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 2, 1999
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
---------------------------
Commission file number 1-8016
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
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of exchange on which registered
------------------- ------------------------------------
<S> <C>
Common Stock, $1 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
</TABLE>
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:
$20,659,482 at April 16, 1999.
- ------------------------------
(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.
30,050,155 shares of Common Stock, $1 par value, as of March 22, 1999.
- ---------- -- ----------------
<PAGE>
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:
Those portions of the Proxy Statement for the Company's 1999 Annual
Meeting of Stockholders ("1999 Proxy Statement") to be filed pursuant to
Regulation 14A are incorporated herein by reference in Part III, Items 10,
11, 12 and 13.
<PAGE>
ITEM 1. BUSINESS
- ----------------
GENERAL
Tultex Corporation (the "Company") is a marketer, manufacturer and distributor
of activewear apparel for consumers and sports enthusiasts. The Company's
product line includes fleeced sweats and jersey products (outerwear T-shirts).
Products are sold under Tultex-owned labels, led by Discus Athletic(R), and
under private labels including Nike, Pro Spirit and Jerry Leigh. The Company
holds an exclusive license for domestic distribution of the OPSport(R) brand and
motorsports-related licenses for apparel from NASCAR, CART and numerous racing
teams. The Company's embroidered and silk-screen line of motorsports racing
apparel licensed designs is sold under the Track Gear(R) brand.
In February 1999, the Company received a commitment for a new, secured credit
facility with maximum borrowing availability of up to $150 million with Bank of
America Business Credit ("BABC"), subject to a borrowing base of inventories and
receivables. This facility is scheduled to close on May 10, 1999 and will
replace the existing unsecured revolving credit facility. In connection with
this refinancing, the Company made a solicitation to its noteholders, and
received the requested consents to permit the Company to grant BABC a first
security interest in accounts receivable, inventories and related assets.
Additional information regarding these transactions can be found within Items 7
and 8 of this Form 10-K.
On July 15, 1998, the Company completed the sale, for $98.5 million of cash and
$12.5 million of buyer indebtedness, of substantially all of the assets of its
LogoAthletic, Inc. and LogoAthletic/Headwear, Inc. ("LogoAthletic") subsidiaries
which marketed licensed sports apparel and headwear. The LogoAthletic
subsidiaries held licenses from the major professional sports of football,
baseball, basketball and hockey, and from many colleges, to market apparel and
headwear decorated with proprietary logos and designs. Through the sale of the
licensed business, the Company divested itself of a business that in recent
years had penalized its earnings. From cash received, the Company applied
approximately $93 million to debt reduction.
During fiscal 1998, the Company experienced a net loss of $36.5 million, or
$1.23 per share, compared with a net loss of $4.8 million, or $0.19 cents per
share, in fiscal 1997. On a pro forma basis, excluding the operating results and
loss on sale of LogoAthletic, the 1998 net loss of $20.0 million, or $0.67 per
share, compared with a 1997 net loss of $2.5 million, or $0.10 per share. 1998
was a disappointing year for the industry. Asian countries and developing
countries of Latin America impacted the pricing and relative price/value
relationships with some of the products in the industry. As a result, the
Company, along with others in the industry, suffered significant sales losses in
fleece products and ended the year with high fleece inventory levels and greater
debt than anticipated. Furthermore, T-shirt pricing experienced severe pressure
from industry over-capacity, depressing the Company's sales and gross margins
for jersey products. Warm weather across the United States, including high
temperature days through mid-December, severely impacted retail sales of fleece
and other outerwear products. Initiatives to improve the future cost structure
of the Company required significant capital spending in 1997 and the
streamlining of operating facilities in 1998. These initiatives include:
o closing four domestic sewing operations in order to further shift sewing
production to non-US locations
<PAGE>
where costs are lower;
o strategically changing the Company's distribution network to minimize
transportation costs by adding geographically dispersed warehouse
facilities and closing other warehouses;
o personnel reductions primarily attained through attrition; and
o bringing major capital projects on-line to improve textile manufacturing
efficiencies and yields.
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
attributed to 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 1990's, 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.
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(R) and Track Gear(R) for its premium products and
using the Tultex(R) label for the value-oriented and wholesale segments of
the market. In addition, Tultex has partnering arrangements to supply
higher-quality, private label products. Sales of the higher-margin
branded and premium private label products have grown from 13.8% of
consolidated sales in 1993 to 26.1% in 1998.
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, Fred Meyer 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 Kmart and Target with private label Tultex(R) 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.
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 1998, T-Shirt City opened distributor warehouses in
Charlotte, North Carolina, and
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Boston, Massachusetts. These warehouses expanded the Company's distributor
one-day delivery service to include the southeastern and northeastern
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.
INDUSTRY
The Company produces fleecewear and jersey products for sale at a broad range of
price points through all major distribution channels. 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 $7.3
billion in 1998. The predominant fleecewear products are sweatshirts and
sweatpants.
Fleecewear products have registered significant improvements in fabric weights,
blends, quality of 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.
3
<PAGE>
Fleecewear exhibits a marked seasonality. For example, over the past three
fiscal years, an average of 67.9% of the Company's fleecewear unit sales have
occurred in the third and fourth quarters.
JERSEY (OUTERWEAR T-SHIRTS). Unit retail sales of jersey products have grown
21.8% from 1995 to 1998 and in 1998 totaled $12.6 billion or 2,242 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 1998, the five largest fleece manufacturers
together accounted for an estimated 24.7% 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 8.3%,
6.8%, 5.1%, 2.3% and 2.2% of the wholesale industry sales, respectively. In
1998, the five largest jersey manufacturers together accounted for an estimated
11.9% of the branded market in the jersey industry, with Sara Lee Corporation,
Russell Corporation, Fruit-of-the-Loom, VF Corporation and Tultex accounting for
approximately 4.2%, 3.3%, 1.5 %, 1.5% and 1.4% of wholesale industry sales,
respectively. The activewear industry has been characterized since the 1980's 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.
COMPANY PRODUCTS
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(R) and Tultex(R) brands. Products carrying the Discus
Athletic(R) name are marketed for sale to chains such as Foot Locker, department
stores such as Sears and sporting goods stores, while Tultex(R) products are
marketed for sale to mass merchandisers such as Kmart and wholesale clubs. The
Company also manufactures private-label products for sale under many labels,
including Nike, Pro Spirit and Jerry Leigh. Under the Track Gear brand, the
Company offers items such as T-shirts, sweatshirts, windbreakers and hats
featuring designs involving NASCAR drivers and cars.
4
<PAGE>
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(R) and Track Gear(R) brands.
Advertising expenses were $17.1 million and $23.6 million in 1998 and 1997,
respectively. On a pro forma basis, excluding LogoAthletic, advertising expenses
were $10.7 million in 1998 and $11.1 million in 1997.
5
<PAGE>
At January 2, 1999, 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 12 states, which primarily sell
first-quality company-made products and accessories, and operated 2
LogoAthletic stores in Indiana which primarily sell surplus licensed apparel.
Dominion Stores' total sales in fiscal 1998 and 1997 were $13.5 million
and $15.5 million, respectively.
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 operations, including four domestic sewing operations in 1998 and
1999. 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.
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-
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<PAGE>
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.
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 five sewing facilities, along with various sewing contractors used by
the Company, 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 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. 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.
SOURCING
The Company currently maintains full package sourcing utilizing vendor-direct
relationships and agents. Sourced products mainly include garments of higher
fashion and are purchased from around the world.
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 85% 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% to 80% and
in jersey apparel typically is 100%. 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.
Tultex makes advance purchases of
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cotton based on projected demand. As of March 1, 1999, the Company has
contracted to purchase substantially all of its cotton requirements for 1999 and
has fixed the price on approximately 70% of its cotton requirements. To the
extent cotton prices increase before the company fixes the price for the
remainder of its cotton requirements, the Company's results of operations could
be adversely affected.
TRADEMARKS
The Company increasingly promotes and relies upon its trademarks, including
Discus Athletic(R), Tultex(R) and TrackGear(R), many of which are registered in
the United States and many foreign countries.
SEASONALITY
The Company's business is seasonal. The majority of fleecewear sales occur in
the third and fourth quarters, coinciding with cooler weather. 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'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
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more stringent in the future or that the Company will not incur significant
costs in the future to comply with such requirements.
LITIGATION
The Company is not currently a party to any legal proceedings the results of
which it believes could have a material adverse impact on its business or
financial condition.
EMPLOYEES
The Company had approximately 5,138 employees at January 2, 1999, of which 4,360
or 84.9% were paid hourly.
Hourly employees at the Company's Martinsville, South Boston and Mayodan
facilities are represented by the Union of Needletrades, Industrial and Textile
Employees. The Company's labor contracts with the union, expire in 2002. As of
January 2, 1999, the Company's hourly employees represented by the Union
accounted for approximately 50.9% of the Company's total employees and 60.0% of
the Company's hourly employees. None of the Company's other employees are
represented by a union.
ITEM 2. PROPERTIES
Most of the Company's principal physical facilities 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, distribution centers, warehouses, manufacturing facilities and retail
outlets in major cities from coast to coast and in the Caribbean. The location,
approximate size and use of the Company's principal owned properties are
summarized in the following table:
<TABLE>
<CAPTION>
SQUARE
LOCATION FOOTAGE USE
- -------- ------- ---
<S> <C> <C>
Martinsville, VA 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)
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Martinsville, VA 502,200 Warehousing and distribution (apparel)
Asheville, NC 106,650 Manufacturing (apparel)
Tamaulipas, Mexico 23,500 Sewing (apparel)
</TABLE>
The following table presents certain information relating to the Company's
principal leased facilities:
<TABLE>
<CAPTION>
LEASE
EXPIRA-
SQUARE TION
LOCATION FOOTAGE DATE USE
<S> <C> <C> <C>
Montego Bay, 28,422 12/31/01 Sewing (apparel)
Jamaica
Montego Bay, 38,088 12/31/01 Sewing (apparel)
Jamaica
Montego Bay, 19,800 12/31/01 Sewing (apparel)
Jamaica
Martinsville, VA 300,000 Monthly Warehousing (apparel)
Charlotte, NC 34,000 10/30/00 Distribution (apparel)
Fullerton, CA 205,000 12/31/04 Distribution (apparel)
Oakland, CA 22,282 07/31/99 Distribution (apparel)
San Diego, CA 23,812 Monthly Distribution (apparel)
Honolulu, HI 8,257 Monthly
Distribution (apparel)
Seattle, CA 34,020 09/30/00 Distribution (apparel)
Las Vegas, NV 31,889 07/31/03 Distribution (apparel)
Phoenix, AZ 53,760 09/01/01 Distribution (apparel)
Tempe, AZ 20,400 03/31/02 Distribution (apparel)
Brownsville, TX 300,000 02/08/08 Distribution (apparel)
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cincinnati, OH 105,000 Monthly Distribution (apparel)
Charlotte, NC 38,400 02/28/03 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.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in certain legal actions and claims arising in the
ordinary course of business. It is the opinion of management that such
litigation and claims will be resolved without material effect on the Company's
financial position, results of operations and cash flow.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of the fiscal year covered by
this report to a vote of security holders through the solicitation of proxies or
otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
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>
52 Weeks ended January 2, 1999 53 Weeks ended January 3, 1998
------------------------------- ------------------------------
Range of Quotations Range of Quotations
------------------------------- ------------------------------
Quarter Ended Low High Close Low High Close
- --------------- ------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
April 4 3 5/8 4 1/16 3 5/8 $6 3/8 $8 5/8 $ 7 5/8
July 4 2 3/16 3 1/2 2 7/16 5 1/4 8 5 15/16
October 3 1 9/16 2 1/2 1 11/16 5 1/2 7 5 3/4
January 2 11/16 1 3/4 7/8 3 5/8 5 3/4 4
</TABLE>
As of February 28, 1999, there were 2,272 record holders of the Company's common
stock. The Company has not paid any dividends on its common stock since the
second quarter of 1994. The senior notes and revolving credit facility contain
provisions that restrict the payment of cash dividends.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
1998 1997
(in thousands of dollars except per share data) (52 weeks) (53 weeks)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Summary of Operations:
Net sales $468,703 $649,407
Costs and operating expenses 482,739 631,007
- -----------------------------------------------------------------------------------------
Operating income (14,036) 18,400
Interest expense 29,108 27,611
Other (income) expense (2,233) (1,264)
Loss on sale of subsidiaries 16,304 --
Gain on sale of facilities -- --
- -----------------------------------------------------------------------------------------
Income (loss) before income taxes and extraordinary loss on
early extinguishment of debt (57,215) (7,947)
Provision (benefit) for income taxes (20,669) (3,099)
- -----------------------------------------------------------------------------------------
Income (loss) before extraordinary loss on early
extinguishment of debt (36,546) (4,848)
Extraordinary loss on early extinguishment of debt -- --
- -----------------------------------------------------------------------------------------
Net income (loss) (36,546) (4,848)
Less preferred dividend requirement 380 810
- -----------------------------------------------------------------------------------------
Balance to common stock $(36,926) $(5,658)
=========================================================================================
