and $3 million for the period to end May 31,
1996 were exceeded. For the contract year ending May 31, 1997, minimum sales of
$8 million are required. For each contract year ending in May thereafter, the
minimum sales goal increases by $2,000,000. The Company began shipping product
under this trademark during the third quarter of fiscal 1994. Net sales of
GUESS? products were $4.9 million in fiscal 1996, $3.2 million in fiscal 1995
and $620,000 in fiscal 1994. Sales for the contract year ending May, 1996 will
exceed the minimum.
On September 6, 1988, the Company acquired a license with BRITTANIA
Sportswear, Ltd. a wholly owned subsidiary of Levi Strauss, to manufacture and
market men's' underwear and ladies' intimate apparel, including bra and panty
coordinates,and, as of January, 1996, men's and ladies loungewear, under the
trademark "BRITTANIA". The license, which is to expire in December, 1996 is
expected to be renewed for at least a two year term with additional renewal
options expected. Minimum royalties of $144,000 in calendar year 1994, $220,000
in calendar year 1995 and $230,000 in calendar year 1996 are guaranteed under
this license. Sales under this
8
license represented approximately $14.6 million in fiscal 1996, $14.2 million in
fiscal 1995 and $6.9 million in fiscal 1994.
The Company's license for use of the "BRUT" and "BRUT 33" trademarks in
connection with its men's' undergarments expires in February 1998. The license
may, however, be revoked prior to its expiration, at the licensor's option, in
the event that net sales are less than $5,000,000 in any fiscal year. Products
sold under the "BRUT" and "BRUT 33" license agreements represented $5.1 million
in fiscal 1996, $6.5 million in fiscal 1995 and $8.3 million in fiscal 1994. A
minimum royalty of $100,000 is guaranteed under the License for each annual
period.
On October 5, 1992, the Company signed an agreement with Cluett, Peabody &
Co., Inc. for the exclusive United States rights to produce and sell men's' and
boys' fashion underwear, T-shirts, V-neck shirts, tank tops, briefs and boxer
shorts bearing the "ARROW" trademark during the period commencing January 1,
1993 and expiring, as extended, through December 31, 1999. A minimum royalty of
$162,500 is guaranteed under the license for each annual period commencing
January 1, 1993 and expiring on December 31, 1996; and a minimum royalty of
$250,000 is guaranteed for each such period during the extension period. The
Company began shipping product under this trademark during the first quarter of
fiscal 1994. Net sales under this license were $4.8 million in fiscal 1996, $4.3
million in fiscal 1995 and $6.3 million in fiscal 1994.
On December 21, 1992, the Company signed an agreement with McGregor
Corporation for the exclusive United States rights to produce and sell men's'
and boys' fashion knit underwear briefs bearing the "BOTANY 500" trademark
during the period commencing on January 1, 1993 and expiring, pursuant to an
extension, December 31, 1998 with further extensions through December 31, 2001.
McGregor Corporation may, at its option, terminate the license prior to its
expiration if certain minimum sales goals are not met. Minimum sales levels for
calendar 1996 are $750,000 and $1 million for each calendar year thereafter
through December 31, 1998. The Company began shipping product under this
trademark during the first quarter of fiscal 1994. Net sales under this license
were $1.1 million in fiscal 1996, $1.1 million in fiscal 1995 and $991,000
during fiscal 1994.
On November 20, 1991, the Company signed sublicense agreements with Dawson
Consumer Products, Inc. for the exclusive United States rights to produce and
sell men's' high fashion knitted underwear briefs bearing the "ADOLFO" and "JOHN
HENRY" trademarks. The license for ADOLFO expired on September 30, 1994. During
fiscal 1996, Dawson Consumer Products relinquished its license for the JOHN
HENRY trademark. Accordingly, the Company gave up its right to the JOHN HENRY
brand. Net sales of ADOLFO and JOHN HENRY products were not significant in any
reported fiscal year.
The loss of the right to sell products under these labels would have a
material adverse effect on the Company.
On April 3, 1990, the Company signed an agreement with "DANSKIN", a division
of Esmark Apparel, Inc., for the exclusive United States rights to produce and
sell women's socks bearing the DANSKIN trademark. The license expired September
30, 1993. Net sales under this license
9
were approximately $2.2 million for fiscal 1994. The Company has terminated its
women's sock division.
Seasonality
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Sales of the Company's products are traditionally highest in the third fiscal
quarter, which extends through autumn, when many of the pre-Christmas sales are
made, and are typically lowest in the fourth fiscal quarter.
Customers
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Three of the Company's customers each accounted for more than 10% of the
Company's consolidated net sales during fiscal 1996, 1995 and 1994.
For the fiscal year ended March 2, 1996, approximately 40% of the Company's
consolidated net sales were made to K-Mart, as compared to 43% for fiscal 1994,
and 27% for fiscal 1994.
For the fiscal year ended March 2, 1996, approximately 21% of the Company's
consolidated net sales were made to were made to Target Stores, as compared to
17% for fiscal 1995 and 15% for fiscal 1994.
For the fiscal year ended March 2, 1996, approximately 13% of the Company's
consolidated net sales were made to Sears, as compared to sales in the prior
fiscal year of 12%. Sales in fiscal 1994 were 14% of consolidated sales.
The Company has long standing relationships with these customers and believes
that such relationships will continue. However, loss of any of these customers
could have a material adverse effect on the Company.
For the fiscal year ended February 26, 1994, approximately 12% of the
Company's consolidated net sales were made to Avon Products. Substantially all
of the goods sold to Avon Products had been produced at the Phoenix Puerto Rico
facility. As a result of the shutdown of the Puerto Rico facility, the Company
ceased selling products to Avon Products in the fiscal year ended February,
1994.
No other customer accounted for more than 10% of the Company's consolidated
net sales for fiscal 1996, 1995 or 1994.
Delivery Requirements
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All purchase orders are taken for current delivery and the Company has no
long-term sales contracts with any customer, or any contract entitling the
Company to be the exclusive supplier of merchandise to a retailer or
distributor.
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Backlog
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The backlog of orders for the Company's products at February, 1996 and 1995
was in excess of $2 million. The backlog at the beginning of each fiscal year is
traditionally lower than at other times during the year, and is not necessarily
indicative of sales prospects for an entire year. Although substantially all of
such orders are subject to cancellation, the Company expects them to be filled
within the current fiscal year.
Backlog levels have decreased due to the Company's continuing implementation
of "just in time" delivery through EDI (electronic data interchange) with most
of the Company's major customers. For fiscal 1996 approximately 95% of the
orders for the men's' division were received through EDI. All EDI orders are
received and shipped on a weekly basis, and industry wide adoption of EDI has
reduced the time between order and delivery. Coupled with the large size of many
of the Company's customers, this has tended to increase the levels of inventory
that the Company is required to maintain in order to fulfill its customers'
requirements. The Company has recognized the need to more closely monitor
inventory levels as well as its purchasing function and will seek to obtain from
its suppliers the same short term delivery commitments that it affords to its
customers.
Competition
- -----------
All of the Company's markets are highly competitive.
During the past several years there has occurred a reduction in the number of
retailers available to purchase the Company's products. The remaining retailers
are relatively larger and possess strengthened negotiating positions. It has
become increasingly important that the Company cooperate closely with its
customers, who are among the largest retailers in the United States, in the
development of products, programs and packaging and that it be able to quickly
and completely ship orders which it receives through EDI. During the fiscal year
ended February 26, 1994, the Company experienced difficulty in filling all of
its orders, caused in large part by the cash shortage resulting from losses at
its Puerto Rico facility and the expiration of its financing arrangement with
Chemical Bank. The Company's cash position has been improved significantly by
the refinancing in March 1994 and the additional equity of $3.9 million raised
in fiscal 1995.
The Company competes in the manufacture of its products with numerous other
companies, many of which have substantially greater financial resources than the
Company. The Company's competitors include manufacturers of retailers' private
label, designer label and unbranded merchandise, as well as manufacturers which
produce goods for sale under their own recognized name brands.
Although the largest producers of branded men's' underwear are Fruit of the
Loom, Inc. and Hanes, the Company does not consider these large national brands
to be its direct competition. The Company primarily produces and sells fashion
underwear either under licensed brands which have consumer recognition in areas
other than undergarments or under so-called "private labels" for specific
retailers.
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The Company's largest competition in the GUESS? Division's business are
Calvin Klein and Jockey.
The Company has succeeded in licensing brand names which are potentially very
significant, primarily as a result of its past successes in extending brand
names to its products. The successful implementation of a typical brand name
program requires close coordination between the licensor of the trademark (who
is concerned about the design and quality of product to be sold under its mark
as well as the type of retail outlet in which the products will be sold), the
manufacturer and the retailer. The Company considers that it has particular
expertise in developing such programs. Other competitive considerations include
product design expertise, packaging and shipping reliability, all of which are
strong areas for the Company. Of course, there is no assurance that the Company
will continue to be successful in acquiring or retaining licenses to use
desirable brand names or that, once acquired, such brand names will be
attractive to consumers.
The Company has developed and patented packaging which it believes makes its
products more attractive to the consumer and more theft and damage resistant
than its competitors' packaging. It involves a transparent plastic blister pack
which allows single or multiple garments to be visible in a package which is
heat sealed. Unlike the typical cardboard box with only a small transparent
window, all garments are visible without the need to open the package and, in
fact, the package cannot be opened without a cutting implement. As a result, the
Company has received fewer returns of damaged merchandise. This new packaging
continues to receive strong acceptance.
Imports
- -------
The Company fills 70% of its production requirements through imported
merchandise produced in factories in Mexico, the Caribbean and the Far East. A
variety of sources are utilized in order to increase the reliability of supply.
In addition, the Company deals with contractors who cut and sew garments for the
Company in various locations including South America and the Caribbean. The
primary factors which determine whether the Company will import a specific
garment, have it produced by contractors or produce it at the Company's domestic
facility are the amount of labor required to produce the garment and the time
available between order and delivery dates. Importing is most advantageous for
garments with a high labor content and relatively long delivery time.
Environmental Matters
- ---------------------
The Company believes that its manufacturing facility materially conforms to
all governmental regulations pertaining to environmental quality as presently
promulgated.
Employees
- ---------
On March 2, 1996, the Company had a total of approximately 356 employees, of
which 331 were located in Cartersville, Georgia. This represents a 28% reduction
from the prior level of 498 employees reflecting the Company's decision to
transfer domestic production to offshore
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contracting facilities and expand distribution activities at the Cartersville
facility. None of the Company's employees is covered by a collective bargaining
agreement. The Company has never experienced a work stoppage due to labor
difficulties and believes that its relations with its employees are
satisfactory.
ITEM 2. PROPERTIES
The Company's executive offices and showrooms, containing an aggregate of
10,000 square feet of floor area, are located at 105 Madison Avenue, New York,
New York. The Company occupies these premises under a lease which expires in
May, 1997 and provides for aggregate annual rentals of approximately $242,000,
plus increases for certain taxes, energy costs, and any legally required safety
improvements.
The Company owns a 160,000 square foot manufacturing and distribution
facility in Cartersville, Georgia. The Cartersville facility is subject to a
first mortgage lien to Congress Financial and a second mortgage lien to Chemical
Bank collateralizing all of the Company's indebtedness to such lenders. The
Cartersville facility is suitable for the manufacture and distribution of the
Company's products and provides adequate manufacturing facilities for all
planned domestic production.
