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 1, 1999
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.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 56-1385842
- ------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification number)
incorporation or organization)
Highway 268 West, P.O. Box 620, Wilkesboro, NC 28697
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
(336) 667-5231
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(Registrant's telephone, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all the reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days.
YES x NO
----- ------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES x NO
----- ------
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the registrant's classes of common stock, as of the
latest practicable date. As of June 15, 1999, the registrant had 10,000,000
shares of common stock, par value $.01 per share outstanding.
<PAGE>
ITHACA INDUSTRIES, INC.
QUARTERLY REPORT
QUARTER ENDED MAY 1, 1999
INDEX
Part I. FINANCIAL INFORMATION Page
Item 1. Consolidated Balance Sheets - May 1, 1999 and
January 30, 1999 3
Consolidated Statements of Operations -
Thirteen Weeks Ended May 1, 1999 and May 2,
1998 4
Consolidated Statements of Cash Flows -
Thirteen Weeks Ended May 1, 1999 and May 2,
1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Part II. OTHER INFORMATION
Item 1. Legal Proceedings *
Item 2. Changes in Securities *
Item 3. Defaults upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders *
Item 5. Other Information *
Item 6. Exhibits and Reports to Form 8-K 10
Signature 11
* No information provided due to inapplicability of item
Page 2
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
(Unaudited)
May 1, 1999 January 30, 1999
------------------ ------------------
ASSETS
- ------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 183 $ 66
Receivable from Sale of Discontinued Operations (Note 3) 7,106 -
Accounts Receivable - Net 19,083 19,836
Inventories (Note 2) 52,463 49,707
Prepaid Expenses and Other Current Assets 894 270
Assets Held for Disposition, Net 3,586 1,972
------------------ ------------------
Total Current Assets 83,315 71,851
Property, Plant and Equipment - Net 24,059 26,016
Investment in Discontinued Operations (Note 3) - 27,553
Intangible Assets, Net of Accumulated Amortization 77 83
Other Assets 4,694 3,658
------------------ ------------------
Total Assets $ 112,145 $ 129,161
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Current Installments of Long-Term Debt $ 14 $ 14
Accounts Payable 15,954 10,723
Accrued Payroll and Related Expenses 7,310 6,168
Other Accrued Expenses 3,045 2,434
Current Deferred Tax Payable 1,498 1,498
Income Taxes Payable 4,728 5,450
------------------ ------------------
Total Current Liabilities 32,549 26,287
Long Term Debt - Related 36 43
Long Term Debt - Non Related 55,439 77,670
Deferred Income Taxes 10,792 10,788
Other Non-Current Liabilities 145 83
------------------ ------------------
Total Liabilities 98,961 114,871
Stockholders' Equity:
Common Stock of $.01 Par Value 100 104
Additional Paid-In Capital 22,780 23,276
Accumulated Deficit (9,696) (9,090)
------------------ ------------------
Total Stockholders' Equity 13,184 14,290
Total Liabilities and Stockholders' Equity $ 112,145 $ 129,161
================== ==================
</TABLE>
See accompanying notes to consolidated financial statements
Page 3
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, except share data)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-----------------------------------------
May 1, 1999 May 2, 1998
------------------ ----------------
<S> <C> <C>
Net Sales $ 42,412 $ 44,519
Cost of Sales 36,348 38,300
------------------ ----------------
Gross Margin 6,064 6,219
Selling, General and Adminstrative Expenses 4,587 5,129
Provision for Restructuring (Note 4) 1,070 -
------------------ ----------------
Operating Income 407 1,090
Interest Expense, Related Parties 18 209
Interest Expense, Non-Related Parties - Net 1,417 981
Other Income (Expense) - Net 65 32
------------------ ----------------
(Loss) Before Income Taxes, Continuing Operations (963) (68)
Income Tax (Benefit) Expense (356) (25)