Weighted average number of common shares outstanding 29,955 29,783
- -----------------------------------------------------------------------------------------
Shares outstanding at year end 30,050 29,875
- -----------------------------------------------------------------------------------------
Per common share:
Income (loss) before extraordinary loss on early
extinguishment of debt $ (1.23) $ (.19)
Net income (loss) $ (1.23) $ (.19)
=========================================================================================
Dividends declared (Note 6) $ .00 $ .00
=========================================================================================
Book value $ 4.82 $ 6.23
=========================================================================================
Year-End Data:
Current assets $272,415 $341,764
Current liabilities 36,263 41,942
- -----------------------------------------------------------------------------------------
Working capital $236,152 $299,822
=========================================================================================
Inventories $176,818 $202,736
Property, plant and equipment (net) $107,001 $127,191
Total assets $447,328 $542,327
Bank notes payable $ -- $ 5,000
Current portion of long-term debt $ -- $ 527
=========================================================================================
Capital Invested:
Long-term debt $259,405 $285,727
Stockholders' equity 146,438 194,112
- -----------------------------------------------------------------------------------------
Total capital invested $405,843 $479,839
=========================================================================================
Return on average total capital invested (7.8)% (1.1)%
Long-term debt as a percentage of total capital 63.9 % 59.5 %
=========================================================================================
<CAPTION>
1996 1995 1994
(in thousands of dollars except per share data) (52 weeks) (52 weeks) (52 weeks)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Summary of Operations:
Net sales $634,437 $583,788 $564,713
Costs and operating expenses 588,713 554,415 537,360
- ---------------------------------------------------------------------------------------------------
Operating income 45,724 29,373 27,353
Interest expense 21,742 21,952 18,151
Other (income) expense (2,951) (1,527) (828)
Loss on sale of subsidiaries -- -- --
Gain on sale of facilities -- -- (4,405)
- ---------------------------------------------------------------------------------------------------
Income (loss) before income taxes and extraordinary loss on
early extinguishment of debt 26,933 8,948 14,435
Provision (benefit) for income taxes 10,234 3,400 5,485
- ---------------------------------------------------------------------------------------------------
Income (loss) before extraordinary loss on early
extinguishment of debt 16,699 5,548 8,950
Extraordinary loss on early extinguishment of debt -- (3,746) --
- ---------------------------------------------------------------------------------------------------
Net income (loss) 16,699 1,802 8,950
Less preferred dividend requirement 1,135 1,135 1,135
- ---------------------------------------------------------------------------------------------------
Balance to common stock $15,564 $ 667 $ 7,815
===================================================================================================
Weighted average number of common shares outstanding 29,589 29,810 29,685
- ---------------------------------------------------------------------------------------------------
Shares outstanding at year end 29,334 29,824 29,807
- ---------------------------------------------------------------------------------------------------
Per common share:
Income (loss) before extraordinary loss on early
extinguishment of debt $ .53 $ .15 $ .26
Net income (loss) $ .53 $ .02 $ .26
===================================================================================================
Dividends declared (Note 6) $ .00 $ .00 $ .05
===================================================================================================
Book value $ 6.40 $ 5.83 $ 5.74
===================================================================================================
Year-End Data:
Current assets $331,921 $315,157 $289,907
Current liabilities 56,430 40,313 167,053
- ---------------------------------------------------------------------------------------------------
Working capital $275,491 $274,844 $122,854
===================================================================================================
Inventories $162,283 $157,946 $130,183
Property, plant and equipment (net) $132,425 $125,882 $134,884
Total assets $500,780 $475,799 $456,809
Bank notes payable $ 5,628 $ -- $ 1,000
Current portion of long-term debt $ 424 $ 145 $132,353
===================================================================================================
Capital Invested:
Long-term debt $223,616 $227,540 $ 83,002
Stockholders' equity 202,928 189,057 187,101
- ---------------------------------------------------------------------------------------------------
Total capital invested $426,544 $416,597 $270,103
===================================================================================================
Return on average total capital invested 4.0% 0.5% 2.6%
Long-term debt as a percentage of total capital 52.4% 54.6% 30.7%
===================================================================================================
</TABLE>
12
<PAGE>
ITEM 7. 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 industry. 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:
<TABLE>
<CAPTION>
Jan. 2, 1999 Jan. 3, 1998 Dec. 28, 1996
(52 weeks) (53 weeks) (52 weeks)
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of products sold 85.7 81.3 77.3
- -------------------------------------------------------------------------
Gross profit 14.3 18.7 22.7
Selling, general and
administrative 17.3 15.9 15.5
- -------------------------------------------------------------------------
Operating income (3.0) 2.8 7.2
Other (income) expense
Interest expense 6.2 4.2 3.4
Interest income and
other, net (.5) (.2) (.4)
Loss on sale of
subsidiaries 3.5 -- --
- -------------------------------------------------------------------------
Income (loss) before
income taxes (12.2) (1.2) 4.2
Provision (benefit) for
income taxes (4.4) (.5) 1.6
- -------------------------------------------------------------------------
Net income (loss) (7.8)% (.7)% 2.6%
=========================================================================
</TABLE>
Note: Certain items have been rounded to cause the columns to add to 100%.
Fiscal Year 1998 Compared to Fiscal Year 1997
Net loss applicable to common stock for 1998 was $36.5 million, or $1.23 per
share, compared with a net loss of $4.8 million, or $.19 per share, in 1997.
1998 results include a $16.3 million loss (after-tax of $9.9 million, or $.33
per share) related to the sale of substantially all the assets of LogoAthletic.
On a pro forma basis, assuming the sale of LogoAthletic had occurred at the
beginning of the applicable year, the net loss was $20.0 million, or $.67 per
share, compared to a pro forma net loss of $2.5 million, or $.10 per share, in
1997.
Net sales of $468.7 million for the year ended January 2, 1999 represents a
decrease of $180.7 million, or 27.8%, from the prior year. This decrease
resulted primarily from the sale of LogoAthletic in July 1998. On a pro forma
basis, excluding the effects of LogoAthletic, net sales for 1998 were $417.8
million as compared to $473.9 million in 1997, a decrease of $56.1 million, or
11.8%. The sales decrease reflects lower volume in fleece products, which were
severely impacted by record warm weather across the United States during the
last three months of 1998, including high temperature days through
mid-December. Furthermore, T-shirt pricing experienced severe pressure from
industry over-capacity, depressing the company's sales of its jersey products.
Net sales were also reduced by larger than normal discounts and allowances and
by returns of goods to resolve outstanding claims.
Cost of products sold as a percentage of sales was 85.7% for 1998 and 81.3% for
1997. The primary reason for the increase was due to the sale of LogoAthletic,
whose licensed apparel business historically incurred lower costs as a percent
of sales than the company's activewear apparel business. Excluding the
operations of LogoAthletic, cost of products sold as a percent of sales was
87.7% as compared to 86.2% in 1997. While the cost of raw materials were lower
in 1998, these savings were offset by the cost of reduced operating schedules
in the fourth quarter, the closing of three domestic sewing plants and the
establishment of certain inventory reserves reflective of the company's
initiative to reduce inventory levels. In addition, competitive pricing and the
shift in product mix toward jersey products which typically carry a lower
margin than the company's fleece products, contributed to the increase.
Selling, general and administrative expenses ("S,G&A") of $81.2 million in 1998
represent a decrease of $22.0 million as compared to 1997. The primary reason
for the decrease was the sale of LogoAthletic, whose licensed apparel business
historically incurred higher S,G&A expenses as a percent of sales than the
company's activewear apparel business. Excluding the operations of
LogoAthletic, S,G&A expenses of $58.3 million increased $7.1 million in 1998 as
compared to 1997. Approximately $3.0 million of this increase is due to the
inclusion of California Shirt Sales and T-Shirt City expenses for the entire
year of 1998 (Note 18). These companies were acquired during the second quarter
of 1997. In addition, bad debt write-offs in 1998 exceeded 1997 write-offs due
to the poor operating performance experienced in 1998 by some of the company's
retail and wholesale customers. Also, higher computer equipment and software
amortization, resulting from the partial
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
implementation of an enterprise-wide management information system in 1998,
contributed to the increase.
Interest expense in 1998 was $29.1 million as compared to $27.6 million in
1997. The increase of $1.5 million resulted from higher average borrowing rates
on the company's revolving credit facility, was partially offset by lower
average borrowings due to the cash proceeds of the LogoAthletic sale being
applied to debt reduction during the third quarter. The nature of the company's
business requires extensive seasonal borrowings to support working capital
needs. During 1998 working capital borrowings averaged $103.0 million, at an
average rate of 8.1%, as compared to $130.1 million, and 7.3%, for 1997.
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 36% in 1998 and 39% in 1997. The tax benefit increased $17.6 million in
1998 as a result of the pretax loss.
Fiscal Year 1997 Compared to Fiscal Year 1996
Net sales of $649.4 million for the year ended January 3, 1998 represents an
increase of $15.0 million, or 2.4%, 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 $440.4 million in 1997 represent an increase
of $33.6 million, or 8.3%, as compared to 1996. Licensed sales of $209.0
million in 1997 represent a decrease of $18.6 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 81.3% for 1997 and 77.3% 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 80.0% for fiscal 1997.
Selling, general and administrative expenses ("S,G&A") increased $5.1 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 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 15.9% in 1997 and 15.5% in 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.
Financial Condition, Liquidity and Capital Resources
Net working capital, which excludes borrowings under the revolving credit
facility which is classified as long-term debt, was $236.2 million at January
2, 1999. This amount was $63.6 million lower than the January 3, 1998 amount of
$299.8 million, primarily due to lower inventories and accounts receivable
which resulted from the sale of LogoAthletic. Compared to January 3, 1998,
inventories decreased $25.9 million or 12.8%. After giving effect to the sale
of LogoAthletic, inventories increased by $48.3 million from January 3, 1998.
The increase reflects lower than anticipated sales in the fourth quarter due to
industry over-capacity conditions and the unseasonably warm temperatures which
adversely affected customer orders. Net accounts receivable decreased $48.7
million or 39.5% from January 3, 1998. After giving effect to the sale of
LogoAthletic, accounts receivable decreased $19.5 million, which reflects the
lower than anticipated fourth quarter sales. The current ratio (ratio of
current assets to current liabilities) at January 2, 1999 was 7.5 compared to
8.1 for January 3, 1998. The decrease in the ratio was mainly due to the lower
inventory and accounts receivable levels resulting from the sale of
LogoAthletic.
Total indebtedness at January 2, 1999 consisted primarily of senior notes
totaling $185.0 million and $60.0 million outstanding under the revolving
credit facility. The reduction in long-term debt from January 3, 1998 reflects
the application of the proceeds received from the sale of LogoAthletic against
the company's revolving credit facility, offset by additional working capital
borrowings. The company's average credit facility borrowings during fiscal 1998
were $103.0 million and its peak borrowing was $173.0 million on July 14, 1998.
Subsequent to January 2, 1999, the company received a commitment for a new,
asset-based secured credit facility which has a maximum borrowing availability
of $150 million with Bank of America Business Credit ("BABC"). Under the new
facility, which is scheduled to close
14
<PAGE>
May 10, 1999, BABC will lend funds subject to availability under a borrowing
base calculated as a percentage of eligible accounts receivable and
inventories, provided that the total amount advanced would not exceed $150
million. Proceeds from this facility will be used to pay all outstanding
amounts under the company's existing $87.5 million unsecured revolving credit
facility, fund a partial tender offer for the 9 5/8% and 10 5/8% Senior Notes
(see below), and provide working capital.
To obtain the required consents of noteholders to permit the company to grant
a first security interest on accounts receivable, inventories and related
assets to secure the BABC credit facility, the company initiated a consent
solicitation. In connection with the solicitation, the company also invited
noteholders to tender notes for purchase by the company in a "modified dutch
auction" with a maximum purchase price of 65% of face value per note and agreed
to provide funding of $42 million (exclusive of accrued interest) for such
purchases. The company has accepted tenders for $70 million of notes and has
received consents from holders of more than 51% of both note series as required.
In connection with the consent solicitation, interest payments on these notes
have been changed to quarterly instead of semiannually. Also, holders of notes
not accepted for purchase by the company who also consented will receive freely
tradeable and registered warrants for 15,525,000 shares of the company's common
stock. Two-thirds of these warrants have an exercise price of $.8125 per share,
and the remaining one-third have an exercise price of $1.425 per share. The
warrants have a 8-year term, and may be exercised by payment of cash or by
tender of notes for an amount equal to the exercise price of the warrants.
In connection with the refinancing, the existing revolving credit facility
borrowings and accrued interest, expected to be $54.5 million at May 10, 1999,
will be retired by payment of $39.5 million in cash from the proceeds of the
new facility borrowings, and the remaining $15.0 million will be forgiven by
the former lenders. In addition, $42.0 million of the new facility borrowings
will be used to repurchase $70.0 million face value of Senior Notes, pursuant to
the company's acceptance of tender offers from noteholders submitted by
April 16, 1999.
The new facility has a maturity date of three years with an extension provision
for an additional two years, subject to lenders' approval. The company has the
option of setting quarterly interest rates equal to either the Prime Rate or
LIBOR plus applicable margins. The applicable margin is based on a funded debt
/ EBITDA ratio that will range from 0% to 1.75% for Prime Rate or 1.75% to
3.75% for LIBOR based loans. The company shall pay a fee of .375% per year on
any unused borrowings. A $10 million sublimit under the facility is available
for letters of credit.
