REGISTRATION NO. 333-23555
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ITHACA INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 2251, 2341 & 2322 56-1385842
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code No.) Identification No.)
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HIGHWAY 268 WEST
P.O. BOX 620
WILKESBORO, NORTH CAROLINA 28697
(336) 667-5231
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
RICHARD P. THRUSH
Senior Vice President-Finance and Administration
Secretary, Principal Financial and Chief Accounting Officer
Highway 268 West
P.O. Box 620
Wilkesboro, North Carolina 28697
(336) 667-5231
(Name, address, including zip code, and telephone number, including area code,
of registrant's agent for service of process)
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COPIES TO:
CARL L. REISNER, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
(212) 373-3000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time
to time after the effective date of the Registration Statement.
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If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement of the earlier effective registration statement for the
same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
1
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Dated July 24, 1998
PROSPECTUS
10,109,290 Shares
Ithaca Industries, Inc.
Common Stock
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This Prospectus relates to the offering from time to time of up to
10,109,290 shares ("Shares") of Common Stock, par value $.01 per share (the
"Common Stock"), issued by Ithaca Industries, Inc. (the "Company" or "Ithaca
Industries" or "Ithaca"), a Delaware corporation, to certain creditors of the
Company pursuant to the Company's Plan of Reorganization dated as of August 29,
1996 ("Plan of Reorganization") under Section 1121(a) of the United States
Bankruptcy Code (the "Bankruptcy Code") and pursuant to a Management Agreement
entered into with Alvarez & Marsal, Inc. dated December 17, 1996 (the
"Management Agreement"). The Plan of Reorganization became effective on December
16, 1996 (the "Effective Date of the Plan of Reorganization"). Pursuant to the
Plan of Reorganization, 10,000,000 shares of Common Stock were issued following
the Effective Date of the Plan of Reorganization and as of October 29, 1997,
constituted all of the shares of Common Stock outstanding. Pursuant to the
Management Agreement, an option to purchase 109,290 shares of Common Stock was
granted to Alvarez & Marsal, Inc., the Company's financial and business advisor,
as of January 31, 1997. As of the date of this Prospectus, Alvarez & Marsal,
Inc. has not exercised its option.
The Shares may be sold to the public from time to time by certain
holders thereof (the "Selling Stockholders") in the amount and the manner
described herein or as may be set forth in a Prospectus Supplement accompanying
this Prospectus. The Company will receive no proceeds from the sale of any of
the Shares by any of the Selling Stockholders. See "Plan of Distribution."
-----------------------------
SEE "RISK FACTORS" ON PAGE 9 FOR INFORMATION CONCERNING CERTAIN RISKS
ASSOCIATED WITH AN INVESTMENT IN ANY OF THE SHARES.
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Through the date hereof, there has been no established public trading
market for the Common Stock. Application was made to list the Common Stock on
the NASDAQ National Market. This application was withdrawn because the Company
was advised by NASDAQ that it would not qualify. The Company intends to reapply
if and when it believes it meets the criteria. There can be no assurance that
this will occur. Further there can be no assurance that any active trading
market will develop or will be sustained for the Common Stock or as to the price
at which the Common Stock may trade or that the market for the Common Stock will
not be subject to disruptions that will make it difficult or impossible for the
holders of the Common Stock to sell shares in a timely manner, if at all, or to
recoup their investment in the Common Stock. See "Risk Factors--Liquidity;
Absence of Market for Common Stock."
-----------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------------------
The date of this Prospectus is July 24, 1998.
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The Selling Stockholders directly, through agents designated from time
to time or through dealers or underwriters also to be designated, may sell the
Common Stock from time to time on terms to be determined at the time of sale. To
the extent required, the Common Stock to be sold, the names of the Selling
Stockholders, the respective purchase prices, public offering prices, historical
trading information for the Common Stock, the names of any such agent, dealer or
underwriter and any applicable commissions or discounts with respect to a
particular offer will be set forth in an accompanying Prospectus Supplement. See
"Plan of Distribution." If the Company is advised that an underwriter has been
engaged with respect to the sale of any Shares offered hereby or in the event of
any other material change in the plan of distribution, the Company will cause an
appropriate amendment to the Registration Statement of which this Prospectus
forms a part to be filed with the Securities and Exchange Commission (the
"Commission") reflecting such engagement or other change. See "Additional
Information."
The Company will not receive any proceeds from this offering, but agreed
to pay substantially all of the expenses of this offering other than applicable
transfer taxes, seller's counsel fees, commissions, fees and discounts payable
to dealers, agents or underwriters. The Selling Stockholders and any broker
dealers, agents or underwriters that participate with the Selling Stockholders
in the distribution of the Shares may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, as amended (the "Securities Act") and any
commissions received by them and any profit on the resale of the Shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. See "Description of Capital Stock--Registration Rights
Agreement" and "Plan of Distribution" for a description of certain
indemnification arrangements.
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ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith is obligated to file reports and other information with the
Commission. Reports and other information concerning the Company may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the regional offices of the Commission located at Suite 1400, 500 West Madison
Street, Chicago, Illinois 60661 and at Suite 1300, 7 World Trade Center, New
York, New York 10048. Copies of such material can also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 upon payment of the fees prescribed by the Commission.
Reports, proxy, information statements and other information regarding the
Company filed electronically with the Commission are available on the
Commission's web site (http://www.sec.gov).
The Company has filed with the Commission a Registration Statement
(which term shall encompass any amendments and exhibits thereto) under the
Securities Act with respect of the Shares offered hereby. This Prospectus, which
forms a part of such Registration Statement, does not contain all the
information set forth in such Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete, with respect to each
such contract, agreement or other document filed as an exhibit to such
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved and each such statement shall be deemed
qualified in its entirety by such reference. Any interested parties may inspect
such Registration Statement, without charge, at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and may obtain copies of all or any part of it from the Commission upon payment
of the fees prescribed by the Commission. Neither the delivery of this
Prospectus or any Prospectus Supplement, nor any sales made hereunder or
thereunder shall under any circumstances create any implication that the
information contained herein or therein is correct as of any time subsequent to
the date hereof or thereof or that there has been no change in the affairs of
the Company since the date hereof or thereof.
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. FOR PURPOSES OF PRESENTING FINANCIAL INFORMATION
IN THIS PROSPECTUS (OTHER THAN THE FINANCIAL STATEMENTS), THE COMPANY'S FISCAL
YEARS ARE INDICATED AS ENDING ON JANUARY 31, ALTHOUGH BEFORE DECEMBER OF 1996
SUCH PERIODS ACTUALLY ENDED ON THE FRIDAY NEAREST SUCH DATE AND AFTER NOVEMBER
OF 1996 SUCH PERIODS ACTUALLY END ON THE SATURDAY NEAREST SUCH DATE.
THE COMPANY
The Company believes it is the largest manufacturer of private brand
men's underwear and women's hosiery products and the second largest private
brand manufacturer of women's underwear in the United States, operating
distribution and manufacturing facilities in the Southeastern United States and
off-shore manufacturing facilities in Central America. The Company has three
principal product lines: (1) men's and boys' underwear and outerwear T-shirts,
(2) women's and girls' underwear and (3) women's hosiery. In marketing its
products the Company utilizes the private label names or trade names of its
customers as well as licensed brand names. The Company's products are sold
through a wide range of retail distribution channels and are offered to the
public through more than 10,000 customer outlets, including discount stores,
department stores, specialty stores, drug stores and supermarkets. The key
elements of the Company's strategy are to supply a wide variety of product
offerings at a number of price points, to maintain a strong presence in multiple
channels of distribution, to maintain close customer relationships by developing
products and programs that suit individual customer needs and to maintain low
cost and flexible manufacturing or sourcing capabilities.
The Company was founded in 1948 in Ithaca, New York as a manufacturer of
women's underwear. Since that time, Ithaca has evolved from a specialized
producer of women's underwear for J.C. Penney to become a leading diversified
producer and marketer of undergarments to major retailers throughout the United
States. Over the years, Ithaca expanded its product lines and manufacturing
capacity, adding women's hosiery in 1968, men's and boys' underwear in 1972 and
T-shirts in 1983. In 1983, Ithaca's founder sold the business to an investor
group led by Merrill Lynch Capital Partners Inc. ("MLCP"), a private investment
firm affiliated with Merrill Lynch & Co., Butler Capital Corporation ("Butler")
and senior management. The Company was recapitalized in 1988 and in December
1992, the Company completed a public offering of $125,000,000 of 11.125% Senior
Subordinated Notes due 2002 (the "Notes"). In connection with the completion of
the offering, the Company and its stockholders completed a reorganization
whereby the Company became a wholly owned subsidiary of Ithaca Holdings, Inc., a
Delaware corporation ("Holdings").
During fiscal 1996, the Company incurred covenant defaults under its
bank credit agreement, originally dated as of December 10, 1992 and amended and
restated as of December 16, 1996 (the "Credit Agreement"). Under the terms of a
series of waivers between the Company and the parties to the Credit Agreement,
the Company was unable to pay the interest due on the Notes. In the third and
fourth quarters of fiscal 1996 the Company undertook an extensive review of its
manufacturing capacity, overhead structure, product lines and customer base.
These efforts resulted in the promulgation of a three-year business plan,
revised in May 1996 (as revised, the "Business Plan"), to enhance performance
and reduce overhead expenses. The Company consolidated its distribution centers
and production capacity to increase efficiencies, consolidated the operations of
certain plants to off-shore facilities and accelerated the process of moving
sewing operations off-shore. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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In furtherance of its restructuring efforts, on October 8, 1996, the
Company filed a voluntary petition for reorganization under Chapter 11 of the
Bankruptcy Code ("Chapter 11") with the Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court"). On December 16, 1996, the Company emerged
from bankruptcy pursuant to the Plan of Reorganization. Pursuant to the Plan of
Reorganization, among other things, 10,000,000 shares of Common Stock were
distributed to the holders of the Notes, the Notes were retired, the Company
ceased to be a subsidiary of Holdings and the Credit Agreement was amended and
restated. In August 1997, the Credit Agreement was amended principally to modify
certain financial covenants to more closely reflect the Company's operating
results.
On March 24, 1998, the Company acquired substantially all of the assets
of Glendale Hosiery Company ("Glendale"), a manufacturer of women's hosiery.
Also on March 24, 1998, the Company's existing Credit Agreement was replaced by
$110 million in new credit facilities.
The Company is organized under the laws of the State of Delaware and its
principal executive offices are located at Highway 268 West, P.O. Box 620,
Wilkesboro, North Carolina 28697, telephone number (336) 667-5231.
RISK FACTORS
See "Risk Factors" for information concerning certain risks associated
with an investment in the Shares.
SUMMARY FINANCIAL INFORMATION
The summary financial information set forth below is qualified by and
should be read in conjunction with the "Financial Statements" and the notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus. The following
table sets forth selected financial information with respect to the Company for
the thirteen-week period ended May 2, 1998 (unaudited), the year ended January
31, 1998, the 10-week period ended February 1, 1997, the 42-week period ended
November 22, 1996 and each of the three fiscal years prior to the fiscal year
ended February 1, 1997. Net income per share for periods prior to November 22,
1996 is not meaningful because during such periods the Company was a wholly
owned subsidiary of Ithaca Holdings, Inc. The Company's Results of Operations
for the 10-week period ended February 1, 1997 and the 42-week period ended
November 22, 1996 reflect the consummation of the Plan of Reorganization and the
transactions contemplated thereby and the application of Fresh Start Reporting
rules and procedures. Results of Operations of the Company for the thirteen
weeks ended May 2, 1998, the year ended January 31, 1998 and the 10-week period
ended February 1, 1997 will generally not be comparable to the prior periods due
to the effects of the Plan of Reorganization.
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<CAPTION>
Post-Confirmation Pre-Confirmation
------------------------------------------ -------------------------------------------------------
13-Week 10-Week 42-Week
Period Ended Year Ended Period Ended Period Ended Fiscal year Ended
May 2, January 31, February 1, November 22, January 31,
1998 1998 1997 1996 1996 1995 1994
------------ ---------- ------------ ------------ ------------ ------------ ------------
(unaudited) (Dollars in thousands)
STATEMENT OF OPERATIONS
DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 60,388 $ 237,021 $ 42,708 $ 297,603 $ 398,819 $ 414,800 $ 414,671
Gross profit 7,745 34,653 4,487 42,060 44,882 72,859 68,072
Selling, general and
administrative
expenses 7,032 26,052 7,354 27,670 43,486 37,075 39,711(1)
(Recovery of) provision
for asset write-downs
and restructuring -- -- -- (2,964) 51,591(2) -- --
Operating income (loss) 713 8,601 (2,867) 17,354 (50,195) 35,784 28,361
Interest expense--net(3) 1,685 6,875 1,385 17,489 26,905 23,147 23,455
Reorganization items -- -- -- (1,176)(4) -- -- --
Income (loss) before
income taxes and
extraordinary
items (938) 2,339 (4,157) 1,666 (76,802) 13,166 4,968
Income tax (expense)
benefit 334 803 1,400 (4,218) 27,157 (5,653) (2,086)
Income (loss) before
extraordinary item -- 1,536 (2,757) (2,552) (49,644) 7,513 2,882
Extraordinary item(5) -- -- -- 67,924 -- -- --
Net income (loss) $ (604) $ 1,536 $ (2,757) $ 65,372 $ (49,644) $ 7,513 $ 2,882
============ ========== ============ ============ ============ ========== =============
Net income (loss) per
common share(8) $ (0.06) $ 0.15 $ (0.28) n/a n/a n/a n/a
============ ========== ============ ============ ============ ========== =============
BALANCE SHEET DATA (AT
END OF PERIOD)(7): Post-Confirmation Pre-Confirmation
------------------------------------------ -----------------------------------------
Working capital (deficit) $ 66,024 $ 51,496 $ 63,523 $ 75,591 $ (145,909) $ 113,028 $ 123,222
Total assets 145,470 115,990 133,687 155,993 208,642 224,471 235,997
Long-term debt exclusive
of current maturities 77,346 53,519 66,069 77,255 n/a (6) 221,819 242,785
Total stockholders' equity
(deficit) $ 21,555 $ 20,895 $ 19,359 $ 22,116 $ (93,558) $ (43,914) $ (51,427)
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(1) Includes a bad debt provision of $4 million to cover the bankruptcy of a
major T-shirt customer during the second quarter of fiscal 1994.
(2) In fiscal 1996 the Company initiated a restructuring plan to improve
operating performance and reduce costs. In connection with this plan, the
Company recorded charges totaling $51,591,000 ($33,379,000 after related
income tax benefits). Such charges related to (i) the closing and
consolidation of certain manufacturing and distribution facilities, (ii)
the write-down of certain equipment associated with closed facilities,
(iii) the write-off and establishment of reserves for inventory and
accounts receivable associated with customers, product lines, and specific
products that the Company elected to discontinue manufacturing and
distributing, (iv) severance and other costs associated with plant closures
and overhead reductions, and (v) the write-off of certain impaired
intangible assets.
(3) Principally includes interest expense on long-term debt and amortization of
deferred debt expense, offset by interest income from the short-term
investment of excess cash. During the period from August 29, 1996 through
November 22, 1996, the Company did not accrue interest on the Senior
Subordinated Notes due 2002 which were canceled in connection with the Plan
of Reorganization.
(4) Reorganization items for the 42-week period ended November 22, 1996 include
$3,765,000 of adjustments to record assets and liabilities at fair value in
connection with the application of Fresh Start Reporting.
(5) Gain on debt discharge (net of income tax expense of $23,056,000) pursuant
to confirmation of Plan of Reorganization at November 22, 1996.
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(6) Due to continuing covenant violations, temporary waivers granted and events
of default, as further discussed in "Management's Discussion and Analysis,"
all of the Company's outstanding debt was classified as current at February
2, 1996.
(7) Amounts prior to November 22, 1996 do not reflect the consummation of the
Plan of Reorganization.
(8) Net income (loss) per share amounts for periods prior to the Plan of
Reorganization effective date of November 22, 1996 are not presented since
they do not reflect the new capitalization using Fresh Start Reporting.
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RISK FACTORS
PRIOR TO MAKING AN INVESTMENT DECISION, PROSPECTIVE INVESTORS IN THE
COMMON STOCK SHOULD CONSIDER THE SPECIFIC FACTORS SET FORTH BELOW AS WELL AS THE
OTHER INFORMATION SET FORTH IN THIS PROSPECTUS.
EMERGENCE FROM REORGANIZATION PROCEEDING
On December 16, 1996, the Company emerged from bankruptcy pursuant to
the Plan of Reorganization. The Plan of Reorganization left all the Company's
creditor's claims unimpaired except for parties to the Credit Agreement, which
was restructured and the holders of the Notes (the "Noteholders"), who received
10,000,000 shares of Common Stock in exchange for all of their Notes, which were
then retired. While trade creditors were paid in full, it is believed that the
bankruptcy had some adverse impact on the Company's relationship with customers
and suppliers and its access to capital.
SUBSTANTIAL LEVERAGE
The Company is significantly leveraged. The Company's prior Credit
Agreement was replaced by $110.0 million in new credit facilities on March 24,
1998 (collectively referred to as the "Loan Agreements"). One portion of the new
facility consists of a $25.0 million term loan facility ("Term Loan") and a
revolving loan facility of up to $70.0 million. A separate portion of the new
facility consists of an additional $15.0 million term loan facility ("Second
Term Loan"). The revolving loan facility includes a sub-limit of $15.0 million
for the issuance of letters of credit. As of June 26, 1998, the Company had
$38.8 million of term loans outstanding, $37.5 million of borrowings under its
revolving loan facility, and $5.4 million of outstanding letters of credit. The
Company at June 26, 1998 had $14.7 million of additional borrowing capacity
under its revolving loan facility.
The degree to which the Company is leveraged could have important
consequences for holders of the Common Stock, including: the Company's future
ability to obtain additional financing for working capital, capital
expenditures, product development, acquisitions, general corporate purposes or
other purposes may be impaired; a substantial portion of the Company's cash flow
from operations must be dedicated to the payment of the principal and interest
on its indebtedness; terms of the Loan Agreements restrict the Company's ability
to pay dividends and impose other operating and financial restrictions; and the
Company's degree of leverage may make it vulnerable to economic downturns and
may limit its ability to withstand competitive pressures. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The Company believes that, based on current levels of operations, its
cash flow from operations will be adequate to make scheduled payments of
principal and interest on its indebtedness prior to final maturity, to permit
anticipated capital expenditures and to fund working capital requirements. The
ability of the Company to meet its debt service obligations generally will be
dependent upon the future performance of the Company, which, in turn, will be
subject to general economic conditions, financial, competitive, business factors
and other factors, including factors beyond the Company's control.
The Loan Agreements contain a number of significant covenants that,
among other things, restrict the ability of the Company to dispose of assets,
incur additional indebtedness, make capital expenditures, pay dividends, create
liens on assets, enter into leases, investments or acquisitions, engage in
mergers or consolidations or engage in certain transactions with affiliates
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and otherwise restrict corporate activities (including change of control and
asset sale transactions). In addition, under the Loan Agreements, the Company is
required to maintain specified financial ratios and comply with tests, including
minimum tangible net worth, minimum cash flow, minimum fixed charge coverage
ratio and maximum funded indebtedness to cash flow ratio. The Company believes
that based on its current and anticipated levels of operations it will maintain
compliance with the financial covenants set forth in the Loan Agreements;
however, there can be no assurance that the Company will be able to do so if its
actual financial results in the future are significantly below the Company's
current expectations. Any significant deterioration in the Company's future
operating or financial performance could result in a breach of these provisions.
The Company's obligations under the Loan Agreements are secured by substantially
all the assets of the Company. The breach of any of these covenants or
restrictions could result in a default under the Loan Agreements, which could
permit the lenders party to the Loan Agreements to declare all amounts borrowed
thereunder to be due and payable together with accrued and unpaid interest, to
terminate their commitments to make further loans and issue letters of credit
and to proceed against the collateral securing the obligations owed to them. Any
such default could have a significant adverse effect on the market value and the
marketability of the Common Stock.
RISKS INHERENT IN BUSINESS PLAN
In the third and fourth quarters of fiscal 1996 the Company undertook an
extensive review of its manufacturing capacity, overhead structure, product
lines and customer base. These efforts resulted in the promulgation of the
Business Plan to enhance performance and reduce overhead expenses. The Company
consolidated its distribution centers and production capacity to increase
efficiencies, consolidated the operations of certain plants to off-shore
facilities and accelerated the process of moving sewing operations off-shore.
Beginning in fiscal 1998, the Company has been unable to attain the level of
sales revenue anticipated by the Business Plan and therefore has not and may
continue to be unable to achieve the Operating Results set forth in the Business
Plan. The Company believes this resulted from customers' reluctance to place new
or additional programs with the Company while it was implementing its financial
restructuring as well as increased pressure from the Company's competitors to
place programs with both existing and potential new customers. See "Management's
Discussion and Analysis of Financial Condition" and "Results of
Operations--Business Plan."
The Business Plan is dependent upon, among other things, the Company's
ability to increase its foreign sourcing capabilities and to otherwise
manufacture its products at a competitive cost. A key element of the Business
Plan is to develop foreign contracting sources, particularly for women's and
girls' underwear. The Company is also engaged in ongoing efforts to consolidate
its women's hosiery operations and to consolidate other operations in offshore
facilities. The success of the Company's foreign sourcing efforts is dependent,
among other things, upon the absence of political or economic disruptions,
quotas, labor disruptions, embargoes or currency fluctuations that might
adversely affect the Company, particularly in Honduras and Mexico and other
foreign countries where the Company currently or in the future sources its
products.
The Business Plan is also dependent upon the efficient operation of new
centralized distribution centers, the success of the Company's efforts to
streamline its stock keeping units ("SKU's") to eliminate unprofitable and
low-profit lines and products, to reduce its selling, general and administrative
expenses and to efficiently manage its inventory levels.
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RISK ASSOCIATED WITH THE GLENDALE HOSIERY COMPANY ACQUISITION
On March 24, 1998, the Company acquired substantially all of the assets
of Glendale. There can be no assurance that problems will not arise in combining
Glendale with the Company; for example, difficulties may be encountered by the
Company as a result of the integration of Glendale's corporate, accounting,
financial reporting and management information systems with the Company's system
or Glendale may be subject to unanticipated business uncertainties or legal
liabilities. In addition, one of the factors considered by the Company in
connection with the acquisition of Glendale were the opportunities for synergies
expected to be achieved. There can be, however, no assurance the Company will
achieve the desired levels of synergies when anticipated or at all. Failure to
achieve the desired levels of synergies could have a material adverse effect on
the business, results of operations, liquidity and financial condition of the
Company.
FRESH START REPORTING
The Company adopted Fresh Start Reporting on November 22, 1996, the date
the Plan of Reorganization was confirmed by the Bankruptcy Court. Accordingly,
the Company's Consolidated Balance Sheets as of May 2, 1998, January 31, 1998
and February 1, 1997 and its Consolidated Statement of Operations, Consolidated
Statements of Stockholders' Equity (Deficit) and Consolidated Statements of Cash
Flows for the thirteen weeks ended May 2, 1998; the year ended January 31, 1998;
and the 10-week period ended February 1, 1997 will not be comparable to the
Consolidated Financial Statements for prior periods included elsewhere herein.
IMPORTANCE OF MAJOR CUSTOMERS
For the 52-week period ended January 31, 1998, J.C. Penney accounted for
approximately 52% of the total net sales of the Company. No other customers
accounted for 10% or more of total net sales for the 52-week period ended
January 31, 1998. The loss of a material amount of sales to J.C. Penney, or a
decline in J.C. Penney's business, or the loss of one of the Company's other
major customers would have a material adverse effect on the Company's Results of
Operations. See "Business--Importance of Major Customers."
COMPETITION
The underwear and women's hosiery businesses are highly competitive.
While a number of the Company's competitors have moved to foreign sourcing to a
significantly greater degree, a substantial portion of the Company's operations
remain located in the United States. A key element of the Business Plan is to
develop foreign sourcing, particularly for women's and girls' underwear. The
Company's failure to develop such sourcing capabilities could materially
adversely affect the Company.
The Company believes that suppliers in the underwear and women's hosiery
businesses compete primarily on the basis of price, quality and customer
service. The Company competes with other private label manufacturers as well as
manufacturers of branded products. Several of the Company's competitors have
significantly greater financial resources and market recognition than the
Company. Many of the Company's customers purchase a portion of their private
label program's requirements from competitors as well as from Ithaca. See
"Business--Competition."
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FOREIGN SOURCING
The Company currently relies and anticipates increasing reliance on the
foreign sourcing of its products. The Company's ability to utilize foreign
sourcing is dependent on the absence of political or economic disruptions,
quotas, labor disruptions, embargoes or currency fluctuations in the countries
in which the Company sources its products.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the continued services of certain senior
executives, including: Jim D. Waller, Chief Executive Officer, President and
Chairman of the Board of Directors (the "Board"), Richard P. Thrush, Senior Vice
President-Finance and Administration, Secretary, Principal Financial and Chief
Accounting Officer, R. Dean Riggs, Executive Vice President-Manufacturing,
David H. Jones, Executive Vice President-Sales, Brian F. Slagle, Executive Vice
President-Hosiery, and Brian T. Fearn, Treasurer. The Company believes the loss
of the services of one or more of these senior executives could have a material
adverse effect on the Company.
LIQUIDITY; ABSENCE OF MARKET FOR COMMON STOCK
There is no currently existing formal trading market for the Common
Stock. Pursuant to the Plan of Reorganization and the Management Agreement, the
Shares were issued to a limited number of holders. Application was made to list
the Common Stock on the NASDAQ National Market. This application was withdrawn
because the Company was advised by NASDAQ that it would not qualify. The Company
intends to reapply if and when it believes it meets the criteria. There can be
no assurance that this will occur. Further, there can be no assurance that any
active trading market for the Common Stock will develop or be sustained or as to
the price at which the Common Stock may trade or that the market for the Common
Stock will not be subject to disruptions that will make it difficult or
impossible for the holders of the Common Stock to sell shares in a timely
manner, if at all. The trading market, if such market develops, may be unstable
and illiquid for an indeterminate period of time. In addition, holders of the
Common Stock who are deemed to be "underwriters" as defined in subsection
1145(b) of the Bankruptcy Code or who are otherwise deemed to be "affiliates" or
"control persons" of the Company within the meaning of the Securities Act, will
be unable to freely transfer or sell their respective Shares (which securities
will be "restricted securities" within the meaning of the Securities Act),
except pursuant to an available exemption from registration under the Securities
Act and under equivalent state securities or "blue sky" laws. However, as
described below, certain holders of Common Stock have certain registration
rights. See "Description of Capital Stock--Registration Rights Agreement."
EFFECT OF FUTURE SALES OF COMMON STOCK; REGISTRATION RIGHTS
No prediction can be made as to the effect, if any, that future sales of
Common Stock or the availability of Common Stock for future sale will have on
the market price of the Common Stock. Sales of substantial amounts of Common
Stock or the perception that such sales may occur, could adversely affect
prevailing market prices for the Common Stock.
An aggregate of 10,000,000 shares of Common Stock were issued pursuant
to the Plan of Reorganization. Pursuant to Section 1145 of the Bankruptcy Code,
all of such shares of Common Stock are freely tradeable without registration
under the Securities Act, except for shares that were issued to an "underwriter"
(as defined in Section 1145(b) of the Bankruptcy Code) or that are acquired by
an "affiliate" of the Company. With respect to all of the shares of Common Stock
issued to the Noteholders pursuant to the Plan of Reorganization (together with
any
12
<PAGE>
securities issued or issuable in respect thereof by way of a dividend, stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise, the "Registrable
Securities") the Company has entered into a registration rights agreement with
certain stockholders (the "Registration Rights Agreement") which requires Ithaca
to use its reasonable best efforts to file, cause to be declared effective and
keep effective for three years or until all registerable securities are sold, a
"shelf" registration statement (the "Shelf Registration"). The Registration
Statement of which this Prospectus is a part is the Shelf Registration referred
to in the Registration Rights Agreement. See "Description of Capital
Stock--Registration Rights Agreement."
DIVIDENDS
The Company presently intends to retain earnings for working capital and
to fund capital expenditures. Accordingly, there is no present intention to pay
cash dividends on any shares of the Common Stock. In addition, the Loan
Agreements prohibit the payment of cash dividends on the Company's equity
securities.
CERTAIN CORPORATE GOVERNANCE MATTERS
It is possible that certain provisions of the Company's Certificate and
certain provisions of the General Corporation Law of Delaware (the "DGCL"), may
make it more difficult to accomplish transactions which stockholders may
otherwise deem to be in their best interests. In addition, the Rights Agreement
(as defined below) entered into by the Company may inhibit a change of control
and, therefore, could adversely affect the stockholders' ability to realize a
premium over the then-prevailing market price for the Common Stock in connection
with such a transaction. Such provisions may be deemed to have an anti-takeover
effect and may delay, defer or prevent a tender offer or takeover attempt that
might result in the receipt of a premium over the market price for the shares
held by stockholders. See "Description of Capital Stock."
FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus including information set forth
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations," constitute "Forward-Looking Statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Ithaca
desires to take advantage of certain "safe harbor" provisions of the Reform Act
and is including this special note to enable the Company to do so.
