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 November 1, 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
- -------------------------------------------------- ----------------------
(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 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 December 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 NOVEMBER 1, 1997
INDEX
PAGE
Item 1. Consolidated Balance Sheets - November 1, 1997 and 3
February 1, 1997
Consolidated Statements of Operations - Thirteen Weeks 4
Ended November 1, 1997 and November 1, 1996
Consolidated Statements of Operations - Thirty-Nine 5
Weeks Ended November 1, 1997 and November 1, 1996
Consolidated Statements of Cash Flows - Thirty-Nine 6
Weeks Ended November 1, 1997 and November 1, 1996
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 8
Condition 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 10
Signature 11
* NO INFORMATION PROVIDED DUE TO INAPPLICABILITY OF ITEM
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOVEMBER 1, 1997 FEBRUARY 1, 1997
---------------- ----------------
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash and Cash Equivalents $ 962 $ 66
Accounts Receivable - Net 29,796 26,486
Inventories (Note 2) 63,108 65,680
Prepaid Expenses and Other Current Assets 975 4,630
--------- ---------
Total Current Assets 94,841 96,862
Property, Plant and Equipment -Net 33,765 35,531
Other Assets 1,526 1,294
--------- ---------
Total Net Assets $ 130,132 $ 133,687
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current Installments of Long-Term Debt $ 13 $ 70
Accounts Payable 9,620 10,742
Accrued Payroll and Related Expenses 9,068 11,396
Accrued Restructuring Costs 1,120 2,106
Other Accrued Expenses 2,739 3,698
Current Deferred Income Tax 2,255 2,255
Income Taxes Payable 3,567 3,073
--------- ---------
Total Current Liabilities 28,382 33,340
Long Term Debt - Related 23,961 9,710
Long Term Debt - Non Related 40,846 56,359
Deferred Income Taxes 15,935 14,919
--------- ---------
Total Liabilities 109,124 114,328
Stockholders' Equity:
Common Stock 100 100
Additional Paid-In Capital 22,016 22,016
Accumulated Deficit (1,108) (2,757)
--------- ---------
Total Stockholders' Equity 21,008 19,359
Total Liabilities and Stockholders' Equity $ 130,132 $ 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
---------------------------------------
NOVEMBER 1, 1997 NOVEMBER 1, 1996
POST-CONFIRMATION PRECONFIRMATION
----------------- ----------------
<S> <C> <C>
Net Sales $ 63,184 $ 98,624
Cost of Sales 53,607 85,259
------------ ------------
Gross Profit 9,577 13,365
Selling, General and Administrative Expenses 6,690 9,104
------------ ------------
Operating Profit 2,887 4,261
Interest Expense, Related Parties 586 1,095
Interest Expense, Non-Related Parties - Net 1,150 5,326
Other Income - Net (224) (96)
------------ ------------
Income (Loss) Before Income Taxes 1,375 (2,064)
Income Tax Expense (Benefit) 580 (759)
------------ ------------
Net Income (Loss) $ 795 $ (1,305)
============ ============
Net Income Per Common Share $ 0.08 n/a
============
Weighted Average Common Shares Outstanding 10,000,000 n/a
============
</TABLE>
Page 4
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
---------------------------------------
NOVEMBER 1, 1997 NOVEMBER 1, 1996
POST-CONFIRMATION PRECONFIRMATION
----------------- ----------------
<S> <C> <C>
Net Sales $ 182,860 $ 275,126
Cost of Sales 155,321 237,361
------------ ------------
Gross Profit 27,539 37,765
Selling, General and Administrative Expenses 19,853 25,082
Recovery of Previously Recorded Writedowns - 0 - (2,964)
------------ ------------
Operating Profit 7,686 15,647
Interest Expense, Related Parties 1,242 3,038
Interest Expense, Non-Related Parties - Net 4,004 16,295
Other Income - Net (543) (641)
------------ ------------
Income (Loss) Before Income Taxes 2,983 (3,045)
Income Tax Expense (Benefit) 1,334 (1,084)
------------ ------------
Net Income (Loss) $ 1,649 $ (1,961)
============ ============
Net Income Per Common Share $ 0.16 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>
THIRTY-NINE WEEKS ENDED
------------------------------------
NOVEMBER 1, 1997 NOVEMBER 1, 1996
POST-CONFIRMATION PRECONFIRMATION
----------------- ----------------
<S> <C> <C>
Cash Provided By Operating Activities:
Net Income (Loss) $ 1,649 $ (1,961)
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by
Depreciation and Amortization 4,568 7,906
Decrease in Provision for Deferred Taxes 1,016 4,728
Gain on Sale of Property, Plant and Equipment (294) (291)
Asset Writedown Recovery - 0 - (2,964)
Changes in Assets and Liabilities:
(Increase) in Accounts Receivable (3,310) (14,442)
Decrease (Increase) in Inventories 2,572 (4,632)
Decrease in Assets Held for Disposition 3,542 19,979
(Increase) Decrease in Prepaid Expenses (301) 12,584
Decrease in Accounts Payable (1,122) (3,256)
(Decrease) Increase in Accrued Expenses and Other Liabilities (3,286) 15,224
Decrease In Asset Writedown and Restructuring Reserve (986) (8,553)
Increase (Decrease) in Income Taxes Payable 495 (401)
-------- --------
Net Cash Provided by Operations 4,543 23,921
Cash Flows From Investing Activities:
Proceeds From the Sale of Property, Plant and Equipment 823 931
Additions to Property, Plant and Equipment (3,151) (3,229)
Decrease in Other Assets - 0 - 176
-------- --------
Net Cash Used in Investing Activities (2,328) (2,122)
Cash Flows From Financing Activities:
Repayment of Long-Term Debt - Net (11,819) (1,043)
Increase (Decrease) in Revolver 10,500 (33,000)
-------- --------
Net Cash Used in Financing Activities (1,319) (34,043)