------------------ ----------------
Income (Loss) From Continuing Operations (607) (43)
Income (Loss) From Discontinued Operations (Note 3) - (561)
------------------ ----------------
Net Income (Loss) (607) (604)
Basic and Dilutive Net (Loss) Per Common Share (0.06) (0.06)
Weighted Average Common Shares Outstanding 10,400,000 10,171,429
</TABLE>
See accompanying notes to consolidated financial statements
Page 4
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
May 1, 1999 May 2, 1998
--------------- ---------------
<S> <C> <C>
Cash Provided by Operating Activities:
Net Loss $ (607) $ (604)
Adjustments to Reconcile Net Loss to Net Cash Provided by
Operations
Depreciation and Amortization of Property and Equipment 1,081 1,467
Amortization of Intangible Assets 176 85
Decrease in Provision for Deferred Taxes - 25
(Gain) Loss on Sale of Property, Plant and Equipment - -
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable 753 (3,671)
(Increase) Decrease in Inventories (2,756) (749)
Increase (Decrease) in Assets Held for Disposition (18) -
(Increase) Decrease in Prepaid Expenses (1,831) (199)
Increase (Decrease) in Accounts Payable 5,231 1,229
Increase (Decrease) in Accrued Expenses and Other Liabilities 1,816 (490)
(Decrease) in Asset Writedown and Restructuring Reserve - (287)
(Decrease) in Income Taxes Payable (721) (379)
Increase (Decrease) Deferred Income Tax 4 -
--------------- ---------------
Net Cash Provided from Operations 3,128 (3,573)
Cash Flows From Investing Activities:
Sale of Hosiery Division Assets 20,447 -
Proceeds from the Sale of Property, Plant and Equipment 498 8
Additions to Property, Plant and Equipment (1,218) (1,265)
Payment for Purchase of Glendale Hosiery Assets - (6,791)
--------------- ---------------
Net Cash from Investing Activities 19,727 (8,048)
Cash Flows From Financing Activities:
Increase (Decrease) in Long-Term Debt (7,119) 3,698
Increase (Decrease) in Revolver (15,119) 11,070
Stock Repurchase (500) -
Cash Paid for Refinancing - (2,944)
--------------- ---------------
Net Cash from Financing Activities (22,738) 11,824
Net Increase in Cash and Cash Equivalents 117 203
Cash and Cash Equivalents at Beginning of Period 66 680
--------------- ---------------
Cash and Cash Equivalents at End of Period $ 183 $ 883
=============== ===============
Supplemental Disclosure of Cash Paid during the Period for:
Income Tax - -
=============== ===============
Interest $ 2,623 $ 1,530
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements
Page 5
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEKS ENDED
MAY 1, 1999 AND MAY 2, 1998
(Unaudited)
1. FINANCIAL STATEMENTS
The consolidated balance sheets as of May 1, 1999 and January 30, 1999,
and the consolidated statements of operations for the thirteen weeks ended May
1, 1999 and May 2, 1998, and the consolidated statements of cash flows for the
thirteen weeks ended May 1, 1999 and May 2, 1998 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 1, 1999 and
the results of operations for the thirteen weeks ended May 1, 1999 and May 2,
1998, and the statements of cash flows for the thirteen weeks ended May 1, 1999
and May 2, 1998 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 30, 1999 and January 31, 1998 included
in the Company's Annual report on Form 10-K as filed with the Securities and
Exchange Commission on May 14, 1999.
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:
(Unaudited)
May 1, 1999 January 30, 1999
----------- ----------------
Raw Materials $ 11,556 $ 12,615
Work in Process 11,489 13,262
Finished Goods 29,418 23,830
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$ 52,463 $ 49,707
=========== ================
3. DISCONTINUED OPERATIONS
On April 30, 1999, the Company sold substantially all the assets of its
hosiery division. The results of operations of the hosiery division are
reflected as discontinued operations within the income statements. The Company
recorded a loss on disposal in the fourth quarter of fiscal 1999 of $2.4
million. The transaction is subject to a final purchase price adjustment which
will be determined in the Company's second quarter of fiscal 2000. Management
does not anticipate any significant change from the reserves provided.