Forward-Looking statements included in this Prospectus, involve known and
unknown risks, uncertainties and other factors which could cause the Company's
actual results, performance (financial or operating) or achievements to differ
materially from the future results, performance (financial or operating) or
achievements expressed or implied by such forward-looking statements. The
Company believes a change in the following important factors could cause such a
material difference to occur: (1) the level of sales to the Company's major
customers, in particular J.C. Penney which accounted for approximately 52% of
the Company's total net sales for the 52-week period ended January 31, 1998; (2)
the Company's ability to source or manufacture its products at a competitively
favorable cost; (3) the general strength of retailing particularly in the
apparel categories in which the Company operates and at the retail outlets which
are major customers of the Company; (4) the continued services of certain of the
Company's senior executives; (5) the comparative strength of the Company's
principal competitors, particularly the impact of foreign sourcing in certain of
the Company's product categories; (6) the absence of political or economic
disruptions, quotas, labor disruptions, embargoes or currency fluctuations that
might adversely affect the Company, particularly in Honduras and other foreign
nations where the Company currently or in the future sources its products; (7)
the success of the Company's recent Business
13
<PAGE>
Plan and reorganization, particularly (a) the success of the Company's ongoing
efforts to consolidate its women's hosiery operations and certain other
operations in offshore facilities and to increase its foreign sourcing
capabilities (especially in women's and girls' underwear categories), (b) the
level of efficiency of operation of the Company's new centralized distribution
centers, (c) the success of the Company's efforts to streamline its SKU's and
eliminate unprofitable and low-profit lines and products, (d) the success of the
Company's efforts to reduce its selling, general and administrative expenses and
(e) the success of the Company's efforts to efficiently manage its inventory
levels; (8) the success of integrating Glendale's operations with the Company;
(9) the impact of price fluctuations for raw materials utilized by the Company,
particularly cotton and spandex, and the Company's ability to pass on to
retailers and consumers any possible price increases; (10) the continued
improvement of the Company's information systems; or (11) the ability of the
Company to have access to adequate capital to meet its working capital needs and
to fund necessary capital expenditures.
Many of the foregoing factors have been discussed in the Company's prior
filings with the Commission and other publicly available documents. Had the
Reform Act been effective at an earlier time, this special note would have been
included in earlier Commission filings. The foregoing review of significant
factors should not be construed as exhaustive or as an admission regarding the
adequacy of disclosures previously made by the Company prior to the effective
date of the Reform Act.
USE OF PROCEEDS
The Company will receive none of the proceeds from the sale of the
Shares by the Selling Stockholders. A total of 10,000,000 shares of Common Stock
were issued to Noteholders of the Company in accordance with the Plan of
Reorganization under which the Company emerged from a Chapter 11 bankruptcy
proceeding. An option to purchase 109,290 shares of the Company's Common Stock
was issued to Alvarez & Marsal, Inc. as part of the compensation due under the
Management Agreement for the turnaround-management and financial restructuring
advisory services rendered to the Company.
DIVIDEND POLICY
The Company has no present intention of paying any dividends on the
Common Stock. The declaration and payment of future dividends to holders of
Common Stock will be at the discretion of the Company's Board and will depend
upon many factors, including the Company's financial condition, earnings, the
capital requirements of its operating subsidiaries, legal requirements and such
other factors as the Board deems relevant. In addition, the Loan Agreements
prohibit the payment of cash dividends on the capital stock of the Company.
Under the DGCL, the Company may only declare and pay dividends out of
surplus (as defined in the DGCL) or if there is no surplus and subject to
certain conditions, out of net profits for the fiscal year in which the dividend
is declared and/or the preceding fiscal year.
14
<PAGE>
MARKET FOR THE COMMON STOCK
Through the date hereof there has been no established public trading
market. Application was made to list the Common Stock on the NASDAQ National
Market. This application was withdrawn because the Company was advised by NASDAQ
that it would not qualify. The Company intends to reapply if and when it
believes it meets the criteria. There can be no assurance that this will occur.
See "Risk Factors--Liquidity; Absence of Market for Common Stock." Pursuant to
the Plan of Reorganization, 10,000,000 Shares were issued following the
Effective Date of the Plan of Reorganization and as of October 29, 1997,
constituted all of the outstanding shares of Common Stock. In reliance on the
exemption provided by Section 1145 of the Bankruptcy Code, none of the
10,000,000 Shares issued pursuant to the Plan of Reorganization was registered
under the Securities Act in connection with its issuance pursuant to the Plan of
Reorganization; however, those shares are being registered hereby for resale by
the Selling Stockholders pursuant to certain registration rights. Shares issued
pursuant to the Plan of Reorganization are freely tradeable without registration
under the Securities Act, except for any shares that were issued to an
"underwriter" (as defined in Section 1145(b) of the Bankruptcy Code) or that are
subsequently acquired by an "affiliate" of the Company, all of which shares will
be "restricted securities" within the meaning of Rule 144 under the Securities
Act ("Rule 144"). Shares which are "restricted securities" within the meaning of
Rule 144 may not be resold in the absence of registration under the Securities
Act other than in accordance with Rule 144 or another exemption from
registration. See "Description of Capital Stock--Registration Rights Agreement"
for a discussion of the rights of certain stockholders of the Company to request
registration of sales of their Shares. Also registered hereby are 109,290 shares
of Common Stock which Alvarez & Marsal, Inc. hold an option to purchase. As of
June 29, 1998, there were approximately 14 holders of record of Common Stock and
there were no outstanding options or warrants to purchase, or securities
convertible into, Common Stock or Preferred Stock, par value $.01 per share
("Preferred Stock"), other than options to purchase 822,811 shares of Common
Stock, including the options granted to Alvarez & Marsal, Inc., issuable under
the Company's 1996 Long Term Stock Incentive Plan ("LTIP"), and the 1997 Stock
Option Plan for Non-Employee Directors (the "Director Option Plan"), of which
options to purchase 479,377 shares are currently exercisable.
15
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at May 2, 1998. This table should be read in conjunction with the
Company's Consolidated Financial Statements, including the notes thereto, found
elsewhere in this Prospectus.
May 2, 1998
-----------------------
(in thousands)
Current Installments of Long Term Debt $ 413
Long Term Debt
Credit Facility: 76,460
Other 886
-----------------------
Total $ 77,759
-----------------------
Stockholders' Equity:
Preferred Stock, par value $.01 per share; 2,500,000 --
Shares authorized; none issued
Common Stock par value $.01 per share, 27,500,000 104
authorized, 10,400,000 issued and outstanding
Additional Paid-In Capital 23,276
Retained (Deficit) Earnings (1,825)
-----------------------
Total Stockholders' Equity 21,555
-----------------------
Total Capitalization 99,314
=======================
16
<PAGE>
SELECTED FINANCIAL DATA
The selected financial information set forth below is qualified by and
should be read in conjunction with the "Financial Statements" and the notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in this Prospectus. The Company's Results of
Operations for the 10-week period ended February 1, 1997 and the 42-week period
ended November 22, 1996 reflect the consummation of the Plan of Reorganization
and the transactions contemplated thereby and the application of Fresh Start
Reporting rules and procedures. Results of Operations of the Company for the
thirteen-week period ending May 2, 1998, year ended January 31, 1998 and the
ten-week period ended February 1, 1997 will generally not be comparable to the
prior periods due to the effects of the Plan of Reorganization. Net income per
share for periods prior to November 22, 1996 is not meaningful because during
such periods the Company was a wholly owned subsidiary of Ithaca Holdings, Inc.
<TABLE>
<CAPTION>
Post-Confirmation Pre-Confirmation
------------------------------------------ -------------------------------------------------------
13-Weeks 10-Weeks 42-Weeks
Period Ended Year Ended Period Ended Period Ended Fiscal year Ended
May 2, 1998 January 31, February 1, November 22, January 31,
(unaudited) 1998 1997 1996 1996 1995 1994
------------ ---------- ------------ ------------ ------------ ------------ ------------
(Dollars in thousands)
STATEMENT OF OPERATIONS
DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 60,388 $ 237,021 $ 42,708 $ 297,603 $ 398,819 $ 414,800 $ 414,671
Gross profit 7,745 34,653 4,487 42,060 44,882 72,859 68,072
Selling, general and
administrative
expenses 7,032 26,052 7,354 27,670 43,486 37,075 39,711(1)
(Recovery of) provision
for asset write-downs
and restructuring -- -- -- (2,964) 51,591(2) -- --
Operating income (loss) 713 8,601 (2,867) 17,354 (50,195) 35,784 28,361
Interest expense--net(3) 1,685 6,875 1,385 17,489 26,905 23,147 23,455
Reorganization items -- -- -- (1,176)(4) -- -- --
Income (loss) before
income taxes and
extraordinary
items (938) 2,339 (4,157) 1,666 (76,802) 13,166 4,968
Income tax (expense)
benefit 334 803 1,400 (4,218) 27,157 (5,653) (2,086)
Income (loss) before
extraordinary item -- 1,536 (2,757) (2,552) (49,644) 7,513 2,882
Extraordinary item(5) -- -- -- 67,924 -- -- --
Net income (loss) $ (604) $ 1,536 $ (2,757) $ 65,372 $ (49,644) $ 7,513 $ 2,882
============ ========== ============ ============ ============ ========== =============
Net income (loss) per
common share(8) $ (0.06) $ 0.15 $ (0.28) n/a n/a n/a n/a
============ ========== ============ ============ ============ ========== =============
BALANCE SHEET DATA (AT
END OF PERIOD)(7): Post-Confirmation Pre-Confirmation
------------------------------------------ -----------------------------------------
Working capital (deficit) $ 66,024 $ 51,496 $ 63,523 $ 75,591 $ (145,909) $ 113,028 $ 123,222
Total assets 145,470 115,990 133,687 155,993 208,642 224,471 235,997
Long-term debt exclusive
of current maturities 77,346 53,519 66,069 77,255 n/a (6) 221,819 242,785
Total stockholders' equity
(deficit) $ 21,555 $ 20,895 $ 19,359 $ 22,116 $ (93,558) $ (43,914) $ (51,427)
</TABLE>
- --------------------------------
(1) Includes a bad debt provision of $4 million to cover the bankruptcy of a
major T-shirt customer during the second quarter of fiscal 1994.
(2) In fiscal 1996 the Company initiated a restructuring plan to improve
operating performance and reduce costs. In connection with this plan, the
Company recorded charges totaling $51,591,000 ($33,379,000 after related
income tax benefits). Such
17
<PAGE>
charges related to (i) the closing and consolidation of certain
manufacturing and distribution facilities, (ii) the write-down of certain
equipment associated with closed facilities, (iii) the write-off and
establishment of reserves for inventory and accounts receivable associated
with customers, product lines, and specific products that the Company
elected to discontinue manufacturing and distributing, (iv) severance and
other costs associated with plant closures and overhead reductions, and (v)
the write-off of certain impaired intangible assets.
(3) Principally includes interest expense on long-term debt and amortization of
deferred debt expense, offset by interest income from the short-term
investment of excess cash. During the period from August 29, 1996 through
November 22, 1996, the Company did not accrue interest on the Senior
Subordinated Notes due 2002 which were canceled in connection with the Plan
of Reorganization.
(4) Reorganization items for the 42-week period ended November 22, 1996 include
$3,765,000 of adjustments to record assets and liabilities at fair value in
connection with the application of Fresh Start Reporting.
(5) Gain on debt discharge (net of income tax expense of $23,056,000) pursuant
to confirmation of Plan of Reorganization at November 22, 1996.
(6) Due to continuing covenant violations, temporary waivers granted and events
of default, as further discussed in "Management's Discussion and Analysis,"
all of the Company's outstanding debt was classified as current at February
2, 1996.
(7) Amounts prior to November 22, 1996 do not reflect the consummation of the
Plan of Reorganization.
(8) Net income (loss) per share amounts for periods prior to the Plan of
Reorganization effective date of November 22, 1996 are not presented since
they do not reflect the new capitalization using Fresh Start Reporting.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion should be read in conjunction with the
Consolidated Financial Statements and the related notes included elsewhere in
this Prospectus.
The following table sets forth the percentage relationship to total net
sales of certain items included in the Company's Statements of Operations:
<TABLE>
<CAPTION>
Post-Confirmation Pre-Confirmation
------------------------------------------- --------------------------
13-WEEK 13-WEEK
PERIOD PERIOD FISCAL YEAR 10-WEEK 42-WEEK FISCAL YEAR
ENDED ENDED ENDED PERIOD ENDED PERIOD ENDED ENDED
MAY 2, MAY 3, JANUARY 31, FEBRUARY 1, NOVEMBER 22, JANUARY 31,
1998 1997 1998 1997 1996 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net sales:
Men's & boys'
underwear and
T-shirts 59.8% 59.9% 61.8% 51.2% 56.4% 52.0
Women's and girls'
underwear 11.5 14.5 13.5 17.1 17.2 18.7
Women's hosiery 26.3 21.2 21.3 28.6 24.5 27.3
Other 2.4 4.4 3.4 3.1 1.9 2.0
-------- ------- ----------- --------- ------------ -----------
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 87.2 86.0 85.4 89.5 85.9 88.7
-------- -------- ----------- --------- ------------ -----------
Gross profit 12.8 14.0 14.6 10.5 14.1 11.3
Selling, general and
administrative
expenses 11.6 11.6 11.0 17.2 9.3 10.9
(Recovery of)
provisions for asset
write-downs and -- -- -- -- (1.0)% 12.9%
restructuring -------- ------- ----------- --------- ------------ -----------
Operating income
(loss) 0.1 2.4 3.6 (6.7) 5.8 (12.6)
Interest expense-net (0.3) (2.5) (2.9) (3.2) (5.9) (6.6)
Other net -- 0.1 0.3 (0.2) 0.2 --
Reorganization items -- -- -- -- 0.4% --
-------- ------- ----------- --------- ------------ -----------
Income (loss) before
income taxes and
extraordinary items (0.2) -- 1.0 (9.7) 0.5 (19.2)
Income tax (expense)
benefit 0.1 -- (0.4) 3. 3 (1.4) 6.8
Extraordinary
item-gain on -- -- -- -- 22.8 --
debt discharge -------- ------- ----------- --------- ------------ -----------
Net income (loss) (1.0)% 0.0% 0.6% (6.4)% 21.9% (12.4)%
======== ======== =========== ========= ============ ===========
</TABLE>
19
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF FISCAL 1998 TO THE COMBINED 10-WEEK PERIOD ENDED FEBRUARY 1, 1997
AND THE 42-WEEK PERIOD ENDED NOVEMBER 22, 1996.
Net sales declined 30% to $237.0 million. This decline reflected, in
part, the Company's previously announced decision to exit unprofitable lines of
business. Sales of continuing products also decreased reflecting lower sales to
the Company's major customers. The 1998 fiscal year's revenue included $5.3
million in sales of discontinued products compared to $45.5 million in the
comparable period last year. Men's and boys' underwear and T-shirt sales were
down 22.8%, women's and girls' underwear sales were down 45.3% and women's
hosiery sales were down 40.6%. Unit volume was down 35.3% with men's and boys'
underwear and T-shirts down 23.7%, women's and girls' underwear down 48.6% and
women's hosiery down 41.1%. The average selling price per dozen for fiscal 1998
was $21.89 versus $20.32 in the comparable period last year, primarily
reflecting a change in the mix among product lines. There were no significant
pricing changes to the Company's customers during fiscal 1998.
Gross profit declined $11.9 million or 25.6% as compared to the
comparable period last year as a direct result of the lower sales volume. Gross
profit margins for fiscal 1998 improved to 14.6% of net sales from 13.7% in the
prior period. The improved margins resulted from the elimination of revenues
with low gross margins, the continuing emphasis of moving production to
lower-cost, offshore locations, and decreased depreciation expense as a result
of fresh start reporting.
Selling, general and administrative expenses decreased by $9.0 million
or 25.7% in fiscal 1998 versus the comparable period last year. This decrease
was a result of reduced employee related costs and reduced overhead support cost
for the discontinued sales revenues. As a percentage of net sales, selling,
general and administrative expense increased to 11.0% in fiscal 1998 against
10.3% in the comparable period last year reflecting the impact of lower sales on
operating leverage.
Net interest expense fell to $6.9 million for fiscal 1998, a decrease of
$12.0 million or 63.4% for the comparable period last year. This decrease
resulted from the conversion of $125 million of senior subordinated notes into
common stock as part of the Company's financial restructuring, which was
recorded on November 22, 1996, and lower average levels of borrowings.
The income tax expense for fiscal 1998 was 34% of income before income
taxes compared to a benefit of 34% on the pre-tax loss incurred in the prior
year's post confirmation period.
COMPARISON OF THE 10-WEEK PERIOD ENDED FEBRUARY 1, 1997 TO THE 10-WEEK PERIOD
ENDED FEBRUARY 2, 1996.
Net sales declined 33.0% to $42.7 million in the 10-week period ended
February 1, 1997, from $63.7 million in the 10-week period ended February 2,
1996. Men's and boys' underwear and T-shirt sales were down 30.8%, women's and
girls' underwear sales were down 34.2% and women's hosiery sales were down
36.4%. Unit volume was down 29.8% with men's and boys' underwear and T-shirts
down 20.3%, women's and girls' underwear down 39.8% and women's hosiery down
32.0%. The average selling price per dozen in the 10-week period ended February
1, 1997 decreased to $18.75 from $19.63 in the comparable prior period,
primarily reflecting a change in the mix among product lines.
20
<PAGE>
The sales declines reflect, in part, the implementation of the Company's
Business Plan, which was designed in part to eliminate unprofitable products.
While the Company does not consider its business to be seasonal, the relative
level of sales for the 10-week period ended February 1, 1997, proportionate to
the Company's sales in other periods, is consistent with the Company's past
experience as that period is traditionally a period of relatively low sales
activity. The sales level is not believed to be representative of the Company's
sales level and financial results on an annualized basis. Net sales in the
10-week period ended February 1, 1997 included approximately $3.8 million of
sales resulting from the wind-down of discontinued products, which will not
recur in future periods. Sales of discontinued products were not included in the
projections made in the Business Plan as it only included sales of products
which the Company intended to sell in future periods.
Gross profit, excluding provisions for asset write-down and
restructuring charges incurred in the 10-week period ended February 2, 1996,
increased by $4.7 million from ($0.2) million to $4.5 million during the 10-week
period ended February 1, 1997, compared to the 10-week period ended February 2,
1996; with gross margin improving to 10.5% of sales from (0.3%) in the
comparable prior period, as product costs fell proportionately faster than the
sales decline. The improved gross margin was principally attributable to lower
costs of production resulting from the offshore sourcing of men's and boys'
underwear and outerwear T-shirts and women's and girls' underwear and improved
efficiencies in hosiery operations.
The Company recorded provisions for workforce reductions and asset
write-downs of $37.4 million in the 10-week period ended February 2, 1996. There
were no provisions for workforce reductions and asset write-downs in the 10-week
period ended February 1, 1997.
Selling, general, and administrative expenses, excluding the provisions
for workforce reductions and asset write-downs incurred in the 10-week period
ended February 2, 1996, decreased by $2.3 million (23.2%) in the 10-week period
ended February 1, 1997 to $7.3 million from $9.5 million in the 10-week period
ended February 2, 1996. Shipping expense was $1.6 million lower in the 10-week
period ended February 1, 1997 as compared to the 10-week period ended February
2, 1996. Lower shipping costs were realized, in part, because during the 10-
week period ended February 1, 1997 the Company's consolidated distribution
centers were fully operational, while in the comparable prior period, the
Company's consolidated distribution centers could not be fully utilized. In
addition, the Company experienced lower sales levels in the current period
compared to the comparable prior period. Selling costs were $1.4 million lower
in the current period, reflecting staffing reductions implemented early in
fiscal 1997.
Interest expense, net of interest income, decreased to $1.4 million in
the 10-week period ended February 1, 1997 compared to $4.9 million in the
10-week period ended February 2, 1996. The decrease in the 10-week period ended
February 1, 1997, compared to the 10-week period ended February 2, 1996, was due
to lower average borrowings, including the effect of the retirement of the Notes
pursuant to the Plan of Reorganization, partially offset by higher interest
rates.
The income tax benefit in the 10-week period ended February 1, 1997 was
34% of the loss before income taxes, compared to a benefit of 46% of the loss
before income taxes in the 10-week period ended February 2, 1996.
21
<PAGE>
COMPARISON OF 42-WEEK PERIOD ENDED NOVEMBER 22, 1996 TO 43-WEEK PERIOD ENDED
NOVEMBER 24, 1995.
Net sales declined 11.2% to $297.6 million in the 42-week period ended
November 22, 1996 from $335.1 million in the 43-week period ended November 24,
1995. Men's and boys' underwear sales were up 1.2%; women's and girls' underwear
sales were down 19.5% and women's hosiery sales were down 18.8%. Outerwear
T-shirts sales decreased 16.6%. Unit volume was down 12.9% with men's and boys'
underwear down 3.3%, women's and girls' underwear down 18.6% and women's hosiery
down 17.3%, and outerwear T-shirt volume down 18.7%. The average selling price
per dozen in the 42-week period ended November 22, 1996 increased to $20.57 from
$20.18, primarily reflecting a mix change among product lines.
The sales declines reflected, in part, the implementation of the
Company's Business Plan which was designed, among other objectives, to eliminate
unprofitable products. Net sales in the 42-week period ended November 22, 1996
included $39.9 million of sales resulting from the wind-down of discontinued
products, which will not recur in future periods. These sales of discontinued
products were not included in the Business Plan which reflected only sales of
products that the Company intends to continue selling.
Gross profit declined $3.0 million or 6.6% during the 42-week period
ended November 22, 1996 compared to the 43-week period ended November 24, 1995;
however, gross margin improved to 14.1% of sales from 13.4% in the prior period,
as product costs fell proportionately faster than the sales decline. The
improved gross margin was attributable to lower costs from offshore sourcing of
men's and boys' underwear and women's and girls' underwear. In the 42-week
period ended November 22, 1996, the Company reduced its excess domestic
manufacturing capacity in the men's and boys' underwear, women's and girls'
underwear and outerwear T-Shirt divisions by closing plants. Approximately 1,500
manufacturing and overhead jobs were eliminated by these closings in the 42-week
period ended November 22, 1996. Women's hosiery was favorably impacted by
improved production efficiency and progress in eliminating unprofitable
products.
The Company recorded a reversal in the 42-week period ended November 22,
1996 of $3.0 million of asset writedowns taken during fiscal 1996 (related to
recovery of receivables previously identified as impaired assets) compared to
provisions for workforce reductions and assets writedown of $14.2 million in the
43-week period ended November 24, 1995.
Selling, general and administrative expenses decreased by $6.3 million
(18.5%) in the 42-week period ended November 22, 1996 to $27.7 million from
$34.0 million in the 43-week period ended November 24, 1995, which represented a
decrease from 10.9% as a percentage of sales in the 43-week period ended
November 24, 1995 to 9.3% as a percentage of sales in the 42-week period ended
November 22, 1996. The primary component of this decrease was lower employee
related costs, resulting from headcount reductions early in fiscal 1997.
Shipping expense was $2.0 million lower in the current period reflecting
operation of the consolidated distribution centers in the current period
compared with the transition to these distribution centers in the prior period
and lower sales levels in the 42-week period ended November 22, 1996 as compared
to the 43-week period ended November 24, 1995.
Interest expense, net of interest income, decreased to $17.5 million for
the 42-week period ended November 22, 1996 compared to $22.0 million in fiscal
1996. The decrease in the 42-week period ended November 22, 1996 was due to
nonaccrual of bondholder interest after August 29, 1996 ($3.2 million lower than
the 43-week period ended November 24, 1995) and
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lower average borrowings in fiscal 1997, partially offset by higher interest
rates during the period.
Income tax expense in the 42-week period ended November 22, 1996 was
253.3% of income before income taxes, compared to 35.3% in full year fiscal
1996. The increase is due primarily to the provision for deferred tax
liabilities resulting from tax bases reductions in connection with the gain from
the debt discharge associated with the confirmation of the Plan of
Reorganization and to the non-deductibility of certain restructuring charges.
THIRTEEN WEEKS ENDED MAY 2, 1998 COMPARED WITH THIRTEEN WEEKS ENDED MAY 3, 1997
Net sales increased from $58.7 million for the thirteen weeks ended May
3, 1997 to $60.4 million (2.9%) for the thirteen weeks ended May 2, 1998. The
sales increase reflected the results of Glendale, which was acquired on March
24, 1998. During this year's first quarter the Glendale sales were $3.8 million.
Gross profit for the first quarter of fiscal 1999 was 12.8%. Included in
this year's first quarter was $0.7 million, or 1.2% in costs for the closing of
the Company's Robbins, NC hosiery plant. Without this one-time non-recurring
cost, this year's gross margin would have equaled last year's gross margin of
14.0%.
Selling, general and administrative expenses for the first quarter of
fiscal 1999 increased to $7.0 million from $6.8 million (2.9%) last year
primarily due to higher sales volume. As a percentage of net sales, this year's
11.6% was the same as the prior year.
Operating profit decreased to $0.7 million for the first quarter of
fiscal 1999 from $1.4 million for the comparable period last year primarily due
to the lower gross profit.
Interest expense remained constant with last year's first quarter at
$1.7 million.
LIQUIDITY AND CAPITAL RESOURCES
On March 24, 1998, the Company completed the acquisition of Glendale for
a combination of stock, cash and the assumption of certain indebtedness. In
conjunction with the acquisition, the Company's prior Credit Agreement was
replaced by a $110.0 million new credit facility. One part of the new facility
provides for a term loan of $25.0 million and a revolving loan facility of up to
$70.0 million. A separate part of the new credit facility provides for an
additional $15.0 million term loan. The revolving loan facility includes a
sub-limit of $15.0 million for the issuance of letters of credit. As of June 26,
1998, the Company had $38.8 million of term loans outstanding, $37.5 million of
borrowings under the revolving loan facility, and $5.4 million of outstanding
letters of credit. The Company at June 26, 1998 had $14.7 million of
availability under its revolving loan facility.
At January 31, 1998 the Company's net working capital was $51.5 million
and the current ratio was 2.8:1. At February 1, 1997 the Company's net working
capital was $63.5 million and the current ratio was 2.9:1. The Company reported
a working capital deficit at the end of fiscal 1996 because of the presentation
of substantially all outstanding debt as currently payable. The calculation of a
current ratio under such circumstance would not be meaningful.
Capital additions were $4.2 million for the fiscal year ended January
31, 1998 and were related primarily to purchases of machinery and equipment.
Capital additions of the comparable
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prior year period were $ 4.0 million and were also primarily related to
purchases of machinery and equipment. In fiscal year 1996, capital additions of
$13.9 million related principally to the Company's new centralized distribution
facilities.
The Company's cash on hand as of January 31, 1998 was $0.7 million
compared with $0.1 million at February 1, 1997. The increase in cash was due to
slightly higher bank balances from outstanding bank borrowings. The Company's
cash on hand as of May 2, 1998 was a $0.9 million compared to $0.7 million at
January 31, 1998.
Inflation has had only a minimal impact on the Company in the past. The
Company has minimized the impact of inflation on costs and expenses through cost
controls and increased manufacturing efficiency. The Company has at times
experienced some increase in the cost of labor, supplies, raw materials and
administrative expenses. The Company is not always able to promptly pass on cost
increases to its customers, principally due to time of raw materials purchases
and customer orders as well as competitive pressures.
IMPACT OF YEAR 2000 ("Y2K")
Some of the Company's computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognize a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company's focus and goal has been to identify all Y2K issues and to
develop plans to resolve those issues. The primary plan for remediation of the
Company's legacy systems, is to replace those systems as part of its overall
implementation of its Enterprise Resource Planning ("ERP") system. The ERP
project is supervised and supported by senior management. Areas outside the
scope of the ERP project such as time clocks, phone systems and manufacturing
machines, are also being addressed.
The project is estimated to be completed not later than March 31, 1999,
which is prior to any anticipated impact on its operating systems. The Company
believes that with modifications to existing software and a conversion to new
software, the Y2K issue will not pose significant operational problems for its
computer systems. However, if such modifications and conversions are not made,
or are not completed timely, the Y2K issue could have a material impact on the
operations of the Company.
The Company has had formal communications with its major customers and
suppliers regarding standardizing systems for Y2K compliance. There is no
guarantee that the systems of other companies on which the Company's systems
rely will be timely converted and would not have an adverse effect on the
Company's systems.
The incremental cost of the Y2K project is not material and the date on
which the Company believes it will complete the Y2K modifications are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and costs of personnel trained in this area, the
ability to locate and correct all relevant computer codes, and similar
uncertainties.
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FINANCIAL CONDITION
On October 8, 1996 the company filed a voluntary petition for
reorganization under Chapter 11 with the Bankruptcy Court. The filing of the
voluntary petition resulted from a sequence of events stemming from the
Company's default under the Credit Agreement.
The Company emerged from bankruptcy on December 16, 1996 and a final
order was issued by the Bankruptcy Court on April 7, 1997. Pursuant to the Plan
of Reorganization, the Company has repaid all of the secured and unsecured
claims allowed by the Bankruptcy Court as follows: general unsecured claims were
satisfied in the ordinary course of business. Noteholder claimants received the
right to a pro rata share of 10,000,000 shares of Ithaca Common Stock
(representing, in the aggregate, all of the outstanding shares of Ithaca Common
Stock except for Common Stock issued pursuant to the LTIP). Prior equity
interests in the Company were canceled, annulled and extinguished.
Administrative claims were paid in full, in cash, in the ordinary course of
business. Tax claims were paid in full. Priority claims were paid in full. The
Credit Agreement was amended and restated. General secured claims were paid in
full. Each holder of an allowed general secured claim was either paid in full on
December 16, 1996 (or the date upon which there is a final order allowing such
claim as an allowed secured claim), or was otherwise to be rendered unimpaired.
