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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1997
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: 1-9734
ONEITA INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 57-0351045
- --------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4130 FABER PLACE DRIVE, SUITE 200, CHARLESTON, SC 29405
- -------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(803) 529 - 5225
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing for
the past 90 days.
|X| Yes |_| No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. 9,149,339 shares of Common
Stock as of July 31, 1997.
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FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION (Unaudited)
Condensed Consolidated Balance Sheets at
June 28, 1997 and September 28, 1996 ..................... 1
Condensed Consolidated Statements of Operations for
the Three Months Ended June 28, 1997 and
June 29, 1996 ............................................ 3
Condensed Consolidated Statements of Operations for
the Nine Months Ended June 28, 1997 and
June 29, 1996 ............................................ 4
Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended June 28, 1997 and
June 29, 1996 ............................................ 5
Notes to Condensed Consolidated Financial Statements ..... 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................... 8
PART II - OTHER INFORMATION
Item 1: Legal Proceedings ............................ 11
Item 2: Changes in Securities ........................ 11
Item 3: Defaults upon Senior Securities .............. 11
Item 4: Submission of Matters to a Vote of Security
Holders ...................................... 11
Item 5: Other Information ............................ 11
Item 6: Exhibits and Reports on Form 8-K ............. 12
Signatures ............................................... 13
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ONEITA INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
June 28, September 28,
1997 1996
----------- -------------
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
Cash $ 3,158 $ 9,135
Refundable income tax -- 1,988
Accounts receivable, less
allowance for doubtful accounts 20,192 25,675
Inventories (Note 2) 35,631 43,883
Prepaid expenses and other
current assets 202 223
-------- --------
Total current assets 59,183 80,904
PROPERTY, PLANT AND EQUIPMENT,
at cost, less accumulated
depreciation and amortization 42,003 46,244
OTHER ASSETS 3,339 2,377
-------- --------
$104,525 $129,525
======== ========
See notes to condensed consolidated financial statements.
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ONEITA INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
June 28, September 28,
1997 1996
----------- ------------
(Unaudited) (Note 1)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capital lease
obligations $ 1,405 $ 1,845
Long-term debt in default
classified as current 70,654 72,192
Accounts payable 4,747 9,016
Accrued liabilities 9,378 11,433
-------- --------
Total current liabilities 86,184 94,486
CAPITAL LEASE OBLIGATIONS 2,359 3,125
SHAREHOLDERS' EQUITY:
Preferred Stock, Series I, par
value $1.00 per share, 2,000,000
shares authorized, none issued -- --
Common Stock, $.25 par value,
15,000,000 shares authorized,
9,149,339 shares outstanding at
June 28, 1997 and 9,269,739 shares
outstanding at September 28, 1996 2,287 2,318
Other shareholders' equity 13,695 29,596
-------- --------
15,982 31,914
-------- --------
$104,525 $129,525
======== ========
See notes to condensed consolidated financial statements.
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ONEITA INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended
----------------------
June 28, June 29,
1997 1996
-------- --------
Net sales $ 35,549 $ 55,212
Cost of sales 35,033 53,768
-------- --------
Gross profit 516 1,444
Selling, general and administrative
expenses 3,278 4,820
-------- --------
Loss from operations (2,762) (3,376)
Interest expense, net of interest
income of $ 45 in 1997 and
$ 59 in 1996 2,020 1,867
-------- --------
Loss before benefit for income taxes (4,782) (5,243)
Benefit for income taxes -- --
-------- --------
Net loss $ (4,782) $ (5,243)
======== ========
Net loss per share (Note 3) $ (.52) $ (.76)
======== ========
See notes to condensed consolidated financial statements.
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ONEITA INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Nine Months Ended
----------------------
June 28, June 29,
1997 1996
-------- --------
Net sales $ 101,961 $ 133,635
Cost of sales 102,110 145,119
--------- ---------
Gross profit (149) (11,484)
Selling, general and administrative-
expenses 9,940 15,331
Consolidation and restructuring charges -- 5,301
--------- ---------
Loss from operations (10,089) (32,116)
Interest expense, net of interest
income of $314 in 1997 and $325 in 1996 5,842 4,788
--------- ---------
Loss before benefit for income taxes (15,931) (36,904)
Benefit for income taxes -- (2,939)
--------- ---------
Net loss $ (15,931) $ (33,965)
========= =========
Net loss per share (Note 3) $ (1.74) $ (4.94)
========= =========
See notes to condensed consolidated financial statements.
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ONEITA INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
----------------------
June 28, June 29,
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(15,931) $(33,965)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 4,934 4,486
Provision for losses on accounts receivable 192 400
Decrease in deferred income taxes -- (1,621)
Change in assets and liabilities 9,075 18,528
-------- --------
Net cash used in operating activities (1,730) (12,172)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (2,113) (7,443)
Decrease in equipment lease deposits -- 883
Proceeds from sale of property, plant
and equipment 610 591
-------- --------
Net cash used in investing activities (1,503) (5,969)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings -- 2,000
Proceeds from issuance of long-term debt -- 22,219
Payment of long-term debt and capital
lease obligations (2,744) (3,931)
-------- --------
Net cash (used in) provided by
financing activities (2,744) 20,288
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (5,977) 2,147
CASH AT BEGINNING OF PERIOD 9,135 2,749
-------- --------
CASH AT END OF PERIOD $ 3,158 $ 4,896
======== ========
See notes to condensed consolidated financial statements.
