UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUATERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended September 26, 1998
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: 333-58059
Cluett American Corp.
(Exact name of registrant as specified in its charter)
Delaware 22-2397044
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
48 West 38th Street New York, NY 10018
(Address of principal executive offices) (Zip code)
212-984-8900
(Registrant's telephone number)
Indicate by check mark whether 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 registrant was required
to file such reports), and (2) has been subject to such filing requirement for
the past 90 days. Yes X No
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets as of September 26, 1998 and
December 31, 1997........................................................2
Condensed Consolidated Statements of Operations for the thirteen
and thirty-nine weeks ended September 26, 1998 and
September 27, 1997.......................................................3
Condensed Consolidated Statements of Stockholders' Deficit
for the thirty-nine weeks ended September 26, 1998.......................4
Condensed Consolidated Statements of Cash Flows for the
thirty-nine weeks ended September 26, 1998 and
September 27, 1997.......................................................5
Notes to Condensed Consolidated Financial Statements
Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................10
PART II - Other Information
Item 6 - Exhibits and Reports on Form 8-K...............................15
Signature...............................................................18
Exhibit - Financial Data Schedule
<PAGE>
Cluett American Corp.
Condensed Consolidated Balance Sheets
(In Thousands, except per share data)
September 26, December 31,
1998 1997
------------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents....................... $ 1,651 $ 10,019
Accounts receivable, net........................ 54,226 48,442
Inventories (Note 3)............................ 92,233 78,236
Prepaid expenses and other current assets....... 3,387 4,234
----------------------------
Total current assets.......................... 151,497 140,931
Property, plant and equipment, net.............. 47,495 47,698
Pension asset................................... 31,722 30,227
Deferred financing fees......................... 11,572 -
Other noncurrent assets......................... 1,769 1,161
----------------------------
Total assets..................................... $244,055 $220,017
============================
Liabilities and stockholders' deficit
Current liabilities:
Accounts payable and accrued expenses........... $ 38,394 $ 46,486
Accrued interest payable........................ 5,312 -
Current portion of long-term debt............... 10,639 9,172
Income taxes payable............................ 1,596 2,153
Other current liabilities....................... 580 -
----------------------------
Total current liabilities........................ 56,521 57,811
Due to parent................................... 3,006 27,613
Long-term debt and capital lease obligations.... 253,640 1,960
Dividends payable............................... 2,084 -
Other non-current liabilities................... 242 500
Liabilities subject to compromise............... - 168,932
Redeemable preferred stock, $1 par value:
authorized 50,000 shares,issued
and outstanding 15,000 shares.................. - 20,009
Senior exchangeable preferred stock, $.1 par value:
authorized 4,950,000,issued and outstanding
500,000 shares (liquidation preference
$50,000,000)................................... 48,176 -
Stockholders' deficit:
Common stock, $1 par value:
authorized, issued and outstanding 1,000 shares
at September 26, 1998, 2,000 shares
(1,000 BIC, 1,000 CDC)at December 31, 1997...... 1 2
Additional paid-in capital...................... 118,553 173,592
Accumulated deficit............................. (237,498) (228,099)
Equity adjustment from foreign currency
translation.................................... (670) (2,303)
----------------------------
Total stockholders' deficit...................... (119,614) (56,808)
----------------------------
Total liabilities and stockholders' deficit...... $ 244,055 $ 220,017
============================
See accompanying notes.
Page 2
<PAGE>
<TABLE>
Cluett American Corp.
Condensed Consolidated Statements of Operations (Unaudited)
(In Thousands, except per share data)
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
September 26, September 27, September 26, September 27,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales........................................................... $93,264 $97,085 $261,898 $259,091
Cost of goods sold.................................................. 66,257 69,176 182,695 181,967
-------------------------------------------------------------
Gross profit........................................................ 27,007 27,909 79,203 77,124
Selling, general and administrative expenses........................ 21,129 20,061 59,941 57,326
Facility closing and reengineering costs............................ - 1,620 1,022 1,903
-------------------------------------------------------------
21,129 21,681 60,963 59,229
Operating income.................................................... 5,878 6,228 18,240 17,895
Interest expense, net............................................... 5,859 3,889 12,980 11,192
Other (income) expense, net......................................... 422 (1,219) 564 (2,455)
-------------------------------------------------------------
Income before reorganization costs and income taxes................. (403) 3,558 4,696 9,158
Bankruptcy reorganization costs..................................... - 599 13,179 3,520
Income (loss) before provision for income taxes..................... (403) 2,959 (8,483) 5,638
Provision for income taxes.......................................... 312 272 916 770
-------------------------------------------------------------
Net income (loss)................................................... $ (715) $ 2,687 $ (9,399) $ 4,868
=============================================================
<FN>
See accompanying notes.
