UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended April 3, 1999
-------------------------------------------------------------------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ___________ to ___________
Commission File Number 0-23161
Tropical Sportswear Int'l Corporation
(Exact name of registrant as specified in its charter)
Florida 59-3424305
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.
4902 W. Waters Avenue Tampa, FL 33634-1302
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (813) 249-4900
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. [X] Yes [ ] No
As of May 12, 1999 there were 7,618,362 shares of the registrant's Common
Stock outstanding.
<PAGE>
TROPICAL SPORTSWEAR INT'L CORPORATION
<TABLE>
<CAPTION>
FORM 10-Q
TABLE OF CONTENTS
<S> <C> <C>
PART I Financial Information Page No.
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
PART II Other Information
Item 1 Legal Proceedings 14
Item 2 Changes in Securities 14
Item 3 Defaults upon Senior Securities 14
Item 4 Submission of Matters to a Vote of Security Holders 14
Item 5 Other Information 14
Item 6 Exhibits and Reports on Form 8-K 14
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
TROPICAL SPORTSWEAR INT'L CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
Thirteen Thirteen Twenty-six Twenty-seven
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
April 3, April 4, April 3, April 4,
1999 1998 1999 1998
----------------- ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
Net sales $110,709 $ 47,373 $ 204,895 $ 82,467
Cost of goods sold 79,196 35,672 146,086 62,696
----------------- ------------------ ------------------- ------------------
Gross profit 31,513 11,701 58,809 19,771
Selling, general and administrative
expenses 20,363 6,019 39,251 11,360
----------------- ------------------ ------------------- ------------------
Operating income 11,150 5,682 19,558 8,411
Other expense:
Interest expense 4,755 346 9,328 793
Other, net 55 187 168 389
----------------- ------------------ ------------------- ------------------
4,810 533 9,496 1,182
Income before income taxes 6,340 5,149 10,062 7,229
Provision for income taxes 2,339 1,896 3,730 2,671
================= ================== =================== ==================
Net income $ 4,001 $ 3,253 $ 6,332 $ 4,558
================= ================== =================== ==================
Net income per common share:
Basic $0.53 $0.43 $0.83 $0.62
================= ================== =================== ==================
Diluted $0.51 $0.43 $0.80 $0.62
================= ================== =================== ==================
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TROPICAL SPORTSWEAR INT'L CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands)
April 3, October 3,
1999 1998
----------------- -----------------
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 1,795 $ 2,097
Accounts receivable 88,420 72,355
Inventories 87,826 84,099
Prepaid expenses and other current assets 11,264 15,046
----------------- -----------------
Total current assets 189,305 173,597
Property & equipment net - at cost 53,771 51,997
Intangible assets, including trademarks and goodwill 51,315 51,706
Other assets 18,511 20,176
================= =================
Total assets $ 312,902 $ 297,476
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 58,091 $ 63,108
Current portion of long-term debt and capital leases 2,710 3,092
----------------- -----------------
Total current liabilities 60,801 66,200
Long-term debt and capital leases 186,797 171,494
Other non-current liabilities 8,030 8,818
Shareholders' Equity:
Preferred stock - -
Common stock 76 76
Additional Paid in Capital 17,465 17,270
Foreign currency translation (131) 88
Retained earnings 39,864 33,530
----------------- -----------------
Total shareholders' equity 57,274 50,964
----------------- -----------------
Total liabilities and shareholders' equity $ 312,902 $ 297,476
================= =================
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TROPICAL SPORTSWEAR INT'L CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Twenty six Twenty seven
Weeks Ended Weeks Ended
April 3, April 4,
1999 1998
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $6,332 $4,558
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 4,656 1,267
Other, net 2,726 (137)
Changes in operating assets and liabilities:
Accounts receivable (16,065) (8,132)
Inventories (3,727) (2,020)
Other, net (4,610) 1,171
---------------- -----------------
Net cash used in operating activities (10,688) (3,293)
INVESTING ACTIVITIES
Capital expenditures (6,845) (1,842)
Other, net 2,421 24
---------------- -----------------
Net cash used by investing activities (4,424) (1,821)
Financing activities:
Proceeds from sale of common stock - 17,286
Retirement of preferred stock - (3,863)
Net change in long-term debt and capital leases 14,921 (8,394)
Other, net (111) 107
---------------- -----------------
Net cash provided by financing activities 14,810 5,136
---------------- -----------------
Net increase (decrease) in cash (302) 22
Cash at beginning of period 2,097 116
---------------- -----------------
Cash at end of period 1,795 138
================ =================
See accompanying notes.
