<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 JULY 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 July 31, 2000: 66,992,523 Class A Ordinary
Shares, $.01 par value, and 4 Class B Redeemable Ordinary Shares, $.01 par
value.
<PAGE> 2
<TABLE>
<CAPTION>
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
INDEX
PAGE NO.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet--July 1, 2000 (Unaudited)
and January 1, 2000 ............................................. 2
Condensed Consolidated Statement of Operations (Unaudited)
for the Three and Six Months Ended July 1, 2000 and July 3, 1999 3
Condensed Consolidated Statement of Cash Flows (Unaudited) for
the Six Months Ended July 1, 2000 and July 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 .................................... 30
</TABLE>
<PAGE> 3
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
JULY 1, JANUARY 1,
2000 2000
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents (including restricted cash) $ 50,700 $ 44,500
Notes and accounts receivable (less allowance
for possible losses of $36,000 and
$35,000, respectively) ........................... 264,800 232,100
Inventories
Finished goods ................................... 422,900 422,800
Work in process .................................. 146,100 169,900
Materials and supplies ........................... 54,500 66,400
----------- -----------
Total inventories ............................. 623,500 659,100
Net assets of discontinued operations ............... 3,800 29,300
Other ............................................... 47,100 27,700
----------- -----------
Total current assets .......................... 989,900 992,700
----------- -----------
Property, Plant and Equipment .......................... 1,178,900 1,204,600
Less accumulated depreciation ....................... 810,000 797,400
----------- -----------
Net property, plant and equipment ............. 368,900 407,200
----------- -----------
Other Assets
Goodwill (less accumulated amortization of
$364,400 and $352,100, respectively) ............. 618,900 631,200
Other ............................................... 106,400 124,300
----------- -----------
Total other assets ............................ 725,300 755,500
----------- -----------
$ 2,084,100 $ 2,155,400
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Current maturities of long-term debt ................ $ 644,600 $ 635,800
Trade accounts payable .............................. 43,600 31,400
Other accounts payable and accrued expenses ......... 269,100 198,000
----------- -----------
Total current liabilities ..................... 957,300 865,200
----------- -----------
Noncurrent Liabilities
Long-term debt ...................................... 605,700 593,500
Net liabilities of discontinued operations .......... 6,900 9,400
Other ............................................... 26,300 37,900
----------- -----------
Total noncurrent liabilities .................. 638,900 640,800
----------- -----------
Liabilities Subject to Compromise ...................... 662,700 671,200
----------- -----------
Minority Interest ...................................... 71,700 71,700
----------- -----------
Common Stockholders' Deficit ........................... (246,500) (93,500)
----------- -----------
$ 2,084,100 $ 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 SIX MONTHS ENDED
--------------------- ----------------------
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales .............................................. $ 446,000 $ 517,700 $ 820,900 $ 888,300
Cost of sales .......................................... 391,300 399,300 744,400 685,500
--------- --------- --------- ---------
Gross earnings .................................. 54,700 118,400 76,500 202,800
Selling, general and administrative expenses ........... 60,000 85,600 123,600 153,900
Goodwill amortization .................................. 6,100 6,200 12,300 12,300
--------- --------- --------- ---------
Operating earnings (loss) ....................... (11,400) 26,600 (59,400) 36,600
Interest expense ....................................... (31,300) (24,200) (60,600) (45,200)
Other (expense) income-net ............................. (3,000) 2,900 5,300 8,800
--------- --------- --------- ---------
Earnings (loss) from continuing operations before
reorganization items and income tax provision . (45,700) 5,300 (114,700) 200
Reorganization items ................................... (9,500) -- (19,000) --
--------- --------- --------- ---------
Earnings (loss) from continuing operations before
income tax provision .......................... (55,200) 5,300 (133,700) 200
Income tax provision ................................... 700 -- 1,400 (500)
Minority interest ...................................... -- 800 -- 1,100
--------- --------- --------- ---------
Earnings (loss) from continuing operations ...... (55,900) 4,500 (135,100) (400)
Discontinued operations:
Loss from Sports & Licensing operations ............ -- (6,800) (2,600) (10,900)
--------- --------- --------- ---------
Net loss ........................................ $ (55,900) $ (2,300) $ (137,700) $ (11,300)
========= ========= ========= =========
Earnings (loss) per common share:
Continuing operations ........................... $ (0.83) $ 0.07 $ (2.02) $ --
Discontinued operations:
Loss from Sports & Licensing operations ....... -- (0.10) (0.04) (0.16)
--------- --------- --------- ---------
Net loss ........................................ $ (0.83) $ (0.03) $ (2.06) $ (0.16)
========= ========= ========= =========
Earnings (loss) per common share - assuming dilution:
Continuing operations ........................... $ (0.83) $ 0.07 $ (2.02) $ --
Discontinued operations:
Loss from Sports & Licensing operations ....... -- (0.09) (0.04) (0.16)
--------- --------- --------- ---------
Net loss ........................................ $ (0.83) $ (0.02) $ (2.06) $ (0.16)
========= ========= ========= =========