BUSINESS PLAN
In the third and fourth quarters of fiscal 1996 the Company undertook an
extensive review of its manufacturing capacity, overhead structure, product
lines and customer base. The Company analyzed its strategic plans in connection
with the utilization of its plants located in Honduras, as well as obtaining
products from other foreign sources. These efforts resulted in the promulgation
of the Business Plan. In general, to enhance its performance and reduce overhead
expenses, the Company consolidated its distribution centers and production
capacity to increase efficiencies, consolidated certain plants to off-shore
facilities and accelerated the process of moving more sewing operations
off-shore. As part of the implementation of the Business Plan, the Company
terminated certain real property leases and unprofitable license agreements, and
made certain payments in connection therewith. In addition, the Company reduced
the number of styles and products it produced, eliminated certain unprofitable
customers and product lines, began the process of establishing Far East
outsourcing capability and closed selected plants. Beginning in fiscal 1998, the
Company has been unable to obtain the level of sales revenue anticipated by the
Business Plan and was unable to achieve the Operating Results set forth in the
Business Plan. The Company believes this resulted from customers' reluctance to
place new or additional programs with the Company while it was implementing its
financial restructuring as well as increased pressure from the Company's
competitors to place programs with both existing and potential new customers.
The Company has previously made its Business Plan, which contained
projections regarding the Company's future net sales and operating income,
publicly available. Projections contained in the Business Plan were not prepared
with a view to complying with published guidelines of the Commission nor with
the accounting profession's principles regarding projections. In addition, such
information was based on a number of assumptions and was subject to significant
uncertainties and contingencies, many of which are beyond the Company's control.
Further, the Business Plan did not reflect any tax expense or credits during the
projection period, and utilized asset and liability valuations from the
Company's Historical Financial Statements, modified for the impact of the
exchange of the Notes for equity and the resultant elimination of bondholder
interest during the projection period. Such information does not reflect the
impact of Fresh Start accounting rules, does not conform to generally accepted
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accounting principles, and constitutes Forward Looking Statements under the
Reform Act as discussed on the first page of this report.
BUSINESS
GENERAL
Ithaca is a leading designer, marketer and manufacturer of private brand
men's and boys' underwear and outerwear T-shirt products, women's and girls'
underwear and women's hosiery. The Company believes it is the largest
manufacturer of private brand men's underwear and women's hosiery products and
the second largest manufacturer of women's underwear in the United States,
operating distribution and manufacturing facilities in the southeastern United
States and off-shore manufacturing facilities in Central America. The key
elements of the Company's strategy are to supply a wide variety of product
offerings at a number of price points, to maintain a strong presence in multiple
channels of distribution, to maintain close customer relationships by developing
products and programs that suit individual customer needs and to maintain a low
cost and flexible manufacturing capability.
PRODUCTS AND SALES
The Company's three principal product lines are (1) men's and boys'
underwear and outerwear T-shirts, (2) women's and girls' underwear and (3)
women's hosiery. The Company offers a large selection of products in a wide
range of styles, sizes and colors. Ithaca has worked closely with its customers
over the years to develop a wide variety of products in each of its product
lines to meet the needs of retailers in varied distribution channels. The
Company's offerings within each product line range from lower priced goods sold
by supermarkets and discount stores to higher quality, higher priced styles sold
by department stores. Management believes that this product breadth gives it a
competitive advantage over other U.S. private brand manufacturers who do not
offer such a wide selection and over foreign manufacturers who generally are not
as capable of providing prompt delivery on a broad range of products. Ithaca's
products are sold through a wide range of retail distribution channels and are
offered to the public through more than 10,000 customer outlets, including
discount stores, department stores, specialty stores, drug stores and
supermarkets.
MEN'S AND BOYS' UNDERWEAR AND OUTERWEAR T-SHIRTS
Ithaca designs and manufactures over 160 styles of crew-neck T-shirts,
V-neck T-shirts, briefs, athletic shirts and fashion underwear for its line of
men's and boys' underwear. Ithaca also designs and manufactures over 30 styles
of tank top shirts, mock turtleneck shirts, white and colored pocket T-shirts
and white and colored T-shirt blanks for screen printing for its T-shirt product
line. Products are made of 100% cotton, cotton and polyester blends and for
fashion underwear, nylon.
Men's and boys' underwear and outerwear T-shirts accounted for
approximately 62% of the Company's net sales in the 52-week period ending
January 31, 1998, 51% of the Company's net sales in the 10-week period ended
February 1, 1997, 56% in the 42-week period ended November 22, 1996, and 52% in
fiscal 1996.
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WOMEN'S AND GIRLS' UNDERWEAR
Ithaca designs and manufactures over 100 styles of briefs, hip huggers
and bikini panties for its line of women's and girls' underwear.
Women's and girls' underwear sales accounted for approximately 14% of
the Company's net sales in the 52-week period ending January 31, 1998, 17% in
the 10-week period ended February 1, 1997, 17% in the 42-week period ended
November 22, 1996, and 19% in fiscal 1996.
WOMEN'S HOSIERY
Ithaca designs and manufactures over 130 styles of regular sheer
pantyhose, control top and support pantyhose, knee-highs and stockings for its
line of women's hosiery.
Women's hosiery sales accounted for approximately 21% of the Company's
net sales in the 52-week period ending January 31, 1998, 29% in the 10-week
period ended February 1, 1997, 25% for the 42-week period ended November 22,
1996, and 27% in fiscal 1996.
RAW MATERIALS
The principal materials used in the Company's production of goods are
cotton, polyester, nylon and spandex yarns as well as tricot and powernet
fabrics. The Company does not produce its own yarns and believes that purchasing
yarns from the wide range of available sources in the United States is
cost-effective. Ithaca also purchases dyestuffs and packaging materials. The
Company is not always able to promptly pass on to its customers price increases
in raw materials principally due to the timing of raw material purchases and
customer orders as well as competitive conditions.
Management believes its sources of raw materials are adequate and does
not currently anticipate difficulty in obtaining raw materials to meet its
needs. The Company has not experienced any significant shortages of raw
materials during the past 30 years.
MANUFACTURING AND SOURCING
Ithaca manufactures its products at 13 plants in the southeastern United
States and Central America, and sources a portion of its products from
contractors located in other countries throughout the world. Goods typically are
produced in anticipation of customer demand and the Company maintains a general
inventory which turned over 3.0 times in the 52-week period ending January 31,
1998. In both its women's hosiery and fabric production facilities, Ithaca has
the flexibility to shift its manufacturing processes easily among many styles,
colors and sizes in response to changes in demand. Approximately 59% of the
Company's men's and boys' and women's and girls' products are either assembled
off-shore from components that are cut in the United States or sourced from the
Far East. Approximately 89% of the Company's women's hosiery products are
produced domestically.
TRADEMARKS, LICENSES AND PATENTS
Ithaca's products are predominantly sold under the private brand names
or trade names of its customers. The Company usually seeks to obtain trademark
registration protection for those private brand names developed by the Company,
although such protection generally is not as
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critical as with branded products. The Company has registered over 48 trademarks
in the United States, and has 5 trademark applications pending as of April 24,
1998.
Ithaca has license agreements permitting it to manufacture and sell
specific underwear products using the trademarks of others. The Company has the
exclusive U.S. license from Hang Ten International to use the Hang Ten trademark
on men's and boys' underwear through January 31, 1999. Ithaca has a license
agreement with International Licensing Corporation to use the Lightning Bolt
trademark on specified underwear products for men through January 31, 1999. The
Company has exclusive U.S. licenses from Salant Corporation to use the Lady
Manhattan trademark on specified women's underwear products through December 31,
1999. Ithaca holds a patent for an Automatic Labeling Machine & Method which
expires on February 3, 2001.
The Company does not believe that the loss of any trademark or license
with respect to any product or products or the expiration or invalidation of any
patent would have a material adverse effect on the overall business of the
Company.
DELIVERY REQUIREMENTS
All purchase orders are taken for current delivery and the Company has
no long-term sales contracts with any customer, or any contract entitling Ithaca
to be the exclusive supplier of merchandise to any retailer. The Company's
standard payment terms are net 30 days and are shipped F.O.B.--distribution
center.
SEASONALITY
The Company does not regard its overall business as highly seasonal.
IMPORTANCE OF MAJOR CUSTOMERS
For the 52-week period ended January 31, 1998, J.C. Penney accounted for
approximately 52% of the total net sales of the Company, compared to nearly 48%
in fiscal 1997. No other customers accounted for 10% or more of net sales in the
52-week period ended January 31, 1998, or the 10-week period ended February 1,
1997 or the 42-week period ended November 22, 1996. The loss of a material
amount of sales to J.C. Penney, or a decline in J.C. Penney's business, or the
loss of one of the Company's other major customers would have a material adverse
effect on Ithaca's Results of Operations.
BACKLOG
The dollar amount of backlog of orders believed to be firm is not
material for an understanding of the business of the Company.
COMPETITION
The underwear and women's hosiery markets in the United States are
highly competitive. The Company's products compete with products manufactured by
other private brand suppliers as well as with products manufactured under
recognized name brands.
Ithaca believes it is the largest manufacturer of private brand
merchandise in its men's underwear and women's hosiery business and the second
largest manufacturer in its women's underwear line, offering a broad selection
of styles, sizes and colors. The private brand underwear and women's hosiery
products business is generally comprised of small scale, privately
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owned companies with limited product lines. However, management is aware of
several large private brand manufacturers with substantial resources. Ithaca's
principal private brand competitors include: Beltex, Springford, Nantucket,
Oneita, Tultex and Delta Woodside in men's and boys' underwear or outerwear
T-shirts; Fitzgerald and Wundies Industries Inc. in women's and girls'
underwear; and Americal Corp., Holt, and Acme-McCrary Corp. in women's hosiery.
The supply of branded underwear and women's hosiery products is
dominated by a few large manufacturers, some of which have substantially greater
financial resources and market recognition than Ithaca. Many of these
manufacturers also produce some private brand underwear and women's hosiery
products. The Company's largest competitors among branded product manufacturers
are: Jockey International Inc. ("Jockey" and "Jockey for Her" brands), Sara Lee
Corp. ("Hanes" and "Hanes Her Way" brands) and Fruit of the Loom, Inc. ("Fruit
of the Loom" and "BVD" brands) in underwear; and Sara Lee Corp. ("Hanes" and
"L'eggs" brands), Kayser-Roth Corp. ("No Nonsense" brand) and Pennaco Hosiery
Inc. ("Round the Clock" brand) in women's hosiery.
Competition in the underwear and women's hosiery products market is
generally based on price, quality and service. The Company believes that it
offers a higher level of merchandising and marketing services to retailers
implementing private brand programs.
IMPORTS AND EXPORT SALES
Ithaca's products compete with goods produced worldwide. Over the past
decade, US imports of underwear and hosiery have increased substantially. US
manufacturers have responded to the influx of lower cost products by shifting
production offshore. Ithaca's management believes that a significant portion of
US imports represent goods for which cut components have been shipped overseas
for assembly. Given the variety of sources for industry data and differences in
categorization, it is difficult to compare retail spending categories to
imports, but according to the American Apparel Manufacturers Association
("AAMA"), imports represented approximately 49% of underwear and 13% of sheer
hosiery sales in calendar 1997, up from approximately 29% and 5%, respectively,
in 1994. The Company believes that it is important to have the capability of
sourcing a portion of its products from outside the United States. The Company
has consolidated certain plants to off-shore facilities and has continued the
process of moving more sewing operations off-shore. The Company has established
four Honduran subsidiaries which operate three sewing plants in that country,
primarily for men's and boys' underwear and outerwear T-shirts. With respect to
women's and girls' underwear, Ithaca sources certain products from the Far East.
The Company's ability to utilize foreign sourcing is dependent on the absence of
political or economic disruptions, quotas, labor disruptions, embargoes or
currency fluctuations in the countries in which the Company sources its
products.
Less than 1% of the Company's sales for the 52-week period ended January
31, 1998 were made to firms outside the United States. The Company believes that
changes in the level of sales outside of the United States would not have a
material adverse effect on Ithaca's Results of Operations.
ENVIRONMENTAL MATTERS
The Company believes that its facilities and operations are
substantially in compliance with current federal, state and local regulations
regarding safety, health and environmental pollution. Ithaca generally has
experienced no difficulty in complying with these regulations and such
compliance has not had a material adverse effect on the Company's capital
expenditures, earnings or competitive position.
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EMPLOYEES
The Company employed approximately 6,000 people as of May 31, 1998, of
which approximately 5,450 were engaged in manufacturing and approximately 480
were engaged in managerial, administrative or sales and marketing functions.
None of the Company's employees are covered by a collective bargaining
agreement. The Company considers its relations with employees to be satisfactory
and has never experienced any interruption of operations due to labor disputes.
PROPERTIES
The Company owns its corporate headquarters in Wilkesboro, North
Carolina. The Company leases sales offices in New York City and Dallas, Texas.
The Company manufactures and distributes its women's and girls' underwear at its
owned facilities in Cairo, Georgia. Cutting and distribution for men's and boys'
underwear and T-shirt products takes place at an owned centralized distribution
and cutting facility in Vidalia, Georgia. Men's and boys' underwear and
outerwear T-shirts are sewn in two owned plants in the southeastern United
States and at three facilities leased by the Company in Honduras. The Company
manufactures and distributes its women's hosiery products at two owned
facilities in North Carolina. Fabric for use in the Company's underwear and
T-shirt products is knit and finished at the Company's owned facility in
Gastonia, North Carolina and narrow fabrics, such as waistbands, are
manufactured at an owned facility in Graham, North Carolina. The Company also
utilizes leased storage facilities at several plant locations. All of the
Company's facilities are kept in good repair and have well-maintained equipment.
LEGAL PROCEEDINGS
From time to time the Company is involved in legal proceedings relating
to claims arising out of its operations in the normal course of business. The
Company believes that there are no material legal proceedings pending or
threatened against the Company or any of its properties.
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DIRECTORS AND MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
The directors and executive officers of the Company are as follows:
NAME AGE PRESENT POSITION WITH THE COMPANY
- -------------------- ------ -----------------------------------------------
Walter J. Branson 38 Director
Marvin B. Crow 65 Director
Francis Goldwyn 44 Director
Morton Handel 63 Director
Jim D. Waller 58 Chairman of the Board, Chief Executive
Officer, President, Director
David N. Weinstein 38 Director
James A. Williams 55 Director
Richard P. Thrush 50 Senior Vice President-Finance and Administration,
Chief Financial Officer, Secretary
David H. Jones 55 Executive Vice President-Sales
R. Dean Riggs 46 Executive Vice President-Manufacturing
Brian F. Slagle 36 Executive Vice President-Hosiery
Brian T. Fearn 56 Treasurer
Walter J. Branson has been a director since 1996. Since 1996, Mr.
Branson has been the Senior Vice President of Development of The Big Party
Corporation, a party supplies retailer. From 1993 to 1996, Mr. Branson was
Senior Vice President and Chief Financial Officer of CWT Specialty Stores, Inc.,
a women's apparel retailer.
Marvin B. Crow has been a director since 1996. Mr. Crow has been the
President since 1989 of KBO Enterprises, Inc., which operates TCBY Yogurt stores
and is involved in management consulting. Mr. Crow also serves on the Board of
Directors of Dyersburg Corporation, National Spinning Company, Inc., The Bibb
Company and Ameritex Fabric Yarn Company.
Francis Goldwyn has been a director since 1996. Mr. Goldwyn for the past
five years has been the President of Chapman Management Inc., a provider of
strategic operating and financial consulting services.
Morton Handel has been a director since 1996. Since 1997, Mr. Handel has
been the President and Chief Executive Officer of Ranger Industries, Inc., an
inactive company. Before 1997, Mr. Handel served as President of S&H Consulting
Ltd., a financial consulting company. Presently, Mr. Handel is a director of
CompUSA, Inc., Concurrent Computer Corp., Toy Biz, Inc. and Ranger Industries,
Inc.
Jim D. Waller has been a director since 1985. Mr. Waller became Chief
Executive Officer of the Company in 1991 and President of the Company in 1987.
David N. Weinstein has been a director since 1996. Mr. Weinstein has
been a Managing Director of the High Yield Capital Markets Group at BancBoston
Securities, Inc. since 1996. From 1993 to 1996, Mr. Weinstein was Managing
Director and Co-Head of the High Yield Capital Markets Group at Chase
Securities, Inc. Mr. Weinstein also serves on the Board of Directors of Homeland
Holding Corporation.
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James A. Williams has been a director since 1996. In December 1997, Mr.
Williams became a board member of Maidenform Worldwide, Inc., a manufacturer of
women's intimate apparel, and became Chairman of the Board in January 1998. In
addition, since 1993 he has been President and Chief Executive Officer of Great
American Knitting Mills, Inc., a division of Biderman Industries, Inc. which
filed for bankruptcy in July 1995. Mr. Williams also serves on the Board of
Directors of The Bibb Company.
Richard P. Thrush joined the Company in March 1998 as Senior Vice
President-Finance and Administration, Chief Financial Officer, Secretary and
Treasurer. Prior to joining Ithaca, Mr. Thrush was the President of Coralstone
Associates, which provides business advisory services to consumer product
companies, since 1997. From 1992 to 1997, Mr. Thrush was the Chairman and Chief
Executive Officer of Block Industries, Inc., a men's sportswear company, which
filed for bankruptcy in July 1996.
David H. Jones joined the Company in January 1997 as Executive Vice
President-Sales. Prior to joining Ithaca, Mr. Jones was with Gerber
Childrenswear, Inc., which manufactures and distributes bed and bath products
and apparel for children, where he served as President and Chief Executive
Officer from 1994 to 1996 and as Vice President-Sales prior thereto.
R. Dean Riggs joined the Company in August 1996 as Executive Vice
President-Manufacturing. Mr. Riggs was previously employed by Sara Lee Knit
Products, which manufactures and distributes men's, women's and children's
underwear and activewear. From 1994 to 1995, Mr. Riggs was Vice
President-Operations Planning, and from 1991 to 1994, Mr. Riggs was Vice
President-Operations and Manufacturing.
Brian F. Slagle joined the Company in March 1998. Prior to joining
Ithaca, Mr. Slagle was the President of Glendale, a manufacturer of women's
hosiery, since 1995. From 1991 to 1995, Mr. Slagle was the Vice President of
Glendale.
Brian T. Fearn joined the Company in May 1995. Prior to being elected
Treasurer in April 1998, he was the Director-Treasury Operations. Mr. Fearn was
previously employed by Quantum Chemical Corporation, a manufacturer and marketer
of petrochemical and energy products. He held numerous positions with that
company and from 1993 to 1994 served as Treasurer and a director of several
subsidiary and joint venture companies. During the same period, he also served
on the board of the Hopewell International insurance syndicate.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has established an Audit Committee and a Compensation and
Stock Option Committee.
The "Audit Committee" is responsible for meeting with representatives of
the Company's independent certified public accountants and financial management
to review accounting, internal control, auditing and financial reporting matters
and is responsible, among other things, for maintaining liaison with and
exercising supervision over the actions of said accountants in whatever manner
and to whatever extent deemed, at its discretion, necessary, proper and in the
best interest of the Company and its stockholders. The Audit Committee consists
of Messrs. Crow, Goldwyn and Handel, three Directors who are not and never have
been employees of the Company.
The "Compensation and Stock Option Committee" is responsible for
reviewing and approving officer and executive salaries and for reviewing and
recommending for approval by
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the Board executive and key employee compensation plans, including incentive
compensation and other benefits and consists of Messrs. Branson, Weinstein and
Williams, all of whom are not and never have been employees of the Company.
DIRECTOR COMPENSATION
Currently, non-employee directors of the Company (Messrs. Branson, Crow,
Goldwyn, Handel, Weinstein and Williams) are paid retainer fees of $20,000 per
year and a fee of $1,500 for each day of Board or committee meetings attended.
Non-employee directors are eligible to participate in the Company's Director
Option Plan. See "Director Option Plan" below. Pursuant to the Director Option
Plan, each person who served as a non-employee director on July 24, 1997 was
granted an option to purchase 1,500 shares of Common Stock at an exercise price
of $6.00 per share and each person who served as a non-employee director on June
11, 1998 was granted an option to purchase 1,500 shares of Common Stock at an
exercise price of $6.00. Each option granted under the Director Option Plan
becomes exercisable on the date immediately preceding the Company's annual
stockholders' meeting which first occurs after the date of grant, provided the
director is in service with the Company on such date. The Company and its
subsidiaries do not pay fees to directors who are employees of the Company or
its subsidiaries.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded, earned or paid
for services rendered in all capacities to the Company and its subsidiaries
during each of the fiscal years 1998, 1997 and 1996 to the Chief Executive
Officer and the other three executive officers of the Company.
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
----------------------------------------- ----------------
Securities
Fiscal Other Annual Underlying No.
Name and Principal Position Year Salary Bonus Compensation of Options
- ---------------------------- ------ ---------- --------- -------------- ----------------
($) ($) ($) (2)
<S> <C> <C> <C> <C> <C>
Jim D. Waller 1998 498,346 0 1,296 0
Chairman, President and Chief 1997 490,988 422,005 1,219 273,224
Executive Officer 1996 490,984 0 1,219 0
R. Dean Riggs(3) 1998 202,326 0 1,293 0
Executive Vice President- 1997 80,641 46,369 0 75,000
Manufacturing 1996 0 0 0 0
David H. Jones(4) 1998 216,614 0 58,549(5) 0
Executive Vice President- 1997 8,267 4,755 0 70,000
Sales 1996 0 0 0 0
Eric N. Hoyle(6) 1998 203,080 0 1,270 0
Sr. Vice President 1997 190,500 109,538 1,219 65,000
Finance & Administration 1996 190,000 0 1,544 0
Chief Financial Officer
</TABLE>
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(1) As the Company only had three executive officers (other than the Chief
Executive Officer), only such three executive officers are included in this
table.
(2) Excluded perquisites and other personal benefits, securities or property
which, in the aggregate did not exceed the lesser of $50,000 or 10% of the
annual salary and bonus for each named executive officer.
(3) Mr. Riggs joined the Company in August, 1996.
(4) Mr. Jones joined the Company in January, 1997.
(5) Includes moving expenses of $58,499.
(6) Mr. Hoyle left the Company in March, 1998.
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company entered into an employment agreement with Jim D. Waller in
February 1997 (the "Employment Agreement"). The Employment Agreement, which
expires on December 31, 1999, calls for Mr. Waller to serve as the Company's
Chief Executive Officer at an annual base salary of $490,000. Mr. Waller is
eligible to participate in the Company's Cash Bonus Plan (as defined below) and
the Company's LTIP.
If Mr. Waller's employment is terminated during the term of the
Employment Agreement, he will be entitled to receive his base salary until
termination. If such termination is without cause (defined as gross negligence
that is materially detrimental to the Company; willful, material, continued and
bad faith failure to perform and discharge his duties and responsibilities; or
conviction of a felony involving personal dishonesty) or if Mr. Waller resigns
for good reason (defined as either a failure to re-elect him as Chief Executive
Officer, an assignment of duties significantly different from Chief Executive
Officer, a material limitation of the powers of Chief Executive Officer, a
reduction in base salary, relocation from Wilkesboro, North Carolina or a
failure to obtain the assumption of the Employment Agreement by a successor),
until the expiration of the Employment Agreement, Mr. Waller will be entitled to
receive 65% of his base salary if his employment terminates during the fiscal
year ending in the third year prior to the expiration date, 80% of his base
salary if his employment terminates during the fiscal year ending in the second
year prior to the expiration date and 100% of his base salary if his employment
is terminated thereafter. In the case of Mr. Waller's death during the term of
the Employment Agreement, his designee, estate, personal or legal
representative, as the case may be, shall be entitled to receive his then
current base salary until the earlier of one year after his death or the date of
expiration of the Employment Agreement. If Mr. Waller is mentally or physically
incapacitated during the term of the Employment Agreement and is unable to
perform his duties, he will be entitled to receive 50% of his base salary until
the earlier of one year after his replacement or the expiration of the
Employment Agreement.
The Employment Agreement contains restrictions on disclosure by Mr.
Waller of confidential information and restricts Mr. Waller's right to compete
with the Company anywhere the Company does business during the term of his
employment and for 24 months thereafter. As described above, the Employment
Agreement is terminable upon the death of Mr. Waller, by the Company for cause
(as defined above), upon disability or by Mr. Waller under certain
circumstances. In addition, unless Mr. Waller's employment is terminated for
cause (as defined above) by the Company, or Mr. Waller terminates his employment
other than for good reason (as defined above), Mr. Waller is entitled to
continue to participate in all group health, medical
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and employee benefits plans and programs to which he was previously entitled for
the remaining term of the Employment Agreement.
CASH BONUS PLAN
Approximately 150 employees, as recommended by management, are eligible
to participate in the Cash Bonus Plan (the "Cash Bonus Plan"). Under the
provisions of the Cash Bonus Plan, 85% of the amount available for cash bonuses
will be paid out if 85% of the target performance level is achieved and will be
increased pro rata as actual performance meets or equals up to 115% of the
Business Plan targets. In fiscal 1998, a bonus of $123,400 was awarded by the
Board at the recommendation of the Compensation and Stock Option Committee.
The following summary is qualified in its entirety by the provisions of
the LTIP, the Directors Option Plan, and the Management Agreement, copies of
which have been filed previously as exhibits to the Registration Statement of
which this prospectus is a part.
LONG-TERM STOCK INCENTIVE PLAN
The stockholders have approved the Ithaca Industries, Inc. 1996
Long-Term Stock Incentive Plan (previously defined as the "LTIP"), to be
administered by the Compensation and Stock Option Committee which is intended to
be comprised of two or more members of the Board each of whom is a "Non-Employee
Director" (within the meaning of Rule 16b-3 promulgated under the Exchange Act)
and an "outside director" (within the meaning of the Internal Revenue Code of
1986, as amended (the "Code") Section 162 (m)) although, the mere fact that the
Compensation and Stock Option Committee does not consist of Non-Employee
Directors and outside directors will not invalidate any awards made by it. Any
officer, other key employee or consultant to the Company or any of its
subsidiaries who is not a member of the Compensation and Stock Option Committee
is eligible to participate in the LTIP. The Compensation and Stock Option
Committee has the sole and complete authority to determine the participants to
whom awards shall be granted ("Participant" or "Participants").
The LTIP authorizes the grant of awards to Participants with respect to
a maximum of 928,962 shares of the Company's Common Stock, which awards may be
made in the form of (1) nonqualified stock options, (2) stock options intended
to qualify as incentive stock options under Section 422 of the Code, (3) stock
appreciation rights, (4) restricted stock and/or restricted stock units, (5)
performance awards and (6) other stock based awards. In any calendar year, a
Participant may not receive stock options or stock appreciation rights for more
than 273,224 of the Company's Common Stock. No more than 109,290 shares of
Common Stock or the equivalent cash value thereof, may be paid to a Participant
in connection with the settlement of any award(s) designated as a Performance
Compensation Award (as defined below) in respect of a single performance period.
Any Performance Compensation Award (as defined below) that is deferred shall not
(between the date that the award is deferred and the payment date), increase (1)
with respect to an award payable in cash, by a measuring factor for each fiscal
year greater than a reasonable rate of interest set by the Compensation and
Stock Option Committee or (2) with respect to an award payable in shares of the
Company, by an amount greater than the appreciation of a share of the Common
Stock from the date such award is deferred to the payment date. If any award
granted under the LTIP is forfeited, or if an award has expired, terminated or
been canceled for any reason whatsoever (other than by reason of exercise or
vesting), then the shares of Common Stock covered by such award may be granted
to another Participant pursuant to the terms of the LTIP, to the maximum extent
permitted under Section 162(m) of the Code.
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<PAGE>
Stock options intended to qualify as incentive stock options will be
subject to terms, conditions and such rules as may be prescribed by Section 422
of the Code. Additionally, nonqualified and incentive stock options granted
under the LTIP shall be subject to such terms, including exercise price and
conditions and timing of exercise, as may be determined by the Compensation and
Stock Option Committee and specified in the applicable award agreement. Payment
in respect of the exercise of an option granted under the LTIP may be made (1)
in cash, (2) its equivalent or if and to the extent permitted by the
Compensation and Stock Option Committee and subject to such rules as may be
established by the Compensation and Stock Option Committee, (3) by exchanging
Common Stock owned by the optionee (which are not the subject of any pledge or
other security interest and which have been owned by such optionee for at least
6 months), (4) through the delivery of irrevocable instructions to a broker to
sell the Common Stock being acquired upon exercise of the option and to deliver
promptly to the Company an amount equal to the aggregate exercise price or (5)
by a combination of the foregoing, provided that the combined value of all cash,
cash equivalents and the fair market value of shares of Common Stock so tendered
to the Company (as of the date of such tender) is at least equal to the
aggregate exercise price of the option.
Stock appreciation rights granted under the LTIP may not be exercisable
earlier than six months after the date of grant but shall otherwise be subject
to such terms, including grant price and conditions and limitations applicable
to exercise as may be determined by the Compensation and Stock Option Committee
and specified in the applicable award agreement. Stock appreciation rights may
be granted in tandem with another award, in addition to another award, or
freestanding and unrelated to another award. A stock appreciation right shall
entitle the Participant to receive an amount equal to the excess of the fair
market value of a share of Common Stock over the grant price on the date of
exercise thereof. The Compensation and Stock Option Committee shall determine
whether a stock appreciation right shall be settled in cash, Common Stock or a
combination of cash and Common Stock.
Restricted stock and restricted stock units granted under the LTIP shall
be subject to such terms and conditions as may be determined by the Compensation
and Stock Option Committee in its sole discretion, including, without
limitation, the duration of the period during which, and the conditions, if any,
under which, the restricted stock and restricted stock units may be forfeited to
the Company. Each restricted stock unit shall have a value equal to the fair
market value of a share of Common Stock. Upon the lapse of the restrictions
applicable thereto, or otherwise in accordance with the applicable award
agreement, restricted stock units shall be paid in cash, shares of Common Stock,
other securities or other property, as determined in the sole discretion of the
Compensation and Stock Option Committee. Dividends paid on any shares of
restricted stock may be paid directly to the participant, withheld by the
Company subject to vesting of the restricted shares or may be reinvested in
additional shares of restricted stock or in additional restricted stock units,
as determined by the Compensation and Stock Option Committee in its sole
discretion.