ITEM 3. LEGAL PROCEEDINGS
On September 27, 1993, a civil action (case No. 93-6766) was instituted by
the Company and its wholly-owned subsidiary, Nantucket Mills, Inc. ("Mills") in
the United States District Court, Southern District of New York, against Stanley
R. Varon and others, seeking compensatory damages of approximately $4,000,000
plus declaratory and injuctive relief for acts of alleged securities fraud,
fraudulent conveyance, breach of fiduciary trust and unfair competition. The
action arises out of the acquisition by Mills of all of the common stock of
Phoenix Associates, Inc. ("Phoenix") from Mr. Varon and Armando Lugo on February
22, 1993. Certain claims against Mr. Varon arise from facts which predate the
acquisition of Phoenix as well as from his former positions as a director,
officer and employee of Nantucket.
On September 27, 1993 the Company and Mills filed a Demand for Arbitration
and Notice to Arbitrate with the American Arbitration Association Commercial
Arbitration Tribunal, with respect to a dispute between the Company and Mills,
as claimants, and Mr. Varon and Mr. Lugo, as Respondents. The Demand for
Arbitration seeks rescission of the stock purchase agreement, rescission of the
employment agreement between Nantucket and Varon, as well as compensatory
damages of approximately $4,000,000, all on account of alleged breaches of
representations and warranties contained in said stock purchase agreement,
fraudulent misrepresentations with respect to Phoenix, and breach of fiduciary
trust.
13
On November 16, 1993 in connection with such civil action and arbitration
proceeding, Mr. Varon filed certain counterclaims against the Company and Mills
alleging improper termination and breach of his Employment Agreement with the
Company and breach by the Company and Mills of the Stock Purchase Agreement
pursuant to which all of the stock of Phoenix was acquired from Messrs. Varon
and Lugo. In his counterclaims Mr. Varon is also seeking indemnification and
contribution from the Company, Mills and their respective principal officers,
directors and employees. Total damages alleged in the counterclaim are
approximately $9,000,000. The Company considers the damages in the counterclaims
to be unsupportable and believes it will likely prevail in its defenses to all
such counterclaims. In the third quarter of the 1996 fiscal year, the Company
concluded that its counterclaims against the holder of the note payable from a
related party, as described above, 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.
On March 29, 1996, the Company and Mills filed an amended Complaint and
Demand for Jury Trial which added certain parties as defendants and alleges
certain fraudulent activities which constitute a pattern of racketeering
activity under the Racketeering Influenced Corrupt Organization Act.
These actions remain in their preliminary stage, with discovery not yet
having been commenced.
The Company is subject to other legal proceedings and claims which are in the
ordinary course of its business. In the Company's opinion, the Phoenix
litigation and other legal proceedings will be successfully defended or resolved
without a material adverse effect on the financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
14
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's Common Stock, $.10 par value, is traded on the American Stock
Exchange under the symbol "NAN".
Set forth below are the reported high and low prices of the Common Stock for
each quarterly period during the past two years, as reported by the American
Stock Exchange:
Fiscal 1996 High Low
----------- ---- ---
First Quarter $5-5/8 $3-1/2
Second Quarter 5-1/2 3-7/8
Third Quarter 5-1/4 3-1/16
Fourth Quarter 3-3/16 2-5/8
Fiscal 1995 High Low
----------- ---- ---
First Quarter $6-5/8 $4
Second Quarter 7-5/8 5-5/8
Third Quarter 7-1/2 5-1/2
Fourth Quarter 6-1/8 4-1/4
As of May 21, 1996, the Company's Common Stock was held by approximately 358
holders of record.
The Company has never paid any cash dividends on its Common Stock, and has no
present intention of so doing in the foreseeable future. The Company is
prohibited from declaring and paying cash dividends on its Common Stock by the
terms of its credit agreements with Congress Financial Corporation and Chemical
Bank each dated March 22, 1994.
15
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial information
with respect to the Company and its subsidiaries for the five fiscal years ended
March 2, 1996.
The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" and in conjunction with the Company's Consolidated Financial
Statements and notes thereto appearing elsewhere in this Report.
For Fiscal Year Ended
---------------------
(In thousands, except per share amounts)
MARCH 2, FEB. 25, FEB. 26, FEB. 27, FEB. 29,
1996 1995 1994 1993 1992
Summary Statements of Operations
- --------------------------------
Net sales $35,060 $37,015 $41,634 $46,851 $44,690
Gross profit 8,328 7,061 5,854 9,652 10,027
Unusual credit (charge) 300 (1,252) (5,450)
Net (loss) income (239) (3,147) (9,450) 359 704
Net (loss) income per share $(.08) $ (1.15) $(3.81) $.15 $.29
Average shares
outstanding 2,985 2,743 2,481 2,439 2,439
Summary Balance Sheet Data
- --------------------------
Total assets $18,855 $22,184 $22,195 $30,927 $25,021
Long-term debt (exclusive
of current maturities) 9,108 11,300 9,750 300 7,700
Working capital 10,827 12,830 10,262 7,876 16,952
Stockholders' equity 5,257 5,465 4,697 13,611 13,237
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
General
- -------
In recent years, the Company was burdened with an unprofitable Puerto Rico
facility and low margin product lines which created challenges in its business,
profitability and financial resources. At the end of the 1994 fiscal year the
Company began the implementation of a restructuring strategy to improve
operating results and enhance its financial resources. During fiscal 1995, the
Company implemented strategies which reduced costs, streamlined its operations
and closed its Puerto Rico plant.
In March, 1994, the Company refinanced its debt and entered into agreements
with its principal stockholders and employees to increase its capital, through
the sale of $1 million of non-voting convertible preferred stock to management
and reduce expenses. In August, 1994, the Company sold treasury stock which
increased equity by $2.9 million. Although there can be no assurance that these
measures will be successful, the Company believes the steps it has taken provide
sufficient liquidity to fund its operations.
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
will 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. Closing of the transaction is expected in early June, 1996. 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.
Results of Operation
- --------------------
Sales
Net sales for the fiscal year ended March 2, 1996 decreased 5% from prior
year levels to $35,060,000. Most of this decline was associated with the
elimination of unprofitable product lines, including a reduction of $1,024,000
related to the fiscal 1996 elimination of the Company's healthcare line. A soft
retail environment contributed to an overall 5.5% decrease in the core men's'
fashion underwear products. For the current fiscal year, there was a 55%
increase in the sales of the developing GUESS? intimate apparel product line to
$4.9 million.
For the fiscal year ended February, 1995, net sales declined 11% reflecting
$9.5 million reduction related to the elimination of unprofitable product lines.
Sales in the Company's core men's' fashion underwear division rose 7% over prior
year levels. Sales of the GUESS? products
17
grew to $3.2 million, an increase of $2.6 million from prior year levels when
the initial shipments began in November, 1993.
Net sales in fiscal 1994 decreased 11% to $41.6 million, with declines in
the sock and women's divisions and a 28% increase in the Mens' division.
The sales decline in the Women's Division of $3.6 million in fiscal 1995 and
$7.9 million in fiscal 1994 was predominantly the result of the termination of
the Company's business with Avon Products during the third quarter of fiscal
1994. The sales decline in the Sock Division of $3.4 million in fiscal 1995 and
$4.3 million in fiscal 1994 was the result of the Company's decision to not
renew its license with DANSKIN, and the Company's decision during 1994 to cease
operations at this division
Gross Margin
Gross profit margins continued to improve from prior year levels as follows:
Fiscal Year
1996 1995 1994
---- ---- ----
Gross Margin % 24% 19% 14%
Amount- % Increase (Decrease) 18% 21% (39%)
This is a result of the improved product mix from the increased sales of the
higher margin GUESS? Innerwear line, the elimination of the unprofitable
products, improved plant efficiencies and lower cost product sources. The gross
profit margin in fiscal 1995 reflects non recurring inventory reserves and
write-offs generally associated with discontinued product lines which aggregated
$652,000. The decrease in gross profit margin in fiscal 1994 was the result of
unfavorable manufacturing variances at both Cartersville and Puerto Rico,
unfavorable product mixes and inventory write-downs of $500,000.
Selling, general and administrative expenses
Selling, general and administrative expenses for the 1996 fiscal year
declined 3% to $7,554,000 from the prior year level. These changes are generally
due to the variable selling costs related to the decreases in net sales. The
current fiscal year has been reduced by a $102,000 recovery of an insurance
claim which was expensed in the fourth quarter of the prior fiscal year.
Selling, general and administrative expenses in fiscal 1995 declined
$2,028,000 or 21%. This reflects the reduction in senior management salaries
resulting from the termination and severance agreements entered into with the
former chairman and vice chairman and reduced professional fees. In fiscal 1994,
there was a $1.5 million increase in selling, general and administrative costs.
This increase was primarily attributable to increased royalties (with licensed
brands comprising a higher proportion of the Company's sales), set-up costs
incurred in connection with new
18
programs at certain customers and increased accounting, legal and other
professional fees, incurred in connection with the refinancing and restructuring
described herein and investigation of the Company's fiscal 1993 inventory loss.
Selling, general and administrative costs represented 21% of sales in fiscal
1996 and 1995 and 23% in fiscal 1994. Many of these costs are substantially
fixed. In fiscal 1995, the impact of the termination and severance agreements
with the former chairman and vice chairman, a significant fixed element in prior
years, is reflected in the lower percentage of these costs to sales.
Unusual (credit) 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 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 variances 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. In the third quarter of the current fiscal
year, the Company concluded that its claims against the holder of the
subordinated note payable are in excess of the $300,000 due. In the opinion of
legal counsel and management, the likelihood of any payment being required on
this note is remote. Accordingly, in fiscal 1996, the Company eliminated this
payable and reflected such $300,000 reduction as an unusual credit in the
accompanying financial statements.
The operating loss for fiscal 1995 and 1994 includes an unusual charge of
approximately $1.3 million and $5.5 million, respectively. Of the total unusual
charge of $1,252,500 in fiscal 1995 and $5,450,000 in fiscal 1994, approximately
$160,000 in fiscal 1995 and $300,000 in fiscal 1994 represents expenses incurred
during fiscal 1995 in closing the Puerto Rico facility, $1,092,000 in the
current fiscal year and $3,085,000 in fiscal 1994 represents write-downs of
asset values and other non-cash items and $2.1 million in fiscal 1994 represents
employee severance payments. The fiscal 1994 accrual of severance payments for
the former Chairman and Vice Chairman of the Board ($1,765,000) will reduce
compensation expenses over a five year period which commenced in fiscal 1995.
The write-down of asset values is not expected to have a material effect on the
Company's liquidity.
Interest expense
The increase in interest expense of $118,000 for the 1996 fiscal year is
primarily due to the higher prime rates in effect during fiscal year 1996 and
increased in levels of financing.
Interest expense for fiscal year 1995 was $1,195,000 and $795,000 in fiscal
1994 The increase in fiscal 1995 reflects higher borrowing levels associated
with the new credit agreements and increases in the prime rate..
19
Liquidity and Capital Resources
- -------------------------------
In March, 1994 the Company refinanced 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 sales 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 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 in which it made
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 commencing March 31,
1996.
The Company believes that the credit facility provides adequate financing
flexibility to fund its operations.
Working capital decreased $2,003,000 to $10,988,000. This decrease reflects
a decrease in receivable levels caused by the lower sales levels experienced in
the overall retail environment. Inventory levels declined as the impact of
increased offshore sourcing reduced the level of raw materials.
Property, plant and equipment additions were $97,000 for fiscal 1996,
$388,000 for fiscal 1995 and $216,000 for fiscal 1994. The revolving credit
agreement with Congress Financial provides for the Company to borrow purchase
money term loans (up to a maximum of $500,000) of up to 75% of the orderly
liquidation value of newly acquired and eligible equipment
The Company knows of no other trends or uncertainties which have had, or
which it expects will have, any material impact on the Company's operations. The
Company believes that the moderate rate of inflation over the past few years has
not had significant impact on sales or profitability and its future operations
are not expected to be affected significantly by inflation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached hereto at Page F-1 et seq.
