UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 2, 1994
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-8016
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TULTEX CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-0367896
- - ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
101 Commonwealth Boulevard, P. O. Box 5191, Martinsville, Virginia 24115
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 703-632-2961
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- - --------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
29,806,793 shares of Common Stock, $1 par value, as of August 2, 1994
- - ---------- -- --------------
PART I. FINANCIAL INFORMATION
Item 1.
Tultex Corporation
Consolidated Statement of Income (Unaudited - $000's omitted except in shares
and per share data)
July 2, 1994 (and July 3, 1993)
Three Months Ended Six Months Ended
-------------------------- -------------------------
July 2, 1994 July 3, 1993 July 2, 1994 July 3, 1993
-------------------------- --------------------------
Net Sales and
Other Income $ 101,900 $ 100,238 $ 188,194 $ 191,260
------------ ------------ ------------ ------------
Costs and Expenses:
Cost of Products Sold 77,309 71,718 139,328 135,598
Depreciation 6,256 5,467 12,447 10,993
Selling, General and
Administrative 18,861 18,354 40,998 38,596
Interest 4,366 4,018 8,229 7,687
------------ ------------ ------------ ------------
Total Cost and
Expenses 106,792 99,557 201,002 192,874
------------ ------------ ------------ ------------
Income (Loss) Before
Income Taxes (4,892) 681 (12,808) (1,614)
Provision for Income
Taxes (Note 3) (1,859) 246 (4,867) (606)
------------ ------------ ------------ ------------
Net Income (Loss) (3,033) 435 (7,941) (1,008)
Preferred Dividend
Requirement (Note 4) (283) (284) (567) (567)
------------ ------------ ------------ ------------
Balance Applicable to
Common Stock $ (3,316) $ 151 $ (8,508) $ (1,575)
============ ============ ============ ============
Weighted Average
Number of Common
Shares Outstanding 29,801,703 28,920,825 29,562,304 28,899,509
============ ============ ============ ============
Net Income (Loss) Per
Common Share (Note 4) $ (.11) $ .01 $ (.29) $ (.05)
============ ============ ============ ============
Dividends Per Common
Share (Note 4) $ .00 $ .05 $ .05 $ .10
============ ============ ============ ============
Tultex Corporation
Consolidated Balance Sheet (Unaudited - $000's omitted)
July 2, 1994 (and January 1, 1994)
Assets July 2, 1994 January 1, 1994
- - ------ ------------ ---------------
Current Assets:
Cash $ 5,476 $ 6,754
Accounts Receivable (Net of
allowances for doubtful accounts
and returns of $2,519 (July) and
$2,374 (January) 94,893 116,383
Inventories (Note 2) 206,465 157,278
Prepaid Expenses 16,267 8,276
------------ ---------------
Total Current Assets 323,101 288,691
Fixed Assets - Net Book Value 144,753 151,775
Intangible Assets 27,375 27,983
Other Assets 6,344 6,516
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Total Assets $ 501,573 $ 474,965
============ ===============
Liabilities and Stockholders' Equity
- - ------------------------------------
Current Liabilities:
Current Maturities of Long-Term Debt $ 28,337 $ 8,524
Accounts Payable 19,259 18,170
Federal and State Income Taxes
Payable (Note 3) (3,667) 2,785
Other Accounts Payable and Accrued
Expenses 14,755 15,659
------------ ---------------
Total Current Liabilities 58,684 45,138
Long-Term Debt, Less Current
Maturities 253,658 230,914
Other Liabilities 19,448 19,716
Stockholders' Equity:
Five Percent Cumulative Preferred
Stock (Note 4) 198 198
Series B Preferred Stock (Note 4) 15,000 15,000
Common Stock (Note 4) 29,807 29,053
Capital in Excess of Par Value 5,279 1,889
Retained Earnings 123,389 133,107
------------ ---------------
173,673 179,247
Less Notes Receivable -
Stockholders (Note 6) 3,890 50
------------ ---------------
Total Stockholders' Equity 169,783 179,197
------------ ---------------
Total Liabilities and Stockholders'
Equity $ 501,573 $ 474,965
============ ===============
Tultex Corporation
Consolidated Statement of Cash Flows (Unaudited - $000's omitted)
Six Months Ended July 2, 1994 (and July 3, 1993)
Six Months Ended
-----------------------------
Operations: July 2, 1994 July 3, 1993
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Net Income (Loss) $ (7,941) $ (1,008)
Items not Requiring (Providing) Cash:
Depreciation 12,447 10,993
