SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
( MARK ONE) FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended March 29, 1997
_________ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission file number 0-3305
NCC INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 62-0643336
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
165 MAIN STREET, CORTLAND, NEW YORK 13045
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (607) 756-2841
Indicate by check mark whether registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
At March 29, 1997, there were outstanding 4,375,492 shares of
registrant's Common Stock, par value $1.00 per share.
NCC INDUSTRIES, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements: Page No.
Consolidated Balance Sheets 3
Consolidated Statements of Operations and Retained Earnings 4
Consolidated Statements of Cash Flows 5
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 15
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
NCC INDUSTRIES, INC. AND SUBSIDIARY
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
March 29, December 31,
1997 1996
ASSETS
Current assets
Cash and cash equivalents $ 15,208 $ 73,359
Accounts receivable, net 6,217,152 10,007,836
Income tax refundable - 117,845
Inventories (Note 2) 25,226,854 26,992,458
Other current assets 2,248,285 2,294,237
Total current assets 33,707,499 39,485,735
Property, plant and equipment at cost, net 7,233,060 7,749,955
Other assets 89,734 97,897
Total assets $41,030,293 $47,333,587
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 6,778,939 $ 8,907,721
Due to affiliates 6,297,226 8,757,613
Current portion oflong-term debt 1,916,415 1,916,415
Total current liabilities $14,992,580 $19,581,749
Other liabilities 1,456,811 1,852,225
Shareholders' equity 24,580,902 25,899,613
Total liabilities and shareholders' equity $41,030,293 $47,333,587
</TABLE>
See notes to financial statements.
-3-
NCC INDUSTRIES, INC. AND SUBSIDIARY
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
<TABLE>
<S> <C> <C>
_____Three Months Ended______
March 29, March 30,
____1997___ ___1996___
STATEMENTS OF OPERATIONS
Net Sales $12,294,976 $ 22,694,362
Cost and expenses
Cost of sales, shipping, selling,
general and administrative expenses 13,314,007 23,157,061
Interest expense 286,888 330,265
13,600,895 23,487,326
Loss before income taxes ($1,305,919) ($ 792,964)
Income taxes (benefit) 12,792 ( 262,530)
Net loss ($1,318,711) ($ 530,434)
Loss per common share ($.30) ($.12)
Weighted average shares used in
computing per share amounts (Note 3) 4,375,492 4,375,492
STATEMENTS OF RETAINED EARNINGS
Retained earnings, beginning $18,637,889 $31,645,396
Net loss ( 1,318,711) ( 530,434)
Retained earnings, ending $17,319,178 $ 31,114,962
</TABLE>
See notes to financial statements.
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NCC INDUSTRIES, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<S> <C> <C>
___Three Months Ended____
March 29, March 30,
__1997 __ __1996___
Cash flows from operating activities
Net loss ($ 1,318,711) ($ 530,434)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 352,722 387,519
Amortization 3,484 4,292
Provision for losses on accounts receivable 30,000 30,000
Loss from sale of equipment 183,027 32,987
Net change in operating assets and liabilities
Decrease (increase) in accounts receivable 3,760,684 654,044
Decrease (increase) in inventory 1,765,604 (5,947,056)
(Decrease) increase in accounts
payable and accrued expenses (2,128,782) 5,566,003
Decrease in income taxes refundable 117,845
Decrease in other assets 4,679 125,777
Decrease in amounts due to affiliate (2,460,387)
(Decrease) increase in other liabilities ( 395,414) 832,155
Increase (decrease) in other current assets 45,952 ( 548,306)
Net cash (used in) provided by operating activities(39,297) 606,981
Cash flows from investing activities
Purchase of plant & equipment (18,854) ( 33,24l)
Proceeds from sales of investments -- 278,000
Net cash (used in) provided by investing activities(18,854) 244,759
</TABLE>
See notes to financial statements.
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NCC INDUSTRIES, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<S> <C> <C>
Three Months Ended
March 29, March 30,
1997 1996
Net (decrease) increase in cash $ (58,151) $ 851,740
Cash, beginning of year $ 73,359 $ 725,198
Cash, end of quarter $ 15,208 $ 1,576,938
Supplemental disclosure of cash flow information
Cash paid during the three months for interest $ 226,054 $ 164,273
Cash paid during the three months for income taxes$97,702 $ - -
</TABLE>
See notes to financial statements.
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NCC INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation of
the financial position and results of operations for the interim period have
been included. Operating results for the three month period ended
March 29, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. The balance sheet at
December 31, 1996 has been derived from the audited balance sheet at that
date. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1996.
