ITEM 1. 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 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 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.
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.
Plan of Reorganization
On December 16, 1996, the Company emerged from bankruptcy pursuant to the Plan of Reorganization, dated as of August 29, 1996 (the "Plan of Reorganization"). As a result of the reorganization, the Company significantly reduced its debt and simplified its capital structure. Pursuant to the Plan of Reorganization, prior equity interests in the company were canceled, 10,000,000 shares of the Company's common stock, par value $0.01 (the "Common Stock") were distributed to the holders of the Company's outstanding 11.125% Senior Subordinated Notes due 2002 (the "Notes"), the Notes were retired, the Company ceased to be a subsidiary of Ithaca Holdings, Inc., the Company's bank credit agreement, which was subsequently replaced on March 24, 1998, was amended and restated and general unsecured claims, administrative claims, tax claims, priority claims and general secured claims allowed by the Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") were paid in full.
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. 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.
On January 31, 1998 the capital structure of the Company consisted of approximately $53.5 million of long-term debt exclusive of current maturities, and approximately $20.9 million of net equity.
Fresh Start Reporting
The Company adopted Fresh Start Reporting on November 22, 1996, the day the Plan of Reorganization was confirmed by the Bankruptcy Court. Accordingly, the Company's Consolidated Balance Sheets as of January 31, 1998 and February 1, 1997 and its Consolidated Statements of Operations, Consolidated Statements of Stockholders' Equity (Deficit) and Consolidated Statements of Cash Flows for the year ended January 31, 1998 and the 10-week period ended February 1, 1997 will not be comparable to the prior periods included elsewhere herein.
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.
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 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 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.
Employees
The Company employed approximately 5,500 people as of March 31, 1998, of which approximately 5,020 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.
ITEM 2.
ITEM 2. 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.
ITEM 3.
ITEM 3. 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.
ITEM 4.
ITEM 4. Submission of Matters to a Vote of Holders of the Common Stock
No matters have been submitted to a vote of the holders of Common Stock during the fourth quarter of the Registrant's 1998 fiscal year.
PART II
ITEM 5.
ITEM 5. Market for Registrant's Common Stock and Related Stockholder Matters
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 NASDAQ National Market. This application was withdrawn because the Company was advised by NASDAQ that it would not qualify. The company intends to reapply as soon as it believes it meets the criteria. There can be no assurance that this will occur or 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.
On December 16, 1996, 10,000,000 shares of Common Stock were issued in reliance upon the exemption provided by 11 USC 1145. These shares were registered under the Securities Act of 1934, as amended, by means of a Registration Statement on Form S-1 declared effective on April 4, 1997. An additional 400,000 shares were issued on March 24, 1998 as part of the purchase agreement for Glendale Hosiery, Co.
As of April 24, 1998, there were approximately 11 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 other than options to purchase 927,679 shares of Common Stock, including the options granted to Alvarez & Marsal, Inc., issuable under the Company's 1996 Long Term Stock Incentive Plan (the "LTIP"), of which options to purchase 486,049 shares are currently exercisable.
The Company has not paid any cash dividends on the Common Stock and does not anticipate that it will do so in the foreseeable future. The Credit Agreement restricts the Company's ability to pay dividends on the Common Stock. Any determination to pay cash dividends in the foreseeable future will be at the discretion of the Company's Board of Directors (the "Board" or the "Board of Directors") and will be dependent upon the Company's results of operations, financial condition, contractual restrictions and other factors deemed relevant by the Board. 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.
ITEM 6.
ITEM 6. Selected Financial Data
The following table sets forth selected financial information with respect to the Company for 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 and is derived from and should be read in conjunction with the Company's audited Consolidated Financial Statements and related notes included in Item 8 of this report. 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 selected financial information set forth below is qualified by and should be read in conjunction with Item 8 the "Financial Statements" and the notes thereto and Item 7
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operation
General
The following discussion should be read in conjunction with the Consolidated Financial Statements and the related notes included in Item 8
ITEM 8. Financial Statements and Supplementary Data
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Page ----
Independent Auditors' Report................................................ 19
Consolidated Balance Sheets as of January 31, 1998 and February 1, 1997..... 20
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................................................................. 21
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........................................................ 22
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.............. 23
Notes to Consolidated Financial Statements.................................. 25
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. In connection with our audits, we have also audited the related financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule 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. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
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 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.