Amortization of Intangible Assets 608 608
Deferred Income Taxes - -
Other Deferrals (268) 495
Changes in Assets and Liabilities:
Accounts Receivable 21,490 17,288
Inventories (49,187) (74,844)
Prepaid Expenses (7,991) (802)
Accounts Payable and Accrued Expenses 185 5,993
Income Taxes Payable (6,452) (5,132)
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Cash Provided (Used) by Operations (37,109) (46,409)
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Investing Activities:
Additions to Property, Plant and Equipment (5,425) (17,855)
Additions to Other Assets 172 (277)
------------ ------------
Cash Provided (Used) by Investing Activities (5,253) (18,132)
------------ ------------
Financing Activities
Issuance of Short-Term Borrowings - 69,200
Issuance of Long-Term Debt 47,019 -
Payments on Long-Term Debt (4,462) (95)
Cash Dividends Paid (Note 4) (1,774) (3,459)
Proceeds From Exercise of Stock Options 26 698
Proceeds From Employee Stock Plan (Note 6) 275 -
------------ ------------
Cash Provided (Used) by Financing Activities 41,084 66,344
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Net Increase (Decrease) in Cash (1,278) 1,803
Cash at End of Prior Year 6,754 3,603
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Cash at End of Period $ 5,476 $ 5,406
============ ============
TULTEX CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
July 2, 1994
NOTE 1 - In the opinion of the Company, the accompanying consolidated
financial statements furnished in this quarterly 10-Q Report reflect all
adjustments, consisting only of normal recurring adjustments, which are, in
the opinion of management, necessary for a fair statement of the results of
the interim periods. This balance sheet, statement of income and statement of
cash flows have been prepared from the Company's records and are subject to
audit and year-end adjustments.
NOTE 2 - During the fourth quarter of 1993 the company changed its method of
valuing the majority of its inventories from the last-in, first-out (LIFO)
method to the first-in, first-out (FIFO) method. All prior periods have been
restated for comparative purposes. A summary by component follows.
(In thousands of dollars) July 2, 1994 January 1, 1994
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Raw Materials $ 28,017 $ 29,291
Supplies 3,772 3,735
Work-in-process 18,379 11,956
Finished Goods 156,297 112,296
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Total Inventory $ 206,465 $ 157,278
============ ===============
NOTE 3 - Income taxes are provided based upon income reported for financial
statement purposes. Deferred income taxes are provided for the temporary
differences between the financial reporting basis and the tax basis of the
company's assets and liabilities.
NOTE 4 - Five percent cumulative preferred stock is $100 par value, 22,000
shares authorized, shares issued and outstanding 1,975 shares (1994 and 1993).
There were no dividends declared on the company's five percent cumulative
preferred stock for the three month period ended July 2, 1994. Prior to second
quarter 1994 all regular dividends on the five percent cumulative preferred
stock had been declared and paid. Cumulative dividends that have not been
declared or paid as of July 2, 1994 amounted to $2,469.
Series B preferred stock is cumulative, convertible preferred stock, $7.50
Series B, $100 stated value, 150,000 shares authorized, issued and outstanding
(1994 and 1993). There were no dividends declared on the company's Series B
preferred stock for the three month period ended July 2, 1994. Prior to second
quarter 1994 all regular dividends on the Series B cumulative preferred stock
had been declared and paid. Cumulative dividends that have not been declared or
paid as of July 2, 1994 amounted to $281,250.
Common stock, $1 par value, 60,000,000 shares authorized, shares issued and
outstanding 29,806,793 (July 2, 1994) and 28,960,126 (July 3, 1993). There
were no dividends declared on the company's common stock for the three month
period ended July 2, 1994. A dividend of $.05 per common share was declared
and paid for the first quarter of 1994.
NOTE 5 - Income (loss) per common share is computed using the weighted average
number of common shares outstanding in the first six months of 1994 and 1993 of
29,562,304 and 28,899,509, respectively. Although the preferred dividend was
not declared in the second quarter, it has been reflected in the calculation of
income (loss) per common share.
