1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended April 4, 1998
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8016
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TULTEX CORPORATION
------------------
(Exact name of registrant as specified in its charter)
Virginia 54-0367896
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
101 Commonwealth Boulevard, P. O. Box 5191, Martinsville, Virginia 24115
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 540-632-2961
------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
29,885,088 shares of Common Stock, $1 par value, as of May 13, 1998
- ---------- --- ------------
<PAGE>
2
PART I. FINANCIAL INFORMATION
Item 1.
Tultex Corporation
Consolidated Statement of Operations (Unaudited - $000's omitted except in
shares and per share data) April 4, 1998 (and April 5, 1997)
<TABLE>
<CAPTION>
<S> <C>
Three Months Ended
----------------------------------------
April 4, 1998 April 5, 1997
---------------- ----------------
Net Sales and Other Income $100,273 $99,630
---------------- ----------------
Costs and Expenses:
Cost of Products Sold 75,806 73,881
Depreciation 5,148 5,092
Selling, General and Administrative 23,616 22,156
Interest 6,908 5,453
---------------- ----------------
Total Costs and Expenses 111,478 106,582
---------------- ----------------
Income (Loss) Before Income Taxes (11,205) (6,952)
Benefit (Provision) for Income Taxes (Note 3) 4,370 2,717
---------------- ----------------
Net Income (Loss) (6,835) (4,235)
Preferred Dividend Requirement (Note 4) (147) (284)
---------------- ----------------
Balance Applicable to Common Stock $(6,982) $(4,519)
================ ================
Weighted Average Number of Common Shares 29,881,290 29,384,201
Outstanding
================ ================
Net Income (Loss) Per Common Share:
Basic $(.23) $(.15)
Diluted (.23) (.15)
Dividends Per Common Share (Note 4) $.00 $.00
</TABLE>
<PAGE>
3
Tultex Corporation
Consolidated Balance Sheet (Unaudited - $000's omitted)
April 4, 1998 (and January 3, 1998)
<TABLE>
<CAPTION>
<S> <C>
Assets April 4, 1998 January 3, 1998
- ------ ------------- ---------------
Current Assets:
Cash $949 $2,507
Accounts Receivable - Net of Allowances for Doubtful
Accounts $3,925 (1998) and $4,205 (1997) 92,747 123,315
Inventories (Note 2) 241,505 199,855
Prepaid Expenses 9,209 9,290
Income Taxes Refundable (Note 3) 7,847 2,696
------------------- ------------------
Total Current Assets 352,257 337,663
Property, Plant and Equipment, Net of Depreciation 141,527 142,851
Intangible Assets 46,323 44,190
Other Assets 14,107 13,522
------------------- ------------------
Total Assets $554,214 $538,226
=================== ==================
Liabilities and Stockholders' Equity
Current Liabilities:
Notes Payable to Banks $5,000 $5,000
Current Maturities of Long-Term Debt 498 527
Accounts Payable 26,438 26,437
Accrued Expenses 12,345 9,975
Dividends Payable - 3
------------------- ------------------
Total Current Liabilities 44,281 41,942
Long-Term Debt, Less Current Maturities 307,672 285,727
Deferred Income Taxes 11,278 11,278
Other Liabilities 3,783 5,167
Stockholders' Equity:
5% Cumulative Preferred Stock (Note 4) 198 198
Series B, $7.50 Cumulative Convertible Preferred 7,500 7,500
Stock (Note 4)
Series C, 4.5% Cumulative Convertible Preferred 333 333
Stock (Note 4)
Common Stock (Note 4) 29,885 29,875
Capital in Excess of Par Value 6,920 6,893
Retained Earnings 142,940 150,005
Unearned Stock Compensation (118) (91)
------------------- ------------------
187,658 194,713
Less Notes Receivable - Stockholders 458 601
------------------- ------------------
Total Stockholders' Equity 187,200 194,112
------------------- ------------------
Total Liabilities and Stockholders' Equity $554,214 $538,226
================== =================
</TABLE>
<PAGE>
4
Tultex Corporation
Consolidated Statement of Cash Flows (Unaudited - $000's omitted)
Three Months Ended April 4, 1998 (and April 5, 1997)
<TABLE>
<CAPTION>
<S> <C>
Three Months Ended
------------------------------------------
April 4, 1998 April 5, 1997
------------------ ---------------
Operations:
Net Income (Loss) $(6,835) $(4,235)
Items not Requiring (Providing) Cash:
Depreciation 5,148 5,092
Amortization of Intangible Assets 750 304
Other Deferrals (1,384) (1,681)
Other Non-Cash Items (70) -
Changes in Assets and Liabilities:
Accounts Receivable 30,568 51,690
Inventories (41,650) (35,665)
Prepaid Expenses 81 (252)
Accounts Payable and Accrued Expenses 2,371 (3,952)