-- ---
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable
20
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to Directors and Executive Officers is set forth on the
Proxy Statement to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A of the Securities Exchange Act of 1934, as amended, and is
hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation is set forth in the Proxy
Statement to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended, and is hereby
incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to security ownership of certain beneficial owners and
Management is set forth in the Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A of the Securities Exchange
Act of 1934, as amended, and is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to certain relationships and related transactions is set
forth in the Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended, and is hereby incorporated by reference.
21
PART IV
-------
ITEM 14 EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
The following is a list of all exhibits and financial statement
schedules filed as part of this report, certain of which documents have been
incorporated by reference to documents previously filed on behalf of the
Registrant.
(a)(1) Index to Consolidated Financial Statements of Nantucket Industries,
Inc.
Page
Report of Independent Certified Public Accountants - Grant Thornton LLP F-1
Consolidated Balance Sheets-
March 2, 1996 and February 25, 1995 F-2
Consolidated Statements of Operations - Years Ended
March 2, 1996, February 25, 1995 and February 26, 1994 F-3
Consolidated Statements of Stockholders' Equity -Years Ended
March 2, 1996, February 25, 1995 and February 26, 1994 F-4
Consolidated Statements of Cash Flows - Years Ended
March 2, 1996, February 25, 1995 and February 26, 1994 F-5
Notes to Consolidated Financial Statements F-6
(a)(2) Financial Statement Schedule
Schedule II - Consolidated valuation and qualifying accounts F-18
22
(a) (3) Exhibits
Exhibits which, in their entirety, are incorporated by reference to any
report, exhibit or other filing previously made with the Securities and Exchange
Commission are designated by an asterisk (*) and the location of such material
is included in its description.
Exhibit No. Description Page No.
- ----------- ----------- --------
(3)(a) Certificate of Incorporation as currently *
in effect (filed as Exhibit 3(a) to Form 10-K
Report for the fiscal year ended February 27,
1988 (the "1988 10-K").
(3)(b) By-Laws as currently in effect (filed as *
Exhibit 3(b) to Form 10-Q Report for the quarter
ended August 26, 1995.
(4)(a) Specimen Stock Certificate (filed as Exhibit *
4(b) to Registration Statement on Form
S-1, No. 2-87229 filed October
17, 1983 (the "1983 Form S-1").
(4)(b) Share Purchase Rights Agreement, dated *
as of September 6, 1988, between the Company
and State Street Bank and Trust Company (filed
as Exhibit 4(a) to Form 8-K Report dated as of
September 6, 1988), as amended by the following:
Amendment No. 1 dated October 3, 1988 (filed as
Exhibit 9 to Schedule 14D-9 Amendment No. 1
dated October 4, 1988), Amendment No. 2 dated
October 18, 1988 (filed as Exhibit 14 to Schedule
14D-9 Amendment No. 2 dated October 19, 1988) and
Amendment No. 3 dated November 1, 1988 (filed as
Exhibit 4(c) to Form 10-K Report for the fiscal
year ended February 25, 1989 (the "1989 10-K"),
Amendment No. 4 dated as of November 17, 1988
(filed as Exhibit 1 to Amendment No. 1 to Form 8-A,
dated November 18, 1988) and Amendment dated as of
August 15, 1994 (filed as Exhibit 4(e) to Form 8-K dated
August 19, 1994).
(4)(c) Note Acquisition Rights Agreement dated as of *
September 6, 1988 between the Company and State
Street Bank and Trust Company, as amended on September 19,
1988 (filed as Exhibit 4(b) to Form 8-K Report dated
September 6, 1988) as amended by the following: Amendment
No. 2 dated October 3, 1988 (filed as Exhibit 10 to Schedule
14D-9 Amendment No. 2 dated October 4, 1988), Amendment No.
3 dated October 18, 1988 (filed as Exhibit 15 to Schedule
14D-9 Amendment No. 2 dated October 19, 1988), Amendment No.
23
4 dated November 1, 1988, (filed as Exhibit 4(d) to the 1989
10-K) and Amendment No. 5 dated as of November 17, 1988
(filed as Exhibit 2 to Amendment No. 1 to Form 8-A, dated
November 18, 1988).
(4)(d) Certificate of Designation, Preferences and *
Rights of Non-Voting Convertible Preferred Stock of
Nantucket Industries, Inc. (filed as Exhibit 4 to Form 8-K
Current Report dated March 22, 1994 (the "1994 8-K").
(4)(e) Common Stock Purchase Agreement dated as of *
August 18, 1994 by and among Registrant, Guess ?, Inc., the
Maurice Marciano 1990 Children's Trust, the Paul Marciano
Trust u/t/d 2/20/86, the Armand Marciano Trust u/t/d 2/20/86
and The Samberg Group, L.L.C. (filed as Exhibit 4(d) to Form
8-K dated August 19, 1994).
(9) Voting Trust Agreement by and among the *
Samberg Group, L.L.C., George Gold, Donald Gold, Stephen
Samberg, Stephen Sussman, Robert Polen, Ray Wathen,
Nantucket Industries, Inc., Robert Rosen and Joseph Mazzella
dated as of March 21, 1994 (filed as Exhibit 99(b) to 1994
8-K).
(10)(a) Nantucket Industries, Inc. Savings Plan, *
effective June 1, 1988 by and between the Registrant and
George Gold and Donald Gold as Trustees, Amendment No. 1
thereto dated June 22, 1990 and Amendment No. 2 thereto
dated November 19, 1990 (filed as Exhibit (10)(a) to Form
10-K Report for the fiscal year ended February 29, 1992 (the
"1992 10-K")).
(10)(b) Incentive Stock Option Plan (filed as Exhibit *
10(d) to the 1988 10-K).
(10)(c) 1988 Nantucket Industries, Inc. Nonstatutory *
Stock Option Plan (filed as Exhibit 10(c) to the 1989 10-K).
(10)(e)(i) Trademark Agreement between Registrant and *
Faberge, Incorporated dated November 1, 1980 ("Trademark
Agreement") regarding the trademarks "Faberge" and "BRUT"
for use with men's and boy's underwear and bathing suits
(filed as Exhibit 10(g)(i) to 1987 10-K); Amendment dated
November 16, 1982 regarding the trademark "BRUT 33" (filed
as Exhibit 10(m) to 1983 S-1); Letter dated August 24, 1983
24
from Faberge to Registrant with respect to renewal of the
Trademark Agreement for an additional five year period
(filed as Exhibit 10(g)(iii) to 1987 10-K); Amendment dated
May 6, 1983 regarding the trademarks "BRUT Medallion Design"
and "Brut Royale" (filed as Exhibit 10(k)(ii) to 1983 S-1;
Amendment dated December 5, 1983 (filed as Exhibit 10(g)(iv)
to the Form 10-K Report for the fiscal year ended March 3,
1984 (the "1984 10-K"); Amendment dated October 31, 1984
(filed as Exhibit 10(g)(xiii) to the Form 10-K Report for
the fiscal year ended March 2, 1985 (the "1985 10-K"));
Amendment dated March 14, 1986 extending license to include
swimwear tops (filed as Exhibit 10(g)(v) to the 1986 10-K;
Amendment dated April 25, 1984 (filed as Exhibit 10(g)(v) to
the 1984 10-K); Letter dated December 31, 1987, extending
term of Trademark Agreement for an additional five year
period and deleting men's and boy's bathing suits from
coverage (filed as Exhibit 10(g)(iii) to the 1988 10-K);
extension dated February 24, 1989, extending expiration date
of the Trademark Agreement to February 28, 1998 (filed as
Exhibit 10(e)(ii) to the 1989 10-K).
(10)(e)(ii) Intentionally Omitted
(10)(e)(iii) License Agreement between the Company and *
BRITTANIA Sportswear, Ltd. (subsidiary of Levi Strauss)
dated September 6, 1988 for the manufacture and sale of
men's and ladies' underwear under the "BRITTANIA" trademark
(filed as Exhibit 19 to Form 10-Q for the Quarter ended
August 27, 1988).
(10)(e)(iv) License Agreement between the Company and *
BRITTANIA Sportswear, Ltd. (subsidiary of Levi Strauss)
dated December 31, 1991 for the manufacture and sale of
men's and ladies' underwear under the "BRITTANIA" trademark
(filed as Exhibit 10(e)(iv) to the Form 10-K Report for the
fiscal year ending February 26, 1994 (the "1994 10-K")).
(10)(e)(v) Amendment dated as of January 31, 1996 Filed
to License Agreement between the Registrant Herewith
and BRITTANIA Sportswear, Ltd. (subsidiary of Levi Strauss)
for the manufacture and sale of mens' and ladies' loungewear
under the "BRITTANIA" trademark.
(10)(e)(vi) Intentionally omitted.
25
(10)(f) Modification and Extension of Lease *
dated November 30, 1982 between Registrant and Satti
Development Corp. (filed as Exhibit 10(1) to the 1983 10-K);
(i) amendment dated February 16, 1988 *
extending term of lease through April 30, 1993 (filed as
Exhibit 10(h) to the 1988 10-K);
(ii) amendment dated August 15, 1991 *
expanding demised premises, extending term of lease through
May 31, 1997 and modifying annual rental (filed as Exhibit
10(f)(ii) to 1992 Form 10-K).
10(f)(i) Intentionally omitted.
(10)(g) Promissory Notes from George J. Gold *
and Donald D. Gold to Registrant (filed as Exhibit 10(s) to
1983 S-1).
(10)(h) Intentionally omitted.
(10)(i) Amended and Restated Credit Agreement *
dated December 8, 1989, between Registrant and Manufacturers
Hanover Trust Company ("MHTC") for the borrowing of up to
$11,500,000 of which $8,500,000 is on a revolving credit
basis until March 5, 1993, the balance to be used against
letters of credit issued by MHTC for the benefit of the
Registrant; $8,500,000 Note dated December 8, 1989, from
Registrant to MHTC; Continuing Letter of Credit Security
Agreement dated December 8, 1989, between Registrant and
MHTC. (filed as Exhibit 10(i) to the Form 10-K Report for
the fiscal year ended March 3, 1990 (the "1990 10-K")
Omitted exhibits to said Agreement will be furnished to the
Commission upon request.
(i) First Amendment dated August 1, 1990 * to Loan
Agreement between Registrant and MHTC (filed as Exhibit
10(i)(i) to the Form 10-K Report for the fiscal year
ended March 2, 1991);
(ii) Second Amendment and Waiver dated * as of May 23,
1991 to Loan Agreement between Registrant and MHTC (filed
as Exhibit (10)(i)(ii) to the 1992 Form 10-K);
26
(iii) Fifth Amendment and Waiver dated * as of February
22, 1993, to Amended and Restated Credit Agreement dated
as of December 8, 1989, between the Registrant and
Chemical Bank, as successor by merger to MHTC (filed as
Exhibit (iii) to the Form 8-K dated March 4, 1993);
(iv) Sixth Amendment and Waiver dated * as of March 4,
1993, to Amended and Restated Credit Agreement (filed as
Exhibit 10(k)(iv) to 1993 10-K).
(10)(j)(i) Revolving Credit Agreement dated as of *
December 30, 1993 by and between Chemical Bank, Nantucket
Industries, Inc., Nantucket Mills, Inc. and Nantucket
Management Corporation (the "Credit Agreement") (filed as
Exhibit 10(j)(i) to the 1994 Form 10-K).