</FN>
</TABLE>
Page 3
<PAGE>
<TABLE>
Cluett American Corp.
Condensed Consolidated Statements of Stockholders' Deficit (Unaudited)
(In Thousands, except per share data)
<CAPTION>
Equity
Adjustment
From
Additional Foreign
Common Stock Paid-in Accumulated Currency
Shares Amount Capital Deficit Translation Total
---------- ------------ --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 2,000 $2 $173,592 $(228,099) $(2,303) $(56,808)
Foreign currency translation
adjustment - - 1,633 1,633
Accretion of dividend
on Redeemable
preferred stock (2,077) - - (2,077)
Distribution to CAIC (87,522) - - (87,522)
Contribution of intercompany
debt due to CAIC 27,609 - - 27,609
Distribution to CAIC for debt
purchase (13,000) - - (13,000)
Contribution of preferred
stock from CAIC 22,086 - - 22,086
Contribution of CDC to CAC
from CAIC (1,000) (1) - - - (1)
Accretion of dividend
on Senior exchangeable
preferred stock (2,084) - - (2,084)
Accretion of fees on
Senior exchangeable
preferred stock (51) - - (51)
Net loss (9,399) - (9,399)
---------- ------------ --------------- --------------- --------------- ---------------
Balance at September 26, 1998 1,000 $1 $118,553 $(237,498) $(670) $(119,614)
========== ============ =============== =============== =============== ===============
<FN>
See accompanying notes.
</FN>
</TABLE>
Page 4
<PAGE>
<TABLE>
Cluett American Corp.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In Thousands)
<CAPTION>
Thirty-nine weeks ended
September 26, September 27,
1998 1997
------------------------------
<S> <C> <C>
Operating activities:
Net income (loss).................................................. $ (9,399) $ 4,868
Adjustment to reconcile net income to net cash and cash
equivalents used in operating activities:
Depreciation and amortization................................... 6,880 6,012
Changes of liabilities subject to compromise.................. (22,442) (1,577)
----------------------------
(24,961) 9,303
Changes in operating assets and liabilities:
Accounts receivable............................................. (6,382) (4,442)
Inventories..................................................... (14,661) (14,463)
Prepaid expenses and other current assets....................... (12,099) 421
Pension and other noncurrent assets............................. (561) (1,505)
Accounts payable and accrued expenses........................... 727 1,434
Income taxes payable............................................ (557) (390)
Other liabilities............................................... 3,795 408
----------------------------
Net cash and cash equivalents used in operating activities......... (54,699) (9,234)
Investing activities:
Purchase of fixed assets........................................... (7,640) (6,837)
Proceeds on disposal of fixed assets............................... 77 -
----------------------------
Net cash and cash equivalents used in investing activities......... (7,563) (6,837)
Financing activities:
Issuance of preferred stock........................................ 48,125 -
Distribution to parent............................................. (87,522) -
Principal payments on pre-petition credit facility................. (146,490)
Proceeds from long-term debt (Note 4).............................. 222,000 -
Net borrowings under line-of-credit agreement (Note 4)............. 20,213 13,417
Principal payments on capital leases............................... (2,396) (894)
----------------------------
Net cash and cash equivalents provided by financing activities..... 53,930 12,523
Effect of foreign currency translation............................. (36) -
----------------------------
Net change in cash and cash equivalents............................ (8,368) (3,548)
Cash and cash equivalents at beginning of year..................... 10,019 5,784
----------------------------
Cash and cash equivalents at end of period......................... $1,651 $ 2,236
============================
<FN>
See accompanying notes.
</FN>
</TABLE>
Page 5
<PAGE>
Cluett American Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Cluett
American Corp. (CAC), formerly known as Bidermann Industries Corp. and
Affiliates, (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
thirteen and thirty-nine week periods ending September 26, 1998, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998. For further information, refer to the annual financial
statements and footnotes thereto of Bidermann Industries Corp. and Affiliates
included in the Registration Statement on Form S-4 filed with the Securities and
Exchange Commission on October 23, 1998.
The consolidated financial statements include all subsidiary companies of CAC
including Consumer Direct Corp. (CDC). Significant intercompany transactions
have been eliminated in consolidation. Certain consolidated foreign subsidiaries
have fiscal years ending November 30.
