SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 2, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number(s) 000-22385
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ITHACA INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 56-1385842
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(State or other jurisdiction of (IRS Employer Identification number)
incorporation or organization)
Highway 268 West, P.O. Box 620, Wilkesboro, NC 28697
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(Address of principal executive office (Zip Code)
(336) 667-5231
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(Registrant's telephone, including area code)
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(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all the reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days.
YES x NO
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES x NO
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the registrant's classes of common stock, as of the
latest practicable date. As of June 16, 1998, the registrant had 10,400,000
shares of common stock, par value $.01 per share outstanding.
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ITHACA INDUSTRIES, INC.
QUARTERLY REPORT
QUARTER ENDED MAY 2, 1998
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Consolidated Balance Sheets - May 2, 1998 and January 31, 1998 3
Consolidated Statements of Operations - Thirteen Weeks Ended May 2, 4
1998 and May 3, 1997
Consolidated Statements of Cash Flows - Thirteen Weeks Ended May 2, 5
1998 and May 3, 1997
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition and 8
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings *
Item 2. Changes in Securities *
Item 3. Defaults upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders *
Item 5. Other Information *
9
Item 6. Exhibits and Reports on Form 8-K
10
Signature
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* NO INFORMATION PROVIDED DUE TO INAPPLICABILITY OF ITEM
Page 2
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ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MAY 2, 1998 JANUARY 31, 1998
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<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 883 $ 680
Accounts Receivable - Net 31,963 21,561
Inventories (Note 2) 65,777 57,036
Prepaid Expenses and Other Current Assets 816 667
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Total Current Assets 99,439 79,944
Property, Plant and Equipment Net 38,321 34,115
Intangible Assets, Net of Accumulated Amortization 763 980
Other Assets 6,947 951
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Total Assets $ 145,470 $ 115,990
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Installments of Long-Term Debt $ 413 $ 13
Accounts Payable 14,809 10,102
Accrued Payroll and Related Expenses 7,301 7,860
Accrued Restructuring Costs 708 995
Other Accrued Expenses 2,472 1,387
Current Deferred Tax Payable 4,424 4,424
Income Taxes Payable 3,288 3,667
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Total Current Liabilities 33,415 28,448
Long Term Debt - Related 886 20,036
Long Term Debt - Non-Related 76,460 33,483
Deferred Income Taxes 13,154 13,128
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Total Liabilities 123,915 95,095
Stockholders' Equity:
Common Stock of $.01 Par Value 104 100
Additional Paid-In Capital 23,276 22,016
Accumulated Deficit (1,825) (1,221)
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Total Stockholders' Equity 21,555 20,895
Total Liabilities and Stockholders' Equity $ 145,470 $ 115,990
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</TABLE>
Page 3
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ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
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May 2, 1998 May 3, 1997
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<S> <C> <C>
Net Sales $ 60,388 $ 58,743
Cost of Sales 52,643 50,527
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Gross Profit 7,745 8,216
Selling, General and Administrative Expenses 7,032 6,789
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Operating Income 713 1,427
Interest Expense, Related Parties 296 230
Interest Expense, Non-Related Parties - Net 1,389 1,514
Other Income (Expense) - Net 34 191
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Income (Loss) Before Income Taxes (938) (126)
Income Tax (Expense) Benefit 334 (24)
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Net Income (Loss) $ (604) $ (150)
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Basic and Dilutive Net Income (Loss) Per Common Share $ (0.06) $ (0.02)
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Weighted Average Common Shares Outstanding 10,171,429 10,000,000
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</TABLE>
Page 4
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ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
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May 2, 1998 May 3, 1997
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<S> <C> <C>
Cash Provided by Operating Activities:
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)
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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 -
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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 -
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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
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Cash and Cash Equivalents at End of Period $ 883 $ (1,803)
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Supplemental Disclosure of Cash Paid (Received) During the Period For:
Income Taxes $ - 0- $ (184)
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Interest $ 1,530 $ 1,538
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</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
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Liabilities and Debt Assumed 12,725
Page 5
<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. (the
"Company") without audit. In the opinion of management, all adjustments
(consisting of only normal recurring accruals) necessary for a fair presentation
of the financial position of the Company at May 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 included
in the Company's Annual report on Form 10-K as filed with the Securities and
Exchange Commission on May 1, 1998.
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 JANUARY 31, 1998
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Raw Materials $ 16,960 $ 13,142
Work in Process 16,782 14,625
Finished Goods 32,435 29,519
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66,177 57,286
Less Excess of FIFO over LIFO Cost 400 250
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$ 65,777 $ 57,036
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Included in the May 2, 1998 inventory numbers is $8,231 for the
Glendale Hosiery Company which was acquired on March 24, 1998.
Page 6
<PAGE>
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 is in the business of manufacturing, marketing and
distributing women's hosiery located in Siler City, North Carolina. 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 a $110 million in 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 also
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
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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
Page 7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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 Hosiery, 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 $700 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
Hosiery Company for a combination of stock, cash and the assumption of certain
indebtedness. In conjunction with the acquisition, the Company's existing Credit
Agreement was replaced by a $110.0 million new credit facility. One part of the
new facility provides for a term loan ("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 5, 1998, the Company had $39.2 million of Term
Loans outstanding, $37.0 million of borrowings under the revolving loan
facility, and $5.5 million of outstanding letters of credit. The Company at June
5, 1998 had $14.3 million of availability under its revolving loan facility.
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. The Company manages cash to
minimize outstanding bank borrowings.
Page 8
<PAGE>
PART II. OTHER INFORMATION
Item 1 Legal Proceedings None
Item 2 Changes in Securities None
Item 3 Defaults upon Senior Securities None
Item 4 Submission of Matter to a Vote of Security Holders None
Item 5 Other Information None
Item 6 Exhibits and Reports on Form 8-K:
(a) Exhibits
Ex. 27 -- Financial Data Schedule
(b) Reports on Form 8-K None
Page 9
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ITHACA INDUSTRIES, INC.
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(Registrant)
By: /s/ Richard P. Thrush
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RICHARD P. THRUSH
Senior Vice President Finance and Administration
Principal Financial and Chief Accounting Officer
Dated: June 16, 1998
Page 10
<PAGE>
Exhibit Index
Exhibit No. Description of Exhibits
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27 Financial Data Schedule for the quarterly period ended May 2, 1998
Page 11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<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>