In connection with the refinancing, the company received waivers for
default of financial covenants under the former credit facility. The most
significant financial covenants of the new facility are the maintenance of a
minimum fixed charge coverage ratio on a quarterly basis and annual limitations
on capital expenditures. Other covenants place restrictions on the company's
ability to incur additional indebtedness, pay dividends, create liens or other
encumbrances, to make certain payments, investments, loans and guarantees and
to sell or otherwise dispose of a substantial portion of its assets.
On July 15, 1998, as part of the sale of LogoAthletic, the company repurchased
60,000 shares of the 75,000 outstanding shares of its $7.50 Series B, $100
stated value Preferred Stock owned by investors in TKS, at the stated value of
$100 per share.
Stockholders' equity decreased $47.7 million during fiscal 1998 as a result of
the net loss for the period of $36.5 million, the preferred stock redemption of
$6.0 million, the minimum pension liability adjustment of $5.1 million,
preferred dividends of $380,000, and was partially offset by collections from
stockholders' notes receivable of $237,000. Debt as percentage of total
capitalization was 63.9% compared to 60.0% at January 3, 1998.
In fiscal 1998, net cash used by operations was $41.8 million compared to cash
provided by operations of $17.7 million in fiscal 1997. Cash provided by
investing activities was $83.0 million for fiscal 1998 compared to cash used by
investing activities of $52.2 million in fiscal 1997. The cash provided in
fiscal 1998 reflects the proceeds from the sale of LogoAthletic and lower
capital expenditures as compared to fiscal 1997. Capital expenditures for 1998
were $10.1 million compared to $29.1 million in 1997. The company has budgeted
$5.0 million for capital expenditures in fiscal 1999. Cash used in financing
activities was $37.9 million in fiscal 1998 compared to cash provided by
financing activities in fiscal 1997 of $35.4 million. The cash used in
financing activities for fiscal 1998 reflects the application of the proceeds
from the sale of LogoAthletic against the company's revolving credit facility,
partially offset by cash used for the company's working capital requirements.
The cash provided by financing activities in fiscal 1997 reflects the issuance
of $75 million in senior notes. Management believes that current cash balances,
cash flows from operations and its new secured credit facility should be
sufficient during 1999 and for the foreseeable future to fund its planned
capital expenditures and working capital needs.
Year 2000
The Year 2000 issue is the result of computer systems and other equipment with
embedded chips using two digits, rather than four, to define the applicable
year. If the company's computer systems are not Year 2000 compliant, they may
recognize a date using "00" as the Year 1900 rather than the Year 2000. If not
corrected, computer applications could fail or create erroneous results which
could have a material adverse impact on the company's business, operations or
financial condition in the future.
The company began addressing the Year 2000 issue in 1995 with the formation of
a Y2K Team. The company is in the process of addressing Year 2000 compliance,
both internally and with third parties. The company's objective is to confirm
compliance by July 3, 1999. Third parties that are not compliant at that time
may delay compliance. The Year 2000 Project is comprised of four phases:
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
1. Inventory of all hardware, software, local area networks, personal
computers, telecommunications equipment and software (data and voice), program
logic controllers (PLC) and non-information technology embedded software and
equipment.
2. Assessment of the inventory through testing for Year 2000 compliance.
3. Remediation of all affected systems. Systems will be modified, upgraded or
replaced as appropiate for compliance. Contingency plans will be established
for areas of concern.
4. Testing of internal system compliance and testing with customers and
suppliers will be performed on an ongoing basis until project completion.
The company has completed the inventory phase. The assessment and remediation
phases are in process. The assessment phase is 85% complete and is scheduled
for completion by April 30, 1999. The remediation phase is scheduled for
completion by June 5, 1999. The testing phase will be ongoing as hardware and
software is remediated, upgraded or replaced.
As part of the Year 2000 Project, the company is implementing a new Enterprise
Resource Planning system ("ERP"), which will replace 80% of the company's
Legacy systems with Year 2000 compliant software. All major infrastructure,
computers, PC's and telecommunications equipment have been replaced with Year
2000 compliant hardware and software as part of the project. The company has
implemented approximately 75% of the system to date with the remaining 25%
scheduled to be implemented by April 3, 1999. Additionally, the company is in
the process of loading the Year 2000 compliant versions of electronic data
interchange ("EDI") systems for testing with the company's customers. This
testing commenced in the first quarter of 1999 and is scheduled for completion
by June 5, 1999. The remaining Legacy software has been identified, assessment
is nearing completion, and upgrades or replacements are being ordered for
non-compliant software and hardware. Updates or modification to this software
are scheduled for completion by June 5, 1999, with testing scheduled for
completion by July 3, 1999.
The company relies on third party suppliers for raw materials, water,
utilities, transportation and other services. Interruption of supplier
operations due to Year 2000 issues could affect company operations. The company
has initiated efforts with all major suppliers to gauge compliance and exposure
in these areas. The company has formally requested written confirmation of Year
2000 compliance from its major contractors and vendors. Approximately 70% have
responded to date. Specific testing will be requested where appropriate. Should
any vendor, supplier, equipment or process not be able to conform within the
prescribed timeframes, the company will take appropriate action to ensure
continuity of its business. Contingency plans will be developed for any area
not able to conform within the prescribed timeframe. While approaches to
reducing risks of interruption due to supplier failures will vary by facility,
options include identification of alternate suppliers, stockpiling raw
materials and adjusting operating schedules. Costs associated with any
contingency will be determined as this assessment continues.
Year 2000 Project costs are linked with the ERP implementation costs. Total
costs for both the Year 2000 Project and the ERP system implementation is
expected to be approximately $21.5 million. Of this total, $20.5 million has
been incurred and capitalized as part of the ERP implementation as of January
2, 1999. The remaining $1.0 million is specifically related to Year 2000
project costs and will be expensed as incurred over the next twelve months.
These costs will include external testing with banks, vendors and customers, as
well as EDI software upgrades. The company believes the remaining costs
relating to the Year 2000 issue will not have a material impact on the
company's consolidated financial position, results of operations or cash flows.
Due to the general uncertainty inherent in the Year 2000 problem, resulting in
part from the readiness of third-party suppliers and customers, the company is
unable to determine at this time whether the consequences of Year 2000 failures
will have a material impact on the company's results of operations, liquidity
or financial condition. The Year 2000 Project is expected to significantly
reduce the company's level of uncertainty about the Year 2000 problem and about
the Year 2000 compliance of its major suppliers and customers. The company
believes that, with the implementation of its new ERP systems and the
completion of the Year 2000 project as scheduled, the possibility of
interruptions of normal operations is reduced.
16
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
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 2,
1999 and January 3, 1998, and the results of their operations and their cash
flows for each of the three years in the period ended January 2, 1999, 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.
As more fully described in Notes 1 and 22, subsequent to January 2, 1999,
the company negotiated a restructuring of its long-term debt facilities.
PRICEWATERHOUSECOOPERS LLP
Greensboro, North Carolina
April 16, 1999
17
<PAGE>
BALANCE SHEET
<TABLE>
<CAPTION>
(In thousands of dollars
except share data)
Assets Jan. 2, 1999 Jan. 3, 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets:
Cash and equivalents $ 5,769 $ 2,507
Accounts receivable, less allowance for doubtful accounts of
$4,234 (1998) and $4,205 (1997) 74,599 123,315
Inventories (Note 2) 176,818 202,736
Prepaid expenses 1,913 6,409
Income taxes refundable 8,782 2,696
Deferred tax assets (Note 8) 4,534 4,101
- --------------------------------------------------------------------------------------------------------------------
Total current assets 272,415 341,764
- --------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net of depreciation (Note 3) 107,001 127,191
Intangible assets 22,777 44,190
Deferred tax assets (Note 8) 2,419 --
Other assets 42,716 29,182
- -------------------------------------------------------------------------------------------------------------------
Total Assets $447,328 $542,327
===================================================================================================================
Liabilities and Stockholders' Equity
- -------------------------------------------------------------------------------------------------------------------
Current liabilities:
Notes payable to banks (Note 4) $ -- $ 5,000
Current maturities of long-term debt (Notes 5 and 20) -- 527
Accounts payable - trade 23,448 26,437
Accrued liabilities 12,754 9,975
Dividends payable 61 3
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 36,263 41,942
- -------------------------------------------------------------------------------------------------------------------
Long-term debt, less current maturities (Notes 5 and 20) 259,405 285,727
- -------------------------------------------------------------------------------------------------------------------
Other long-term liabilities:
Deferred income taxes (Note 8) -- 15,379
Other 5,222 5,167
- -------------------------------------------------------------------------------------------------------------------
Total other long-term liabilities 5,222 20,546
- -------------------------------------------------------------------------------------------------------------------
Stockholders' equity (Notes 6, 7, 14, 15, 19 and 22):
5% cumulative preferred stock, $100 par value; authorized - 22,000 shares, issued
and outstanding - 1,975 shares (1998 and 1997) 198 198
Series B, $7.50 cumulative convertible preferred stock; authorized - 150,000
shares, issued and outstanding - 15,000 shares (1998) and 75,000 shares
(1997) 1,500 7,500
Series C, 4.5% cumulative convertible preferred stock; authorized - 100,000
shares, issued and outstanding - 33,260 shares (1997) -- 333
Common stock, $1 par value; authorized - 60,000,000 shares, issued and
outstanding - 30,050,155 shares (1998) and 29,875,488 shares (1997) 30,050 29,875
Capital in excess of par value 7,095 6,893
Retained earnings 113,079 150,005
Accumulated other comprehensive income (loss) (5,085) --
Unearned stock compensation (35) (91)
- -------------------------------------------------------------------------------------------------------------------
146,802 194,713
Less notes receivables from stockholders 364 601
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 146,438 194,112
- -------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 11, 12 and 13)
Total Liabilities and Stockholders' Equity $447,328 $542,327
===================================================================================================================
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
statement.
18
<PAGE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Jan. 2, 1999 Jan. 3, 1998 Dec. 28, 1996
Fiscal years ended: (52 weeks) (53 weeks) (52 weeks)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands of dollars except per share data)
Net sales $468,703 $649,407 $634,437
Cost of products sold 401,565 527,795 490,646
- ------------------------------------------------------------------------------------------------
Gross profit 67,138 121,612 143,791
Selling, general and administrative (Note 16) 81,174 103,212 98,067
- ------------------------------------------------------------------------------------------------
Operating income (loss) (14,036) 18,400 45,724
Other (income) expense
Interest expense 29,108 27,611 21,742
Interest income and other, net (2,233) (1,264) (2,951)
Loss on sale of subsidiaries (Note 19) 16,304 -- --
- ------------------------------------------------------------------------------------------------
Income (loss) before income taxes (57,215) (7,947) 26,933
Provision (benefit) for income taxes (Note 8) (20,669) (3,099) 10,234
- ------------------------------------------------------------------------------------------------
Net Income (Loss) $(36,546) $ (4,848) $ 16,699
================================================================================================
Preferred dividend requirement (380) (810) (1,135)
Balance applicable to common stock (36,926) (5,658) 15,564
- ------------------------------------------------------------------------------------------------
Net Income (Loss) Per Common Share:
Basic $ (1.23) $ (.19) $ .53
Diluted (1.23) (.19) .52
================================================================================================
Dividends per Common Share (Note 6) $ .00 $ .00 $ .00
================================================================================================
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
statement.
19
<PAGE>
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Capital
5% Series B Series C in Excess
Preferred Preferred Preferred Common of Par
Stock Stock Stock Stock Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In thousands of dollars)
Balance as of
December 30, 1995 $198 $ 15,000 $ -- $29,824 $ 5,347
Net income
Exercise of stock options 7 28
Repurchase of common stock (497) (1,959)
Collections - stockholders' notes
receivable
Dividends on preferred stock
- ----------------------------------------------------------------------------------------------------------
Balance as of
December 28, 1996 198 15,000 -- 29,334 3,416
Net loss
Issuance of preferred stock 333
Repurchase of preferred stock (7,500)
Exercise of stock options 293 1,352
Repurchase of common stock (336) (1,734)
Restricted stock awards 31 196
Stock compensation
Shares issued in CSS acquisition 554 3,671
Restricted stock awards lost (1) (8)
Collections - stockholders' notes
receivable
Dividends on preferred stock
- ----------------------------------------------------------------------------------------------------------
Balance as of
January 3, 1998 198 7,500 333 29,875 6,893
Comprehensive income (loss):
Net loss
Minimum pension liability adjustment,
(net of tax of $3,117)
Total comprehensive income
(loss)
Repurchase of preferred stock (6,000)
Restricted stock awards 40 68
Stock compensation
Restricted stock awards lost (9) (55)
Conversion of preferred stock (333) 144 189
Collections - stockholders' notes
receivable
Dividends on preferred stock
- ---------------------------------------------------------------------------------------------------------
Balance as of
January 2, 1999 $198 $ 1,500 $ -- $30,050 $ 7,095
=========================================================================================================
<CAPTION>
Accumulated Unearned Notes Total
Other Stock Receivable- Stock-
Retained Comprehensive Compen- Stock- holders'
Earnings Income (Loss) sation holders Equity
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In thousands of dollars)
Balance as of
December 30, 1995 $ 140,099 $ -- $ -- $ (1,411) $189,057
Net income 16,699 16,699
Exercise of stock options 35
Repurchase of common stock (2,456)
Collections - stockholders' notes
receivable 728 728
Dividends on preferred stock (1,135) (1,135)
- ------------------------------------------------------------------------------------------------------------
Balance as of
December 28, 1996 155,663 -- -- (683) 202,928
Net loss (4,848) (4,848)
Issuance of preferred stock 333
Repurchase of preferred stock (7,500)
Exercise of stock options (320) 1,325
Repurchase of common stock (2,070)
Restricted stock awards (227) --
Stock compensation 136 136
Shares issued in CSS acquisition 4,225
Restricted stock awards lost (9)
Collections - stockholders' notes
receivable 402 402
Dividends on preferred stock (810) (810)
- ------------------------------------------------------------------------------------------------------------
Balance as of
January 3, 1998 150,005 -- (91) (601) 194,112
Comprehensive income (loss):
Net loss (36,546)
Minimum pension liability adjustment,
(net of tax of $3,117) (5,085)
Total comprehensive income
(loss) (41,631)
Repurchase of preferred stock (6,000)
Restricted stock awards (37) 71
Stock compensation 93 93
Restricted stock awards lost (64)
Conversion of preferred stock --
Collections - stockholders' notes
receivable 237 237
Dividends on preferred stock (380) (380)
- ------------------------------------------------------------------------------------------------------------
Balance as of
January 2, 1999 $ 113,079 $ (5,085) $ (35) $ (364) $146,438
============================================================================================================
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
statement.