(10)(j)(ii) First Amendment to Credit Agreement dated *
as of February 28, 1994 by and between Chemical Bank,
Nantucket Industries, Inc., Nantucket Mills, Inc. and
Nantucket Management Corporation (filed as Exhibit 10(j)(ii)
to the 1994 10-K).
(10)(j)(iii) Second Amendment to Credit Agreement dated *
as of March 17, 1994 by and between Chemical Bank, Nantucket
Industries, Inc., Nantucket Mills, Inc. and Nantucket
Management Corporation (filed as Exhibit 10(j)(iii) to the
1994 10-K).
(10)(k) Intentionally omitted.
(10)(n) Intentionally omitted.
(10)(o) Intentionally omitted.
(10)(q) Intentionally omitted.
(10)(r) Intentionally omitted.
(10)(s) Intentionally omitted.
(10)(t) Intentionally omitted.
(10)(u) Intentionally omitted
27
(10)(v) Sublicense Agreement dated November 20, 1991 *
by and among Dawson Consumer Products, Inc., Registrant and
PGH Company regarding the use of the trademark "Adolfo" on
men's high fashion underwear briefs (filed as Exhibit
(10)(v) to the 1992 Form 10-K).
(10)(w) Sublicense Agreement dated October 16, 1992 *
by and among Salant Corporation, Dawson Consumer Products,
Inc. and the Registrant regarding the use of the trademark
"John Henry" on men's high fashion underwear briefs (filed
as Exhibit (10)(w) to the 1992 Form 10-K).
(10)(x) Employment Agreement dated May 26, 1992 *
by and between the Registrant and Stephen P. Sussman (filed
as Exhibit 10(x) to the Form 10Q Report for November 28,
1992) as amended by the Amendment dated August 8, 1994
(filed as Exhibit 99(a) to Form 8-K dated August 19, 1994).
(10)(y) Intentionally omitted.
(10)(z)(i) Intentionally omitted
(10)(z)(ii) Amended and Restated Employment *
Agreement dated as of March 18, 1994 by and between
Nantucket Industries, Inc. and Stephen M. Samberg (filed as
Exhibit 10(z)(ii) to the 1994 Form 10-K) as amended by the
Amendment dated August 8, 1994 (filed as Exhibit 99(c) to
Form 8-K dated August 19, 1994).
(10)(aa) License Agreement dated October 5, 1992 *
between Cluett Peabody & Co., Inc. and Registrant with
respect to the ARROW trademark (filed as Exhibit 2 to Form
10Q Report for November 28, 1992).
28
(10)(bb) License Agreement dated December 9, 1992 *
between GUESS?, Inc. and Registrant with respect to the
GUESS? trademark (filed as Exhibit 3 to Form 10Q Report for
November 28, 1992).
(10)(cc) Registrant's 1992 Executive Long-Term Stock *
Option Place (filed as Exhibit 4 to Form 10Q Report for
November 28, 1992).
(10)(dd) Registrant's 1992 Executive Performance *
Benefit Plan (filed as Exhibit 5 to Form 10Q for November
28, 1992).
(10)(ee) Management Agreement made as of January 1, *
1993 by and between Nantucket Management Corp. (a subsidiary
of Registrant) and Registrant (filed as Exhibit 10(ee) to
1993 10-K).
(10)(ff) License Agreement dated December 21, 1992 *
between Registrant and McGregor Corporation with respect to
the Botany 500 Trademark (filed as Exhibit 10(ff) to 1993
10-K).
(10)(ff)(i) Letter agreement dated July 10, 1995 Filed
amending License Agreement between the Registrant Herewith
and McGregor Corporation with respect to Botany 500
Trademark.
(10)(gg) Severance Agreement dated as of March 18, *
1994 by and among Nantucket Industries Inc., George J. Gold
and Donald Gold (filed as Exhibit 10(gg)(i) to the Form 10K
Report for the fiscal year ended February 25, 1995). (Filed
as Exhibit 10(gg) to the 1994 Form 10-K) as amended by the
Amendment dated August 17, 1994 (filed as Exhibit 99(b) to
Form 8-K dated August 19,1994).
(10)(gg)(i) Letter dated February 28, 1995 amending *
Severance Agreement by and among Registrant, George J. Gold
and Donald D. Gold (filed as Exhibit 10(gg)(i) to the Form
10-K Report for the fiscal year ended February 25, 1995).
29
(10)(hh) Agreement dated as of March 1, 1994 by *
and among the Samberg Group, L.L.C., George J. Gold, Donald
D. Gold, Stephen M. Samberg, Stephen P. Sussman, Robert
Polen, Raymond L. Wathen and Nantucket Industries, Inc.
(filed as Exhibit 10(hh) to the 1994 Form 10-K)
(10)(ii) Loan and Security Agreement by and between *
Nantucket Industries, Inc. and Congress Financial Corp.
dated as of March 21, 1994 (filed as Exhibit 99(b) to 1994
8-K).
(10)(jj) Guaranty by Nantucket Mills, Inc. in favor *
of Congress Financial Corp. dated as of March 21, 1994
(filed as Exhibit 99(c) to 1994 8-K).
(10)(kk) General Security Agreement by Nantucket *
Mills, Inc. in favor of Congress Financial Corp. dated as of
March 21, 1994 (filed as Exhibit 99(d) to 1994 8-K).
(10)(ll) Guaranty by Nantucket Management *
Corporation in favor of Congress Financial Corp. dated as of
March 21, 1994 (filed as Exhibit 99(e) to 1994 8-K).
(10)(mm) General Security Agreement by Nantucket *
Management Corporation in favor of Congress Financial Corp.
dated as of March 21, 1994 (filed as Exhibit 99(f) to 1994
8-K).
(10)(nn) Amended and Restated Credit Agreement by *
and among Chemical Bank, Nantucket Industries, Inc.,
Nantucket Mills, Inc. and Nantucket Management Corporation
dated as of March 21, 1994 (filed as Exhibit 99(g) to 1994
8-K) and amended by the Amendment dated as of August 18,
1994 (filed as Exhibit 99(e) to the Form 8-K dated August
19, 1994).
(10)(oo) Amended and Restated Security Agreement by *
and between Nantucket Industries, Inc. and Chemical Bank
dated as of March 21, 1994 (filed as Exhibit 99(h) to 1994
8-K).
30
(10)(pp) Amended and Restated Security Agreement *
by and between Nantucket Mills, Inc. and Chemical Bank dated
as of March 21, 1994 (filed as Exhibit 99(i) to 1994 8-K).
(10)(qq) Security Agreement by and between Nantucket *
Management Corporation and Chemical Bank dated as of March
21, 1994 (filed as Exhibit 99(j) to 1994 8-K).
(10)(rr) Deed to Secure Debt, Security Agreement *
and Assignment of Leases and Rents by Nantucket Industries,
Inc. to Congress Financial Corporation dated June 8, 1994
(filed as Exhibit 10(rr) to the 1994 Form 10-K).
(10)(ss) Deed to Secure Debt, Security Agreement *
and Assignment of Leases and Rents by Nantucket Industries,
Inc. to Chemical Bank dated as of June 8, 1994 (filed as
Exhibit 10(ss) to the 1994 Form 10-K).
(10)(tt) Employment Agreement dated November 23, *
1994 by and between Registrant and Raymond L. Wathen (filed
as Exhibit 10(tt) to Form 10-K Report for the fiscal year
ended February 25, 1995).
(10)(tt)(i) Amendment to Employment Agreement entered Filed
into as of January 1, 1996 between Registrant and Herewith
Raymond L. Wathen.
(10)(uu) Employment Agreement dated July 1, 1994 *
by and between Registrant and Ronald S. Hoffman (filed as
Exhibit 10(uu) to Form 10-K Report for the fiscal year ended
February 25, 1995).
(10)(uu)(i) Letter Agreement dated June 12, 1995 Filed
between Registrant and Ronald S. Hoffman, extending Herewith
the term of his employment to June 30, 1996.
31
(10)(vv) Employment Agreement dated as of January Filed
1, 1996 by and between Registrant and Joseph Herewith
Visconti.
(10)(ww) First Amendment, dated as of December 15, *
1995, to Amended and Restated Credit Agreement dated as of
March 21, 1994, among Nantucket Industries, Inc. and its
subsidiaries and Chemical Bank (filed as Exhibit (10)(vv) to
Form 10-Q Report for the quarter ended November 25, 1995.
(c) Subsidiaries of the Company
- -------------------------------
STATE OF DOING BUSINESS
NAME INCORPORATION NAME
Nantucket Mills, Inc. Delaware Phoenix Associates,
Inc. (in Puerto Rico)
Nantucket Management Corp.* New York N/A
* Dissolved as of December, 1995, pursuant to vote dated October 17, 1995
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York.
NANTUCKET INDUSTRIES, INC.
May 21, 1996 By: \s\ Stephen M. Samberg
-----------------------
Stephen M. Samberg, Chairman of the
Board and Chief Executive Officer/
(principal executive officer)
May 21, 1996 By: \s\ Ronald S. Hoffman
----------------------
Ronald S. Hoffman, Vice President-
Finance and Chief Financial Officer
(principal financial and accounting
officer)
32
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities on the dates indicated.
May 21, 1996 \s\ Stephen M. Samberg
----------------------
Stephen M. Samberg, Chairman of the
Board and Chief Executive Officer
May 21, 1996 \s\ Joseph Visconti
- ------------ -------------------
Joseph Visconti, President and
Director
May 21, 1996 \s\ Ronald S. Hoffman
---------------------
Ronald S. Hoffman, Vice President-
Finance and Chief Financial Officer,
Secretary and Director
May 21, 1996 \s\ Warren C. Cole
------------------
Warren C. Cole, Director
May 21, 1996 \s\ Donald D. Gold
------------------
Donald D. Gold, Director
May 21, 1996 \s\ George J. Gold
------------------
George J. Gold, Director
May 21, 1996 \s\ Robert M. Rosen
-------------------
Robert M. Rosen, Director
May 21, 1996 \s\ Roger Williams
- ------------ ------------------
Roger Williams, Director
33
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTS
Board of Directors and Stockholders
Nantucket Industries, Inc.
We have audited the accompanying consolidated balance sheets of Nantucket
Industries, Inc. and Subsidiaries as of March 2, 1996 and February 25, 1995, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended March 2, 1996. These
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 audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Nantucket Industries, Inc. and Subsidiaries as of March 2, 1996 and February 25,
1995, and the consolidated results of their operations and their consolidated
cash flows for each of the three years in the period ended March 2, 1996, in
conformity with generally accepted accounting principles.
We have also audited Schedule II of Nantucket Industries, Inc. and Subsidiaries
as of March 2, 1996 and February 25, 1995 and for the periods then ended. In our
opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
GRANT THORNTON
New York, New York
April 25, 1996
F-1
Nantucket Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
March 2, February 25,
1996 1995
------------------ ------------------
ASSETS
CURRENT ASSETS
Cash $15,085 $32,049
Accounts receivable, less allowance for
doubtful accounts of $40,000 and $194,000,
respectively (Note 5) 4,417,033 6,472,148
Inventories (Notes 3 and 5) 10,156,639 10,984,196
Other current assets 729,145 760,054
------------
-----------------
Total current assets 15,317,902 18,248,447
PROPERTY, PLANT AND EQUIPMENT - NET (Notes 5 and 10) 3,498,825 3,766,871
OTHER ASSETS,NET 38,413 168,194
------------
-----------------
$18,855,140 $22,183,512
============ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt (Notes 5 and 10) $1,275,000 $975,000
Accounts payable 1,721,852 2,405,989
Accrued salaries and employee benefits 383,595 811,882
Accrued unusual charge (Note 2) 465,000 465,000
Accrued expenses and other liabilities 392,789 358,267
Accrued royalties 249,792 399,546
Income taxes payable (Note 6) 2,934 2,640
------------ -----------------
Total current liabilities 4,490,962 5,418,324
LONG-TERM DEBT (Notes 5 and 10) 8,428,782 9,941,799
ACCRUED UNUSUAL CHARGE (Note 2) 678,879 1,058,330
SUBORDINATED NOTE PAYABLE (Notes 2 and 8) - 300,000
------------ -----------------
13,598,623 16,718,453
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY (Notes 7 and 10)
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 11,576,898
Accumulated deficit (6,579,617) (6,340,135)
------------ -----------------
5,276,454 5,536,448
Less 3,052 shares at March 2, 1996 and 10,552 at
February 25, 1995 of common stock held in treasury, at cost 19,937 71,389
------------ -----------------
5,256,517 5,465,059
------------ -----------------
$18,855,140 $22,183,512
============ =================
The accompanying notes are an integral part of these statements.
