UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
[FEE REQUIRED]
For the fiscal year ended January 3, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
For the transition period from to
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Commission file number 1-8016
TULTEX CORPORATION
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(Exact name of registrant as specified in its charter)
Virginia 54-0367896
- -------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
101 Commonwealth Boulevard, P. O. Box 5191, Martinsville, Virginia 24115
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 540-632-2961
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
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Common Stock, $1 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant:
$108,333,049 at March 10, 1998.
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(APPLICABLE TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
29,875,488 shares of Common Stock, $1 par value, as of March 10, 1998
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DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K into which the document is incorporated:
1. Those portions of the Annual Report to Stockholders for the fiscal year
ended January 3, 1998 ("1997 Annual Report to Stockholders") incorporated herein
by reference in Part II, Items 5, 6, 7 and 8; and Part IV, Item 14.
2. Those portions of the Proxy Statement for the company's 1998 Annual
Meeting of Stockholders ("1998 Proxy Statement") incorporated herein by
reference in Part III, Items 10, 11, 12 and 13.
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Item 1. Business
General
Tultex Corporation is a marketer and manufacturer 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 LogoAthletic premium labels and under
private labels, including Nike, 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
LogoAthletic, Logo 7 and TrackGear brands. The company is a licensee of
professional sports apparel, holding licenses from the National Football League
("NFL"), Major League Baseball ("MLB"), the National Basketball Association
("NBA"), the National Hockey League("NHL") and the National Association for
Stock Car Auto Racing ("NASCAR") to manufacture a full range of sports apparel
for adults and children.
During fiscal 1997, the company experienced a net loss (including a
non-recurring charge) of $4,848,000, or $0.19 cents per share, compared with net
income of $15,699,000, or $0.53 per share, in fiscal 1996. The 1997 loss
followed disappointing holiday sales at retail in the company's categories of
products. Retail demand for undecorated fleece products and licensed headwear
and jackets slowed in the Thanksgiving / Christmas period, and replenishment
orders did not materialize as anticipated. To a lesser extent, the company
experienced competitive price pressures on its jersey products in the fourth
quarter. Earlier in the year, the company's performance was negatively affected
by bottlenecks in manufacturing and distribution processes, which caused delays
in shipments as well as higher production costs at domestic and non-US
facilities. In the fourth quarter, the company incurred a pretax charge of
$9,120,000 which equates to $5,563,000, or $0.19 per share, on an after-tax
basis. The charge resulted from initiatives undertaken by the company to improve
its future cost structure which had a negative impact on operating results in
1997. These initiatives included the following:
o bringing major capital projects on-line to improve textile manufacturing
efficiencies and yields;
o closing two domestic sewing plants in order to further shift sewing
production to non-US locations where costs are lower;
o closing two distributor warehouses and a sales office, and reducing staff
as the company streamlines its activewear operations.
Historically, Tultex has been a producer of quality fleece products for sale to
distributors and resale to consumers under private labels. However, in the
1980's, 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. During the 1990s, merchandise retailers began to
exert pressure on margins for lower-priced fleece products as well as requiring
more complex distribution services in a compressed shipping season.
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In recent years, Tultex has pursued 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:
Higher-Margin Products. The company seeks to strengthen its
competitiveness through (i) 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 and (ii) since 1991, the manufacture of jersey products. The
company has developed its own brands, promoting Discus Athletic and Logo
Athletic for its premium products and using the Tultex and Logo 7 labels
for the value-oriented and wholesale segments 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 sports marketing sponsorships, such as Pro Beach Men's and Women's
Volleyball, have contributed to a significant increase 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 and Nike, none of which accounted for more than 10% of the
company's consolidated sales during 1997. Sales of the higher-margin
branded and premium private label products has grown from 13.8% of
consolidated sales in 1993 to 37.7% in 1996. As a result of the
disappointing retail selling season in late 1997, this percentage
declined to 30.9% in 1997.
Licensed Apparel Business to Complement Activewear Business. Tultex's
1992 acquisitions of Logo 7, a marketer of licensed sports apparel, and
Universal Industries, Inc. ("Logo Athletic/Headwear"), a marketer of
sports licensed headwear, enabled the company to achieve the fourth
largest market share (11.4%) in the higher-margin licensed apparel
business in 1996. The company estimated that it held the third largest
market share in this business in 1995. In addition, these acquisitions
have created opportunities for significant manufacturing and
distribution synergies with the company's activewear business. The
promotion of the LogoAthletic brand of licensed apparel through
television and print advertising, as well as promotional arrangements
featuring Dallas Cowboys' Troy Aikman, Miami Dolphins' Dan Marino,
Denver Broncos' John Elway, Kansas City Chiefs' Marcus Allen, and the
Buffalo Bills' Bruce Smith, among others, has helped to increase the
visibility and sales of LogoAthletic products.
Customer Relationships. Tultex actively pursues 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 supply high volume retailers such as
Wal-Mart, Kmart and Target with private label, Tultex and Logo 7
products. The company believes that it provides customers with
exceptional service and support. Its distribution capabilities are
responsive to customers' changing delivery and inventory management
requirements. The company also has cut part inventory programs with
several customers which has improved lead times on certain customer
product requirements.
Emphasis on Wholesale Distribution. In 1997, Tultex continued its
emphasis on distribution channels, by acquiring California Shirt Sales,
Inc., Fullerton, California, a major jerseywear distributor in the
western U.S. and T-Shirt City, Cincinnati, Ohio, a major distributor of
jerseywear in the midwest. In March 1998, T-Shirt City opened a
distributor warehouse in Charlotte, North
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Carolina. This warehouse expanded the company's distributor one day
delivery service to include the southeastern United States. These
acquisitions complement the company's strategy to become more vertically
integrated from the manufacture of fleece and jerseywear to distributing
consumer products at wholesale to retailers.
Vertical Integration. 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 six plants in Virginia and North Carolina, one
plant in Jamaica and one plant in Mexico. The company's licensed sports
operations are conducted from one plant in Indiana, one plant in
Massachusetts, and one plant in North Carolina.
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 NPD American Shopper Panel, a
leading provider of market information on the textile industry.
Fleecewear. The fleecewear industry had retail sales of approximately $7.5
billion in 1997. The predominant fleecewear products are sweatshirts and
sweatpants.
The basic fleecewear industry is characterized by:
o low fashion risk - although fashion detailing changes often, basic garment
styles are not driven by trends or fads;
o overall stability - despite cyclical fluctuations, annual industry sales
volume is estimated at approximately 700 million units for 1994 through
1997;
o entry by well-financed acquirors - new entrants have been attracted by the
industry's long-term growth and have been able to make large initial
capital investments for manufacturing;
o barriers to entry - barriers include large required capital investments,
growing importance of brand-name recognition and established customer
relationships; and
o 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.
Fleecewear products have registered significant improvements in fabric weights,
blends, quality of
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construction, size, style, and color availability over the past few years. 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 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 70.2% 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
25.7% from 1994 to 1997 and in 1997 totaled $11.4 billion, or 1,227 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. Both the fleecewear and jerseywear
industries are fragmented with no one manufacturer accounting for a significant
portion of industry sales. In 1997, the five largest fleece manufacturers
together accounted for an estimated 25.4% of the branded market in the
fleecewear industry, with Sara Lee Corporation, Russell Corporation,
Fruit-of-the-Loom, VF Corporation and Tultex accounting for approximately 8.0%,
6.8%, 4.6%, 3.1%, and 2.9% of the wholesale industry sales, respectively. In
1997, the 5 largest jersey manufacturers together accounted for an estimated
11.7% of the branded market in the jersey industry, with Sara Lee Corporation,
Fruit-of-the-Loom, Russell Corporation, VF Corporation and Tultex accounting for
approximately 3.9%, 3.6%, 1.5%, 1.4% and 1.3% of wholesale industry sales,
respectively. The activewear industry has been characterized since the 1980s by
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. 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. Management believes that the
market share of foreign competitors in the fleecewear and jersey industries is
not significant.
Licensed Apparel
Estimated wholesale sales of professional sports licensed apparel (including
headwear) for 1996 were approximately $2.4 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
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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.
Industry Makeup and Retail Channels. The industry has expanded rapidly over the
past five 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.
According to Sports Style Magazine, the top five companies accounted for
approximately 68.1% of the market, with Starter Corporation, VF Corporation,
Sara Lee Corporation, Tultex and Fruit-of-the-Loom accounting for approximately
17.9%, 15.5%, 12.0%, 11.4% and 11.3% of the wholesale industry sales in 1996,
respectively. 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 licenses. However, all of the larger
domestic companies competing in the market do use significant off-shore sourcing
of finished outerwear goods. Licensed 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 licenses 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.
Company Products
Activewear ($441.3 million or 67.8% of 1997 consolidated sales)
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 also manufactures private-label products for sale
under many labels, including Nike, Reebok and Pro Spirit.
Licensed Apparel and Headwear ($209.3 million or 32.2% of 1997 consolidated
sales)
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 LogoAthletic, Logo 7 and Track Gear
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 non-
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exclusive Pro-Line contract, the company markets Pro-Line products at retail for
all 30 NFL teams. The company's NFL Pro-Line and NBA Authentics products
prominently feature the LogoAthletic name and trademark, which the company
believes are key elements in developing the LogoAthletic 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. Under the Track Gear brand,
the company offers items such as t-shirts, sweatshirts, windbreakers and hats
featuring designs involving NASCAR drivers and cars.
Customers; Marketing and Sales
Customers
The company offers a diverse product line for sale at a full range of price
points through 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, such as the 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 through mass merchandisers and wholesale clubs that compete
more on price than brand.
The following chart details the distribution channels for the company's branded
products.
<TABLE>
<CAPTION>
Brands Products Distribution Channels
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<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), region-
al discounters (Shopko, Hart's, Pamaida),
distributors and mass merchant screenprinters
(Brazos Sportswear, Jerry Leigh, Giant
Merchandise), wholesale clubs (Sam's)
LogoAthletic Licensed activewear, outerwear Retail chains (JC Penney, Sears), sport-
and headwear ing goods specialty stores (Champs, Foot
Locker), department stores (Dillard's,
Mercantile)
Logo 7 Licensed activewear, outerwear Mass merchants (Kmart, Target), distributors
and headwear (West Coast Novelties), wholesale clubs (Sam's)
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
Track Gear Licensed activewear, outerwear Retail chains, corporate accounts, and
and headwear speedways
</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 LogoAthletic brands.
Advertising expenses were $23.6 million and $21.6 million in 1997 and 1996,
respectively.
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 ABC's college basketball.
The Logo Athletic campaign focuses on establishing the "authenticity" of
LogoAthletic 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. LogoAthletic acquired NFL Pro-Line status in 1993. To
provide visibility and reinforce this authenticity, the company provided
sideline garments and caps predominately featuring the LogoAthletic trademark
for eight NFL teams in 1997, the Cincinnati Bengals, Indianapolis Colts, St.
Louis Rams, Arizona Cardinals, Tampa Bay Buccaneers, Buffalo Bills, Seattle
Seahawks and Tennessee Oilers, as well as for several NFL All-Pro players, such
as Denver Broncos' John Elway, Miami Dolphins' Dan Marino, Kansas City Chiefs'
Marcus Allen and Buffalo Bills' Bruce Smith.
As of January 3, 1998, Tultex operated a sales office in each of Boston and
Chicago. 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 seven
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 1996, the company renewed its agreement with Nissan Trading
Co., Ltd., a subsidiary of Nissan Motor Co., to market and sell the company's
Discus Athletic products in Japan. This agreement has been extended through
1999.
International sales in 1997 and 1996 were immaterial.
At January 3, 1998, Dominion Stores, Inc., a wholly-owned subsidiary, operated
10 outlet stores in North Carolina, Virginia and West Virginia, which sell
surplus company apparel and apparel items of other manufacturers, and operated
20 The Sweatshirt Company retail stores in 14 states, which primarily sell
first-quality company-made products and accessories, and operated 3 LogoAthletic
stores in Indiana and Utah which primarily sell surplus licensed apparel.
Dominion Stores' total sales in fiscal 1997 and 1996 were $15.5 million and
$16.4 million, respectively.
Licenses
Most of the company's licensed products are sold through LogoAthletic. The
company is a licensee of
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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 NASCAR. These licenses require the payment of royalties generally
ranging from 8% to 15% of sales with future guaranteed royalties of
approximately $2.4 million.
The company's licenses with MLB expire in 1998, NFL and NHL in 1999 and NBA in
2000.
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 non-exclusive and new or existing competitors may obtain similar
licenses.
Manufacturing and Distribution
Because consumer value is a key competitive factor in the activewear industry,
Tultex has focused on being a low-cost producer of high-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.
The company continually reviews its cost structure and methods of manufacturing
and distributing its products in order to remain cost competitive. Over the last
several years, the company has closed or sold some of its costlier, less
efficient plants, including two domestic sewing plants in 1998. The company
expects that certain cost savings may be 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 1989 through fiscal 1997, the company invested approximately $232
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.
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Tultex's highly-automated customer service center, opened in 1991, has 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-volume retailers and
department stores. The company has improved its utilization of the customer
service center and believes that its strategy of increasing sales of retail
products, which require more sophisticated packaging, will continue to improve
utilization of the customer service center.
In spring 1992, LogoAthletic moved its operations to a newly-constructed, leased
facility built to its specifications. This 650,000 square foot building allowed
LogoAthletic 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 1.4 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 eight sewing facilities is organized on an assembly-line basis.
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 LogoAthletic's facilities in Indianapolis and
Logo Athletic/Headwear 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.
Sourcing
The company currently maintains full package sourcing utilizing vendor-direct
relationships and agents for over $70 million at cost in the following apparel
categories:
Page 10
<PAGE>
<TABLE>
<CAPTION>
Product Country of Origin
- -------------------------------------- -----------------
<S> <C>
Headwear South Korea, China, Taiwan, Dominican Republic
Outerwear-Jackets South Korea, Pakistan
Collar and Placket Shirts Pakistan, Guatemala
Decorated Fashion Fleece China
Windwear Bangladesh, Mongolia, Sri Lanka, South Korea, Hong Kong
Baseball Shirts Guatemala
Mock Turtlenecks Mexico
Mesh Silhouettes South Korea
Novelty Jersey India, Pakistan
Fashion T's and Tank Tops Mexico
</TABLE>
Sourced headwear accounts for approximately 35% of total sourced products.
The company utilizes 807 sewing assembly for generating cost savings on garments
requiring labor intensive needle work. These operations are performed at company
maintained locations in Jamaica and Mexico and by various contractors.
Approximately 65% of the company's sewing is done outside the United States.
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 material
costs often are effectively passed on to the company. In 1997, the company's
average price per pound of fiber (cotton and polyester) purchased was $.68,
compared with $.75 in 1996. In 1998, Tultex expects to use approximately 55
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. As of March 11, 1998 the company has
contracted to purchase substantially all of its raw cotton needs for 1998 and
has fixed the price on approximately 60% 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. Also in 1998, the company expects to use an additional 15 million
pounds of finished yarn which will be purchased.
Trademarks
The company increasingly promotes and relies upon its trademarks, including
Discus Athletic, LogoAthletic, Tultex, TrackGear and Logo 7, many of which are
registered in the United States and many foreign countries.
<PAGE>
Page 11
Seasonality
The company's business is seasonal. The majority of fleecewear sales and related
net income 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 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.
The company believes that it is in material compliance with the aforementioned
laws and regulations and does not expect that future compliance and actions
responding to routine inspections 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.
Year 2000
In prior years, certain computer programs were written using two digits rather
than four to define the applicable year. These programs were written without
considering the impact of the upcoming change in the century and may experience
problems handling dates beyond the year 1999. This could cause computer
applications to fail or to create erroneous results unless corrective measures
are taken. Incomplete or untimely resolution of the Year 2000 issue could have a
material adverse impact on the
<PAGE>
Page 12
company's business, operations or financial condition in the future. The company
has been assessing the impact that the Year 2000 issue will have on its computer
systems since 1995. In response to these assessments, which are ongoing, the
company has reviewed critical business systems and developed a plan to resolve
existing system deficiencies. Management expects substantial implementation in
1998 of enterprise-wide computer systems which are Year 2000 compliant. As of
January 3, 1998, approximately $18 million has been capitalized relating to this
implementation. The company is also surveying critical suppliers and customers
to determine the status of their Year 2000 compliance programs.
Litigation
The company is not currently a party to any legal proceedings the results of
which it believes could have a material adverse impact on its business or
financial condition.
Employees
The company had approximately 6,708 employees at January 3, 1998, of which 5,752
or 85.7% were paid hourly.
Hourly employees at the company's Martinsville and South Boston, Virginia
facilities are represented by the Union of Needletrades, Industrial and Textile
Employees. The company's labor contracts with the union, covering all hourly
employees at the Martinsville and South Boston facilities, expire in 1998. The
negotiation of new contracts are underway. As of January 3, 1998, the company's
hourly employees represented by the Union accounted for approximately 38.4% of
the company's total employees and 44.8% of the company's hourly employees. 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 January 3, 1998.
<TABLE>
<CAPTION>
Division Salary Hourly Total
- -------- ------ ------ -----
<S> <C> <C> <C>
Activewear 813 5,009 5,822
Licensed Apparel 143 743 886
--- --- ---
Total 956 5,752 6,708
================ ======== =======
</TABLE>
<PAGE>
Page 13
Item 2. Properties
Most of the company's principal physical facilities (other than those of
LogoAthletic) 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>
Martinsville, VA 1,100,000 Manufacturing (apparel) and administrative
offices
Koehler, VA 60,000 Equipment Storage
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)
Mayodan, NC 612,000 Manufacturing, warehousing
and shipping (yarn and apparel)
Vinton, VA 50,000 Sewing (apparel)
Martinsville, VA 502,200 Warehousing and distribution (apparel)
Mattapoisett, MA 116,250 Distribution (headwear)
Asheville, NC 106,650 Manufacturing (apparel)
Tamaulipas, Mexico 23,500 Sewing (apparel)
</TABLE>
<PAGE>
Page 14
The following table presents certain information relating to the company's
principal leased facilities:
<TABLE>
Lease
Expira- Current
Square tion Annual
Location Footage Date Rental Use
- ------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
Montego Bay, 28,422 4/30/98 113,688 Sewing (apparel)
Jamaica
Montego Bay, 38,088 12/31/98 152,352 Sewing (apparel)
Jamaica
Martinsville, VA 300,000 06/01/98 684,000 Warehousing (apparel)
Indianapolis, IN 650,000 05/31/07 1,408,000 Distribution (licensed apparel)
Charlotte, NC 34,000 10/30/00 134,892 Distribution (licensed apparel)
Fullerton, CA 205,000 12/31/04 762,600 Distribution (apparel)
Fullerton, CA 12,630 12/31/98 60,840 Warehousing (apparel)
Oakland, CA 22,282 07/31/99 70,404 Distribution (apparel)
San Diego, CA 23,812 Monthly 142,872 Distribution (apparel)
Honolulu, HI 8,257 Monthly 67,088 Distribution (apparel)
Seattle, CA 34,020 09/30/00 178,308 Distribution (apparel)
Las Vegas, NV 31,889 07/31/03 168,372 Distribution (apparel)
Tempe, AZ 20,400 03/31/02 100,368 Distribution (apparel)
Cincinnati, OH 105,000 02/28/99 199,200 Distribution (apparel)
Charlotte, NC 38,400 02/28/03 151,680 Distribution (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.
