UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended July 3, 1999
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)
Registrant's Telephone Number, Including Area Code 212-984-8900
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 registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEEDING FIVE YEARS:
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
No stock is held by any non-affiliates of the registrant as of July 3, 1999
<PAGE>
Cluett American Corp. and Subsidiaries
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of July 3, 1999 and
December 31, 1998 F-1
Condensed Consolidated Statements of Operations for the thirteen
and twenty-six week periods ended July 3, 1999 and June 27, 1998 F-2
Condensed Consolidated Statements of Cash Flows for the twenty-six
weeks ended July 3, 1999 and June 27, 1998 F-3
Notes to Condensed Consolidated Financial Statements - July 3, 1999 F-4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 1
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 6
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Item 6. Exhibits and Reports on Form 8-K 7
SIGNATURES 10
<PAGE>
<TABLE>
Cluett American Corp. and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars In Thousands, except per share data)
July 3, December 31,
1999 1998
-----------------------------
(Unaudited) (Note 1)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.......................................... $ 1,361 $ 2,868
Accounts receivable, net........................................... 39,792 46,786
Inventories ....................................................... 90,060 74,599
Prepaid expenses and other current assets.......................... 3,119 3,972
----------------------------
Total current assets.................................................. 134,332 128,225
Property, plant and equipment, net.................................... 47,659 48,124
Pension assets........................................................ 32,383 31,383
Deferred financing fees............................................... 10,902 11,198
Other noncurrent assets............................................... 1,877 1,845
============================
Total assets.......................................................... $227,153 $220,775
============================
Liabilities and stockholder's deficit Current liabilities:
Accounts payable and accrued expenses.............................. $ 38,034 $ 40,107
Accrued interest payable........................................... 3,149 2,332
Short-term debt and current portion of long-term debt.............. 134,499 10,248
Income taxes payable............................................... 1,682 1,475
----------------------------
Total current liabilities............................................. 177,364 54,162
Due to parent......................................................... 28,662 27,974
Long-term debt and capital lease obligations.......................... 125,236 235,681
Dividends payable..................................................... 601 605
Other non-current liabilities......................................... 136 111
Senior exchangeable preferred stock, cumulative, $.01 par value:
authorized 4,950,000, issued and outstanding 563,901 shares
(liquidation preference of $56,390)................................ 54,724 51,288
Stockholder's deficit:
Common stock, $1 par value: authorized, issued and outstanding 1,000
shares.......................................................... 1 1
Additional paid-in capital......................................... 113,485 116,919
Accumulated deficit................................................ (271,622) (264,933)
Other comprehensive loss........................................... (1,434) (1,033)
----------------------------
Total stockholder's deficit........................................... (159,570) (149,046)
============================
Total liabilities and stockholder's deficit........................... $ 227,153 $ 220,775
============================
See accompanying notes.
</TABLE>
F-1
<PAGE>
<TABLE>
Cluett American Corp. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars In Thousands)
Thirteen weeks ended Twenty-six weeks ended
July 3, June 27, July 3, June 27,
1999 1998 1999 1998
---------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net sales.......................................... $79,219 $76,279 $160,318 $168,634
Cost of goods sold................................. 56,710 52,532 114,097 116,438
---------------- -------------- -------------- ---------------
Gross profit....................................... 22,509 23,747 46,221 52,196
Selling, general and administrative expenses....... 19,570 19,272 38,866 38,812
Facility closing and reengineering costs........... 775 82 775 1,022
---------------- -------------- -------------- ---------------
Operating income................................... 2,164 4,393 6,580 12,362
Interest expense, net.............................. 6,395 3,310 12,682 7,121
Other expense, net................................. 13 142 29 142
---------------- -------------- -------------- ---------------
Income (loss) before reorganization costs and
income taxes.................................... (4,244) 941 (6,131) 5,099
Bankruptcy reorganization costs.................... - 11,644 - 13,179
---------------- -------------- -------------- ---------------
Income (loss) before provision for income taxes.... (4,244) (10,703) (6,131) (8,080)
Provision for income taxes......................... 280 322 558 604
---------------- -------------- -------------- ---------------
Net loss .......................................... $(4,524) $(11,025) $(6,689) $(8,684)
================ ============== ============== ===============
See accompanying notes.
</TABLE>
F-2
<PAGE>
<TABLE>
Cluett American Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in Thousands)
Twenty-six weeks ended
July 3, June 27,
1999 1998
------------------------------
<S> <C> <C>
Operating activities
Net loss........................................................... $(6,689) $(8,684)
Adjustment to reconcile net loss to net cash and cash equivalents
used in operating activities:
Depreciation.................................................... 4,882 4,185
Amortization.................................................... 791 10
Loss (Gain) on disposal........................................ (129) 1,905
Changes of liabilities subject to compromise-reorganization..... - (22,442)
Changes in operating assets and liabilities:
Accounts receivable............................................. 7,266 12,070
Inventories..................................................... (14,788) (14,553)
Prepaid expenses and other current assets....................... 894 (11,878)
Pension and other noncurrent assets............................. (1,480) (997)
Accounts payable and accrued expenses........................... (1,204) (657)
Income taxes payable............................................ 207 (555)
Other liabilities............................................... (270) 8,560
Effect of changes in foreign currency........................... (336) -
----------------------------
Net cash and cash equivalents used in operating activities......... (10,856) (33,036)
Investing activities
Purchase of fixed assets........................................... (5,268) (5,740)
Proceeds on disposal of fixed assets............................... 1,103 178
----------------------------
Net cash and cash equivalents used in investing activities......... (4,165) (5,562)
Financing activities
Issuance of preferred stock........................................ - 48,125
Distribution to parent............................................. - (87,524)
Principal payments on pre-petition credit facility................. - (146,490)
Proceeds from long term debt....................................... - 226,000
Principal payments on long term debt .............................. (1,300) (4,000)
Net borrowings under line-of-credit agreement ..................... 14,818 1,937
Principal payments on capital leases............................... (5) (445)
----------------------------
Net cash and cash equivalents provided by financing activities..... 13,513 37,603
Effect of foreign currency translation............................. 1 (9)
----------------------------
Net change in cash and cash equivalents............................ (1,507) (1,004)
Cash and cash equivalents at beginning of period................... 2,868 10,019
============================
Cash and cash equivalents at end of period......................... $ 1,361 $9,015
============================
See accompanying notes.