2. General
On March 31, 1998, the Company's and Cluett American Investment Corp.'s (CAIC),
formerly known as Bidermann Industries USA, Inc., Third Amended Plan of
Reorganization (the "Plan") was confirmed by the Court. On May 18, 1998, the
Plan was consummated completing CAIC's (and its subsidiaries) bankruptcy
proceeding which began on July 17, 1995. In connection with the Plan and
pursuant to a subscription agreement dated March 30, 1998 (the "Subscription
Agreement"), Vestar Capital Partners III, L.P. or a designated affiliate
("Vestar"), Alvarez & Marsal, Inc. or a designated affiliate ("A&M"), a
turnaround management firm assisting the Company, and certain members of
existing management made a $68 million equity investment (the "Equity
Investment") in CAIC. Vestar provided approximately $61.3 million of the Equity
Investment in the form of a $24.8 million common equity investment in CAIC (the
"Holdings Common Stock") and a $36.5 million investment in Class C Junior
Preferred Stock (the "Class C Junior Preferred Stock"). A&M and certain members
of management provided additional Equity Investments of $4.9 million and $1.8
million in CAIC Common Stock, respectively. The balance of the CAIC Common Stock
is held by the shareholders that were shareholders prior to the bankruptcy ("Old
Equity"). Holdings Common Stock is held as follows: Vestar - 70.8%, A&M - 14%,
Management - 5.1%, Old Equity - 10.1%.
The Company and CAIC used the Equity Investment in conjunction with (i)
borrowings under a new $160.0 million senior credit facility, (ii) $112.0
million proceeds from the Company's issuance of Senior Subordinated Notes Due
2008 and $48.125 million net proceeds from the issuance of Senior Exchangeable
Preferred Stock Due 2010, collectively the "Offerings," to effect a
recapitalization (the "Recapitalization") under which all of CAIC and the
Company's existing pre-petition obligations and all borrowing under the
Company's debtor-in-possession facility, were paid in full.
Page 6
<PAGE>
Cluett American Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
2. General (continued)
The following table sets forth the uses of funds for CAIC and the Company after
giving effect to the Recapitalization and the application of the proceeds
therefrom:
The
Company CAIC Total
-------------------------------
(In Millions)
Uses of Funds:
Payment of Allowed Claims.................... $168.9 $122.6 $291.5
Payment of Estimated Post-Petition Interest.. 12.4 24.3 36.7
Refinancing of Existing Debt................. 7.0 - 7.0
Estimated Fees and Expenses.................. 13.5 5.4 18.9
-------------------------------
$201.8 $152.3 $354.1
===============================
3. Inventories
Inventories consist of the following:
September 26, December 31,
1998 1997
------------------ -------------------
(In Thousands)
Finished goods $76,953 $65,558
Work in process 4,462 4,326
Raw materials and supplies 10,818 8,352
------------------ -------------------
$92,233 $78,236
================== ===================
Page 7
<PAGE>
Cluett American Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
4. Indebtedness and Financial Arrangements
On May 18, 1998 the Company entered into a $160,000,000 senior secured credit
facility. The facility is comprised of three different loans. A $50,000,000
revolving credit facility, a $50,000,000 term loan ("Term A"), and a $60,000,000
term loan ("Term B"). The revolving credit facility and the Term A loan mature
in 2004. The Term B loan matures in 2005. Interest rates for borrowings under
the revolving credit facility and the Term A loans are based on either LIBOR
plus 225 basis points or the alternative base rate (the greater of the
NationsBank prime rate or the Fed Funds rate) plus 125 basis points. Interest on
the Term B loan is based on LIBOR plus 250 basis points or the alternative base
rate plus 150 basis points.
September 26, December 31,
1998 1997
------------- ------------
(In Thousands)
Short-term Debt:
Current portion of capital lease obligations $ 14 $ 724
Current portion of long-term debt 2,600 -
Canada operating loan 8,025 2,192
CDG operating facility - 6,256
------------- -----------
10,639 9,172
Long-term Debt:
Liabilities Subject to Compromise:
Revolving credit facility - 52,638
Term loan - 70,459
Accrued interest - 22,532
Trade accounts and expense payable - 18,238
Lease rejection liabilities - 5,065
Capital lease obligations 240 1,960
Revolving credit facility 21,000 -
Senior credit facility 107,400 -
Senior subordinated 10 1/8% notes 125,000 -
------------- -----------
253,640 170,892
------------- -----------
$264,279 $180,064
============= ===========
Page 8
<PAGE>
Cluett American Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
5. Accounting Standards Recently Adopted
Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting
Comprehensive Income" establishes new rules for reporting comprehensive income
and its components. SFAS 130 is effective for fiscal year beginning after
December 15, 1997, and was adopted by the Company for the fiscal year beginning
January 1, 1998. There was no impact on net income or shareholders' deficit from
the adoption of the statement.