<PAGE>
Page 15
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.
As of February 27, 1998 there were 2,291 record holders of the Company's common
stock. Other information required by Item 5 of Form 10-K appears under the
heading "Common Stock Prices and Dividend Information" on page 22 and in "Note
6" of "Notes to Financial Statements" on page 12 of the company's 1997 Annual
Report to Stockholders and is incorporated herein by reference.
Item 6. Selected Financial Data.
The information required by Item 6 of Form 10-K appears on page 23 of the
company's 1997 Annual Report to Stockholders and is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information required by Item 7 of Form 10-K appears on pages 20 through 22
of the company's 1997 Annual Report to Stockholders and is incorporated herein
by reference.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements, together with the report thereon of Price
Waterhouse LLP, dated February 11, 1998, appearing on pages 6 through 19 of the
company's 1997 Annual Report to Stockholders are incorporated by reference in
this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
With respect to the directors of the company, the information required by Item
10 of Form 10-K appears on pages 3 through 5 of the company's 1998 Proxy
Statement and is incorporated herein by reference.
<PAGE>
Page 16
Pursuant to General Instruction G to Form 10-K, the following information is
furnished concerning the executive officers of the company.
Executive Officers of the Company
<TABLE>
<CAPTION>
Name Office Age
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
John M. Franck Chairman of the Board of Directors 45
Charles W. Davies, Jr. President and Chief Executive Officer 49
O. Randolph Rollins Executive Vice President and General Counsel 55
Walter J. Caruba Vice President - Marketing and Sales 50
Anthony J. Pichirallo Vice President - Wholesale Marketing 39
W. Jack Gardner, Jr. Vice President - Operations 54
Jefferson K. Judkins Vice President - Customer Service 38
John J. Smith Vice President 55
Suzanne H. Wood Vice President and Chief Financial Officer 38
Jeffrey F. Kies Corporate Controller 41
Robin H. Gehman Treasurer 43
Kathy H. Rogers Secretary 39
</TABLE>
John M. Franck, Chairman of the Board of Directors, was Chairman of the Board of
Directors and Chief Executive Officer 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.
Charles W. Davies, Jr., President and Chief Executive Officer of the Company
since January 1995, was President and Chief Operating Officer 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.
<PAGE>
Page 17
O. Randolph Rollins became Executive Vice President and General Counsel in
October 1994. From 1995 to 1996 he was Chief Financial Officer. Prior thereto,
Mr. Rollins was a partner with the law firm of920411346 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.
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.
Anthony J. Pichirallo became Vice President - Wholesale Marketing in February
1997. He served as General Manager - Wholesale from July 1991 until that time.
W. Jack Gardner, Jr. became Vice President - Operations in September 1994 and
served as General Manager - Fabric Manufacturing from January 1988 until that
time.
Jefferson K. Judkins became Vice President - Customer Service in August 1997. He
previously served as General Manager - Customer Service from February 1997 until
July 1997 after serving as Retail Sales Manager since October 1992.
John J. Smith became Vice President 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.
Suzanne H. Wood became Vice President and Chief Financial Officer in February
1996. Prior to that appointment, Ms. Wood was Corporate Controller. In the ten
years prior to joining the company, she was employed by Price Waterhouse LLP,
most recently as Audit Senior Manager.
Jeffrey F. Kies became Corporate Controller in August 1996. Prior to joining the
company, he was employed by R. J. Reynolds Tobacco Co. as Senior Financial
Manager.
Robin H. Gehman became Treasurer in May 1997. In the sixteen years prior to
joining the company, he was employed by VF Corporation, most recently as Vice
President of Finance for Bassett Walker, Inc.
Kathy H. Rogers became Secretary in January 1996. She also continues as Director
- - Corporate Communications, a position she has held since September 1992. She
was Manager - Employee Communications between May 1989 and September 1992.
All terms of office will expire concurrently with the meeting of directors
following the next annual meeting of stockholders at which the directors are
elected.
<PAGE>
Page 18
Item 11. Executive Compensation.
The information required by Item 11 of Form 10-K appears on pages 6 through 7
and pages 9 through 11 of the company's 1998 Proxy Statement and is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 12 of Form 10-K appears on page 1 and 2 of the
company's 1998 Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information required by Item 13 of Form 10-K appears on page 5 of the
company's 1998 Proxy Statement and is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
<TABLE>
<CAPTION>
<S> <C>
(1) Financial Statements: Page in Annual Report*
--------------------- ----------------------
Report of Independent Accountants 19
Balance Sheet at January 3, 1998 and
December 28, 1996 6
Statement of Operations for each of the three years in the
period ended January 3, 1998 7
Statement of Changes in Stockholders' Equity for each of
the three years in the period ended January 3, 1998 8
Statement of Cash Flows for each of the three years in the
period ended January 3, 1998 9
Notes to Financial Statements 10 - 19
(2) Financial Statement Schedule: Page in Form 10-K
----------------------------- -----------------
Report of Independent Accountants on Financial
Statement Schedule: F-1
Consolidated Financial Statement Schedule for each of the
three years in the period ended January 3, 1998:
II-Valuation and Qualifying Accounts and Reserves F-2
</TABLE>
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
*Incorporated by reference from the indicated pages of the 1997 Annual Report to
Stockholders.
<PAGE>
Page 19
(3) Exhibits
<TABLE>
<CAPTION>
<S> <C>
3.1 Restated Articles of Incorporation (filed as Exhibit 3.1 to the
company's Form 10-K for the year ended December 29, 1990 and
incorporated herein by reference)
3.2 Articles of Amendment to the Restated Articles of Incorporation
(filed as Exhibit 3 to the company's 8-K dated January 31, 1992
and incorporated herein by reference)
3.3 By-laws of Tultex Corporation (filed as Exhibit 3.3 to the
company's Amendment No. 1 to Form S-1 dated March 17, 1995 and
incorporated herein by reference)
3.4 Articles of Incorporation of AKOM Ltd. (filed as Exhibit 3.4 to
the company's Amendment No. 1 to Form S-1 dated March 17, 1995
and incorporated herein by reference)
3.5 By-laws of AKOM, Ltd. (filed as Exhibit 3.5 to the company's
Amendment No. 1 to Form S-1 dated March 17, 1995 and incorporated
herein by reference)
3.6 Articles of Incorporation of Dominion Stores, Inc. (filed as
Exhibit 3.6 to the company's Amendment No. 1 to Form S-1 dated
March 17, 1995 and incorporated herein by reference)
3.7 By-laws of Dominion Stores, Inc. (filed as Exhibit 3.7 to the
company's Amendment No. 1 to Form S-1 dated March 17, 1995 and
incorporated herein by reference)
3.8 Articles of Incorporation of Tultex International, Inc. (filed as
Exhibit 3.8 to the company's Amendment No. 1 to Form S-1 dated
March 17, 1995 and incorporated herein by reference)
3.9 By-laws of Tultex International, Inc. (filed as Exhibit 3.9 to
the company's Amendment No. 1 to Form S-1 dated March 17, 1995
and incorporated herein by reference)
3.10 Articles of Incorporation of Logo 7, Inc. (filed as Exhibit 3.10
to the company's Amendment No. 1 to Form S-1 dated March 17, 1995
and incorporated herein by reference)
3.11 By-laws of Logo 7, Inc. (filed as Exhibit 3.11 to the company's
Amendment No. 1 to Form
3.12 S-1 dated March 17, 1995 and incorporated herein by reference)
3.12 Articles of Incorporation of Universal Industries, Inc. (filed as
Exhibit 3.12 to the company's Amendment No. 1 to Form S-1 dated
March 17, 1995 and incorporated herein by reference)
3.13 By-laws of Universal Industries, Inc. (filed as Exhibit 3.13 to
the company's Amendment No. 1 to Form S-1 dated March 17, 1995
and incorporated herein by reference)
3.14 Articles of Incorporation of Tultex Canada, Inc. (filed as
Exhibit 3.14 to the company's Amendment No. 1 to Form S-1 dated
March 17, 1995 and incorporated herein by reference)
3.15 By-laws of Tultex Canada, Inc. (filed as Exhibit 3.15 to the
company's Amendment No. 1 to Form S-1 dated March 17, 1995 and
incorporated herein by reference)
3.16 Articles of Incorporation of SweatJet, Inc. (filed as Exhibit
3.16 to the company's Amendment No. 1 to Form S-1 dated March 17,
1995 and incorporated herein by reference)
3.17 By-laws of SweatJet, Inc. (filed as Exhibit 3.17 to the company's
Amendment No. 1 to Form S-1 dated March 17, 1995 and incorporated
herein by reference)
4.1 Indenture among Tultex Corporation, the Guarantors and First
Union National Bank of Virginia, as Trustee, relating to the
Senior Notes dated March 23, 1995 (filed as Exhibit to the
company's Amendment No. 1 to Form S-1 dated March 17, 1995 and
incorporated herein by reference)
4.2 Senior Note (included in Exhibit 4.1 as filed with the company's
Amendment No. 1 to Form S-1 dated March 17, 1995 and incorporated
herein by reference)
4.3 Subsidiary Guarantee (included in Exhibit 4.1 as filed with the
company's Amendment No. 1
<PAGE>
Page 20
to Form S-1 dated March 17, 1995 and incorporated herein by
reference)
4.4 Indenture between Tultex Corporation and the Guarantors, and
First Union National Bank of Virginia, as Trustee, relating to
the notes (filed as Exhibit 4.1 to the company's Form S-4 filed
with the SEC on April 16, 1997 and incorporated herein by
reference)
10.1 Tultex Corporation 1987 Stock Option Plan (filed as Exhibit B to
the company's Definitive Proxy Statement dated and mailed January
15, 1988 and incorporated herein by reference)
10.2 Tultex Corporation 1990 Stock Option Plan (filed as Exhibit A to
the company's Definitive Proxy Statement dated and mailed
February 14, 1991 and incorporated herein by reference)
10.3 Supplemental Retirement Plan (filed as an exhibit to the
company's Form 10-K for the fiscal year ended December 30, 1990
and incorporated herein by reference)
10.4 Tultex Corporation Salaried Employees' Common Stock Purchase
Plan, dated February 11, 1994 (filed as Exhibit 4.5 to the
company's Registration Statement Form S-8 dated February 11, 1994
and incorporated herein by reference)
10.5 Form of Employment Continuity Agreement (filed as exhibits to the
company's Form 10-Q for the quarter ended April 1, 1989 and the
company's Form 10-Q for the quarter ended March 31, 1990 and
incorporated herein by reference)
10.6 Standstill Agreement, dated as of January 31, 1992, among Tultex
Corporation, Logo 7, Inc. (Ind.), Melvin Simon and Herbert Simon
(filed as Exhibit 10(b) to the company's Form 8-K dated January
31, 1992 and incorporated herein by reference)
10.7 Credit Agreement for $187 million credit facility, dated May 18,
1997 (filed as Exhibit 10.8 to the company's Form 10-Q for the
quarter ended July 5, 1997 and incorporated herein by reference)
10.8 Amendment, consent and waiver relating to the $187 million credit
facility, dated as of November 4, 1997 (filed as Exhibit 10.9 to
the company's Form 10-Q for the quarter ended October 4, 1997 and
incorporated herein by reference)
10.9 Amendment, consent and waiver relating to the $187 million credit
facility, dated as of March 11, 1998 (filed herewith)
11 The computation of earnings per share can be clearly determined
from the financial statements of the Company contained in the
Annual Report to Stockholders
13 The company's 1997 Annual Report to Stockholders (filed herewith)
21 Subsidiaries of the company (filed herewith)
23 Consent of Price Waterhouse LLP (filed herewith)
99 The company's 1998 Proxy Statement dated March 21, 1998 (filed
herewith)
(b) Reports of Form 8-K
No reports on Form 8-K were filed for the quarter ended January
3, 1998.
<PAGE>
Page 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Tultex Corporation
(Registrant)
/s/ Charles W. Davies, Jr.
By: Charles W. Davies, Jr., President and
CEO
Date: April 3, 1998
-------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
April 3, 1998 /s/ Charles W. Davis, Jr.
- ------------- -------------------------
Charles W. Davies, Jr., President, CEO &
Director (Principal Executive Officer)
April 3, 1998 /s/ Suzanne H. Wood
- ------------- -------------------
Suzanne H. Wood, Vice President and Chief
Financial Officer (Principal Financial Officer)
April 3, 1998 /s/ Jeffrey F. Kies
- ------------- -------------------
Jeffrey F. Kies, Controller
(Principal Accounting Officer)
April 3, 1998 /s/ John M. Franck
- ------------- ------------------
John M. Franck, Director (Chairman)
April 3, 1998 /s/ Seth P. Bernstein
- ------------- ---------------------
Seth P. Bernstein, Director
April 3, 1998 /s/ Lathan M. Ewers
- ------------- -------------------
Lathan M. Ewers, Jr., Director
April 3, 1998 /s/ H. Richard Hunnicut, Jr.
- ------------- ----------------------------
H. Richard Hunnicutt, Jr., Director
April 3, 1998 /s/ F. Kenneth Iverson
- ------------- ----------------------
F. Kenneth Iverson, Director
April 3, 1998 /s/ Bruce M. Jacobson
- ------------- ---------------------
Bruce M. Jacobson, Director
</TABLE>
<PAGE>
Page 22
<TABLE>
<CAPTION>
<S> <C>
April 3, 1998 /s/ Richard M. Simmons
- ------------- ----------------------
Richard M. Simmons, Jr., Director
April 3, 1998 /s/ Lynn J. Beasley
- ------------- -------------------
Lynn J. Beasley, Director
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
Tultex Corporation
Our audits of the consolidated financial statements referred to in our report
dated February 11, 1998 appearing on page 19 of the 1997 Annual Report to
Stockholders of Tultex Corporation, (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K),
also included an audit of the Financial Statement Schedule listed in the
accompanying index of this Form 10-K. In our opinion, this Financial Statement
Schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Winston-Salem, North Carolina
February 11, 1998
<PAGE>
TULTEX CORPORATION SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS CONSOLIDATED
AND RESERVES
(In thousands of dollars)
<TABLE>
<CAPTION>
Balance at Additions Balance
beginning charged to at end
Reserve for doubtful accounts of period operations Acquisitions Reductions(1) of period
- ----------------------------- --------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
For the fifty-two weeks
ended December 30, 1995
$ 2 ,115 $ 7,061 $ 0 $ (4,949) $ 4,227
============== ============== ============== ============ ===========
For the fifty-two weeks
ended December 28, 1996
$ 4,227 $ 3,707 $ 0 $ (4,172) $ 3,762
============== ============== ============== ============== ==============
For the fifty-three weeks
ended January 3, 1998
$ 3 ,762 $ 3,606 $ 1,512 $ (4,675) $ 4,205
============== ============== ============== ============== ==============
</TABLE>
(1) Amounts represent write-off of uncollectible receivable balances.
F-2
<PAGE>
Exhibit Index
10.9 Amendment, consent and waiver relating to the $187 million
credit facility
13 The company's 1997 Annual Report to Stockholders
21 Subsidiaries of the Company
23 Consent of Price Waterhouse
99 The company's 1998 Proxy Statement
<PAGE>
EXHIBITS
ANNUAL REPORT ON FORM 10-K
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 3, 1998
TULTEX CORPORATION
COMMISSION FILE NUMBER 1-8016
<PAGE>
AMENDMENT, CONSENT AND WAIVER
THIS AMENDMENT, CONSENT AND WAIVER dated as of March 11, 1998 (the
"Amendment") relating to the Credit Agreement referenced below, by and among
TULTEX CORPORATION, a Virginia corporation (the "Borrower"), the Guarantors and
Banks identified therein, and NATIONSBANK, N.A., as Administrative Agent (the
"Administrative Agent"). Terms used but not otherwise defined shall have the
meanings provided in the Credit Agreement.
WITNESSETH
WHEREAS, a $187 million credit facility has been extended to Tultex
Corporation pursuant to the terms of that Credit Agreement dated as of May 15,
1997 (as amended and modified the "Credit Agreement") among Tultex Corporation,
the Guarantors and Banks identified therein, Corestates Bank, N.A., and First
Union National Bank of Virginia, as co-agents and NationsBank, N.A., as
Administrative Agent;
WHEREAS, the Borrower has requested certain modifications under of the
Credit Agreement;
WHEREAS, such modifications and waiver requires the consent of the
Required Banks;
WHEREAS, the Required Banks have consented to the requested
modifications and waiver on the terms and conditions set forth herein;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Section I.1. of the Credit Agreement is amended to add the following
definitions:
"Consolidated EBITDA" means for any period for the
Consolidated Borrower Group, the sum of Consolidated Net Income plus Interest
Charges plus all provisions for any federal, state or other domestic and foreign
income taxes plus depreciation and amortization, in each case on a consolidated
basis determined in accordance with generally accepted accounting principles
applied on a consistent basis, but excluding for purposes hereof extraordinary
gains and losses and related tax effects thereon. Except as otherwise expressly
provided, the applicable period shall be for the four consecutive fiscal
quarters ending as of the date of determination.
"Consolidated Leverage Ratio" means, as of the last day of any fiscal
quarter, the ratio of Consolidated Funded Debt on such day to Consolidated
EBITDA for the period of four consecutive fiscal quarters ending as of such day.
<PAGE>
2. In Section I.1. of the Credit Agreement the pricing grid in the
definition of "Applicable Percentage" is amended to read as follows:
<TABLE>
<CAPTION>
Applicable Percentage
---------------------
Eurodollar Loans Standby
Consolidated and Letter of
Leverage Fed Funds Adjusted CD Credit Commitment
Ratio Swingline Loans Loans Fee Fee
----- --------------- ----- --- ---
<S> <C> <C> <C> <C> <C>
> 5.75 2.50% 2.625% 2.50% 0.500%
< 5.75 but >5.00 2.25% 2.375% 2.25% 0.500%
-
< 5.00 but >4.25 2.00% 2.125% 2.00% 0.375%
-
< 4.25 but >3.50 1.75% 1.875% 1.75% 0.375%
-
< 3.50 but >2.75 1.50% 1.625% 1.50% 0.250%
-
< 2.75 1.25% 1.375% 1.25% 0.250%
-
</TABLE>
3. In the first sentence of Section 2.11(b) of the Credit Agreement the
phrase "of one-fourth of one percent (1/4%)" is deleted and replaced with "equal
to the Applicable Percentage for the Commitment fee".