20
<PAGE>
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal years ended: Jan. 2, 1999 Jan. 3, 1998 Dec. 28, 1996
(52 weeks) (53 weeks) (52 weeks)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands of dollars)
Operating Activities:
Net income (loss) $ (36,546) $ (4,848) $ 16,699
Items not requiring (providing) cash:
Depreciation 19,618 20,614 21,497
Amortization 3,893 3,380 1,217
Deferred income taxes (15,113) (1,612) 287
Loss on sale of subsidiaries 16,304 -- --
Other non-cash items 42 140 --
(Gain) on sale of assets (33) (43) (1,047)
Changes in assets and liabilities, net of effect of acquisitions and divestitures:
Accounts receivable 19,451 34,832 (17,375)
Inventories (48,278) (344) (4,337)
Prepaid expenses 3,059 (2,043) 4,621
Accounts payable and accrued expenses 1,126 (28,263) 9,525
Income taxes payable (6,115) (4,380) 403
Other long-term liabilities 761 238 (1,370)
- -----------------------------------------------------------------------------------------------------------------------------
Cash provided (used) by operating activities (41,831) 17,671 30,120
- -----------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Capital expenditures (10,079) (29,075) (29,048)
Business acquisitions (2,726) (21,875) --
Change in other assets (2,868) (4,315) (2,010)
Proceeds from sale of subsidiaries 98,531 -- --
Proceeds from sales of property and equipment 139 3,038 1,174
- -----------------------------------------------------------------------------------------------------------------------------
Cash provided (used) by investing activities 82,997 (52,227) (29,884)
- -----------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Issuance (payment) of short-term borrowings (5,000) (628) 5,628
Issuance (payment) of revolving credit facility borrowings (26,200) (27,400) (3,900)
Issuance of long-term debt -- 75,000 400
Payments on long-term debt (619) (745) (145)
Cost of debt issuance -- (2,204) --
Cash dividends (322) (1,091) (853)
Purchase of preferred stock (6,000) (7,500) --
Proceeds from stock plans 237 402 728
Net proceeds (payments) from issuance (repurchase) of common stock -- (425) (2,421)
- ------------------------------------------------------------------------------------------------------------------------------
Cash provided (used) by financing activities (37,904) 35,409 (563)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents 3,262 853 (327)
Cash and equivalents at beginning of year 2,507 1,654 1,981
- ------------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $ 5,769 $ 2,507 $ 1,654
==============================================================================================================================
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
statement.
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Fiscal years ended January 2, 1999, January 3, 1998 and December 28, 1996.
Note 1 -- The Company and Significant Accounting Policies
Tultex Corporation is a marketer, distributor and vertically integrated
manufacturer of activewear. The company's product lines include fleeced sweats
and jersey products.
Management Plans Regarding Financial Condition -- The company experienced
substantial losses in fiscal years ended January 2, 1999 and January 3, 1998
and was in default of certain financial covenants under the company's borrowing
facilities as of January 2, 1999. The company operates in a segment of the
apparel industry that is generally experiencing excess capacity and increased
off-shore competition resulting in reduced profit margins. These factors along
with an unusually warm season contributed to the company's deterioration
in profit margins in the year ended January 2, 1999 and increased levels of
inventory on hand as of January 2, 1999. Included in the pre-tax loss for
fiscal year ended January 2, 1999 of $57.2 million was $16.3 million of loss on
disposal of the company's LogoAthletic, Inc. and LogoAthletic/Headwear, Inc.
("LogoAthletic") businesses. Cash flow from operating activities for the year
ended January 2, 1999 reflected net cash used of approximately $41.8 million
principally due to the loss for the year and the increase in inventory levels,
net of the effect of the sale of the LogoAthletic business discussed in Note
19.
In response to these adverse conditions, management has taken the following
actions:
o Negotiated a refinancing of the company's working capital credit facility,
discussed more fully in Note 22, which will result in a new $150 million
asset-based facility and forgiveness of approximately $15 million of debt from
the existing revolving credit facility upon closing which is scheduled for May
10, 1999;
o In connection with the $150 million asset-based facility, negotiated new
financial covenants based on the company's current financial condition and
projected results of operations over the term of the facility;
o Obtained consent of the holders of the company's senior notes for the new bank
facility discussed above, and in connection with a solicitation offer by the
company, has accepted tender offers from noteholders to repurchase $70 million
face value of Senior Notes for $42 million. Such repurchase will be funded from
proceeds of the asset-based facility discussed above;
o Taken steps to reduce inventories through reduced production schedules and
focused efforts to sell existing inventories;
o Taken measures to reduce operating costs through initiatives such as closing
higher cost domestic production facilities in favor of lower cost foreign
production, strategically changing the company's distribution network to
minimize transportation costs by adding geographically dispersed warehouse
facilities and closing other warehouses, and personnel reductions primarily
attained through attrition.
Management believes that the refinancing of the company's banking facilities
and the continued implementation of the company's 1999 operating plan will
enable the company to continue as a going concern for the foreseeable future.
The significant accounting policies followed by the company 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.
Reclassifications -- Certain prior year amounts have been reclassified to
conform with current year presentation.
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 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:
<TABLE>
<CAPTION>
Classification Estimated Useful Lives
- -----------------------------------------------------
<S> <C>
Land improvements 20 years
Buildings and improvements 12-50 years
Machinery and equipment 3-20 years
</TABLE>
Intangible Assets -- Goodwill is being amortized on a straight-line basis over
periods of 10 to 25 years. The gross amount of goodwill was $24,440,000 at
January 2, 1999 and $25,569,000 at January 3, 1998. Accumulated amortization of
goodwill was $1,663,000 at January 2, 1999 and $1,525,000 at January 3, 1998,
respectively. The gross amount of licenses was $26,507,000 at January 3, 1998.
Accumulated amortization of licenses was $6,362,000 at January 3, 1998. The
related licenses were sold in connection with the sale of LogoAthletic as
discussed in Note 19.
Impairment of Long-Lived Assets -- The company reviews for the impairment of
long-lived assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An impairment loss would be
recognized when the estimated future undiscounted cash flows expected to result
from the use of the asset and its eventual disposition is less than its
carrying amount. The company would recognize an impairment based on the amount
by which the carrying amount of the asset exceeds the fair value of the asset.
22
<PAGE>
Note 1 (continued)
Pensions -- Pension expense includes charges for amounts not less than the
actuarially determined current service costs plus amortization of prior service
costs. 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 (loss) reported for
financial statement purposes. Deferred income taxes reflect the tax effect of
temporary differences between financial and taxable income (loss). The company
provides a valuation allowance against deferred tax assets for amounts which
management determines realization is not likely.
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 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.
<TABLE>
<CAPTION>
(In thousands except per share data) 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average number of
common shares outstanding 29,955 29,783 29,589
- -------------------------------------------------------------------------------
Income (loss) available to common
shareholders $(36,926) $(5,658) $15,564
===============================================================================
Earnings (loss) per common
share-basic $ (1.23) $ (.19) $ .53
===============================================================================
Weighted average number of
common shares outstanding 29,955 29,783 29,589
Add: Dilutive effect of stock
options, computed using the
treasury stock method -- -- 149
- -------------------------------------------------------------------------------
Weighted average number of
common and common
equivalent shares outstanding 29,955 29,783 29,738
===============================================================================
Income (loss) available to common
shareholders $(36,926) $(5,658) $15,564
===============================================================================
Earnings (loss) per common
share-diluted $ (1.23) $ (.19) $ .52
===============================================================================
</TABLE>
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.
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.
Fair Value of Financial Instruments -- SFAS 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.
Comprehensive Income -- In 1998, the company adopted SFAS No. 130, "Reporting
Comprehensive Income." Comprehensive income is defined as the change in equity
of a company during a period from transactions and other events and
circumstances excluding transactions resulting from investments by owners and
distributions to owners. The primary difference between net income (loss) and
comprehensive income (loss), for the company, is due to a minimum pension
liability adjustment in 1998. Comprehensive income (loss) is being shown in the
statement of stockholders' equity. The company had no items of comprehensive
income (loss) for the years ended January 3, 1998 and December 28, 1996.
Segment Reporting -- In June 1997, SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," was issued effective for fiscal years
beginning after December 15, 1997. The company has implemented this statement
in fiscal year ended January 2, 1999 (See Note 21).
New Accounting Standards -- In June 1998, the Financial Accounting Standards
Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 requires that an entity recognize all derivative
instruments in the balance sheet at fair value. The statement is effective for
fiscal years beginning after June 15, 1999. Management has not yet made an
assessment of the impact of the adoption of SFAS 133.
Note 2 -- Inventories
The components of inventories are as follows:
<TABLE>
<CAPTION>
(In thousands Jan. 2, Jan. 3,
of dollars) 1999 1998
- ---------------------------------------------
<S> <C> <C>
Raw materials $ 2,952 $ 30,198
Goods in process 21,688 19,391
Finished goods 143,506 139,308
Supplies 8,672 13,839
- --------------------------------------------
Total inventories $176,818 $202,736
============================================
</TABLE>
23
<PAGE>
Note 3 -- Property, Plant and Equipment
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
Jan. 2, Jan. 3,
(In thousands of dollars) 1999 1998
- -------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 3,931 $ 3,973
Buildings and improvements 61,129 63,017
Machinery and equipment 246,201 248,596
Construction in progress 4,991 15,217
- ------------------------------------------------------------
316,252 330,803
Less accumulated depreciation 209,251 203,612
- ------------------------------------------------------------
Net property, plant and equipment $107,001 $127,191
============================================================
</TABLE>
Note 4 -- Short Term Agreements
The company currently has no short-term lines of credit. As of January 3, 1998,
the company had short-term lines of credit with four banks. Borrowings
outstanding at January 3, 1998 were $5,000,000 at an interest rate of 6.9%.
The company utilizes letters of credit for foreign sourcing of inventory. Trade
letters of credit outstanding were $3,338,000 and $5,503,000 at January 2, 1999
and January 3, 1998, respectively.
Note 5 -- Long Term Debt
<TABLE>
<CAPTION>
Jan. 2, Jan. 3,
(In thousands of dollars) 1999 1998
- ------------------------------------------------------
<S> <C> <C>
Amount due under revolving
credit agreements $ 60,000 $ 86,200
10 5/8% senior notes due
March 15, 2005 110,000 110,000
9 5/8% senior notes due
April 15, 2007 75,000 75,000
10% convertible subordinated
notes due April 15, 2007 9,715 9,715
9% convertible subordinated
notes due April 15, 2007 4,690 4,690
Other indebtedness -- 649
- -------------------------------------------------------
259,405 286,254
Less current maturities -- 527
- -------------------------------------------------------
Total long-term debt $259,405 $285,727
=======================================================
</TABLE>
Subsequent to January 2, 1999, the company received a commitment to replace its
existing revolving credit facility with a $150 million asset-based lending
facility. In addition, a portion of the 10 5/8 and 9 5/8% senior notes were
repurchased and retired as part of the debt restructuring. Additional
disclosure of these subsequent events is described in Note 22.
The revolving credit facility was reduced from $187 million to $112 million in
September, 1998, and was further reduced to $87.5 million in November, 1998.
The reductions reflect the proceeds from the sale of the LogoAthletic assets
during 1998 and lower working capital requirements. The November revision also
placed limits on maximum monthly borrowings to amounts necessary to meet
seasonal operating requirements, and also modified the existing loan covenants.
At January 2, 1999, the company was in violation of certain of these covenants.
Waivers for these violations were obtained, and the existing revolving credit
facility is scheduled to be replaced with an asset-based lending facility on May
10, 1999 as described in Note 22.
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.
In connection with the purchase of California Shirt Sales, Inc. in April 1997
(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.