For the periods ending September 26, 1998 and September 27, 1997, accumulated
other comprehensive income as shown in the consolidated balance sheets was
comprised of foreign currency translation adjustments, which prior to the
adoption was reported separately in shareholders' deficit. The components of
comprehensive income, net of tax, for these periods were as follows:
Thirteen Thirty-nine
Weeks Ended Weeks Ended
9/26/98 9/27/97 9/26/98 9/27/97
--------- ---------- ----------- ---------
(In Thousands)
Net income (loss).......... $(715) $2,687 $(9,399) $4,868
Translation adjustment..... (352) 62 1,633 (434)
--------- ---------- ----------- ---------
Comprehensive income.......$(1,067) $2,749 $(7,766) $4,434
========= ========== =========== =========
Page 9
<PAGE>
Cluett American Corp.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The table below sets forth net sales, gross profit, selling, general and
administrative, operating income, bankruptcy reorganization costs and net income
(loss) of the Company for the thirteen weeks ended September 26, 1998 and
September 27, 1997.
Thirteen weeks ended
September 26, September 27,
1998 1997
------------- -------------
(In Thousands)
Net sales...................................... $93,264 $97,085
Gross profit................................... 27,007 27,909
Selling, general and administrative expenses... 21,129 20,061
Operating income .............................. 5,878 6,228
Bankruptcy reorganization costs................ - 599
Net income(loss)............................... (715) 2,687
The table below sets forth net sales and operating income for the Company's
ongoing "Core" operations, which include the Shirt Group and Sock Group for the
thirteen weeks, ended September 26, 1998 and September 27, 1997 separated from
the "Non-Core" operations of the Designer Group and facility closing and
reengineering costs. The Company has entered into agreements to terminate the
product licenses of the Designer Group.
Thirteen weeks ended
September 26, September 27,
1998 1997
-------------- --------------
(In Thousands)
Net sales
Core.................................... $84,568 $81,064
Non-core................................ 8,696 16,021
-------------------------------
Total.............................. $93,264 $97,085
===============================
Operating income (loss)
Core.................................... $9,729 $7,782
Non-core................................ (3,851) 66
Facility closing and
reengineering costs................... - (1,620)
-------------------------------
Total.............................. $5,878 $6,228
===============================
Results of Operations: Thirteen weeks ended September 26, 1998
Net Sales: Total net sales for the thirteen weeks ended September 26, 1998
decreased $3.8 million, or 3.9%, to $93.3 million compared with net sales of
$97.1 million for the thirteen weeks ended September 27, 1997. However, net
sales for the thirteen weeks ended September 26, 1998 for the Company's core
businesses increased 4.3% or $3.5 million, to $84.6 million compared with the
same period last year. This sales increase is attributable to stronger market
performance in the Company's Core Gold Toe and Arrow brands. This increase in
net sales is attributable to higher unit volumes and average selling prices
accompanied with lower customer returns and allowances.
Gross Profit: Gross profit for the thirteen weeks ended September 26, 1998
decreased $.9 million, or 3.2%, to $27.0 million compared with gross profit of
$27.9 million for the thirteen weeks ended September 27, 1997. Gross profit
margins in the core businesses of the Sock Group and Shirt Group improved during
this period from 29.7% to 31.8% of net sales. This improvement in gross margin
resulted from improved manufacturing efficiencies and higher average selling
prices. However, this performance on a consolidated basis was offset by a margin
decline in the Designer Group.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased to $21.1 million (22.7% of net sales) in the
third quarter of 1998 from $20.1 million for the same period in 1997. This
increase is primarily a result of increased costs associated with a new
marketing plan and global brand strategy for Arrow. The Company is also
developing a sales infrastructure to explore future business opportunities.
Overall, these expenses are on target with the Company's Core business strategic
plans.
Page 10
<PAGE>
Cluett American Corp.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Operating Income: The Company's operating income declined slightly to $5.9
million from $6.2 million for the thirteen weeks ended September 26, 1998.
However, the Core businesses operating income increased 24.4% from $7.8 million
to $9.7 million because of higher sales volume and the above mentioned
associated gross margin improvement.
Bankruptcy Reorganization Costs: The Company expects to have no future
expenditures of this nature.
Net Income (loss): Net income for the thirteen weeks ended September 26, 1998
decreased $3.4 million to a loss of $0.7 million from income of $2.7 million for
the same period in 1997. This reduction was primarily related to the exit of the
Designer Group business and the related licenses.
Page 11
<PAGE>
Cluett American Corp.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
The table below sets forth net sales, gross profit, operating income, selling,
general and administrative, bankruptcy reorganization costs and net income
(loss) of the Company for the thirty-nine weeks ended September 26, 1998 and
September 27, 1997.
Thirty-nine weeks ended
September 26, September 27,
1998 1997
-----------------------------
(In Thousands)
Net sales.......................................... $261,898 $259,091
Gross profit....................................... 79,203 77,124
Selling, general and administrative expenses....... 59,941 57,326
Operating income .................................. 18,240 17,895
Bankruptcy reorganization costs.................... 13,179 3,520
Net income(loss)................................... (9,399) 4,868
The table below sets forth net sales and operating income for the Company's
ongoing "Core" operations, which include the Shirt Group and Sock Group for the
thirty-nine weeks, ended September 26, 1998 and September 27, 1997 separated
from the "Non-Core" operations of the Designer Group and facility closing and
reengineering costs.