4. In Section 6.11(a) regarding Consolidated Tangible Net Worth, the
reference to "$130,000,000" is modified and replaced with the following:
"$118,000,000 beginning the Determination Date occurring as of the
end of the second fiscal quarter of 1998 and thereafter"
5. Section 6.11(b) of the Credit Agreement is amended to read as
follows:
(b) Consolidated Funded Debt to Consolidated Tangible Capitalization
Ratio. On each Determination Date the Borrower will not permit the ratio of the
aggregate outstanding principal amount of Consolidated Funded Debt to
Consolidated Tangible Capitalization to exceed:
Fiscal Year 1QE 2QE 3QE 4QE
1998 .73 .78 .78 .71
1999 .70 .70 .70 .65
2000 .65 .60 .60 .60
and on each Determination Date thereafter at .60.
<PAGE>
6. Section 6.11(C) of the Credit Agreement is amended to read as
follows:
( c ) Fixed Charges Coverage Ratio. The Borrower will keep and
maintain as of each Determination Date to occur during the periods shown a ratio
of Net Income Available for Fixed Charges to Fixed Charges for a period of four
consecutive fiscal quarters ending as of the Determination Date of not less
than:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Fiscal Year 1QE 2QE 3QE 4QE
----------- --- --- --- ---
1998 .80 .85 1.05 1.25
1999 1.25 1.25 1.25 1.25
and on each Determination Date thereafter at 1.25.
7. The Required Banks hereby waive any Default or Event of Default
which existed or may have existed prior to the effective date of this Amendment
solely on account of noncompliance with the Fixed Charges Coverage Ratio under
Section 6.11( c ) of the Credit Agreement prior to its amendment hereunder.
8. The Borrower hereby represents and warrants in connection herewith
that as of the date hereof (after giving effect hereto) (i) the representations
and warranties set forth in Section 5 of the Credit Agreement are true and
correct in all material respects (except those which expressly relate to an
earlier date), and (ii) no Default or Event of Default presently exists under
the Credit Agreement.
9. The effectiveness of this Amendment is subject to satisfaction of
the following conditions:
(a) receipt by the Administrative Agent of copies of this Amendment
executed by the Credit Parties and Required Lenders;
(b) receipt by the Administrative Agent of corporate resolutions and
legal opinions relating to this Amendment in form and substance satisfactory to
the Administrative Agent and Required Lenders; and
(c) receipt by the Administrative Agent of an amendment fee of 12.5
b.p.s. on the Commitment of the Lenders approving this Amendment.
10. Except as expressly modified hereby, all of the terms and
provisions of the Credit Agreement remain in full force and effect.
11. The Borrower agrees to pay all reasonable costs and expenses in
connection with the preparation, execution and delivery of this Amendment,
including the reasonable fees and expenses of the Administrative Agent's legal
counsel.
</TABLE>
<PAGE>
12. This Amendment may be executed in any number of counterparts, each
of which when so executed and delivered shall be deemed an original. It shall
not be necessary in making proof of this Amendment to produce or account for
more than one such counterpart.
13. This Amendment, as the Credit Agreement, shall be deemed to be a
contract under, and shall for all purposes be construed in accordance with, the
laws of the Commonwealth of Virginia.
(Remainder of Page Intentionally Left Blank)
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Amendment to be duly executed and delivered as of the date first above
written.
BORROWER: TULTEX CORPORATION
a Virginia Corporation
By: /s/ Suzanne H. Wood
_______________________________
Title: Vice President & CFO
GUARANTORS:
DOMINION STORES, INC.,
a Virginia corporation
By: /s/ Suzanne H. Wood
______________________________
Title: Vice President
LOGOATHLETIC, INC.,
a Virginia corporation
By: Suzanne H. Wood
______________________________
Title: Chief Financial Officer
LOGOATHLETIC HEADWEAR, INC.
a Massachusetts corporation
By: Suzanne H. Wood
______________________________
Title: Chief Financial Officer
CALIFORNIA SHIRT SALES, INC.
By: Suzanne H. Wood
______________________________
Title: Vice President
<PAGE>
BANKS:
<TABLE>
<S> <C>
NATIONSBANK, N.A.,
individually in its capacity as a
Bank and in its capacity as Administrative Agent
By:______________________________
Title:
CORESTATES BANK, N.A.,
individually in its capacity as a Bank
and in its capacity as a Co-Agent
By:______________________________
Title:
FIRST UNION NATIONAL BANK,
individually in its capacity as a Bank
and in its capacity as a Co-Agent
By:______________________________
Title:
BANK OF TOKYO - MITSUBISHI TRUST COMPANY
By:______________________________
Title:
</TABLE>
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO
By:______________________________
Title:
PNC BANK, NATIONAL ASSOCIATION
By:______________________________
Title:
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By:______________________________
Title:
TULTEX
1997
ANNUAL
REPORT
<PAGE>
CONTENTS
1 Financial Highlights
2 To Our Stockholders
6 Balance Sheet
7 Statement of Operations
8 Statements of Changes in Stockholders' Equity
9 Statement of Cash Flows
10 Notes to Financial Statements
19 Report of Independent Accountants
20 Management's Discussion and Analysis
22 Common Stock Prices and Dividend Information
23 Selected Financial Data
24 General Information, Officers and Directors
Inside Back Cover:Plant Locations, Subsidiaries, Company-Owned Stores
ABOUT OUR COMPANY
Tultex Corporation is one of the world's largest manufacturers, marketers and
distributors of casual apparel, including activewear, licensed apparel and caps.
The vertically integrated company has broad distribution for its products in the
retail and wholesale channels. Products are sold under such brand names as
Discus Athletic(R), LogoAthletic(R), Logo7(R), Tultex(R) and Track Gear(TM).
Licenses include the NFL, NBA, MLB, NHL, NASCAR and college.
The company operates yarn, fabric, sewing and distribution facilities in
Virginia, North Carolina, Indiana, Massachusetts and Jamaica. In addition,
Tultex has contractors in Mexico, Central America, Canada and the Caribbean.
Licensed apparel is sourced from China, Korea and Taiwan. In the second quarter
of 1997, Tultex acquired two distributors, California Shirt Sales on the west
coast and T-Shirt City in the midwest. These acquisitions will further move the
company toward becoming a marketer and distributor.
Tultex remains committed to its strategies which include:
o shifting away from traditional manufacturing and toward sourcing, marketing
and distribution;
o continuing to promote and build its branded business;
o further reducing costs;
o improving debt-to-equity ratio.
[GRAPHIC APPEARS HERE]
<PAGE>
Tultex Corporation
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fiscal years ended: Jan. 3, 1998 Dec. 28, 1996 % Increase
(53 weeks) (52 weeks) (Decrease)
- --------------------------------------------------------------------------------------------
(In thousands of dollars except per share data)
OPERATING RESULTS:
Net sales and other income $ 650,628 $ 636,341 2.2%
Income (loss) before income taxes $ (7,947) $ 26,933 (129.5)%
Net income (loss) $ (4,848) $ 16,699 (129.0)%
Return on average common stockholders' equity (3.0)% 8.6% --
- --------------------------------------------------------------------------------------------
PER SHARE OF COMMON STOCK:
- --------------------------------------------------------------------------------------------
Net income (loss) (1) $ (.19) $ .53 (135.8)%
Book value $ 6.23 $ 6.40 (2.7)%
- --------------------------------------------------------------------------------------------
YEAR-END STATUS:
Working capital $ 295,721 $ 275,491 7.3%
Property, plant and equipment-net $ 142,851 $ 136,426 4.7%
Total assets $ 538,226 $ 500,780 7.5%
Long-term debt $ 285,727 $ 223,616 27.8%
Common stockholders' equity $ 186,081 $ 187,730 (.9)%
Shares of common stock outstanding 29,875,488 29,333,571 1.8%
Number of stockholders 2,315 2,585 (10.4)%
Number of employees 6,708 6,618 1.4%
- --------------------------------------------------------------------------------------------
OTHER:
Depreciation $ 20,614 $ 21,497 (4.1)%
Capital expenditures $ 29,075 $ 29,048 .1%
Interest expense $ 27,611 $ 21,742 27.0%
Dividends - preferred $ 810 $ 1,135 (28.6)%
- --------------------------------------------------------------------------------------------
</TABLE>
(1) Based on weighted average number of shares outstanding.
See Notes to Financial Statements.
1
<PAGE>
Tultex Corporation
TO OUR STOCKHOLDERS
1997 was a difficult and disappointing year for all of us at Tultex. Results
were negatively impacted by sourcing and production delays in the third quarter
and a precipitous drop in retail demand in the fourth quarter.
Sales for the year ended January 3, 1998 were $650,628,000 versus $636,341,000
during the previous 12 months. The net loss for the year just ended was
$4,848,000 or $0.19 per share compared with net income of $16,699,000 or $0.53
per share for the year ended December 28, 1996. The net loss includes a
fourth-quarter pretax charge of $9,120,000, which equates to $5,563,000 or $.19
per share on an after-tax basis. Excluding this non-recurring charge, net income
for fiscal 1997 was $715,000 or break even on an earnings per share basis after
giving consideration to preferred dividends.
This charge resulted from initiatives undertaken by our company to improve our
future cost structure which had a negative impact on operating results in 1997.
These initiatives include:
o bringing major capital projects on-line to improve textile manufacturing
efficiencies and yields;
o closing two domestic sewing plants in order to further shift sewing
production to non-U.S. locations where costs are lower;
o closing two distributor warehouses and a sales office, and reducing staff as
the company streamlines its activewear operations.
Our business, particularly in the second half, was hurt by operational problems,
pricing pressures and sluggish holiday sales. In the third quarter, we
experienced difficulties with non-U.S. contractors who did not meet production
schedules. These problems were further exacerbated by competitors shifting
rapidly to non-U.S. sewing, which further increased competition for reliable
contractors outside the United States.
We have addressed third-quarter operational problems in our sourcing area by
reducing the number of contractors utilized and dedicating more senior
management and technical resources at these locations. These factors, along with
continued migration of our production to non-U.S. locations, should reduce our
cost structure in 1998.
In the fourth quarter, particularly during the critical holiday shopping season,
sluggish sales at retail and pricing pressures in certain channels of
distribution tell the story of our missed sales and earnings targets. In
particular, demand for higher margin fleece and licensed apparel products was
weak at year-end. Many retailers cited warmer fall weather as a contributing
factor for weak consumer demand for outerwear.
1998 WILL BE CHALLENGING, BUT WE ARE
BETTER POSITIONED TO FACE THESE CHALLENGES...
While 1998 will be challenging for everyone in our industry, we can point to
several positives for improvement in 1998.
First, we will benefit from a full year of our distributor businesses and
increased penetration of our products through this channel. In 1997, we had $109
million in sales from our distributors in the eight months we owned them, with
approximately 40% of sales coming from our own Tultex products. In 1998, a full
year of our distributors and continued penetration of our own products, should
result in a doubling of sales of Tultex products through this channel.
Second, we have reduced sewing costs as a result of our sourcing initiative.
Third, we have eliminated the previously mentioned operational problems
experienced in the third quarter of 1997.
2
<PAGE>
Tultex Corporation
Fourth, we completed several capital projects that will benefit us in 1998 by
improving manufacturing efficiencies and reducing costs. They include
installation of new equipment at our Roxboro, N.C. yarn plant in the second half
of 1997, which is expected to further drive our yarn manufacturing costs down.
Also, implementation of a major project in our knitting area to the
"knit-to-lot" concept and jumbo rolls should improve our work-in-process
inventories and fabric utilization. Finally, in our dyeing department in
Martinsville, we have eliminated pad dyeing and converted to the latest in
pressure vessel dyeing equipment which enables us to better serve our customers'
demands for a greater variety of shades and colors.
In the area of information technology, Tultex is in the process of implementing
the R3 version of SAP software, a totally-integrated information management
system.
Having completed or reached near completion on these capital-improvement
projects in 1997, we expect capital spending in 1998 to be lower.
WE REMAIN COMMITTED TO OUR STRATEGIES...
Despite the difficulties of 1997, we remain convinced that we have the right
strategies in place to grow our business and be successful. These strategies
include:
o shifting away from traditional manufacturing and toward sourcing, marketing
and distribution;
o continuing to promote and build our branded business;
o further reducing our costs;
o improving our debt-to-equity ratio.
The clear trend in our industry is a shift toward sourcing and away from owning
manufacturing assets. We have a much smaller percentage of our corporate assets
invested in manufacturing than we have had in the past, which allows us to be
more flexible and quickly respond to changing needs. In the past five years, we
have reduced the amount of money tied up in fixed assets as a percentage of
sales. As we continue to shift toward becoming a marketer and distributor, more
and more of our investments will be in these areas.
As we pursue our strategy of promoting our branded products, we will have to be
more creative. We have two objectives in 1998: reducing promotional costs as a
percentage of sales and taking advantage of new opportunities.
For instance, new to our marketing mix in licensed apparel will be on-field
jersey presence. LogoAthletic(R) has obtained a license to provide on-field
jerseys for six
[PHOTO APPEARS IN MIDDLE OF PAGE]
3
<PAGE>
Tultex Corporation
NFL teams--Buffalo Bills, Cincinnati Bengals, Indianapolis Colts, St. Louis
Rams, Seattle Seahawks and Tennessee Oilers. LogoAthletic will continue to
supply official sideline apparel to the coaching staff of all of the above
teams, as well as the Arizona Cardinals.
In addition to exposure from on-field and sideline presence, LogoAthletic
continues to be promoted by star players like Troy Aikman, Dan Marino, Super
Bowl Quarterback John Elway and Bruce Smith.
Products approved by licensors for the mass market are generating new sales in a
product category where Tultex previously had no distribution. These products are
principally jerseys for the NBA, NHL and Major League Baseball.
Discus Athletic(R) was impacted by sluggish second-half sales due to warmer
weather and an oversupply at retail. In addition, the yen/dollar ratio hurt our
Japanese sales of Discus Athletic products, but we anticipate a rebound in this
sector in 1998. We are encouraged by the reception of our Fall '98 line. Discus
will have its first women's retail placement for Fall 1998.
We also see opportunities for growth in 1998 through our Track Gear(TM) line of
apparel geared towards motorsports. Track Gear made a name for itself in the
NASCAR market, with sales tripling in 1997. NASCAR chose Track Gear as one of
four apparel licensees for its 50th Anniversary. We are excited about the
potential in motorsports. According to NASCAR, the audience for Winston Cup
racing has grown from 2.6 million in 1987 to 6.1 million in 1997 and we plan to
capitalize on this rapidly growing sport.
ABOUT OUR BOARD...
Over the past several years, we have consciously sought people for our board who
can help strengthen our company and broaden our perspective.
Seth Bernstein of J. P. Morgan & Company, Inc. joined the Board in February
1997. He is managing director and head of the Leveraged Finance Group at J. P.
Morgan and has more than 10 years of experience in investment banking.
Lynn Beasley, executive vice president for R. J. Reynolds Tobacco Company, was
elected to the board in July. She oversees marketing for R. J. Reynolds Tobacco
and has been involved in marketing and brand development throughout her 15-plus
years with the company.
With Ms. Beasley's strong background in marketing and Mr. Bernstein's expertise
in financial matters, we
[PHOTO APPEARS IN MIDDLE OF PAGE]
4
<PAGE>
Tultex Corporation
[PHOTO APPEARS HERE]
TULTEX BOARD OF DIRECTORS (STANDING FROM LEFT): LATHAN M. EWERS, JR., JOHN M.
FRANCK, CHAIRMAN, SETH P. BERNSTEIN AND BRUCE M. JACOBSON; (SEATED FROM LEFT):
RICHARD M. SIMMONS, JR., F. KENNETH IVERSON, CHARLES W. DAVIES, JR., PRESIDENT
AND CHIEF EXECUTIVE OFFICER, LYNN J. BEASLEY AND H. RICHARD HUNNICUTT, JR.
are confident that these newest additions to our board, as well as our veteran
members, will be great assets to our company and our shareholders.
Again, 1997 was a challenging year for us and our industry given the marketplace
and changing customer needs, yet we improved our competitive position. In 1998,
we believe our cost reduction efforts and new opportunities, coupled with a full
year of our distributor business, will lead to better results for our
shareholders.
Sincerely,
/s/ John M. Franck
John M. Franck
Chairman of the Board
/s/ Charles W. Davies, Jr.
Charles W. Davies, Jr.
President and Chief Executive Officer
5
<PAGE>
Tultex Corporation
<TABLE>
<CAPTION>
BALANCE SHEET
(in thousands of dollars except share data)
Assets Jan. 3, 1998 Dec. 28, 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 2,507 $ 1,654
Accounts receivable, less allowance for doubtful accounts
of $4,205 (1997) and $3,762 (1996) 123,315 160,107
Inventories (Note 2) 199,855 162,283
Prepaid expenses 9,290 7,877
Income taxes refundable 2,696 --
- ------------------------------------------------------------------------------------------------------------
Total current assets 337,663 331,921
- ------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net of depreciation (Note 3) 142,851 136,426
Intangible assets 44,190 24,333
Other assets 13,522 8,100
- ------------------------------------------------------------------------------------------------------------
Total Assets $ 538,226 $ 500,780
- ------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
- ------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Notes payable to banks (Note 4) $ 5,000 $ 5,628
Current maturities of long-term debt (Notes 5 and 19) 527 424
Accounts payable - trade 26,437 33,981
Accrued liabilities - other 9,975 14,429
Dividends payable (Note 6) 3 284
Income taxes payable -- 1,684
- ------------------------------------------------------------------------------------------------------------
Total current liabilities 41,942 56,430
- ------------------------------------------------------------------------------------------------------------
Long-term debt, less current maturities (Notes 5 and 19) 285,727 223,616
- ------------------------------------------------------------------------------------------------------------
OTHER LONG-TERM LIABILITIES:
Deferred income taxes (Note 8) 11,278 12,890
Other 5,167 4,916
- ------------------------------------------------------------------------------------------------------------
Total other long-term liabilities 16,445 17,806
- ------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (Notes 5, 6, 7, 14 and 15):
5% cumulative preferred stock, $100 par value; authorized - 22,000
shares, issued and outstanding - 1,975 shares (1997 and 1996) 198 198
Series B, $7.50 cumulative convertible preferred stock; authorized -
150,000 shares, issued and outstanding - 75,000 shares (1997) and
150,000 shares (1996) 7,500 15,000
Series C, 4.5% cumulative convertible preferred stock; authorized - 100,000
shares, issued and outstanding - 33,260 (1997) 333 --
Common stock, $1 par value; authorized - 60,000,000 shares, issued and
outstanding - 29,875,488 shares (1997) and 29,333,571 shares (1996) 29,875 29,334
Capital in excess of par value 6,893 3,416
Retained earnings 150,005 155,683
Unearned stock compensation (91) --
- ------------------------------------------------------------------------------------------------------------
194,713 203,611
Less notes receivables from stockholders 601 683
- ------------------------------------------------------------------------------------------------------------
Total stockholders' equity 194,112 202,928
- ------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 11, 12 and 13)
Total Liabilities and Stockholders' Equity $ 538,226 $ 500,780
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
statement.