The Company received total proceeds of $24.1 million at the closing and
has recorded a receivable for the estimated balance due.
Page 6
<PAGE>
4. PROVISION FOR RESTRUCTURING
The Company has recorded a provision for restructuring costs for the
termination of approximately 700 production related employees of its underwear
division at its Cairo, Georgia and Swainsboro, Georgia facilities. Additionally,
certain assets have been classified as held for sale at May 1, 1999 related to
the closure of the Cairo and Swainsboro facilities.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Thirteen Weeks Ended May 1, 1999 Compared
With Thirteen Weeks Ended May 2, 1998
The Company finalized the sale of its hosiery division on April 30,
1999. Accordingly, the results of operation for the thirteen weeks ended May 1,
1999 and May 2, 1998 reflect the hosiery division as discontinued operations.
Net sales decreased from $44.5 million for the thirteen weeks ended May
2, 1998 to $42.4 million (4.7%) for the thirteen weeks ended May 1, 1999. The
decrease reflects lower sales to some of the Company's major customers, offset
by increased sales of underwear products that have been discontinued by the
Company.
The gross profit margin increased to 14.3% for the first quarter of
fiscal 2000 from 14.0% in the comparable period last year.
Selling, general and administrative expenses for the first quarter of
fiscal 2000 decreased to $4.6 million compared to $5.1 million in the first
quarter of fiscal 1999. This decrease results primarily from reduced personnel
levels, advertising expenditures and license fees.
Operating profit decreased to $400 thousand for the first quarter of
fiscal 2000 from $1.1 million for the comparable period last year. The decrease
is attributable to the one-time non-recurring cost for plant closings. Without
this cost operating profit would have increased by $400 thousand (36%).
Interest expense increased to $1.4 million for the first quarter of
fiscal 2000 compared to $1.2 million for the first quarter of fiscal 1999. The
increase is due primarily to increased average bank borrowings.
LIQUIDITY AND CAPITAL RESOURCES
On April 30, 1999, the Company, in conjunction with the sale of its
hosiery operations, amended its existing credit agreements. The amended
facilities total $85.4 million and consist of a term loan ("Term Loan") of $15.4
million, a revolving loan facility of up to $55.0 million and a separate term
loan facility for an additional $15.0 million term loan (together with the Term
Loan, the "Term Loans"). The revolving loan facility includes a sub-limit of
$15.0 million for the issuance of letters of credit. As of June 2, 1999, the
Company had $30.2 million of Term Loans outstanding, $26.1 million of borrowings
under the revolving loan facility, and $5.0 million of outstanding letters of
credit. The Company at June 2, 1999 had $8.4 million of availability under its
revolving loan facility.
The Company's cash on hand as of May 1, 1999 was $200 thousand compared
to $100 thousand at January 30, 1999. The Company manages cash to minimize
outstanding bank borrowings.
Page 7
<PAGE>
YEAR 2000 ("Y2K") COMPLIANCE
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 may 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 similar normal business activities.
To improve the Company's overall financial and operational information,
a system was selected and is in the process of being installed. This new ERP
system, which is Y2K compliant, will replace the Company's legacy systems. The
ERP project is supervised and supported by senior management. The implementation
of the ERP system is a joint effort of the Company's internal staff and outside
consultants.
The Company's Y2K compliance project was begun in July 1996 and has
five phases. Phase one, which involved the assessment of all systems and
equipment affected by the Y2K issue, has been completed. Phase two, which
involved the defining of strategies to correct those systems and equipment which
were found to pose Y2K problems, has also been completed. Phase three involved
the remediation or replacement of the systems and equipment which were found to
be defective and were not going to be resolved by the installation of the new
ERP system mentioned above. The Company has a definitive plan in place to make
the necessary corrections and, as of April 30, 1999, has completed the required
changes for 95% of the identified problems. Phase four involved assessing the
potential impact on the Company of the Y2K compliance efforts of its customers
and suppliers. Formal communications with all major customers and suppliers by
the Company were begun in March 1998 and follow up communications is ongoing.
