<PAGE>
This final Prospectus dated March 17, 1995 is filed pursuant to Rule
424(b)(4) of the Securities Act of 1933 and relates to Registration
Statement No. 33-57401.
PROSPECTUS
(Tultex logo appears here)
$110,000,000
10 5/8% SENIOR NOTES DUE 2005
INTEREST PAYABLE JUNE 15 AND DECEMBER 15
ISSUE PRICE: 100%
The 10 5/8% Senior Notes due 2005 (the "Notes") are being offered (the
"Offering") by Tultex Corporation, a Virginia corporation ("Tultex" or the
"Company"). The Notes mature on March 15, 2005, unless previously redeemed.
Interest on the Notes is payable semiannually on June 15 and December 15,
commencing June 15, 1995. The Notes are not redeemable prior to March 15, 2000,
except as set forth below. The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after March 15, 2000, at the
redemption prices set forth herein, together with accrued and unpaid interest to
the redemption date. In addition, prior to March 15, 1998, the Company may
redeem up to approximately 32% of the principal amount of the Notes with the
cash proceeds received by the Company from one or more sales of capital stock of
the Company (other than Disqualified Stock (as defined)) at a redemption price
of 110.625% of the principal amount thereof, plus accrued and unpaid interest to
the redemption date; provided, however, that at least $75 million in aggregate
principal amount of the Notes remains outstanding immediately after any such
redemption.
Upon a Change of Control (as defined), the Company will be required to make an
offer to purchase all outstanding Notes at 101% of the principal amount thereof
plus accrued and unpaid interest to the purchase date.
The Notes will be general unsecured obligations of the Company and will rank
PARI PASSU in right of payment with all other unsubordinated indebtedness of the
Company. The Notes will be guaranteed on a joint and several basis (the
"Guarantees") by each subsidiary of the Company (the "Guarantors"). The
Guarantees will be general unsecured obligations of the Guarantors and will rank
PARI PASSU in right of payment with all other unsubordinated indebtedness of the
Guarantors. At December 31, 1994, as adjusted to give effect to the transactions
described herein under "Use of Proceeds and Refinancing," the total indebtedness
of the Company would have been approximately $223.4 million, none of which would
have been subordinated to the Notes.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED
BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) COMPENSATION(2) COMPANY(1)(3)
<S> <C> <C> <C> <C>
Per Note 100.000% 2.375% 97.625%
Total $110,000,000 $2,612,500 $107,387,500
</TABLE>
(1) Plus accrued interest, if any, from the date of issuance.
(2) The Company and the Guarantors have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $412,000.
The Notes are being offered by the Underwriters, subject to prior sale, when, as
and if delivered to and accepted by the Underwriters, and subject to approval of
certain legal matters by Cahill Gordon & Reindel, counsel for the Underwriters,
and certain other conditions. The Underwriters withhold the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of the Notes will be made against payment therefor on or
about March 23, 1995 at the offices of J.P. Morgan Securities Inc., 60 Wall
Street, New York, New York.
J.P. MORGAN SECURITIES INC. NATIONSBANC CAPITAL MARKETS, INC.
March 16, 1995
<PAGE>
(Inside Front Cover contains the following Photographs:
1. Gymnast wearing Discus Athletic clothing.
2. Mountain climber wearing Discus Athletic clothing.
3. Two men playing touch football wearing Discus Athletic clothing.
4. Discus Athletic logo.
5. Troy Aikman wearing complete Logo Athletic outfit.
6. Chris Webber wearing complete Logo Athletic outfit.
7. Dan Marino wearing Logo Athletic hat.
8. Logo Athletic logo.)
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and, if given or
made, such information or representation must not be relied upon as having been
authorized by the Company, any Guarantor or either of the Underwriters. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any securities other than the securities to which it relates or an offer to
sell or the solicitation of an offer to buy such securities in any circumstances
in which such offer or solicitation is unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company or
any Guarantor since the date hereof or that information contained herein is
correct as of any time subsequent to its date.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information............................... 3
Prospectus Summary.................................. 4
Risk Factors........................................ 8
Use of Proceeds and Refinancing..................... 11
Capitalization...................................... 12
Selected Consolidated Financial Data................ 13
Management's Discussion and Analysis of
Financial Condition and Results of Operations..... 15
Business............................................ 18
<CAPTION>
PAGE
<S> <C>
Management.......................................... 27
Certain Relationships and Related Transactions...... 32
Principal Shareholders and Security Ownership
of Management..................................... 33
Description of the Notes............................ 35
Underwriting........................................ 51
Legal Matters....................................... 52
Experts............................................. 52
Index to Financial Statements....................... F-1
</TABLE>
AVAILABLE INFORMATION
Additional information regarding the Company, the Guarantors, the Notes and the
Guarantees is contained in the Registration Statement on Form S-1 (the
"Registration Statement") and the exhibits relating thereto, filed with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"). For such information, reference is
made to the Registration Statement and the exhibits thereto.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements and other information
with the Commission. Such reports, proxy statements and other information,
including the Registration Statement and the exhibits thereto, can be inspected
and copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following Regional Offices of the Commission: 500 West Madison Street, Suite
1400, Chicago, IL 60661 and 7 World Trade Center, Suite 1300, New York, NY
10048. Copies of such material can also be obtained from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C., 20549, at prescribed rates. In addition, such material can be
inspected at the offices of the New York Stock Exchange, Inc., 20 Broad Street,
New York, New York 10005.
Trademarks and service marks of the Company are italicized where they appear in
this Prospectus. TULTEX(Register mark), DISCUS ATHLETIC(Register mark) and THE
SWEATSHIRT COMPANY(Register mark) are registered trademarks of the Company. LOGO
7(Register mark) and LOGO ATHLETIC(Register mark) are registered trademarks of
the Company's subsidiary, Logo 7, Inc. ("Logo 7"). The Company's principal
executive offices are located at 101 Commonwealth Boulevard, Martinsville,
Virginia 24112, telephone (703) 632-2961.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS.
UNLESS THE CONTEXT REQUIRES OTHERWISE, "TULTEX" OR THE "COMPANY" REFERS TO
TULTEX CORPORATION AND ITS CONSOLIDATED SUBSIDIARIES. "GUARANTORS" REFERS TO ALL
OF THE COMPANY'S SUBSIDIARIES. CAPITALIZED TERMS USED IN THIS SUMMARY UNDER THE
CAPTION "THE OFFERING" AND NOT OTHERWISE DEFINED ARE DEFINED BELOW UNDER THE
CAPTION "DESCRIPTION OF THE NOTES -- CERTAIN DEFINITIONS." REFERENCES TO "YEAR
END" REFER TO THE COMPANY'S FISCAL YEAR END.
THE COMPANY
Tultex Corporation is one of the world's largest marketers and manufacturers of
activewear and licensed sports apparel for consumers and sports enthusiasts. The
Company's diverse product line includes fleeced sweats, jersey products
(outerwear T-shirts), and decorated jackets and caps. These products are sold
under the Company's own brands led by the DISCUS ATHLETIC and LOGO ATHLETIC
premium labels and under private labels, including Nike, Levi Strauss, Reebok
and Pro Spirit. In addition, the Company has numerous professional and college
sports licenses to manufacture and market embroidered and screen-printed
products with team logos and designs under its LOGO ATHLETIC and LOGO 7 brands.
The Company is a licensee of professional sports apparel, holding licenses from
the National Football League, Major League Baseball, the National Basketball
Association and the National Hockey League to manufacture a full range of sports
apparel for adults and children.
Historically a producer of quality fleecewear, in recent years Tultex has
initiated a strategy to enhance its competitiveness and to capitalize on growth
opportunities by becoming a consumer-oriented apparel maker able to compete in a
changing industry. This strategy includes the following elements:
(Bullet) INCREASING EMPHASIS ON HIGHER-MARGIN PRODUCTS. The Company is
strengthening its competitiveness in the activewear business through
the development of branded and private label, higher-quality and
higher-margin products to supplement its traditionally strong position
in the lower-priced segment of the business. The Company is developing
its own brands, promoting DISCUS ATHLETIC for its premium products and
using the TULTEX label for the value-oriented segment of the market.
DISCUS ATHLETIC'S highly visible advertising during televised
broadcasts of college football and basketball on the ESPN and ABC
television networks and of Atlantic Coast Conference basketball has
contributed to significant annual increases in sales of this brand
since 1992. In addition, Tultex has partnering arrangements to supply
higher-quality, private label products to companies such as Reebok,
Levi Strauss and Nike, none of which accounted for more than 10% of the
Company's consolidated sales during 1994. To complement its development
of higher-margin products, the Company began manufacturing jersey
products in 1991.
(Bullet) EXPANDING INTO LICENSED APPAREL BUSINESS TO COMPLEMENT ACTIVEWEAR
BUSINESS. Tultex's 1992 acquisitions of Logo 7, a marketer of licensed
sports apparel, and Universal Industries, Inc. ("Universal"), a
marketer of sports and entertainment licensed headwear, enabled the
Company to achieve the fourth largest market share (13.7%) in the
higher-margin licensed apparel business in 1993, and have created
opportunities for significant manufacturing and distribution synergies
with the Company's activewear business. The promotion of the LOGO
ATHLETIC brand of licensed apparel through television and print
advertising, as well as promotional arrangements featuring Dallas
Cowboys' quarterback Troy Aikman, San Francisco 49ers' quarterback
Steve Young, Miami Dolphins' quarterback Dan Marino, the Chicago
Blackhawks' Chris Chelios and the Washington Bullets' Chris Webber,
among others, has helped to increase the visibility and sales of LOGO
ATHLETIC products.
(Bullet) INCREASING DISTRIBUTION CHANNELS AND STRENGTHENING CUSTOMER
RELATIONSHIPS. Tultex actively pursues strong relationships with
department, sporting goods and other specialty stores, such as Sears,
JC Penney, Modell's, Dillard's, Foot Locker, Champs and Sports
Authority, to distribute its higher-margin branded and private label
products. In addition, the Company continues to strengthen its
relationships with high volume retailers such as Wal-Mart, Kmart and
Target by supplying private label and TULTEX products. Tultex provides
customers with exceptional service and support; as an example, its
distribution capabilities are highly responsive to customers' changing
delivery and inventory management requirements.
(Bullet) INVESTING IN MODERN DISTRIBUTION AND PRODUCTION FACILITIES. During
fiscal 1988 through fiscal 1994, Tultex invested approximately $191
million in capital expenditures, primarily in the construction of its
customer service center and in high-efficiency spinning, knitting,
dyeing, cutting and embroidering machinery. In 1991, Tultex
4
<PAGE>
began operating the customer service center, which the Company believes
is the most highly automated in the industry. Having made significant
investments in its distribution and production facilities, the
Company's average capital expenditures are not expected to exceed
approximately $20 million annually through 1997.
The Company's strategy has improved its sales mix. While net sales increased
6.0% in fiscal 1994 over 1993, net sales of DISCUS ATHLETIC activewear and
premium private label sweats under the Nike, Levi Strauss and Reebok names
increased 49.8% to $77.6 million and net sales of LOGO ATHLETIC licensed apparel
increased 198.6% to $64.5 million. Sales of jersey products were $56.8 million
for the fiscal year ended December 31, 1994, representing 16.5% of the Company's
activewear sales during such period compared to 11.6% for fiscal 1993. Reduced
consumer demand for activewear and an oversupply of activewear in retail
inventories in the first half of 1994, the MLB strike, the NHL lockout and
higher raw material costs adversely affected Tultex's results of operations
during 1994.
THE REFINANCING
Net proceeds of this Offering, together with borrowings under the Senior Credit
Facility (as defined below), will be used to pay in full the Company's variable
rate note due July 31, 1996 (the "Term Loan"), the Company's 8 7/8% Senior Notes
due June 1, 1999 (the "8 7/8% Notes"), and related prepayment expenses. See "Use
of Proceeds and Refinancing." The Company believes that the longer maturity and
the increased covenant flexibility provided under the terms of the Notes will
allow the Company to continue to increase its long-term investment in brand
promotion and higher-margin products.
Contemporaneously with the completion of this Offering, the Company and certain
of its subsidiaries will enter into a $225 million, three-year revolving credit
facility with a group of commercial banks (the "Senior Credit Facility" and,
together with the Offering, the "Refinancing"). The Senior Credit Facility will
replace the Company's existing $225 million revolving credit facility which
expires on October 6, 1995. Scheduled amortization requirements prior to this
Offering (excluding the Senior Credit Facility) totaled $92.3 million from
January 1, 1995 through December 31, 1998. After giving effect to the
Refinancing, other than under the Senior Credit Facility, there will be no
material scheduled amortization requirements until the maturity of the Notes.
Borrowings under the Senior Credit Facility will be general unsecured
obligations of the Company and will rank PARI PASSU in right of payment with the
Notes and all other unsubordinated indebtedness of the Company and will be
guaranteed by certain of the Company's subsidiaries. The closings of this
Offering and of the Senior Credit Facility are conditioned upon each other. See
"Use of Proceeds and Refinancing."
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
SECURITIES OFFERED..................... $110 million aggregate principal amount of 10 5/8% Senior Notes due 2005.
MATURITY DATE.......................... March 15, 2005.
INTEREST PAYMENT DATES................. June 15 and December 15, commencing June 15, 1995.
OPTIONAL REDEMPTION BY THE COMPANY..... The Notes are not redeemable prior to March 15, 2000, except as set forth below. The
Notes will be redeemable at the option of the Company, in whole or in part, at any
time on or after March 15, 2000, at the redemption prices set forth herein, together
with accrued and unpaid interest to the redemption date. In addition, prior to March
15, 1998, the Company may redeem up to approximately 32% of the principal amount of
the Notes with the cash proceeds received by the Company from one or more sales of
capital stock of the Company (other than Disqualified Stock) at a redemption price of
110.625% of the principal amount thereof, plus accrued and unpaid interest to the
redemption date; PROVIDED, HOWEVER, that at least $75 million in aggregate principal
amount of the Notes remains outstanding immediately after any such redemption.
SINKING FUND........................... None.
RANKING................................ The Notes will be general unsecured obligations of the Company and will rank PARI
PASSU in right of payment with all other unsubordinated Indebtedness (including the
Senior Credit Facility) of the Company.
GUARANTEES............................. The Notes will be guaranteed on a joint and several basis by each of the Guarantors.
The Guarantees will be general unsecured obligations of the Guarantors and will rank
PARI PASSU in right of payment with all other unsubordinated indebtedness of the
Guarantors. The Guarantors' liability under the Guarantees will be limited as
described herein and Guarantees will be released in connection with certain asset
sales and dispositions. See "Description of the Notes -- Guarantees."
CHANGE OF CONTROL OFFER................ Upon a Change of Control, the Company will be required to make an offer to purchase
all outstanding Notes at a purchase price of 101% of the principal amount thereof,
plus accrued and unpaid interest to the repurchase date.
CERTAIN COVENANTS...................... The Indenture will contain certain covenants that, among other things, limit the
ability of the Company or any of its Subsidiaries to incur additional Indebtedness,
make certain Restricted Payments, make certain Investments, create Liens, engage in
Sale and Leaseback Transactions, permit dividend or other payment restrictions to
apply to Subsidiaries, enter into certain transactions with Affiliates or Related
Persons or consummate certain merger, consolidation or similar transactions. In
addition, in certain circumstances, the Company will be required to offer to purchase
Notes at 100% of the principal amount thereof with the net proceeds of certain asset
sales. These covenants are subject to a number of significant exceptions and
qualifications. See "Description of the Notes."
SENIOR CREDIT FACILITY................. Concurrently with this Offering, the Company and certain of its subsidiaries will
enter into the Senior Credit Facility, a $225 million, three-year revolving credit
facility, with a group of commercial banks. The Senior Credit Facility will replace
the Company's existing $225 million revolving credit facility, which expires on
October 6, 1995. See "Use of Proceeds and Refinancing."
</TABLE>
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth summary consolidated financial data for the
Company for each of the five fiscal years in the period ended December 31, 1994.
The summary consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements, related notes,
and other financial data included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED
DEC. 31 JAN. 1 JAN. 2 DEC. 28 DEC. 29
1994 1994(1) 1993(1)(2)(3) 1991(1) 1990(1)
<S> <C> <C> <C> <C> <C>
IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA
STATEMENT OF INCOME DATA:
Net sales and other income $565,433 $533,611 $503,946 $349,910 $390,336
Cost of products sold 419,769 395,727 368,027 271,243 283,907
Depreciation 23,973 23,364 20,831 17,369 14,775
Selling, general and administrative 93,510 88,433 81,297 45,481 52,546
Income from operations 28,181 26,087 33,791 15,817 39,108
Gain on sale of facilities 4,405 -- -- 4,014 --
Interest expense 18,151 16,996 13,540 9,064 8,838
Income before income taxes and cumulative effect
of accounting change 14,435 9,091 20,251 10,767 30,270
Income taxes 5,485 3,188 7,060 3,443 11,097
Income before cumulative effect of accounting
change 8,950 5,903 13,191 7,324 19,173
Cumulative effect of accounting change -- -- -- 2,848(4) --
Net income $8,950 $5,903 $13,191 $10,172 $19,173
PER COMMON SHARE DATA:
Income before cumulative effect of accounting
change $0.26 $0.16 $0.42 $0.25 $0.66
Net income 0.26 0.16 0.42 0.35 0.66
Dividends declared 0.05 0.20 0.20 0.32 0.36
PRO FORMA DATA(5) (UNAUDITED):
Pro forma income from continuing operations $7,215
Pro forma income per common share from continuing
operations $0.20
BALANCE SHEET DATA (END OF PERIOD):
Working capital $122,854 $243,553 $126,717 $ 85,011 $ 92,432
Total assets 456,809 474,965 435,818 314,957 328,643
Total debt 216,355 239,438 200,531 115,032 123,069
Total stockholders' equity 187,101 179,197 178,793 157,091 155,301
OTHER DATA:
EBITDA(6) $53,371 $50,668 $55,559 $32,321 $53,018
Capital expenditures 8,624 22,250 30,330 14,360 21,983
Ratio of EBITDA to interest expense(6) 2.94 2.98 4.10 3.57 6.00
Ratio of EBITDA minus capital expenditures to
interest expense(6) 2.47 1.67 1.86 1.98 3.51
Ratio of earnings to fixed charges(7) 1.59 1.41 2.11 1.54 2.27
</TABLE>
(1) During the fourth quarter of fiscal 1993, the Company changed its method of
determining the cost of inventories from the last-in, first-out (LIFO)
method to the first-in, first-out (FIFO) method. Under the current economic
environment of low inflation, the Company believes that the FIFO method will
result in a better measurement of operating results. The operating results
of all years prior to fiscal 1993 have been restated to apply the new method
retroactively. The effect of the accounting change on net income as
previously reported was to reduce net income by $4,001, $416 and $3,791 for
fiscal 1992, 1991 and 1990, respectively. In addition, earnings per common
share were reduced by $0.14, $0.02 and $0.13 for fiscal 1992, 1991 and 1990,
respectively. See Note 3 to the Company's Consolidated Financial Statements.
(2) See Note 2 to the Company's Consolidated Financial Statements for
information with respect to the acquisition of Logo 7 and Universal
Industries, Inc.
(3) Includes 53 weeks. All other years presented include 52 weeks.
(4) Reflects the Company's adoption of SFAS No. 96 "Accounting for Income Taxes"
as of the beginning of the fiscal year.
(5) Pro forma income from continuing operations and pro forma income per common
share from continuing operations have been calculated by adjusting
historical results of operations to give effect to the transactions
described in "Use of Proceeds and Refinancing" as if they had been
consummated at January 2, 1994. For purposes of preparing the pro forma
financial information, the Company used interest rates of 10.625% and 5.7%
on the Notes and the Senior Credit Facility, respectively. On a pro forma
basis, a 1/8% increase in the Company's weighted average variable interest
rate for the Senior Credit Facility would have resulted in pro forma income
from continuing operations and pro forma income per common share from
continuing operations of $7,077 and $0.20, respectively.
(6) EBITDA represents earnings before taking into consideration interest
expense, income taxes, depreciation and amortization and excludes gain on
sale of facilities. EBITDA is included herein to provide additional
information related to the Company's ability to service debt. EBITDA should
not be considered as an alternative measure of the Company's net income,
operating performance, cash flow or liquidity. After giving effect to the
Refinancing, for the year ended December 31, 1994, pro forma EBITDA would
have been $54,676, pro forma ratio of EBITDA to interest expense would have
been 2.46 and pro forma ratio of EBITDA minus capital expenditures to
interest expense would have been 2.07.
(7) For purposes of computing this ratio, earnings consist of earnings before
income taxes and fixed charges. Fixed charges consist of interest expense,
amortization of deferred debt issuance costs and one-third of rental expense
(the portion considered representative of the interest factor). After giving
effect to the Offering (but without giving effect to incremental interest
expense associated with borrowings under the Senior Credit Facility on a pro
forma basis), the pro forma ratio of earnings to fixed charges would have
been 1.47 for the year ended December 31, 1994.
7
<PAGE>
RISK FACTORS
Prospective investors should consider carefully all the information contained in
this Prospectus, including the following risk factors.
SUBSTANTIAL LEVERAGE
As of December 31, 1994, after giving effect to the Refinancing, the Company's
total indebtedness would have been approximately $223.4 million, all of which
was unsubordinated, and total shareholders' equity would have been approximately
$183.5 million, resulting in a pro forma total debt to total capitalization
ratio of 54.9%. In addition, at such date approximately $52.6 million of
additional borrowing capacity would have been available (pursuant to the
borrowing base formula) under the Senior Credit Facility. The Indenture will
permit the Company and its subsidiaries to incur certain additional specified
indebtedness. See "Description of the Notes."
The Company's borrowing needs are seasonal. The maximum amount of indebtedness
outstanding at any fiscal month end in 1994 was approximately $308.7 million at
October 1, 1994. See " -- Seasonality and Cyclicality."
The Company currently has incurred, and after the consummation of the Offering
will continue to incur, significant annual cash interest expense. After giving
effect to the Refinancing, the pro forma ratio of EBITDA to interest expense
would have been 2.46 to 1 for the fiscal year ended December 31, 1994 compared
to 2.94 to 1 before the Refinancing. After giving effect to the Offering, the
pro forma ratio of earnings to fixed charges for the fiscal year ended December
31, 1994 would have been 1.47 to 1 compared to 1.59 to 1 before the Offering.
See "Use of Proceeds and Refinancing" and "Capitalization."
The level of the Company's indebtedness could have important consequences to
holders of the Notes, including: (i) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures, acquisitions,
debt service requirements, general corporate purposes or other purposes may be
restricted, (ii) a substantial portion of the Company's cash flow from
operations must be dedicated to the payment of the Company's interest expense,
(iii) the Company is more highly leveraged than certain of its competitors,
which may place the Company at a competitive disadvantage and (iv) the Company's
borrowings under the Senior Credit Facility will accrue interest at variable
rates, which could result in increased interest expense in the event of higher
interest rates.
The Company's ability to make interest payments on the Notes will be dependent
on the Company's future operating performance, which itself is dependent on a
number of factors, many of which are beyond the Company's control. The Company's
ability to repay the Notes at maturity will depend upon these same factors and
the ability of the Company to raise additional funds. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Condition, Liquidity and Capital Resources."
During 1993 and 1994, the Company sought and obtained waivers of violations of,
and amendments to, certain financial covenants contained in the instruments
relating to the 8 7/8% Notes, the Term Loan and the Company's existing revolving
credit facility. During the second quarter of 1994, the Company suspended the
payment of dividends on its preferred and common stock. Substantially
contemporaneously with the consummation of the Offering, the Company expects to
pay existing dividend arrearages on its preferred stock and thereafter to resume
paying quarterly dividends thereon. No decision with respect to renewal of
common stock dividends has been made.
RESTRICTIVE COVENANTS IN THE SENIOR CREDIT FACILITY
The Senior Credit Facility is expected to contain material restrictions on the
operation of the Company's business, including covenants restricting, among
other things, the ability of the Company and certain subsidiaries to incur
indebtedness, create liens on the Company's property, guarantee obligations,
alter the character of the Company's business, consolidate, merge or purchase or
sell the Company's assets, make investments or advance funds, prepay
indebtedness and transact business with affiliates. The Senior Credit Facility
is also expected to contain certain financial covenants, including covenants
that will require the Company to maintain a minimum tangible net worth, leverage
ratio and fixed charges coverage ratio, as well as customary representations and
warranties, funding conditions and events of default. A breach of one or more
covenants under such facility could result in an acceleration of the Company's
obligations thereunder, and the inability of the Company to borrow additional
8
<PAGE>
amounts under the Senior Credit Facility. In addition, a default under the Notes
will constitute an event of default under the Senior Credit Facility. See "Use
of Proceeds and Refinancing."
RESTRICTIVE COVENANTS IN THE INDENTURE
The Indenture contains material restrictions on the Company's operations,
including covenants that restrict or limit (i) indebtedness that may be incurred
by the Company and its subsidiaries, (ii) the ability of the Company and its
subsidiaries to pay dividends or make other distributions, purchase or redeem
stock and make other investments, (iii) the creation of liens, (iv) the
disposition of assets, (v) sale and leaseback transactions, (vi) the issuance
and sale of capital stock of the Company's subsidiaries, (vii) transactions with
affiliates, (viii) a change of control of the Company and (ix) mergers,
consolidations and certain sales of assets by the Company. A breach of one or
more covenants under the Indenture could result in an acceleration of the
Company's obligations thereunder. See "Description of the Notes."
DOMESTIC COMPETITION
The domestic activewear and licensed apparel industries are highly competitive.
Since the 1980s, the activewear industry, and in recent years the licensed
apparel industry, have been characterized by the acquisition of existing
competitors by larger companies with substantial financial resources and
manufacturing and distribution capabilities. Certain participants in these
industries have greater financial and other resources than the Company.
Increased competition from these and future competitors could reduce sales and
prices, adversely affecting the Company's results of operations. Because of the
Company's high leverage, it may be less able to respond effectively to such
competition than other participants. See "Business -- Industry."
FOREIGN COMPETITION
The Company's products are subject to foreign competition. The extent of import
protection afforded to domestic manufacturers has been, and is likely to remain,
subject to considerable political deliberation. Beginning in 1995, the General
Agreement on Tariffs and Trade ("GATT") will eliminate over a period of 10 years
restrictions on imports of apparel. In addition, on January 1, 1994, the North
American Free Trade Agreement ("NAFTA") became effective. The implementation of
NAFTA could result in an increase in apparel imported from Mexico that would
compete against certain of the Company's products. See "Business -- Industry."
LICENSES AND TRADEMARKS
Professional and collegiate athletic licensors have increased their royalty
percentages and minimum guaranteed payments in contracts with licensees, such as
the Company's subsidiaries. In addition, the Company's material licenses are
nonexclusive, and new or existing competitors may obtain similar licenses. If a
significant license or licenses were not renewed or replaced, the Company's
sales and results of operations likely would be materially and adversely
affected. See "Business -- Licenses."
Because of its growing emphasis on branded products, the Company increasingly
will rely on the strength of its trademarks. The Company has in the past and may
in the future be required to expend significant resources protecting these
trademarks, and the loss or limitation of the exclusive right to use them could
adversely affect the Company's sales and results of operations. See
"Business -- Industry" and " -- Trademarks."
MAJOR LEAGUE BASEBALL STRIKE AND NATIONAL HOCKEY LEAGUE LOCKOUT
Through its subsidiaries, the Company sells activewear and headwear bearing
professional and college sports licensed logos and designs, including Major
League Baseball ("MLB") and National Hockey League ("NHL") team logos and
designs. The MLB players' strike and NHL lockout, which was settled on January
13, 1995, have adversely affected sales of items bearing these marks, and the
MLB players' strike will continue to adversely affect sales of MLB products
until this dispute is resolved. The Company expects that consumer demand for NHL
products and, once play resumes, MLB products will rebound, but may recover
slowly. There can be no assurance that the MLB dispute will be resolved in the
near future or that sales of MLB and NHL products will increase or return to
prior levels. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Results of Operations -- Fiscal Year 1994 Compared
to Fiscal Year 1993."
9
<PAGE>
UNIONIZATION OF HOURLY WORKERS AT MARTINSVILLE FACILITIES
In August 1994, hourly employees at the Company's Martinsville, Virginia
facilities voted for representation by the Amalgamated Clothing and Textile
Workers Union. The Company currently is negotiating a labor agreement with the
union which would cover all hourly employees at the Martinsville facilities. As
of December 31, 1994, the Company's approximately 2,200 hourly employees in
Martinsville accounted for approximately 32% of the Company's total employees
and approximately 36% of the Company's hourly employees. Failure to reach
agreement with the union could materially adversely affect the Company's
operations at its Martinsville facilities. None of the Company's other employees
are represented by a union. See "Business -- Employees."
RAW MATERIALS
The principal raw materials used by the Company in the manufacture of its
products are cotton of various grades and staple lengths and polyester in staple
form. Any shortage in the cotton supply by reason of weather, crop disease or
other factors, or significant increase in the price of cotton or polyester,
could adversely affect the Company's results of operations. Tultex makes advance
purchases of raw cotton based on projected demand. The Company has contracted to
purchase substantially all of its raw cotton needs for 1995 and has fixed the
price on approximately 50% of its raw cotton needs. To the extent cotton prices
increase before the Company fixes the price for the remainder of its raw cotton
needs, the Company's results of operations could be adversely affected. See
"Business -- Raw Materials."
