<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 1, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-15873
FRUIT OF THE LOOM, LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CAYMAN ISLANDS NONE
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
P.O. BOX 866 GT, 3RD FLOOR
ANDERSON SQUARE BUILDING, SHEDDEN ROAD
GRAND CAYMAN, CAYMAN ISLANDS, BWI
(ADDRESS OF PRINCIPAL REGISTERED OFFICES, INCLUDING ZIP CODE)
(345) 945-8210
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Common shares outstanding at April 30, 2000: 66,978,520 Class A
Ordinary Shares, $.01 par value, and 4 Class B Redeemable Ordinary Shares, $.01
par value.
<PAGE> 2
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet--April 1, 2000 (Unaudited)
and January 1, 2000 ......................................................................... 2
Condensed Consolidated Statement of Operations (Unaudited)
for the Three Months Ended April 1, 2000 and April 3, 1999 ................................. 3
Condensed Consolidated Statement of Cash Flows (Unaudited) for
the Three Months Ended April 1, 2000 and April 3, 1999 ..................................... 4
Notes to Condensed Consolidated Financial Statements (Unaudited)............................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ....................................................................... 21
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.............................................................. 28
</TABLE>
1
<PAGE> 3
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
APRIL 1, JANUARY 1,
2000 2000
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents (including restricted cash)................. $ 38,200 $ 44,500
Notes and accounts receivable (less allowance
for possible losses of $30,100 and
$35,000, respectively)............................................. 238,000 232,100
Inventories
Finished goods..................................................... 440,200 422,800
Work in process.................................................... 161,300 169,900
Materials and supplies............................................. 57,400 66,400
----------- -----------
Total inventories............................................... 658,900 659,100
Net assets of discontinued operations................................. 21,100 29,300
Other ................................................................ 41,800 27,700
----------- -----------
Total current assets............................................ 998,000 992,700
----------- -----------
Property, Plant and Equipment............................................ 1,185,300 1,204,600
Less accumulated depreciation......................................... 797,200 797,400
----------- -----------
Net property, plant and equipment............................... 388,100 407,200
----------- -----------
Other Assets
Goodwill (less accumulated amortization of
$358,300 and $352,100, respectively)............................... 625,000 631,200
Other ................................................................ 114,100 124,300
----------- -----------
Total other assets.............................................. 739,100 755,500
----------- -----------
$ 2,125,200 $ 2,155,400
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Current maturities of long-term debt.................................. $ 635,300 $ 635,800
Trade accounts payable................................................ 48,900 31,400
Other accounts payable and accrued expenses........................... 251,400 198,000
----------- -----------
Total current liabilities....................................... 935,600 865,200
----------- -----------
Noncurrent Liabilities
Long-term debt........................................................ 600,900 593,500
Net liabilities of discontinued operations............................ 7,500 9,400
Other ................................................................ 37,700 37,900
----------- -----------
Total noncurrent liabilities.................................... 646,100 640,800
----------- -----------
Liabilities Subject to Compromise........................................ 659,700 671,200
----------- -----------
Minority Interest........................................................ 71,700 71,700
----------- -----------
Common Stockholders' Deficit............................................. (187,900) (93,500)
------------ ------------
$ 2,125,200 $ 2,155,400
=========== ===========
</TABLE>
See accompanying notes.
2
<PAGE> 4
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
APRIL 1, APRIL 3,
2000 1999
---- ----
<S> <C> <C>
Net sales....................................................... $ 374,900 $ 370,600
Cost of sales................................................... 353,100 286,200
--------- -----------
Gross earnings........................................... 21,800 84,400
Selling, general and administrative expenses.................... 63,600 68,300
Goodwill amortization........................................... 6,200 6,100
--------- -----------
Operating earnings (loss)................................ (48,000) 10,000
Interest expense................................................ (27,100) (20,600)
Other income-net................................................ 6,100 5,500
--------- -----------
Loss from continuing operations before
reorganization items and income tax provision.......... (69,000) (5,100)
Reorganization items............................................ (9,500) --
--------- -----------
Loss from continuing operations before
income tax provision................................... (78,500) (5,100)
Income tax provision............................................ 700 (500)
Minority interest............................................... -- 300
--------- -----------
Loss from continuing operations.......................... (79,200) (4,900)
Discontinued operations:
Loss from Sports & Licensing operations..................... (2,600) (4,100)
--------- -----------
Net loss................................................. $ (81,800) $ (9,000)
========== ===========
Loss per common share:
Continuing operations.................................... $ (1.18) $ (0.07)
Discontinued operations:
Loss from Sports & Licensing operations................ (0.04) (0.06)
--------- -----------
Net loss................................................. $ (1.22) $ (0.13)
========= ===========
Loss per common share - assuming dilution:
Continuing operations.................................... $ (1.18) $ (0.07)
Discontinued operations:
Loss from Sports & Licensing operations................ (0.04) (0.06)
--------- -----------
Net loss................................................. $ (1.22) $ (0.13)
========= ===========
Average common shares........................................... 67,000 70,400
========= ===========
Average common shares--assuming dilution........................ 67,000 70,400
========= ===========
</TABLE>
See accompanying notes.
3
<PAGE> 5
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 1, APRIL 3,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss from continuing operations........................................ $ (79,200) $ (4,900)
Adjustments to reconcile to net cash
used for operating activities:
Depreciation and amortization....................................... 30,600 30,000
Deferred income tax provision....................................... -- 1,700
Decrease (increase) in working capital.............................. 51,200 (76,500)
Cash flows of discontinued operations............................... 3,600 (4,800)
Gain on sale of marketable equity securities........................ (12,800) --
Other--net.......................................................... (15,300) (26,200)
------------ -------------
Net cash used for operating activities before
reorganization items............................................. (21,900) (80,700)
Net cash used for reorganization items:
Professional fees paid........................................... (1,000) --
------------ -------------
Net cash used for operating activities......................... (22,900) (80,700)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures................................................... (2,600) (6,500)
Proceeds from sale of marketable equity securities..................... 13,000 --
Other--net............................................................. (2,400) (10,600)
------------ -------------
Net cash provided by (used for) investing activities............ 8,000 (17,100)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
DIP financing proceeds................................................. 329,600 --
DIP financing payments................................................. (320,900) --
Proceeds from issuance of long-term debt............................... -- 239,700
Proceeds under line-of-credit agreements............................... -- 189,700
Payments under line-of-credit agreements............................... -- (302,500)
Principal payments on long-term debt and capital leases................ (100) (10,100)
------------ -------------
Net cash provided by financing activities......................... 8,600 116,800
------------ -------------
Net increase (decrease) in Cash and cash
equivalents (including restricted cash)................................ (6,300) 19,000
Cash and cash equivalents (including restricted
cash) at beginning of period........................................... 44,500 1,400
------------ -------------
Cash and cash equivalents (including restricted
cash) at end of period................................................ $ 38,200 $ 20,400
============ =============
</TABLE>
See accompanying notes.
4
<PAGE> 6
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. On March 4, 1999 Fruit of the Loom, Ltd. ("FTL, Ltd."), a Cayman
Islands company, became the parent holding company of Fruit of the Loom, Inc.
("FTL, Inc.") pursuant to a reorganization (the "Cayman Reorganization")
approved by the stockholders of FTL, Inc. on November 12, 1998. Hereinafter the
"Company" refers to the operations of FTL, Inc. and subsidiaries through March
3, 1999 and the operations of FTL, Ltd. and subsidiaries from March 4, 1999.
Hereinafter FTL, Inc. refers to the domestic subsidiary that owned all of the
Company's operations until July 3, 1999. At the beginning of the third quarter
of 1999, FTL, Inc. transferred ownership of its Central American subsidiaries
that perform essentially all of the Company's sewing and finishing operations
for the U.S. market to FTL Caribe Ltd., a Cayman Islands company directly wholly
owned by FTL, Ltd.
The condensed consolidated financial statements contained herein should
be read in conjunction with the consolidated financial statements and related
notes of the Company contained in the Company's Annual Report on Form 10-K for
the year ended January 1, 2000. The information furnished herein reflects all
adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the results of
operations of the interim periods. Operating results for the three months ended
April 1, 2000 are not necessarily indicative of results that may be expected for
the full year.
In connection with the Cayman Reorganization, all outstanding shares of
Class A common stock of FTL, Inc. were automatically converted into Class A
ordinary shares of FTL, Ltd., and all outstanding shares of Class B common stock
of FTL, Inc. were automatically converted into shares of exchangeable
participating preferred stock of FTL, Inc. (the "FTL, Inc. Preferred Stock").
The holders of the FTL, Inc. Preferred Stock also received, in the aggregate,
four Class B redeemable ordinary shares of FTL, Ltd. Except as provided by law
or FTL Ltd.'s Amended and Restated Memorandum of Association, the FTL Ltd. Class
B shares, in the aggregate, have voting rights equal to five times the number of
shares of FTL, Inc. Preferred Stock held by William F. Farley and his
affiliates. Therefore, each FTL Ltd. Class B share has voting rights equivalent
to 6,536,776.3 votes.