Registrant is engaged in the garment business, in which it manufactures and
distributes (predominantly to retail businesses) moderately priced ladies
undergarments. Sales are made to department, specialty and chain stores
throughout the United States. Triumph International Overseas Ltd.,
a Liechtenstein corporation ("Triumph"), was Registrant's majority
shareholder until April 26, 1995, when Triumph sold its interest. Maidenform
Worldwide, Inc., a Delaware corporation ("Worldwide"), is Registrant's
ultimate majority shareholder by ownership of Maidenform Inc. ("Maidenform"),
Registrant's controlling shareholder who, at March 29, 1997, owned
approximately 92.4% of Registrant's outstanding shares.
2. Inventory:
a) Inventories at March 29, 1997 are stated at the lower of cost
(first-in, first-out) or market (generally realizable net
amount), and are obtained from the perpetual inventory
records of the Company.
b) Inventories for all periods indicated consist of the following:
<TABLE>
<S> <C> <C>
March 29, December 31,
1997 1996
(unaudited) (audited) __
Raw Materials $ 8,667,303 $ 5,675,483
Work in process 3,513,624 3,337,370
Finished goods 13,045,927 17,979,605
Total $ 25,226,854 $ 26,992,458
</TABLE>
3. Net loss per share:
Per share amounts are based on the weighted average number
of shares outstanding during the period.
-7-
4. Debt:
Registrant's financial statements for the year ended December 31,1996 were
prepared on a going concern basis which contemplates the realization of
assets and the settlement of liabilities and commitments in the normal course
of business. Registrant has experienced a decline in the trend of earnings
with a net (loss) income of ($12,697,794), $2,750,664, and $5,901,012 for the
years ended December 31, 1996, 1995 and 1994, respectively. In addition,
Worldwide also had losses for the years ended
Registrant participates in the consolidated cash management system of its
ultimate parent, Worldwide. As such, Registrant is a party to, and its
liquidity is dependent upon, Worldwide's financing arrangements.
Substantially all of Registrant's non-payroll disbursements are controlled by
Worldwide. Worldwide is currently in the process of trying to obtain
additional financing arrangements since their current financing arrangement
expires on September 30, 1997. However, no assurance can be given that
Worldwide will be succesful in obtaining additional financing which Registrant
feels will allow it to continue in business and allow it to realize its
assets and liquidate its liabilities as they become due.
The Registrant's long-term debt has been reclassified as a current liability
as cross-default provisions with Worldwide's debt could allow the debt to be
called if an event of default exists beyond the expiration of the
forebearance period.
-8-
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General
The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for forward-looking statements. This Quarterly Report contains
certain forward-looking statements and information based upon the beliefs of
management as well as assumptions made by and information currently available
to management. The statements contained in this Quarterly Report relating to
matters that are not historical facts are forward-looking statements that
involve risks and uncertainties, including, but not limited to, future demand
for Registrant's products, Registrant's future working capital requiements,
general economic conditions, government regulation, competition, and other
risks and uncertainties. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those described herein as anticipated, believed,
estimated or expected.
Results of Operations
Net sales for the first quarter of 1997 declined by 46% from $22,695,000 at
March 30,1996 to $12,295,000 at March 29, 1997. This decrease is principally
due to a decrease in shipments of Registrant's products primarily to Mast,
Mervyn's, J.C. Penney and the branded businesses, as well as Registrant's
failure to timely ship stock to certain customers because of liquidity
constraints. Registrant continues to experience delays in receipt of stock
necessary to fill orders.
Unit volume declined 38% for the first quarter of 1997 compared to the
first quarter of 1996 and average selling price per unit declined 13% over
the same period.
Cost of sales, shipping and selling expenses increased as a percentage of
sales for the first quarter of 1997 as compared to the first quarter of 1996
primarily due to a decline in number of units shipped. Notwithstanding
declines in sales volume, general and administrative expenses were consistent
for the first quarter of 1997 as compared to the first quarter of 1996 as a
percentage of sales.
Interest expense was lower during the first quarter of 1997 as compared to
the first quarter of 1996 due to lower average intercompany liabilities.
As a result of the aforementioned items, net loss increased to $1,318,711
in the first quarter of 1997 as compared to $530,434 in the first quarter of
1996.
Financial Condition
Net cash flows used in operating activities was $39,000 during the first
quarter of 1997 as compared to $607,000 provided by operations during the
first quarter of 1996. This was due primarily to decreases in accounts
payable and amounts due to affiliate and the net loss for the period
partially offset by decreases in accounts receivable and inventory. Inventory
decreased primarily due to lower-than-anticipated receipts of stocks in the
first quarter of 1997.