KPMG PEAT MARWICK LLP
Atlanta, Georgia March 27, 1998
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets January 31, 1998 and February 1, 1997 (In thousands, except share data)
See accompanying notes to consolidated financial statements.
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 and per share data)
See accompanying notes to consolidated financial statements.
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)
See accompanying notes to consolidated financial statements.
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)
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
See accompanying notes to consolidated financial statements.
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. (the "Company") 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 was operated as a debtor-in-possession subject to the supervision of the Bankruptcy Court until December 16, 1996.
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share data)
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 Post-Confirmation 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.
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 prepetition 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 prepetition 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:
(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.
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:
Buildings 25 - 30 years Property improvements 5 - 10 years Machinery and equipment 3 - 8 years Vehicles 3 years
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share data)
(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.
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.
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:
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 ======== ======
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 prepetition 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.
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.
(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 ======== ===== ====== ======
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share data)
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:
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:
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share data)
(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 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.
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share data)
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.
(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.
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share data)
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 cancelled -- -- ---------- Options outstanding at February 2, 1997 901,014 6.00 Options granted 17,500 6.00 Options cancelled (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 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.
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share data)
(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 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 Hosiery Company (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.
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share data)
(14) Quarterly Financial Data (Unaudited)
(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.
ITEM 9.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
ITEM 10.
ITEM 10. Directors and Executive Officers of the Registrant
The information required by this Item 10 is incorporated by reference herein from the material under the headings "Business Experience of Directors and Executive Officers," "Proposal 1: Election of Directors - Meetings of the Board of Directors," and "Section 16(a) Beneficial Ownership Reporting Compliance" contained in the Company's definitive proxy statement filed with the Commission relating to the annual meeting of stockholders to be held on June 10, 1998.
ITEM 11.
ITEM 11. Executive Compensation
The information required by this Item 11 is incorporated by reference herein from the material under the headings "Remuneration of Directors and Executive Officers," and "Compensation and Stock Option Committee Interlocks and Insider Participation" contained in the Company's definitive proxy statement filed with the Commission relating to the annual meeting of stockholders to be held on June 10, 1998.
ITEM 12.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item 12 is incorporated by reference herein from the material under the heading "Security Ownership of Certain Beneficial Owners" contained in the Company's definitive proxy statement filed with the Commission relating to the annual meeting of stockholders to be held on June 10, 1998.
ITEM 13.
ITEM 13. Certain Relationships and Related Transactions
During the Company's last fiscal year there were no reportable transactions or relationships.
PART IV
ITEM 14.
ITEM 14. Exhibits, Financial Statement Schedules and Reports On Form 8-K
(a) Financial Statements, Financial Statement Schedules and Exhibits
1. Financial Statements
A. Independent Auditor's Report
B. Consolidated Balance Sheets as of January 31, 1998 and February 1, 1997.
C. 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.
D. 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.
E. 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. Notes to the Consolidated Financial Statements.
2. Financial Statement Schedule Page - 45
Schedule II Valuation and Qualifying Accounts--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.
3. Exhibits
All Exhibits listed below are filed with this Annual Report on Form 10-K unless specifically stated to be incorporated by reference to other documents previously filed with the Securities and Exchange Commission.
Exhibit No. Description of Exhibits - ----------- -----------------------
3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of the Company's Registration Statement on Form S-1, dated March 17, 1997).
3.2 Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit F of Exhibit 2.1 to the Company's Form 8-K, dated September 3, 1996).
4 Registration Rights Agreement, between the Company and various stockholders (incorporated by reference to Exhibit H of Exhibit 2.1 to the Company's Form 8-K, dated September 3, 1996).
10.1 Loan and Security Agreement among the Company, various banks, NationsBank, N.A. as agent, NationsBanc Montgomery Securities LLC as syndication agent and arranger and BankAmerica Business Credit, Inc. as documentation agent, dated as of March 24, 1998.
10.2 Loan and Security Agreement among the Company, Foothill Capital Corp. and NationsBank, N.A. as collateral agent, dated as of March 24, 1998.
10.3 Ithaca Industries 1996 Long Term Stock Incentive Plan (incorporated by reference to Exhibit I of Exhibit 2.1 to the Company's Form 8-K, dated September 3, 1996).
