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 October 2, 1999
[ ] 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 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
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $.01 per share
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 [X] Yes [ ] 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 or any amendment to this
Form 10-K.
[X]
As of December 15, 1999 there were 7,622,255 shares of Common Stock outstanding.
The aggregate market value of the Common Stock held by non-affiliates of the
registrant (assuming for purposes of this calculation, without conceding, that
all executive officers and directors are "affiliates"), based on the last sale
price reported on the Nasdaq National Market as of December 15, 1999, was
approximately $51,286,194.00.
<PAGE>
DOCUMENT INCORPORATED BY REFERENCE:
Portions of the Proxy Statement of the Annual Meeting of the Shareholders to be
held on February 2, 2000 are incorporated by reference in Part III.
TROPICAL SPORTSWEAR INT'L CORPORATION
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
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PART I Page No.
<S> <C> <C>
Item 1 Business 3
Item 2 Properties 12
Item 3 Legal Proceedings 13
Item 4 Submission of Matters to a Vote of Security Holders 13
PART II
Item 5 Market for Registrant's Common Equity and Related Shareholder Matters 14
Item 6 Selected Financial Data 14
Item 7 Management's Discussion and Analysis of Financial Condition and Results
of Operations 15
Item 7A Quantitative and Qualitative Disclosures About Market Risk 26
Item 8 Financial Statements and Supplementary Data 27
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 27
PART III
Item 10 Directors and Executive Officers of the Registrant 27
Item 11 Executive Compensation 27
Item 12 Security Ownership of Certain Beneficial Owners and Management 27
Item 13 Certain Relationships and Related Transactions 27
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 28
</TABLE>
Certain statements contained in this report on Form 10-K that are not purely
historical may be forward looking statements, including statements regarding the
Company's expectations, hopes, beliefs, intentions, or strategies regarding the
future. Forward looking statements include statements regarding, among other
things: (i) the Company's backlog and sales; (ii) potential acquisitions by the
Company; (iii) the Company's financing plans; (iv) trends affecting the
Company's financial condition or results of operations; (v) the Company's growth
strategy, operating strategy, and financing strategy; (vi) the declaration and
payment of dividends; (vii) regulatory matters affecting the Company; and (viii)
the outcome of certain litigation involving the Company. Prospective investors
are cautioned that any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties, and that actual results
may differ materially from those projected in the forward looking statements as
a result of various factors. All forward looking statements included in this
document are based on information available to the Company on the date hereof,
and the Company assumes no obligation to update any such forward looking
statement. Among the factors that could cause actual results to differ
materially are the factors detailed in Items 1 through 3 and 7 of this report
and the risks discussed under "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Risk Factors Affecting the Company's
Business and Prospects" in Item 7. Prospective investors should also consult the
risk factors listed from time to time in the Company's other reports filed with
the Securities and Exchange Commission.
<PAGE>
PART I
Item 1. Business
General
Tropical Sportswear Int'l Corporation (the "Company") produces high
quality casual and dress men's and women's apparel and provides major apparel
retailers with comprehensive brand management programs. The Company's programs
currently feature pants, shorts, shirts, coats, and denim jeans for men and on a
limited basis, pants and skirts for women. These products are marketed under
National brands such as Savane(R) and Farah(R), licensed brand names including
John Henry(R), Van Heusen(R), and Bill Blass(R), and many Company owned private
brands including Bay to Bay(R), Original Khaki Co.(R), Flyers(R), and Two
Pepper(R). The Company distinguishes itself by focusing on the apparel retailers
return on investment. The Company also provides the retailer with customer,
product and market analysis, apparel design, production, merchandising, and
inventory forecasting. The Company markets its apparel through all major retail
distribution channels, including department and specialty stores, national
chains, catalog retailers, discount and mass merchants and wholesale clubs. The
Company's mission is to profitably deliver apparel products faster, better and
cheaper than anyone in the world.
The Company's apparel line focuses on basic, recurring styles that
the Company believes are less susceptible to fashion obsolescence and less
seasonal in nature than fashion styles. Most of the Company's products are
derived from six production platforms, or "chassis," each of which incorporates
basic features requiring distinct manufacturing processes, such as inclusion of
an elastic waistband, a jeansband or button-flap pockets. The six basic chassis
are modified to produce separate styles through variations in cut, fabric and
finish. This process enables the Company to achieve both manufacturing
consistency and efficiencies while producing a wide variety of products through
distinctions in color and style.
The Company sells products through all distribution channels
including department stores, wholesales clubs, discounters and mass merchants,
national chains and specialty stores. Under National brand programs, products
are labeled at the assembly factory. Under private brand programs, most products
receive customer-specific labeling and packaging upon receipt of confirmation of
a customer order. As a result, the common stock keeping unit (i.e. style, color,
and size, known as a "SKU"), is differentiated only by labeling and packaging.
This merchandising strategy offers quick-response execution of customer orders
without the associated risk of carrying customer-specific inventories. Under
certain circumstances, the Company will apply a customer specific label to the
product during the production process.
The Company manages the manufacture and distribution of substantially
all of its products utilizing its cutting facilities in Tampa, Florida and El
Paso, Texas, independent garment assembly contractors located primarily in the
Dominican Republic and Mexico, a product labeling and distribution facility
located in Tampa, and a distribution facility located in Santa Teresa, New
Mexico. With the use of a unique process known as "Modular" production, the
contractors are able to improve utilization of floor space in their existing
plants and increase their production volume. The Company also sources certain
finished garments from independent manufacturers located in the Pacific Rim, the
Middle East and Mexico.
The Company is well positioned for internal growth. The Company's
current facilities in Tampa, El Paso and Santa Teresa have enough capacity to
increase the Company's cutting and shipping volume by approximately 50%. The
independent assembly contractors have flexible capacity and additional
contractors are generally available.
The Company utilizes advanced technology in all aspects of its
business, including apparel design, materials sourcing, production planning and
logistics, customer order entry, sales demand forecasting and order fulfillment.
The Company's use of technology produces greater efficiencies throughout the
production process and results in high-quality products, low-cost production and
enhanced customer order execution. Apparel products are developed using a
computer-aided-design ("CAD") system integrated with fabric cutting to maximize
product quality and materials yield. Accurate and timely order execution is
achieved through electronic data interchange ("EDI") order entry and quick
replenishment of core SKUs. Substantially all orders are placed via EDI.The
Company's systems enable it to further assist the retailer by tracking
point-of-sale ("POS") activity by SKU and forecasting consumer demand and
seasonal inventory requirements. An increasing number of customers are utilizing
the Company's sophisticated vendor managed inventory ("VMI") program. Under a
VMI program the Company's system controls the customers inventory levels by SKU
and immediately orders replenishment of units sold off the shelf. Orders
generally are shipped to the retailer within three working days of receipt of
shipping instructions utilizing a fully integrated inventory management and
order fullfillment system.
The Company was founded in 1927. Pursuant to a tax-free
reorganization consummated prior to the Company's initial public offering, the
Company was merged into a newly-formed corporation organized under the laws of
the State of Florida on January 27, 1997. The Company's executive offices are
located at 4902 West Waters Avenue, Tampa, Florida 33634-1302, and its telephone
number is 813-249-4900.
Industry
According to a retail industry research firm, the U.S. apparel
industry totaled approximately $177 billion in retail sales in 1998. The
industry grew approximately 4.7% and 4.8% in 1998 and 1997, respectively. In
1998, the men's bottoms (pants and shorts, excluding denim jeans) business
represented approximately 8.2% of the total apparel market. The Company believes
that the apparel industry is characterized by the following trends:
Only The Best. Major apparel retailers are focused on maximizing
the return on their investment in inventory and floor space. To achieve this,
they are seeking partners who can deliver only the best quality apparel products
for the best value faster and cheaper than anyone else.
Trend Toward Retail Merchandise Management Programs. Major apparel
retailers are increasingly outsourcing apparel merchandise management programs
to minimize inventory risks and increase profitability and return on investment.
In addition, major apparel retailers are consolidating their suppliers to
improve customer service and enhance economies of scale. The Company believes
that its ability to offer leading brands and private brand programs positions it
well to capitalize on these trends.
Retail Consolidation of Branded Merchandise. Major apparel retailers
are reducing the number of brands they offer in favor of a few of the most
well-recognized consumer brands. Department, chain and discount store retailers
have allocated increasing retail space to "in-store" apparel shops featuring
individual brands merchandised with customer fixturing supplied by the branded
producers. The Company believes the Savane(R), Farah(R), and licensed John
Henry(R), Bill Blass(R) and Van Heusen(R) brands are favored by their respective
customers and are well-positioned to gain market share by investing in enhanced
POS merchandising.
Trend Toward High Quality Private Brand Apparel. There is an
increased trend toward high quality, private brand apparel. Private brand
apparel bears the retailer's own name or a proprietary brand name exclusive to
the retailer. Private brand apparel allows the retailer to control their own
destiny with respect to selling prices and gross margins. Additionally,
consumers often obtain a better value, in the form of higher quality fabric or
finishes, for the same retail price. This increase in consumer demand for
private brand garments, coupled with retailers' demands for higher margins, has
resulted in retailers allocating more space to private brand products.
Trend Toward Casual Apparel. There is a continuing trend in the
United States toward casual apparel in the workplace. In addition, the Company
believes that the number of people who work at home is increasing substantially
and that outside of the workplace, people's social activities are focusing on a
more casual lifestyle.
Trend Toward Luxury Fabrics. There is a growing trend in the United
States toward luxury fabrics such as silks, Tencel(R), polynosic, rayon and
other micro-denier type fabrics. These fabrics have a very appealing texture and
feel and apparel products made with these fabrics, while still considered
casual, have a dressier appearance and are generating strong consumer demand.
Expansion of Caribbean and Mexican Production. Since the passage of
Section 807 of the Harmonized Tariff Schedule of the United States (now found
under tariff subheading 9802.00.80, but herein referred to as "Section 807"),
American apparel companies have increasingly utilized production facilities
located in the Caribbean Basin, including the Dominican Republic. The Company
believes that the Dominican Republic offers certain competitive advantages,
including favorable pricing and better quality production, a long-standing and
relatively stable production network, and much shorter transportation periods as
compared to goods assembled in the Pacific Rim. Under Section 807, customs
duties on apparel products assembled in the Caribbean Basin may be offset by the
costs incurred in the production of components in the United States (plus
freight and insurance). More recently, the North American Free Trade Agreement
("NAFTA"), effective 1994, has permitted Mexican manufacturers to ship finished
apparel products into the United States at no or reduced duties. According to
Sandler & Travis Trade Advisory Services, Inc., 1996 marked the first year in
which apparel products exported to the United States from Mexico exceeded
products exported from any other country, including China.
Business and Growth Strategy
The Company believes that its business and growth strategies will
position it to take advantage of key industry trends including: (i) an
increasing emphasis by major apparel retailers on return on investment and rapid
replenishment; (ii) an increase in retailer and consumer demand for high-quality
private brand apparel; (iii) a shift in consumer preference toward casual dress;
(iv) a trend toward luxury fabrics and (v) a trade policy which favors the
manufacture of products in Mexico, the Caribbean and Latin America. The key
elements of the Company's business and growth strategies center around its
mission to do things faster, better and cheaper and include the following key
components:
Advanced Planning and Control Systems and Procedures. The Company
employs advanced technology and comprehensive operating systems and
procedures which integrate and monitor each operation to maximize
efficiencies, increase productivity and enhance customer service. The
Company makes substantial investments in technology to maintain a
competitive advantage and generally upgrades its systems and technology
every three years on a rolling one-third per year cycle.
High-Quality Products. The Company applies stringent quality standards
throughout its operations, from the design of its products through the
shipment of customer orders. In Fiscal 1999, the application of these
standards resulted in a rate of customer returns for defects of less
than 0.5%.
Low-Cost and Flexible Operations. The Company is organized to effect a
short production cycle. Currently, it takes an average of 32 days from
the receipt of raw materials through receipt of a finished garment in
its distribution center. The Company believes its "chassis" production
concept allows it to execute more cost-effective production runs than
those of its competitors. The Company outsources labor intensive
garment assembly and finishing operations to independent manufacturers
on a fixed cost per unit basis. This strategy reduces the personnel and
capital resources invested in the production process and enables the
Company to vary production levels with changes in customer demand.
Minimized Inventory Risk. The Company believes that it minimizes its
inventory risk by (i) producing focused lines of core apparel products,
(ii) reducing the production cycle time and maximizing production
flexibility and (iii) tracking customer demand trends by SKU on a per
store basis.
Customer Service. The Company provides customer satisfaction through
high-quality products and customized merchandise management programs.
These programs serve to increase retailer margins by outsourcing
traditional retailer merchandising functions and reducing inventory
risk and excessive markdowns.
Savane(R) Brand Support. The Company provides significant financial
support for the Savane(R) brand including, in store fixtures, national
cable TV advertising programs, co-op advertising support and a staff of
over 40 company employees that visit stores to help arrange product and
coordinate product delivery and stocking. The Company believes these
services build brand recognition and customer loyalty as well as
support for the brand by the retailer.
Farah(R) Brand Expansion. The Company will continue to increase the
penetration of the Farah(R) brand as Wal-mart adds Farah(R) Khaki Shops
(a store within a store concept) to additional existing stores and with
each new store opening.
Expand Private Brand Programs for Major Retailers. The Company
leverages its high-quality and low-cost products, strong customer
service and merchandise management capabilities to increase private
brand market share as retailers consolidate and outsource private brand
programs.
E Commerce. The Company intends to expand into the internet retailing
buisness in partnership with its existing customers.
Global Expansion. The Company intends to expand with its existing
customer base as major apparel retailers develop international markets.
Certain retailers are expanding into Europe and Mexico. With its
established operations in the United Kingdom and Texas, the Company
is well positioned to capitalize on this trend.
New Product Introductions. The Company will continue to develop and
bring to market products that complement existing core product lines.
Targeted product categories include lines of men's casual shirts and
women's sportswear. Speed to market is critical which is why the
Company's product development cycle time is only 41 days from concept
to shippable product.
Acquisitions. The Company considers the acquisition of additional
established brands as well as the acquisition of producers of
complementary new product lines that would be accretive to shareholder
value. The Company regularly evaluates acquisition opportunities,
but currently has no agreements, arrangements or understandings with
respect to any acquisitions.
Products
The Company produces a core line of high quality men's casual and
dress pants, shirts, shorts and denim jeans as well as a core line of high
quality women's sportswear. Most of the Company's apparel line focuses on basic,
recurring styles that the Company believes are less susceptible to fashion
obsolescence and less seasonal in nature than fashion styles. Key fabrics
include 100% cotton and synthetic blends utilizing silk, Tencel(R), polynosic,
rayon and other micor-denier type fabrics.
The Company's marketing teams examine domestic and international
trends in the apparel industry as well as industries outside the sphere of
apparel, including the technology, automobile, grocery and home furnishings
industries, to determine trends in styling, color, consumer preferences and
lifestyle. Virtually all of the Company's products are designed by its in-house
staff utilizing CAD technology, which enables the Company to produce computer
simulated samples that display how a particular style will look in a given color
and fabric. The Company can quickly generate samples and alter the simulated
samples in response to customer input. The use of CAD technology minimizes the
time and costs associated with producing actual sewn samples prior to customer
approval and allows the Company to create custom designed products meeting the
specific needs of a customer. The Company's product content and construction
specifications require the use of matched finish thread throughout the garment,
surge seaming of all pockets, rigorous attention to seam construction, color
matching of all components and the generous use of fabric to produce a fuller,
more comfortable fit and minimize costly customer returns.
Customers and Customer Service
The Company markets its products across all major apparel retail
channels to department stores, wholesale clubs, specialty stores, discount
merchants, catalog retailers and E commerce. Sales to the Company's five largest
customers represented approximately 51.1% and 50.9% of net sales during Fiscal
1999 and Fiscal 1998, respectively. Sales to Wal-Mart (including Sam's Club, the
nation's largest chain of wholesale clubs), accounted for approximately 24.5%
and 23.8% of net sales during Fiscal 1999 and Fiscal 1998, respectively. The
Company also sells its products to other major retailers, including Belks, BJ's
Wholesale Clubs, Costco Wholesale Group, Dayton Hudson Group, Dillards
Department Stores, Federated Department Stores, JC Penney, Kohl's Department
Stores, May Company Department Stores, Phillips-Van Heusen, Saks/Proffitt's and
Sears.
The Company offers its customers comprehensive brand management
programs, which provide: (i) merchandise planning and support; (ii) consistently
high quality products; (iii) value-added services, such as custom labeling and
packaging design, just-in-time electronic order execution, and retail
profitability analysis; and (iv) access to state-of-the-art sales forecasting
and inventory management systems and E commerce execution. The Company believes
that close collaboration with its customers provides the Company's employees the
opportunity to better understand the fashion, fabric and pricing strategies of
the customer and leads to the generation of products that are more consistent
with customer expectations. At the same time, the customer is given the
opportunity, at minimal expense and risk, to benefit from the Company's
substantial expertise in designing, packaging and labeling high quality
products.
Product Labeling and Packaging
The Company differentiates its products through customized labeling,
point-of-sale packaging and other brand identification techniques. For most of
its customers, the Company manages the design and production of labeling and
packaging materials. Management regularly analyzes consumer product labeling and
packaging and consumer targeting trends evident in other retailing formats,
including the automobile, grocery and home furnishings industries. The Company
ships products directly to its customers' retail stores in floor-ready form and
offers innovative packaging and displays.
Marketing and Sales
The Company's products are sold by sales and marketing executives
located across the United States, each of whom has many years of experience in
the apparel industry. The Company also maintains sales and marketing support
teams in Tampa and El Paso dedicated to analyzing sales and marketing data.
The Company offers each of its existing and prospective customers a
marketing plan tailored to the customer's market niche. Using its marketing data
and industry experience, the Company is able to create, for each existing and
prospective customer and each particular product, a market plan that outlines
optimum volume, timing and pricing strategies, markdown and sell-through trends
and profit margins.
The Company operates an EDI system, whereby the Company can accept
EDI orders 24 hours a day and typically ship orders within three working days.
In Fiscal 1999, substantially all orders were received via EDI.
Operations
Overview. The Company principally cuts its fabric at its Tampa and El
Paso facilities for offshore finishing and assembly. The Company believes that
the use of independent international suppliers to assemble components cut at the
Company's facilities enables it to provide customers with high quality goods at
significantly lower prices than if it operated its own assembly facilities. The
Company also imports finished goods, principally denim jeans and shorts, shirts
and coats from Mexico, the Pacific Rim and the Middle East.
Purchasing. The Company purchases raw materials, including fabrics,
thread, trim and labeling and packaging materials, from domestic sources based
on quality, pricing and availability. Prior to shipment, the Company undertakes
a quality audit at its major suppliers to assure that quality standards are met.
An additional quality audit is performed upon receipt of all raw materials. The
Company has no long-term agreements with any of its suppliers. The Company
projects raw material requirements through a series of planning sessions, taking
into account orders received and future projections by style and color. This
data is then used to purchase the raw material components needed by production
time frame in order to meet customers' requirements.
Cutting. The Company utilizes state-of-the-art computerized equipment
for spreading, marking and cutting fabric. The Company's CAD system positions
all component parts of a single garment in close proximity on the same bolt of
fabric to ensure color consistency. This process also enables the Company to
utilize approximately 92% of the fabric. Quality audits in the cutting facility
are performed during various stages, from spreading of fabric through
preparation for shipment to independent manufacturers for assembly.
Assembly. Component parts are shipped by common carrier to
independent foreign manufacturers, principally in the Dominican Republic and
Mexico, for assembly and finishing. There are no material formal arrangements
between the Company and any of its contractors, but the Company believes that
its relations with its contractors are generally good. Using independent
contractors allows the Company to shift its sources of supply depending upon
production and delivery requirements and cost, while at the same time reducing
the need for significant capital expenditures, work-in-process inventory and a
large production work force. The Company arranges for the assembly or production
of its products primarily based on orders received. A significant portion of its
customers' orders are received prior to placement of its initial manufacturing
orders. The Company inspects prototypes of each product before production runs
are commenced. Random in-line quality control checks are performed during and
after assembly before the garments leave the contractor. The Company currently
has a team of full-time quality control personnel on-site in the Dominican
Republic and Mexico.
The Company also owns and operates a sewing plant in Mexico that it
acquired in connection with the Savane acquisition. This plant, which occupies
an approximately 74,000 square foot building in Chihuahua, Mexico, produces
casual pants and shorts.
Imports and Import Regulations
The Company presently imports garments under three separate scenarios
having distinct customs and trade consequences: (i) imports of finished goods
(mostly from the Pacific Rim and the Middle East); (ii) imports from the
Caribbean Basin and Central America; and (iii) imports from Mexico.