DEPENDENCE ON SALES TO CERTAIN CUSTOMERS
During 1994, sales to Wal-Mart (including Sam's) accounted for approximately
10.4% of the Company's total sales, and the Company's four largest customers
together (including Wal-Mart) accounted for approximately 30.4% of sales. The
loss of sales to Wal-Mart or two or more other customers accounting for 10% or
more of total sales could adversely affect the Company's results of operations.
See "Business -- Customers; Marketing and Sales."
SEASONALITY AND CYCLICALITY
Historically, the fleecewear and licensed apparel industries have been seasonal,
with peak sales occurring in the third and fourth quarters of the calendar year,
coinciding with cooler weather and the playing seasons for some of the most
popular professional and college sports, notably football and basketball. The
licensed apparel industry also is cyclical, in substantial part because of the
changing allegiances of sports fans as their teams win or lose and the
fluctuating popularity of a particular sport. The Company's performance may be
negatively affected by the foregoing factors and by changing retailer and
consumer demands and downturns in consumer spending, such as the downturn that
began during the latter part of 1993 and that affected the Company's performance
into 1994. See "Business -- Industry" and " -- Seasonality."
ENVIRONMENTAL LAWS AND REGULATIONS
The Company is subject to various federal, state and local environmental laws
and regulations governing the discharge, storage, handling and disposal of a
variety of substances and waste used in the Company's operations. The Company
returns dyeing waste for treatment to the City of Martinsville, Virginia's
municipal wastewater treatment system operated under a permit issued by the
state. While the Company believes it is in material compliance with these laws
and regulations, there can be no assurance that environmental requirements will
not become more stringent in the future or that the Company will not incur
substantial costs in the future to comply with such requirements. See
"Business -- Environmental Matters."
FRAUDULENT CONVEYANCE CONSIDERATIONS
Each Guarantor's Guarantee of the obligations of the Company under the Notes may
be subject to review under relevant federal and state fraudulent conveyance
statutes in a bankruptcy, reorganization or rehabilitation case or similar
proceeding or a lawsuit by or on behalf of unpaid creditors of such Guarantor.
If a court were to find under relevant fraudulent conveyance statutes that, at
the time the Notes were issued, (a) a Guarantor guaranteed the Notes with the
intent of hindering, delaying or defrauding current or future creditors or
(b)(i) a Guarantor received less than reasonably equivalent value or fair
consideration for guaranteeing the Notes and (ii)(A) was insolvent or was
rendered insolvent by reason of such Guarantee, (B) was engaged, or about to
engage, in a
10
<PAGE>
business or transaction for which its assets constituted unreasonably small
capital or (C) intended to incur, or believed that it would incur, obligations
beyond its ability to pay as such obligations matured (as all of the foregoing
terms are defined in or interpreted under such fraudulent conveyance statutes),
such court could avoid or subordinate such Guarantee to presently existing and
future indebtedness of such Guarantor and take other action detrimental to the
holders of the Notes, including, under certain circumstances, invalidating such
Guarantee. See "Description of the Notes -- Guarantees."
NO MARKET FOR NOTES
The Notes are new securities for which there is no trading market. The Company
does not intend to list the Notes on any securities exchange. The Company has
been advised by the Underwriters that the Underwriters currently intend to make
a market in the Notes; however, the Underwriters are not obligated to do so and
may discontinue any such market making at any time without notice. No assurance
can be given as to the development or liquidity of any trading market for the
Notes. See "Underwriting."
USE OF PROCEEDS AND REFINANCING
The net proceeds from this Offering are approximately $107.0 million. The
Company intends to use all of such net proceeds and borrowings of approximately
$8.0 million under the Senior Credit Facility to pay principal, accrued interest
and prepayment expenses relating to the 8 7/8% Notes and the Term Loan. The
Company intends to use additional borrowings under the Senior Credit Facility to
repay amounts outstanding under its existing credit facility, which terminates
on October 6, 1995. The closings of this Offering and the Senior Credit Facility
are conditioned upon each other. The Refinancing will eliminate certain
covenants and extend the maturities of the Company's indebtedness. Upon
consummation of the Refinancing, the Company expects to record an extraordinary
charge, representing the loss from early extinguishment of debt (including
expensing of unamortized issuance costs and prepayment penalties). As of
December 31, 1994, this charge, net of tax, would have been approximately $3.6
million, including a prepayment penalty of $1.4 million calculated as of
February 16, 1995.
As of December 31, 1994, there was $95 million in aggregate principal amount of
8 7/8% Notes outstanding and $16 million outstanding under the Term Loan bearing
interest at the annual rate of 90-day LIBOR plus 0.75% (7.19% as of December 31,
1994). The 8 7/8% Notes mature on June 1, 1999 and the Term Loan matures on July
31, 1996.
Borrowings under the Senior Credit Facility will be general unsecured
obligations of the Company and will rank PARI PASSU in right of payment with the
Notes and all other unsubordinated indebtedness of the Company. As of December
31, 1994, all of the Company's outstanding indebtedness was unsubordinated.
Borrowings under the Senior Credit Facility will bear a floating rate of
interest equal to the prime rate of NationsBank, N.A. (Carolinas) or a reference
rate plus a margin ranging from 0.50% to 1.625% per annum, depending upon the
applicable reference rate and the Company's ratio of total debt to tangible
capitalization. The Senior Credit Facility will contain customary
representations and events of default, including default upon a change of
control of the Company. It will also contain covenants restricting, among other
things, the ability of the Company and certain subsidiaries to incur
indebtedness; create liens on the Company's property; guarantee obligations;
alter the character of the Company's business; consolidate, merge or purchase or
sell the Company's assets; make investments or advance funds; prepay
indebtedness; and transact business with affiliates. The Senior Credit Facility
will also contain certain financial covenants, including covenants that will
require the Company to maintain a minimum tangible net worth, leverage ratio and
fixed charges coverage ratio. Three of the Company's subsidiaries, Logo 7,
Universal and Dominion Stores, Inc., will guarantee on a joint and several basis
all of the Company's obligations under the Senior Credit Facility.
11
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at December 31,
1994, and as adjusted to give effect to the consummation of the Refinancing and
the use of the net proceeds from the Offering as set forth in "Use of Proceeds
and Refinancing." See the Company's Consolidated Financial Statements and the
notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994
(UNAUDITED)
ACTUAL AS ADJUSTED
<S> <C> <C>
IN THOUSANDS, EXCEPT SHARE AMOUNTS
SHORT-TERM INDEBTEDNESS:
Notes payable to bank $ 1,000 $ 1,000
Current maturities of long-term indebtedness 132,353(1) 212
Total short-term indebtedness 133,353 1,212
LONG-TERM INDEBTEDNESS, LESS CURRENT MATURITIES:
10 5/8% Senior Notes due 2005 -- 110,000
Notes payable to banks (Senior Credit Facility) -- 112,023
8 7/8% Senior Notes Due June 1, 1999 (8 7/8% Notes) 76,000 --
Variable rate note due July 31, 1996 (Term Loan) 6,856 --
Other long-term indebtedness 146 146
Total long-term indebtedness 83,002 222,169
Total indebtedness 216,355 223,381
STOCKHOLDERS' EQUITY:
5% Cumulative Preferred Stock, $100 par value per share; 22,000 shares
authorized, 1,975 shares outstanding 198 198
Cumulative Convertible Preferred Stock, $7.50 Series B, no par value;
150,000 shares authorized and outstanding 15,000 15,000
Common Stock, par value $1 per share; 60,000,000 shares authorized;
29,806,793 shares issued and outstanding 29,807 29,807
Capital in excess of par value 5,279 5,279
Retained earnings 140,283 136,662(2)
Less notes receivable from stockholders (3) (3,466) (3,466)
Total stockholders' equity 187,101 183,480
Total capitalization $403,456 $406,861
</TABLE>
(1) Includes $104,000 outstanding under the Company's existing revolving credit
facility, which expires October 6, 1995.
(2) Gives effect, on an after-tax basis, to the charge associated with the early
extinguishment of indebtedness as a result of the Refinancing. The charge
includes a prepayment penalty of $1,400 calculated as of February 16, 1995.
(3) See Note 16 to the Company's Consolidated Financial Statements.
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below for each of the five
fiscal years in the period ended December 31, 1994 is derived from the
Consolidated Financial Statements of the Company, as audited by Price Waterhouse
LLP, independent accountants, which are included herein for fiscal years 1994,
1993 and 1992. The Consolidated Financial Statements of the Company for fiscal
year 1991 and prior years are based, in part, upon the Financial Statements of
Universal which was acquired by the Company in 1992, as audited by Coopers &
Lybrand L.L.P., independent accountants. The data presented below should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements,
related notes, and other financial data included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
DEC. 31 JAN. 1 JAN. 2 DEC. 28 DEC. 29
1994 1994(1) 1993(1)(2)(3) 1991(1) 1990(1)
<S> <C> <C> <C> <C> <C>
IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA
STATEMENT OF INCOME DATA:
Net sales and other income $565,433 $533,611 $503,946 $349,910 $390,336
Cost of products sold 419,769 395,727 368,027 271,243 283,907
Depreciation 23,973 23,364 20,831 17,369 14,775
Selling, general and administrative 93,510 88,433 81,297 45,481 52,546
Income from operations 28,181 26,087 33,791 15,817 39,108
Gain on sale of facilities 4,405 -- -- 4,014 --
Interest expense 18,151 16,996 13,540 9,064 8,838
Income before income taxes and cumulative effect
of accounting change 14,435 9,091 20,251 10,767 30,270
Income taxes 5,485 3,188 7,060 3,443 11,097
Income before cumulative effect of accounting
change 8,950 5,903 13,191 7,324 19,173
Cumulative effect of accounting change -- -- -- 2,848(4) --
Net income $8,950 $5,903 $13,191 $10,172 $19,173
PER COMMON SHARE DATA:
Income before cumulative effect of accounting
change $0.26 $0.16 $0.42 $0.25 $0.66
Net income 0.26 0.16 0.42 0.35 0.66
Dividends declared 0.05 0.20 0.20 0.32 0.36
PRO FORMA DATA (5) (UNAUDITED):
Pro forma income from continuing operations $7,215
Pro forma income per common share from continuing
operations $0.20
BALANCE SHEET DATA (END OF PERIOD):
Working capital $122,854 $243,553 $126,717 $ 85,011 $ 92,432
Total assets 456,809 474,965 435,818 314,957 328,643
Total debt 216,355 239,438 200,531 115,032 123,069
Total stockholders' equity 187,101 179,197 178,793 157,091 155,301
OTHER DATA:
EBITDA (6) $53,371 $50,668 $55,559 $32,321 $53,018
Capital expenditures 8,624 22,250 30,330 14,360 21,983
Ratio of EBITDA to interest expense (6) 2.94 2.98 4.10 3.57 6.00
Ratio of EBITDA minus capital expenditures to
interest expense (6) 2.47 1.67 1.86 1.98 3.51
Ratio of earnings to fixed charges (7) 1.59 1.41 2.11 1.54 2.27
</TABLE>
FOOTNOTES ON FOLLOWING PAGE
13
<PAGE>
(1) During the fourth quarter of fiscal 1993, the Company changed its method of
determining the cost of inventories from the last-in, first-out (LIFO)
method to the first-in, first-out (FIFO) method. Under the current economic
environment of low inflation, the Company believes that the FIFO method will
result in a better measurement of operating results. The operating results
of all years prior to fiscal 1993 have been restated to apply the new method
retroactively. The effect of the accounting change on net income as
previously reported was to reduce net income by $4,001, $416 and $3,791 for
fiscal 1992, 1991 and 1990, respectively. In addition, earnings per common
share were reduced by $0.14, $0.02 and $0.13 for fiscal 1992, 1991 and 1990,
respectively. See Note 3 to the Company's Consolidated Financial Statements.
(2) See Note 2 to the Company's Consolidated Financial Statements for
information with respect to the acquisition of Logo 7 and Universal
Industries, Inc.
(3) Includes 53 weeks. All other years presented include 52 weeks.
(4) Reflects the Company's adoption of SFAS No. 96 "Accounting for Income Taxes"
as of the beginning of the fiscal year.
(5) Pro forma income from continuing operations and pro forma income per common
share from continuing operations have been calculated by adjusting
historical results of operations to give effect to the transactions
described in "Use of Proceeds and Refinancing" as if they had been
consummated at January 2, 1994. For purposes of preparing the pro forma
financial information, the Company used interest rates of 10.625% and 5.7%
on the Notes and the Senior Credit Facility, respectively. On a pro forma
basis, a 1/8% increase in the Company's weighted average variable interest
rate for the Senior Credit Facility would have resulted in pro forma income
from continuing operations and pro forma income per common share from
continuing operations of $7,077 and $0.20, respectively.
(6) EBITDA represents earnings before taking into consideration interest
expense, income taxes, depreciation and amortization and excludes gain on
sale of facilities. EBITDA is included herein to provide additional
information related to the Company's ability to service debt. EBITDA should
not be considered as an alternative measure of the Company's net income,
operating performance, cash flow or liquidity. After giving effect to the
Refinancing, for the year ended December 31, 1994, pro forma EBITDA would
have been $54,676, pro forma ratio of EBITDA to interest expense would have
been 2.46 and pro forma ratio of EBITDA minus capital expenditures to
interest expense would have been 2.07.
(7) For purposes of computing this ratio, earnings consist of earnings before
income taxes and fixed charges. Fixed charges consist of interest expense,
amortization of deferred debt issuance costs and one-third of rental expense
(the portion considered representative of the interest factor). After giving
effect to the Offering (but without giving effect to incremental interest
expense associated with borrowings under the Senior Credit Facility on a pro
forma basis), the pro forma ratio of earnings to fixed charges would have
been 1.47 for the year ended December 31, 1994.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial results for the first six months of fiscal 1992 have been restated to
include Universal, acquired by the Company in June 1992 through an exchange of
stock accounted for as a pooling of interests. In addition, the Company changed
its method of 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
fiscal 1993. This change has been applied retroactively by restating all prior
periods presented.
RESULTS OF OPERATIONS
The following table presents the Company's consolidated income statement items
as a percentage of net sales.
<TABLE>
<CAPTION>
YEAR ENDED
DEC. 31, 1994 JAN. 1, 1994 JAN. 2, 1993
(52 WEEKS) (52 WEEKS) (53 WEEKS)
<S> <C> <C> <C>
Net sales and other income 100.0% 100.0% 100.0%
Cost of products sold 74.2 74.1 73.0
Depreciation 4.2 4.4 4.2
Selling, general and administrative 16.5 16.6 16.1
Gain on sale of facilities (0.7) -- --
Interest 3.2 3.2 2.7
Total costs and expenses 97.4 98.3 96.0
Income before taxes 2.6 1.7 4.0
Provision for income tax 1.0 0.6 1.4
Net income 1.6% 1.1% 2.6%
</TABLE>
Note: Certain items have been rounded to cause the columns to add to 100%.
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993
Net Sales and Other Income for the year ended December 31, 1994 increased $31.8
million or 6.0% over the prior year, from $533.6 million to $565.4 million,
attributable primarily to increased sales volume in the activewear and licensed
headwear lines. These increases were partially offset by a decrease in other
licensed apparel sales due to the Major League Baseball strike and the National
Hockey League lockout, and to some general weakening in the licensed sports
apparel marketplace. Activewear sales in fiscal 1994 increased $24.3 million or
7.6% over fiscal 1993 from $320.1 million to $344.4 million, and licensed
apparel headwear sales increased $16.2 million or 31.0% over fiscal 1993 from
$52.2 million to $68.4 million. Sales of other licensed sports apparel decreased
$8.7 million or 5.4% in fiscal 1994 compared with 1993 from $161.3 million to
$152.6 million. Sales of DISCUS ATHLETIC activewear and premium private label
sweats under the Nike, Levi Strauss and Reebok names increased 49.8% to $77.6
million and sales of LOGO ATHLETIC licensed apparel increased 198.6% to $64.5
million. Sales of jersey products were $56.8 million for the fiscal year ended
December 31, 1994, representing 16.5% of the Company's activewear sales during
such period compared to 11.6% for fiscal 1993.
Cost of Products Sold as a percentage of sales in fiscal 1994 remained
relatively unchanged from 1993, increasing from 74.1% to 74.2%. Continuing
efficiency improvements and overhead reductions during 1994 helped contain total
costs. Costs were contained notwithstanding growth of jersey volume, which
typically produces lower margins, increased raw material costs and product
improvements. Utilization of the Company's manufacturing and distribution
facilities improved in the second half of 1994 as a result of the increased
demand for activewear. Raw material costs were higher in 1994 than in 1993 as a
result of the increased price of raw cotton. Cotton prices fluctuate based on
the relationship between supply and demand, with prices increasing as demand
increases and/or supply decreases. The supply of cotton can be adversely
affected by weather, crop disease or other factors. Although cotton and
polyester prices are expected to be higher and cotton supply may be limited in
1995, the Company has contracted to purchase substantially all of its raw cotton
needs for 1995 and fixed the price on
15
<PAGE>
approximately 50% of its raw cotton needs. To the extent cotton prices increase
before the Company fixes the price for the remainder of its raw cotton needs,
the Company's results of operations could be adversely affected.
Depreciation expense as a percentage of sales was 4.2% for fiscal 1994 and 4.4%
for fiscal 1993. Depreciation expense in 1994 increased by $0.6 million or 2.6%
over 1993 from $23.4 million to $24.0 million, due to fixed asset additions.
Selling, General and Administrative ("SG&A") expenses increased $5.1 million in
1994. As a percentage of net sales, SG&A expenses were 16.5% in 1994 and 16.6%
in 1993. Higher SG&A expenses in 1994 resulted from higher advertising costs and
sales commissions in activewear lines, especially relating to the Company's
DISCUS ATHLETIC brand, and higher royalties in the licensed apparel lines.
In December 1994, the Company sold its yarn spinning plant located in
Rockingham, North Carolina, which generated a pretax gain of $4.4 million. The
Company separately agreed to purchase from the buyer 20 million pounds of
cotton-polyester blended yarns over the next three years on market terms. The
Company's yarn purchase requirements are expected to exceed this amount.
Interest expense as a percentage of sales was 3.2% for both 1994 and 1993.
Interest expense increased $1.2 million or 7.1% in 1994 over 1993, from $17.0
million to $18.2 million, primarily as a result of higher average borrowings to
finance working capital requirements. The nature of the Company's business
requires extensive seasonal borrowings to support its working capital needs. As
of October 6, 1993, the Company entered into a $225 million revolving credit
facility, which replaced its short-term credit lines. During fiscal 1993,
working capital borrowings averaged $133.9 million at an average rate of 3.8%.
During fiscal 1994, under the revolving credit facility, average borrowings and
interest rate were $155.3 million and 5.2%, respectively.
Provision for Income Tax is a function of pretax earnings and the combined
effective rate of federal and state income taxes. The effective rate for
combined federal and state income taxes was 38% in 1994 and 35% in 1993. The
provision for income tax as a percentage of net sales increased to 1.0% in
fiscal 1994 from 0.6% in fiscal 1993, an increase of $2.3 million. The increase
in provision for income tax was due to higher pretax earnings and higher
effective federal and state income tax rates.
FISCAL YEAR 1993 COMPARED TO FISCAL YEAR 1992
Net Sales and Other Income for fiscal 1993 increased $29.7 million or 5.9% over
1992 from $503.9 million to $533.6 million. The 1993 sales growth was due to a
23.7% increase in licensed apparel sales partially offset by lower activewear
sales. Unit sales volume of activewear apparel in 1993 was relatively unchanged
from the prior year's level, while the average selling price of activewear
apparel decreased by approximately 2% from 1992. The 1993 average price decline
of activewear products was primarily due to proportionately higher shipping
volume of jersey products, which sell at lower prices than fleece garments.
Cost of Products Sold as a percentage of sales increased from 73.0% for 1992 to
74.1% for 1993. The increase was primarily due to heavier fabric weights,
greater sewing detail for activewear products, strong licensed apparel sales
growth with mass merchandisers which sales generally yield lower margins, and
expenses associated with streamlining operations. The increase in jersey sales,
which traditionally yield lower margins than fleece, also increased cost of
products sold as a percentage of sales. Apparel production for 1993 decreased
2.5% from 1992.
Depreciation expense as a percentage of sales increased to 4.4% for 1993 from
4.2% for 1992. Depreciation expense increased $2.6 million or 12.5% over 1992
from $20.8 million to $23.4 million. The 1993 increase was primarily due to
expenditures for machinery and equipment.
Selling, General and Administrative expenses increased as a percentage of sales
from 16.1% in 1992 to 16.6% in 1993. The primary reason for the SG&A expense
increase was an approximately $5 million increase in royalty expenses related to
higher sales of professional sports licensed apparel.
Interest expense was 3.2% of sales for 1993 compared to 2.7% for 1992. Interest
expense increased $3.5 million or 25.9% in 1993 compared to 1992 from $13.5
million to $17.0 million primarily due to higher indebtedness from increased
working capital needs and the acquisition of Logo 7. The Company experienced
increased working capital needs in 1993 due to higher inventory levels and
extended payment terms for some customers.
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<PAGE>
Provision for Income Tax reflects an effective rate for combined federal and
state income tax of 35% in 1993 and 1992.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net working capital at December 31, 1994 decreased $120.7 million or 49.5% to
$122.9 million from $243.6 million at January 1, 1994, primarily due to the
reclassification of $104.0 million of borrowings under the Company's existing
revolving credit facility from long-term debt to current maturities. Net
accounts receivable increased $23.4 million from January 1, 1994 to December 31,
1994 due to higher activewear sales in the fourth quarter of 1994 versus the
comparable period in 1993.
Inventories traditionally increase during the first half of the year to support
second-half shipments. In 1994, inventories peaked on July 2 at $206.5 million
and then dropped to $130.2 million at December 31. As of December 31, 1994,
inventories had decreased by approximately $27.1 million or 17.2% from January
1, 1994, while sales had increased 6.0% in fiscal 1994 versus fiscal 1993.
Borrowings under the Company's revolving credit facility, amounting to $104.0
million at December 31, 1994, were reclassified from long-term debt to current
maturities because the credit facility terminates in October 1995. The current
ratio (ratio of current assets to current liabilities) at December 31, 1994 was
1.7 compared to 6.4 at January 1, 1994. The decrease in the current ratio was
due mainly to higher current maturities of debt.
On October 6, 1993, the Company began operating with a two-year $225 million
revolving credit facility which replaced the Company's short-term credit lines.
Total indebtedness at December 31, 1994 consisted primarily of the 8 7/8% Notes
totalling $95 million, $104.0 million outstanding under the revolving credit
facility and $16 million due under the Term Loan. The Company's average credit
facility borrowings during fiscal 1994 were $155.3 million and its peak
borrowing was $192.0 million at October 1, 1994. Current maturities included $19
million of the 8 7/8% Notes, a total of $9 million, due in equal quarterly
payments of approximately $2 million each, under the Term Loan and $104.0
million of borrowings under the revolving credit facility. As of December 31,
1994, the Company was in compliance with, or had obtained waivers for violations
of, all debt covenants.
Net proceeds from this Offering and borrowings under the Senior Credit Facility
will be used to repay in full the 8 7/8% Notes and the Term Loan. The Company
believes that the longer maturities and the increased covenant flexibility
provided under the terms of the Notes will allow the Company to continue to
increase its long-term investment in brand promotion and higher-margin products.
See "Use of Proceeds and Refinancing."
In fiscal 1994, net cash provided by operations was $24.6 million compared to
cash used by operations of $5.9 million in fiscal 1993. The reduced need for
operating cash was due to reduced inventory partially offset by higher accounts
receivable. Cash used for capital expenditures decreased $13.7 million or 61.4%
for fiscal 1994 compared to 1993 from $22.3 million to $8.6 million. The Company
has budgeted approximately $15 million for capital expenditures in fiscal 1995.
Cash used by financing activities was $24.1 million for fiscal 1994 compared to
cash provided by financing activities of $33.4 million in fiscal 1993 as a
result of reduced borrowing requirements. The Company expects that its
short-term borrowing needs will be met through cash generated from operations
and borrowings under the new, three-year Senior Credit Facility. In addition,
the Notes will require no scheduled principal repayments until their maturity in
2005.
Stockholders' Equity increased $7.9 million during fiscal 1994 primarily due to
net income for the period of $9.0 million and $0.7 million net proceeds from a
new employee stock purchase plan. This increase was partially offset by cash
dividends of $1.8 million. On April 13, 1994, the Board of Directors suspended
further dividend payments. Substantially contemporaneously with the consummation
of the Offering, the Company expects to pay existing dividend arrearages on its
preferred stock and thereafter to resume paying quarterly dividends thereon. No
decision with respect to renewal of common stock dividends has been made.
Accumulated dividends on the Company's 5% Cumulative Preferred Stock and
Cumulative Convertible Preferred Stock, $7.50 Series B totalled $851,000 at
December 31, 1994.
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BUSINESS
GENERAL
Tultex Corporation is one of the world's largest marketers and manufacturers of
activewear and licensed sports apparel for consumers and sports enthusiasts. The
Company's diverse product line includes fleeced sweats, jersey products
(outerwear T-shirts), and decorated jackets and caps. These products are sold
under the Company's own brands led by the DISCUS ATHLETIC and LOGO ATHLETIC
premium labels and under private labels, including Nike, Levi Strauss, Reebok
and Pro Spirit. In addition, the Company has numerous professional and college
sports licenses to manufacture and market embroidered and screen-printed
products with team logos and designs under its LOGO ATHLETIC and LOGO 7 brands.
The Company is a licensee of professional sports apparel, holding licenses from
the National Football League ("NFL"), MLB, the National Basketball Association
("NBA") and the NHL to manufacture a full range of sports apparel for adults and
children.
Historically, Tultex has been a producer of quality fleece products for sale to
distributors and resale to consumers under private labels. However, in the
1980s, the activewear industry began to change. Increasing consumer demand
reflecting more active and casual lifestyles and the industry's historically
good long-term growth prospects and low fashion risk as compared to other
apparel products, attracted large, well-financed companies which acquired
competitors of the Company. Simultaneously, larger mass merchandise retailers
began to exert pressure on margins for lower-priced fleece products.
In recent years, Tultex has initiated a strategy to enhance its competitiveness
and to capitalize on growth opportunities by becoming a consumer-oriented
apparel maker able to compete in a changing industry. This strategy includes the
following elements:
(Bullet) INCREASING EMPHASIS ON HIGHER-MARGIN PRODUCTS. The Company is
strengthening its competitiveness in the activewear business through
the development of branded and private label, higher-quality and
higher-margin products to supplement its traditionally strong position
in the lower-priced segment of the business. The Company is developing
its own brands, promoting DISCUS ATHLETIC for its premium products and
using the TULTEX label for the value-oriented segment of the market.
DISCUS ATHLETIC'S highly visible advertising during televised
broadcasts of college football and basketball on the ESPN and ABC
television networks and of Atlantic Coast Conference basketball has
contributed to significant annual increases in sales of this brand
since 1992. In addition, Tultex has partnering arrangements to supply
higher-quality, private label products to companies such as Reebok,
Levi Strauss and Nike, none of which accounted for more than 10% of the
Company's consolidated sales during 1994. To complement its development
of higher-margin products, the Company began manufacturing jersey
products in 1991.
(Bullet) EXPANDING INTO LICENSED APPAREL BUSINESS TO COMPLEMENT ACTIVEWEAR
BUSINESS. Tultex's 1992 acquisitions of Logo 7, a marketer of licensed
sports apparel, and Universal, a marketer of sports and entertainment
licensed headwear, enabled the Company to achieve the fourth largest
market share (13.7%) in the higher-margin licensed apparel business in
1993, and have created opportunities for significant manufacturing and
distribution synergies with the Company's activewear business. The
promotion of the LOGO ATHLETIC brand of licensed apparel through
television and print advertising, as well as promotional arrangements
featuring Dallas Cowboys' quarterback Troy Aikman, San Francisco 49ers'
quarterback Steve Young, Miami Dolphins' quarterback Dan Marino, the
Chicago Blackhawks' Chris Chelios and the Washington Bullets' Chris
Webber, among others, has helped to increase the visibility and sales
of LOGO ATHLETIC products.
(Bullet) INCREASING DISTRIBUTION CHANNELS AND STRENGTHENING CUSTOMER
RELATIONSHIPS. Tultex actively pursues strong relationships with
department, sporting goods and other specialty stores, such as Sears,
JC Penney, Modell's, Dillard's, Foot Locker, Champs and Sports
Authority, to distribute its higher margin branded and private label
products. In addition, the Company continues to strengthen its
relationships with high volume retailers such as Wal-Mart, Kmart and
Target by supplying private label and TULTEX products. Tultex provides
customers with exceptional service and support; as an example, its
distribution capabilities are highly responsive to customers' changing
delivery and inventory management requirements.
(Bullet) INVESTING IN MODERN DISTRIBUTION AND PRODUCTION FACILITIES. During
fiscal 1988 through fiscal 1994, Tultex invested approximately $191
million in capital expenditures, primarily in the construction of its
customer service center and in high-efficiency spinning, knitting,
dyeing, cutting and embroidering machinery. In 1991, Tultex
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began operating the customer service center, which the Company believes
is the most highly automated in the industry. Having made significant
investments in its distribution and production facilities, the
Company's average capital expenditures are not expected to exceed
approximately $20 million annually through 1997.