The FTL, Inc. Preferred Stock (5,229,421 shares outstanding) in the
aggregate (i) has a liquidation value of $71,700,000, which is equal to the fair
market value of the FTL, Inc. Class B common stock based upon the $13.71 average
closing price of FTL, Inc. Class A common stock on the New York Stock Exchange
for the 20 trading days prior to March 4, 1999, (ii) is entitled to receive
cumulative cash dividends of 4.5% per annum of the liquidation value, payable
quarterly, (iii) is exchangeable at the option of the holder, in whole or from
time to time in part, at any time for 4,981,000 FTL, Ltd. Class A ordinary
shares, (iv) is convertible at the option of the holder, in whole or from time
to time in part, at any time for 4,981,000 shares of FTL, Inc. common stock, (v)
participates with the holders of FTL, Inc. common stock in all dividends and
liquidation payments in addition to its preference payments on an as converted
basis, (vi) is redeemable by FTL, Inc., at its option, after three years at a
redemption price equal to the then fair market value of FTL, Inc. Preferred
Stock as determined by a nationally recognized investment banking firm, and
(vii) has the right to vote on all matters put to a vote of the holders of FTL,
Inc. common stock, voting together with such holders as a single class, and is
entitled to the number of votes which such holder would have on an as converted
basis. The minority interest in FTL, Inc. was based on the liquidation
preference of $71,700,000.
5
<PAGE> 7
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
The fixed dividend on the FTL, Inc. Preferred Stock of 4.5% of the
liquidation preference of $71,700,000 equals $3,200,000 on an annual basis. In
addition, preferred stockholders participate in FTL, Inc.'s earnings after
provision for the fixed preferred stock dividend. Participation in earnings is
determined as the ratio of preferred shares outstanding to the total of
preferred and common shares outstanding (7.2% at April 1, 2000). Preferred
stockholder participation in losses is limited to the preferred stockholders'
prior participation in earnings. Because FTL, Inc. reported losses throughout
1999 and in the first quarter of 2000, the minority interest participation is
limited to the fixed preferred dividends. FTL, Inc. ceased recording dividends
on the FTL, Inc. Preferred Stock in the first quarter of 2000 since it is an
unsecured obligation on the bankruptcy date.
2. CHAPTER 11 FILING. On December 29, 1999 (the "Petition Date"), FTL,
Ltd., FTL, Inc., and 32 of its subsidiaries (collectively, the "Debtors") filed
voluntary petitions for relief under chapter 11 ("Chapter 11"), Title 11 of the
United States Code, U.S.C. Sections 101-1330 as amended (the "Bankruptcy Code"),
with the United States Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court"). The bankruptcy cases of the Debtors are being jointly
administered, for procedural purposes only, before the Bankruptcy Court under
Case No. 99-4497(PJW). Pursuant to Sections 1107 and 1108 of the Bankruptcy
Code, FTL, Ltd. and FTL, Inc., as debtors and debtors-in-possession, have
continued to manage and operate their assets and businesses pending the
confirmation of a reorganization plan and subject to the supervision and orders
of the Bankruptcy Court. Because FTL, Ltd. and FTL, Inc. are operating as
debtors-in-possession under the Bankruptcy Code, the existing directors and
officers of FTL, Ltd. and FTL, Inc. continue to govern and manage the operations
of FTL, Ltd. and FTL, Inc., respectively, subject to the supervision and orders
of the Bankruptcy Court. In addition, on December 30, 1999 FTL, Ltd. voluntarily
presented a petition to wind up the Company and obtained an order from the Grand
Court of the Cayman Islands appointing provisional liquidators. FTL, Ltd.'s
petition is adjourned at this time.
Certain subsidiaries were not included in the Chapter 11 filings.
Condensed consolidated financial statements of the entities in reorganization
are presented herein.
As part of the Chapter 11 cases, the Company routinely files pleadings,
documents and reports with the Bankruptcy Court which may contain updated,
additional or more detailed information about the Company, its assets,
liabilities or financial performance than is contained in this report. Copies of
filings in the Company's Chapter 11 cases are available during regular business
hours at the office of the Clerk of the Bankruptcy Court, United States
Bankruptcy Court for the District of Delaware, 5th Floor, 824 Market Street,
Wilmington, Delaware 19801. Certain filings may also be reviewed on the
Bankruptcy Court's electronic docket for the Company's Chapter 11 cases, which
is posted on the internet www.deb.uscourts.gov.
CAYMAN ISLANDS PROVISIONAL LIQUIDATION. On December 30, 1999, FTL, Ltd.
voluntarily filed a Petition in the Grand Court of the Cayman Islands for the
appointment of Theo Bullmore and Simon Whicker as Joint Provisional Liquidators
("JPL's") (Cause No. 823 of 1999). The JPL's were appointed pursuant to the
Companies Law ss.99. Among Orders made by the Court on the presentation of the
Petition was an Injunction restraining further proceedings in any action, suit
or proceedings against FTL, Ltd. without first obtaining leave of the Court.
6
<PAGE> 8
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
Under the Companies Law ss.110 the Court conferred the powers of an
Official Liquidator (ss.109) on the JPL's. Those powers include:
(a) to bring or defend any action, civil or criminal, on behalf of
FTL, Ltd.;
(b) to carry on the business of FTL, Ltd. to sell the real and
personal property of FTL, Ltd.; and
(c) to do all acts and execute all contracts, deeds, receipts and
documents on behalf of FTL, Ltd.
Although FTL, Ltd. is authorized to operate its business and manage its
properties as debtor-in-possession, it may not engage in transactions outside
the ordinary course of business without obtaining the sanction of the JPL's and
complying with the Orders of the Grand Court. It is intended that the Cayman
Proceedings will be conducted in tandem with the Chapter 11 Bankruptcy cases.
REORGANIZATION PLAN PROCEDURES. The Debtors expect to reorganize their
affairs under the protection of Chapter 11 and to propose a Chapter 11 plan of
reorganization for themselves. Although management expects to file a plan of
reorganization which would contemplate emergence in 2001, there can be no
assurance at this time that a plan of reorganization proposed by the Debtors
will be approved or confirmed by the Bankruptcy Court, or that such plan will be
consummated. FTL, Inc. had the exclusive right to file a plan of reorganization
through April 27, 2000. Due to the seasonality and magnitude of the Company's
operations, and the number of interested parties asserting claims that must be
resolved in the Chapter 11 cases, the plan formulation process is complex.
Accordingly, the Debtors requested and received an extension of the 120 day
exclusivity period. The Bankruptcy Court granted an extension of the exclusivity
period through October 31, 2000. After the expiration of the extended
exclusivity period, creditors will have the right to propose reorganization
plans unless the Debtors request and receive a further extension of the
exclusivity period. However, management believes that it is highly unlikely that
current equity security holders will receive any distribution under any
reorganization plan as a result of the issuance of new equity to existing
creditors. The consummation of a plan of reorganization is the principal
objective of the Company's Chapter 11 cases. A plan of reorganization sets forth
the means for satisfying claims and interests in the Company and its debtor
subsidiaries, including the liabilities subject to compromise. The consummation
of a plan of reorganization for the Company and its debtor subsidiaries will
require the requisite vote of impaired creditors and stockholders under the
Bankruptcy Code and confirmation of the plan by the Bankruptcy Court. At this
time it is not possible to predict the outcome of the Debtors' Chapter 11 cases
or their effect on the Debtors' business.
FINANCIAL STATEMENT PRESENTATION. The consolidated financial statements
have been presented in accordance with the American Institute of Certified
Public Accountants Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization under the Bankruptcy Code" (SOP 90-7) and have been prepared
in accordance with generally accepted accounting principles applicable to a
going concern, which principles, except as otherwise disclosed, assume that
assets will be realized and liabilities will be discharged in the ordinary
course of business. As a result of the Chapter 11 cases and circumstances
relating to this event, including FTL, Ltd.'s debt structure, default on all
pre-petition debt, negative cash flows, its recurring losses, and current
economic conditions, such realization of assets and liquidation of liabilities
are subject to significant uncertainty. While under the protection of Chapter
11, the Company may sell or otherwise dispose of assets, and liquidate or settle
liabilities, for amounts other than those reflected in the financial statements.
Additionally, the amounts reported on the consolidated balance sheet could
materially change because of changes in business strategies and the effects of
any proposed plan of reorganization.
The appropriateness of using the going concern basis is dependent upon,
among other things, confirmation of a plan of reorganization, future profitable
operations, the ability to comply with the terms of the debtor-in-possession
financing facility and the ability to generate sufficient cash from operations
and financing arrangements to meet obligations.
7
<PAGE> 9
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
LIABILITIES SUBJECT TO COMPROMISE. In the Chapter 11 cases,
substantially all unsecured liabilities as of the Petition Date are subject to
compromise or other treatment under a plan of reorganization which must be
confirmed by the Bankruptcy Court after submission to any required vote by
affected parties. For financial reporting purposes, those liabilities and
obligations whose treatment and satisfaction is dependent on the outcome of the
Chapter 11 cases, have been segregated and classified as liabilities subject to
compromise under reorganization proceedings in the consolidated balance sheets.
Generally, all actions to enforce or otherwise effect repayment of pre-Chapter
11 liabilities as well as all pending litigation against the Debtors are stayed
while the Debtors continue their business operations as debtors-in-possession.
Unaudited schedules have been filed by the Debtors with the Bankruptcy Court
setting forth the assets and liabilities of the Debtors as of the Petition Date
as reflected in the Debtor's accounting records. The ultimate amount of and
settlement terms for such liabilities are subject to an approved plan of
reorganization and accordingly are not presently determinable.
Under the Bankruptcy Code, the Debtors may elect to assume or reject
real estate leases, employment contracts, personal property leases, service
contracts and other prepetition executory contracts, subject to Bankruptcy Court
approval. Claims for damages resulting from the rejection of real estate leases
and other executory contracts will be subject to separate bar dates. The Debtors
have not reviewed all leases for assumption or rejection but will analyze their
leases and executory contracts and may assume or reject leases and contracts.
Such rejections could result in additional liabilities subject to compromise.
The principal categories of obligations classified as liabilities
subject to compromise under reorganization cases are identified below. The
amounts below in total may vary significantly from the stated amount of proofs
of claim that will be filed with the Bankruptcy Court and may be subject to
future adjustment depending on Bankruptcy Court action, further developments
with respect to potential disputed claims, determination as to the value of any
collateral securing claims, or other events.