Performance awards granted under the LTIP shall consist of a right
denominated in cash or shares of Common Stock, payable at such time and in such
form as the Compensation and Stock Option Committee shall determine, payable in
amounts determined by the Compensation and Stock Option Committee, based upon
the achievement of such performance goals during such performance periods as the
Compensation and Stock Option Committee shall establish. Subject to the terms of
the LTIP and any applicable award agreement, the Compensation and Stock Option
Committee shall determine the performance goals to be achieved during any
performance period, the length of any performance period, the amount of any
performance award and the amount and kind of any payment or transfer to be made
pursuant to any performance award. Performance awards may be paid in a lump sum
or in installments following the close of the
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<PAGE>
performance period or, in accordance with procedures established by the
Compensation and Stock Option Committee, on a deferred basis.
In addition to the foregoing types of awards, the Compensation and Stock
Option Committee shall have the authority to grant to Participants an "Other
Stock-Based Award," which shall consist of any right which is (1) not a stock
option, stock appreciation right, restricted stock or restricted unit award or
performance award, and (2) an award of shares of Common Stock or an award
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to, shares of Common Stock (including, without
limitation, securities convertible into shares of Common Stock), as deemed by
the Compensation and Stock Option Committee to be consistent with the purposes
of the LTIP; provided that any such rights must comply, to the extent deemed
desirable by the Compensation and Stock Option Committee, with Rule 16b-3 and
applicable law. Subject to the terms of the LTIP and any applicable award
agreement, the Compensation and Stock Option Committee shall determine the terms
and conditions of any such other stock-based award, including the price, if any,
at which securities may be purchased pursuant to any other stock-based award
granted under the LTIP. In the sole and complete discretion of the Compensation
and Stock Option Committee, an award, whether made as any other stock-based
award or as any other type of award issuable under the LTIP, may provide the
participant with dividends or dividend equivalents, payable in cash, shares of
Common Stock, other securities or other property on a current or deferred basis.
The Compensation and Stock Option Committee shall also have the
discretion to designate any award as a "Performance Compensation Award." While
awards in the form of stock options and stock appreciation rights are intended
to qualify as "Performance-Based Compensation" under Section 162(m) of the Code,
provided that the exercise price or the grant price, as the case may be, is
established by the Compensation and Stock Option Committee to be equal to the
fair market value per share of Common Stock as of the date of grant, this form
of award enables the Compensation and Stock Option Committee to treat certain
other awards under the LTIP as Performance Based Compensation and thus preserve
deductibility by the Company for federal income tax purposes of such awards
which are made to participants in the LTIP.
Each Performance Compensation Award shall be payable only upon
achievement over a specified performance period of a duration of at least one
year of a pre-established objective performance goal established by the
Compensation and Stock Option Committee for such period. The Compensation and
Stock Option Committee may designate one or more performance criteria for
purposes of establishing a performance goal with respect to Performance
Compensation Awards made pursuant to the LTIP. The performance criteria that
will be used to establish such performance goals shall be based on the
attainment of specific levels of performance of the Company (or subsidiary,
affiliate, division or operational unit of the Company) and shall be limited to
the following: return on net assets, return on shareholders' equity, return on
assets, return on capital, shareholder returns, profit margin, EBITDA, earnings
per share, net earnings, operating earnings, price per share, sales or market
share.
With regard to a particular performance period, the Compensation and
Stock Option Committee shall have the discretion, subject to the terms of the
LTIP, to select the length of the performance period, the type(s) of Performance
Compensation Award(s) to be issued, the performance goals that will be used to
measure performance for the period and the performance formula that will be used
to determine what portion, if any, of the Performance Compensation Award has
been earned for the period. Such discretion shall be exercised by the
Compensation and Stock Option Committee in writing no later than 90 days after
the commencement of the period. Performance for the period shall be measured and
certified by the Compensation and Stock Option Committee upon the period's
close. In determining entitlement to payment in
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<PAGE>
respect of a Performance Compensation Award, the Compensation and Stock Option
Committee may through use of negative discretion reduce or eliminate such award,
provided such discretion is permitted under Section 162(m) of the Code. The
Compensation and Stock Option Committee may not use negative discretion with
respect to any option or stock appreciation right other than an option or stock
appreciation right that is intended to be a Performance Compensation Award.
In the event that the Compensation and Stock Option Committee determines
that any corporate transaction or event affects the shares of Common Stock
awarded pursuant to the LTIP, such that an adjustment is appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the LTIP, then the Compensation and Stock Option
Committee shall, in such manner as it may deem equitable, adjust any or all of
(1) the number of shares or other securities of the Company (or number and kind
of other securities or property) with respect to which awards may be granted,
(2) the number of shares of Common Stock or other securities of the Company (or
number and kind of other securities or property) subject to outstanding awards
and (3) the grant or exercise price with respect to any award or (4) if deemed
appropriate, make provision for a cash payment to the holder of an outstanding
award in consideration for the cancellation of such award; provided, in each
case that no such adjustment shall be authorized to the extent such authority
would cause an award designated by the Compensation and Stock Option Committee
as a Performance Compensation Award or an option or stock appreciation right
with an exercise price or grant price (as applicable) equal to the fair market
value of a share of Common Stock to fail to qualify as Performance Based
Compensation.
In the event of a Change of Control of the Company (as defined in the
LTIP), any outstanding awards which are unexercisable or otherwise unvested
shall automatically be deemed exercisable or otherwise vested as of immediately
prior to the Change of Control.
Each award and each right under any award, shall be exercisable only by
the Participant during the Participant's lifetime or if permissible under
applicable law, by the Participant's guardian or legal representative. No award
may be assigned, alienated, pledged, attached, sold or otherwise transferred or
encumbered by a Participant other than by will or by the laws of descent and
distribution and any such purported assignment, alienation, pledge, attachment,
sale, transfer or encumbrance shall be void and unenforceable against the
Company or any affiliate; provided that the designation of a beneficiary shall
not constitute an assignment, alienation, pledge, attachment, sale, transfer or
encumbrance.
The Board of Directors may amend, alter, suspend, discontinue, or
terminate the LTIP or any portion thereof at any time; provided that no such
amendment, alteration, suspension, discontinuation or termination shall be made
without shareholder approval if such approval is necessary to comply with any
tax or regulatory requirement, including for these purposes any approval
requirement which is a prerequisite for exemptive relief from Section 16(b) of
the Exchange Act or Code Section 162(m) (provided that the Company is subject to
the requirements of Section 16 of the Exchange Act or Code Section 162(m), as
the case may be, as of the date of such action).
As of June 29, 1998, options representing 822,811 shares of common stock
are outstanding to 40 individuals and Alvarez & Marsal, Inc. Options
representing 527,734 shares of common stock are outstanding as nonqualified
stock options, of which 356,017 were vested as of June 29, 1998. Options
representing 295,077 shares of common stock are outstanding as performance
compensation awards, of which 123,360 were vested as of June 29, 1998.
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<PAGE>
In addition, the Company presently (1) maintains a medical and dental
benefits plan (the "Medical Plan") which covers substantially all employees and
(2) sponsors a qualified defined contribution retirement plan for its employees
under section 401(k) of the Internal Revenue Code of 1986 (the "Retirement
Plan"). The Medical Plan is funded currently by contributions from the Company
and employees based on anticipated claim costs. Company contributions to the
Retirement Plan are based upon a percentage of the employees' contributions.
DIRECTOR OPTION PLAN
The stockholders have approved the Ithaca Industries 1997 Stock Option
Plan for Non-Employee Directors (previously defined as the "Director Option
Plan"). The Director Option Plan enables the Company to make nonqualified stock
option grants to directors of the Company who are not employees of the Company
or its affiliates. The Director Option Plan was adopted as of May 14, 1997 and
will remain in effect until May 13, 2007 unless sooner terminated by the Board.
The Board may terminate or amend the Director Option Plan at any time, provided
that (1) any such amendment complies with all applicable laws and applicable
stock exchange listing requirements, (2) any amendment or termination for which
stockholder approval is necessary to comply with any tax or regulatory
requirement will not be effective until such approval has been obtained and (3)
no amendment or termination, without the consent of the holder of an option
under the Director Option Plan, may adversely affect the rights of such person
with respect to any option previously granted.
The purpose of the Director Option Plan is to secure for the Company the
benefits of the additional incentive inherent in the ownership of Common Stock
by Non-Employee Directors and to help the Company secure and retain the services
of such Non-Employee Directors. The Director Option Plan is not subject to any
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") or Section 401(a) of the Code. All options granted under the Director
Option Plan will be nonqualified stock options subject to Section 83 of the
Code. The Director Option Plan is intended to be a self-governing formula plan
and to require minimal discretionary action by any administrative body with
regard to related transactions. To the extent, if any, that questions of
administration arise, such questions will be resolved by the Board.
Options representing 45,000 shares of Common Stock ("Director Shares")
are available for award under the Director Option Plan. If, and to the extent
that, options granted under the Director Option Plan terminate, expire or are
canceled for any reason before they are exercised, new options may be granted in
respect of the Director Shares covered by such terminated, expired or canceled
options. In addition, the Director Option Plan provides the Board with
discretion to adjust any or all of (1) the number of shares of Common Stock or
other securities of the Company (or number and kind of other securities or
property) with respect to which options may be granted, (2) the number of shares
of Common Stock or other securities of the Company (or number and kind of other
securities or property) subject to outstanding options and (3) the grant or
exercise price with respect to any option or if deemed appropriate, make
provision for a cash payment to the holder of an outstanding option in
consideration for the cancellation of such option, if the Board determines that
certain corporate transactions or events affect the Director Shares such that an
adjustment would be appropriate in order to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available under the
Director Option Plan.
Pursuant to the Director Option Plan, each person who served as a
Non-Employee Director on July 24, 1997 was granted an option to purchase 1,500
Director Shares and each person who served as a Non-Employee Director on June
11, 1998 was granted an option to
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<PAGE>
purchase 1,500 Director Shares. Thereafter, during the term of the Director
Option Plan, each year, each person who is a Non-Employee Director on the date
immediately after the Company's annual meeting of stockholders will receive an
option to purchase 1,500 shares of Common Stock.
Each option granted under the Director Option Plan will vest and become
exercisable on the date immediately preceding the Company's annual stockholders'
meeting which first occurs after the date of grant, provided that the director
is in the service of the Company on such date. If a director ceases to serve the
Company as a director, any options which have not vested will be canceled by the
Company without consideration.
Each vested option will terminate on the earliest of the following (1)
ten years from the date of grant, (2) one year from the termination of the
optionee's service as a Non-Employee Director due to death or disability (as
defined in the Director Option Plan), (3) six (6) months from the termination of
the optionee's service as a Non-Employee Director due to the expiration (and
non-renewal) of the term for which the optionee was elected to serve, or (4) the
date the optionee is removed as a director or resigns as a director prior to the
end of the term for which such director was elected to serve.
All options granted on July 24, 1997 and June 11, 1998 have an exercise
price of $6.00 per share. If the Common Stock is trading on an over-the-counter
market. The exercise price for any future grants under the Director Option Plan
will be equal to the mean between the reported high and low sales prices of the
Common Stock on the date immediately preceding the date of grant, or if there
were no sales on such date, on the closest preceding date on which there were
sales of Common Stock; however, if the Common Stock is not trading on an
over-thecounter-market, the exercise price of an Annual Director Option will be
the fair market value of a share of Common Stock as of the date such option is
granted, as determined in good faith by the Board.
Any Director Shares purchased are to be paid for in cash, or its
equivalent or (1) by exchanging Common Stock owned by the optionee (which are
not the subject of any pledge or other security interest and which have been
owned by such optionee for at least 6 months), (2) subject to such rules as may
be established by the Board, through delivery of irrevocable instructions to a
broker to sell the Common Stock deliverable upon the exercise of the option and
to deliver promptly to the Company an amount equal to the aggregate exercise
price or (3) by a combination of the foregoing, provided that the combined value
of all cash and cash equivalents and the fair market value of any Common Stock
so tendered to the Company, as of the date of such tender, is at least equal to
such aggregate exercise price.
In the event of a Change of Control, any outstanding awards then held by
an optionee which are unexercisable or otherwise unvested will automatically be
deemed exercisable or otherwise vested immediately prior to such Change of
Control.
Director Shares may be shares of authorized and unissued Common Stock,
issued Common Stock held in the Company's treasury or both. In the case of any
purchase of Common Stock that is not made on the open market, no fee, commission
or other charge will be paid.
During the optionee's lifetime, only the optionee (or, if permissible
under applicable law, the optionee's legal guardian or representative) may
exercise an option. Furthermore, no option may be assigned, alienated, pledged,
attached, sold or otherwise transferred or encumbered by an optionee other than
by will or by the laws of descent and distribution, and any such purported
assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall
be void and
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unenforceable against the Company or any of its affiliates, provided that the
designation of a beneficiary shall not constitute an assignment, alienation,
pledge, attachment, sale, transfer or encumbrance.
COMPENSATION AND STOCK OPTION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION IN COMPENSATION DECISIONS
During the Company's last fiscal year there were no Compensation and
Stock Option Committee interlocks or insider participation in compensation
decisions.
CONSULTING ARRANGEMENTS
During parts of fiscal 1997 and 1998, Alvarez & Marsal, Inc. and the
Company were party to a Management Agreement, pursuant to which Peter Cheston
served as the Company's Acting Chief Operating Officer at a monthly fee of
$35,000. Mr. Cheston received remuneration from Alvarez & Marsal, Inc. and was
not compensated by the Company directly. In addition, Alvarez & Marsal, Inc.
received an option to purchase 109,290 shares of the Company's Common Stock as
of January 24, 1997 at an exercise price of $6.00 per share and received
$313,950 under the Cash Bonus Plan. As of the date of this Prospectus, Alvarez &
Marsal, Inc. has not exercised any portion of its option. The Management
Agreement was terminated on August 15, 1997.
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DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The Company's authorized capital stock consists of 30,000,000 shares
including 2,500,000 shares of Preferred Stock, par value $.01 per share and
27,500,000 shares of Common Stock, par value of $.01 per share. American Stock
Transfer & Trust Company is the transfer agent and registrar for the Common
Stock. As of May 2, 1998, 10,400,000 shares of Common Stock were issued and
outstanding. Pursuant to the LTIP, options representing a maximum of 928,962
shares of Common Stock may be awarded. Pursuant to the Director Option Plan,
options representing a maximum of 45,000 shares of Common Stock may be awarded.
Of the options issued pursuant to the LTIP (including the Shares issued to
Alvarez & Marsal, Inc.) and the Director Option Plan, options representing
479,377 shares are exercisable as of June 29, 1998. See "Employment and
Consulting Agreements" for a description of the terms and conditions of options
distributed pursuant to the LTIP or the Director Option Plan.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 2,500,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares constituting any
series or the designation of such series. The issuance of Preferred Stock could
adversely affect the voting power of holders of Common Stock and could have the
effect of delaying, deferring or preventing a change in control of the Company.
The Company has no present plan to issue any shares of Preferred Stock.
COMMON STOCK
The holders of the Common Stock are entitled to one vote for each share
held of record and shall vote as a single class on all matters on which
stockholders are entitled to vote. There are no cumulative voting rights in the
election of directors. The quorum required at any stockholders' meeting for
consideration of any matter is a majority of all outstanding shares entitled to
vote, represented in person or by proxy. All matters will be decided by a
majority of the votes cast at stockholder meetings by holders of shares present
in person or by proxy who are entitled to vote.
Holders of the Common Stock are entitled to receive dividends when, as
and if declared by the Board out of funds legally available for dividends. See
"Risk Factors--Dividends" and "Dividend Policy." In the event of any
liquidation, dissolution or winding up of the Company, the holders of the Common
Stock are entitled to receive pro rata any assets distributable to stockholders
in respect of shares of Common Stock held by them, after payment of all
obligations of the Company. The holders of Common Stock are not entitled to
pre-emptive rights to any securities issued by the Company.
The Shares offered hereby are duly authorized, validly issued, fully
paid and nonassessable.
The Company is authorized to issue additional shares of capital stock
from time to time. There are no specific restrictions upon such issuances,
except that the Company's Certificate prohibits the issuance of non-voting
equity securities if, and only to the extent that and so long as, Section 1123
of the Bankruptcy Code is applicable and would prohibit such issuance.
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STOCKHOLDERS RIGHT PLAN
On July 10, 1998, the Board of Directors of Ithaca Industries, Inc. (the
"Company") declared a dividend distribution of one right (a "Right") for each
outstanding share of Common Stock of the Company to stockholders of record at
the close of business on July 23, 1998 (the "Record Date") (the "Stockholders
Right Plan"). The adoption of the Stockholders Right Plan is likely to make it
more difficult for a third party to acquire the Company or large portions of its
Common Stock.
Except as set forth below, each Right entitles the registered holder to
purchase from the Company one one-hundredth of a share of Series A Preferred
Stock, par value $0.01 per share ("Series A Shares"), at a price of $30.00 (the
"Purchase Price"), subject to adjustment. The Purchase Price shall be paid in
cash. The description and terms of the Rights are set forth in a rights
agreement (the "Rights Agreement") between the Company and American Stock
Transfer & Trust Company, as Rights Agent.
Initially, no separate Right Certificates (as defined below) will be
distributed. Until the earlier to occur of (a) 10 business days following a
public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the outstanding Common Stock or (b) 15
business days following the commencement of a tender offer or exchange offer if,
upon consummation hereof, such person or group would be the beneficial owner of
15% or more of such outstanding Common Stock (the earlier of such dates being
called the "Separation Date"), the Rights will be evidenced, with respect to any
Common Shares outstanding as of the Record Date, by the certificates
representing such Common Shares. The Rights Agreement provides that, until the
Separation Date, the Rights will be transferred with, and only with, Common
Stock certificates. From as soon as practicable after the Record Date and until
the Separation Date (or earlier redemption or expiration of the Rights), new
Common Stock certificates issued after the Record Date upon transfer or new
issuance of Common Stock will contain a notation incorporating the Rights
Agreement by reference. Until the Separation Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates for
Common Stock outstanding as of the Record Date will also constitute the transfer
of the Rights associated with the Common Stock represented by such certificates.
As soon as practicable following the Separation Date, separate certificates
evidencing the Rights ("Right Certificates") will be mailed to holders of record
of the Common Stock as of the close of business on the Separation Date and,
thereafter, such separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Separation Date and will expire
on July 10, 2008, unless earlier redeemed by the Company as described below.
In the event that, at any time following the Separation Date, (a) the
Company is the surviving corporation in a merger with an Acquiring Person and
the Company's Common Stock is not changed or exchanged, (b) a person (other than
the Company and its affiliates) becomes an Acquiring Person and also becomes the
beneficial owner of 20% or more of the then outstanding Common Stock in any
manner, (c) an Acquiring Person engages in one or more "self-dealing"
transactions as set forth in the Rights Agreement or (d) during such time as
there is an Acquiring Person, an event occurs that results in such Acquiring
Person's ownership interest being increased by more than one percent (e.g., a
reverse stock split), the Rights Agreement provides that proper provision shall
be made so that each holder of a Right will thereafter be entitled to receive,
upon exercise, Common Stock (or, in certain circumstances, cash, property
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or other securities of the Company) having a value equal to two times the
exercise price of the Right.
In the event that, at any time following the first date of public
announcement by the Company or an Acquiring Person indicating that an Acquiring
Person has become such (the "Shares Acquisition Date"), (a) the Company engages
in a merger or other business combination transaction in which the Company is
not the surviving corporation, (b) the Company engages in a merger or other
business combination transaction with another person in which the Company is the
surviving corporation, but in which its Common Stock is changed or exchanged or
(c) 50% or more of the Company's assets or earning power is sold or transferred,
the Rights Agreement provides that proper provision shall be made so that each
holder of a Right shall thereafter have the right to receive, upon the exercise
thereof at the then current exercise price of the Right, common shares of the
acquiring company having a value equal to two times the exercise price of the
Right.
The Board may, at its option, at any time after the right of the Board
to redeem the Rights has expired or terminated (with certain exceptions),
exchange all or part of the then outstanding and exercisable Rights (other than
those held by the Acquiring Person and Affiliates and Associates of the
Acquiring Person) for Common Stock at a ratio of one Share per Right, as
adjusted; provided, however, that such Right cannot be exercised once a Person,
together with such Person's Affiliates and Associates, becomes the owner of 50%
or more of the outstanding Common Stock. If the Board authorizes such an
exchange, the Rights will immediately cease to be exercisable.
Notwithstanding any of the foregoing, following the occurrence of any of
the events set forth in the fourth and fifth paragraphs of this section, any
Rights that are, or (under certain circumstances specified in the Rights
Agreement) were, beneficially owned by any Acquiring Person shall immediately
become null and void. The Rights Agreement contains provisions intended to
prevent the utilization of voting trusts or similar arrangements that could have
the effect of rendering ineffective or circumventing the beneficial ownership
rules set forth in the Rights Agreement.
The Purchase Price payable, and the number of Series A Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (a) in the event of a dividend
of Series A Shares on, or a subdivision, combination or reclassification of, the
Series A Shares, (b) upon the grant to holders of the Series A Shares of certain
rights or warrants to subscribe for Series A Shares or securities convertible
into Series A Shares at less than the current market price of the Series A
Shares or (c) upon the distribution to holders of the Series A Shares of debt
securities or assets (excluding regular quarterly cash dividends and dividends
payable in Series A Shares) or of subscription rights or warrants (other than
those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares that are not integral multiples of one
one-hundredth of a Series A Share will be issued and, in lieu thereof, an
adjustment in cash will be made based on the closing price of the Series A
Shares on the last trading date prior to the date of exercise.
At any time after the date of the Rights Agreement until 10 Business
Days (a period that can be extended) following the Shares Acquisition Date, the
Board of Directors of the Company (the "Board"), may redeem the Rights in whole,
but not in part, at a price of $0.01 per Right, subject to adjustment (the
"Redemption Price"). Thereafter, the Board may only redeem the
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Rights in certain specified circumstances including in connection with certain
events not involving an Acquiring Person or an Affiliate or Associate of an
Acquiring Person. In addition, the Company's right of redemption may be
reinstated if (a) an Acquiring Person reduces its beneficial ownership to 10% or
less of the outstanding Common Shares in a transaction or series of transactions
not involving the Company and (b) there is at such time no other Acquiring
Person. The Rights Agreement may also be amended, as described below, to extend
the period of redemption. Immediately upon the action of the Board ordering
redemption of the Rights, the Rights will no longer be exercisable, except upon
the occurrence of certain events that have the effect of deferring the effective
time of the redemption. In general, thereafter the only right of the holders of
Rights will be to receive the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to shareholders or to the Company, shareholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Stock (or other consideration) of the Company or for
common shares of the Acquiring Person as set forth above.
Other than those provisions relating to the principal economic terms of
the Rights or imposing limitations on the right to amend the Agreement, any of
the provisions of the Rights Agreement may be amended by the Board. Thereafter,
the period during which the Rights may be redeemed may be extended (by action of
the Board), and other provisions of the Rights Agreement may be amended by
action of the Board; provided, however, that (a) such amendment will not
adversely affect the interests of holders of Rights (excluding the interests of
any Acquiring Person) and (b) no amendment shall be made at such time as the
Rights are no longer redeemable (except for the possibility of the right of
redemption being reinstated as described above).
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE AND AMENDED AND RESTATED BY-LAWS
Certain provisions of the Certificate and the Amended and Restated
By-laws ("By-laws") of the Company summarized below may be deemed to have an
anti-takeover effect and may delay, defer or prevent a tender offer or takeover
attempt that a stockholder might consider in its best interest, including an
attempt that might result in a premium over the market price for shares held by
stockholders.
The following summary is qualified in its entirety by the provisions of
the Company's Certificate and By-laws, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.
The Certificate or By-laws provide that (1) that no director may be
removed from office during his term except for cause, (2) vacancies on the Board
may be filled only by the remaining directors and not by the stockholders, (3)
any action required or permitted to be taken by the stockholders may only be
taken at an annual or special meeting of the stockholders and stockholder action
by written consent in lieu of a meeting is prohibited, (4) special meetings of
stockholders may be called only by a majority of the Board, by the Chairman of
the Board or the President of the Company, (5) stockholders are not permitted to
call a special meeting or require that the Board call a special meeting of
stockholders, (6) the nomination of candidates for election as directors, other
than by or at the direction of the Board, requires advance notice and (7) the
consideration of stockholder proposals at annual meetings of stockholders
requires advance notice. In general, notice of intent to nominate a director or
raise business at such meetings must be received by the Company not less than 60
or more than 90 days prior to the anniversary of the
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previous year's annual meeting and must contain certain information concerning
the person to be nominated or the matters to be brought before the meeting and
concerning the stockholder submitting the proposal.
The By-laws provide that the Board is to consist of seven (7) members.
The terms of the directors, one of whom pursuant to the Plan of Reorganization
is Jim D. Waller, Chief Executive Officer of the Company, will expire at the
annual meeting of the stockholders of the Company next following the Company's
fiscal year ending January 30, 1999. For the relevant period, it is possible
that such provisions may make it more difficult to accomplish transactions which
stockholders may otherwise deem to be in their best interest. Such provisions
may be deemed to have an anti-takeover effect and may delay, defer or prevent a
tender offer or takeover attempt that might result in the receipt of a premium
over the market price for the securities held by stockholders.
CERTAIN PROVISIONS OF DELAWARE LAW
Section 203 of the DGCL ("Section 203") prohibits, subject to certain
exceptions specified therein, certain transactions between a Delaware
corporation and an Interested Stockholder (as defined below) of a Delaware
corporation. An Interested Stockholder may not engage in any business
combination, including mergers, consolidations or acquisitions of additional
shares of the corporation having an aggregate value in excess of 10% of the
consolidated assets of the corporation and certain transactions that would
increase the Interested Stockholder's proportionate share ownership in the
corporation, for a three-year period following the date on which such
stockholder becomes an Interested Stockholder unless (1) prior to such date, the
Board approved either the business combination or the transaction which resulted
in the stockholder becoming an Interested Stockholder, (2) upon consummation of
the transaction which resulted in the stockholder becoming an Interested
Stockholder, the Interested Stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced (excluding
certain shares), or (3) on or subsequent to such date, the business combination
is approved by the Board and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66-2/3% of the outstanding
voting stock which is not owned by the Interested Stockholder. Except as
otherwise specified in Section 203, an "Interested Stockholder" is defined to
include (a) any person that is the owner of 15% or more of the outstanding
voting stock of the corporation, or is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting stock of
the corporation at any time within three years immediately prior to the relevant
date and (b) the affiliates and associates of any such person.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an Interested Stockholder to effect various business
combinations with a corporation for a three-year period, although the
stockholders may elect to exclude a corporation from the restrictions imposed
thereunder. The Certificate does not exclude the Company from the restrictions
imposed under Section 203. The provisions of Section 203 may encourage companies
interested in acquiring the Company to negotiate in advance with the Board
because the stockholder approval requirement would be avoided if a majority of
the directors then in office approve the business combination of the transaction
which results in the stockholder becoming an Interested Stockholder. Such
provisions also may have the effect of preventing changes in the management of
the Company. It is possible that such provisions could make it more difficult to
accomplish transactions which stockholders may otherwise deem to be in their
best interests.
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REGISTRATION RIGHTS AGREEMENT
The Company entered into a Registration Rights Agreement, dated as of
the Effective Date of the Plan of Reorganization, with certain holders of Common
Stock pursuant to which the Company agreed to use its reasonable best efforts to
file within 90 days after the consummation of the Plan of Reorganization a
Registration Statement, use its reasonable best efforts to cause the Shelf
Registration to be declared effective and to keep such Shelf Registration
continuously effective until the earlier of the disposition of all Registrable
Securities and three (3) years after the initial date of the Shelf Registration;
provided, however, that Ithaca will be permitted to suspend the availability of
the Self Registration for up to ninety (90) days during any twelve-month period
and, during any period in which Ithaca is not eligible to use Form S-3 for the
Shelf Registration, for such additional reasonable periods as are necessary to
cause any post-effective amendments to the Shelf Registration to become
effective. The Shelf Registration may not be used to effect any underwritten
offering unless such an offering relates to a Demand Registration (as defined
below). Ithaca will pay certain expenses in connection with registrations made
under the Shelf Registration (which expenses will not include, unless such
registration is a Demand Registration, any fees or expenses of counsel for any
holder of Registerable Securities ("Holder" or "Holders").
Ithaca will also effect up to three (3) registrations (the "Demand
Registrations") at the request of the Designated Holders (as defined in the
Registration Rights Agreement) in the event the Shelf Registration is
unavailable or in the case of an underwritten offering, at the request of the
Approved Underwriter (as defined below); provided, however, that no such Demand
Registration is required to be effected earlier than one-hundred eighty (180)
days after the effective date of any Registration Statement (other than the
Shelf Registration or a Registration Statement on Form S-4 or From S-8 (or any
successor form thereto)) of Ithaca, under the Securities Act, covering
securities of the same class as any Registrable Securities. The Registration
Rights Agreement provides that, subject to certain conditions, Butler and The
Northwestern Mutual Life Insurance Company ("Northwestern") will each have the
right to request one (1) Demand Registration. Designated Holders owning at least
20% of the Registrable Securities held by all of the Designated Holders will
have the right to request the remaining one (1) Demand Registration; provided,
however, that Northwestern and the Butler Noteholders shall not be included as a
requesting Holder in determining whether Holders holding at least 20% of the
Registrable Securities have requested such Demand Registration unless such
Holder shall have previously exercised or forfeited prior to exercise its right
to request its Demand Registration described in the preceding sentence; and,
provided, further, however, that for each Demand Registration described in the
preceding sentence that shall have been forfeited prior to exercise, the number
of Demand Registrations permitted to be made as described in this sentence shall
be increased by one. The Butler Noteholders sold their Notes prior to the
execution of the Registration Rights Agreement and, accordingly, the Company
believes that they are deemed to have forfeited their right to request a Demand
Registration.
