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
For the fiscal year ended September 30, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _______________ to ______________
Commission File Number 0-23161
Tropical Sportswear Int'l Corporation
(Exact name of registrant as specified in its charter)
Florida 59-3424305
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.
4902 W. Waters Avenue Tampa, FL 33634-1302
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (813) 249-4900
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. [ ]
As of December 12, 2000 there were 7,637,727 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 12, 2000, was
approximately $61,037,312.
DOCUMENT INCORPORATED BY REFERENCE:
Certain portions for the Proxy Statement of the Annual Meeting of Shareholders
of Tropical Sportswear Int'l Corporation, to be held on January 23, 2001 are
incorporated by reference in Part III of this Annual Report on Form 10K.
TROPICAL SPORTSWEAR INT'L CORPORATION
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I Page No.
Item 1 Business 4
Item 2 Properties 14
Item 3 Legal Proceedings 14
Item 4 Submission of Matters to a Vote of Security Holders 14
PART II
Item 5 Market for Registrant's Common Equity and Related Shareholder Matters 15
Item 6 Selected Financial Data 16
Item 7 Management's Discussion and Analysis of Financial Condition and Results
of Operations 16
Item 7A Quantitative and Qualitative Disclosures About Market Risk 27
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 28
Item 11 Executive Compensation 28
Item 12 Security Ownership of Certain Beneficial Owners and Management 28
Item 13 Certain Relationships and Related Transactions 28
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 29
Forward Looking Statements
Certain statements contained in this report Annual Report on Form 10-K that are
not purely historical may be forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, including statements regarding the
Company's expectations, hopes, beliefs, intentions, or strategies regarding the
future. Forward looking statements are subject to the safe harbor created by the
Private Securities Litigation Reform Act of 1995. Forward looking statements
include statements regarding, among other things: (i) continued improvements in
operating efficiencies such that the Company's operating income margins continue
to improve; (ii) the continued acceptance of the Company's existing and new
products by its major customers; (iii) the financial strength of the Company's
major customers; (iv) the ability of the Company to continue to use certain
licensed trademarks and tradenames, including Bill Blass(R), John Henry(R), and
Van Heusen(R); (v) the timing of introduction, shipment and success of the
recently licensed Victorinox(R) trademark; (vi) general economic conditions,
including potential changes in demand in the retail market, price and
availability of raw materials and global manufacturing costs and restrictions;
(vii) increases in costs; (viii) the Company's anticipated backlog and sales and
their expected impact on the Company's operations; (ix) potential acquisitions
by the Company; (x) the Company's future financing plans; (xi) trends affecting
the Company's financial condition or results of operations; (xii) the Company's
growth strategy, operating strategy and financial strategy; (xiii) regulatory
matters affecting the Company, including quotas and tariffs and recent trade
legislation regarding trade with the Caribbean Basin countries; (xiv)
international risks including exchange rate fluctuations, trade disruptions, and
political instability of foreign markets; (xv) potential business disruptions
associated with the Company's implementation of its Enterprise 2000 software
systems; (xvi) the Company's election to retain earnings or to declare and pay
dividends; and (xvii) other risk factors listed from time to time in the
Company's other reports filed with the Securities and Exchange Commission,
especially those discussed under the heading "Risk 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.
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
pants and skirts for women. These products are marketed under Company owned
National brands such as Savane(R) and Farah(R), licensed brand names including
Bill Blass(R), John Henry(R), Van Heusen(R), and Victorinox(R) and Company owned
private brands including Bay to Bay(R), Original Khaki Co.(R), Authentic Chino
Casuals(R), Flyers(TM), 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 with
innovative design and fabrication features. The Company believes its apparel
line is 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 manages the manufacture and distribution of a majority of
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, Honduras 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
garment assembly 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.
Under national brand programs, products are labeled at the assembly
factory. Under private brand programs, most products receive customer-specific
labeling and packaging after receiving 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, enabling the products
to be sold through different distribution channels. 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 believes it is well positioned to accommodate internal
growth. The Company's current facilities in Tampa, El Paso and Santa Teresa have
enough capacity to accommodate an approximately 50% increase in the Company's
cutting and shipping volume. Many of the independent assembly contractors used
by the Company have flexible capacity and additional contractors are generally
available.
The Company utilizes advanced technology in all aspects of its
business. The Company's systems include, among other things, apparel design,
materials sourcing, production planning and logistics, customer order entry,
sales demand forecasting and order fulfillment, integrated with financial
reporting and human resources. The Company's use of technology produces greater
efficiencies throughout the production process and results in high-quality
products, low-cost production and more effective and responsive 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 customer's inventory levels by SKU and immediately orders
replenishment of units sold off the shelf. Orders generally are shipped to the
retailer within two to three working days of receipt of shipping instructions
utilizing a fully integrated inventory management and order fulfillment 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 $184 billion in retail sales in 1999. The industry grew
approximately 3.9%, 4.7% and 4.8% in 1999, 1998 and 1997, respectively. In 1999,
the men's bottoms business represented approximately 8.9% of the total apparel
market. The Company believes that the apparel industry is characterized by the
following trends:
Only the Best Products and Delivery Systems. 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 faster and cheaper than others.
Trend Toward Retail Merchandise Management Programs. Major apparel
retailers are increasingly outsourcing apparel merchandise management programs
to minimize inventory risks, to increase profitability and return on investment,
and to enable them to replenish inventory rapidly. In addition, major apparel
retailers are consolidating their suppliers to improve customer service and to
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. The Company believes the Savane(R), Farah(R), Bill
Blass(R), John Henry(R), and Van Heusen(R) brands are favored by their
respective customers and are well-positioned to gain market share.
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 greater control 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. An 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 Luxury Fabrics. There is a growing trend in the United
States toward luxury fabrics such as silks, Tencel(R), wool, Lycra(R), rayon and
other micro-denier type fabrics, as well as various blends of these and other
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. During Fiscal 2000, the Company
sourced approximately 38% of its products from facilities located in the
Caribbean Basin, approximately 39% from facilities located in Mexico, and
approximately 23% from other facilities.
The Caribbean Basin Trade Partnership Act ("CBTPA") became effective on
October 2, 2000. CBTPA generally grants duty and quota-free access to United
States markets for garments cut in the United States or in the Caribbean Basin
and assembled in the Caribbean Basin from U.S. fabric and U.S. yarn. The CBTPA
legislation will be effective through September 30, 2008.
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 an industry expert, 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 Strategies
The Company believes that its business and growth strategies 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 trend toward luxury fabrics and (iv) a trade
policy which favors the manufacture of products in Mexico and the Caribbean. 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 2000, the application of these
standards resulted in a rate of customer returns for defects of less
than 0.5%.
Innovative New Products. The Company believes that innovation is
critical to succeeding in today's apparel market. Fresh, new products
with unique design or fabrication features help fuel consumer demand.
For example, the Company introduced a new short this year that packs
within itself. The "packable" short was very well accepted with one
large retailer selling over 100,000 units in a single week.
Low-Cost and Flexible Operations. The Company is organized to effect a
short production cycle. Currently, it takes an average of 30 days from
the receipt of raw materials through receipt of a finished garment in
its distribution centers. The Company believes its "chassis" production
concept allows it to execute production runs more cost-effectively than
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.
Managed Inventory Risk. The Company believes that it effectively
manages 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, co-op
advertising support, other advertising, 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 its operations into the
Internet retailing business 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 innovative products that complement existing core
product lines. Targeted product categories include lines of men's
casual shirts and women's sportswear. Since speed to market is
critical, the Company believes its short product development cycle time
(41 days from concept to shippable product) gives it a competitive
advantage.
Licensing. The Company will continue with its strategy of obtaining the
exclusive use of well recognized, high quality brands through licensing
agreements similar to the recently signed Victorinox(R) license.