6
<PAGE>
Tultex Corporation
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal years ended: Jan.3, 1998 Dec. 28, 1996 Dec. 30, 1995
(53 weeks) (52 weeks) (52 weeks)
- ----------------------------------------------------------------------------------------------
(In thousands of dollars except per share data)
<S> <C> <C> <C>
Net sales and other income $650,628 $636,341 $585,289
- ----------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of products sold 508,998 469,715 432,062
Depreciation 20,614 21,497 23,163
Selling, general and administrative (Note 16) 101,352 96,454 99,164
Interest 27,611 21,742 21,952
- ----------------------------------------------------------------------------------------------
Total costs and expenses 658,575 609,408 576,341
- ----------------------------------------------------------------------------------------------
Income (loss) before income taxes and extraordinary
loss on early extinguishment of debt (7,947) 26,933 8,948
Provision (benefit) for income taxes (Note 8) (3,099) 10,234 3,400
- ----------------------------------------------------------------------------------------------
Income (loss) before extraordinary loss on
early extinguishment of debt (4,848) 16,699 5,548
Extraordinary loss on early extinguishment of debt
(Net of income taxes of $2,296) (Note 5) -- -- (3,746)
- ----------------------------------------------------------------------------------------------
Net Income (Loss) $ (4,848) $ 16,699 $ 1,802
- ----------------------------------------------------------------------------------------------
Preferred dividend requirement (810) (1,135) (1,135)
Balance applicable to common stock (5,658) 15,564 667
- ----------------------------------------------------------------------------------------------
Income (Loss) per Common
Share:
Income (loss) before extraordinary loss
on early extinguishment of debt:
Basic $ (.19) $ .53 $ .15
Diluted (.19) .52 .15
Extraordinary loss on early extinguishment of debt -- -- (.13)
- ----------------------------------------------------------------------------------------------
Net Income (Loss):
Basic $ (.19) $ .53 $ .02
Diluted (.19) .52 .02
- ----------------------------------------------------------------------------------------------
Dividends per Common Share (Note 6) $ .00 $ .00 $ .00
- ----------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
statement.
7
<PAGE>
Tultex Corporation
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Capital Unearned Notes Total
5% Series B Series C in Excess Stock Receivable- Stock-
Preferred Preferred Preferred Common of Par Retained Compen- Stock- holders'
Stock Stock Stock Stock Value Earnings sation holders Equity
- -----------------------------------------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of
December 31, 1994 $198 $15,000 $ -- $29,807 $5,279 $140,283 $ -- $(3,466) $187,101
Net income for the 52
weeks ended
Dec. 30, 1995 1,802 1,802
Shares issued as payment
of agency commissions 17 68 85
Collections - stockholders'
notes receivable 2,055 2,055
Dividends on preferred stock (1,986) (1,986)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance as of
December 30, 1995 198 15,000 -- 29,824 5,347 140,099 -- (1,411) 189,057
Net income for the 52
weeks ended
Dec. 28, 1996 16,699 16,699
Exercise of stock options 7 28 35
Repurchase of common stock (497) (1,959) (2,456)
Collections - stockholders'
notes receivable 728 728
Dividends on preferred stock (1,135) (1,135)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance as of
December 28, 1996 198 15,000 -- 29,334 3,416 155,663 -- (683) 202,928
Net loss for 53 weeks ended
January 3, 1998 (4,848) (4,848)
Issuance of preferred stock 333 333
Repurchase of preferred
stock (7,500) (7,500)
Exercise of stock options 293 1,352 (320) 1,325
Repurchase of common
stock (336) (1,734) (2,070)
Restricted stock awards 31 196 (227) --
Stock compensation 136 136
Shares issued in CSS
acquisition 554 3,671 4,225
Restricted stock awards lost (1) (8) (9)
Collections - stockholders'
notes receivable 402 402
Dividends on preferred
stock (810) (802)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance as of
January 3, 1998 $198 $ 7,500 $333 $29,875 $ 6,893 $150,005 $(91) $(601) $194,112
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
statement.
8
<PAGE>
Tultex Corporation
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal years ended: Jan. 3, 1998 Dec. 28, 1996 Dec. 30, 1995
(53 weeks) (52 weeks) (52 weeks)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands of dollars)
Operating Activities:
Net income (loss) $ (4,848) $ 16,699 $ 1,802
ITEMS NOT REQUIRING (PROVIDING) CASH:
Depreciation 20,614 21,497 23,163
Deferred income taxes (1,612) 287 (2,290)
Amortization of intangible assets 3,380 1,217 1,216
Unamortized deferred debt issuance costs -- -- 3,109
Other non-cash items 140 -- --
Other long-term liabilities 238 (1,370) 1,526
CHANGES IN ASSETS AND LIABILITIES, NET OF EFFECT OF ACQUISITIONS:
Accounts receivable 34,832 (17,375) (2,989)
Inventories (344) (4,337) (27,763)
Prepaid expenses (2,043) 4,621 2,636
Accounts payable and accrued expenses (28,263) 9,525 8,151
Income taxes payable (4,380) 403 (1,683)
- ----------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 17,714 31,167 6,878
- ----------------------------------------------------------------------------------------------------------------
Investing Activities:
Additions to property, plant and equipment (29,075) (29,048) (17,337)
Business acquisitions (21,875) -- --
Change in other assets (4,315) (2,010) (838)
Sales and retirements of property and equipment 2,995 127 56
- ----------------------------------------------------------------------------------------------------------------
Cash used by investing activities (52,270) (30,931) (18,119)
- ----------------------------------------------------------------------------------------------------------------
Financing Activities:
Issuance (payment) of short-term borrowings (628) 5,628 (1,000)
Issuance (payment) of revolving credit facility borrowings (27,400) (3,900) 13,500
Issuance of long-term debt 75,000 400 110,052
Payments on long-term debt (745) (145) (111,222)
Cost of debt issuance (2,204) -- (4,038)
Cash dividends (1,091) (853) (1,986)
Purchase of preferred stock (7,500) -- --
Proceeds from stock plans 402 728 2,055
Net proceeds (payments) from issuance (repurchase) of common stock (425) (2,421) 85
- ----------------------------------------------------------------------------------------------------------------
Cash provided (used) by financing activities 35,409 (563) 7,446
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents 853 (327) (3,795)
Cash and equivalents at beginning of year 1,654 1,981 5,776
- ----------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $ 2,507 $ 1,654 $ 1,981
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
statement.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Tultex Corporation
Fiscal years ended January 3, 1998, December 28, 1996 and
December 30, 1995
Note 1--The Company and Significant Accounting Policies
Tultex Corporation is a marketer and vertically integrated manufacturer of
activewear and licensed sports apparel which is considered a single business
segment. The company's product lines include fleeced sweats, jersey products and
decorated jackets and caps. 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 original 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.
PROPERTY, PLANT AND EQUIPMENT--Substantially all land, buildings and equipment
are carried at cost. Major renewals and betterments are capitalized while
replacements, maintenance and repairs which do not improve or extend the lives
of the respective assets are expensed currently. Construction in progress
includes capital project and computer system costs in the process of
implementation. Depreciation is provided on the straight-line method for all
depreciable assets over their estimated useful lives as follows:
Classification Estimated Useful Lives
- --------------------------------------------------------------------------------
Land improvements 20 years
Buildings and improvements 12-50 years
Machinery and equipment 3-20 years
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 asset. The gross amount of
goodwill was $25,569,000 at January 3, 1998 and $3,909,000 at December 28, 1996.
Accumulated amortization of goodwill was $1,525,000 at January 3, 1998 and
$782,000 at December 28, 1996, respectively. The gross amount of licenses was
$26,507,000 at January 3, 1998 and December 28, 1996. Accumulated amortization
of licenses was $6,362,000 and $5,301,000 at January 3, 1998 and December 28,
1996, 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 (LOSS) PER COMMON SHARE--Net income (loss) per common share is
computed using the weighted average number of common shares and dilutive common
equivalent shares outstanding during the period after deducting the preferred
dividend requirements which accrued during the period. The weighted average
number of common shares outstanding were 29,783,000, 29,589,000 and 29,810,000
for fiscal 1997, 1996 and 1995, respectively. The dilutive effect of stock
options is computed using the treasury stock method. In 1997, the company
adopted Statement of Financial Standards (SFAS) No. 128, "Earnings Per Share."
The standard requires companies to report basic and diluted earnings per share.
A reconciliation of basic and diluted earnings per share for each of the fiscal
years presented is shown in the following table.
(In thousands except per share data) 1997 1996 1995
- --------------------------------------------------------------------------------
Weighted average number of
common shares outstanding 29,783 29,589 29,810
- --------------------------------------------------------------------------------
Income (loss) available to
common shareholders $(5,658) $15,564 $4,413
- --------------------------------------------------------------------------------
Earnings (loss) per
common share-basic $ (.19) $ .53 $ .15
- --------------------------------------------------------------------------------
Weighted average number of
common shares outstanding 29,783 29,589 29,810
Add: Dilutive effect of stock options,
computed using the treasury
stock method -- 149 3
- --------------------------------------------------------------------------------
Weighted average number of
common and common equivalent
shares outstanding 29,783 29,738 29,813
- --------------------------------------------------------------------------------
Income (loss) available to
common shareholders $(5,658) $15,564 $4,413
- --------------------------------------------------------------------------------
Earnings (loss) per
common share-diluted $ (.19) $ .52 $ .15
- --------------------------------------------------------------------------------
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.
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. The company believes the
carrying amounts for cash, accounts receivable, accounts payable, accrued
liabilities and variable rate debt approximate fair value because of the
short-term maturity of these instruments. The estimated fair value of the
company's fixed rate debt and interest rate swap is disclosed in Note 5.
10
<PAGE>
Tultex Corporation
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS--The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
NEW ACCOUNTING STANDARDS--In 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." These statements, which are effective for
fiscal years beginning after December 15, 1997, expand or modify disclosures and
will have no impact on the company's consolidated financial position, results of
operations or cash flows.
Note 2--Inventories
The components of inventories are as follows:
(In thousands Jan. 3, Dec. 28,
of dollars) 1998 1996
- -------------------------------------------------------------
Raw materials $ 30,198 $ 31,253
Goods in process 19,391 21,464
Finished goods 139,308 103,269
Supplies 10,958 6,297
- -------------------------------------------------------------
Total inventories $199,855 $162,283
- -------------------------------------------------------------
Note 3--Property, Plant and Equipment Property, plant and equipment consist of
the following:
Jan. 3, Dec. 28,
(In thousands of dollars) 1998 1996
- ---------------------------------------------------------------
Land and improvements $ 3,973 $ 4,193
Buildings and improvements 63,017 64,991
Machinery and equipment 248,596 235,499
Construction in progress 30,877 18,657
- ---------------------------------------------------------------
346,463 323,340
Less accumulated depreciation 203,612 186,914
- ---------------------------------------------------------------
Net property, plant and equipment $ 142,851 $136,426
- ---------------------------------------------------------------
Note 4--Short Term Agreements
The company currently has short-term lines of credit with four banks totaling
$18,000,000. The company's revolving credit facility limits outstanding
borrowings under these lines to $10,000,000. Borrowings outstanding at January
3, 1998 and December 28, 1996 were $5,000,000 with interest at 6.9% for both
periods, respectively.
The company utilizes letters of credit for foreign sourcing of inventory. Trade
letters of credit outstanding were $5,503,000, $3,206,000 and $3,648,000 at
January 3, 1998, December 28, 1996 and December 30, 1995, respectively.
Note 5--Long Term Debt
Jan. 3, Dec. 28,
(In thousands of dollars) 1998 1996
- ------------------------------------------------------------
Amount due under revolving
credit agreements $ 86,200 $113,600
10 5/8% senior notes due
March 15, 2005 110,000 110,000
9 5/8% senior notes due
April 15, 2007 75,000 --
10% convertible subordinated
notes due April 15, 2007 9,715 --
9% convertible subordinated
notes due April 15, 2007 4,690
Other indebtedness 649 440
- ------------------------------------------------------------
286,254 224,040
Less current maturities 527 424
- ------------------------------------------------------------
Total long-term debt $285,727 $223,616
- ------------------------------------------------------------
In March 1995, the company sold $110 million of 10 5/8% senior notes due March
15, 2005. Net proceeds from the sale, together with borrowings under the
revolving credit facility, were used to repay existing borrowings. In connection
with the repayment of certain loans, the company was required to write off
unamortized debt issuance costs and incurred a prepayment penalty. The resultant
one-time, after-tax charge amounted to $3,746,000 or 13 cents per share.
On April 15, 1997, the company sold $75 million of 9 5/8% senior notes due 2007.
Proceeds from the sale of the senior notes were used to repay existing
indebtedness and redeem $7,500,000 of the Series B, $7.50 cumulative convertible
preferred stock.
On May 15, 1997, the company entered into a three-year $187 million revolving
credit facility which replaced its existing three-year facility due to expire in
1998. The terms of the new facility are substantially equivalent to those of the
former revolving credit facility, except that the maximum borrowing under the
new facility is $187 million, compared with $225 million under the old facility.
Reduction of the borrowing limit reflects the sale of the $75 million senior
notes described above.
In connection with the purchase of California Shirt Sales, Inc. (see Note 18),
the company issued $9,715,000 of 10% convertible subordinated notes due April
15, 2007 and $4,690,000 of 9% convertible subordinated notes due April 15, 2007.
Commencing on April 15, 1999, the holder of the notes may convert, at his
option, up to 20% per annum of the original principal amount into the company's
common stock. The number of common shares will be determined by dividing the
principal amount of the notes to be converted by the closing price of the
company's common stock on the business day prior to the submission of shares for
conversion.
11
<PAGE>
Tultex Corporation
Note 5 (continued)
Certain subsidiaries of the company fully and unconditionally guarantee the
company's obligations under both the 10 5/8% senior notes and the 9 5/8% senior
notes on a joint and several basis.
The senior notes and revolving credit facility contain provisions regarding
maintenance of net worth, indebtedness levels and restrictions on the payment of
cash dividends. At January 3, 1998, the company was in compliance or had
obtained waivers for any violations of the covenants. Consolidated retained
earnings free of dividend restrictions imposed by the debt covenants amounted to
$5,353,000 at January 3, 1998.
Interest paid by the company in 1997, 1996 and 1995 was $26,042,000,
$21,654,000 and $22,412,000, respectively. The weighted average interest rates
on borrowings under the revolving credit facility at January 3, 1998 and
December 28, 1996 were 7.3% and 6.9%, respectively.
The aggregate maturities of long-term debt for each of the next five fiscal
years are as follows:
(In thousands of dollars) Total
- ----------------------------------------------------------
1998 $ 527
1999 111
2000 86,207*
2001 4
2002 --
*Includes maturity of $86,200 outstanding under revolving credit facility.
At January 3, 1998 and December 28, 1996, the fair value of the 10 5/8% senior
notes exceeded the carrying amount by approximately $3,800,000 and $10,800,000,
respectively. At January 3, 1998, the fair value of the 10% convertible
subordinate notes due 2007 exceeded the carrying value by approximately
$369,000. The carrying values of the 9 5/8% senior notes and the 9% convertible
subordinated notes due 2007 exceeded the fair values by approximately $500,000
and $108,000, respectively. Such fair values were determined using valuation
techniques that considered cash flows discounted at current market rates in
effect at the end of the year.
In 1997, the company entered into an interest rate swap agreement with an
aggregate notional amount of $110 million to swap the 10 5/8% senior notes fixed
rate with a variable rate. The agreement is effective until March 15, 2000. The
differential to be paid or received is accrued as interest rates change and is
recognized as an adjustment to interest expense in the statement of operations.
The fair value of the swap agreement, which reflected a loss of approximately $5
thousand at January 3, 1998 based on quoted market prices and discounted cash
flows, is not recognized in the financial statements. The company is exposed to
credit loss in the event of nonperformance by the counterparties, with such
exposure limited to the amount to be received over the remaining term of the
agreement. The company does not anticipate nonperformance by the counterparties
and expects no material loss will result from such agreements.
Note 6--Dividends
During the second quarter of 1994, the company suspended the payment of
dividends on its common stock. As of January 3, 1998, common stock dividends had
not been reinstated.
Note 7--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.
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 option grants
to certain officers and employees. Options granted under the 1990 Plan may be
incentive stock options ("ISOs") or nonqualified 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 generally 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 and extended
the date that grants could be made to October 27, 2003.
On April 30, 1996, the company's stockholders ratified the 1996 Stock Incentive
Plan under which 700,000 shares of common stock were reserved for stock option
grants and other awards.
A summary of the changes in the number of common shares under option for each of
the three previous years follows:
Year Ended Number Per Share
January 3, 1998 of Shares Option Price
- ---------------------------------------------------------------------------
Outstanding at beginning of year 1,463,600 $4.88-$9.75
Granted 615,000 $5.81-$8.25
Exercised 243,000 $4.88-$8.00
Expired 349,200 $8.38-$9.63
Cancelled 2,500 $9.63-$9.75
- ---------------------------------------------------------------------------
Outstanding at end of year 1,483,900 $4.88-$9.75
- ---------------------------------------------------------------------------
Exercisable at end of year 1,355,400 $4.88-$9.75
- ---------------------------------------------------------------------------
Shares reserved for future grant:
Beginning of year 517,800
- ---------------------------------------------------------------------------
End of year 165,600
- ---------------------------------------------------------------------------
12
<PAGE>
Year Ended Number Per Share
December 28, 1996 of Shares Option Price
- ------------------------------------------------------------------
Outstanding at beginning of year 1,298,400 $5.00-$9.75
Granted 293,000 $4.88
Exercised 7,000 $4.88-$6.00
Expired 30,000 $8.25-$8.38
Cancelled 90,800 $4.88-$9.75
- ------------------------------------------------------------------
Outstanding at end of year 1,463,600 $4.88-$9.75
- ------------------------------------------------------------------
Exercisable at end of year 1,333,600 $4.88-$9.75
- ------------------------------------------------------------------
Shares reserved for future grant:
Beginning of year 23,000
- ------------------------------------------------------------------
End of Year 517,800
- ------------------------------------------------------------------
Year Ended Number Per Share
December 30, 1995 of Shares Option Price
- ------------------------------------------------------------------
Outstanding at beginning of year 1,225,400 $5.13-$9.75
Granted 181,000 $5.00-$5.50
Exercised -- --
Expired 82,300 $7.50-$7.63
Cancelled 25,700 $5.00-$9.75
- ------------------------------------------------------------------
Outstanding at end of year 1,298,400 $5.00-$9.75
- ------------------------------------------------------------------
Exercisable at end of year 1,098,400 $5.00-$9.75
- ------------------------------------------------------------------
Shares reserved for future grant:
Beginning of year 190,000
- ------------------------------------------------------------------
End of year 23,000
- ------------------------------------------------------------------
The company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
which establishes a fair value-based method of accounting for stock-based
compensation. Accordingly, no compensation cost has been recognized for the
stock option plans. Had compensation cost for the company's three stock option
plans been determined based on the fair value at the grant date for awards in
1997 and 1996 consis-tent with provisions of SFAS 123, the company's net income
(loss) and net income (loss) per share would have been reduced to the pro forma
amounts indicated in the table below:
Fiscal Years Ended
--------------------------------
(In thousands of dollars) Jan. 3, 1998 Dec. 28, 1996
- --------------------------------------------------------------------
Net income (loss) - as reported $(4,848) $16,699
Net income (loss) - pro forma $(5,132) $16,316
Net income (loss) per share -
as reported $ (.19) $ .53
Net income (loss) per share -
pro forma $ (.20) $ .51
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions used
for grants in 1997 and 1996: dividend yield of 0.0%; expected volatility of
34.84% for 1997 and 36.16% for 1996; weighted average risk-free interest rate of
5.96% for 1997 and 6.67% for 1996; and expected lives of 5 years.