-9-
Net cash flows from investing activities decreased due to non-recurring sale
of investments in the prior year.
Working capital was $18,715,000 at March 29, 1997, as compared to
$19,904,000 at December 31, 1996.
Liquidity
Registrant participates in the consolidated cash management system of its
ultimate parent, Worldwide, and its subsidiaries, including Maidenform and
the Registrant (collectively, the "Maidenform Group"). As such, Registrant
is a party to, and its liquidity is dependent upon, the Maidenform Group's
financing arrangements. In April 1995, the Maidenform Group entered into a
bank loan agreement for a revolving credit facility for $120,000,000 and a
term loan of $50,000,000 (the "Bank Loan Agreement"), and amended and
restated its senior note agreement with respect to $30,000,000 principal
amount in senior notes (the "Senior Note Agreement" and, collectively, with
the Bank Loan Agreement, the "Maidenform Loan Agreements"). The revolving
credit facility, which had an expiration date of April 25, 1998, limited
borrowings to certain percentages of the Maidenform Group's trade accounts
receivable and inventories. The term loan was repayable in increasing
quarterly principal installments ranging from $2,000,000 to $3,000,000
commencing on June 30, 1996 through maturity on March 31, 2001. The senior
notes are due on September 30, 2003, payable in annual principal
installments of $4,285,714 on each September 30, commencing 1997 through
2000. In connection with such financings, Registrant's assets and 92.4% of
its stock were pledged as collateral. In the event of a default by
Registrant or any other member of the Maidenform Group, the lenders could
demand repayment of all amounts outstanding and assert their rights as
secured creditors against any member of the Maidenform Group,
including the Registrant. On March 29, 1996, the Bank Loan Agreement was
amended and the Maidenform Group borrowed an additional $20,000,000 under
a new term loan which was repaid in two installments in 1996.
In 1996 events of default occurred under the Maidenform Loan Agreements
from time to time due to the Maidenform Group's failure to comply with certain
financial covenants and other provisions of such agreements. In
September 1996, the Maidenform Loan Agreements were amended whereby the
lenders agreed to forbear from exercising their rights and remedies arising
from such events of default through January 17, 1997 and to permit
overadvances which allow borrowings beyond the borrowing base tied to
inventory and accounts receivable up to a maximum credit limit. In December
1996, the Bank Loan Agreement was amended and restated and replaced with a
new loan facility (the "New Bank Loan Agreement" and, collectively with the
Senior Note Agreement, as amended, the "New Maidenform Loan Agreements"),
which increased the revolving credit facility up to a maximum of
$145,000,000, provided for a term loan in the original principal amount of
$50,000,000, and extended the forbearance until May 31, 1997. In addition,
the Senior Note Agreement was amended in order to conform certain provisions
therein with the provisions in the New Bank Loan Agreement. In March 1997,
the New Bank Loan Agreement was amended to modify the overadvance
formula to allow the Maidenform Group to obtain borrowings up to the
maximum credit limit. In April 1997, the New Bank Loan Agreement was further
amended to increase the available overadvances to allow access to the maximum
credit limit, increase the maximum revolving credit limit up to $150,000,000,
and amend the forbearance agreement so that certain covenants relating to the
first quarter of 1997 were suspended. In May 1997, the New Bank Loan
-10-
Agreement was again amended to increase the available overadvances to
allow access to the maximum credit limit, maintain the small increase in the
revolving credit facility amount obtained in the April amendment, and extend
the forbearance period through September 30, 1997.
Under the New Maidenform Loan Agreements, Registrant's assets and 92.4% of
its stock are pledged as collateral. In the event of a default by Registrant
or any other member of the Maidenform Group under the New Maidenform Loan
Agreements, the lenders can demand repayment of all amounts outstanding and
assert their rights as secured creditors against any member of the Maidenform
Group, including Registrant.
The New Maidenform Loan Agreements contain covenants that, among other
matters, restrict additional borrowings, dividends and other payments with
respect to the Maidenform Group's capital stock and provide for the
maintenance of minimum consolidated tangible net worth and certain financial
ratios, including current assets (excluding inventory) to current
liabilities, debt to equity, fixed charge coverage and debt to operating cash
flow ratios (all as defined). However, as stated above, these financial
covenants have been suspended through September 30, 1997. At March 29, 1997,
no amounts of retained earnings were available for dividends.
As of March 29, 1997, outstanding borrowings under the then existing
revolving credit facility amounted to $142,634,344. In addition, outstanding
letters of credit (which reduce the maximum available borrowing) issued by the
banks for the account of the Maidenform Group under the facility amounted to
approximately $3,000,000.