NOTE 6 - In February 1994, the company initiated the Salaried Employees'
Stock Purchase Plan. Under the plan, certain employees elected to purchase
shares of the company's common stock, in lieu of a salary reduction, in amounts
ranging from 20-30% of their annual salary. Employees will pay for the stock
through payroll deductions over a 60-month period. The shares are being held
by the company and interest of 6% per annum will be charged until the end of
the 60-month period. The price of the shares was fixed at $5.50 per share.
Tultex Corporation
Management's Discussion and Analysis of Financial Condition and Results of
Operations
July 2, 1994
Results of Operations
- - ---------------------
The company changed its method for determining cost of inventories from the
last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method
during the fourth quarter of 1993. This change has been applied by
retroactively restating all prior periods presented.
Income and Expenses as a Percentage of Sales
Three Months Ended Six Months Ended
------------------ ------------------
7/02/94 7/03/93 7/02/94 7/03/93
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Net Sales and Other Income 100.0% 100.0% 100.0% 100.0%
Cost of Products Sold 75.9 71.6 74.0 70.9
Depreciation 6.1 5.4 6.6 5.7
Selling, General and Administrative 18.5 18.3 21.8 20.2
Interest 4.3 4.0 4.4 4.0
-------- --------- -------- --------
Total Costs and Expenses (104.8) 99.3 (106.8) (100.8)
-------- --------- -------- --------
Income Before Taxes (4.8) .7 (6.8) (.8)
Provision for Income Taxes (1.8) .3 (2.6) (.3)
-------- --------- -------- --------
Net Income (3.0)% .4% (4.2)% (.5)%
======== ========= ======== ========
Net sales and other income for the second quarter of 1994 increased $1.7
million, or about 2%, over the second quarter of 1993, while six-month
revenues were down $3.1 million this year compared to last. The quarter to
quarter increase is due to substantially higher shipments of T-shirts and other
jersey products and increased headwear sales partially offset by lower unit
sales and price erosion of non-decorated fleecewear and imprinted licensed
apparel. Six-month sales of headwear are up more than 65% compared to last
year; however, this increase was more than offset by sales price and volume
declines in our main activewear business resulting in consolidated 1994 first-
half revenues which were 2% lower than in the same period last year. As
previously reported, the fleece and jersey activewear industry experienced
rapid growth in the late 1980's which ultimately led to overexpansion and
excess capacity when demand fell early in the fourth quarter of 1993. At that
time orders were canceled, shipments abruptly decelerated and manufacturers'
inventories mounted. Those high inventories further sustained downward price
pressure during the first half of 1994 resulting in lower revenues and margins
than the comparable periods in the prior year.
Management believes conditions are now turning more favorable as excess
capacity seems to be diminishing due to the closing of several smaller
manufacturers and the downsizing of others. Also the company has received
additional orders for private label heavyweight, cotton-rich fleece at
The company began sales of its higher-margin Discus Athletic (registered
trademark) brand to Sears late in the second quarter. This product will be
offered nationwide through 800 Sears retail stores in a new program during the
second half of 1994.
Management is cautious about results for the balance of 1994 due to recent
price increases for cotton and polyester which comprise the bulk of our raw
material costs. However, due to the fall seasonality of our business and
current order backlogs, we believe results over the next six months will exceed
1993's second half. Non-decorated apparel order backlogs were $194 million at
July 2, 1994, while licensed sportswear and caps totaled $52 million at the same
time. For most of the first half the company operated on reduced schedules to
control buildup of inventory. Presently our apparel plants are running at normal
capacity and should experience more favorable absorption of fixed costs.
Cost of products sold as a percentage of sales increased from 72% for the
second quarter of 1993 to 76% for the comparable period of 1994. This increase
is primarily due to a higher proportion of jersey sales, which traditionally
yield lower margins than fleece and reduced operating schedules late in 1993
and early in 1994. Also, a significant portion of 1994 business was booked at
lower prices to meet increased competition due to industry wide excess capacity
and high inventories at the end of 1993.
On a second-quarter to second-quarter comparison, depreciation expense increased
$789 thousand or 14% over 1993, and for the six months depreciation was up $1.5
million or 13%. Both increases are due to the amortization of capital
expenditures purchased in 1993 and the first half of 1994. During those
eighteen months the company spent $28 million primarily for yarn spinning and
jersey fabric manufacturing equipment.