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.
Interest paid by the company in 1998, 1997 and 1996 was $29,099,000,
$26,042,000 and $21,654,000, respectively. The weighted average interest rates
on borrowings under the revolving credit facility at January 2, 1999 and
January 3, 1998 were 8.1% and 7.3%, respectively.
The aggregate maturities of long-term debt for each of the next five fiscal
years are: 1999, none; 2000, $60,000,000; 2001, none; 2002, none; 2003, none.
Estimated fair values of the company's long-term debt are as follows:
<TABLE>
<CAPTION>
Jan. 2, 1999 Jan. 3, 1998
Carrying Fair Carrying Fair
Value Value Value Value
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 5/8% senior
notes $110,000 $47,300 $110,000 $113,800
9 5/8% senior
notes 75,000 33,000 75,000 74,500
10% convertible
subordinated
notes 9,715 2,040 9,715 10,084
9% convertible
subordinated
notes 4,690 891 4,690 4,582
</TABLE>
24
<PAGE>
Note 5 (continued)
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 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 gain of approximately $1,436,000 at January 2, 1999 and a loss of
approximately $5,000 at January 3, 1998 based on quoted market prices and
discounted cash flows, is not recognized in the financial statements. Subsequent
to January 2, 1999, the interest rate swap agreement was terminated by the
company.
Note 6 -- Dividends
During the second quarter of 1994, the company suspended the payment of
dividends on its common stock. As of January 2, 1999, 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:
<TABLE>
<CAPTION>
Year Ended Number Per Share
January 2, 1999 of Shares Option Price
- -----------------------------------------------------------------
<S> <C> <C>
Outstanding at beginning of year 1,483,900 $ 4.88-$9.75
Granted 471,659 $ .88-$2.31
Exercised -- --
Expired 64,500 $ 6.88-$9.75
Cancelled 384,400 $ 4.88-$8.25
- -----------------------------------------------------------------
Outstanding at end of year 1,506,659 $ .88-$8.63
=================================================================
Exercisable at end of year 770,000 $ 4.88-$8.63
=================================================================
Shares reserved for future grant:
Beginning of year 165,600
=================================================================
End of year 142,841
=================================================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended Number Per Share
January 3, 1998 of Shares Option Price
- ----------------------------------------------------------------
<S> <C> <C>
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
==============================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended Number Per Share
December 28, 1996 of Shares Option Price
- ----------------------------------------------------------------
<S> <C> <C>
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
==============================================
</TABLE>
25
<PAGE>
Note 7 (continued)
The company has adopted the disclosure-only provisions of 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 1998, 1997 and 1996 consistent with provisions
of SFAS 123, the company's net income (loss) and net income (loss) per share
would have been adjusted to the pro forma amounts indicated in the table below:
<TABLE>
<CAPTION>
Fiscal years ended
------------------------------------------------
(In thousands of
dollars) Jan. 2, 1999 Jan. 3, 1998 Dec. 28, 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Net income
(loss) - as
reported $(36,546) $(4,848) $16,699
Net income
(loss) - pro forma $(36,964) $(5,132) $16,316
Net income (loss)
per share -
as reported $ (1.23) $ (.19) $ .53
Net income (loss)
per share -
pro forma $ (1.25) $ (.20) $ .51
</TABLE>
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 1998, 1997 and 1996; dividend yield of 0.0%; expected volatility of
34.90% for 1998, 34.84% for 1997 and 36.16% for 1996; weighted average
risk-free interest rate of 4.79% for 1998, 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:
<TABLE>
<CAPTION>
(In thousands of Jan. 2, Jan. 3, Dec. 28,
dollars) 1999 1998 1996
- -----------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ (3,472) $(1,367) $ 8,437
State (2,084) (120) 1,510
- -----------------------------------------------------------
(5,556) (1,487) 9,947
===========================================================
Deferred:
Federal (11,693) (1,387) 297
State (3,420) (225) (10)
- -----------------------------------------------------------
(15,113) (1,612) 287
- -----------------------------------------------------------
Total provision
(benefit) $(20,669) $(3,099) $10,234
===========================================================
</TABLE>
Significant components of deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
Jan. 2, 1999 Jan. 3, 1998
(In thousands of dollars) Current Noncurrent Current Noncurrent
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deferred tax assets:
Bad debt and other
allowances $1,422 $ -- $1,573 $ --
Inventory reserves 1,649 -- 877 --
Postretirement benefits -- 820 -- 614
Federal net operating loss
carryforward -- 8,172 -- 405
State net operating loss
carryforward -- 3,594 -- --
Pension obligations -- 2,122 -- 141
Charitable contribution -- 263 -- 243
Accrued liabilities 782 -- 937 --
Other 681 -- 714 --
- --------------------------------------------------------------------------------
Gross deferred tax assets 4,534 14,971 4,101 1,403
Valuation allowance -- (500) -- --
- --------------------------------------------------------------------------------
Net deferred tax assets 4,534 14,471 4,101 1,403
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Tax over book depreciation -- (11,842) -- (14,895)
Intangible assets -- (210) -- (1,887)
- --------------------------------------------------------------------------------
Gross deferred tax liabilities -- (12,052) -- (16,782)
- --------------------------------------------------------------------------------
Net deferred tax assets
(liabilities) $4,534 $ 2,419 $4,101 $(15,379)
================================================================================
</TABLE>
The 1998 Federal tax loss will be partially carried back to recover taxes paid
in a prior year. The company has recorded a receivable in the amount of
$7,153,000 based on the estimated carryback refund. At January 2, 1999, the
company has an estimated Federal net operating loss ("NOL") carryforward of
approximately $21,504,000 which can be carried forward to offset future taxable
income through the year 2018. The company also has state NOL carryforwards,
principally in the state of Virginia, in the aggregate amount of $9,457,000
which have expiration dates ranging from the year 2000 to 2018. The company has
provided a valuation allowance for the amount of such state NOL carryforwards
which management believes are not likely to be realized.
A reconciliation of the statutory federal income tax rates with the company's
effective income tax rates for 1998, 1997 and 1996 is
as follows:
<TABLE>
<CAPTION>
Jan. 2, Jan. 3, Dec. 28,
1999 1998 1996
- ---------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal rate 35% 35% 35%
State rate, net 2 3 3
Other (1) 1 --
- --------------------------------------------------------------
Effective income tax rate 36% 39% 38%
==============================================================
</TABLE>
Income tax payments were $719,000, $3,416,000 and $8,597,000 for fiscal 1998,
1997 and 1996, respectively.
26
<PAGE>
Note 9 -- Employee Benefits
Defined Benefit Plan -- All qualified employees of the parent company are
covered by a noncontributory, defined benefit plan. The benefits are based on
years of service and the employee's highest five consecutive years of
compensation paid during the 10 most recent years before retirement.
Information regarding the company's defined benefit plan is as follows:
<TABLE>
<CAPTION>
(In thousands of dollars) 1998 1997
- ---------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation, beginning of year $46,517 $39,291
Service cost 1,863 1,594
Interest cost 3,339 2,858
Actuarial (gain) or loss 4,894 6,450
Benefit payments (5,188) (3,676)
- ---------------------------------------------------------------
Benefit obligation, end of year $51,425 $46,517
===============================================================
</TABLE>
<TABLE>
<CAPTION>
(In thousands of dollars) 1998 1997
- ---------------------------------------------------------------
<S> <C> <C>
Change in plan assets:
Fair value of plan assets, beginning
of year $45,894 $38,218
Actual return on plan assets (2,655) 9,040
Employer contribution 3,122 2,312
Benefit payments (5,188) (3,676)
- ----------------------------------------------------------------
Fair value of plan assets, end of year $41,173 $45,894
================================================================
</TABLE>
<TABLE>
<CAPTION>
(In thousands of dollars) 1998 1997
- ------------------------------------------------------------------
<S> <C> <C>
Funded status $(10,252) $ (623)
Unrecognized actuarial (gain)/loss 13,800 1,754
Unrecognized transition (asset)/
obligation -- (430)
Unrecognized prior service cost 332 388
- ----------------------------------------------------------------
Net amount recognized $ 3,880 $1,089
================================================================
Amounts included in the consolidated balance sheet are
comprised of:
(In thousands of dollars) 1998 1997
- ----------------------------------------------------------------
Prepaid benefit cost $ -- $1,089
Accrued benefit liability (3,728) --
Intangible asset 332 --
Minimum pension liability adjustment 7,276 --
- ----------------------------------------------------------------
Net amount recognized $ 3,880 $1,089
================================================================
</TABLE>
The company recognized a minimum pension liability in year ended January 2,
1999 for the excess of the amount by which the accumulated benefit obligation
exceeds the fair value of the plan assets over the accrued pension costs. This
minimum pension liability adjustment has been recognized as a charge to other
comprehensive income, net of applicable income taxes.
The following rate assumptions were made for the plan:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------
<S> <C> <C>
Discount rate 7.00% 7.50%
Expected return on plan
assets 10.00% 10.00%
</TABLE>
The long-term rate of salary progression for 1998 reflected an increase of 4%
for seven years with an ultimate rate increase of 5% thereafter. The long-term
rate of salary progression for 1997 reflected an increase of 4% for eight years
with an ultimate rate increase of 5% thereafter.
The assets of the defined benefit plan include principally investments in
equity and debt securities. The company utilizes a September 30 date for
valuation of assets and measurement of the pension liabilities under the plan.
Net periodic benefit cost includes the following components:
<TABLE>
<CAPTION>
(In thousands of dollars) 1998 1997 1996
- -------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $1,863 $1,594 $1,591
Interest cost 3,339 2,858 2,862
Expected return on plan
assets (4,497) (3,675) (3,480)
Amortization of
unrecognized transition
obligation or asset (430) (469) (469)
Prior service costs
recognized or curtailment 57 57 57
- -------------------------------------------------------------------
Net periodic benefit cost $ 332 $ 365 $ 561
===================================================================
</TABLE>
In connection with the subsequent events as further described in Note 22,
the company has agreed in principle with the Pension Benefit Guarantee
Corporation to provide $5.5 million in supplemental contributions to the
pension plan, in excess of the minimum required annual contributions,
over the next three years for the protection of plan participants. The first
payment of $2.0 million will be made in December, 1999.
Supplementary Retirement Plan -- The company has a nonqualified, unfunded
supplementary retirement plan for which it had previously purchased cost
recovery life insurance on the lives of participants. The amount of coverage was
designed to provide sufficient revenues to recover all costs of the plan if
assumptions made to mortality experience, policy earnings and other factors were
realized. Subsequent to January 2, 1999, the company surrendered these life
insurance policies in exchange for cash and will self-fund future plan payments.
27
<PAGE>
Note 9 (continued)
Information regarding the company's supplementary retirement plan is as
follows:
<TABLE>
<CAPTION>
(In thousands of dollars) 1998 1997
- ----------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation, beginning
of year $3,544 $3,395
Service cost 91 109
Interest cost 237 240
Actuarial (gain) or loss 494 337
Benefit payments (711) (537)
- -----------------------------------------------------
Benefit obligation, end of
year $3,655 $3,544
=====================================================
</TABLE>
<TABLE>
<CAPTION>
(In thousands of dollars) 1998 1997
- ----------------------------------------------------
<S> <C> <C>
Change in plan assets:
Fair value of plan assets,
beginning of year -- --
Employer contribution 710 538
Benefit payments (710) (538)
- ----------------------------------------------------
Fair value of plan assets,
end of year -- --
====================================================
Funded status $(3,655) $(3,544)
Unrecognized actuarial
(gain)/loss 1,594 1,162
Unrecognized transition
(asset)/obligation 601 701
Unrecognized prior service
cost 199 220
- ----------------------------------------------------
Net amount recognized $(1,261) $(1,461)
====================================================
Amounts included in the consolidated balance sheet are
comprised of:
(In thousands of dollars) 1998 1997
- -----------------------------------------------------
Accrued benefit liability $(2,987) $(3,120)
Intangible asset 800 1,659
Minimum pension liability
adjustment 926 --
- ----------------------------------------------------
Net amount recognized $(1,261) $(1,461)
====================================================
</TABLE>
Net periodic benefit cost includes the following components:
<TABLE>
<CAPTION>
(In thousands of dollars) 1998 1997 1996
- -----------------------------------------------------
<S> <C> <C> <C>
Service cost $ 91 $109 $102
Interest cost 237 240 275
Amortization of
unrecognized obligation
or asset 100 100 100
Prior service costs
recognized 20 20 20
Recognized gain or losses 62 41 60
- ----------------------------------------------------
Net periodic benefit cost $510 $510 $557
====================================================
</TABLE>
The discount rate used in determining the benefit obligation was 7% for 1998
and 7.5% for 1997. The long-term rate of salary progression for 1998 reflected
an increase of 4% for seven years with an ultimate rate increase of 5%
thereafter. The long-term rate of salary progression for 1997 reflected an
increase of 4% for eight years with an ultimate rate increase of 5% thereafter.
Postretirement Benefit Plan -- 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 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.