Pursuant to the Registration Rights Agreement, Ithaca is required to use
its best efforts to file a Demand Registration within sixty (60) days after the
period within which requests for registration may be given to Ithaca. Ithaca has
the right, in the case of a Demand Registration, to postpone the filing or
effectiveness of, or to withdraw, any Registration Statement if in the good
faith judgment of its Board, such registration would materially interfere with
any material financing, acquisition, corporate reorganization or merger or other
transaction involving Ithaca or any subsidiary thereof; provided, however, that
such postponement or withdrawal will last only for so long as such material
interference would exist, but in no event for more than one-hundred eighty (180)
days.
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The Holders initiating a Demand Registration (the "Initiating Holders")
owning a majority of the Registrable Securities owned by the Initiating Holders
to be included in the registration may elect to cause a Demand Registration to
be underwritten, in which case, the lead or managing underwriter (the "Approved
Underwriter") made pursuant to a Demand Registration will be selected by Ithaca
and must be reasonably acceptable to the Initiating Holders owning a majority of
the Registrable Securities owned by the Initiating Holders to be included in the
registration. Other Holders will, and Ithaca and other persons holding
registration rights in certain circumstances may, be permitted to participate in
a Demand Registration. Notwithstanding the foregoing sentence, if the Approved
Underwriter determines that the aggregate amount of securities requested to be
included in such offering is sufficiently large to have an adverse effect on the
success of such offering, then Ithaca will include in such registration only the
aggregate amount of Registrable Securities that in the opinion of the Approved
Underwriter may be sold without any such effect on the success of such offering
(the "Approved Underwriter Amount") and (1) if the number of Registrable
Securities to be included in such registration is greater than the Approved
Underwriting Amount, then each Holder will be entitled to have included in such
registration Registrable Securities equal to its pro rata portion of the
Approved Underwriter Amount, based on the amounts of Registrable Securities and
neither Ithaca nor any person who is not a Holder will not be permitted to
include any securities therein, and (2) to the extent that the number of
Registrable Securities to be included by the Holders is less than the Approved
Underwriter Amount, securities that Ithaca and any person who is not a Holder
proposes to register may also be included. Ithaca will pay substantially all
expenses in connection with the Demand Registration (including certain fees and
expenses of a single counsel for all Holders participating in such
registration).
If Ithaca proposes to file or files a Registration Statement under the
Securities Act with respect to an offering by Ithaca for its own account of any
class of security (other than a Registration Statement on Form S-4 or S-8 (or
any successor form thereto)) under the Securities Act, then Ithaca will offer
the Holders the opportunity to register the number of Registrable Securities as
each such Holder may request. Subject to certain conditions, Ithaca will use its
best efforts to permit the Holders to include such Registrable Securities in
such offering on the same terms and conditions as the securities of Ithaca
included therein. Notwithstanding the foregoing, if such registration involves
an underwritten offering and the managing underwriter or underwriters (the
"Company Underwriter") determines that the total amount of securities requested
to be included in such offering (the "Total Securities") is sufficiently large
so as to have an adverse effect on the success of the distribution of the Total
Securities, then, Ithaca will include in such registration, to the extent of the
number of Registrable Securities which Ithaca is so advised can be sold in (or
during the time of) such offering without having such adverse effect, first, all
Common Stock or securities convertible into, or exchangeable or exercisable for
Common Stock that Ithaca proposed to register for its own account, second, all
securities proposed to be registered by the Holders, pro rata among such
Holders, and third, all other securities proposed to be registered. Ithaca will
pay certain expenses attributable to the Holders in connection with such
registrations (which expenses will not include any fees or expenses of counsel
for any Holder).
Ithaca will indemnify and hold harmless each Holder, its directors,
officers, partners, employees, advisors and agents, and each Person who controls
(within the meaning of the Securities Act or the Exchange Act) such Holder, to
the extent permitted by law, from and against any and all losses, claims,
damages, expenses (including, without limitation, reasonable costs of
investigation and fees, disbursements and other charges of counsel) or other
liabilities resulting from or arising out of or based upon any untrue or alleged
untrue statement of a material fact contained in any Registration Statement,
Prospectus, preliminary Prospectus, notification or offering circular (as
amended or supplemented if Ithaca has furnished any
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amendments or supplements thereto) or other disclosure document or arising out
of or based upon any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
except insofar as the same are caused by or contained in any information
furnished in writing to Ithaca by or on behalf of such Holder expressly for use
therein. Ithaca will also indemnify any underwriters of the Registrable
Securities, their officers, directors and employees and each person who controls
any such underwriter (within the meaning of the Securities Act and the Exchange
Act) to the same extent as provided above with respect to the indemnification of
the Holders of Registrable Securities.
Each Holder agrees to indemnify and hold harmless Ithaca, any
underwriter retained by Ithaca and their respective directors, officers,
employees, advisors, agents and each person who controls (within the meaning of
the Securities Act and the Exchange Act) Ithaca or such underwriter to the same
extent as the foregoing indemnity from Ithaca to the Holders (subject to the
proviso to this sentence and applicable law), but only with respect to any
information furnished in writing by or on behalf of such Holder expressly for
use therein; provided, however, that the liability of any Holder will be limited
to the amount of the net proceeds received by such Holder in the offering giving
rise to such liability.
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SELLING STOCKHOLDERS
The following tables provide certain information with respect to the
Common Stock held by each Selling Stockholder, which information has been
furnished to the Company by the Selling Stockholders and other sources and which
the Company has not verified. Because the Selling Stockholders may sell all or
some part of the Common Stock which they hold pursuant to this Prospectus and
the fact that this offering is not being underwritten on a firm commitment
basis, no estimate can be given as to the amount of Common Stock that will be
held by the Selling Stockholders upon termination of this Offering. See "Plan of
Distribution." The Common Stock offered by this Prospectus may be offered from
time to time in whole or in part by the persons named below or by their
transferees, as to whom applicable information will, to the extent required, be
set forth in a Prospectus Supplement.
Amount to be
Amount of Stock offered for
owned prior to Stockholder's
Name Offering Account
- ---- --------------- --------------
The Northwestern Mutual
Life Insurance Company 2,400,000 1/2/ 2,400,000 1/2/
Northwestern Mutual Series Fund, Inc. 136,000 3/ 136,000 3/
Merrill Lynch, Pierce Fenner & Smith
Incorporated 1,252,080 1,252,080
- ------------------------------
1/ Includes 120,000 shares of Common Stock held in The Northwestern Mutual
Life Insurance Company Group Annuity Separate Account.
2/ See the Selling Stockholder listed immediately following for additional
shares of Common Stock which The Northwestern Mutual Life Insurance
Company indirectly beneficially owns as the parent of Northwestern
Mutual Series Fund, Inc.
3/ Held in its High Yield Bond Portfolio.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the names and addresses of the only
persons known to the Company as of July 15, 1998 to be the beneficial owners
(individually, each "Owner") of more than five percent of the Company's
outstanding Common Stock and the number of shares of Common Stock so owned, to
the Company's knowledge, as of such date. Such information is based upon a
Schedule 13D or Schedule 13G filed by each Owner with the Securities and
Exchange Commission (the "Commission").
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
OF MORE THAN FIVE PERCENT OF OUTSTANDING SHARES
Name and Address Amount and Nature of Percent of
of Beneficial Owner Beneficial Ownership Class (1)
- ------------------- -------------------- ----------
The Northwestern Mutual Life 2,536,000 shares (2) 24.38%
Insurance Company
720 East Wisconsin Ave.
Milwaukee, WI 53202
DDJ Capital Management LLC 1,820,920 shares (3) 17.5%
141 Linden Street, Suite 4
Wellesley, MA 02181
Merrill Lynch & Co. 1,252,080 shares (4) 12.04%
Merrill Lynch, Pierce
Fenner & Smith, Incorporated
World Financial Center
250 Vesey St.
New York, NY 10281
The Equitable Companies 967,520 shares (5) 9.3%
Incorporated
1290 Ave of the Americas
New York, NY 10104
Morgan Stanley, Dean Witter, 770,800 shares (6) 7.41%
Discover & Co.
1585 Broadway
New York, NY 10036
Pacholder Associates, Inc. 764,400 shares (7) 7.35%
8044 Montgomery Road
Suite 382
Cincinnati, Ohio 45236
(1) Percentages are based upon the 10,400,000 shares of Common Stock
outstanding at April 23, 1998. Percentages disclosed in the Schedule 13Gs
submitted by each Owner are based on the number of shares of Common Stock
outstanding at or before December 31, 1997, which was 10,000,000 shares.
(2) Based on information contained in a Schedule 13G filed with the Commission
as of February 10, 1998, Northwestern Mutual Life Insurance Company claimed
sole voting power and sole dispositive power with respect to 2,280,000
shares and shared voting power and shared dispositive power with respect to
256,000 shares. Of the 2,536,000 shares of Common Stock listed in such
schedule, 136,000 shares of Common Stock are owned by the High Yield Bond
Portfolio of Northwestern Mutual Series Fund, Inc., a wholly owned
subsidiary of the Northwestern Mutual Life Insurance Company and 120,000
shares of Common Stock are held in
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the Northwestern Mutual Life Insurance Company Group Annuity Separate
Account. Such schedule also reports that Northwestern Mutual Investment
Services, Inc., an indirect wholly owned subsidiary of The Northwestern
Mutual Life Insurance Company serves as an investment advisor to the High
Yield Bond Portfolio.
(3) Based on information contained in a Schedule 13D filed with the Commission
as of May 20, 1998, DDJ Capital Management, LLC claimed sole voting power
and sole dispositive power with respect to all 1,820,920 shares of Common
Stock. The Galileo Fund, L.P. and DDJ Galileo, LLC claimed sole voting and
sole dispositive power over 396,000 shares of Common Stock, Kepler Overseas
Corp. claimed sole voting and sole dispositive power over 4,000 shares of
Common Stock and B III Capital Partners, L.P. and DDJ Capital III, LLC
claimed sole voting and sole dispositive power over 1,420,920 shares of
Common Stock. According to such schedule, of such 1,820,920 shares of
Common Stock, the Galileo Fund, L.P. owns, and DDJ Galileo, LLC and DDJ
Capital Management, LLC beneficially own, as general partner and investment
manager, respectively, of The Galileo Fund, L.P., 396,000 shares of Common
Stock, Kepler Overseas Corp. owns, and DDJ Capital Management, LLC, as
investment manager for Kepler Overseas Corp. beneficially owns, 4,000
shares of Common Stock and B III Capital Partners, L.P. owns, and DDJ
Capital III, LLC and DDJ Capital Management, LLC beneficially own, as
general partner and investment manager, respectively, of B III Capital
Partners, L.P., 1,420,920 shares of Common Stock. Other than Kepler
Overseas Corp., whose principal office is c/o Goldman Sachs (Cayman),
Harbour Centre, Georgetown, Post Office Box 896, Grand Cayman Islands, all
such entities' principal office is located at 141 Linden Street, Suite 4,
Wellesley, MA 53202.
(4) Based on information contained in a Schedule 13G filed with the Commission
as of May 9, 1997, Merrill Lynch & Co. and Merrill Lynch, Pierce, Fenner &
Smith, Incorporated claimed shared voting power and shared dispositive
power with respect to all 1,252,080 shares.
(5) Based on information contained in a Schedule 13G filed jointly by The
Equitable Companies Incorporated, Alpha Assurances Vie Mutuelle, AXA
Assurances I.A.R.D Mutuelle, AXA Assurances Vie Mutuelle, AXA Courtauge
Assurance Mutuelle and AXA-UAP with the Commission as of February 10, 1998,
each such entity claimed sole voting power and sole dispositive power with
respect to all 967,520 shares of Common Stock. Such Schedule further
indicates all 967,520 shares are held by Donaldson, Lufkin & Jenrette
Securities Corporation, a subsidiary of the Equitable Companies
Incorporated.
(6) Based on information contained in a Schedule 13G by filed with the
Commission as of February 13, 1998, Morgan Stanley, Dean Witter, Discover &
Co. claimed shared voting power and shared dispositive power with respect
to all 770,800 shares of Common Stock, of which Morgan Stanley & Co.,
International Limited, a subsidiary of Morgan Stanley, Dean Witter,
Discover & Co. claimed shared voting power and shared dispositive power
with respect to 520,800 shares of Common Stock. Morgan Stanley & Co.
International Limited principal place of business is 25 Cabot Square,
Canary Wharf, London, E14 4QA, England.
(7) Based on information contained in a Schedule 13G filed with the Commission
as of April 23, 1988, Pacholder Associates, Inc. claimed sole voting power
and sole dispositive power with respect to all 764,400 shares.
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The following table sets forth, as of July 15, 1998, the beneficial
ownership of the Company's Common Stock by: (a) the Company's executive officers
named in the Summary Compensation Table below, (b) directors and (c) all
executive officers and directors as a group. The following information was
furnished by the respective directors or officers or obtained from the records
of Ithaca.
SECURITY OWNERSHIP OF MANAGEMENT
Shares Which
Number of May Be Total Shares
Shares Acquired Within Beneficially Percent of
Name Owned 60 Days (1) Owned Class (2)
- ---- ------- ------------- ------------ ----------
Jim D. Waller 8,000 136,611 144,611 1.36%
R. Dean Riggs 2,000 37,500 39,500 *
David H. Jones 6,000 34,999 40,999 *
Eric N. Hoyle(3) 0 32,499 32,499 *
Walter J. Branson 0 1,500 1,500 *
Marvin C. Crow 0 1,500 1,500 *
Francis Goldwyn 0 1,500 1,500 *
Morton E. Handel 1,000 1,500 2,500 *
Richard P. Thrush(4) 2,000 0 2,000 *
David N. Weinstein 2,000 1,500 3,500 *
James A. Williams 0 1,500 1,500 *
-------- -------- ------------ ----------
All directors and
officers as a group
(10 persons) 19,000 250,609 269,609 2.54%
- ---------------
* Less than 1%
(1) Includes options to purchase shares within 60 days of June 19, 1998.
(2) Percentages are based upon the number of shares of Ithaca Common Stock
outstanding at April 25, 1998, which was 10,400,000 shares, plus the number
of shares that the group above had a right to acquire within 60 days of
April 21, 1998.
(3) As of April 21, 1998, Mr. Hoyle was no longer an executive officer of the
Company.
(4) Mr. Thrush, the Company's current Secretary and Chief Financial Officer,
was not employed by the Company at its 1998 fiscal year end.
53
<PAGE>
PLAN OF DISTRIBUTION
Of the Shares included in this Prospectus, 10,000,000 were distributed
on a pro rata basis to holders of the Notes, which were retired pursuant to the
Plan of Reorganization under which the Company emerged from bankruptcy on
December 16, 1996. An option to purchase 109,290 of the Shares was issued to
Alvarez & Marsal, Inc. pursuant to the Management Agreement as a portion of the
compensation for the turnaround-management and financial restructuring advisory
services rendered the Company.
The Company will receive no proceeds from this offering. The Common
Stock may be sold from time to time to purchasers directly by any of the Selling
Stockholders. Alternatively, any of the Selling Stockholders may from time to
time, offer the Common Stock through underwriters, dealers or agents, who may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Selling Stockholders and/or the purchasers of Common Stock
for whom they may act as agent. The Selling Stockholders and any underwriters,
dealers or agents that participate in the distribution of Common Stock may be
deemed to be underwriters and any profit on the sale of Common Stock by them and
any discounts, commissions or concessions received by any such underwriters,
dealers or agents might be deemed to be underwriting discounts and commissions
under the Securities Act. If the Company is advised that an underwriter has been
engaged with respect to the sale of any Common Stock offered hereby or in the
event of any other material change in the plan of distribution, including but
not limited to, the intention of any such underwriter to engage in passive
market making or stabilizing transactions, the Company will cause appropriate
amendments to the Registration Statement of which this Prospectus forms a part
to be filed with the Commission reflecting such engagement or other change. See
"Additional Information."
At the time a particular offer of Common Stock is made, to the extent
required, a Prospectus Supplement will be provided by the Company and
distributed by the relevant Selling Stockholder which will set forth the
aggregate amount of Common Stock being offered and the terms of the offering,
including the name or names of any underwriters, dealers or agents, any
discounts, commissions and other items constituting compensation from the
Selling Stockholders, any discount, commissions or concessions allowed or
reallowed or paid to dealers, or any intention by underwriters, if any, to
engage in passive market making or stabilizing transactions.
The Common Stock may be sold from time to time in one or more
transactions at a fixed offering price, which may be changed, or at varying
prices determined at the time of sale or at negotiated prices. Such prices will
be determined by the Selling Stockholders or by agreement between the Selling
Stockholders and underwriters or dealers.
Through the date hereof, there has been no established public trading
market for the Common Stock. The Shares were issued to the holders of the Notes
pursuant to the Plan of Reorganization and the Management Agreement. Application
was made to list the Common Stock on the NASDAQ National Market. This
application was withdrawn because the Company was advised by NASDAQ that it
would not qualify. The Company intends to reapply if and when it believes it
meets the criteria. There can be no assurance that this will occur. There can be
no assurance that any active trading market will develop or will be sustained
for the Common Stock or as to the price at which the Common Stock may trade or
that the market for the Common Stock will not be subject to disruptions that
will make it difficult or impossible for the holders of Common Stock to sell
Common Stock in a timely manner, if at all, or to recoup their investment in the
Common Stock. See "Risk Factors--Liquidity; Absence of Market for Common Stock"
and "Risk Factors--Effect of Future Sales of Common Stock; Registration Rights."
54
<PAGE>
Under applicable rules and regulations under the Exchange Act any person
engaged in a distribution of Common Stock may not simultaneously engage in
market-making activities with respect to such Common Stock for a period of nine
business days prior to the commencement of such distribution and ending upon the
completion of such distribution. In addition to and without limiting the
foregoing, each Selling Stockholder will be subject to applicable provisions of
the Exchange Act and the rules and regulations thereunder, including without
limitation Regulation M, which provisions may limit the timing of purchases and
sales of any of the Common Stock by the Selling Stockholders. All of the
foregoing may affect the marketability of the Common Stock and the ability of
any person or entity to engage in market-making activities with respect to the
Common Stock.
Pursuant to the Registration Rights Agreement, the Company is obligated
to pay substantially all of the expenses incident to the registration, offering
and sale of the Common Stock of the Selling Stockholders to the public other
than commissions and discounts of underwriters, dealers or agents. The Selling
Stockholders and any underwriter they may utilize, and their respective
controlling persons are entitled to be indemnified by the Company against
certain liabilities, including liabilities under the Securities Act. See
"Description of Capital Stock --Registration Rights Agreement."
LEGAL MATTERS
Certain legal matters regarding the Shares were passed upon for the
Company by Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York.
EXPERTS
The consolidated financial statements and schedule of the Company as of
January 31, 1998 and February 1, 1997 and for the year ended January 31, 1998;
the 10-week period ended February 1, 1997; the 42-week period ended November 22,
1996 and the year ended February 2, 1996, have been included herein and in the
Registration Statement in reliance upon the reports of KPMG Peat Marwick LLP
("KPMG"), independent certified public accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing. In
addition, the consolidated financial statements of Glendale as of and for the
year ended December 27, 1997 have been included herein and in the Registration
Statement in reliance upon the report of KPMG, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.
The report of KPMG covering the November 22, 1996 consolidated financial
statements of the Company contains an explanatory paragraph that states the
Company emerged from bankruptcy and as of November 22, 1996 adopted fresh-start
reporting in accordance with the American Institute of Certified Public
Accountants Statement of Position 90-7 "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code."
The financial statements of Glendale for the years ended December 28,
1996 and December 30, 1995 included herein and in the Registration Statement
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein, and have been so included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
55
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report of KPMG Peat Marwick
LLP dated March 27, 1998.............................................. F-3
Audited Consolidated Balance Sheets as of January 31, 1998
and February 1, 1997.................................................. F-4
Audited Consolidated Statements of Operations for the Year
ended January 31, 1998; the 10-Week Period ended February 1, 1997;
the 42-Week Period ended November 22, 1996; and for the Year ended
February 2, 1996...................................................... F-5
Audited Consolidated Statements of Stockholders' Equity (Deficit)
for the Year ended January 31, 1998; the 10-Week Period ended
February 1, 1997; the 42-Week Period ended November 22, 1996;
and for the Year ended February 2, 1996............................... F-6
Audited Consolidated Statements of Cash Flows for the Year ended
January 31, 1998; the 10-Week Period ended February 1, 1997; the
42-Week Period ended November 22, 1996; and for the Year ended
February 2, 1996...................................................... F-7
Notes to Consolidated Financial Statements for the Years ended
January 31, 1998 and February 1, 1997................................. F-9
Independent Auditor's Report of KPMG Peat Marwick LLP dated
March 24, 1998........................................................ F-27
Audited Glendale Hosiery Company Balance Sheet as of
December 27, 1997..................................................... F-28
Audited Glendale Hosiery Company Statement of Earnings for the Year ended
December 27, 1997................................. .................... F-29
Audited Glendale Hosiery Company Statement of Shareholders'
Equity for the Year ended December 27, 1997........................... F-30
Audited Glendale Hosiery Company Statement of Cash Flows for
the Year ended December 27, 1997...................................... F-31
Notes to Glendale Hosiery Financial Statements for the Year
ended December 27, 1997............................................... F-32
Independent Auditors' Report of Deloitte & Touche LLP dated
February 17, 1997..................................................... F-37
Audited Glendale Hosiery Company Balance Sheets as of
December 28, 1996 and December 30, 1995............................... F-38
Audited Glendale Hosiery Company Statements of Earnings for
the Years ended December 28, 1996 and December 30, 1995............... F-39
Audited Glendale Hosiery Company Statements of Shareholders'
Equity for the Years ended Equity December 28, 1996
and December 30, 1995................................................. F-40
F-1
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS (cont'd)
Audited Glendale Hosiery Company Statements of Cash Flows
for the Years ended December 28, 1996 and December 30, 1995........... F-41
Notes to Glendale Hosiery Company for the Years ended
December 28, 1996 and December 30, 1995............................... F-42
Pro Forma Condensed Consolidated Financial Statements Summary.............. F-47
Unaudited Pro Forma Condensed Statement of Income for the Year ended
January 31, 1998...................................................... F-48
Unaudited Pro Forma Condensed Statement of Operations for
the Thirteen Weeks ended May 2, 1998.................................. F-49
Unaudited Consolidated Balance Sheets as of May 2, 1998.................... F-50
Unaudited Consolidated Statements of Operations for the
Thirteen Weeks ended May 2, 1998 and May 3, 1997...................... F-51
Unaudited Consolidated Statements of Cash Flows for the
Thirteen Weeks ended May 2, 1998 and May 3, 1997..................... F-52
Notes to Consolidated Financial Statements for the
Thirteen Weeks ended May 2, 1998 and May 3, 1997...................... F-53
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Ithaca Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Ithaca
Industries, Inc. and subsidiaries as of January 31, 1998 and February 1, 1997,
and the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the year ended January 31, 1998; the 10-week
period ended February 1, 1997; the 42-week period ended November 22, 1996; and
the year ended February 2, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ithaca Industries,
Inc. and subsidiaries as of January 31, 1998 and February 1, 1997, and the
results of their operations and their cash flows for the year ended January 31,
1998; the 10-week period ended February 1, 1997; the 42-week period ended
November 22, 1996; and the year ended February 2, 1996, in conformity with
generally accepted accounting principles.
On December 16, 1996, the Company emerged from bankruptcy. As described in note
1 to the consolidated financial statements, the Company accounted for the
reorganization as of November 22, 1996 and adopted fresh-start reporting in
accordance with the American Institute of Certified Public Accountants Statement
of Position 90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code. As a result, the consolidated financial statements as of
January 31, 1998 and for the year then ended and as of February 1, 1997 and for
the ten-week period then ended present the financial position, results of
operations, and cash flows of the reorganized entity and are, therefore, not
comparable to the consolidated financial statements for periods prior to the
Company's emergence from bankruptcy.
/s/ KPMG PEAT MARWICK LLP
-------------------------
KPMG PEAT MARWICK LLP
Atlanta, Georgia
March 27, 1998
F-3
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1998 AND FEBRUARY 1, 1997
(In thousands, except share data)
<TABLE>
<CAPTION>
January 31, February 1,
Assets (Note 5) 1998 1997
---------------- ------------- ------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 680 $ 66
Trade accounts receivable, net of allowance for doubtful
accounts of $765 at January 31, 1998 and $1,256 at
February 1, 1997 (note 8) 21,561 26,486
Inventories (note 3) 57,036 65,680
Prepaid expenses and other current assets 454 876
Assets held for disposition, net of estimated reserves
notes 3 and 12) 213 3,755
------------- ------------
Total current assets 79,944 96,863
------------- ------------
Net property, plant, and equipment (note 4) 34,115 35,531
Other assets:
Intangible assets, net of accumulated amortization of $374 and
$91 at January 31, 1998 and February 1, 1997,
respectively 980 362
Other, net 951 931
------------- ------------
$ 115,990 $ 133,687
============= ============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current installments of long-term debt (notes 5, 9, and $3) $ 13 $ 70
Accounts payable 10,102 10,742
Accrued payroll and related expenses 7,860 11,396
Accrued restructuring costs (note 12) 995 2,106
Income taxes payable (note 6) 3,667 3,073
Deferred income taxes (note 6) 4,424 2,255
Other accrued expenses 1,387 3,698
------------- ------------
Total current liabilities 28,448 33,340
Long-term debt, excluding current installments, due to related
parties (notes 5, 9, and 13) 20,036 9,710
Long-term debt, excluding current installments (notes 5, 9, and
13) 33,483 56,359
Deferred income taxes (note 6) 13,128 14,919
------------- ------------
Total liabilities 95,095 114,328
------------- ------------
Stockholders' equity (deficit):
Preferred stock, $.01 par value 2,500,000 shares authorized,
none issued -- --
Common stock, $0.01 par value; authorized 27,500,000
shares; issued and outstanding 10,000,000 shares at
January 31, 1998 and February 1, 1997 100 100
Additional paid-in capital 22,106 22,016
Accumulated deficit (1,221) (2,757)
------------- ------------
Total stockholders' equity 20,895 19,359
------------- ------------
Commitments and contingencies (notes 5, 8, 10, and 11) $ 115,990 $ 133,687
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JANUARY 31, 1998; 10-WEEK PERIOD ENDED FEBRUARY 1, 1997;
42-WEEK PERIOD ENDED NOVEMBER 22, 1996; AND YEAR ENDED FEBRUARY 2, 1996
(In thousands, except share data)
<TABLE>
<CAPTION>
Post-Confirmation Pre-Confirmation
---------------------------------- -------------------------------------
10-Week Period 42-Week Period
Year ended ended February 1, ended Year ended
January 31, 1998 1997 November 22, 1996 February 2, 1996
---------------- ------------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net sales (note 8) $ 237,021 $ 42,708 $ 297,603 $ 398,819
Cost of sales (note 3) 202,368 38,221 255,543 353,937
------------- ------------- ------------- -------------
Gross profit 34,653 4,487 42,060 44,882
Selling, general, and administrative expenses
(notes 7, 10, and 11) 26,052 7,354 27,670 43,486
(Recovery of) provision for asset write-downs
and restructuring (note 12) -- -- (2,964) 51,591
------------- ------------- ------------- -------------
Operating income (loss) 8,601 (2,867) 17,354 (50,195)
------------- ------------- ------------- -------------
Other income (deductions):
Interest expense - related parties
(contractual interest of $3,252 at
November 22, 1996) (1,781) (196) (2,597) (3,918)
Interest and other, net of interest income of
$95, $81, $164, and $237, at
January 31, 1998; February 1, 1997
November 22, 1996; and February 2,
1996, respectively (contractual interest,
of $17,512 at November 22, 1996) (5,094) (1,189) (14,892) (22,987)
Other, net 613 95 625 299
------------- ------------- ------------- -------------
(6,262) (1,290) (16,864) (26,606)
------------- ------------- ------------- -------------
Income (loss) before reorganization
items, income taxes, and
extraordinary item 2,339 (4,157) 490 (76,801)
Reorganization items:
Adjustments to fair value -- -- 3,765 --
Professional fees and other -- -- (2,589) --
------------- ------------- ------------- -------------
Income (loss) before income taxes and
extraordinary item 2,339 (4,157) 1,666 (76,801)
Income tax (expense) benefit (note 6) (803) 1,400 (4,218) 27,157
------------- ------------- ------------- -------------
Income (loss) before extraordinary
item 1,536 (2,757) (2,552) (49,644)
Extraordinary item - gain on debt discharge of
$90,980 before income taxes of $23,056 at
November 22, 1996 (notes 1 and 6) -- -- 67,924 --
------------- ------------- ------------- -------------
Net income (loss) $ 1,536 $ (2,757) $ 65,372 $ (49,644)
============= ============= ============= =============
Basic and dilutive net income (loss) per
common share $ 0.15 $ (0.28)
============= =============
Weighted-average common shares outstanding 10,000,000 10,000,000
============= =============
See accompanying notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEAR ENDED JANUARY 31, 1998; 10-WEEK PERIOD ENDED FEBRUARY 1, 1997;
42-WEEK PERIOD ENDED NOVEMBER 22, 1996; AND YEAR ENDED FEBRUARY 2, 1996
(In thousands, except share data)
<TABLE>
<CAPTION>
Shares Total
-------------------------------
Additional Retained stockholders'
Post- Common paid-in earnings equity
Pre-Cofirmation Confirmation Stock capital (deficit) (deficit)
--------------- ------------ ----- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 27, 1995 1,000 -- $ -- $ 9,000 $ (52,914) $ (43,914)
Net loss -- -- -- -- (49,644) (49,644)
------------- ----------- -------- -------- ----------- ----------
Balance at February 2, 1996 1,000 -- -- 9,000 (102,558) (93,558)
Net income for 42-week period
ended November 22, 1996
(Pre-Confirmation) -- -- -- 65,372 65,372
Effect of reorganization:
Elimination of accumulated
deficit -- -- -- 37,186 37,186
Cancellation of
Pre-Confirmation shares (1,000) -- -- (9,000) -- (9,000)
Issuance of Post-Confirmation
shares -- 10,000,000 100 22,016 -- 22,116
------------- ----------- -------- -------- ----------- ----------
Balance at November 22, 1996
(Post-Confirmation) -- 10,000,000 100 22,016 -- 22,116
Net loss for 10-week period ended
February 1, 1997 -- -- -- -- (2,757) (2,757)
------------- ----------- -------- -------- ----------- ----------
Balance at February 1, 1997 -- 10,000,000 100 22,016 (2,757) 19,359
Net income for year ended
January 31, 1998 -- -- -- -- 1,536 1,536
------------- ----------- -------- -------- ----------- ----------
Balance at January 31, 1998 -- 10,000,000 $ 100 $22,016 $ (1,221) $ 20,895
------------- =========== ======== ======== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JANUARY 31, 1998; 10-WEEK PERIOD ENDED FEBRUARY 1, 1997;
42-WEEK PERIOD ENDED NOVEMBER 22, 1996; AND YEAR ENDED
FEBRUARY 2, 1996 (In thousands, except share data)
<TABLE>
<CAPTION>
Post-confirmation Preconfirmation
-----------------------------------------------------------------------------
10-Week Period 42-Week Period
Year ended ended February 1, ended Year ended
January 31, 1998 1997 November 22,-1996 February 2, 1996
------------------ ----------------- ----------------- ------------------
Cash provided by operating activities:
<S> <C> <C> <C> <C>
Net income (loss) $ 1,536 $ (2,757) $ 65,372 $ (49,644)
Adjustments to reconcile net income (loss) to
net cash provided by operations:
(Recovery of) provision for asset
write-downs and restructuring -- -- (2,964) 40,623
Gain on debt discharge -- -- (90,980) --
Net adjustments in accounts for fair value -- -- (3,765) --
Provision for reorganization items -- -- 2,589 --
Depreciation and amortization of property,
plant, and equipment 5,038 853 6,936 8,713
Provision for (recovery of) doubtful
accounts (491) (252) 293 --
Amortization of intangible assets, deferred
debt expense, and discount on
subordinated notes 374 91 1,568 5,521
Provision for deferred taxes 378 (1,396) 31,578 (15,486)
(Gain) loss on sale of property, plant, and
equipment (153) -- (292) 22
Changes in operating assets and liabilities
before the effects of restructuring
reclassifications:
Trade accounts receivable 5,416 19,108 (13,011) 4,668
Inventories 8,644 3,026 (646) 12,071
Prepaid expenses and other assets (590) (264) 14,204 (13,495)
Assets held for disposition 3,542 (781) 18,523 --
Accounts payable (640) (1,744) (3,928) (725)
Accrued payroll and related expenses (3,536) (3,347) 4,408 (941)
Other accrued expenses (2,828) (1,811) 1,469 6,390
------------------ ----------------- ----------------- ------------------
Net cash provided by (used in)
operating activities 16,690 10,726 31,354 (2,283)
------------------ ----------------- ----------------- ------------------
Cash flows from investing activities:
Proceeds from sale of property, plant, and
equipment 740 59 949 219
Additions to property, plant, and
equipment (4,209) (797) (3,248) (13,887)
Decrease (increase) in other assets -- -- -- 1,251
-- -- -- -----
------------------ ----------------- ----------------- ------------------
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
Post-confirmation Preconfirmation
-----------------------------------------------------------------------------
10-Week Period 42-Week Period
Year ended ended February 1, ended Year ended
January 31, 1998 1997 November 22,-1996 February 2, 1996
------------------ ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Net cash used in investing activities (3,469) (738) (2,299) (12,417)
------------ ----------- ----------- -----------
Cash flows from financing activities:
Repayment of long-term debt $ (12,607) $ (11,251) $ (38,095) $ (19,462)
Proceeds from long-term debt -- -- -- 37,000
------------ ----------- ----------- -----------
Net cash (used in) provided by
financing activities (12,607) (11,251) $ (38,095) 17,538
------------ ----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents 614 (1,263) (9,040) 2,838
Cash and cash equivalents at beginning
period 66 1,329 10,369 7,531
------------ ----------- ----------- -----------
Cash and cash equivalents at end of period
$ 680 $ 66 $ 1,329 $ 10,369
============ =========== =========== ==========
Supplemental disclosures -- net cash paid
(received) during the period for:
Income taxes
$ (165) $ (360) $ (16,835) $ 1,224
============ =========== =========== ==========
Interest paid to related parties
$ 1,782 $ 301 $ 379 $ 2,654
============ =========== =========== ==========
Interest paid to others
$ 4,450 $ 1,690 $ 7,632 $ 16,309
============ =========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998 AND FEBRUARY 1, 1997
(In thousands, except share data)
(1) Reorganization and Emergence from Chapter 11 Bankruptcy
On December 16, 1996 (the "Effective Date"), Ithaca Industries, Inc.