For direct importation (mostly from the Pacific Rim and the Middle
East), imported garments are normally taxed at most favored nation ("MFN")
tariffs and are subject to a series of bilateral quotas that regulate the number
of garments that may be imported annually into the United States. These tariffs
generally range between 17% and 35%, depending upon the nature of the garment
(e.g., shirt, pant), its construction and its chief weight by fiber.
The Company also imports garments from countries in the Caribbean
Basin and Central America, most notably the Dominican Republic. Although much
merchandise imported from these jurisdictions is subject to the similar tariff
and quota consequences described above, for most of the merchandise sourced from
the Caribbean Basin or Central America by the Company the so-called "807"
program allows merchandise to be admitted into the United States with a
substantial tariff reduction. In essence, the duty reduction is equal to the
value of U.S. components incorporated into these assembled goods plus southbound
international freight and insurance.
The Company also imports finished goods from Mexico under the North
American Free Trade Agreement, commonly known as NAFTA. Under NAFTA, merchandise
that qualifies is accorded reduced or duty-free access and is not subject to any
quota.
Personnel
At November 27, 1999, the Company had 1,914 associates, including
1,262 in the United States, 27 in the Dominican Republic, 520 in Mexico, 66 in
the United Kingdom, 28 in Australia, and 11 in New Zealand. Approximately 8% of
the Company's employees are members of the Union of Needletrades Industrial
and Textile Employees. The collective bargaining agreement with these employees
expires in February 2000. Approximately 21% of the Company's employees are
members of Sindicato de Trabajadores de la Industria Costurera, Similaries y
Conexes, C.T.M. The collective bargaining agreement with these employees
expires in January 2000. The Company considers its relations with its employees
to be generally good.
The Company is committed to developing and maintaining a well-trained
workforce. The Company provides or pays for in excess of 20,000 hours of
continuing education annually for its employees on subjects ranging from
computers to foreign languages. The Company is equally committed to the
well-being of its employees. The Company offers its full-time employees and
their families a comprehensive benefits package that includes a 401(k) plan with
a company match, a choice of group health insurance plans, term life insurance
(with an option to purchase additional coverage), a choice of dental plans, and
a vision plan. The Company also offers tuition reimbursement for
business-related courses and pays a retirement bonus to persons employed by the
Company for twenty-five years or more. The Company maintains a recreation area
and health club facilities in Tampa for the use and enjoyment of its employees
and their families. The Company also enjoys long-standing relationships with
certain of its independent assembly contractors in the Dominican Republic and
Mexico and has contributed financial resources to improving conditions for their
employees.
Management Information Systems
The Company believes that advanced information processing is critical
to its business. The Company's philosophy is to utilize the latest technology
where it will enhance its competitive position. Consequently, the Company
continues to upgrade its management information systems in order to maintain
better control of its inventory and to provide management with information that
is current and accurate. The Company's management information systems provide,
among other things, comprehensive order processing, production, accounting and
management information for the marketing, manufacturing, importing and
distribution functions of the Company's business. The Company has purchased and
implemented a software program that enables the Company to track, among other
things, orders, manufacturing schedules, inventory and unit sales of its
products. In addition, to support the Company's flexible inventory replenishment
program, the Company has an EDI system through which customer inventories can be
tracked and orders automatically placed by the retailer with the Company. (See
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations). The Company believes that all of its systems are Year 2000
compliant.
In August 1999, the Company determined that it would not proceed with
its implementation of SAP/AFS, an enterprise-wide software package that was to
serve the Tampa facilities. The Company believes that its existing systems will
support it's current and future business needs. The Company is currently
evaluating alternative software packages that will increase its competitive
advantage in the marketplace and further streamline operations.
Human Rights Policy
The Company has a comprehensive human rights policy. The Policy
is consistent with the Responsible Apparel Production Principles (RAPP) which
were recently endorsed by the American Apparel Manufacturers Association and
other Carribean Basin apparel manufacturing associations. The Company's policy
focuses on working conditions in the independent assembly contractors utilized
by the Company and among other things, prohibits under age labor and poor
working conditions. Compliance with the policy is mandatory and is closely
monitored in the following ways: 1) Company employees who visit each independent
contractor plant on a daily basis, 2) management of the Company who periodically
visits independent contractor plants and 3) by an independent third party agency
utilized by many companies in the apparel industry. The agency performs audits
periodically and reports the results to the Company. The Company will
immediately discontinue production with any independent contractor that does not
comply with the policy.
Competition
The apparel industry is highly competitive and the Company competes
with numerous apparel manufacturers, including brand name and private label
producers, as well as retailers that have established, or may establish,
internal product development and sourcing capabilities. The principal markets in
which the Company competes are the United States, United Kingdom, and Southeast
Asia. Many of the Company's competitors and potential competitors have greater
financial, manufacturing and distribution resources than the Company. The
Company believes that it competes favorably on the basis of quality and value of
its programs and products and the long-term customer relationships it has
developed. Nevertheless, any increased competition from manufacturers or
retailers could result in reductions in unit sales or prices, or both, which
could have a material adverse effect on the Company's business and results of
operations.
Trademarks and Licenses
The Company holds or has applied for over 600 United States and
worldwide trademark registrations covering its various brand names including
Savane(R), Farah(R), Flyers(TM), Original Khaki Co. and Bay to Bay(R). The word
marks Savane(R), Farah(R), and Bay to Bay(R) are registered with the United
States Patent and Trademark Office. In addition, the word marks Savane(R),
Farah(R), and Bay to Bay(R) are registered in various countries worldwide.
Pursuant to separate license agreements, the Company has the exclusive rights to
use (i) the John Henry(R) trademark with respect to men's bottoms and coats
distributed or sold in the United States, its territories and possessions,
United States Military bases worldwide and Canada, and (ii) the Bill Blass(R)
trademark with respect to casual pants, shorts and jeans and (iii) the Van
Heusen(R) trademark with respect to the sale, distribution and promotion of
men's pants, jeans and shorts in the United States, its possessions and
territories. The Company believes that it has the exclusive use of all of its
owned and licensed trademarks in the noted categories.
Credit Facilities
The Company needs significant working capital to purchase inventory
and finance accounts receivable and, consistent with industry practice, is often
required to post letters of credit when placing an order with certain
international manufacturers. Currently, a substantial portion of the Company's
working capital requirements are met through a $110 million credit facility with
a syndicate of banks (the "Facility"), which expires in June 2003.
Factoring of Accounts Receivable
The Company sells substantially all of its trade accounts
receivable to a factor that assumes virtually all of the credit risk with
respect to collection of such accounts. The factor pays the Company the
receivable amount upon the earlier of (i) receipt by the factor of payment from
the Company's customer or (ii) 120 days past the due date for such payment. The
factor approves the credit of the Company's customers prior to sale. If the
factor disapproves or limits a sale to a customer and the Company decides to
proceed with the sale, the Company bears some credit risk. The factoring
agreement expires in September 2001, at which time the Company intends to renew
or replace it.
Seasonality
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.
Backlog
On October 2, 1999, the Company had unfilled customer orders of
approximately $323.3 million. All of such orders are scheduled for shipment in
Fiscal 2000. On October 3, 1998, the Company had unfilled customer orders of
approximately $292.8 million. Fulfillment of orders is affected by a number of
factors, including revisions in the scheduling of manufacture and shipment of
the product which, in some instances, depends on the demands of the retail
consumer. Accordingly, a comparison of unfilled orders from period to period is
not necessarily meaningful, and the level of unfilled orders at any given time
may not be indicative of eventual actual shipments.
Executive Officers of the Registrant
The following table provides the names and ages of the Company's
executive officers, and the positions and offices currently held by each of
them:
Name Age Position(s)
William W. Compton 56 Chairman of the Board, Chief
Executive Officer and Director
Richard J. Domino 51 President
Michael Kagan 60 Executive Vice President, Chief
Financial Officer, Secretary
and Director
Michael R. Mitchell 46 President, Savane International Corp.
William W. Compton has served as Chairman of the Board, Chief
Executive Officer and a Director of the Company since November 1989. He also
served as President of the Company from November 1989 to November 1994. Mr.
Compton has over 30 years of experience in the apparel industry. Mr. Compton
serves as First Vice Chairman and Treasurer of the American Apparel
Manufacturers Association and is a member of the Board of Directors for the
Center for Entreprenuership for Brigham Young University
Richard J. Domino joined the Company in 1988 and has served as
President of the Company since November 1994. Mr. Domino served as Senior Vice
President of Sales and Marketing from January 1994 to October 1994 and Vice
President of Sales from December 1989 to December 1993. He has over 25 years
experience in apparel-related sales and marketing.
Michael Kagan has served as Executive Vice President, Chief Financial
Officer, Secretary and a Director of the Company since November 1989. He was
also Treasurer of the Company from November 1989 to January 1998. Mr. Kagan has
more than 32 years experience in the apparel industry.
Michael R. Mitchell, age 46, serves as President of Savane
International Corp. He has served as President since March 1994. Mr. Mitchell
has been employed by Savane since 1981 in various sales and marketing
capacities. He also served on the Savane Board of Directors from March 1994
until June 1998.
Item 2. Properties
The Company's corporate headquarters are located in Tampa, Florida
and are owned by the Company. The Company considers both its domestic and
international facilities to be suitable and adequate and to have sufficient
productive capacity for current operations. (See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Risk Factors
Affecting the Company's Business and Prospects.")
The following table reflects the general location, use and
approximate size of the Company's significant real properties:
<PAGE>
<TABLE>
<CAPTION>
Approximate Owned/
Location Use Square Footage Leased (1)
- ------------------------------ ------------------------------------------- ------------------ ------------
<S> <C> <C> <C>
Tampa, Florida Corporate Offices/Distribution Center 305,000 Owned
Tampa, Florida Fabric cutting facility 110,000 Owned
New York, New York Office/showroom 4,000 Leased
Chihuahua, Mexico Garment manufacturing plant 73,800 Owned
San Jose, Costa Rica Garment manufacturing plant 124,000 Owned (2)
Cartago, Costa Rica Garment manufacturing plant 77,000 Owned (2)
Auckland, New Zealand Office/Warehouse 9,000 Owned
El Paso, Texas Administrative office 43,500 Leased
El Paso, Texas Fabric cutting facility 201,000 Leased
Sydney, Australia Office/Warehouse 29,000 Leased
Suva, Fiji Two garment manufacturing plants 35,000 Leased (3)
Witham, United Kingdom Office/Distribution Center 57,000 Leased
Santa Teresa, New Mexico Distribution Center 250,000 Leased
(1) See Note 6 of Notes to Consolidated Financial Statements for a discussion of lease terms.
(2) Currently unoccupied and for sale.
(3) The facilities are leased by a 50% joint venture in which the Company is a party.
</TABLE>
Item 3. Legal Proceedings
The Company is not a party to any legal proceedings other than various claims
and lawsuits arising in the normal course of business. Management of the Company
does not believe that any such claims or lawsuits will have a material adverse
effect on the Company's financial condition or results of operation.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
The Company's Common Stock has been traded on The Nasdaq National
Market under the symbol "TSIC" since in its initial public offering on October
28, 1997. The initial public offering price of the Common Stock was $12.00 per
share. Prior to such time, there was no established public trading market for
the Company's Stock. At December 15, 1999, there were approximately 98 record
holders of the Company's Common Stock, and the Company estimates that there were
approximately 1,000 beneficial holders on the same date. The following sets
forth the quarterly high and low last sale prices per share of the Common Stock
as reported by the Nasdaq National Market for the last two fiscal years.
Fiscal Year Ended
October 3, 1998 High Low
--------------- ---- ---
First Quarter 131/4 10
Second Quarter 10 1/8 14 1/8
Third Quarter 23 3/8 13 5/8
Fourth Quarter 243/4 16 3/4
Fiscal Year Ended
October 2, 1999 High Low
--------------- ---- ---
First Quarter 35 7/8 18
Second Quarter 36 5/8 18 15/16
Third Quarter 31 7/8 18
Fourth Quarter 29 1/2 16 5/8
The transfer agent for the Common Stock is Firstar Trust Services,
Milwaukee, Wisconsin.
The Company has not declared or paid any cash dividends on the Common
Stock since 1989. The Company currently anticipates that all of its earnings
will be retained for development and expansion of the Company's business and
does not anticipate declaring or paying any cash dividends in the foreseeable
future. Moreover, the company's various credit agreements contain covenants
expressly prohibiting the payment of any cash dividends.
Item 6. Selected Financial Data
The following selected financial data (in thousands, except share and
per share data) are derived from the consolidated financial statements of the
Company for each of the five years in the period ended October 2, 1999. These
consolidated financial statements have been audited and reported upon by Ernst
and Young LLP, independent certified public accountants.
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended
------------- ------------- ---------------- ---------------- ----------------
October 2, October 3, September 27, September 28, September 30,
Statements of Income Data: 1999 1998 1997 1996 1995
------------- ------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Net sales $420,691 $263,976 $151,692 $117,355 $110,064
Gross profit 117,922 68,889 36,055 26,223 22,206
Selling, general and administrative
expenses 80,511 43,204 19,443 15,189 15,060
Termination of system implementation 3,999 - - - -
Operating income 33,412 25,685 16,612 11,034 7,146
Interest expense 18,586 6,866 2,889 2,498 3,160
Income before income taxes 13,853 17,283 13,176 7,916 2,985
Net income 8,251 10,802 8,269 5,171 2,160
Net income per common share-diluted 1.05 1.43 1.37 0.86 0.36
Weighted average number of shares
used in the calculation - diluted 7,838,000 7,550,000 6,015,000 6,015,000 6,015,000
(1)
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended
------------- ------------- ---------------- ---------------- ----------------
October 2, October 3, September 27, September 28, September 30,
Balance Sheet Data: 1999 1998 1997 1996 1995
------------- ------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Working capital $120,041 $107,397 $30,234 $25,483 $31,655
Total assets 289,322 297,476 69,658 63,415 55,237
Long-term debt and obligations
under capital leases 170,894 171,494 24,055 24,162 27,175
Shareholders' equity 59,823 50,964 26,651 18,382 13,211
(1) Computed on the basis described in Notes to Consolidated Financial
Statements.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Company manages the production of substantially all of its
products utilizing its facilities in Tampa, Florida and El Paso, Texas and
through independent assembly contractors located in the Dominican Republic and
Mexico. In addition, the Company currently produces a limited amount of finished
goods in a company-owned manufacturing facility in Mexico and the Company
sources finished goods from independent suppliers. For goods assembled by
independent manufacturers, the Company purchases and inventories all of its raw
materials and cuts its fabric in its Tampa and El Paso cutting facilities based
on expected customer orders. The Company ships cut fabric parts and other
product components via common carrier to the independent manufacturers, who
assemble components into finished garments (except for labeling and packaging in
the case of private brand products) and perform certain finishing processes. The
Company has no material contractual arrangements with its independent
manufacturers and pays them based on a specified unit price for actual
first-quality units produced. Accordingly, a substantial portion of the
Company's production labor and overhead is variable. The Company ships assembled
goods from the Dominican Republic and Mexico to its Tampa, Florida and Santa
Teresa, New Mexico distribution centers via common carrier. Upon receipt of a
customer order confirmation, the Company ships orders to customers or, in the
case of private brand products, attaches designated labels and point-of-sale
packaging and then ships orders to customers.
The following discussion of the Company's results of operations and
financial condition should be read in conjunction with the Company's
consolidated financial statements and notes thereto.
Results of Operations
As a result of the acquisition of Savane on June 10, 1998, the Fiscal
1999 and 1998 results of operations may not be comparable nor are they
comparable to years prior to the acquisition. The following table sets forth,
for the periods indicated, selected items in the Company's consolidated
statements of operations expressed as a percentage of net sales:
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------------
October 2, October 3, September 27,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 72.0 73.9 76.2
---- ---- ----
Gross profit 28.0 26.1 23.8
Selling, general and
administrative expenses 19.1 16.4 12.8
Termination of system
implementation 1.0 0.0 0.0
--- --- ---
Operating income 7.9 9.7 11.0
Interest expense 4.4 2.6 1.9
Bridge loan funding fee - 0.2 -
Other expense, net 0.2 0.4 0.4
--- --- ---
Income before income taxes 3.3 6.5 8.7
Provision for income taxes 1.3 2.4 3.2
--- --- ---
Net income 2.0% 4.1% 5.5%
==== ==== ====
</TABLE>
Fiscal 1999 Compared to Fiscal 1998
Net Sales. Net sales for Fiscal 1999 were $420.7 million as compared to
$264.0 million for Fiscal 1998, an increase of $156.7 million or 59.4%. The
increase was due to an increase in units shipped and an increase in average
selling price per unit, both of which were caused by the inclusion of Savane's
operations since the date of acquisition as well as increased market penetration
and brand acceptance.
Gross Profit. Gross profit for Fiscal 1999 was $117.9 million or 28.0%
of net sales as compared with $68.9 million or 26.1% of net sales for Fiscal
1998. The increase in gross margin was driven by a change in mix to higher
margin products caused primarily by the inclusion of Savane's higher margin
branded product sales for the entire year of Fiscal 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for Fiscal 1999 were $80.5 million, or 19.1% of net
sales, as compared to $43.2 million, or 16.4% of net sales for Fiscal 1998. The
increase in selling, general and administrative expenses was primarily due to
higher general and administrative expenses associated with the Savane
operations, including a $9.3 million increase in advertising and brand support
related expenses. Additionally, in the fourth quarter of Fiscal 1999, the
Company recorded a charge of $425,000 related to the cost associated with the
termination of approximately 20 employees.
Termination of System Implementation. During the fourth quarter of
Fiscal 1999, the Company determined that it would not proceed with the
implementation of the SAP enterprise wide software package. As a result, the
Company recorded a charge of $4.0 million in September 1999 to write off the
remaining capitalized costs associated with the project.
Bridge Loan Funding Fee. In Fiscal 1998, the Company entered into a
$100 million bridge financing facility to finance the Savane acquisition until
the closing of the offering of $100 million of senior subordinated notes. This
fee was incurred to originate the bridge financing.
Interest Expense. Interest expense for Fiscal 1999 was $18.6 million as
compared to $6.9 for Fiscal 1998. The increase was due to the increase in
average outstanding borrowings related to 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 of
which were used to finance the acquisition of Savane.
Income Taxes. The Company's effective tax rate for Fiscal 1999 was
40.4% as compared with 37.5% in Fiscal 1998. The increase in the effective rate
is primarily due to the increase in non-deductible amortization associated with
the Savane acquisition.
Net Income. As a result of the above factors, net income for Fiscal
1999 was $8.3 million, or 2.0% of net sales, as compared to $10.8 million, or
4.1% of net sales, for Fiscal 1998.
Fiscal 1998 Compared to Fiscal 1997
Net Sales. Net sales for Fiscal 1998 were $264.0 million as compared
to $151.7 million for Fiscal 1997, an increase of $112.3 million, or 74.0%. The
increase was due to an increase in units shipped and an increase in average
selling price per unit, both of which were caused by the inclusion of Savane's
operations since the date of acquisition as well as increased market penetration
and brand acceptance.
Gross Profit. Gross profit for Fiscal 1998 was $68.9 million or 26.1%
of net sales as compared with $36.1 million or 23.8% of net sales for Fiscal
1997. The increase in gross margin was driven by a change in mix to higher
margin products caused primarily by the inclusion of Savane's higher margin
branded product sales.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for Fiscal 1998 were $43.2 million, or 16.4% of net
sales, as compared to $19.4 million, or 12.8% of net sales for Fiscal 1997. The
increase in selling, general and administrative expenses was primarily due to
higher advertising and brand support related expenses as well as higher general
and administrative expenses associated with the Savane operations.
Interest Expense. Interest expense for Fiscal 1998 was $6.9 million as
compared to $2.9 million for Fiscal 1997. 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 the senior subordinated notes, the
proceeds of which were used to finance the acquisition of Savane.
Bridge Loan Funding Fee. The Company entered into a $100 million bridge
financing facility to finance the Savane acquisition until the closing of the
offering of $100 million of senior subordinated notes. This fee was incurred to
originate the bridge financing.
Income Taxes. The Company's effective tax rate for Fiscal 1998 was
37.5% as compared with 37.2% in Fiscal 1997.
Net Income. As a result of the above factors, net income for Fiscal
1998 was $10.8 million, or 4.1% of net sales, as compared to $8.3 million, or
5.5% of net sales, for Fiscal 1997.
Liquidity and Capital Resources
The Company's primary capital requirements are the funding of the
growth in operations and capital expenditures. The Company has historically
financed its growth in sales and the resulting increase in inventory and
receivables through a combination of operating cash flow and borrowings under
its senior credit facility.
The Company's senior credit facility (the "Facility") 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
interest at variable rates (8.6% at October 2, 1999) and are secured by
substantially all of the Company's domestic assets. The Facility matures in June
2003. As of October 2, 1999, excluding the impact of outstanding letters of
credit of $5.9 million, an additional $33.4 million was available for borrowings
under the Facility.