28
<PAGE>
Note 9 (continued)
Information about the postretirement benefit obligation is as follows:
<TABLE>
<CAPTION>
(In thousands of dollars) 1998 1997
- -----------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation, beginning
of year $7,044 $7,634
Service cost 241 244
Interest cost 503 558
Participant contributions 149 136
Actuarial (gain) or loss 134 (788)
Benefit payments (660) (740)
- -----------------------------------------------------
Benefit obligation, end of
year $7,411 $7,044
=====================================================
</TABLE>
There are no plan assets for the postretirement benefit obligation. The
benefits of the postretirement plan are funded by the company as benefits are
incurred.
<TABLE>
<S> <C> <C>
(In thousands of dollars) 1998 1997
- -----------------------------------------------------
Funded status $(7,411) $(7,044)
Unrecognized actuarial
(gain)/loss 1,689 1,608
Unrecognized transition
(asset)/obligation 3,565 3,821
- ----------------------------------------------------
Net amount recognized $(2,157) $(1,615)
====================================================
</TABLE>
An accrued benefit liability of $2,157,000 for 1998 and $1,615,000 for 1997 is
included in the consolidated balance sheet.
Net periodic benefit cost includes the following components:
<TABLE>
<CAPTION>
(In thousands of dollars) 1998 1997 1996
- ------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 241 $ 244 $ 198
Interest cost 503 558 523
Amortization of
unrecognized obligation
or asset 256 256 256
Recognized gains or losses 53 102 63
- --------------------------------------------------------------
Net periodic benefit cost $1,053 $1,160 $1,040
==============================================================
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation was 7% for 1998 and 7.5% for 1997. The assumed medical cost trend
was 7% and 8% in 1998 and 1997, 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 1998 service cost and interest cost by $83,000, and would have
increased the January 2, 1999 accumulated postretirement benefit obligation by
$589,000. The effect of a 1% decrease in the assumed health care cost trend
would have decreased the aggregate 1998 service cost and interest cost by
$71,000 and would have decreased the January 2, 1999 accumulated postretirement
benefit obligation by $509,000.
The company does not have significant postemployment benefits requiring accrual
under SFAS No. 112, "Employers' Accounting for Postemployment Benefits."
Other Employee Benefit Plans -- The company has various employee savings
(401-K) plans covering qualified employees. Employee contributions are limited
to a percentage of their compensation, as defined in the plans. Certain plans
provide for company contributions. The company contributions for 1998, 1997 and
1996 were approximately $138,100, $190,900 and $170,600, respectively.
29
<PAGE>
Note 10 -- Quarterly Financial Information (Unaudited)
The following is a summary of the unaudited quarterly financial information for
the years ended January 2, 1999 and January 3, 1998.
<TABLE>
<CAPTION>
(In thousands of dollars
except per share data) 1998 1997
- ------------------------- -------------------------
<S> <C> <C>
Net Sales
1st quarter $ 99,874 $ 99,323
2nd quarter 132,792 148,017
3rd quarter 136,409 229,342
4th quarter 99,628 172,725
- ----------------------------------------------------
Total $468,703 $649,407
====================================================
Gross Profit
1st quarter $ 19,051 $ 20,834
2nd quarter 23,994 28,214
3rd quarter 18,062 46,316
4th quarter 6,031 26,248
- ---------------------------------------------------
Total $ 67,138 $121,612
====================================================
Income (Loss) Before Income Taxes
1st quarter $(11,205) $(6,952)
2nd quarter (22,217) 1,403
3rd quarter (3,924) 11,488
4th quarter (19,869) (13,886)
- ----------------------------------------------------
Total $(57,215) $(7,947)
====================================================
Net Income (Loss)
1st quarter $ (6,835) $(4,235)
2nd quarter (13,552) 850
3rd quarter (2,394) 7,009
4th quarter (13,765) (8,472)
- ---------------------------------------------------
Total $(36,546) $(4,848)
===================================================
Net Income (Loss) per Common Share
1st quarter $ (.23) $ (.15)
2nd quarter ( .46) .02
3rd quarter ( .08) .23
4th quarter ( .46) (.29)
- ----------------------------------------------------
Total $ (1.23) $ (.19)
====================================================
</TABLE>
Note 11 -- Commitments
At January 2, 1999, the company was obligated under a number of noncancellable,
renewable operating leases as follows:
<TABLE>
<CAPTION>
Data Manufacturing
(In thousands Processing Facilities and
of dollars) Equipment Other Total
- -------------------------------------------------------------
<S> <C> <C> <C>
1999 $3,345 $ 5,836 $ 9,181
2000 1,799 4,596 6,395
2001 228 3,843 4,071
2002 97 3,111 3,208
2003 65 2,633 2,698
2004 and after 290 5,396 5,686
- -------------------------------------------------------------
Total $5,824 $25,415 $31,239
=============================================================
</TABLE>
Rental expense charged to income was $14,783,000 in 1998, $16,857,000 in 1997
and $13,287,000 in 1996.
The company has entered into various licensing agreements which permit it to
market apparel with copyrighted logos. 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 2, 1999 were
approximately $3,080,000.
The company's principal raw materials are cotton and polyester. As of March 1,
1999, the company has contracted to purchase substantially all of its cotton
requirements for 1999 and has fixed the price on approximately 70% of its
cotton requirements.
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 2, 1999 under
these agreements was approximately $3,361,000.
Note 13 -- Concentration of Credit Risk
The company's concentration of credit risk is partially mitigated due to the
large number of primarily domestic customers who are geographically dispersed.
Domestic retailers comprise a substantial portion of the company's customer
base. The company has no customer that constituted 10% of net sales in 1998,
1997 or 1996. The company generally does not require collateral. 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.
30
<PAGE>
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,
$4,015,000 has been collected, leaving an outstanding balance at January 2,
1999 of $129,000. Interest income realized in 1998, 1997 and 1996 on the loans
was $23,000, $35,000 and $64,000, 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
Advertising costs are charged to operations when incurred. Advertising expense
charged to income was $17,108,000 in 1998, $23,632,000 in 1997 and $21,614,000
in 1996.
Note 17 -- Unionization of Facilities
In April 1998, hourly employees at the company's Martinsville, Virginia
facilities ratified a four-year contract by employee vote, with the Union of
Needletrades, Industrial and Textile Employees (UNITE). Tultex accepted the
contract with UNITE which covers approximately 1,800 employees in the
Martinsville area. This contract replaces the three-year contract signed with
the Amalgamated Clothing and Textile Workers Union (now known as UNITE) in
August 1994. In April 1998, hourly employees at the company's South Boston,
Virginia sewing facility ratified a four-year contract by employee vote with
UNITE. This contract which was accepted by Tultex covers approximately 400
employees in the South Boston area. This replaces a three-year contract signed
with UNITE in May 1995. In June 1998, hourly employees at the company's
Mayodan, North Carolina facility voted for representation by UNITE. A four-year
contract was ratified by employee vote and accepted by Tultex. The contract
covers approximately 150 employees in the Mayodan area.
Note 18 -- Mergers and 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, net of cash acquired, was $2,726,000, 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 $2,520,000 to be amortized over 10 years.
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 at 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 was 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.
<TABLE>
<CAPTION>
Year Ended (Unaudited)
-------------------------------
Jan. 3, 1998 Dec. 28, 1996
- ---------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands, except per
share data)
Sales $672,148 $718,996
Net income (loss) (5,968) 13,251
Net income (loss) per
share (.20) .44
</TABLE>
The pro forma results are not necessarily indicative of the results of
operations of the combined companies that would have occurred had the
acquisitions 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 was 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. During 1998 all 33,260 outstanding shares
of the Series C, 4.5% cumulative convertible preferred stock were exchanged for
143,827 shares of the company's common stock.
31
<PAGE>
Note 19 -- Sale of LogoAthletic
On July 15, 1998 the company completed the sale of substantially all the assets
of LogoAthletic to TKS Acquisition Inc. ("TKS"), a new company headed by Thomas
K. Shine, incumbent President and CEO of LogoAthletic. Consideration to the
company was $98.5 million in cash and $12.5 million in subordinated notes of
TKS due five years after the closing. Additional cash payments may be received
by the company if TKS reaches certain sales targets during 1998 and 1999.
As part of the transaction, the company repurchased $6.0 million of its
outstanding preferred stock owned by investors in TKS for an amount equal to
the carrying value.
An estimated pre-tax loss from the sale of $16.3 million (after-tax of $9.9
million or $0.33 per share) is reflected in the 1998 Consolidated Statement of
Operations.
Note 20 -- 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
LogoAthletic subsidiaries that were sold during the third quarter of 1998
("Subsidiaries Sold") and (v) the company on a consolidated basis.
32
<PAGE>
Note 20 (continued)
<TABLE>
<CAPTION>
Wholly-owned Wholly-owned
Guarantor Non-guarantor Subsidiaries
(in thousands of dollars) Parent Subsidiaries Subsidiaries Sold Eliminations Consolidated
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of and for the year ended
January 2, 1999
Current assets $ 232,075 $ 53,958 $29,638 $ -- $ (43,256) $ 272,415
Noncurrent assets 190,194 14,908 10,865 -- (41,054) 174,913
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 422,269 $ 68,866 $40,503 $ -- $ (84,310) $ 447,328
===================================================================================================================
Current liabilities $ 19,551 $ 11,002 $26,138 $ -- $ (20,428) $ 36,263
Noncurrent liabilities 269,288 (495) (438) -- (3,728) 264,627
- -------------------------------------------------------------------------------------------------------------------
Total liabilities $ 288,839 $ 10,507 $25,700 $ -- $ (24,156) $ 300,890
===================================================================================================================
Net sales $ 350,239 $116,758 $63,302 $ 63,072 $ (124,668) $ 468,703
Cost and expenses 409,875 111,124 60,483 69,104 (124,668) 525,918
- -------------------------------------------------------------------------------------------------------------------
Pretax income (loss) $ (59,636) $ 5,634 $ 2,819 $ (6,032) $ -- $ (57,215)
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Wholly-owned Wholly-owned
Guarantor Non-guarantor Subsidiaries
(in thousands of dollars) Parent Subsidiaries Subsidiaries Sold Eliminations Consolidated
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of and for the year ended
January 3, 1998
Current assets $ 234,744 $168,877 $ 64,126 $ -- $ (125,983) $341,764
Noncurrent assets 257,804 33,638 22,706 -- (113,585) 200,563
- ------------------------------------------------------------------------------------------------------------------
Total assets $ 492,548 $202,515 $ 86,832 $ -- $ (239,568) $542,327
==================================================================================================================
Current liabilities $ 19,925 $117,462 $ 24,989 $ -- $ (120,434) $ 41,942
Noncurrent liabilities 303,246 2,247 (306) -- 1,086 306,273
- ------------------------------------------------------------------------------------------------------------------
Total liabilities $ 323,171 $119,709 $ 24,683 $ -- $ (119,348) $348,215
==================================================================================================================
Net sales $ 390,301 $ 26,341 $116,750 $204,397 $ (88,382) $649,407
Cost and expenses 410,192 25,314 111,492 198,773 (88,417) 657,354
- ------------------------------------------------------------------------------------------------------------------
Pretax income (loss) $ (19,891) $ 1,027 $ 5,258 $ 5,624 $ 35 $ (7,947)
==================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Wholly-owned Wholly-owned
Guarantor Non-guarantor Subsidiaries
(in thousands of dollars) Parent Subsidiaries Subsidiaries Sold Eliminations Consolidated
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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 $409,702 $ 25,959 $2,489 $226,904 $ (30,617) $634,437
Cost and expenses 394,921 25,044 3,426 215,285 (31,172) 607,504
- -----------------------------------------------------------------------------------------------------------------
Pretax income (loss) $ 14,781 $ 915 $ (937) $ 11,619 $ 555 $ 26,933
=================================================================================================================
</TABLE>
33
<PAGE>
Note 21 -- Segment Reporting
The company currently operates in a single business segment which designs,
manufactures and distributes fleece and jersey apparel. During the year ended
January 2, 1999, the company exited its Logo Athletic licensed apparel business
(see Note 19). The segment information reported below reflects the operations
of the company's ongoing apparel segment separate from the LogoAthletic
business operations ("Other") through the date of sale (July 15, 1998).
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies (see Note 1).
Management evaluates performance based upon operating earnings before interest
and income taxes.
The company had no customers which accounted for more than 10% of consolidated
revenues for the three years in the period ended January 2, 1999. The majority
of the company's assets are located within the U.S. and the market for the
company's apparel products is principally the U.S.
<TABLE>
<CAPTION>
(in thousands of dollars) Apparel Other Consolidated
- --------------------------------------------------------------------------
<S> <C> <C> <C>
1998
Net sales $ 407,168 $ 61,535 $ 468,703
Operating income (loss) (9,831) (4,205) (14,036)
Total assets * 447,328 -- 447,328
Capital expenditures 9,563 516 10,079
Depreciation and
amortization expense 21,810 1,701 23,511
- -------------------------------------------------------------------------
1997
Net sales $ 448,292 $ 201,115 $ 649,407
Operating income (loss) 9,285 9,119 18,400
Total assets 421,023 121,304 542,327
Capital expenditures 27,575 1,500 29,075
Depreciation and
amortization expense 20,845 3,149 23,994
- --------------------------------------------------------------------------
1996
Net sales $ 409,287 $ 225,150 $ 634,437
Operating income (loss) 30,016 15,708 45,724
Total assets 369,701 131,079 500,780
Capital expenditures 26,576 2,472 29,048
Depreciation and
amortization expense 19,679 3,035 22,714
==========================================================================
</TABLE>
* Total assets exclude assets sold in the current year related to LogoAthletic.