Income Taxes Payable / Refundable (5,151) (5,090)
------------------ -------------------
Cash Provided (Used) by Operations (16,172) 6,211
------------------ -------------------
Investing Activities:
Additions to Property, Plant and Equipment (3,824) (12,504)
Changes in Other Assets (585) (2,322)
Business Acquisition (2,743) -
------------------ -------------------
Cash Provided (Used) by Investing Activities (7,152) (14,826)
------------------ -------------------
Financing Activities:
Proceeds from Short-Term Borrowings - 1,897
Proceeds from Long-Term Borrowings 22,050 5,250
Payments on Long-Term Borrowings (134) (6)
Cash Dividends (150) (568)
Proceeds from Stock Plans - 1,581
Purchase of Common Stock - (248)
------------------ -------------------
Cash Provided (Used) by Financing Activities 21,766 7,906
------------------ -------------------
Net Increase (Decrease) in Cash (1,558) (709)
Cash at End of Prior Year 2,507 1,654
------------------ -------------------
Cash at End of Period $949 $945
==== ====
</TABLE>
5
TULTEX CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
April 4, 1998
NOTE 1 - The accompanying consolidated financial statements furnished in this
quarterly 10-Q Report reflect all adjustments, consisting only of normal
recurring adjustments, which are, in the opinion of management, necessary for a
fair statement of the results of the interim periods. This balance sheet,
statement of operations and statement of cash flows have been prepared from the
Company's records and are subject to audit and year-end adjustments.
NOTE 2 - A summary of inventories by component follows.
(In thousands of dollars)
<TABLE>
<CAPTION>
<S> <C>
April 4, 1998 January 3, 1998
------------------------- -------------------------
Raw Materials $35,574 $30,198
Supplies 11,254 10,958
Goods-in-Process 26,282 19,391
Finished Goods 168,395 139,308
========================= =========================
Total Inventory $241,505 $199,855
========================= =========================
</TABLE>
NOTE 3 - Income taxes are provided based upon income or loss reported for
financial statement purposes. Deferred income taxes are provided for the
temporary differences between the financial reporting basis and the tax basis of
the company's assets and liabilities.
NOTE 4 - 5% percent cumulative preferred stock is $100 par value, 22,000 shares
authorized, 1,975 shares issued and outstanding as of April 4,1998 and January
3, 1998. The stated quarterly dividend was declared on February 12, 1998, and
paid on April 1, 1998.
Series B, $7.50 cumulative, convertible preferred stock is $100 stated value,
150,000 shares authorized, 75,000 shares issued and outstanding as of April 4,
1998 and January 3, 1998. The stated quarterly dividend was declared on February
12, 1998, and paid on April 1, 1998.
Series C, 4.5% cumulative convertible preferred stock is $10 stated value,
100,000 shares authorized, 33,260 shares issued and outstanding as of April 4,
1998 and January 3, 1998. The stated quarterly dividend was declared on February
12, 1998, and paid on April 1, 1998.
Common stock, $1 par value, 60,000,000 shares authorized, shares issued and
outstanding were 29,885,088 at April 4, 1998, and 29,875,488 at January 3, 1998.
There were no dividends declared on the company's common stock for the three
month period ended April 4, 1998.
NOTE 5 - Income (loss) per common share is computed using the weighted average
number of common shares outstanding in the first three months of 1998 and 1997
of 29,881,290 and 29,384,201, respectively. The shares outstanding are the same
for both basic and diluted earnings per share.
<PAGE>
6
TULTEX CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
April 4, 1998
NOTE 6 - BUSINESS ACQUISITIONS
On March 6, 1998, the company purchased the stock of Liga Mayor de Mexico S.A.
de C.V., an apparel sewing company located in Mexico. The aggregate purchase
price was approximately $2,743,000, including transaction expenses. The
acquisition is being accounted for as a purchase, and accordingly, the financial
statements include results of operations from the date of acquisition. The
purchase included intangibles, such as trademarks, operating agreements and
goodwill, valued at $2,300,000 to be amortized over 10 years.
<PAGE>
7
Tultex Corporation
Management's Discussion and Analysis of Financial Condition and Results of
Operations
April 4, 1998
Results of Operations
The following table presents the company's consolidated statement of operations
items as a percentage of net sales.