Net Increase (Decrease) in Cash and Cash Equivalents 896 (12,244)
Cash and Cash Equivalents at Beginning of Period 66 10,369
-------- --------
Cash and Cash Equivalents at End of Period $ 962 $ (1,875)
======== ========
Supplemental Disclosure of Cash Paid (Received) During the Period For:
Income Taxes $ (172) $(16,839)
======== ========
Interest $ 4,765 $ 8,008
======== ========
</TABLE>
Page 6
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTY-NINE WEEKS ENDED
NOVEMBER 1, 1997 AND NOVEMBER 1, 1996
(UNAUDITED)
1. FINANCIAL STATEMENTS
The consolidated balance sheet as of November 1, 1997 and the consolidated
statements of operations for the thirteen and thirty-nine weeks ended November
1, 1997 and November 1, 1996, respectively, and the consolidated statements of
cash flows for the thirty-nine weeks ended November 1, 1997 and November 1, 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 November 1, 1997 and the results of operations for the thirteen and
thirty-nine weeks ended November 1, 1997 and November 1, 1996, respectively, and
the statements of cash flows for the thirty-nine weeks ended November 1, 1997
and November 1, 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 of the United States Bankruptcy Code. 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:
NOVEMBER 1, 1997 FEBRUARY 1, 1997
---------------- ----------------
Raw Materials $16,378 $15,607
Work in Process 14,442 12,381
Finished Goods 32,288 37,692
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$63,108 $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 NOVEMBER 1, 1997 COMPARED
WITH THIRTEEN WEEKS ENDED NOVEMBER 1, 1996
Net sales decreased from $98.6 million for the thirteen weeks ended
November 1, 1996 to $63.2 million (35.9%) for the thirteen weeks ended November
1, 1997. The sales decline reflected, in part, the reduction in sales of
discontinued products, which were approximately $9.5 million in the thirteen
weeks ended November 1, 1996 compared to $1.2 million in the thirteen weeks
ended November 1, 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 third quarter fiscal 1998 to 15.2%
from 13.6% 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 third quarter of fiscal
1998 decreased to $6.7 million from $9.1 million (26.5%) last year.
Operating profit decreased to $2.9 million for the third quarter of fiscal
1998 from $4.3 million for the comparable period last year due primarily to the
lower sales level in the current year.
Interest expense for the thirteen weeks ended November 1, 1997 of $1.7
million was 73.0% below the $6.4 million incurred in the third 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.
THIRTY-NINE WEEKS ENDED NOVEMBER 1, 1997 COMPARED
WITH THIRTY-NINE WEEKS ENDED NOVEMBER 1, 1996
Net sales decreased from $275.1 million for the thirty-nine weeks ended
November 1, 1996 to $182.9 million (33.5%) for the thirty-nine weeks ended
November 1, 1997. The sales decline reflected, in part, the reduction in sales
of discontinued products, which were approximately $39.9 million in the
thirty-nine weeks ended November 1, 1996 compared to $4.7 million in the
thirty-nine weeks ended November 1, 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 year-to-date fiscal 1998 to 15.1% from
13.7% for the comparable period last year. The increase in gross profit margin
is due to selling a lower proportion of discontinued
Page 8
<PAGE>
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 thirty-nine weeks ended
November 1, 1997 decreased to $19.9 million from $25.1 million (20.8%) last
year, excluding the one-time benefit in the prior year from the recovery of
writedowns previously recorded.
Operating profit decreased to $7.7 million for the year-to-date fiscal 1998
from $15.7 million for the comparable period last year due to the lower sales
level in the current year and the asset writedown recovery of $3.0 million
included in the prior year.
Interest expense for the thirty-nine weeks ended November 1, 1997 of $5.2
million was 72.9% below the $19.3 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 credit agreement was amended and restated on December 16, 1996
(the "Credit Agreement". As of that date, the Credit Agreement provided 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
December 5, 1997, the Company had $41.0 million of Term Loans outstanding, $18.0
million of borrowings under its revolving loan facility, and $6.3 million
outstanding letters of credit. The Company at December 5, 1997 had $29.0 million
of additional borrowing capacity under its revolving loan facility.
The Company's cash on hand as of November 1, 1997 was $1.0 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 Matters 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
Page 10
<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: December 16, 1997
---------------------
Page 11
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibits
- ----------- -----------------------
27 Financial Data Schedule for the nine month period ended November 1,
1997
Page 12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> NOV-01-1997
<CASH> 962
<SECURITIES> 0
<RECEIVABLES> 30,695
<ALLOWANCES> 899
<INVENTORY> 63,108
<CURRENT-ASSETS> 94,841
<PP&E> 39,136
<DEPRECIATION> 5,371
<TOTAL-ASSETS> 130,132
<CURRENT-LIABILITIES> 28,382
<BONDS> 0
<COMMON> 100
0
0
<OTHER-SE> 20,908
<TOTAL-LIABILITY-AND-EQUITY> 130,132
<SALES> 182,860
<TOTAL-REVENUES> 182,860
<CGS> 155,321
<TOTAL-COSTS> 155,321
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,246
<INCOME-PRETAX> 2,983
<INCOME-TAX> 1,334
<INCOME-CONTINUING> 1,649
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,649
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