The Company's strategy has improved its sales mix. While net sales increased
6.0% in fiscal 1994 over 1993, net sales of DISCUS ATHLETIC activewear and
premium private label sweats under the Nike, Levi Strauss and Reebok names
increased 49.8% to $77.6 million and net sales of LOGO ATHLETIC licensed apparel
increased 198.6% to $64.5 million. Sales of jersey products were $56.8 million
for the fiscal year ended December 31, 1994, representing 16.5% of the Company's
activewear sales during such period compared to 11.6% for fiscal 1993. Reduced
consumer demand for activewear and an oversupply of activewear in retail
inventories in the first half of 1994, the MLB strike, the NHL lockout and
higher raw material costs adversely affected Tultex's results of operations
during 1994.
The Company's activewear business is vertically integrated, spinning
approximately 80-85% of the yarn it requires in three yarn plants located in
North Carolina (the balance is purchased under yarn supply contracts) and
knitting, dyeing and cutting fabric and sewing finished goods in 11 plants in
Virginia and North Carolina and one plant in Jamaica. The Company's licensed
sports apparel operations are conducted from one plant in Indiana and one plant
in Massachusetts.
INDUSTRY
The Company produces activewear and licensed sports apparel and headwear for
sale at a broad range of price points through all major distribution channels.
ACTIVEWEAR
The Company's activewear business consists of its fleecewear and jersey
products. All activewear industry and market share data included herein has been
estimated by the Company based on data provided by Market Research Corporation
of America, a leading provider of market information on the textile industry.
FLEECEWEAR. The fleecewear industry, with retail sales of approximately $9.1
billion in 1993, has grown 12.8% in unit sales from 1989 to 1993 and has
experienced a 3.1% compound annual growth rate in unit sales during this period.
The predominant fleecewear products are sweatshirts and bottoms.
The basic fleecewear industry is characterized by:
(Bullet) LOW FASHION RISK -- although fashion detailing changes often, basic
garment styles are not driven by trends or fads;
(Bullet) LONG-TERM GROWTH -- industry sales volume is estimated to have grown
from 697.4 million units in 1989 to 786.9 million units in 1993, though
this growth has been punctuated with periodic downturns related to
external events such as reduced retailer commitment for activewear
during the Gulf War and the lower consumer demand prevailing in late
1993 to early 1994;
(Bullet) ENTRY BY WELL-FINANCED ACQUIRORS -- new entrants have been attracted by
the industry's long-term growth and have been able to make the large
initial capital investments for manufacturing;
(Bullet) BARRIERS TO ENTRY -- barriers include large required capital
investments, and growing importance of brand-name recognition and
established customer relationships; and
(Bullet) LOW THREAT OF IMPORTS -- the low labor portion of the cost of
manufacturing fleecewear and the short delivery times required for
inventory control by retail customers reduce the threat of competition
from imports.
Sales of fleeced apparel experienced significant growth during the late 1970s
and 1980s due to the increased pursuit of physical fitness and active lifestyles
and the related rise in popularity and acceptance of sweatshirts, jersey apparel
and other types of athletic clothing as "streetwear." Moreover, fleecewear
products have registered significant improvements in fabric weights, blends,
quality of construction, size, style, and color availability over the past few
years, which has contributed to this growth in demand. In particular, garments
are sized larger and typically use heavier, more shrink-resistant fabrics. In
addition, acrylic-dominant blends have been supplanted by polyester-dominant and
cotton-dominant blends. Despite these upgrades in product specifications, retail
prices
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have remained relatively flat in real terms due to improvements in manufacturing
technology and competitive pressures.
Fleecewear exhibits a marked seasonality. For example, over the past three
fiscal years, an average of 71.9% of the Company's fleecewear unit sales have
occurred in the third and fourth quarters.
JERSEY (OUTERWEAR T-SHIRTS). Unit retail sales of jersey products have grown
32.6% from 1989 to 1993 and in 1993 totaled $6.7 billion, or 66 million units.
Like fleecewear, the industry characteristics of jersey apparel include low
fashion risk and long-term growth. Imports are a greater threat as the
weight/labor ratio and the freight costs involved are lower for jersey products
than for fleecewear; however, the ability to produce large volumes with short
delivery times gives domestic manufacturers an advantage over import competition
in both fleecewear and jersey apparel.
INDUSTRY MAKEUP AND RETAIL CHANNELS. In 1993, the five largest fleece
manufacturers together accounted for an estimated 26.7% of the branded market in
the fleecewear industry, with Hanes Corporation, Russell Corporation, Tultex,
Fruit of the Loom and VF Corporation accounting for approximately 10.9%, 5.7%,
3.7%, 3.6% and 2.8% of wholesale industry sales, respectively. The retail jersey
industry also is fragmented. In 1993, the five largest jersey manufacturers
together accounted for an estimated 16.4% of the branded market in the jersey
industry, with Fruit of the Loom, Hanes Corporation, Russell Corporation, VF
Corporation and Tultex accounting for approximately 7.1%, 6.1%, 1.5%, 1.2% and
0.5% of wholesale industry sales, respectively. The activewear industry has been
characterized since the 1980s by the acquisition of existing competitors by
larger companies with substantial financial resources and manufacturing and
distribution capabilities. These factors and the resulting price reductions and
inventory build-ups have adversely affected participants in the activewear
industry, including Tultex, particularly with respect to the fleecewear
industry. In response, several competitors announced reductions in fleecewear
manufacturing capacity during 1993 and 1994. While fleeced apparel pricing has
improved and inventory levels recovered to more typical levels in the second
half of 1994, there can be no assurance that these market conditions will
continue. Fleecewear is distributed through department stores, chain stores and
sporting goods stores, although mass merchandisers, wholesale clubs, and other
discount retailers represent a dominant and growing percentage of the total
fleecewear market.
COMPETITIVE FACTORS. The Company believes that price and quality are the primary
factors in consumer purchasing decisions. Brand name is often a proxy for
quality; as a result, those companies with brand name recognition enjoy
increased sales from this competitive advantage, as mass merchandisers,
department store chains, and wholesale clubs are requiring more branded than
private label activewear. Management believes that the market share of foreign
competitors in the fleecewear and jersey industries is immaterial.
LICENSED APPAREL AND HEADWEAR
Estimated wholesale sales of professional sports licensed apparel (including
headwear) for 1993 were approximately $1.9 billion, according to SPORTS STYLE
MAGAZINE, an industry publication. In general, the Company believes that the
prospects for its continued growth in this market are good, although growth is
expected to be less rapid than in recent years due to increased competition. The
continually changing fortunes of existing teams, together with the introduction
of new franchises, has made the market extremely dynamic, as interest in each
team fluctuates with its performance. Manufacturers, such as the Company, with
the capacity to respond quickly to these changes with new products and designs,
enjoy a competitive advantage over smaller competitors. The MLB players' strike
and the NHL lockout, which was settled on January 13, 1995, have adversely
affected sales of items bearing these marks, and the MLB players' strike will
continue to adversely affect sales of MLB products until this dispute is
resolved. The Company expects that consumer demand for NHL products and, once
play resumes, MLB products will rebound, but may recover slowly. There can be no
assurance that the MLB dispute will be resolved in the near future or that sales
of MLB and NHL products will increase or return to prior levels.
INDUSTRY MAKEUP AND RETAIL CHANNELS. The industry has expanded rapidly over the
past three years, with the professional sports leagues granting large numbers of
licenses. With this proliferation of licenses, individual competitor's sales
growth slowed, though the top companies continued to gain market share. After
giving effect to industry consolidation, management estimates that at the end of
1993, the top four companies would have accounted for approximately 65% of the
market, with Starter Corporation, VF Corporation (Nutmeg Mills, Inc. and H.H.
Cutler Sports Apparel), Fruit of the Loom (Artex, Salem Sportswear, Inc. and Pro
Player) and Tultex accounting for approximately 19.2%, 18.0%, 15.0% and 13.7% of
wholesale industry sales in 1993, respectively,
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according to SPORTS STYLE MAGAZINE. No other company had more than 10% of the
market. Imports of finished goods purchased by retailers directly or through
import companies do not represent a significant factor in the industry as a
whole, since there are no foreign licensees. However, all of the larger domestic
companies competing in the market do use significant off-shore sourcing of
finished outerwear goods. Licensed sports apparel products are generally sold
through the same retail channels as activewear.
COMPETITIVE FACTORS. There are significant barriers to entering the licensed
sports apparel industry and expanding such a business to significant size. After
expanding the number of licensees rapidly in recent years, the licensing
associations have begun to consolidate their relationships with existing
manufacturers and appear less likely to enter into licensing agreements with new
entrants. New entrants would be required to devote considerable resources to
developing their product mix and sales and distribution capabilities to compete
effectively. Like the activewear industry, the licensed apparel industry has
been characterized in recent years by the acquisition of existing competitors by
larger companies with substantial financial resources and manufacturing and
distribution capabilities, such as VF Corporation's acquisition of Nutmeg Mills,
Inc. in 1994, Fruit of the Loom, Inc.'s acquisition of Salem Sportswear, Inc. in
1993, and Nike's acquisition of Sports Specialties, Inc. in 1993.
COMPANY PRODUCTS
ACTIVEWEAR
The principal activewear products of the Company are fleeced knitwear items such
as sweatshirts, jogging suits, hooded jackets, headwear and jersey apparel for
work and casual wear. The Company manufactures apparel products principally
under the DISCUS ATHLETIC and TULTEX brands. Products carrying the DISCUS
ATHLETIC name are marketed for sale to chains such as Foot Locker, department
stores such as Sears and sporting goods stores, while TULTEX products are
marketed for sale to mass merchandisers such as Wal-Mart and wholesale clubs
such as Sam's. The Company is licensed to manufacture and market adult
fleecewear under the Britannia trademark owned by Levi Strauss & Co. The Company
also manufactures private-label products for sale under many labels, including
Nike, Levi Strauss, Reebok and Pro Spirit.
LICENSED APPAREL AND HEADWEAR
The Company's licensed apparel products include jackets, sweats, T-shirts,
baseball-style caps and other headwear, embroidered or imprinted with
professional and college sports and entertainment-related licensed designs and
logos. These products are marketed under the LOGO ATHLETIC and LOGO 7 brands.
Under the LOGO ATHLETIC name, the Company offers premium-quality jackets, caps
and other activewear, including NFL "Pro-Line"authentic sideline gear and NBA
"Authentics" apparel. Tultex, through Logo 7, acquired Pro-Line status from the
NFL in 1993, a flagship program entitling the Company to sell products identical
to those worn on the sidelines by NFL players and coaches. Under the terms of
the nonexclusive four-year Pro-Line contract, the Company markets Pro-Line
products at retail for all 30 NFL teams. Under the terms of the nonexclusive
three-year NBA Authentics contract, the Company markets products that are
identical to those worn by NBA players, coaches and managers during competition.
The Company's NFL Pro-Line and NBA Authentics products prominently feature the
LOGO ATHLETIC name and trademark, which the Company believes are key elements in
developing the LOGO ATHLETIC brand. Under the LOGO 7 brand, the Company offers
moderately-priced outerwear, fleecewear, T-shirts and caps with licensed designs
and logos. The Company also sells popularly-priced licensed fleecewear, jersey
apparel and headwear.
CUSTOMERS; MARKETING AND SALES
CUSTOMERS
The Company offers a diverse product line for sale at a full range of price
points through all major distribution channels. Customers include chain stores
such as Foot Locker, department stores such as Sears and J.C. Penney, sporting
goods stores, and mass merchandisers such as Target, Wal-Mart and Kmart. The
Company's higher-quality fleecewear and jersey products, including the Company's
premium DISCUS ATHLETIC and LOGO ATHLETIC brands, are sold primarily through
department and specialty stores and mail-order distribution channels rather than
through mass merchandisers and wholesale clubs, thereby enabling Tultex to
enhance the image of these branded and private label products and achieve higher
margins. The TULTEX and LOGO 7 brands are marketed to a broader range of
channels, including mass merchandisers and wholesale clubs that compete more on
price than brand. During 1994, sales to Wal-Mart (including Sam's) accounted for
approximately 10.4% of the Company's
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total sales, and the Company's four largest customers together (including
Wal-Mart) accounted for approximately 30.4% of sales. The loss of sales to
Wal-Mart or two or more other customers accounting for 10% or more of total
sales could adversely affect the Company's results of operations. The following
chart details the distribution channels for the Company's branded products.
<TABLE>
<CAPTION>
BRANDS PRODUCTS DISTRIBUTION CHANNELS
<S> <C> <C>
DISCUS ATHLETIC Fleece and jersey activewear Sporting goods specialty stores and chain stores (Sports
Authority, Modell's), retail chains (Sears), international
distributors and sales agencies (Nissan Trading)
TULTEX Fleece and jersey activewear Mass merchants (Kmart, Wal-Mart), retail chains (Montgomery
Ward), regional discounters (Shopko, Hart's), distributors and
mass merchant screenprinters (California Shirt Sales, T-Shirt
City, PM Enterprises), wholesale clubs (Sam's)
LOGO ATHLETIC Licensed activewear, outerwear Retail chains (JC Penney, Sears), sporting goods specialty
and headwear stores (Champs, Foot Locker), department stores (Dillard's,
Mercantile)
LOGO 7 Licensed activewear, outerwear Mass merchants (Kmart, Target), distributors (West Coast
and headwear Novelties), wholesale clubs (Sam's)
</TABLE>
MARKETING AND SALES
The Company has shifted its marketing strategy in recent years to focus on the
development of its own brands and sales through distribution channels that
support higher margins. In particular, the Company has devoted significant
resources to the promotion of its DISCUS ATHLETIC and LOGO ATHLETIC brands.
In 1993, the Company began conducting advertising campaigns to promote its
DISCUS ATHLETIC and LOGO ATHLETIC brands. The DISCUS ATHLETIC advertising
campaign emphasizes quality and the usefulness of the product for many sports.
The Company believes that this positioning effectively differentiates the DISCUS
ATHLETIC line from competing specialized lines with powerful brand associations.
To reinforce the association of the brand with competitive athletics, DISCUS
ATHLETIC advertises on ESPN's college football and basketball programs, ABC's
college basketball program and televised Atlantic Coast Conference and Big 10
basketball games. Print advertising appears in SPORTS ILLUSTRATED, STREET &
SMITH'S, DETAILS, GENTLEMAN'S QUARTERLY and ROLLING STONE. The Company believes
these placements are particularly effective in reaching college sports fans, an
important part of the Company's target market.
The LOGO ATHLETIC campaign focuses on establishing the "authenticity" of LOGO
ATHLETIC products. The Company believes that licensed apparel sales benefit
substantially from the perception that products are the same as those worn by
professional sports stars. LOGO ATHLETIC acquired NFL Pro-Line status in 1993.
To provide visibility and reinforce this authenticity, the Company provided
sideline garments and caps prominently featuring the LOGO ATHLETIC trademark in
1994 for five NFL teams, the Green Bay Packers, Indianapolis Colts, Los Angeles
Rams, Phoenix Cardinals and Tampa Bay Buccaneers, and for several NFL All-Pro
players, such as San Francisco 49ers' quarterback Steve Young, Miami Dolphins'
quarterback Dan Marino and Green Bay Packers' defensive lineman Reggie White.
The "Get Real" series of television advertisements features Dallas Cowboys'
quarterback Troy Aikman, NBA star Chris Webber and NHL All-Star Chris Chelios,
all wearing LOGO ATHLETIC gear and encouraging consumers to "Get Real" with LOGO
ATHLETIC. The Company participates in the NBA Authentics program and provides
ball-boy garments featuring the LOGO ATHLETIC trademark to the Boston Celtics,
Denver Nuggets, Indiana Pacers and Minnesota Timberwolves for use during games.
The Company also has become recognized as a prominent designer and supplier of
distinctive "locker room" caps bearing championship team logos and carrying the
highly visible LOGO ATHLETIC trademark.
Advertising expenditures were $12.3 million and $17.1 million in 1993 and 1994,
respectively, of which $10.0 million and $14.7 million, respectively, were
expensed in those years. The advertising expense budget for 1995 is $21.8
million.
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New product introductions are important to the Company's licensed apparel
business and are undertaken to generate consumer excitement and demand. Logo 7's
creative design team, in cooperation with key customers and licensors,
continually develops and introduces new products and styles. For example, the
"shark's tooth" design featured on certain LOGO ATHLETIC caps and jackets has
been extremely successful and is in high demand. The Company is able to react
quickly to changing team fortunes, designing new products to capitalize on
shifts in popularity and delivering those products to the market rapidly,
sometimes in a matter of hours. During major professional and collegiate
sporting events, such as the Super Bowl, the Company produces on-site decorated
products with championship logos of the winning teams for immediate distribution
and sale at the event.
The Company's marketing methods for other products are typical of producers of
basic clothing products. Its merchandising department keeps abreast of current
fashionable styles and colors. After internal reviews by manufacturing
departments, selected customers preview and comment upon prototype garments
before the merchandising department determines those to be presented in sales
catalogs. Production is planned on orders received and anticipated customer
orders for these garments.
As of December 31, 1994, Tultex operated a sales office in each of New York,
Boston, Chicago, Seattle, Orlando and Los Angeles and a DISCUS ATHLETIC showroom
in New York City. These offices are the primary points of contact for customers
and coordinate sales, distribution of sales information, certain advertising,
point-of-sale displays and customer service. The Company also employs eight
independent sales representatives to market its DISCUS ATHLETIC line in the
fragmented sporting goods market. Logo 7's products are marketed through a sales
force of 50 people, including Logo 7 employees and independent sales
representatives. In 1992, the Company entered into an agreement with Nissan
Trading Co., Ltd., a subsidiary of Nissan Motor Co., to market and sell the
Company's products in Japan. International sales in 1993 and 1994 were
insignificant.
At December 31, 1994, Dominion Stores, Inc., a wholly-owned subsidiary, operated
14 outlet stores in North Carolina, Virginia and West Virginia, which sell
surplus Company apparel and apparel items of other manufacturers, and operated
32 THE SWEATSHIRT COMPANY retail stores in 19 states, which primarily sell
first-quality Company-made products and accessories. Dominion Stores' total
sales in fiscal 1994 were $18.7 million.
LICENSES
Most of the Company's licensed products are sold through Logo 7. The Company is
a licensee of professional sports apparel, maintaining a full complement of
licenses with all of the major North American professional sports leagues -- the
NFL, MLB, the NBA and the NHL -- and the Collegiate Licensing Company. The
Company also holds licenses for World Cup Soccer 1994, NASCAR, the 1996 Summer
Olympics in Atlanta and entertainment-related products. These licenses require
the payment of royalties ranging from 5% to 15% of sales with guaranteed
royalties of approximately $9 million in fiscal 1995. The Company's major
licenses with the NFL, NBA and NHL expire in 1997 and the MLB license expires in
1995. The Company is licensed to manufacture and market adult fleecewear under
the Britannia trademark owned by Levi Strauss & Co.
The Company's ability to compete is dependent on its ability to obtain and renew
licenses, particularly those from the major professional sports leagues. The
Company enjoys long-standing relationships with its major league licensees,
having been awarded its first licenses with the NFL in 1971, with the NBA in
1977, with MLB in 1980 and with the NHL in 1988. The Company has no reason to
believe that it will not be able to successfully renew these licenses. While the
Company has enjoyed long, successful and uninterrupted licensing relationships
with its professional and collegiate athletic licensors, if a significant
license or licenses were not renewed or replaced, the Company's sales would
likely be materially and adversely affected. In addition, the Company's material
licenses are nonexclusive and new or existing competitors may obtain similar
licenses.
MANUFACTURING
Because consumer value is a key competitive factor in the activewear industry,
Tultex has focused on being a low-cost producer of quality goods. The Company
pursues this goal through cost reduction measures, plant modernization and
improvement of garment characteristics, such as increasing the range of garment
sizes, cloth weight, durability, style and comfort to meet consumer demands.
Implementation of modern information systems and inventory cost control measures
have allowed the closing or sale of several costlier, less efficient plants,
including the Company's December 1994 sale of its yarn production
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<PAGE>
plant in Rockingham, North Carolina. Savings are achieved through lower average
production costs in the more modern facilities and higher capacity utilization
in the remaining plants.
The Company's manufacturing process consists of: yarn production; fabric
construction including knitting, dyeing and finishing operations; apparel
manufacturing including cutting and sewing operations; and, for garments with
logos, screenprint and embroidery operations. As a result of its modernization
efforts, the Company believes that its manufacturing facilities are outfitted
with some of the most efficient and technologically-advanced equipment in the
industry.
During fiscal 1988 through fiscal 1994, the Company invested approximately $191
million to open new facilities, including sewing facilities in Roanoke, Virginia
and Montego Bay, Jamaica (a leased facility), and the highly automated customer
service center in Martinsville, Virginia, and to modernize other facilities.
Open-end spinning frames were acquired to increase yarn production and reduce
costs, higher color quality and lower dyeing costs were achieved from the
installation of new jet dyeing equipment, new dryers were added in the fabric
finishing process, automated cutting machines were introduced, and new
information systems were implemented.
Tultex's highly-automated customer service center, opened in 1991, has greatly
expanded the Company's distribution capabilities. The customer service center
allows the Company to package and ship its products according to the more
detailed color, size and quantity specifications typically required by
high-margin retailers and department stores and has permitted consolidation of
the Company's warehouses. However, the customer service center currently is
underutilized during the first half of the year and has significantly
contributed to the Company's fixed costs. Management believes that its strategy
of increasing sales of higher-margin retail products, which require more
sophisticated packaging, will result in improved utilization of the customer
service center.
In spring 1992, Logo 7 moved its operations to a newly-constructed, leased
facility built to Logo 7's specifications. This 650,000 square foot building
allowed Logo 7 to centralize operations, increase inventory control, improve
material flow and will allow for future expansion.
Tultex manufactures yarn at three facilities located in North Carolina, which
have a combined production capacity of 1.3 million pounds per week, utilizing
modern, open-end spinning frames. For its knitting operations, Tultex operates
approximately 500 modern high-speed, latch-needle circular knitting machines,
which produce various types of fabrics. The Company believes its dyeing
operations are among the most modern and technologically efficient in the
industry; dyeing operations are computer-controlled, allowing precise
duplication of dyeing procedures to ensure "shade repeatability" and color-fast
properties. The finishing operations employ mechanical squeezing and steaming
equipment.
The Martinsville cutting facility uses advanced Bierrebi automatic continuous
cutting machines with computer-controlled hydraulic die-cutting heads and
"lay-up" machines and high-speed reciprocating knives. Sewing production at the
Company's nine sewing facilities is organized on an assembly-line basis.
The Company has incorporated sophisticated systems into several key areas of the
manufacturing process. The Company relies on a knitting ticket system to track
and report the manufacturing process from yarn inventory through the knitting of
individual rolls of fabric into greige cloth storage. From this point, the shop
floor control module of the Cullinet manufacturing system monitors and reports
the movement of each production lot through the operations of dyeing, finishing,
cutting and sewing. Each sewing plant then electronically transmits an advance
shipping notice to the automated customer service center so the distribution
planning module at the center can plan the arrival and storage/packing of the
sewn garments. Frontier knitting monitor systems, cutting production systems,
and sewing production systems use computer-based data collection on each
knitting, cutting, and sewing machine to monitor machine and operator
efficiency, data that is useful for quality control, incentive-based payroll
data, and production management information.
The Company decorates its unfinished licensed apparel products using
screenprinting or embroidery at Logo 7's facilities in Indianapolis and
Universal's facilities in Massachusetts. Automatic silkscreen machines and
dryers are used for longer runs, and hand-operated presses are used for shorter
or more complicated runs. Embroidery is applied using high-speed, computerized
stitching equipment.
The Company's order backlog at December 31, 1993 was approximately $67 million
and at December 31, 1994 was approximately $143 million. Backlogs are computed
from orders on hand at the last day of each fiscal period.
24
<PAGE>
The Company believes that due to the seasonality of the Company's business and
the just-in-time nature of much of the Company's sales, order backlogs are not a
reliable indicator of future sales volume.
RAW MATERIALS
The Company's principal raw materials for the production of activewear are
cotton and polyester. Cotton content in fleecewear typically is 50% and in
jersey apparel typically is 100%. The Company is producing increasing amounts of
fleecewear containing 90-100% cotton. Fleecewear and jersey manufacturers are
extremely sensitive to fluctuations in cotton and polyester prices as these
materials represent approximately 30% of the manufacturing cost of the product.
In addition, the Company is indirectly impacted by increasing costs of raw
materials in its licensed apparel business because the Company purchases
finished goods containing cotton and polyester and these higher raw materials
costs often are effectively passed on to the Company. Cotton prices increased
significantly in 1994 over 1993 levels. In 1994, the Company's average price per
pound of cotton was $0.72, compared with $0.60 in 1993, while the average price
per pound of polyester was $0.64 in 1994, compared with $0.67 in 1993. The
Company expects the average price paid for cotton and polyester to be higher in
1995. In 1995, Tultex expects to use approximately 50 million pounds of raw
cotton and 20 million pounds of polyester staple in its manufacture of
fleecewear and jersey apparel. Tultex makes advance purchases of raw cotton
based on projected demand. The Company has contracted to purchase substantially
all of its raw cotton needs for 1995 and has fixed the price on approximately
50% of its raw cotton needs. To the extent cotton prices increase before the
Company fixes the price for the remainder of its raw cotton needs, the Company's
results of operations could be adversely affected.
TRADEMARKS
The Company increasingly promotes and relies upon its trademarks, including
DISCUS ATHLETIC, LOGO ATHLETIC, TULTEX, and LOGO 7, which are registered in the
United States and many foreign countries.
SEASONALITY
The Company's business is seasonal. The majority of fleecewear sales occur in
the third and fourth quarters, coinciding with cooler weather and the playing
seasons of popular professional and college sports. Jersey sales peak in the
second and third quarters of the year, somewhat offsetting the seasonality of
fleecewear sales.
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state and local environmental laws
and regulations governing, among other things, the discharge, storage, handling
and disposal of a variety of substances and wastes used in or resulting from its
operations, including, but not limited to, the Water Pollution Control Act, as
amended; the Clean Air Act, as amended; the Resource Conservation and Recovery
Act, as amended; the Toxic Substances Control Act, as amended; and the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended.
The Company returns dyeing wastes for treatment to the City of Martinsville,
Virginia's municipal wastewater treatment systems operated pursuant to a permit
issued by the state. The city has filed a timely application to renew its
permit. In 1989, the city adopted a plan for removing the coloration, caused by
the dye wastes, from the water by using polymer chemicals to combine with the
extremely small particles of the dye to create a sludge-like substance that can
be retrieved from the water at the city's wastewater treatment plant and
disposed of as a non-hazardous waste in the city's landfill. To cover the cost
to the city, the Company pays 50 to 80 cents per thousand gallons of water above
regular water costs. The expenditures required do not have a material effect on
the Company's earnings or competitive position.
The Company's operations also are governed by laws and regulations relating to
employee safety and health, principally the Occupational Safety and Health Act
and regulations thereunder, which, among other things, establish exposure
limitations for cotton dust, formaldehyde, asbestos and noise, and regulate
chemical and ergonomic hazards in the workplace.
25
<PAGE>
The Company believes that it is in material compliance with the aforementioned
laws and regulations and does not expect that future compliance will have a
material adverse effect on its capital expenditures, earnings or competitive
position in the foreseeable future. However, there can be no assurances that
environmental and other legal requirements will not become more stringent in the
future or that the Company will not incur significant costs in the future to
comply with such requirements.
LITIGATION
The Company is not currently a party to any legal proceedings the result of
which it believes could have a material adverse impact on its business or
financial condition.
EMPLOYEES
The Company had approximately 6,933 employees at December 31, 1994, of which
6,043 or 87% were paid hourly.
In August 1994, hourly employees at the Company's Martinsville, Virginia
facilities voted for representation by the Amalgamated Clothing and Textile
Workers Union. The Company currently is negotiating a labor contract with the
union, which would cover all hourly employees at the Martinsville facilities. As
of December 31, 1994, the Company's approximately 2,200 hourly employees in
Martinsville accounted for approximately 32% of the Company's total employees
and approximately 36% of the Company's hourly employees. See "Risk
Factors -- Unionization of Hourly Workers at Martinsville Facilities." None of
the Company's other employees are represented by a union. The following table
summarizes the approximate number of employees in the Company's principal
divisions at December 31, 1994 and January 1, 1994.