emerged from proceedings under Chapter 11 of the United States Bankruptcy Code
("Chapter 11") pursuant to a Prepackaged Chapter 11 Plan of Reorganization (the
"Plan"), which was confirmed by United States Bankruptcy Court for the District
of Delaware (the "Bankruptcy Court") on November 22, 1996 (the "Confirmation
Date"). The Plan implemented a financial restructuring whereby approximately
$125,000 ($124,625, net of original issue discount) of previously outstanding
Senior Subordinated Notes (the "Notes") and related accrued interest, which were
subject to settlement under the Plan were exchanged for approximately 10,000,000
shares of new common stock (the "Common Stock") issued by the Company in
connection with the reorganization. Additionally, the Company's Credit Agreement
was amended and restructured. The restructured long-term debt outstanding after
consummation of the Plan is secured by substantially all of the assets of the
Company. All previously outstanding common stock was canceled, annulled, and
extinguished.
Pursuant to the Plan, the Company's certificate of incorporation and
bylaws were amended and restated in their entirety by the Amended and Restated
Certificate of Incorporation (the "Certificate") and the Amended and Restated
Bylaws (the "Bylaws") to provide, among other things, for the restructuring of
the Company's equity capitalization under the Plan. As of the Effective Date of
the Plan, the Company was authorized to issue 27,500,000 of the Company's $.01
par value, common stock of which an aggregate of 10,000,000 shares was issued
and distributed pursuant to the Plan. An aggregate of 928,962 shares of common
stock was reserved for issuance pursuant to the 1996 Long-Term Stock Incentive
Plan (the "Stock Plan").
The Company's Certificate authorized 2,500,000 shares of preferred stock
with $.01 par value. The Board of Directors is authorized, upon two-thirds
affirmative vote, to issue preferred stock subject to restrictions contained in
the Amended and Restated Credit Agreement ("Amended Agreement"), in one or more
series, for any purpose permitted by law, and is authorized to fix the
designations, power, rights, and preferences of the preferred stock. The
Certificate provides that the Company will not issue any nonvoting equity
securities to the extent prohibited by the Bankruptcy Code. The Certificate may
be amended in accordance with applicable law to remove the prohibition.
During fiscal 1996, as a result of diminished operating performance and
profitability, the Company incurred covenant defaults under the Credit
Agreement. In addition, the Company did not make the December 15, 1995 and June
15, 1996 scheduled interest payments due on the Notes or scheduled quarterly
principal payments due under the Credit Agreement on January 31, April 30, and
July 31, 1996. As a result of negotiations between the Company's creditors,
owners, and management, the parties agreed to effect a financial restructuring
and, accordingly, on October 8, 1996 (the "Petition Date"), the Company filed a
voluntary petition for relief under Chapter 11 in the Bankruptcy Court. The
Company filed the Plan to consummate a financial restructuring that had been
negotiated among the Company, its Noteholders and parties to the Credit
Agreement, and the sole stockholder of the Company's outstanding stock. The
Company
F-9
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
was operated as a debtor-in-possession subject to the supervision of the
Bankruptcy Court until December 16, 1996.
The Company continued to pay its trade creditors and other debt
obligations in the ordinary course of business while under the supervision of
the Bankruptcy Court.
Fresh-Start Reporting
For financial reporting purposes, the effective date of the Company's
emergence from Chapter 11 was assumed to be November 22, 1996. In accordance
with AICPA Statement of Position 90-7, Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code ("SOP 90-7"), the Company adopted
"Fresh-Start Reporting," including the terms of the Amended Agreement and
reflected the effects of such adoption in the consolidated financial statements
as of November 22, 1996. The Post-Confirmation consolidated financial statements
have been separated from the Preconfirmation amounts by a bold line to signify
that the PostConfirmation consolidated financial statements are those of a new
reporting entity and have been prepared on a basis not comparable to prior
periods.
The Company adopted Fresh-Start Reporting because holders of existing
voting shares before filing and confirmation of the Plan received less than 50%
of the voting shares of the emerging entity and its reorganization value was
less than its post-petition liabilities and allowed claims. The adjustments to
reflect the consummation of the Plan, include the pretax gain on debt discharge
of $90,980 (principally accrued interest and principal of the Notes) and the
adjustment of $3,765 to record assets and liabilities at their estimated fair
values, have been reflected in the accompanying consolidated statements of
operations for the 42-week period ended November 22, 1996. Deferred taxes of
approximately $23,056 were provided as a result of the debt discharge and the
resulting reductions to the tax bases of assets in accordance with Section 108
of the Internal Revenue Code.
The reorganization value of the Company was determined by management
utilizing several factors and various valuation methods, including discounted
cash flows, cash flow multiple ratios, and other applicable ratios.
Reorganization value generally approximates fair value of the entity before
considering liabilities and approximates the amount a willing buyer would pay
for the assets of the entity after the restructuring. The primary valuation
methodology employed to determine the reorganization value of the Company was a
net present value approach. The estimated unleveraged reorganization value of
the Company was computed using a discounted cash flow analysis. This analysis
included the present values of (i) the discounted projected free cash flows of
the Company through fiscal year 1999, (ii) the discounted terminal value of the
Company at the end of that 1999 fiscal year, and (iii) projected excess cash on
hand at the Confirmation Date. For purposes of discounting values, a discount
rate of 9.5% was utilized throughout the analysis. The terminal value was based
upon a 3.5% growth factor in perpetuity with a 6% terminal discount rate.
F-10
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
Based on information from parties-in-interest and from the Company's
financial advisors, the total reorganization value of the Company was estimated
to be $155,993 at November 22, 1996. The estimated reorganization value of the
Company was allocated to specific asset categories as follows:
Current assets $ 118,858
Property and equipment 35,647
Other noncurrent assets 1,488
------------
$ 155,993
============
All payments and distributions required by the Plan to be made by the
Company with respect to repetition claims against the Company have been made or
provided for at November 22, 1996, and no further material recourse to the
Company is available to any person with respect to any repetition claims.
The effect of the Plan and the implementation of Fresh-Start Reporting
on the Company's consolidated balance sheet as of November 22, 1996 was as
follows:
<TABLE>
<CAPTION>
Preconfirmation Post-confirmation
balance sheet at Adjustments to balance sheet at
November 22, record the Plan at Fair value November 22,
1996 confirmation(a) adjustments(b) 1996
----------------- ------------------ --------------- -----------------
<S> <C> <C> <C> <C>
Cash $ 1,329 $ -- $ -- $ 1,329
Other current assets 117,802 (13,549) 13,276 117,529
Property, plant, and
equipment 139,026 -- (103,379) 35,647
Accumulated depreciation 89,876 -- 89,876 --
---------- --------- --------- ---------
Net property, plant, and
equipment 49,150 -- (13,503) 35,647
---------- --------- --------- ---------
Other long-term assets 1,035 -- -- 1,035
Other intangible assets 3,042 (2,589) -- 453
---------- --------- --------- ---------
$ 172,358 $ (16,138) $ (227) $ 155,993
========== ========= ========= =========
</TABLE>
F-11
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
<TABLE>
<CAPTION>
Preconfirmation Post-confirmation
balance sheet at Adjustments to balance sheet at
November 22, record the Plan at Fair value November 22,
1996 confirmation(a) adjustments(b) 1996
----------------- ------------------ --------------- -----------------
<S> <C> <C> <C> <C>
Current long-term debt $ 202,016 $ (201,881) $ -- $ 135
Other current liabilities 55,847 (8,723) (3,992) 43,132
Long-term debt -- 77,255 -- 77,255
Noncurrent deferred income 6,651 5,198 1,506 13,355
taxes
Stockholders' equity
(deficit) (92,156) 112,013 2,259(c) 22,116
------------ --------------- ----------- ----------
$ 172,358 $ (16,138) $ (227) $ 155,993
============ =============== =========== ==========
</TABLE>
- ---------------
(a) To record the forgiveness of the notes, the issuance of common stock, and
the related income tax effects pursuant to the Plan.
(b) To record the adjustments to assets and liabilities to their estimated fair
value.
(c) Net adjustment to equity consists of net fair value adjustments of $3,765
less related income tax effects of $1,506.
F-12
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(2) Summary of Significant Accounting Policies and Practices
(a) Description of Business and Basis of Presentation
The Company is a manufacturer of private-label underwear and women's
hosiery products, operating distribution and manufacturing facilities in the
Southeastern United States and off-shore manufacturing facilities in Central
America. Additionally, the Company sources some of its production from various
contractors worldwide. The Company has two principal product lines: men's and
women's underwear and outerwear T-shirts and women's hosiery. The Company
markets its products through a wide range of national and regional retail
distribution channels, including discount stores, department stores, specialty
stores, drug stores, and supermarkets. The majority of the Company's raw
materials are readily available and are not dependent upon a single supplier.
(b) Principles of Consolidation
These consolidated financial statements include the financial statements
of Ithaca Industries, Inc. and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
(c) Cash and Cash Equivalents
Cash balances at year-end reflect short-term interest-earning deposits,
net of outstanding checks. Cash balances also include overdraft amounts for
which the right of offset with other accounts exists. For purposes of the
statement of cash flows, the Company considers all highly liquid debt
instruments purchased with an initial maturity of three months or less to be
cash equivalents. Cash and cash equivalents include interest-earning deposits of
$680 and $66 at January 31, 1998 and February 1, 1997, respectively.
(d) Inventories
Inventories consist of raw materials, work in process, and finished
goods relating to manufacturing operations and are valued at the lower of cost
or market with cost determined using the last-in, first-out (LIFO) method.
(e) Property, Plant, and Equipment
Property, plant, and equipment acquired after November 22, 1996 are
stated at cost. Upon emergence from Chapter 11, the Company adopted Fresh-Start
Reporting effective November 22, 1996 and, accordingly, all property, plant, and
equipment at November 22, 1996 was recorded at its estimated fair value and
historical accumulated depreciation was eliminated. Depreciation and
amortization expense of property, plant, and equipment is calculated using the
straight-line method over the estimated remaining useful lives of the assets as
follows:
F-13
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
Buildings 25-30 years
Property improvements 5-10 years
Machinery and equipment 3-8 years
Vehicles 3 years
(f) Intangibles and Other Assets
Intangible and other assets consist of patents, organizational costs,
deferred debt expense, and deferred acquisition costs and are amortized over
their respective remaining terms. On an ongoing basis, management reviews the
valuation and amortization of intangible assets. As part of the review,
management estimates fair values based upon recent historical results and
expected future results, taking into consideration events or circumstances which
might affect their fair values.
Deferred debt expenses are amortized over the term of the loans to which
the expenses relate. As a result of the adoption of Fresh-Start Reporting and
the related amendment of the Credit Agreement, the unamortized balance of
deferred debt expense was included in reorganization expense for the 42-week
period ended November 22, 1996.
(g) Revenue Recognition
Sales are recognized at the time the related goods are shipped.
(h) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Prior to its emergence from Chapter 11, the Company was included in an
affiliated group and the Company's Federal taxable income was included in such
group's consolidated tax return. Pursuant to a tax sharing agreement with the
former Parent, the Company recognized income tax expense or benefit as if it
were to file separate Federal, state, or local income tax returns. The Company
entered into the Intercompany Compromise and Settlement Agreement which included
a provision that terminated the tax sharing agreement effective November 22,
1996.
F-14
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(i) Stock Option Plan
Effective November 22, 1996, with the adoption of its stock option plan,
the Company adopted Statement of Financial Accounting Standards No. 123 (SFAS
No. 123), Accounting for Stock-Based Compensation, which permits the Company to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 also permits the
Company to apply the provisions of APB Opinion No. 25 where compensation expense
would be recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price of the option and provide pro forma
net income and pro forma income per share disclosures for stock option grants
made in future years as if the fair-value based method defined in SFAS No. 123
had been applied. The Company has elected to apply the provisions of APB Opinion
No. 25 and provide the pro forma disclosures required by SFAS No. 123.
(j) Fiscal Year
The Company's fiscal year ends on the Saturday closest to the end of
January. The results of operations for the year ended January 31,1998 reflect a
52-week period (fiscal 1998). The results of operations for fiscal 1997 include
the 10-week period ended February 1, 1997 (post-confirmation) and the 42-week
period ended November 22, 1996 (preconfirmation). The results of operations for
the year ended February 2, 1996 reflect a 53-week period (fiscal 1996).
(k) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at period-end and revenues and expenses for
the periods ended to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates.
(l) Net Income Per Share
In fiscal 1998, the Company adopted Statement of Financial Accounting
Standards No. 128, Earnings Per Share, which established new standards for
computing and presenting earnings per share information. Basic earnings per
share are calculated based upon the weighted-average number of common shares
outstanding during the year. Diluted earnings per share are based upon the
weighted-average number of common shares and dilutive common equivalent shares
outstanding during the year. All potential dilutive common equivalent shares
relate to the Company's stock option plan. Potential dilutive common equivalent
shares are excluded from weighted-average shares outstanding where their impact
is antidilutive.
F-15
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(3) Inventories
Inventories consist of the following:
January 31, February 1,
1998 1997
---------------- ---------------
Raw materials and supplies $13,142 $15,607
Work-in-process 14,625 12,381
Finished goods 29,519 41,278
------- -------
57,286 69,266
Less excess of FIFO over LIFO cost 250 --
Less inventory included in assets
held for disposition,
net (note 13) -- 3,586
-------- --------
$57,036 $65,680
======== ========
Upon adoption of Fresh-Start Reporting at November 22, 1996, the excess
of first-in, first-out (FIFO) over LIFO cost was adjusted to zero as inventories
were restated to their estimated fair value. The adjustment has been included in
fair value adjustments in note 1.
During the year ended January 31, 1998, the 42-week period ended
November 22, 1996, and the year ended February 2, 1996, LIFO inventory layers
were liquidated. This liquidation resulted in charging lower inventory costs
prevailing in prior years to cost of sales, thus reducing cost of sales by $71,
$1,367, and $271, respectively, which is lower than the amount that would have
resulted from replacing the liquidated inventory at end of period prices on
those dates.
(4) Property, Plant, and Equipment
Property, plant, and equipment consist of the following:
F-16
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
January 31, February 1,
1998 1997
--------------- ------------
Land $ 1,276 $ 1,306
Buildings and improvements 18,104 18,359
Machinery and equipment 18,974 16,288
Vehicles 99 104
Construction in progress 1,372 327
-------- --------
39,825 36,384
Less accumulated depreciation
and amortization 5,710 853
-------- --------
$ 34,115 $ 35,531
======== ========
F-17
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(5) Long-Term Debt
A summary of long-term debt follows:
January 31, February 1,
1998 1997
------------- -------------
Borrowings under credit agreements:
Revolving loans - base rate loans $17,500 $13,000
Term loans - base rate loans 35,963 53,000
9.0% to 10.5% notes, maturing through 1998 69 139
------- -------
53,532 66,139
Less current installments of long-term debt 13 70
------- -------
$53,519 $66,069
======= =======
Pursuant to the Plan, the Credit Agreement was amended and restated and
the Notes were canceled and exchanged for all of the Company's outstanding
common stock on the Effective Date. The following is a summary description of
the Amended and Restated Credit Agreement ("Amended Agreement") issued on the
Effective Date.
REVOLVING CREDIT COMMITMENT
The total Revolving Credit Commitment ("Revolving Loan") under the
Amended Agreement is $77,200 which is inclusive of (i) any outstanding unpaid
balance of repetition revolving credit loans and post-petition
debtor-in-possession financing, (ii) $22,185 transferred from the
Preconfirmation term loan balance, and (iii) a $25,000 letter of credit
subfacility. For a 30-day period beginning in May and December of each year,
commitments under the Revolving Loan are required to be reduced to $63 million
and $68 million, respectively.
The total outstanding Revolving Loan including letters of credit may not
exceed a borrowing base determined by specified percentages of eligible accounts
receivable and inventory as defined by the Amended Agreement. A commitment fee
of 0.5% of the unused Revolving Loan is due each year. A letter of credit fee of
2.5% per annum of the daily stated amount of all letters of credit and facing
fees of 1/4 of 1% per annum of the daily stated amount of all standby and trade
letters of credit is payable quarterly in arrears. The Revolving Loan expires
August 31, 1999.
At January 31, 1998 and February 1, 1997, there was $17,500 and $13,000
outstanding under the Revolving Loan provisions and $5,209 and $6,825 issued
under the trade and standby letters of credit provisions of the Amended
Agreement, respectively. The availability as calculated under the provisions of
the Amended Agreement at January 31, 1998 was $28,358.
F-18
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
TERM LOAN COMMITMENT
The total Term Loan Commitment ("Term Loan") under the Amended Agreement
is $55,000 which was reduced to $35,963 and $53,000 as a result of payments
during fiscal 1998 and the 10-week period ended February 1, 1997, respectively.
The remaining amounts are payable in installments of $4,000 on January 31, 1999
and $31,963 on August 31, 1999. At January 31, 1998, $4,000 of the outstanding
term loan balance has been excluded from current installments of long-term debt
as this amount could be repaid using the Revolving Loan.
The Term Loan contains mandatory prepayment provisions which require
that certain excess cash flows, proceeds from the sale of assets for
disposition, other proceeds outside the ordinary course of business, and tax
refunds as defined must be used to pay down the outstanding term loan balance in
reverse order of maturity. Once repaid, Term Loans may not be reborrowed. The
Term Loan Commitment expires August 31, 1999.
Except in certain limited circumstances, the Revolving Loan and the Term
Loan will bear interest at 150 basis points above the base rate which is defined
as the higher of (i) 1/2 of 1% in excess of the adjusted certificate of deposit
rate, (ii) the prime lending rate, or (iii) 1/2 of 1% in excess of the overnight
federal funds rate. Interest is due in arrears on the last day of each month.
The interest rate is subject to cumulative increases in the event the Company
(i) does not achieve certain earnings before interest taxes and depreciation
(EBITDA) targets or (ii) fails to make annual principal payments, other than
regularly scheduled term loan amortization payments, of at least $5,000. In
addition, default interest is payable at the base rate plus 2%. On January 29,
1997, the Company entered into a rate protection agreement which limits the base
interest rate payable on the first $45 million outstanding term loan principal
to 9.5% through July 28, 1998.
Borrowings under the Amended Agreement are secured by a lien against all
assets of the Company and subsidiaries. The Amended Agreement contains certain
financial and nonfinancial covenants. As of January 31, 1998, the Company was in
compliance with such covenants.
F-19
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(6) Income Taxes
Components of income tax benefit (expense) consist of:
Post-confirmation Preconfirmation
------------------------------- ---------------------------
10-week 42-week
Year ended period ended period ended Year ended
January 31, February 1, November 22, February 2,
1998 1997 1996 1996
------------- -------------- ---------------- ------------
Current:
Federal $ (326) $ 4 $ 3,113 $10,302
State (99) 1 1,191 1,369
Deferred (378) 1,395 (8,522) 15,486
--------- -------- -------- ------
$ (803) $ 1,400 $(4,218) $27,157
========= ======== ======== =======
Income tax benefit (expense) for the year ended January 31, 1998; the
10-week period ended February 1, 1997; the 42-week period ended November 22,
1996; and the year ended February 2, 1996 amounted to $(803), $1,400, $(4,218),
and $27,157, an effective rate of 34.3%, 33.7%, 253.0%, and 35.3%, respectively,
which differs from the "expected" income tax expense (computed by applying the
U.S. Federal corporate income tax rate of 34% to income (loss) before income
taxes and extraordinary item) as follows:
<TABLE>
<CAPTION>
Post-confirmation Preconfirmation
------------------------------- ---------------------------
10-week 42-week
Year ended period ended period ended Year ended
January 31, February 1, November 22, February 2,
1998 1997 1996 1996
------------- -------------- ---------------- -----------
<S> <C> <C> <C> <C>
Computed "expected" income tax
(expense) benefit $ (795) $ 1,455 $ (583) $ 26,881
State and local taxes, net of
Federal income tax benefit (73) 175 (45) 2,090
Amortization of intangible assets (127) -- -- (1,632)
Nondeductible expenses relating
reorganization to -- (216) (744) --
Provision for resolution of tax
audits and adjustments to
refund receivable -- -- (2,727) --
Other, net 192 (14) (119) (182)
---------- -------- ------- ---------
$ (803) $ 1,400 $ (4,218) $ 27,157
========== ======== ======== =========
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at January 31,
1998 and February 1, 1997 are presented below:
F-20
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
<TABLE>
<CAPTION>
Post-confirmation
-------------------------------------
January 31, February 1,
1998 1997
----------------- ------------------
<S> <C> <C>
Deferred tax assets:
Nondeductible accruals $ 2,631 $ 3,387
Inventory write-downs -- 1,349
Accounts receivable reserves and allowances 45 173
Other 2 --
-------- --------
Deferred tax assets 2,678 4,909
-------- --------
Deferred tax liabilities:
Tax attribute reductions of inventory, receivables,
and property, plant, and equipment (17,090) (21,090)
Restructuring related reserves and write-downs of
inventory, receivables, and property, plant, (259)
and equipment --
State taxes (451) (579)
Inventory write-downs (543) --
Other (1,887) (414)
-------- --------
Deferred tax liabilities (20,230) (22,083)
-------- --------
Net deferred tax liability $(17,552) $(17,174)
======== ========
</TABLE>
(7) Related Party Transactions
During the 42-week period ended November 22, 1996 and the year ended
February 2, 1996, the Company engaged in transactions with related parties,
including (income) expenses incurred on behalf of the former Parent company of
approximately $(299) and $325 for those periods, respectively.
Prior to November 22, 1996, long-term debt to related parties consisted
of notes held by parties which were stockholders, or their affiliates, of the
former Parent. After November 22, 1996, long-term debt due to related parties
consists of borrowings under the Amended Agreement held by a stockholder of the
Company.
In accordance with the Plan, the equity interests of the former Parent
were canceled, extinguished, and annulled. Additionally, the Company entered
into the Intercompany Compromise and Settlement Agreement as of the Effective
Date which included a provision to terminate a license agreement.
(8) Credit Concentrations
Most of the Company's sales are concentrated with national retailers.
For the year ended January 31, 1998; the 10-week period ended February 1, 1997;
and the 42-week period ended
F-21
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
November 22, 1996, one customer individually accounted for 52%, 48%, and 47%,
respectively, of net sales. For the year ended February 2, 1996, two customers
accounted for 42% and 11% of net sales, respectively.
At February 1, 1997, the Company had $659 of trade accounts receivable
due from customers that were believed to be moderate to high credit risks. These
accounts were factored under a nonrecourse non-notification factoring
arrangement which reduces the credit risk to the Company subject to performance
by the factor. There were no amounts factored at January 31, 1998.
(9) Fair Value of Financial Instruments
At January 31, 1998 and February 1, 1997, the fair value of the
Company's debt is equal to the carrying amount as it was subject to
restructuring and is based upon variable market rates. The carrying values of
all other financial instruments in the consolidated balance sheets approximate
fair values.
(10) Commitments and Other Matters
The Company leases certain equipment and warehousing facilities under
operating leases expiring at various dates through 2010. Total rent expense
under these leases amounted to approximately $3,844, $790, $3,881, and $3,414,
for the year ended January 31, 1998; the 10- week period ended February 1, 1997;
the 42-week period ended November 22, 1996; and the year ended February 2, 1996,
respectively. In addition, the Company is responsible for payment of applicable
real estate taxes, insurance, and maintenance expenses.
At January 31, 1998, future minimum annual rentals under these leases
are as follows:
Fiscal years ending in:
1999 $ 3,528
2000 2,794
2001 1,677
2002 1,287
2003 1,055
Thereafter 1,319
-------
$11,660
=======
The Company has royalty agreements for certain licensed products. The
total royalty expense under these agreements amounted to approximately $630,
$92, $479, and $2,541 for the year ended January 31, 1998, the 10-week period
ended February 1, 1997, the 42-week period ended November 22, 1996, and the year
ended February 2, 1996, respectively. At January 31, 1998, the future minimum
royalty expense for the fiscal year ending in 1999 is approximately $553.
F-22
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(11) Employee Benefit Plans
In fiscal 1997, the Company adopted an incentive compensation plan under
which certain employees may receive discretionary bonus awards from a bonus pool
calculated based on achievement of specified targets established by the Board of
Directors. Bonus amounts expensed for the year ended January 31, 1998; the
10-week period ended February 1, 1997; and the 42- week period ended November
22, 1996 were $489, $560, and $1,740, respectively. No bonuses were earned for
the year ended February 2, 1996.