Note 8--Income Taxes
The components of the provision for federal and state income taxes are
summarized as follows:
Jan. 3, Dec. 28, Dec. 30,
(In thousands of dollars) 1998 1996 1995
- -------------------------------------------------------------
CURRENTLY PAYABLE:
Federal $(1,367) $ 8,437 $ 4,965
State (120) 1,510 725
- -------------------------------------------------------------
(1,487) 9,947 5,690
- -------------------------------------------------------------
DEFERRED:
Federal (1,387) 297 (1,778)
State (225) (10) (512)
- -------------------------------------------------------------
(1,612) 287 (2,290)
- -------------------------------------------------------------
Total provision (benefit) $(3,099) $10,234 $ 3,400
- -------------------------------------------------------------
Significant components of deferred tax liabilities and assets are as follows:
Jan. 3, Dec. 28,
(In thousands of dollars) 1998 1996
- ---------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Tax over book depreciation $14,343 $15,523
Intangible assets 1,887 1,631
- ---------------------------------------------------------------
Gross deferred tax liabilities 16,230 17,154
- ---------------------------------------------------------------
DEFERRED TAX ASSETS:
Bad debt and other allowances 1,573 1,398
Inventory reserves 877 376
Postretirement benefits 614 402
Pension obligations 141 891
Reserve for plant closings 215 --
Charitable contribution 243 --
Accrued liabilities 937 751
Other 352 446
- ---------------------------------------------------------------
Gross deferred tax assets 4,952 4,264
- ---------------------------------------------------------------
Net deferred tax liabilities $11,278 $12,890
- ---------------------------------------------------------------
13
<PAGE>
Note 8 (Continued)
A reconciliation of the statutory federal income tax rates with the com-pany's
effective income tax rates for 1997, 1996 and 1995 was as follows:
Jan. 3, Dec. 28, Dec. 30,
1998 1996 1995
- --------------------------------------------------------
Statutory federal rate 35% 35% 35%
State rate, net 3 3 3
Other 1 -- --
- --------------------------------------------------------
Effective income tax rate 39% 38% 38%
- --------------------------------------------------------
Income tax payments were $3,416,000, $8,597,000 and $4,895,000 for fiscal 1997,
1996 and 1995, respectively.
Note 9--Employee Benefits
All qualified employees of the parent company and its LogoAthletic/Headwear,
Inc. 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 January 3, 1998 and December 28, 1996 was as
follows:
(In thousands of dollars) 1997 1996
- --------------------------------------------------------------------
Fair value of plan assets, primarily
listed stocks and corporate and
government debt $45,894 $38,218
- --------------------------------------------------------------------
Accumulated benefit obligation,
including vested benefits of
$39,937 and $33,652, respectively 40,824 34,457
Additional benefits based on estimated
future salary levels 5,693 4,834
- --------------------------------------------------------------------
Projected benefit obligation 46,517 39,291
- --------------------------------------------------------------------
Projected benefit obligation
in excess of plan assets (623) (1,073)
Unrecognized net loss 1,754 669
Unrecognized net transitional assets (430) (899)
Unrecognized prior service cost 388 445
- --------------------------------------------------------------------
(Accrued) prepaid pension cost $ 1,089 $ (858)
- --------------------------------------------------------------------
The following rate assumptions were made for the plan:
1997 1996
- --------------------------------------------------------------------
Discount rate of return on
projected benefit obligation 7.50% 7.75%
Rate of return on plan assets 10.00% 10.00%
The long-term rate of salary progression for 1997 reflected an increase of 4%
for eight years with an ultimate rate of increase of 5% thereafter. The
long-term rate for 1996 reflected an increase of 3.5% for the first year,
followed by 4% for six years with an ultimate rate increase of 5% thereafter.
Pension expense in 1997, 1996 and 1995 included the following components:
(In thousands of dollars) 1997 1996 1995
- --------------------------------------------------------------------
Service cost-benefits earned
during the period $ 1,594 $ 1,591 $ 1,285
Interest on projected benefit
obligation 2,858 2,862 2,814
Actual loss on plan assets (9,040) (5,307) (4,542)
Net deferral 4,953 1,415 719
- --------------------------------------------------------------------
Net periodic pension cost $ 365 $ 561 $ 276
- --------------------------------------------------------------------
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 has a nonqualified, unfunded supplementary retirement plan for which
it has purchased 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.
The following table sets forth the supplementary plan's status and amounts
recognized in the company's financial statements at January 3, 1998 and December
28, 1996:
(In thousands of dollars) 1997 1996
- -----------------------------------------------------------------
Fair value of plan assets $ -- $ --
Accumulated benefit obligation,
including vested benefits of $2,734
and $2,883, respectively 3,200 3,051
Additional benefits based on estimated
future salary levels 344 344
- -----------------------------------------------------------------
Projected benefit obligation 3,544 3,395
- -----------------------------------------------------------------
Projected benefit obligation less than
plan assets (3,544) (3,395)
Unrecognized net loss 1,162 866
Unrecognized prior service cost 220 240
Unrecognized transitional obligation 701 801
Adjustment required to recognize
minimum liability (1,659) (1,563)
- -----------------------------------------------------------------
Unfunded accrued supplementary
pension cost $(3,120) $(3,051)
- -----------------------------------------------------------------
14
<PAGE>
Net supplementary pension cost for the three years included the following
components:
(In thousands of dollars) 1997 1996 1995
- --------------------------------------------------------------------
Service cost-benefits earned
during the period $109 $102 $ 85
Interest on projected benefit obligation 240 275 309
Net amortization 161 180 183
- --------------------------------------------------------------------
Net periodic supplementary
pension cost $510 $557 $577
- --------------------------------------------------------------------
Substantially all employees meeting certain requirements are eligible to
participate in the company's employee savings (401-K) plan. Employee
contributions are limited to a percentage of their compensation, as defined in
the plan. The plan does not provide for any company contributions.
Substantially all employees are eligible to receive certain bonuses or
profit-sharing amounts, the amounts of which are determined by the labor
contract for employees covered by the collective bargaining agreement, the
Tultex Corporation Consolidated Incentive Plan for certain salaried employees,
and management discretion for all other employees. The Tultex Corporation
Consolidated Incentive Plan was designed to provide a performance-based
incentive for employees of the company who are in a position to contribute
materially to the success of the company and its subsidiaries. Awards under the
plan are determined by the company's performance against established performance
goals. Total bonus expenses amounted to $1,942,000 in 1997, $3,734,000 in 1996
and $2,044,000 in 1995.
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.
In 1993, the company adopted Statement of Financial Standards (SFAS) No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." The
standard requires 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 of $5,101,000 over a 20-year period.
The amounts recognized in the company's balance sheet at January 3, 1998 and
December 28, 1996 were as follows:
(In thousands of dollars) 1997 1996
- ----------------------------------------------------------------
Accumulated postretirement
benefit obligation $(7,044) $(7,634)
Unrecognized transitional obligation 3,821 4,077
Unrecognized loss 1,608 2,499
- ----------------------------------------------------------------
Accrued liability $(1,615) $(1,058)
- ----------------------------------------------------------------
Net periodic postretirement benefit costs for 1997, 1996 and 1995 included the
following components:
(In thousands of dollars) 1997 1996 1995
- -----------------------------------------------------------------------
Service cost - benefits earned during
the period $ 244 $ 198 $ 207
Interest on accumulated post-
retirement benefit obligation 558 523 564
Amortization of accumulated post-
retirement benefit obligation 256 256 256
Amortization of loss 102 63 63
- -----------------------------------------------------------------------
Total periodic postretirement
benefit cost $1,160 $1,040 $1,090
- -----------------------------------------------------------------------
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.5% for 1997 and 7.75% for 1996. The assumed medical cost trend
rate was 8% and 9% in 1997 and 1996, respectively, declining by 1% per year
until an ultimate goal of 5.5% is achieved. The effect of a 1% increase in the
assumed health care cost trend rates for each future year would have increased
the aggregate of 1997 service cost and interest cost by $90,000, and would have
increased the January 3, 1998 accumulated postretirement benefit obligation by
$579,000.
The company does not have significant postemployment benefits requiring accrual
under Statement of Financial Accounting Standards (SFAS) No. 112, "Employers'
Accounting for Postemployment Benefits."
Note 10--Quarterly Financial Information (Unaudited)
The following is a summary of the unaudited quarterly financial information for
the years ended January 3, 1998 and December 28, 1996.
15
<PAGE>
Tultex Corporation
(In thousands of dollars
except per share data) 1997 1996
- ----------------------------------------------------------
NET SALES AND OTHER INCOME
1st quarter $ 99,630 $ 95,303
2nd quarter 148,117 138,198
3rd quarter 229,725 215,390
4th quarter 173,156 187,450
- ----------------------------------------------------------
Total $ 650,628 $636,341
- ----------------------------------------------------------
GROSS PROFIT
1st quarter $ 21,035 $ 20,005
2nd quarter 28,231 27,556
3rd quarter 46,614 53,263
4th quarter 26,438 45,943
- ----------------------------------------------------------
Total $ 122,318 $146,767
- ----------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES
1st quarter $ (6,952) $ (8,901)
2nd quarter 1,403 1,120
3rd quarter 11,488 21,011
4th quarter (13,886) 13,703
- ----------------------------------------------------------
Total $ (7,947) $ 26,933
- ----------------------------------------------------------
NET INCOME (LOSS)
1st quarter $ (4,235) $ (5,520)
2nd quarter 850 689
3rd quarter 7,009 13,025
4th quarter (8,472) 8,505
- ----------------------------------------------------------
Total $ (4,848) $ 16,699
- ----------------------------------------------------------
NET INCOME (LOSS) PER COMMON SHARE
1st quarter $ (.15) $ (.19)
2nd quarter .02 .01
3rd quarter .23 .43
4th quarter (.29) .28
- ----------------------------------------------------------
Total $ (.19) $ .53
- ----------------------------------------------------------
Note 11--Commitments
At January 3, 1998, the company was obligated under a number of noncancellable,
renewable operating leases as follows:
Data Manufacturing
(In thousands Processing Facilities and
of dollars) Equipment Other Total
- ------------------------------------------------------------
1998 $3,612 $ 7,549 $11,161
1999 2,941 5,622 8,563
2000 1,458 4,886 6,344
2001 31 3,990 4,021
2002 -- 3,781 3,781
2003 and after -- 12,346 12,346
- ------------------------------------------------------------
Total $8,042 $38,174 $46,216
- ------------------------------------------------------------
Rental expense charged to income was $16,857,000 in 1997, $13,287,000 in 1996
and $13,128,000 in 1995.
The company has entered into various licensing agreements which permit it to
market apparel with copyrighted logos from the sports industry. 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
January 3, 1998 were approximately $2,400,000.
Note 12--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 January 3, 1998 under
these agreements was approximately $4,204,000.
Note 13--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 has
no customer that constituted 10% of net sales in 1997, 1996 or 1995. As
disclosed on the balance sheet, the company maintains an allowance for doubtful
accounts to cover estimated credit losses.
Note 14--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 a 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.
Note 15--Stock Purchase Plan
In February 1994, the company initiated the Salaried Employees' 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
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 are
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, $3,835,000
has been collected,
16
<PAGE>
Tultex Corporation
leaving an outstanding balance at January 3, 1998 of $309,000. Interest income
realized in 1997, 1996 and 1995 on the loans was $35,000, $64,000 and $138,000,
respectively. 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 16--Advertising Costs
In fiscal 1995, the company adopted the provisions of the Accounting Standards
Executive Committee's Statement of Position on Reporting Advertising Costs
("Statement"). The Statement required that certain advertising costs which were
previously deferred and amortized over an anticipated benefit period be
recognized currently in the statement of income. Advertising expense charged to
income was $23,632,000 in 1997, $21,614,000 in 1996 and $22,706,000 in 1995.
Selling, general and administrative expenses reported on the statement of income
increased by approximately $5,000,000 in 1995 as a result of adopting this
change in method of accounting for advertising costs.
Note 17--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 (now known as the Union of Needletrades, Industrial and Textile
Employees or UNITE). Tultex accepted a three-year contract with UNITE, which was
ratifed by an employee vote in March 1995. The contract covers approximately
2,100 employees in the Martinsville area. The company is currently renegotiating
this contract and expects completion during 1998. In May 1995, hourly employees
at the company's South Boston, Virginia sewing facility voted for representation
by UNITE. A three-year contract was ratified by an employee vote in August 1995.
The contract covers approximately 500 employees in the South Boston area.
Note 18--Mergers and Acquisitions
On April 16, 1997, the company acquired California Shirts Sales, Inc. ("CSS"),
an apparel distributor in 11 western states and Hawaii. The company purchased
substantially all assets totaling $58.8 million, including cash of $223
thousand, and assumed certain liabilities totaling $11.9 million. The
acquisition was recorded using the purchase method of accounting. Acquisition
consideration was comprised of 554,098 shares of the company's common stock
valued at $4.2 million on a price of $7.625 per share, cash payment of $7.0
million, subordinated indebtedness issued for $14.4 million, and the assumption
of liabilities totaling $33.2 million. The purchase price has been allocated to
the acquired assets and liabilities assumed based on their fair values resulting
in goodwill of $12.1 million to be amortized over 25 years. The historical
recorded values of CSS assets and liabilities were not materially different from
their fair values.
The operating results of CSS have been included in the consolidated statements
of income from the date of acquisition. The following pro forma unaudited
consolidated operating results of the company and CSS have been prepared as if
the acquisition had been made at the beginning of the periods presented and
include pro forma adjustments to reflect intercompany transactions, amortization
of goodwill and transaction financing, as well as the income tax effect of these
items.
Years Ended (Unaudited)
Jan. 3, 1998 Dec. 28, 1996
- ----------------------------------------------------------------
(In thousands, except per share data)
Sales $672,148 $718,966
Net income (loss) (5,968) 13,251
Net income (loss) per share (.20) .44
The proforma results are not necessarily indicative of the results of operations
of the combined companies that would have occurred had the acquistions occurred
at the beginning of the periods presented, nor are they necessarily indicative
of future operating results.
On May 6, 1997, the company acquired T-Shirt City, Inc. ("TSC"), an apparel
distributor in the Midwestern United States. The company purchased substantially
all assets totaling $16.6 million, including cash of $173 thousand, and assumed
certain liabilities totaling $5.4 million. The transaction was recorded using
the purchase method of accounting. Acquisition consideration included a cash
payment of $1.8 million and the assumption of liabilities totaling $14.8
million. The purchase price has been allocated to the acquired assets and
liabilities assumed based on their fair values resulting in goodwill of $9.1
million to be amortized over 25 years. The historical recorded values of TSC
assets and liabilities were not materially different from their fair values. The
pro forma effect of this acquisition has not been presented because these
amounts would not differ materially from actual results.
During the fourth quarter of 1997, the company acquired 100% ownership of Track
Gear, Inc., a manufacturer and marketer of imprinted motorsports apparel. The
company previously owned 51% of Track Gear, Inc.'s common shares. The company
purchased the interests of four other investors for $478,000 cash and new Series
C preferred stock of $333,000. The cumulative preferred stock is convertible and
bears interest at 4.5% per annum. At the option of the holder, the Series C
preferred shares may be converted, commencing on the second anniversary of the
date of issue, into common stock of the company at a conversion ratio of one
share of Series C preferred stock for one share of common stock.
17
<PAGE>
Tultex Corporation
Note 19--Condensed Consolidating Financial Information
The following financial information presents condensed consolidated financial
data which includes (i) the parent company only ("Parent"), (ii) the
wholly-owned guarantor subsidiaries on a combined basis ("Wholly-owned Guarantor
Subsidiaries"), (iii) the wholly-owned non-guarantor subsidiaries on a combined
basis (Wholly-owned Non-guarantor Subsidiaries), (iv) the majority-owned
subsidiary (Majority-owned Subsidiary) and (iv) the company on a consolidated
basis.