Average common shares .................................. 67,000 66,900 67,000 68,700
========= ========= ========= =========
Average common shares--assuming dilution ............... 67,000 71,900 67,000 68,700
========= ========= ========= =========
</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>
SIX MONTHS ENDED
----------------------
JULY 1, JULY 3,
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss from continuing operations ....................... $(135,100) $ (400)
Adjustments to reconcile to net operating cash flows:
Depreciation and amortization ...................... 60,700 59,900
Deferred income tax provision ...................... -- (7,300)
Decrease (increase) in working capital ............. 66,000 (68,900)
Cash flows of discontinued operations .............. 20,300 (35,100)
Gain on marketable equity securities ............... (15,800) (3,900)
Other--net ......................................... (12,700) (38,200)
--------- ---------
Net operating cash flows before
reorganization items ............................ (16,600) (93,900)
Net cash used for reorganization items:
Professional fees paid .......................... (9,100) --
--------- ---------
Net operating cash flows ...................... (25,700) (93,900)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures .................................. (5,500) (21,700)
Proceeds from sale of marketable equity securities .... 14,100 2,500
Proceeds from sale of property, plant and equipment ... 2,000 18,200
Other--net ............................................ (1,000) (16,700)
--------- ---------
Net investing cash flows .................... 9,600 (17,700)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
DIP financing proceeds ................................ 703,400 --
DIP financing payments ................................ (680,800) --
Proceeds from issuance of long-term debt .............. -- 240,200
Proceeds under line-of-credit agreements .............. -- 546,300
Payments under line-of-credit agreements .............. -- (425,100)
Principal payments on long-term debt and capital leases (300) (231,300)
Subsidiary preferred minority dividends ............... -- (300)
--------- ---------
Net financing cash flows .................... 22,300 129,800
--------- ---------
Net increase in Cash and cash
equivalents (including restricted cash) ............... 6,200 18,200
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 ............................... $ 50,700 $ 19,600
========= =========
</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
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 and six months ended July 1, 2000 are
not necessarily indicative of results that may be expected for the full year.
Certain prior year and first quarter amounts have been reclassified to conform
with the current year presentation.
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 July 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 six months of 2000, the minority interest participation is
limited to the fixed preferred dividends. FTL, Inc. ceased recording dividends
on the FTL, Inc. Preferred Stock as of the date FTL, Inc.'s bankruptcy case
commenced since it is an unsecured obligation.
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. currently 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 FTL, Ltd. 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 approval 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.
The JPL's issued their first report on 2 June 2000. In their report, the
JPL's indicate that the major steps taken by the Company have been to identify
and correct operational problems, to reduce product lines to focus on core
products and to identify those divisions that can either be sold or
discontinued. The report also indicates, based on financial information supplied
by the Company, progress is being made in the above noted areas. The JPL's
propose to report again on their activities and further developments relating to
the Company's financial performance on or about 15 September 2000.
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 if confirmed, that
such plan will be consummated. FTL, Inc. had the exclusive right to file a plan
of reorganization through April 27, 2000. The Bankruptcy Court granted an
extension of the exclusivity period through October 31, 2000 due to the
magnitude of the Company's operations and the complexity of the plan formulation
process. After the expiration of the exclusivity period (unless such period is
further extended by order of the Bankruptcy Court), creditors will have the
right to propose reorganization plans.
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 against 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. 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.
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.
7
<PAGE> 9
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
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.
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 are dependent on the outcome of the
Chapter 11 cases have been segregated and classified in the consolidated balance
sheets as liabilities subject to compromise under reorganization proceedings.
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.
JULY 1, JANUARY 1,
2000 2000
-------- --------
(IN THOUSANDS OF DOLLARS)
8.875% Unsecured Senior Notes ..... $248,500 $248,500
Trade accounts payable ............ 105,600 113,100
Environmental and product liability 34,500 35,400
Accrued severance ................. 27,400 27,400
Deferred compensation accrual ..... 14,100 16,400
Other ............................. 232,600 230,400
-------- --------
$662,700 $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 26, 2000 the Company's Class A Ordinary Shares were delisted by
the New York Stock Exchange ("NYSE"). The Company's Class A Ordinary Shares
continue to be traded as an over-the-counter equity security under the symbol
"FTLAQ".