Acquisitions. The Company considers the acquisition of additional
established brands and the acquisition of producers of complementary
new product lines that would be accretive to shareholder value. The
Company regularly evaluates and considers acquisition and other
strategic opportunities.
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. The following table sets forth sales mix expressed as a
percentage of net sales for Fiscal 2000:
Casual Pants 52%
Dress Pants 22
Shorts (including Denim) 17
Denim Jeans 5
Women's & Other 4
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100%
========
The Company's apparel line focuses on basic, recurring styles with
innovative design and fabrication features. The Company believes its apparel
line is less susceptible to fashion obsolescence and less seasonal in nature
than fashion styles. Key fabrics include 100% cotton and blends utilizing silk,
Tencel(R), rayon, wool, Lycra(R) and other micro-denier type fabrics as well as
various blends of these and other 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 reduces 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 to reduce costly customer returns.
Customers and Customer Service
The Company markets its products across all major apparel retail
channels to department stores, discounters and mass merchants, wholesale clubs,
national chains, specialty stores, catalog retailers and the Internet. Sales to
the Company's five largest customers represented approximately 51.8%, 51.1% and
50.9% of net sales during Fiscal 2000, 1999 and 1998, respectively. Sales to
Wal-Mart (including Sam's Club, the nation's largest chain of wholesale clubs),
accounted for approximately 25.7%, 24.5% and 23.8% of net sales during Fiscal
2000, 1999 and 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, Marmaxx Group, May Company Department Stores,
Phillips-Van Heusen, Saks Incorporated Department Stores and Sears. The
following table sets forth sales by distribution channel for Fiscal 2000:
Department Stores 34%
Discounters and Mass Merchants 23
Wholesale Clubs 19
National Chains 14
Outlet & Other 7
Specialty Stores 3
---------
100%
=========
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 internet order fulfillment. 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 marketing plan that outlines
optimum volume, timing and pricing strategies, markdown and sell-through trends
and profit margins.
The Company operates an EDI system, that allows it to accept EDI orders
24 hours a day and typically ship orders within two to three working days. In
Fiscal 2000, substantially all orders were received via EDI.
Operations
Overview. The Company cuts its fabric principally at its Tampa and El
Paso facilities before 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 principally 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
and does not believe that the continued use of any supplier is material to its
business. 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, Honduras 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 production and quality control personnel on-site in the
Dominican Republic, Honduras 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) direct imports of finished
goods (mostly from the Pacific Rim and the Middle East); (ii) imports from the
Dominican Republic and Honduras; and (iii) imports from Mexico.
For direct importation, 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.
Although merchandise imported from the Dominican Republic and Honduras
is subject to the similar tariff and quota consequences described above, for
most of the merchandise sourced from these Caribbean Basin countries by the
Company during Fiscal 2000, the so-called "807" program allowed merchandise to
be admitted into the United States with a substantial tariff reduction. In
essence, reduction in dutiable value was equal to the value of U.S. components
incorporated into these assembled goods plus southbound international freight
and insurance.
The Caribbean Basin Trade Partnership Act ("CBTPA") became effective on
October 2, 2000. CBTPA generally grants duty and quota-free access for garments
cut in the United States or in the Caribbean Basin and assembled in the
Caribbean Basin from U.S. fabric and U.S. yarn. The CBTPA legislation will be
effective through September 30, 2008.
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 25, 2000, the Company had 2,081 associates, including 1,318
in the United States, 37 in the Dominican Republic, 589 in Mexico, 76 in the
United Kingdom, 36 in Australia, and 25 in New Zealand. Approximately 6% 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 2003. 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 2001. 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 thousands of 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. 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 modern 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 Company's marketing, manufacturing, importing and
distribution functions. 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.
In the first quarter of Fiscal 2001, the Company implemented a new
integrated operating and management information system at it's Tampa location
("Enterprise 2000"). The components of Enterprise 2000 interface such functions
as production planning, purchasing and scheduling, customer order management,
inventory warehouse management, accounting and human resources.
Human Rights Policy
The Company has a comprehensive human rights policy. The policy is
consistent with the Responsible Apparel Production Principles, which were
recently endorsed by the American Apparel and Footwear Association and other
Caribbean 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 visit each independent contractor
plant on a daily basis, (2) management of the Company periodically visits
independent contractor plants and (3) an independent third party agency utilized
by many companies in the apparel industry performs audits periodically and
reports the results to the Company. The Company will promptly 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, Ireland,
Germany, Mexico 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.(R), Authentic Chino
Casuals(R), 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 Bill Blass(R) trademark with
respect to casual pants, shorts and jeans, (ii) the John Henry(R) trademark with
respect to men's bottoms and coats, and (iii) the Van Heusen(R) trademark with
respect to the sale, distribution and promotion of men's pants, jeans and
shorts. These licenses expire in 2005, 2003 and 2001, respectively. The license
agreement with respect to the Bill Blass(R) trademark is subject to a renewal
option that would extend the expiration date through 2010. The license agreement
with respect to the John Henry(R) trademark is subject to seven renewal options
that would extend the expiration date through 2038. The license agreement with
respect to the Van Heusen(R) trademark is expected to be renewed beyond its
current expiration date of March 31, 2001. In October 2000, the Company entered
into a license agreement with Swiss Army Brands, Inc., with a five-year initial
term, with automatic renewal terms and conditions thereafter. Under this
agreement, the Company has the exclusive worldwide license to design,
manufacture and market men's and women's apparel products under the
Victorinox(R) brand. 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, 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 two factors that assume virtually all of the credit risk with respect to
collection of such accounts. Each 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. These factoring agreements
expire in June 2001 and September 2001, and the Company has the option of
renewing them.
Seasonality
Historically, the Company's business has been seasonal, with slightly
higher sales and income in the second and third fiscal quarters. In addition,
certain of the Company's products, such as shorts and corduroy pants, tend to be
seasonal in nature. In the event such products represent a greater percentage of
the Company's sales in the future, the seasonality of the Company's sales may be
increased.
Backlog
On September 30, 2000, the Company had unfilled customer orders of
approximately $336.5 million. All of such orders are scheduled for shipment in
Fiscal 2001. On October 2, 1999, the Company had unfilled customer orders of
approximately $323.3 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 57 Chairman of the Board and Chief Executive
Officer
Richard J. Domino 52 President
Michael Kagan 61 Vice Chairman of the Board, Executive
Vice President, Chief Financial Officer
and Secretary
Michael R. Mitchell 47 President, Savane International Corp.
Gregory L. Williams 47 Executive Vice President and General
Counsel
William W. Compton has served as Chairman of the Board and Chief
Executive Officer 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
Chairman of the American Apparel and Footwear 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 Vice Chairman of the Board, Executive Vice
President, Chief Financial Officer and Secretary of the Company since November
1989. He was also Treasurer of the Company from November 1989 to January 1998.
Mr. Kagan has more than 30 years experience in the apparel industry.
Michael R. Mitchell serves as President of Savane International Corp.
He has served as President since March 1994. Prior to then, Mr. Mitchell was
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.
Gregory L. Williams has served as Executive Vice President and General
Counsel of the Company since July 1999. Before joining the Company, Mr. Williams
practiced commercial law in Tampa, Florida for 18 years.
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 to meet its current needs
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:
Approximate Owned/
Location Use Square Footage Leased (1)
-------------------------- ----------------------------------- ------------- ------------
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 51,000 Leased
El Paso, Texas Fabric cutting facility 205,000 Leased
Sydney, Australia Office/Warehouse 29,000 Leased
Suva, Fiji Three 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.