On May 28, 1999, the Company entered into a construction loan
("Construction Loan") agreement secured by the Company's distribution center,
cutting facility, and administrative offices in Tampa, Florida. The Construction
Loan was utilized to refinance $9.5 million outstanding on the Company's real
estate loan and to finance up to $6.0 million of an expansion to the Company's
Tampa distribution facility. In March 2000, the Construction Loan will be
converted to a similarly secured term loan. Principal and interest are due
monthly on the refinanced amount and the loan bears interest at the 30 day
London Interbank Offered Rate (LIBOR) plus an applicable margin. The
Construction Loan requires monthly interest payments through February 2000 with
principal payments commencing in March 2000. The principal payments are based on
a 20-year amortization with all outstanding principal due on or before May 15,
2008.
Under the terms of an interest rate swap agreement, on the first $7.0
million of borrowings under the Construction Loan, interest is payable at a
fixed base rate plus an applicable margin (8.6% at October 2, 1999). On the
remainder of the borrowings, interest is payable based on the 30 day LIBOR rate
plus an applicable margin. As of October 2, 1999, the effective interest rate on
the Construction Loan was approximately 7.8%.
On June 24, 1998, the Company closed the issuance and sale of $100
million of senior subordinated notes (the "Notes") through a private placement.
Under the terms of the indenture agreement underlying the Notes, the Company
will pay semi-annual interest at the rate of 11% for ten years, at which time
the entire principal amount is due. The net proceeds from the Notes were used to
repay a portion of the borrowings outstanding under a bridge facility that was
used to purchase Savane in June 1998.
The Company's credit agreements contain significant financial and
operating covenants, including requirements that the Company maintain minimum
net worth levels and certain financial ratios, prohibitions on the ability of
the Company to incur certain additional indebtedness or to pay dividends, and
restrictions on its ability to make capital expenditures. During fiscal 1999,
the Company amended the terms of the Facility to adjust certain of the financial
covenants. The Company is currently in compliance with all covenants under its
credit agreements.
Pursuant to two separate factoring agreements (the "Factoring
Agreements"), the Company factors substantially all of its accounts receivable.
The Factoring Agreements provide that the factor will pay the Company an amount
equal to the gross amount of the Company's accounts receivable from customers,
reduced by certain offsets, including among other things, discounts, returns,
and a commission payable by the Company to the factor. The commission averages
0.23% of the gross amount factored. The factor subjects all sales to its credit
review process and assumes 99.9% of the credit risk for amounts factored
pursuant to the Factoring Agreements. Funds are transferred to reduce
outstanding borrowings under the Facility once payment is received from the
factor. The factor pays the Company the receivable amount upon the earlier of
(i) receipt by the factor of payment from the Company's customer or (ii) 120
days past the due date for such payment. The Factoring Agreements expire in
2001.
As a result of the acquisition of Savane in June 1998, certain
consolidation and cost savings activities have transpired that will impact the
Company's capital resources. Specifically, the Company has chosen to exit
certain owned or leased facilities. The sale of owned facilities will generate
cash while the payment of lease termination costs will utilize cash. As of
October 2, 1999, the Company had assets held for sale with carrying values of
$2.0 million and has exit related accruals of $6.0 million.
During Fiscal 1999, the Company generated $18.2 million of cash from
its operations. This was primarily the result of net income of $8.3 million
(which included non-cash charges of $18.3 million) and a net decrease in
accounts receivable and inventory of $7.1 million offset by a decrease in
accounts payable and accrued expenses and other of $17.3 million and an increase
in prepaid expenses and other assets of $1.1 million.
The Company has historically financed its capital expenditures
through a combination of operating cash flow and long-term borrowings. Capital
expenditures were $15.1 million and $6.9 million for Fiscal 1999 and Fiscal
1998, respectively. The expenditures primarily relate to the expansion of the
distribution center in Tampa, Florida and the upgrade or replacement of the
Company's existing equipment and computer systems including hardware and
software.
During Fiscal 2000, the Company anticipates capital expenditures to
total approximately $12.0 million. Significant capital projects including the
installation of a new computer system, the consolidation of facilities in the El
Paso Texas area, the upgrading or replacement of other ancillary computer
systems and the upgrading or replacement of certain equipment.
On October 2, 1999 and October 3, 1998, the Company had working
capital of $120.0 million and $107.4 million, respectively. The increase in
working capital was due primarily to a $3.9 million increase in accounts
receivable, an $11.9 million decrease in inventory offset by an $8.7 million
increase in prepaid expenses and other assets and a $10.3 million decrease in
accounts payable and accrued expenses. The Company expects its working capital
needs will continue to fluctuate based on seasonal changes in sales, accounts
receivable and trade accounts payable.
The Company believes that the combination of existing working
capital, funds anticipated to be generated from operating activities and the
borrowing availability under the current and anticipated credit agreements will
be sufficient to fund both its short-term and long-term capital and liquidity
needs.
Impact of Recent Accounting Pronouncements
On October 4, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," which
establishes standards of disclosure and financial statement display for
reporting total comprehensive income and the individual components thereof. The
adoption of SFAS No. 130 required additional disclosures in the consolidated
financial statements.
On October 4, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," which establishes new
standards for segment reporting. The adoption did not affect the Company's
disclosures as it operates in one segment.
In February 1998, the Financial Accounting Standards Board issued SFAS
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits." SFAS 132 requires the Company to standardize certain disclosures and
include additional information on changes in benefit obligations and fair values
of plan assets. The Company adopted the provisions of SFAS 132 in the first
quarter of Fiscal 1999.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133
requires an entity to recognize all derivatives as either assets or liabilities
in the statement of financial position and measure those instruments at fair
value. The Company plans to adopt SFAS 133 on October 1, 2000, as required. The
Company limits its use of derivative financial instruments to the management of
interest rate risk. The Company is currently evaluating the impact of SFAS 133
on its financial statements and has not yet determined the impact, if any, on
the consolidated financial statements of the Company.
Inflation
The impact of inflation on the Company's operating results has been
moderate in recent years, reflecting generally lower rates of inflation in the
economy and relative stability in the Company's cost of sales. In prior years,
the Company has been able to adjust its selling prices and improve efficiencies
to substantially offset increased costs. While inflation has not had, and the
Company does not expect that it will have, a material impact upon operating
results, there is no assurance that the Company's business will not be affected
by inflation in the future.
Impact of the Year 2000 Issue
The "Year 2000 Issue" is the result of computer programs and systems
having been designed and developed to use two digits, rather than four, to
define the applicable year. As a result, these computer programs and systems may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
In Fiscal 1998, The Company completed the evaluation and modification
of all of its information technology systems with regard to the Year 2000 issue.
The amount expensed by the Company to accomplish this process was not material
to the operations or financial condition of the Company, and has been included
in its entirety in the results of operations for Fiscal 1998. The Company
believes that all of its information technology systems are now 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 Year
2000 issues 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. Information technology plays a vital role in almost every aspect of the
Company's operations. In addition, the Year 2000 issue would strike at a time of
the calendar year that is one of the Company's busiest in terms of production
and distribution. While the Company believes that it will be able to sustain
normal operations even without any of its information technology systems, this
could only continue for a short period of time. The resources necessary to
address any Year 2000 issue which may arise will not be available entirely from
internal personnel, and the Company will be forced to contract with third-party
consultants. At this time, the Company does not have any such third-party
consultants under contract and does not anticipate that it will enter into any
such contracts prior to the end of calendar 1999. Further, the Company does not
anticipate that it will stockpile raw materials or inventory in advance of the
end of calendar 1999.
Based on the Company's current Year 2000 compliant status, the
Company believes a contingency plan is not necessary.
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 suppliers and customers have
informed the Company that their systems are or will be Year 2000 compliant. If
certain suppliers were not able to remediate their own Year 2000 issues, this
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
electronic data interchange and receive point of sale inventory information,
both of which will also have a direct and adverse impact on the Company's sales.
Euro Conversion Issue
In 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing currencies and the
Euro and adopted the Euro as their common legal currency (the "Euro
Conversion"). The Euro Conversion had no impact on the Company's operations.
Risk Factors Affecting the Company's Business and Prospects
To acquire Savane we incurred a substantial amount of debt that will require
successful future operating performance and financial results and may impose
important limitations on us.
As a result of the acquisition of Savane, we experienced an increase
in leverage. The degree to which we are leveraged will have important
consequences, including the following:
o a substantial portion of our cash flow from operations will be dedicated to
the payment of principal and interest on our debt;
o our ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or other purposes may be
impaired;
o our leverage may increase our vulnerability to economic downturns and
limit our ability to withstand competitive pressures;
o our ability to capitalize on significant business opportunities may be
limited; and
o our leverage may place us at a competitive disadvantage in relation to less
leveraged competitors.
Our ability to meet our debt service obligations will depend on our
future operating performance and financial results, which will be subject in
part to factors beyond our control. Although we believe that our cash flow will
be adequate to meet our interest and principal payments, there can be no
assurance that we will generate earnings in the future sufficient to cover our
fixed charges. If we are unable to generate earnings in the future sufficient to
cover our fixed charges and are unable to borrow funds from existing credit
facilities or from other sources, we may be required to refinance all or a
portion of our existing debt or to sell all or a portion of our assets. There
can be no assurance that a refinancing would be possible, nor can there be any
assurance as to the timing of any asset sales or the proceeds that we could
realize therefrom. In addition, the terms of the debt restrict our ability to
sell assets and the use of the proceeds therefrom.
If for any reason, including a shortfall in anticipated operating
results or proceeds from asset sales, we were unable to meet our debt service
obligations, we would be in default under the terms of our existing debt. In the
event of such a default, some of our lenders could elect to declare certain debt
to be immediately due and payable, including accrued and unpaid interest. In
addition, such lenders could proceed against the collateral securing the debt,
which consists of substantially all of our current and future personal property.
Default on our senior debt obligation could result in a default under our other
debt or result in bankruptcy.
The terms of our existing debt place significant restrictions on our ability to
pursue financial and strategic opportunities.
The terms of our existing debt contain a number of significant
covenants that, among other things, restrict our ability to dispose of assets,
incur additional debt, repay other debt, pay dividends, make certain investments
or acquisitions, repurchase or redeem capital stock, engage in mergers or
consolidations, or engage in certain transactions with subsidiaries and
affiliates, and engage in certain corporate activities.
There can be no assurance that these restrictions will not adversely
affect our ability to finance future operations or capital needs or engage in
other business activities that may be in our best interest. In addition, the
terms of our existing debt require us to maintain compliance with certain
financial ratios. Our ability to comply with such ratios may be affected by
events beyond our control. A breach of any of these terms or our inability to
comply with the required financial ratios could result in our default under the
terms of other debt or result in bankruptcy.
We may not be able to successfully identify, acquire and profitably operate
companies and businesses that are compatible with our operations.
We continually evaluate the potential acquisition of other companies,
brands and producers of complementary product lines. Our search may not yield
any complementary companies or brands, and even if we do find a suitable
acquisition we may not be able to obtain sufficient financing to fund the
purchase. We may not be able to successfully integrate the operations of any
company that we acquire into our own operations and we cannot assure you that
the acquired operation will achieve the results we expected. For example, the
acquired business may not achieve revenues, profits or productiveness at the
same levels as our existing operations. The success of any acquisition will also
depend upon our ability to retain or hire, and then train key personnel.
Acquiring another company or business may also have negative effects on our
business, results of operations and financial condition because our officers and
directors may focus their attention on completing the acquisition, or because
other resources may be diverted to fulfilling the needs of the acquisition.
We compete with other companies who have greater resources than we do
for the opportunities to buy other companies and businesses and to expand our
operations. As a result, even if we do identify a suitable acquisition, we may
lose the acquisition to a competitor who offers a more attractive purchase
price. At this time, we do not have any agreement or arrangement to buy any
other company or business, or to expand our operations.
Our financial success is linked to that of our customers, and to our customers'
commitment to our products.
Our financial success is directly related to the success of our
customers and the willingness of our customers, in particular our major
customers, to continue buying our products. Sales to the Company's five largest
customers represented approximately 51.1% and 50.9% of net sales during Fiscal
1999 and Fiscal 1998, respectively. Sales to Wal-Mart (including Sam's Club),
accounted for approximately 24.2% and 23.8% of net sales during Fiscal 1999 and
Fiscal 1998, respectively.
We do not have long-term contracts with any of our customers. Sales
to our customers are generally on an order-by-order basis and are subject to
rights of cancellation and rescheduling by the customer or by us. Accordingly,
the number of unfilled orders at any given time is not indicative of the number
that will eventually be shipped. If we cannot timely fill our customers' orders,
our relationships with our customers may suffer, and this could have a material
adverse effect on us, especially if the relationship is with a major customer.
Furthermore, if any of our major customers experiences a significant downturn in
its business, or fails to remain committed to our programs or brands, then these
customers may reduce or discontinue purchases from us, which would have a
material adverse effect on our business, results of operations and financial
condition. See "Business-Customers and Customer Service."
We are subject to changes in the apparel industry, including changing fashion
trends and consumer preferences.
The apparel industry has historically been subject to cyclical
variations. A recession in the general economy, or any other events or
uncertainties that discourage consumers from spending, could have a significant
effect on our sales and profitability. We believe that our success is largely
dependent on our ability to anticipate and respond promptly to changing consumer
demands and fashion trends in the design, styling and production of our
products. If we cannot gauge consumer needs and fashion trends and respond
appropriately, then consumers may not purchase our products and this would have
a material adverse effect on our business, results of operations, and financial
condition.
Various apparel retailers, some our customers, have in recent years
experienced financial problems. Many have been subject to bankruptcy,
restructuring, or liquidation, while others have consolidated ownership and
centralized buying decisions. This increases our risk of extending credit to
these retailers, and may lead us to reduce or discontinue business with such
customers, or to assume more credit risk relating to their receivables. Either
one of these actions could have a material adverse effect on our business,
results of operations and financial condition.
We compete with manufacturers and retailers in the highly competitive apparel
industry.
We compete with many apparel manufacturers, including brand name and
private label producers and retailers who have, or may have, the capability to
develop their product and source their products internally. Our products are
also in competition with many designer and non-designer product lines. Our
products compete primarily on the basis of price, quality, and our ability to
satisfy customer orders in a timely manner. Our failure to satisfy any one of
these factors could cause our customers to purchase products from our
competitors. Many of our competitors and potential competitors have greater
financial, manufacturing and distribution resources than we do. If manufacturers
or retailers increase their competition with us, or if our current competitors
become more successful in competing with us, we could experience material
adverse effects on our business, results of operations and financial condition.
See "Business - Competition."
Our use of our trademarks and trade dress may subject us to claims of
infringement by other parties.
We use many trademarks in our business, some of which have been
registered with the United States Patent and Trademark Office. We believe these
registered and common law trademarks and other proprietary rights are important
to our competitive position and to our success. The use and registration of our
trademarks and the use of our trade dress are challenged periodically.
Despite our efforts to the contrary, our trademarks and proprietary
rights may violate the proprietary rights of others. If any of our trademarks or
other proprietary rights were found to violate the proprietary rights of others,
or were subjected to some other challenge, we cannot assure you that we would be
permitted to continue using these trademarks or other proprietary rights.
Furthermore, if we were sued for alleged infringement of another's proprietary
rights, the party claiming infringement might have greater resources than we do
to pursue its claims, and we could be forced to incur substantial costs to
defend the litigation. Moreover, if the party claiming infringement prevails, we
could be forced to pay significant damages, or to enter into expensive royalty
or licensing arrangements with the prevailing party.
Pursuant to licensing agreements, we also have exclusive rights to
use trademarks owned by other companies in promoting, distributing and selling
their products. We have periodically been involved in litigation regarding these
licensing agreements. We cannot assure you that these licensing agreements will
remain in effect, or that they will be renewed. In addition, any future disputes
concerning these licenses may cause us to incur significant litigation costs or
force us to suspend use of the trademarks.
See "Business - Trademarks and Licenses."
Our success depends upon our ability to recruit qualified personnel and to
retain senior management.
Our continued success is dependent on retaining our senior management
as well as attracting and retaining qualified management, administrative and
operating personnel. If we lose any members of our senior management, or if we
do not recruit and retain other qualified personnel, then our business, results
of operations and financial condition could be materially adversely affected.
See "Business - Executive officers of the Registrant."
Additionally, some of our employees are members of unions with which the Company
has entered into collective bargaining agreements. If upon the expiration of
these agreements, the Company is unable to renew or enter into new agreements
that are satisfactory to the Company, the employees covered by these agreements
may strike or otherwise be unwilling to work for the Company. The Company may
not be able to replace these employees in a timely manner. The loss of these
employees may impact the Company's ability to manufacture and deliver its
products to customers on a timely basis.
Fluctuations in the price, availability and quality of the fabrics or other raw
materials we use could increase our cost of sales and reduce our ability to meet
our customers' demands.
The principal fabrics used in our apparel consist of cotton, wool,
synthetic and blended fabrics. The price we pay for these fabrics is mostly
dependent on the market prices for the raw materials used to produce them,
namely cotton, wool, rayon and polyester. Depending on a number of factors,
including crop yields and weather patterns, the market price of these raw
materials may fluctuate significantly. Moreover, only a limited number of
suppliers are available to supply the fabrics at the level of quality we
require. If we have to procure fabrics from sources other than our current
suppliers, the quality of the fabric may be significantly different from that
obtained from our current suppliers. Fluctuations in the price, availability and
quality of the fabrics or raw materials could increase our cost of sales and
reduce our ability to meet our customers' demands. We cannot assure you that we
will be able to pass along to our customers all, or any portion of, any
increases in the prices paid for the fabrics used in the manufacture of our
products. See "Business - Operations."
We depend upon independent manufacturers in the production of our apparel.
We use independent manufacturers to assemble or produce a substantial
portion of our products. We depend on these manufacturers' ability to finance
the assembly or production of goods ordered and to maintain manufacturing
capacity. We do not exert direct control over these independent manufacturers,
however, and so we may be unable to obtain timely delivery of acceptable
products. We generally do not have long-term contracts with any of these
independent manufacturers. As a result, we cannot be assured of an uninterrupted
supply of our product from our independent manufacturers. If there is an
interruption, we may not be able to substitute suitable alternative
manufacturers because such substitutes may not be available, or they may not be
able to provide us with products or services of a comparable quality, at an
acceptable price or on a timely basis. See "Business Operations."
Our ability to successfully conduct assembly and production operations in
facilities in foreign countries depends on many factors beyond our control.
During Fiscal 1999, a significant portion of our products were
assembled or produced by independent manufacturers in the Dominican Republic and
Mexico. It is possible that we will experience difficulties with these
independent manufacturers, including reduced production capacity, failure to
meet production deadlines or increases in manufacturing costs as more fully
discussed above. Also, using foreign manufacturers requires us to order products
further in advance to account for transportation time. If we overestimate
customer demand, we may have to hold goods in inventory, and we may be unable to
sell these goods at the same margins as we have in the past. On the other hand,
if we underestimate customer demand, we may not be able to fill orders in time.
Other problems we may encounter by using foreign manufacturers
include, but are not limited to work stoppages; transportation delays and
interruptions; delays and interruptions from natural disasters; political
instability; economic disruptions; expropriation; nationalization; imposition of
tariffs; imposition of import and export controls; changes in government
policies.
We also own one manufacturing facility which operates outside the
United States, and this subjects us to additional risks associated with owning
and operating manufacturing facilities abroad. For example, a facility operated
in a foreign country may become subject to that country's labor laws and
government regulations. If the laws are unfavorable to our operations in any
foreign country, we could experience a loss in revenues, customer orders and
customer goodwill.
We are also exposed to foreign currency risk. In the past, most of
our contracts to have goods assembled or produced in foreign countries were
negotiated in United States dollars. If the value of the United States dollar
decreases, then the price that we pay for our products could increase, and it is
possible that we would not be able to pass this increase on to our customers.
See "Business--Operations."
Our products that are imported into the United States are subject to certain
restrictions and tariffs.
Most of our import operations are subject to bilateral textile
agreements between the United States and a number of other countries. These
agreements establish quotas for the amount and type of goods that can be
imported into the United States from these countries. These agreements allow the
United States, in certain circumstances, to impose restraints at any time on the
importation of additional or new categories of merchandise. Future bilateral
textile agreements may also contain similar restraints. Our imported products
are also subject to United States customs duties. The United States and the
countries in which we manufacture our products may adjust quotas, duties,
tariffs or other restrictions currently in effect. There are no assurances that
any adjustments would benefit us. These same countries may also impose new
quotas, duties, tariffs or other restrictions. Furthermore, the United States
may bar imports of products that are found to be made by convicts, or forced or
indentured labor. The United States may also withdraw the "most favored nation"
status of certain countries, which could result in the imposition of higher
tariffs on products imported from those countries. All of these changes could
have a material adverse effect on our business, results of operations and
financial condition. See "Business - Imports and Import Regulations."