Thirty-nine weeks ended
September 26, September 27,
1998 1997
-----------------------------
(In Thousands)
Net sales
Core....................................... $238,683 $225,088
Non-core................................... 23,215 34,003
-----------------------------
Total................................. $261,898 $259,091
=============================
Operating income (loss)
Core....................................... $25,251 $21,087
Non-core................................... (5,989) (1,289)
Facility closing and
reengineering costs...................... (1,022) (1,903)
-----------------------------
Total................................. $18,240 $17,895
=============================
Results of Operations: Thirty-nine weeks ended September 26, 1998
Net Sales: Net sales for the thirty-nine weeks ended September 26, 1998
increased $2.8 million, or 1.1%, to $261.9 million compared with net sales of
$259.1 million for the thirty-nine weeks ended September 27, 1997. However, net
sales for the thirty-nine weeks ended September 26, 1998 for the Company's core
businesses increased 6.0% or $13.6 million, to $238.7 million compared to the
thirty-nine weeks ended September 27,1997. The increase was due primarily to the
Company's expanded product offerings in Gold Toe and other Sock Group licensed
brands including Nautica and Jockey, accompanied with increased market share in
the Shirt Group with the Arrow brand.
Gross Profit: Gross profit for the thirty-nine weeks ended September 26, 1998
increased $2.1 million, or 2.7% to $79.2 million from $77.1 million for the same
period of 1997. The Core businesses gross margin improved from 30.3% to 31.7%.
This improvement was primarily the result of a more favorable regular/off-price
mix of branded products. Led by Gold Toe and Arrow, the Core business has also
benefited from improved manufacturing efficiencies.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses for the thirty-nine weeks ended September 26, 1998
increased $2.6 million to $59.9 million compared with selling, general and
administrative expenses of $57.3 million for the thirty-nine weeks ended
September 27, 1997. This increase is primarily a result of increased marketing
expenses and operational consolidation efforts. This spending is consistent with
the Company's strategic plan and should result in significant future operating
savings.
Page 12
<PAGE>
Cluett American Corp.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Operating Income: The Company's operating income of $18.2 million is slightly
higher than the prior year's $17.9 million. The Core businesses operating income
increased by $4.2 million or 19.9% from $21.1 million to $25.3 million as a
result of higher sales volume and associated gross margins.
Bankruptcy Reorganization Costs: Bankruptcy reorganization costs for the
thirty-nine weeks ended September 26, 1998 increased $9.7 million to $13.2
million compared with bankruptcy reorganization costs of $3.5 million for the
thirty-nine weeks ended September 27, 1997. This increase in bankruptcy
reorganization costs resulted from the recognition of default interest and
administrative expenses payable in accordance with the terms of the Plan of
Reorganization. The Company expects to have no future expenditures of this
nature.
Net Income (loss): Net income for the thirty-nine weeks ended September 26, 1998
decreased $14.3 million to a loss of $9.4 million from income of $4.9 million
for the same period in 1997. This reduction was primarily related to bankruptcy
reorganization costs associated with the Plan of Reorganization.
Year 2000: The Company believes that its systems are capable of functioning from
and after the year 2000 without any material additional costs. The ability of
third parties with which the Company transacts business to adequately address
their year 2000 issues is outside of the Company's control. There can be no
assurance that the failure of the Company or such third parties to adequately
address their respective year 2000 issues will not have a material adverse
effect on the Company.
Seasonality: The Company's business is seasonal, with higher sales and income
during the third and fourth quarters, which coincide with the Company's two peak
selling seasons: the first running from the start of the back-to-school and fall
selling seasons beginning in August and continuing through September, and the
second being the Christmas selling season beginning with the weekend following
Thanksgiving.
Also contributing to the strength of the third quarter is the high volume of
fall shipments to wholesale customers which are generally more profitable than
spring shipments. The slower spring selling season at wholesale combines with
retail seasonality to make the first quarter particularly weak.
Page 13
<PAGE>
Cluett American Corp.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Liquidity and Capital Resources
The seasonal nature of the Company's business typically requires the use of cash
to fund a build-up in the Company's inventory in the first half of each year.
During the third and fourth quarters, the Company's higher level of sales tends
to reduce its inventory levels and generate accounts receivable. This increase
in accounts receivable generates operating cash to reduce debt during the fourth
and first quarters of each year.
The Company's principal sources of liquidity are expected to be cash from its
operations and funds available under the $50 million Senior Revolving Credit
Facility. The Company's principal uses of cash for the next several years will
be operating expenses, capital expenditures and debt service requirements
related to the Company's financing agreements.