Additional claims may arise from the rejection of additional real
estate leases and executory contracts by the Debtors.
APRIL 1, JANUARY 1,
2000 2000
---- ----
(IN THOUSANDS OF DOLLARS)
8.875% Unsecured Senior Notes.............. $ 248,500 $ 248,500
Trade accounts payable..................... 113,600 113,100
Environmental and product liability........ 34,900 35,400
Accrued severance.......................... 27,400 27,400
Deferred compensation accrual.............. 16,400 16,400
Other...................................... 218,900 230,400
------------ ----------
$ 659,700 $ 671,200
============ ==========
As a result of the Chapter 11 filing, no principal or interest payments
will be made on unsecured prepetition debt without Bankruptcy Court approval or
until a plan of reorganization providing for the repayment terms has been
confirmed by the Bankruptcy Court and becomes effective. Therefore, interest on
prepetition unsecured obligations has not been accrued after the Petition Date.
8
<PAGE> 10
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
REORGANIZATION ITEMS AND OTHER EXPENSES. Pursuant to SOP 90-7, revenues
and expenses, realized gains and losses, and provisions for losses resulting
from the reorganization of the business are reported in the Condensed
Consolidated Statement of Operations separately as reorganization items.
Professional fees are expensed as incurred. Interest expense is reported only to
the extent that it will be paid during the cases or that it is probable that it
will be an allowed claim.
On April 20, 2000 trading of the Company's Class A Ordinary Shares
was suspended by the New York Stock Exchange ("NYSE"), and application will be
made by the NYSE to the Securities and Exchange Commission to delist the stock.
The Company's Class A Ordinary Shares continue to be traded as an
over-the-counter equity security under the symbol "FTLAQ".
On May 10, 2000 the Company received notice from the NASDAQ-AMEX Market
Group (the "Exchange") that the Company has fallen below certain of the
Exchange's continued listing guidelines. The Exchange is currently reviewing the
Company's listing eligibility for its 7% Debentures due March 15, 2011.
3. No dividends were declared on the Company's ordinary shares for the
three-month periods ended April 1, 2000 and April 3, 1999. Management of the
Company believes that no dividends will be declared on the Company's ordinary
shares while the Company's Chapter 11 cases are pending.
4. There is no income tax in the Cayman Islands. Income taxes do apply
to results attributable to operations in the U.S. and certain other countries.
The Company's income tax provision for the first three months of 2000 consists
of a provision for European income taxes. The Company recorded no U.S. tax
benefit at the U.S. statutory rate of 35% on the pretax loss in the first
quarter of 2000 primarily because the Company is unable to realize any current
benefit from the operating loss through carrybacks to prior years. No future tax
benefit was recorded in the first quarter of 2000 due to the Company's present
inability under the Chapter 11 cases to implement certain income tax planning
strategies and the expected operating loss for 2000.
As a result of the Chapter 11 cases, the utilization of net operating
loss carryforwards and tax credit carryforwards of the Company may be limited
under the Internal Revenue Code. The Company is unable at the present time to
quantify what, if any, limitation may apply to the tax carryforward items.
The Company's effective income tax rate of 9.8% for the first three
months of 1999 differed from the U.S. Federal statutory rate of 35% primarily
due to the impact of foreign earnings, certain of which are taxed at lower rates
than in the U.S., and to reduction of deferred tax asset valuation allowances
attributable to 1997 special charges. These favorable factors were partially
offset by goodwill amortization, a portion of which is not deductible for U.S.
Federal income taxes, and state income taxes.
5. On February 23, 2000 the Bankruptcy Court approved the Company's
plan to discontinue the operations of the Company's Pro Player Sports and
Licensing Division ("Pro Player"). In accordance with generally accepted
accounting principles, Pro Player has been treated as a discontinued operation
in the accompanying condensed consolidated financial statements. The assets of
Pro Player to be sold consist primarily of accounts receivable, inventories,
property, plant and equipment and intangibles. In connection with the Company's
decision to discontinue the operations of Pro Player, $47,500,000 was accrued in
the year ended January 1, 2000 for the loss on disposal of the assets of Pro
Player including a provision of $10,400,000 for expected operating losses during
the estimated phase-out period from February 24, 2000 through August 24, 2000.
9
<PAGE> 11
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
Operating results for Pro Player are classified as Discontinued
Operations in the accompanying condensed consolidated statement of operations. A
portion of the Company's interest expense ($1,000,000 in each period presented)
has been allocated to discontinued operations based on the debt balance
attributable to those operations. Income taxes have been provided on a separate
company basis. The Company's estimated loss on disposal of Sports & Licensing
operations recorded in the fourth quarter of 1999 included a provision for Pro
Player's anticipated operating losses from the February 23, 2000 measurement
date until disposal. Accordingly, the portion of Pro Player's first quarter 2000
net loss attributable to the period after February 23, 2000 has been charged to
the Company's reserve for loss on disposal. Results of Pro Player's operations
were as follows (in thousands of dollars):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 1, APRIL 3,
2000 1999
---- ----
<S> <C> <C>
Net sales......................................................... $ 21,300 $ 32,200
Cost of sales..................................................... 16,900 24,000
------------- ------------
Gross earnings............................................... 4,400 8,200
Selling, general & administrative expenses........................ 9,600 10,800
Goodwill amortization............................................. 500 500
------------- ------------
Operating loss............................................... (5,700) (3,100)
Interest expense.................................................. (1,000) (1,000)
Other expense--net................................................ (100) --
-------------- ------------
Net loss..................................................... (6,800) (4,100)
Portion of net loss charged to reserve for loss on disposal....... 4,200 --
------------- ------------
Loss from discontinued operations............................ $ (2,600) $ (4,100)
============= ============
</TABLE>
Assets and liabilities of discontinued operations consisted
of the following (in thousands of dollars):
<TABLE>
<CAPTION>
APRIL 1, JANUARY 1,
2000 2000
---- ----
<S> <C> <C>
Accounts receivable..................................................................... $ 16,900 $ 19,100
Inventories............................................................................. 18,500 22,400
Other current assets.................................................................... -- 700
Trade accounts payable.................................................................. (1,300) --
Other accounts payable and accrued expenses............................................. (13,000) (12,900)
----------- ------------
Net current assets.................................................................. 21,100 29,300
----------- ------------
Property, plant and equipment........................................................... 7,500 7,500
Liabilities subject to compromise....................................................... (15,000) (16,900)
----------- ------------
Net noncurrent liabilities.......................................................... (7,500) (9,400)
------------ ------------
Net assets of discontinued operations............................................... $ 13,600 $ 19,900
============ ============
</TABLE>
Assets are shown at their expected net realizable values.
6. In the third and fourth quarters of 1999, the Company recorded
charges for provisions and losses on the sale of close-out and irregular
inventory, costs related to impairment of certain European manufacturing
facilities, severance, a debt guarantee and other asset write-downs and
reserves. These charges totaled $345,800,000 ($126,600,000 in the third quarter
and $219,200,000 in the fourth quarter).
10
<PAGE> 12
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
A rollforward of the 1999 special charges from January 1, 2000 through
April 1, 2000 is presented below (in thousands of dollars):
<TABLE>
<CAPTION>
RESERVE RESERVE
BALANCE AT BALANCE AT
JANUARY 1, CASH INCOME OTHER APRIL 1,
2000 PAYMENTS (EXPENSE) ACTIVITY 2000
---- -------- --------- -------- ----
<S> <C> <C> <C> <C> <C>
Provisions and losses on the sales of
close-out and irregular merchandise............... $ 35,000 $ -- $ -- $ 9,700 $ 25,300
Severance............................................ 30,600 200 -- -- 30,400
Debt guarantee....................................... 30,000 700 -- -- 29,300
Other asset write downs and reserves................. 72,100 600 -- 13,700 57,800
----------- -------- ----------- ----------- -----------
$ 167,700 $ 1,500 -- $ 23,400 $ 142,800
=========== ======== =========== =========== ===========
</TABLE>
Other activity in the first quarter of 2000 consists of inventory
reserves which were relieved as the inventory was sold. Other activity does not
include amounts provided in the first quarter of 2000 for additional ongoing
normal lower of cost or market reserves.
11
<PAGE> 13
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
In the fourth quarter of 1997, the Company recorded charges for costs
related to the closing and disposal of a number of domestic manufacturing and
distribution facilities, impairment of manufacturing equipment and other assets
and certain European manufacturing and distribution facilities, and other costs
associated with the Company's world-wide restructuring of manufacturing and
distribution facilities. These and other special charges totalled $441,700,000
($372,200,000 after tax).