Our management information system is an integral part of our operations and must
be updated regularly to respond to changing business needs.
We rely upon our management information system to provide
distribution services and to track operating results. Further modification and
refinement will be required as we grow and our business needs change. If we
experience a significant system failure or if we are unable to modify our
management information systems to respond to changes in our business needs, then
our ability to properly and timely produce and distribute our products could be
adversely affected. See "Business - Management Information Systems."
Principal shareholders of our company have a great deal of influence over the
constitution of our board of directors, and over matters submitted to a vote of
shareholders.
The following table sets forth our principal shareholders and the
percentage of our common stock that they each own or control:
Name of Shareholder and Title Percentage of Shares of
(if applicable) Common Stock Owned
- ----------------------------------------------------- ------------------------
William W. Compton 14.2%
Chairman of the Board and Chief Executive Officer
Michael Kagan 8.5%
Executive Vice President and Chief Financial Officer
Accel, S.A. de C.V. 21.1%
(a Mexican corporation) ("Accel")
Pursuant to our Amended and Restated Articles of Incorporation, Accel currently
has the right to nominate two persons to stand for election to our eight member
Board of Directors, and separate family limited partnerships controlled by Mr.
Compton and by Mr. Kagan, respectively, each have the right to nominate one
person to stand for election to our Board of Directors. Each of the following
has entered into a shareholders' agreement:
o Accel;
o Mr. Compton;
o Mr. Kagan;
o The Compton Family Limited Partnership;
o The Kagan Family Limited Partnership.
The shareholders' agreement provides that each of the parties will vote the
shares of common stock each owns or controls to elect the nominees of the other
parties to our Board of Directors. Given their collective ownership of 43.8% of
our common stock, and the terms of the shareholders' agreement, these parties
will have the ability to significantly influence the election of our directors
and the outcome of all other issues submitted to a vote of our shareholders.
Our sales and income levels are seasonal.
Our business has generally been seasonal, with higher sales and
income in the second and fourth fiscal quarters, just before and during the two
peak retail selling seasons for spring and fall merchandise. Also, some of our
products, such as shorts and corduroy pants, tend to be seasonal in nature. If
these types of seasonal products represent a greater percentage of our sales in
the future, the seasonality of our sales may be increased. This could alter the
differences in sales and income levels in the second and fourth fiscal quarters
from the first and third fiscal quarters.
If we, our customers and suppliers are not Year 2000 compliant, we may
experience significant problems in several areas of our business.
In Fiscal 1998, the Company completed the evaluation and modification
of all of its information technology systems with regard to the Year 2000 Issue,
and the Company believes that all of its information technology systems are now
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, distribution and sales. Information technology plays a vital role in
almost every aspect of the Company's operations. See "Business - Management
Information Systems" and "Managements Discussion and Analysis - Year 2000."
Any issues with the Company's information technology systems
resulting from a Year 2000 Issue would strike at a time of the calendar year
that is one of the Company's busiest in terms of production and distribution.
While the Company believes that it will be able to sustain normal operations
even without any of its information technology systems, this could only continue
for a short period of time. The resources necessary to address any Year 2000
Issue which may arise will not be available entirely from internal personnel,
and the Company will be forced to contract with third-party consultants. At this
time, the Company does not have any such third-party consultants under contract
and does not anticipate that it will enter into any such contracts prior to the
end of calendar 1999. Further, the Company does not anticipate that it will
stockpile raw materials or inventory in advance of the end of calendar 1999. As
a result, if the Company does experience Year 2000 Issue-related problems with
its information technology systems, it may not be able to do a number of things
including design new products; control, adjust or operate the computerized
cutting systems; receive customer ordering information; monitor customer
inventory and POS information; efficiently execute distribution functions;
and monitor and evaluate overall management information such as inventory,
order flow and distribution.
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 significant suppliers and
customers have informed the Company that their systems are Year 2000 compliant.
If certain suppliers are in fact not Year 2000 compliant, 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 are in fact not Year 2000 compliant, 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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company's market risk is limited to fluctuations in interest
rates as it pertains to the Company's borrowings under the Facility and the
Construction Loan. As of October 2, 1999, the Company's interest rates on
borrowings under the Facility and Construction Loan were 8.6% and 7.8%,
respectively. If the interest rates on the Company's borrowings average 100
basis points more in Fiscal 2000 than they did in Fiscal 1999, the Company's
interest expense would increase and income before income taxes would decrease by
$582,000. This amount is determined solely by considering the impact of the
hypothetical change in the interest rate on the Company's borrowing cost without
consideration for other factors such as actions management might take to
mitigate its exposure to interest rate changes.
The Company has entered into an interest rate swap agreement that is
intended to maintain the fixed/variable mix of the interest rate on the
Construction Loan within defined parameters. Variable rates are predominantly
linked to the LIBOR. Any differences paid or received on an interest rate swap
agreement are recognized as adjustments to interest expense over the life of
each swap, thereby adjusting the effective interest rate on the underlying
obligation.
Item 8. Financial Statements and Supplementary Data
The information called for by this Item is contained in pages 32
through 52 of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information under the captions "Election of Directors - Nominees
for Director," "Election of Directors - Directors Continuing in Office," and
"Other Matters - Section 16(a) Beneficial Reporting Compliance" in the Company's
Proxy Statement for its Annual Meeting of Shareholders to be held on February 2,
2000 (the "1999 Proxy Statement") is incorporated herein by reference. The
information called for by this Item, with respect to Executive Officers, is set
forth in Item 1 of this report under the caption "Executive Officers of the
Registrant."
Item 11. Executive Compensation
The information under the captions "Election of Directors -
Compensation of Directors" and "Election of Directors Executive Compensation" in
the Company's 1999 Proxy Statement is incorporated by reference. In no event
shall the information contained in the 1999 Proxy Statement under the captions
"Election of Directors - Executive Compensation - Compensation Committee Report
on Executive Compensation" and "Shareholder Return Comparison" be incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information under the caption "Election of Directors - Stock
Ownership" in the Company's 1999 Proxy Statement is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
The information under the caption "Election of Directors - Executive
Compensation - Compensation Committee Interlocks and Insider Participation" and
"Certain Transactions" in the Company's 1999 Proxy Statement is incorporated
herein by reference.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Index to Financial Statements
Report of Independent Certified Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(a) 2. Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
(a) 3. Exhibits
The Index to Exhibits attached hereto lists the exhibits that are
filed as part of this report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of Fiscal
1999.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Tropical Sportswear Int'l Corporation
We have audited the accompanying consolidated balance sheets of
Tropical Sportswear Int'l Corporation as of October 2, 1999 and October 3, 1998,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the three years in the period ended October 2, 1999. Our
audits also included the financial statement schedule listed in the index at
Item 14 (a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Tropical Sportswear Int'l Corporation at October 2, 1999 and October 3, 1998,
and the consolidated results of its operations and its cash flows for each of
the three years in the period ended October 2, 1999, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
/s/ Ernst & Young LLP
Tampa, Florida
November 12, 1999
<PAGE>
<TABLE>
<CAPTION>
TROPICAL SPORTSWEAR INT'L CORPORATION
CONSOLIDATED BALANCE SHEETS
October 2, 1999 and October 3, 1998
(In thousands, except share data)
1999 1998
------------------- ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,607 $ 2,097
Accounts receivable 76,225 72,355
Inventories 72,181 84,099
Deferred income taxes 10,732 9,372
Prepaid expenses and other 14,328 5,674
------------------- ------------------
Total current assets 175,073 173,597
Property and equipment 57,495 60,920
Less accumulated depreciation and amortization 15,310 8,923
------------------- ------------------
42,185 51,997
Other assets 16,729 20,176
Trademarks 14,354 14,876
Excess of cost over fair value of net assets of acquired 40,981 36,830
subsidiary, net
------------------- ------------------
Total assets $289,322 $297,476
=================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $31,922 $37,451
Accrued expenses and other 20,919 25,657
Current installments of long-term debt 704 831
Current installments of obligations under capital leases 1,487 2,261
------------------- ------------------
Total current liabilities 55,032 66,200
Long-term debt 164,534 166,339
Obligations under capital leases 4,169 5,155
Deferred income taxes 2,860 5,117
Other 2,904 3,701
Commitments and contingencies
Shareholders' equity:
Preferred stock, $100 par value; 10,000,000 shares
authorized; no shares issued and outstanding -- --
Common stock, $.01 par value; 50,000,000 shares authorized;
7,618,835 and 7,600,000 shares issued and outstanding in
1999 and 1998, respectively 76 76
Additional paid in capital 17,535 17,270
Retained earnings 41,781 33,530
Accumulated other comprehensive income 431 88
------------------- ------------------
Total shareholders' equity 59,823 50,964
------------------- ------------------
Total liabilities and shareholders' equity $289,322 $297,476
=================== ==================
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TROPICAL SPORTSWEAR INT'L CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Fiscal Year Ended
------------------------------------------------------------
October 2, October 3, September 27,
1999 1998 1997
------------------- ----------------- -----------------
<S> <C> <C> <C>
Net sales $420,691 $263,976 $151,692
Cost of goods sold 302,769 195,087 115,637
------------------- ----------------- -----------------
Gross profit 117,922 68,889 36,055
Selling, general and administrative expenses 80,511 43,204 19,443
Termination of system implementation 3,999 -- --
------------------- ----------------- -----------------
Operating income 33,412 25,685 16,612
Other expenses:
Interest 18,586 6,866 2,899
Bridge loan funding fee - 500 -
Other, net 973 1,036 537
------------------- ----------------- -----------------
19,559 8,402 3,436
------------------- ----------------- -----------------
Income before income taxes 13,853 17,283 13,176
Provision for income taxes 5,602 6,481 4,907
------------------- ----------------- -----------------
Net income $ 8,251 $ 10,802 $ 8,269
=================== ================= =================
Net income per share
Basic $1.08 $1.45 $1.38
=================== ================= =================
Diluted $1.05 $1.43 $1.37
=================== ================= =================
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TROPICAL SPORTSWEAR INT'L CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
Accumulated
Other
Additional Compre-
Preferred Stock Common Stock Paid In Retained hensive
Shares Amount Shares Amount Capital Earnings Income Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 28, 39 $3,863 6,000 $60 $ -- $14,459 $ ---- $18,382
1996
Net income -- -- -- -- -- 8,269 -- 8,269
---------- ----------- ---------- ---------- ------------ ----------- ------------- -----------
Balance at September 27, 39 3,863 6,000 60 -- 22,728 -- 26,651
1997
Net income -- -- -- -- -- 10,802 -- 10,802
Foreign currency
translations adjustment -- -- -- -- -- -- 88 88
Total comprehensive income -- -- -- -- -- -- -- 10,890
Sale of common stock -- -- 1,600 16 17,270 -- -- 17,286
Redemption of
preferred stock (39) (3,863) -- - -- -- -- (3,863)
---------- ----------- ---------- ---------- ------------ ----------- ------------- -----------
Balance at October 3, 1998 -- -- 7,600 76 17,270 33,530 88 50,964
Net income -- -- -- -- -- 8,251 -- 8,251
Foreign currency
translation adjustment -- -- -- -- -- -- 343 343
Total comprehensive income -- -- -- -- -- -- -- 8,594
Stock Option Exercises -- -- 19 -- 265 -- -- 265
---------- ----------- ---------- ---------- ------------ ----------- ------------- -----------
Balance at October 2, 1999 -- -- 7,619 $76 $17,535 $41,781 $431 $59,823
========== =========== ========== ========== ============ =========== ============= ===========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TROPICAL SPORTSWEAR INT'L CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Fiscal Year Ended
----------------------------------------------------
October 2, October 3, September 27,
1999 1998 1997
-------------- -------------- ----------------
<S> <C> <C> <C>
Operating activities
Net income $ 8,251 $ 10,802 $ 8,269
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
(Gain) loss on disposal of property and 88 150 (6)
equipment
Termination of system implementation 3,999 -- --
Depreciation and amortization 9,500 4,758 2,121
Provision for doubtful accounts 1,286 (347) 331
Deferred income taxes 6,350 1,970 386
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (5,156) (13,490) (5,115)
Inventories 12,218 (327) 1,931
Prepaid expenses and other assets (1,103) (7,881) (257)
Increase (decrease) in liabilities:
Accounts payable (5,529) 2,556 (1,121)
Accrued expenses and other (11,744) 207 412
-------------- -------------- ----------------
Net cash provided (used) by operating activities 18,160 (1,602) 6,951
Investing activities
Capital expenditures (15,094) (6,881) (5,162)
Acquisition of subsidiary, net of cash acquired (477) (89,821) --
Other 323 -- --
Proceeds from sale of property and equipment 448 592 78
-------------- -------------- ----------------
Net cash used by investing activities (14,800) (96,110) (5,084)
Financing activities
Proceeds of long-term debt 10,854 200,000 4,676
Proceeds from sale of common stock 265 17,286 --
Redemption of preferred stock -- (3,863) --
Principal payments of long-term debt (10,295) (156,335) (3,253)
Principal payments of capital leases (2,527) (1,257) (424)
Change in currency translation 343 -- --
Net proceeds from (repayment of) long-term
revolving credit line borrowings (2,490) 43,862 (3,011)
-------------- -------------- ----------------
Net cash (used) provided by financing activities (3,850) 99,693 (2,012)
Net (decrease) increase in cash (490) 1,981 (145)
Cash at beginning of year 2,097 116 261
-------------- -------------- ----------------
Cash at end of year $ 1,607 $ 2,097 $ 116
============== ============== ================
See accompanying notes.
</TABLE>
<PAGE>
TROPICAL SPORTSWEAR INT'L CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended October 2, 1999, October 3, 1998,
and September 27, 1997 (Tables in
thousands, except share and per share
amounts)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Tropical
Sportswear Int'l Corporation (the Company) and its wholly-owned subsidiaries,
Savane International Corp. (Savane) and its subsidiaries, Tropical Sportswear
Company, Inc. and Apparel Network Corporation. All significant intercompany
balances and transactions have been eliminated in consolidation.
Nature of Operations
The Company's principal line of business is the marketing, design,
manufacture and distribution of sportswear, primarily men's and women's casual
pants and shorts. The principal markets for the Company include major retailers
within the United States, United Kingdom, Australia, and New Zealand. The
Company subcontracts a substantial portion of the assembly of its products with
independent manufacturers in the Dominican Republic and Mexico and, at any point
in time, a majority of the Company's work-in-process inventory is located in
those countries.
Accounting Period
The Company operates on a 52/53-week annual accounting period ending on
the Saturday nearest September 30th. The years ended October 2, 1999, October 3,
1998, and September 27, 1997 contain 52, 53, and 52 weeks, respectively.
Net Income Per Share
Net income per share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding. In accordance
with Securities and Exchange Commission Staff Accounting Bulletin No. 83, common
equivalent shares issued by the Company at prices below the public offering
price during the period beginning one year prior to the filing date of the
initial public offering have been included in the calculation as if they were
outstanding for all periods prior to the offering.
The following table sets forth the computation of basic and diluted net
income per share:
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------------
October 2, 1999 October 3, September 27,
1998 1997
---------------- --------------- -----------------
<S> <C> <C> <C>
Numerator for basic and diluted net income per share:
Net income $8,251 $ 10,802 $ 8,269
Denominator for basic net income per share:
Weighted average shares of common
stock outstanding 7,614,282 7,470,620 6,000,000
Effect of dilutive stock options using the
treasury stock method 223,535 79,593 15,000
---------------- --------------- -----------------
Denominator for diluted net income per 7,837,817 7,550,213 6,015,000
share
================ =============== =================
Net income per share:
Basic $1.08 $1.45 $1.38
================ =============== =================
Diluted $1.05 $1.43 $1.37
================ =============== =================
Accumulated Other Comprehensive Income
</TABLE>
Other comprehensive income is composed of foreign currency
translation adjustments of $343,000 (net of tax benefit $233,000) and $88,000
(net of tax benefit $55,000) in Fiscal 1999 and 1998, respectively. Total
comprehensive income amounted to $8.6 million and $10.9 million for Fiscal
1999 and 1998, respectively.
Revenue Recognition
Based on its terms of F.O.B. shipping point, the Company records sales
upon the shipment of finished products to the customer.
Foreign Currencies
Foreign entities whose functional currency is not the U.S. dollar translate
monetary assets and liabilities at year-end exchange rates and non-monetary
items at historical rates. Income and expense accounts are translated at the
average rates in effect during the year, except for depreciation, which is
translated at historical rates. Gains and losses from changes in exchange rates
are recognized in consolidated income in the year of occurrence.
Foreign activities whose functional currency is the local currency translate net
assets at year-end rates and income and expense accounts at average exchange
rates. Adjustments resulting from these translations are reflected in the
Shareholders' equity section as a component of other comprehensive income.
Advertising and Promotion Costs
Advertising and promotion costs are expensed in the year incurred.
Advertising expense was $12.3 million, $3.0 million, and none in 1999, 1998, and
1997, respectively.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method. The Company records provisions
for markdowns and losses on excess and slow-moving inventory to the extent the
cost of inventory exceeds estimated net realizable value.
Property and Equipment
Property and equipment are stated at cost. The Company primarily uses
straight-line depreciation methods over periods that approximate the assets'
estimated useful lives.
Trademarks
Trademarks represent the fair value of the Savane(R) and Farah(R)
trademarks that were acquired with the acquisition of Savane (see Note 8). The
trademarks effectively have an indefinite legal life and their value is being
amortized on the straight-line basis over a period of 30 years. Accumulated
amortization totaled $646,000 at October 2, 1999 and $124,000 at October 3,
1998.
Excess of Cost Over Fair Value of Net Assets of Acquired Subsidiary
The excess of cost over fair value of net assets of acquired subsidiary
is primarily related to the acquisition of Savane (see Note 8) and is amortized
on the straight-line basis over a period of 30 years. Accumulated amortization
totaled $1,660,000 at October 2, 1999 and $303,000 at October 3, 1998.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period.
Actual results could differ from the estimates.
Impairment of Long-Lived Assets
Impairment losses are recorded on long-lived assets used in operations
when impairment indicators are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. When
impairment is indicated, a loss is recognized for the excess of the carrying
values over the fair values.
Derivative Accounting
The Company entered into a interest-rate swap agreement to modify the
interest characteristics of its outstanding debt. The agreement is designated
with all or a portion of the principal balance and term of a specific debt
obligation. The agreement involves the exchange of amounts based on a fixed
interest rate for amounts based on variable interest rates over the life of the
agreement without an exchange of the notional amount upon which the payments are
based. The differential to be paid or received as interest rates change is
accrued and recognized as an adjustment of interest expense related to the debt
(the accrual accounting method). The notional amount of the interest rate swap
is $7.0 million and the swap expires in May 2008. The fair value of the swap
agreements and changes in the fair value as a result of changes in market
interest rates are not recognized in the financial statements.
Financial Instruments
The Company's financial instruments include cash, accounts receivable,
accounts payable, long-term debt and obligations under capital leases. The
following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash, accounts receivable and accounts payable: The carrying amounts
reported in the balance sheets approximate fair value.
Long-term debt and obligations under capital leases: The carrying amount
of the Company borrowings under its variable rate long-term debt
agreements approximate their fair value. The fair value of the Company's
fixed rate long-term debt and obligations under capital leases is
estimated using discounted cash flow analyses, based on the estimated
current incremental borrowing rate for similar types of borrowing
agreements.
The carrying amounts and fair value of the Company's long-term
debt and obligations under capital leases are as follows:
<TABLE>
<CAPTION>
October 2, 1999 October 3, 1998
---------------------------- ----------------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Long-term debt and obligations
under capital leases $170,894 $163,027 $174,586 $174,586
Off balance sheet items:
Interest-rate swap agreement N/A $99 N/A $--
</TABLE>
Reclassifications
Certain amounts in the Fiscal 1998 and 1997 financial statements have
been reclassified to conform to the Fiscal 1999 presentation.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Statement 131 establishes
standards for segment reporting and disclosure of additional information on
products and services, geographic areas, and major customers. The Company
implemented the provisions of Statement 131 at the beginning of Fiscal 1999. The
adoption did not have a material affect on the Company's disclosures as it
operates one segment.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." Statement 132 requires the
Company to standardize certain disclosures and include additional information on
changes in benefit obligations and fair values of plan assets. The Company
adopted the provisions of Statement 132 in the first quarter of Fiscal 1999, the
effects of which are disclosed in Note 10.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Statement 133 requires an entity to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The Company
plans to adopt Statement 133 on October 1, 2000, as required. The Company limits
its use of derivative financial instruments to the management of interest rate
risk. The Company is currently evaluating the impact of Statement 133 on its
financial statements and has not yet determined the impact, if any, on the
consolidated financial statements of the Company.
