ITHACA IN TALKS TO REVISE CREDIT AGREEMENT TERMS
Byline: Thomas J. Ryan
NEW YORK — Having defaulted on credit agreements, Ithaca Industries said it is negotiating with its bondholders and banks to restructure its credit agreements to more closely match anticipated operating levels.
The Wilkesboro, N.C.-based firm, which makes private label and branded underwear, hosiery and T-shirts, logged an $18.9 million loss before a tax benefit in the third quarter ended Oct. 27.
In a telephone interview last week, Brian T. Fearn, Ithaca’s director of treasury operations, said that a Chapter 11 bankruptcy filing “is always an option, but we’d like to avoid court involvement.” He pointed out that there has been “no animosity” between the different lenders and Ithaca itself. While no agreement is imminent, the banks and Ithaca have proposals on the table, he said.
Meanwhile, Ithaca — highly leveraged as a result of a 1983 buyout led by Merrill Lynch, Butler Capital Corp., and senior management — is working on a new business plan that involves downsizing the company.
“All the interest payments are too much in a down market so we’ve got to restructure our operations, and that’s what we’re doing,” Fearn said. Ithaca has retained Alvarez & Marsal Inc., a turnaround firm, and Arthur Andersen Consulting to assist the company in developing a long-term operating and financial restructuring plan.
The loss in the quarter included charges of $10.6 million for inventory write-offs and $3.6 million for plant and equipment write-offs. There were also employee severance costs as part of a plant consolidation and cost reduction program first unveiled in mid-October.
Ithaca plans to restructure its manufacturing capacity, product lines, and customer base. So far, four domestic cutting and sewing facilities for women’s innerwear and men’s underwear have been closed, and further U.S. plant closings are planned for 1996. Production at these facilities will be transferred to other Ithaca plants, either domestic or offshore, or to contractors. Ithaca has 16 other facilities in the U.S. and makes some 85 percent of its products domestically.
About 90 percent of Ithaca’s products are private label, with 44 percent of sales in the year ending January 27 going to J.C. Penney Co. and 13 percent to Wal-Mart Stores Inc. Through licenses, Ithaca makes hosiery under the Evan-Picone, Vanity Fair and Vassarette labels, women’s underwear under Lady Manhattan and Bestform labels, and men’s and boys’ underwear brands under the Perry Ellis, John Weitz and Hang Ten names.
The Bestform trademark is owned by Ithaca Holdings, the parent of Ithaca Industries. The holding company, which was formed in 1992 to complete the acquisition of Bestform Foundations, is not affected by the restructuring, according to Fearn. Fearn said a merger of Bestform into Ithaca was attempted in summer 1995, but an agreement with their bankers couldn’t be reached. Overall, women’s and girl’s underwear in 1994 accounted for nearly 21 percent of sales; men’s and boys’ underwear, 35 percent; hosiery, 28 percent; and T-shirt products, 15 percent.
Ithaca is privately held but files financial information with the Securities and Exchange Commission because of its public offering of 11 1/8 percent $125 million senior subordinated notes in December 1992.
The net loss in the third quarter was $11.8 million, as the restructuring charges of $14.2 million and interest costs of $6.6 million were partly offset by a $7.1 million tax-loss benefit. Excluding the restructuring provision, operating income tumbled 83.6 percent to $1.8 million from $11 million. Gross margins eroded to 11 percent from 18.1 percent due to unfavorable manufacturing variances caused by lower unit volumes and inventory reductions to bring inventory levels in line with projected sales volumes.
Sales slid 3.2 percent to $111.5 million from $115.2 million. Men’s underwear sales decreased 8 percent while all other divisions were basically flat. The men’s wear decline stemmed from lower unit volume.
In the nine months, the loss was $13.6 million against earnings of $7.2 million the previous year. Sales slumped 4.5 percent to $306.9 million from $321.3 million. Hosiery sales fell 12 percent and women’s underwear sales dropped 9 percent due to lower unit volume and unit prices. The men’s underwear division and T-shirt division tallied sales increases of 2 percent each.
The company was not in compliance with its fixed interest coverage ratio and interest coverage ratio under its financial covenants in the second and third quarters, and Ithaca said it does not expect to be in compliance with these covenants in the near future due to restrictions under its bank waiver. The company failed to pay $7 million in interest on its 11 1/8 percent senior subordinated notes on Dec. 15, and the indenture under the notes calls for a default 30 days following such an event.
The banks have granted the company waivers until Saturday. However, the waiver placed limitations of borrowing under its revolving credit facility to $40 million plus outstanding letters of credit. Ithaca’s banks are Canadian Imperial Bank of Commerce; Kleinwort Benson Limited, and Bankers Trust Co. Ithaca’s credit facility provides for a revolving credit facility of $65 million and $125 million term loan. As of Dec. 11, Ithaca had about $5 million of availability under its bank credit facility. — Fairchild News Service