</TABLE>
<PAGE>
TROPICAL SPORTSWEAR INT'L CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
April 3, 1999 and October 3, 1998
(In thousands, except share and per share amounts)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Tropical Sportswear Int'l Corporation (the "Company") include the accounts of
Tropical Sportswear Int'l Corporation and its subsidiaries except that the
accounts of Savane International Corp. ("Savane", formerly known as Farah
Incorporated) are only included for the periods following June 10, 1998, the
date it was acquired. These financial statements have been prepared in
accordance with the instructions for Form 10-Q and, therefore, do not include
all information and footnotes required by generally accepted accounting
principles for complete financial statements. The unaudited condensed
consolidated financial statements should be read in conjunction with the audited
financial statements and notes included in the Company's Annual Report on Form
10-K for the year ended October 3, 1998. In the opinion of management, the
unaudited condensed consolidated financial statements contain all necessary
adjustments (which include only normal, recurring adjustments) for a fair
presentation of the interim periods presented. Operating results for the
twenty-six weeks ended April 3, 1999 are not necessarily indicative of results
that may be expected for the entire fiscal year ending October 2, 1999.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
April 3, October 3,
1999 1998
--------------- ------------------
<S> <C> <C>
Raw materials $12,970 $11,340
Work in process 19,086 21,886
Finished goods 55,770 50,873
--------------- ------------------
$87,826 $84,099
=============== ==================
</TABLE>
3. DEBT AND CAPITAL LEASES
Long-term debt and capital leases consist of the following:
<TABLE>
<CAPTION>
April 3, October 3,
1999 1998
--------------- ------------------
<S> <C> <C>
Revolving credit line $ 71,977 $ 55,997
Real estate loan 9,386 9,520
Senior Subordinated Notes 100,000 100,000
Capital leases 6,729 7,416
Other 1,415 1,653
--------------- ------------------
189,507 174,586
Less current maturities 2,710 3,092
--------------- ------------------
$186,797 $171,494
=============== ==================
</TABLE>
On June 10, 1998, the Company closed on a new senior credit facility (the
"Facility") which provides for borrowings of up to $110,000, subject to certain
borrowing base limitations. Borrowings under the Facility bear variable rates of
interest (7.9% at April 3, 1999) and are secured by substantially all of the
Company's domestic assets. The Facility matures in June 2003. As of April 3,
1999, excluding the impact of outstanding letters of credit of $1,797, an
additional $38,023 was available for borrowings under the Facility.
<PAGE>
4. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Thirteen Fourteen Twenty-six Twenty-seven
Weeks ended Weeks ended Weeks ended Weeks ended
April 3, April 4, April 3, April 4,
1999 1998 1999 1998
--------------- ----------------- - ---------------- -- ----------------
<S> <C> <C> <C> <C>
Numerator for basic and diluted earnings per share:
Net income $4,001 $3,253 $6,332 $4,558
Denominator for basic earnings per share:
Weighted average shares of common
stock outstanding 7,611,296 7,600,000 7,609,742 7,397,802
Effect of dilutive stock options using the
treasury stock method 272,371 13,783 276,341 10,204
--------------- ----------------- - ---------------- -- ----------------
Denominator for diluted earnings per share 7,883,667 7,613,783 7,886,083 7,408,006
=============== ================= = ================ == ================
Net income per common share:
Basic $0.53 $0.43 $0.83 $0.62
=============== ================= = ================ == ================
Diluted $0.51 $0.43 $0.80 $0.62
=============== ================= = ================ == ================
</TABLE>
5. ACQUISITION OF SAVANE INTERNATIONAL
The Company completed the acquisition of Savane on June 10, 1998. Total purchase
price, including cash paid for common stock acquired, cash paid for the fair
value of outstanding stock options, and fees and expenses incurred to date
amounted to $90.2 million.