F-2
Nantucket Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended
--------------------------------------------------------
March 2, February 25, February 26,
1996 1995 1994
------------------ ---------------- ----------------
Net sales $35,060,136 $37,015,167 $41,634,255
Cost of sales 26,732,017 29,953,922 35,779,766
------------------ ---------------- ----------------
Gross profit 8,328,119 7,061,245 5,854,489
Selling, general and administrative
expenses 7,554,057 7,759,955 9,787,171
Unusual (credit) charge (Note 2) (300,000) 1,252,400 5,450,000
------------------ ---------------- ----------------
Operating profit (loss) 1,074,062 (1,951,110) (9,382,682)
Interest expense 1,313,544 1,195,541 794,967
------------------ ---------------- ----------------
Loss before income taxes (239,482) (3,146,651) (10,177,649)
Income tax benefit (Note 6) - - 727,908
Net loss ($239,482) ($3,146,651) ($9,449,741)
================== ================ ================
Net loss per share ($0.08) ($1.15) ($3.81)
================== ================ ================
Weighted average common shares outstanding 2,984,955 2,742,520 2,480,970
================== ================ ================
The accompanying notes are an integral part of these statements.
F-3
Nantucket Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended March 2, 1996, February 25, 1995 and February 26, 1994
Preferred stock
designated as
non-voting convertible Common stock Additional Retained
---------------------------------------------- paid-in earnings
Shares Amount Shares Amount Capital (deficit)
-----------------------------------------------------------------------------
Balances at February 29, 1992 2,876,848 $287,685 $9,416,368 $6,192,287
Net income 358,922
Common stock issued under
stock option plans 5,000 500 14,500
Balances at February 27, 1993 2,881,848 $288,185 $9,430,868 $6,551,209
Net loss (9,449,741)
Common stock issued under
stock option plans exchanged
for treasury stock 110,000 11,000 611,500
Contribution of capital 535,030
Balances at February 26, 1994 2,991,848 299,185 10,577,398 (2,898,532)
Net loss (3,146,651)
Issuance of Preferred stock 5,000 $500 999,500
Sale of treasury stock (Note 7) (294,952)
Issuance of treasury stock in
compliance with credit agreement
prepayment terms (Note 5)
Balances at February 26, 1995 5,000 500 2,991,848 299,185 11,576,898 (6,340,135)
Net loss (239,482)
Issuance of treasury stock in
compliance with credit agreement
prepayment terms (Note 5) (20,512)
Balances at March 2, 1996 5,000 $500 2,991,848 $299,185 $11,556,386 ($6,579,617)
Treasury stock
------------------------------
Shares Amount Total
--------------------------------------
Balances at February 29, 1992 440,013 ($2,658,942) $13,237,398
Net income 358,922
Common stock issued under
stock option plans 15,000
Balances at February 27, 1993 440,013 ($2,658,942) $13,611,320
Net loss (9,449,741)
Common stock issued under
stock option plans exchanged
for treasury stock 63,039 (622,500) 0
Contribution of capital 535,030
Balances at February 26, 1994 503,052 (3,281,442) 4,696,609
Net loss (3,146,651)
Issuance of Preferred stock 1,000,000
Sale of treasury stock (Note 7) (490,000) 3,196,303 2,901,351
Issuance of treasury stock in
compliance with credit agreement
prepayment terms (Note 5) (2,500) 13,750 13,750
Balances at February 26, 1995 10,552 (71,389) 5,465,059
Net loss (239,482)
Issuance of treasury stock in
compliance with credit agreement
prepayment terms (Note 5) (7,500) 51,452 30,940
Balances at March 2, 1996 3,052 ($19,937) $5,256,517
The accompanying notes are an integral part of these statements
F-4
Nantucket Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended
-----------------------------------------------
March 2, February 25, February 26,
1996 1995 1994
--------------- -------------- -------------
Cash flows from operating activities
Net loss ($239,482) ($3,146,651) ($9,449,741)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities
Depreciation and amortization 365,342 393,148 379,560
Provision for doubtful accounts 120,000 90,000 50,000
Unusual charge (credit) (300,000) 1,091,929 5,450,000
Treasury stock issued in compliance with credit agreement 30,190 13,750 -
Provision for obsolete and slow moving inventory 452,590 688,510 500,000
Deferred income taxes - - (222,792)
Decrease (increase) in assets
Accounts receivable 1,935,115 (1,633,875) 1,251,040
Refundable income taxes - 558,000 361,157
Inventories 374,967 (1,373,776) 3,152,039
Other current assets 30,909 (221,991) 192,353
(Decrease) increase in liabilities
Accounts payable (684,137) (1,287,921) (348,516)
Accrued expenses and other liabilities (543,519) (1,010,199) 1,000,127
Income taxes payable 294 (7,544) (128,383)
Accrued unusual charge (379,451) (691,670) -
--------------- -------------- -------------
Net cash provided by (used in) operating activities 1,162,818 (6,538,290) 2,186,844
--------------- -------------- -------------
Cash flows from investing activities
Additions to property, plant and equipment (97,296) (388,011) (215,561)
Decrease in other assets 129,781 244,130 (17,659)
Acquisition of business - - (37,997)
--------------- -------------- -------------
Net cash provided by (used in) investing activities 32,485 (143,881) (271,217)
--------------- -------------- -------------
Cash flows from financing activities
Payments of previous line of credit agreement - (5,090,294) (2,319,955)
Payments of long-term debt and capital lease obligations (200,000) (1,000,000) (166,746)
Issuance of convertible preferred stock - 1,000,000 -
Net proceeds from sale of treasury stock 750 2,901,351 -
Borrowings (repayments) under line of credit agreement, net (1,013,017) 8,307,245 -
Shareholder contribution - - 535,030
--------------- -------------- -------------
Net cash (used in) provided by financing activities (1,212,267) 6,118,302 (1,951,671)
--------------- -------------- -------------
NET DECREASE IN CASH ($16,964) ($563,869) ($36,044)
Cash at beginning of period 32,049 595,918 631,962
--------------- -------------- -------------
Cash at end of period $15,085 $32,049 $595,918
=============== ============== =============
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the period:
Interest $1,320,046 $1,708,384 $715,354
=============== ============== =============
Income taxes - - $10,604
=============== ============== =============
Note: In 1994, the Company recorded an increase in deferred costs of $214,000
associated with amounts accrued for loan refinancing costs
The accompanying notes are an integral part of these statements
F-5
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 2, 1996, February 25, 1995 and February 26, 1994
NOTE 1 - BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The Company
Nantucket Industries, Inc. and its wholly-owned subsidiaries (the
"Company") designs, manufactures and sells throughout the United
States men's branded and private label fashion undergarments to mass
merchandisers and national chains. In addition, the Company designs,
manufactures and sells to department and specialty stores GUESS?
innerwear for both women and men.
For the current fiscal year, sales to the Company's largest customer
accounted for 40% of net sales and 43% and 27%, respectively, for the
two prior fiscal years. Sales to the second largest customer in the
current fiscal year were 21% of net sales and 17% and 15%,
respectively, for the two prior fiscal years. Sales in the current
fiscal year to the Company's third largest customer represented 13% of
net sales and 12% in the prior fiscal year. For the fiscal year ending
February, 1994, sales to another customer represented 12% of net sales.
In the fourth quarter of fiscal 1994, the Company terminated business
with this customer in connection with the shutdown of its Puerto Rico
facility (Note 2).
Principles of Consolidation
The consolidated financial statements include the accounts of Nantucket
Industries, Inc. and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
Accounts Receivable
An allowance for doubtful accounts is provided based upon historical
bad debt experience and periodic evaluations of the aging of the
accounts. Substantially all receivables are insured up to 80% of the
outstanding balance, subject to certain deductibles.
Inventories
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market (net realizable value).
Property, Plant and Equipment
Property, plant, and equipment are stated at cost. Equipment under
lease is stated at the present value of the minimum lease payments at
the inception of the lease. Depreciation and amortization are provided
by the straight-line method over the estimated useful lives of the
assets as follows:
Years
-----
Buildings and improvements 20 - 40
Machinery and equipment 3 - 10
Furniture and fixtures 10
F-6
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 1996, February 25, 1995 and February 26, 1994
Other Assets
Other long-term assets consist primarily of capitalized loan
origination costs. These costs are being amortized over the term of the
related credit agreements.
Income Taxes
The Company and its wholly-owned subsidiaries file a consolidated
Federal income tax return. Deferred income taxes arise as a result of
differences between financial statement and income tax reporting.
Net Income (Loss) Per Common Share
Net income (loss) per common share is computed by dividing net income
(loss) by average common shares outstanding during each year. Stock
options and warrants are not included since the effect would be
antidilutive or not significant to the computation.
Fiscal Year
The Company's fiscal year ends on the Saturday nearest to February 28.
The year ended March 2, 1996 had 53 weeks and the years ended February
25, 1995 and February 26, 1994 contained 52 weeks.
Reclassification
Certain prior year amounts have been reclassified in order to conform
to the current year's presentation.
Use of Estimates
In preparing the Company's financial statements, management is required
to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the 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
Impairment of Long-Lived Assets
In 1995, the Company adopted Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of". Accordingly, when
indicators of impairment are present, the Company periodically
evaluates the carrying value of property, plant and equipment and
intangibles in relation to the operating performance and future
undiscounted cash flows of the underlying business. The Company adjusts
carrying amount of the respective assets if the expected future cash
flows is less than the book value.
Fair Value of Financial Instruments
Based on borrowing rates currently available to the Company for debt
with similar terms and maturities, the fair value of the Company's
long-term debt approximates the carrying value. The carrying value of
all other financial instruments potentially subject to valuation risk,
principally cash, accounts receivable and accounts payable, also
approximate fair value.
F-7
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 1996, February 25, 1995 and February 26, 1994
NOTE 2 - UNUSUAL (CREDIT) CHARGE
In November, 1992, the Company acquired a manufacturing facility in
Puerto Rico, Phoenix Associates, Inc., pursuant to a stock purchase
agreement. Phoenix had been an exclusive contractor for the Company,
manufacturing many of the Company's product lines for its men's and
ladies' divisions. A portion of the purchase price was subordinated
debt payable to 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,
which were 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 Note 8. In the third quarter
of the current fiscal year, the Company concluded that its
counterclaims against the former owners of Phoenix, the holder of the
subordinated debt payable, 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. Accordingly the Company has eliminated
this payable and reflected such reduction as an unusual credit in the
accompanying financial statements.
