SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 3, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number(s) 33-52852
_________________________________
ITHACA INDUSTRIES, INC
(Exact name of registrant as specified in its charter)
Delaware 56-1385842
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification number)
Highway 268 West, P.O. Box 620, Wilkesboro, NC 28697
(Address of principal executive office) (Zip Code)
(910) 667-5231
(Registrant's telephone, including area code)
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all the reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days.
YES x NO
_____ ______
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES NO
_____ ______
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the registrant's classes of common stock, as of the
latest practicable date. As of June 17, 1996, the registrant had outstanding
1,000 shares of common stock, par value $.01 per share.
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ITHACA INDUSTRIES, INC.
QUARTERLY REPORT
QUARTER ENDED MAY 3, 1996
INDEX
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<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Consolidated Balance Sheets - May 3, 1996 and February 2, 3
1996
Consolidated Statements of Operations - Thirteen Weeks Ended 4
May 3, 1996 and April 28, 1995
Consolidated Statements of Cash Flows - Thirteen Weeks Ended 5
May 3, 1996 and April 28, 1995
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussions and Analysis of Financial Condition 7
and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings *
Item 2. Changes in Securities *
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders *
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K *
Signature 13
* NO INFORMATION PROVIDED DUE TO INAPPLICABILITY OF ITEM
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Page 2
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ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS{*/}
(Unaudited)
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
MAY 3 FEBRUARY 2
1996 1996
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ASSETS
Current Assets:
Cash and Cash Equivalents $ - 0 - $ 10,369
Accounts Receivable - Net 45,104 30,562
Inventories{**/} 60,412 56,079
Deferred Taxes 19,951 20,212
Prepaid Expenses and Other Current Assets 1,341 1,567
Refundable Income Taxes 2,209 13,159
Assets Held for Disposition, Net of Estimated Reserves 3,733 17,139
Total Current Assets 132,750 149,087
Property, Plant and Equipment -Net 53,393 54,295
Intangible Assets, Net of Accumulated Amortization 770 905
Deferred Debt Expense, Net of Accumulated Amortization 3,332 3,651
Other Assets 711 704
Total Assets $ 190,956 $ 208,642
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current Liabilities:
Bank Overdraft $ 2,204 $ - 0 -
Current Installments of Long-Term Debt 222,918 240,058
Accounts Payable 14,578 16,414
Accrued Payroll and Related Expenses 12,543 10,335
Accrued Restructuring Costs 8,528 12,204
Other Accrued Expenses 16,425 15,985
Income Taxes Payable 828 - 0 -
Total Current Liabilities 278,024 294,996
Deferred Income Taxes 7,787 7,204
Total Liabilities 285,811 302,200
Stockholder's Deficit:
Common Stock of $.01 Par Value, - 0 - - 0 -
Authorized and Issued 1,000 Shares
Additional Paid-In Capital 9,000 9,000
Accumulated Deficit (103,855) (102,558)
Total Stockholder's Deficit (94,855) (93,558)
Total Liabilities and Stockholder's Deficit $ 190,956 $ 208,642
</TABLE>
______________________________
*/ See Accompanying Notes to Financial Statements
**/ See Note 2 of Notes to Financial Statements
Page 3
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ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS{*/}
(Unaudited)
(In Thousands)
Thirteen Weeks Ended
[S] [C] [C]
MAY 3 APRIL 28
1996 1995
Net Sales $ 97,619 $ 93,661
Cost of Sales 84,928 76,807
Gross Profit 12,691 16,854
Selling, General and Administrative Expenses 8,347 10,043
Operating Profit 4,344 6,811
Interest Expense, Related Parties 992 968
Interest Expense, Non-Related Parties - Net 5,629 5,731
Other (income) Expense - Net ( 150) ( 148)
Income Before Income Taxes ( 2,127) 260
Income Tax (Benefit) Expense ( 825) 150
Net Income (Loss) $( 1,302) $ 110
_________________________
*/ See Accompanying Notes to Financial Statements
Page 4
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ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS{*/}
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
<S> <C> <C>
MAY 3 APRIL 28
1996 1995
Cash Provided By Operating Activities:
Net Income (loss) $ ( 1,302) $ 110
Adjustments to Reconcile Net Income to
Net Cash Provided (Used) by Operations:
Depreciation and Amortization of Property
and Equipment 2,244 2,270
Amortization of Debt Origination Fees 319 418
Amortization of Intangible Assets 136 235
Amortization of Discount on 16 16
Subordinated Debt
Decrease in Provision for 844 (220)
Deferred Taxes
(Gain) Loss on Sale of ( 5) ( 52)
Property, Plant and Equipment
Provision for Asset Write- (3,172) - 0 -
Downs and Restructuring