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.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
The Company's Common Stock has 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 12, 2000, there were approximately 75 record
holders of the Company's Common Stock, and the Company estimates that there were
approximately 1,350 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 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
Fiscal Year Ended
September 30, 2000 High Low
First Quarter 21 9/16 16
Second Quarter 16 5/8 11
Third Quarter 23 3/4 12 1/16
Fourth Quarter 22 1/4 16 1/8
The transfer agent and registrar for the Common Stock is Firstar Trust
Services, Milwaukee, Wisconsin.
The Company has not declared or paid any cash dividends on its 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 September 30, 2000. These
consolidated financial statements have been audited and reported upon by Ernst
& Young LLP, independent certified public accountants.
Fiscal Year Ended
------------------------------------------------------------------
September 30, October 2, October 3, September 27, September 28,
Statements of Income Data: 2000 1999 1998 1997 1996
------------- ----------- ------------ ------------- -------------
Net sales $472,985 $420,691 $263,976 $151,692 $117,355
Gross profit 137,522 117,922 68,889 36,055 26,223
Selling, general and administrative
expenses 88,719 80,511 43,204 19,443 15,189
Termination of system implementation - 3,999 - - -
Severance cost charge 1,006 - - - -
Operating income 47,797 33,412 25,685 16,612 11,034
Interest expense 17,351 18,586 6,866 2,889 2,498
Income before income taxes 29,195 13,853 17,283 13,176 7,916
Net income 17,503 8,251 10,802 8,269 5,171
Net income per common share-diluted $ 2.27 $ 1.05 $ 1.43 $ 1.37 $ 0.86
Weighted average number of shares
used in the calculation - diluted 7,725,000 7,838,000 7,550,000 6,015,000 6,015,000
(1)
Fiscal Year Ended
------------------------------------------------------------------
September 30, October 2, October 3, September 27, September 28,
Balance Sheet Data: 2000 1999 1998 1997 1996
------------- ----------- ------------ ------------- -------------
Working capital $111,627 $120,041 $107,397 $30,234 $25,483
Total assets 302,061 289,322 297,476 69,658 63,415
Long-term debt and obligations
under capital leases 145,541 170,894 171,494 24,055 24,162
Shareholders' equity 75,834 59,823 50,964 26,651 18,382
(1) Computed on the basis described in Notes to Consolidated Financial
Statements.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Company manages the production of a majority of all of its products
utilizing its facilities in Tampa, Florida and El Paso, Texas and through
independent assembly contractors located in the Dominican Republic, Honduras 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, Honduras 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 the product to customers or,
in the case of private brand products, attaches designated labels and
point-of-sale packaging and then ships the product 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
2000, 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:
Fiscal Year Ended
----------------------------------------------------
September 30, October 2, October 3,
2000 1999 1998
--------------- ---------------- ---------------
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 70.9 72.0 73.9
Gross profit 29.1 28.0 26.1
Selling, general and
administrative expenses 18.8 19.1 16.4
Termination of system
implementation - 1.0 -
Severance cost charge 0.2 0.0 0.0
Operating income 10.1 7.9 9.7
Interest expense 3.7 4.4 2.6
Bridge loan funding fee - - 0.2
Other expense, net 0.2 0.2 0.4
Income before income taxes 6.2 3.3 6.5
Provision for income taxes 2.5 1.3 2.4
Net income 3.7% 2.0% 4.1%
Fiscal 2000 Compared to Fiscal 1999
Net Sales. Net sales for Fiscal 2000 were $473.0 million as compared to
$420.7 million for Fiscal 1999, an increase of $52.3 million or 12.4%. The
increase was primarily due to an increase in units shipped.
Gross Profit. Gross profit for Fiscal 2000 was $137.5 million or 29.1%
of net sales, as compared with $117.9 million or 28.0% of net sales for Fiscal
1999. The dollar increase was primarily due to the increase in sales volume. The
increase in gross profit as a percentage of net sales was primarily due to
increased production efficiencies and other cost saving measures.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for Fiscal 2000 were $88.7 million, or 18.8% of net
sales, as compared to $80.5 million, or 19.1% of net sales for Fiscal 1999. The
dollar increase was primarily due to an increase in overall sales volume. The
decrease in selling, general and administrative expenses as a percent of net
sales was due to the leveraging of fixed costs against a higher sales base, and
other cost cutting measures, offset, in part, by increased spending for
merchandising and product development, as well as higher incentive based
compensation accruals, as a result of the Company's increase in sales and
profitability.
Severance Cost Charge. In the first quarter of Fiscal 2000, the Company
recorded a pre-tax charge of $1.0 million for severance payments to the former
Chief Executive Officer of Farah/Savane who resigned as an officer and director
of the Company effective December 30, 1999.
Interest Expense. Interest expense for Fiscal 2000 was $17.4 million as
compared to $18.6 million for Fiscal 1999. The decrease was primarily due to
lower average outstanding borrowings under the Company's credit facility, offset
in part, by higher interest rates.
Income Taxes. The Company's effective tax rate for Fiscal 2000 was
40.0% as compared with 40.4% for Fiscal 1999. The effective tax rate was higher
in Fiscal 1999 primarily due to the relative impact of non-deductible goodwill
amortization expense.
Net Income. As a result of the above factors, net income for Fiscal
2000 was $17.5 million, or 3.7% of net sales, as compared to $8.3 million, or
2.0% of net sales, for Fiscal 1999.
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.
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.
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.
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.
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.
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 revolving credit line (the "Facility") provides for
borrowings of up to $110 million, subject to certain borrowing base limitations.
Borrowings under the Facility bear interest at variable rates (9.4% at September
30, 2000) and are secured by substantially all of the Company's domestic assets.
The Facility matures in June 2003. As of September 30, 2000, an additional $70.9
million was available for borrowings under the Facility.
On May 28, 1999, the Company entered into a real estate loan ("Real
Estate Loan") agreement secured by the Company's distribution center, cutting
facility, and administrative offices in Tampa, Florida. The Real Estate Loan was
used to refinance $9.5 million outstanding on the Company's previous real estate
loan and to finance up to $6.0 million of the costs related to an expansion to
the Company's Tampa, Florida distribution facility. In March 2000, the Real
Estate Loan was converted to a 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 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 Real Estate Loan, interest is payable at a fixed
base rate plus an applicable margin (7.6% at September 30, 2000). On the
remainder of the borrowings, interest is payable based on the 30-day LIBOR rate
plus an applicable margin. As of September 30, 2000, the effective interest rate
on the Real Estate Loan was approximately 8.0%.
The Company has outstanding $100 million of senior subordinated notes
(the "Notes") that were issued through a private placement. Under the terms of
the indenture underlying the Notes, the Company is paying semi-annual interest
at the rate of 11% through June 2008, 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 loan that was used to finance the purchase
of 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 2000,
the Company amended the terms of the Facility to adjust certain of the financial
covenants. The Company is currently in material 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 continue to
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 use cash. As of
September 30, 2000, the Company had assets held for sale with carrying values of
$2.0 million and has exit related accruals of $5.6 million.
During Fiscal 2000, the Company generated $38.2 million of cash from
its operations. This was primarily the result of net income of $17.5 million
(which included non-cash charges of $8.6 million), a decrease in inventory of
$5.8 million, a decrease in prepaid expenses and other current assets of $1.0
million, and an increase in accounts payable and accrued expenses of $20.0
million, offset in part by a $17.0 million increase in accounts receivable.
The Company has historically financed its capital expenditures through
a combination of operating cash flow and long-term borrowings. Capital
expenditures were $11.4 million for Fiscal 2000, and primarily related to the
expansion of the Company's distribution center in Tampa, Florida, the
replacement of the existing computer systems at the Company's Tampa, Florida
location and the upgrade or replacement of various other equipment and computer
systems including hardware and software.