As a percentage of sales, selling, general and administrative expenses were 22%
and 20% for the first half of 1994 and 1993, respectively. During the second
quarter of each year S,G&A expenses approximated 18% of revenues. The six-month
percentage increase is mainly due to a combination of higher promotion and
advertising expenses coupled with lower sales in 1994 compared to the same
period of 1993. Additionally, royalty and sales commission expenses are higher
in 1994 due to increased sales of licensed headwear, and employee wages and
salaries are up due to increased staffing at our licensed apparel subsidiary,
Logo 7, Inc.
Interest expense during the second quarter of 1994 was $348 thousand or 9% more
than the second quarter of 1993, and for the six months ended July 2, 1994 was
up $542 thousand or 7% over the first half of 1993. Both increases are due
to higher interest rates and higher borrowings in 1994 over prior periods. The
company has experienced increased working capital needs primarily due to the
extension of payment terms to many of our customers and to fund a higher
proportion of operating costs during the first half of 1994 as a result of less
cash realized on lower fourth-quarter 1993 sales.
The effective rate for combined federal and state income taxes approximated 38%
of pretax income for both the three and six months ended July 2, 1994 and for
the six months ended July 3, 1993. The rate used to compute income taxes during
the second quarter of 1993 was slightly less in order to bring last year's six-
month tax estimate in line with income tax rates anticipated for the entire
year.
Although similar quarterly patterns are expected in 1994 as in prior years, we
expect to benefit from our Strategic Process Management and Quality Improvement
programs, which were initiated last year and continue to reveal cost reduction
opportunities and provide a focus on value-added customer service. Our ability
to better control inventories and sustain full operating schedules during the
seasonally strong second half will determine if management's expectations are
realized this year.
Certain hourly employees at the Tultex Martinsville/Henry County facilities
have petitioned the National Labor Relations Board to determine representation
by the Amalgamated Clothing and Textile Workers Union. An election is scheduled
for August 17-18, 1994.
Financial Condition, Liquidity and Capital Resources
- - ----------------------------------------------------
Net working capital at July 2, 1994 increased $21 million from year-end 1993
due mainly to higher inventories and prepaid expenses partially offset by lower
receivables and greater short-term debt. Compared to twelve months earlier, net
working capital is $152 million higher at July 2, 1994 due to the refinancing
of short-term debt now classified as long-term.
Accounts receivable decreased $21 million from January 1, 1994 to July 2, 1994
due to the seasonality of fleecewear shipments. Receivables normally peak in
September and October and begin to decline in December as shipment volume
decreases and cash is collected.
Inventories traditionally increase during the first half of the year to support
the second-half shipment volume and accordingly are up $49 million at July 2,
1994 since year-end 1993. Compared to the same time last year, inventories
increased approximately $2 million or less than 1%. The current ratio at
July 2, 1994 was 5.5 compared to 6.4 at January 1, 1994, and 1.6 at July 3,
1993. As mentioned earlier, the change from the beginning of the year was due
mainly to inventory buildup and the large difference from twelve months earlier
is due to the refinancing of short-term debt as described below.
On October 7, 1993, the company began operating with a two-year $225 million
revolving credit facility. This facility replaced the company's short-term
credit lines. Average borrowings under this facility during the second quarter
of 1994 were $142 million at an average annual rate of 4.9%. The highest
single day balance reached during the first six months was $166 million on
June 23, 1994. Long-term debt at July 2, 1994, consisted primarily of unsecured
senior notes totaling $76 million, $166 million outstanding under the new
revolver and $12 million due under a term loan. The current portion of
long-term debt includes $19 million of the senior notes due at the end of June
1995 and a total of $9 million due in equal quarterly payments of approximately
$2 million. As previously reported, the company has renegotiated certain loan
covenants of its long-term loan agreements to permit greater operating
flexibility in 1994. At the end of the second quarter of 1994, the company
was in compliance with all debt covenants.
Stockholders' equity decreased $9 million during the first six months of 1994
primarily due to the net loss for the period of $8 million and cash dividends
of $2 million. A new employee stock purchase plan contributed $4 million of
additional equity but was almost entirely offset by stockholder loans to
employees to finance their purchases of the newly issued common shares. On
April 21, 1994, the Board of Directors voted to suspend further dividend
payments until such time as cash flow and profitability are sufficient to
support them.
For the first six months of 1994 net cash used by operations was $37 million.