10.4 Employment Agreement of Jim D. Waller (incorporated by reference to Exhibit 10.4 of the Company's Registration Statement on Form S-1, dated March 17, 1997).
21 List of Subsidiaries of the Company (incorporated by reference to Exhibit 21 of the Company's Registration Statement on Form S-1, dated March 17, 1997).
23 Consent of KPMG Peat Marwick LLP.
24 Power of Attorney (included in the signature page of this report).
27 Financial Data Schedule for the year ended January 31, 1998.
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the Registrant during the last quarter of the fiscal year ended January 31, 1998.
As of the date of the filing of this Annual Report on Form 10-K no proxy materials have been furnished directly to security holders. Proxy materials will be mailed on or about May 5, 1998 to security holders.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in Wilkesboro, North Carolina, on this 1st day of May, 1998.
ITHACA INDUSTRIES, INC.
By: /s/ Richard P. Thrush ---------------------------- RICHARD P. THRUSH (Secretary, Chief Financial and Accounting Officer)
We, the undersigned officers and directors of Ithaca Industries, Inc., hereby severally constitute Jim D. Waller, and Richard P. Thrush, and each of them singly, our true and lawful attorneys with full power to them, and each of them singly, to sign for us and in our names in the capacities indicated below, any and all reports, with all exhibits thereto and any and all documents in connection therewith, and generally do all such things in our name and on our behalf in such capacities to enable Ithaca Industries, Inc. to comply with the applicable provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities Exchange Commission, and we hereby ratify and confirm our signatures as they may be signed by our said attorneys, or either of them, to any and all such amendments.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date(s) --------- ----- -------
/s/ Jim D.Waller Chairman, Chief Executive Officer, April 23, 1998 - ------------------------ President and Director ------------------- Jim D. Waller
/s/ Walter J. Branson Director April 23, 1998 - ------------------------ ------------------- Walter J. Branson
/s/ Marvin B. Crow Director April 23, 1998 - ------------------------ ------------------- Marvin B. Crow
/s/ Francis Goldwyn Director April 23, 1998 - ------------------------ ------------------- Francis Goldwyn
/s/ Morton E. Handel Director April 23, 1998 - ------------------------ ------------------- Morton E. Handel
/s/ David N. Weinstein Director April 23, 1998 - ------------------------ ------------------- David N. Weinstein
/s/ James A. Williams Director April 23, 1998 - ------------------------ ------------------- James A. Williams
Exhibit Index
Exhibit No. Description of Exhibits - ----------- -----------------------
3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of the Company's Registration Statement on Form S-1, dated March 17, 1997).
3.2 Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit F of Exhibit 2.1 to the Company's Form 8-K, dated September 3, 1996).
4 Registration Rights Agreement, between the Company and various stockholders (incorporated by reference to Exhibit H of Exhibit 2.1 to the Company's Form 8-K, dated September 3, 1996).
10.1 Loan and Security Agreement among the Company, various banks, NationsBank, N.A. as agent, NationsBanc Montgomery Securities LLC as syndication agent and arranger and BankAmerica Business Credit, Inc. as documentation agent, dated as of March 24, 1998.
10.2 Loan and Security Agreement among the Company, various banks and NationsBank, N.A. as collateral agent, dated as of March 24, 1998.
10.3 Ithaca Industries 1996 Long Term Stock Incentive Plan (incorporated by reference to Exhibit I of Exhibit 2.1 to the Company's Form 8-K, dated September 3, 1996).
10.4 Employment Agreement of Jim D. Waller (incorporated by reference to Exhibit 10.4 of the Company's Registration Statement on Form S-1, dated March 17, 1997).
21 List of Subsidiaries of the Company (incorporated by reference to Exhibit 21 of the Company's Registration Statement on Form S-1, dated March 17, 1997).
23 Consent of KPMG Peat Marwick LLP.
24 Power of Attorney (included in the signature page of this report).
27 Financial Data Schedule for the year ended January 31, 1998.
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the Registrant during the last quarter of the fiscal year ended January 31, 1998.
As of the date of the filing of this Annual Report on Form 10-K no proxy materials have been furnished directly to security holders. Proxy materials will be mailed on or about May 5, 1998 to security holders.
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