The Company's 7% Debentures due March 15, 2011 were delisted as of June 14,
2000 upon notice from the NASDAQ-AMEX Market Group (the "Exchange") that the
Company has fallen below certain of the Exchange's continued listing guidelines.
3. No dividends were declared on the Company's ordinary shares for the
six-month periods ended July 1, 2000 and July 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 second quarter and first six 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
second quarter and first six months of 2000 primarily because the Company is
unable to realize any current benefit from the operating loss through carrybacks
to prior years, is unable under the Chapter 11 cases to implement certain income
tax planning strategies and expects an 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 benefit for the first six months of 1999
reflected a provision projected for the full year for interest on prior years'
U.S. Federal income taxes and goodwill amortization, a portion of which is not
deductible for U.S. Federal 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.
The Company currently estimates the phase-out period will continue until the end
of the third quarter.
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 (in the amount of interest expense in each period
presented below) 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 net
loss attributable to periods 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 SIX MONTHS ENDED
-------------------- --------------------
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales ................................................. $ 8,300 $ 21,900 $ 29,600 $ 54,100
Cost of sales ............................................. 12,200 17,500 29,100 41,500
-------- -------- -------- --------
Gross earnings (loss) ................................ (3,900) 4,400 500 12,600
Selling, general & administrative expenses ................ 3,400 9,300 13,000 20,100
Goodwill amortization ..................................... 500 500 1,000 1,000
-------- -------- -------- --------
Operating loss ....................................... (7,800) (5,400) (13,500) (8,500)
Interest expense .......................................... (500) (1,400) (1,500) (2,400)
Other expense--net ........................................ (200) -- (300) --
-------- -------- -------- --------
Net loss ............................................. (8,500) (6,800) (15,300) (10,900)
Portion of net loss charged to reserve for loss on disposal 8,500 -- 12,700
-------- -------- -------- --------
Loss from discontinued operations .................... $ -- $ (6,800) $ (2,600) $(10,900)
======== ======== ======== ========
</TABLE>
Assets and liabilities of discontinued operations consisted of the following (in
thousands of dollars):
JULY 1, JANUARY 1,
2000 2000
-------- --------
Accounts receivable ................................... $ 3,600 $ 19,100
Inventories ........................................... 6,500 22,400
Other current assets .................................. -- 700
Other accounts payable and accrued expenses ........... (6,300) (12,900)
-------- --------
Net current assets ................................ 3,800 29,300
-------- --------
Property, plant and equipment ......................... 7,300 7,500
Liabilities subject to compromise ..................... (14,200) (16,900)
-------- --------
Net noncurrent liabilities ........................ (6,900) (9,400)
-------- --------
Net assets (liabilities) of discontinued operations $ (3,100) $ 19,900
======== ========
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 July
1, 2000 is presented below (in thousands of dollars):
<TABLE>
<CAPTION>
RESERVE RESERVE
BALANCE AT BALANCE AT
JANUARY 1, CASH INCOME OTHER JULY 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 $ -- $ -- $ 14,500 $ 20,500
Severance ............................ 30,600 500 -- -- 30,100
Debt guarantee ....................... 30,000 700 -- -- 29,300
Other asset write downs and reserves . 72,100 600 -- 20,400 51,100
-------- -------- -------- -------- --------
$167,700 $ 1,800 -- $ 34,900 $131,000
======== ======== ======== ======== ========
</TABLE>
Other activity in the first six months of 2000 consists of inventory
reserves which were relieved as the inventory was sold. Other activity does not
include amounts provided in the first six months 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 July
1, 2000 is presented below (in thousands of dollars):
<TABLE>
<CAPTION>
RESERVE RESERVE
BALANCE BALANCE
JANUARY 1, CASH INCOME OTHER JULY 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 $ -- $ 1,700 $ 23,800
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 -- 1,700 97,500
Severance costs ....................................... 200 -- -- -- 200
Other accruals ........................................ 1,900 -- -- -- 1,900
-------- -------- -------- -------- --------
101,400 100 -- 1,700 99,600
-------- -------- -------- -------- --------
IMPAIRMENT OF EUROPEAN MANUFACTURING AND
DISTRIBUTION FACILITIES
Other accruals ........................................ 200 -- -- 200 --
-------- -------- -------- -------- --------
200 -- -- 200 --
-------- -------- -------- -------- --------
OTHER ASSET WRITE-DOWNS AND RESERVES
Other accruals ........................................ 4,200 -- -- 100 4,100
-------- -------- -------- -------- --------
4,200 -- -- 100 4,100
-------- -------- -------- -------- --------
CHANGES IN ESTIMATES OF CERTAIN RETAINED
LIABILITIES OF FORMER SUBSIDIARIES ................. 9,300 500 -- -- 8,800
-------- -------- -------- -------- --------
$115,100 $ 600 $ -- $ 2,000 $112,500
======== ======== ======== ======== ========
</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
July 1, 2000 is presented below (in thousands of dollars):
<TABLE>
<CAPTION>
RESERVE RESERVE
BALANCE BALANCE
JANUARY 1, CASH INCOME OTHER JULY 1,
2000 PAYMENTS (EXPENSE) ACTIVITY 2000
---- -------- --------- -------- ----
<S> <C> <C> <C> <C> <C>
Closing or realignment of manufacturing operations:
Changes in estimates of insurance liabilities ... $ 500 $ 500 $ -- $ -- $ --
Other ........................................... 200 -- -- -- 200
------ ------ ------ ------ ------
700 500 -- -- 200
Changes in estimates of certain retained liabilities
of former subsidiaries .......................... 2,200 900 -- -- 1,300
------ ------ ------ ------ ------
$2,900 $1,400 $ -- $ -- $1,500
====== ====== ====== ====== ======
</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 July 1, 2000 related to discontinued operations consist primarily of
certain environmental reserves of approximately $32,500,000 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 August 3, 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 August 3, 2000, total payments made by the Company on behalf of Mr.
