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 AUGUST 2, 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 of 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 SEPTEMBER 16, 1995, 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 AUGUST 2, 1996
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated Balance Sheets - August 2, 1996 and 3
February 2, 1996
Consolidated Statements of Income - 4
Thirteen Weeks Ended August 2, 1996
and July 28, 1995
Consolidated Statements of Income - 5
Twenty-Six Weeks Ended August 2, 1996
and July 28, 1995
Consolidated Statements of Cash Flows 6
Twenty-Six Weeks Ended August 2, 1996
and July 28, 1995
Notes to Consolidated Financial 7
Statements
Item 2. Management's Discussion and Analysis 8
of Financial Condition and Results
of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings *
Item 2. Changes in Securities *
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of *
Security Holders
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
* No information provided due to inapplicability of item
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ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
August 2 February 2
ASSETS $ 1,996 $ 1,996
Current Assets:
Cash and Cash Equivalents 427 10,369
Accounts Receivable - Net 35,543 30,562
Inventories - (Note 2) 68,760 56,079
Deferred Taxes 19,951 20,212
Prepaid Expenses and Other
Current Assets 1,006 1,567
Refundable Income Taxes 6,279 13,159
Assets Held for Disposition,
Net of Estimated Reserves 3,607 17,139
------- -------
Total Current Assets $ 135,573 $ 149,087
Property, Plant and Equipment - Net 51,060 54,295
Intangible Assets, Net of
Accumulated Amortization 634 905
Deferred Debt Expense, Net of
Accumulated Amortization 3,014 3,651
Other Assets 720 704
------- -------
Total Assets $ 191,001 $ 208,642
======== ========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current Liabilities:
Current Installments of Long-Term Debt $ 218,199 $ 240,058
Accounts Payable 13,316 16,414
Accrued Payroll and Related Expenses 11,789 10,335
Accrued Restructuring Costs 7,635 12,204
Other Accrued Expenses 23,338 15,985
------- -------
Total Current Liabilities $ 274,277 $ 294,996
Deferred Income Taxes 10,937 7,204
------- -------
Total Liabilities 285,214 302,200
Stockholder's Deficit:
Common Stock of $.01 Par Value, Authorized and Issued
1,000 Shares -0- -0-
Additional Paid-In Capital 9,000 9,000
Accumulated Deficit (103,213) (102,558)
------- -------
Total Stockholder's Deficit (94,213) (93,558)
Total Liabilities and Stockholder's Deficit $ 191,001 $ 208,642
======== ========
* See Accompanying Notes to Financial Statements
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ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands)
Thirteen Weeks Ended
August 2 July 28
1,996 1,995
Net Sales $ 78,883 $ 101,688
Cost of Sales 67,176 88,024
------- -------
Gross Profit 11,707 13,664
Selling, General and Administrative Expenses 7,632 10,209
Workforce and Asset Writedown (Recovery) (2,964) -0-
------- -------
Operating Profit 7,039 3,455
Interest Expense, Related Parties 952 980
Interest Expense, Non-Related Parties - Net 5,340 5,633
Other (income) (394) (80)
------- -------
Income (Loss) Before Income Taxes 1,141 (3,078)
Income Tax (Benefit) Expense 500 (1,173)
------- -------
Net Income (Loss) $ 641 $ (1,905)
* See Accompanying Notes to Financial Statements
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ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands)
Twenty-Six Weeks Ended
August 2 July 28
1,996 1,995
Net Sales $ 176,502 $ 195,349
Cost of Sales 152,103 164,828
------- -------
Gross Profit 24,399 30,521
Selling, General and Administrative Expenses 15,979 20,255
Workforce and Asset Writedown (Recovery) (2,964) -0-
------- -------
Operating Profit 11,384 10,266
Interest Expense, Related Parties 1,943 1,949
Interest Expense, Non-Related Parties - Net 10,969 11,363
Other (Income) (545) (227)
------- -------
(Loss) Before Income Taxes (983) (2,819)
Income Tax (Benefit) (325) (1,024)
------- -------
Net (Loss) (658) (1,795)
======== ========
* See Accompanying Notes to Financial Statements
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ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS CASH FLOWS
(Unaudited)
(In Thousands)
Twenty-Six Weeks Ended
August 2 July 28
1,996 1,995
Cash Provided By Operating Activities:
Net (Loss) $ (658) $ (1,795)
Adjustments to Reconcile Net Income to
Net Cash Provided(Used) by Operations:
Depreciation and Amortization of Property and
Equipment 4,316 4,382
Amortization of Debt Origination Fees 638 837
Amortization of Intangible Assets 272 471
Amortization of Discount on Subordinated Debt 31 31
Increase (Decrease) in Provision for
Deferred Taxes 3,994 (439)