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ONEITA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation -
Oneita Industries, Inc. (the Company) manufacturers and markets high
quality activewear including T-shirts and fleecewear, and infantswear primarily
for the newborn and toddler markets. These products are marketed to the
imprinted sportswear industry and to major retailers.
The Company incurred net losses of $53.7 million and $15.9 million
respectively for the year ended September 28, 1996 and for the nine months ended
June 28, 1997. Market pressures that resulted in reduced sales volumes and
prices and operating losses during those periods are continuing into the last
half of 1997. Management's operating plans include continuing its cost reduction
program, pursuing a further consolidation of operations and concentrating the
manufacturing and sales efforts on a more profitable product mix. Inventories of
$56.7 million at June 1996 were reduced by 37% to $35.6 million at June 1997.
Product quality and responsiveness to the needs of our customers have improved.
At June 28, 1997, the Company was in default and not in compliance with
debt repayment obligations and certain other terms of its long-term revolving
credit agreement and of its loan agreement with an institutional lender and
continues to be in default and non-compliance. Accordingly, these obligations,
$57.0 million and $6.2 million, respectively, are subject to acceleration by the
lenders and have been classified as current liabilities. Also, classified as
current liabilities under a cross default provision with the revolving credit
agreement are subordinated notes held by Robert M. Gintel in the amount of $7.5
million. Mr. Gintel resigned as Chairman of the Board and as a Director of the
Company on August 8, 1997.
The Company has met and will be meeting with its long-term revolving
credit lenders, its institutional lender, and Mr. Gintel to address the
Company's strategic plans with a view to restructuring the loan agreements. No
assurance can be given that the Company will be successful in negotiating a
restructuring of its existing debt agreements on terms satisfactory to such
parties or its institutional lender. In the event the Company cannot
successfully restructure its debt agreements, it may be required to seek relief
from its creditors under applicable federal and state laws.
In the event that sufficient financing cannot be arranged in a timely
manner, in order to meet its liquidity requirements the Company may be required
to further reduce inventory levels in advance of planned deliveries by either
curtailment of production or by accelerating customer deliveries through further
discounting of prices below its inventory and production costs.
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The balance sheet at
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September 28, 1996 has been derived from the audited financial statements at
that date. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and nine-month periods ended June 28,
1997 are not necessarily indicative of the results that may be expected for the
year ending September 27, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report to shareholders for the year ended September 28, 1996.
In addition, the accompanying consolidated financial statements have been
prepared on the basis of accounting principles applicable to a going concern and
contemplates the realization of assets and the settlement of liabilities and
commitments in the normal course of business. The accompanying consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
(2) Inventories -
Inventories, stated at the lower of cost (primarily last-in, first-out) or
market, are comprised of the following (dollars in thousands):
June 28, September 28,
1997 1996
-------- -------------
Finished goods ................. $23,399 $31,774
Work in process ................. 8,869 9,287
Raw materials and supplies ........ 3,363 2,822
------- -------
$35,631 $43,883
======= =======
(3) Net Income Per Share -
Earnings per share are calculated using the weighted average number of
shares of common stock and, where dilutive, common stock equivalents outstanding
during each period. Shares used in computing per share results were 9,149,339
and 6,878,506 for the three months ended June 28, 1997 and June 29, 1996,
respectively and 9,149,339 and 6,878,506 for the nine months ended June 28, 1997
and June 29, 1996, respectively.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Net sales for the three months ended June 28, 1997 were $35.6 million as
compared to $55.2 million in the comparable period of the prior year, a decrease
of $19.6 million or 35.5%. $17.2 million of the sales decrease was attributable
to lower units sold reflecting high inventory balances in customers' warehouses
and increased competition in the marketplace. Lower unit selling prices further
reduced sales by $2.4 million and was caused by continued production
overcapacity in the industry and by lower priced imports.
Gross profit for the quarter ended June 28, 1997 of $0.5 million decreased
$0.9 million from the comparable period of the prior year. The decrease was due
to lower sales prices of $2.4 million and by lower sales, offset by improved
manufacturing efficiencies and cost reductions. Gross profit, as a percentage of
net sales, decreased to 1.5% compared to 2.6% in the comparable period of the
prior year.
Selling, general and administrative expenses for the three months ended
June 28, 1997 decreased $1.5 million from the comparable period of the prior
year. The decrease was due to lower personnel costs of $0.8 million and reduced
advertising and product development costs of $0.6 million, both as a result of
the Company's cost reduction plan as previously announced. Other costs
reductions realized in the six months were offset by increases in loan cost
amortization and loan restructuring costs of $0.6 million.
Interest expense, net of interest income, for the third quarter of 1997
was $2.0 million compared to $1.9 million for the corresponding period last
year. The increase was due to higher average borrowing rates.