Farley's loan aggregated $3,300,000. In addition, unpaid guarantee fees owed the
Company by Mr. Farley through July 29, 2000 aggregated $1,000,000.
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 July 1, 2000, the Company had
a contingent liability to repay, in whole or in part, grants received of
approximately $21,700,000 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 these putative class actions pending consummation of a plan of
reorganization. The Company and counsel for the plaintiffs in the putative class
actions have reached agreement, subject to documentation and approval of the
Bankruptcy Court, to stay the 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.
8. Comprehensive loss was as follows (in thousands of dollars):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------- ----------------------
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net loss ........................................ $ (55,900) $ (2,300) $(137,700) $ (11,300)
Unrealized gains on marketable equity securities:
Holding gains ........................... 2,000 -- 2,000 --
Realized gains reclassified to net loss . -- -- (10,000) --
Foreign currency translation adjustments--net ... (5,400) (5,100) (8,600) (16,600)
--------- --------- --------- ---------
Comprehensive loss ...................... $ (59,300) $ (7,400) $(154,300) $ (27,900)
========= ========= ========= =========
</TABLE>
16
<PAGE> 18
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
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 SIX MONTHS ENDED
------------------------ --------------------------
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 2000 1999
------------ --------- ------------- ----------
<S> <C> <C> <C> <C>
NUMERATOR
For basic earnings per share--
Earnings (loss) from continuing operations............... $ (55,900) $ 4,500 $ (135,100) $ (400)
Discontinued operations.................................. -- (6,800) (2,600) (10,900)
----------- --------- ------------- ----------
Net loss................................................. $ (55,900) $ (2,300) (137,700) (11,300)
Add back dividends on minority exchangeable
preferred assumed to be converted...................... -- 800 -- --
----------- --------- ------------ ---------
For diluted earnings per share--
Loss applicable to common
stock after assumed conversion......................... $ (55,900) $ (1,500) $ (137,700) $ (11,300)
=========== ========== ============= ==========
DENOMINATOR
For basic earnings per common share--
Weighted average shares outstanding...................... 67,000 66,900 67,000 68,700
Effect of dilutive employee stock options................ -- -- -- --
Effect of dilutive exchangeable preferred................ -- 5,000 -- --
----------- --------- ------------ ---------
For diluted earnings per common share--
Weighted average shares outstanding
and assumed conversions............................... 67,000 71,900 67,000 68,700
============ ========= ============= =========
Earnings (loss) per common share
Continuing operations.................................... $ (0.83) $ 0.07 $ (2.02) $ --
Discontinued operations.................................. -- (0.10) (0.04) (0.16)
------------ --------- ------------- ----------
Net loss................................................. $ (0.83) $ (0.03) $ (2.06) $ (0.16)
============ ========= ============= ==========
Earnings (loss) per common share--assuming dilution:
Continuing operations.................................... $ (0.83) $ 0.07 $ (2.02) $ --
Discontinued operations.................................. -- (0.09) (0.04) (0.16)
------------ --------- ------------- ----------
Net loss................................................. $ (0.83) $ (0.02) $ (2.06) $ (0.16)
============ ========= ============= ==========
</TABLE>
In all periods that the Company reported losses from continuing operations,
the effect of the minority exchangeable preferred stock (5,000,000 shares on an
assumed conversion basis) is antidilutive and has been ignored in the
computation of diluted EPS. Because the exercise prices of the Company's
outstanding employee stock options exceeded the average market price of the
Company's ordinary shares in each period presented, employee stock options had
no impact on the calculation of weighted average shares outstanding and assumed
conversions.