On the Effective Date, the Company adopted the Stock Plan which permits
the Company's Board of Directors to grant stock options to officers and key
employees. The Stock Plan initially reserved 928,962 shares of authorized but
unissued common stock. Total shares available for grant may be increased by the
Board of Directors at their discretion. Stock options may be granted at an
exercise price equal to or less than fair market value as stipulated in the
applicable option agreement. Excluding a grant of 109,290 options to certain
outside consultants, certain options vest one-third on the date of grant and
one-third on the subsequent first and second anniversaries from the date of
grant. The remaining options are performance based and vest in equal amounts
based upon the achievement of certain performance targets for each of the next
three years.
The following table summarizes stock option activity during each of the
last two reporting periods:
Weighted-
average
Number of exercise
shares price
--------- --------
Options outstanding at November 22, 1996 -- $ --
Options granted 901,014 6.00
Options canceled -- --
--------
Options outstanding at February 2, 1997 901,014 6.00
Options granted 17,500 6.00
Options canceled (36,668) 6.00
--------
Options outstanding at January 31, 1998 881,846 $ 6.00
========
During the year ended January 31, 1998, 17,500 options were granted at
$6 per share; of the 881,846 options outstanding, 492,718 were vested and
exercisable at January 31, 1998. The weighted-average contractual life of
options outstanding at January 31, 1998 is eight years. If the Company had
recognized compensation expense for the "fair value" of option grants under the
provisions of SFAS No. 123, the pro forma net income and net income per share
for the year ended January 31, 1998 would have been $1,336 and $.13,
respectively, based upon the
F-23
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
following assumptions related to the options: risk-free interest rate of 5.5%;
dividend yield of 0%; expected volatility of 33%; and three-year expected lives.
During the 10-week period ended February 1, 1997, 901,014 options were
granted at $6 per share; of the 901,014 options outstanding, 240,994 were vested
and exercisable at February 1, 1997. The weighted-average contractual life of
options outstanding at February 1, 1997 is nine years. Had compensation cost for
the Company's stock option plan been determined based upon the fair value at the
grant date for awards under this plan consistent with SFAS 123, the effect on
the Company's net income and income per share would not be material, based upon
the following assumptions related to the options: risk-free interest rate of
6.2%; dividend yield of 0%; expected volatility of 33%; and three-year expected
lives.
The Company maintains a medical benefits plan and trust which covers
substantially all employees of the Company. The plan is funded currently by
contributions from the Company and employees based on anticipated claims costs
and administrative expenses. Company contributions to the plan were $4,645,
$1,250, $5,604, and $8,585, for the year ended January 31, 1998; the 10-week
period ended February 1, 1997; the 42-week period ended November 22, 1996; and
the year ended February 2, 1996, respectively. Net assets available for plan
benefits held in trust were $777 at January 31, 1998 and $1,037 at February 1,
1997.
The Company sponsors a defined contribution retirement plan for its
employees. Company contributions are based upon a percentage of the employees'
contributions. Contributions and administrative expenses incurred by the Company
on behalf of the plan totaled approximately $226, $53, $319, and $456, for the
year ended January 31, 1998; the 10-week period ended February 1, 1997; the
42-week period ended November 22, 1996; and the year ended February 2, 1996,
respectively.
(12) Restructuring
In the third quarter of fiscal 1996, in response to operating losses
resulting from decreasing sales as well as high manufacturing and distribution
costs, the Company initiated a restructuring to improve operating performance
and reduce costs. In connection with this restructuring, the Company recorded
charges totaling $51,591 ($33,379 after related income tax benefits), of which
$14,153 ($9,157 net of income tax benefits), and $37,438 ($24,222 after related
income tax benefits) were charged to operating expenses in the third and fourth
quarters of fiscal 1996, respectively. Such charges related to (i) the closing
and consolidation of certain manufacturing and distribution facilities; (ii) the
write-down of certain equipment associated with closed facilities to net
realizable value; (iii) the write-off and establishment of reserves to reduce
inventory and accounts receivable to estimated net realizable value for amounts
associated with customers, product lines, and specific products that the Company
elected to discontinue manufacturing and distributing; (iv) severance and other
costs associated with plant closures and overhead reductions resulting from a
total domestic work force reduction in fiscal 1998, fiscal 1997, and fiscal 1996
of approximately 4,900 employees, of which approximately 1,900, 1,900, and 1,100
occurred during fiscal 1998, fiscal 1997, and fiscal 1996, respectively; and (v)
the
F-24
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
write-off of certain impaired intangible assets, principally deferred debt
expenses of $2,672 and goodwill of $2,395.
As of January 31, 1998 and February 1, 1997, assets held for disposition
consist of the following:
January 31, February 1,
1998 1997
------------- --------------
Property, plant, and equipment,
net of estimated reserve of
$4,642 at January 31, 1998
and $4,800 at February 1, 1997 $ 213 169
Inventory, net of obsolescence
reserve of $2,044 at
February 1, 1997 -- 3,586
-------------- -------------
$ 213 3,755
============== =============
The reserves reflect management's estimates of the recoverability of the
related assets.
(13) Subsequent Events (Unaudited)
On March 24, 1998, the Company completed the acquisition of Glendale, an
entity with annual revenues of approximately $45 million. Consideration paid
includes a cash payment based upon Glendale's closing net worth plus $1.5
million in cash, issuance of $2 million of Ithaca common stock (not to exceed
400,000 shares), subordinated notes, or a combination thereof. In addition,
Ithaca will refinance up to $9 million of Glendale's bank indebtedness. The
transaction, which will be accounted for using the purchase method of
accounting, was financed with the proceeds from the refinancing of the Company's
existing Credit Agreement with $110 million in new credit facilities. The new
credit facilities include $25 million and $15 million term loans plus up to $70
million in revolving credit facilities.
F-25
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(14) Quarterly Financial Data (Unaudited)
Post-confirmation
----------------------------------------------
First Second Third Fourth
quarter quarter quarter quarter
--------- --------- --------- ----------
Year ended January 31, 1998:
Net sales $ 58,743 60,934 63,184 54,160
Gross profit 8,216 9,747 9,577 7,113
Net income (loss) (148) 1,004 793 (113)
========= ========= ========= ==========
Basic and dilutive net income
(loss) per common share (0.01) 0.10 0.08 (0.01)
========= ========= ========= ==========
<TABLE>
<CAPTION>
Preconfirmation Post-confirmation
--------------- -----------------
Preconfirmation Fourth quarter - 1997
---------------------------------- ---------------------------------------
3 weeks ended
First Second Thrid November 22, 10 weeks ended
quarter quarter quarter 1996 February 1, 1997
---------------------------------- ----------------- ------------------
Year ended February 1, 1997:
<S> <C> <C> <C> <C> <C>
Net sales $ 97,619 78,883 98,624 22,477 42,708
Gross profit 12,691 11,707 13,367 4,295 4,487
Net income (loss) from
continuing operations
before extraordinary
item (1,298) 641 (1,303) (592) (2,757)
Extraordinary item -- -- -- 67,924 --
Net income (loss) (1,298) 641 (1,303) 67,332 (2,757)
========== ======= ======= =========== =========
Basic and dilutive net loss per $ (.28)
common share (1) =======
</TABLE>
(1)Net income (loss) and per share amounts for periods prior to November 22,
1996 have not been presented because they are not meaningful due to the
implementation of Fresh-Start Reporting and the substantial change in the
number of shares outstanding subsequent to the consummation of the Plan.
F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Glendale Hosiery Company:
We have audited the accompanying balance sheet of Glendale Hosiery Company as of
December 27, 1997, and the related statements of earnings, shareholders' equity,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Glendale Hosiery Company as of
December 27, 1997, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Atlanta, Georgia
March 24, 1998
F-27
<PAGE>
GLENDALE HOSIERY COMPANY
BALANCE SHEET
DECEMBER 27, 1997
Assets (Note 4)
---------------
Current assets:
Cash $ 20,974
Trade accounts receivable,
less allowances of $167,000 in 1997 5,358,433
Inventories (note 2) 8,050,676
Prepaid expenses and other current assets 5,174
------------
Total current assets 13,435,257
Property, plant, and equipment, net (note 3) 3,457,143
------------
$16,892,400
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Bank overdrafts $ 1,045,189
Revolving line of credit (note 4) 7,864,228
Current portion of long-term debt (note 4) 417,633
Accounts payable 1,834,629
Accrued expenses 650,908
------------
Total current liabilities 11,812,587
Shareholders' equity (note 5):
Preferred stock, $1 par value; authorized
100,000 shares, none issued --
Common stock:
Class A, $1 par value, voting - authorized,
100,000 shares; issued and outstanding,
33,750 shares 33,750
Class B, $1 par value, nonvoting - authorized,
100,000 shares; issued and outstanding,
43,750 shares 43,750
Additional paid-in capital 647,500
Retained earnings 4,354,813
-----------
Total shareholders' equity 5,079,813
Commitments (notes 7 and 10) ___________
$16,892,400
===========
See accompanying notes to financial statements.
F-28
<PAGE>
GLENDALE HOSIERY COMPANY
STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 27, 1997
Net sales (note 8) $46,966,584
Cost of goods sold 39,677,127
Gross profit 7,289,457
Selling, general, and administrative expenses (note 8) 4,963,742
-----------
Operating income 2,325,715
Interest expense (833,699)
Other income 226,369
Net earnings $ 1,718,385
===========
See accompanying notes to financial statements.
F-29
<PAGE>
GLENDALE HOSIERY COMPANY
STATEMENT OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 27, 1997
Class A Class B
common stock common stock
---------------------- --------------------
Shares Amount Shares Amount
Balances at December 28, 1996 33,750 $ 33,750 43,750 $ 43,750
Shareholder distributions - - -
Net earnings - - -
-------- ------- --------
Balances at December 27, 1997 33,750 $ 33,750 43,750 $ 43,750
====== ======== ======= ========
Additional Retained Total
paid-in capital earnings -----
--------------- --------
647,500 3,458,813 4,183,813
Balances at December 28, 1996 - (822,385) (822,385)
Shareholder distributions - 1,718,835 1,718,385
Net earnings -------- ---------- -----------
647,500 4,354,813 5,079,813
Balances at December 27, 1997 ======= ========= =========
See accompanying notes to financial statements.
F-30
<PAGE>
GLENDALE HOSIERY COMPANY
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 27, 1997
Cash flows from operating activities:
Net earnings $ 1,718,385
Adjustments to reconcile net earnings to
net cash provided
by operating activities:
Depreciation and amortization 833,737
Decrease in trade accounts receivable 415,880
Increase in inventories (636,340)
Decrease in other assets 191,072
Decrease in accounts payable (633,793)
Increase in accrued expenses
(84,997)
------------
Net cash provided by operating activities
1,803,944
------------
Cash flows from investing activities:
Capital expenditures (201,980)
Proceeds from sale of equipment
66,734
------------
Net cash used in investing activities
(135,246)
------------
Cash flows from financing activities:
Net increase in revolving line of credit 655,944
Payments on long-term debt (1,524,800)
Bank overdrafts 23,201
Shareholder distributions
(822,385)
------------
Net cash used in financing activities
(1,668,040)
------------
Net increase in cash 658
Cash at beginning of year
20,316
------------
Cash at end of year
$ 20,974
============
Supplemental disclosure of cash flow
information - cash paid during the
year for interest $ 841,234
------------
------------
See accompanying notes to financial statements.
F-31
<PAGE>
GLENDALE HOSIERY COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 27, 1997
(1) Nature of Business and Significant Accounting Policies
------------------------------------------------------
(a) Description of Business
-----------------------
Glendale is a manufacturer of women's hosiery headquartered in
Siler City, North Carolina. Glendale's private label products are
sold nationwide primarily to mass merchandisers and specialty
stores.
(b) Accounts Receivable
-------------------
Glendale grants credit to customers under credit terms that are
customary in the industry. Glendale provides allowances for
doubtful accounts, claims, and discounts based upon historical
trends and periodic evaluation of the accounts.
(c) Inventories
-----------
Inventories are valued at the lower of cost (first-in, first-out
method) or market.
(d) Property, Plant, and Equipment
------------------------------
Property, plant, and equipment are recorded at cost. Depreciation
is computed principally using the straight-line method based on
the following estimated useful lives of the related assets:
buildings and improvements, ten years; machinery and equipment,
seven years; furniture and fixtures, five years; and leasehold
improvements over the lesser of the lease term or their useful
lives. Expenditures for maintenance and repairs are charged to
expense as incurred.
(e) Leasehold Improvements
----------------------
Leasehold improvements are amortized over a ten-year period using
the straight-line method.
(f) Income Taxes
------------
Glendale has elected S Corporation status for income tax
purposes. Pursuant to the S Corporation election, federal and
state income taxes are the responsibility of Glendale's
shareholders. Accordingly, no income tax provision is included in
Glendale's financial statements.
(g) Fiscal Year
-----------
Glendale's fiscal year ends on the final Saturday in December.
Fiscal year 1997 includes 52 weeks.
F-32
<PAGE>
GLENDALE HOSIERY COMPANY
NOTES TO FINANCIAL STATEMENTS
(h) Use of Estimates
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(i) Stock Options
-------------
Prior to January 1, 1996, Glendale accounted for its stock option
plan in accordance with the provisions of Accounting Principles
Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, and related interpretations. As such, compensation
expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, Glendale adopted SFAS No.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which allows
entities to continue to apply the provisions of APB Opinion No.
25 and provide pro forma net income disclosures for employee
stock option grants made in 1995 and future years as if the
fair-value-based method defined in SFAS No. 123 had been applied.
Glendale has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of
SFAS No. 123. There were no stock option grants in the current
year.
(j) Revenue Recognition
-------------------
Sales are recognized at the time the related goods are shipped
from Glendale's facilities.
(2) Inventories
-----------
Inventories at December 27, 1997 are as follows:
Finished goods $ 3,579,239
Work in progress 2,952,216
Raw materials and supplies 1,519,221
-----------
$ 8,050,676
F-33
<PAGE>
GLENDALE HOSIERY COMPANY
NOTES TO FINANCIAL STATEMENTS
(3) Property, Plant, and Equipment
------------------------------
Property, plant, and equipment at December 27, 1997 are as follows:
Land $ 66,067
Buildings 1,173,378
Machinery and equipment 10,742,653
Leasehold improvements 2,845,325
Furniture and fixtures 540,792
--------------
15,368,215
Less accumulated depreciation and amortization 11,911,072
--------------
Net property and equipment $ 3,457,143
--------------
(4) Financing Arrangements
----------------------
Glendale has a senior debt facility with a bank at December 27, 1997 which
consists of a revolving line of credit and three term loans payable in
varying installments. Under the provisions of the revolving line of
credit, Glendale can borrow up to specified percentages of accounts
receivable and inventories (the borrowing base). The total amount
outstanding on the revolving line of credit (plus the aggregate stated
amount of outstanding bankers acceptance drafts at any one time) may not
exceed the lesser of $8,450,000 or the borrowing base. Interest accrues at
the bank's prime rate (8.5% at December 27, 1997) plus .75% to 1.25%.
Borrowings under the revolving line of credit are due upon demand, and
accordingly, the amount outstanding at December 27, 1997 of $7,864,228 is
classified as a current liability in the balance sheet. The revolving line
of credit agreement expires on April 30, 1998, and provides for automatic
one-year renewal periods thereafter, subject to provisions whereby both
Glendale and the bank have the right of termination (see note 10).
Substantially all of Glendale's assets are pledged to the bank under the
revolving credit and term loan obligations.
The senior debt facility includes certain restrictive covenants. Under the
more restrictive of these covenants, Glendale must maintain a minimum
level of working capital and specified cash flow coverage and
debt-to-equity ratios. In addition, dividend payments are restricted to
amounts required to fund shareholder income tax liabilities arising from
the allocation of Glendale's taxable income under the S Corporation
election, capital expenditures are restricted to specified levels and
limits are placed on the reacquisition of Glendale stock. Glendale was in
compliance with all covenants as of December 27, 1997.
F-34
<PAGE>
GLENDALE HOSIERY COMPANY
NOTES TO FINANCIAL STATEMENTS
Long-term debt as of December 27, 1997 consists of the following:
Term loan to bank, payable in monthly installments of $45,833,
plus interest at the bank's prime rate plus 3/4%,
through April 1998 $ 183,333
Second term loan to bank, payable in monthly installments
of $32,500, plus interest at the bank's prime rate plus 1-1/4%,
through April 1998 130,000
Third term loan to bank, payable in monthly installments
of $10,417, plus interest at the bank's prime rate plus 3/4%,
through June 1998 62,500
Equipment term loan, noninterest bearing, payable in monthly
installments of $41,800 through January 1998 41,800
---------
Total long-term debt - all current $ 417,633
=========
(5) Stock Option Plan
-----------------
Under the Glendale 1987 Non-Qualified Stock Option Plan, options must be
exercised within two years from date of grant. An aggregate of 10,000
shares of Class B common stock are reserved for issuance under the plan.
During 1995, options for 1,250 shares of Class A common stock and 1,250
shares of Class B common stock were granted to a member of the Board of
Directors at an option price of $30 per share. These options were fully
vested upon grant. No options were granted in 1997, and as of December 27,
1997, no options had been exercised.
(6) Employee Benefit Plan
---------------------
Glendale has a 401(k) defined contribution plan (Glendale Hosiery Company
Retirement Savings Plan). All employees of Glendale are eligible to
participate in this plan. Glendale, at its discretion, may annually match
a percentage of the employees' contribution. Glendale's matching
contribution to the plan for the year ended December 27, 1997 was $55,702.
(7) Commitments
-----------
Leases
------
Glendale has operating lease agreements related to equipment and a plant
building. Equipment lease terms are for five years. The building
lease-agreement is for five years and provides for seven five-year renewal
options. Under the terms of the building lease agreement, Glendale pays
utilities, insurance, taxes, and maintenance costs.
F-35
<PAGE>
GLENDALE HOSIERY COMPANY
NOTES TO FINANCIAL STATEMENTS
The future commitments under the noncancelable operating leases are:
Year ending December,
1998 $ 110,491
1999 110,491
2000 52,360
2001 37,380
2002 31,246
Thereafter 30,050
----------
Total minimum lease payments $ 372,018
=========
Rent expense for year ended December 27, 1997 was $152,255.
(8) Major Customers
---------------
Net sales for the year ended December 27, 1997 included $20,922,002 and
$15,154,341, respectively, to two major customers.
(9) Fair Value of Financial Instruments
-----------------------------------
The following summarizes certain information regarding the fair value of
Glendale's financial instruments at December 31, 1997:
Cash, trade accounts receivable, and accounts payable -- The carrying
value approximates fair value because of the short-term maturity of
these instruments.
Revolving line of credit and current portion of long-term debt --
Substantially all of Glendale's revolving credit and long-term debt
bears interest at variable rates which management believes are
commensurate with rates currently available on similar debt.
Accordingly, the carrying value approximates fair value.
(10) Subsequent Event (Unaudited)
----------------------------
On March 24, 1998, Glendale sold substantially all of its assets and
transferred substantially all of its liabilities to Ithaca Industries,
Inc. pursuant to an Asset Purchase Agreement dated March 13, 1998. Under
the terms of the agreement, Glendale received consideration, including
cash, Ithaca Industries, Inc. common stock, and a subordinated note
receivable.
F-36
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Glendale Hosiery Company
Siler City, North Carolina
We have audited the accompanying balance sheets of Glendale Hosiery Company (the
"Company") as of December 28, 1996 and December 30, 1995, and the related
statements of earnings, shareholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Glendale Hosiery Company as of
December 28, 1996 and December 30, 1995, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Charlotte, North Carolina
February 17, 1997
F-37
<PAGE>
GLENDALE HOSIERY COMPANY
BALANCE SHEETS
DECEMBER 28, 1996 AND DECEMBER 30, 1995
- --------------------------------------------------------------------------------
ASSETS (NOTE 5) 1996 1995
CURRENT ASSETS:
Cash $ 20,316 $ 14,139
------------ -----------
Trade accounts receivable, less allowance
for doubtful accounts of $16,000 and
$4,000, respectively 5,774,313 5,387,360
Inventories (Note 2) 7,414,336 6,987,588
Current portion of note receivable from
shareholder (Note 4) 75,000 75,000
Other 85,307 141,849
------------ -----------
Total current assets 13,369,272 12,605,936
PROPERTY, PLANT AND EQUIPMENT
(Note 3) 4,155,631 4,029,105
NOTE RECEIVABLE FROM SHAREHOLDER
(Note 4) 75,000
OTHER ASSETS 35,939 47,326
------------ -----------
------------ -----------
TOTAL ASSETS $ 17,560,842 $16,757,367
============ ===========
GLENDALE HOSIERY COMPANY
BALANCE SHEETS
DECEMBER 28, 1996 AND DECEMBER 30, 1995
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
CURRENT LIABILITIES:
Revolving line of credit (Note 5) $ 7,208,284 $ 7,373,179
------------ ------------
Current portion of long-term debt 1,524,800 1,498,840
Accounts payable 3,490,407 2,662,164
Accrued salaries, wages and related items 323,758 195,223
Accrued expenses - other 412,147 298,885
Total current liabilities 12,959,396 12,028,291
LONG-TERM DEBT - Less current portion
(Note 5) 417,633 1,440,834
------------ ------------
COMMITMENTS (Note 9)
SHAREHOLDERS' EQUITY (Note 6):
Preferred stock, $1 par value; authorized
100,000 shares, none issued
Common stock:
Class A, $1 par value, voting - authorized,
100,000 shares; issued and outstanding,
33,750 shares 33,750 33,750
Class B, $1 par value, nonvoting - authorized,
100,000 shares; issued and outstanding,
43,750 shares 43,750 43,750
Additional paid-in capital 647,500 647,500
Retained earnings 3,458,813 2,563,242
------------ ------------
Total shareholders' equity 4,183,813 3,288,242
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $17,560,842 $16,757,367
=========== ===========
See notes to financial statements
F-38
<PAGE>
GLENDALE HOSIERY COMPANY
STATEMENTS OF EARNINGS YEARS ENDED DECEMBER 28, 1996 AND DECEMBER 30, 1995
1996 1995
NET SALES (Note 10) $ 48,256,446 $ 44,425,767
COST OF GOODS SOLD 43,302,890 40,000,562
------------ ------------
GROSS PROFIT 4,953,556 4,425,205
SELLING, GENERAL AND ADMINISTRATIVE (Note 8) (2,582,871) (2,530,407)
INTEREST EXPENSE (877,251) (1,103,870)
PROCEEDS FROM LIFE INSURANCE (Note 7) 2,005,588
OTHER INCOME (EXPENSE) 115,135 (124,048)
------------ -------------
NET EARNINGS $ 1,608,569 $ 2,672,468
============ ============
See notes to financial statements
F-39
<PAGE>
GLENDALE HOSIERY COMPANY
STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 28, 1996
AND DECEMBER 30, 1995
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK ADDITIONAL
------------------------ ---------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1994 35,000 $ 35,000 45,000 45,000 $720,000 $ 633,750
Shares repurchased (1,250) (1,250) (1,250) (1,250) (72,500)
Shareholder distribution (742,976)
Net earnings 2,672,468
------ -------- ------ ------ -------- ----------
BALANCE,
DECEMBER 30, 1995 33,750 33,750 43,750 43,750 647,500 2,563,242
Shareholder distributions (712,998)
Net earnings 1,608,569
------ -------- ------ ------ -------- ----------
BALANCE,
DECEMBER 28, 1996 33,750 $ 33,750 43,750 43,750 $647,500 $3,458,813
====== ======== ====== ====== ======== ==========
</TABLE>
See notes to financial statements
F-40
<PAGE>
GLENDALE HOSIERY COMPANY
STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 28, 1996 AND DECEMBER 30, 1995
<TABLE>
<CAPTION>
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings $ 1,608,569 $ 2,672,468
----------- -----------
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization 1,115,282 1,164,254
(Gain) loss on disposal of equipment 8,821 (20,715)
Increase in trade accounts receivable (386,953) (339,890)
Increase in inventories (426,748) (1,291,673)
Decrease in other current assets 56,542 68,099
Decrease in other assets 11,387 145,038
Increase in accounts payable 828,243 277,646
Decrease (increase) in accrued salaries, wages and related items 128,535 (13,826)
Increase in accrued expenses - other 113,262 16,218
----------- -----------
Net adjustments 1,448,371 5,151
----------- -----------
Net cash provided by operating activities 3,056,940 2,677,619
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (758,029) (1,005,089)
Proceeds from sale of equipment 9,000 20,848
Proceeds from repayment of shareholder note 75,000
-----------
Net cash used in investing activities (674,029) (984,241)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES;
Net increase (decrease) in revolving line of credit (164,895) 720,389
Payments on long-term debt (1,498,841) (2,350,160)
Long-term borrowings 750,000
Shareholder distributions (712,998) (742,976)
Repurchase of shares (75,000)
------------ -----------
Net cash used in financing activities (2,376,734) (1,697,747)
------------ -----------
NET INCREASE (DECREASE) IN CASH 6,177 (4,369)
CASH, BEGINNING OF YEAR 14,139 18,508
----------- -----------
CASH, END OF YEAR $ 20,316 $ 14,139
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION -
Cash paid during the year for interest $ 805,251 $1,103,870
=========== ==========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES - Noncash purchases of
machinery and equipment totaled $501,600 and $506,600 in 1996 and 1995,
respectively.
See notes to financial statements.
F-41
<PAGE>
GLENDALE HOSIERY COMPANY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 28, 1996 AND DECEMBER 30, 1995
1. Nature of Business and Significant Accounting Policies
Glendale Hosiery Company is a manufacturer of women's hosiery
headquartered in Siler City, North Carolina. Glendale's private label
products are sold nationwide primarily to mass merchandisers and
specialty stores.
INVENTORIES - Inventories are valued at the lower of cost (first-in,
first-out method) or market.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are
recorded at cost. Depreciation is computed principally by the
straight-line method based on the estimated useful lives of the related
assets. Expenditures for maintenance and repairs are charged to expense
as incurred.
LEASEHOLD INTERESTS - Leasehold interests are amortized over a ten year
period using the straight-line method.
INCOME TAXES - Glendale has elected S Corporation status for income tax
purposes. Pursuant to the S Corporation election, federal and state
income taxes are the responsibility of Glendale's shareholders.
Accordingly, no income tax provision is included in the financial
statements.
FISCAL YEAR - Glendale's fiscal year ends on the final Saturday in
December. Fiscal year 1996 and 1995 include 52 weeks.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
2. Inventories
Inventories at December 28, 1996 and December 30, 1995 are as follows:
1996 1995
Finished goods $2,751,778 $1,425,748
Work in process 3,277,022 2,296,247
Raw materials and supplies 1,385,536 3,265,593
---------- ----------
Total $7,414,336 $6,987,588
========== ==========
F-42
<PAGE>
GLENDALE HOSIERY COMPANY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 28, 1996 AND DECEMBER 30, 1995
3. Property, Plant and Equipment
Property, plant and equipment at December 28, 1996 and December 30, 1995
is as follows:
1996 1995
Land $ 66,067 $ 66,067
Buildings 1,142,520 1,090,331
Machinery and equipment 10,723,691 9,599,395
Leasehold improvements 2,793,266 2,756,941
Furniture and fixtures 507,424 478,416
------------ ------------
Total 15,232,968 13,991,150
Less accumulated depreciation 11,077,337 9,962,045
and amortization ----------- -----------
Total $ 4,155,631 $ 4,029,105
=========== ===========
4. Note Receivable from Shareholder
During 1993, Glendale loaned $300,000 to its principal shareholder, of
which $75,000 remains outstanding at December 28, 1996 from the
shareholder's estate. The final installment payment of $75,000 is due in
1997. The note bears interest at 6%, and is collateralized by a deed of
trust on certain real estate.
5. Financing Arrangements
The senior debt facility with a bank at December 30, 1995 consists of a
revolving line of credit and three term loans payable in varying
installments. Under the provisions of the revolving line of credit,
Glendale can borrow up to specified percentages of accounts receivable
and inventories (the borrowing base). The total amount outstanding on
the revolving line of credit (plus the aggregate stated amount of
outstanding bankers acceptance drafts at any one time) may not exceed
the lesser of $8,450,000 or the borrowing base. Interest is at the
bank's prime rate (8-1/2% at December 28, 1996) plus 3/4%. Borrowings
under the agreement are due upon demand and, accordingly, the amounts
outstanding of $7,208,284 at December 28, 1996 and $7,373,179 at
December 30, 1995 are classified as current liabilities within the
balance sheets. The line of credit agreement expires on April 30, 1997,
and the agreement provides for automatic one year renewal periods
thereafter, subject to provisions whereby both Glendale and the bank
have the right of termination. Long-term debt as of December 28, 1996
and December 30, 1995 consists of the following:
F-43
<PAGE>
GLENDALE HOSIERY COMPANY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 28, 1996 AND DECEMBER 30, 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Term loan to bank, payable in monthly
installments of $45,833, plus interest at
the bank's prime rate plus
3/4%, through April 1998 $ 733,333 $ 1,283,334
Second term loan to bank, payable in monthly
installments of $32,500, plus interest at the bank's
prime rate plus 1-1/4%, through April 1998 520,000 910,000
Third term loan to bank, payable in monthly
installments of $10,417, plus interest at the bank's
prime rate plus 3/4%, through June 1998 187,500 312,500
Equipment term loan, non-interest bearing, payable in
monthly installments of $41,800 through January
1998 501,600
Equipment term loans repaid in 1996 - 433,840
------------- -----------
Total 1,942,433 2,939,674
Less current portion 1,524,800 1,498,840
------------ -----------
Long-term portion $ 417,633 $ 1,440,834
============ =============
</TABLE>
Substantially all of Glendale's assets are pledged to the bank under the
revolving credit and term loan obligations.
