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 September 30, 1995
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
TULTEX CORPORATION
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(Exact name of registrant as specified in its charter)
Virginia 54-0367896
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(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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
29,824,371 shares of Common Stock, $1 par value, as of November 3, 1995
- ---------- -- ----------------
PART I. FINANCIAL INFORMATION
Item 1.
Tultex Corporation
Consolidated Statement of Operations (Unaudited - $000's omitted except in
shares and per share data)
September 30, 1995 (and October 1, 1994)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------ ------------------------------------
September 30, 1995 October 1, 1994 September 30, 1995 October 1, 1994
------------------ --------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Net Sales and Other Income $ 207,911 $ 208,931 $ 413,035 $ 397,125
Costs and Expenses:
Cost of Products Sold 156,340 159,373 305,173 298,701
Depreciation 5,777 5,773 17,424 18,220
Selling, General and Administrative
(Note 7) 24,724 26,887 72,348 67,885
Interest 6,181 4,974 16,171 13,203
----------------- --------------- ------------------ ---------------
Total Costs and Expenses 193,022 197,007 411,116 398,009
----------------- --------------- ------------------ ---------------
Income (Loss) Before Income Taxes and
Extraordinary Loss on Early
Extinguishment of Debt 14,889 11,924 1,919 (884)
Provision for Income Taxes (Note 3) 5,650 4,531 729 (336)
----------------- --------------- ------------------ ---------------
Income (Loss) Before Extraordinary
Loss on Early Extinguishment of Debt 9,239 7,393 1,190 (548)
Extraordinary Loss on Early
Extinguishment of Debt (Net of Income
Taxes of $2,296) (Note 8) - - (3,746) -
----------------- --------------- ------------------ ---------------
Net Income (Loss) 9,239 7,393 (2,556) (548)
Preferred Dividend Requirement (Note 4) (284) (284) (851) (851)
----------------- --------------- ------------------ ---------------
Balance Applicable to Common Stock $ 8,955 $ 7,109 $ (3,407) $ (1,399)
================= =============== ================== ===============
Weighted Average Number of Common
Shares Outstanding 29,806,793 29,806,793 29,806,793 29,643,801
================= =============== ================== ===============
Net Income (Loss) Per Common Share:
Income (Loss) Before Extraordinary Loss
on Early Extinguishment of Debt
(Notes 4 and 5) $ .30 $ .24 $ .02 $ (.05)
Extraordinary Loss on Early
Extinguishment of Debt (Note 8) - - (.13) -
---------------- ---------------- ------------------ ---------------
Net Income (Loss) $ .30 $ .24 $ (.11) $ (.05)
================ ================ ================== ===============
Dividends Per Common Share (Note 4) $ .00 $ .00 $ .00 $ .05
================ ================ ================== ===============
</TABLE>
Tultex Corporation
Consolidated Balance Sheet (Unaudited - $000's omitted)
September 30, 1995 (and December 31, 1994)
Assets September 30, 1995 December 31,1994
- ------ ------------------ ----------------
Current Assets:
Cash $ 4,978 $ 5,776
Accounts Receivable - Net of
Allowances for Doubtful Accounts
$2,813 (1995) and $2,115 (1994) 178,926 139,743
Inventories (Note 2) 178,217 130,183
Prepaid Expenses 11,058 14,205
----------------- ----------------
Total Current Assets 373,179 289,907
Fixed Assets - Net Book Value 130,143 134,884
Intangible Assets 25,854 26,766
Other Assets 5,493 5,252
----------------- ---------------
Total Assets $ 534,669 $ 456,809
================= ===============
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities:
Notes Payable to Banks $ 2,600 $ 1,000
Current Maturities of Long-Term Debt
(Note 6) 197 132,353
Accounts Payable 31,354 19,634
Federal and State Income Taxes Payable
(Note 3) (788) 2,964
Accrued Expenses 19,192 11,102
----------------- ----------------
Total Current Liabilities 52,555 167,053
Long-Term Debt, Less Current Maturities
(Notes 6 and 8) 276,046 83,002
Other Liabilities 21,283 19,653
Stockholders' Equity:
Five Percent Cumulative Preferred Stock
(Note 4) 198 198
Series B, Cumulative Convertible
Preferred Stock (Note 4) 15,000 15,000
Common Stock (Note 4) 29,807 29,807
Capital in Excess of Par Value 5,279 5,279
Retained Earnings 135,988 140,283