10. DEBTOR FINANCIAL STATEMENTS. The following represents the consolidation
of the Company and its Debtor subsidiaries as of July 1, 2000 and January 1,
2000 and for the three and six months ended July 1, 2000. Investments in
nondebtor subsidiaries are presented using the equity method.
17
<PAGE> 19
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 BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
JULY 1, JANUARY 1,
2000 2000
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents (including restricted cash) ........... $ 22,400 $ 18,200
Notes and accounts receivable (less allowance for possible
losses $26,000 and of $23,600) ............................... 197,400 179,500
Inventories
Finished goods ............................................... 420,800 421,900
Work in process .............................................. 60,400 94,100
Materials and supplies ....................................... 36,900 44,400
----------- -----------
Total inventories ......................................... 518,100 560,400
Net assets of discontinued operations ........................... 3,800 29,300
Other ........................................................... 17,500 6,700
----------- -----------
Total current assets ...................................... 759,200 794,100
----------- -----------
Property, Plant and Equipment ...................................... 922,600 923,300
Less accumulated depreciation ................................... 680,700 657,000
----------- -----------
Net property, plant and equipment ......................... 241,900 266,300
----------- -----------
Other Assets
Goodwill (less accumulated amortization of $364,400 and $352,100) 618,900 631,200
Investment in nondebtor subsidiaries ............................ 792,800 733,000
Receivable from nondebtor subsidiaries .......................... 84,900 52,200
Other ........................................................... 100,000 117,700
----------- -----------
Total other assets ........................................ 1,596,600 1,534,100
----------- -----------
$ 2,597,700 $ 2,594,500
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Current maturities of long-term debt ............................ $ 634,600 $ 635,200
Trade accounts payable .......................................... 24,400 7,000
Other accounts payable and accrued expenses ..................... 193,100 109,300
----------- -----------
Total current liabilities ................................. 852,100 751,500
----------- -----------
Noncurrent Liabilities
Long-term debt .................................................. 580,000 556,300
Net liabilities of discontinued operations ...................... 6,900 9,400
Payable to nondebtor subsidiaries ............................... 54,200 --
Other ........................................................... 26,500 37,800
----------- -----------
Total noncurrent liabilities .............................. 667,600 603,500
----------- -----------
Liabilities Subject to Compromise
Unrelated parties ............................................... 662,700 671,200
Payable to nondebtor subsidiaries ............................... 590,100 590,100
----------- -----------
Total liabilities subject to compromise ................... 1,252,800 1,261,300
----------- -----------
Minority Interest .................................................. 71,700 71,700
----------- -----------
Common Stockholders' Deficit ....................................... (246,500) (93,500)
----------- -----------
$ 2,597,700 $ 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 AND SIX MONTHS ENDED JULY 1, 2000
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PERIOD ENDED JULY 1, 2000
---------------------------
THREE SIX
MONTHS MONTHS
----------- -----------
<S> <C> <C>
Net Sales
Unrelated parties ........................................................ $ 378,200 $ 680,700
Affiliates ............................................................... 231,500 457,700
----------- -----------
609,700 1,138,400
----------- -----------
Cost of Sales
Unrelated parties ........................................................ 331,400 620,100
Affiliates ............................................................... 271,600 539,500
----------- -----------
603,000 1,159,600
----------- -----------
Gross earnings (loss) .................................................... 6,700 (21,200)
Selling, general and administrative expenses ................................ 43,800 89,500
Goodwill amortization ....................................................... 6,100 12,300
----------- -----------
Operating loss ........................................................... (43,200) (123,000)
Interest expense ............................................................ (32,000) (59,400)
Equity in earnings of nondebtor subsidiaries ................................ 29,800 59,800
Other income--net ........................................................... (400) 9,000
----------- -----------
Loss from continuing operations before reorganization items and income tax
provision ............................................................. (45,800) (113,600)
Reorganization items ........................................................ (9,500) (19,000)
----------- -----------
Loss from continuing operations before income tax provision .............. (55,300) (132,600)
Income tax provision ........................................................ 600 2,500
----------- -----------
Loss from continuing operations .......................................... (55,900) (135,100)
Discontinued operations:
Loss--Sports & Licensing operations ...................................... -- (2,600)
----------- -----------
Net loss .............................................................. $ (55,900) $ (137,700)
=========== ===========
</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)
SIX MONTHS ENDED JULY 1, 2000
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss from continuing operations ......................................... $(135,100)
Adjustments to reconcile to net operating cash flows:
Equity in earnings of nondebtor subsidiaries ......................... (59,800)
Depreciation and amortization ........................................ 50,800
Decrease in working capital .......................................... 115,200
Cash flows of discontinued operations ................................ 20,300
Gain on marketable equity securities ................................. (15,800)
Other--net ........................................................... (16,600)
---------
Net operating cash flows before reorganization items ............... (41,000)
Net cash used for reorganization items:
Professional fees paid ............................................. (9,100)
---------
Net operating cash flows ......................................... (50,100)
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures .................................................... (4,500)
Proceeds from sale of marketable equity securities ...................... 14,100
Affiliate notes and accounts receivable ................................. (32,800)
Other--net .............................................................. 1,300
---------
Net investing cash flows ......................................... (21,900)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
DIP financing proceeds .................................................. 703,400
DIP financing payments .................................................. (680,800)
Affiliate notes and accounts payable .................................... 53,600
---------
Net financing cash flows ......................................... 76,200
---------
Net increase in cash and cash equivalents (including restricted cash) ...... 4,200
Cash and cash equivalents (including restricted cash) at beginning of period 18,200
---------
Cash and cash equivalents (including restricted cash) at end of period ..... $ 22,400
=========
</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 Company's ability to successfully execute its
corporate strategy in a competitive marketplace, 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. The Company currently estimates the
phase-out period will continue until the end of the third quarter.