During Fiscal 2001, the Company anticipates capital expenditures to
total approximately $13.0 million. Significant capital projects include the
purchase of property in the El Paso, Texas and Tampa, Florida areas, the
consolidation of facilities in the El Paso Texas area, and the upgrade or
replacement of various other equipment and computer systems including hardware
and software.
On September 30, 2000 and October 2, 1999, the Company had working
capital of $111.6 million and $120.0 million, respectively. The decrease in
working capital was primarily due to a $17.0 million increase in accounts
receivable, offset by a $5.8 million decrease in inventory and a $20.0 million
increase 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 its existing working capital, borrowings
available under the Facility and internally generated funds provide sufficient
resources to support current business activities.
Impact of Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Statement No. 133 as amended by Statement
No. 138, 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 adopted Statement No. 133 on October 1, 2000, as
required. The Company limits its use of derivative financial instruments to the
management of interest rate risk. The adoption of Statement No. 133 did not have
a material impact on the consolidated financial statements of the Company.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements". This was followed by Staff Accounting Bulletin No. 101A,
"Implementation Issues Related to SAB 101", in March 2000 and by Staff
Accounting Bulletin No. 101B, "Second Amendment: Revenue Recognition in
Financial Statements" ("SAB 101B"), in June 2000. These bulletins summarize
certain of the SEC's views about applying generally accepted accounting
principles to revenue recognition in financial statements. The impact of SAB
101B on the Company was to delay the implementation date of SAB 101 until the
fourth quarter of fiscal year 2001. The future impact of these bulletins on the
Company's results of operations is not expected to be material.
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.
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.
To finance our acquisition of Savane, we increased our outstanding
indebtedness and our 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, either
of which may be at terms that are unfavorable to us. 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. This includes our efforts
to enter into new agreements to license additional brands. 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 operational efficiencies
at the same levels as our existing operations or at the levels that it achieved
prior to our acquiring it. 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.
Our financial success is linked to that of our customers, commitment to our
products and our ability to satisfy and maintain our customers.
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 51.8%, 51.1% and 50.9% of net sales during
Fiscal 2000, 1999 and 1998, respectively. Sales to Wal-Mart (including Sam's
Club, the nation's largest chain of wholesale clubs), accounted for
approximately 25.7%, 24.5% and 23.8% of net sales during Fiscal 2000, 1999 and
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 of which are or have been 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 2000, a significant portion of our products were
assembled or produced by independent manufacturers in the Dominican Republic,
Honduras 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; and 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. Excluding the countries
covered under CBTPA and NAFTA, 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."
Fluctuations in foreign exchange rates may affect our operating results and
financial position.
Fluctuations in foreign exchange rates between the U.S. dollar and the
currencies in each of the countries in which we operate, may affect the results
of out international operations reported in U.S. dollars and the value of such
operations' net assets reported in U.S. dollars. The results of operations and
financial condition of our businesses may be affected by the relative strength
of the currencies in countries where our products are currently sold. Our
results of operations and financial condition may be adversely affected by
fluctuations in foreign currencies and by translations of the financial
statements of our foreign subsidiaries from local currencies into U.S. dollars.
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 14.9%
Chairman of the Board and Chief Executive Officer
Michael Kagan 9.1%
Vice Chairman of the Board, Executive Vice President
Chief Financial Officer and Secretary
Accel, S.A. de C.V. 21.0%
(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 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. These
shareholders may act in a manner that is contrary to your best interests.
Our sales and income levels are seasonal.
Our business has generally been seasonal, with higher sales and income
in the second and third fiscal quarters. 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 third fiscal quarters from the first
and fourth fiscal quarters.
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 Real
Estate Loan. As of September 30, 2000, the Company's interest rates on
borrowings under the Facility and Real Estate Loan were 9.4% and 8.0%,
respectively. If the interest rates on the Company's borrowings average 100
basis points more in Fiscal 2001 than they did in Fiscal 2000, the Company's
interest expense would increase and income before income taxes would decrease by
$342,000. 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 Real
Estate 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 30
through 53 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 January 23,
2001 (the "2000 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 2000 Proxy Statement is incorporated by reference. In no event
shall the information contained in the 2000 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 2000 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 2000 Proxy Statement is incorporated
herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Index to Financial Statements
Page
Report of Independent Certified Public Accountants 30
Consolidated Balance Sheets 31
Consolidated Statements of Income 32
Consolidated Statements of Shareholders' Equity 33
Consolidated Statements of Cash Flows 34
Notes to Consolidated Financial Statements 35
(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
2000.
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 September 30, 2000 and October 2,
1999, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended September 30,
2000. 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 auditing standards generally
accepted in the United States. 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Tropical Sportswear Int'l Corporation at September 30, 2000 and October 2, 1999,
and the consolidated results of its operations and its cash flows for each of
the three years in the period ended September 30, 2000, in conformity with
accounting principles generally accepted in the United States. 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 6, 2000
TROPICAL SPORTSWEAR INT'L CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30, 2000 and October 2, 1999
(In thousands, except share data)
2000 1999
------------------- ------------------
ASSETS
Current assets:
Cash $ 1,767 $ 1,607
Accounts receivable 93,292 76,225
Inventories 66,754 72,181
Deferred income taxes 10,614 10,732
Prepaid expenses and other 14,070 14,328
------------------- ------------------
Total current assets 186,497 175,073
Property and equipment 68,649 57,495
Less accumulated depreciation and amortization
(21,761) (15,310)
------------------- ------------------
46,888 42,185
Other assets 16,390 16,729
Trademarks 13,854 14,354
Excess of cost over fair value of net assets
of acquired subsidiary, net 38,432 40,981
------------------- ------------------
Total assets $302,061 $289,322
=================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $44,522 $31,922
Accrued expenses and other 28,357 20,919
Current portion of long-term debt 883 704
Current portion of obligations under capital leases 1,108 1,487
------------------- ------------------
Total current liabilities 74,870 55,032
Long-term debt 140,343 164,534
Obligations under capital leases 3,207 4,169
Deferred income taxes 4,925 2,860
Other 2,882 2,904
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;
7,637,727 and 7,618,835 shares issued and outstanding in
2000 and 1999, respectively 76 76
Additional paid in capital 17,830 17,535
Retained earnings 59,284 41,781
Accumulated other comprehensive income (loss) (1,356) 431
------------------- ------------------
Total shareholders' equity 75,834 59,823
------------------- ------------------
Total liabilities and shareholders' equity $302,061 $289,322
=================== ==================
See accompanying notes.
TROPICAL SPORTSWEAR INT'L CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Fiscal Year Ended
----------------------------------------------
September 30, October 2, October 3,
2000 1999 1998
-------------- ------------ ------------
Net sales $472,985 $420,691 $263,976
Cost of goods sold 335,463 302,769 195,087
-------------- ------------ ------------
Gross profit 137,522 117,922 68,889
Selling, general and administrative expenses 88,719 80,511 43,204
Termination of system implementation -- 3,999 --
Severance cost charge 1,006 -- --
-------------- ------------ ------------
Operating income 47,797 33,412 25,685
Other expenses:
Interest 17,351 18,586 6,866
Bridge loan funding fee -- -- 500
Other, net 1,251 973 1,036
-------------- ------------ ------------
18,602 19,559 8,402
-------------- ------------ ------------
Income before income taxes 29,195 13,853 17,283
Provision for income taxes 11,692 5,602 6,481
-------------- ------------ ------------
Net income $ 17,503 $ 8,251 $ 10,802
============== ============ ============
Net income per share
Basic $2.29 $1.08 $1.45
============== ============ ============
Diluted $2.27 $1.05 $1.43
============== ============ ============
See accompanying notes.