For the year ended December 31, 1996, Worldwide reported a net loss in an
undisclosed amount and Registrant reported a net loss of $12,697,794.
Registrant's independent auditors have included "going concern" qualification
in their audit report as of December 31, 1996 and 1995 and the years then
ended. In May 1997, the Maidenform Group and its senior lenders entered into
an amendment to increase and continue the available overadvances to allow
access to the maximum credit limit, maintain the small increase in the
revolving credit facility amount obtained in the April amendment, and
extend the forbearance period through September 30, 1997. The Maidenform
Group is currently in the process of trying to obtain additional financing
arrangements since their current financing arrangement expires on
September 30, 1997. However, no assurance can be given that the
Maidenform Group will be successful in obtaining additional financing which
Registrant feels would allow it to continue in business and allow it to
realize its assets and liquidate its liabilities as they become due.
-11-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
During 1996, Herzog, Heine Geduld, Inc. ("HHG"), the owner of approximately
30,214 shares of Registrant's common stock and the principal market maker for
Registrant's common stock, commenced a purported class action (the "Action")
against Registrant, Maidenform, Worldwide, Triumph, Guenther Spiesshofer, a
former director and shareholder of Registrant ("Spiesshofer"), and
Frank Magrone, a former officer, director and shareholder of Registrant
("Magrone"). The Action, which HHG sought to maintain on behalf of itself
and a putative class of all public shareholders of Registrant as of
April 26, 1995 was commenced in New York State Court (the "Court"), seeks
compensatory damages in an unspecified amount and alleges that Triumph,
Spiesshofer and Magrone breached their fiduciary duty to HHG and the
remaining shareholders by selling their controlling stock of Registrant to
Worldwide at a premium and failing to include HHG and the remaining
shareholders in the sale, and in failing to share the control premium with
such shareholders. The complaint also alleges that Maidenform and Worldwide
aided and abetted the selling defendants' alleged breach by allegedly
structuring the stock purchase to exclude public shareholders.
HHG also claims that Maidenform and Worldwide, as the controlling
shareholders of Registrant since the sale, breached their fiduciary duty to
the public shareholders by allegedly operating Registrant as a wholly-owned
subsidiary in absence of purchasing 100% of the stock. While the complaint
names Registrant as a defendant, it does not articulate any claim for relief
against Registrant.
Additionally, in October 1996, Bernard Zimmerman, the owner of 5,000 shares
of common stock of Registrant, commenced a related purported class action
lawsuit against the same defendants as the HHG lawsuit and asserting
identical claims for relief. By stipulation and order dated December 19,
1996, the Zimmerman action was consolidated with the HHG action.
On April 18, 1997, the Court granted defendant's motion to dismiss the
complaints for failure to state a cause of action and dismissed the
complaints. It is not known at this time whether plaintiffs will file an
appeal.
-12-
Item 6. Exhibits and Reports on Form 8-K
Exhibits No. Description
(a)
27 Financial Data Schedule
(b) Reports on Form 8-K
A Report on Form 8-K was filed on April 3, 1997.
- -13-
EXHIBIT INDEX
Title of Document Page
Financial Data Schedule 26
-14-
SIGNATURES
Pursuant to the requirements to the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
NCC INDUSTRIES, INC.
Date May 13, 1997 By:/s/ Elizabeth J. Coleman
Elizabeth J. Coleman
Chairman of the Board
and Chief Executive Officer
Date May 13, 1997 By:/s/ Frank Stull
Frank Stull
Executive Vice President
Chief Financial Officer
-15-
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> MAR-29-1997
<CASH> 15,208
<SECURITIES> 0
<RECEIVABLES> 6,217,152
<ALLOWANCES> 0
<INVENTORY> 25,226,854
<CURRENT-ASSETS> 33,707,499
<PP&E> 7,233,060
<DEPRECIATION> 0
<TOTAL-ASSETS> 41,030,293
<CURRENT-LIABILITIES> 14,992,580
<BONDS> 0
0
0
<COMMON> 4,866,841
<OTHER-SE> 19,714,061
<TOTAL-LIABILITY-AND-EQUITY> 41,030,293
<SALES> 12,294,976
<TOTAL-REVENUES> 12,294,976
<CGS> 13,314,007
<TOTAL-COSTS> 13,314,007
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 286,888
<INCOME-PRETAX> (1,305,919)
<INCOME-TAX> 12,792
<INCOME-CONTINUING> (1,318,711)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,318,711)
<EPS-PRIMARY> (.30)
<EPS-DILUTED> (.30)
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