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)
In June 2000, the Company entered into an agreement to sell substantially
all of the assets of its Gitano Fashions Ltd. subsidiary to VF Corp. for
$17,500,000 which approximated book value. The transaction was consummated on
July 7, 2000. On the closing date VF Corp. acquired the Gitano trademark and all
of the Company's Gitano jeanswear inventory. In connection with the sale of
inventory, the Company has agreed to provide distribution services to VF Corp.
through December 2000.
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 July 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 six months of
2000 or the first six months of 1999 related to the above noted special charges.
SECOND QUARTER AND FIRST SIX MONTHS OF 2000 COMPARED WITH 1999
The table below sets forth selected operating data (in millions of
dollars and as percentages of net sales).
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales................................................ $ 446.0 $ 517.7 $ 820.9 $ 888.3
Gross earnings........................................... 54.7 118.4 76.5 202.8
Gross margin............................................. 12.3% 22.9% 9.3% 22.8%
Operating earnings (loss)................................ (11.4) 26.6 (59.4) 36.6
Operating margin......................................... (2.6%) 5.1% (7.2%) 4.1%
</TABLE>
<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)
Net sales decreased $71,700,000 or 13.8% in the second quarter and $67,400,000
or 7.6% in the first six months of 2000 compared to 1999. Retail product sales
decreased $27,400,000 and $16,900,000 in the second quarter and first six months
of 2000 compared to 1999. Of the total, men's and boys' underwear sales
decreased by $17,000,000 or 9.9% in the second quarter and $8,200,000 or 2.9% in
the first six months of 2000 compared to corresponding periods of 1999.
Shortfalls in men's and boys' underwear sales related to Fruit of the Loom
branded basic men's and boys' cotton products, private label, BVD and
Munsingwear. Intimate apparel sales increased $900,000 or 4.0% in the second
quarter but decreased $6,400,000 or 14.7% in the first six months of 2000
compared to corresponding periods of 1999. The decrease in the six month period
related to reduced sales of Nylon and Close Comfort product styles. Casualwear
sales decreased $6,000,000 or 17.1% in the second quarter and $200,000 or 0.3%
in the first six months of 2000 compared to corresponding periods of 1999. These
decreases reflect a reduction in point of sale at a major customer for Tees and
deferral of Fleece shipments until the 3rd quarter by a major customer. A
portion of the decrease in retail is in products that the Company will no longer
offer in the future. Activewear sales decreased $17,800,000 or 10.3% in the
second quarter and $3,500,000 or 1.2% in the first six months of 2000 compared
to corresponding periods of 1999. Activewear Tees and Fleece accounted for
$13,200,000 and $2,500,000 of the second quarter decrease. Lower shipments of
Activewear Tees occurred due to the impact of poor 1999 service along with
increased competitive activity. Also, the Company reduced its product offerings
of Activewear products. In addition, the reduction in sales resulted in part
from a decrease in selling prices in the second quarter and first six months of
2000 as compared to the corresponding periods of 1999; however, activewear
prices increased in the first six months of 2000 compared to the fourth quarter
of 1999. The Activewear Fleece decrease in the second quarter resulted from a
temporary lack of availability of certain products. European sales declined
$12,400,000 or 20.7% in the second quarter and $23,000,000 or 18.4% in the first
six months of 2000 compared to corresponding periods of 1999. These decreases
were due primarily to unfavorable foreign currency impacts resulting from the
devaluation of the Euro in relation to the U.S. dollar, price decreases on
retail and activewear 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 in the six month period was partially offset by additional sales of
closeouts. Closeouts accounted for approximately 59% of European retail sales in
the first quarter of 2000. Sales of other products represent yarn and denim
sales which the Company effectively discontinued selling subsequent to 1999.