------------------ ---------------
186,272 190,567
Less Notes Receivable - Stockholders 1,487 3,466
------------------ ---------------
Total Stockholders' Equity 184,785 187,101
------------------ ---------------
Total Liabilities and Stockholders'
Equity $ 534,669 $ 456,809
================== ===============
Tultex Corporation
Consolidated Statement of Cash Flows (Unaudited - $000's omitted)
Nine Months Ended September 30, 1995 (and October 1, 1994)
Nine Months Ended
------------------------------------
September 30, 1995 October 1, 1994
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Operations:
Net Income (Loss) (Notes 7 and 8) $ (2,556) $ (548)
Items not Requiring (Providing) Cash:
Depreciation 17,424 18,220
Amortization of Intangible Assets 912 912
Other Deferrals 1,630 (1,226)
Changes in Assets and Liabilities:
Accounts Receivable (39,183) (64,012)
Inventories (48,034) (8,315)
Prepaid Expenses (Notes 7 and 8) 3,147 (6,764)
Accounts Payable and Accrued Expenses 19,810 10,268
Income Taxes Payable (3,752) (1,896)
Cash Provided (Used) by Operations (50,602) (53,361)
------------------ ---------------
Investing Activities:
Additions to Property, Plant and
Equipment (12,683) (7,105)
Additions to Other Assets (241) 495
------------------ ---------------
Cash Provided (Used) by Investing
Activities (12,924) (6,610)
------------------ ---------------
Financing Activities:
Issuance of Short-Term Borrowings 1,600 3,000
Issuance of Long-Term Debt 172,052 73,019
Payments on Long-Term Debt (111,164) (6,790)
Cash Dividends Paid (Note 4) (1,703) (1,774)
Proceeds From Stock Plans 1,943 488
------------------ ---------------
Cash Provided (Used) by Financing
Activities 62,728 67,943
------------------ ---------------
Net Increase (Decrease) in Cash (798) 7,972
Cash at End of Prior Year 5,776 6,754
------------------ ---------------
Cash at End of Period $ 4,978 $ 14,726
================== ===============
TULTEX CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
September 30, 1995
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 - A summary of inventories by component follows.
(In thousands of dollars) September 30, 1995 December 31, 1994
------------------ -----------------
Raw Materials $ 25,088 $ 25,704
Supplies 4,665 3,590
Work-in-process 21,435 13,453
Finished Goods 127,029 87,436
------------------ -----------------
Total Inventory $ 178,217 $ 130,183
================== =================
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 (1995 and 1994).
The stated quarterly dividend was declared on August 1, 1995 and paid on
October 2, 1995.
Series B preferred stock is cumulative, convertible preferred stock, $7.50
Series B, $100 stated value, 150,000 shares authorized, issued and outstanding
(1995 and 1994). The stated quarterly dividend was declared on August 1,
1995 and paid on October 2, 1995.
Common stock, $1 par value, 60,000,000 shares authorized, shares issued and
outstanding 29,806,793 at September 30, 1995 and December 31, 1994. There
were no dividends declared on the company's common stock for the three month
period ended September 30, 1995.
NOTE 5 - Income (loss) per common share is computed using the weighted average
number of common shares outstanding in the first nine months of 1995 and 1994
of 29,806,793 and 29,643,801, respectively.
NOTE 6 - The company's senior notes and revolving credit facility contain
provisions regarding the company's financial performance and condition. At
September 30, 1995, the company was in compliance with the covenants.
NOTE 7 - On January 1, 1995, the company adopted the provisions of the
Accounting Standards Executive Committee's Statement of Position on Reporting
Advertising Costs ("Statement"). The adoption of the Statement increased
selling, general and administrative expenses for the first nine months of 1995
as reported on the Statement of Operations by $4,970,000.
NOTE 8 - In March 1995, the company completed its public offering of $110
million principal amount of 10 5/8% Senior Notes due 2005 and entered into a
senior credit facility with ten banks (the "Refinancing.") In connection with
the Refinancing, the company wrote-off unamortized debt issue costs of
$3,109,000 and incurred a prepayment penalty of $2,933,000. Such amounts, net
of income taxes of $2,296,000, have been reflected in the accompanying
Consolidated Financial Statements as an extraordinary loss on early
extinguishment of debt.