(Gain) on Sale of Property, Plant and
Equipment (293) (71)
Asset Writedowns and Restructuring (2,964)
Charge Recovery
Changes in Assets and Liabilities:
(Increase) in Accounts Receivable (4,981) (10,171)
(Increase) in Inventories (12,681) (8,314)
Decrease in Assets Held for Disposition 18,445 -0-
Decrease (Increase) in Prepaid Expenses 7,441 (1,262)
(Decrease) in Accounts Payable (3,442) (6,068)
Increase in Accrued Expenses and Other
Liabilities 10,184 1,305
(Decrease) in Asset Writedowns and Restructuring (6,517) -0-
Reserves
(Decrease) in Income Taxes Payable (1,031) (2,173)
------- -------
Net Cash Provided by (Used In) Operations 12,754 (23,267)
Cash Flows From Investing Activities:
Proceeds From the Sale of Property, Plant and
Equipment 872 103
Additions to Property, Plant and Equipment (1,901) (10,604)
Increase (Decrease) in Other Assets 223 (76)
------- -------
Net Cash (Used In) in Investing
Activities (806) (10,577)
Cash Flows From Financing Activities:
Repayment of Long-Term Debt-Net (890) (9,488)
Increase in Bank Overdraft -0- 2,801
(Decrease) Increase in Revolver (21,000) 33,000
------- -------
Net Cash (Used In) Provided by Financing
Activities (21,890) 26,313
Net (Decrease) in Cash and Cash Equivalents (9,942) (7,531)
Cash and Cash Equivalents at Beginning of Periods 10,369 7,531
------- -------
Cash and Cash Equivalents at End of Period $ 428 $ -0-
======== ========
Supplemental Disclosure of Cash Paid (Received)
During the Period For:
Income Taxes $(10,241) $ 1,588
======== ========
Interest 5,720 13,198
======== ========
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ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN AND TWENTY-SIX WEEKS ENDED
AUGUST 2, 1996 AND JULY 28, 1995
(UNAUDITED)
1. FINANCIAL STATEMENTS
The consolidated balance sheets as of August 2, 1996 and the consolidated
statements of income for the thirteen weeks and the twenty-six weeks ended
August 2, 1996 and July 28, 1995, and the consolidated statements of cash
flows for the twenty-six weeks ended August 2, 1996 and July 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 August 2, 1996
and the results of operations for the thirteen weeks and twenty-six weeks
ended August 2, 1996 and July 28,1995, and the statements of cash flows for
the twenty-six weeks ended August 2, 1996 and July 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:
August 2 February 2
1996 1996
Raw Materials $ 25,448 $ 24,676
Work in Process 17,878 16,882
Finished Goods 47,737 53,962
------- -------
91,063 95,520
Less Excess of FIFO Over LIFO Cost 10,744 10,474
Less Inventory Included in Assets 11,559 28,967
Held for Disposition, Net ------- -------
$ 68,760 $ 56,079
======= =======
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED AUGUST 2, 1996 COMPARED
WITH THIRTEEN WEEKS ENDED JULY 28, 1995
Net sales declined to $78.9 million from $101.7 million (22%) for the
thirteen weeks ended August 2, 1996. This decrease was primarily
the result of the
implementation of the business restructuring undertaken at the end of fiscal
1996 designed to streamline the Company's stock keeping units (SKU's) and
eliminate unprofitable and low-profit products. Hosiery sales decreased
33.7%, while the men's division was down 13.9% and the women's division was
down 35.0%. Excluding sales of discontinued goods in the current period, net
sales would be 32% below the same period in the prior year.
The gross profit margin for the second quarter of fiscal 1997 decreased
to 14.8% from 17.3% for the comparable period last year. The decrease in
gross margin includes the impact in the current quarter of selling a higher
proportion of discontinued goods, which have lower gross profit margins than
ongoing products. Excluding sales of discontinued goods, the current quarter
gross profit margin was 16.9%. Sales of discontinued goods were immaterial to
the gross profit margin of the prior year comparable period.
Selling, general, and administrative expenses for the second quarter
decreased to $7.6 million from $10.2 million (25.3%) last year due primarily
to lower staffing levels and employee-related costs resulting from the
implementation of the business restructuring plan.
Operating profit increased 103.8% to $7.0 million for the second
quarter of fiscal 1997 compared to $3.5 million for the comparable prior
year period. Included in the current quarter operating profit was an
asset writedown recovery of $3.0 million relating primarily to better than
previously estimated collections of receivables related to discontinued goods
sales, as well as favorable early terminations of certain leases and license
agreements. Excluding the effect of these adjustments, operating profit for
the current quarter would exceed the prior year comparable period by $0.6
million (15.2%).