Net cash used by operations in the first thirty-nine weeks of 1998 was $54.7
million compared with net cash used by operations of $9.2 million for the same
period in 1997. This increase in cash used by operations is related to the
payment of prepetition liabilities of $167.0 million resulting from the
bankruptcy. Additionally, the Company paid loan fees of $11.9 million related to
the new $160.0 million senior credit facility, issuance of $125.0 million senior
subordinated notes and the issuance of $50.0 million preferred stock.
Net capital spending in the first thirty-nine weeks of 1998 was $7.6 million
compared to $6.8 million for the same period in 1997. The Company anticipates
overall capital spending levels for the 1998 year to be approximately $10.0
million.
The Company has a credit agreement, which includes a revolving credit facility
under which the Company may, at its option, borrow and repay amounts within
certain limits. The total amount available to the Company under the revolving
credit facility is $50.0 million, subject to certain customary drawing
conditions. The Company believes that its borrowing capacity under this facility
is adequate for its 1998 peak seasonal needs.
The Company expects a net working capital reduction of approximately $8.8
million as a result of exiting the Designer Group along with the related
Burberry and YSL license agreements.
The Company will rely on internally generated funds and, to the extent
necessary, on borrowings under the revolving credit facility to meet its
liquidity needs.
Cautionary Statement Regarding Forward-Looking Statements
The preceding Management's Discussion and Analysis contains forward-looking
statements regarding the Company's performance, liquidity and the adequacy of
its capital resources. Those statements are based on management's current
assumptions and expectations and are subject to certain risks and uncertainties
that could cause actual results to differ materially from those projected. As a
result, the Company cautions that the forward-looking statements are qualified
by the risks of increased competition, shifting consumer demand, changing
consumer credit markets and general economic conditions, hiring and retaining
effective team members, sourcing merchandise from domestic and international
vendors, preparing for the impact of year 2000, and other risks and
uncertainties. Therefore, while management believes that there is a reasonable
basis for the forward-looking statements, undue reliance should not be placed on
those statements.
Page 14
<PAGE>
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
2.1 Third Amended Plan of Reorganization of Cluett American Corp. and
Cluett American Investment Corp. (incorporated by reference to Exhibit
2.1 to the Company's Registration Statement on Form S-4 (Reg. No.
333-58059) filed on June 30, 1998).
2.2 Subscription Agreement dated as of March 30, 1998 among Bidermann
Industries U.S.A., Inc., Vestar Capital Partners III, L.P. and Alvarez
& Marsal, Inc. (incorporated by reference to Exhibit 2.2 to the
Company's Registration Statement on Form S-4 (Reg. No. 333-58059)
filed on June 30, 1998).
2.3 Stockholders' Agreement dated as of May 18, 1998 among Cluett American
Investment Corp., Vestar Capital Partners III, L.P., A&M Investment
Associates #7, LLC, the Co-Investors named therein, the Original
Equity Holders named therein and the Management Investors named
therein (incorporated by reference to Exhibit 2.3 to the Company's
Registration Statement on Form S-4 (Reg. No. 333-58059) filed on June
30, 1998).
2.4 Joinder Agreement dated as of June 30, 1998 among Cluett American
Investment Corp., Vestar Capital Partners III, L.P. and each other
signatory thereto (an "Additional Stockholder") (incorporated by
reference to Exhibit 2.4 to the Company's Registration Statement on
Form S-4 (Reg. No. 333-58059) filed on June 30, 1998).
3.1 Restated Certificate of Incorporation of Cluett American Corp.
(incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-4 (Reg. No. 333-58059) filed on June
30, 1998).
3.2 Bylaws of Cluett American Corp. (incorporated by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-4 (Reg. No.
333-58059) filed on June 30, 1998).
4.1 Indenture between Cluett American Corp. and The Bank of New York, as
Trustee (incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-4 (Reg. No. 333-58059) filed on June
30, 1998).
4.2 Exchange Debenture Indenture between Cluett American Corp. and The
Bank of New York, as Trustee (incorporated by reference to Exhibit 4.2
to the Company's Registration Statement on Form S-4 (Reg. No.
333-58059) filed on June 30, 1998).
4.3 Certificate of Designations of the 12 1/2% Senior Exchangeable
Preferred Stock Due 2010 (incorporated by reference to Exhibit 4.3 to
the Company's Registration Statement on Form S-4 (Reg. No. 333-58059)
filed on June 30, 1998).
4.4 Form of 10 1/8% Senior Subordinated Notes Due 2008 (incorporated by
reference to Exhibit 4.4 to the Company's Registration Statement on
Form S-4 (Reg. No. 333-58059) filed on June 30, 1998).