Reconciling information between reportable segments and the company's
consolidated totals is shown in the following table:
<TABLE>
<CAPTION>
(in thousands of dollars) 1998 1997 1996
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Total operating earnings for
reportable segments $(14,036) $18,400 $45,724
Interest expense 29,108 27,611 21,742
Interest income (2,233) (1,264) (2,951)
Loss on sale of subsidiaries 16,304 -- --
- -----------------------------------------------------------------------
Earnings before income taxes (57,215) (7,947) 26,933
- -----------------------------------------------------------------------
</TABLE>
The following table presents revenues and long-lived assets by geographical
area based on the location of the use of the product or services and the
location of the asset:
<TABLE>
<CAPTION>
(in thousands of dollars) 1998 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Domestic $ 454,520 $ 634,430 $ 610,658
Foreign 14,183 14,977 23,779
Net long-lived assets:
Domestic 105,859 126,266 131,052
Foreign 1,142 925 1,373
- -----------------------------------------------------------------------
</TABLE>
Note 22 -- Subsequent Events
Subsequent to January 2, 1999, the company received a commitment for a new,
asset-based secured credit facility which has a maximum borrowing availability
of $150 million with Bank of America Business Credit ("BABC"). Under the new
facility, which is scheduled to close May 10, 1999, BABC will lend funds subject
to availability under a borrowing base calculated as a percentage of eligible
accounts receivable and inventories, provided that the total amount advanced
would not exceed $150 million. Proceeds from this facility will be used to pay
all outstanding amounts under the company's existing $87.5 million unsecured
revolving credit facility, fund a partial tender offer for the 9 5/8% and 10
5/8% Senior Notes (see below), and provide working capital.
To obtain the required consents of noteholders to permit the company to grant
a first security interest on accounts receivable, inventories and related
assets to secure the BABC credit facility, the company initiated a consent
solicitation. In connection with the solicitation, the company also invited
noteholders to tender notes for purchase by the company in a "modified dutch
auction" with a maximum purchase price of 65% of face value per note and agreed
to provide funding of $42 million (exclusive of accrued interest) for such
purchases. The company has accepted tenders for $70 million of notes and has
received consents from holders of more than 51% of both note series as required.
In connection with the consent solicitation, interest payments on these notes
have been changed to quarterly instead of semiannually. Also, the holders of
notes not accepted for purchase by the company who also consented will receive
freely tradeable and registered warrants for 15,525,000 shares of the company's
common stock. Two-thirds of these warrants have an exercise price of $.8125 per
share, and the remaining one-third have an exercise price of $1.425 per share.
The warrants have a 8-year term, and may be exercised by payment of cash or by
tender of notes for an amount equal to the exercise price of the warrants.
34
<PAGE>
Note 22 (continued)
In connection with the refinancing, the existing revolving credit facility
borrowings and accrued interest, expected to be $54.5 million at May 10, 1999,
will be retired by payment of $39.5 million in cash from the proceeds of the
new facility borrowings, and the remaining $15.0 million will be forgiven by
the former lenders. In addition, $42.0 million of the new facility borrowings
will be used to repurchase $70.0 million face value of Senior Notes, pursuant
to the company's acceptance of tender offers from noteholders submitted by
April 16, 1999.
The new facility has a maturity date of three years with an extension provision
for an additional two years, subject to lenders' approval. The company has the
option of setting quarterly interest rates equal to either the Prime Rate or
London Interbank Offered Rate ("LIBOR") plus applicable margins. The applicable
margin is based on a funded debt / EBITDA ratio that will range from 0% to
1.75% for Prime Rate or 1.75% to 3.75% for LIBOR based loans. The company shall
pay a fee of .375% per year on any unused borrowings. A $10 million sublimit
under the facility is available for letters of credit.
In connection with the refinancing, the company received waivers for
default of financial covenants under the former credit facility. The most
significant financial covenants of the new facility are the maintenance of a
minimum fixed charge coverage ratio on a quarterly basis and annual limitations
on capital expenditures. Other covenants place restrictions on the company's
ability to incur additional indebtedness, pay dividends, create liens or other
encumbrances, to make certain payments, investments, loans and guarantees and
to sell or otherwise dispose of a substantial portion of its assets.
35
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
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 in the Company's 1999 Proxy Statement to be filed with
the Securities and Exchange Commission on or prior
36
<PAGE>
to 120 days following the end of the Company's fiscal year and is incorporated
herein by reference.
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
NAME OFFICE AGE
Charles W. Davies, Jr President and Chief Executive Officer 50
O. Randolph Rollins Executive Vice President and General Counsel 56
Walter J. Caruba Vice President - Retail 51
W. Jack Gardner, Jr Vice President - Operations 55
P. Woolard Harris, Jr Vice President and Chief Financial Officer 49
Jefferson K. Judkins Vice President - Customer Service 39
Jeffrey F. Kies Corporate Controller 42
Henry G. Moore, III Vice President - Resources 41
Anthony J. Pichirallo Vice President - Wholesale 40
John J. Smith Vice President - Distribution/Logistics
Systems and Human Resources 56
Robin H. Gehman Treasurer 44
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.
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 of McGuire, Woods, Battle & Boothe,
Richmond, Virginia, from 1973 to 1990 and from January 1994 to October 1994.
From 1990 to January 1994, Mr. Rollins served in the Cabinet of Virginia's
Governor L. Douglas Wilder, first as Deputy Secretary of Public Safety and from
1992 through January 14, 1994 as Secretary of Public Safety of the Commonwealth
of Virginia. Mr. Rollins is the brother-in-law of John M.
37
<PAGE>
Franck, Chairman of the Board of the Company.
Walter J. Caruba became Vice President - Retail in September 1992. He
served as Vice President - Distribution between October 1990 and September
1992. He served as General Manager - Planning from November 1989 to October 1990
and was Director - Production Control from December 1985 to November 1989.
W. Jack Gardner, Jr. became Vice President - Operations in September 1994 and
served as General Manager - Fabric Manufacturing from January 1988 until that
time.
P. Woolard Harris, Jr. became Vice President and Chief Financial Officer in
November 1998. Prior to joining the Company, he was Vice President and Chief
Financial Officer of Craftsman Fabric Industries, Inc., in Concord, North
Carolina from September 1998 to October 1998. From March 1992 to August 1998 he
was Vice President/Consultant with the Finley Group in Charlotte, North
Carolina. He also held vice president positions in North Carolina with
Wiscassett Mills Company in Albermarle and Cannon Mills Company in Kannapolis.
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.
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.
Henry G. Moore, III became Vice President - Resources in April 1998. He served
as General Manager - Greige Manufacturing from September 1993 to March 1998. He
was General Manager - Yarn Manufacturing from September 1990 to August 1993.
Prior to 1990 he held various positions with the Company.
Anthony J. Pichirallo became Vice President - Wholesale in February 1997.
He served as General Manager - Wholesale from July 1991 until that time.
John J. Smith became Vice President - Distribution/Logistics Systems and
Human Resources 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.
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.
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.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 of Form 10-K appears in the Company's 1999
Proxy Statement to be filed with the Securities and Exchange Commission on or
prior to 120 days following the end of the
38
<PAGE>
Company's fiscal year 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 in the Company's 1999
Proxy Statement to be filed with the Securities and Exchange Commission on or
prior to 120 days following the end of the Company's fiscal year and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 of Form 10-K appears in the Company's 1999
Proxy Statement to be filed with the Securities and Exchange Commission on or
prior to 120 days following the end of the Company's fiscal year 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:
(1) Financial Statements:
The following financial statements are included in Item 8. of this
report:
Report of Independent Accountants
Balance Sheet at January 2, 1999 and
January 3, 1998
Statement of Operations for each of the three years in the
period ended January 2, 1999
Statement of Changes in Stockholders' Equity for each of the three years
in the period ended January 2, 1999
Statement of Cash Flows for each of the three years in the
period ended January 2, 1999
Notes to Financial Statements
(2) Financial Statement Schedules: 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 2, 1999: II-Valuation and Qualifying
Accounts and Reserves F-2
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
39
<PAGE>
(3) Exhibits
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 S-1 dated March 17, 1995 and incorporated
herein by reference)
3.12 Articles of Incorporation of Universal Industries, Inc. (filed as
Exhibit 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 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
<PAGE>
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 as an exhibit to the
Company's Form 10-K for the fiscal year ended January 3, 1998 and
incorporated herein by reference.)
10.10 Amendment relating to the $187 million credit facility, dated as of
September 18, 1998 (filed as Exhibit 10.1 to the Company's Form 10-Q
for the quarter ended October 3, 1998 and incorporated herein by
reference)
10.11 Amendment, consent and waiver relating to the $112 million credit
facility, dated as of November 16, 1998 (filed as Exhibit 10.2 to the
Company's Form 10-Q for the quarter ended October 3, 1998 and
incorporated herein by reference)
10.12 Amendment, consent and waiver relating to the $87.5 million credit
facility, dated as of February 23, 1999 (filed herewith)
10.13 Amendment, consent and waiver relating to the $87.5 million credit
facility, dated as of April 2, 1999 (filed herewith)
10.14 Amendment, consent and waiver relating to the $87.5 million credit
facility, dated as of April 12, 1999 (filed herewith)
11 The computation of earnings per share can be clearly determined from
the financial statements of the Company contained in Item 8.
21 Subsidiaries of the company (filed herewith)
23 Consent of PricewaterhouseCoopers LLP (filed herewith)
(b) Reports of Form 8-K
No reports on Form 8-K were filed for the quarter ended January 2,
1999.
<PAGE>
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>
<CAPTION>
<S> <C>
Tultex Corporation
(Registrant)
/s/ Charles W. Davies, Jr.
--------------------------
By: Charles W. Davies, Jr., President and CEO
Date: April 19, 1999
---------------------
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 19, 1999 /s/ Charles W. Davies,
- -------------- -----------------------
Charles W. Davies, Jr., President, CEO &
Director (Principal Executive Officer)
April 19, 1999 /s/ P. Woolard Harris, Jr.
- -------------- --------------------------
P. Woolard Harris, Jr., Vice President and Chief
Financial Officer (Principal Financial Officer)
April 19, 1999 /s/ Jeffrey F. Kies
- -------------- -----------------------
Jeffrey F. Kies, Corporate Controller (Principal
Accounting Officer)
April 19, 1999 /s/ O. Randolph Rollins
- -------------- -----------------------
O. Randolph Rollins, Executive Vice President
And General Counsel & Director
April 19, 1999 /s/John M. Franck
- -------------- -----------------------
John M. Franck, Director (Chairman)
April 19, 1999 /s/ Seth P. Bernstein
- -------------- -----------------------
Seth P. Bernstein, Director
April 19, 1999 /s/ Lathan M. Ewers, Jr.
- -------------- -------------------------
Lathan M. Ewers, Jr., Director
April 19, 1999 /s/ H. Richard Hunnicutt, Jr.
- -------------- ------------------------------
H. Richard Hunnicutt, Jr., Director
April 19, 1999 /s/ F. Kenneth Iverson
- -------------- -----------------------
F. Kenneth Iverson, Director
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
April 19, 1999 /s/ Bruce M. Jacobson
- -------------- -----------------------
Bruce M. Jacobson, Director
April 19, 1999 /s/ Richard M. Simmons, Jr.
- -------------- ----------------------------
Richard M. Simmons, Jr., Director
April 19, 1999 /s/ Lynn J. Beasley
- -------------- -----------------------
Lynn J. Beasley, Director
</TABLE>
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 2, 1999
TULTEX CORPORATION
COMMISSION FILE NUMBER 1-8016
Exhibit Index
10.12 Amendment, consent and waiver relating to the $87.5 million credit
facility
10.13 Amendment, consent and waiver relating to the $87.5 million credit
facility
10.14 Amendment, consent and waiver relating to the $87.5 million credit
facility
21 Subsidiaries of the Company
23 Consent of PricewaterhouseCoopers LLP
<PAGE>
Report of Independent Accountants on
Financial Statement Schedules
To the Board of Directors of
Tultex Corporation
Our audits of the consolidated financial statements referred to in our report
dated April 16, 1999 appearing on page 17 of this Annual Report on Form 10-K
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.
PRICEWATERHOUSECOOPERS LLP
Greensboro, North Carolina
April 16, 1999
F-1
<PAGE>
TULTEX CORPORATION SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS CONSOLIDATED
AND RESERVES
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
`
BALANCE AT ADDITIONS BALANCE
RESERVE FOR BEGINNING CHARGED TO AT END
DOUBTFUL ACCOUNTS OF PERIOD OPERATIONS ACQUISITIONS REDUCTIONS (1) OF PERIOD
<S> <C> <C> <C> <C> <C>
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
====== ====== ====== ======= ======
FOR THE FIFTY-TWO
WEEKS ENDED JANUARY 2, 1999 $4,205 $7,044 $0 $(7,015) $4,234
====== ====== ====== ======= ======
</TABLE>
(1) Amounts represent write-off of uncollectible receivable balances.