<PAGE>
<TABLE>
<CAPTION>
Statement of Cash Flows
Supplemental cash flow information:
Year Ended
----------------- -- ----------------- -- ------------------
October 2, 1999 October 3, September 27,
1998 1997
----------------- ----------------- ------------------
<S> <C> <C> <C>
Cash paid for:
Interest $18,360 $3,262 $2,937
Income taxes 1,641 6,068 4,150
</TABLE>
Capital lease obligations of $767,000, none and $630,000 were incurred
when the Company entered into leases for new equipment in the years ended
October 2, 1999, October 3, 1998 and September 27, 1997, respectively. In Fiscal
1999, the Company sold $4.1 million of equipment in return for notes receivable
and the termination of system implementation write-off was net of a $5.3 million
settlement receivable.
2. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
Accounts receivable consist of the following:
October 2, October 3,
1999 1998
-------------- ---------------
<S> <C> <C>
Receivable from factor $73,074 $62,330
Receivable from trade accounts 5,723 11,311
Reserve for returns and allowances (2,572) (1,286)
--------------- ---------------
$76,225 $72,355
=============== ===============
</TABLE>
The Company has two separate factoring agreements. Under the
agreements, substantially all of the Company's trade receivables are assigned on
an ongoing basis, without recourse, except for credit losses on the first .10%
of amounts factored. The factoring agreements are with national companies,
which, in management's opinion, are highly creditworthy. The purchase price of
each receivable is the net face amount, less a factoring discount of .18% to
.25%.
3. INVENTORIES
<TABLE>
<CAPTION>
Inventories consist of the following:
October 2, October 3,
1999 1998
----------------- ----------------
<S> <C> <C>
Raw materials $ 7,425 $11,340
Work in process 15,445 21,886
Finished goods 49,311 50,873
----------------- ----------------
$72,181 $84,099
================= ================
</TABLE>
The Company has established valuation reserves of approximately $4.8
million, $8.1 million, and $2.2 million at October 2, 1999, October 3, 1998, and
September 27, 1997, respectively, to reflect a write down of excess and
slow-moving inventory to net realizable value.
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment consist of the following:
October 2, October 3, Life
1999 1998 (Years)
----------------- ---------------- -----------
<S> <C> <C> <C>
Land $4,106 $3,976 --
Land improvements 1,593 1,594 15
Building and improvements 9,825 10,723 3 - 50
Machinery and equipment 36,720 35,521 3 - 12
Leasehold improvement 1,081 5,146 5 - 25
Construction in progress 4,170 3,960 --
----------------- ----------------
$57,495 $60,920
================= ================
</TABLE>
During 1999, 1998, and 1997 the Company capitalized interest cost of
$329,000, $96,000 and none, respectively, for property and equipment in the
process of construction. Total depreciation expense was $7.6 million, $4.3
million, and $2.1 million for the years ended October 2, 1999, October 3, 1998
and September 27, 1997, respectively.
5. DEBT
Long-term debt consists of the following:
October 2, October 3,
1999 1998
------------------ --------------
Revolving credit line $53,506 $55,997
Real estate loan 10,691 9,520
Other notes payable 1,041 1,653
Senior subordinated notes 100,000 100,000
------------------ --------------
165,238 167,170
Less current maturities 704 831
------------------ --------------
$164,534 $166,339
================== ==============
On May 28, 1999, the Company entered into a construction loan
("Construction Loan") agreement secured by the Company's distribution center,
cutting facility, and administrative offices in Tampa, Florida. The Construction
Loan was utilized to refinance $9.5 million outstanding on the Company's real
estate loan and to finance up to $6.0 million of an expansion to the Company's
Tampa distribution facility. In March 2000, the Construction Loan will be
converted to a similarly secured term loan. Principal and interest are due
monthly on the refinanced amount and the loan bears interest at the 30-day
London Interbank Offered Rate (LIBOR) plus an applicable margin. The
Construction Loan requires monthly interest payments through February 2000 with
principal payments commencing in March 2000. The principal payments are based on
a 20-year amortization with all outstanding principal due on or before May 15,
2008.
Under the terms of an interest-rate swap agreement, on the first $7.0
million of borrowings under the Construction Loan, interest is payable at a
fixed base rate plus an applicable margin (8.6% at October 2, 1999). On the
remainder of the borrowings, interest is payable based on the 30-day LIBOR rate
plus an applicable margin. As of October 2, 1999, the effective interest rate on
the Construction Loan was approximately 7.8%.
On June 10, 1998, the Company closed on a senior credit facility (the
Facility) which provided 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 (See Note 8) and was used to refinance
indebtedness then outstanding under the Company's previous revolving credit line
and equipment loan 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 based on LIBOR plus an applicable margin (8.6% at October 2,
1999) and are secured by substantially all of the Company's domestic assets. The
Facility matures in June 2003. Debt issue costs of $1.4 million were incurred in
connection with the Facility and are included in other assets. These costs are
being amortized to interest expense over the life of the Facility using the
effective interest method. As of October 2, 1999, excluding the impact of
outstanding letters of credit of approximately $5.9 million, an additional $33.4
million was available for borrowings under the Facility.
On June 10, 1998, the Company closed on a $100 million interim
financing facility (the Bridge Facility). The net proceeds from the Bridge
Facility were used to acquire Savane and pay related fees and expenses. The
Bridge Facility was repaid on June 24, 1998 as described below. A funding fee of
$500,000 was incurred and amortized over the 14-day life of the loan.
On June 24, 1998, the Company closed on the sale of $100 million of
senior subordinated notes (the Notes) through a private placement. Under the
terms of the indenture agreement underlying the Notes, the Company will pay
semi-annual interest at the rate of 11% for ten years, at which time the entire
principal amount is due. The net proceeds from the Notes were used to repay a
portion of the borrowings outstanding under The Bridge Facility. Debt issue
costs of $4.1 million were incurred and are included in other assets. These
costs are being amortized to interest expense over the life of the Notes using
the effective interest method.
Other notes payable consists primarily of loans for equipment purchases
with maturities through 2007. Interest rates on the loans range from 8.9% to
10.9%.
The Company's debt agreements contain certain covenants, the most
restrictive of which are as follows: (i) maintenance of consolidated net worth
at specified levels, (ii) achievement of specified adjusted net earnings from
operations, (iii) maintenance of debt service coverage ratio at specified
levels, (iv) limitations on annual capital expenditures, (v) limitations on
liens, and (vi) prohibition of the payment of dividends. The Company is in
compliance with all such covenants.
The scheduled maturities of long-term debt are as follows:
Fiscal Year Amount
- ------------------- ----------------
2000 $ 704
2001 713
2002 713
2003 54,220
2004 713
Thereafter 108,175
6. LEASES
The Company leases administrative facilities, production facilities and
certain equipment under non-cancelable leases.
Future minimum lease payments under operating leases and the present
value of future minimum capital lease payments as of October 2, 1999 are as
follows:
<TABLE>
<CAPTION>
Operating Capital
Fiscal Year Leases Leases
- ------------------------------------------------------ ----------------- --------------
<S> <C> <C>
2000 $3,628 $ 1,980
2001 3,268 1,351
2002 2,601 1,222
2003 2,710 1,115
2004 2,574 964
Thereafter 8,628 141
----------------- ---------------
Total minimum lease payments $23,409 6,773
=================
Less amount representing interest 1,117
---------------
Present value of minimum capital lease payments 5,656
Less current installments 1,487
----------------
$4,169
================
</TABLE>
The following summarizes the Company's assets under capital leases:
October 2, October 3,
1999 1998
-------------------- ----------------
Machinery and equipment $9,639 $13,560
Accumulated amortization 3,472 5,356
Amortization of assets under capital leases has been included in
depreciation. Total rental expense for operating leases for 1999, 1998, and 1997
was $4.6 million, $2.4 million, and $465,000, respectively.
7. INCOME TAXES
Deferred income tax assets and liabilities are provided to reflect the
future tax consequences of differences between the tax bases of assets and
liabilities and their reported amounts in the financial statements.
For financial reporting purposes, income before income taxes includes
the following components:
<TABLE>
<CAPTION>
Year Ended
------------------------------------------------------------
October 2, October 3, September 27,
1999 1998 1997
------------------- ----------------- ----------------
<S> <C> <C> <C>
Domestic $11,196 $18,939 $13,176
Costa Rica 1,507 (1,791) --
Australia 910 83 --
Other foreign 240 52 --
------------------- ----------------- ----------------
$13,853 $17,283 $13,176
=================== ================= ================
</TABLE>
The components of the income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
Year Ended
----------------------------------------------------------
October 2, October 3, September 27,
1999 1998 1997
----------------- ---------------- -----------------
<S> <C> <C> <C>
Current:
Federal $ (1,169) $4,132 $4,143
Australia 328 41 --
Other foreign 50 (2) --
State 43 340 378
----------------- ---------------- -----------------
(748) 4,511 4,521
Deferred:
Federal 5,919 1,962 365
State 431 8 21
----------------- ---------------- -----------------
6,350 1,970 386
----------------- ---------------- -----------------
$5,602 $6,481 $4,907
================= ================ =================
</TABLE>
The reconciliation of income taxes computed at the U.S. Federal
statutory tax rate to the Company's income tax provision is as follows:
<TABLE>
<CAPTION>
Year Ended
----------------------------------------------------------
October 2, October 3, September 27,
1999 1998 1997
----------------- ---------------- -----------------
<S> <C> <C> <C>
Income tax expense at Federal
statutory rate (34% in 1999,
35% in 1998 and 34% in 1997) $4,710 $6,049 $4,480
State taxes, net of Federal tax benefit 474 221 348
Income (losses) of foreign subsidiaries (170) 628 --
Amortization of goodwill 420 154 4
Unrepatriated foreign earnings - (488) --
Other 168 (83) 75
----------------- ---------------- -----------------
$5,602 $6,481 $4,907
================= ================ =================
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income taxes. Certain of the
Company's foreign subsidiaries have undistributed accumulated earnings of
approximately $24.9 million, as adjusted for U.S. tax purposes at October 2,
1999. No U.S. tax has been provided on the undistributed earnings because the
Company intends to indefinitely reinvest such earnings in the foreign
operations. The amount of the unrecognized deferred tax liability associated
with the undistributed earnings that have not been previously taxed in the U.S.
was approximately $5.3 million at October 2, 1999. If earnings are repatriated,
foreign tax credits can offset a portion of the U.S. tax on such earnings.
The temporary differences that give rise to significant portions of the
deferred tax assets and liabilities as of October 2, 1999 and October 3, 1998
are presented below:
<TABLE>
<CAPTION>
Year Ended
---------------------------------------
October 2, October 3,
1999 1998
--------------- -----------------
<S> <C> <C>
Deferred tax assets:
Inventory $2,858 $2,801
Accounts receivable 825 257
U.S. Federal NOL carryforwards 5,739 6,924
U.S. State NOL carryforwards 111 -
Foreign NOL carryforwards 2,344 1,862
Tax credits 802 857
Accrued exit costs - U.S. 5,698 3,697
Accrued exit costs - foreign 1,959 2,174
Other accrued expenses and reserves 1,962 3,115
Deferred tax liabilities:
Depreciation (2,296) (2,177)
Unrepatriated foreign earnings - (4,291)
Trademarks (5,330) (5,514)
Other items (3,283) (2,859)
--------------- -----------------
Net deferred tax asset 11,389 6,846
Valuation allowance (2,591) (2,591)
--------------- -----------------
Deferred tax asset, net of valuation allowance $8,798 $4,255
=============== =================
Classified as follows:
Current asset $10,732 $9,372
Non-current asset 926 -
Non-current liability (2,860) (5,117)
--------------- -----------------
$8,798 $4,255
=============== =================
</TABLE>
A valuation allowance to reduce the deferred tax assets reported is
required if, based on the weight of the evidence, it is more likely than not
that some portion or all of the deferred tax assets will not be realized. For
the fiscal years ended October 2, 1999 and October 3, 1998, management
determined that respective valuation allowances of $2.6 million and $2.6
million, respectively, were necessary to reduce the deferred tax assets relating
to certain foreign net operating loss carryforwards, capital loss carryforwards,
foreign tax credit carryforwards and other accruals not expected to result in a
future realizable benefit.
At October 2, 1999, the Company's United Kingdom subsidiary had a
foreign operating loss of $3.8 million which carries forward indefinitely. For
domestic purposes, the Company has Federal net operating loss carryforwards for
tax purposes of approximately $16.2 million which will expire as follows: $4.6
million in 2009, $3.3 million in 2011, and $8.3 million in 2017. The net
operating loss carryforwards will be subject to certain tax law provisions that
limit the utilization of net operating losses that were generated in
pre-acquisition years and were acquired through changes in ownership. These
limitations were considered during management's evaluation of the need for a
valuation allowance. The Company has AMT credit carryforwards of $298,000 which
carry forward indefinitely. In addition, the Company has foreign tax credit
carryforwards of approximately $504,000 to offset future U.S. taxes on
repatriated foreign income. These foreign tax credit carryforwards expire in
2001.
8. ACQUISITION OF SAVANE INTERNATIONAL CORP.
The Company completed the acquisition of Savane on June 10, 1998. The
total purchase price, including cash paid for common stock acquired, cash paid
for the fair value of outstanding stock options, and fees and expenses less cash
acquired amounted to $90.8 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 fair value of
identifiable tangible and intangible net assets acquired, including cash
acquired of $9.3 million, was $57.6 million. The purchase price in excess of net
assets acquired of $42.5 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 October 2, 1999, the Company has accrued
approximately $6.0 million related to exit costs which primarily consist of
estimated lease termination costs and related expenses. The activity in the exit
accruals during the years were as follows:
<TABLE>
<CAPTION>
Year Ended
---------------------------------------
October 2, October 3,
1999 1998
---------------- -------------------
<S> <C> <C>
Beginning balance $7,267 $ --
Adjustments to cost of Savane 7,884 10,666
Reductions/payments (9,121) (3,399)
================ ===================
Ending balance $6,030 $ 7,267
================ ===================
</TABLE>
The two manufacturing facilities in Costa Rica, including other movable
assets, are included in other assets. The Company has valued these assets held
for sale at an estimated net realizable value of $2.0 million based on local
market conditions and expects to dispose of these assets by the end of Fiscal
2000.
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.
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------
October 3, September 27,
1998 1997
----------------- -------------------
<S> <C> <C>
Net sales $448,795 $425,411
Net income (loss) (3,184) (898)
Earnings (loss) per share-basic
and diluted share (0.43) (0.15)
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
As of October 2, 1999, the Company had approximately $14.7 million of
outstanding trade letters of credit with various expiration dates through April
2000.
The Company is not involved in any legal proceedings which the Company
believes could reasonably be expected to have a material adverse effect on the
Company's business, financial position or results of operations.
10. EMPLOYEE BENEFIT PLANS
Defined Contribution Plans
The Company has two separate 401(k) profit sharing plans under which
all domestic employees are eligible to participate. Employee contributions are
voluntary and subject to Internal Revenue Service limitations. The Company
matches, based on annually determined factors, employee contributions provided
the employee completes certain levels of service annually and is employed as of
December 31 of each plan year. For 1999, 1998, and 1997, the Company, recorded
expenses of $585,000, $264,000, and $114,000 respectively, related to these
plans.
Defined Benefit Plan
Under the defined benefit plan which covers certain Savane cutting
and distribution center associates, the basic monthly pension payable to a
participant upon normal retirement equals the product of the participant's
monthly benefit rate times the number of years of credited service. Assets of
the defined benefit plan are invested primarily in U.S. government obligations,
corporate bonds, and equity securities.
The Company's policy is to fund accrued pension cost when such costs
are deductible for tax purposes. Net periodic pension cost for the years ended
October 2, 1999 and October 3, 1998, included the following components:
<TABLE>
<CAPTION>
October 2, October 3,
1999 1998
----------------- -----------------
<S> <C> <C>
Service cost-benefits earned during the period $ 37 $ 36
Interest cost on projected benefit obligation 555 516
Estimated return on plan assets (786) (711)
Net amortization and deferral 124 61
----------------- -----------------
Net periodic pension cost $(70) $(98)
================= =================
</TABLE>
The following table sets forth the funded status of the defined
benefit plan:
<TABLE>
<CAPTION>
October 2, October 3,
1999 1998
----------------- ----------------
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATION:
<S> <C> <C>
Accumulated benefit obligation $7,938 $8,258
Projected benefit obligation 7,938 8,258
Plan assets at market value 8,362 8,335
----------------- ----------------
Funded status 424 77
Unrecognized transition liability being recognized over
average future service of plan participants 207 274
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions 1,375 1,517
----------------- ----------------
Prepaid expense $2,006 $1,868
================= ================
</TABLE>
The following table provides a reconciliation of beginning and ending
balances of the benefit obligation of the defined benefit plan:
<TABLE>
<CAPTION>
October 2, October 3,
1999 1998
----------------- ----------------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Projected benefit obligation, beginning of year $8,258 $7,824
Service cost 37 36
Interest cost 555 516
Benefits paid (707) (597)
Actuarial (gain) loss (205) 479
----------------- ----------------
Projected benefit obligation, end of year $7,938 $8,258
</TABLE>
The following table provides a reconciliation of the beginning and
ending balances of the fair value of plan assets of the defined benefit plan:
<TABLE>
<CAPTION>
October 2, October 3,
1999 1998
----------------- ----------------
<S> <C> <C>
CHANGE IN PLAN ASSETS:
Plan assets at fair value, beginning of year $8,335 $8,371
Actual return on plan assets 666 466
Company contribution 68 95
Benefits paid (707) (597)
----------------- ----------------
Plan assets at fair value, end of year $8,362 $8,335
</TABLE>
In determining the benefit obligations and service cost of the
Company's defined benefit plan, a weighted average discount rate and an expected
long-term rate of return on plan assets of 7.5% and 9.5%, respectively, were
used for 1999, and 7.0% and 9.5%, respectively, were used for 1998.
11. STOCK OPTION PLANS
In December 1996 and January 1997, the Board of Directors granted to
key members of management, non-qualified options to purchase 60,750 shares of
common stock of the Company at an exercise price of $10.50 per share, its
estimated fair value at the date of grant.
The Board of Directors has adopted two stock option plans, which
became effective on October 28, 1997. The Employee Stock Option Plan (the
Employee Plan) and the Non-Employee Director Stock Option Plan (the Director
Plan) reserve 1,200,000 shares of common stock for future issuance under the
plans. The per share exercise price of each stock option granted under the plans
will be equal to the quoted fair market value of the stock on the date of grant,
except in the case of a more than 10% shareholder which grants are priced at
110% of fair market value of the stock on the date of grant.
There are 691,015 options granted which have ten year terms and vest
at the rate of 33-1/3% per year on each anniversary of the date of grant, 97,100
shares that have ten year terms and vested 100% on the date of grant, and 20,518
options granted which have five year terms and vest at the rate of 33-1/3% per
year on each anniversary of the date of grant
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock Based Compensation," (Statement 123)
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1999 and 1998, respectively: risk-free interest rate of 6.1% and
4.0%; a dividend yield of 0% and 0%; volatility factor of the expected market
price of the Company's common stock of .87 and .92; and a weighted-average
expected life of the option of seven years and eight years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation model require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. The
Company's pro forma information for 1999 and 1998 is (in thousands except for
earnings per share information):
<TABLE>
<CAPTION>
Year Ended
---------------- -- ----------------- -- ----------------
October 2, 1999 October 3, September 27,
1998 1997
---------------- ----------------- ----------------
<S> <C> <C> <C>
Pro forma net income $6,352 $10,235 $8,230
Pro forma earnings per share - basic $0.83 $1.37 $1.37
Pro forma earnings per share - diluted $0.81 $1.36 $1.37
</TABLE>
A summary of the Company's stock option activity, and related
information follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------- ---------------------------------
Weighted Weighted Average
Average Exercise Price
Exercise Price Per Share
Options Per Share Options
-------------- ------------------ ---------- -------------------
<S> <C> <C> <C> <C>
Outstanding-beginning of year 485,700 $13.53 60,750 $10.50
Granted 382,600 19.55 451,900 13.84
Exercised (19,035) 11.78 -- --
Canceled/expired (40,632) 15.88 (26,950) 11.88
============== ================== ========== ===================
Outstanding-end of year 808,633 $16.24 485,700 $13.53
============== ================== ========== ===================
Weighted-average fair value of
options granted during the year $12.64 $5.17
</TABLE>
The exercise price range of outstanding and exercisable options
follows:
Outstanding Exercisable Exercise Price
Options Options Range Per Share
- ----------------- -------------- ------------------------
248,133 95,152 $10.25 - $12.00
260,400 67,802 $13.20 - $16.88
202,600 63,102 $16.94 - $20.88
97,500 20,834 $21.50 - $27.75
================= ==============
808,633 246,890
================= ==============
The weighted-average remaining contractual life of the outstanding
options is eight years.