Tultex Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations
September 30, 1995
Results of Operations
- ---------------------
The following table presents the company's consolidated statement of operations
items as a percentage of net sales.
Three Months Ended Nine Months Ended
09/30/95 10/01/94 09/30/95 10/01/94
-------- -------- -------- --------
Net Sales and Other Income 100.0% 100.0% 100.0% 100.0%
Cost of Products Sold 75.2 76.3 73.9 75.2
Depreciation 2.8 2.7 4.2 4.6
Selling, General and Administrative 11.9 12.9 17.5 17.1
Interest 3.0 2.4 3.9 3.3
-------- -------- -------- --------
Total Costs and Expenses 92.9 94.3 99.5 100.2
Income (Loss) Before Income Taxes and
Extraordinary Loss on Early
Extinguishment of Debt 7.1 5.7 .5 (.2)
Provision for Income Taxes 2.7 2.2 .2 (.1)
Income (Loss) Before Extraordinary
Loss on Early Extinguishment of Debt 4.4 3.5 .3 (.1)
Extraordinary Loss on Early
Extinguishment of Debt (Net of Income
Taxes of $2,296) - - (.9) -
-------- -------- -------- --------
Net Income (Loss) 4.4% 3.5% (.6)% (.1)%
======== ======== ======== ========
Note: Certain items have been rounded to cause the columns to add to 100%.
Net sales and other income for the three months ended September 30, 1995
decreased $1 million, or less than 1%, from the third quarter of 1994 due to
lower licensed apparel sales (down 6%) which were partially offset by growth
in activewear sales (up 3%). Increased T-shirt volume was primarily
responsible for the activewear increase. Licensed apparel sales declined due
to cautious retailer purchases of NBA licensed apparel until a labor agreement
was reached in September, offsetting improved baseball related sales during
the period.
The company's premier branded product lines continued their positive trend
during the third quarter as evidenced by 25% and 34% sales growth for the
Discus Athletic(registered trademark) and Logo Athletic(registered trademark)
brands, respectively. The company's consolidated backlog at September 30,
1995 was $196 million versus $163 million at October 1, 1994.
For the nine months ending September 30, 1995, net sales and other income
increased $16 million or 4% from the comparable period of 1994 due to a 20%
increase in activewear sales. This improvement in sales resulted primarily
from a 21% increase in volume.
Margins and operating results in 1995 also show improvement over the
comparable third quarter of last year. For the comparative three-month
periods, cost of products sold as a percentage of sales decreased by 1% to 75%
in 1995. This margin improvement resulted primarily from manufacturing
efficiencies realized from increased production schedules and higher average
selling prices. For the comparative nine-month periods costs as a percentage
of sales decreased slightly from 75% in 1994 to 74% in 1995. Raw material
costs were higher during the first nine months of 1995 as a result of
increased raw cotton and polyester prices. These higher raw material costs
will put pressure on future gross margins as products utilizing such raw
materials are sold. Management believes that the effect will be somewhat
minimized by a shift toward higher margin products.
Depreciation expense during the third quarter of 1995 was unchanged from the
comparable quarter of the prior year, and for the nine months depreciation
decreased $796,000, or 4%. This decrease was due to modest capital
expenditures during 1994.
As a percentage of sales, selling, general and administrative expenses
(S, G&A) were 12% for the third quarter of 1995 compared to 13% for the
comparable period of 1994. The decrease was due to management's continuing
emphasis on expense reduction. During the nine-month period ending September
30, 1995, S, G&A expenses as a percentage of sales increased to 18% of sales
from 17% for the comparable period of the prior year. The primary reason for
this increase was the one-time charge associated with expensing $5 million in
deferred advertising costs during the first quarter of 1995 as required by the
Accounting Standards Executive Committee's Statement on Reporting Advertising
Costs. This statement first became effective for the company at the beginning
of the 1995 fiscal year.
Operating income (income before interest and income taxes) increased
significantly during the third quarter to $21 million compared to $17 million
for the comparable period of the prior year. This increase was due to the
improved performance of the company's activewear business.
Interest expense increased 24% when compared to the third quarter of 1994 and
22% for the nine months ended September 30, 1995 compared to the first nine
months of 1994. This increase was due to higher average rates partially
offset by lower average borrowing requirements. The nature of the company's
primary businesses requires extensive seasonal borrowings to support its
working capital needs. For the first nine months of 1995, working capital
borrowings averaged $133 million at average rates of 7.6% compared to $152
million and 4.9%, respectively, for the comparable period of the prior year.