A rollforward of the 1997 special charges from January 1, 2000 through
April 1, 2000 is presented below (in thousands of dollars):
<TABLE>
<CAPTION>
RESERVE RESERVE
BALANCE BALANCE
JANUARY 1, CASH INCOME OTHER APRIL 1,
2000 PAYMENTS (EXPENSE) ACTIVITY 2000
---- -------- --------- -------- ----
<S> <C> <C> <C> <C> <C>
CLOSING AND DISPOSAL OF U.S. MANUFACTURING
AND DISTRIBUTION FACILITIES
Loss on sale of facilities, improvements and equipment:
Sewing, finishing and distribution facilities........ $ 25,600 $ 100 $ -- $ -- $ 25,500
Impairment of mills to be sold....................... 13,400 -- -- -- 13,400
Lease residual guarantees............................ 54,200 -- -- -- 54,200
Other equipment...................................... 6,100 -- -- -- 6,100
---------- --------- -------- --------- -----------
99,300 100 -- -- 99,200
Severance costs...................................... 200 -- -- -- 200
Other accruals....................................... 1,900 -- -- -- 1,900
---------- --------- -------- --------- -----------
101,400 100 -- -- 101,300
---------- --------- -------- --------- -----------
IMPAIRMENT OF EUROPEAN MANUFACTURING AND
DISTRIBUTION FACILITIES
Impairment of long lived assets...................... -- -- -- -- --
Other accruals....................................... 200 -- -- 200 --
---------- --------- -------- --------- -----------
200 -- -- 200 --
---------- --------- -------- --------- -----------
PRO PLAYER INCENTIVE COMPENSATION AGREEMENT.......... -- -- -- -- --
---------- --------- -------- --------- -----------
OTHER ASSET WRITE-DOWNS AND RESERVES
Inventory valuation provisions....................... -- -- -- -- --
Other accruals....................................... 4,200 -- -- -- 4,200
---------- --------- -------- --------- -----------
4,200 -- -- -- 4,200
---------- --------- -------- --------- -----------
CHANGES IN ESTIMATES OF CERTAIN RETAINED
LIABILITIES OF FORMER SUBSIDIARIES................ 9,300 -- -- -- 9,300
---------- --------- -------- --------- -----------
$ 115,100 $ 100 $ -- $ 200 $ 114,800
========== ========= ======== ========= ===========
</TABLE>
In 1995, management announced plans to close certain manufacturing
operations and to take other actions to reduce costs and improve operations. As
a result, the Company recorded charges of approximately $372,900,000
($287,400,000 after tax) related to impairment write-downs of goodwill, costs
associated with the closing or realignment of certain domestic manufacturing
facilities and attendant personnel reductions and charges related to inventory
write-downs and valuations, foreign operations and other corporate issues.
12
<PAGE> 14
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
A rollforward of the 1995 special charges from January 1, 2000 through
April 1, 2000 is presented below (in thousands of dollars):
<TABLE>
<CAPTION>
RESERVE RESERVE
BALANCE BALANCE
JANUARY 1, CASH INCOME OTHER APRIL 1,
2000 PAYMENTS (EXPENSE) ACTIVITY 2000
---- -------- --------- -------- ----
<S> <C> <C> <C> <C> <C>
Impairment write down of goodwill...................................... $ -- $ -- $ -- $ -- $ --
Closing or realignment of manufacturing operations:
Loss on disposal of closed facilities, improvements and equipment... -- -- -- -- --
Changes in estimates of insurance liabilities....................... 500 500 -- -- --
Costs related to expected increases in workers' compensation and
health and welfare costs.......................................... -- -- -- -- --
Costs related to termination of certain lease obligations........... -- -- -- -- --
Costs related to severance of the hourly workforce.................. -- -- -- -- --
Other .............................................................. 200 -- -- -- 200
-------- ------- ---- ----- --------
700 500 -- -- 200
Severance.............................................................. -- -- -- -- --
Other asset write downs, valuation reserves and other reserves......... -- -- -- -- --
Changes in estimates of certain retained liabilities
of former subsidiaries.............................................. 2,200 600 -- -- 1,600
Termination of management agreement.................................... -- -- -- -- --
-------- ------- ---- ----- --------
$ 2,900 $ 1,100 $ -- $ -- $ 1,800
======== ======= ==== ===== ========
</TABLE>
13
<PAGE> 15
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
7. The Company and its subsidiaries are involved in certain legal
proceedings and have retained liabilities, including certain environmental
liabilities, such as those under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), its regulations
and similar state statutes ("Superfund Legislation"), in connection with the
sale of certain discontinued operations, some of which were significant
generators of hazardous waste. The Company and its subsidiaries have also
retained certain liabilities related to the sale of products in connection with
the sale of certain discontinued operations. The Company's retained liability
reserves at April 1, 2000 related to discontinued operations consist primarily
of certain environmental reserves of approximately $32,900,000 and product
liability reserves of approximately $2,000,000. The Company has purchased
insurance coverage for potential cleanup cost expenditures from the level of
current environmental reserves up to $100,000,000 for certain sites with
on-going remediation, pollution liability coverage for claims arising out of
pollution conditions at owned locations including continuing operations, sold
facilities and non-owned sites and product liability coverage for claims arising
out of products manufactured by the sold operations. Management believes that
adequate reserves have been established to cover potential claims based on facts
currently available and current Superfund and CERCLA Legislation.
Generators of hazardous wastes which were disposed of at offsite
locations which are now superfund sites are subject to claims brought by state
and Federal regulatory agencies under Superfund Legislation and by private
citizens under Superfund Legislation and common law theories. Since 1982, the
United States Environmental Protection Agency (the "EPA") has actively sought
compensation for response costs and remedial action at offsite disposal
locations from waste generators under the Superfund Legislation, which
authorizes such action by the EPA regardless of fault, legality of original
disposal or ownership of a disposal site. The EPA's activities under the
Superfund Legislation can be expected to continue during the remainder of 2000
and future years.
On February 24, 1999, the Board of Directors, excluding Mr. Farley,
authorized the Company to guarantee a bank loan of $65,000,000 to Mr. Farley in
connection with Mr. Farley's refinancing and retirement of his $26,000,000 and
$12,000,000 loans previously guaranteed by the Company and other indebtedness of
Mr. Farley. The Company's obligations under the guarantee are collateralized by
2,507,512 shares of FTL, Inc. Preferred Stock and all of Mr. Farley's assets,
including Mr. Farley's personal guarantee. In consideration of the guarantee,
which is scheduled to expire in September 2000, Mr. Farley is obligated to pay
an annual guarantee fee equal to 2% of the outstanding principal balance of the
loan. The Board of Directors received an opinion from an independent financial
advisor that the terms of the transaction are commercially reasonable. The total
amount guaranteed is $59,300,000 as of May 5, 2000. Based on management's
assessment of existing facts and circumstances of Mr. Farley's financial
condition, the Company recorded a $10,000,000 charge in the third quarter of
1999 and $20,000,000 in the fourth quarter of 1999 related to the Company's
exposure under the guarantee. The Company continues to evaluate its exposure
under the guarantee. Mr. Farley has not paid the Company the guarantee fee due
in 2000 and is in default under the loans and the reimbursement agreement with
the Company. The Company began paying interest on the loan in the first quarter
of 2000 including interest that was outstanding from the fourth quarter of 1999.
Through May 5, 2000, total payments made by the Company on behalf of Mr.
Farley's loan aggregated $2,000,000. In addition, unpaid guarantee fees owed the
Company by Mr. Farley through April 30, 2000 aggregated $700,000.
William F. Farley, former Chairman of the Company's Board of Directors,
relinquished the additional duties of chief executive officer and chief
operating officer in August of 1999 at the direction of the Board. The Company
recorded a provision of $27,400,000 in the third quarter of 1999 for estimated
future severance and retirement obligations under Mr. Farley's employment
agreement. The Company terminated Mr. Farley's employment agreement in 1999.
Thereafter, the Company received approval from the Bankruptcy Court to reject
the agreement.
14
<PAGE> 16
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
The Company has negotiated grants from the governments of the Republic
of Ireland, Northern Ireland and Germany. The grants are being used for employee
training, the acquisition of property and equipment and other governmental
business incentives such as general employment. At April 1, 2000, the Company
had a contingent liability to repay, in whole or in part, grants received of
approximately $22,300,000 in the event that the Company does not meet defined
average employment levels or terminates operations in the Republic of Ireland,
Northern Ireland and Germany.
On July 1, 1998, the New England Health Care Employees Pension Fund
filed a purported class action on behalf of all those who purchased FTL, Inc.
Class A Common Stock and publicly traded options between July 24, 1996 and
September 5, 1997 (the "Class Period") against the Company and William F.
Farley, Bernhard Hansen, Richard C. Lappin, G. William Newton, Burgess D. Ridge,
Larry K. Switzer and John D. Wigodsky, each of whom is a current or former
officer of the Company, in the United States District Court for the Western
District of Kentucky (the "New England Action"). The plaintiff claims that the
defendants engaged in conduct violating Section 10(b) of the Securities Exchange
Act of 1934, as amended (the "Act"), and that the Company and Mr. Farley are
also liable under Section 20(a) of the Act. According to the plaintiff, the
Company, with the knowledge and assistance of the individual defendants, made
certain material misrepresentations and failed to disclose certain material
facts about the Company's condition and prospects during the Class Period,
causing the plaintiff and the class to buy Company stock or options at
artificially inflated prices. The plaintiff also alleges that during the Class
Period, the individual defendants sold stock of the Company while possessing
material non-public information. The plaintiff asks for unspecified amounts as
damages, interest and costs and ancillary relief. The defendants filed a motion
to dismiss the action, which was denied. The defendants filed a motion to change
venue from Bowling Green, Kentucky, to Chicago, Illinois. That motion has been
denied. All defendants have filed an answer to the complaint. Discovery has been
initiated against the individual defendants and against certain third-parties.
The Company filed a motion in the Bankruptcy Court seeking to enjoin further
prosecution of the New England Action pending the consummation of a plan of
reorganization. The Company and counsel for the plaintiff have reached
agreement, subject to documentation and approval of the Bankruptcy Court, to
stay the New England Action at least until January 15, 2001, subject to certain
limited document discovery against non-parties (other than any current or former
officers and directors) being permitted to proceed. Also, the plaintiffs may
amend the complaint to add additional parties. The action is not proceeding
against the Company at this time due to the automatic stay in the bankruptcy
cases.
Management believes that the suit is without merit, and management and
the Company intend to defend it vigorously. Management believes, based on
information currently available, that the ultimate resolution of this litigation
will not have a material adverse effect on the financial condition or results of
the operations of the Company.