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
------ ------ ------ ------ ------- -------- ------ --------
Balance at September 27, 1997 39 $3,863 6,000 $60 -- $22,728 $ -- $26,651
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
Net income -- -- -- -- -- 17,503 -- 17,503
Foreign currency
translation adjustment -- -- -- -- -- -- (1,787) (1,787)
Total comprehensive income -- -- -- -- -- -- -- 15,716
Stock option exercises -- -- 19 -- 295 -- -- 295
------- ------- ------- ------- --------- ------- ------ ---------
Balance at September 30, 2000 -- -- 7,638 $76 $17,830 $59,284 ($1,356) $75,834
======= ======= ======= ======= ========= ======== ======= ========
See accompanying notes.
TROPICAL SPORTSWEAR INT'L CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Fiscal Year Ended
-----------------------------------------------------
September 30, October 2, October 3,
2000 1999 1998
---------------- -------------- ----------------
Operating activities
Net income $ 17,503 $ 8,251 $ 10,802
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Loss on disposal of property and 19 88 150
equipment
Termination of system implementation -- 3,999 --
Depreciation and amortization 8,858 9,500 4,758
Provision for doubtful accounts 73 1,286 (347)
Provision for excess and slow-moving
inventory (342) (3,335) (4,392)
Deferred income taxes 2,325 6,350 1,970
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable
(16,994) (5,156) (13,490)
Inventories 5,769 15,553 4,065
Prepaid expenses and other assets 997 (1,103) (7,881)
Increase (decrease) in liabilities:
Accounts payable 12,600 (5,529) 2,556
Accrued expenses and other 7,417 (11,744) 207
--------------- -------------- ----------------
Net cash provided by (used in) operating
activities 38,225 18,160 (1,602)
Investing activities
Capital expenditures (11,366) (15,094) (6,881)
Acquisition of subsidiary, net of cash acquired -- (477) (89,821)
Proceeds from sale of property and equipment 153 448 592
Other -- 323 --
--------------- -------------- ----------------
Net cash used in investing activities (11,213) (14,800) (96,110)
Financing activities
Proceeds of long-term debt 5,014 10,854 200,000
Proceeds from sale of common stock 295 265 17,286
Redemption of preferred stock -- -- (3,863)
Principal payments of long-term debt (1,335) (10,295) (156,335)
Principal payments of capital leases (1,558) (2,527) (1,257)
Change in currency translation (1,447) 343 --
Net proceeds from (repayment of) long-term
revolving credit line borrowings (27,821) (2,490) 43,862
--------------- -------------- ----------------
Net cash (used in) provided by
financing activities (26,852) (3,850) 99,693
Net increase (decrease) in cash 160 (490) 1,981
Cash at beginning of year 1,607 2,097 116
--------------- -------------- ----------------
Cash at end of year $ 1,767 $ 1,607 $ 2,097
=============== ============== ================
See accompanying notes.
TROPICAL SPORTSWEAR INT'L CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, October 2, 1999, and
October 3, 1998
(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 and its wholly-owned subsidiaries, Savane
International Corp. ("Savane") and its subsidiaries, Tropical Sportswear
Company, Inc. and Apparel Network Corporation (collectively, the "Company"). 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, Ireland, Germany, Mexico, Australia,
and New Zealand. The Company subcontracts a substantial portion of the assembly
of its products with independent manufacturers in the Dominican Republic,
Honduras 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 September 30, 2000, October
2, 1999, and October 3, 1998 contain 52, 52, and 53 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.
Basic and diluted net income per share are computed as follows:
Fiscal Year Ended
-------------------------------------------------------
September 30, October 2, October 3,
2000 1999 1998
---------------- --------------- ---------------
Numerator for basic and diluted net income per share:
Net income $17,503 $ 8,251 $ 10,802
Denominator for basic net income per share:
Weighted average shares of common
stock outstanding 7,627,141 7,614,282 7,470,620
Effect of dilutive stock options
using 97,599 223,535 79,593
the treasury stock
method
---------------- --------------- -------------
Denominator for diluted net income per 7,724,740 7,837,817 7,550,213
share
================ =============== =============
Net income per share:
Basic $2.29 $1.08 $1.45
================ =============== =============
Diluted $2.27 $1.05 $1.43
================ =============== =============
Accumulated Other Comprehensive Income (Loss)
Other comprehensive income (loss) is composed of foreign currency
translation adjustments of $1.8 million (net of tax expense of $1.1 million),
$343,000 (net of tax benefit of $233,000) and $88,000 (net of tax benefit of
$55,000) in Fiscal 2000, 1999 and 1998, respectively. Total comprehensive
income amounted to $15.7 million, $8.6 million and $10.9 million for Fiscal
2000, 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 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
(loss).
Advertising and Promotion Costs
Advertising and promotion costs are expensed in the year incurred.
Advertising and promotion expense was $15.7 million, $12.3 million, and $3.0
million, in Fiscal 2000, 1999, and 1998, 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 $1,146,000, $646,000 and $124,000 at September 30, 2000,
October 2, 1999 and October 3, 1998, respectively.
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 $3,045,000, $1,660,000 and $303,000 at September 30, 2000, October 2,
1999 and October 3, 1998, respectively.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 an 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
agreement and changes in the fair value as a result of changes in market
interest rates are not recognized in the financial statements. (See "Recent
Accounting Pronouncements" below)
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:
September 30, 2000 October 2, 1999
---------------------------- ----------------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------ ------------ ------------ ------------
Long-term debt and obligations
under capital leases $145,541 $135,347 $170,894 $163,027
Off balance sheet items:
Interest-rate swap agreement N/A $80 N/A $99
Reclassifications
Certain amounts in the Fiscal 1999 and 1998 financial statements have
been reclassified to conform to the Fiscal 2000 presentation.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Statement No. 133 as amended by Statement
No. 138, 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 adopted Statement No. 133 on October 1, 2000, as
required. The Company limits its use of derivative financial instruments to the
management of interest rate risk. The adoption of Statement No. 133 did not have
a material impact on the consolidated financial statements of the Company.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements". This was followed by Staff Accounting Bulletin No. 101A,
"Implementation Issues Related to SAB 101", in March 2000 and by Staff
Accounting Bulletin No. 101B, "Second Amendment: Revenue Recognition in
Financial Statements" ("SAB 101B"), in June 2000. These bulletins summarize
certain of the SEC's views about applying generally accepted accounting
principles to revenue recognition in financial statements. The impact of SAB
101B on the Company was to delay the implementation date of SAB 101 until the
fourth quarter of fiscal year 2001. The future impact of these bulletins on the
Company's results of operations is not expected to be material.
Statement of Cash Flows
Supplemental cash flow information:
Year Ended
----------------- -- ----------------- -- ------------------
September 30, October 2, October 3,
2000 1999 1998
----------------- ----------------- ------------------
Cash paid for:
Interest $16,988 $18,360 $3,262
Income taxes 10,155 1,641 6,068
Capital lease obligations of $216,700, $767,000, and none were incurred
when the Company entered into leases for new equipment in the years ended
September 30, 2000, October 2, 1999, and October 3, 1998, 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
Accounts receivable consist of the following:
September 30, October 2,
2000 1999
------------------ ----------------
Receivable from factor $89,314 $73,074
Receivable from trade accounts 5,976 5,723
Reserve for returns and allowances (1,998) (2,572)
------------------ ----------------
$93,292 $76,225
================== ================
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
Inventories consist of the following:
September 30, October 2,
2000 1999
---------------------- ----------------
Raw materials $ 6,373 $7,425
Work in process 19,788 15,445
Finished goods 40,593 49,311
---------------------- ----------------
$66,754 $72,181
====================== ================
The Company has established valuation reserves of approximately $4.5 million and
$4.8 million, at September 30, 2000 and October 2, 1999, respectively, to
reflect a write down of excess and slow-moving inventory to net realizable
value.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
September 30, October 2, Life
2000 1999 (Years)
----------------- ---------------- -----------
Land $4,194 $4,106 --
Land improvements 1,987 1,593 15
Buildings and improvements 14,779 9,825 3 - 50
Machinery and equipment 38,751 36,720 3 - 12
Leasehold improvement 2,438 1,081 5 - 25
Construction in progress 6,500 4,170 --
-----------------
----------------
$68,649 $57,495
================= ================
During Fiscal 2000, 1999 and 1998, the Company capitalized interest
cost of $215,000, $329,000, and $96,000, respectively, for buildings and
improvements, and machinery and equipment in the process of construction. Total
depreciation expense was $6.8 million, $7.6 million, and $4.3 million, for the
years ended September 30, 2000, October 2, 1999, and October 3, 1998,
respectively.