The acquisition has been accounted for using the purchase method of accounting
and the Savane results of operations have been included in the consolidated
statements of income since the acquisition date. The preliminary fair value of
identifiable tangible and intangible net assets acquired is $53.2 million.
Additional exit activities and further analysis are currently being performed
which could cause this amount to be adjusted. The preliminary purchase price in
excess of net assets acquired of $37.0 million was allocated to goodwill. The
goodwill is being amortized over a period of 30 years.
Subsequent to the acquisition, the Company began performing a thorough analysis
of Savane's operations and developed a plan to exit certain activities and
terminate certain personnel. The major activities to date include, among other
things, elimination of redundant personnel, closure of two manufacturing
facilities in Costa Rica, closure of a manufacturing facility and an inventory
consolidation warehouse in Mexico, disposal of a chain of 32 retail stores,
closure of a storage facility in Texas, and the disposal of certain equipment
and other non-operating assets. As of April 3, 1999, the Company has accrued
approximately $2.7 million related to exit costs which primarily consist of
estimated lease termination costs and related expenses. Management continues to
evaluate certain acquired facilities and other long-lived assets for
compatibility with the Company's long range business plans. Any additional exit
costs or changes in the carrying value of assets will increase or decrease
goodwill until the Company's exit activities are finalized by June 1999.
The unaudited pro forma results presented below include the effects of the
acquisition as if it had been consummated at the beginning of the year prior to
acquisition. The unaudited pro forma financial information below is not
necessarily indicative of either future results of operations or results that
might have been achieved had the acquisition been consummated at the beginning
of the year prior to acquisition.
Twenty-seven
Weeks Ended
April 4,
1998
-----------------
Net sales $206,034
Net income 1,137
Earnings per share 0.14
6. COMPREHENSIVE INCOME
Comprehensive income includes net income and all other changes in equity during
a period except those resulting from investments by and distributions to the
Company's shareholders. The Company's comprehensive income includes a currency
translation adjustment of $138 (net of tax benefit of $81) for the twenty-six
weeks ended April 3, 1999 and none for the twenty-seven weeks ended April 4,
1998. Comprehensive income totaled $6,194 and $4,558 for the twenty-six weeks
ended April 3, 1999 and the twenty-seven weeks ended April 4, 1998,
respectively.
7. SUPPLEMENTAL COMBINING CONDENSED FINANCIAL
The Company's Senior Subordinated Notes, due 2008 (the "Notes") are jointly and
severally guaranteed by Tropical's domestic subsidiaries. The wholly-owned
foreign subsidiaries are not guarantors with respect to the Notes and do not
have any credit arrangements senior to the Notes except for their local
overdraft facility and capital lease obligations.
The following is the supplemental combining condensed balance sheet as of April
3, 1999, the supplemental combining condensed statement of operations for the
thirteen weeks and twenty-six weeks ended April 3, 1999 and the thirteen weeks
and twenty-seven weeks ended April 4, 1998 and the supplemental combining
condensed statement of cash flows for the twenty-six weeks ended April 3, 1999
and the twenty-seven weeks ended April 4, 1998. The only intercompany
eliminations are the normal intercompany sales, borrowings and investments in
wholly-owned subsidiaries. Separate complete financial statements of the
guarantor subsidiaries are not presented because management has determined that
they are not material to investors.