The average borrowing reduction was due to the company's continuing emphasis
on increasing inventory turns.
The effective rate for combined federal and state income taxes was 38% for
the first nine months of 1995 and 1994.
Management believes that licensed apparel's performance during the fourth
quarter should improve over the final quarter of fiscal 1994, boosted in part
by sales of lecensed apparel related to the World Series. Prospects for the
activewear business for the remainder of 1995 are uncertain due to higher raw
material costs, competitive pricing pressures in some T-shirt markets and
unpredictable consumer demand for the holiday season.
Financial Condition, Liquidity and Capital Resources
- ----------------------------------------------------
Net working capital at September 30, 1995 increased $198 million from year-end
1994 due primarily to lower current maturities of long-term debt and higher
inventories and accounts receivable.
Net accounts receivable increased $39 million from December 31, 1994 to
September 30, 1995 due to the seasonality of activewear 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 second-half shipments. Compared to the December 31, 1994, inventories
increased approximately $48 million or 37%. The current ratio at September 30,
1995 was 7.1 compared to 1.7 at December 31, 1994. The increase in the ratio
from the beginning of the year was mainly due to lower current maturities of
long term debt and higher inventories and accounts receivable.
On March 8, 1995, the company signed a three-year $225 million revolving
credit facility which replaced its existing facility due to expire on October
5, 1995. The credit facility has a three-year term which expires in April
1998. On March 16, 1995, the company sold $110 million of 10 5/8% senior notes
due March 15, 2005. The senior notes require no principal payments for ten
years with interest due semi-annually. These notes, which were priced at par,
were used to repay existing indebtedness of the company. In connection with
these transactions the company recognized a one-time, after tax charge of
$3,746,000 or 13 cents per share, representing unamortized debt issuance costs
and a prepayment premium. While this refinancing has resulted in higher
interest expense, the company believes that the longer maturity and increased
covenant flexibility provided under the terms of these agreements will allow
the company to continue its long-term investment in brand promotion and higher
margin products. Total long-term debt at September 30, 1995 included the
senior notes totaling $110 million and $166 million outstanding under the
revolver. At the end of the third quarter of 1995, the company was in
compliance with all debt covenants.
Stockholders' equity decreased $2 million during the first nine months of 1995
as a result of the net loss of $2 million and preferred dividends declared of
$2 million partially offset by the collection of notes receivable from
stockholders of $2 million. Debt as a percentage of total capitalization was
60% at September 30, 1995 compared to 64% at October 1, 1994. The company's
long-term goal is to reduce debt as a percentage of total capitalization to
40%.
For the first nine months of 1995 net cash used by operations was $51 million
versus $53 million for the same period last year, a decrease of $2 million.
Cash used for capital asset additions increased approximately $6 million in
1995 compared to the first nine months of 1994. Cash provided by financing
activities decreased $5 million from the first nine months of 1994 primarily
as a result of lower borrowings. 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 1995.
TULTEX CORPORATION
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
--------
None
(b) Reports on Form 8-K
-------------------
None
Items 1, 2, 3, 4 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 November 14, 1995 /s/ C. W. Davies, Jr.
----------------- --------------------------------------
C. W. Davies, Jr., President and Chief
Executive Officer
Date November 14, 1995 /s/ O. R. Rollins
----------------- -----------------------------------
Executive Vice President, General
Counsel and Chief Financial Officer
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<MULTIPLIER> 1000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 4,978
<SECURITIES> 0
<RECEIVABLES> 181,739
<ALLOWANCES> 2,813
<INVENTORY> 178,217
<CURRENT-ASSETS> 373,179
<PP&E> 294,358
<DEPRECIATION> 164,215
<TOTAL-ASSETS> 534,669
<CURRENT-LIABILITIES> 52,555
<BONDS> 0
<COMMON> 29,807
0
15,198
<OTHER-SE> 139,780
<TOTAL-LIABILITY-AND-EQUITY> 534,669
<SALES> 207,911
<TOTAL-REVENUES> 207,911
<CGS> 156,340
<TOTAL-COSTS> 162,117
<OTHER-EXPENSES> 23,966
<LOSS-PROVISION> 758
<INTEREST-EXPENSE> 6,181
<INCOME-PRETAX> 14,889
<INCOME-TAX> 5,650
<INCOME-CONTINUING> 9,239
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