5. DEBT
Long-term debt consists of the following:
September 30, October 2,
2000 1999
------------------ --------------
Revolving credit line $25,686 $53,506
Real estate loan 14,690 10,691
Senior subordinated notes 100,000 100,000
Other 850 1,041
------------------ --------------
141,226 165,238
Less current maturities 883 704
------------------ --------------
$140,343 $164,534
================== ==============
The Company maintains a revolving credit line (the "Facility") which
provides for borrowings of up to $110 million, subject to certain borrowing base
limitations. Borrowings under the Facility bear variable rates of interest based
on LIBOR plus an applicable margin (9.4% at September 30, 2000) 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 September 30, 2000, an additional $70.9 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 May 28, 1999, the Company entered into a real estate loan ("Real
Estate Loan") agreement secured by the Company's distribution center, cutting
facility, and administrative offices in Tampa, Florida. The Real Estate Loan was
used to refinance $9.5 million outstanding on the Company's previous real estate
loan and to finance up to $6.0 million of the costs related to an expansion to
the Company's Tampa distribution facility. In March 2000, the Real Estate Loan
was converted to a 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 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 Real Estate Loan, interest is payable at a fixed
base rate plus an applicable margin (7.6% at September 30, 2000). On the
remainder of the borrowings, interest is payable based on the 30-day LIBOR rate
plus an applicable margin. As of September 30, 2000, the effective interest rate
on the Real Estate Loan was approximately 8.0%.
The Company has outstanding $100 million of senior subordinated notes
(the Notes) that were issued through a private placement. Under the terms of the
indenture underlying the Notes, the Company is paying semi-annual interest at
the rate of 11% through June 2008, 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.
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 fixed charge coverage ratios;
(iii) maintenance of debt to cash flow ratios 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
------------------- ----------------
2001 $ 883
2002 892
2003 26,587
2004 912
2005 923
Thereafter 111,029
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 September 30, 2000 are as
follows:
Operating Capital
Fiscal Year Leases Leases
------------------------------------------------------ ----------------- -----------------
2001 $4,211 $ 1,405
2002 3,796 1,288
2003 3,585 1,173
2004 3,183 992
2005 2,249 109
Thereafter 7,345 2
----------------- -----------------
Total minimum lease payments $24,369 4,969
=================
Less amount representing interest 654
-----------------
Present value of minimum capital lease payments 4,315
Less current installments 1,108
-----------------
$3,207
=================
The following summarizes the Company's assets under capital leases:
September 30, October 2,
2000 1999
-------------------- ----------------
Machinery and equipment $8,464 $9,639
Accumulated amortization 2,502 3,472
Amortization of assets under capital leases has been included in
depreciation. Total rental expense for operating leases for Fiscal 2000, 1999,
and 1998, was $5.0 million, $4.6 million, and $2.4 million, 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:
Year Ended
------------------------------------------------------------
September 30, October 2, October 3,
2000 1999 1998
------------------- ----------------- ----------------
Domestic $28,811 $11,196 $18,939
Costa Rica 5 1,507 (1,791)
Australia (626) 910 83
Other foreign 1,005 240 52
------------------- ----------------- ----------------
$29,195 $13,853 $17,283
=================== ================= ================
The components of the income tax provision (benefit) are as follows:
Year Ended
----------------------------------------------------------
September 30, October 2, October 3,
2000 1999 1998
----------------- ---------------- -----------------
Current:
Federal $ 8,280 $(1,169) $4,132
State 1,039 43 340
Australia - 328 41
Other foreign 48 50 (2)
----------------- --------------- -----------------
9,367 (748) 4,511
Deferred:
Federal 2,240 5,919 1,962
State 310 431 8
Australia (225) - -
----------------- --------------- -----------------
2,325 6,350 1,970
----------------- --------------- -----------------
$11,692 $5,602 $6,481
================= =============== =================
The reconciliation of income taxes computed at the U.S. Federal
statutory tax rate to the Company's income tax provision is as follows:
Year Ended
----------------------------------------------------------
September 30, October 2, October 3,
2000 1999 1998
----------------- ---------------- -----------------
Income tax expense at Federal
statutory rate (35% in 2000,
34% in 1999 and 35% in 1998) $10,218 $4,710 $6,049
State taxes, net of Federal tax benefit 877 474 221
Income (losses) of foreign subsidiaries 3 (170) 628
Amortization of goodwill 428 420 154
Unrepatriated foreign earnings - - (488)
Other 166 168 (83)
----------------- ---------------- -----------------
$11,692 $5,602 $6,481
================= ================ =================
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 $19.2 million, as adjusted for U.S. tax purposes at September 30,
2000. 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 $4.1 million at September 30, 2000. 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 September 30, 2000 and October 2, 1999
are presented below:
Year Ended
----------------------------------------
September 30, October 2,
2000 1999
------------------ -------------------
Deferred tax assets:
Accounts receivable $ 846 $ 825
Inventory 2,428 2,858
U.S. Federal NOL carryforwards 5,094 5,739
U.S. State NOL carryforwards 95 111
Foreign NOL carryforwards 2,165 2,344
Tax credits 497 802
Accrued exit costs - U.S. 5,492 5,698
Accrued exit costs - foreign 1,847 1,959
Other accrued expenses and reserves 2,357 1,962
Deferred tax liabilities:
Depreciation (3,056) (2,296)
Trademarks (5,147) (5,330)
Other items (3,405) (3,283)
------------------ -------------------
Net deferred tax asset 9,213 11,389
Valuation allowance (2,200) (2,591)
------------------ -------------------
Deferred tax asset, net of valuation allowance $7,013 $8,798
================== ===================
Classified as follows:
Current asset $10,614 $10,732
Non-current asset 1,324 926
Non-current liability (4,925) (2,860)
------------------ -------------------
$7,013 $8,798
================== ===================
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
Fiscal 2000 and 1999, management determined that respective valuation allowances
of $2.2 million and $2.6 million, respectively, were necessary to reduce the
deferred tax assets relating to certain foreign net operating loss
carryforwards, foreign tax credit carryforwards and other accruals not expected
to result in a future realizable benefit.
At September 30, 2000, the Company's United Kingdom subsidiary had a
foreign operating loss of $2.9 million which carries forward indefinitely. For
domestic purposes, the Company has Federal net operating loss carryforwards for
tax purposes of approximately $14.0 million which will expire 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 $199,000 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 was 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 September 30, 2000, the Company has
remaining accrued liabilities of approximately $5.6 million related to exit
costs which primarily consist of estimated lease termination costs and related
expenses. The activity in the exit accruals during Fiscal 2000 and 1999 were as
follows:
Year Ended
---------------------------------------
September 30, October 2,
2000 1999
---------------- -------------------
Beginning balance $ 6,030 $ 7,267
Adjustments to cost of Savane -- 7,884
Reductions/payments (438) (9,121)
---------------- -------------------
Ending balance $5,592 $6,030
================ ===================
The two manufacturing facilities in Costa Rica 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 2001.
