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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number(s) 000-22385
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ITHACA INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 56-1385842
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification number)
Highway 268 West, P.O. Box 620, Wilkesboro, NC 28697
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(Address of principal executive office) (Zip Code)
(910) 667-5231
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(Registrant's telephone, including area code)
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(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 NO x
----- ------
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 x NO
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APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of
shares outstanding of each of the registrant's classes of common stock, as of
the latest practicable date. As of September 16, 1997, the registrant had
10,000,000 shares of common stock, par value $.01 per share outstanding.
<PAGE>
ITHACA INDUSTRIES, INC.
QUARTERLY REPORT
QUARTER ENDED AUGUST 2, 1997
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Consolidated Balance Sheets - August 2, 1997 and February 1, 3
1997
Consolidated Statements of Operations - Thirteen Weeks Ended 4
August 2, 1997 and August 2, 1996
Consolidated Statements of Operations - Twenty-Six Weeks Ended 5
August 2, 1997 and August 2, 1996
Consolidated Statements of Cash Flows - Twenty-Six Weeks Ended 6
August 2, 1997 and August 2, 1996
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 8
and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings *
Item 2. Changes in Securities *
Item 3. Defaults upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders *
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
</TABLE>
* NO INFORMATION PROVIDED DUE TO INAPPLICABILITY OF ITEM
Page 2
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AUGUST 2, 1997 FEBRUARY 1, 1997
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<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 1,502 $ 66
Accounts Receivable - Net 27,038 26,486
Inventories (Note 2) 64,021 65,680
Prepaid Expenses and Other Current Assets 894 4,630
--------- ---------
Total Current Assets 93,455 96,862
Property, Plant and Equipment -Net 34,588 35,531
Other Assets 1,388 1,294
--------- ---------
Total Net Assets $ 129,434 $ 133,687
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Installments of Long-Term Debt $ 13 70
Accounts Payable 8,404 10,742
Accrued Payroll and Related Expenses 8,293 11,396
Accrued Restructuring Costs 1,274 2,106
Other Accrued Expenses 3,078 3,698
Current Deferred Income Tax 2,255 2,255
Income Taxes Payable 2,505 3,073
--------- ---------
Total Current Liabilities 25,822 33,340
Long Term Debt - Related 24,762 9,710
Long Term Debt - Non Related 42,208 56,359
Deferred Income Taxes 16,427 14,919
--------- ---------
Total Liabilities 109,219 114,328
Stockholders' Equity:
Common Stock of $.01 Par Value 100 100
Additional Paid-In Capital 22,016 22,016
Accumulated Deficit (1,901) (2,757)
--------- ---------
Total Stockholders' Equity 20,215 19,359
Total Liabilities and Stockholders' Equity $ 129,434 $ 133,687
========= =========
</TABLE>
Page 3
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
-----------------------------------
AUGUST 2, 1997 AUGUST 2, 1996
POST-CONFIRMATION PRECONFIRMATION
----------------- ---------------
<S> <C> <C>
Net Sales $ 60,934 $ 78,883
Cost of Sales 51,187 67,176
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Gross Profit 9,747 11,707
Selling, General and Administrative Expenses 6,375 7,632
Recovery of Previously Recorded Writedowns - 0 - (2,964)
-------- --------
Operating Profit 3,372 7,039
Interest Expense, Related Parties 426 952
Interest Expense, Non-Related Parties - Net 1,339 5,340
Other Income - Net 127 394
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Income (Loss) Before Income Taxes 1,734 1,141
Income Tax Expense (Benefit) (729) (500)
-------- --------
Net Income (Loss) $ 1,005 $ 641
======== ========
Net Income Per Common Share $ 0.10 n/a
========
Weighted Average Common Shares Outstanding 10,000 n/a
========
</TABLE>
Page 4
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
-------------------------------------
AUGUST 2, 1997 AUGUST 2, 1996
POST-CONFIRMATION PRECONFIRMATION
----------------- ---------------
<S> <C> <C>
Net Sales $ 119,676 $ 176,502
Cost of Sales 101,714 152,103
------------ ------------
Gross Profit 17,962 24,399
Selling, General and Administrative Expenses 13,164 15,979
Recovery of Previously Recorded Writedowns - 0 - (2,964)
------------ ------------
Operating Profit 4,798 11,384
Interest Expense, Related Parties 656 1,943
Interest Expense, Non-Related Parties - Net 2,853 10,969
Other Income - Net (319) (545)
------------ ------------
Income (Loss) Before Income Taxes 1,608 (983)
Income Tax Expense (Benefit) 754 (325)
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Net Income (Loss) $ 854 $ (658)
============ ============
Net Income Per Common Share $ 0.09 n/a
============
Weighted Average Common Shares Outstanding 10,000,000 n/a
============
</TABLE>
Page 5
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
-----------------------------------------
AUGUST 2, 1997 AUGUST 2, 1996
Post-confirmation Preconfirmation