The senior debt facility includes certain restrictive covenants. Under
the more restrictive of these covenants, Glendale must maintain a
minimum level of working capital and specified cash flow coverage and
debt to equity ratios. In addition, dividend payments are restricted to
amounts required to fund shareholder income tax liabilities arising from
the allocation of Glendale's taxable income under the S Corporation
election, capital expenditures are restricted to specified levels and
limits are placed on the reacquisition of Glendale stock. Glendale was
in violation of the covenant restricting 1996 capital expenditures and
has received a waiver from the bank.
Aggregate annual principal payments applicable to long-term debt as of
December 28, 1996 are:
1997 $1,524,800
1998 417,633
----------
Total $1,942,433
==========
F-44
<PAGE>
GLENDALE HOSIERY COMPANY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 28, 1996 AND DECEMBER 30, 1995
6. Stock Option Plan
Under the Glendale 1987 Non-Qualified Stock Option Plan, options must be
exercised within two years from date of grant. An aggregate of 10,000
shares of Class B common stock are reserved for issuance under the plan,
with an option price of $10 per share. During 1995, options for 1,250
shares of Class A common stock and 1,250 shares of Class B common stock
were granted to a member of the Board of Directors at an option price of
$30 per share. These options were fully vested upon grant. No
compensation expense was recorded in 1995 relating to the options
granted. No options were granted in 1996, and as of December 28, 1996,
no options had been exercised.
During 1996, Glendale adopted Statement of Financial Accounting
Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. As provided
under the provisions of this Statement, Glendale has chosen to retain
the previous methodology of calculating compensation expense on stock
options granted as provided by Accounting Principles Board Opinion
("APB") No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. The fair value
of the stock options granted in 1995 calculated using Statement No. 123
did not differ materially from that calculated by Glendale in 1995 using
APB No. 25.
7. Life Insurance Proceeds
During 1995, Glendale received proceeds of $2,005,588 on life insurance
policies.
8. Employee Benefit Plan
Glendale has a 401(k) defined contribution plan (Glendale Hosiery
Company Retirement Savings Plan). All employees of Glendale are eligible
to participate in this plan. Glendale's contribution to the plan for the
years ended December 28, 1996 and December 30, 1995, was $57,122 and
$53,780, respectively.
9. Commitments
LEASES - Glendale has operating lease agreements covering equipment and
a plant building. Equipment lease terms are for five years. The plant
building lease required quarterly payments through December 31, 1991,
with a six-year moratorium on payments starting January 1, 1992.
Thereafter, the lease agreement provides for eight five-year renewal
options. Under the terms of the lease agreement, Glendale pays
utilities, insurance, taxes and maintenance costs.
F-45
<PAGE>
GLENDALE HOSIERY COMPANY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 28, 1996 AND DECEMBER 30, 1995
The future commitments under the noncancelable operating leases are:
1997 $ 73,386
1998 62,979
1999 36,392
2000 9,869
----------
Total $182,626
Rent expense for years ended December 28, 1996 and December 30, 1995 was
$90,141 and $81,365, respectively.
10. Major Customers
---------------
Net sales for the year ended December 28, 1996 includes $20,198,653 and
$17,261,784, respectively, to two major retail customers. Net sales for
the year ended December 30, 1995 includes $19,300,847 and $16,969,823,
respectively, to these customers.
F-46
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY
The following Unaudited Pro Forma Condensed Consolidated Statement of
Income for the year ended January 31, 1998 gives effect to the acquisition of
Glendale and the refinancing of Ithaca Industries, Inc. long-term debt (the
"Transactions") as if each had occurred at the beginning of the period
presented.
The Unaudited Pro Forma Condensed Consolidated Financial Statements have
been prepared using the purchase method of accounting for the Glendale
acquisition, whereby the total cost is allocated to the tangible and intangible
assets acquired and liabilities assumed based upon their respective fair values
as of the acquisition date. For purposes of the Unaudited Pro Forma Condensed
Consolidated Statements of Income, such allocations have been made based upon
currently available information and management's estimates.
The Unaudited Pro Forma Condensed Consolidated Statement of Income for
the year ended January 31, 1998 is based on the respective audited financial
statements for the fiscal year ended January 31, 1998 of the Company and the
fiscal year ended December 27, 1997 of Glendale Hosiery Company. The Unaudited
Pro Forma Condensed Statement of Operations for the 13 weeks ended May 2, 1998
is based on the respective unaudited interim financial statements of the Company
and Glendale Hosiery Company.
The Unaudited Pro Forma Condensed Consolidated Financial Statements do
not purport to represent what the results of operations of the Company would
actually have been if any of the Transactions had occurred on such dates or to
project the results of operations of the Company for any future date or period.
F-47
<PAGE>
ITHACA INDUSTRIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED JANUARY 31, 1998
(In thousands except share and per share data)
<TABLE>
<CAPTION>
Ithaca Glendale Adjustments Pro Forma
<S> <C> <C> <C> <C>
Net sales $ 237,021 46,967 -- 283,988
Cost of sales 202,368 39,677 183a/ 242,228
--------- -------- ------ ---------
Gross profit 34,653 7,290 (183) 41,760
Selling, general and
administrative expenses 26,052 4,964 230b/ 31,246
--------- -------- ------ ---------
Operating income 8,601 2,326 (413) 10,514
Interest expense -
related parties 1,781 -- (1,707)c/ 74
Interest expense - non
related parties, net 5,094 834 1,813c/ 7,741
Other, net 613 226 -- 839
--------- -------- ------ ---------
Income before income
taxes 2,339 1,718 (519) 3,538
Income tax expense 803 -- 420d/ 1,223
Net income
$ 1,536 1,718 (939) 2,315
--------- -------- ------ ---------
Basic and dilutive net
income per $ .15 .22
common share ========= =========
Weighted-average
common shares
outstanding 10,000,000 400,000e/ 10,400,000
========== ========= ===========
</TABLE>
- -----------------
a/ Reflects pro forma depreciation expense associated with fair value
adjustment to acquired fixed assets.
b/ Reflects pro forma amortization expense related to goodwill and other
intangibles associated with the acquisition.
c/ Reflects (i) pro forma interest expense assuming a 10% rate for
subordinated notes payable to former Glendale shareholders issued in
connection with the acquisition and (ii) pro forma interest expense
assuming an effective rate of approximately 11.2% in connection with the
Refinancing.
d/ Reflects pro forma tax expense assuming an effective rate of 35%.
e/ Reflects pro forma impact of issuance of 400,000 shares of common stock in
connection with the acquisition.
F-48
<PAGE>
ITHACA INDUSTRIES, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
13-WEEK PERIOD ENDED MAY 2, 1998
(In thousands except share and per share data)
<TABLE>
<CAPTION>
Ithaca Glendale Adjustments Pro Forma
------------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 60,388 6,998 67,386
Cost of sales 52,643 6,264 47a/ 58,954
------------- ------------ -------------- --------------
Gross profit 7,745 734 (47) 8,432
Selling, general and
administrative expenses 7,032 631 57b/ 7,720
------------- ------------ -------------- --------------
Operating income 713 103 (104) 712
Interest expense - related
parties 296 -- 12,000c/ 308
Interest expense - non-
related parties, net 1389 122 112 1,623
Other (income) expense 34 (202) (236)
------------- ------------ -------------- --------------
Income (loss) before
income taxes 938 183 (228) (983)
Income tax benefit 334 - (16) (350)
------------- ------------ -------------- --------------
Net (loss) income $ (604) 183 (212) (633)
============= ============ ============== ==============
Basic and dilutive net
loss per common
share $(.06) (.06)
============= ==============
Weighted-average
common shares
outstanding 10,171,429 228,571d/ (10,400,000)
============= ============== ==============
</TABLE>
a/ Reflects pro forma depreciation expense associated with fair value
adjustment to acquired fixed assets.
b/ Reflects pro forma amortization expense related to goodwill and other
intangibles associated with the acquisition.
c/ Reflects (i) pro forma interest expense assuming a 10% rate for
subordinated notes payable to former Glendale shareholders issued in
connection with the acquisition and (ii) pro forma interest expense
assuming an effective rate of approximately 11.2% in connection with the
Refinancing.
d/ Reflects pro forma net adjustment issuance of 400,000 shares of common
stock in connection with the acquisition.
F-49
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
MAY 2, 1998
--------------
ASSETS
Current Assets:
Cash and Cash Equivalents $ 883
Accounts Receivable - Net 31,963
Inventories (Note 2) 65,777
Prepaid Expenses and Other Current Assets 816
---------------
Total Current Assets 99,439
Property, Plant and Equipment Net 38,321
Intangible Assets, Net of Accumulated Amortization 763
Other Assets 6,947
---------------
Total Assets $ 145,470
=============
LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities:
Current Installments of Long-Term Debt $ 413
Accounts Payable 14,809
Accrued Payroll and Related Expenses 7,301
Accrued Restructuring Costs 708
Other Accrued Expenses 2,472
Current Deferred Tax Payable 4,424
Income Taxes Payable 3,288
--------------
Total Current Liabilities 33,415
Long Term Debt - Related 886
Long Term Debt - Non-Related 76,460
Deferred Income Taxes 13,154
-------------
Total Liabilities 123,915
Stockholders' Equity:
Preferred Stock --
Common Stock of $.01 Par Value 104
Additional Paid-In Capital 23,276
Accumulated Deficit ( 1,825)
-----------
Total Stockholders' Equity 21,555
Total Liabilities and Stockholders' Equity $ 145,470
===========
F-50
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------------------------
May 2, 1998 May 3, 1997
---------------- --------------
<S> <C> <C>
Net sales $ 60,388 $ 58,743
Cost of sales 52,643 50,527
---------- -----------
Gross profit 7,745 8,216
Selling, general and administrative expenses 7,032 6,789
---------- -----------
Operating income 713 1,427
Interest expense - related parties 296 230
Interest expense - non-related parties - net 1,389 1,514
Other income - net 34 191
---------- ------------
Loss before income taxes ( 938) ( 126)
Income tax (expense) benefit 334 ( 24)
---------- ----------
Net loss $ ( 604) $ ( 150)
========== ==========
Basic and dilutive net loss per common share $ ( 0.06) $ ( 0.02)
========== ==========
Weighted average common shares outstanding 10,171,429 10,000,000
============ ==========
</TABLE>
F-51
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
------------------------------------------
May 2, 1998 May 3, 1997
----------- -----------
Cash Provided by Operating Activities:
<S> <C> <C>
Net Loss $ ( 604) $ ( 150)
Adjustments to Reconcile Net Loss to Net Cash Provided by Operations:
Depreciation and Amortization of Property and Equipment 1,467 1,490
Amortization of Intangible Assets 85 136
Decrease in Provision for Deferred Taxes 25 457
(Gain) Loss on Sale of Property, Plant and Equipment - 0 - 23
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable ( 3,671) 2,723
(Increase) Decrease in Inventories ( 749) 549
Decrease in Assets Held for Disposition - 0 - 2,222
(Increase) Decrease in Prepaid Expenses ( 199) ( 303)
(Decrease) in Accounts Payable 1,229 ( 1,077)
Increase (Decrease) in Accrued Expenses and Other Liabilities ( 490) ( 2,354)
(Decrease) In Asset Writedown and Restructuring Reserve ( 287) ( 549)
(Decrease) in Income Taxes Payable ( 379) ( 249)
---------- -------
Net Cash Provided by Operations ( 3,573) 2,918
Cash Flows From Investing Activities:
Proceeds From the Sale of Property, Plant and Equipment 8 92
Additions to Property, Plant and Equipment ( 1,265) ( 774)
Payment for Purchase of Glendale Hosiery Assets ( 6,791) - 0 -
------------ -------
Net Cash Used in Investing Activities ( 8,048) ( 682)
Cash Flows From Financing Activities:
Increase in Long-Term Debt - Net 3,698 ( 8,105)
Increase (Decrease) in Revolver 11,070 4,000
Cash Paid for Refinancing ( 2,944) - 0-
------------ -------
Net Cash Used in Financing Activities 11,824 ( 4,105)
Net (Decrease) in Cash and Cash Equivalents 203 ( 1,869)
Cash and Cash Equivalents at Beginning of Period 680 66
------------- -------
Cash and Cash Equivalents at End of Period $ 883 $ ( 1,803)
============= =======
Supplemental Disclosure of Cash Paid (Received) During the Period For:
Income Taxes $ - 0- $ ( 184)
============== =======
Interest $ 1,530 $ 1,538
============== ========
</TABLE>
Supplemental Schedule of Non-Cash Investing and Financing Activities: The
company purchased substantially all the assets of Glendale Hosiery Company.
In conjunction with the acquisition, liabilities and debt were assumed as
follows:
Fair Value of Assets Acquired: 22,016
Cash Paid for Assets 6,791
Subordinate Debt Issued 1,236
Stock Issued in Connection with Acquisition 1,264
Liabilities and Debt Assumed 12,725
F-52
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEKS ENDED
MAY 2, 1998 AND MAY 3, 1997
(Unaudited)
1. Financial Statements
--------------------
The consolidated balance sheet as of May 2, 1998 and the consolidated
statements of operations for the thirteen weeks ended May 2, 1998 and May 3,
1997, and the consolidated statements of cash flows for the thirteen weeks ended
May 2, 1998 and May 3, 1997 have been prepared by Ithaca Industries, Inc.
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 2, 1998 and the results of operations for the
thirteen weeks ended May 2, 1998 and May 3, 1997, and the statements of cash
flows for the thirteen weeks ended May 2, 1998 and May 3, 1997 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 January 31, 1998 and February 1, 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:
MAY 2, 1998
-----------
Raw Materials $ 16,960
Work in Process 16,782
Finished Goods 32,435
----------
66,177
Less Excess of FIFO over LIFO Cost 400
------------
$ 65,777
Included in the May 2, 1998 inventory numbers is $8,231 for the
Glendale Hosiery Company which was acquired on March 24, 1998.
F-53
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Acquisition and Refinancing
---------------------------
Effective March 24, 1998, the Company purchased substantially all of
the assets and assumed substantially all liabilities of Glendale Hosiery Company
(Glendale). Glendale, located in Siler City, North Carolina, is in the business
of manufacturing, marketing and distributing women's hosiery. The aggregate
purchase price included cash, the Company's common stock, subordinated notes
payable, and the assumption of indebtedness and liabilities.
The Company has entered into $110 million of senior credit facilities
("Senior Credit Facilities"). The Senior Credit Facilities include a five-year
bank credit facility consisting of a $25 million term loan and up to $70 million
in revolving credit loans to be provided by a syndicate of banks led by
NationsBank, N.A. The Senior Credit Facilities also include an additional $15
million term loan provided by Foothill Capital Credit Corporation and arranged
by NationsBanc Montgomery Securities LLC. The Senior Credit Facilities were used
to refinance the Company's existing credit agreement with another bank
syndicate, to fund the acquisition of Glendale, and will also be used for
general corporate purposes.
The following represents the summary unaudited pro forma results of
operations for the quarters ended May 2, 1998 and May 3, 1997 as if the
acquisition of Glendale had occurred at the beginning of fiscal 1997. The pro
forma results are not necessarily indicative of the results which may occur in
the future.
1998 1997
---------- ----------
Net Sales $ 67,386 $ 71,338
Net (Loss) Income (633) 61
Basic Net (Loss) Income Per Share (.06) .01
Diluted Net (Loss) Income Per Share (.06) .01
F-54
<PAGE>
- --------------------------------------- ----------------------------------------
- --------------------------------------- ----------------------------------------
NO DEALER, SALESPERSON, OR OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTA- 10,109,290 SHARES
TIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.
--------------------------- ITHACA INDUSTRIES, INC.
TABLE OF CONTENTS
Page COMMON STOCK
Additional Information........................4
Prospectus Summary............................5 ____________
Risk Factors..................................9
Use of Proceeds..............................14 PROSPECTUS
Dividend Policy..............................14 _____________
Market for the Common Stock .................15
Capitalization...............................16
Selected Financial Data......................17
Management's Discussion and
Analysis of Financial Condition
and Results of Operations ................19
Business.....................................26
Directors and Management.....................31
Description of Capital Stock.................42
Selling Stockholders.........................50
Security Ownership of Certain
Beneficial Owners and
Management................................51
Plan of Distribution.........................54
Legal Matters................................55
Experts......................................55
Index to Financial Statements...............F-1
---------------------------
July 24, 1998
- --------------------------------------- ----------------------------------------
- --------------------------------------- ----------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the Shares being registered, other than underwriting
discounts and commissions. All of the amounts shown are estimated except the
Commission registration fee.
Commission registration fee...................................... 100
Legal fees and expenses.......................................... 50,000
Accounting fees and expenses..................................... 30,000
Miscellaneous.................................................... 10,000
--------
Total......................................................... $ 90,100
---------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the DGCL provides that a corporation may indemnify
directors and officers as well as other employees and individuals against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement in connection with specified actions, suits or proceedings, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation (a "Derivative Action")), if the relevant party
acted in good faith and in a manner they reasonably believed to be in or not
opposed to the best interests of the corporation and with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was unlawful. A similar standard is applicable in the case of Derivative
Actions, except that indemnification only extends to expenses (including
attorneys' fees) incurred in connection with the defense or settlement of such
actions and the statute requires court approval before there can be any
indemnification where the person seeking indemnification had been found liable
to the corporation. The Statute provides that it is not exclusive of other
indemnification that may be granted by a corporation's charter, by-laws,
disinterested director vote, stockholder vote, agreement or otherwise.
Section 8.1 of the Certificate and Article 8.1 of the By-Laws of the
registrant calls for indemnification to the full extent permitted under Delaware
law as from time to time in effect. Subject to any restrictions imposed by
Delaware law, the By-Laws provide a right to indemnification for expenses
(including attorneys' fees and disbursements, judgments, fines, excise taxes,
penalties, amounts paid in settlement, charges and costs) actually and
reasonably incurred or suffered by any person in connection with any actual or
threatened action, suit or proceeding, whether civil, criminal, administrative
or investigative (including, to the extent permitted by law, any Derivative
Action) by reason of the fact that such person is or was serving as a director
or officer of the registrant or that, being or having been a director or officer
or an employee of the registrant, such person is or was serving at the request
of the registrant as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, including an
employee benefit plan. The By-Laws also provide that the registrant may, by
action of its Board of Directors, provide indemnification to its employees and
agents with the same scope and effect as the foregoing indemnification of
directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the laws of Delaware, the Certificate and Bylaws, or
otherwise, the Registrant has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person of the
II-1
<PAGE>
Registrant in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
ITEM 15. RECENT SALES OF UNREGISTERED SELLING STOCKHOLDERS.
10,000,000 Shares of Common Stock were issued in reliance upon the
exemption provided by 11 USC 1145.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE (Defined terms are used
herein as defined in the Prospectus.)
Exhibit No. Description of Exhibits
----------- -----------------------
2.1* Plan of Reorganization (incorporated by reference
to Exhibit A of Exhibit 2.1 to the Company's Form
8-K, dated October 3, 1996)
2.2* Modification of the Plan of Reorganization
2.3* Second Modification of the Plan of Reorganization
2.4* Asset Purchase Agreement between Ithaca Industries,
Inc. and Glendale Hosiery Company dated March 13,
1998 (incorporated by reference to Exhibit 2 to the
Company's Form 8-K, dated April 3, 1998)
3.1* Amended and Restated Certificate of Incorporation
3.2* By-Laws (incorporated by reference to Exhibit F of
Exhibit 2.1 to the Company's Form 8-K, dated
October 3, 1996)
4.1* Registration Rights Agreement (incorporated by
reference to Exhibit H of Exhibit 2.1 to the
Company's Form 8-K, dated October 3, 1996)
4.2* Rights Agreements (incorporated by reference to
Exhibit 4 to the Company's Form 8-K, dated July 20,
1998)
5* Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
re: legality
10.1* Loan and Security Agreement between the Company,
various lenders, NationsBank, N.A. as agent,
NationsBank Montgomery Securities LLC as
syndication agent and arranger and BankAmerica
Business Credit, Inc. as the documentation agent
(incorporated by reference to Exhibit 10.1 to the
Company's Form 10-K, dated May 1, 1998)
10.2* Loan and Security Agreement between the Company,
various lenders, and NationsBank, N.A. as
collateral agent (incorporated by reference to
Exhibit 10.2 to the Company's Form 10-K, dated May
1, 1998)
10.3* LTIP (incorporated by reference to Exhibit I of
Exhibit 2.1 to the Company's Form 8-K, dated
October 3, 1996)
II-2
<PAGE>
Exhibit No. Description of Exhibits
10.4* Management Agreement
10.5* Employment Agreement of Jim D. Waller
10.6* Director Option Plan
10.7* Cash Bonus Plan
21* List of Subsidiaries of the Company
23.1* Consent of Paul, Weiss, Rifkind, Wharton & Garrison
(included in item 5)
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Deloitte & Touche LLP
24* Power of Attorney
27.1 Financial Data Schedule for the year ended January
31, 1998
27.2 Financial Data Schedule for the quarterly period
ended May 2, 1998
- -----------------------
* Previously filed exhibit
II-3
<PAGE>
FINANCIAL STATEMENT SCHEDULE:
Page
----
Schedule II Valuation and Qualifying Accounts--Year ended S-1
January 31, 1998; 1 week Period ended
February 1, 1997, Post-confirmation; 42-Week
Period ended November 22, 1996; and Year ended
February 2, 1996, Preconfirmation.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
3. To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3)
of the Securities Act;
(ii) To reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b), if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement;
4. That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
5. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Amendment No. 2 to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Wilkesboro, North Carolina, on July 24, 1998.
ITHACA INDUSTRIES, INC.
By: /s/ Richard P. Thrush
Richard P. Thrush
Senior Vice President-Finance
and Administration, Secretary,
Chief Accounting and Principal
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Chairman,-Chief-Executive
- ----------------------------- Officer, President and
Jim D. Waller Director
*
- ----------------------------- Director
Walter J. Branson
*
- ----------------------------- Director
Marvin B. Crow
- ----------------------------- Director
*
- ----------------------------- Director
Francis Goldwyn
*
- ----------------------------- Director
*
Morton E. Handel
- ----------------------------- Director
*
David N. Weinstein
- ----------------------------- Director
*
- ----------------------------- Director
James A. Williams
* By: /s/ Richard P. Thrush
-----------------------------
Name: Richard P. Thrush
Title: Attorney-in-fact July 24, 1998
II-5
<PAGE>
Schedule II
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED JANUARY 31, 1998;
10-WEEK PERIOD ENDED FEBRUARY 1, 1997, POST-CONFIRMATION;
42-WEEK PERIOD ENDED NOVEMBER 22, 1996;
AND YEAR ENDED FEBRUARY 2, 1996, PRECONFIRMATION
<TABLE>
<CAPTION>
Balance at Charged to Balance at
beginning of cost and end of
Description year/period expenses Deductions Year/period
------------------ -------------- ------------- -------------- -------------
Year ended January 31, 1998
(post-confirmation):
<S> <C> <C> <C> <C>
Allowance for doubtful accounts $ 1,256,137 475,673 966,810 765,000
Provision for claims and allowances 1,029,116 2,969,815 3,299,786 699,145
Provision for assets held for
disposition reserve for 2,106,230 - 1,110,809 995,421
plant closures -------------- ------------- -------------- -------------
$ 4,391,483 3,445,488 5,377,405 2,459,566
============== ============= ============== =============
Total
10-week period ended February 1, 1997
(post-confirmation):
Allowance for doubtful accounts $ 1,508,296 2,329 254,488 1,256,137
Provision for discounts 4,760 544,529 549,289 --
Provision for claims and allowances 1,244,737 893,886 1,109,507 1,029,116
Provision for assets held for
disposition reserve for
plant closures 12,204,000 -- 10,097,770 2,106,230
-------------- ------------- ------------- -----------
$ 14,961,793 1,440,744 12,011,054 4,391,483
Total ============== ============= ============== ===========
42-week period ended November 22, 1996
(preconfirmation):
Allowance for doubtful accounts $ 1,215,000 333,724 40,428 1,508,296
Provision for discounts 99,178 1,925,578 2,019,996 4,760
Provision for claims and allowances 1,255,602 4,579,938 4,590,803 1,244,737
Provision for assets held for
disposition reserve for
plant closures 37,093,000 -- 24,889,000 12,204,000
-------------- ------------- ------------- ----------
$ 39,662,780 6,839,240 31,540,227 14,961,793
Total ============== ============= ============== ===========
Year ended February 2, 1996
(preconfirmation):
Allowance for doubtful accounts $ 1,215,000 54,965 54,965 1,215,000
Provision for discounts 146,974 2,776,842 2,824,638 99,178
Provision for claims and allowances 1,373,208 6,530,524 6,648,130 1,255,602
Provision for assets held for
disposition reserve for
plant closures -- 51,591,000 14,498,000 37,093,000
-------------- ------------- ------------- ----------
$ 2,735,182 60,953,331 24,025,733 39,662,780
Total ============== ============= ============= ==========
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibits
----------- ------------------------
2.1* Plan of Reorganization (incorporated by reference to
Exhibit A of Exhibit 2.1 to the Company's Form 8-K,
dated October 3, 1996)
2.2* Modification of the Plan of Reorganization
2.3* Second Modification of the Plan of Reorganization
2.4* Asset Purchase Agreement between Ithaca Industries, Inc.
and Glendale Hosiery Company dated March 13, 1998
(incorporated by reference to Exhibit 2 to the Company's
Form 8-K, dated April 3, 1998)
3.1* Amended and Restated Certificate of Incorporation
3.2* By-Laws (incorporated by reference to Exhibit F of
Exhibit 2.1 to the Company's Form 8-K, dated October 3,
1996)
4.1* Registration Rights Agreement (incorporated by reference
to Exhibit H of Exhibit 2.1 to the Company's Form 8-K,
dated October 3, 1996)
4.2* Rights Agreement (incorporated by reference to Exhibit 4
to the Company's Form 8-K, dated July 20, 1998)
5* Opinion of Paul, Weiss, Rifkind, Wharton & Garrison re:
legality
10.1* Loan and Security Agreement between the Company, various
lenders, NationsBank, N.A. as agent, NationsBank
Montgomery Securities LLC as syndication agent and
arranger and BankAmerica Business Credit, Inc. as the
documentation agent (incorporated by reference to
Exhibit 10.1 to the Company's Form 10-K, dated May 1,
1998)
10.2* Loan and Security Agreement between the Company, various
lenders, and NationsBank, N.A. as collateral agent
(incorporated by reference to Exhibit 10.2 to the
Company's Form 10-K, dated May 1, 1998)
10.3* LTIP (incorporated by reference to Exhibit I of Exhibit
2.1 to the Company's Form 8-K, dated October 3, 1996)
10.4* Management Agreement
10.5* Employment Agreement of Jim D. Waller
10.6* Director Option Plan
10.7* Cash Bonus Plan
21* List of Subsidiaries of the Company
23.1* Consent of Paul, Weiss, Rifkind, Wharton & Garrison
(included in item 5)
<PAGE>
Exhibit No. Description of Exhibits
---------- -----------------------
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Deloitte & Touche LLP
24* Power of Attorney
27.1 Financial Data Schedule for the year ended January 31,
1998
27.2 Financial Data Schedule for the quarterly period ended
May 2, 1998
- -----------------------
* Previously filed exhibit
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Ithaca Industries, Inc.:
The audits referred to in our report dated March 27, 1998, included the related
financial statement schedule as of and for the year ended January 31, 1998; the
10-week period February 1, 1997; the 42-week period ended November 22, 1996; and
the year ended February 2, 1996 included in the registration statement (No.
333-23555) on Form S-1 of Ithaca Industries, Inc. and subsidiaries. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audit. In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
Our report dated March 27, 1998, contains an explanatory paragraph that states
as of November 22, 1996 the Company adopted fresh-start reporting in accordance
with the American Institute of Certified Public Accountants Statement of
Position 90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Atlanta, Georgia
July 22, 1998
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in Post-Effective Amendment No. 2 to the registration
statement (No. 333-2355) of Ithaca Industries, Inc. on Form S-1 of our report
dated February 17, 1997, appearing in this registration statement, with respect
to the financial statements of Glendale Hosiery Company for the fiscal years
ended December 28, 1996 and December 30, 1995.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
July 24, 1998
Charlotte, North Carolina
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> JAN-31-1998
<CASH> 680
<SECURITIES> 0
<RECEIVABLES> 22,326
<ALLOWANCES> 765
<INVENTORY> 57,036
<CURRENT-ASSETS> 79,944
<PP&E> 39,153
<DEPRECIATION> 5,038
<TOTAL-ASSETS> 115,990
<CURRENT-LIABILITIES> 28,448
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 20,795
<TOTAL-LIABILITY-AND-EQUITY> 115,990
<SALES> 237,021
<TOTAL-REVENUES> 237,021
<CGS> 202,368
<TOTAL-COSTS> 228,420
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,875
<INCOME-PRETAX> 2,339
<INCOME-TAX> 803
<INCOME-CONTINUING> 1,536
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,536
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> MAY-02-1998
<CASH> 883
<SECURITIES> 0
<RECEIVABLES> 32,727
<ALLOWANCES> 764
<INVENTORY> 65,777
<CURRENT-ASSETS> 99,439
<PP&E> 45,938
<DEPRECIATION> 7,617
<TOTAL-ASSETS> 145,470
<CURRENT-LIABILITIES> 33,415
<BONDS> 0
<COMMON> 104
0
0
<OTHER-SE> 21,451
<TOTAL-LIABILITY-AND-EQUITY> 145,470
<SALES> 60,388
<TOTAL-REVENUES> 60,388
<CGS> 52,643
<TOTAL-COSTS> 50,527
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,685
<INCOME-PRETAX> (938)
<INCOME-TAX> (334)
<INCOME-CONTINUING> (604)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (604)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