At the end of fiscal 1994, the Company formulated plans to close its
Puerto Rico facility, discontinue a portion of its women's innerwear
business, reduce costs and streamline operations. In fiscal 1994, the
Company provided for the costs associated with these matters as an
unusual charge. The Puerto Rico facility shutdown was completed in
July, 1994. A final assessment associated with this closing required
additional write-offs, reflected as an unusual charge of $1,252,400 in
fiscal 1995.
Simultaneously in 1994, the Company also 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 and other benefits, through February 28,
1999. The present value of these payments was accrued at February 26,
1994.
For fiscal 1996, 1995 and 1994, the unusual charge (credit) consisted
of the following:
1996 1995 1994
---- ---- ----
Employee severance (Note 8) $ - $ - $2,065,000
Write-off of goodwill - - 1,478,000
Write-down of inventory - 1,092,400 1,000,000
Write-down of property, plant and equipment - - 530,000
Elimination of subordinated note payable (300,000) -
Other 160,000 377,000
----------- ---------- ----------
$ (300,000) $1,252,400 $5,450,000
----------- ========== ==========
Through March 2, 1996, payments of the unusual charges aggregated $1,231,000;
$460,000 associated with the shutdown of the Puerto Rico facility and $771,000
representing payments against the present value of the termination payments to
the former Chairman and Vice Chairman.
F-8
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 1996, February 25, 1995 and February 26, 1994
NOTE 3 - INVENTORIES
Inventories are summarized as follows:
1996 1995
---------- -----------
Raw materials $1,308,694 $ 1,960,413
Work in process 5,709,573 5,594,387
Finished goods 3,138,372 3,429,396
----------- -----------
$10,156,639 $10,984,196
----------- -----------
Inventory valuation allowances and write-downs approximating $453,000
and $1.3 million were provided for the years ended March 2, 1996 and
February 25, 1995, respectively. For the fiscal year ended February,
1995 $1,092,400 of such reserves were related to the unusual charge
(Note 2).
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment are summarized as follows:
1996 1995
---------- ----------
Land $ 83,757 $ 83,757
Buildings and improvements 3,157,252 3,139,814
Machinery and equipment 3,400,628 3,332,500
Furniture and fixtures 800,929 788,984
------- -------
7,442,566 7,345,055
Less accumulated depreciation 3,943,741 3,578,184
--------- ---------
$3,498,825 $3,766,871
========= =========
NOTE 5 - LONG-TERM DEBT AND NOTES PAYABLE
Revolving Credit
The company had a $9.5 million secured borrowing facility with Chemical
Bank which expired on February 28, 1994. On March 22, 1994, the Company
entered into a new $15 million three year revolving credit facility
with Congress Financial Corp. The revolving credit agreement provides
for loans based upon eligible accounts receivable and inventory, a
$3,000,000 letter of credit facility and purchase money term loans of
up to 75% of the orderly liquidation value of newly acquired and
eligible equipment. Borrowings bear interest at 1-3/4% to 3% above
prime. The agreement requires, among other provisions, the maintenance
of minimum working capital and
F-9
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 1996, February 25, 1995 and February 26, 1994
net worth levels and also contains restrictions regarding payment of
dividends. Borrowings under the agreement are collateralized by
substantially all of the assets of the Company.
In connection with this refinancing, the Company used $5,090,000 of the
proceeds of the revolving credit facility to reduce the balance due to
Chemical Bank and simultaneously entered into a $2,000,000 Term Loan
Agreement with Chemical Bank. At December 15, 1995 $1,000,000 was
outstanding under this loan. Pursuant to an amendment to this
agreement, the Company made payments of $100,000 each on December 31,
1995 and January 31, 1996 and agreed to pay the remaining $800,000 in
15 equal installments commencing March 31, 1996. The amendment also
requires certain prepayments in the event the Company refinances any
existing debt or obtains additional equity or debt financing. Pursuant
to the agreement, the Company issued 10,000 treasury common shares
related to its decision to defer making the mandatory prepayments.
Real Estate Financing
On June 8, 1994 the Company borrowed $1,500,000 under a separate five
year term loan with Congress Financial Corp. and repaid a $1,700,000
Industrial Revenue Bond financing. This loan is secured by the
Company's facility in Cartersville, Georgia.
Annual Maturities
Annual maturities of debt are as follows:
1997 $1,275,000
1998 7,994,000
1999 345,000
2000 90,000
----------
$9,704,000
==========
NOTE 6 - INCOME TAXES
Effective for fiscal 1994, the Company adopted SFAS No. 109,
"Accounting for Income Taxes." The adoption of SFAS No. 109 did not
have a material effect on the consolidated financial statements.
Therefore, the effect of adopting SFAS No. 109 is included in income
tax expense rather than as a cumulative effect of an accounting
change.
Under the provisions of SFAS No. 109, deferred income taxes reflect the
net effect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amount
used for income tax purposes. Deferred tax assets and liabilities are
measured using enacted tax law. Significant components of the Company's
deferred taxes at March 2, 1996 and February 25, 1995 are as follows:
F-10
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 1996, February 25, 1995 and February 26, 1994
1996 1995
----------- ---------
DEFERRED TAX ASSETS
Net operating loss carryforward $4,256,000 $3,656,000
Accrued severance 460,000 613,000
Excess of tax basis over book basis of
inventories 137,000 280,000
Capitalized inventory costs 147,000 177,000
Other 58,000 173,000
---------- ----------
Total deferred tax assets 5,058,000 4,899,000
Deferred tax liabilities
Difference between the book and tax basis of
property, plant and equipment 357,000 266,000
--------- ---------
Net deferred tax asset 4,701,000 4,633,000
Less valuation allowance 4,701,000 4,633,000
--------- ---------
Net deferred taxes $ - $ -
========== =========
The Company anticipates utilizing its deferred tax assets only to the
extent of its deferred tax liabilities. Accordingly, the Company has
fully reserved all remaining deferred tax assets which it cannot
presently utilize.
Refundable taxes of $558,000 were recorded at February 26, 1994, which
reflect carryback of the Company's net operating losses for Federal and
state income tax purposes. At March 2, 1996, the net operating loss
carryforward for book purposes is $12 million. For tax purposes, at
March 2, 1996, the Company's net operating carryforward was $10.6
million, which begins to expire in the year 2009. Certain tax
regulations relating to the change in ownership may limit the Company's
ability to utilize its net operating loss carryforward if the ownership
change, as computed under such regulations, exceeds 50%. Through
March, 1996 the change in ownership was approximately 40%.
There was no income tax provision (benefit) for the fiscal years 1996
and 1995. The provision (benefit) for income taxes for fiscal year 1994
is comprised of the following:
1994
----------
Current
Federal $(515,102)
State and Local 10,194
(504,908)
Deferred (benefit) provision (223,000)
$(727,908)
----------
F-11
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 1996, February 25, 1995 and February 26, 1994
The following is a reconciliation of the normal expected statutory
Federal income tax rate to the effective rate reported in the financial
statements:
1996 1995 1994
------- ------- -----
Computed "expected" provision for
Federal income taxes (35.0)% (35.0)% (35.0)%
Reversal of prior year deferred taxes (2.2)
State taxes - net of Federal income tax
benefit
Officers' life insurance 1.0
Other (2.0)
Valuation allowance 35.0 35.0 31.0
----- ----- -----
Actual provision for income taxes - % - % (7.2)%
======= ======= ======
NOTE 7- STOCKHOLDERS' EQUITY
Stock Options and Warrants
The 1992 stock option plan, as amended, provides for the issuance of
options to purchase up to 340,000 shares of common stock at the market
value at the date of grant. Options are exercisable up to ten years
from the date of grant.
A summary of option transactions under these plans is as follows:
1996 1995 1994
----------------------- ----------------------- --------------------
SHARES PRICE Shares Price Shares Price
Outstanding at beginning $8.10 $5.13
180,000 $5.75 120,000 10.75 260,000 11.00
$3.00-
Granted 84,000 3.37 180,000 5.75
$5.13-
Exercised - - (110,000) 5.75
$8.10- 10.75
Canceled or expired - (120,000) (30,000) $11.00
-------- ---------
Outstanding, end of year $3.00- $8.00-
264,000 5.75 180,000 $5.75 120,000 10:75
======== ======== =========
Exercisable, end of year -
- -
========= ======== =========
Available for grant 76,000 160,000
========= ========
70,000
F-12
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 1996, February 25, 1995 and February 26, 1994
In October, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" which is effective for fiscal years beginning
after December 15, 1995. As permitted by FAS 123,. the Company has
elected to continue to account for stock option grants in accordance
with APB No. 25 and, accordingly, recognizes no compensation expense
for these grants.
Issuance of Preferred Stock
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 $160,000 at March
2, 1996. Such dividends are convertible into common stock at the rate
of $5.00 per share. These shares are redeemable, at the option of the
Company, on or after February 28, 1999 and have a liquidation
preference of $200 per share.
Sale of Treasury Stock
On August 22, 1994, the Company sold 490,000 shares of its common
treasury stock to GUESS?, Inc. and certain of its affiliates for $6.00
per share. Net proceeds aggregated $2.9 million. The treasury stock
issued had an average cost of $6.52 per share. Accordingly, $295,000,
representing the difference between the net proceeds and the treasury
shares cost of $3,196,000, was charged to the Company's accumulated
deficit.
In connection with the Company's refinancing on March 22, 1994 (Note
5), 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 current
fiscal year and 2,500 at the end of the prior fiscal year, related to
mandatory prepayments which were not made.
Stockholders' Rights Plan
The Company has a Stockholders' Rights plan which becomes effective
when more than 30% of the Company's common shares are acquired by a
person or a group. The Company may redeem the rights before such time.
NOTE 8-COMMITMENTS,CONTINGENCIES AND RELATED PARTY TRANSACTIONS
Lease Commitments
Minimum rental commitments under noncancellable leases (excluding
renewal options and escalation's) having a term of more than one year
as of March 2, 1996, are as follows:
Operating
Leases
------
Fiscal year ending
1997 $242,000
1998 60,000
----------
Total minimum lease payments $302,000
----------
F-13
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 1996, February 25, 1995 and February 26, 1994
Rental expense under operating leases, including escalation amounts,
was approximately $300,000, $284,000, and $426,000 for the fiscal years
ended March 2, 1996, February 25, 1995 and February 26, 1994,
respectively.
Employment Agreements
The Company has entered into employment agreements, as amended, with
certain officers providing for minimum salary levels. Certain of these
agreements provide for adjusted annual cost-of-living increases, change
in control, and termination provisions. In addition, several of these
agreements provide for commission payments based on certain sales
thresholds, as well as death and disability benefits payable to the
respective estate and permanent disability benefits payable to the
executives in the amount of one-half the executive's remaining
contracted salary and certain retirement health care benefits to
certain executives. The Company is insured for the death benefit
provision under the executive employment contracts.
The aggregate commitment under these agreements at March 2, 1996 is as
follows:
Fiscal year ending
1997 $1,110,000
1998 $960,000
1999 $818,000
2000 -
Agreements with Principal Stockholders
On March 1, 1994, in connection with the restructuring described in
Note 2, the Company entered into agreements with its two principal
stockholders and a group of employees (the "Management Group"). The
agreements provide, among other things, for:
The reimbursement of the principal stockholders, limited to
$1.50 per share to the extent that the gross proceeds per
share from the sale of common stock by the stockholders during
the two-year period beginning September 1, 1994 are less than
$5.00 per share. Such guaranty is applicable to a maximum of
160,000 shares sold by such shareholders, subject to
reductions under certain circumstances. Through March 2, 1996
the principal shareholders have sold 109,875 shares including
51,275 at prices below of $5.00 per share resulting in a
charge in the current year operating results of $36,000.