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<S> <C> <C>
Cash Provided By Operating Activities:
Net Income (Loss) $ 854 $ (658)
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by
Operations
Depreciation and Amortization 3,080 5,257
Decrease in Provision for Deferred Taxes 1,507 3,994
Gain on Sale of Property, Plant and Equipment (65) (293)
Asset Writedown Recovery - 0 - (2,964)
Changes in Assets and Liabilities:
(Increase) in Accounts Receivable (553) (4,981)
Decrease (Increase) in Inventories 1,660 (12,681)
Decrease in Assets Held for Disposition 3,626 18,445
(Increase) Decrease in Prepaid Expenses (131) 7,441
Decrease in Accounts Payable (2,337) (3,442)
(Decrease) Increase in Accrued Expenses and Other Liabilities (3,721) 10,184
Decrease In Asset Writedown and Restructuring Reserve (832) (6,517)
Decrease in Income Taxes Payable (568) (1,031)
-------- --------
Net Cash Provided by Operations 2,520 12,754
Cash Flows From Investing Activities:
Proceeds From the Sale of Property, Plant and Equipment 205 872
Additions to Property, Plant and Equipment (2,133) (1,901)
Decrease in Other Assets - 0 - 223
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Net Cash Used in Investing Activities (1,928) (806)
Cash Flows From Financing Activities:
Repayment of Long-Term Debt - Net (10,656) (890)
Increase (Decrease) in Revolver 11,500 (21,000)
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Net Cash Used in Financing Activities 844 (21,890)
Net Increase (Decrease) in Cash and Cash Equivalents 1,436 (9,942)
Cash and Cash Equivalents at Beginning of Period 66 10,369
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Cash and Cash Equivalents at End of Period $ 1,502 $ 427
======== ========
Supplemental Disclosure of Cash Paid (Received) During the Period For:
Income Taxes $ (182) $(10,241)
======== ========
Interest $ 2,599 $ 5,720
======== ========
</TABLE>
Page 6
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE TWENTY-SIX WEEKS ENDED
AUGUST 2, 1997 AND AUGUST 2, 1996
(UNAUDITED)
1. FINANCIAL STATEMENTS
The consolidated balance sheet as of August 2, 1997 and the consolidated
statements of operations for the thirteen and twenty-six weeks ended August 2,
1997 and August 2, 1996, respectively, and the consolidated statements of cash
flows for the twenty-six weeks ended August 2, 1997 and August 2, 1996 have been
prepared by Ithaca Industries, Inc. (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, 1997 and the results of operations for the thirteen and
twenty-six weeks ended August 2, 1997 and August 2, 1996, respectively, and the
statements of cash flows for the twenty-six weeks ended August 2, 1997 and
August 2, 1996 have been made on a consistent basis.
The Company adopted "fresh-start reporting" and reflected the effects of
such adoption in the consolidated financial statements as of November 22, 1996,
the date assumed for financial reporting purposes of the Company's emergence
from Chapter 11. The post-confirmation consolidated financial statements have
been separated from the preconfirmation prior period amounts by a bold line to
signify that the post-confirmation consolidated financial statements are those
of a new reporting entity and have been prepared on a basis not comparable to
prior periods.
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 year ended February 1, 1997 and February 2, 1996 included
in the Company's Annual Report on Form 10-K as filed with the Securities and
Exchange Commission on May 2, 1997.
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, 1997 FEBRUARY 1, 1997
Raw Materials $16,725 $15,607
Work in Process 13,221 12,381
Finished Goods 34,075 37,692
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$64,021 $65,680
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Page 7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED AUGUST 2, 1997 COMPARED
WITH THIRTEEN WEEKS ENDED AUGUST 2, 1996
Net sales decreased from $78.9 million for the thirteen weeks ended
August 2, 1996 to $60.9 million (22.8%) for the thirteen weeks ended August 2,
1997. The sales decline reflected, in part, the reduction in sales of
discontinued products, which were approximately $9.7 million in the thirteen
weeks ended August 2, 1996 compared to $1.4 million in the thirteen weeks ended
August 2, 1997. Sales of continuing products were lower in the current period
reflecting lower sales to the Company's major customers.
The gross profit margin increased for the second quarter fiscal 1998 to
16.0% from 14.8% for the comparable period last year. The increase in gross
profit margin is due to selling a lower proportion of discontinued goods this
year which have comparatively lower gross profit margins than continuing
products, offset in part by higher manufacturing costs related to lower
production volume in the current period versus the comparable period last year.
Selling, general and administrative expenses for the second quarter of
fiscal 1998 decreased to $6.4 million from $7.6 million (16.0%) last year
excluding the one-time benefit in the prior year from the recovery of writedowns
previously recorded.
Operating profit decreased to $3.4 million for the second quarter fiscal
1998 from $7.0 million for the comparable period last year due primarily to the
recovery of previous writedowns of $3.0 million included in the prior year, as
well as the lower sales level in the current year.