Net sales for the nine months ended June 28, 1997 were $102.0 million as
compared to $133.6 million in the comparable period of the prior year, a
decrease of $31.6 million or 23.7%. The decrease was due primarily to lower
units sold of $24.9 million as well as by lower unit selling prices of $6.7
million.
Gross profit for the nine months ended June 28, 1997 of $(0.1) million
increased $11.4 million from the comparable period of the prior year. The
increase was due to improved manufacturing efficiencies and cost reductions of
$8.6 million as well as the 1996 inventory writedowns of $9.5 million, net,
offset by lower sales prices of $6.7 million and by lower sales. Gross profit,
as a percentage of net sales, increased to (0.1)% compared to (8.6)% in the
comparable period of the prior year.
Selling, general and administrative expenses for the nine months ended
June 28, 1997 decreased $5.4 million from the comparable period of the prior
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year. The decrease was due to lower personnel costs of $2.5 million and reduced
advertising and product development costs of $1.6 million, both as a result of
the Company's cost reduction plan as previously announced. Other cost reductions
realized in the six months were offset by increases in loan cost amortization
and loan restructuring costs of $1.1 million.
Interest expense, net of interest income, for the nine months ended June
28, 1997 was $5.8 million as compared to $4.8 million in the comparable period
of the prior year. The increase was due primarily to higher borrowing rates.
Liquidity and Capital Resources
Working capital was $(27.0) million at June 28, 1997 compared to $(13.6)
million at September 28, 1996.
Net cash used in operating activities for the nine months ended June 28,
1997 was $1.7 million. The primary uses were the net loss adjusted for
depreciation and amortization, and decreases in accounts payable and accrued
liabilities of $6.3 million, offset by reductions of inventory of $8.2 million
and accounts receivable of $7.5 million.
Cash used in investing activities the first nine months of 1997 consisted
of capital expenditures of $2.1 million partially offset by proceeds from the
sale of property and equipment.
In January 1996, the Company entered into a $60.0 million revolving credit
agreement with its banks. At June 28, 1997, $57.0 million was outstanding under
this agreement. At June 28, 1997, the Company was, and continues to be, in
default and not in compliance with debt repayment obligations and certain other
financial covenants arising under the revolving credit agreement and there
existed a $35.4 million collateral deficiency under the agreement as related to
borrowing capacity. Also, at June 28, 1997, the Company was, and continues to
be, not in compliance with debt repayment obligations and certain other
financial covenants under a loan agreement with an institutional lender. The
revolving credit agreement and the loan agreement with the institutional lender
are collateralized by inventories and accounts receivable. The lending banks
under the Company's revolving credit agreement have assigned their interest to
third parties. The Company has met and will be meeting with its long-term
revolving credit lenders and its institutional lender to address the Company's
strategic plans with a view to restructuring the loan agreements. No assurance
can be given that the Company will be successful in negotiating a restructuring
of its debt agreements with such third parties or its institutional lender. In
the event the Company cannot successfully restructure its debt agreements, it
may be required to seek relief from its creditors under applicable federal and
state laws.
The Company's future liquidity requirements are expected to consist
primarily of capital expenditures and working capital requirements. If existing
debt arrangements are not amended or refinanced, the Company projects that it
will exhaust its working capital in the fiscal quarter ending December 1997.
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No assurance can be given that the Company's debt arrangements will be amended
or refinanced or that sufficient financing will be available to the
Company on satisfactory terms or at all.
In the event that sufficient financing cannot be arranged in a timely
manner, in order to meet its liquidity requirements the Company may be required
to further reduce inventory levels in advance of planned deliveries by either
curtailment of production or by accelerating customer deliveries through further
discounting of prices below its inventory and production costs.
The Company has reduced its work in process and finished goods inventories
as well as its overall operating costs during the last twelve months. Annualized
operating costs have been reduced by approximately $15.0 million; inventory
levels have been reduced from $56.7 million at June 29, 1996 to $35.6 million at
June 28, 1997, and accounts receivable days outstanding were reduced by one
fourth. Product quality and responsiveness to the needs of our customers have
improved. The Company will continue to focus on these areas, as well as on
improvements in sales and marketing, manufacturing and quality control. No
assurance can be given that these reductions will generate sufficient liquidity
to meet the Company's objectives.
Effects of Inflation
The Company believes that the relatively moderate rates of inflation in
recent years have not had a significant impact on its sales and profitability.
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ONEITA INDUSTRIES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
None
Item 2 Changes in Securities
None
Item 3 Defaults upon Senior Securities
See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources."
Item 4 Other Information
None
Item 5 Exhibits and Reports on Form 8-K
27. Financial Data Schedule
No Exhibits or Reports on Form 8-K were filed during this
quarterly period.
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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.
ONEITA INDUSTRIES, INC.
By: /s/ C. Michael Billingsley
-------------------------------------
C. Michael Billingsley
President and Chief Executive Officer
By: /s/ William H. Boyd
-------------------------------------
William H. Boyd
Vice President and Treasurer
(Principal Financial Officer)
Date: August 15, 1997
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