<TABLE>
<CAPTION>
<S> <C>
Three Months Ended
--------------------------------
04/04/98 04/05/97
------------ ------------
Net Sales and Other Income 100.0% 100.0%
------------ ------------
Cost of Products Sold 75.6 74.2
Depreciation 5.1 5.1
Selling, General and Administrative 23.6 22.2
Interest 6.9 5.5
------------ ------------
Total Costs and Expenses 111.2 107.0
------------ ------------
Income (Loss) Before Income Taxes (11.2) (7.0)
Benefit (Provision) for Income Taxes 4.4 2.7
------------ ------------
Net Income (Loss) (6.8)% (4.3)%
============ ============
</TABLE>
Note: Certain items have been rounded to cause the columns to add to 100%.
This Quarterly Report on Form 10-Q contains certain forward-looking statements
reflecting the company's current expectations and there can be no assurances
that the company's actual future performance will meet such expectations.
Potential risks and uncertainties include such factors as the financial
condition of the company, the cost of borrowings, the financial strength of the
retail industry, the level of consumer spending on apparel, and the competitive
pricing environment within the apparel industry. Investors are also directed to
consider other risks and uncertainties discussed in other documents filed by the
company with the Securities and Exchange Commission.
Net sales and other income for the three months ended April 4, 1998, increased
$.6 million, or .6%, from the first quarter of 1997. Activewear sales of $66.5
million represent an increase of $8.9 million, or 15.5%, as compared to the
first quarter of 1997. The activewear increase resulted from the inclusion of
sales for California Shirt Sales and T-Shirt City which were acquired during the
second quarter of 1997. Licensed apparel sales of $33.7 million in the first
quarter of 1998 represent a decrease of $8.3 million, or 19.8%, as compared to
the first three months of 1997. The licensed apparel sales decrease resulted
from weak demand for NBA products and continued softness in Major League
Baseball.
Cost of products sold as a percentage of sales increased to 75.6% for the first
quarter of 1998 compared to 74.2% for the comparable first quarter of last year.
The decrease in margin as a percentage of sales reflects competitive price
conditions and the shift in product mix toward jersey products which typically
carry a lower margin than the company's fleece products.
Depreciation expense increased $56,000, or 1.1%, during the first quarter of
1998. This increase reflects a full quarter's depreciation on 1997 capital
additions and is partially offset by reductions for certain assets that became
fully depreciated during 1997.
<PAGE>
8
Selling, general and administrative expenses (S,G&A) increased $1.5 million for
the first quarter of 1998 compared to the same period of 1997. The primary
reason for this increase was the inclusion of expenses for California Shirt
Sales and T-Shirt City. This increase was partially offset by lower marketing
expenses. As a percentage of sales, S,G&A expenses were 23.6% compared to 22.2%
for the first three months of 1997.
Interest expense as a percentage of sales increased from 5.5%, or $5.5 million,
for the first quarter of 1997 to 6.9%, or $6.9 million, for the comparable
period of 1998. The 1998 increase is due to higher average borrowings and higher
average borrowing rates. The higher average borrowings resulted from the
company's two distributor acquisitions which occurred during the second quarter
of 1997. The higher average borrowing rates were primarily due to the issuance
of $75 million of 9 5/8% Senior Notes in the second quarter of 1997 which carry
a higher rate than the company's revolving credit facility borrowings. The
nature of the company's business requires extensive seasonal borrowings to
support its working capital needs. For the first three months of 1998, working
capital borrowings averaged $94.7 million at an average rate of 7.7% compared to
$115.2 million and 7.0%, respectively, for the comparable period of the prior
year.
Benefit (Provision) for income taxes reflects an effective rate for combined
federal and state income taxes of 39% for the first three months of 1998 as well
as for the comparable period of 1997.
Financial Condition, Liquidity and Capital Resources
Net working capital at April 4, 1998 increased $12.3 million from year-end 1997
due primarily to higher inventories which were partially offset by lower
accounts receivable. The increase in working capital was funded through an
increase in the Company's long-term revolving line of credit. Inventories
traditionally increase during the first half of the year to support second-half
shipments. Compared to January 3, 1998, inventories increased $41.7 million, or
20.8%. Net accounts receivable decreased $30.6 million from January 3, 1998 to
April 4, 1998 due to the seasonality of the company's business. Receivables
normally peak in September and October and begin to decline in December as
shipment volume decreases and cash is collected.
The current ratio at April 4, 1998 was 8.0 compared to 8.1 at January 3, 1998.