4.5 Form of 10 1/8% Series B Senior Subordinated Notes Due 2008
(incorporated by reference to Exhibit 4.5 to the Company's
Registration Statement on Form S-4 (Reg. No. 333-58059) filed on June
30, 1998).
4.6 Form of 12 1/2% Senior Exchangeable Preferred Stock Due 2010
(incorporated by reference to Exhibit 4.6 to the Company's
Registration Statement on Form S-4 (Reg. No. 333-58059) filed on June
30, 1998).
4.7 Form of 12 1/2% Series B Senior Exchangeable Preferred Stock Due 2010
(incorporated by reference to Exhibit 4.7 to the Company's
Registration Statement on Form S-4 (Reg. No. 333-58059) filed on June
30, 1998).
4.8 Note Registration Rights Agreement dated May 18, 1998 among Cluett
American Corp., NationsBanc Montgomery Securities LLC and NatWest
Capital Markets Limited (incorporated by reference to Exhibit 4.8 to
the Company's Registration Statement on Form S-4 (Reg. No. 333-58059)
filed on June 30, 1998).
Page 15
<PAGE>
4.9 Preferred Stock Registration Rights Agreement dated May 18, 1998 among
Cluett American Corp., NationsBanc Montgomery Securities LLC and
NatWest Capital Markets Limited (incorporated by reference to Exhibit
4.9 to the Company's Registration Statement on Form S-4 (Reg. No.
333-58059) filed on June 30, 1998).
10.1 $160,000,000 Credit Agreement dated as of May 18, 1998 among Cluett
American Corp., as the Borrower, NationsBank, N.A., as Administrative
Agent and Collateral Agent, NationsBanc Montgomery Securities LLC, as
Arranger and Syndication Agent, and lenders (incorporated by reference
to Exhibit 10.1 to the Company's Registration Statement on Form S-4
(Reg. No. 333-58059) filed on June 30, 1998).
10.2 First Amendment to the Credit Agreement and Assignment dated May 27,
1998 by and among Cluett American Corp., Cluett American Investment
Corp., Cluett American Group, Inc. and certain subsidiaries, the
Existing Lenders, New Lenders, and agents (incorporated by reference
to Exhibit 10.2 to the Company's Registration Statement on Form S-4
(Reg. No. 333-58059) filed on June 30, 1998).
10.3 Security Agreement dated as of May 18, 1998 made by Cluett American
Corp., Cluett American Investment Corp., Cluett American Group, Inc.
and certain Subsidiaries of Cluett American Investment Corp. in favor
of NationsBank, N.A. as agent (incorporated by reference to Exhibit
10.3 to the Company's Registration Statement on Form S-4 (Reg. No.
333-58059) filed on June 30, 1998).
10.4 Pledge Agreement dated as of May 18, 1998 made by Cluett American
Corp., Cluett American Investment Corp., Cluett American Group, Inc.
and certain Subsidiaries of Cluett American Investment Corp. in favor
of NationsBank, N.A., as agent (incorporated by reference to Exhibit
10.4 to the Company's Registration Statement on Form S-4 (Reg. No.
333-58059) filed on June 30, 1998).
10.5 Joinder Agreement dated as of May 18, 1998 by and between Bidermann
Tailored Clothing, Inc., and NationsBank, N.A., in its capacity as
Agent under that certain Credit Agreement dated as of May 18, 1998
(incorporated by reference to Exhibit 10.5 to the Company's
Registration Statement on Form S-4/A (Reg. No. 333-58059) filed on
September 3, 1998).
10.6 CDN $15,000,000 Loan Agreement dated as of August 8, 1997 between
Cluett, Peabody Canada Inc., as the Borrower, and Congress Financial
Corporation (Canada), as Lender (incorporated by reference to Exhibit
10.6 to the Company's Registration Statement on Form S-4 (Reg. No.
333-58059) filed on June 30, 1998).
10.7 Employment Agreement dated March 7, 1997 by and between Great American
Knitting Mills, Inc. and James A. Williams (incorporated by reference
to Exhibit 10.7 to the Company's Registration Statement on Form S-4/A
(Reg. No. 333-58059) filed on September 3, 1998).
10.8 Severance Agreement dated as of August 8, 1997 by and between Cluett,
Peabody & Co., Inc. and Phil Molinari (incorporated by reference to
Exhibit 10.8 to the Company's Registration Statement on Form S-4/A
(Reg. No. 333-58059) filed on September 3, 1998).
10.9 Severance Agreement dated as of May 5, 1997 by and between Great
American Knitting Mills, Inc. and William Sheely (incorporated by
reference to Exhibit 10.9 to the Company's Registration Statement on
Form S-4/A (Reg. No. 333-58059) filed on September 3, 1998).