<PAGE>
12. QUARTERLY RESULTS OF OPERATIONS
The following is a summary of the unaudited quarterly results of
operations:
<TABLE>
<CAPTION>
Net Net Income (Loss)
Net Gross Income Per
Sales Profit (Loss) Share - Diluted
------------ ------------ ------------- --------------------
<S> <C> <C> <C> <C>
Year Ended October 2, 1999
First Quarter $94,186 $27,296 $ 2,331 $0.30
Second Quarter 110,709 31,513 4,001 0.51
Third Quarter 110,544 29,623 3,275 0.42
Fourth Quarter 105,252 29,490 (1,356) (0.18)
Year Ended October 3, 1998
First Quarter $35,094 $8,070 $1,305 $0.18
Second Quarter 47,373 11,701 3,253 0.43
Third Quarter 69,823 17,949 3,090 0.40
Fourth Quarter 111,686 31,169 3,154 0.41
</TABLE>
During the fourth quarter of Fiscal 1999, the Company concluded that it
would not proceed with the implementation of the SAP enterprise wide software
package. The Company reached a mutually acceptable business resolution with SAP.
As a result of these circumstances, the Company recorded a pre-tax charge of
$4.0 million in September 1999 to write off the remaining costs associated with
the project.
13. SEGMENT AND GEOGRAPHIC INFORMATION
On October 4, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS 131 established
interim and annual reporting standards for an enterprise's operating segments
and related disclosures about its products, services, geographic areas, and
major customers. The Company has one reportable segment, the design, sourcing
and marketing of sportswear apparel. The information for this segment is the
information used by the Company's chief operating decision-maker to evaluate
operating performance. International sales represented approximately 8.3%, 4.8%,
and 0.0% of net sales for the years ended October 2, 1999, October 3, 1998, and
September 27, 1997, respectively. No foreign country or geographic area
accounted for more than 10% of net sales in any of the periods presented.
Long-term assets of international operations represent approximately 1.9% and
2.0% of the Company's long-term assets for Fiscal 1999 and 1998, respectively.
In Fiscal 1999, two customers accounted for approximately 14% and 12%
of sales in the United States. In Fiscal 1998, two customers accounted for
approximately 24% and 11% of sales in the United States. In Fiscal 1997, three
customers accounted for approximately 29%, 19%, and 11% of sales in the United
States.
14. SUPPLEMENTAL COMBINED CONDENSED FINANCIAL
The Notes (see Note 5) are jointly and severally guaranteed by the
Company'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 combined condensed balance sheets
as of October 2, 1999 and October 3, 1998 and the supplemental combined
condensed statement of operations and cash flows for the three years ended
October 2, 1999. The only intercompany eliminations are the normal intercompany
sales, borrowing 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.
<TABLE>
<CAPTION>
Year Ended October 2, 1999
-----------------------------------------------------------------------------
Non-
Statements of Operations Parent Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales $167,443 $218,532 $40,807 $(6,091) $420,691
Gross profit 40,491 65,126 12,305 -- 117,922
Operating income 10,081 22,333 998 -- 33,412
Interest, income taxes and other, net 6,464 19,483 (1,280) 494 25,161
Net income 3,617 2,850 2,278 (494) 8,251
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended October 3, 1998
-----------------------------------------------------------------------------
Non-
Parent Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales $174,839 $76,694 $15,690 ($3,247) $263,976
Gross profit 41,595 24,572 2,722 -- 68,889
Operating income (loss) 18,133 9,319 (1,767) -- 25,685
Interest, income taxes and other, net 9,070 6,686 (77) (796) 14,883
Net income (loss) 9,063 2,633 (1,690) 796 10,802
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 27, 1997
-----------------------------------------------------------------------------
Non-
Parent Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales $151,555 $324 $ -- $ (187) $151,692
Gross profit 36,124 118 -- (187) 36,055
Operating income 16,582 30 -- -- 16,612
Interest, income taxes and other, net 8,330 13 -- -- 8,343
Net income 8,252 17 -- -- 8,269
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
October 2, 1999
-------------------------------------------------------------------------------
Non-Guarantor
Balance Sheets Parent Guarantor Subsidiaries
Only Subsidiaries Eliminations Consolidated
---------- ------------ ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash $ 90 $ 28 $ 1,489 $ -- $ 1,607
Accounts receivable 28,502 42,736 6,295 (1,308) 76,225
Inventories 22,958 38,354 10,869 -- 72,181
Other current assets 12,800 11,817 443 -- 25,060
---------- ------------ ------------- ------------- ----------------
Total current assets 64,350 92,935 19,096 (1,308) 175,073
Property and equipment, net 22,762 12,782 6,641 -- 42,185
Other assets 152,391 57,062 5,520 (142,909) 72,064
---------- ------------ ------------ ------------- -----------------
Total asset $239,503 $162,779 $31,257 $(144,217) $289,322
========== ============ ============= ============= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $20,886 $26,843 $6,420 $ (1,308) $52,841
Current installments of long-term debt and
obligations under capital leases 619 1,565 7 -- 2,191
---------- ------------ ------------- ------------- ----------------
Total current liabilities 21,505 28,408 6,427 (1,308) 55,032
Long-term debt and noncurrent installments of
obligations under capital leases 163,876 4,827 -- -- 168,703
Other noncurrent liabilities 69 5,664 31 -- 5,764
Shareholders' equity 54,053 123,880 24,799 (142,909) 59,823
---------- ------------ ------------- -------------
Total liabilities and $239,503 $162,779 $31,257 $(144,217) $289,322
shareholders'equity
========== ============ ============= ============= ================
</TABLE>
<TABLE>
<CAPTION>
October 3, 1998
----------------------------------------------------------------------------
Non-Guarantor
Balance Sheets Parent Guarantor Subsidiaries
Only Subsidiaries Eliminations Consolidated
--------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash $ 120 $ 631 $ 1,346 $ -- $ 2,097
Accounts receivable, 31,655 35,120 6,362 (782) 72,355
Inventories 26,354 46,717 11,028 -- 84,099
Other current assets 3,205 11,534 777 (470) 15,046
--------- ------------- ------------ ------------- -------------
Total current assets 61,334 94,002 19,513 (1,252) 173,597
Property and equipment, net 22,584 22,288 7,125 -- 51,997
Other assets 175,100 109,078 (2,909) (209,387) 71,882
--------- ------------- ------------ ------------ -------------
Total assets $259,018 $225,368 $23,729 $(210,639) $297,476
========= ============= ============ ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current installments of long-term debt and
obligations under capital leases $ 587 $ 2,505 $ -- $ -- $ 3,092
Accounts payable and accrued liabilities 24,422 33,410 6,529 (1,253) 63,108
--------- ------------- ------------ ------------- -------------
Total current liabilities 25,009 35,915 6,529 (1,253) 66,200
Long-term debt and noncurrent installments
of obligations under capital leases 184,488 62,334 2,267 (77,595) 171,494
Other noncurrent liabilities 384 8,154 280 -- 8,818
Shareholders' equity 49,137 118,965 14,653 (131,791) 50,964
--------- ------------- ------------ ------------- -------------
Total liabilities and shareholders'
equity $259,018 $225,368 $23,729 $(210,639) $297,476
========= ============= ============ ============= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended October 2, 1999
------------------------------------------------------------------------------
Non-
Statements of Cash Flows Parent Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net cash provided (used) by operating
activities $13,114 $ 8,692 $ (39) $(3,607) $18,160
Net cash used by investing activities (12,108) (3,415) (554) 1,277 (14,800)
Net cash provided (used) by financing (1,037) (5,880) 737 2,330 (3,850)
activities
Net increase (decrease) in cash (31) (603) 144 -- (490)
Cash, beginning of year 120 630 1,347 -- 2,097
Cash, end of year 89 27 1,491 -- 1,607
</TABLE>
<TABLE>
<CAPTION>
Year Ended October 3, 1998
------------------------------------------------------------------------------
Non-
Parent Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Net cash provided (used) by operating
activities $ 2,117 $(1,396) $(3,119) $ 796 $ (1,602)
Net cash used by investing activities (104,120) (1,106) (211) 9,327 (96,110)
Net cash provided (used) by financing 101,999 (2,761) 1,251 (796) 99,693
activities
Net increase (decrease) in cash (4) (5,263) (2,079) 9,327 1,981
Cash, beginning of year 124 5,893 3,426 (9,327) 116
Cash, end of year 120 630 1,347 -- 2,097
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 27, 1997
------------------------------------------------------------------------------
Non-
Parent Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Net cash provided (used) by operating
activities $ 6,995 $ (44) $ -- $ -- $ 6,951
Net cash used by investing activities (5,082) (2) -- -- (5,084)
Net cash used by financing activities (2,012) -- -- -- (2,012)
Net decrease in cash (99) (46) -- -- (145)
Cash, beginning of year 209 52 -- -- 261
Cash, end of year 110 6 -- -- 116
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TROPICAL SPORTSWEAR INT'L CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
Reserve for returns and allowances:
Additions
------------------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
of Period Expenses Accounts(1) Deductions of Period
------------- ------------ -------------- ------------- ------------
Year Ended:
<S> <C> <C> <C> <C> <C>
September 27, 1997 $524 $2,457 $--- $2,334 $647
==== ====== ==== ====== ====
October 3, 1998 $647 $4,697 $985 $5,043 $1,286
==== ====== ==== ====== ======
October 2, 1999 $1,286 $1,286 $--- $--- $2,572
====== ====== ==== ==== ======
</TABLE>
<TABLE>
<CAPTION>
Reserve for excess and slow-moving inventory:
Additions
------------------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
of Period Expenses Accounts(1) Deductions of Period
------------- ------------ -------------- ------------- ------------
Year Ended:
<S> <C> <C> <C> <C> <C>
September 27, 1997 $2,200 $756 $--- $756 $2,200
====== ==== ==== ==== ======
October 3, 1998 $2,200 $800 $10,336 $5,192 $8,144
====== ==== ======= ====== ======
October 2, 1999 $8,144 $623 $--- $3,958 $4,809
====== ==== ==== ======= ======
</TABLE>
<TABLE>
<CAPTION>
Deferred tax asset valuation allowance:
Additions
------------------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
of Period Expenses Accounts(1) Deductions of Period
------------- ------------ -------------- ------------- ------------
Year Ended:
<S> <C> <C> <C> <C> <C>
September 27, 1997 $--- $--- $--- $--- $---
==== ==== ==== ==== ====
October 3, 1998 $--- $--- $2,591 $--- $2,591
==== ==== ====== ==== ======
October 2, 1999 $2,591 $--- $--- $--- $2,591
====== ==== ==== ==== ======
(1) Represents balance acquired as a result of the acquisition of Savane International Corp. on June 10, 1998.
</TABLE>
<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, in the City of Tampa,
and State of Florida, on this 29th day of December, 1999.
TROPICAL SPORTSWEAR INT'L CORPORATION
(Registrant)
By: /s/ William W. Compton
William W. Compton
Chairman of the Board
and Chief Executive Officer
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. Each person whose
signature appears below constitutes and appoints William W. Compton and Michael
Kagan and each of them individually, his true and lawful attorney-in-fact and
agent, with full power of substitution and revocation, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments to
this report and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them , full power and
authority to do and perform each and every act and this requisite and necessary
to be done in connection therewith, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, may lawfully do or cause to be
done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C> <C>
/s/ William W. Compton Chairman of the Board December 30, 1999
William W. Compton Chief Executive Officer
and Director (Principal Executive
Officer)
/s/ Michael Kagan Executive Vice President, December 30, 1999
Michael Kagan Chief Financial Officer,
Secretary and Director
(Principal Financial Officer)
/s/ N. Larry McPherson Executive Vice President December 30, 1999
N. Larry McPherson and Treasurer (Principal
Accounting Officer)
/s/ Jesus Alvarez-Morodo Director December 30, 1999
Jesus Alvarez-Morodo
/s/ Eloy S. Vallina-Laguera Director December 30, 1999
Eloy S. Vallina-Laguera
/s/ Leslie J. Gillock Director December 30, 1999
Leslie J. Gillock
/s/ Donald H. Livingstone Director December 30, 1999
Donald H. Livingstone
/s/ Leon H. Reinhart Director December 30, 1999
Leon H. Reinhart
/s/ Charles J. Smith Director December 30, 1999
Charles J. Smith
</TABLE>
<PAGE>
Index to Exhibits
Exhibit
Number Description
*2.1 Agreement and Plan of Merger dated May 1, 1998 among Tropical
Sportswear Int'l Corporation, Foxfire Acquisition Corp. and
Farah Incorporated (filed as Exhibit (c)(1) to Tropical
Sportswear Int'l Corporation's Schedule 14D-1 filed May
8, 1998).
*3.1 Amended and Restated Articles of Incorporation of Tropical
Sportswear Int'l Corporation (filed as Exhibit 3.1 to Tropical
Sportswear Int'l Corporation's Annual Report on Form 10-K
filed January 4, 1999).
*3.2 Amended and Restated By-Laws of Tropical Sportswear Int'l
Corporation (filed as Exhibit 3.2 to Tropical Sportswear
Int'l Corporation's Registration Statement on Form S-1 filed
August 15, 1997).
*4.1 Specimen Certificate for the Common Stock of Tropical
Sportswear Int'l Corporation (filed as Exhibit 4.1 to
Amendment No. 1 to Tropical Sportswear Int'l Corporation's
Registration Statement on Form S-1 filed October 2, 1997).
*4.2 Shareholders' Agreement dated as of September 29, 1997 among
Tropical Sportswear Int'l Corporation, William W. Compton,
the Compton Family Limited Partnership, Michael Kagan, the
Kagan Family Limited Partnership, Shakale Internacional, S.A.
and Accel, S.A. de C.V. (filed as Exhibit 4.2 to Amendment No.
1 to Tropical Sportswear Int'l Corporation's Registration
Statement on Form S-1 filed October 2, 1997).
*4.3 Indenture dated as of June 24, 1998 among Tropical Sportswear
Int'l Corporation, the Subsidiary Guarantors named therein,
and SunTrust Bank, Atlanta, as trustee (filed as Exhibit 4.4
to Tropical Sportswear Int'l Corporation's Form S-4 filed
August 20, 1998).
*4.4 Shareholder Protection Rights Agreement, dated as of November
13, 1998, between Tropical Sportswear Int'l Corporation and
Firstar Bank Milwaukee, N.A. (which includes as Exhibit B
thereto the Form of Right Certificate) (filed as Exhibit 99.1
of Tropical Sportswear Int'l Corporation's Form 8-K dated
November 13, 1998).
*10.1 Loan Agreement dated as of May 28, 1999 between Tropical
Sportswear Int'l Corporation and NationsBank N.A. (filed as
Exhibit 10.1 to Tropical Sportswear Int'l Corporation's
Quarterly Report on Form 10-Q filed August 12, 1999).
*10.2 Retail - Domestic Collection Factoring Agreement dated October
1, 1995, between Heller Financial Inc. and Tropical Sportswear
Int'l Corporation (filed as Exhibit 10.3 of Tropical
Sportswear Int'l Corporation's Registration Statement on Form
S-1 filed August 15, 1997).
<PAGE>
Index to Exhibits (continued)
Exhibit
Number Description
*10.3 Factoring Agreement dated as of June 9, 1998 between
NationsBanc Commercial Corporation and Farah Incorporated
(filed as Exhibit 10.3 to Tropical Sportswear Int'l
Corporation's Registration Statement on Form S-4 filed August
20, 1998).
*10.4 Loan and Security Agreement dated June 10, 1998 (the "Loan and
Security Agreement") among Tropical Sportswear Int'l
Corporation, Tropical Sportswear Company, Inc., Savane
International Corp. and Apparel Network Corporation, as
borrowers, the Lenders named therein and Fleet Capital
Corporation, as agent (filed as Exhibit 10.4 to Tropical
Sportswear Int'l Corporation's Registration Statement on Form
S-4 filed August 20, 1998).
*10.5 First Amendment to the Loan and Security Agreement dated July
9, 1998 (filed as Exhibit 10.5 to Tropical Sportswear Int'l
Corporation's Registration Statement on Form S-4 filed August
20, 1998).
*10.6 Employment Agreement effective November 3, 1997 between
William W. Compton and Tropical Sportswear Int'l Corporation
(filed as Exhibit 10.4 to Tropical Sportswear Int'l
Corporation's Annual Report on Form 10-K filed December 23,
1997).
*10.7 Employment Agreement effective November 3, 1997 between
Michael Kagan and Tropical Sportswear Int'l Corporation (filed
as Exhibit 10.5 to Tropical Sportswear Int'l Corporation's
Annual Report on Form 10-K filed December 27, 1997).
*10.8 Employment Agreement effective November 3, 1997 between
Richard J. Domino and Tropical Sportswear Int'l Corporation
(filed as Exhibit 10.6 to Tropical Sportswear Int'l
Corporation's Annual Report on Form 10-K filed December 27,
1997).
*10.13 Employment Agreement dated June 9, 1998 between Michael R.
Mitchell and Farah Incorporated (filed as Exhibit 10.14 to
Tropical Sportswear Int'l Corporation's Form S-4 filed August
20, 1998).
*10.16 Employee Stock Option Plan of Tropical Sportswear Int'l
Corporation as amended (filed as Exhibit 99.1 to Tropical
Sportswear Int'l Corporation's Registration Statement on Form
S-8 filed October 28, 1999).
*10.17 Non-Employee Director Stock Option Plan of Tropical Sportswear
Int'l Corporation (filed as Exhibit 10.8 to Tropical
Sportswear Int'l Corporation's Registration Statement on Form
S-1 filed August 15, 1997).
*10.18 Amended and Restated Farah Savings and Retirement Plan
as of January 1, 1991 (filed as Exhibit 10.125 to Farah
Incorporated's Annual Report on Form 10-K filed November 6,
1992).
<PAGE>
Index to Exhibits (continued)
Exhibit
Number Description
*10.19 Addendum to Amended and Restated Farah Savings and Retirement
Plan dated August 22, 1997 (filed as Exhibit 10.20 to Tropical
Sportswear Int'l Corporation's Form S-4 filed August 20,
1998).
*10.20 Amended and Restated Farah U.S.A. Bargaining Unit Pension Plan
dated December 31, 1994, effective as of January 1, 1990
(filed as Exhibit 10.21 to Tropical Sportswear Int'l
Corporation's Form S-4 filed August 20, 1998).
*10.21 Amendment to the Amended and Restated Farah U.S.A. Bargaining
Unit Pension Plan dated December 13, 1995 (filed as Exhibit
10.22 to Tropical Sportswear Int'l Corporation's Form S-4
filed August 20, 1998).
*10.22 Apparel International Group, Inc. 1996 Stock Option Plan
(filed as Exhibit 10.9 to Tropical Sportswear Int'l
Corporation's Registration Statement on Form S-1 filed August
15, 1997).
*10.23 Second Amendment dated August 27, 1998 to Loan and Security
Agreement (filed as Exhibit 10.23 to Tropical Sportswear Int'l
Corporation's Quarterly Report on Form 10-Q filed February 16,
1999).
*10.24 Third Amendment dated December 31, 1998 to Loan and Security
Agreement (filed as Exhibit 10.24 to Tropical Sportswear Int'l
Corporation's Quarterly Report on Form 10-Q filed February 16,
1999).
10.25 Fourth Amendment dated May 21, 1999 to Loan and Security
Agreement (filed herewith).
*10.26 Fifth Amendment dated July 16, 1999 to Loan and Security
Agreement (filed as Exhibit 10.2 to Tropical Sportswear Int'l
Corporation's Quarterly Report on Form 10-Q filed August 12,
1999).
*10.27 First Amendment dated July 19, 1999 to Loan Agreement with
NationsBank N.A. (filed as Exhibit 10.3 to Tropical Sportswear
Int'l Corporation's Quarterly Report on Form 10-Q filed August
12, 1999).
10.28 Sixth Amendment dated October 28, 1999 to Loan and Security
Agreement with Fleet Capital Corporation (filed herewith).
10.29 Seventh Amendment dated November 12, 1999 to Loan and
Security Agreement with Fleet Capital Corporation (filed
herewith).
10.30 Second Amendment dated November 12, 1999 to Loan Agreement
with NationsBank N.A. (filed herewith).
10.31 Third Amendment dated August 24, 1998 to Retail-Domestic
Collection Factoring Agreement between Heller Financial, Inc.
and Tropical Sportswear Int'l Corporation (filed herewith).
*21.1 Subsidiaries of the Registrant (filed as Exhibit 21.1 to
Tropical Sportswear Int'l Corporation's Form S-4 filed
August 20, 1998).
23.1 Consent of Ernst & Young LLP (filed herewith).
*24.1 Power of Attorney (included in Part IV of the Form 10-K).
27.1 Financial Data Schedule (filed herewith).
* Indicates document incorporated herein by reference.