<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)
Segment net sales were as follows (in millions of dollars).
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES
Retail Products.......................................... $ 243.6 $ 271.0 $439.3 $456.2
Activewear............................................... 154.8 172.6 279.2 282.7
Europe................................................... 47.5 59.9 101.8 124.8
Other.................................................... 0.1 14.2 0.6 24.6
------- ------- ------ ------
$446.0 $ 517.7 $820.9 $888.3
====== ======= ====== ======
</TABLE>
Gross earnings decreased $63,700,000 or 53.8% in the second quarter of
2000 and $126,300,000 or 62.3% in the first six months of 2000 compared to
corresponding periods of 1999. Gross margin declined 10.6 percentage points to
12.3% of sales for the second quarter and 13.5 percentage points to 9.3% of
sales for the first six months of 2000. Amounts charged to cost of sales in the
first six months of 2000 represent costs incurred in the second half of 1999
(fourth quarter of 1999 for the second quarter of 2000) when the inventory that
was sold in the first six months of 2000 was manufactured. In the second quarter
of 2000, higher 1999 production costs accounted for $21,700,000 of the decline
in gross earnings and price decreases (principally domestic activewear and
Europe) aggregated $7,800,000. In the first six months of 2000, higher 1999
production costs accounted for $72,800,000 of the decline in gross earnings and
price decreases (principally domestic activewear and Europe) aggregated
$14,400,000. Management believes production costs in the first six months of
2000 were significantly less than the manufacturing costs incurred in the second
half of 1999. Accordingly, the Company expects an improvement in gross margin in
the third and fourths quarters of 2000. The Company provided an additional
$6,000,000 for physical inventory losses in the first six months of 2000 as
compared to the first six months of 1999. For both the second quarter and first
six months of 2000, lower volume and unfavorable mix decreased gross earnings by
$13,000,000 in the second quarter and $8,900,000 in the first six months of 2000
compared with corresponding periods of 1999.
The Company experienced an operating loss in the second quarter of 2000
of $11,400,000 compared to operating earnings of $26,600,000 in the second
quarter of 1999. For the first six months of 2000, the Company experienced an
operating loss of $59,400,000 compared to operating earnings of $36,600,000 in
the first six months of 1999. Offsetting the decrease in gross earnings were
lower selling, general, and administrative expenses of $25,600,000 in the second
quarter and $30,300,000 in the first six months of 2000 compared to the
corresponding periods of 1999. These reductions were principally due to
expenditures for Y2K remediation in 1999 and lower advertising and promotion,
legal and professional 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 second quarter and
first six months of 2000. Selling, general and administrative expenses as a
percent of net sales decreased 3.0 percentage points to 13.5% in the second
quarter and 2.2 percentage points to 15.1% in the first six months of 2000.
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)
Segment operating earnings (loss) were as follows (in millions of
dollars).
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING EARNINGS (LOSS)
Retail Products.......................................... $ 2.3 $ 20.4 $(23.2) $ 27.1
Activewear............................................... (13.4) 10.1 (36.3) 6.8
Europe................................................... 1.5 (1.1) 3.8 6.5
Other.................................................... 4.3 3.4 8.6 8.5
Goodwill................................................. (6.1) (6.2) (12.3) (12.3)
-------- -------- ------- -------
$(11.4) $ 26.6 $(59.4) $ 36.6
======= ======= ======= ======
</TABLE>
Interest expense increased $7,100,000 to $31,300,000 in the second
quarter and $15,400,000 in the first six months of 2000 to $60,600,000 compared
to the corresponding periods of 1999. The increase reflected a higher average
interest rate. The Company also had a higher average borrowing level reflecting
the elimination of the Company's accounts receivable securitization in the
fourth quarter of 1999. Although the average borrowing level was higher, the
Company did not record interest on $248,500,000 of unsecured 8 7/8% senior notes
(the "Unsecured Notes") in the first six months 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 (expense)-net in the second quarter of 2000 decreased
$5,900,000 in the second quarter and $3,500,000 in the first six months of 2000
compared to the corresponding periods of 1999. Principal components of net other
expense in the second quarter of 2000 included adequate protection payments
(interest payments) in the amount of $1,600,000 related to the guarantee of
personal indebtedness of the Company's former Chairman, bank fees of $900,000
and unfavorable currency translation of $700,000. These unfavorable impacts were
partially offset by a $3,000,000 gain on marketable equity securities. Principal
components of net other income in the second quarter of 1999 included an
$8,000,000 gain on the sale of a facility and a $400,000 gain on marketable
equity securities. These favorable impacts were partially offset by asset
securitization expense of $2,100,000, a write off of debt premium fees of
$2,000,000 and bank fees of $1,000,000. Principal components of net other income
in the first six months of 2000 included a $15,300,000 gain on the sale of
marketable equity securities partially offset by adequate protection payments
(interest payments) in the amount of $2,900,000 related to the guarantee of
personal indebtedness of the Company's former Chairman, bank fees of $1,600,000
and unfavorable currency translation of $2,800,000. Principal components of net
other income in the first six months of 1999 included an $10,200,000 gain on the
sale of two facilities, a $3,900,000 gain on previously settled litigation and a
$3,900,000 gain on marketable equity securities. These favorable impacts were
partially offset by asset securitization expense of $4,600,000, a write off of
debt premium fees of $2,000,000 and bank fees of $2,300,000.