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.
Year Ended
-----------------------------------------
October 3, September 27,
1998 1997
----------------- -------------------
Net sales $448,795 $425,411
Net income (loss) (3,184) (898)
Earnings (loss) per share-basic
and diluted share (0.43) (0.15)
9. COMMITMENTS AND CONTINGENCIES
As of September 30, 2000, the Company had approximately $10.0 million
of outstanding trade letters of credit with various expiration dates through
February 2001.
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 a 401(k) profit sharing plan 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 Fiscal 2000, 1999, and 1998, the Company recorded
expenses of $533,000, $585,000, and $264,000, respectively, related to these
plans.
Certain non-U.S. employees participate in defined contribution plans
with varying vesting and contribution provisions. For Fiscal 2000, 1999 and
1998, the Company recorded expenses of $309,000, $304,000 and $33,000,
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
September 30, 2000 and October 2, 1999, included the following components:
September 30, October 2,
2000 1999
----------------- -----------------
Service cost-benefits earned during the period $ 28 $ 37
Interest cost on projected benefit obligation 571 555
Estimated return on plan assets (763) (786)
Net amortization and deferral 112 124
----------------- -----------------
Net periodic pension cost $ (52) $ (70)
================= =================
The following table sets forth the funded status of the defined
benefit plan:
September 30, October 2,
2000 1999
----------------- ----------------
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATION:
Accumulated benefit obligation $8,027 $7,938
Projected benefit obligation 8,027 7,938
Plan assets at market value 8,037 8,362
----------------- ----------------
Funded status 10 424
Unrecognized transition liability being recognized over
average future service of plan participants 141 207
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions 1,907 1,375
----------------- ----------------
Prepaid expense $2,058 $2,006
================= ================
The following table provides a reconciliation of beginning and ending
balances of the benefit obligation of the defined benefit plan:
September 30, October 2,
2000 1999
----------------- ----------------
CHANGE IN BENEFIT OBLIGATION:
Projected benefit obligation, beginning of year
$7,938 $8,258
Service cost
28 37
Interest cost
571 555
Benefits paid (704) (707)
Actuarial (gain) loss 194 (205)
----------------- ----------------
Projected benefit obligation, end of year $8,027 $7,938
================= ================
The following table provides a reconciliation of the beginning and
ending balances of the fair value of plan assets of the defined benefit plan:
September 30, October 2,
2000 1999
----------------- ----------------
CHANGE IN PLAN ASSETS:
Plan assets at fair value, beginning of year $8,362 $8,335
Actual return on plan assets 379 666
Company contribution -- 68
Benefits paid
(704) (707)
----------------- ----------------
Plan assets at fair value, end of year $8,037 $8,362
================= ================
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 Fiscal 2000 and Fiscal 1999.
11. STOCK OPTION PLANS
The Company has adopted various stock option plans since 1996 which
combined reserve 1,760,000 shares of the Company's common stock for future
issuance. The per share exercise price of each stock option granted under these
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 for which grants are
priced at 110% of fair market value of the stock on 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 Fiscal 2000, 1999 and 1998, respectively: risk-free interest
rate of 5.9%, 6.1%, and 4.0%; a dividend yield of 0%, 0% and 0%; volatility
factor of the expected market price of the Company's common stock of .67, .87
and .92; and a weighted-average expected life of the option of seven years,
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 models 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 Fiscal 2000, 1999 and 1998 is (in thousands except for
earnings per share information):
Year Ended
------------- -- ------------ -- -----------
September 30, October 2, October 3,
2000 1999 1998
------------- ------------ -----------
Pro forma net income $13,440 $6,352 $10,235
Pro forma earnings per share - basic $1.76 $0.83 $1.37
Pro forma earnings per share - diluted $1.74 $0.81 $1.36
A summary of the Company's stock option activity, and related
information follows:
2000 1999 1998
---------------------- ----------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Price Per Price Per Price Per
Options Share Options Share Options Share
----------- ----------- ---------- --------- ---------- -----------
Outstanding - beginning of year 808,633 $16.24 485,700 $13.53 60,750 $10.50
Granted 765,655 17.32 382,600 19.55 451,900 13.84
Exercised (18,692) 12.16 (19,035) 11.78 -- --
Canceled/expired (133,715) 19.31 (40,632) 15.88 (26,950) 11.88
----------- ----------- ---------- --------- ---------- ----------
Outstanding-end of year 1,421,881 $16.58 808,633 $16.24 485,700 $13.53
=========== =========== ========== ========= ========== ==========
Weighted-average fair value of
options granted during the year $12.04 $12.64 $5.17
The exercise price range of outstanding and exercisable options as of
September 30, 2000 follows:
Outstanding Exercisable Exercise Price
Options Options Range Per Share
----------------- -------------- ------------------------
393,376 266,229 $10.25 - $13.20
537,250 347,004 $13.88 - $17.32
385,755 70,769 $18.38 - $19.75
105,500 46,670 $20.13 - $27.75
----------------- --------------
1,421,881 730,672
================= ==============
The weighted-average remaining contractual life of the outstanding
options is nine years. The initial term for options is generally ten years. The
vesting period is three years for 1,066,781 options and 355,100 options were
immediately vested.
12. QUARTERLY RESULTS OF OPERATIONS
The following is a summary of the unaudited quarterly results of
operations:
Net Net Income (Loss)
Net Gross Income Per
Sales Profit (Loss) Share - Diluted
----------- ------------ ------------- --------------------
Year Ended September 30, 2000
First Quarter $ 101,675 $29,602 $ 2,348 $0.30
Second Quarter 124,201 37,133 5,227 0.68
Third Quarter 123,044 36,085 5,740 0.74
Fourth Quarter 124,065 34,702 4,188 0.54
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)
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
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 7.8%, 8.3%,
and 4.8% of net sales for Fiscal 2000, 1999 and 1998, 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 represented
approximately 2.6%, 1.9% and 2.0% of the Company's long-term assets at September
30, 2000, October 2, 1999 and October 3, 1998, respectively.
In Fiscal 2000, two customers accounted for approximately 15% and 13%
of sales in the United States. 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.
14. SUPPLEMENTAL COMBINED CONDENSED FINANCIAL INFORMATION
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 statement of
operations and cash flows for the three years ended September 30, 2000, and the
supplemental combined condensed balance sheets as of September 30, 2000 and
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 believes that they are not material to investors.