<TABLE>
<CAPTION>
DECEMBER 31, 1994 JANUARY 1, 1994
DIVISION SALARY HOURLY TOTAL SALARY HOURLY TOTAL
<S> <C> <C> <C> <C> <C> <C>
Activewear 743 5,380 6,123 866 5,794 6,660
Licensed Apparel 104 503 607 94 541 635
Licensed Headwear 43 160 203 43 175 218
Total 890 6,043 6,933 1,003 6,510 7,513
</TABLE>
PROPERTIES
Most of the Company's principal physical facilities (other than those of Logo 7
and Universal) are located in Virginia and North Carolina, within a 150-mile
radius of the City of Martinsville. All buildings are well-maintained. The
Company and its subsidiaries also lease sales offices and retail outlets in
major cities from coast to coast. The location, approximate size and use of the
Company's principal owned properties are summarized in the following table:
<TABLE>
<CAPTION>
SQUARE
LOCATION FOOTAGE USE
<S> <C> <C>
Martinsville, VA 45,200 Administrative offices
Martinsville, VA 1,100,000 Manufacturing and distribution (apparel)
Koehler, VA 60,000 Warehousing
Martinsville, VA 70,000 Warehousing
South Boston, VA 130,000 Sewing (apparel)
Bastian, VA 53,500 Sewing (apparel)
Longhurst, NC 287,000 Manufacturing (yarn)
Roxboro, NC 110,000 Manufacturing (yarn)
Dobson, NC 38,000 Sewing (apparel)
Mayodan, NC 612,000 Manufacturing, warehousing and shipping
(yarn and apparel)
Vinton, VA 50,000 Sewing (apparel)
Martinsville, VA 502,200 Warehousing and shipping (apparel)
Mattapoisett, MA 116,250 Distribution (headwear)
</TABLE>
26
<PAGE>
The following table presents certain information relating to the Company's
principal leased facilities:
<TABLE>
<CAPTION>
LEASE CURRENT
SQUARE EXPIRATION ANNUAL
LOCATION FOOTAGE DATE RENTAL USE
<S> <C> <C> <C> <C>
Chilhowie, VA 40,015 08/31/97 $ 46,200 Sewing
(apparel)
Montego Bay, Jamaica 66,000 Monthly 266,040 Sewing
(apparel)
Marion, NC 48,760 11/02/98 95,000 Sewing
(apparel)
Martinsville, VA 31,000 Monthly 18,700 Warehousing
(apparel)
Martinsville, VA 300,000 6/1/98 684,000 Warehousing
(apparel)
Martinsville, VA 500,000 6/1/98 978,000 Warehousing
(apparel)
Indianapolis, IN 650,000 04/30/97 1,404,000 Distribution
(licensed
apparel)
</TABLE>
Manufacturing equipment, substantially all of which is owned by the Company,
includes carding, spinning and knitting machines, jet-dye machinery, dryers,
cloth finishing machines, cutting and sewing equipment and automated
storage/retrieval equipment. This machinery is modern and kept in good repair.
The Company leases a fleet of trucks and tractor-trailers which are used for
transportation of raw materials and for interplant transportation of
semi-finished and finished products.
The Company's facilities and its manufacturing equipment are considered adequate
for its needs.
MANAGEMENT
BOARD OF DIRECTORS
The members of the Company's Board of Directors are listed below:
<TABLE>
<CAPTION>
NAME AGE DIRECTOR SINCE
<S> <C> <C>
Charles W. Davies, Jr. 46 1990
Lathan M. Ewers, Jr. 53 1993
John M. Franck 42 1984
William F. Franck 77 1950
J. Burness Frith 79 1978
Irving M. Groves, Jr. 66 1978
H. Richard Hunnicutt, Jr. 56 1981
F. Kenneth Iverson 69 1995
Bruce M. Jacobson 45 1992
Richard M. Simmons, Jr. 68 1973
John M. Tully 70 1964
</TABLE>
CHARLES W. DAVIES, JR., Chief Executive Officer of the Company since January
1995, was President and Chief Operating Officer of the Company from January 1991
to January 1995, and Executive Vice President from December 1989 to January
1991. From February 1988 through November 1989, he was President and Chief
Executive Officer of Signal Apparel Company in Chattanooga, Tennessee. From
March 1986 to February 1988, Mr. Davies was President of Little Cotton
Manufacturing Company in Wadesboro, North Carolina and from December 1984
through February 1986 was Senior Vice President of Fieldcrest-Cannon in
Kannapolis, North Carolina.
LATHAN M. EWERS, JR. has been a partner since 1976 with Hunton & Williams,
Richmond, Virginia, counsel to the Company.
27
<PAGE>
JOHN M. FRANCK, Chairman of the Board of Directors, was Chairman of the Board
and Chief Executive Officer of the Company from January 1991 to January 1995,
and served as President and Chief Operating Officer from November 1988 to
January 1991. Mr. Franck is a director of Piedmont Trust Bank, Martinsville,
Virginia. He is the son of William F. Franck.
WILLIAM F. FRANCK, Chairman Emeritus, retired December 31, 1993. He was Chairman
of the Board of Directors of the Company from 1984 to November 1988, and was its
Chief Executive Officer from 1952 to November 1988. Mr. Franck is a director of
Henry County Plywood Corporation, Martinsville, Virginia, a plywood
manufacturer. He is the father of John M. Franck.
J. BURNESS FRITH was Chairman of the Board of Directors of Frith Construction
Company, Inc., Martinsville, Virginia, from 1984 to 1993, when he retired.
IRVING M. GROVES, JR. retired as President, Chief Executive Officer and Chairman
of the Board of Piedmont BankGroup Incorporated, the parent of Piedmont Trust
Bank, Martinsville, Virginia in June 1994. Mr. Groves was President of Piedmont
Trust Bank, Martinsville, Virginia, from 1973 through December 1993, when he
retired from that position. Mr. Groves is a director of Hooker Furniture
Corporation, Martinsville, Virginia, a furniture manufacturing firm, and
Multitrade Group, Inc., a generator of steam energy.
H. RICHARD HUNNICUTT, JR. was Chairman of the Board and Chief Executive Officer
of the Company from November 1988 through December 1990, when he retired. He was
President and Chief Operating Officer from 1984 to 1988.
F. KENNETH IVERSON has been Chairman and Chief Executive Officer of Nucor
Corporation, a steel producer, since 1984. He is a director of Wal-Mart Stores
Inc. and Wachovia Corporation.
BRUCE M. JACOBSON has been a partner in Katz, Sapper & Miller, Indianapolis,
Indiana, certified public accountants, since 1977. In connection with the
Company's acquisition of Logo 7 on January 31, 1992 and the issuance of the
Series B Preferred Stock, the Company agreed that so long as the previous
shareholders of Logo 7 and their affiliates hold at least 3% of the voting
securities of the Company (on a fully-diluted basis), the Company will nominate
a designee of such shareholders for election to the Board. Mr. Jacobson is the
designee.
RICHARD M. SIMMONS, JR. is the retired Chairman of the Board of Virginia
Carolina Freight Lines, Inc., Martinsville, Virginia, a trucking firm. He served
as Chairman of that company from 1987 until 1992. He was a consultant to
American Furniture Company from 1987 to 1988, and was its President from 1961 to
1987 and its Chairman of the Board from 1974 to 1986. He is a director of
Piedmont BankGroup Incorporated, Piedmont Trust Bank and Dibrell Brothers, Inc.,
Danville, Virginia, leaf tobacco processors.
JOHN M. TULLY was Treasurer of the Company from 1975 until he retired in 1985.
Except as otherwise indicated above, Messrs. W.F. Franck, Frith, Groves,
Hunnicutt, Simmons and Tully have not been actively employed since the dates of
their respective retirements.
EXECUTIVE OFFICERS OF THE COMPANY
The following information is furnished concerning the executive officers of the
Company.
<TABLE>
<CAPTION>
NAME AGE OFFICE
<S> <C> <C>
John M. Franck 42 Chairman of the Board
Charles W. Davies, Jr. 46 President and Chief Executive Officer
O. Randolph Rollins 52 Executive Vice President, General Counsel and Chief Financial Officer
Walter J. Caruba 47 Vice President -- Marketing and Sales
W. Jack Gardner, Jr. 51 Vice President -- Operations
B. Alvin Ratliff 49 Vice President and Service/Quality Coordinator
Don P. Shook 56 Vice President -- Administration
John J. Smith 52 Vice President -- Customer Service
Kevin W. Walsh 40 Vice President -- Finance and Treasurer
James M. Baker 64 Secretary
Suzanne H. Wood 35 Controller
</TABLE>
28
<PAGE>
O. RANDOLPH ROLLINS became Executive Vice President and General Counsel in
October 1994 and became Chief Financial Officer in January 1995. Prior thereto,
Mr. Rollins was a partner with the law firm of McGuire, Woods, Battle & Boothe,
Richmond, Virginia, from 1973 to 1990 and from January 1994 to October 1994.
From 1990 to January 1994, Mr. Rollins served in the Cabinet of Virginia's
Governor L. Douglas Wilder, first as Deputy Secretary of Public Safety and from
1992 through January 14, 1994 as Secretary of Public Safety of the Commonwealth
of Virginia. Mr. Rollins is the brother-in-law of John M. Franck and the
son-in-law of William F. Franck.
WALTER J. CARUBA became Vice President -- Marketing and Sales in September 1992.
He served as Vice President -- Distribution between October 1990 and September
1992. He served as General Manager -- Planning from November 1989 to October
1990 and was Director -- Production Control from December 1985 to November 1989.
W. JACK GARDNER, JR. became Vice President -- Operations in September 1994 and
served as General Manager -- Fabric Manufacturing from January 1988 until that
time.
B. ALVIN RATLIFF became Vice President and Service/Quality Coordinator in
February 1994 and served as Vice President -- Operations from December 1984
until that time.
DON P. SHOOK became Vice President -- Administration in January 1995 after
serving as Vice President -- Human and Financial Resources since January 1994.
He previously served as Vice President -- Finance and Administration from
December 1988 until January 1994. Prior thereto, he served as Vice
President -- Finance from January 1987 to November 1988 and was Controller
between December 1985 and January 1987.
JOHN J. SMITH became Vice President -- Customer Service in September 1992. Prior
thereto, he served as Vice President -- Sales and Marketing since December 1987
after serving as Director -- Corporate Planning since May 1987. He was
Manager -- Information Systems & Services between December 1985 and May 1987.
KEVIN W. WALSH was appointed Vice President -- Finance and Treasurer in December
1994. In the six years prior to joining the Company, he was a vice president and
senior loan officer of Signet Bank.
JAMES M. BAKER became Secretary in January 1991. He also served as Treasurer
from January 1991 until January 1995 and as Director -- External Reporting from
August 1987 to January 1991. Between December 1985 and August 1987, he was
Director -- Budgets and Financial Reporting.
SUZANNE H. WOOD became Controller of the Company in October 1993 after joining
the Company in June 1993. In the ten years prior to joining the Company, she was
employed by Price Waterhouse LLP, most recently as Audit Senior Manager.
All terms of office expire concurrently with the meeting of directors following
the next annual meeting of stockholders at which the directors are elected.
COMPENSATION OF DIRECTORS
Directors of the Company who are not full-time employees are paid a fee of
$2,500 for each fiscal quarter. In addition, they are paid $1,000 for each Board
meeting attended, $1,000 for each committee meeting attended that does not occur
on the same date as a Board meeting, and $500 for each committee meeting
attended that does occur on the same date as a Board meeting.
29
<PAGE>
EXECUTIVE COMPENSATION
The following table presents information relating to total compensation of the
Chief Executive Officer and the four next most highly compensated executive
officers of the Company during the fiscal year ended December 31, 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
SECURITIES
ANNUAL COMPENSATION UNDERLYING
OTHER ANNUAL OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) (SHARES) COMPENSATION(2)
<S> <C> <C> <C> <C> <C> <C>
John M. Franck 1994 $240,000 $ -- $ -- 30,000 $ --
Chairman of the Board 1993 240,000 -- -- 15,000 --
1992 240,000 -- -- -- --
Charles W. Davies, Jr. 1994 246,541 -- -- 30,000 --
President and 1993 245,834 -- -- 165,000 --
Chief Executive Officer 1992 240,000 -- -- 15,000 --
B. Alvin Ratliff 1994 163,800 -- -- 10,000 --
Vice President and 1993 172,800 -- -- 23,000 --
Service/Quality Coordinator 1992 172,800 -- -- 15,000 --
John J. Smith 1994 146,400 5,636 -- 10,000 --
Vice President- 1993 146,400 -- 1,860 8,000 --
Customer Service 1992 146,400 -- 1,595 15,000 --
Don P. Shook 1994 144,000 5,543 -- 12,500 936
Vice President- 1993 144,000 -- -- 18,000 936
Administration 1992 144,000 -- -- 15,000 288
</TABLE>
(1) Country club dues and fees.
(2) Payment of excess life insurance premium.
The following tables present information concerning options to acquire Common
Stock of the Company granted to the Chief Executive Officer and the four next
most highly compensated executive officers of the Company and exercises of
options by such persons during the fiscal year ended December 31, 1994.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
NUMBER OF % OF TOTAL REALIZABLE VALUE AT
SECURITIES OPTIONS ASSUMED ANNUAL
UNDERLYING GRANTED TO RATES OF STOCK PRICE
OPTIONS EMPLOYEES EXERCISE APPRECIATION
GRANTED IN FISCAL OR BASE EXPIRATION FOR OPTION TERM
NAME (SHARES) YEAR PRICE DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
John M. Franck 30,000 7.5% $ 6.00 05/19/99 $ 49,731 $ 109,892
Charles W. Davies, Jr. 30,000 7.5 6.00 05/19/99 49,731 109,892
B. Alvin Ratliff 10,000 2.5 6.00 05/19/99 16,577 36,631
John J. Smith 10,000 2.5 6.00 05/19/99 16,577 36,631
Don P. Shook 12,500 3.1 6.00 05/19/99 20,721 45,788
</TABLE>
30
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FY-END IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE (SHARES) FY-END
NAME ON EXCERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
John M. Franck -- -- 45,000 -- -- --
Charles W. Davies, Jr. -- -- 95,000 150,000 -- --
B. Alvin Ratliff -- -- 48,000 -- -- --
John J. Smith -- -- 33,000 -- -- --
Don P. Shook -- -- 45,500 -- -- --
</TABLE>
EMPLOYMENT CONTRACTS AND EMPLOYMENT CONTINUITY AGREEMENTS
The Company has entered into employment continuity agreements with John M.
Franck, Charles W. Davies, Jr., B. Alvin Ratliff, John J. Smith, and Don P.
Shook, which provide for their continued employment in the event of a change in
control of the Company and the payment of compensation and benefits if their
employment is terminated following a change in control. The Board of Directors
believes that these agreements will enable key employees to conduct the
Company's business with less concern for personal economic risk when faced with
a possible change in control. The Board believes the agreements also should
enhance the Company's ability to attract new key executives as needed.
The agreements define "change in control" as occurring when a person becomes the
owner of 20% or more of the Company's voting securities or when there is a
change in a majority of the members of the Board of Directors, direct or
indirect, as a result of a cash tender or exchange offer, a merger or other
business combination, a sale of assets, a contested election of directors or a
combination of such transactions. Upon a change in control, the Company agrees
to continue the employee's employment with responsibilities, compensation and
benefits identical to or greater than those prior to the change in control until
the earlier of the third anniversary following the change in control or the
employee's normal retirement date. If employment is terminated without cause by
the Company during this period, or if the employee voluntarily terminates
employment within six months after receiving lesser responsibilities,
compensation or benefits or after being relocated without his consent, and the
employee has made an offer to work that has been rejected by the Company, the
Company must pay the employee compensation as follows: (i) three times the
employee's annual base salary as of his termination date, (ii) three times the
employee's average incentive bonus payable for the two fiscal years prior to the
termination date, (iii) cash or property due as a result of exercise of stock
options, and (iv) amounts the employee is entitled to receive under the
Company's tax-qualified benefit plans and, at the employee's expense, health
care coverage under welfare plans. This compensation will be reduced, if
necessary, to assure that any payments would not be "excess parachute payments"
under the Internal Revenue Code, which imposes significant penalties on payments
under such severance agreements which equal or exceed 300% of an employee's
average annual compensation during the five most recent taxable years ending
prior to a change in control. The Company must pay all legal fees and expenses
incurred by the employee in seeking to obtain these benefits. All agreements
continue in effect from year to year unless the Company notifies the employee
before an anniversary date that the agreement will terminate. The Company has
entered into similar arrangements with other members of management.
31
<PAGE>
RETIREMENT PLAN
The Company maintains for the benefit of its eligible employees a defined
benefit pension plan qualified under section 401(a) of the Internal Revenue
Code. The following table illustrates annual retirement benefits payable under
the plan at the indicated final average compensation and credited service
levels, assuming retirement at age 65 in 1995.
<TABLE>
<CAPTION>
FINAL ANNUAL RETIREMENT BENEFITS PAYABLE FOR CONTINUOUS
AVERAGE SERVICE OF
COMPENSATION 10 YEARS 20 YEARS 30 YEARS 40 YEARS
<S> <C> <C> <C> <C>
$100,000 $ 10,380 $ 20,760 $ 31,140 $ 36,140
150,000 16,380 32,760 49,140 56,640
200,000 22,380 44,760 67,140 77,140
250,000 28,380 56,760 85,140 97,640
300,000 34,380 68,760 103,140 118,140
</TABLE>
Benefits are paid to plan participants based on their final average compensation
(as limited according to federal tax laws), years of credited service with the
Company, and the amount of covered compensation (as determined by Social
Security). Benefits under the Retirement Plan are not subject to any deduction
for Social Security or other offset amounts. Under current federal tax law, in
1995 compensation in excess of $150,000 may not be taken into account for
purposes of accruing benefits under the Retirement Plan.
Generally, on the occurrence of a "change in control," all plan participants
will immediately become fully vested (regardless of their credited service) in
any accrued benefits under the plan. All assets of the plan, including any
assets in excess of the present value of the plan's liabilities, will be
allocated among the plan participants as additional nonforfeitable benefits.
This plan defines a "change in control" as occurring when a person becomes the
owner of more than 20% of the Company's voting securities or when there is a
change in the majority of the Board of Directors, direct or indirect, as a
result of a cash tender offer or exchange offer, a merger other than a business
combination, a sale of assets, a contested election of directors or a
combination of such transactions.
The number of credited years of service as of December 31, 1994 for each person
named in the Summary Compensation Table are as follows: John M. Franck -- 18
years, Charles W. Davies, Jr. -- 18 years, B. Alvin Ratliff -- 26 years, John J.
Smith -- 10 years and Don P. Shook -- 19 years.
The Company maintains a supplemental benefit plan to provide key management
personnel who have satisfied the eligibility requirements with supplemental
retirement benefits, including a retirement benefit which, when aggregated with
the benefits available under the retirement plan, is equivalent to 50% of their
final average earnings for 30 years of service. The eligibility requirements
include being 100% vested under the retirement plan. The majority of this
benefit will be funded through the retirement plan, with the balance being
funded by the Company through a supplemental nonqualified program which is
funded through the purchase of life insurance policies on each covered
individual. Benefits under the supplemental benefit plan are fully vested after
five years of service. The estimated annual benefits under the supplemental
benefit plan for each officer named in the Summary Compensation Table as of
December 31, 1994 are as follows: John M. Franck -- $41,459, Charles W. Davies,
Jr. -- $41,729, B. Alvin Ratliff -- $52,332, John J. Smith -- $12,605 and Don P.
Shook -- $30,408.
EXECUTIVE COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
John M. Franck, Chairman of the Board, is a director of Piedmont Trust Bank and
serves on the Bank Board's Asset/Liability Management, Audit/Code of Conduct,
and Corporate Benefit and Compensation committees. Irving M. Groves, Jr., a
director of Tultex, was President, Chief Executive Officer and Chairman of the
Board of Piedmont BankGroup, Incorporated until he retired from these positions
in March 1994.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Frith Construction Company, Inc., of which J. Burness Frith, a director of the
Company, was Honorary Chairman, a director and a principal stockholder until
September 1994, performed construction work for the Company during fiscal 1994,
1993 and 1992. The aggregate amount paid to Frith Construction Company, Inc. by
the Company for such construction work (at cost plus a fixed percentage of cost)
during fiscal 1994, 1993 and 1992 was $131,749, $427,263 and $469,352,
respectively. Frith Construction Company, Inc. continues to perform routine
construction work for the Company.
32
<PAGE>
During fiscal 1994, Piedmont Trust Bank performed routine banking services for
the Company. John M. Franck and Richard M. Simmons, Jr. are two of the 13
current members of the Board of Directors of Piedmont. Piedmont Trust Bank is a
subsidiary of Piedmont BankGroup Incorporated. Mr. Simmons is one of the 12
current members of the Board of Directors of Piedmont BankGroup Incorporated.
Multitrade Group, Inc., of which Mr. Frith and Mr. Groves, are shareholders and
of which Mr. Groves is a director, provided the Company with steam energy in
fiscal 1994, 1993 and 1992 for which it was paid $4,039,895, $3,989,117 and
$4,299,061, respectively.
Virginia Carolina Freight Lines, Inc., of which Mr. Simmons was a principal
shareholder and Chairman of the Board, provided trucking services to the Company
in fiscal 1992 for which it was paid $114,946.
The Company believes that the terms of the transactions described above are
comparable to terms available for similar transactions with entities
unaffiliated with its officers and directors.
Lathan M. Ewers, Jr. is a partner with the law firm of Hunton & Williams,
Richmond, Virginia, counsel to the Company.
PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT
As of December 31, 1994, the Company had outstanding 29,806,793 shares of Common
Stock, par value $1.00 per share ("Common Stock"), 1,975 shares of 5% Cumulative
Preferred Stock, par value $100 per share ("5% Preferred Stock"), and 150,000
shares of Cumulative Convertible Preferred Stock, $7.50 Series B, no par value
("Series B Preferred Stock"). The Common Stock and the Series B Preferred Stock
have one vote per share on all matters. The 5% Preferred Stock has no voting
rights.
The tables below present certain information as of February 27, 1995 regarding
beneficial ownership of the Common Stock and the Series B Preferred Stock by (i)
each of the named executive officers, (ii) each director, (iii) all directors
and executive officers as a group and (iv) 5% holders of such securities. None
of the 5% Preferred Stock is beneficially owned by the executive officers and
directors of the Company.
COMMON STOCK
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF SHARES
SOLE VOTING PERCENT
AND INVESTMENT OF CLASS
NAME OF BENEFICIAL OWNER(1) POWER(2) OTHER(3) OWNED
<S> <C> <C> <C>
Charles W. Davies, Jr. 135,106 142 *
Lathan M. Ewers, Jr. 5,025 2,425 *
John M. Franck 774,543 126,233 3.02
William F. Franck 923,902 175,231 3.69
J. Burness Frith 380,000 1,200 1.28
Irving M. Groves, Jr. 43,998 44,386 *
H. Richard Hunnicutt, Jr. 35,000 -- *
Kenneth F. Iverson -- -- --
Bruce M. Jacobson 2,000 -- *
Richard M. Simmons, Jr. 176,121 615 *
John M. Tully 243,524 81,696 1.09
B. Alvin Ratliff 74,267 -- *
John J. Smith 43,620 47 *
Don P. Shook 76,471 18,200 *
All executive officers and directors
as a group
(20 persons including those named
above) 3,108,475 1,025,200 13.88
Sound Shore Management, Inc. 1,772,600(4) -- 5.95(4)
8 Sound Shore Drive
Greenwich, Connecticut
</TABLE>
*Less than 1%
33
<PAGE>
(1) Except as set forth in the table, no person or group is known by the Company
to own more than 5% of the Common Stock.
(2) Includes shares that may be acquired by certain of the Company's officers
within 60 days under the Company's stock option plans.
(3) Includes shares (a) owned by or with certain relatives; (b) held in various
fiduciary capacities; and (c) held by certain corporations.
(4) As reported in Schedule 13G filed by Sound Shore Management, Inc. dated
December 31, 1993.
SERIES B PREFERRED STOCK (1)
<TABLE>
<CAPTION>
BENEFICIAL PERCENT
OWNERSHIP OF CLASS
NAME OF BENEFICIAL OWNER (2) OF SHARES OWNED
<S> <C> <C>
Simon Trust Partnership No. 3 37,500 25
115 West Washington Street
Indianapolis, IN 46204
Herbert Simon Trust No. 3 37,500 25
115 West Washington Street
Indianapolis, IN 46204
LG Sale Corporation, Inc. 75,000 50
115 West Washington Street
Indianapolis, IN 46204
</TABLE>
(1) The 150,000 outstanding shares of Series B Preferred Stock are convertible
into 1,496,260 shares of Common Stock.
(2) No director, executive officer or other person beneficially owns any shares
of the Series B Preferred Stock. Mr. Bruce M. Jacobson is the designee of
the holders of the Series B Preferred Stock on the Company's Board of
Directors. Mr. Jacobson has no voting or investment power with respect to
the Series B Preferred Stock and disclaims beneficial ownership of such
shares.
34
<PAGE>
DESCRIPTION OF THE NOTES
The Notes are to be issued under an Indenture, to be dated as of March 15, 1995
(the "Indenture"), among the Company, the Guarantors and First Union National
Bank of Virginia, as Trustee (the "Trustee"). The Indenture is subject to and
governed by the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The statements under this caption relating to the Notes, the Guarantees
and the Indenture are summaries and do not purport to be complete, and where
reference is made to particular provisions of the Indenture, such provisions,
including the definitions of certain terms, are incorporated by reference as a
part of such summaries or terms, which are qualified in their entirety by such
reference. A copy of the proposed form of Indenture has been filed with the
Commission as an exhibit to the Registration Statement of which this Prospectus
is a part.
GENERAL
The Notes will be general unsecured obligations of the Company, will be limited
to $110 million aggregate principal amount and will rank PARI PASSU in right of
payment with all other indebtedness of the Company that is not, by its terms,
expressly subordinated in right of payment to the Notes. The Notes will be
guaranteed on a joint and several basis by each of the Guarantors pursuant to
the Guarantees described below. The Guarantees will be general unsecured
obligations of the Guarantors and will rank PARI PASSU in right of payment with
all other indebtedness of the Guarantors that is not, by its terms, expressly
subordinated in right of payment to the Guarantees. At December 31, 1994, as
adjusted to give effect to the transactions described under "Use of Proceeds and
Refinancing," the total indebtedness of the Company would have been
approximately $223.4 million, none of which would have been subordinated to the
Notes. Secured creditors of the Company or any Guarantor will have a claim on
the assets which secure the obligations of the Company or such Guarantor, as the
case may be, prior to claims of holders of the Notes against those assets. At
December 31, 1994, as adjusted to give effect to the transactions described
under "Use of Proceeds and Refinancing," the Company and the Guarantors had no
secured indebtedness.
The Notes will mature on March 15, 2005 and will bear interest at the rate per
annum shown on the front cover of this Prospectus from the date of issuance or
from the most recent interest payment date to which interest has been paid or
provided for. Interest will be payable semi-annually on June 15 and December 15
of each year, commencing June 15, 1995, to the Person in whose name a Note is
registered at the close of business on the preceding June 1 or December 1 (each,
a "Record Date"), as the case may be. Interest on the Notes will be computed on
the basis of a 360-day year of twelve 30-day months. Holders must surrender the
Notes to the paying agent for the Notes to collect principal payments. The
Company will pay principal and interest by check and may mail interest checks to
a Holder's registered address.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple thereof. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
Initially, the Trustee will act as paying agent and registrar for the Notes. The
Notes may be presented for registration of transfer and exchange at the offices
of the registrar for the Notes.
REDEMPTION
The Notes will be subject to redemption, at the option of the Company, in whole
or in part, at any time on or after March 15, 2000 and prior to maturity, upon
not less than 30 nor more than 60 days' notice mailed to each Holder of Notes to
be redeemed at his address appearing in the register for the Notes, in amounts
of $1,000 or an integral multiple of $1,000, at the following redemption prices
(expressed as percentages of principal amount) plus accrued interest to but
excluding the date fixed for redemption (subject to the right of Holders of
record on the relevant Record Date to receive interest due on an interest
payment date that is on or prior to the date fixed for redemption), if redeemed
during the 12-month period beginning March 15 of the years indicated:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2000 104.722%
2001 103.542
2002 102.361
2003 101.181
2004 100.000
</TABLE>
35
<PAGE>
If less than all the Notes are to be redeemed, the Trustee shall select, in such
manner as it shall deem fair and appropriate, the particular Notes to be
redeemed or any portion thereof that is an integral multiple of $1,000.
In addition, prior to March 15, 1998, the Company may redeem up to approximately
32% of the principal amount of the Notes with the cash proceeds received by the
Company from a public offering of capital stock of the Company (other than
Disqualified Stock), at a redemption price (expressed as a percentage of the
principal amount) of 110.625% of the principal amount thereof, plus accrued and
unpaid interest to the date fixed for redemption; PROVIDED, HOWEVER, that at
least $75 million in aggregate principal amount of the Notes remains outstanding
immediately after any such redemption.
The Notes will not have the benefit of any sinking fund.
THE GUARANTEES
Each of the Guarantors will unconditionally guarantee on a joint and several
basis all of the Company's obligations under the Notes, including its
obligations to pay principal, premium, if any, and interest with respect to the
Notes. The obligations of each Guarantor are limited to the maximum amount
which, after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Guarantee or pursuant to its contribution obligations under
the Indenture, will result in the obligations of such Guarantor under the
Guarantee not constituting a fraudulent conveyance or fraudulent transfer under
federal or state law. Each Guarantor that makes a payment or distribution under
a Guarantee shall be entitled to a contribution from each other Guarantor in an
amount PRO RATA, based on the net assets of each Guarantor determined in
accordance with GAAP. Except as provided in "Covenants" below, the Company is
not restricted from selling or otherwise disposing of any of the Guarantors.