10.10 Severance Agreement dated as of May 5, 1997 by and between Great
American Knitting Mills, Inc. and Kathy Wilson (incorporated by
reference to Exhibit 10.10 to the Company's Registration Statement on
Form S-4/A (Reg. No. 333-58059) filed on September 3, 1998).
10.11 Advisory Agreement dated May 18, 1998 among Cluett American
Investment Corp., Cluett American Corp. and Vestar Capital Partners
(incorporated by reference to Exhibit 10.11 to the Company's
Registration Statement on Form S-4/A (Reg. No. 333-58059) filed on
September 3, 1998).
10.12 Secured Promissory Note dated May 18, 1998 made by A&M Investment
Associates #7, LLC in favor of Cluett American Investment Corp.
(incorporated by reference to Exhibit 10.12 to the Company's
Registration Statement on Form S-4/A (Reg. No. 333-58059) filed on
September 3, 1998).
10.13 Form of Secured Promissory Note made by the Management Investors in
favor of Cluett American Investment Corp. (incorporated by reference
to Exhibit 10.13 to the Company's Registration Statement on Form S-4/A
(Reg. No. 333-58059) filed on September 3, 1998).
10.14 Severance Agreement dated as of August 8, 1997 by and between Cluett,
Peabody & Co., Inc. and Robert Riesbeck (incorporated by reference to
Exhibit 10.14 to the Company's Registration Statement on Form S-4/A
(Reg. No. 333-58059) filed on October 15, 1998).
Page 16
<PAGE>
10.15 Severance Agreement dated as of January 16, 1996 by and between
Bidermann Industries Corp. and Steven J. Kaufman (incorporated by
reference to Exhibit 10.15 to the Company's Registration Statement on
Form S-4/A (Reg. No. 333-58059) filed on October 15, 1998).
24 Powers of Attorney (included on pages II-5--II-11) (incorporated by
reference to Exhibit 24 to the Company's Registration Statement on
Form S-4 (Reg. No. 333-58059) filed on June 30, 1998).
25.1 Form T-1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of The Bank of New York, as Trustee for the 10
1/8% Senior Subordinated Notes Due 2008 (incorporated by reference to
Exhibit 25.1 to the Company's Registration Statement on Form S-4 (Reg.
No. 333-58059) filed on June 30, 1998).
25.2 Form T-1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of The Bank of New York, as Trustee for the 12
1/2% Subordinated Exchange Debentures Due 2010 (incorporated by
reference to Exhibit 25.2 to the Company's Registration Statement on
Form S-4 (Reg. No. 333-58059) filed on June 30, 1998).
27 Financial Data Schedule
99.1 Form of Note Letter of Transmittal (incorporated by reference to
Exhibit 99.1 to the Company's Registration Statement on Form S-4 (Reg.
No. 333-58059) filed on June 30, 1998).
99.2 Form of Preferred Stock Letter of Transmittal (incorporated by
reference to Exhibit 99.2 to the Company's Registration Statement on
Form S-4 (Reg. No. 333-58059) filed on June 30, 1998).
99.3 Form of Note Notice of Guaranteed Delivery (incorporated by reference
to Exhibit 99.3 to the Company's Registration Statement on Form S-4
(Reg. No. 333-58059) filed on June 30, 1998).
99.4 Form of Preferred Stock Notice of Guaranteed Delivery (incorporated by
reference to Exhibit 99.4 to the Company's Registration Statement on
Form S-4 (Reg. No. 333-58059) filed on June 30, 1998).
(b) No reports have been filed on form 8-K during the quarter covered by this
report.
Page 17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
CLUETT AMERICAN CORP.
Registrant
November 24, 1998 /s/ Robert J. Riesbeck
Robert J. Riesbeck, Chief Financial
and Accounting Officer
Page 18
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE CONDENSED
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 26, 1998 AND THE CONDENSED
CONSOLIDATED STATEMENT OF INCOME FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 26,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001064435
<NAME> CLUETT AMERICAN CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-26-1998
<CASH> 1,651
<SECURITIES> 0
<RECEIVABLES> 54,226
<ALLOWANCES> 0
<INVENTORY> 92,233
<CURRENT-ASSETS> 151,497
<PP&E> 47,495
<DEPRECIATION> 0
<TOTAL-ASSETS> 244,055
<CURRENT-LIABILITIES> 56,521
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0
0
<COMMON> 48,176
<OTHER-SE> (119,615)
<TOTAL-LIABILITY-AND-EQUITY> 244,055
<SALES> 261,898
<TOTAL-REVENUES> 261,898
<CGS> 182,695
<TOTAL-COSTS> 59,941
<OTHER-EXPENSES> 564
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<INTEREST-EXPENSE> 12,980
<INCOME-PRETAX> (8,483)
<INCOME-TAX> 916
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