Year Ended September 30, 2000
--------------------------------------------------------------------
Non-
Statements of Operations Parent Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------- ------------ ------------- --------------
Net sales $195,424 $240,760 $40,997 $(4,196) $472,985
Gross profit 49,518 75,226 12,778 -- 137,522
Operating income 18,252 29,191 354 -- 47,797
Interest, income taxes
and other, net 11,726 17,953 56 559 30,294
Net income 6,526 11,238 298 (559) 17,503
Year Ended October 2, 1999
--------------------------------------------------------------------
Non-
Statements of Operations Parent Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------- ------------ ------------- --------------
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
Year Ended October 3, 1998
--------------------------------------------------------------------
Non-
Statements of Operations Parent Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------- ------------ -------------- -------------
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
September 30, 2000
--------------------------------------------------------------------
Non-
Balance Sheets Parent Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------ ------------- --------------
ASSETS
Cash $ 171 $ 22 $ 1,574 $ -- $ 1,767
Accounts receivable 35,196 51,248 6,848 -- 93,292
Inventories 26,604 32,571 7,579 -- 66,754
Other current assets 12,155 12,152 377 -- 24,684
---------- ------------ ------------- ------------- --------------
Total current assets 74,126 95,993 16,378 -- 186,497
Property and equipment, net 30,503 10,011 6,374 -- 46,888
Other assets 124,832 81,788 4,229 (142,173) 68,676
---------- ------------ ------------- ------------- --------------
Total asset $229,461 $187,792 $26,981 $(142,173) $302,061
========== ============ ============= ============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued
liabilities $25,061 $44,022 $3,796 $ -- $72,879
Current portion of long-term
debt and capital lease obligations 904 1,087 -- -- 1,991
---------- ------------ ------------- ------------- -------------
Total current liabilities 25,965 45,109 3,796 -- 74,870
Long-term debt and noncurrent portion
of capital lease obligations 139,741 3,809 -- -- 143,550
Other noncurrent liabilities 257 7,455 95 -- 7,807
Shareholders' equity 63,498 131,419 23,090 (142,173) 75,834
---------- ------------ ------------- ------------- -------------
Total liabilities and
shareholders' equity $229,461 $187,792 $26,981 $(142,173) $302,061
========== ============ ============= ============= =============
October 2, 1999
-------------------------------------------------------------------- Non-
Balance Sheets Parent Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------- ------------- -------------
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 portion of long-term
debt and capital lease obligations 619 1,565 7 -- 2,191
---------- ------------ ------------- ------------- ---------------
Total current liabilities 21,505 28,408 6,427 (1,308) 55,032
Long-term debt and noncurrent portion
of capital lease obligations 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
shareholders' equity $239,503 $162,779 $31,257 $(144,217) $289,322
========== ============ ============= ============= ================
Year Ended September 30, 2000
---------------------------------------------------------------------
Non-
Statements of Cash Flows Parent Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------- ------------ ------------- --------------
Net cash provided by operating
activities $34,026 $ 2,175 $ 2,024 $ -- $38,225
Net cash used in investing activities (10,176) (554) (483) -- (11,213)
Net cash used in financing activities (23,769) (1,627) (1,456) -- (26,852)
Net increase (decrease) in cash 81 (6) 85 -- 160
Cash, beginning of year 90 28 1,489 -- 1,607
Cash, end of year 171 22 1,574 -- 1,767
Year Ended October 2, 1999
------------------------------------------------------------------
Non-
Statements of Cash Flows Parent Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ -------------
Net cash provided (used) by operating
activities $ 13,115 $ 8,692 $ (40) $(3,607) $18,160
Net cash used in investing activities (12,108) (3,415) (554) 1,277 (14,800)
Net cash provided (used) by financing
activities (1,037) (5,880) 737 2,330 (3,850)
Net increase (decrease) in cash (30) (603) 143 -- (490)
Cash, beginning of year 120 631 1,346 -- 2,097
Cash, end of year 90 28 1,489 -- 1,607
Year Ended October 3, 1998
-------------------------------------------------------------------
Non-
Statements of Cash Flows Parent Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ --------------
Net cash provided (used) by operating
activities $ 2,117 $(1,396) $(3,119) $ 796 $ (1,602) 796
Net cash used in investing activities (104,120) (1,106) (211) 9,327 (96,110)
Net cash provided (used) by financing
activities 101,999 (2,761) 1,251 (796) 99,693
Net increase (decrease) in cash (4) (5,263) (2,079) 9,327 1,981
Cash, beginning of year 124 5,894 3,425 (9,327) 116
Cash, end of year 120 631 1,346 -- 2,097
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:
October 3, 1998(2) $647 $4,697 $338 (1) $5,043 $639
October 2, 1999(2) $639 $1,286 $--- $--- $1,925
September 30, 2000 $1,925 $73 $--- $--- $1,998
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:
October 3, 1998 $2,200 $800 $10,336 (1) $5,192 $8,144
October 2, 1999 $8,144 $623 $--- $3,958 $4,809
September 30, 2000 $4,809 $1,759 $--- $2,101 $4,467
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:
October 3, 1998 $--- $--- $2,591 (1) $--- $2,591
October 2, 1999 $2,591 $--- $--- $--- $2,591
September 30, 2000 $2,591 $--- $--- $391 $2,200
(1) Represents balance acquired as a result of the acquisition of Savane
International Corp. on June 10, 1998.
(2) October 3, 1998 and October 2, 1999 balances have been restated to conform
to the Fiscal 2000 presentation.
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 13th day of December, 2000.
TROPICAL SPORTSWEAR INT'L CORPORATION
(Registrant)
By: /s/ William W. Compton
William W. Compton
airman 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.
Signature Title Date
/s/ William W. Compton Chairman of the Board December 13, 2000
William W. Compton Chief Executive Officer
and Director (Principal
Executive Officer)
/s/ Michael Kagan Vice Chairman of the Board, December 13, 2000
Michael Kagan Executive Vice President,
Chief Financial Officer and Secretary
(Principal Financial Officer)
/s/ N. Larry McPherson Senior Vice President December 13, 2000
N. Larry McPherson and Treasurer (Principal
Accounting Officer)
/s/ Jesus Alvarez-Morodo Director December 13, 2000
Jesus Alvarez-Morodo
/s/ Eloy S. Vallina-Laguera Director December 13, 2000
Eloy S. Vallina-Laguera
/s/ Leslie J. Gillock Director December 13, 2000
Leslie J. Gillock
/s/ Donald H. Livingstone Director December 13, 2000
Donald H. Livingstone
/s/ Leon H. Reinhart Director December 13, 2000
Leon H. Reinhart
/s/ Charles J. Smith Director December 13, 2000
Charles J. Smith
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).
4.5 Supplemental Indenture No. 1 dated as of August 23, 2000
among Tropical Sportswear Int'l Corporation, each of the New
Subsidiary Guarantors named therein, and SunTrust Bank,
Atlanta, as trustee (filed herewith).
*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).
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).
10.14 Employment Agreement dated July 1, 1999 between Gregory L.
Williams and Tropical Sportswear Int'l Corporation (filed
herewith).
*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).
*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).
Index to Exhibits (continued)
Exhibit
Number Description
*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 as Exhibit 10.25 to Tropical Sportswear Int'l
Corporation's Form 10-K filed December 30, 1999).
*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 as Exhibit
10.28 to Tropical Sportswear Int'l Corporation's Form 10-K
filed December 30, 1999).
*10.29 Seventh Amendment dated November 12, 1999 to Loan and Security
Agreement with Fleet Capital Corporation (filed as Exhibit
10.29 to Tropical Sportswear Int'l Corporation's Form 10-K
filed December 30, 1999).
*10.30 Second Amendment dated November 12, 1999 to Loan Agreement
with NationsBank N.A. (filed as Exhibit 10.30 to Tropical
Sportswear Int'l Corporation's Form 10-K filed December 30,
1999).
*10.31Third Amendment dated August 24, 1998 to Retail-Domestic Collection
Factoring Agreement between Heller Financial, Inc. and
Tropical Sportswear Int'l Corporation (filed as Exhibit 10.31
to Tropical Sportswear Int'l Corporation's Form 10-K filed
December 30, 1999).
*10.32Third Amendment dated January 18, 2000 to Loan Agreement with
NationsBank N.A. (filed as Exhibit 10.1 to Tropical Sportswear
Int'l Corporation's Form 10-Q filed May 10, 2000).
*10.33Eighth Amendment dated January 19, 2000 to Loan and Security
Agreement with Fleet Capital Corporation (filed as Exhibit
10.2 to Tropical Sportswear Int'l Corporation's Form 10-Q
filed May 10, 2000).
*10.34Tropical Sportswear Int'l Corporation 2000 Long-Term Incentive Plan
(filed as Exhibit 99.1 to Tropical Sportswear Int'l
Corporation's Registration Statement on Form S-8, dated July
28, 2000).
10.35 Joinder Agreement dated August 23, 2000 and Supplement to Loan
and Security Agreement with Fleet Capital Corporation (filed
herewith).
21.1 Subsidiaries of the Registrant (filed herewith).
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.