The Indenture will provide that each Subsidiary of the Company in existence on
the Issue Date and each Material Subsidiary whether formed or acquired after the
Issue Date will become a Guarantor, PROVIDED that, any Material Subsidiary
acquired after the Issue Date which is prohibited from entering into a Guarantee
pursuant to restrictions contained in any debt instrument or other agreement in
existence at the time such Material Subsidiary was so acquired and not entered
into in anticipation or contemplation of such acquisition shall not be required
to become a Guarantor so long as any such restriction is in existence and to the
extent of any such restriction.
The Indenture provides that if the Notes are defeased in accordance with the
terms of the Indenture, or if all or substantially all of the assets of any
Guarantor or all of the capital stock of any Guarantor is sold (including by
issuance or otherwise) by the Company or any of its Subsidiaries in a
transaction constituting an Asset Disposition, and if (x) the Net Available
Proceeds from such Asset Disposition are used in accordance with the covenant
" -- Limitation on Certain Asset Dispositions" or (y) the Company delivers to
the Trustee an Officers' Certificate to the effect that the Net Available
Proceeds from such Asset Disposition shall be used in accordance with the
covenant " -- Limitation on Certain Asset Dispositions" and within the time
limits specified by such covenant, then such Guarantor (in the event of a sale
or other disposition of all of the capital stock of such Guarantor) or the
corporation acquiring such assets (in the event of a sale or other disposition
of all or substantially all of the assets of such Guarantor) shall be released
and discharged of its Guarantee obligations.
Separate financial statements of the Guarantors are not included herein because
such Guarantors are jointly and severally liable with respect to the Company's
obligations pursuant to the Notes, and the aggregate net assets, earnings and
equity of the Guarantors and the Company are substantially equivalent to the net
assets, earnings and equity of the Company on a consolidated basis.
36
<PAGE>
COVENANTS
The Indenture contains, among others, the following covenants:
LIMITATION ON INDEBTEDNESS
The Indenture will provide that the Company will not, and will not permit any of
its Subsidiaries to, Incur any Indebtedness except, subject to the provisions
set forth below under " -- Additional Limitation on Subsidiary Indebtedness":
(i) Indebtedness of the Company or its Subsidiaries, if immediately after giving
effect to the Incurrence of such Indebtedness and the receipt and application of
the net proceeds thereof, the Consolidated Cash Flow Ratio of the Company for
the four full fiscal quarters for which quarterly or annual financial statements
are available next preceding the Incurrence of such Indebtedness, calculated on
a pro forma basis as if such Indebtedness had been Incurred at the beginning of
such four full fiscal quarters, would be greater than 2.00 to 1 if such
Indebtedness is Incurred on or before December 31, 1997 and 2.25 to 1 if such
Indebtedness is Incurred after December 31, 1997; (ii) Indebtedness of the
Company, and guarantees of such Indebtedness by any Guarantor, Incurred under
the Senior Credit Facility in an aggregate principal amount at any one time not
to exceed the greater of (x) $225 million or (y) the sum of (A) 80% of Eligible
Accounts Receivable and (B) 65% of Eligible Inventory; (iii) Indebtedness owed
by the Company to any Wholly Owned Subsidiary of the Company (PROVIDED that such
Indebtedness is at all times held by a Person which is a Wholly Owned Subsidiary
of the Company) or Indebtedness owed by a Subsidiary of the Company to the
Company or a Wholly Owned Subsidiary of the Company (PROVIDED that such
Indebtedness is at all times held by the Company or a Person which is a Wholly
Owned Subsidiary of the Company); PROVIDED, HOWEVER, upon either (x) the
transfer or other disposition by such Wholly Owned Subsidiary or the Company of
any Indebtedness so permitted under this clause (iii) to a Person other than the
Company or another Wholly Owned Subsidiary of the Company or (y) the issuance
(other than directors' qualifying shares), sale, transfer or other disposition
of shares of Capital Stock or other ownership interests (including by
consolidation or merger) of such Wholly Owned Subsidiary to a Person other than
the Company or another such Wholly Owned Subsidiary of the Company, the
provisions of this clause (iii) shall no longer be applicable to such
Indebtedness and such Indebtedness shall be deemed to have been Incurred at the
time of any such issuance, sale, transfer or other disposition, as the case may
be; (iv) Indebtedness Incurred by a Person prior to the time (x) such Person
becomes a Subsidiary of the Company, (y) such Person merges into or consolidates
with a Subsidiary of the Company or (z) another Subsidiary of the Company merges
into or consolidates with such Person (in a transaction in which such Person
becomes a Subsidiary of the Company), which Indebtedness was not Incurred in
anticipation or contemplation of such transaction and was outstanding prior to
such transaction; (v) Indebtedness of the Company or its Subsidiaries under any
interest rate or currency swap agreement to the extent entered into to hedge any
other Indebtedness permitted under the Indenture; (vi) Capital Lease Obligations
of the Company or its Subsidiaries Incurred with respect to a Sale and Leaseback
Transaction which was made in accordance with the provisions of the Indenture
described under " -- Limitation on Sale and Leaseback Transactions"; (vii)
Indebtedness Incurred to renew, extend, refinance or refund (collectively for
purposes of this clause (vii) to "refund") any Indebtedness outstanding on the
Issue Date and Indebtedness Incurred under the prior clause (i) or the Notes;
PROVIDED, HOWEVER, that (x) such Indebtedness does not exceed the principal
amount of Indebtedness so refunded plus the amount of any premium required to be
paid in connection with such refunding pursuant to the terms of the Indebtedness
refunded or the amount of any premium reasonably determined by the Company as
necessary to accomplish such refunding by means of a tender offer, exchange
offer, or privately negotiated repurchase, plus the expenses of the Company or
such Subsidiary Incurred in connection therewith and (y)(A) in the case of any
refunding of Indebtedness which is PARI PASSU with the Notes, such refunding
Indebtedness is made PARI PASSU with or subordinate in right of payment to the
Notes, and, in the case of any refunding of Indebtedness which is subordinate in
right of payment to the Notes, such refunding Indebtedness is subordinate in
right of payment to the Notes on terms no less favorable to the Holders then
those contained in the Indebtedness being refunded and (B) in either case, the
refunding Indebtedness by its terms, or by the terms of any agreement or
instrument pursuant to which such Indebtedness is issued, does not have an
Average Life that is less than the remaining Average Life of the Indebtedness
being refunded and does not permit redemption or other retirement (including
pursuant to any required offer to purchase to be made by the Company or a
Subsidiary of the Company) of such Indebtedness at the option of the holder
thereof prior to the final stated maturity of the Indebtedness being refunded,
other than a redemption or other retirement at the option of the holder of such
Indebtedness (including pursuant to a required offer to purchase made by the
Company or a Subsidiary of the Company) which is conditioned upon a change of
control of the Company pursuant to provisions substantially
37
<PAGE>
similar to those contained in the Indenture described under " -- Change of
Control" below; (viii) Indebtedness of the Company or its Subsidiaries Incurred
for the purpose of financing all or any part of the purchase price or the cost
of construction or improvement of any property PROVIDED that the aggregate
principal amount of such Indebtedness does not exceed 100% of such purchase
price or cost and any Lien associated with such Indebtedness complies with
clause (iv) of the " -- Limitation on Liens" covenant; (ix) Indebtedness of the
Company or its Subsidiaries, not otherwise permitted to be Incurred pursuant to
clauses (i) through (viii) above, which, together with any other outstanding
Indebtedness Incurred pursuant to this clause (ix), has an aggregate principal
amount not in excess of $10 million at any time outstanding; and (x)
Indebtedness of the Company and its Subsidiaries under the Notes and the
Guarantees.
ADDITIONAL LIMITATION ON SUBSIDIARY INDEBTEDNESS
The Indenture will provide that, notwithstanding the provisions of the Indenture
described under " -- Limitation on Indebtedness," the Company will not permit
any of its Subsidiaries to Incur any Indebtedness (other than the guarantee of
Indebtedness under the Senior Credit Facility) in an amount which, when
aggregated with (A) all Indebtedness (other than any Indebtedness included in
the following clause (B) or (C)) secured by Liens permitted by the provisions of
the Indenture described in clause (viii) under " -- Limitation on Liens" and
then outstanding, (B) all Capital Lease Obligations of the Company and its
Subsidiaries Incurred in compliance with the provisions of the Indenture
described in " -- Limitation on Indebtedness" and then outstanding, and (C) all
other Indebtedness of Subsidiaries of the Company (other than the guarantee of
Indebtedness under the Senior Credit Facility) Incurred in compliance with
" -- Limitation on Indebtedness" and then outstanding, would exceed 10% of
Consolidated Net Tangible Assets.
LIMITATION ON RESTRICTED PAYMENTS
The Indenture will provide that the Company will not, and will not permit any of
its Subsidiaries to, (i) directly or indirectly, declare or pay any dividend, or
make any distribution of any kind or character (whether in cash, property or
securities), in respect of any class of its Capital Stock or to the holders
thereof, excluding any (x) dividends or distributions payable solely in shares
of its Capital Stock (other than Disqualified Stock) or in options, warrants or
other rights to acquire its Capital Stock (other than Disqualified Stock), or
(y) in the case of any Subsidiary of the Company, dividends or distributions
payable to the Company or a Subsidiary of the Company, (ii) directly or
indirectly, purchase, redeem, or otherwise acquire or retire for value shares of
Capital Stock of the Company or any of its Subsidiaries, any options, warrants
or rights to purchase or acquire shares of Capital Stock of the Company or any
of its Subsidiaries or any securities convertible or exchangeable into shares of
Capital Stock of the Company or any of its Subsidiaries, excluding any such
shares of Capital Stock, options, warrants, rights or securities which are owned
by the Company or a Subsidiary of the Company, (iii) make any Investment in
(other than a Permitted Investment), or payment on a guarantee of any obligation
of, any Person, other than the Company or a Wholly Owned Subsidiary of the
Company, or (iv) redeem, defease, repurchase, retire or otherwise acquire or
retire for value, prior to any scheduled maturity, repayment or sinking fund
payment, Indebtedness which is subordinate in right of payment to the Notes
(each of clauses (i) through (iv) being a "Restricted Payment") if at the time
thereof: (1) an Event of Default, or an event that with the passing of time or
giving of notice, or both, would constitute an Event of Default, shall have
occurred and is continuing, or (2) upon giving effect to such Restricted
Payment, the Company could not incur at least $1.00 of additional Indebtedness
pursuant to the terms of the Indenture described in clause (i) of
" -- Limitation on Indebtedness" above, or (3) upon giving effect to such
Restricted Payment, the aggregate of all Restricted Payments made on or after
the Issue Date exceeds the sum of: (a) 50% of cumulative Consolidated Net Income
of the Company (or, in the case Consolidated Net Income of the Company shall be
negative, less 100% of such deficit) since the end of the fiscal quarter in
which the Issue Date occurs through the last day of the fiscal quarter for which
financial statements are available; plus (b) 100% of the aggregate net proceeds
received after the Issue Date, including the fair market value of property other
than cash (determined in good faith by the Board of Directors of the Company as
evidenced by a resolution of such Board of Directors filed with the Trustee),
from the issuance of Capital Stock (other than Disqualified Stock) of the
Company and warrants, rights or options on Capital Stock (other than
Disqualified Stock) of the Company and the principal amount of Indebtedness that
has been converted into or exchanged for Capital Stock (other than Disqualified
Stock) of the Company which Indebtedness was incurred after the Issue Date; plus
(c) in the case of the disposition or repayment of any Investment constituting a
Restricted Payment made after the Issue Date (other than any Investment made
pursuant to clause (vi) of the
38
<PAGE>
following paragraph), an amount equal to the lesser of the return of capital
with respect to such Investment and the cost of such Investment, in either case,
less the cost of the disposition of such Investment, PROVIDED that at the time
any such Investment is made the Company delivers to the Trustee a resolution of
its Board of Directors to the effect that, for purposes of this " -- Limitation
on Restricted Payments" covenant, such Investment constitutes a Restricted
Payment made after the Issue Date (other than an Investment made pursuant to
clause (vi) of the following paragraph); plus (d) $4 million.
The foregoing provision will not be violated by (i) reason of any dividend on
any class of Capital Stock of the Company or any Subsidiary of the Company, paid
within 60 days after the declaration thereof if, on the date when the dividend
was declared, the Company or such Subsidiary, as the case may be, could have
paid such dividend in accordance with the provisions of the Indenture, (ii) the
renewal, extension, refunding or refinancing of any Indebtedness otherwise
permitted pursuant to the terms of the Indenture described in clause (vii) of
" -- Limitation on Indebtedness," (iii) the exchange or conversion of any
Indebtedness of the Company or any Subsidiary of the Company for or into Capital
Stock of the Company (other than Disqualified Stock of the Company), (iv) any
payments, loans or other advances made pursuant to any employee benefit plans
(including plans for the benefit of directors) or employment agreements or other
compensation arrangements, in each case as approved by the Board of Directors of
the Company in its good faith judgment evidenced by a resolution of such Board
of Directors filed with the Trustee, (v) the redemption of the Company's rights
issued pursuant to the Rights Agreement dated as of March 20, 1990, between the
Company and Sovran Bank, N.A., as Rights Agent, as in existence on the Issue
Date or (vi) so long as no Default or Event of Default has occurred and is
continuing, additional Investments constituting Restricted Payments in an
aggregate outstanding amount (valued at the cost thereof) not to exceed at any
time 5% of Consolidated Net Tangible Assets. Each Restricted Payment described
in clauses (i), (iv) and (v) of the previous sentence shall be taken into
account for purposes of computing the aggregate amount of all Restricted
Payments pursuant to clause (3) above.
LIMITATIONS CONCERNING DISTRIBUTIONS AND TRANSFERS BY SUBSIDIARIES
The Indenture will provide that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer
to exist any consensual encumbrance or restriction on the ability of any
Subsidiary of the Company (i) to pay, directly or indirectly, dividends or make
any other distributions in respect of its Capital Stock or pay any Indebtedness
or other obligation owed to the Company or any Subsidiary of the Company, (ii)
to make loans or advances to the Company or any Subsidiary of the Company or
(iii) to transfer any of its property or assets to the Company or any Subsidiary
of the Company except for such encumbrances or restrictions existing under or by
reason of (a) any agreement in effect on the Issue Date, (b) an agreement
relating to any Indebtedness Incurred by such Subsidiary prior to the date on
which such Subsidiary was acquired by the Company and outstanding on such date
and not Incurred in anticipation or contemplation of becoming a Subsidiary and
provided such encumbrance or restriction shall not apply to any assets of the
Company or its Subsidiaries other than such Subsidiary, (c) customary provisions
contained in an agreement which has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of such
Subsidiary, or (d) an agreement effecting a renewal, exchange, refunding or
extension of Indebtedness incurred pursuant to an agreement referred to in
clause (a) or (b) above; PROVIDED, HOWEVER, that the provisions contained in
such renewal, exchange, refunding or extension agreement relating to such
encumbrance or restriction are no more restrictive in any material respect than
the provisions contained in the agreement the subject thereof in the reasonable
judgment of the Board of Directors of the Company as evidenced by a resolution
of such Board of Directors filed with the Trustee.
LIMITATION ON LIENS
The Indenture will provide that the Company will not, and will not permit any of
its Subsidiaries to, Incur any Lien on or with respect to any property or assets
of the Company or any Subsidiary of the Company owned on the Issue Date or
thereafter acquired to secure Indebtedness without making, or causing such
Subsidiary to make, effective provision for securing the Notes (and, if the
Company shall so determine, any other Indebtedness of the Company or such
Subsidiary, including Indebtedness which is subordinate in right of payment to
the Notes, PROVIDED, that Liens securing the Notes and any Indebtedness PARI
PASSU with the Notes are senior to such Liens securing such subordinated
Indebtedness) equally and ratably with such Indebtedness or, in the event such
Indebtedness is subordinate in right of payment to the Notes, prior to such
Indebtedness, as to such property or assets for so long as such Indebtedness
shall be so secured. The foregoing restrictions shall not apply to (i) Liens in
respect
39
<PAGE>
of Indebtedness existing on the Issue Date; (ii) Liens securing only the Notes;
(iii) Liens in favor of the Company; (iv) Liens to secure Indebtedness Incurred
for the purpose of financing all or any part of the purchase price or the cost
of construction or improvement of the property subject to such Liens; PROVIDED
that (a) the aggregate principal amount of any Indebtedness secured by such a
Lien does not exceed 100% of such purchase price or cost, (b) such Lien does not
extend to or cover any other property other than such item of property and any
improvements on such item, (c) the Indebtedness secured by such Lien is incurred
by the Company or its Subsidiary within 180 days of the acquisition,
construction or improvement of such property and (d) the incurrence of such
Indebtedness is permitted by the provisions of the Indenture described under
" -- Limitation on Indebtedness" and " -- Additional Limitation on Subsidiary
Indebtedness"; (v) Liens on property existing immediately prior to the time of
acquisition thereof (and not created in anticipation or contemplation of the
financing of such acquisition); (vi) Liens on property of a Person existing at
the time such Person is merged with or into or consolidated with the Company or
any Subsidiary of the Company (and not created in anticipation or contemplation
thereof); (vii) Liens on property of the Company or any Subsidiary of the
Company in favor of the United States of America, any state thereof, or any
instrumentality of either to secure payments pursuant to any contract or
statute; (viii) Liens securing an aggregate principal amount of Indebtedness at
any one time outstanding which, when taken together with (A) all Capital Lease
Obligations of the Company and its Subsidiaries Incurred in compliance with
" -- Limitation on Indebtedness" and " -- Additional Limitation on Subsidiary
Indebtedness" and then outstanding and (B) all other Indebtedness of
Subsidiaries of the Company (other than the guarantee of Indebtedness under the
Senior Credit Facility) Incurred in compliance with the provisions of the
Indenture described under " -- Limitation on Indebtedness" and " -- Additional
Limitation on Subsidiary Indebtedness" and then outstanding would not exceed 10%
of Consolidated Net Tangible Assets; and (ix) Liens to secure Indebtedness
Incurred to extend, renew, refinance or refund (or successive extensions,
renewals, refinancings or refundings), in whole or in part, any Indebtedness
secured by Liens referred to in the foregoing clause (i) so long as such Lien
does not extend to any other property and the principal amount of Indebtedness
so secured is not increased except for the amount of any premium required to be
paid in connection with such refinancing pursuant to the terms of the
Indebtedness refinanced or the amount of any premium reasonably determined by
the Company as necessary to accomplish such refinancing by means of a tender
offer, exchange offer or privately negotiated repurchase, plus the expenses of
the Company or such Subsidiary incurred in connection with such refinancing.
LIMITATION ON CERTAIN ASSET DISPOSITIONS
The Indenture will provide that the Company will not, and will not permit any of
its Subsidiaries to, make one or more Asset Dispositions for aggregate
consideration of, or in respect of assets having an aggregate fair market value
of, $5 million or more in any 12-month period, unless: (i) the Company or the
Subsidiary, as the case may be, receives consideration for such Asset
Disposition at least equal to the fair market value of the assets sold or
disposed of as determined by the Board of Directors of the Company in good faith
and evidenced by a resolution of such Board of Directors filed with the Trustee;
(ii) not less than 75% of the consideration for the disposition consists of cash
or readily marketable cash equivalents or the assumption of Indebtedness of the
Company or such Subsidiary or other obligations relating to such assets (and
release of the Company or such Subsidiary from all liability on the Indebtedness
or other obligations assumed); and (iii) all Net Available Proceeds, less any
amounts invested within 360 days of such Asset Disposition in assets related to
the business of the Company (including the Capital Stock of another Person
(other than the Company or any Person that is a Subsidiary of the Company
immediately prior to such investment), PROVIDED, that immediately after giving
effect to any such investment (and not prior thereto) such Person shall be a
Subsidiary of the Company), are applied either (A) to an Offer to Purchase
outstanding Notes at 100% of their principal amount plus accrued interest to the
Purchase Date or (B) to the permanent reduction and repayment of Indebtedness
then outstanding under the Senior Credit Facility, to the repayment of other
Indebtedness that is not subordinated in right of payment to the Notes and to
the purchase of Notes pursuant to an Offer to Purchase outstanding Notes at 100%
of their principal amount plus accrued interest to the date of purchase,
PROVIDED, that (x) any Net Available Proceeds not applied to the repayment of
Indebtedness under the Senior Credit Facility or other Indebtedness not
subordinated in right of payment to the Notes in accordance with subclause (B)
of this clause (iii) shall be added to the Net Available Proceeds to be used for
an Offer to Purchase outstanding Notes and (y) the Company may defer making any
Offer to Purchase outstanding Notes until there are aggregate unutilized Net
Available Proceeds equal to or in excess of $5 million resulting from one or
more Asset Dispositions (at which time, the entire unutilized Net Available
Proceeds, and not just the amount in excess of $5 million, shall be applied as
required pursuant to this paragraph). Any repayment of Indebtedness in
accordance with the previous sentence shall be made PRO RATA, based on the
principal amount
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(or, in the case of Indebtedness having unamortized discount, the accreted value
thereof) of such Indebtedness outstanding. Any remaining Net Available Proceeds
following the completion of the Offer to Purchase may be used by the Company for
any other purpose (subject to the other provisions of the Indenture) and the
amount of Net Available Proceeds then required to be otherwise applied in
accordance with this covenant shall be reset to zero, subject to any subsequent
Asset Disposition. These provisions will not apply to a transaction consummated
in compliance with the provisions of the Indenture described under " -- Mergers,
Consolidations and Certain Sales of Assets" and " -- Limitation on Sale and
Leaseback Transactions" below.
In the event that the Company makes an Offer to Purchase the Notes, the Company
intends to comply with any applicable securities laws and regulations, including
any applicable requirements of Section 14(e) of, and Rule 14e-1 under, the
Exchange Act and any violation of the provisions of the Indenture relating to
such Offer to Purchase occurring as a result of such compliance shall not be
deemed an Event of Default or an event that with the passing of time or giving
of notice, or both, would constitute an Event of Default.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
The Indenture will provide that the Company will not, and will not permit any of
its Subsidiaries to, enter into any Sale and Leaseback Transaction (except for a
period not exceeding 30 months) unless the Company or such Subsidiary, as the
case may be, applies the net proceeds of the property sold pursuant to the Sale
and Leaseback Transaction as if such net proceeds were Net Available Proceeds
subject to disposition as provided above under " -- Limitation on Certain Asset
Dispositions."
LIMITATION ON ISSUANCE AND SALE OF CAPITAL STOCK OF SUBSIDIARIES
The Company (a) will not, and will not permit any Subsidiary of the Company to,
transfer, convey, sell or otherwise dispose of any shares of Capital Stock of
such Subsidiary or any other Subsidiary (other than to the Company or a Wholly
Owned Subsidiary of the Company) except that the Company and any Subsidiary may,
in any single transaction, sell all, but not less than all, of the issued and
outstanding Capital Stock of any Subsidiary to any Person, subject to complying
with the provisions of the conditions described above under " -- Limitation on
Certain Asset Dispositions" and (b) will not permit any Subsidiary of the
Company to issue shares of its Capital Stock (other than directors' qualifying
shares), or securities convertible into, or warrants, rights or options to
subscribe for or purchase shares of, its Capital Stock to any Person other than
to the Company or a Wholly Owned Subsidiary of the Company.
TRANSACTIONS WITH AFFILIATES AND RELATED PERSONS
The Indenture will provide that the Company will not, and will not permit any of
its Subsidiaries to enter into any transaction with an Affiliate or Related
Person of the Company (other than the Company or a Subsidiary of the Company),
including, without limitation, the purchase, sale, lease or exchange of
property, the rendering of any service, or the making of any guarantee, loan,
advance or Investment, either directly or indirectly, involving aggregate
consideration in excess of $500,000 unless (i) a majority of the disinterested
directors of the Board of Directors of the Company determines, in its good faith
judgment evidenced by a resolution of such Board of Directors filed with the
Trustee, that such transaction is in the best interests of the Company or such
Subsidiary, as the case may be; and (ii) such transaction is, in the opinion of
a majority of the disinterested directors of the Board of Directors of the
Company evidenced by a resolution of such Board of Directors filed with the
Trustee, on terms no less favorable to the Company or such Subsidiary, as the
case may be, than those that could be obtained in a comparable arm's length
transaction with an entity that is not an Affiliate or a Related Person.
CHANGE OF CONTROL
Within 30 days following the date of the consummation of a transaction resulting
in a Change of Control, the Company will commence an Offer to Purchase all
outstanding Notes at a purchase price equal to 101% of their principal amount
plus accrued interest to the date of purchase. Such Offer to Purchase will be
consummated not earlier than 30 days and not later than 60 days after the
commencement thereof. A "Change of Control" will be deemed to have occurred in
the event that (whether or not otherwise permitted by the Indenture), after the
Issue Date (a) any Person or any Persons acting together that would constitute a
group (for purposes of Section 13(d) of the Exchange Act, or any successor
provision thereto) (a "Group"), together with any Affiliates or Related Persons
thereof, shall beneficially own (as defined in Rule 13d-3 under the Exchange
Act, or any successor provision thereto) at least 40% of the Voting Stock of the
Company; (b) any sale, lease or other transfer (in one
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transaction or a series of related transactions) by the Company or any of its
Subsidiaries of all or substantially all of the consolidated assets of the
Company to any Person (other than a Wholly Owned Subsidiary of the Company); (c)
Continuing Directors cease to constitute at least a majority of the Board of
Directors of the Company; or (d) the stockholders of the Company approve any
plan or proposal for the liquidation or dissolution of the Company.
In the event that the Company makes an Offer to Purchase the Notes, the Company
intends to comply with any applicable securities laws and regulations, including
any applicable requirements of Section 14(e) of, and Rule 14e-1 under, the
Exchange Act and any violation of the provisions of the Indenture relating to
such Offer to Purchase occurring as a result of such compliance shall not be
deemed an Event of Default or an event that with the passing of time or giving
of notice, or both, would constitute an Event of Default.
PROVISION OF FINANCIAL INFORMATION
Whether or not the Company is subject to Section 13(a) or 15(d) of the Exchange
Act, or any successor provision thereto, the Company shall file with the
Commission the annual reports, quarterly reports and other documents which the
Company would have been required to file with the Commission pursuant to such
Section 13(a) or 15(d) or any successor provision thereto if the Company were so
required, such documents to be filed with the Commission on or prior to the
respective dates (the "Required Filing Dates") by which the Company would have
been required so to file such documents if the Company were so required. The
Company shall also in any event (a) within 15 days of each Required Filing Date
(i) transmit by mail to all Holders, as their names and addresses appear in the
Note Register, without cost to such Holders, and (ii) file with the Trustee,
copies of the annual reports, quarterly reports and other documents which the
Company is required to file with the Commission pursuant to the preceding
sentence, and (b) if, notwithstanding the preceding sentence, filing such
documents by the Company with the Commission is not permitted under the Exchange
Act, promptly upon written request supply copies of such documents to any
prospective Holder.
MERGERS, CONSOLIDATIONS AND CERTAIN SALES OF ASSETS
Neither the Company nor any Subsidiary will consolidate or merge with or into
any Person, and the Company will not, and will not permit any of its
Subsidiaries to, sell, lease, convey or otherwise dispose of all or
substantially all of the Company's consolidated assets (as an entirety or
substantially an entirety in one transaction or a series of related
transactions, including by way of liquidation or dissolution) to, any Person
unless, in each such case: (i) the entity formed by or surviving any such
consolidation or merger (if other than the Company or such Subsidiary, as the
case may be), or to which such sale, lease, conveyance or other disposition
shall have been made (the "Surviving Entity"), is a corporation organized and
existing under the laws of the United States, any state thereof or the District
of Columbia; (ii) the Surviving Entity assumes by supplemental indenture all of
the obligations of the Company or such Subsidiary, as the case may be, on the
Notes or such Subsidiary's Guarantee, as the case may be, and under the
Indenture; (iii) immediately after giving effect to such transaction and the use
of any net proceeds therefrom on a pro forma basis, the Consolidated Net Worth
of the Company or the Surviving Entity (in the case of a transaction involving
the Company), as the case may be, would be at least equal to the Consolidated
Net Worth of the Company immediately prior to such transaction; (iv) immediately
after giving effect to such transaction and the use of any net proceeds
therefrom on a pro forma basis, the Company or the Surviving Entity (in the case
of a transaction involving the Company), as the case may be, could incur at
least $1.00 of Indebtedness pursuant to clause (i) of the "Limitation on
Indebtedness" covenant; (v) immediately before and after giving effect to such
transaction and treating any Indebtedness which becomes an obligation of the
Company or any of its Subsidiaries as a result of such transaction as having
been incurred by the Company or such Subsidiary, as the case may be, at the time
of the transaction, no Event of Default or event that with the passing of time
or the giving of notice, or both, would constitute an Event of Default shall
have occurred and be continuing; and (vi) if, as a result of any such
transaction, property or assets of the Company or a Subsidiary would become
subject to a Lien not excepted from the provisions of the Indenture described
under " -- Limitation on Liens" above, the Company, any such Subsidiary or the
Surviving Entity, as the case may be, shall have secured the Notes as required
by said covenant. The provisions of this paragraph shall not apply to any merger
of a Subsidiary of the Company with or into the Company or a Wholly Owned
Subsidiary of the Company or any transaction pursuant to which a Guarantor's
Guarantee is to be released in accordance with the terms of the Guarantee and
the Indenture in connection with any transaction complying with the provisions
of the Indenture described under
" -- Limitation on Certain Asset Dispositions."