<PAGE>
7. SUPPLEMENTAL COMBINING CONDENSED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
Thirteen Weeks Ended April 3, 1999
-----------------------------------------------------------------------------
Non-Guarantor
Statement of Operations Parent Guarantor Subsidiaries
Only Subsidiaries Eliminations Consolidated
--------- ------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales $46,558 $55,717 $10,092 $(1,658) $110,709
Gross profit 11,778 16,468 3,267 - 31,513
Operating income 5,455 5,410 285 - 11,150
Interest, income taxes and other, net 2,533 4,501 127 (12) 7,149
Net income 2,922 909 158 12 4,001
Thirteen Weeks Ended April 4, 1998
-----------------------------------------------------------------------------
Non-
Statement of Operations Parent Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------- ------------ -------------- -------------
Net sales $47,324 $101 - $(52) $47,373
Gross profit 11,733 (32) - - 11,701
Operating income (loss) 5,742 (60) - - 5,682
Interest, income taxes and other, net 2,730 (301) - - 2,429
Net income 3,012 241 - - 3,253
Twenty-six Weeks Ended April 3, 1999
-----------------------------------------------------------------------------
Non-Guarantor
Statement of Operations Parent Guarantor Subsidiaries
Only Subsidiaries Eliminations Consolidated
--------- ------------- ------------ -------------- -------------
Net sales $80,514 $106,201 $21,264 $(3,084) $204,895
Gross profit 19,854 32,485 6,470 - 58,809
Operating income 7,981 10,890 687 - 19,558
Interest, income taxes and other, net 3,968 7,102 338 1,818 13,226
Net income 4,013 3,788 349 (1,818) 6,332
Twenty-seven Weeks Ended April 4, 1998
-----------------------------------------------------------------------------
Non-
Statement of Operations Parent Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------- ------------ -------------- -------------
Net sales $82,308 $283 - $(124) $82,467
Gross profit 19,702 69 - - 19,771
Operating income 8,405 6 - - 8,411
Interest, income taxes and other, net 4,305 (452) - - 3,853
Net income 4,100 458 - - 4,558
<PAGE>
7. SUPPLEMENTAL COMBINING CONDENSED FINANCIAL STATEMENTS (continued)
As of April 3, 1999
----------------------------------------------------------------------------
Non-Guarantor
Balance Sheet Parent Guarantor Subsidiaries
Only Subsidiaries Eliminations Consolidated
--------- ------------- ------------ ------------- -------------
ASSETS
Cash $ 39 $ 118 $ 1,638 $ - $ 1,795
Accounts receivable, net 39,971 41,577 7,551 (679) 88,420
Inventories 32,656 46,373 8,797 - 87,826
Other current assets 3,131 9,131 736 (1,734) 11,264
--------- ------------- ------------ ------------- -------------
Total current assets 75,797 97,199 18,722 (2,413) 189,305
Property, plant and equipment, net 25,430 21,602 6,739 - 53,771
Investment in subsidiaries and other assets 181,233 107,325 3,659 (222,391) 69,826
========= ============= ============ ============= =============
Total asset $282,460 $226,126 $29,120 $(224,804) $312,902
========= ============= ============ ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $26,062 $28,352 $ 6,292 $ (2,615) $58,091
Current portion of long-term debt and 478 2,053 179 - 2,710
capital leases
--------- ------------- ------------ ------------- -------------
Total current liabilities 26,540 30,405 6,471 (2,615) 60,801
Long-term debt and noncurrent portion of
capital leases 201,154 65,621 1,407 (81,385) 186,797
Other noncurrent liabilities 384 7,567 79 - 8,030
Stockholders' equity 54,382 122,533 21,163 (140,804) 57,274
========= ============= ============ ============= =============
Total liabilities and stockholders' $282,460 $226,126 $29,120 $(224,804) $312,902
equity
========= ============= ============ ============= =============
Twenty-six Weeks Ended April 3, 1999
-----------------------------------------------------------------------------
Non-
Statement of Cash Flows Parent Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------- ------------ -------------- -------------
Net cash used by operating activities $(6,254) $(2,361) $1,897 $(3,970) $(10,688)
Net cash used by investing activities (4,738) 988 (43) (631) (4,424)
Net cash provided by financing activities 10,911 864 (1,566) 4,601 14,810
Net increase (decrease) in cash (81) (509) 288 -- (302)
Cash, beginning of period 120 630 1,347 -- 2,097
Cash, end of period 39 121 1,635 -- 1,795
Twenty-seven Weeks Ended April 4, 1998
-----------------------------------------------------------------------------
Non-
Statement of Cash Flows Parent Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------- ------------ -------------- -------------
Net cash used by operating activities $ $ 22 - - $ (3,293)
(3,315)
Net cash used by investing activities (1,821) - - - (1,821)
Net cash provided by financing activities 5,136 - - - 5,136
Net increase (decrease) in cash - 22 - - 22
Cash, beginning of period 107 9 - - 116
Cash, end of period 107 31 - - 138
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
The following table sets forth, for the periods indicated, selected items in the