Pursuant to the agreement and applicable securities laws, at
March 2, 1996 the maximum remaining shares subject to this
guarantee, at current market prices, is 50,125 shares.
Warrants to purchase up to 160,000 shares of common stock
equal to the number of shares sold by the principal
stockholders. The exercise price per share of such warrants
would equal the gross proceeds per share from the
corresponding sale by the principal stockholders. Such
warrants expire on February 28, 2000.
The contribution to the Company of approximately $535,000 of
cash surrender value of life insurance policies on the lives
of the stockholders owned by the Company, in the form of a
loan against such policies which is not required to be repaid.
F-14
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 1996, February 25, 1995 and February 26, 1994
The cancellation of the outstanding stock options and
incentive awards of the Group members and the principal
stockholders and the authorization to issue options to Group
members to purchase 150,000 shares of common stock based upon
certain terms and conditions.
Trademark Licensing Agreements
Minimum payments under noncancellable licensing agreements (excluding
renewal options) having a term of more than one year as of March 2,
1996, are as follows:
Fiscal year ending Amount
------------------ ------
1997 $527,000
1998 $380,000
1999 $275,000
2000 $208,000
--------
Total minimum licensing payments $1,199,000
==========
Royalties to GUESS?, Inc., which owns 23% of the outstanding common
stock of the Company, aggregated $335,000 in fiscal 1996, $220,000 in
fiscal 1995 and $43,000 in fiscal 1994.
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 $9,000,000. The
actions remain in their preliminary stage. The Company considers the
damages in the counterclaim to be unsupportable 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, as described in Note 2 above, 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
F-15
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 1996, February 25, 1995 and February 26, 1994
operations of the Company. No provision has been made by the Company
with respect to the aforementioned litigation at March 2, 1996.
NOTE 9 - RETIREMENT PLANS
The Company has a 401(k) plan for the benefit of all qualified
employees. Under the terms of the plan, the Company contributes an
amount equal to 1% for fiscal years 1994 and 1995 and 2% for fiscal
year 1996 of the participant's earnings subject to the maximum
contribution levels established by the Internal Revenue Service. Plan
contributions for fiscal 1996, 1995, and 1994 were $102,000, $105,000,
and $88,000, respectively.
NOTE 10 - RESTRUCTURING STRATEGY AND LIQUIDITY MATTERS
In recent years, the Company was burdened with an unprofitable Puerto
Rico facility and low margin product lines which created challenges in
its business, profitability and financial resources. At the end of the
1994 fiscal year the Company began the implementation of a
restructuring strategy to improve operating results and enhance its
financial resources. During fiscal 1995, the Company implemented
strategies which reduced costs, streamlined its operations and closed
its Puerto Rico plant.
In March, 1994, the Company refinanced its debt (Note 5), entered into
agreements with its principal stockholders (Note 8), increased its
capital through the sale of $1 million of non-voting convertible
preferred stock to management (Note 6) and reduced expenses. In August,
1994, the Company sold treasury stock which increased equity by $2.9
million. Although there can be no assurance that these measures will be
successful, the Company believes the steps it has taken provide
sufficient liquidity to fund its operations.
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 will 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. Closing of
the transaction is expected in early June, 1996. 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.
F-16
NOTE 11 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited consolidated quarterly financial data for fiscal years 1996
and 1995 is as follows:
(In Thousands except per share data)
------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1996
Net Sales $10,492 $7,361 $9,849 $7,358
Gross Profit $2,607 $2,124 $2,515 $1,082
Unusual credit (a) $300
Net income (loss) $256 $48 $498 ($1,041)
Net income (loss) per share $0.09 $0.02 $0.17 ($0.35)
Weighted average shares 2,981 2,983 2,986 2,989
1995
Net Sales $8,509 $9,209 $10,995 $8,302
Gross Profit $1,660 $2,149 $2,374 $878 (b)
Unusual charge (a) ($1,252)
Net income (loss) ($449) ($1,297) $24 ($1,425)(b)
Net income (loss) per share ($0.18) ( $0.51) $0.01 ($0.48)
Weighted average shares 2,489 2,521 2,979 2,979
(a) At the end of fiscal 1994, the Company formulated plans to close
its Puerto Rico facility. This was completed July 1994. A final
assessment associated with this closing required write-offs, reflected
as an unusual charge of $1,252,400 for the year ended February 1995. As
a result, the Company restated its results for its second fiscal
quarter which ended August 1994. In the third quarter of the current
fiscal year, the Company eliminated the $300,000 subordinated note
payable to the former owner of Phoenix which created an unusual credit
for fiscal year 1996. Both transactions are more fully described in
Note 2.
(b) During the fourth quarter of the fiscal year ended February 1995,
the Company recorded additional inventory reserves and write-offs which
aggregated $652,000.
F-17
Nantucket Industries, Inc. and Subsidiaries
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions Deductions
Balance at Charged to from Balance at
beginning costs and reserves close
Description of year expenses described (a) of year
----------- ------- -------- ------------- -------
Year ended March 2, 1996
Allowances
Accounts receivable $193,964 $120,000 $273,888 $40,076
==============================================================
Year ended February 25, 1995
Allowances
Accounts receivable $175,000 $90,000 $71,036 $193,964
==============================================================
(a) Uncollectable accounts written off against the allowance.
F-18
EXHIBIT INDEX
-------------
Exhibit No. Description Page No.
- ----------- ----------- --------
(3)(a) Certificate of Incorporation as currently *
in effect (filed as Exhibit 3(a) to Form 10-K
Report for the fiscal year ended February 27,
1988 (the "1988 10-K").
(3)(b) By-Laws as currently in effect (filed as *
Exhibit 3(b) to Form 10-Q Report for the quarter
ended August 26, 1995.
(4)(a) Specimen Stock Certificate (filed as Exhibit *
4(b) to Registration Statement on Form
S-1, No. 2-87229 filed October
17, 1983 (the "1983 Form S-1").
(4)(b) Share Purchase Rights Agreement, dated *
as of September 6, 1988, between the Company
and State Street Bank and Trust Company (filed
as Exhibit 4(a) to Form 8-K Report dated as of
September 6, 1988), as amended by the following:
Amendment No. 1 dated October 3, 1988 (filed as
Exhibit 9 to Schedule 14D-9 Amendment No. 1
dated October 4, 1988), Amendment No. 2 dated
October 18, 1988 (filed as Exhibit 14 to Schedule
14D-9 Amendment No. 2 dated October 19, 1988) and
Amendment No. 3 dated November 1, 1988 (filed as
Exhibit 4(c) to Form 10-K Report for the fiscal
year ended February 25, 1989 (the "1989 10-K"),
Amendment No. 4 dated as of November 17, 1988
(filed as Exhibit 1 to Amendment No. 1 to Form 8-A,
dated November 18, 1988) and Amendment dated as of
August 15, 1994 (filed as Exhibit 4(e) to Form 8-K dated
August 19, 1994).
(4)(c) Note Acquisition Rights Agreement dated as of *
September 6, 1988 between the Company and State
Street Bank and Trust Company, as amended on September 19,
1988 (filed as Exhibit 4(b) to Form 8-K Report dated
September 6, 1988) as amended by the following: Amendment
No. 2 dated October 3, 1988 (filed as Exhibit 10 to Schedule
14D-9 Amendment No. 2 dated October 4, 1988), Amendment No.
3 dated October 18, 1988 (filed as Exhibit 15 to Schedule
14D-9 Amendment No. 2 dated October 19, 1988), Amendment No.
4 dated November 1, 1988, (filed as Exhibit 4(d) to the 1989
10-K) and Amendment No. 5 dated as of November 17, 1988
(filed as Exhibit 2 to Amendment No. 1 to Form 8-A, dated
November 18, 1988).
(4)(d) Certificate of Designation, Preferences and *
Rights of Non-Voting Convertible Preferred Stock of
Nantucket Industries, Inc. (filed as Exhibit 4 to Form 8-K
Current Report dated March 22, 1994 (the "1994 8-K").
(4)(e) Common Stock Purchase Agreement dated as of *
August 18, 1994 by and among Registrant, Guess ?, Inc., the
Maurice Marciano 1990 Children's Trust, the Paul Marciano
Trust u/t/d 2/20/86, the Armand Marciano Trust u/t/d 2/20/86
and The Samberg Group, L.L.C. (filed as Exhibit 4(d) to Form
8-K dated August 19, 1994).
(9) Voting Trust Agreement by and among the *
Samberg Group, L.L.C., George Gold, Donald Gold, Stephen
Samberg, Stephen Sussman, Robert Polen, Ray Wathen,
Nantucket Industries, Inc., Robert Rosen and Joseph Mazzella
dated as of March 21, 1994 (filed as Exhibit 99(b) to 1994
8-K).
(10)(a) Nantucket Industries, Inc. Savings Plan, *
effective June 1, 1988 by and between the Registrant and
George Gold and Donald Gold as Trustees, Amendment No. 1
thereto dated June 22, 1990 and Amendment No. 2 thereto
dated November 19, 1990 (filed as Exhibit (10)(a) to Form
10-K Report for the fiscal year ended February 29, 1992 (the
"1992 10-K")).
(10)(b) Incentive Stock Option Plan (filed as Exhibit *
10(d) to the 1988 10-K).
(10)(c) 1988 Nantucket Industries, Inc. Nonstatutory *
Stock Option Plan (filed as Exhibit 10(c) to the 1989 10-K).
(10)(e)(i) Trademark Agreement between Registrant and *
Faberge, Incorporated dated November 1, 1980 ("Trademark
Agreement") regarding the trademarks "Faberge" and "BRUT"
for use with men's and boy's underwear and bathing suits
(filed as Exhibit 10(g)(i) to 1987 10-K); Amendment dated
November 16, 1982 regarding the trademark "BRUT 33" (filed
as Exhibit 10(m) to 1983 S-1); Letter dated August 24, 1983
from Faberge to Registrant with respect to renewal of the
Trademark Agreement for an additional five year period
(filed as Exhibit 10(g)(iii) to 1987 10-K); Amendment dated
May 6, 1983 regarding the trademarks "BRUT Medallion Design"
and "Brut Royale" (filed as Exhibit 10(k)(ii) to 1983 S-1;
Amendment dated December 5, 1983 (filed as Exhibit 10(g)(iv)
to the Form 10-K Report for the fiscal year ended March 3,
1984 (the "1984 10-K"); Amendment dated October 31, 1984
(filed as Exhibit 10(g)(xiii) to the Form 10-K Report for
the fiscal year ended March 2, 1985 (the "1985 10-K"));
Amendment dated March 14, 1986 extending license to include
swimwear tops (filed as Exhibit 10(g)(v) to the 1986 10-K;
Amendment dated April 25, 1984 (filed as Exhibit 10(g)(v) to
the 1984 10-K); Letter dated December 31, 1987, extending
term of Trademark Agreement for an additional five year
period and deleting men's and boy's bathing suits from
coverage (filed as Exhibit 10(g)(iii) to the 1988 10-K);
extension dated February 24, 1989, extending expiration date
of the Trademark Agreement to February 28, 1998 (filed as
Exhibit 10(e)(ii) to the 1989 10-K).
(10)(e)(ii) Intentionally Omitted
(10)(e)(iii) License Agreement between the Company and *
BRITTANIA Sportswear, Ltd. (subsidiary of Levi Strauss)
dated September 6, 1988 for the manufacture and sale of
men's and ladies' underwear under the "BRITTANIA" trademark
(filed as Exhibit 19 to Form 10-Q for the Quarter ended
August 27, 1988).