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EVENTS OF DEFAULT
The following will be Events of Default under the Indenture: (a) failure to pay
principal of (or premium, if any, on) any Note when due; (b) failure to pay any
interest on any Note when due, continued for 30 days; (c) default in the payment
of principal of and interest on Notes required to be purchased pursuant to an
Offer to Purchase as described under " -- Change of Control" and " -- Limitation
on Certain Asset Dispositions" when due and payable; (d) failure to perform or
comply with any of the provisions described under " -- Mergers, Consolidations
and Certain Sales of Assets"; (e) failure to perform any other covenant or
agreement of the Company under the Indenture or the Notes continued for 30 days
after written notice to the Company by the Trustee or Holders of at least 25% in
aggregate principal amount of outstanding Notes; (f) default under the terms of
one or more instruments evidencing or securing Indebtedness for money borrowed
by the Company or any Subsidiary of the Company having an outstanding principal
amount of $5 million or more individually or in the aggregate which results in
the acceleration of the payment of such Indebtedness or which shall constitute
the failure to pay principal when due at the stated maturity of such
Indebtedness; (g) the rendering of a final judgment or judgments (not subject to
appeal) against the Company or any Subsidiary of the Company in an amount of $5
million or more which remains undischarged or unstayed for a period of 60 days
after the date on which the right to appeal has expired; (h) certain events of
bankruptcy, insolvency or reorganization affecting the Company or any Material
Subsidiary; and (i) the Guarantee of any Guarantor which is a Material
Subsidiary ceases to be in full force and effect (other than in accordance with
the terms of such Guarantee and the Indenture) or is declared null and void and
unenforceable or found to be invalid or any Guarantor which is a Material
Subsidiary denies its liability under its Guarantee (other than by reason of a
release of such Guarantor from its Guarantee in accordance with the terms of the
Indenture and the Guarantee). Subject to the provisions of the Indenture
relating to the duties of the Trustee, in case an Event of Default (as defined)
shall occur and be continuing, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request or
direction of any of the Holders, unless such Holders shall have offered to the
Trustee reasonable indemnity. Subject to such provisions for the indemnification
of the Trustee, the Holders of a majority in aggregate principal amount of the
outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee.
If an Event of Default (other than an Event of Default with respect to the
Company described in clause (h)) shall occur and be continuing, either the
Trustee or the Holders of at least 25% in aggregate principal amount of the
outstanding Notes may accelerate the maturity of all Notes; PROVIDED, HOWEVER,
that after such acceleration, but before a judgment or decree based on
acceleration, the Holders of a majority in aggregate principal amount of
outstanding Notes may, under certain circumstances, rescind and annul such
acceleration if all Events of Default, other than the non-payment of accelerated
principal, have been cured or waived as provided in the Indenture. If an Event
of Default specified in clause (h) above with respect to the Company occurs, the
outstanding Notes will IPSO FACTO become immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder. For
information as to waiver of defaults, see " -- Modification and Waiver."
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless the Holders of at least 25% in aggregate principal amount of
the outstanding Notes shall have made written request, and offered reasonable
indemnity, to the Trustee to institute such proceeding as Trustee, and the
Trustee shall not have received from the Holders of a majority in aggregate
principal amount of the outstanding Notes a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days.
However, such limitations do not apply to a suit instituted by a Holder of a
Note for enforcement of payment of the principal of and premium, if any, or
interest on such Note on or after the respective due dates expressed in such
Note.
The Company will be required to furnish to the Trustee annually a statement as
to the performance by it of certain of its obligations under the Indenture and
as to any default in such performance.
DEFEASANCE OR COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have the obligations of
the Company and the Guarantors discharged in accordance with the provisions set
forth below with respect to the Notes then outstanding. Such defeasance means
that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by such outstanding Notes and the Company and the
Guarantors shall be deemed to have satisfied all their respective other
obligations under the Notes, the Guarantees and the Indenture, except for (i)
the rights of holders
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of such outstanding Notes to receive payments in respect of the principal of,
premium, if any, and interest on such Notes when such payments are due, (ii) the
Company's and the Guarantors' respective obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and (iv) the defeasance provisions of the
Indenture. In addition, the Company may, at its option and at any time, elect to
have the respective obligations of the Company and the Guarantors released with
respect to certain covenants in the Indenture, some of which are described above
("covenant defeasance"), and any omission to comply with such obligations shall
not constitute a Default or an Event of Default with respect to the Notes. In
the event covenant defeasance occurs, the events described in clause (e) under
" -- Events of Default" will no longer constitute an Event of Default with
respect to the Notes.
In order to exercise either defeasance or covenant defeasance, (i) the Company
must irrevocably deposit with the Trustee, in trust, for the benefit of the
holders of the Notes, cash in U.S. dollars, U.S. Government Obligations, or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on such outstanding Notes on the
stated maturity of such principal and each installment of interest; (ii) in the
case of defeasance, the Company shall have delivered to the Trustee an opinion
of counsel stating that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the Issue Date,
there has been a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such opinion of counsel shall confirm
that, the holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such defeasance had not occurred;
(iii) in the case of covenant defeasance, the Company shall have delivered to
the Trustee an opinion of counsel to the effect that the holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such covenant defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such covenant defeasance had not occurred; (iv) no
Default or Event of Default shall have occurred and be continuing on the date of
such deposit; (v) such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, the Indenture or any
other material agreement or instrument to which the Company is a party or by
which it is bound; (vi) in the case of defeasance or covenant defeasance, the
Company shall have delivered to the Trustee an opinion of counsel to the effect
that after the 91st day following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency, reorganization
or similar law affecting creditors' rights generally and that such defeasance or
covenant defeasance will not result in the Trustee or the trust arising from
such deposit constituting an Investment Company as defined in the Investment
Company Act of 1940, as amended; and (vii) the Company shall have delivered to
the Trustee an officers' certificate and an opinion of counsel each stating that
all conditions precedent provided for relating to either the defeasance or the
covenant defeasance, as the case may be, have been complied with.
GOVERNING LAW
The Indenture, the Notes and the Guarantees will be governed by the laws of the
State of New York without regard to principles of conflicts of laws.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company and the
Trustee with the consent of the Holders of a majority in aggregate principal
amount of the outstanding Notes; PROVIDED, HOWEVER, that no such modification or
amendment may, without the consent of the Holder of each Note affected thereby,
(a) change the Stated Maturity of the principal of or any installment of
interest on any Note, (b) reduce the principal amount of (or the premium) or
interest on any Note, (c) change the place or currency of payment of principal
of (or premium) or interest on any Note, (d) impair the right to institute suit
for the enforcement of any payment on or with respect to any Note or any
Guarantee, (e) reduce the above-stated percentage of outstanding Notes necessary
to modify or amend the Indenture, (f) reduce the percentage of aggregate
principal amount of outstanding Notes necessary for waiver of compliance with
any provision of the Indenture or for waiver of any default, (g) modify any
provisions of the Indenture relating to the modification and amendment of the
Indenture or the waiver of past defaults or covenants, except as otherwise
specified, (h) modify the ranking or priority of the Notes or the Guarantee of
any Guarantor which is a Material Subsidiary, (i) release any Guarantor which is
a Material Subsidiary from any of its obligations under its Guarantee or the
Indenture otherwise than in accordance with the
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terms of the Indenture, or (j) modify the provisions relating to any Offer to
Purchase required under the "Limitation on Certain Asset Dispositions" or
"Change of Control" covenants contained in the Indenture in a manner materially
adverse to the Holders thereof.
The Holders of a majority in aggregate principal amount of the outstanding
Notes, on behalf of all Holders of Notes, may waive compliance by the Company
with certain restrictive provisions of the Indenture. Subject to certain rights
of the Trustee, as provided in the Indenture, the Holders of a majority in
aggregate principal amount of the outstanding Notes, on behalf of all Holders of
Notes, may waive any past default under the Indenture, except a default in the
payment of principal, premium or interest or a default arising from failure to
purchase any Note tendered pursuant to an Offer to Purchase.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in their exercise as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Company, any Guarantor or any other obligor upon the
Notes, to obtain payment of claims in certain cases or to realize on certain
property received by it in respect of any such claim as security or otherwise.
The Trustee is permitted to engage in other transactions with the Company or an
Affiliate of the Company; PROVIDED, HOWEVER, that if it acquires any conflicting
interest (as defined in the Indenture or in the Trust Indenture Act), it must
eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with any specified Person. For purposes of this definition, "control"
when used with respect to any Person means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"ASSET DISPOSITION" means any sale, transfer or other disposition of (i) shares
of Capital Stock of a Subsidiary of the Company (other than directors'
qualifying shares) or (ii) property or assets of the Company or any Subsidiary
of the Company; PROVIDED, HOWEVER, that an Asset Disposition shall not include
(a) any sale, transfer or other disposition of shares of Capital Stock, property
or assets by a Subsidiary of the Company to the Company or to another Subsidiary
of the Company, (b) any sale, transfer or other disposition of defaulted
receivables for collection or any sale, transfer or other disposition of
property or assets in the ordinary course of business or (c) any isolated sale,
transfer or other disposition that does not involve aggregate consideration in
excess of $250,000 individually.
"AVERAGE LIFE" means, as of the date of determination, with respect to any
Indebtedness for borrowed money or Preferred Stock, the quotient obtained by
dividing (i) the sum of the products of the number of years from the date of
determination to the dates of each successive scheduled principal or liquidation
value payments of such Indebtedness or Preferred Stock, respectively, and the
amount of such principal or liquidation value payments, by (ii) the sum of all
such principal or liquidation value payments.
"CAPITAL LEASE OBLIGATIONS" of any Person means the obligations to pay rent or
other amounts under a lease of (or other Indebtedness arrangements conveying the
right to use) real or personal property of such Person which are required to be
classified and accounted for as a capital lease or liability on the face of a
balance sheet of such Person in accordance with GAAP. The amount of such
obligations shall be the capitalized amount thereof in accordance with GAAP and
the stated maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty.
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"CAPITAL STOCK" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock of
such Person (including any Preferred Stock outstanding on the Issue Date).
"COMMON STOCK" of any Person means Capital Stock of such Person that does not
rank prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"CONSOLIDATED CASH FLOW AVAILABLE FOR FIXED CHARGES" of any Person means for any
period the Consolidated Net Income of such Person for such period increased by
the sum of (i) Consolidated Interest Expense of such Person for such period,
plus (ii) Consolidated Income Tax Expense of such Person for such period, plus
(iii) the consolidated depreciation and amortization expense included in the
income statement of such Person for such period, plus (iv) other non-cash
charges of such Person for such period deducted from consolidated revenues in
determining Consolidated Net Income for such period, minus (v) non-cash items
(including the partial or entire reversal of reserves taken in prior periods) of
such Person for such period increasing consolidated revenues in determining
Consolidated Net Income for such period.
"CONSOLIDATED CASH FLOW RATIO" of any Person means for any period the ratio of
(i) Consolidated Cash Flow Available for Fixed Charges of such Person for such
period to (ii) the sum of (A) Consolidated Interest Expense of such Person for
such period, plus (B) the annual interest expense with respect to any
Indebtedness proposed to be Incurred by such Person or its Subsidiaries, minus
(C) Consolidated Interest Expense of such Person to the extent included in
clause (ii)(A) with respect to any Indebtedness that will no longer be
outstanding as a result of the incurrence of the Indebtedness proposed to be
Incurred, plus (D) the annual interest expense with respect to any other
Indebtedness Incurred by such Person or its Subsidiaries since the end of such
period to the extent not included in clause (ii)(A), minus (E) Consolidated
Interest Expense of such Person to the extent included in clause (ii)(A) with
respect to any Indebtedness that no longer is outstanding as a result of the
Incurrence of the Indebtedness referred to in clause (ii)(D); PROVIDED, HOWEVER,
that in making such computation, the Consolidated Interest Expense of such
Person attributable to interest on any Indebtedness bearing a floating interest
rate shall be computed on a pro forma basis as if the rate in effect on the date
of computation (after giving effect to any hedge in respect of such Indebtedness
that will, by its terms, remain in effect until the earlier of the maturity of
such Indebtedness or the date one year after the date of such determination) had
been the applicable rate for the entire period; PROVIDED FURTHER that, in the
event such Person or any of its Subsidiaries has made any Asset Dispositions or
acquisitions of assets not in the ordinary course of business (including
acquisitions of other Persons by merger, consolidation or purchase of Capital
Stock) during or after such period, such computation shall be made on a pro
forma basis as if the Asset Dispositions or acquisitions had taken place on the
first day of such period. Calculations of pro forma amounts in accordance with
this definition shall be done in accordance with Rule 11-02 of Regulation S-X
under the Securities Act of 1933 or any successor provision.
"CONSOLIDATED INCOME TAX EXPENSE" of any Person means for any period the
consolidated provision for income taxes of such Person for such period
calculated on a consolidated basis in accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE" for any Person means for any period the
consolidated interest expense included in a consolidated income statement
(without deduction of interest income) of such Person for such period calculated
on a consolidated basis in accordance with GAAP, plus cash dividends declared on
any Preferred Stock (other than any Preferred Stock of the Company outstanding
on the Issue Date). For purposes of this definition, the amount of any cash
dividends declared will be deemed to be equal to the amount of such dividends
multiplied by a fraction, the numerator of which is one and the denominator of
which is one minus the maximum statutory combined Federal, state, local and
foreign income tax rate then applicable to such Person and its Subsidiaries
(expressed as a decimal between one and zero), on a consolidated basis.
"CONSOLIDATED NET INCOME" of any Person means for any period the consolidated
net income (or loss) of such Person for such period determined on a consolidated
basis in accordance with GAAP; PROVIDED that there shall be excluded therefrom
(a) the net income (or loss) of any Person acquired by such Person or a
Subsidiary of such Person in a pooling-of-interests transaction for any period
prior to the date of such transaction, (b) the net income (but not net loss) of
any Subsidiary of such Person which is subject to restrictions which prevent or
limit the payment of dividends or the making of distributions to such Person to
the extent of such restrictions, (c) the net income of any Person that is not a
Subsidiary of such Person except to the extent of the amount of dividends or
other distributions actually paid in cash to such Person by such other Person
during such period, (d) gains or losses on Asset Dispositions by such Person or
its Subsidiaries and (e) all extraordinary gains and extraordinary losses
determined in accordance with GAAP.
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"CONSOLIDATED NET TANGIBLE ASSETS" means, at any date, the consolidated book
value as shown by the accounting books and records of the Company and its
Subsidiaries of all their property, both real and personal, less (i) the book
value of all their licenses, patents, patent applications, copyrights,
trademarks, trade names, goodwill, non-compete agreements or organizational
expenses and other intangibles, (ii) unamortized Indebtedness, discount and
expenses, (iii) all reserves for depreciation, obsolescence, depletion and
amortization of their properties and (iv) all other proper reserves which in
accordance with GAAP should be provided in connection with the business
conducted by the Company and its Subsidiaries.
"CONSOLIDATED NET WORTH" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Stock of
such Person.
"CONTINUING DIRECTOR" means a director who either was a member of the Board of
Directors of the Company on the Issue Date or who became a director of the
Company subsequent to the Issue Date and whose election, or nomination for
election by the Company's stockholders, was duly approved by a majority of the
Continuing Directors than on the Board of Directors of the Company, either by a
specific vote or by approval of the proxy statement issued by the Company on
behalf of the entire Board of Directors of the Company in which such individual
is named as nominee for director.
"DEFAULT" means any event that is, or after notice or lapse of time or both
would become, an Event of Default.
"DISQUALIFIED STOCK" of any Person means any Capital Stock of such Person which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the final maturity of the Notes; PROVIDED, that any Preferred Stock of
the Company outstanding on the Issue Date shall not be deemed Disqualified
Stock.
"ELIGIBLE ACCOUNTS RECEIVABLE" means the face value of all "eligible
receivables" of the Company and its Subsidiaries party to any credit agreement
constituting the Senior Credit Facility (as such term is defined for purposes of
such credit agreement).
"ELIGIBLE INVENTORY" means the face value of all "eligible inventory" of the
Company and its Subsidiaries party to any credit agreement constituting the
Senior Credit Facility (as such term is defined for purposes of such credit
agreement).
"EXCHANGE ACT" means the Securities and Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles, consistently applied, as
in effect on the Issue Date in the United States of America, as set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as is approved by a significant segment of the accounting
profession.
"GUARANTEE" by any Person means any obligation, contingent or otherwise, of such
Person guaranteeing any Indebtedness of any other Person (the "primary obligor")
in any manner, whether directly or indirectly, and including, without
limitation, any obligation of such Person (i) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Indebtedness or to purchase
(or to advance or supply funds for the purchase of) any security for the payment
of such Indebtedness, (ii) to purchase property, securities or services for the
purpose of assuring the holder of such Indebtedness of the payment of such
Indebtedness, or (iii) to maintain working capital, equity capital or other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Indebtedness (and "guaranteed,"
"guaranteeing" and "guarantor" shall have meanings correlative to the
foregoing); PROVIDED, HOWEVER, that the guarantee by any Person shall not
include endorsements by such Person for collection or deposit, in either case,
in the ordinary course of business.
"GUARANTEE" means the guarantee of the Notes by each Guarantor under the
Indenture.
"GUARANTORS" means (i) each of Dominion Stores, Inc., Tultex International,
Inc., Logo 7, Inc., Universal Industries, Inc., AKOM, Ltd., Tultex Canada Inc.
and SweatJet, Inc. and (ii) each Material Subsidiary, whether formed or acquired
after the Issue Date PROVIDED, that, any Material Subsidiary acquired after the
Issue Date which is prohibited from entering into a Guarantee pursuant to
restrictions contained in any debt instrument in existence at the time such
Material Subsidiary was so acquired and not entered into in anticipation or
contemplation of such
47
<PAGE>
acquisition shall not be required to become a Guarantor so long as any such
restriction is in existence and to the extent of any such restriction.
"INCUR" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred," "Incurrable" and "Incurring" shall
have meanings correlative to the foregoing). Indebtedness of any Person or any
of its Subsidiaries existing at the time such Person becomes a Subsidiary of the
Company (or is merged into or consolidates with the Company or any of its
Subsidiaries), whether or not such Indebtedness was incurred in connection with,
or in contemplation of, such Person becoming a Subsidiary of the Company (or
being merged into or consolidated with the Company or any of its Subsidiaries)
shall be deemed Incurred at the time any such Person becomes a Subsidiary of the
Company or merges into or consolidates with the Company or any of its
Subsidiaries.
"INDEBTEDNESS" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent, (i) every obligation of such Person for money borrowed, (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, including obligations incurred in connection with the acquisition
of property, assets or businesses, (iii) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person, (iv) every obligation of such
Person issued or assumed as the deferred purchase price of property or services
(but excluding trade accounts payable or accrued liabilities arising in the
ordinary course of business which are not overdue or which are being contested
in good faith), (v) every Capital Lease Obligation of such Person, (vi) every
net obligation under interest rate swap or similar agreements or foreign
currency hedge, exchange or similar agreements of such Person and (vii) every
obligation of the type referred to in clauses (i) through (vi) of another Person
and all dividends of another Person the payment of which, in either case, such
Person has guaranteed or is responsible or liable for, directly or indirectly,
as obligor, guarantor or otherwise. Indebtedness shall include the liquidation
preference and any mandatory redemption payment obligations in respect of any
Disqualified Stock of the Company, and any Preferred Stock of a Subsidiary of
the Company. Indebtedness shall never be calculated taking into account any cash
and cash equivalents held by such Person.
"INVESTMENT" by any Person means any direct or indirect loan, advance or other
extension of credit or capital contribution to (by means of transfers of cash or
other property to others or payments for property or services for the account or
use of others, or otherwise), or purchase or acquisition of Capital Stock,
bonds, notes, debentures or other securities or evidence of Indebtedness issued
by any other Person.
"ISSUE DATE" means the original issue date of the Notes.
"LIEN" means, with respect to any property or assets, any mortgage or deed of
trust, pledge, hypothecation, assignment, security interest, lien, charge,
easement (other than any easement not materially impairing usefulness or
marketability), encumbrance, preference, priority or other security agreement
with respect to such property or assets (including, without limitation, any
conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing).
"MATERIAL SUBSIDIARY" means any Subsidiary of the Company which would constitute
a "significant subsidiary" of the Company as defined in Rule 1.02 of Regulation
S-X promulgated by the Commission except that for purposes of this definition
all reference therein to ten (10) percent shall be deemed to be references to
five (5) percent.
"NET AVAILABLE PROCEEDS" from any Asset Disposition by any Person means cash or
readily marketable cash equivalents received (including by way of sale or
discounting of a note, installment receivable or other receivable, but excluding
any other consideration received in the form of assumption by the acquiree of
Indebtedness or other obligations relating to such properties or assets or
received in any other noncash form) therefrom by such Person, net of (i) all
legal, title and recording tax expenses, commissions and other fees and expenses
Incurred and all federal, state, foreign and local taxes required to be accrued
as a liability as a consequence of such Asset Disposition, (ii) all payments
made by such Person or its Subsidiaries on any Indebtedness which is secured by
such assets in accordance with the terms of any Lien upon or with respect to
such assets or which must by the terms of such Lien, or in order to obtain a
necessary consent to such Asset Disposition or by applicable law, be repaid out
of the proceeds from such Asset Disposition, (iii) all payments made with
respect to liabilities associated with the assets which are the subject of the
Asset Disposition, including, without limitation, trade payables and other
accrued liabilities, (iv) appropriate amounts to be provided by such Person or
any Subsidiary thereof, as the case may be, as a reserve in accordance with GAAP
against any liabilities associated with such assets and retained by
48
<PAGE>
such Person or any Subsidiary thereof, as the case may be, after such Asset
Disposition, including, without limitation, liabilities under any
indemnification obligations and severance and other employee termination costs
associated with such Asset Disposition, until such time as such amounts are no
longer reserved or such reserve is no longer necessary (at which time any
remaining amounts will become Net Available Proceeds to be allocated in
accordance with the provisions of clause (iii) of " -- Limitation on Certain
Asset Dispositions") and (v) all distributions and other payments made to
minority interest holders in Subsidiaries of such Person or joint ventures as a
result of such Asset Disposition.
"OFFER TO PURCHASE" means a written offer (the "Offer") sent by the Company by
first class mail, postage prepaid, to each Holder at his address appearing in
the register for the Notes on the date of the Offer offering to purchase up to
the principal amount of Notes specified in such Offer at the purchase price
specified in such Offer (as determined pursuant to the Indenture). Unless
otherwise required by applicable law, the Offer shall specify an expiration date
(the "Expiration Date") of the Offer to Purchase which shall be, not less than
30 days or more than 60 days after the date of such Offer and a settlement date
(the "Purchase Date") for purchase of Notes within five Business Days after the
Expiration Date. The Company shall notify the Trustee at least 15 Business Days
(or such shorter period as is acceptable to the Trustee) prior to the mailing of
the Offer of the Company's obligation to make an Offer to Purchase, and the
Offer shall be mailed by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company. The Offer shall contain
all the information required by applicable law to be included therein. The Offer
shall contain all instructions and materials necessary to enable such Holders to
tender Notes pursuant to the Offer to Purchase. The Offer shall also state:
(1) the Section of the Indenture pursuant to which the Offer to Purchase
is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the outstanding Notes offered to
be purchased by the Company pursuant to the Offer to Purchase
(including, if less than 100%, the manner by which such amount has
been determined pursuant to the Section of the Indenture requiring
the Offer to Purchase) (the "Purchase Amount");
(4) the purchase price to be paid by the Company for each $1,000
aggregate principal amount of Notes accepted for payment (as
specified pursuant to the Indenture) (the "Purchase Price");
(5) that the Holder may tender all or any portion of the Notes
registered in the name of such Holder and that any portion of a Note
tendered must be tendered in an integral multiple of $1,000
principal amount;
(6) the place or places where Notes are to be surrendered for tender
pursuant to the Offer to Purchase;
(7) that interest on any Note not tendered or tendered but not purchased
by the Company pursuant to the Offer to Purchase will continue to
accrue;
(8) that on the Purchase Date the Purchase Price will become due and
payable upon each Note being accepted for payment pursuant to the
Offer to Purchase and that interest thereon shall cease to accrue on
and after the Purchase Date;
(9) that each Holder electing to tender all or any portion of a Note
pursuant to the Offer to Purchase will be required to surrender such
Note at the place or places specified in the Offer prior to the
close of business on the Expiration Date (such Note being, if the
Company or the Trustee so requires, duly endorsed by, or accompanied
by a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his
attorney duly authorized in writing);
(10) that Holders will be entitled to withdraw all or any portion of
Notes tendered if the Company (or its Paying Agent) receives, not
later than the close of business on the fifth Business Day next
preceding the Expiration Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the
principal amount of the Note the Holder tendered, the certificate
number of the Note the Holder tendered and a statement that such
Holder is withdrawing all or a portion of his tender;
(11) that (a) if Notes in an aggregate principal amount less than or
equal to the Purchase Amount are duly tendered and not withdrawn
pursuant to the Offer to Purchase, the Company shall purchase all
such Notes and (b) if Notes in an aggregate principal amount in
excess of the Purchase Amount are tendered and not withdrawn
pursuant to the Offer to Purchase, the Company shall purchase Notes
49
<PAGE>
having an aggregate principal amount equal to the Purchase Amount on
a PRO RATA basis (with such adjustments as may be deemed appropriate
so that only Notes in denominations of $1,000 or integral multiples
thereof shall be purchased); and
(12) that in the case of any Holder whose Note is purchased only in part,
the Company shall execute, the Guarantors shall execute the
Guarantee endorsed thereon and the Trustee shall authenticate and
deliver to the Holder of such Note without service charge, a new
Note or Notes, of any authorized denomination as requested by such
Holder, in an aggregate principal amount equal to and in exchange
for the unpurchased portion of the Note so tendered.
An Offer to Purchase shall be governed by and effected in accordance with the
provisions above pertaining to any Offer.
"PERMITTED INVESTMENTS" means (i) Investments in marketable, direct obligations
issued or guaranteed by the United States of America, or any governmental entity
or agency or political subdivision thereof (PROVIDED, that the good faith and
credit of the United States of America is pledged in support thereof), maturing
within one year of the date of purchase; (ii) Investments in commercial paper
issued by corporations, each of which shall have a consolidated net worth of at
least $500,000,000, maturing within 180 days from the date of the original issue
thereof, and rated "P-1" or better by Moody's Investors Service or "A-1" or
better by Standard & Poor's Corporation or an equivalent rating or better by any
other nationally recognized securities rating agency; (iii) Investments in
certificates of deposit issued or acceptances accepted by or guaranteed by any
bank or trust company organized under the laws of the United States of America
or any state thereof or the District of Columbia, in each case having capital,
surplus and undivided profits totalling more than $500,000,000, maturing within
one year of the date of purchase; (iv) Investments representing Capital Stock or
obligations issued to the Company or any of its Subsidiaries in the course of
the good faith settlement of claims against any other Person or by reason of a
composition or readjustment of debt or a reorganization of any debtor of the
Company or any of its Subsidiaries; (v) deposits, including interest-bearing
deposits, maintained in the ordinary course of business in banks; and (vi) any
acquisition of the Capital Stock of any Person provided that after giving effect
to any such acquisition such Person shall become a Subsidiary of the Company.
"PERSON" means any individual, corporation, limited or general partnership,
joint venture, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"PREFERRED STOCK", as applied to the Capital Stock of any Person, means Capital
Stock of such Person of any class or classes (however designated) that ranks
prior, as to the payment of dividends or as to the distribution of assets upon
any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"RELATED PERSON" of any Person means any other Person directly or indirectly
owning (a) 5% or more of the outstanding Common Stock of such Person (or, in the
case of a Person that is not a corporation, 5% or more of the equity interest in
such Person) or (b) 5% or more of the combined voting power of the Voting Stock
of such Person.
"SALE AND LEASEBACK TRANSACTION" of any Person means an arrangement with any
lender or investor or to which such lender or investor is a party providing for
the leasing by such Person of any property or asset of such Person which has
been or is being sold or transferred by such Person more than 270 days after the
acquisition thereof or the completion of construction or commencement of
operation thereof to such lender or investor or to any Person to whom funds have
been or are to be advanced by such lender or investor on the security of such
property or asset. The stated maturity of such arrangement shall be the date of
the last payment of rent or any other amount due under such arrangement prior to
the first date on which such arrangement may be terminated by the lessee without
payment of a penalty.
"SENIOR CREDIT FACILITY" means the Credit Agreement, dated as of March 8, 1995,
among the Company as borrower thereunder, any Subsidiaries of the Company as
guarantors thereunder and NationsBank, N.A. (Carolinas), as agent on behalf of
itself and the other lenders named therein, including any deferrals, renewals,
extensions, replacements, refinancings or refundings thereof, or amendments,
modifications or supplements thereto and any agreement providing therefor
whether by or with the same or any other lender, creditors, group of lenders or
group of creditors.