F-2
AMENDMENT, CONSENT AND WAIVER NO. 5
THIS AMENDMENT, CONSENT AND WAIVER NO. 5 dated as of February 23, 1999
(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.
W I T N E S S E T H
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 credit facility was permanently reduced to $87.5 million
pursuant to Amendment No. 4 dated November 13, 1998;
WHEREAS, the Borrower has requested certain modifications under of the
Credit Agreement;
WHEREAS, such modification 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. The Credit Agreement is amended and modified in the following
respects:
1.1 The proviso of the first sentence of Section 2.1 is
amended to read as follows:
; provided, however, (i) with regard to the Banks collectively,
the amount of Committed Revolving Loans outstanding shall not at any
time exceed EIGHTY-SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS
($87,500,000) in the aggregate (as such aggregate maximum amount may be
reduced from time to time as hereinafter provided, the "Revolving
Committed Amount"), provided that the Obligations outstanding hereunder
shall not, without the prior written consent of the Required Lenders, at
any date specified below exceed the amounts shown below (on any day, the
lesser of the Revolving Committed Amount or the amounts shown below
hereafter shall be referred to as the "Available Revolving Committed
Amount"):
<PAGE>
on the on the
Last Business Day of Last Business Day of
the Fiscal Month the Fiscal Month
ending on the date ending on the date
shown below shown below
----------- -----------
February 2, 1999 $57,800,000 September 4, 1999 $87,500,000
March 6, 1999 $56,800,000 October 2, 1999 $74,600,000
April 3, 1999 $55,800,000 November 6, 1999 $70,100,000
May 8, 1999 $44,800,000 December 4, 1999 $53,300,000
June 5, 1999 $56,900,000 January 1, 2000 $29,100,000
July 3, 1999 $62,600,000 Thereafter the Revolving
August 7, 1999 $82,900,000 Committed Amount
and (ii) with regard to each Bank individually, each such Bank's pro
rata share of outstanding Committed Revolving Loans plus Swingline Loans
plus LOC Obligations shall not any time exceed such Bank's pro rata
share of the aggregate Available Revolving Committed Amount; and
provided, further, that notwithstanding anything herein to the contrary,
the sum of Committed Revolving Loans plus Swingline Loans plus LOC
Obligations shall not at any time exceed the aggregate Available
Revolving Committed Amount.
1.2 A new subsection (l) is added to the Events of Default
enumerated in Section 8.01 to read as follows:
(l) Refinancing. The occurrence of either (i) failure to
refinance the loans and obligations hereunder in full by April 3, 1999
with the proceeds of the initial advance under the senior secured credit
facility described in that Proposal Letter dated as of January 29, 1999
(the "Refinancing Proposal Letter") between NationsBank, N.A. (Bank of
America Business Credit Division) and the Borrower, or (ii) earlier
termination of the Refinancing Proposal Letter.
2. By consent of the Required Banks the following waivers are given,
subject to the terms and conditions provided:
(i) waiver of any Default or Event of Default which existed or
may have existed on account of the Borrower's failure to reduce
outstanding Obligations below the applicable Available Revolving
Committed Amount limits as of the last day of the fiscal months ending
January 2, 1998 ($57,800,000) and February 6, 1999 ($50,500,000);
(ii) so long as the Refinancing Proposal Letter shall be in force
and effect and shall not have terminated or expired, waiver of any
Defaults or Events of Default which existed or may have existed at the
end of the Borrower's fourth fiscal quarter of 1998 (January 2, 1999)
solely on account of noncompliance with the Consolidated Tangible Net
Worth covenant in Section 6.11(a), the Fixed Charges Coverage Ratio in
Section 6.11(c), or the Consolidated Leverage Ratio in Section 6.11(e).
This waiver does not extend to any subsequent periods, as to which the
foregoing financial covenants shall be in full force and effect as
provided in Section 6.11 (c) and (d), respectively, of the Credit
Agreement.
<PAGE>
3. 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.
4. 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
$150,000 for the ratable benefit of the Lenders approving this
Amendment.
5. Except as expressly modified hereby, all of the terms and provisions
of the Credit Agreement remain in full force and effect.
6. 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.
7. 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.
8. 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:___________________________________
Title:
GUARANTORS:
DOMINION STORES, INC.,
a Virginia corporation
By:___________________________________
Title:
LOGOATHLETIC, INC.,
a Virginia corporation
By:___________________________________
Title:
LOGOATHLETIC HEADWEAR, INC.,
a Massachusetts corporation
By:___________________________________
Title:
CALIFORNIA SHIRT SALES, INC.
By: ___________________________________
Title:
<PAGE>
BANKS:
NATIONSBANK, N.A.,
individually in its capacity as a Bank
and in its capacity as Administrative 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:
THE FIRST NATIONAL BANK OF CHICAGO
By: ___________________________________
Title:
PNC BANK, NATIONAL ASSOCIATION
By: ___________________________________
Title:
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By: ___________________________________
Title:
Exhibit 10.13
AMENDMENT, CONSENT AND WAIVER NO. 6
THIS AMENDMENT, CONSENT AND WAIVER NO. 6 dated as of April 2, 1999 (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.
W I T N E S S E T H
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 credit facility was permanently reduced to $87.5 million
pursuant to Amendment No. 4 dated November 13, 1998;
WHEREAS, the Borrower has requested certain modifications under of the
Credit Agreement;
WHEREAS, such modification 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. Subsection (l) of Section 8.01 of the Credit Agreement is amended to
read as follows:
(l) Refinancing. The occurrence of either (i) failure to
refinance the loans and obligations hereunder in full by April 14, 1999
with the proceeds of the initial advance under the senior secured credit
facility described in that Proposal Letter dated as of January 29, 1999
(the "Refinancing Proposal Letter") between NationsBank, N.A. (Bank of
America Business Credit Division) and the Borrower, or (ii) earlier
termination of the Refinancing Proposal Letter.
2. By consent of the Required Banks the following waivers are given,
subject to the terms and conditions provided:
<PAGE>
(i) waiver of any Default or Event of Default which existed, may
exist or may have existed on account of the Borrower's failure to reduce
outstanding Obligations below the applicable Available Revolving
Committed Amount limits as of the last day of the fiscal months ending
March 6, 1999 ($56,800,000) and April 3, 1999 ($55,800,000);
(ii) so long as the Refinancing Proposal Letter shall be in full
force and effect and shall not have terminated or expired, waiver of any
Defaults or Events of Default which existed or may have existed at the
end of the Borrower's fourth fiscal quarter of 1998 (January 2, 1999)
solely on account of noncompliance with the Consolidated Tangible Net
Worth covenant in Section 6.11(a), the Fixed Charges Coverage Ratio in
Section 6.11(c), or the Consolidated Leverage Ratio in Section 6.11(e).
This waiver does not extend to any subsequent period, as to which the
aforementioned financial covenants shall be in full force and effect as
provided in Sections 6.11 (c) and (d), respectively, of the Credit
Agreement.
3. Notwithstanding anything to the contrary contained in this Amendment,
the Credit Agreement or any other Credit Document, the parties hereto agree that
the Borrower shall not be permitted to request, and the Lenders shall not make,
any Extension of Credit including the roll-over of Letters of Credit issued by
First Union National Bank which would otherwise expire.
4. [Intentionally Omitted.]
5. This Amendment shall be effective upon receipt by the Administrative
Agent of copies of this Amendment executed by the Credit Parties and Required
Lenders.
6. Except as expressly modified hereby, all of the terms and provisions
of the Credit Agreement remain in full force and effect.
7. 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.
8. 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.
9. This Amendment 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:___________________________________
Title:
GUARANTORS:
DOMINION STORES, INC.,
a Virginia corporation
By:___________________________________
Title:
LOGOATHLETIC, INC.,
a Virginia corporation
By:___________________________________
Title:
LOGOATHLETIC HEADWEAR, INC.,
a Massachusetts corporation
By:___________________________________
Title:
CALIFORNIA SHIRT SALES, INC.
By: ___________________________________
Title:
<PAGE>
BANKS:
NATIONSBANK, N.A.,
individually in its capacity as a Bank
and in its capacity as Administrative 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:
THE FIRST NATIONAL BANK OF CHICAGO
By: ___________________________________
Title:
PNC BANK, NATIONAL ASSOCIATION
By: ___________________________________
Title:
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By: ___________________________________
Title:
Exhibit 10.14
AMENDMENT, CONSENT AND WAIVER NO. 7
THIS AMENDMENT, CONSENT AND WAIVER NO. 7 dated as of April 12, 1999 (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.
W I T N E S S E T H
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 credit facility was permanently reduced to $87.5 million
pursuant to Amendment No. 4 dated November 13, 1998;
WHEREAS, the Borrower has made arrangements for a temporary secured
working capital credit facility with Bank of America Business Credit of
approximately $10 million;
WHEREAS, the Borrower has requested certain modifications under of the
Credit Agreement to accommodate the working capital credit facility;
WHEREAS, the requested modifications and waivers require the consent of
the Required Banks;
WHEREAS, the Required Banks have consented to the requested
modifications and waivers 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. The Credit Agreement is amended and modified in the following
respects:
1.1 In Section 1.01, the following definitions are amended or
added to read as follows:
"BABC Credit Facility" shall have the meaning given such term in
Section 7.01(h).
<PAGE>
1.2 In the definition of "Permitted Liens" in Section 1.01, a new
clause (xi) is added immediately following clause (x) to read as follows:
and (xi) liens on accounts receivable, inventory, general
intangibles and related assets to secure the BABC Credit Facility
1.3 In Section 7.01, the "." is replaced with "; and" at the end
of subsection (g), and a new subsection (h) is added to read as follows:
(h) a secured working capital credit facility of up to $10
million with Bank of America Business Credit (the "BABC Credit
Facility"), and guaranty obligations relating thereto.
1.4 Subsection (l) of Section 8.01 of the Credit Agreement is
amended to read as follows:
(l) Refinancing. The occurrence of either (i) failure to
refinance the loans and obligations hereunder by May 10, 1999 with the
proceeds of the initial advance under the senior secured credit facility
described in that Proposal Letter dated as of January 29, 1999 (the
"Refinancing Proposal Letter") between NationsBank, N.A. (Bank of
America Business Credit Division) and the Borrower, or (ii) earlier
termination of the Refinancing Proposal Letter.
2. The Lenders, by action of the Required Lenders, hereby agree to
forebear from exercising rights and remedies otherwise available in respect of
noncompliance with the financial covenants in Section 6.11(a) [Consolidated
Tangible Net Worth], 6.11(c) [Fixed Charges Coverage Ratio], or 6.11(e)
[Consolidated Leverage Ratio] until the earlier of May 10, 1999 or the breach by
the Borrower or the Guarantors of any other terms of the Credit Agreement (the
"Forbearance Termination Date").
3. This Amendment shall be effective upon receipt by the Administrative
Agent of copies of this Amendment executed by the Credit Parties and Required
Lenders.
4. Except as expressly modified hereby, all of the terms and provisions
of the Credit Agreement remain in full force and effect.
5. 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.
6. 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.
7. This Amendment 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.
<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:___________________________________
Title:
GUARANTORS:
DOMINION STORES, INC.,
a Virginia corporation
By:___________________________________
Title:
LOGOATHLETIC, INC.,
a Virginia corporation
By:___________________________________
Title:
LOGOATHLETIC HEADWEAR, INC.,
a Massachusetts corporation
By:___________________________________
Title:
CALIFORNIA SHIRT SALES, INC.
By: ___________________________________
Title:
<PAGE>
BANKS:
NATIONSBANK, N.A.,
individually in its capacity as a Bank
and in its capacity as Administrative 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:
THE FIRST NATIONAL BANK OF CHICAGO
By: ___________________________________
Title:
PNC BANK, NATIONAL ASSOCIATION
By: ___________________________________
Title:
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By: ___________________________________
Title:
Subsidiaries of the Registrant
During fiscal 1998, 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)
Liga Major De Mexico, S.A. DE C.V., a Mexican 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, 33-2194, 33-43596 and 33-52247) of Tultex
Corporation of our report dated April 16, 1999 appearing on page 17 of 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.
PRICEWATERHOUSECOOPERS LLP
Greensboro, North Carolina
April 16, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> JAN-02-1999
<CASH> 5,769
<SECURITIES> 0
<RECEIVABLES> 78,833
<ALLOWANCES> 4,234
<INVENTORY> 176,818
<CURRENT-ASSETS> 272,415
<PP&E> 316,252
<DEPRECIATION> 209,251
<TOTAL-ASSETS> 447,328
<CURRENT-LIABILITIES> 36,263
<BONDS> 259,405
0
1,698
<COMMON> 30,050
<OTHER-SE> 114,690
<TOTAL-LIABILITY-AND-EQUITY> 447,328
<SALES> 468,703
<TOTAL-REVENUES> 468,703
<CGS> 401,565
<TOTAL-COSTS> 475,695
<OTHER-EXPENSES> 14,071
<LOSS-PROVISION> 7,044
<INTEREST-EXPENSE> 29,108
<INCOME-PRETAX> (57,215)
<INCOME-TAX> (20,669)
<INCOME-CONTINUING> (36,546)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (36,546)
<EPS-PRIMARY> (1.23)
<EPS-DILUTED> (1.23)
</TABLE>