EXHIBIT 10.25
FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this
"Amendment") is made and entered into this 21st day of May, 1999, by and between
TROPICAL SPORSTWEAR INT'L CORPORATION, a Florida corporation ("Tropical"),
TROPICAL SPORTSWEAR COMPANY, INC., a Delaware corporation ("TSCI"), SAVANE
INTERNATIONAL CORP., a Texas corporation (formerly known as Farah Incorporated)
("Savane"), and APPAREL NETWORK CORPORATION, a Florida corporation ("Apparel")
(Tropical, TSCI, Savane and Apparel collectively referred to hereinafter as
"Borrowers" and individually as a "Borrower") each with its chief executive
office and principal place of business at 4902 West Waters Avenue, Tampa,
Florida 33634-1302; the various financial institutions listed on the signature
pages hereof and their respective successors and permitted assigns which become
"Lenders" as provided in the Loan Agreement (as defined below); and FLEET
CAPITAL CORPORATION, a Rhode Island corporation, in its capacity as collateral
and administrative agent for the Lenders (together with its successors in such
capacity, "Agent") with an office at 300 Galleria Parkway, N.W., Suite 800,
Atlanta, Georgia 30339.
Recitals:
Borrowers, Agent and Lenders, are parties to a certain Loan and
Security Agreement dated June 10, 1998, as amended by that certain First
Amendment to Loan and Security Agreement dated July 9, 1998, that certain Second
Amendment to Loan and Security Agreement dated August 27, 1998, and that certain
Third Amendment to Loan and Security Agreement dated December 31, 1998 (as at
any time amended, the "Loan Agreement"), pursuant to which Lenders have made
certain revolving credit loans and letter of credit accommodations to Borrowers.
Tropical desires to refinance certain debt outstanding to SouthTrust
Bank, National Association with NationsBank, N.A. and to incur additional debt
in connection therewith. Each of TSCI, Savane and Apparel desire to guaranty
such debt to NationsBank, N.A.
Each of these transactions requires that certain amendments be made to the Loan
Agreement.
Agent and Lenders are willing to amend the Loan Agreement on the
terms and conditions as hereinafter set forth.
NOW, THEREFORE, for TEN DOLLARS ($10.00) in hand paid and other good
and valuable consideration, the receipt and sufficiency of which are hereby
severally acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Definitions. All capitalized terms used in this Amendment, unless
otherwise defined herein, shall have the meaning ascribed to such terms in the
Loan Agreement.
2. Amendment to Loan Agreement. The Loan Agreement is hereby
amended as follows:
(a) By adding the following new definitions in Section 1 of
the Loan Agreement in proper alphabetical sequence:
NationsBank - NationsBank, N. A., a national bank.
NationsBank Loan Agreement - the Loan Agreement dated May __,
1999, between Tropical and NationsBank, pursuant to which NationsBank
extended a term loan to Tropical in the original principal amount of
$15,000,000.
NationsBank Guaranties - the Guaranty Agreements dated May __,
1999, executed by each of TSCI, Savane and Apparel in favor of
NationsBank, pursuant to which each guarantees the obligations at any
time owing by Tropical to NationsBank under the NationsBank Loan
Documents.
NationsBank Loan Documents - collectively, the NationsBank
Loan Agreement, the NationsBank Mortgage, the NationsBank Guaranties
and any and all other documents, agreements or instruments executed in
connection with any of the foregoing, including any interest rate swap
agreement or other interest rate protection agreement between any
Borrower and NationsBank or any affiliate of NationsBank required under
the terms of the NationsBank Loan Documents.
NationsBank Mortgage - the Modification of Real Estate
Mortgage dated May ____, 1999, between Tropical and NationsBank,
pursuant to which Tropical has conveyed to NationsBank a Lien upon
certain real Property and the improvements thereon owned by Tropical
and located at 4924 West Waters Avenue and 4902 West Waters Avenue,
Tampa, Hillsborough County, Florida.
(b) By deleting the definition of "Obligations" in Section 1
of the Loan Agreement and by substituting the following
new definition in lieu thereof:
Obligations - all debts, liabilities, obligations, covenants
and duties now or at any time or times hereafter owing by any Borrower
to Agent or any Lender, whether arising pursuant to this Agreement or
any of the other Loan Documents and whether direct or indirect,
absolute or contingent, due or to become due, primary or secondary, or
joint or several, including all of the Loans and all interest payable
in connection therewith, all LC Outstandings and all other sums
chargeable to or payable by any Borrower under any of the Loan
Documents or Applicable Law but specifically excluding (i) any amounts
owing by any Borrower to NationsBanc under its Factoring Agreement and
(ii) any amounts owing by any Borrower under the NationsBank Loan
Documents.
(c) By adding the following new Section 10.2.3(xi) to the Loan
Agreement immediately following Section 10.2.3(x) thereof:
(xi) Debt outstanding to NationsBank under the
NationsBank Loan Documents (including contingent obligations
outstanding under the NationsBank Guaranties), together with any
extension, renewals or refinancings of such Debt provided that the
principal amount of such Debt is not increased.
(d) By adding the following new Section 10.2.5(xiv) to the Loan
Agreement immediately following Section 10.2.5(xiii) thereof:
(xiv) Lien in favor of NationsBank in certain real
Property and improvements thereon owned by Tropical and located at 4924
West Waters Avenue and 4902 West Waters Avenue, Tampa, Hillsborough
County, Florida.
(e) By deleting Section 12.1.18 of the Loan Agreement in its entirety
and by substituting the following Section 12.1.18 in lieu thereof:
12.1.18. NationsBank Loan Documents. A default or
event of default shall occur under, or any Borrower shall default in
the performance or observance of any term, covenant, condition or
agreement contained in any of the NationsBank Loan Documents and such
default shall continue beyond any applicable grace period.
3. Acknowledgments and Stipulations. Each Borrower acknowledges and
stipulates that the Loan Agreement and the other Loan Documents executed by such
Borrower are legal, valid and binding obligations of such Borrower that are
enforceable against such Borrower in accordance with the terms thereof; all of
the Obligations are owing and payable without defense, offset or counterclaim
(and to the extent there exists any such defense, offset or counterclaim on the
date hereof, the same is hereby waived by each Borrower); the security interests
and liens granted by each Borrower in favor of Agent are duly perfected, first
priority security interests and liens; and the unpaid principal amount of the
Revolver Loans on and as of the close of business on May 20, 1999, totaled
$73,158,320.30.
4. Representations and Warranties. Each Borrower represents and
warrants to Agent and Lenders, to induce Agent and Lenders to enter into this
Amendment, that no Default or Event of Default exists on the date hereof; the
execution, delivery and performance of this Amendment have been duly authorized
by all requisite corporate action on the part of such Borrower and this
Amendment has been duly executed and delivered by such Borrowers; and all of the
representations and warranties made by Borrowers in the Loan Agreement are true
and correct on and as of the date hereof, except to the extent any
representation or warranty specifically relates to an earlier date.
5. Conditions Precedent. The effectiveness of the amendment contained
in Section 2 hereof are subject to the satisfaction of each of the following
conditions precedent, in form and substance satisfactory to Agent and Lenders,
unless satisfaction thereof is specifically waived in writing by Agent and
Lenders:
(a) Agent and Lenders shall have received evidence
satisfactory to them that all Debt outstanding to SouthTrust under the
SouthTrust Loan Documents has been, or simultaneously with the
execution of this Amendment will be, paid in full in immediately
available funds and that the SouthTrust Loan Documents (including the
SouthTrust Mortgage) have been, or simultaneously with the execution of
this Amendment will be, terminated; and
(b) Agent and Lenders shall have received a Mortgagee Waiver
from NationsBank, in form and substance satisfactory to them with
respect to Tropical's real property located at 4924 West Waters Avenue
and 4902 West Waters Avenue, Tampa, Hillsborough County, Florida.
6. Expenses of Agent. Borrowers jointly and severally agree to pay,
on demand, all reasonable costs and expenses incurred by Agent in connection
with the preparation, negotiation and execution of this Amendment and any other
Loan Documents executed pursuant hereto and any and all amendments,
modifications, and supplements thereto, including, without limitation, the
reasonable costs and fees of Agent's legal counsel and any taxes or expenses
associated with or incurred in connection with any instrument or agreement
referred to herein or contemplated hereby.
7. Effectiveness; Governing Law. This Amendment shall be effective
upon acceptance by Agent and Lenders in Atlanta, Georgia (notice of which
acceptance is hereby waived), whereupon the same shall be governed by and
construed in accordance with the internal laws of the State of Georgia.
8. Successors and Assigns. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
9. No Novation, etc.. Except as otherwise expressly provided in this
Amendment, nothing herein shall be deemed to amend or modify any provision of
the Loan Agreement or any of the other Loan Documents, each of which shall
remain in full force and effect. This Amendment is not intended to be, nor shall
it be construed to create, a novation or accord and satisfaction, and the Loan
Agreement as herein modified shall continue in full force and effect.
10. Counterparts; Telecopied Signatures. This Amendment may be
executed in any number of counterparts and by different parties to this
Agreement on separate counterparts, each of which, when so executed, shall be
deemed an original, but all such counterparts shall constitute one and the same
agreement. Any signature delivered by a party by facsimile transmission shall be
deemed to be an original signature hereto.
11. Further Assurances. Each Borrower agrees to take such further
actions as Agent and Lenders shall reasonably request from time to time in
connection herewith to evidence or give effect to the amendments set forth
herein or any of the transactions contemplated hereby.
12. Section Titles. Section titles and references used in this
Amendment shall be without substantive meaning or content of any kind whatsoever
and are not a part of the agreements among the parties hereto.
13. Release of Claims. To induce Agent and Lenders to enter into this
Amendment, each Borrower hereby release, acquits and forever discharges Agent
and Lenders, and all officers, directors, agents, employees, successors and
assigns of Agent and Lenders, from any and all liabilities, claims, demands,
actions or causes or actions of any kind or nature (if there be any), whether
absolute or contingent, disputed or undisputed, at law or in equity, or known or
unknown, that such Borrower now has or ever had against Agent and Lenders
arising under or in connection with any of the Loan Documents or otherwise.
14. Waiver of Jury Trial. To the fullest extent permitted by
applicable law, the parties hereto each hereby waives the right to trial by jury
in any action, suit, counterclaim or proceeding arising out of or related to
this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed under seal and delivered by their respective duly authorized
officers on the date first written above.
BORROWERS:
ATTEST: TROPICAL SPORTSWEAR INT'L CORPORATION
/s/ Regina Ifland
Assistant Secretary By: /s/ N. Larry McPherson
[CORPORATE SEAL]
Title: Executive Vice President Finance
& Administration
ATTEST: TROPICAL SPORTSWEAR COMPANY, INC.
/s/ Regina Ifland By: /s/ N. Larry McPherson
Assistant Secretary
[CORPORATE SEAL] Title: Executive Vice President Finance
& Administration
ATTEST: SAVANE INTERNATIONAL CORP.
(f/k/a Farah Incorporated)
/s/ Regina Ifland By: /s/ N. Larry McPherson
Assistant Secretary
[CORPORATE SEAL] Title: Executive Vice President Finance
& Administration
ATTEST: APPAREL NETWORK CORPORATION
/s/ Regina Ifland
Assistant Secretary By: /s/ N. Larry McPherson
[CORPORATE SEAL] Title: Executive Vice President Finance
& Administration
LENDERS:
FLEET CAPITAL CORPORATION
By: /s/ Elizabeth L. Waller
Title: Senior Vice President
NATIONSBANC COMMERCIAL CORPORATION
By: /s/ Andrea Jackson
Title: Vice President
FIRST UNION NATIONAL BANK
By: /s/ John T. Trainor
Title: Vice President
DEUTSCHE FINANCIAL SERVICES CORPORATION
By: /s/ Pamela D. Patrick
Title: Vice President
AGENT:
FLEET CAPITAL CORPORATION,
as Agent
By: /s/ Elizabeth L. Waller
Title: Senior Vice President
EXHIBIT 10.28
SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this
"Amendment") is made and entered into this 28th day of October, 1999, by and
between TROPICAL SPORSTWEAR INT'L CORPORATION, a Florida corporation
("Tropical"), TROPICAL SPORTSWEAR COMPANY, INC., a Delaware corporation
("TSCI"), SAVANE INTERNATIONAL CORP., a Texas corporation (formerly known as
Farah Incorporated) ("Savane"), and APPAREL NETWORK CORPORATION, a Florida
corporation ("Apparel") (Tropical, TSCI, Savane and Apparel collectively
referred to hereinafter as "Borrowers" and individually as a "Borrower") each
with its chief executive office and principal place of business at 4902 West
Waters Avenue, Tampa, Florida 33634-1302; the various financial institutions
listed on the signature pages hereof and their respective successors and
permitted assigns which become "Lenders" as provided in the Loan Agreement (as
defined below); and FLEET CAPITAL CORPORATION, a Rhode Island corporation, in
its capacity as collateral and administrative agent for the Lenders (together
with its successors in such capacity, "Agent") with an office at 300 Galleria
Parkway, N.W., Suite 800, Atlanta, Georgia 30339.
Recitals:
Borrowers, Agent and Lenders, are parties to a certain Loan and
Security Agreement dated June 10, 1998, as amended by that certain First
Amendment to Loan and Security Agreement dated July 9, 1998, that certain Second
Amendment to Loan and Security Agreement dated August 27, 1998, that certain
Third Amendment to Loan and Security Agreement dated December 31, 1998, that
certain Fourth Amendment to Loan and Security Agreement dated May 21, 1999, and
that certain Fifth Amendment to Loan and Security Agreement dated July 16, 1999
(as at any time amended, the "Loan Agreement"), pursuant to which Lenders have
made certain revolving credit loans and letter of credit accommodations to
Borrowers.
Borrower's have requested that Agent and Lenders increase the amount
of documentary letters of credit available to Borrowers under the Loan
Agreement.
Agent and Lenders are willing to amend the Loan Agreement on the
terms and conditions as hereinafter set forth.
NOW, THEREFORE, for TEN DOLLARS ($10.00) in hand paid and other good
and valuable consideration, the receipt and sufficiency of which are hereby
severally acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Definitions. All capitalized terms used in this Amendment, unless
otherwise defined herein, shall have the meaning ascribed to such terms in the
Loan Agreement.
2. Amendment to Loan Agreement. The Loan Agreement is hereby
amended as follows:
(a) By deleting the definition of "LC Conditions" in Section 1
of the Loan Agreement and by substituting the following definition in lieu
thereof:
LC Conditions - the following conditions, the
satisfaction of each of which is required before Fleet shall
be obligated to join in the execution of an LC Application in
connection with a request to Bank for the issuance of a Letter
of Credit: (i) each of the conditions set forth in Section 11
of this Agreement has been and continues to be satisfied,
including the absence of any Default or Event of Default; (ii)
after giving effect to the issuance of the requested Letter of
Credit and all other unissued Letters of Credit for which an
LC Application has been signed by Fleet, the LC Outstandings
would not exceed in the aggregate $30,000,000 with respect to
documentary Letters of Credit or $5,000,000 with respect to
standby Letters of Credit and no Out-of-Formula Condition
would exist, and, if no Revolver Loans are outstanding, the LC
Outstandings do not exceed the Borrowing Base; (iii) the
expiry date of the Letter of Credit does not extend beyond the
earlier to occur of 365 days from the date of issuance or the
30th day prior to the last Business Day of the Committed Term;
and (iv) the currency in which payment is to be made under the
Letter of Credit is Dollars.
(b) By deleting the definition of "LC Facility" in Section 1
of the Loan Agreement and by substituting the following definition in lieu
thereof:
LC Facility - a subfacility of the Revolver Facility
consisting of LC Outstandings in an aggregate amount not to
exceed $35,000,000.
3. Acknowledgments and Stipulations. Each Borrower acknowledges and
stipulates that the Loan Agreement and the other Loan Documents executed by such
Borrower are legal, valid and binding obligations of such Borrower that are
enforceable against such Borrower in accordance with the terms thereof; all of
the Obligations are owing and payable without defense, offset or counterclaim
(and to the extent there exists any such defense, offset or counterclaim on the
date hereof, the same is hereby waived by each Borrower); the security interests
and liens granted by each Borrower in favor of Agent are duly perfected, first
priority security interests and liens.
4. Representations and Warranties. Each Borrower represents and
warrants to Agent and Lenders, to induce Agent and Lenders to enter into this
Amendment, that no Default or Event of Default exists on the date hereof; the
execution, delivery and performance of this Amendment have been duly authorized
by all requisite corporate action on the part of such Borrower and this
Amendment has been duly executed and delivered by such Borrowers; and all of the
representations and warranties made by Borrowers in the Loan Agreement are true
and correct on and as of the date hereof, except to the extent any
representation or warranty specifically relates to an earlier date.
5. Expenses of Agent. Borrowers jointly and severally agree to pay,
on demand, all costs and expenses incurred by Agent in connection with the
preparation, negotiation and execution of this Amendment and any other Loan
Documents executed pursuant hereto and any and all amendments, modifications,
and supplements thereto, including, without limitation, the reasonable costs and
fees of Agent's legal counsel and any taxes or expenses associated with or
incurred in connection with any instrument or agreement referred to herein or
contemplated hereby.
6. Effectiveness; Governing Law. This Amendment shall be effective
upon acceptance by Agent and Lenders in Atlanta, Georgia (notice of which
acceptance is hereby waived), whereupon the same shall be governed by and
construed in accordance with the internal laws of the State of Georgia.
7. Successors and Assigns. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
8. No Novation, etc.. Except as otherwise expressly provided in this
Amendment, nothing herein shall be deemed to amend or modify any provision of
the Loan Agreement or any of the other Loan Documents, each of which shall
remain in full force and effect. This Amendment is not intended to be, nor shall
it be construed to create, a novation or accord and satisfaction, and the Loan
Agreement as herein modified shall continue in full force and effect.
9. Counterparts; Telecopied Signatures. This Amendment may be
executed in any number of counterparts and by different parties to this
Agreement on separate counterparts, each of which, when so executed, shall be
deemed an original, but all such counterparts shall constitute one and the same
agreement. Any signature delivered by a party by facsimile transmission shall be
deemed to be an original signature hereto.
10. Further Assurances. Each Borrower agrees to take such further
actions as Agent and Lenders shall reasonably request from time to time in
connection herewith to evidence or give effect to the amendments set forth
herein or any of the transactions contemplated hereby.
11. Section Titles. Section titles and references used in this
Amendment shall be without substantive meaning or content of any kind whatsoever
and are not a part of the agreements among the parties hereto.
12. Release of Claims. To induce Agent and Lenders to enter into this
Amendment, each Borrower hereby release, acquits and forever discharges Agent
and Lenders, and all officers, directors, agents, employees, successors and
assigns of Agent and Lenders, from any and all liabilities, claims, demands,
actions or causes or actions of any kind or nature (if there be any), whether
absolute or contingent, disputed or undisputed, at law or in equity, or known or
unknown, that such Borrower now has or ever had against Agent and Lenders
arising under or in connection with any of the Loan Documents or otherwise.
13. Waiver of Jury Trial. To the fullest extent permitted by
applicable law, the parties hereto each hereby waives the right to trial by jury
in any action, suit, counterclaim or proceeding arising out of or related to
this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed under seal and delivered by their respective duly authorized
officers on the date first written above.
BORROWERS:
ATTEST: TROPICAL SPORTSWEAR INT'L CORPORATION
/s/ Regina Ifland
Assistant Secretary By: /s/ N. Larry McPherson
[CORPORATE SEAL] Title: Executive Vice President Finance
& Administration
ATTEST: TROPICAL SPORTSWEAR COMPANY, INC.
/s/ Regina Ifland By: /s/ N. Larry McPherson
Assistant Secretary
[CORPORATE SEAL] Title: Executive Vice President Finance
& Administration
ATTEST: SAVANE INTERNATIONAL CORP.