15
<PAGE> 17
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
In March and April 2000, eight putative class actions were filed on
behalf of all those who purchased Fruit of the Loom, Inc. Class A common stock
between September 28, 1998 and November 4, 1999 against William F. Farley and G.
William Newton, each of whom is a current or former officer of the Company, in
the United States District Court for the Western District of Kentucky. The
lawsuits contain virtually identical allegations and assert the same causes of
action under the Securities Exchange Act of 1934, as amended (the "Act"). The
plaintiffs claim that the defendants engaged in conduct violating Section 10(b)
of the Act, and that Mr. Farley is also liable under Section 20(a) of the Act.
According to the plaintiffs in each action, the defendants made certain material
misrepresentations and failed to disclose certain material facts about the
Company's condition and prospects during the alleged class period, causing the
plaintiffs and the class to purchase Company stock at artificially inflated
prices. The plaintiffs ask for unspecified amounts as to damages, interest and
costs and ancillary relief.
The eight putative class action lawsuits are: i) Bernard Fidel v. William
Farley, et al., Civil Action No. 1:00 CV-48M (W.D. Ky.), filed on March 22,
2000; ii) Tom Maiden v. William Farley, et al., Civil Action No. 1:00 CV-49M
(W.D. Ky.), filed on March 27, 2000; iii) Adele Brody v. William Farley, et al.,
Civil Action No. 1:00 CV-50M (W.D. Ky.), filed on March 27, 2000; iv) Gregory
Nespole v. William Farley, et al., Civil Action No. 1:00 CV-53M (W.D. Ky.),
filed on March 29, 2000; v) Deborah Dyckman v. William Farley, et al., Civil
Action No. 1:00 CV-55M (W.D. Ky.), filed on March 30, 2000; vi) The Ezra
Charitable Trust v. William Farley, et al., Civil Action No. 1:00 CV-56M (W.D.
Ky.), filed on March 30, 2000; vii) Steven Clinton v. William Farley, et al.,
Civil Action No. 1:00 CV-59M (W.D. Ky.), filed on March 31, 2000; viii) Francis
Olearczyk v. William Farley, et al., Civil Action No. 1:00 CV-79M (W.D. Ky.),
filed on April 27, 2000. The Company filed a motion in the Bankruptcy Court to
stay the first seven of these putative class actions pending consummation of a
plan of reorganization. (The eighth action, Olearczyk v. Farley, et al., had not
been filed at the time the Company originally filed its motion). The Company and
counsel for the plaintiffs in the first seven putative class actions have
reached agreement, subject to documentation and approval of the Bankruptcy
Court, to stay the seven putative class actions at least until January 15, 2001,
with the following exceptions:
(a) the plaintiffs shall be permitted to file amended complaints;
(b) the parties may pursue the selection of a lead plaintiff, class
certification and consolidation of any of the actions;
(c) the time for defendants to answer or move with respect to any complaint
shall be extended to October 31, 2000; and
(d) the parties may pursue document discovery, subject to limitations, of
certain non-parties other than the Company or current or former
officers or directors.
The Company is pursuing the same agreement with plaintiff's counsel in the
Olearczyk Action.
16
<PAGE> 18
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
8. Comprehensive loss was as follows (in thousands of dollars):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
APRIL 1, APRIL 3,
2000 1999
---- ----
<S> <C> <C>
Net loss......................................... $(81,800) $ (9,000)
Gain on marketable equity securities
reclassified to net loss when realized .... (10,000) --
Foreign currency translation adjustments--net.... (3,200) (11,500)
-------- ----------
Comprehensive loss......................... $(95,000) $ (20,500)
======== ==========
</TABLE>
9. The following table sets forth the computation of basic and diluted
earnings (loss) per common share (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
APRIL 1, APRIL 3,
2000 1999
---- ----
<S> <C> <C>
NUMERATOR
For basic earnings per share--
Loss from continuing operations.......................... $ (79,200) $ (4,900)
Discontinued operations.................................. (2,600) (4,100)
----------- ---------
Net loss................................................. $ (81,800) $ (9,000)
Add back dividends on minority exchangeable
preferred assumed to be converted...................... -- --
----------- ---------
For diluted earnings per share--
Loss applicable to common
stock after assumed conversion......................... $ (81,800) $ (9,000)
=========== ==========
DENOMINATOR
For basic earnings per common share--
Weighted average shares outstanding...................... 67,000 70,400
Effect of dilutive employee stock options................ -- --
Effect of dilutive exchangeable preferred................ -- --
----------- ---------
For diluted earnings per common share--
Weighted average shares outstanding
and assumed conversions............................... 67,000 70,400
============ =========
Loss per common share
Continuing operations.................................... $ (1.18) $ (0.07)
Discontinued operations.................................. (0.04) (0.06)
------------ ---------
Net loss................................................. $ (1.22) $ (0.13)
============ =========
Loss per common share--assuming dilution:
Continuing operations.................................... $ (1.18) $ (0.07)
Discontinued operations.................................. (0.04) (0.06)
------------ ---------
Net loss................................................. $ (1.22) $ (0.13)
============ =========
</TABLE>
Because the Company reported losses from continuing operations in both
periods, the effect of the minority exchangeable preferred stock (5,200,000
shares) and employee stock options is antidilutive and has been ignored in the
computation of diluted EPS.
17
<PAGE> 19
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
10. DEBTOR FINANCIAL STATEMENTS. The following represents the
consolidation of the Company and its Debtor subsidiaries as of April 1, 2000 and
January 1, 2000 and for the three months ended April 1, 2000. Investments in
nondebtor subsidiaries are presented using the equity method.
FRUIT OF THE LOOM, LTD. AND DEBTOR SUBSIDIARIES
(DEBTOR IN POSSESSION)
SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
April 1, January 1,
2000 2000
---- ----
ASSETS (Unaudited)
<S> <C> <C>
Current Assets
Cash and cash equivalents (including restricted cash)................................ $ 19,100 $ 18,200
Notes and accounts receivable (less allowance for possible
losses $19,500 and of $23,600) .................................................... 172,500 179,500
Inventories
Finished Goods.................................................................... 436,600 421,900
Work in process................................................................... 81,200 94,100
Materials and supplies............................................................ 40,500 44,400
---------------- -------------
Total inventories.............................................................. 558,300 560,400
Net assets of discontinued operations................................................ 21,100 29,300
Other ............................................................................... 16,700 6,700
---------------- -------------
Total current assets........................................................... 787,700 794,100
---------------- -------------
Property, Plant and Equipment........................................................... 924,100 923,300
Less accumulated depreciation........................................................ 669,900 657,000
---------------- -------------
Net property, plant and equipment.............................................. 254,200 266,300
---------------- -------------
Other Assets
Goodwill (less accumulated amortization of $358,300 and $352,100).................... 625,000 631,200
Investment in nondebtor subsidiaries................................................. 763,000 733,000
Receivable from nondebtor subsidiaries............................................... 61,900 52,200
Other ............................................................................... 107,400 117,700
---------------- -------------
Total other assets............................................................. 1,557,300 1,534,100
---------------- -------------
$ 2,599,200 $ 2,594,500
=============== =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Current maturities of long-term debt................................................. $ 634,600 $ 635,200
Trade accounts payable............................................................... 25,400 7,000
Other accounts payable and accrued expenses.......................................... 166,200 109,300
---------------- -------------
Total current liabilities...................................................... 826,200 751,500
---------------- -------------
Noncurrent Liabilities
Long-term debt....................................................................... 565,500 556,300
Net liabilities of discontinued operations........................................... 7,500 9,400
Payable to nondebtor subsidiaries.................................................... 28,600 --
Other ............................................................................... 37,800 37,800
---------------- -------------
Total noncurrent liabilities................................................... 639,400 603,500
---------------- -------------
Liabilities Subject to Compromise
Unrelated parties.................................................................... 659,700 671,200
Payable to nondebtor subsidiaries.................................................... 590,100 590,100
---------------- -------------
Total liabilities subject to compromise........................................ 1,249,800 1,261,300
---------------- -------------
Minority interest....................................................................... 71,700 71,700
---------------- -------------
Common Stockholders' Deficit............................................................ (187,900) (93,500)
---------------- -------------
$ 2,599,200 $ 2,594,500
=============== =============
</TABLE>
18
<PAGE> 20
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
FRUIT OF THE LOOM, LTD. AND DEBTOR SUBSIDIARIES
(DEBTOR IN POSSESSION)
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED APRIL 1, 2000
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
<S> <C>
Net Sales
Unrelated parties..................................................................................... $ 302,500
Affiliates............................................................................................ 226,200
-------------
528,700
Cost of Sales
Unrelated parties..................................................................................... 288,700
Affiliates............................................................................................ 267,900
-------------
556,600
Gross loss............................................................................................ (27,900)
Selling, general and administrative expenses............................................................. 45,700
Goodwill amortization.................................................................................... 6,200
-------------
Operating loss........................................................................................ (79,800)
Interest expense......................................................................................... (27,400)
Equity in earnings of nondebtor subsidiaries............................................................. 30,000
Other income--net........................................................................................ 9,400
-------------
Loss from continuing operations before reorganization items and income tax
provision.......................................................................................... (67,800)
Reorganization items..................................................................................... (9,500)
--------------
Loss from continuing operations before income tax provision........................................... (77,300)
Income tax provision..................................................................................... 1,900
-------------
Loss from continuing operations....................................................................... (79,200)
Discontinued operations:
Loss--Sports & Licensing operations................................................................... (2,600)
--------------
Net loss........................................................................................... $ (81,800)