Total long-term debt at April 4, 1998 included senior notes totaling $185
million and $108 million outstanding under the revolving credit facility. At the
end of the first quarter of 1998, the company was in compliance with all debt
covenants.
As of April 4, 1998 and January 3, 1998, a total of 833,400 common shares had
been purchased and retired under the March 20, 1996 stock repurchase program.
Debt as a percentage of total capitalization was 62.6% as of April 4, 1998
compared to 60.0% as of January 3, 1998.
<PAGE>
9
For the first three months of 1998, net cash used by operations was $16.2
million versus $6.2 million provided for the same period last year. Cash used
for capital asset additions decreased $8.7 million in 1998 compared to the first
three months of 1997. Cash provided by financing activities increased $13.9
million from the first three months of 1997. The company expects that annual
cash flows from income adjusted for non-cash items, supplemented by the
revolving credit facility, will be adequate to support requirements for the
remainder of 1998.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board (the "Board") adopted
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("FAS 130"), which establishes standards for the reporting and display
of comprehensive income and its components in financial statements. FAS 130
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The Company has adopted this statement in the first quarter of 1998,
however there were no items which gave rise to other comprehensive income during
either the first quarter of 1998 or the first quarter of 1997.
In June 1997, the Board issued FAS 131, "Disclosures about Segments of an
Enterprise and Related Information". This Statement will change the way the
company reports information about segments of their business in their annual
financial statements and require the company to report selected segment
information in their quarterly reports issued to shareholders. It also requires
entity-wide disclosures about the products and services an entity provides, the
material countries in which it holds assets and reports revenues, and its major
customers. The Statement requires the company to disclose segment data based on
how management makes decisions about allocating resources to segments and
measuring their performance. This statement is effective for financial
statements for periods beginning after December 15, 1997. Disclosure of segment
information is not required in interim financial statements in the initial year
of its application.
<PAGE>
10
TULTEX CORPORATION
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On May 5, 1998 at the company's Annual Meeting of Stockholders held in
Martinsville, VA there were two matters submitted to a vote of security holders.
1. A Board of Directors, consisting of nine persons, was elected for the ensuing
year.
2. The Board of Directors appointment of Price Waterhouse LLP, independent
accountants, as auditors for fiscal 1998 was ratified.
The actual vote count for these matters is summarized below.
Board of Directors:
<TABLE>
<CAPTION>
<S> <C>
Authority Broker
Director For Withheld Abstain Non-Votes
------------------------------- ----------------- --------------- ------------- -----------------
Charles W. Davies, Jr. 22,635,001 0 458,482 0
Lathan M. Ewers, Jr. 22,432,020 0 661,463 0
John M. Franck 22,710,818 0 382,665 0
Seth P. Bernstein 22,515,396 0 578,087 0
H. Richard Hunnicutt, Jr. 22,705,625 0 387,858 0
F. Kenneth Iverson 22,757,539 0 335,944 0
Bruce M. Jacobson 22,799,819 0 293,664 0
Richard M. Simmons 22,730,709 0 362,774 0
Lynn J. Beasley 22,741,795 0 351,688 0
Auditors:
Authority Broker
Independent Accountant For Withheld Abstain Non-Votes
------------------------------- ----------------- --------------- ------------- -----------------
Price Waterhouse LLP 22,948,890 64,108 80,485 0
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
Items 1, 2, 3 and 5 are inapplicable and are omitted.
<PAGE>
11
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
TULTEX CORPORATION
(Registrant)
Date May 19, 1998 /s/ C. W. Davies, Jr.
------------ ---------------------
C. W. Davies, Jr., President and Chief
Executive Officer
Date May 19, 1998 /s/ S. H. Wood
------------ --------------
Suzanne H. Wood,
Vice President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000100166
<NAME> TULTEX CORP
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> APR-04-1998
<CASH> 949
<SECURITIES> 0
<RECEIVABLES> 96,672
<ALLOWANCES> 3,925
<INVENTORY> 241,505
<CURRENT-ASSETS> 352,257
<PP&E> 350,074
<DEPRECIATION> 208,547
<TOTAL-ASSETS> 554,214
<CURRENT-LIABILITIES> 44,281
<BONDS> 307,672
0
8,031
<COMMON> 29,885
<OTHER-SE> 157,315
<TOTAL-LIABILITY-AND-EQUITY> 554,214
<SALES> 100,273
<TOTAL-REVENUES> 100,273
<CGS> 80,954
<TOTAL-COSTS> 104,570
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,908
<INCOME-PRETAX> (11,205)
<INCOME-TAX> 4,370
<INCOME-CONTINUING> (6,835)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,835)
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