Company's consolidated statements of income expressed as a percentage of net
sales:
<TABLE>
<CAPTION>
Thirteen Thirteen Twenty-six Twenty-seven
Weeks ended Weeks ended Weeks ended Weeks ended
April 3, April 4, April 3, April 4,
1999 1998 1999 1998
-------------- --------------- -- ---------------- -- --------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 71.5 75.3 71.3 76.0
-------------- --------------- -- ---------------- -- --------------
Gross profit 28.5 24.7 28.7 24.0
Selling, general and administrative 18.4 12.7 19.2 13.8
expenses
-------------- --------------- -- ---------------- -- --------------
Operating income 10.1 12.0 9.5 10.2
Interest expense 4.3 0.7 4.6 1.0
Other, net - 0.4 0.1 0.5
-------------- --------------- -- ---------------- -- --------------
Income before income taxes 5.8 10.9 4.8 8.7
Provision for income taxes 2.1 4.0 1.8 3.2
============== =============== == ================ == ==============
Net income 3.7 6.9 3.0 5.5
============== =============== == ================ == ==============
</TABLE>
Thirteen weeks ended April 3, 1999 compared to the thirteen weeks ended April 4,
1998
Net Sales. Net sales increased 134% to $110.7 million for the second
quarter of fiscal 1999 from $47.4 million in the comparable prior year quarter.
This increase was primarily due to an increase in units sold and higher average
selling prices caused primarily by the inclusion of Savane's operating activity
from June 10, 1998, the date of the acquisition.
Gross Profit. Gross profit increased 169% to $31.5 million, or 28.5% of
net sales for the second quarter of fiscal 1999, from $11.7 million, or 24.7% of
net sales, for the comparable prior-year quarter. The dollar increase was due to
the increase in sales volume caused primarily by the inclusion of Savane's
operating activities from the date of the acquisition. The increase in the gross
profit percentage was primarily due to a change in mix of products to those
yielding higher average selling prices and margins.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 238% to $20.3 million, or 18.4% of net sales,
for the second quarter of fiscal 1999, from $6.0 million, or 12.7% of net sales,
for the comparable prior year quarter. The dollar increase was primarily due to
an increase in overall volume as a result of including the operations of Savane
from the date of the acquisition. The increase in selling, general and
administrative expenses as a percent of net sales was primarily due to higher
advertising and other brand support related expenses caused by the inclusion of
Savane's operations from the date of the acquisition.
Interest Expense. Interest expense increased to $4.8 million for the
second quarter of fiscal 1999, from $346,000 for the comparable prior year
quarter. The increase was due to the increase in average outstanding borrowings
caused by the acquisition of Savane, including Savane's outstanding borrowings
as of the date of acquisition and the Company's issuance of $100 million of
Senior Subordinated Notes, the proceeds from which were used to finance the
acquisition of Savane.
Income Taxes. The Company's effective income tax rate for the second
quarter of fiscal 1999 was 36.9% compared to 36.8% in the comparable prior year
quarter. These rates are based on the Company's expected effective annual tax
rate.
Net Income. As a result of the above factors, net income increased
23.0% to $4.0 million for the second quarter of fiscal 1999 from $3.3 million
for the comparable prior-year quarter.
<PAGE>
Twenty-six weeks ended April 3, 1999 compared to the twenty- seven weeks ended
April 4, 1998.
Net Sales. Net sales increased 148% to $204.9 million for the twenty
six weeks ended April 3, 1999 from $82.5 million in the comparable prior year
period. This increase was primarily due to an increase in units sold and higher
average selling prices caused primarily by the inclusion of Savane's operating
activity from June 10, 1998, the date of the acquisition.
Gross Profit. Gross profit increased 197% to $58.8 million, or 28.7% of
net sales for the twenty-seven weeks ended April 3, 1999, from $19.8 million, or
24.0% of net sales, for the comparable prior-year period. The dollar increase
was primarily due to the increase in sales volume caused primarily by the
inclusion of Savane's operating activities from the date of the acquisition. The
increase in the gross profit percentage was primarily due to a change in mix of
products to those yielding higher average selling prices and margins.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 246% to $39.2 million, or 19.2% of net sales,
for the twenty-six weeks ended April 3, 1999, from $11.4 million, or 13.8% of
net sales, for the comparable prior year period. The dollar increase was
primarily due to an increase in overall volume as a result of including the
operations of Savane from the date of the acquisition. The increase in selling,
general and administrative expenses as a percent of net sales was primarily due
to higher advertising and other brand support related expenses caused by the
inclusion of Savane's operations from the date of the acquisition.