==============
</TABLE>
19
<PAGE> 21
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
FRUIT OF THE LOOM, LTD. AND DEBTOR SUBSIDIARIES
(DEBTOR IN POSSESSION)
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED APRIL 1, 2000
(IN THOUSANDS OF DOLLARS)
<TABLE>
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C>
Loss from continuing operations....................................................................... $ (79,200)
Adjustments to reconcile to net cash used for operating activities:
Equity in earnings of nondebtor subsidiaries....................................................... (30,000)
Depreciation and amortization...................................................................... 25,500
Decrease in working capital........................................................................ 75,800
Cash flows of discontinued operations.............................................................. 3,600
Gain on sale of marketable equity securities....................................................... (12,800)
Other--net......................................................................................... (16,900)
--------------
Net cash used for operating activities before reorganization items............................... (34,000)
Net cash used for reorganization items:
Professional fees paid........................................................................... (1,000)
--------------
Net cash used for operating activities......................................................... (35,000)
--------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.................................................................................. (1,800)
Proceeds from sale of marketable equity securities.................................................... 13,000
Affiliate notes and accounts receivable............................................................... (9,700)
Other--net............................................................................................ (2,400)
--------------
Net cash used for investing activities......................................................... (900)
--------------
CASH FLOWS FROM FINANCING ACTIVITIES
DIP financing proceeds................................................................................ 329,600
DIP financing payments................................................................................ (320,900)
Affiliate notes and accounts payable.................................................................. 28,100
-------------
Net cash provided by financing activities...................................................... 36,800
-------------
Net increase in cash and cash equivalents (including restricted cash).................................... 900
Cash and cash equivalents (including restricted cash) at beginning of period............................. 18,200
-------------
Cash and cash equivalents (including restricted cash) at end of period................................... $ 19,100
=============
</TABLE>
20
<PAGE> 22
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING INFORMATION
The Company desires to provide investors with meaningful and useful
information. Therefore, this Quarterly Report on Form 10-Q contains certain
statements that describe the Company's beliefs concerning future business
conditions and the outlook for the Company based on currently available
information. Wherever possible, the Company has identified these "forward
looking" statements (as defined in Section 21E of the Securities Exchange Act of
1934) by words such as "anticipates," "believes," "estimates," "expects," and
similar expressions. These forward looking statements are subject to risks,
uncertainties and other factors that could cause the Company's actual results,
performance or achievements to differ materially from those expressed in, or
implied by, these statements. These risks, uncertainties and other factors
include, but are not limited to, the following: the ability of the Company to
continue operating as a going concern and successfully emerge from bankruptcy
pursuant to a reorganization plan that provides for the Company to remain
substantially intact, the financial strength of the retail industry,
particularly the mass merchant channel, the level of consumer spending for
apparel, the amount of sales of the Company's activewear screenprint products,
the competitive pricing environment within the basic apparel segment of the
apparel industry, the Company's ability to develop, market and sell new
products, the Company's successful planning and execution of production
necessary to maintain inventories at levels sufficient to meet customer demand,
the Company's effective income tax rate, the success of planned advertising,
marketing and promotional campaigns, international activities and the resolution
of legal proceedings and other contingent liabilities, and weather conditions in
the locations in which the Company manufactures and sells its products. The
Company assumes no obligation to update publicly any forward looking statements,
whether as a result of new information, future events or otherwise.
CHAPTER 11 FILING
The Company believes that its vertically-integrated organization
historically made it one of the lowest-cost producers in its industry. To
maintain its low cost position, the Company relocated substantially all of its
domestic assembly operations offshore. In 1999, approximately 99% of the
Company's garments for sale in the United States were assembled offshore
compared to approximately 12% at the beginning of 1995. A number of difficulties
attended this transition. Prior operating management of the Company made the
decision in early 1998 to reduce inventories, close two distribution facilities
and one of the Company's knitting operations. The decision to reduce inventory
levels was accompanied by the temporary shutdown in the fourth quarter of 1998
of a number of the Company's textile plants. Upon resuming production in the
first quarter of 1999, the level of irregular inventory increased as a result of
hiring inexperienced workers. The deficiency in output from these plants and the
unexpectedly strong demand for key retail and activewear products resulted in
shortages of available products, which negatively impacted sales and required
the Company to incur additional costs (including freight) in an attempt to
maintain service levels with its major customers. The decision to close one of
the Company's knitting operations extended the time required to produce
necessary inventory and exacerbated the problem. In order to maintain customer
service at acceptable levels, the Company increased its usage of external
contractors, overtime labor, and time-sensitive and expensive methods of
transporting materials and products, all of which resulted in significant
unfavorable manufacturing variances. Accordingly, the Company's financial
performance and cash flow in 1999 reflect these difficulties.
On February 23, 2000 the Bankruptcy Court approved the Company's plan
to discontinue the operations of Pro Player which had historically been
unprofitable. In accordance with generally accepted accounting principles, Pro
Player has been treated as a discontinued operation in the accompanying
condensed consolidated financial statements. In connection with the Company's
decision to discontinue the operations of Pro Player, $47,500,000 was accrued
for the loss on disposal of the assets of Pro Player including a provision of
$10,400,000 for expected operating losses during the phase-out period from
February 24, 2000 through August 24, 2000.
21
<PAGE> 23
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (CONTINUED)
The Company continues to review the divestiture of certain non-core
assets. A gain or loss may be recorded on the divestitures but the amount cannot
be determined at this time. In addition, restructuring costs may be incurred
which the Company is unable to quantify at this time.
On December 29, 1999, the Debtors filed voluntary petitions for relief
under Chapter 11 and are presently operating their business as
debtors-in-possession subject to the jurisdiction of the Bankruptcy Court. For
further discussion of the Chapter 11 cases, see Notes to Condensed Consolidated
Financial Statements.
Currently, there is no Company or creditor sponsored plan of
reorganization. There can be no assurance that any plan of reorganization will
be confirmed under the Bankruptcy Code. If the Company is unable to obtain
confirmation of a plan of reorganization, its creditors or equity security
holders may seek other alternatives for the Company, which include soliciting
bids for the Company or parts thereof through an auction process or possible
liquidation. There can be no assurance that upon consummation of a plan of
reorganization there will be improvement in the Company's financial condition or
results of operations. The Company has, and will continue to incur professional
fees and other cash demands typically incurred in bankruptcy.
The Company's consolidated financial statements have been prepared on a
going concern basis which contemplates continuity of operations, realization of
assets and liquidation of liabilities and commitments in the normal course of
business. The Chapter 11 filing, related circumstances, and the losses from
operations, raise substantial doubt about the Company's ability to continue as a
going concern. The appropriateness of reporting on the going concern basis is
dependent upon, among other things, confirmation of a plan of reorganization,
future profitable operations, and the ability to generate sufficient cash from
operations and financing sources to meet obligations (see LIQUIDITY AND CAPITAL
RESOURCES and Notes to Condensed Consolidated Financial Statements). As a result
of the filing and related circumstances, however, such realization of assets and
liquidation of liabilities are subject to significant uncertainty. While under
the protection of Chapter 11, the Debtors may sell or otherwise dispose of
assets and liquidate or settle liabilities for amounts other than those
reflected in the accompanying condensed consolidated financial statements.
Further, a plan of reorganization could materially change the amounts reported
in the accompanying condensed consolidated financial statements. The condensed
consolidated financial statements do not include any adjustments relating to the
recoverability of the value of recorded asset amounts or the amounts and
classifications of liabilities that might be necessary as a consequence of a
plan of reorganization.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
accompanying condensed consolidated financial statements and related notes for
the period ended April 1, 2000 and the Company's consolidated financial
statements and related notes contained in the Company's Annual Report on Form
10-K for the year ended January 1, 2000.
22
<PAGE> 24
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (CONTINUED)
SPECIAL CHARGES. During the five years in the period ended January 1,
2000, the Company moved substantially all of its sewing and finishing operations
to locations in the Caribbean, Mexico and Central America as part of its
strategy to reduce its cost structure and remain a low cost producer in the U.S.
markets it serves. In the third and fourth quarters of 1999, the Company
recorded charges for provisions and losses on the sale of close-out and
irregular inventory to reflect the reduced market prices for these categories of
inventory, costs related to impairment of certain European manufacturing
facilities, severance, a debt guarantee and other asset write-downs and
reserves. In the fourth quarter of 1997, the Company recorded charges for costs
related to the closing and disposal of a number of domestic manufacturing and
distribution facilities, impairment of manufacturing equipment and other assets
and certain European manufacturing and distribution facilities, and other costs
associated with the Company's world-wide restructuring of manufacturing and
distribution facilities. During 1995, the Company took several actions in an
effort to substantially reduce the Company's cost structure, streamline
operations and further improve customer service. These actions included the
closing of certain domestic manufacturing operations, further consolidation of
the Company's Gitano and licensed sportswear operations and the accelerated
migration of some sewing operations to lower cost, offshore locations. No
amounts were charged to results of operations during the first quarter of 2000
or the first quarter of 1999 related to the above noted special charges.
First Quarter of 2000 versus First Quarter of 1999
The table below sets forth selected operating data (in millions of
dollars and as percentages of net sales).