"SUBSIDIARY" of any Person means (i) a corporation more than 50% of the
outstanding Voting Stock of which is owned, directly or indirectly, by such
Person or by one or more other Subsidiaries of such Person or by such
50
<PAGE>
Person and one or more other Subsidiaries thereof or (ii) any other Person
(other than a corporation) in which such Person, or one or more other
Subsidiaries of such Person or such Person and one or more other Subsidiaries
thereof, directly or indirectly, has at least a majority ownership and voting
power relating to the policies, management and affairs thereof.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as amended.
"VOTING STOCK" of any Person means the Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such Person all of
the outstanding Capital Stock or other ownership interests of which (other than
directors' qualifying shares) shall at the time be owned by such Person or by
one or more Wholly Owned Subsidiaries of such Person or by such Person and one
or more Wholly Owned Subsidiaries of such Person.
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated March 16, 1995 (the "Underwriting Agreement"), J.P. Morgan
Securities Inc. ("J.P. Morgan") and NationsBanc Capital Markets, Inc.
("NationsBanc" and collectively with J.P. Morgan, the "Underwriters"), have
severally agreed to purchase from the Company, and the Company has agreed to
sell to them, severally, the principal amount of Notes set forth opposite their
names below. Under the terms and conditions of the Underwriting Agreement, the
Underwriters are obligated to take and pay for the entire principal amount of
the Notes, if any Notes are purchased.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C>
J.P. Morgan Securities Inc. $ 66,000,000
NationsBanc Capital Markets, Inc. 44,000,000
Total $110,000,000
</TABLE>
The Underwriters propose initially to offer the Notes directly to the public at
the price set forth on the cover page of this Prospectus and to certain dealers
at such price less a concession not in excess of 0.275% of the principal amount
of the Notes. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of 0.100% of the principal amount of the Notes to
certain others dealers. After the initial public offering of the Notes, the
initial public offering price and such concessions may be changed.
The Company and the Guarantors in existence on the closing date of the Offering
have agreed, jointly and severally, to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act.
There is currently no trading market for the Notes. The Company does not intend
to list the Notes on any securities exchange. The Company has been advised by
the Underwriters that the Underwriters currently intend to make a market in the
Notes; however, the Underwriters are not obligated to do so and may discontinue
any such market making at any time without notice. No assurance can be given as
to the development or liquidity of any trading market for the Notes.
J.P. Morgan has provided investment banking and other financial services for the
Company in the past. In addition, Morgan Guaranty Trust Company of New York, an
affiliate of J.P. Morgan, will act as a lender under the Senior Credit Facility.
NationsBank, N.A. (Carolinas), an affiliate of NationsBanc, acted as lender,
Co-Agent and Administrative Agent under the Company's existing revolving credit
facility and will act in the same capacities under the Senior Credit Facility.
NationsBanc acted as Structuring and Syndicating Agent under the Company's
existing revolving credit facility, for which it has received customary fees and
will act in the same capacity under the Senior Credit Facility, for which it
will receive customary fees. In addition, NationsBanc has provided investment
banking and other financial services for the Company in the past.
51
<PAGE>
LEGAL MATTERS
The validity of the Notes will be passed upon for the Company by Hunton &
Williams, Richmond, Virginia. Lathan M. Ewers, Jr., a partner of Hunton &
Williams, is a director of the Company. Certain legal matters in connection with
the Notes offered hereby will be passed upon for the Underwriters by Cahill
Gordon & Reindel (a partnership including a professional corporation), New York,
New York.
EXPERTS
The financial statements as of December 31, 1994 and January 1, 1994 and for
each of the three years in the period ended December 31, 1994 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
52
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Accountants...................................................................................... F-2
Consolidated Balance Sheets of Tultex Corporation as of December 31, 1994 and January 1, 1994.......................... F-3
Consolidated Statements of Income of Tultex Corporation for Fiscal 1994, 1993 and 1992................................. F-4
Consolidated Statements of Changes in Stockholders' Equity of Tultex Corporation for Fiscal 1994, 1993
and 1992............................................................................................................. F-5
Consolidated Statements of Cash Flows of Tultex Corporation for Fiscal 1994, 1993
and 1992............................................................................................................. F-6
Notes to Financial Statements of Tultex Corporation.................................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Tultex Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of cash flows and of changes in stockholders'
equity present fairly, in all material respects, the financial position of
Tultex Corporation and its subsidiaries (the company) at December 31, 1994 and
January 1, 1994, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1994, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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 significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 9 of Notes to Financial Statements, the company
changed its method of accounting for income taxes in 1992. In addition, in 1993,
the company changed its method of valuing inventory and accounting for
postretirement medical and life insurance benefits, as discussed in Notes 3 and
10 of Notes to Financial Statements, respectively.
PRICE WATERHOUSE LLP
Winston-Salem, North Carolina
February 6, 1995
F-2
<PAGE>
TULTEX CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
DEC. 31, JAN. 1,
1994 1994
<S> <C> <C>
(IN THOUSAND OF
DOLLARS
EXCEPT SHARE DATA)
ASSETS
Current assets:
Cash and equivalents (Note 5)....................................................................... $ 5,776 $ 6,754
Accounts receivable, less allowance for doubtful accounts
of $2,115 (1994) and $2,374 (1993)............................................................... 139,743 116,383
Inventories (Note 3)................................................................................ 130,183 157,278
Prepaid expenses.................................................................................... 14,205 8,276
Total current assets.................................................................................. 289,907 288,691
Property, plant and equipment, net of depreciation (Note 4)........................................... 134,884 151,775
Intangible assets..................................................................................... 26,766 27,983
Other assets.......................................................................................... 5,252 6,516
TOTAL ASSETS.......................................................................................... $456,809 $474,965
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks (Note 5)..................................................................... $ 1,000 $ --
Current maturities of long-term debt (Notes 6 and 19)............................................... 132,353 8,524
Accounts payable -- trade........................................................................... 19,634 18,170
Accrued liabilities -- other........................................................................ 11,102 13,923
Dividends payable (Note 7).......................................................................... -- 1,736
Income taxes payable................................................................................ 2,964 2,785
Total current liabilities............................................................................. 167,053 45,138
Long-term debt, less current maturities (Notes 6 and 19).............................................. 83,002 230,914
Deferrals:
Deferred income taxes (Note 9)...................................................................... 14,893 14,014
Other............................................................................................... 4,760 5,702
Total deferrals....................................................................................... 19,653 19,716
Stockholders' equity (Notes 6, 8, 15 and 16):
5% cumulative preferred stock, $100 par value;
authorized -- 22,000 shares,
issued and outstanding -- 1,975 shares (1994 and 1993)........................................... 198 198
Series B, $7.50 cumulative convertible preferred stock;
authorized, issued and outstanding -- 150,000 shares (1994 and 1993)............................. 15,000 15,000
Common stock, $1 par value; authorized -- 60,000,000 shares, issued and outstanding -- 29,806,793
shares (1994) and 29,053,126 shares (1993)....................................................... 29,807 29,053
Capital in excess of par value...................................................................... 5,279 1,889
Retained earnings................................................................................... 140,283 133,107
190,567 179,247
Less notes receivable from stockholders.......................................................... 3,466 50
Total stockholders' equity............................................................................ 187,101 179,197
Commitments and contingencies (Notes 12, 13, and 14)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................................................ $456,809 $474,965
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
statement.
F-3
<PAGE>
TULTEX CORPORATION
STATEMENT OF INCOME
<TABLE>
<CAPTION>
FISCAL YEARS ENDED:
DEC. 31, 1994 JAN. 1, 1994
(52 WEEKS) (52 WEEKS)
<S> <C> <C>
(IN THOUSANDS OF DOLLARS
EXCEPT PER SHARE DATA)
Net sales and other income........................................................... $ 565,433 $ 533,611
Costs and expenses:
Cost of products sold.............................................................. 419,769 395,727
Depreciation....................................................................... 23,973 23,364
Selling, general and administrative................................................ 93,510 88,433
Gain on sale of facilities......................................................... (4,405) --
Interest........................................................................... 18,151 16,996
Total costs and expenses............................................................. 550,998 524,520
Income before income taxes........................................................... 14,435 9,091
Provision for income taxes (Note 9).................................................. 5,485 3,188
NET INCOME........................................................................... $ 8,950 $ 5,903
NET INCOME PER COMMON SHARE.......................................................... $ .26 $ .16
DIVIDENDS PER COMMON SHARE (NOTE 7).................................................. $ .05 $ .20
<CAPTION>
JAN. 2, 1993
(53 WEEKS)
<S> <C>
Net sales and other income........................................................... $ 503,946
Costs and expenses:
Cost of products sold.............................................................. 368,027
Depreciation....................................................................... 20,831
Selling, general and administrative................................................ 81,297
Gain on sale of facilities......................................................... --
Interest........................................................................... 13,540
Total costs and expenses............................................................. 483,695
Income before income taxes........................................................... 20,251
Provision for income taxes (Note 9).................................................. 7,060
NET INCOME........................................................................... $ 13,191
NET INCOME PER COMMON SHARE.......................................................... $ .42
DIVIDENDS PER COMMON SHARE (NOTE 7).................................................. $ .20
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
statement.
F-4
<PAGE>
TULTEX CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL
5% SERIES B IN EXCESS NOTES
PREFERRED PREFERRED COMMON OF PAR RETAINED RECEIVABLE-
STOCK STOCK STOCK VALUE EARNINGS STOCKHOLDERS
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
BALANCE AS OF DEC. 28, 1991, AS
PREVIOUSLY REPORTED................... $ 198 $28,862 $ 580 $121,876 $ (184)
Adjustment for the cumulative effect on
prior years of applying retroactively
the new method of valuing inventories
(Note 3).............................. 5,759
BALANCE AS OF DEC. 28, 1991, AS
ADJUSTED.............................. 198 28,862 580 127,635 (184)
Net income for the 53 weeks ended Jan.
2, 1993 (Note 3)...................... 13,191
Series B, preferred stock issued
(150,000 shares)...................... $15,000
Employee stock purchases................ 16 101 (30)
Collections -- stockholders' notes
receivable............................ 114
Cash dividends on common stock ($.20 per
share) (Note 7)....................... (5,649)
Cash dividends on preferred stock (Note
7).................................... (1,041)
BALANCE AS OF JAN. 2, 1993.............. 198 15,000 28,878 681 134,136 (100)
Net income for the 52 weeks ended Jan.
1, 1994............................... 5,903
Employee stock purchases................ 175 1,208 (11)
Collections -- stockholders' notes
receivable............................ 61
Cash dividends on common stock ($.20 per
share) (Note 7)....................... (5,797)
Cash dividends on preferred stock (Note
7).................................... (1,135)
BALANCE AS OF JAN. 1, 1994.............. 198 15,000 29,053 1,889 133,107 (50)
Net income for the 52 weeks ended Dec.
31, 1994.............................. 8,950
Employee stock purchases................ 754 3,390 (4,144)
Collections -- stockholders' notes
receivable............................ 728
Cash dividends on common stock ($.05 per
share) (Note 7)....................... (1,490)
Cash dividends on preferred stock (Note
7).................................... (284)
BALANCE AS OF DEC. 31, 1994............. $ 198 $15,000 $29,807 $ 5,279 $140,283 $ (3,466)
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
<S> <C>
BALANCE AS OF DEC. 28, 1991, AS
PREVIOUSLY REPORTED................... $ 151,332
Adjustment for the cumulative effect on
prior years of applying retroactively
the new method of valuing inventories
(Note 3).............................. 5,759
BALANCE AS OF DEC. 28, 1991, AS
ADJUSTED.............................. 157,091
Net income for the 53 weeks ended Jan.
2, 1993 (Note 3)...................... 13,191
Series B, preferred stock issued
(150,000 shares)...................... 15,000
Employee stock purchases................ 87
Collections -- stockholders' notes
receivable............................ 114
Cash dividends on common stock ($.20 per
share) (Note 7)....................... (5,649)
Cash dividends on preferred stock (Note
7).................................... (1,041)
BALANCE AS OF JAN. 2, 1993.............. 178,793
Net income for the 52 weeks ended Jan.
1, 1994............................... 5,903
Employee stock purchases................ 1,372
Collections -- stockholders' notes
receivable............................ 61
Cash dividends on common stock ($.20 per
share) (Note 7)....................... (5,797)
Cash dividends on preferred stock (Note
7).................................... (1,135)
BALANCE AS OF JAN. 1, 1994.............. 179,197
Net income for the 52 weeks ended Dec.
31, 1994.............................. 8,950
Employee stock purchases................ --
Collections -- stockholders' notes
receivable............................ 728
Cash dividends on common stock ($.05 per
share) (Note 7)....................... (1,490)
Cash dividends on preferred stock (Note
7).................................... (284)
BALANCE AS OF DEC. 31, 1994............. $ 187,101
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
statement.
F-5
<PAGE>
TULTEX CORPORATION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED:
DEC. 31, 1994 JAN. 1, 1994
(52 WEEKS) (52 WEEKS)
<S> <C> <C>
(IN THOUSANDS OF DOLLARS)
OPERATING ACTIVITIES:
Net Income........................................................................... $ 8,950 $ 5,903
Items not requiring (providing) cash:
Depreciation....................................................................... 23,973 23,364
Gain on sale of facilities......................................................... (4,405) --
Deferred income taxes.............................................................. 879 1,880
Amortization of excess of fair value of assets acquired over cost.................. -- --
Amortization of intangible assets.................................................. 1,217 1,217
Other deferrals.................................................................... (942) 1,859
Changes in assets and liabilities:
Accounts receivable................................................................ (23,360) (6,503)
Inventories........................................................................ 27,095 (27,112)
Prepaid expenses................................................................... (5,929) (2,598)
Accounts payable and accrued expenses.............................................. (3,093) (790)
Income taxes payable............................................................... 179 (3,113)
Cash provided (used) by operating activities (Notes 3, 6 and 9)...................... 24,564 (5,893)
INVESTING ACTIVITIES:
Additions to property, plant and equipment........................................... (8,624) (22,250)
Change in other assets............................................................... 1,264 (2,413)
Sales and retirements of property and equipment...................................... 5,947 299
Acquisition of assets and certain liabilities of Logo 7.............................. -- --
Cash used by investing activities.................................................... (1,413) (24,364)
FINANCING ACTIVITIES:
Issuance (payment) of short-term borrowings.......................................... 1,000 (79,825)
Issuance of long-term debt........................................................... 2,054 121,000
Payments of long-term debt........................................................... (26,137) (2,268)
Preferred stock issued............................................................... -- --
Cash dividends (Note 7).............................................................. (1,774) (6,932)
Proceeds from stock plans............................................................ 728 1,433
Cash provided (used) by financing activities......................................... (24,129) 33,408
Net increase (decrease) in cash and equivalents...................................... (978) 3,151
Cash and equivalents at beginning of year............................................ 6,754 3,603
CASH AND EQUIVALENTS AT END OF YEAR.................................................. $ 5,776 $ 6,754
<CAPTION>
JAN. 2, 1993
(53 WEEKS)
<S> <C>
OPERATING ACTIVITIES:
Net Income........................................................................... $ 13,191
Items not requiring (providing) cash:
Depreciation....................................................................... 20,831
Gain on sale of facilities......................................................... --
Deferred income taxes.............................................................. (234)
Amortization of excess of fair value of assets acquired over cost.................. (280)
Amortization of intangible assets.................................................. 1,217
Other deferrals.................................................................... 1,982
Changes in assets and liabilities:
Accounts receivable................................................................ (17,685)
Inventories........................................................................ (25,461)
Prepaid expenses................................................................... (2,227)
Accounts payable and accrued expenses.............................................. 1,139
Income taxes payable............................................................... 2,690
Cash provided (used) by operating activities (Notes 3, 6 and 9)...................... (4,837)
INVESTING ACTIVITIES:
Additions to property, plant and equipment........................................... (30,330)
Change in other assets............................................................... 113
Sales and retirements of property and equipment...................................... 182
Acquisition of assets and certain liabilities of Logo 7.............................. (57,756)
Cash used by investing activities.................................................... (87,791)
FINANCING ACTIVITIES:
Issuance (payment) of short-term borrowings.......................................... 24,063
Issuance of long-term debt........................................................... 140,000
Payments of long-term debt........................................................... (79,156)
Preferred stock issued............................................................... 15,000
Cash dividends (Note 7).............................................................. (6,690)
Proceeds from stock plans............................................................ 201
Cash provided (used) by financing activities......................................... 93,418
Net increase (decrease) in cash and equivalents...................................... 790
Cash and equivalents at beginning of year............................................ 2,813
CASH AND EQUIVALENTS AT END OF YEAR.................................................. $ 3,603
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
statement.
F-6
<PAGE>
TULTEX CORPORATION
NOTES TO FINANCIAL STATEMENTS
Fiscal years ended December 31, 1994, January 1, 1994 and January 2, 1993.
NOTE 1 -- ACCOUNTING POLICIES
The significant accounting policies followed by Tultex Corporation and its
subsidiaries in preparing the accompanying consolidated financial statements are
as follows:
BASIS OF CONSOLIDATION: The consolidated financial statements include the
accounts of the company and its subsidiaries. All significant intercompany
balances and transactions are eliminated in consolidation.
CASH AND EQUIVALENTS: The company considers cash on hand, deposits in
banks, certificates of deposit and short-term marketable securities as cash and
equivalents for the purposes of the statement of cash flows. Such cash
equivalents have maturities of less than 90 days.
INVENTORIES: Inventories are recorded at the lower of cost or market, with
cost determined on the first-in, first-out (FIFO) method. See Note 3 for
information concerning the change in the method of valuing inventories from the
last-in, first-out (LIFO) method to the FIFO method during 1993.
PROPERTY, PLANT AND EQUIPMENT: Land, buildings and equipment are carried at
cost. Major renewals and betterments are charged to the property accounts while
replacements, maintenance and repairs which do not improve or extend the lives
of the respective assets are expensed currently. Gain or loss on retirement or
disposal of individual assets is recorded as income or expense.
Depreciation is provided on the straight-line method for all depreciable
assets over their estimated useful lives as follows:
<TABLE>
<CAPTION>
CLASSIFICATION ESTIMATED USEFUL LIVES
<S> <C>
Land and improvements.......................................................... 20 years
Buildings and improvements..................................................... 12-50 years
Machinery and equipment........................................................ 3-20 years
</TABLE>
CAPITALIZED INTEREST: Interest is capitalized on major capital expenditures
during the period of construction. There was no interest capitalized in the
three years ended December 31, 1994.
INTANGIBLE ASSETS: Goodwill and licenses are being amortized on a
straight-line basis over 25 years. The company continually evaluates the
existence of goodwill impairment on the basis of whether the goodwill is fully
recoverable from projected, undiscounted net cash flows of the related business
unit. The gross amount of goodwill was $3,909,000 at December 31, 1994 and
January 1, 1994. Accumulated amortization of goodwill was $469,000 and $313,000
at December 31, 1994 and January 1, 1994, respectively. The gross amount of
licenses was $26,507,000 at December 31, 1994 and January 1, 1994. Accumulated
amortization of licenses was $3,181,000 and $2,120,000 at December 31, 1994 and
January 1, 1994, respectively.
PENSIONS: Pension expense includes charges for amounts not less than the
actuarially determined current service costs plus amortization of prior service
costs over 30 years. The company funds amounts accrued for pension expense not
in excess of the amount deductible for federal income tax purposes.
REVENUE RECOGNITION: The company recognizes the sale when the goods are
shipped or ownership is assumed by the customer.
INCOME TAXES: Income taxes are provided based upon income reported for
financial statement purposes. Deferred income taxes reflect the tax effect of
temporary differences between financial and taxable income.
NET INCOME PER SHARE: Net income per common share is computed using the
weighted average number of common shares outstanding during the period after
giving retroactive effect to stock splits and stock dividends and after
deducting the preferred dividend requirements which accrued during the period.
The weighted average number of common shares outstanding were 29,685,000,
28,961,000 and 28,872,000 for fiscal 1994, 1993 and 1992, respectively. Fully
diluted net income per common share is not materially different from primary net
income per common share for fiscal 1994, 1993 and 1992.
F-7
<PAGE>
TULTEX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 1 -- ACCOUNTING POLICIES -- CONTINUED
SEGMENT INFORMATION: The company is a vertically integrated manufacturer
and marketer of activewear and leisure-time apparel which is considered a single
business segment.
FISCAL YEAR: The company's fiscal year ends on the Saturday nearest to
December 31, which periodically results in a fiscal year of 53 weeks. The
Universal Industries subsidiary historically observed a calendar year. The
difference in the year-ends was considered to be immaterial on the pooled
financial results contained in this report. Universal Industries, Inc. adopted
the fiscal year-end and quarterly reporting periods of Tultex as of the
acquisition date.
OTHER POSTRETIREMENT BENEFITS: As further described in Note 10, the company
changed its method of accounting for the costs of certain life insurance and
medical benefits for eligible retirees and dependents in 1993.
FAIR VALUE OF FINANCIAL INSTRUMENTS: Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure about the fair value of certain instruments. Cash, accounts
receivable, accounts payable, accrued liabilities and variable rate debt are
reflected in the financial statements at fair value because of the short-term
maturity of these instruments. The estimated fair value of the company's fixed
rate debt is disclosed in Note 6.
NOTE 2 -- MERGERS AND ACQUISITIONS
On January 31, 1992, effective as of January 1, 1992, the company acquired
assets, certain liabilities, contracts and licenses of Logo 7, Inc., a major
producer and marketer of licensed sports apparel, for a purchase price of
approximately $58 million, consisting of $15 million (stated value) of a new
series of Cumulative Convertible Preferred Stock, $7.50 Series B and $43 million
cash. The $43 million cash was obtained with a 17-month interim loan from two
banks which was prepaid without penalty. The company obtained permanent
financing on June 26, 1992. The results of Logo 7, Inc. are included in the
company's consolidated statement of income for 1992. The purchase price of $58
million has been allocated to the various acquired assets. Goodwill of
$3,909,000 was determined and is being amortized over 25 years on a
straight-line basis.
On June 30, 1992, the company completed the acquisition of Universal
Industries, Inc., a professional sports hatwear licensee located in
Mattapoisett, Massachusetts, through an all-stock deal valued at $11.1 million
for nearly 1.3 million common shares. The valuation of common shares was based
on the average closing price per share on the New York Stock Exchange for the 20
days prior to the closing of the transaction. The acquisition has been accounted
for as a pooling of interests, and accordingly, the financial statements have
been restated to include the results of operations for Universal for all periods
presented.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 1992
(UNAUDITED)
<S> <C>
(IN THOUSANDS OF DOLLARS)
Net sales and other income:
Tultex...................................................................... $ 138,588
Universal................................................................... 20,777
Combined...................................................................... $ 159,365
Net income:
Tultex...................................................................... $ (5,331)
Universal................................................................... 859
Combined...................................................................... $ (4,472)
</TABLE>
F-8
<PAGE>
TULTEX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 3 -- INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
DEC. 31, JAN. 1, JAN. 2,
1994 1994 1993
<S> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
Raw materials............................................................................ $ 25,704 $ 29,291 $ 23,664
Goods in process......................................................................... 13,453 11,956 13,641
Finished goods........................................................................... 87,436 112,296 88,549
Supplies................................................................................. 3,590 3,735 4,312
Total Inventory........................................................................ $ 130,183 $ 157,278 $ 130,166
</TABLE>
During the fourth quarter of 1993, the company changed its method of
determining the cost of inventories from the LIFO method to the FIFO method.
Under the current economic environment of low inflation, the company believes
that the FIFO method will result in a better measurement of operating results.
This change has been applied by retroactively restating the accompanying
consolidated financial statements. Although this change in method did not
materially impact net income for 1993, it decreased net income by $4,001,000 or
14 cents per share in 1992. The balances of retained earnings for the years
ended December 28, 1991 and January 2, 1993 have been adjusted for the effect
(net of income taxes) of applying retroactively the new method of valuing
inventories.
NOTE 4 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consist of the following:
<TABLE>
<CAPTION>
DEC. 31, JAN. 1,
1994 1994
<S> <C> <C>
(IN THOUSANDS OF
DOLLARS)
Land and improvements................................................................................. $ 3,760 $ 3,821
Buildings and improvements............................................................................ 68,262 68,204
Machinery and equipment............................................................................... 207,518 209,044
Construction in progress.............................................................................. 2,444 2,863
281,984 283,932
Less accumulated depreciation......................................................................... 147,100 132,157
Net property, plant and equipment..................................................................... $ 134,884 $ 151,775
</TABLE>
In 1994, the company sold one of its yarn manufacturing facilities. The net
proceeds and gain from the sale amounted to $5,500,000 and $4,405,000,
respectively.
NOTE 5 -- SHORT-TERM CREDIT AGREEMENTS
Until October 6, 1993, when the company entered into a two-year revolving
credit agreement with 12 banks (see Note 6), it had formal short-term lines of
credit with lending banks aggregating $57,000,000 with interest payable at or
below the prime rate. At January 2, 1993, the weighted average interest rate on
borrowings outstanding of $79,825,000 was 4.1%. The use of these lines was
restricted to the extent that the company was required to liquidate its
indebtedness to certain individual banks for a 30-day period each year. At
times, the company borrowed amounts in excess of the lines on a short-term
negotiated basis.
The company currently has a short-term line of credit with one lending bank
totaling $3,000,000. Total borrowings outstanding under this line at December
31, 1994 were $1,000,000 with interest at 6.125%. There were no such borrowings
outstanding at January 1, 1994.
The company utilizes letters of credit for foreign sourcing of inventory.
Trade letters of credit outstanding were $2,026,000, $9,715,000 and $5,266,000
at December 31, 1994, January 1, 1994 and January 2, 1993, respectively. After
October 6, 1993, all letters of credit issued were part of the revolving credit
agreement described in Note 6.
F-9
<PAGE>
TULTEX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 6 -- LONG-TERM DEBT
<TABLE>
<CAPTION>
DEC. 31, JAN. 1,
1994 1994
<S> <C> <C>
(IN THOUSANDS OF
DOLLARS)
Amount due under revolving credit agreement........................................................... $ 104,000 $ 121,000
8 7/8% senior notes due June 1, 1999.................................................................. 95,000 95,000
Term loan due July 31, 1996........................................................................... 15,997 22,917
Other indebtedness.................................................................................... 358 521
215,355 239,438
Less current maturities............................................................................... 132,353 8,524
Total long-term debt................................................................................ $ 83,002 $ 230,914
</TABLE>
On October 6, 1993, the company signed a two-year $225 million revolving
credit agreement with 12 banks with interest at or below prime plus 1/8%. Three
of the banks are co-agents, and one of the three is administrative agent. The
facility replaced the company's previous short-term credit lines used to support
working capital and future growth. The agreement expires in October, 1995.
On June 26, 1992, the company issued 8.875% unsecured, senior notes
totaling $95,000,000. Payments consist of interest only for the first two years
and installment payments of principal and interest for the remaining five years.
As of March 1, 1994, the company amended and restated its 8.94% term loan.
Under the terms of the restatement, interest is payable quarterly at the 90-day
LIBOR rate + .75%, and principal is due in seven remaining quarterly
installments of $2,285,000. In addition, the company also assumed the fixed cost
to unwind an interest rate credit exchange agreement that allowed the lender to
provide fixed rate financing to the company at the inception of the term loan in
1989.
The term loan agreement, senior notes and revolving credit agreement
contain provisions regarding maintenance of working capital and restrictions on
payment of cash dividends. At December 31, 1994, the company was in compliance
or had obtained waivers for any violations of the covenants. Consolidated
retained earnings, which were free of dividend restrictions, amounted to
$3,952,000 at December 31, 1994.
Interest paid by the company in 1994, 1993 and 1992 was $18,598,000,
$16,830,000 and $13,180,000, respectively.
The approximate aggregate maturities of long-term debt for each of the next
five fiscal years are as follows:
<TABLE>
<CAPTION>
TOTAL
<S> <C>
(IN THOUSANDS OF DOLLARS)
1995.......................................................................... $ 132,353*
1996.......................................................................... 25,984
1997.......................................................................... 19,006
1998.......................................................................... 19,006
1999.......................................................................... 19,006
</TABLE>
* Includes maturity of $104,000 outstanding under revolving credit agreement.
(See Note 19.)
At December 31, 1994 and January 1, 1994, the carrying amount of the senior
notes exceeded the fair value by approximately $5,800,000 and $900,000,
respectively. The fair value of the company's senior notes was determined using
valuation techniques that considered cash flows discounted at current market
rates in effect as of December 31, 1994 and January 1, 1994.
NOTE 7 -- DIVIDENDS
At January 1, 1994, dividends payable represented amounts paid on January
3, 1994. During the second quarter of 1994, the company suspended the payment of
dividends on its preferred and common stock.
F-10
<PAGE>
TULTEX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 7 -- DIVIDENDS -- CONTINUED
Prior to second quarter 1994, all stated dividends on the five percent
cumulative preferred stock had been declared and paid. Cumulative dividends on
such stock that have not been declared or paid as of December 31, 1994 amounted
to $7,000. Prior to second quarter 1994, all stated dividends on the Series B
cumulative preferred stock had been declared and paid. Cumulative dividends on
such stock that have not been declared or paid as of December 31, 1994 amounted
to $844,000.