The Company is finalizing the analysis of the responses received and, based on
that analysis, will determine what corrective actions need to be taken to
minimize the impact of its customers' and suppliers' failure to address their
Y2K problems on the Company. There is no guarantee that the systems of other
companies on which the Company's systems rely will be timely converted and will
not have an adverse effect on the Company's systems. Phase five involves the
formal testing to insure Y2K compliance. This testing began in July 1997 and is
planned to continue up through December 31, 1999.
Since the actions being taken by the Company to correct the Y2K problem
are extensive and ongoing, the Company's worst case scenario is unknown at this
time. The Company believes it is prudent to have contingency plans in place to
minimize the impact of internal or third party failures to correct Y2K problems.
The Company is currently identifying the areas where contingency plans are
required based on the best information that it has available at this time.
The incremental cost of becoming Y2K compliant is not material. The
date on which the Company believes it will complete the Y2K modifications is
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.
The Company believes that the successful, timely completion of its Y2K
compliance project will result in the Company not suffering any material adverse
effect on its results of operations, financial position or cash flows. However,
if all Y2K issues are not properly identified, assessed, remediated, replaced or
tested, there can be no assurance that the Y2K issue will not have a material
adverse effect on its results of operations, financial position, or cash flows
or adversely affect the Company's relationship with suppliers, customers or
other third parties. Additionally, there can be no assurance that the Y2K issues
of other entities will not adversely affect the Company. (See "Special Note
Regarding Forward-Looking Statements")
Page 8
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this report 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
Industries, Inc., a Delaware corporation (the "Company" or "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 report, 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. These risks include
business risks such as changes in the price of raw materials, concentration of
Ithaca's principal customers, availability of labor and competitive factors;
industry risks such as changes in the retailing industry and shifts in consumer
preferences; financial risks such as liquidity and access to capital; and other
risks as set forth from time to time in the company's filings with the
Securities and Exchange Commission.
Many of the foregoing factors have been discussed in the Company's
prior filings with the Securities and Exchange Commission (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.
Page 9
<PAGE>
Part II. OTHER INFORMATION
Item 1 Legal Proceedings None
Item 2 Changes in Securities None
Item 3 Defaults upon Senior Securities None
Item 4 Submission of Matter to a Vote of Security Holders None
Item 5 Other Information None
Item 6 Exhibits and Reports on Form 8-K:
(a) Exhibits
Ex. 27 -- Financial Data Schedule
(b) Reports on Form 8-K None
Page 10
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ITHACA INDUSTRIES, INC.
-----------------------
(Registrant)
By: /s/ Richard P. Thrush
------------------------
RICHARD P. THRUSH
Senior Vice President Finance and
Administration
Principal Financial and Chief
Accounting Officer
Dated: June 15, 1999
-------------------
Page 11
<PAGE>
Exhibit Index
- -------------
Exhibit No. Description of Exhibits
- ----------- -----------------------
27 Financial Data Schedule for the quarterly period ended May 1,
1999
Page 12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> MAY-01-1999
<CASH> 183
<SECURITIES> 0
<RECEIVABLES> 19,573
<ALLOWANCES> 490
<INVENTORY> 52,463
<CURRENT-ASSETS> 83,315
<PP&E> 24,059
<DEPRECIATION> 10,048
<TOTAL-ASSETS> 112,415
<CURRENT-LIABILITIES> 32,549
<BONDS> 0
<COMMON> 100
0
0
<OTHER-SE> 13,084
<TOTAL-LIABILITY-AND-EQUITY> 112,145
<SALES> 42,412
<TOTAL-REVENUES> 42,412
<CGS> 36,348
<TOTAL-COSTS> 41,514
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,370
<INCOME-PRETAX> (963)
<INCOME-TAX> (356)
<INCOME-CONTINUING> (607)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (607)
<EPS-BASIC> (.06)
<EPS-DILUTED> (.06)
</TABLE>