THREE MONTHS ENDED
------------------
APRIL 1, APRIL 3,
2000 1999
---- ----
Net sales...................... $ 374.9 $ 370.6
Gross earnings................. 21.8 84.4
Gross margin................... 5.8% 22.8%
Operating earnings (loss)...... (48.0) 10.0
Operating margin............... (12.8%) 2.7%
Net sales increased $4,300,000 or 1.2% in the first quarter of 2000
compared to the first quarter of 1999. Retail product sales increased
$10,500,000 or 5.7% over the first quarter of 1999. Casualwear jersey sales
increased $6,500,000 or 32.3% over the first quarter of 1999 due to strong
demand at a major customer. Men's and boys' underwear sales increased by
$4,700,000 or 4.1% over the first quarter of 1999. Childrenswear and
international retail products also experienced increases in sales in the first
quarter of 2000. These increases were partially offset by decreases in sales of
intimate apparel in the first quarter of 2000 which resulted from reduced point
of sale at retail and reduction in product offerings. Activewear sales increased
$14,400,000 or 13.1% in the first quarter of 2000 and reflect favorable market
conditions for T-shirts and improved product availability in the first quarter
of 2000 compared to the first quarter of 1999. The activewear volume increases
more than offset a decrease in selling prices in the first quarter of 2000 as
compared to the first quarter of 1999; however, activewear prices increased in
the first quarter of 2000 compared to the fourth quarter of 1999. European sales
declined $10,700,000 or 16.5% in the first quarter of 2000 compared to the first
quarter of 1999 due primarily to price decreases on retail products and lower
volume of retail products. The reduction in retail volume reflected the
continuing impact of the Company's decision to pursue the up-market retail
channel in 1999. The European sales decline was partially offset by additional
sales of closeouts. Closeouts accounted for approximately 59% of European retail
sales in the first quarter of 2000.
23
<PAGE> 25
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (CONTINUED)
Segment net sales were as follows (in millions of dollars).
THREE MONTHS ENDED
------------------
APRIL 1, APRIL 3,
2000 1999
---- ----
NET SALES
Retail Products.............. $ 195.7 $ 185.2
Activewear................... 124.5 110.1
Europe....................... 54.2 64.9
Other........................ 0.5 10.4
-------- -------
$ 374.9 $ 370.6
========= =======
Gross earnings decreased $62,600,000 or 74.2% in the first quarter of
2000 compared to the first quarter of 1999. Gross margin declined 17.0
percentage points to 5.8% of sales for the first quarter of 2000. Higher
production costs accounted for $53,400,000 of the decline and price decreases
(principally domestic activewear) aggregated $6,100,000. Amounts charged to cost
of sales in the first quarter of 2000 represent costs incurred in the third
quarter of 1999 when the inventory that was sold in the first quarter of 2000
was manufactured. Management believes production costs in the first quarter of
2000 were significantly less than the manufacturing costs incurred in the third
quarter of 1999. Accordingly, the Company expects an improvement in gross margin
in the third quarter of 2000 after the effect of higher production and inventory
costs are charged to cost of sales in the first half of 2000. In addition, the
Company provided an additional $6,500,000 for physical inventory losses in the
first quarter of 2000 as compared to the first quarter of 1999 based upon full
year 1999 physical inventory results. These decreases were partially offset by
additional sales volume which increased gross earnings by $6,800,000 in the
first quarter of 2000.
The Company experienced an operating loss in the first quarter of 2000
of $48,000,000 compared to operating earnings of $10,000,000 in the first
quarter of 1999. Offsetting the decrease in gross earnings were lower selling,
general, and administrative expenses of $4,700,000 in the first quarter of 2000
compared to the first quarter of 1999, principally due to expenditures for Y2K
remediation in 1999 and lower advertising and promotion and office expenses in
2000. In addition, the consolidation of the Company's sales and marketing
organization resulted in lower selling, general and administrative expenses in
the first quarter of 2000. Selling, general and administrative expenses as a
percent of net sales decreased 1.4 percentage points to 17.0% in the first
quarter of 2000.
Segment operating earnings (loss) were as follows (in millions of
dollars).
THREE MONTHS ENDED
APRIL 1, APRIL 3,
2000 1999
OPERATING EARNINGS (LOSS)
Retail Products.............. $ (26.2) $ 6.6
Activewear................... (22.2) (3.3)
Europe....................... 2.3 7.7
Other........................ 4.3 5.1
Goodwill..................... (6.2) (6.1)
--------- ---------
$ (48.0) $ 10.0
========== =========
24
<PAGE> 26
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
Interest expense increased $6,500,000 to $27,100,000 in the first
quarter of 2000 compared to the first quarter of 1999. The increase reflected a
higher average interest rate. The Company also had a higher average borrowing
level in the first quarter of 2000. The higher average borrowing level in the
first quarter of 2000 reflected the elimination of the Company's accounts
receivable securitization in the fourth quarter of 1999. Although the average
borrowing level was higher in the first quarter of 2000 as compared to the first
quarter of 1999, the Company did not record interest on $248,500,000 of
unsecured 87/8% senior notes (the "Unsecured Notes") in the first quarter of
2000 in accordance with SOP 90-7. The Unsecured Notes are included in
Liabilities Subject to Compromise in the accompanying Condensed Consolidated
Balance Sheet.
Other income-net in the first quarter of 2000 increased $600,000
compared to the first quarter of 1999. Principal components of net other income
in the first quarter of 2000 included a $12,800,000 gain on the sale of
marketable equity securities partially offset by bank fees of $2,900,000,
unfavorable currency translation of $2,100,000 and adequate protection payments
(interest payments) in the amount of $1,200,000 related to the guarantee of
personal indebtedness of the Company's former Chairman. Principal components of
net other income in the first quarter of 1999 included a $3,900,000 gain on
previously settled litigation, a $3,500,000 gain on marketable equity securities
and a $2,200,000 gain on the sale of property, plant and equipment. These
favorable impacts were partially offset by asset securitization expense of
$2,400,000 and bank fees (including amortization) of $1,900,000.
Reorganization items represent costs incurred by the Company during the
Chapter 11 cases. The reorganization items in the first quarter of 2000
aggregated $9,500,000 and consisted of professional fees, including legal,
accounting and other services provided to the Company during the Chapter 11
cases.
There is no income tax in the Cayman Islands. Income taxes do apply to
results attributable to operations in the U.S. and certain other countries. The
Company's income tax provision for the first three months of 2000 consists of a
provision for European income taxes. The Company recorded no U.S. tax benefit at
the U.S. statutory rate of 35% on the pretax loss in the first quarter of 2000
primarily because the Company is unable to realize any current benefit from the
operating loss through carrybacks to prior years. No future tax benefit was
recorded in the first quarter of 2000 due to the Company's present inability
under the Chapter 11 cases to implement certain income tax planning strategies
and the expected operating loss for 2000.
As a result of the Chapter 11 cases, the utilization of net operating
loss carryforwards and tax credit carryforwards of the Company may be limited
under the Internal Revenue Code. The Company is unable at the present time to
quantify what, if any, limitation may apply to the tax carryforward items.
The Company's effective income tax rate of 9.8% for the first three
months of 1999 differed from the U.S. Federal statutory rate of 35% primarily
due to the impact of foreign earnings, certain of which are taxed at lower rates
than in the U.S., and to reduction of deferred tax asset valuation allowances
attributable to 1997 special charges. These favorable factors were partially
offset by goodwill amortization, a portion of which is not deductible for U.S.
Federal income taxes, and state income taxes.
Loss per common share, basic and diluted, consisted of a loss of
$(1.18) and ($.04) from continuing operations and discontinued operations,
respectively, in the first quarter of 2000. Loss per common share, basic and
diluted, consisted of a loss of ($.07) and ($.06) from continuing operations and
discontinued operations, respectively, in the first quarter of 1999. Average
common shares were lower in 2000 due to the Cayman Reorganization.
25
<PAGE> 27
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
FTL, Inc. and substantially all of its subsidiaries, as
debtors-in-possession, are parties to a Postpetition Credit Agreement dated as
of December 29, 1999 (the "DIP Facility") with Bank of America as agent. The DIP
Facility has been approved by the Bankruptcy Court and includes a total
commitment of $625,000,000 which is comprised of revolving notes of $475,000,000
and a term note of $150,000,000. Letter of Credit obligations under the revolver
portion of the DIP Facility are limited to $175,000,000. The DIP Facility is
intended to provide the Company with the cash and liquidity to conduct its
operations and pay for merchandise shipments at normal levels during the course
of the Chapter 11 cases.
The maximum borrowings, excluding the term commitments, under the DIP
Facility are limited to 85% of eligible accounts receivable, 50%-65% of eligible
inventory and the assets existing as of the Petition Date. Various percentages
of the proceeds from the sales of assets (as defined in the DIP Facility) will
permanently reduce the commitments under the DIP Facility. Qualification of
accounts receivable and inventory items as "eligible" is subject to unilateral
change at the discretion of the lenders. Availability, based on eligible
accounts receivable and inventory, under the DIP Facility at May 5, 2000 was
$258,400,000.
The lenders under the DIP Facility have a super-priority administrative
expense claim against the estates of the Debtors. The DIP Facility expires on
June 30, 2001. The DIP Facility is secured by substantially all of the assets of
FTL, Ltd. and its subsidiaries and a perfected pledge of stock of substantially
all FTL, Ltd.'s subsidiaries, including those subsidiaries that did not file
Chapter 11. The DIP Facility contains restrictive covenants including, among
other things, the maintenance of minimum earnings before interest, taxes,
depreciation and amortization and restructuring expenses as defined, limitations
on the incurrence of additional indebtedness, liens, contingent obligations,
sale of assets, capital expenditures and a prohibition on paying dividends. The
DIP loan limits annual capital expenditures to a maximum of $46,000,000. The
Company expects to submit a reorganization plan prior to the expiration of the
DIP Facility. A component of that plan will be a financing agreement to succeed
the DIP Facility.
Cash used for operating activities totaling $22,900,000 in the first
quarter of 2000 and $80,700,000 in the first quarter of 1999 largely reflected
the Company's seasonal build in inventory. In addition, in the first quarter of
1999, the Company repaid $55,900,000 of excess amounts advanced at January 2,
1999 by the ultimate purchaser of accounts receivables in connection with the
Company's accounts receivable securitization. This amount was included in
accounts payable at January 2, 1999.