NOTE 8 -- STOCK OPTIONS
In 1988, the company's stockholders ratified the 1987 Stock Option Plan
under which 700,000 shares of common stock were reserved for stock option grants
to certain officers and employees. The plan provided that options may be granted
at prices not less than the fair market value on the date the option is granted,
which means the closing price of a share of common stock as reported on the New
York Stock Exchange composite tape on such day. At December 31, 1994, some
options remain unexercised from the 1987 Stock Option Plan, which expired
November 19, 1992.
On March 21, 1991, the company's stockholders ratified the 1990 Stock
Option Plan under which 700,000 shares of common stock were reserved for stock
option grants to certain officers and employees. Options granted under the 1990
Plan may be incentive stock options ("ISOs") or non-qualified stock options. The
option price will be fixed by the Executive Compensation Committee of the Board
at the time the option is granted, but in the case of an ISO, the price cannot
be less than the share's fair market value on the date of grant. Grants must be
made before October 18, 2000 and expire within 10 years of the date of grant. In
exercising options, an employee may receive a loan from the company for up to
90% of the exercise price. Outstanding loans are shown as a reduction of
stockholders' equity on the balance sheet.
On May 19, 1994, the stockholders approved an increase of 500,000 shares in
the maximum number of shares to be issued pursuant to the exercise of options
granted under the Plan, extended the date that grants could be made to October
7, 2003, and provided that no participant may be granted options in any calendar
year for more than 50,000 shares of common stock.
A summary of the changes in the number of common shares under option for
each of the three previous years follows:
<TABLE>
<CAPTION>
YEAR ENDED NUMBER PER SHARE
DECEMBER 31, 1994 OF SHARES OPTION PRICE
<S> <C> <C>
Outstanding at beginning of year.................................................................. 928,233 $6.88-$9.75
Granted........................................................................................... 397,500 $5.13-$6.00
Exercised......................................................................................... -- --
Expired........................................................................................... 20,000 $9.13
Cancelled......................................................................................... 80,333 $6.00-$9.75
Outstanding at end of year........................................................................ 1,225,400 $5.13-$9.75
Exercisable at end of year........................................................................ 1,025,400 $5.13-$9.75
Shares reserved for future grant:
Beginning of year................................................................................. 39,900
End of year....................................................................................... 190,000
</TABLE>
F-11
<PAGE>
TULTEX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 8 -- STOCK OPTIONS -- CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED NUMBER PER SHARE
JANUARY 1, 1994 OF SHARES OPTION PRICE
<S> <C> <C>
Outstanding at beginning of year 1,015,833 $7.50-$9.63
Granted.......................................................................................... 280,000 $6.88-$9.75
Exercised........................................................................................ 175,600 $7.63-$9.63
Expired.......................................................................................... 165,000 $7.88
Cancelled........................................................................................ 27,000 $7.63-$9.63
Outstanding at end of year....................................................................... 928,233 $6.88-$9.75
Exercisable at end of year....................................................................... 748,233 $6.88-$9.75
Shares reserved for future grant:
Beginning of year................................................................................ 307,400
End of year...................................................................................... 39,900
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NUMBER PER SHARE
JANUARY 2, 1993 OF SHARES OPTION PRICE
<S> <C> <C>
Outstanding at beginning of year............................................................... 545,196 $7.50-$11.92
Granted........................................................................................ 536,600 $8.38-$ 9.63
Exercised...................................................................................... 14,734 $7.63-$ 9.63
Expired........................................................................................ 26,463 $11.92
Cancelled...................................................................................... 24,766 $7.63-$ 9.63
Outstanding at end of year..................................................................... 1,015,833 $7.50-$ 9.63
Exercisable at end of year..................................................................... 945,833 $7.50-$ 9.63
Shares reserved for future grant:
Beginning of year.............................................................................. 836,350
End of year.................................................................................... 307,400
</TABLE>
NOTE 9 -- PROVISION FOR INCOME TAXES
The components of the provision for federal and state income taxes are
summarized as follows:
<TABLE>
<CAPTION>
JAN.
DEC. 31, 1,
1994 1994
<S> <C> <C>
(IN THOUSANDS OF
DOLLARS)
Currently payable:
Federal........................................................................................ $4,072 $1,192
State.......................................................................................... 534 116
4,606 1,308
Deferred:
Federal........................................................................................ 590 1,723
State.......................................................................................... 289 157
879 1,880
Total provision.................................................................................. $5,485 $3,188
<CAPTION>
JAN.
2,
1993
<S> <C>
Currently payable:
Federal........................................................................................ $6,694
State.......................................................................................... 600
7,294
Deferred:
Federal........................................................................................ (214)
State.......................................................................................... (20)
(234)
Total provision.................................................................................. $7,060
</TABLE>
F-12
<PAGE>
TULTEX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 9 -- PROVISION FOR INCOME TAXES -- CONTINUED
Deferred income taxes resulted from the following temporary differences:
<TABLE>
<CAPTION>
DEC. JAN. JAN.
31, 1, 2,
1994 1994 1993
<S> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
Depreciation.................................................................................... $ 579 $2,095 $2,864
Inventory....................................................................................... 1,388 (24) (3,110)
Pension......................................................................................... 31 (486) (83)
Abandonment loss................................................................................ -- 187 --
Intangible assets............................................................................... 299 283 --
Postretirement benefits......................................................................... (58) (172) --
AMT credit carry-forward........................................................................ (1,617) -- --
Bad debt and other allowances................................................................... 99 (2) 1
Other........................................................................................... 158 (1) 94
Total......................................................................................... $ 879 $1,880 $ (234)
</TABLE>
Significant components of the deferred tax liabilities and assets are as
follows:
<TABLE>
<CAPTION>
DEC. 31, JAN. 1,
1994 1994
<S> <C> <C>
(IN THOUSANDS OF
DOLLARS)
Deferred tax liabilities:
Tax over book depreciation............................................................................ $ 16,569 $ 15,990
Spare parts inventory................................................................................. 776 797
Intangible assets..................................................................................... 724 425
Inventory............................................................................................. 177 --
Other................................................................................................. 303 39
Gross deferred tax liabilities.......................................................................... 18,549 17,251
Deferred tax assets:
Bad debt and other allowances......................................................................... 466 565
Inventory reserves.................................................................................... -- 1,211
Postretirement benefits............................................................................... 234 176
Pension obligations................................................................................... 931 962
Worker's compensation................................................................................. 225 182
AMT credit carryforward............................................................................... 1,617 --
Other................................................................................................. 183 141
Gross deferred tax assets............................................................................... 3,656 3,237
Net deferred tax liabilities............................................................................ $ 14,893 $ 14,014
</TABLE>
A reconciliation of the statutory federal income tax rates with the
company's effective income tax rates for 1994, 1993 and 1992 was as follows:
<TABLE>
<CAPTION>
DEC. 31, JAN. 1, JAN. 2,
1994 1994 1993
<S> <C> <C> <C>
Statutory federal rate............................................................... 35% 34 % 34 %
State rate, net...................................................................... 3 2 2
Untaxed foreign income............................................................... -- -- (1)
Other................................................................................ -- (1) --
Effective income tax rate............................................................ 38% 35 % 35 %
</TABLE>
Income tax payments were $4,659,000, $4,512,000 and $4,404,000 for fiscal
1994, 1993 and 1992, respectively.
F-13
<PAGE>
TULTEX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 9 -- PROVISION FOR INCOME TAXES -- CONTINUED
In 1992, the company adopted the provisions of the Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The
company's adoption of SFAS No. 109 resulted in no material effect on 1992
earnings.
The company is currently undergoing an examination by the Internal Revenue
Service for the years ended 1991, 1992 and 1993. While the examination is not
complete, management does not expect the outcome to materially impact the
company's financial position or results of operations.
NOTE 10 -- EMPLOYEE BENEFITS
All qualified employees of the parent company and its Universal subsidiary
are covered by a noncontributory, defined benefit plan. The benefits are based
on years of service and the employee's highest five consecutive calendar years
of compensation paid during the 10 most recent years before retirement. Prior
service costs are amortized over 30 years. The status of the defined benefit
plan as of December 31, 1994, January 1, 1994 and January 2, 1993 was as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
Fair value of plan assets, primarily listed stocks and corporate and government debt......... $34,594 $40,261 $40,006
Accumulated benefit obligation, including vested benefits of $26,733 and $29,294,
respectively............................................................................... 27,393 30,114 27,977
Additional benefits based on estimated future salary levels.................................. 6,002 6,851 9,592
Projected benefit obligation................................................................. 33,395 36,965 37,569
Plan assets in excess of projected benefit obligation........................................ 1,199 3,296 2,437
Unrecognized net gain........................................................................ (1,273) (2,910) (1,253)
Unrecognized net transitional assets......................................................... (1,838) (2,308) (2,777)
Unrecognized prior service cost.............................................................. 145 257 293
Accrued pension liability.................................................................... $(1,767) $(1,665) $(1,300)
</TABLE>
The following rate assumptions were made for the plan:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Discount rate of return on projected benefit obligation..................................... 8.5% 7.75%
Rate of return on plan assets............................................................... 10.0% 10.0%
<CAPTION>
1992
<S> <C>
Discount rate of return on projected benefit obligation..................................... 8.0%
Rate of return on plan assets............................................................... 10.0%
</TABLE>
The long-term rate of salary progression for 1994 reflected no rate
increase for the first year, followed by 3.5% for two years, 4.0% for six years
with an ultimate rate of increase of 5.0%. The long-term rate for 1993 reflected
no anticipated rate increase for the first two years, followed by 3.5% for two
years, 4% for six years and 5% thereafter. The comparable rate in 1992 was 5%
for all years. The effect of the change in assumed salary progression rates from
1992 to 1993 had no material impact on pension expense for 1993 and decreased
pension expense for 1994 by $383,000. The changes in rates and assumptions from
year to year were made to reflect what management considered to be a better
approximation of the rates to be realized.
Pension expense in 1994, 1993 and 1992 included the following components:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
Service cost-benefits earned during the period............................................... $ 1,707 $ 1,861 $ 1,697
Interest on projected benefit obligation..................................................... 2,808 2,893 3,176
Actual (gain) loss on plan assets............................................................ 4,587 (2,362) (2,400)
Net deferral................................................................................. (9,000) (1,919) (1,370)
Curtailment loss............................................................................. -- -- 104
Settlement gain.............................................................................. -- -- (151)
Net periodic pension cost.................................................................... $ 102 $ 473 $ 1,056
</TABLE>
F-14
<PAGE>
TULTEX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 10 -- EMPLOYEE BENEFITS -- CONTINUED
The company's policy has been to fund the minimum required contribution
after the end of the fiscal year plus interest on the contribution from the end
of the plan year until paid. The company's Universal Industries subsidiary
historically funded the maximum required contribution during the year.
At the end of 1992, Universal Industries, Inc. pension plan's future
service benefits were frozen and the plan assets were absorbed into the
company's pension plan, which resulted in a curtailment loss of $104,000.
The company has a nonqualified, unfunded supplementary retirement plan for
which it has puchased cost recovery life insurance on the lives of the
participants. The company is the sole owner and beneficiary of such policies.
The amount of coverage is designed to provide sufficient revenues to recover all
costs of the plan if assumptions made as to mortality experience, policy
earnings and other factors are realized. Expenses related to the plan were
$536,000 in 1994, $547,000 in 1993 and $395,000 in 1992. The actuarially
determined liability which has been included in other deferrals was $3,506,000
at December 31, 1994, $3,190,000 at January 1, 1994 and $2,313,000 at January 2,
1993.
The following table sets forth the plan's status and amounts recognized in
the company's financial statements at December 31, 1994, January 1, 1994 and
January 2, 1993:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
Fair value of plan assets.................................................................... $ -- $ -- $ --
Accumulated benefit obligation, including vested benefits of $3,406 and $3,043,
respectively............................................................................... 3,506 3,190 2,313
Additional benefits based on estimated future salary levels.................................. 433 (5) 1,341
Projected benefit obligation................................................................. 3,939 3,185 3,654
Projected benefit obligation in excess of plan assets........................................ (3,939) (3,185) (3,654)
Unrecognized net loss........................................................................ 1,271 667 1,213
Unrecognized prior service cost.............................................................. 280 -- --
Unrecognized transitional obligation......................................................... 992 1,092 1,193
Adjustment required to recognize minimum liability........................................... (2,110) (1,764) (1,065)
Unfunded accrued supplementary costs......................................................... $(3,506) $(3,190) $(2,313)
</TABLE>
Net supplementary pension cost for the three years included the following
components:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
Service cost-benefits earned during the period............................................... $ 139 $ 110 $ 95
Interest on projected benefit obligation..................................................... 255 276 200
Net amortization............................................................................. 142 161 100
Net periodic supplementary pension cost...................................................... $ 536 $ 547 $ 395
</TABLE>
Substantially all employees meeting certain service requirements are
eligible to participate in the company's employee savings (401k) plan. Employee
contributions are limited to a percentage of their compensation, as defined in
the plan. Although the plan did not provide for any company contributions in
1992, a matching provision became effective in April 1993, but was discontinued
on January 2, 1994.
Substantially all employees are eligible to receive certain bonuses or
profit-sharing amounts, the amounts of which are determined at management's
discretion. Such expenses amounted to $1,791,000 in 1994, $2,329,000 in 1993 and
$6,071,000 in 1992.
The company also provides certain postretirement medical and life insurance
benefits to substantially all employees who retire with a minimum of 20 years of
service for the period of time until the employee and any dependents reach age
65. The medical plan requires monthly contributions by retired participants
which are dependent on the participant's length of service, age at the date of
retirement and Medicare eligibility. The life insurance plan is noncontributory.
Prior to 1993, the
F-15
<PAGE>
TULTEX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 10 -- EMPLOYEE BENEFITS -- CONTINUED
company expensed the costs relating to these unfunded plans as incurred. Such
costs amounted to approximately $375,000 in 1992.
In 1993, the company adopted Statement of Financial Accounting Standards
(SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." The standard required companies to recognize the estimated costs of
providing postretirement benefits on an accrual basis. The company elected the
delayed recognition method of adoption which allows amortization of the initial
transitional obligation over a 20-year period. At January 3, 1993, the
actuarially determined accumulated postretirement benefit obligation was
$5,101,000.
The amounts recognized in the company's balance sheet at December 31, 1994
and January 1, 1994 were as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
(IN THOUSANDS OF
DOLLARS)
Accumulated postretirement benefit obligation...................................................... $ 7,066 $ 5,323
Unrecognized transitional obligation............................................................... (4,590) (4,846)
Unrecognized loss.................................................................................. (1,847) --
Accrued liability.................................................................................. $ 629 $ 477
</TABLE>
Net periodic postretirement benefit cost for 1994 and 1993 included the
following components:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
(IN THOUSANDS OF
DOLLARS)
Service cost-benefits earned during the period..................................................... $ 198 $ 171
Interest on accumulated postretirement benefit obligation.......................................... 398 402
Amortization of accumulated postretirement benefit obligation...................................... 256 256
Total periodic postretirement benefit cost....................................................... $ 852 $ 829
</TABLE>
The discount rate used in determining the accumulated postretirement
benefit obligation was 8.5% for 1994 and 8% for 1993. The assumed medical cost
trend rate was 12% in 1993, declining by 1% per year until an ultimate rate of
5% is achieved. For 1994, the rate used was 11%, still declining by 1% per year
until reaching an ultimate goal of 5.5%. The medical cost rate assumption has a
significant effect on the amount of the obligation and net periodic cost
reported.
The adoption of Statement of Financial Accounting Standards (SFAS) No. 112,
"Employers' Accounting for Postemployment Benefits" in 1994 had no material
impact on the company's results of operations or financial position, as the
company does not have significant postemployment benefits.
F-16
<PAGE>
TULTEX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 11 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the unaudited quarterly financial information
for the years ended December 31, 1994 and January 1, 1994.
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
(IN THOUSANDS OF
DOLLARS
EXCEPT PER SHARE DATA)
NET SALES AND OTHER INCOME
1st quarter................................................................................... $ 86,294 $ 91,022
2nd quarter................................................................................... 101,900 100,238
3rd quarter................................................................................... 208,931 187,109
4th quarter................................................................................... 168,308 155,242
Total...................................................................................... $565,433 $533,611
GROSS PROFIT
1st quarter................................................................................... $ 18,511 $ 21,957
2nd quarter................................................................................... 18,757 23,386
3rd quarter................................................................................... 44,136 38,742
4th quarter................................................................................... 42,049 31,985
Total...................................................................................... $123,453 $116,070
INCOME BEFORE INCOME TAXES
1st quarter................................................................................... $ (7,916) $ (2,295)
2nd quarter................................................................................... (4,892) 681
3rd quarter................................................................................... 11,924 7,437
4th quarter................................................................................... 15,319 3,268
Total...................................................................................... $ 14,435 $ 9,091
PROVISION FOR INCOME TAXES
1st quarter................................................................................... $ (3,008) $ (852)
2nd quarter................................................................................... (1,859) 246
3rd quarter................................................................................... 4,531 2,767
4th quarter................................................................................... 5,821 1,027
Total...................................................................................... $ 5,485 $ 3,188
NET INCOME
1st quarter................................................................................... $ (4,908) $ (1,443)
2nd quarter................................................................................... (3,033) 435
3rd quarter................................................................................... 7,393 4,670
4th quarter................................................................................... 9,498 2,241
Total...................................................................................... $ 8,950 $ 5,903
NET INCOME PER COMMON SHARE
1st quarter................................................................................... $ (.18) $ (.06)
2nd quarter................................................................................... (.11) .01
3rd quarter................................................................................... .24 .15
4th quarter................................................................................... .31 .06
Total...................................................................................... $ .26 $ .16
</TABLE>
F-17
<PAGE>
TULTEX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 12 -- COMMITMENTS
At December 31, 1994, the company was obligated under a number of
noncancellable, renewable operating leases as follows:
<TABLE>
<CAPTION>
MANUFACTURING
DATA FACILITIES
PROCESSING AND
EQUIPMENT OTHER TOTAL
<S> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
1995................................................................................... $ 2,890 $ 6,877 $ 9,767
1996................................................................................... 2,759 5,154 7,913
1997................................................................................... 2,303 4,086 6,389
1998................................................................................... 1,056 2,930 3,986
1999................................................................................... -- 2,080 2,080
2000 and after......................................................................... -- 14,054 14,054
$ 9,008 $35,181 $44,189
</TABLE>
Rental expense charged to income was $13,358,000 in 1994, $15,092,000 in
1993 and $13,696,000 in 1992.
The company has entered into various licensing agreements which permit it
to market apparel with copyrighted logos and characters from the sports and
entertainment industries. Under the terms of these agreements, the company is
required to pay minimum guaranteed fees to certain licensors. The remaining
minimum obligations under these agreements at December 31, 1994 were
approximately $9,100,000 in fiscal 1995, $8,200,000 in fiscal 1996 and
$8,400,000 in fiscal 1997.
NOTE 13 -- EMPLOYMENT AGREEMENTS
The company has entered into employment continuity agreements with certain
of its executives which provide for the payments to these executives of amounts
up to three times their annual compensation plus continuation of certain
benefits if there is a change in control in the company (as defined) and a
termination of their employment. The maximum contingent liability at December
31, 1994 under these agreements was approximately $4,393,000.
Employment agreements with certain executives were executed as a result of
the Logo 7 acquisition. As of February 5, 1995, these agreements were
renegotiated. Under predefined events of termination, the company could incur a
maximum liability of $3,490,000.
NOTE 14 -- CONCENTRATION OF CREDIT RISK
The company's concentration of credit risk is limited due to the large
number of primarily domestic customers who are geographically dispersed. The
company had one customer which constituted 10.4% of net sales in 1994. There
were no such customers in 1993 or 1992. As disclosed on the balance sheet, the
company maintains an allowance for doubtful accounts to cover estimated credit
losses.
NOTE 15 -- SHAREHOLDER RIGHTS PLAN
In March 1990, the Board of Directors of the company adopted a Shareholder
Rights Plan and declared a dividend of one right for each outstanding share of
common stock to shareholders of record on April 2, 1990. Each right entitles the
registered holder to purchase from the company, until the earlier of March 22,
2000 or the redemption of the rights, one one-thousandth of a share of newly
authorized Junior Participating Cumulative Preferred Stock, Series A, without
par value, at an exercise price of $40. The rights are not exercisable or
transferable apart from the common stock until the earlier of (i) 10 days
following the public announcement that a person or a group of affiliated persons
has acquired or obtained the right to acquire beneficial ownership of 10% or
more of the company's outstanding common stock or (ii) 10 business days
following the commencement of a tender offer or exchange offer that would result
in a person or group owning 10% or more of the company's outstanding common
stock. The company may redeem the rights at a price of $.01 per right at any
time prior to the acquisition of 10% or more of the company's outstanding common
stock or certain other triggering events.
F-18
<PAGE>
TULTEX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 16 -- STOCK PURCHASE PLAN
In February 1994, the company initiated the Salaried Employee's Stock
Purchase Plan. Under the plan, employees could elect to purchase shares of the
company's common stock in amounts ranging from 20-30% of their annual salary.
Employees will pay for the stock through payroll deductions over a 60-month
period. Interest at 6% per annum will be charged until the stock is fully paid
and the shares will be held by the company until that time. Under the plan,
753,667 shares were issued at a price of $5.50. Of the $4,144,000 loans recorded
for the shares, $702,000 has been collected, leaving an outstanding balance at
December 31, 1994 of $3,442,000. Interest realized during 1994 on the loans was
$188,000. In January 1995, the directors of the company approved an amendment to
the plan that allows an employee options for early payment of the loan.
NOTE 17 -- ADVERTISING COSTS
In fiscal 1995, the company will be required to adopt the provisions of the
Accounting Standards Executive Committee's Statement of Position on Reporting
Advertising Costs ("Statement"). The Statement effectively requires that certain
advertising costs which were previously deferred and amortized over an
anticipated benefit period be recognized currently in the statement of income.
If the company had adopted the Statement as of December 31, 1994, selling,
general and administrative expenses as reported on the statement of income would
have increased by approximately $4,900,000.
NOTE 18 -- UNIONIZATION OF FACILITIES
In August 1994, hourly employees at the company's Martinsville, Virginia
facilities voted for representation by the Amalgamated Clothing and Textile
Workers Union. The company is currently negotiating a labor contract with the
union which would cover those employees.
NOTE 19 -- REFINANCING
The company has filed a Registration Statement on Form S-1 with the
Securities and Exchange Commission to offer to the public an aggregate of
$110,000,000 principal amount of Senior Notes due 2005 ("Senior Notes"). The
company is anticipating completion of the offering during the first quarter of
1995. The company intends to use the net proceeds from the offering together
with borrowings under the senior credit facility referred to below to pay
principal, accrued interest and prepayment expenses related to the $95,000,000
aggregate principal amount of senior notes due June 1, 1999 and the $15,997,000
aggregate principal amount term loan due July 31, 1996. In connection with the
repayment of the senior notes and the term loan, the company will be required to
write-off unamortized debt issuance costs and will incur a prepayment penalty.
As of December 31, 1994, unamortized debt issuance costs related to the senior
notes and term loan were $2,913,000. If the repayment of the senior notes and
term loan had occurred at December 31, 1994 the prepayment penalty would have
been $1,278,000.
Concurrent with the Senior Note offering, the company expects to enter into
a senior credit facility with a number of banks. This facility will replace the
revolving credit agreement described in Note 6. The terms of the new facility
are expected to be substantially equivalent to those included in the existing
revolving credit agreement. Unamortized debt issuance costs related to the
revolving credit agreement at December 31, 1994 were $598,000.
All subsidiaries of the company ("Subsidiary Guarantors") will fully and
unconditionally guarantee the company's obligations under the Senior Notes on a
joint and several basis.
NOTE 20 -- CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following financial information presents condensed consolidating
financial data which includes (i) the parent company only ("Parent"), (ii) the
wholly-owned subsidiaries on a combined basis ("Wholly-owned Subsidiaries"),
(iii) the majority-owned subsidiary ("Majority-owned Subsidiary") and (iv) the
company on a consolidated basis. All subsidiaries will guarantee the Senior
Notes as discussed in Note 19.
F-19
<PAGE>
TULTEX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 20 -- CONDENSED CONSOLIDATING FINANCIAL INFORMATION -- CONTINUED
<TABLE>
<CAPTION>
WHOLLY- MAJORITY-
OWNED OWNED
PARENT SUBSIDIARIES SUBSIDIARY ELIMINATIONS
<S> <C> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
As of and for the year ended December 31, 1994
Current assets.............................................. $242,754 $110,927 $1,938 $ (65,712)
Noncurrent assets........................................... 185,383 41,894 -- (60,375)
Total assets.............................................. $428,137 $152,821 $1,938 $ (126,087)
Current liabilities......................................... $153,163 $ 76,728 $1,698 $ (64,536)
Noncurrent liabilities...................................... 101,098 1,611 (56) 2
Total liabilities......................................... $254,261 $ 78,339 $1,642 $ (64,534)
Net sales................................................... $341,420 $240,239 $3,644 $ (19,870)
Cost and expenses........................................... 327,931 239,748 3,931 (20,612)
Pretax net income (loss).................................... $ 13,489 $ 491 $ (287) $ 742
As of and for the year ended January 1, 1994
Current assets.............................................. $237,088 $111,401 $2,906 $ (62,704)
Noncurrent assets........................................... 203,828 44,578 -- (62,132)
Total assets.............................................. $440,916 $155,979 $2,906 $ (124,836)
Current liabilities......................................... $ 15,597 $ 80,895 $2,442 $ (53,796)
Noncurrent liabilities...................................... 257,459 486 (51) (7,264)
Total liabilities......................................... $273,056 $ 81,381 $2,391 $ (61,060)
Net sales................................................... $323,785 $234,278 $6,489 $ (30,941)
Cost and expenses........................................... 320,689 227,673 6,632 (30,474)
Pretax net income (loss).................................... $ 3,096 $ 6,605 $ (143) $ (467)
As of and for the year ended January 2, 1993
Current assets.............................................. $206,692 $ 82,901 $2,518 $ (42,784)
Noncurrent assets........................................... 205,689 45,624 -- (64,822)
Total assets.............................................. $412,381 $128,525 $2,518 $ (107,606)
Current liabilities......................................... $105,406 $ 58,268 $1,999 $ (43,063)
Noncurrent liabilities...................................... 135,633 16 (48) (1,186)
Total liabilities......................................... $241,039 $ 58,284 $1,951 $ (44,249)
Net sales................................................... $338,856 $192,586 $3,725 $ (31,221)
Cost and expenses........................................... 327,889 181,922 3,489 (29,605)
Pretax net income (loss).................................... $ 10,967 $ 10,664 $ 236 $ (1,616)
<CAPTION>
CONSOLIDATED
<S> <C>
As of and for the year ended December 31, 1994
Current assets.............................................. $289,907
Noncurrent assets........................................... 166,902
Total assets.............................................. $456,809
Current liabilities......................................... $167,053
Noncurrent liabilities...................................... 102,655
Total liabilities......................................... $269,708
Net sales................................................... $565,433
Cost and expenses........................................... 550,998
Pretax net income (loss).................................... $ 14,435
As of and for the year ended January 1, 1994
Current assets.............................................. $288,691
Noncurrent assets........................................... 186,274
Total assets.............................................. $474,965
Current liabilities......................................... $ 45,138
Noncurrent liabilities...................................... 250,630
Total liabilities......................................... $295,768
Net sales................................................... $533,611
Cost and expenses........................................... 524,520
Pretax net income (loss).................................... $ 9,091
As of and for the year ended January 2, 1993
Current assets.............................................. $249,327
Noncurrent assets........................................... 186,491
Total assets.............................................. $435,818
Current liabilities......................................... $122,610
Noncurrent liabilities...................................... 134,415
Total liabilities......................................... $257,025
Net sales................................................... $503,946
Cost and expenses........................................... 483,695
Pretax net income (loss).................................... $ 20,251
</TABLE>
NOTE 21 -- PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
Pro forma income from continuing operations and pro forma income per common
share from continuing operations have been calculated by adjusting historical
results of operations to give effect to the consummation of the refinancing
described in Note 19 as though the refinancing had been finalized at January 2,
1994. Pro forma income from continuing operations and pro forma income per
common share from continuing operations for the fiscal year ending December 31,
1994 would have been $7,215,000 and $0.20, respectively. For purposes of
preparing the pro forma financial information, the company used rates of
interest of 10.625% and 5.7% on the Senior Notes and the senior credit facility,
respectively. On a pro forma basis, a 1/8% increase in the company's weighted
average variable interest rate for the senior credit facility would have
resulted in pro forma income from continuing operations and pro forma income per
common share from continuing operations of $7,077,000 and $0.20, respectively.
F-20
<PAGE>
(on inside back cover photographs and captions appear as described:
1. Photo: Yarn spinning machinery.
Caption: High-efficiency yarn spinning facilities...
2. Photo: Dyeing machinery.
Caption: Computer controlled jet dyeing machinery...
3. Photo: Drying machinery.
Caption: Modern computerized drying technology...
4. Photo: Woman sewing garments.
Caption: Production sewing machine operators...
5. Photo: Inside view of distribution center.
Photo: Outside view of distribution center, with Tultex truck
in foreground.
Caption: State of the art distribution center, the most highly
automated in the industry...
<PAGE>
(Tultex logo appears on back cover)
