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, 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.
(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
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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
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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
----- -----
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, 1997, the registrant had 10,000,000
shares of common stock, par value $.01 per share outstanding.
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ITHACA INDUSTRIES, INC.
QUARTERLY REPORT
QUARTER ENDED MAY 3, 1997
INDEX
<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION Page
<S> <C> <C>
Item 1. Consolidated Balance Sheets - May 3, 1997 and February 1, 1997 3
Consolidated Statements of Operations - Thirteen Weeks Ended May 3, 1997 and May 4
3, 1996
Consolidated Statements of Cash Flows - Thirteen Weeks Ended May 3, 1997 and May 5
3, 1996
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition and Results of 7
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 8
Signature 9
</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>
May 3, 1997 February 1, 1997
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<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ - 0 - $ 66
Accounts Receivable - Net 23,763 26,486
Inventories (Note 2) 65,131 65,680
Prepaid Expenses and Other Current Assets 2,447 4,630
-------- --------
Total Current Assets 91,341 96,862
Property, Plant and Equipment -Net 34,664 35,531
Intangible Assets, Net of Accumulated Amortization 286 362
Other Assets 1,174 932
-------- --------
Total Assets $127,465 $133,687
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current Liabilities:
Bank Overdraft $ 1,803 $ - 0 -
Current Installments of Long-Term Debt 16 70
Accounts Payable 9,664 10,742
Accrued Payroll and Related Expenses 9,601 11,396
Accrued Restructuring Costs 1,557 2,106
Other Accrued Expenses 3,138 3,698
Current Deferred Tax Payable 2,255 2,255
Income Taxes Payable 2,824 3,073
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Total Current Liabilities 30,858 33,340
Long Term Debt - Related 9,006 9,710
Long Term Debt - Non Related 53,012 56,359
Deferred Income Taxes 15,377 14,919
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Total Liabilities 108,253 114,328
Stockholder's Equity (Deficit):
Common Stock of $.01 Par Value 100 100
Additional Paid-In Capital 22,016 22,016
Accumulated Deficit ( 2,904) ( 2,757)
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Total Stockholder's Equity (Deficit) 19,212 19,359
Total Liabilities and Stockholder's Equity (Deficit) $127,465 $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
------------------------------------
May 3, 1997 May 3, 1996
Post-confirmation Preconfirmation
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<S> <C> <C>
Net Sales $ 58,743 $ 97,619
Cost of Sales 50,527 84,928
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Gross Profit 8,216 12,691
Selling, General and Administrative Expenses 6,789 8,347
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Operating Profit 1,427 4,344
Interest Expense, Related Parties 230 992
Interest Expense, Non-Related Parties - Net 1,514 5,629
Other (Income) Expense - Net (191) (150)
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Loss Before Income Taxes (126) (2,127)
Income Tax (Benefit) Expense 24 (825)
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Net Loss $ (150) $ (1,302)
============ ============
Net Loss Per Common Share $ (0.02) n/a
============
Weighted Average Common Shares 10,000,000 n/a
============
</TABLE>
Page 4
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-------------------------------------
May 3, 1997 May 3, 1996
Post-confirmation Preconfirmation
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<S> <C> <C>
Cash Provided By Operating Activities:
Net Loss $ (150) $ (1,302)
Adjustments to Reconcile Net Loss to Net Cash Provided by Operations Net Cash
Provided (Used) by Operations:
Depreciation and Amortization of Property and Equipment 1,490 2,244
Amortization of Intangible Assets 136 471
Decrease in Provision for Deferred Taxes 457 844
(Gain) Loss on Sale of Property, Plant and Equipment 23 (5)
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable 2,723 (14,542)
(Increase) Decrease in Inventories 549 (4,333)
Decrease in Assets Held for Disposition 2,222 13,406
(Increase) Decrease in Prepaid Expenses (303) 11,176
(Decrease) in Accounts Payable (1,077) (1,835)
Increase (Decrease) in Accrued Expenses and Other Liabilities (2,354) 5,296
(Decrease) In Asset Writedown and Restructuring Reserve (549) (3,172)
(Decrease) in Income Taxes Payable (249) (2,319)
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Net Cash Provided by Operations 2,918 5,929
Cash Flows From Investing Activities:
Proceeds From the Sale of Property, Plant and Equipment 92 15
Additions to Property, Plant and Equipment (774) (1,359)
Decrease (Increase) in Other Assets - 0 - (3)
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Net Cash Used in Investing Activities (682) (1,347)
Cash Flows From Financing Activities:
Repayment of Long-Term Debt - Net (8,105) (155)
Increase (Decrease) in Revolver 4,000 (17,000)
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Net Cash Used in Financing Activities (4,105) (17,155)
Net (Decrease) in Cash and Cash Equivalents (1,869) (12,573)
Cash and Cash Equivalents at Beginning of Period 66 10,369
-------- --------
Cash and Cash Equivalents at End of Period $ (1,803) $ (2,204)
======== ========
Supplemental Disclosure of Cash Paid (Received) During the Period For:
Income Taxes $ (184) $(10,301)
======== ========
Interest $ 1,538 $ 3,376
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</TABLE>
Page 5
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEKS ENDED
MAY 3, 1997 AND MAY 3, 1996
(Unaudited)
1. FINANCIAL STATEMENTS
The consolidated balance sheets as of May 3, 1997 and the consolidated
statements of operations for the thirteen weeks ended May 3, 1997 and May 3,
1996, and the consolidated statements of cash flows for the thirteen weeks ended
May 3, 1997 and May 3, 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 May 3, 1997 and the results of
operations for the thirteen weeks ended May 3, 1997 and May 3, 1996, and the
statements of cash flows for the thirteen weeks ended May 3, 1997 and May 3,
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 years 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:
<TABLE>
<CAPTION>
May 3, 1997 February 1, 1997
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<S> <C> <C>
Raw Materials $17,039 $15,607
Work in Process 13,419 12,381
Finished Goods 37,215 41,278
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67,673 69,266
Less Inventory Included in Assets Held for Disposition, Net 2,542 3,586
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$65,131 $65,680
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</TABLE>
Page 6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Thirteen Weeks Ended May 3, 1997 Compared
With Thirteen Weeks Ended May 3, 1996
Net sales decreased from $97.6 million for the thirteen weeks ended May 3,
1996 to $58.7 million (39.8%) for the thirteen weeks ended May 3, 1997. The
sales decline reflected, in part, the reduction in sales of discontinued
products, which were approximately $20.7 million in the thirteen weeks ended May
3, 1996 compared to $1.2 million in the thirteen weeks ended May 3, 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 quarter of fiscal 1998 to
14.0% from 13.0% 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 ongoing 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 first quarter of
fiscal 1998 decreased to $6.8 million from $8.3 million (18.7%) last year due
primarily to lower shipping costs resulting from lower sales volumes.
Operating profit decreased to $1.4 million for the first quarter of fiscal
1998 from $4.3 million (67.2%) for the comparable period last year primarily due
to lower sales.
Interest expense for the thirteen weeks ended May 3, 1997 of $1.7 million
was 73.7% below the $6.6 million incurred in the first quarter of fiscal 1997.
The lower interest expense was due to the retirement of $125 million of notes
pursuant to the Company's Plan of Reorganization dated August 29, 1996 and lower
average bank borrowings, partially offset by higher interest rates.
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 of June 6, 1997, the Company had $43.7 million of Term Loans
outstanding, $20.0 million of borrowings under its revolving loan facility, and
$7.5 million outstanding letters of credit. The Company at June 6, 1997 had
$29.5 million of additional borrowing capacity under its revolving loan
facility.
The Company's cash on hand as of May 3, 1997 was a $1.8 million overdraft
compared to $0.1 million cash on hand at February 1, 1997. The Company manages
cash to minimize outstanding bank borrowings, with the overdraft representing
checks issued but not cleared at period end.
Page 7
<PAGE>
<TABLE>
<CAPTION>
Part II. OTHER INFORMATION
<S> <C> <C>
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 None
</TABLE>
Page 8
<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
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ERIC N. HOYLE
Senior Vice President Finance and Administration
Principal Financial and Chief Accounting Officer
Dated: June 17, 1997
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Page 9
<PAGE>
Exhibit Index
-------------
Exhibit No. Description of Exhibits
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27 Financial Data Schedule for the quarterly period ended
May 3, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> MAY-03-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 25,025
<ALLOWANCES> 1,262
<INVENTORY> 65,131
<CURRENT-ASSETS> 91,341
<PP&E> 36,841
<DEPRECIATION> 2,177
<TOTAL-ASSETS> 127,465
<CURRENT-LIABILITIES> 30,858
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 19,112
<TOTAL-LIABILITY-AND-EQUITY> 127,465
<SALES> 58,743
<TOTAL-REVENUES> 58,743
<CGS> 50,527
<TOTAL-COSTS> 50,527
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,553
<INCOME-PRETAX> (126)
<INCOME-TAX> 24
<INCOME-CONTINUING> (150)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (150)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