<TABLE>
<CAPTION>
Wholly-owned Wholly-owned
Guarantor Non-guarantor Majority-owned
(In thousands of dollars) Parent Subsidiaries Subsidiaries Subsidiary Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
As of and for the year ended
January 3, 1998
<S> <C> <C> <C> <C> <C> <C>
Current assets $230,643 $168,877 $ 64,126 $ -- $(125,983) $337,663
Noncurrent assets 257,804 33,638 22,706 -- (113,585) 200,563
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $488,447 $202,515 $ 86,832 $ -- $(239,568) $538,226
- ------------------------------------------------------------------------------------------------------------------------------------
Current liabilities $ 19,925 $117,462 $ 24,989 $ -- $(120,434) $ 41,942
Noncurrent liabilities 299,145 2,247 (306) -- 1,086 302,172
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities $319,070 $119,709 $ 24,683 $ -- $(119,348) $344,114
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $391,153 $231,033 $ 116,824 $ -- $ (88,382) $650,628
Cost and expenses 411,044 224,382 111,566 -- (88,417) 658,575
- ------------------------------------------------------------------------------------------------------------------------------------
Pretax income (loss) $ (19,891) $ 6,651 $ 5,258 $ -- $ 35 $ (7,947)
- ------------------------------------------------------------------------------------------------------------------------------------
Wholly-owned Wholly-owned
Guarantor Non-guarantor Majority-owned
(In thousands of dollars) Parent Subsidiaries Subsidiaries Subsidiary Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
As of and for the year ended
December 28, 1996
Current assets $275,694 $158,955 $ -- $ 1,729 $(104,457) $331,921
Noncurrent assets 189,088 36,405 -- 1,005 (57,639) 168,859
Total assets $464,782 $195,360 $ -- $ 2,734 $(162,096) $500,780
Current liabilities $ 38,074 $116,763 $ -- $ 2,390 $(100,797) $ 56,430
Noncurrent liabilities 242,011 (161) -- (405) (23) 241,422
Total liabilities $280,085 $116,602 $ -- $ 1,985 $(100,820) $297,852
Net sales $411,151 $253,318 $ -- $ 2,489 $ (30,617) $636,341
Cost and expenses 396,370 240,784 -- 3,426 (31,172) 609,408
Pretax income (loss) $ 14,781 $ 12,534 $ -- $ (937) $ 555 $ 26,933
18
<PAGE>
Wholly-owned Wholly-owned
Guarantor Non-guarantor Majority-owned
(In thousands of dollars) Parent Subsidiaries Subsidiaries Subsidiary Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
As of and for the year ended
December 30, 1995
Current assets $267,300 $206,137 $ -- $ 3,559 $(161,839) $315,157
Noncurrent assets 182,927 38,089 -- -- (60,374) 160,642
Total assets $450,227 $244,226 $ -- $ 3,559 $(222,213) $475,799
Current liabilities $ 25,222 $173,849 $ -- $ 2,956 $(161,714) $ 40,313
Noncurrent liabilities 246,463 (22) -- (51) 39 246,429
Total liabilities $271,685 $173,827 $ -- $ 2,905 $(161,675) $286,742
Net sales $386,300 $214,230 $ -- $ 8,681 $ (23,922) $585,289
Cost and expenses 373,466 219,240 -- 8,073 (24,438) 576,341
Pretax income (loss) $ 12,834 $ (5,010) $ -- $ 608 $ 516 $ 8,948
</TABLE>
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 operations, 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 January 3,
1998 and December 28, 1996, and the results of their operations and their cash
flows for each of the three years in the period ended January 3, 1998, 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 disclosures in the financial statements,
assessing the accounting principles used 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.
In 1995, the company changed its method of accounting for advertising costs, as
discussed in Note 16 of Notes to Financial Statements.
/s/ Price Waterhouse LLP
Winston-Salem, North Carolina
February 11, 1998
19
<PAGE>
Tultex Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Information
This Annual Report may contain certain forward-looking statements reflecting the
company's current expectations. Although the company believes that the
expectations reflected in any such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from the
company's expectations include the financial strength of the retail industry,
the level of consumer spending on apparel, the company's ability to profitably
and timely satisfy customer demand for its products, the competitive pricing
environment within the apparel industry, the company's substantial leverage and
the restrictive covenants in its borrowing documents, fluctuations in the price
of cotton and polyester used by the company in the manufacture of its products,
the company's relationship with its partially unionized workforce, and the
seasonality and cyclicality of the fleecewear and licensed apparel industries.
Such statements are provided in accordance with the safe harbor provisions of
the Private Litigation Reform Act of 1995. Investors should consider other risks
and uncertainties discussed in other documents filed by the company with the
Securities and Exchange Commission.
Results of Operations
The following table presents the company's consolidated statement of operations
as a percentage of net sales:
Jan. 3, 1998 Dec. 28, 1996 Dec. 30, 1995
(53 weeks) (52 weeks) (52 weeks)
- --------------------------------------------------------------------------------
Net sales and
other income 100.0% 100.0% 100.0%
- --------------------------------------------------------------------------------
Cost of products sold 78.2 73.8 73.8
Depreciation 3.2 3.4 4.0
Selling, general and
administrative 15.6 15.2 16.9
Interest 4.2 3.4 3.8
- --------------------------------------------------------------------------------
Total costs and expenses 101.2 95.8 98.5
- --------------------------------------------------------------------------------
Income (loss) before
income taxes and extra-
ordinary loss on early
extinguishment of debt (1.2) 4.2 1.5
Provision (benefit)
for income taxes (.5) 1.6 .6
- --------------------------------------------------------------------------------
Income (loss) before extra-
ordinary loss on early
extinguishment of debt (.7) 2.6 .9
Extraordinary loss on early
extinguishment of debt
(net of income taxes of
$2,296) -- -- (.6)
- --------------------------------------------------------------------------------
Net income (loss) (.7)% 2.6% .3%
- --------------------------------------------------------------------------------
Note: Certain items have been rounded to cause the columns to add to 100%.
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
Net sales and other income of $650.6 million for the year ended January 3, 1998
represents an increase of $14.3 million, or 2.2%, over the prior year. This
increase resulted from the acquisition of California Shirt Sales and T-Shirt
City during the second quarter of 1997 and was partially offset by lower fleece
and licensed apparel sales. Activewear sales of $441.3 million in 1997 represent
an increase of $33.0 million, or 8.1%, as compared to 1996. Licensed sales of
$209.3 million in 1997 represent a decrease of $18.7 million, or 8.2%, as
compared to fiscal 1996. The licensed apparel sales decrease resulted from the
absence of Olympic sales in 1997 as compared to 1996, as well as softness in
sales of Major League Baseball and National Basketball Association products
during 1997.
Cost of products sold as a percentage of sales was 78.2% for 1997 and 73.8% for
1996. The increase as a percentage of sales was due to sales mix, competitive
pricing, higher operating costs and a charge of $8.1 million taken during the
fourth quarter of 1997. The charge related to costs and unfavorable operating
variances which resulted from bringing major capital projects on-line, the
effect of reduced operating schedules, closing two domestic sewing plants and
closing two distributor warehouses. Cost of products sold as a percentage of
sales excluding the charge was 77.0% for fiscal 1997.
Depreciation expense as a percentage of sales was 3.2% for fiscal 1997 and 3.4%
for fiscal 1996. The $883,000 decrease in depreciation expense during 1997 was
the result of certain assets becoming fully depreciated, and was partially
offset by depreciation expense incurred on 1997 capital additions.
Selling, general and administrative expenses ("S,G&A") increased $4.9 million in
1997. The primary reason for the increase was the inclusion of expenses for the
recently acquired California Shirt Sales and T-Shirt City subsidiaries. In
addition, a charge of $1.0 million was incurred in 1997 due to staff reductions
and the closing of a sales office. Advertising expenses also increased $2.0
million for fiscal 1997 compared to fiscal 1996. As a percentage of sales, S,G&A
expenses were 15.6% in 1997 and 15.2% in 1996.
Operating income (income before interest and income taxes) decreased 59.5%
during the 1997 fiscal year to $19.7 million compared to $48.7 million for
fiscal 1996.
Interest expense as a percentage of sales increased from 3.4% in 1996 to 4.2% in
1997. Interest expense increased from $21.7 million to $27.6 million in 1997,
primarily as a result of higher average borrowings and higher average rates. The
nature of the company's primary business requires extensive seasonal borrowings
to support working capital needs. During fiscal 1997, working capital borrowings
averaged $130.1 million at an average rate of 7.3% compared to $137.5 million
and 6.9%, respectively, for the comparable period of the prior year.
Provision (benefit) for income taxes is a function of pretax earnings and the
combined effective rate of federal and state income taxes. This combined rate
was 39% in 1997 and 38% in 1996. The provision for income taxes decreased $13.3
million in 1997 as a result of the pretax loss, representing (.5)% of net sales
as compared to 1.6% in fiscal 1996.
20
<PAGE>
Tultex Corporation
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Net sales and other income of $636.3 million for fiscal 1996 increased $51.0
million, or 8.7%, over the 1995 level of $585.3 million. The 1996 sales growth
was due to increased sales volumes, and was further supported by a shift in
sales mix to premium products. During 1996, sales of higher margin branded and
premium private label products increased 23.7% and sales to the screenprint and
distributor channels increased 10.2%. Sales of jersey products were $112.4
million for 1996, representing 27.5% of the company's activewear sales as
compared to 24.0% for 1995.
Cost of products sold as a percentage of sales was 73.8% for both 1996 and 1995.
The increased margins achieved from the sale of premium products in 1996 were
offset by higher raw material costs and the increased percentage of jersey
product sales which are at lower margins. The higher raw material costs were due
to raw cotton and polyester prices which peaked in the first half of 1996.
Depreciation expense as a percentage of sales decreased from 4.0% for 1995 to
3.4% for 1996. Depreciation expense decreased from $23.2 million in 1995 to
$21.5 million in 1996, due to relatively low capital expenditures.
Selling, general and adminstrative expenses decreased as a percentage of sales
to 15.2% for 1996 from 16.9% for 1995. This decrease is primarily due to the
one-time charge of $5.0 million for deferred advertising costs required to be
recognized in 1995. Excluding the effect of this charge in 1996, S,G&A expenses
reflect higher advertising costs which were used to support the increase in
sales. This increase in advertising spending was partially offset by a decrease
in the bad debt provision resulting from improved collection experience.
Interest expense as a percentage of sales decreased from 3.8% in 1995 to 3.4% in
1996. Interest expense decreased from $22.0 million in 1995 to $21.7 million in
1996 due to lower average rates. Average working capital borrowings of $137.5
million at an average rate of 6.9% in 1996 compared with $136.4 million and 7.6%
for 1995, respectively.
Provision for income taxes reflects an effective rate for combined federal and
state income of 38% for both 1996 and 1995.
Financial Condition, Liquidity and Capital Resources
Net working capital at January 3, 1998 of $295.7 million was $20.2 million
higher than the December 28, 1996 amount of $275.5 million. Net accounts
receivable decreased $36.8 million from December 28, 1996 to January 3, 1998 due
to lower fourth quarter sales.
Inventories traditionally increase throughout the first half of the year to
support second-half shipments. In 1997, inventories peaked on August 9, 1997 at
$266.9 million and then declined to $199.9 million on January 3, 1998. As of
January 3, 1998, inventories had increased $37.6 million or 23.2% from December
28, 1996. This increase was due to the distributor acquisitions and was
comprised primarily of jersey products. The current ratio (ratio of current
assets to current liabilities) at January 3, 1998 was 8.1 compared to 5.9 for
December 28, 1996. The increase in the ratio was mainly due to increased
inventories and lower accounts payable and income taxes payable.
On April 15, 1997, the company sold $75 million of 9 5/8% senior notes due 2007.
Proceeds from the sale of the senior notes were used to repay existing
indebtedness and redeem $7,500,000 of the Series B, $7.50 cumulative convertible
preferred stock. On May 15, 1997, the company entered into a three-year $187
million revolving credit facility which replaced its existing three-year
facility due to expire in 1998. The terms of the new facility are substantially
equivalent to those of the former revolving credit facility, except that the
maximum borrowing amount under the new facility is $187 million, compared with
$225 million under the old facility. Reduction of the borrowing limit reflects
the proceeds from the sale of $75 million senior notes.
Total indebtedness at January 3, 1998 consisted primarily of senior notes
totaling $185.0 million and $86.2 million outstanding under the revolving credit
facility. The company's average credit facility borrowings during fiscal 1997
were $130.1 million and its peak borrowing was $172.0 million at September 11,
1997. At January 3, 1998, the company was in violation of a debt covenant of its
revolving credit facility. A waiver was received for this violation. The
company's revolving credit facility lenders also amended certain future covenant
requirements contained in the agreement.
On May 30, 1997, the company redeemed 75,000 shares of the 150,000 outstanding
shares of its $7.50 Series B, $100 stated value Preferred Stock at a redemption
price (including accrued but unpaid dividends) of $103.75 per share.
On July 29, 1997, the company's Board of Directors authorized the purchase of an
additional 1 million shares, increasing the total authorized shares for the
program dated March 20, 1996 to 2 million shares. As of January 3, 1998, a total
of 833,400 shares had been purchased and retired.
Stockholders' equity decreased $8.8 million during fiscal 1997 as a result of
the preferred stock redemption of $7.5 million, the net loss for the period of
$4.8 million, preferred dividends of $810,000 and stock repurchases of $2.1
million, partially offset by common shares issued of $4.2 million, preferred
stock issued of $333,000 and proceeds from stock plans of $1.9 million. Debt as
a percentage of total capitalization was 60.0% compared to 53.1% at December 28,
1996.
In fiscal 1997, net cash provided by operations was $17.7 million compared to
$31.2 million in fiscal 1996. Cash used for capital expenditures was
approximately $29.0 million for fiscal 1997 and fiscal 1996. The company has
budgeted $11.0 million for capital expenditures in fiscal 1998. Cash provided by
financing activities was $35.4 million for fiscal 1997 compared to cash used by
financing activities of $563,000 in 1996 as a result
21
<PAGE>
Tultex Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
of the issuance of the $75 million senior notes partially offset by lower
revolving credit facility borrowings. The company expects that its short-term
borrowing needs will be met through cash generated from operations and
borrowings under the revolving credit facility.
Year 2000
In prior years, certain computer programs were written using two digits rather
than four to define the applicable year. These programs were written without
considering the impact of the upcoming change in the century and may experience
problems handling dates beyond the year 1999. This could cause computer
applications to fail or to create erroneous results unless corrective measures
are taken. Incomplete or untimely resolution of the Year 2000 issue could have a
material adverse impact on our company's business, operations or financial
condition in the future. The company has been assessing the impact that the Year
2000 issue will have on its computer systems since 1995. In response to these
assessments, which are ongoing, the company has reviewed critical business
systems and developed a plan to resolve existing system deficiencies. Management
expects substantial implementation in 1998 of enterprise-wide computer systems
which are Year 2000 compliant. As of January 3, 1998, approximately $18 million
has been capitalized relating to this implementation. The company is also
surveying critical suppliers and customers to determine the status of their Year
2000 compliance programs.
Based on the company's review and plans, the company believes future costs
relating to the Year 2000 issue will not have a material impact on its
consolidated financial position, results of operations or cash flows.
COMMON STOCK PRICES AND DIVIDEND INFORMATION
The company's common stock is listed on the New York Stock Exchange under the
symbol TTX. The following table shows the daily high, low and closing quotations
by quarters:
<TABLE>
<CAPTION>
53 Weeks ended January 3, 1998 52 Weeks ended December 28, 1996
------------------------------ --------------------------------
Range of Quotations Range of Quotations
------------------- -------------------
Quarter Ended Low High Close Low High Close
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
April 5 $6 3/8 $8 5/8 $7 5/8 $3 7/8 $4 7/8 $4 5/8
July 5 5 1/4 8 5 15/16 4 1/2 5 7/8 4 3/4
October 4 5 1/2 7 5 3/4 4 1/4 5 5/8 5 3/8
January 3 3 5/8 5 3/4 4 5 3/8 7 3/4 7
</TABLE>
See Note 5 to Consolidated Financial Statements for restrictions on consolidated
retained earnings imposed by debt covenants. At January 3, 1998, $5,353,000 of
consolidated retained earnings were free of such dividend restrictions.
Shares of Stock
The average number of shares of common stock for the year was 29,782,946. The
common shares outstanding at year-end amounted to 29,875,488.
22
<PAGE>
Tultex Corporation
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
(In thousands of dollars except per share data) (53 weeks) (52 weeks) (52 weeks) (52 weeks) (52 weeks)
- ---------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS:
<S> <C> <C> <C> <C> <C>
Net sales and other income $ 650,628 $ 636,341 $ 585,289 $ 565,433 $ 533,611
Costs and operating expenses 630,964 587,666 554,389 532,847 507,524
- ---------------------------------------------------------------------------------------------------------------------------------
Operating income 19,664 48,675 30,900 32,586 28,087
Interest expense 27,611 21,742 21,952 18,151 16,996
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and extraordinary loss
on early extinguishment of debt (7,947) 26,933 8,948 14,435 9,091
Provision (benefit) for income taxes (3,099) 10,234 3,400 5,485 3,188
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary loss on early
extinguishment of debt (4,848) 16,699 5,548 8,950 5,903
Extraordinary loss on early extinguishment of debt -- -- (3,746) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) (4,848) 16,669 1,802 8,950 5,903
Less preferred dividend requirement 810 1,135 1,135 1,135 1,135
- ---------------------------------------------------------------------------------------------------------------------------------
Balance to common stock $ (5,658) $ 15,564 $ 667 $ 7,815 $ 4,768
- ---------------------------------------------------------------------------------------------------------------------------------
Weighted average number of common shares outstanding 29,783 29,589 29,810 29,685 28,961
- ---------------------------------------------------------------------------------------------------------------------------------
Shares outstanding at year end 29,875 29,334 29,824 29,807 29,053
- ---------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE:
Income (loss) before extraordinary loss on early
extinguishment of debt $ (.19) $ .53 $ .15 $ .26 $ .16
Net income (loss) $ (.19) $ .53 $ .02 $ .26 $ .16
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends declared (Note 6) $ .00 $ .00 $ .00 $ .05 $ .20
- ---------------------------------------------------------------------------------------------------------------------------------
Book value $ 6.23 $ 6.40 $ 5.83 $ 5.74 $ 5.64
- ---------------------------------------------------------------------------------------------------------------------------------
YEAR-END DATA:
Current assets $ 337,663 $ 331,921 $315,157 $289,907 $ 288,691
Current liabilities 41,942 56,430 40,313 167,053 45,138
- ---------------------------------------------------------------------------------------------------------------------------------
Working capital $ 295,721 $ 275,491 $274,844 $122,854 $ 243,553
- ---------------------------------------------------------------------------------------------------------------------------------
Inventories $ 199,855 $ 162,283 $157,946 $130,183 $ 157,278
Property, plant and equipment (net) $ 142,851 $ 136,426 $129,002 $134,884 $ 151,775
Total assets $ 538,226 $ 500,780 $475,799 $456,809 $ 474,965
Bank notes payable $ 5,000 $ 5,628 $ -- $ 1,000 $ --
Current portion of long-term debt $ 527 $ 424 $ 145 $132,353 $ 8,524
- ---------------------------------------------------------------------------------------------------------------------------------
CAPITAL INVESTED:
Long-term debt $ 285,727 $ 223,616 $227,540 $ 83,002 $ 230,914
Stockholders' equity 194,112 202,928 189,057 187,101 179,197
- ---------------------------------------------------------------------------------------------------------------------------------
Total capital invested $ 479,839 $ 426,544 $416,597 $270,103 $ 410,111
- ---------------------------------------------------------------------------------------------------------------------------------
Return on average total capital invested (1.1)% 4.0% 0.5% 2.6% 1.7%
Long-term debt as a percentage of total capital 59.5% 52.4% 54.6% 30.7% 56.3%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
GENERAL INFORMATION
Stock Listing
Traded on the New York Stock Exchange
under the symbol - TTX
Form 10-K Request Copies of the company's report to the Securities and Exchange
Commission on Form 10-K may be obtained without charge
by writing to:
Kathy Rogers
Corporate Secretary
Tultex Corporation
P.O. Box 5191
Martinsville, VA 24115
or by calling: 540-632-2961,x3830
or by e-mail: [email protected]
Shareholder Relations
If you have questions regarding your stock, you may contact:
Regina Haynes
Supervisor-Shareholder Relations
Tultex Corporation
P.O. Box 5191
Martinsville, VA 24115
540-632-2961, x3831
FAX: 540-632-8000
Corporate Office
Tultex Corporation
101 Commonwealth Boulevard
Martinsville, VA 24112
540-632-2961
FAX: 540-632-8000
Internet Address: www.tultex.com
General Counsel
Hunton & Williams
P.O. Box 1535
Richmond, VA 23212
804-788-8200
Independent Accountants
Price Waterhouse LLP
200 W. 2nd Street
Winston-Salem, NC 27101
336-725-0691
Transfer Agent
First Union National Bank of NC
Shareholder Services Administration Group
NC 1153
1525 West W.T. Harris Blvd., 3C3
Charlotte, NC 28288-1153
800-829-8432
Corporate Officers
C. W. Davies, Jr.
President and
Chief Executive Officer
O. R. Rollins
Executive Vice President
and General Counsel
W. J. Caruba
Vice President-
Sales and Marketing
W. J. Gardner, Jr.
Vice President-
Operations
J. K. Judkins
Vice President-
Customer Service
A. J. Pichirallo
Vice President-
Wholesale
J. J. Smith
Vice President
S. H. Wood
Vice President
and Chief Financial Officer
J. F. Kies
Controller
R. H. Gehman
Treasurer
K. H. Rogers
Corporate Secretary
R. C. Haynes
Assistant Secretary
W. T. Moore
Assistant Treasurer
Board of Directors
J. M. Franck
Chairman of the Board
C. W. Davies, Jr.
L. J. Beasley
Executive Vice President
RJ Reynolds Tobacco Co.