Changes in Assets and Liabilities:
(Increase) in Account (14,542) (6,920)
Receivable
(Increase) in Inventories (4,333) (13,510)
Decrease in Assets Held for 13,406 - 0 -
Disposition
(Increase) Decrease in 11,176 ( 12)
Prepaid Expenses
Increase in Accounts Payable (1,835) 2,292
Increase in Accrued Expenses 5,296 1,729
and Other Liabilities
Increase (Decrease) in Income (2,319) 271
Taxes Payable
Net Cash Provided (Used) by 5,929 (13,373)
Operations
Cash Flows From Investing Activities:
Proceeds From the Sale of 15 74
Property, Plant and Equipment
Additions to Property, Plant (1,359) ( 4,855)
and Equipment
Decrease (Increase) in Other ( 3) 131
Assets
Net Cash Used in Investing (1,347) ( 4,650)
Activities
Cash Flows From Financing Activities:
Repayment of Long-Term Debt -Net ( 155) ( 9,307)
Increase (Decrease) in (17,000) 22,500
Revolver
Net Cash Used in Financing ( 17,155) 13,193
Activities
Net (Decrease) Increase in Cash and
Cash Equivalents ( 12,573) ( 4,830)
Cash and Cash Equivalents at Beginning
of Period 10,369 7,531
Cash and Cash Equivalents at End of Period $ ( 2,204) $ 2,701
Supplemental Disclosure of Cash Paid
During the Period For:
Income Taxes $( 10,301) $ 100
Interest $ 3,376 $ 4,392
________________________
*/ See Accompanying Notes to Financial Statements
Page 5
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ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEKS ENDED
MAY 3, 1996 AND APRIL 28, 1995
(UNAUDITED)
1. FINANCIAL STATEMENTS
The consolidated balance sheets as of May 3, 1996 and the
consolidated statements of operations for the thirteen weeks
ended May 3, 1996 and April 28, 1995, and the consolidated
statements of cash flows for the thirteen weeks ended May 3,
1996 and April 28, 1995 have been prepared by the Company
without audit. In the opinion of management, all adjustments
(consisting of only normal recurring accruals) necessary for a
fair presentation of the financial position of the Company at
May 3, 1996 and the results of operations for the thirteen
weeks ended May 3, 1996 and April 28, 1995, and the statements
of cash flows for the thirteen weeks ended May 3, 1996
and April 28, 1995 have been made on a consistent basis.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed
or omitted. It is suggested that these financial statements
be read in conjunction with the audited financial statements
and notes thereto for the years ended February 2, 1996 and
January 27, 1995 included in the Company's Annual report on
Form 10-K as filed with the Securities and Exchange Commission
on May 17, 1996.
The results of operations for the periods presented are
not necessarily indicative of the operating results for the
full year.
2. INVENTORIES
Inventories consist of the following:
MAY 3 FEBRUARY 2
1996 1996
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Raw Materials $ 44,722 $ 24,676
Work in Process 18,681 16,882
Finished Goods 26,362 53,962
89,765 95,520
Less Excess of FIFO Over LIFO Cost 10,609 10,474
Less Inventory Included in Assets Held 18,744 28,967
for Disposition, Net
60,412 56,079
Page 6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED MAY 3, 1996 COMPARED
WITH THIRTEEN WEEKS ENDED APRIL 28, 1995
Net sales increased from $93.7 million for the
thirteen weeks ended April 28, 1995 to $97.6 million
(4.2%) for the thirteen weeks ended May 3, 1996. The
sales increase was primarily in the men's underwear
division, although sales of discontinued products were
higher in the current quarter as the Company began
implementing its business restructuring plan.
The gross profit margin decreased for the first
quarter of fiscal 1997 to 13.0% from 18.0% for the
comparable period last year. The decrease in gross
profit margin is largely due to selling a higher
proportion of discontinued goods this year which have
comparatively lower gross profit margins than ongoing
products. Excluding sales of discontinued goods, the
first quarter gross profit was 16.5%.
Selling, general and administrative expenses for the
first quarter of fiscal 1997 decreased to $8.3 million
from $10.0 million (16.9%) last year due primarily to
lower staffing levels and employee-related costs
resulting from the implementation of the restructuring
plan.
Operating profit decreased to $4.3 million for the
first quarter of fiscal 1997 from $6.8 million (36.2%)
for the comparable period last year primarily due to
lower gross profit margins.
Interest expense for the thirteen weeks ended May 3,
1996 of $6.6 million was slightly below the $6.7 million
incurred in the first quarter of fiscal 1996. Lower
average debt levels (resulting from lower inventories
partially offset by higher average receivables) were
subject to higher interest rates in the current quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's existing bank credit agreement, which
was negotiated in December 1992, is a six year revolving
credit facility of up to $65 million and a $125 million
six year term facility, payable in twenty-four quarterly
installments. Interest rates under this agreement are
either 1.5% over prime or 2.5% over a Eurodollar rate.