(10)(e)(iv) License Agreement between the Company and *
BRITTANIA Sportswear, Ltd. (subsidiary of Levi Strauss)
dated December 31, 1991 for the manufacture and sale of
men's and ladies' underwear under the "BRITTANIA" trademark
(filed as Exhibit 10(e)(iv) to the Form 10-K Report for the
fiscal year ending February 26, 1994 (the "1994 10-K")).
(10)(e)(v) Amendment dated as of January 31, 1996 Filed
to License Agreement between the Registrant Herewith
and BRITTANIA Sportswear, Ltd. (subsidiary of Levi Strauss)
for the manufacture and sale of mens' and ladies' loungewear
under the "BRITTANIA" trademark.
(10)(e)(vi) Intentionally omitted.
(10)(f) Modification and Extension of Lease *
dated November 30, 1982 between Registrant and Satti
Development Corp. (filed as Exhibit 10(1) to the 1983 10-K);
(i) amendment dated February 16, 1988 *
extending term of lease through April 30, 1993 (filed as
Exhibit 10(h) to the 1988 10-K);
(ii) amendment dated August 15, 1991 *
expanding demised premises, extending term of lease through
May 31, 1997 and modifying annual rental (filed as Exhibit
10(f)(ii) to 1992 Form 10-K).
10(f)(i) Intentionally omitted.
(10)(g) Promissory Notes from George J. Gold *
and Donald D. Gold to Registrant (filed as Exhibit 10(s) to
1983 S-1).
(10)(h) Intentionally omitted.
(10)(i) Amended and Restated Credit Agreement *
dated December 8, 1989, between Registrant and Manufacturers
Hanover Trust Company ("MHTC") for the borrowing of up to
$11,500,000 of which $8,500,000 is on a revolving credit
basis until March 5, 1993, the balance to be used against
letters of credit issued by MHTC for the benefit of the
Registrant; $8,500,000 Note dated December 8, 1989, from
Registrant to MHTC; Continuing Letter of Credit Security
Agreement dated December 8, 1989, between Registrant and
MHTC. (filed as Exhibit 10(i) to the Form 10-K Report for
the fiscal year ended March 3, 1990 (the "1990 10-K")
Omitted exhibits to said Agreement will be furnished to the
Commission upon request.
(i) First Amendment dated August 1, 1990 * to Loan
Agreement between Registrant and MHTC (filed as Exhibit
10(i)(i) to the Form 10-K Report for the fiscal year
ended March 2, 1991);
(ii) Second Amendment and Waiver dated * as of May 23,
1991 to Loan Agreement between Registrant and MHTC (filed
as Exhibit (10)(i)(ii) to the 1992 Form 10-K);
(iii) Fifth Amendment and Waiver dated * as of February
22, 1993, to Amended and Restated Credit Agreement dated
as of December 8, 1989, between the Registrant and
Chemical Bank, as successor by merger to MHTC (filed as
Exhibit (iii) to the Form 8-K dated March 4, 1993);
(iv) Sixth Amendment and Waiver dated * as of March 4,
1993, to Amended and Restated Credit Agreement (filed as
Exhibit 10(k)(iv) to 1993 10-K).
(10)(j)(i) Revolving Credit Agreement dated as of *
December 30, 1993 by and between Chemical Bank, Nantucket
Industries, Inc., Nantucket Mills, Inc. and Nantucket
Management Corporation (the "Credit Agreement") (filed as
Exhibit 10(j)(i) to the 1994 Form 10-K).
(10)(j)(ii) First Amendment to Credit Agreement dated *
as of February 28, 1994 by and between Chemical Bank,
Nantucket Industries, Inc., Nantucket Mills, Inc. and
Nantucket Management Corporation (filed as Exhibit 10(j)(ii)
to the 1994 10-K).
(10)(j)(iii) Second Amendment to Credit Agreement dated *
as of March 17, 1994 by and between Chemical Bank, Nantucket
Industries, Inc., Nantucket Mills, Inc. and Nantucket
Management Corporation (filed as Exhibit 10(j)(iii) to the
1994 10-K).
(10)(k) Intentionally omitted.
(10)(n) Intentionally omitted.
(10)(o) Intentionally omitted.
(10)(q) Intentionally omitted.
(10)(r) Intentionally omitted.
(10)(s) Intentionally omitted.
(10)(t) Intentionally omitted.
(10)(u) Intentionally omitted
(10)(v) Sublicense Agreement dated November 20, 1991 *
by and among Dawson Consumer Products, Inc., Registrant and
PGH Company regarding the use of the trademark "Adolfo" on
men's high fashion underwear briefs (filed as Exhibit
(10)(v) to the 1992 Form 10-K).
(10)(w) Sublicense Agreement dated October 16, 1992 *
by and among Salant Corporation, Dawson Consumer Products,
Inc. and the Registrant regarding the use of the trademark
"John Henry" on men's high fashion underwear briefs (filed
as Exhibit (10)(w) to the 1992 Form 10-K).
(10)(x) Employment Agreement dated May 26, 1992 *
by and between the Registrant and Stephen P. Sussman (filed
as Exhibit 10(x) to the Form 10Q Report for November 28,
1992) as amended by the Amendment dated August 8, 1994
(filed as Exhibit 99(a) to Form 8-K dated August 19, 1994).
(10)(y) Intentionally omitted.
(10)(z)(i) Intentionally omitted
(10)(z)(ii) Amended and Restated Employment *
Agreement dated as of March 18, 1994 by and between
Nantucket Industries, Inc. and Stephen M. Samberg (filed as
Exhibit 10(z)(ii) to the 1994 Form 10-K) as amended by the
Amendment dated August 8, 1994 (filed as Exhibit 99(c) to
Form 8-K dated August 19, 1994).
(10)(aa) License Agreement dated October 5, 1992 *
between Cluett Peabody & Co., Inc. and Registrant with
respect to the ARROW trademark (filed as Exhibit 2 to Form
10Q Report for November 28, 1992).
(10)(bb) License Agreement dated December 9, 1992 *
between GUESS?, Inc. and Registrant with respect to the
GUESS? trademark (filed as Exhibit 3 to Form 10Q Report for
November 28, 1992).
(10)(cc) Registrant's 1992 Executive Long-Term Stock *
Option Place (filed as Exhibit 4 to Form 10Q Report for
November 28, 1992).
(10)(dd) Registrant's 1992 Executive Performance *
Benefit Plan (filed as Exhibit 5 to Form 10Q for November
28, 1992).
(10)(ee) Management Agreement made as of January 1, *
1993 by and between Nantucket Management Corp. (a subsidiary
of Registrant) and Registrant (filed as Exhibit 10(ee) to
1993 10-K).
(10)(ff) License Agreement dated December 21, 1992 *
between Registrant and McGregor Corporation with respect to
the Botany 500 Trademark (filed as Exhibit 10(ff) to 1993
10-K).
(10)(ff)(i) Letter agreement dated July 10, 1995 Filed
amending License Agreement between the Registrant Herewith
and McGregor Corporation with respect to Botany 500
Trademark.
(10)(gg) Severance Agreement dated as of March 18, *
1994 by and among Nantucket Industries Inc., George J. Gold
and Donald Gold (filed as Exhibit 10(gg)(i) to the Form 10K
Report for the fiscal year ended February 25, 1995). (Filed
as Exhibit 10(gg) to the 1994 Form 10-K) as amended by the
Amendment dated August 17, 1994 (filed as Exhibit 99(b) to
Form 8-K dated August 19,1994).
(10)(gg)(i) Letter dated February 28, 1995 amending *
Severance Agreement by and among Registrant, George J. Gold
and Donald D. Gold (filed as Exhibit 10(gg)(i) to the Form
10-K Report for the fiscal year ended February 25, 1995).
(10)(hh) Agreement dated as of March 1, 1994 by *
and among the Samberg Group, L.L.C., George J. Gold, Donald
D. Gold, Stephen M. Samberg, Stephen P. Sussman, Robert
Polen, Raymond L. Wathen and Nantucket Industries, Inc.
(filed as Exhibit 10(hh) to the 1994 Form 10-K)
(10)(ii) Loan and Security Agreement by and between *
Nantucket Industries, Inc. and Congress Financial Corp.
dated as of March 21, 1994 (filed as Exhibit 99(b) to 1994
8-K).
(10)(jj) Guaranty by Nantucket Mills, Inc. in favor *
of Congress Financial Corp. dated as of March 21, 1994
(filed as Exhibit 99(c) to 1994 8-K).
(10)(kk) General Security Agreement by Nantucket *
Mills, Inc. in favor of Congress Financial Corp. dated as of
March 21, 1994 (filed as Exhibit 99(d) to 1994 8-K).
(10)(ll) Guaranty by Nantucket Management *
Corporation in favor of Congress Financial Corp. dated as of
March 21, 1994 (filed as Exhibit 99(e) to 1994 8-K).
(10)(mm) General Security Agreement by Nantucket *
Management Corporation in favor of Congress Financial Corp.
dated as of March 21, 1994 (filed as Exhibit 99(f) to 1994
8-K).
(10)(nn) Amended and Restated Credit Agreement by *
and among Chemical Bank, Nantucket Industries, Inc.,
Nantucket Mills, Inc. and Nantucket Management Corporation
dated as of March 21, 1994 (filed as Exhibit 99(g) to 1994
8-K) and amended by the Amendment dated as of August 18,
1994 (filed as Exhibit 99(e) to the Form 8-K dated August
19, 1994).
(10)(oo) Amended and Restated Security Agreement by *
and between Nantucket Industries, Inc. and Chemical Bank
dated as of March 21, 1994 (filed as Exhibit 99(h) to 1994
8-K).
(10)(pp) Amended and Restated Security Agreement *
by and between Nantucket Mills, Inc. and Chemical Bank dated
as of March 21, 1994 (filed as Exhibit 99(i) to 1994 8-K).
(10)(qq) Security Agreement by and between Nantucket *
Management Corporation and Chemical Bank dated as of March
21, 1994 (filed as Exhibit 99(j) to 1994 8-K).
(10)(rr) Deed to Secure Debt, Security Agreement *
and Assignment of Leases and Rents by Nantucket Industries,
Inc. to Congress Financial Corporation dated June 8, 1994
(filed as Exhibit 10(rr) to the 1994 Form 10-K).
(10)(ss) Deed to Secure Debt, Security Agreement *
and Assignment of Leases and Rents by Nantucket Industries,
Inc. to Chemical Bank dated as of June 8, 1994 (filed as
Exhibit 10(ss) to the 1994 Form 10-K).
(10)(tt) Employment Agreement dated November 23, *
1994 by and between Registrant and Raymond L. Wathen (filed
as Exhibit 10(tt) to Form 10-K Report for the fiscal year
ended February 25, 1995).
(10)(tt)(i) Amendment to Employment Agreement entered Filed
into as of January 1, 1996 between Registrant and Herewith
Raymond L. Wathen.
(10)(uu) Employment Agreement dated July 1, 1994 *
by and between Registrant and Ronald S. Hoffman (filed as
Exhibit 10(uu) to Form 10-K Report for the fiscal year ended
February 25, 1995).
(10)(uu)(i) Letter Agreement dated June 12, 1995 Filed
between Registrant and Ronald S. Hoffman, extending Herewith
the term of his employment to June 30, 1996.
(10)(vv) Employment Agreement dated as of January Filed
1, 1996 by and between Registrant and Joseph Herewith
Visconti.
(10)(ww) First Amendment, dated as of December 15, *
1995, to Amended and Restated Credit Agreement dated as of
March 21, 1994, among Nantucket Industries, Inc. and its
subsidiaries and Chemical Bank (filed as Exhibit (10)(vv) to
Form 10-Q Report for the quarter ended November 25, 1995.