S. P. Bernstein
Managing Director,
Head of Leveraged Finance Group
J. P. Morgan & Company, Inc.
L. M. Ewers, Jr.
Partner
Hunton & Williams, Attorneys at Law
H. R. Hunnicutt, Jr.
Retired Chairman and Chief Executive Officer
of the Company
F. K. Iverson
Chairman
Nucor Corporation
B. M. Jacobson
Senior Partner
Katz, Sapper & Miller
Certified Public Accountants
R. M. Simmons, Jr.
Retired Chairman and President
American Furniture Company
Committees of the Board
Audit Committee
B. M. Jacobson
R. M. Simmons, Jr.
Executive Compensation Committee
S. P. Bernstein
L. M. Ewers, Jr.
B. M. Jacobson
Nominating Committee
J. M. Franck
H. R. Hunnicutt, Jr.
F. K. Iverson
24
<PAGE>
PLANT LOCATIONS
COMPANY-OWNED STORE LOCATIONS
YARN MANUFACTURING
Mayodan, North Carolina
Roxboro, North Carolina (2 Plants)
FABRIC MANUFACTURING
Asheville, North Carolina
Martinsville, Virginia
APPAREL MANUFACTURING
Bastian, Virginia
Martinsville, Virginia
Roanoke, Virginia
South Boston, Virginia
Mayodan, North Carolina
CUSTOMER SERVICE CENTER
Beaver Creek Industrial Park
Martinsville, Virginia
SUBSIDIARIES
Akom Limited
Montego Bay, Jamaica
California Shirt Sales, Inc.
Fullerton, California
Dominion Distribution, Inc.
Brownsville, Texas
Dominion Stores, Inc.
Martinsville, Virginia
LogoAthletic, Inc.
Indianapolis, Indiana
LogoAthletic/Headwear, Inc.
Mattapoisett, Massachusetts
Tultex/T-Shirt City, Inc.
Cincinnati, Ohio
Track Gear, Inc.
Charlotte, North Carolina
Tultex Canada, Inc.
Edmonton, Alberta, Canada
TULTEX MILL OUTLET STORES
550 Franklin Street
Martinsville, Virginia
Hupps Mill Plaza
South Boston, Virginia
Riverside Shopping Center
Danville, Virginia
5327 Williamson Road
Roanoke, Virginia
3225 Old Forest Road
Lynchburg, Virginia
East Lee Highway
Chilhowie, Virginia
1105 Stafford Drive
Princeton, West Virginia
Meadow Green Shopping Center
Eden, North Carolina
905 North Madison Avenue
Roxboro, North Carolina
Willowdale Shopping Center
Durham, North Carolina
THE SWEATSHIRT COMPANY
Outlets at Birch Run
Birch Run, Michigan
Horizon Outlet Center
Monroe, Michigan
Lake Erie Factory Outlet
Milan, Ohio
Horizon Outlet Center
Oshkosh, Wisconsin
Factory Stores of America at
North Bend
North Bend, Washington
Seaside Factory Outlet Center
Seaside, Oregon
Belz Factory Outlet Mall
Pigeon Forge, Tennessee
Factory Outlets
Post Falls, Idaho
Crossings Outlet Square
Tannersville,Pennsylvania
Rockvale Square
Lancaster, Pennsylvania
Factory Stores of America at Nuttree II
Vacaville, California
Pacific Outlet Center
Gilroy, California
Natoma Station Factory Outlets
Folsom, California
Horizon Outlet Center
Fremont, Indiana
Horizon Outlet Center
Edinburgh, Indiana
North Hampton Factory Outlet
North Hampton, New Jersey
Factory Stores of America
Nashville, Tennessee
Five Oaks Factory Stores
Sevierville, Tennessee
Bend Factory Outlets
Bend, Oregon
Ocean Outlets Seaside
Rehoboth Beach, Delaware
Sikeston Factory Outlet Stores
Miner, Missouri
Nebraska Crossing Factory Stores
Gretna, Nebraska
LOGOATHLETIC STORES
5668 George Town Road
Indianapolis, Indiana
2333 Post Drive
Indianapolis, Indiana
Factory Stores of America at Draper
Draper, Utah
<PAGE>
TULTEX
TULTEX CORPORATION
P.O. BOX 5191
MARTINSVILLE, VA 24115
Exhibit 21
Subsidiaries of the Registrant
During fiscal 1997, the company had the following subsidiaries, all of which are
included in the consolidated financial statements incorporated in this report:
AKOM, Ltd., a Cayman Islands, B.W.I. corporation (100% owned)
Dominion Stores, Inc., a Virginia corporation (100% owned)
Tultex International, Inc., a Virginia corporation (100% owned)
LogoAthletic, Inc., a Virginia corporation (100% owned)
LogoAthletic/Headwear, Inc., a Massachusetts corporation
(100% owned)
Tultex Canada, Inc., a Canadian corporation (100% owned)
Track Gear, Inc., a Virginia corporation (100% owned)
California Shirt Sales, Inc., a Virginia corporation (100% owned)
Tultex/T-Shirt City, Inc. a Virginia corporation (100% owned)
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-12394, 33-20194, 33-43595 and 33-52247) of
Tultex Corporation of our report dated February 11, 1998 appearing on page 19 of
the Annual Report to Stockholders which is incorporated in this Annual Report on
Form 10-K. We also consent to the incorporation by reference of our report on
the Financial Statement Schedule, which appears on page F-1 of this Form 10-K.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Winston-Salem, North Carolina
April 1, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> JAN-03-1998
<CASH> 2,507,000
<SECURITIES> 0
<RECEIVABLES> 127,520,000
<ALLOWANCES> 4,205,000
<INVENTORY> 199,855,000
<CURRENT-ASSETS> 337,663,000
<PP&E> 346,463,000
<DEPRECIATION> 203,612,000
<TOTAL-ASSETS> 538,226,000
<CURRENT-LIABILITIES> 41,942,000
<BONDS> 291,254,000
0
8,031,000
<COMMON> 29,875,000
<OTHER-SE> 156,206,000
<TOTAL-LIABILITY-AND-EQUITY> 538,226,000
<SALES> 650,628,000
<TOTAL-REVENUES> 650,628,000
<CGS> 528,310,000
<TOTAL-COSTS> 612,964,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,611,000
<INCOME-PRETAX> (7,942,000)
<INCOME-TAX> (3,099,000)
<INCOME-CONTINUING> (4,848,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,848,000)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
</TABLE>
[Tultex Logo appears here]
Tultex Corporation
P.O. Box 5191
Martinsville, VA
24115
540-632-2961
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of Tultex
Corporation to be held on Tuesday, May 5, 1998 at 10:00 a.m. at our Customer
Service Center in Martinsville, Virginia. Your Board of Directors and management
look forward to greeting you personally and discussing the affairs of our
Company.
At this year's meeting, we are asking that you (1) elect a Board of Directors
and (2) ratify the appointment of Price Waterhouse LLP as auditors. In addition
to this usual business, the officers will present their reports and be available
for questions from stockholders.
THE DIRECTORS BELIEVE THESE PROPOSALS ARE IN THE BEST INTEREST OF ALL OF THE
COMPANY'S STOCKHOLDERS AND UNANIMOUSLY RECOMMEND THAT YOU VOTE FOR EACH OF
THEM.
Please send in your proxy card as soon as possible. Thank you for your continued
interest and support.
Sincerely,
/s/ John M. Franck /s/ Charles W. Davies, Jr.
John M. Franck Charles W. Davies, Jr.
Chairman of the Board President and Chief Executive Officer
March 27, 1998
<PAGE>
[Tultex Logo appears here]
Tultex Corporation
P.O. Box 5191
Martinsville, VA
24115
540-632-2961
Notice of Annual Meeting of Stockholders
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Tultex
Corporation will be held at the Company's Customer Service Center, State Route
174, Martinsville, Virginia, on Tuesday, May 5, 1998 at 10:00 a.m. for the
following purposes:
1. To elect a Board of Directors, consisting of nine persons, to serve for the
ensuing year;
2. To ratify the Board of Directors' appointment of Price Waterhouse LLP,
independent accountants, as auditors for the Company for fiscal 1998; and
3. To transact such other business as may properly come before the meeting.
Your attention is directed to the accompanying proxy statement for further
information with respect to the matters to be acted upon at the meeting. Only
holders of Common Stock, Cumulative Convertible Preferred Stock, $7.50 Series B
and Cumulative Convertible Preferred Stock, 4.5% Series C, of record at the
close of business on March 13, 1998, are entitled to notice of and to vote on
matters to be acted on at the Annual Meeting.
If you are present at the Annual Meeting, you may vote in person even though you
have previously delivered your proxy.
By Order of the Board of Directors
Kathy H. Rogers, Secretary
March 27, 1998
<PAGE>
[Tultex Logo appears here]
Tultex Corporation
P.O. Box 5191
Martinsville, VA
24115
540-632-2961
Proxy Statement dated and mailed MARCH 27, 1998
General
Proxies in the form enclosed are solicited by the Board of Directors for the
1998 Annual Meeting of Stockholders to be held at 10:00 a.m. on Tuesday, May 5,
1998 at the Company's Customer Service Center, State Route 174, Martinsville,
Virginia. Any stockholder giving a proxy may revoke it at any time before it is
voted by written notice to the Company, P. O. Box 5191, Martinsville, Virginia
24115, Attention: Kathy H. Rogers, Corporate Secretary, by the execution of a
proxy with a later date, or by voting in person the shares represented by the
proxy.
The cost of solicitation of proxies will be borne by the Company. In addition to
the use of the mails, proxies may be solicited personally or by telephone by
regular employees of the Company, but no special compensation will be paid to
any regular employees for personal solicitation of proxies. Banks, brokerage
houses and other institutions, nominees and fiduciaries will be requested to
forward the soliciting material to beneficial owners and to obtain authorization
for the execution of proxies. The Company will, upon request, reimburse such
parties for their reasonable expenses in forwarding proxy material to their
beneficial owners.
A majority of the votes entitled to be cast on matters to be considered at the
meeting constitutes a quorum. If a share is represented for any purpose at the
meeting, for quorum purposes it is present for all matters considered at the
meeting. Abstentions and shares held of record by a broker or its nominee
("Broker Shares") that are voted on any matter are included in determining the
number of votes present or represented at the meeting. Broker Shares that are
not voted on any matter at the meeting are not included in determining whether a
quorum is present. Directors are elected by a plurality of the votes cast by
holders of Common Stock, Series B Preferred Stock and Series C Preferred Stock;
the vote required on other matters is disclosed under the caption for such
matters. Votes that are withheld and Broker Shares that are not voted (commonly
referred to as "broker non-votes") are not included in determining the number of
votes cast in the election of directors or on other matters.
Ownership of Equity Securities
On March 13, 1998, the date for determining stockholders entitled to notice of
and to vote at the Annual Meeting, there were outstanding and entitled to vote
29,875,488 shares of Common Stock, 75,000 shares of Cumulative Convertible
Preferred Stock, $7.50 Series B (the "Series B Preferred Stock"), and 33,260
shares of Cumulative Convertible Preferred Stock, 4.5% Series C (the "Series C
Preferred Stock"). The Common Stock, the Series B Preferred Stock, and the
Series C Preferred Stock have one vote per share on all matters and vote
together on all matters, including those to be acted on at the Annual Meeting.
1
<PAGE>
The table below presents certain information as of the Record Date regarding
beneficial ownership of shares of Common Stock by all directors and nominees
for director, by the Chief Executive Officer and the four next most highly
compensated executive officers, by all directors and executive officers, by all
directors and executive officers as a group, and by owners of 5% or more of the
Common Stock. The Series B Preferred Stock is owned by Simon Trust Partnership
No. 3 (25%), Herbert Simon Trust No. 3 (25%) and L. G. Sale Corporation, Inc.
(50%), respectively. The Series C Preferred Stock is owned by John Box (74%)
and Todd Hines (26%).
<TABLE>
<CAPTION>
Sole Voting Aggregate
and Investment Percentage
Name Power (1) Other (2) Owned
- --------------------------------------------------- ------------------ ----------- -----------
<S> <C> <C> <C>
Directors:
Charles W. Davies, Jr. ............................ 239,520 shs. 142 shs. * %
John M. Franck .................................... 746,582 141,233 2.97
Lynn J. Beasley ................................... 2,024 -- *
Seth P. Bernstein ................................. 2,518 -- *
Lathan M. Ewers, Jr. .............................. 500 -- *
H. Richard Hunnicutt, Jr. ......................... 35,000 -- *
F. Kenneth Iverson ................................ 7,920 -- *
Bruce M. Jacobson ................................. 6,268 -- *
Richard M. Simmons, Jr. ........................... 182,921 615 *
Officers:
O. Randolph Rollins ............................... 113,286 362,748 1.59
Anthony J. Pichirallo ............................. 28,234 -- *
Walter J. Caruba .................................. 45,665 -- *
John J. Smith ..................................... 47,524 47 *
Executive officers and directors as a group
(20 persons including those named above) ......... 1,601,774 504,785 7.04
Dimensional Fund Advisors, Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, CA ................................. 1,497,872(3) 5.01
Pioneering Management Corporation
60 State Street
Boston, MA ....................................... 2,873,500(4) 9.62
</TABLE>
- ----------
* Less than 1%
(1) Includes shares that may be acquired by certain of the Company's officers
within 60 days under the Company's stock option plans and phantom stock
credited to certain directors in 1997 under the Directors Compensation Plan.
(2) Includes shares (a) owned by or with certain relatives; (b) held in various
fiduciary capacities; and (c) held by certain corporations.
(3) Dimensional Fund Advisors, Inc., a registered investment advisor, is deemed
to have beneficial ownership of 1,497,872 shares, all of which shares are
held in portfolios of DFA Investment Dimensions Group Inc., a registered
open-end investment company, or in series of the DFA Investment Trust
Company, a Delaware business trust, or the DFA Group Trust and DFA
Participation Group Trust, investment vehicles for qualified employee
benefit plans, all of which Dimensional Fund Advisors Inc. serves as
investment manager. Dimensional disclaims beneficial ownership of all such
shares.
(4) As reported in Schedule 13G filed by Pioneering Management
Corporation, January 30, 1998.
2
<PAGE>
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Corporation's directors and executive officers, and persons who own more than
10% of a registered class of the Company's equity securities, file with the
Securities and Exchange Commission initial reports of ownership and reports of
change in ownership of Common Stock and other equity securities of the Company.
The same persons are also required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms that they file.
Based solely on its review of the forms required by Section 16(a) of the
Securities Exchange Act of 1934 that have been received by the Company or
written representations from certain reporting persons that no annual statements
on Form 5 were required because of late filing, the Company believes that all
filing requirements applicable to its officers, directors and beneficial owners
of greater than 10% of its Common Stock have been complied with.
Election of Directors
Proxies will be voted for the election of nine nominees as directors to serve
until the 1999 Annual Meeting of Stockholders. The election of each nominee for
director requires the affirmative vote of the holders of a plurality of the
shares cast in the election of directors. Votes that are withheld and shares
held in street name that are not voted in the election of directors will not be
included in determining the number of votes cast. All of the nominees are
presently members of the Board. Lynn J. Beasley was elected a director by the
Board of Directors since last year's annual meeting. The Board of Directors has
no reason to believe that any of the nominees will be unavailable for service if
elected, but if any are unavailable, proxies will be voted for such substitute
as the Board may designate.
<TABLE>
<CAPTION>
Name Age Director Since
- ---------------------------------------- ----- ---------------
<S> <C> <C>
Lynn J. Beasley ................... 40 1997
Seth P. Bernstein ................. 37 1997
Charles W. Davies, Jr. ............ 49 1990
Lathan M. Ewers, Jr. .............. 56 1993
John M. Franck .................... 45 1984
H. Richard Hunnicutt, Jr. ......... 59 1981
F. Kenneth Iverson ................ 72 1995
Bruce M. Jacobson ................. 48 1992
Richard M. Simmons, Jr. ........... 71 1973
</TABLE>
Lynn J. Beasley is Executive Vice President of R. J. Reynolds Tobacco Company,
Winston-Salem, NC. Ms. Beasley has been employed by R. J. Reynolds since 1982.
Seth P. Bernstein is a Managing Director of and Head of the Leveraged Finance
Group of J. P. Morgan & Company, Inc., New York. Mr. Bernstein has been
employed by J. P. Morgan since 1984.
Charles W. Davies, Jr. became President and Chief Executive Officer on January
1, 1995, after serving as President and Chief Operating Officer since January
1991, and prior thereto as Executive Vice President since December 1989.
Lathan M. Ewers, Jr. has been a partner since 1976 in Hunton & Williams,
Richmond, Virginia, counsel to the Company.
3
<PAGE>
John M. Franck became Chairman of the Board of Directors and Chief Executive
Officer on January 1, 1991. He retired as Chief Executive Officer on January 1,
1995, and as an employee of the Company on July 1, 1997. He currently serves as
Chairman of the Board. Mr. Franck is President and CEO of Quibell Spring Water
Beverages, a privately-owned beverage company located in Roanoke, Virginia. Mr.
Franck is a director of Piedmont Trust Bank, a subsidiary of MainStreet
BankGroup, Incorporated.
H. Richard Hunnicutt, Jr. was Chairman 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 was Chairman and Chief Executive Officer of Nucor, Inc.,
Charlotte, North Carolina, a steel producer, from 1984 through January 1, 1996,
when he retired. He continues as Chairman of Nucor.