<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)
Reorganization items represent costs incurred by the Company during the
Chapter 11 cases. The reorganization items in the second quarter and first six
months of 2000 aggregated $9,500,000 and $19,000,000, respectively, and
consisted of professional fees, including legal, accounting and other services
provided to the Company during the Chapter 11 cases. At July 1, 2000, $9,900,000
of the $19,000,000 incurred in the first six months of 2000 is accrued and
included in Other accounts payable and accrued expenses in the accompanying
condensed consolidated balance sheet.
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 second quarter and first six 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
second quarter and first six months of 2000 primarily because the Company is
unable to realize any current benefit from the operating loss through carrybacks
to prior years, is unable under the Chapter 11 cases to implement certain income
tax planning strategies and expects an 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 benefit for the first six months of
1999 reflected a provision projected for the full year for interest on prior
years' U.S. Federal income taxes and goodwill amortization, a portion of which
is not deductible for U.S. Federal income taxes.
Loss per common share from continuing operations, basic and diluted,
consisted of a loss of $(.83) and ($2.02), respectively, in the second quarter
and first six months of 2000 compared to a earnings per common share from
continuing operations, basic and diluted, of $.07 in the second quarter of 1999.
The Company had no earnings or loss per common share in first six months of
1999. Average common shares were lower in the first six months of 2000 due to
the exchange of common shares for FTL, Inc. Preferred Stock in the Cayman
Reorganization.
27
<PAGE> 29
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 the sum of 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
July 28, 2000 was $302,800,000.
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 totaled $25,700,000 in the first six
months of 2000 compared with $93,900,000 used in the first six months of 1999.
The current year period benefited from a reduction in inventory and from
$20,300,000 in net proceeds from the liquidation of the Pro Player business.
Inventory increased in the first six months of 1999, and discontinued operations
used $35,100,000.
In the first six months of 2000, the primary factors in reconciling
from the loss from continuing operations of $135,100,000 to cash used for
operating activities of $25,700,000 were a decrease in working capital of
$66,000,000, depreciation and amortization of $60,700,000, and cash flows of
$20,300,000 from discontinued operations, partially offset by a gain on
marketable equity securities of $15,800,000 and $9,100,000 of reorganization
payments.
In the first six months of 1999, the primary factors in reconciling
from the loss from continuing operations of $400,000 to cash used for operating
activities totaling $93,900,000 were an increase in working capital of
$68,900,000, cash flows of $35,100,000 used by discontinued operations, and
currency translation of $12,700,000, partially offset by depreciation and
amortization of $59,900,000.
28
<PAGE> 30
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 six months of
2000 was $9,600,000 compared with cash used for investing activities totaling
$17,700,000 in the first six months of 1999. Capital expenditures were lower
($5,500,000 in the first six months of 2000 compared with $21,700,000 in the
first six months of 1999). In addition, proceeds from the sale of marketable
equity securities aggregated $14,100,000 in the first six months of 2000. Net
cash used for investing activities in the first six months 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 $22,300,000 in the first
six months of 2000 (consisting of net proceeds from DIP financing), compared
with net cash provided by financing activities of $129,800,000 in the first six
months of 1999 due to the unfavorable operating and investing cash flows.
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 July 1, 2000. Under the agreement, approximately
$283,300,000 of eligible net receivables at July 1, 1999 were sold to the
Company's unconsolidated receivable financing subsidiary, reducing consolidated
notes and accounts receivable. Proceeds of approximately $246,300,000 from the
ultimate purchaser outstanding at July 1, 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.
29
<PAGE> 31
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).
30
<PAGE> 32
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 July 1, 2000.
31
<PAGE> 33
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: August 15, 2000
32