At May 3, 1996, the Company was not, and currently
is not, in compliance with certain financial covenants
under its bank credit agreement, and does not anticipate
that it will be in compliance with these financial
covenants in the foreseeable future.
Additionally, the Company has not made the principal
payments due January 31, 1996 and April 30, 1996, under
the agreement. The Company has obtained a series of
waivers, most recently for the period from March 31,
1996 to and including July 1, 1996, that provide for
restricted availability under its revolving credit
facility, the computation and payment of interest with
respect to a prime based rate, a cash collateral
arrangement, the delay in payment of the principal
payments due January 31, 1996 and April 30, 1996 to the
end of the waiver period, restriction on the payment of
interest on the Company's 11.125% Senior Subordinated
Notes due 2002 for the payments due December 15, 1995
(which has not been paid) and June 15, 1996, and
additional covenants regarding asset sales, earnings
before interest, taxes, depreciation and amortization
levels, and capital expenditures. Under the terms of
the waiver, the Company had availability under the
revolving credit facility of $17.9 million at June 14,
1996.
Page 7
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The Company is in default on the Notes due to its
failure to make the interest payment due December 15,
1995. The Company anticipates that it will be unable to
pay the interest due on June 15, 1996. The Company has
reached an agreement in principle with an unofficial
committee representing certain holders ("Noteholders")
of the Notes. The agreement in principle provides for
the exchange of all of the outstanding Notes for 100% of
the common stock of the Company. The conversion would
be effected under either a voluntary prepackaged or pre-
negotiated plan of reorganization under Chapter 11 of
the Bankruptcy Code (the "Plan") under which the
Company's trade creditors would be unimpaired.
Following the effective date of such plan, the Board of
Directors of the Company would initially consist of
seven (7) directors, one of whom would be the Chief
Executive Officer of the Company, one of whom would be
designated by affiliates of Butler Capital Corporation
who currently hold approximately $25 million principal
amount of Notes and five (5) of whom would be chosen by
non-affiliated Noteholders. The Plan will provide that
upon the effectiveness of the Plan, the Company, its
parent company, and the shareholders of its parent
company, and their respective officers, directors,
employees, subsidiaries and certain other persons to be
specified in the Plan will receive releases on terms to
be specified in the Plan. The proposed reorganization
of the Company will be subject to a number of
conditions, including an amended bank credit agreement,
the preparation of definitive documentation, the
completion of approval of the plan of reorganization by
two thirds in dollar amount and more than one-half in
number of the Noteholders who vote on such plan and
bankruptcy court approval of the plan of reorganization.
Subject to the foregoing, the Company anticipates that
the proposed reorganization will be effected during the
second or third quarter of fiscal 1997.
Page 8
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PART II. OTHER INFORMATION
Item 1 Legal Proceedings None
Item 2 Changes in Securities None
Item 3 Defaults upon Senior Securities 11
Item 4 Submission of Matter to a Vote of Security None
Holders
Item 5 Other Information 12
Item 6 Exhibits and Reports on Form 8-K:
(a) Exhibits None
(b) Reports on Form 8-K
Page 9
<PAGE>
PART II
ITEM 3. DEFAULT UPON SENIOR SECURITIES
See "Management's Discussion and Analysis"
Page 10
<PAGE>
PART II
ITEM 5. OTHER INFORMATION
The Company has successfully negotiated the termination of its license
from Jones Investment, Co., Inc. to use the Evan-Picone trademark on women's
hosiery, consistent with its plan to exit the branded hosiery business.
Page 11
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ITHACA INDUSTRIES,INC.
---------------------------
(Registrant)
By: /s/ ERIC N. HOYLE
---------------------------
ERIC N. HOYLE
Senior Vice President
Finance and Administration
Principal Financial and Chief
Accounting Officer
Dated: JUNE 17, 1996
----------------------
Page 12
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-02-1996
<PERIOD-END> MAY-03-1996
<PERIOD-START> FEB-03-1996
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 45,104,000
<ALLOWANCES> 0
<INVENTORY> 60,412,000
<CURRENT-ASSETS> 132,750,000
<PP&E> 53,393,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 190,956,000
<CURRENT-LIABILITIES> 62,893,000
<BONDS> 222,918,000
0
0
<COMMON> 0
<OTHER-SE> (94,855,000)
<TOTAL-LIABILITY-AND-EQUITY> 190,956,000
<SALES> 97,619,000
<TOTAL-REVENUES> 97,619,000
<CGS> 84,928,000
<TOTAL-COSTS> 84,928,000
<OTHER-EXPENSES> 8,197,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,621,000
<INCOME-PRETAX> (2,127,000)
<INCOME-TAX> (825,000)
<INCOME-CONTINUING> (1,302,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,302,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