In the first quarter of 2000, the primary factors in reconciling from
the loss from continuing operations of $79,200,000 to cash used for operating
activities of $22,900,000 were a decrease in working capital of $51,200,000 and
depreciation and amortization of $30,600,000, partially offset by a gain on the
sale of marketable equity securities of $12,800,000. Cash flows provided by
discontinued operations aggregated 3,600,000 in the first quarter of 2000.
In the first quarter of 1999, the primary factors in reconciling from
the loss from continuing operations of $4,900,000 to cash used for operating
activities totaling $80,700,000 were an increase in working capital of
$76,500,000 and currency translation of $7,600,000, partially offset by
depreciation and amortization of $30,000,000. Cash flows from discontinued
operations represented a use of $4,800,000 in the first quarter of 1999.
26
<PAGE> 28
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Net cash provided by investing activities in the first quarter of 2000
was $8,000,000 compared with cash used for investing activities totaling
$17,100,000 in the first quarter of 1999. Capital expenditures were lower
($2,600,000 in the first quarter of 2000 compared with $6,500,000 in the first
quarter of 1999). In addition, proceeds from the sale of marketable equity
securities aggregated $13,000,000 in the quarter of 2000. Net cash used for
investing activities in the first quarter of 1999 included payments of
$8,400,000 under the minimum value guarantee provision of the Company's
synthetic lease agreement and a repayment of $6,800,000 of employment grants
under agreement with the Republic of Ireland. Capital spending, primarily to
support offshore assembly operations, is anticipated to approximate $40,000,000
in 2000.
Net cash provided by financing activities was $8,600,000 in the first
quarter of 2000 (consisting of net proceeds from DIP financing), compared with
net cash provided by financing activities of $116,800,000 in the first quarter
of 1999 due to the unfavorable operating and investing cash flows and to cash
retained.
In December 1996, the Company entered into a three-year receivables
purchase agreement that enabled it to sell to a third party up to a $250,000,000
undivided interest in a defined pool of its trade accounts receivable. The
maximum amount outstanding as defined under the agreement varied based upon the
level of eligible receivables. The agreement was refinanced in the fourth
quarter of 1999 and increased to $275,000,000 and subsequently terminated with
the Company's bankruptcy filing. Consequently, none of the Company's trade
receivables were securitized at April 1, 2000. Under the agreement,
approximately $205,200,000 of eligible receivables at April 3, 1999 were sold to
the Company's unconsolidated receivable financing subsidiary, reducing
consolidated notes and accounts receivable. Proceeds of approximately
$175,000,000 from the ultimate purchaser outstanding at April 3, 1999 were used
to reduce borrowings under the Company's revolving lines of credit.
The Company believes that cash on hand, amounts available under the DIP
Facility and funds from operations will enable the Company to meet its current
liquidity and capital expenditure requirements during the Bankruptcy cases,
although no assurances can be given in this regard. Until a plan of
reorganization is approved, the Company's long-term liquidity and the adequacy
of its capital resources cannot be determined.
Inherent in a successful plan of reorganization is a capital structure
which permits the Company to generate sufficient cash flow after reorganization
to meet its restructured obligations and fund the current obligations of the
Company. Under the Bankruptcy Code, the rights and treatment of pre-petition
creditors and stockholders may be substantially altered. At this time, it is not
possible to predict the outcome of the Chapter 11 cases, in general, or the
effects of such cases on the business of the Company or on the interests of
creditors and stockholders. Management believes that it is highly unlikely that
current equity security holders will receive any distribution under any
reorganization plan as a result of the issuance of new equity to existing
creditors.
The Company's debt instruments, principally its bank agreements,
contain covenants restricting its ability to sell assets, incur debt, pay
dividends and make investments and requiring the Company to maintain certain
financial ratios. The Company is in default under the debt instruments.
27
<PAGE> 29
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
3(a)* Amended and Restated Memorandum of Association of Fruit of the Loom,
Ltd. (incorporated herein by reference to Exhibit 3(a) to the Company's
Quarterly Report on Form 10-Q for the quarter ended April 3, 1999).
3(b)* Amended and Restated Articles of Association of Fruit of the Loom, Ltd.
(incorporated herein by reference to Exhibit 3(b) to the Company's
Quarterly Report on Form 10-Q for the quarter ended April 3, 1999).
4(a)* $900,000,000 Credit Agreement dated as of September 19, 1997 (the
"Credit Agreement"), among the several banks and other financial
institutions from time to time parties thereto (the "Lenders"),
NationsBank, N.A., as administrative agent for the Lenders thereunder,
Chase Manhattan Bank, Bankers Trust Company, The Bank of New York and
the Bank of Nova Scotia, as co-agents (incorporated herein by reference
to Exhibit 4(a) to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997).
4(b)* Rights Agreement, dated as of March 8, 1996 between Fruit the Loom,
Inc. and Chemical Mellon Shareholder Services, L.L.C., Rights Agent
(incorporated herein by reference to Exhibit 4(c) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995).
4(c)* First Amendment to Credit Agreement dated March 26, 1998; Second
Amendment to Credit Agreement dated July 2, 1998; Third Amendment to
Credit Agreement dated December 31, 1998; Fourth Amendment to Credit
Agreement dated March 10, 1999; Second Amended and Restated Pledge
Agreement dated March 10, 1999 related to the Credit Agreement; and
Bond Pledge Agreement dated March 10, 1999 related to the Credit
Agreement (incorporated herein by reference to Exhibit 4(c) to Fruit of
the Loom, Inc.'s Annual Report on Form 10-K for the year ended January
2, 1999).
4(d)* Indenture dated as of March 25, 1999, among Fruit of the Loom, Inc., as
issuer, Fruit of the Loom, Ltd., as guarantor, certain subsidiaries of
Fruit of the Loom, Inc., as guarantors, and The Bank of New York, as
trustee of the 87/8% senior Notes due 2006 (incorporated herein by
reference to Exhibit 4(c) to the Company's Quarterly Report on Form
10-Q for the quarter ended April 3, 1999).
4(e)* Fifth Amendment to Credit Agreement dated July 20, 1999 (incorporated
herein by reference to exhibit 4(d) to the Company's Quarterly Report
on Form 10-Q for the quarter ended July 3, 1999).
4(f)* Security Agreement dated March 10, 1999 (incorporated herein by
reference to Exhibit 4(e) to the Company's Quarterly Report on Form
10-Q for the quarter ended October 2, 1999).
4(g)* First Amendment to Security Agreement dated July 20, 1999 (incorporated
herein by reference to Exhibit 4(f) to the Company's Quarterly Report
on Form 10-Q for the quarter ended October 2, 1999).
4(h)* Sixth Amendment to Credit Agreement and Limited Waiver dated October
13, 1999 (incorporated herein by reference to Exhibit 4(g) to the
Company's Quarterly Report on Form 10-Q for the quarter ended October
2, 1999).
4(i)* Loan and Security Agreement dated as of October 29, 1999, among the
financial institutions from time to time parties thereto (the "Bank
Lenders"), Bank of America, National Association as administrative
"Agent" for the Bank Lenders, Banc of America Securities LLC, as
"Syndication Agent", and FTL Receivables Company, as "Borrower"
(incorporated herein by reference to Exhibit 4(h) to the Company's
Quarterly Report on Form 10-Q for the quarter ended October 2, 1999).
28
<PAGE> 30
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
PART II. OTHER INFORMATION - (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
A. EXHIBITS (CONTINUED)
4(j)* $625,000,000 Debtor-in-Possession Credit Facility dated as of December
29, 1999, with Bank of America, N.A. (incorporated by reference to the
Company's Current Report on Form 8-K dated December 29, 1999).
27 Financial Data Schedule.
* Previously filed.
The Registrant has not listed nor filed as an Exhibit to this Quarterly
Report certain instruments with respect to long-term debt representing
indebtedness of the Registrant and its subsidiaries which do not individually
exceed 10% of the total assets of the Registrant and its subsidiaries on a
consolidated basis. Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the
Registrant agrees to furnish such instruments to the Securities and Exchange
Commission upon request.
B. REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Registrant during the quarter
ended April 1, 2000.
29
<PAGE> 31
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FRUIT OF THE LOOM, LTD.
(REGISTRANT)
/s/ G. WILLIAM NEWTON
---------------------------------------
G. William Newton
Vice President Finance
and Acting Chief Financial Officer
(Principal Financial Officer
and duly authorized to sign
on behalf of Registrant)
Date: May 16, 2000
30
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's quarterly report on Form 10-Q and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> APR-01-2000
<CASH> 38,200
<SECURITIES> 0
<RECEIVABLES> 268,100
<ALLOWANCES> 30,100
<INVENTORY> 658,900
<CURRENT-ASSETS> 998,000
<PP&E> 1,185,300
<DEPRECIATION> 797,200
<TOTAL-ASSETS> 2,125,200
<CURRENT-LIABILITIES> 935,600
<BONDS> 600,900
0
0
<COMMON> 258,100
<OTHER-SE> (446,000)
<TOTAL-LIABILITY-AND-EQUITY> 2,125,200
<SALES> 374,900
<TOTAL-REVENUES> 374,900
<CGS> 353,100
<TOTAL-COSTS> 353,100
<OTHER-EXPENSES> (6,100)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,100
<INCOME-PRETAX> (78,500)
<INCOME-TAX> 700
<INCOME-CONTINUING> (79,200)
<DISCONTINUED> (2,600)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (81,800)
<EPS-BASIC> (1.22)
<EPS-DILUTED> (1.22)
</TABLE>