Interest expense for the thirteen weeks ended August 2, 1997 of $1.8
million was 72.0% below the $6.3 million incurred in the second quarter of
fiscal 1997. The lower interest expense was due to the retirement of $125
million of senior subordinated notes pursuant to the Company's Plan of
Reorganization dated August 29, 1996 and lower average bank borrowings,
partially offset by higher interest rates on the Company's bank borrowings.
TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 COMPARED
WITH TWENTY-SIX WEEKS ENDED AUGUST 2, 1996
Net sales decreased from $176.5 million for the twenty-six weeks ended
August 2, 1996 to $119.7 million (32.2%) for the twenty-six weeks ended August
2, 1997. The sales decline reflected, in part, the reduction in sales of
discontinued products, which were approximately $27.2 million in the twenty-six
weeks ended August 2, 1996 compared to $3.6 million in the twenty-six weeks
ended August 2, 1997. Sales of continuing products were lower in the current
period reflecting lower sales to the Company's major customers.
The gross profit margin increased for the first half of fiscal 1998 to
15.0% from 13.8% for the comparable period last year. The increase in gross
profit margin is due to selling a lower proportion of discontinued goods this
year which have comparatively lower gross profit margins than continuing
products, offset in part by higher manufacturing costs related to lower
production volume in the current period versus the comparable period last year.
Page 8
<PAGE>
Selling, general and administrative expenses for the first half of fiscal
1998 decreased to $13.2 million from $16.0 million (17.6%) last year excluding
the one-time benefit in the prior year from the recovery of writedowns
previously recorded.
Operating profit decreased to $4.8 million for the first half of fiscal
1998 from $11.4 million for the comparable period last year due to the asset
writedown recovery of $3.0 million included in the prior year, and the lower
sales level in the current year.
Interest expense for the twenty-six weeks ended August 2, 1997 of $3.5
million was 72.8% below the $12.9 million incurred in the first half of fiscal
1997. The lower interest expense was due to the retirement of $125 million of
senior subordinated notes pursuant to the Company's Plan of Reorganization dated
August 29, 1996 and lower average bank borrowings, partially offset by higher
interest rates on the Company's bank borrowings.
LIQUIDITY AND CAPITAL RESOURCES
The Company's existing Credit Agreement was amended and restated on
December 16, 1996. As of that date, the Credit Agreement provides for a term
loan facility ("Term Loan") of $55.0 million and a revolving loan facility of
$77.2 million. The revolving loan facility includes a sub-limit of $25.0 million
for the issuance of letters of credit. For thirty-day periods beginning in
December and May of each year, commitments under the revolving loan facility are
reduced to $63.0 million and $68.0 million, respectively, (the "Clean-Down
Periods"). As previously reported, the Credit Agreement was further amended on
August 22, 1997 to modify certain financial covenants to more closely reflect
the Company's current operating levels. As previously reported, the Company has
been unable to achieve the level of sales revenue set forth in the Company's
Business Plan. In addition the amendment provides for an additional clean-down
period during January of each year under which commitments under the revolving
loan facility, excluding letters of credit, are reduced to $20 million. As of
September 5, 1997, the Company had $41.9 million of Term Loans outstanding,
$22.3 million of borrowings under its revolving loan facility, and $6.6 million
outstanding letters of credit. The Company at September 5, 1997 had $23.3
million of additional borrowing capacity under its revolving loan facility.
The Company's cash on hand as of August 2, 1997 was $1.5 million compared
to $0.1 million cash on hand at February 1, 1997.
Page 9
<PAGE>
PART II. OTHER INFORMATION
Item 1 Legal Proceedings None
Item 2 Changes in Securities None
Item 3 Defaults upon Senior Securities None
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:
(a) Exhibits
Ex. 27 -- Financial Data Schedule
(b) Reports on Form 8-K 11
Page 10
<PAGE>
PART II.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits
Ex. 27 - - Financial Data Schedule
(b) Reports on Form 8-K
1. Form 8-K filed August 29, 1997 relating to an event described
in Item 5. thereof
Page 11
<PAGE>
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, 1997
---------------------------
Page 12
<PAGE>
Exhibit Index
- -------------
Exhibit No. Description of Exhibits
- ----------- -----------------------
27 Financial Data Schedule for the six month period ended
August 2, 1997
Page 13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> AUG-02-1997
<CASH> 1,502
<SECURITIES> 0
<RECEIVABLES> 27,957
<ALLOWANCES> 919
<INVENTORY> 64,021
<CURRENT-ASSETS> 93,455
<PP&E> 38,078
<DEPRECIATION> 3,490
<TOTAL-ASSETS> 129,434
<CURRENT-LIABILITIES> 25,822
<BONDS> 0
<COMMON> 100
0
0
<OTHER-SE> 20,115
<TOTAL-LIABILITY-AND-EQUITY> 129,434
<SALES> 119,676
<TOTAL-REVENUES> 119,676
<CGS> 101,714
<TOTAL-COSTS> 101,714
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,190
<INCOME-PRETAX> 1,608
<INCOME-TAX> 754
<INCOME-CONTINUING> 854
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 854
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