Interest Expense. Interest expense increased to $9.3 million for the
twenty-six weeks ended April 3, 1999, from $793,000 for the comparable prior
year period. The increase was due to the increase in average outstanding
borrowings caused by the acquisition of Savane, including Savane's outstanding
borrowings as of the date of the acquisition and the company's issuance of $100
million of Senior Subordinated Notes, the proceeds from which were used to
finance the acquisition of Savane.
Income Taxes. The Company's effective income tax rate for twenty-six
weeks ended April 3, 1999 was 37.1% compared to 36.9% in the comparable prior
year period. These rates are based on the Company's expected effective annual
tax rate.
Net Income. As a result of the above factors, net income increased
38.9% to $6.3 million for the twenty-six weeks ended April 3, 1999 from $4.6
million for the comparable prior-year period.
Liquidity and Capital Resources
On June 10, 1998, the Company closed on a new senior credit facility (the
"Facility") which provides for borrowings of up to $110 million, subject to
certain borrowing base limitations. The Facility was obtained in conjunction
with the Company's acquisition of Savane and was used to refinance indebtedness
then outstanding under the Company's previous senior credit facility, to
refinance indebtedness of Savane, to pay fees incurred in connection with the
acquisition of Savane and with the Facility, and for general corporate purposes.
Borrowings under the Facility bear variable rates of interest (7.9% at April 3,
1999) and are secured by substantially all of the Company's domestic assets. The
Facility matures in June 2003. As of April 3, 1999, excluding outstanding
letters of credit of $1.8 million, an additional $38.0 million was available for
borrowings under the Facility.
During the twenty-six weeks ended April 3, 1999, the Company used $10.7 million
of cash in its operating activities, primarily due to a decrease in accounts
payable and accrued expenses of $4.3 million, as a result of the payment of $5.3
million of accrued interest on the Company's senior subordinated notes and
seasonal volume related increases in accounts receivable of $16.1 million and
inventory of $3.7 million. These uses were offset, in part, by net income of
$6.3 million, which included non-cash expenses of $5.9 million.
Capital expenditures totaled $6.8 million for the second quarter of fiscal 1999
and are expected to approximate $12.0 million for the entire fiscal year. The
expenditures to date and expenditures expected for the remainder of the fiscal
year primarily relate to the upgrade or replacement of the Company's existing
computer systems and equipment, as well as the expansion of its Tampa
distribution center.
The Company believes that its existing working capital, the Facility, and
internally generated funds are adequate for its working capital needs for the
remainder of the fiscal year.
Impact of the Year 2000 Issue
The Company believes that its computer programs and systems are Year 2000
compliant. Should there be any portions of the Company's information systems
that were overlooked in the remediation process, or become susceptible to The
Year 2000 Issue subsequent to such remediation as the result of interaction with
supplier or customer systems, or otherwise, the impact could be felt throughout
the Company's main operating system which includes subsystems related to
customer analysis, order processing, planning, procurement, production and
sales.
The Company has communicated with all significant suppliers and large customers
to determine the extent to which the Company is vulnerable to those third
parties' failure to remediate their own Year 2000 Issues. As of the date of this
report, substantially all of the Company's supplier and customers have informed
the Company that their systems are or will be Year 2000 compliant within the
next six months. If certain suppliers were not able to remediate their own Year
2000 issues, it could affect the Company's ability to order and receive raw
materials shipments on a timely basis, which will have a direct and adverse
impact on the Company's production schedule. This will then affect the Company's
ability to fill customer orders on a timely basis, the result of which may be a
loss of customer sales. In addition, if the Company's customers do not remediate
their systems, it could affect the Company's ability to receive order
information through EDI and receive POS inventory information, both of which
will also have a direct and adverse impact on the Company's sales.