Cash generated from the collection of receivables and depreciation expense
was offset by increased inventories, higher prepaid expenses, lower federal
and state income taxes payable and the net loss for the period. Cash used by
investing activities of $5 million was primarily used to finance purchases of
machinery and equipment. Cash provided by financing activities of $41 million
was derived principally from additional borrowings of $47 million offset by
cash dividends and debt repayments totaling approximately $6 million. The
company expects that annual cash flows from income and non-cash items,
supplemented by the revolving credit facility, will be adequate to support
requirements for the remainder of 1994. Starting in June of 1995 and continuing
for four years thereafter until fully repaid, annual principal payments of $19
million are due on the $95 million notes. The outstanding balance of the term
loan is being repaid at approximately $2 million per quarter through September
1996. The $225 million revolver has an initial two-year term which expires in
November 1995 and is renewable annually for three additional one-year terms.
TULTEX CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- - --------------------------
In June, 1994 the company's subsidiary Logo 7, Inc. and L.A. Gear, Inc., a
sportswear manufacturer located in southern California, entered into an
agreement in complete settlement of a trademark infringement claim filed by
L. A. Gear in federal district court in California against Logo 7 and related
declaratory judgment action filed by Logo 7 against L. A. Gear in federal
district court in Indiana. L.A. Gear agreed that Logo 7 could advertise and
manufacture products with the current Logo Athletic trademark into 1995. As
part of the agreement, Logo 7 has paid L.A. Gear a financial settlement which
for accounting purposes is being expensed as the merchandise bearing the Logo 7
trademark is sold through June 30, 1995. Expensing the settlement payment over
this period is not expected to have a material effect on the consolidated
financial position, results of operations or liquidity of the company for any
of the affected accounting periods. The agreement with L. A. Gear does not
affect any other Logo Athletic brand advertising, and in the opinion of
management, a revised trademark can be designed and implemented without any
adverse effect on the Logo Athletic franchise.
The nature of the company's business ordinarily results in litigation which is
considered immaterial and incidental.
Item 4. Submission of Matters to a Vote of Security Holders
- - ------------------------------------------------------------
On May 19, 1994 at the company's Annual Meeting of Stockholders held in
Martinsville, VA there were three matters submitted to a vote of security
holders.
1. A Board of Directors, consisting of ten persons, was elected for the
ensuing year.
2. The Board of Directors appointment of Price Waterhouse, independent
accountants, as auditors for fiscal 1994 was ratified.
3. The following amendments to the 1990 Stock Option Plan were approved as
one proposal:
(a) authorization to issue an additional 500,000 shares of Common Stock
upon exercise of options granted under the Plan; (2) provided that no
option may be granted under the Plan after October 27, 2003; and (3)
provided that no Participant may be granted options in any calendar year
for more than 50,000 shares of Common Stock.
The actual vote count for these matters is summarized below.
Board of Directors:
Authority Broker
Director For Withheld Abstain Non-Votes
------------------------- ---------- --------- ------- ---------
Charles W. Davies, Jr. 24,823,033 771,824 0 0
Lathan M. Ewers, Jr. 25,019,374 575,483 0 0
John M. Franck 24,820,095 774,762 0 0
William F. Franck 24,988,985 605,872 0 0
J. Burness Frith 24,995,565 599,292 0 0
Irving M. Groves, Jr. 24,946,580 648,277 0 0
H. Richard Hunnicutt, Jr. 24,764,223 830,634 0 0
Bruce M. Jacobson 25,015,842 579,015 0 0
Richard M. Simmons, Jr. 24,946,760 648,097 0 0
John M. Tully 24,810,753 784,104 0 0
Auditors: Authority Broker
Independent Accountant For Withheld Abstain Non-Votes
---------------------- ---------- --------- ------- ---------
Price Waterhouse 25,394,032 130,844 69,981 0
Stock Option Plan: Authority Broker
Proposal For Withheld Abstain Non-Votes
-------- ---------- --------- ------- ---------
Amendments to 1990
Stock Option Plan 24,039,277 1,419,383 136,197 0
Item 6. Exhibits and Reports on Form 8-K
- - -----------------------------------------
(a) Exhibits
--------
None
(b) Reports on Form 8-K
-------------------
None
Items 2, 3 and 5 are inapplicable and are omitted.
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.
TULTEX CORPORATION
------------------
(Registrant)
Date August 12, 1994 /s/ J. M. Franck
--------------- --------------------------------
J. M. Franck, Chairman and Chief
Executive Officer
Date August 12, 1994 /s/ D. P. Shook
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Vice President - Human and Financial
Services