(f/k/a Farah Incorporated)
/s/ Regina Ifland By: /s/ N. Larry McPherson
Assistant Secretary
[CORPORATE SEAL] Title: Executive Vice President Finance
& Administration
ATTEST: APPAREL NETWORK CORPORATION
/s/ Regina Ifland
Assistant Secretary By: /s/ N. Larry McPherson
[CORPORATE SEAL] Title: Executive Vice President Finance
& Administration
LENDERS:
FLEET CAPITAL CORPORATION
By: /s/ Elizabeth L. Waller
Title: Senior Vice President
NATIONSBANC COMMERCIAL CORPORATION
By: /s/ Andrea Jackson
Title: Vice President
FIRST UNION NATIONAL BANK
By: /s/ John T. Trainor
Title: Vice President
DEUTSCHE FINANCIAL SERVICES CORPORATION
By: /s/ Pamela D. Patrick
Title: Vice President
AGENT:
FLEET CAPITAL CORPORATION,
as Agent
By: /s/ Elizabeth L. Waller
Title: Senior Vice President
EXHIBIT 10.29
SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this
"Amendment") is made and entered into this 12th day of November, 1999, by and
between TROPICAL SPORSTWEAR INT'L CORPORATION, a Florida corporation
("Tropical"), TROPICAL SPORTSWEAR COMPANY, INC., a Delaware corporation
("TSCI"), SAVANE INTERNATIONAL CORP., a Texas corporation (formerly known as
Farah Incorporated) ("Savane"), and APPAREL NETWORK CORPORATION, a Florida
corporation ("Apparel") (Tropical, TSCI, Savane and Apparel collectively
referred to hereinafter as "Borrowers" and individually as a "Borrower") each
with its chief executive office and principal place of business at 4902 West
Waters Avenue, Tampa, Florida 33634-1302; the various financial institutions
listed on the signature pages hereof and their respective successors and
permitted assigns which become "Lenders" as provided in the Loan Agreement (as
defined below); and FLEET CAPITAL CORPORATION, a Rhode Island corporation, in
its capacity as collateral and administrative agent for the Lenders (together
with its successors in such capacity, "Agent") with an office at 300 Galleria
Parkway, N.W., Suite 800, Atlanta, Georgia 30339.
Recitals:
Borrowers, Agent and Lenders, are parties to a certain Loan and
Security Agreement dated June 10, 1998, as amended by that certain First
Amendment to Loan and Security Agreement dated July 9, 1998, that certain Second
Amendment to Loan and Security Agreement dated August 27, 1998, that certain
Third Amendment to Loan and Security Agreement dated December 31, 1998, that
certain Fourth Amendment to Loan and Security Agreement dated May 21, 1999, that
certain Fifth Amendment to Loan and Security Agreement dated July 16, 1999, and
that certain Sixth Amendment to Loan and Security Agreement dated October 28,
1999 (as at any time amended, the "Loan Agreement"), pursuant to which Lenders
have made certain revolving credit loans and letter of credit accommodations to
Borrowers.
Borrower's have requested that Agent and Lenders amend the tangible
net worth financial covenant set forth in the Loan Agreement.
Agent and Lenders are willing to amend the Loan Agreement on the
terms and conditions as hereinafter set forth.
NOW, THEREFORE, for TEN DOLLARS ($10.00) in hand paid and other good
and valuable consideration, the receipt and sufficiency of which are hereby
severally acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Definitions. All capitalized terms used in this Amendment, unless
otherwise defined herein, shall have the meaning ascribed to such terms in the
Loan Agreement.
2. Amendment to Loan Agreement. The Loan Agreement is hereby amended
by deleting Section 10.3.1 of the Loan Agreement and by substituting the
following new Section 10.3.1 in lieu thereof:
10.3.1. Consolidated Tangible Net Worth.
Maintain, as of the end of each Fiscal Quarter, Consolidated
Tangible Net Worth of not less than the amount shown below for
the period corresponding thereto:
Period Amount
Fiscal Quarter ending July 3, 1999 $99,000,000
Fiscal Quarter ending October 2, 1999 $98,500,000
Each Fiscal Quarter thereafter $98,500,000 plus $4,000,000
for each additional Fiscal
Quarter after October 2, 1999
3. Additional Covenant. To induce Agent and Lenders to enter into
this Amendment, Borrowers covenants and agrees that during the period from the
date hereof through December 31, 1999, Borrowers shall maintain an Average
Availability as of the last day of each month of not less than $15,000,000. For
purposes hereof, the term "Average Availability" shall mean, an amount equal to
the sum of the actual amount of Availability on each day during such month, as
determined by Agent, divided by the number of days in such month.
4. Acknowledgments and Stipulations. Each Borrower acknowledges and
stipulates that the Loan Agreement and the other Loan Documents executed by such
Borrower are legal, valid and binding obligations of such Borrower that are
enforceable against such Borrower in accordance with the terms thereof; all of
the Obligations are owing and payable without defense, offset or counterclaim
(and to the extent there exists any such defense, offset or counterclaim on the
date hereof, the same is hereby waived by each Borrower); the security interests
and liens granted by each Borrower in favor of Agent are duly perfected, first
priority security interests and liens.
5. Representations and Warranties. Each Borrower represents and
warrants to Agent and Lenders, to induce Agent and Lenders to enter into this
Amendment, that no Default or Event of Default exists on the date hereof; the
execution, delivery and performance of this Amendment have been duly authorized
by all requisite corporate action on the part of such Borrower and this
Amendment has been duly executed and delivered by such Borrowers; and all of the
representations and warranties made by Borrowers in the Loan Agreement are true
and correct on and as of the date hereof, except to the extent any
representation or warranty specifically relates to an earlier date.
6. Waiver Fee; Expenses of Agent. In consideration of Agent's and
Lenders' willingness to enter into this agreement, Borrowers, jointly and
severally agree to pay Agent, for the pro-rata benefit of the Lenders, an
amendment fee in the amount of $35,000 on the date hereof. Borrowers jointly and
severally agree to pay, on demand, all costs and expenses incurred by Agent in
connection with the preparation, negotiation and execution of this Amendment and
any other Loan Documents executed pursuant hereto and any and all amendments,
modifications, and supplements thereto, including, without limitation, the
reasonable costs and fees of Agent's legal counsel and any taxes or expenses
associated with or incurred in connection with any instrument or agreement
referred to herein or contemplated hereby.
7. Effectiveness; Governing Law. This Amendment shall be effective
upon acceptance by Agent and Lenders in Atlanta, Georgia (notice of which
acceptance is hereby waived), whereupon the same shall be governed by and
construed in accordance with the internal laws of the State of Georgia.
8. Successors and Assigns. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
9. No Novation, etc.. Except as otherwise expressly provided in this
Amendment, nothing herein shall be deemed to amend or modify any provision of
the Loan Agreement or any of the other Loan Documents, each of which shall
remain in full force and effect. This Amendment is not intended to be, nor shall
it be construed to create, a novation or accord and satisfaction, and the Loan
Agreement as herein modified shall continue in full force and effect.
10. Counterparts; Telecopied Signatures. This Amendment may be
executed in any number of counterparts and by different parties to this
Agreement on separate counterparts, each of which, when so executed, shall be
deemed an original, but all such counterparts shall constitute one and the same
agreement. Any signature delivered by a party by facsimile transmission shall be
deemed to be an original signature hereto.
11. Further Assurances. Each Borrower agrees to take such further
actions as Agent and Lenders shall reasonably request from time to time in
connection herewith to evidence or give effect to the amendments set forth
herein or any of the transactions contemplated hereby.
12. Section Titles. Section titles and references used in this
Amendment shall be without substantive meaning or content of any kind whatsoever
and are not a part of the agreements among the parties hereto.
13. Release of Claims. To induce Agent and Lenders to enter into this
Amendment, each Borrower hereby release, acquits and forever discharges Agent
and Lenders, and all officers, directors, agents, employees, successors and
assigns of Agent and Lenders, from any and all liabilities, claims, demands,
actions or causes or actions of any kind or nature (if there be any), whether
absolute or contingent, disputed or undisputed, at law or in equity, or known or
unknown, that such Borrower now has or ever had against Agent and Lenders
arising under or in connection with any of the Loan Documents or otherwise.
[Remainder of page intentionally left blank]
<PAGE>
14. Waiver of Jury Trial. To the fullest extent permitted by
applicable law, the parties hereto each hereby waives the right to trial by jury
in any action, suit, counterclaim or proceeding arising out of or related to
this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed under seal and delivered by their respective duly authorized
officers on the date first written above.
BORROWERS:
ATTEST: TROPICAL SPORTSWEAR INT'L CORPORATION
/s/ Regina Ifland
Assistant Secretary By: /s/ N. Larry McPherson
[CORPORATE SEAL]
Title: Executive Vice President Finance
& Administration
ATTEST: TROPICAL SPORTSWEAR COMPANY, INC.
/s/ Regina Ifland By: /s/ N. Larry McPherson
Assistant Secretary
[CORPORATE SEAL] Title: Executive Vice President Finance
& Administration
ATTEST: SAVANE INTERNATIONAL CORP.
(f/k/a Farah Incorporated)
/s/ Regina Ifland By: /s/ N. Larry McPherson
Assistant Secretary
[CORPORATE SEAL] Title: Executive Vice President Finance
& Administration
ATTEST: APPAREL NETWORK CORPORATION
/s/ Regina Ifland
Assistant Secretary By: /s/ N. Larry McPherson
[CORPORATE SEAL] Title: Executive Vice President Finance
& Administration
<PAGE>
LENDERS:
FLEET CAPITAL CORPORATION
By: /s/ Elizabeth L. Waller
Title: Senior Vice President
NATIONSBANC COMMERCIAL CORPORATION
By: /s/ Andrea Jackson
Title: Vice President
FIRST UNION NATIONAL BANK
By: /s/ John T. Trainor
Title: Vice President
DEUTSCHE FINANCIAL SERVICES CORPORATION
By: /s/ Pamela D. Patrick
Title: Vice President
AGENT:
FLEET CAPITAL CORPORATION,
as Agent
By: /s/ Elizabeth L. Waller
Title: Senior Vice President
EXHIBIT 10.30
SECOND AMENDMENT TO LOAN AGREEMENT
THIS SECOND AMENDMENT TO LOAN AGREEMENT (this "Amendment") is made and entered
into this 12th day of November, 1999, by and between TROPICAL SPORTSWEAR INT'L
CORPORATION, a Florida corporation ("Borrower"), in favor of BANK OF AMERICA,
N.A. d/b/a NATIONSBANK, N.A., a national banking association and successor to
NationsBank, N.A. ("Lender")
Recitals:
Borrower and Lender, are parties to a certain Loan Agreement dated May 28, 1999,
as amended by that certain First Amendment to Loan Agreement dated July 19, 1999
(as at any time amended, the "Loan Agreement"), pursuant to which Lender has
made a certain Loan to Borrower.
Borrower has requested that Lender amend the Consolidated Tangible Net Worth
covenant in section 4.12.4 of the Loan Agreement.
Lender is willing to amend the Loan Agreement on the terms and conditions as
hereinafter set forth.
1. Definitions
All capitalized terms used in this Amendment, unless otherwise defined
herein, shall have the meaning ascribed to such terms in the Loan
Agreement.
2. Amendment to Loan Agreement The Loan Agreement is hereby amended as
follows:
By deleting Section 4.12.4 of the Loan Agreement in its entirety and by
substituting the following new Section 4.12.4 in lieu thereof:
4.12.4 Consolidated Tangible Net Worth. Until the Credit Facility
Commitment Termination Date, maintain, as of the end of each Fiscal
Quarter, Consolidated Tangible Net Worth of not less than the amount
shown below for the period corresponding thereto:
Period Amount
Fiscal Quarter ending July 3, 1999 $99,000,000
Fiscal Quarter ending October 2, 1999 $98,500,000
Each Fiscal Quarter thereafter $98,500,000 plus $4,000,000
for each additional Fiscal
Quarter after October 2, 1999.
3. Acknowledgements and Stipulations
Borrower acknowledges and stipulates that the Loan Agreement and the
other Loan Documents executed by such Borrower are legal, valid and
binding obligations of such Borrower that are enforceable against such
Borrower in accordance with the terms thereof; all of the obligations are
owing and payable without defense, offset or counterclaim (and to the
extent there exists any such defense, offset or counterclaim on the date
hereof, the same is hereby waived by the Borrower); the security
interests and liens granted by Borrower in favor of Lender are duly
perfected, first priority security interests and liens.
4. Representations and Warrants
Borrower represents and warrants to Lender, to induce Lender to enter
into this Amendment and that no Default or Event of Default exists on the
date hereof; the execution, delivery and performance of this Amendment
have been duly authorized by all requisite corporate action of the part
of such Borrower and this Amendment has been duly executed and delivered
by such Borrower; and all of the representations and warranties made by
Borrowers in the Loan Agreement are true and correct on and as of the
date hereof, except to the extent any representation or warranty
specifically relates to an earlier date.
5. Waiver Fee; Expenses of Lender
In consideration of Lender's willingness to enter into this agreement,
Borrower agrees to pay to Lender an amendment fee of $4,500 on the date
hereof. Borrower agrees to pay, on demand all costs and expenses incurred
by Lender in connection with the preparation, negotiation and execution
of this Amendment and any other Loan Documents executed pursuant hereto
and any and all amendments, modifications, and supplements thereto,
including, without limitation, the reasonable costs and fees of Lender's
legal counsel and any taxes or expenses associated with or incurred in
connection with any instrument or agreement referred to herein or
contemplated hereby.
6. Effectiveness Governing Law
This Amendment shall be effective upon acceptance by Lender in Tampa,
Florida (notice of which acceptance is hereby waived), whereupon the same
shall be governed by and construed in accordance with the internal laws
of the State of Florida.
7. Successors and Assigns
This Amendment shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
8. No Novation, etc.
Except as otherwise expressly provided in this Amendment, nothing herein
shall be deemed to amend or modify any provision of the Loan Agreement or
any of the Other Loan Documents, each of which shall remain in full force
and effect. This Amendment is not intended to be, nor shall it be
construed to create, a novation or accord and satisfaction, and the Loan
Agreement as herein modified shall continue in full force and effect.
9. Counterparts: Telecopied Signatures
This Amendment may be executed in any number of counterparts and by
different parties to this Agreement on separate counterparts, each of
which, when so executed, shall be deemed an original, but all such
counterparts shall constitute one and the same agreement. Any signature
delivered by a party by facsimile transmission shall be deemed to be an
original signature hereto.
10. Further Assurances
Borrower agrees to take such further actions as Lender shall reasonably
request from time to time in connection herewith to evidence or give
effect to the amendments set forth herein or any of the transactions
contemplated hereby.
11. Section Titles
Section titles and references used in this Amendment shall be without
substantive meaning or content of any kind whatsoever and are not a part
of the agreements among the parties hereto.
12. Release of Claims
To induce Lender to enter into this Amendment, Borrower hereby releases,
acquits and forever discharges Lender, and all officers, directors,
agents employees, successors and assigns of Lender, from any and all
liabilities, claims, demands, actions or causes or actions of any kind or
nature (if there by any), whether absolute or contingent, disputed or
undisputed, at law or in equity, or known or unknown, that such Borrower
now has or ever had against Lender arising under or in connection with
any of the Loan Documents or otherwise.
13. Waiver of Jury Trial
To the fullest extent permitted by applicable law, the parties hereto
each hereby waives the right to trial by jury in any action, suit,
counterclaim, or proceeding arising out of or related to this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed under seal and delivered by their respective duly authorized officers
on the date first written above.
BORROWER:
TROPICAL SPORTSWEAR INT'L CORPORATION
A Florida Corporation
By:____________________________________ Attest:____________________________
N. Larry McPherson Printed Name:______________________
Executive Vice President
CONSENT OF GUARANTORS: The undersigned Guarantors do hereby consent to this
Amendment:
APPAREL NETWORK CORPORATION, a Florida Corporation
By:____________________________________ Attest:____________________________
N. Larry McPherson Printed Name:______________________
Executive Vice President
TROPICAL SPORTSWEAR COMPANY, INC.,
a Delaware corporation
By:____________________________________ Attest:____________________________
N. Larry McPherson Printed Name:______________________
Executive Vice President
SAVANE INTERNATIONAL CORP., a Texas corporation
By:____________________________________ Attest:____________________________
N. Larry McPherson Printed Name:______________________
Executive Vice President
LENDER:
BANK OF AMERICA, N.A. d/b/a NATIONSBANK, N.A., a national banking
association
By:____________________________________ Attest:____________________________
Richard M. Bartholomae Printed Name:______________________
Vice President
EXHIBIT 10.31
THIRD AMENDMENT TO RETAIL-DOMESTIC
COLLECTION FACTORING AGREEMENT
This THIRD AMENDMENT to that certain Retail-Domestic Collection
Factoring Agreement ("Amendment") is made and entered into this 24th day of
August, 1998 by and between Tropical Sportswear International Corporation
("TSI") and Heller Financial, Inc.
("Heller").
WHEREAS, Heller and TSI are parties to a certain Retail-Domestic
Collection Factoring Agreement with an Effective Date of October 1, 1995, and
all amendments thereto (the "Agreement"), and WHEREAS, effective _____, 1997,
TSI changed its name to Tropical Sportswear Int'l Corporation ("Client"); and
WHEREAS, Heller and TSI have agreed to certain changes in the Agreement; and
WHEREAS, the parties desire to amend the Agreement as hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth in the Agreement and this Amendment, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. Definitions. Capitalized terms used in the Agreement, unless
otherwise defined herein, shall have the meaning ascribed to such terms in the
Agreement.
2. Amendments. Subject to the conditions set forth below, the Agreement
is amended as follows:
(a) The Agreement and all other documents are amended by deleting Tropical
Sportswear International Corporation and inserting the following in
lieu thereof:
Tropical Sportswear Int'l Corporation
All references in the Agreement and all other documents shall
mean and include Tropical Sportswear Int'l Corporation.
(b) Subsection 1.3 is amended as follows:
We will assume the Credit Risk on all Approved Accounts,
provided, however, that during each Contract Year, liability for the
Credit Loss will be shared by you and us as follows: (a) you shall be
liable and we shall have recourse against you for that portion of the
Credit Loss up to an amount equal to .10% of the Aggregate Net Amount
and (b) if the Credit Loss exceeds an amount equal to .10% of the
Aggregate Net Amount, we shall be liable for that portion of the Credit
Loss in excess of such amount.
(c) Subsection 2.2 is amended by deleting the 1st sentence and
inserting the following: (The last sentence remains unchanged.)
2.2 At the time we purchase an Account, we will charge your
account with a factoring commission of .25% of the Net Amount of the
Account. Notwithstanding the foregoing, you will pay us a factoring
commission of .18% of the Net Amount purchased by us on all sales to
WalMart and Sam's Club, provided, however, in the event that we
determine that the credit of WalMart or Sam's Club has fallen below 4A2
as published in Dun & Bradstreet then we in our reasonable discretion,
increase such commission to .25%.
(d) Section 9 is amended to reflect a new date:
This Agreement shall continue in full force and effect until
September 30, 2001 and shall continue thereafter until terminated by either
party giving the other party not less than 30 days prior written notice
thereof.
3. Effectiveness. This amendment will become effective as of September
30, 1998.
4. Corporate Action. The execution, delivery and performance of this
Amendment has been duly authorized by all requisite corporate action on the part
of Client and this Amendment has been duly executed and delivered by Client.
5. Severability. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
6. References. Any reference to the Agreement contained in any document,
instrument or agreement executed in connection with the Agreement, shall be
deemed to be a reference to the agreement as modified by this Amendment.
7. Ratification. The terms and provisions set forth in this Amendment
shall modify and supersede all inconsistent terms and provisions of the
Agreement, and shall not be deemed to be a consent to the modification or
waiver of any other term of condition of the Agreement. Except as
expressly modified and superseded by this Amendment, the terms and provisions
of the Agreement are ratified and confirmed and shall continue in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed under seal and delivered by their respective duly authorized
officers on the date first written above.
HELLER FINANCIAL, INC. TROPICAL SPORTSWEAR INT'L CORPORATION
By: /s/ Michael J. Roche By: /s/ Larry McPherson
Title: Group President Title: EVP Finance and Operations
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-8, No. 333-89913, No. 333-66767, and No. 333-66769) pertaining to the
Tropical Sportswear Int'l Corporation Employee Stock Option Plan as Amended and
Restated; pertaining to the Tropical Sportswear Int'l Corporation Non-Employee
Director Stock Option Plan; and pertaining to the Apparel International Group,
Inc. 1996 Stock Option Plan, of our report dated November 12, 1999, with respect
to the consolidated financial statements and schedule of Tropical Sportswear
Int'l Corporation included in the Annual Report (Form 10-K) for the year ended
October 2, 1999.
/s/ Ernst & Young LLP
Tampa, Florida
December 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27.1
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED OCTOBER 2, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-02-1999
<PERIOD-START> OCT-03-1998
<PERIOD-END> OCT-02-1999
<CASH> 1,607
<SECURITIES> 0
<RECEIVABLES> 76,225
<ALLOWANCES> 2,572
<INVENTORY> 72,181
<CURRENT-ASSETS> 175,073
<PP&E> 57,495
<DEPRECIATION> 15,310
<TOTAL-ASSETS> 289,322
<CURRENT-LIABILITIES> 55,032
<BONDS> 168,703
0
0
<COMMON> 76
<OTHER-SE> 59,747
<TOTAL-LIABILITY-AND-EQUITY> 289,322
<SALES> 420,691
<TOTAL-REVENUES> 420,691
<CGS> 302,769
<TOTAL-COSTS> 302,769
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,586
<INCOME-PRETAX> 13,853
<INCOME-TAX> 5,602
<INCOME-CONTINUING> 8,251
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,251
<EPS-BASIC> 1.08
<EPS-DILUTED> 1.05
</TABLE>