Bruce M. Jacobson is a senior partner in the certified public accounting firm of
Katz, Sapper & Miller, Indianapolis, Indiana, and has been a partner in such
firm since 1977.
Richard M. Simmons, Jr. is a retired business executive. He was President of
American Furniture Company from 1961 to 1987 and its Chairman from 1974 to
1986.
Committees of the Board
The standing committees of the Board of Directors are the Audit Committee, the
Nominating Committee and the Executive Compensation Committee. The Audit
Committee reviews with management and the Company's auditors the scope of the
annual audit, the results of the audit and the Company's internal accounting and
control systems. The Audit Committee also recommends to the full Board of
Directors the auditors to be appointed by the Board (subject to stockholder
ratification) and reviews the auditors' services to the Company and their fees.
The Nominating Committee reviews the qualifications of possible candidates
recommended by stockholders, provided that stockholder recommendations are
submitted in writing addressed to the Secretary of the Company, are accompanied
by statements signed by the recommended candidates of their willingness to
serve, if elected, and are received not later than 120 days before the date that
proxy material is mailed to stockholders for the annual meeting of stockholders
at which the recommended candidates, if approved by the Nominating Committee and
the incumbent Board of Directors, would be nominated by the Board for election
by the stockholders. The Executive Compensation Committee administers the
Company's stock option plans and other incentive programs, approves or
recommends to the Board changes in compensation for the Chief Executive Officer
and approves all Company employee benefit programs.
The members of Committees of the Board are:
Audit Committee -- Bruce M. Jacobson and Richard M. Simmons, Jr.
Nominating Committee -- H. Richard Hunnicutt, Jr., F. Kenneth Iverson and John
M. Franck
Executive Compensation Committee -- Seth P. Bernstein, Lathan M. Ewers, Jr. and
Bruce M. Jacobson.
The Board of Directors held four regular meetings and two special meetings
during the fiscal year ended January 3, 1998. The Audit Committee held four
meetings during the year, the Executive Compensation Committee held three
meetings, and the Nominating Committee held one meeting.
4
<PAGE>
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 and $1,000 for each Committee meeting attended which does not
occur on the same date as a Board meeting day. They are paid $500 for each
Committee meeting attended that does occur on the same day as a Board meeting.
The Chairman of the Board is paid twice the fee paid other directors for each
fiscal quarter and each meeting attended.
The Board of Directors has adopted the 1996 Directors Compensation Plan, which
permits directors to defer their retainer and meeting fees for the purchase of
the Company's Common Stock. Deferred fees are credited with "phantom" Common
Stock valued at fair market value. Directors receive distribution of their
accounts at death, disability, termination of service as a director, or on
six-months' notice. Directors who participate are general unsecured creditors of
the Company for their account balances. At the time account balances are
distributed in the form of Common Stock, directors pay federal and state income
taxes on the Common Stock distributed valued at its fair market value, and the
Company is able to deduct as an ordinary business expense an amount equal to the
fair market value of the stock distributed.
Certain Relationships and Related Transactions
Seth P. Bernstein is a Managing Director at J.P. Morgan and Company, Inc., which
provides investment banking services to the Company. In 1997, the Company paid
J.P. Morgan and Company, Inc. $1,707,044 for investment banking services, which
included acting as co-lead manager of the private placement of $75 million
principal amount of the Company's 9 5/8% Senior Notes due 2007.
Lathan M. Ewers, Jr. is a partner in the law firm of Hunton & Williams, counsel
to the Company, which provides legal services to the Company and its
subsidiaries.
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.
5
<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 January 3, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Awards Compensation
- ------------------------------------------------------------ -------------------------------------------------
(e) (g)
(a) (d) Restricted (f) All
Name and (b) (c) Bonus $ Stock Options/ Other
Principal Position Year Salary $ (1) Award(s)(1) SARs Compensation
- -------------------------- ------ ---------- --------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Davies, Jr. 1997 300,000 -- -- shs. 110,000 shs. --
President and 1996 300,000 87,570 3,020 10,000 --
Chief Executive Officer 1995 300,000 -- -- 7,500 --
O. Randolph Rollins 1997 209,167 -- -- 15,000 --
Executive Vice President 1996 200,004 41,881 1,444 10,000 --
and General Counsel 1995 200,004 -- -- 7,500 7,007(2)
Anthony J. Pichirallo 1997 164,500 -- -- 55,000 35,707(3)
Vice President- 1996 136,700 19,005 606 5,000 --
Wholesale 1995 127,530 13,084 -- 4,000 --
Walter J. Caruba 1997 174,000 -- -- 15,000 --
Vice President- 1996 159,000 33,295 1,148 10,000 --
Sales & Marketing 1995 156,000 -- -- 7,500 --
John J. Smith 1997 166,200 -- -- 15,000 --
Vice President 1996 158,400 33,169 1,144 10,000 --
1995 156,400 2,817 -- 7,500 --
</TABLE>
- ----------
(1) Bonus represents cash Incentive Awards under the Consolidated Incentive Plan
(CIP) and Restricted Stock Awards represent Restricted Stock awarded under
the CIP. Shareholders approved the CIP at the 1996 Annual Meeting. The CIP
provides for cash Incentive Awards based primarily on return on assets, for
activewear and licensed apparel employees, and for Restricted Stock Awards
equal to 25% of the cash Incentive Award. Restricted Stock Awards are valued
at fair market value at the time of grant, and vest 20% per year. Holders of
Restricted stock vote the shares and receive any dividends paid thereon.
Accelerated vesting of shares occurs in the event of change in control,
death, disability, normal retirement or other circumstances determined by
the Executive Compensation Committee. No Cash Incentive or Restricted Stock
Awards were granted in 1997.
(2) Represents payment of residence relocation reimbursement.
(3) Represents a reward recognition payment which was not part of the incentive
compensation plan.
6
<PAGE>
The following tables present information concerning stock options 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.
OPTION GRANTS IN LAST FISCAL YEAR TABLE
<TABLE>
<CAPTION>
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation for
Individual Grants Option Term
- ------------------------------------------------------------------------------------------- ----------------------
Number % Total
of Securities Options
Underlying Granted to
Options Granted Employees in Exercise Expiration
Name (Shares) # Fiscal Year or Base Price Date 5% 10%
- ---------------------------- ----------------- -------------- --------------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Davies, Jr. ..... 25,000 4.07% $ 8.25 3/20/2002 $ 56,983 $125,918
15,000* 2.44 8.25 1/28/2003 35,665 82,071
35,000 5.69 5.81 10/17/2000 32,418 68,813
35,000 5.69 5.81 7/30/2006 112,176 276,334
O. Randolph Rollins ........ 15,000 2.44 5.81 10/17/2000 13,893 29,492
Anthony J. Pichirallo ...... 15,000 2.44 8.25 3/20/2002 34,190 75,551
20,000 3.25 5.81 10/17/2000 18,525 39,322
20,000 3.25 5.81 7/30/2006 64,101 157,904
Walter J. Caruba ........... 15,000 2.44 5.81 10/17/2000 13,893 29,492
John J. Smith .............. 15,000 2.44 5.81 10/17/2000 13,893 29,492
</TABLE>
* Shares were repriced and expiration date extended.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUE TABLE
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at FY-End in-the-Money Options at
Shares FY-End
Shares Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------- ----------------- ---------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Davies, Jr. ..... -- -- 162,500 145,000 -- --
O. Randolph Rollins ........ -- -- 52,500 30,000 -- --
Anthony J. Pichirallo ...... -- -- 19,500 55,000 -- --
Walter J. Caruba ........... 10,000 $31,250 35,500 15,000 -- --
John J. Smith .............. -- -- 35,500 15,000 -- --
</TABLE>
7
<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 1997:
<TABLE>
<CAPTION>
Years of Service
-------------------------------------------------
Final Average Earnings 10 20 30 40
- ------------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
$100,000................ $10,200 $20,400 $30,600 $35,600
150,000 ............... 16,200 32,400 48,600 56,100
200,000 ............... 22,200 44,400 66,600 76,600
250,000 ............... 28,200 56,400 84,600 97,100
300,000 ............... 34,200 68,400 102,600 117,600
400,000 ............... 46,200 92,400 138,600 158,600
</TABLE>
The benefits shown are annual payments based on an employee attaining age 65
during the 1997 plan year. Under current provisions of the Internal Revenue
Code, these amounts are limited to $125,000. Compensation is limited to
$160,000. The amounts in the table are based upon the formula in the current
Salaried Plan assuming retirement after attainment of normal retirement age. In
no case will the benefit amount be less than the minimum accrued benefit at May
31, 1994 based on the 401(a)(17) compensation limit of $235,840 plus additional
accruals for service after May 31, 1994. Benefits under the Retirement Plan are
not subject to any deduction for Social Security or other offset amounts.
The number of credited years of service for each person named in the Summary
Compensation Table are as follows: Charles W. Davies, Jr. -- 21 years, O.
Randolph Rollins -- 3 years, John J. Smith -- 13 years, Walter J. Caruba -- 20
years, and Anthony J. Pichirallo -- 10 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 benefit 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, 1997 are as follows: O. Randolph Rollins -- $0, Charles W. Davies,
Jr. -- $57,761, John J. Smith -- $19,399, Walter J. Caruba -- $20,679, and
Anthony J. Pichirallo -- $10,245.
Employment Contracts and Employment Continuity Agreements
The Company has entered into employment continuity agreements with the five
officers named in the Summary Compensation Table, 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
8
<PAGE>
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 agreements with other members of management.
Executive Compensation Committee's Report on Executive Compensation
This report by the Executive Compensation Committee is required by rules of the
Securities and Exchange Commission. It is not to be deemed incorporated by
reference by any general statement which incorporates by reference this Proxy
Statement into any filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, and it is not to be otherwise deemed filed under either
such Act.
Three directors comprise the Executive Compensation Committee of the Board of
Directors. None of these directors serves on the board of the other committee
member's company or organization and none of the executive officers of Tultex
serve on the board of any committee member's organization. The Committee has
access to outside consultants and counsel.
The Committee oversees three elements of executive compensation: base pay or
salary, annual performance bonus, and long-term compensation, which consists of
a stock option plan approved by shareholders. The Committee seeks to provide a
competitive compensation package that enables the Company to attract and retain
key executives, to integrate pay programs with the business objectives of the
9
<PAGE>
Company, and to link individual executive compensation with the Company's
performance. The Committee surveys other comparable companies and believes that
Tultex's current executive compensation generally is in line with comparable
companies.
BASE PAY. The salary paid to the Company's executives is targeted to be
competitive with related industry companies of similar size, taking into account
the responsibilities and experience of individual officers. In general, the base
salaries are fixed at lower levels to emphasize result-oriented factors
reflected in a bonus potential and the value of stock options. The Committee
reviews salaries and pay ranges for the named executives, and salaries may be
increased based on the Committee's assessment of an individual's performance and
contributions to Tultex's goals. Upon the recommendation of the chief executive
officer, the Committee approved no increases in salary for the officers named in
the Summary Compensation Table in 1997; the increases reflected in the table
were approved by the Committee in 1996 for implementation in late 1996 and early
1997.
INCENTIVE AWARDS. The Consolidated Incentive Plan enables the Company's senior
executives to earn cash Incentive Awards based primarily on return on assets,
with a separate secondary goal based on Operating Cycle Days for activewear and
licensed apparel employees. Approximately 617 officers and employees are
eligible to participate in the Cash Incentive Plan. The five named executives
earned no cash incentive awards in 1997. The Consolidated Incentive Plan also
provides for Restricted Stock Awards equal to 25% of the cash Incentive Award as
long-term incentive for executive officers.
LONG-TERM INCENTIVE. The Company awards long-term compensation through its Stock
Option Plan and as Restricted Stock Awards under the Consolidated Incentive
Plan. Approximately 617 officers and employees are eligible to receive grants
under the stock option plan, including the five named executives. Options
normally extend for 10 years, are priced at fair market value on the date of
grant, and are intended to provide incentive for future performance rather than
reward past performance. Together with base pay and cash Incentive Awards, the
Committee considers the record of comparable companies in determining grants to
be made to the named executives. In 1997, the Committee recommended and the
Board of Directors approved options for the named executives as reflected in the
Option Grants in Last Fiscal Year Table. The options granted to these five
officers represent 36.6% of options granted to employees in 1997. No Restricted
Stock Awards were awarded in fiscal 1997.
1997 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER. In setting the Chief
Executive Officer's base salary, the Committee compares his salary to the
salaries of other chief executive officers in the Company's peer group,
including those included in the performance graph. Mr. Davies was paid at the
same annual rate in 1997, as in 1996, and is currently being paid at the same
annual rate in 1998. Mr. Davies is eligible to participate in the same bonus and
long-term executive compensation plans as the other named executives. The
Committee's approach to setting Mr. Davies' target annual compensation is to set
a compensation level commensurate with his responsibilities and the objectives
of his position that would be competitive with other textile and apparel
companies of comparable size.
EXECUTIVE COMPENSATION COMMITTEE
Seth P. Bernstein
Lathan M. Ewers, Jr.
Bruce M. Jacobson
Dated: March 27, 1997
10
<PAGE>
Compensation Committee Interlocks and Insider Participation
The following two directors, with Bruce M. Jacobson., comprise the Executive
Compensation Committee of the Board of Directors.
Seth P. Bernstein is a Managing Director at J.P. Morgan and Company, Inc., which
provides investment banking services to the Company. In 1997, the Company paid
J.P. Morgan and Company, Inc. $1,707,044 for investment banking services, which
included acting as co-lead manager of the private placement of $75 million
principal amount of the Company's 9 5/8% Senior Notes due 2007.
Lathan M. Ewers, Jr., is a partner in the law firm of Hunton & Williams, counsel
to the Company, which provides legal services to the Company and its
subsidiaries.
PERFORMANCE OF COMPANY'S COMMON STOCK
The following graph compares the performance of the Company's Common Stock to
(1) the Standard & Poor 500 Index and (2) a Peer Group Index for the Company's
last five fiscal years. The Company's Peer Group consists of Fruit of the Loom,
Inc., Oneita Industries, Inc., Russell Corporation, Starter Corporation, and the
Company. The Company has changed its peer group to better reflect the Company's
competition since entering the licensed apparel business and shifting its
emphasis toward marketing and distribution. The graph assumes that $100 was
initially invested on December 31, 1991 in the Company's Common Stock and in
each index and that all dividends were reinvested.
11
<PAGE>
COMPARISON OF FIVE YEAR
CUMULATIVE SHAREHOLDER RETURN
[Comparison Graph appears here with the following plot points]
<TABLE>
<CAPTION>
Base Period
Dec. 92 Dec. 93 Dec. 94 Dec. 95 Dec. 96 Dec. 97
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Tultex 100 $ 83.02 $ 58.35 $ 49.37 $ 83.78 $ 48.62
S&P 500 Index 100 110.08 111.53 153.45 188.68 251.63
New Peer Group 100 61.30 62.12 55.62 75.25 54.56
Old Peer Group 100 84.94 91.45 80.57 86.72 72.68
</TABLE>
<TABLE>
<S> <C>
Old Peer Group: New Peer Group:
Oneita Industries, Inc. Fruit of the Loom, Inc. - CLA
Russell Corp. Oneita Industries, Inc.
Signal Apparel Co. Russell Corp.
Techknits, Inc. Starter Corp.
Tultex Corp. Tultex Corp.
</TABLE>
Ratification of Appointment of Auditors
The Board of Directors has appointed Price Waterhouse LLP, independent certified
public accountants, to examine the financial statements of the Company for the
fiscal year ending January 2, 1999. Shareholders will be asked to ratify this
appointment at the Annual Meeting. Ratification of Price Waterhouse LLP requires
the affirmative vote of a majority of Common Stock and Series B Preferred Stock
and Series C Preferred Stock (voting together) voted at the Annual Meeting.
Price Waterhouse LLP has been the Company's independent accountants since 1971.
12
<PAGE>
Representatives of Price Waterhouse LLP are expected to be present at the
meeting and will be given an opportunity to make a statement if they desire to
do so. They are expected to be available to respond to appropriate questions.
The Board of Directors Unanimously Recommends a Vote "FOR" Ratification of Price
Waterhouse LLP as Auditors.
Stockholder Proposals
Stockholders having proposals which they desire to present at next year's annual
meeting should, if they desire that such proposals be included in the Board of
Directors' proxy and proxy statement relating to such meeting, submit such
proposals in time to be received by the Company at its principal executive
offices in Martinsville, Virginia, not later than November 13, 1998. To be so
included, all such submissions must comply with the requirements of Rule 14a-8
of the Securities and Exchange Commission under the Securities Exchange Act of
1934 and the Board of Directors directs the close attention of interested
stockholders to that Rule.
Other Matters
As of the date of this Proxy Statement, the Board of Directors knows of no
matter to come before the meeting other than those stated in the notice of the
meeting. As to other matters, if any, that may properly come before the meeting,
it is intended that proxies in the accompanying form will be voted in accordance
with the best judgment of the persons named therein.
We hope that you will be able to attend this meeting in person, but if you
cannot be present, please execute the enclosed proxy and return it in the
accompanying envelope (no postage required) as promptly as possible. Your stock
will be voted in accordance with the instructions you give on the proxy, and in
the absence of any such instructions will be voted FOR election of directors and
FOR the ratification of appointment of auditors, as described herein.
Kathy H. Rogers
Secretary
Martinsville, Virginia
March 27, 1998
13
<PAGE>
********************************************************************************
APPENDIX
[GRAPHIC OMITTED]
<TABLE>
<S> <C>
Tultex Corporation Common Stock Proxy
P.O. Box 5191
</TABLE>
The Board of Directors recommends a vote FOR Proposals 1 and 2.
(1) Election of Directors
<TABLE>
<S> <C>
Martinsville, VA 24115
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints John M. Franck, Kathy H. Rogers and Regina C.
Haynes, and each of them, with full power of substitution to each,
Proxies to vote all Common Stock of the undersigned in Tultex Corporation at
the annual meeting to be held on May 5, 1998, and at any and all adjourn
ments thereof.
The Board of Directors recommends a vote FOR Proposals 1 and 2.
(1) Election of Directors
[ ] FOR
[ ] VOTE WITHHELD
(2) [ ] FOR
[ ] AGAINST
[ ] ABSTAIN
(3)
</TABLE>
<PAGE>
The proxy, when properly executed, will be voted in the manner directed by the
undersigned stockholder. If no direction is made, this proxy will be voted for
Proposals 1 and 2.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title
as such. If a corporation, please sign in full corporation name by President or
other authorized officer. If a partnership, please sign in partnership name by
authorized person.
Please sign and return, whether or not you plan to attend the meeting.
<TABLE>
<S> <C> <C>
- -------------------------- ---------------------- ---------------------- , 1998
Signature Signature if held jointly Date
</TABLE>