For further discussion of this matter, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations Impact of the Year 2000 Issue"
and "Business - Management Information Systems" in the Company's Annual Report
on Form 10-K for the year ended October 3, 1998.
Seasonality
Historically, the Company's business has been seasonal, with slightly higher
sales and income in the second and fourth fiscal quarters, just prior to and
during the two peak retail selling seasons for spring and fall merchandise. In
addition, certain of the Company's products, such as shorts and corduroy pants,
tend to be seasonal in nature. In the event such products represent a greater
percentage of the Company's sales in the future, the seasonality of the
Company's sales may be increased.
Factors Affecting the Company's Business and Prospects
This report contains forward-looking statements with respect to anticipated
future results, which are subject to risks and uncertainties that could cause
actual results to differ materially from anticipated results. These risks and
uncertainties include, but are not limited to: the continued success of our
integration of the operations of Savane/Farah; the continued commitment to our
products by our major customers; the financial strength of our major customers;
the acceptance by the market of our new womenswear products; the ability to
continue to use certain licensed trademarks and tradenames, including John
Henry(R), Bill Blass(R), and Van Heusen(R); general economic conditions,
including the price and availability of raw materials and global manufacturing
costs and restrictions; the ability of our information systems to respond to
changing business needs and the ability of those same systems to function in the
Year 2000; and other risk factors listed from time to time in the Company's SEC
reports and announcements. In addition, the estimated financial results for the
first two quarters do not necessarily indicate the results that may be expected
for any future quarters or for the entire fiscal year.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk from changes in interest rates, foreign
exchange rates and commodity prices. The Company does not use any hedging
transactions in order to modify the risk from these interest rate, foreign
currency exchange rate and commodity price fluctuations. The Company also does
not use financial instruments for trading purposes and is not a party to any
leveraged derivatives.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
On May 2, 1999, the Company entered into an agreement with Levi Strauss &
Co. ("Levi") to settle a lawsuit filed by Levi on March 21, 1997. The lawsuit
alleged that the Company had infringed upon certain of Levi's proprietary trade
dress and trademarks. The settlement agreement calls for each party to be
responsible for its own legal fees and for the Company not to use certain trade
dress and trademarks in the future. Management of the Company does not believe
the settlement agreement will have any significant impact on the Company's
operations.
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of the Company held on Thursday,
February 4, 1999, the following matters were brought before and voted upon by
the shareholders:
1. A proposal to elect the following directors to the Board of
Directors to serve until the indicated year of the Annual Meeting of
Shareholders of the Company:
For Withhold Authority
Richard C. Allender 6,797,764 7,060
(term to expire in 2000)
Charles J. Smith 6,799,464 5,360
(term to expire in 2001)
Leslie J. Gillock 6,800,024 4,800
(term to expire in 2002)
Donald H. Livingstone 6,799,974 4,850
(term to expire in 2002)
Eloy S. Vallina-Laguera 6,800,024 4,800
(term to expire in 2002)
The following members of the Board of Directors of the Company will
continue in office after the Annual Meeting:
Jesus Alvarez-Morodo (term to expire in 2000)
William W. Compton (term to expire in 2000)
Michael Kagan (term to expire in 2001)
Leon H. Reinhart (term to expire in 2001)
2. A proposal to amend the Company's Employee Stock Option Plan
by increasing the maximum shares of Common Stock authorized for issuance
thereunder from 500,000 to 1,000,000:
For Against Abstain Broker Non-Votes
5,632,598 710,880 6,815 454,531
3. A proposal to ratify the selection of Ernst & Young LLP as the
Company's independent certified public accountants for the fiscal year ending
October 2, 1999:
For Against Abstain Broker Non-Votes
6,801,609 1,100 2,115 0
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed herewith
Exhibit 27-2 Financial Data Schedule as of April 3, 1999
(filed for SEC purposes only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the thirteen week
period ended April 3, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
TROPICAL SPORTSWEAR INT'L CORPORATION
(Registrant)
/s/ N. Larry McPherson
N. Larry McPherson
Executive Vice President,
and Treasurer
(in the dual capacity of duly authorized
officer and principal accounting officer)
May 18, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE TWENTY-SIX WEEKS ENDED APRIL 3, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
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