Interest expense for the thirteen weeks ended August 2, 1996 of $6.3
million was slightly below the $6.6 million incurred in the second 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.
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TWENTY-SIX WEEKS ENDED JULY 28, 1995 COMPARED
WITH TWENTY-SIX WEEKS ENDED JULY 29, 1994
Net sales of $176.5 million decreased 9.6% from the prior year comparable
quarter net sales of $195.3 million, principally as a result of the
business restructuring. The sales decrease by division was hosiery down
21.9%, men's down 3.0% and women's down 13.1%. Excluding sales of
discontinued goods in the current year, net sales in fiscal 1997 would be
25.2% below the same period in the prior year.
The gross profit margin in the first half of fiscal 1997 of 13.8% was
below the 15.6% gross margin in the first half of fiscal 1996, with the
decline attributable to selling a higher proportion of discontinued goods in
the current year versus prior year. Excluding the sale of discontinued goods
in fiscal 1997, the gross profit margin was 16.7%. Sales of discontinued
goods were immaterial to the gross profit margin of the prior year comparable
period.
Selling, general and administrative expenses for the first half of fiscal
1997 were $16.0 million, 21.1% below the $20.3 million incurred in the first
half of fiscal 1996, due primarily to lower staffing levels and employee-
related costs resulting from the implementation of the business restructuring
plan. Selling, general and administrative expenses as a percentage of net
sales were 9.1% in the first half of fiscal 1997 compared to 10.4% in the
first half of fiscal 1996.
Operating profit increased 10.9% to $11.4 million in the current
twenty-six weeks from $10.3 million in the comparable prior year period,
including the effect in the current period of $3.0 million of asset write-off
recoveries discussed above. Excluding the effect of these recoveries,
operating profit for the first half of fiscal 1997 of $8.4 million was 18.0%
below the $10.3 million in the first half of fiscal 1996.
Interest expense for this fiscal year to date was $12.9 million compared
to $13.3 million for the prior fiscal year to date, down 3.0% due to lower
average working capital and capital expenditures partially offset by higher
interest rates in the current year.
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 August 2, 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.
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Additionally, the Company has not made the principal payments due January
31, 1996, April 30, 1996 and July 31, 1996, under the agreement. The Company
has obtained a series of waivers, most recently for the period from September
1, 1996 to and including October 31, 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 and
July 31, 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 and June 15, 1996, (which have not been paid)
and additional covenants regarding asset sales, earnings before interest,
taxes, depreciation and amortization("EBITDA") levels, and capital
expenditures. Under the terms of the waiver, the Company had availability
under the revolving credit facility of $14.9 million at September 13, 1996.
The Company is in default on the Notes due to its failure to make the
interest payments due December 15, 1995 and June 15, 1996. The Company has
reached an agreement in principle with an unofficial committee representing
certain holders ("Noteholders") of the Notes. On August 29, 1996, the Company
began solicitation of the Noteholders and its bank group for approval of the
Company's proposed plan of reorganization, which was set forth in the
Company's Current Report on Form 8-K, filed on September 3, 1996. Assuming
acceptance of the Plan, the Company anticipates that the proposed
reorganization will be effected during the fourth quarter of fiscal 1997,
providing for the exchange of all of the outstanding Notes for 100% of the
common stock of the Company, subject to dilution for 8.5% of the
fully-diluted common stock reserved
for an employee stock option plan. The conversion would be effected under a
voluntary pre-packaged 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 suchplan, 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 apporxiamtely $25 million principal amount of Notes and five (5) of whom
would be chosen by non-affiliated holders of the Notes. The Plan will provide
that upon the effectiveness of the Plan, the Company, its parent company, and
the share holders of its
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parent company, and their respective officers, directores, 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 fourth quarter of fiscal 1997.
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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 13
Item 4. Submission of Matter to a Vote
of Security Holders None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K 13
Page 13
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PART II
ITEM 3. DEFAULT UPON SENIOR SECURITIES
See "Management's Discussion and Analysis"
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits
(b) Reports on Form 8-k
1. From 8-K filed July 1, 1996 relating
to an event described in Item 5. thereof
2. Form 8-K filed September 3, 1996 relating
to an event described in Item 5. thereof
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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: September 16, 1996
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<PERIOD-END> AUG-02-1996
<PERIOD-START> FEB-03-1996
<EXCHANGE-RATE> 1
<CASH> 427,000
<SECURITIES> 0
<RECEIVABLES> 35,543,000
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0
0
<COMMON> 0
<OTHER-SE> (94,213,000)
<TOTAL-LIABILITY-AND-EQUITY> 191,001,000
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