</TABLE>
F-3
<PAGE>
Cluett American Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Cluett
American Corp. and Subsidiaries, (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-week and twenty-six week periods
ended July 3, 1999 are not necessarily indicative of the operating results that
may be expected for the year ending December 31, 1999.
The Balance Sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the annual consolidated financial statements
and footnotes of the Company, included in the Annual Report on Form 10-K, for
the year ended December 31, 1998, filed with the Securities and Exchange
Commission on March 29, 1999.
The consolidated financial statements include all subsidiary companies of the
Company. Significant intercompany transactions have been eliminated in
consolidation.
The Company uses a 5-4-4 week fiscal quarter whereby the fiscal quarter ends on
the Saturday nearest the end of the calendar quarter, which accordingly was July
3, 1999 and June 27, 1998, respectively.
Certain amounts in the prior year financial statements and footnotes have been
reclassified to conform to the current year presentation.
2. Inventories
Inventories consist of the following at the specified date:
<TABLE>
July 3, December 31,
1999 1998
------------------ -----------------
(Dollars In Thousands)
<S> <C> <C>
Finished goods $70,804 $60,134
Work in process 6,785 4,189
Raw materials and supplies 12,471 10,276
================== =================
$90,060 $74,599
================== =================
</TABLE>
F-4
<PAGE>
Cluett American Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
3. Comprehensive Income
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 years 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' equity from
the adoption of the statement.
For the periods ending July 3, 1999 and June 27, 1998, accumulated other
comprehensive loss as shown in the consolidated balance sheets was comprised of
foreign currency translation adjustments, which prior to the adoption was
reported separately in shareholders' equity. The components of comprehensive
loss, for these periods were as follows:
<TABLE>
Thirteen weeks ended Twenty-six weeks ended
July 3, June 27, July 3, June 27,
1999 1998 1999 1998
---------------- -------------- -------------- ---------------
(Dollars In Thousands)
<S> <C> <C>
Net loss........................................... $(4,524) $(11,025) $(6,689) $ (8,684)
Foreign currency translation adjustment............ (765) 1,267 (401) 1,985
================ ============== ============== ===============
Comprehensive loss................................. $(5,289) $(9,758) $(7,090) $ (6,699)
================ ============== ============== ===============
</TABLE>
F-5
<PAGE>
Cluett American Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
4. Segment Data
The Company identifies its reportable segments based on the segment's product
offerings. For the quarter ended July 3, 1999, the Company conducted its
business through two principal segments: the Sock Group and the Shirt Group.
During the fiscal year ended December 31, 1998, management decided to exit the
Burberrys and the Yves Saint Laurent ("YSL") businesses. Consequently, the
Company terminated the Burberrys and YSL license agreements and ceased
distributing products under these brands as of June 30, 1999. Because of the
termination of these license agreements, the financial results of these brands
have been restated and reported under the All Other segment. For financial
reporting purposes, the dress shirt business under the Kenneth Cole trademark,
which was launched in Fall 1998 (previously reported under the Designer Group)
was consolidated into the Shirt Group financial results and the sock business
under the Kenneth Cole trademark was consolidated into the Sock Group financial
results. During the second quarter, the Company restated both the Sock Group and
Shirt Group prior year's financial results for the addition of the Kenneth Cole
brand.
<TABLE>
Thirteen weeks ended Twenty-six weeks ended
July 3, June 27, July 3, June 27,
1999 1998 1999 1998
----------------- --- ------------ ------------ -- -------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Net Sales
Sock $38,771 $35,353 $72,909 $71,546
Shirt 40,176 36,213 85,193 85,748
All Other 1,904 5,847 5,606 14,507
Intersegment (1,632) (1,134) (3,390) (3,167)
------- ------- ------- -------
$79,219 $76,279 $160,318 $168,634
======= ======= ======== ========
Operating Income excluding facility
closing and reengineering costs
Sock 6,919 4,467 11,441 9,373
Shirt (2,838) 950 (2,553) 5,444
All Other (1,142) (942) (1,533) (1,433)
------- ----- ------- -------
2,939 4,475 7,355 13,384
===== ===== ===== ======
Depreciation
Sock 1,510 1,335 3,020 2,670
Shirt 940 755 1,862 1,515
All Other --- --- --- ---
--- --- ----- ---
2,450 2,090 4,882 4,185
===== ===== ===== =====
Amortization
Sock --- --- --- ---
Shirt 4 5 10 10
All Other 392 --- 781 ---
--- --- ----- ---
396 5 791 10
=== = === ==
Identifiable Assets
Sock 86,271 84,702 86,271 84,702
Shirt 90,933 90,026 90,933 90,026
All Other 495 13,043 495 13,043
--- ------ --- ------
$177,699 $187,771 $177,699 $187,771
======== ======== ======== ========
</TABLE>
F-6
<PAGE>
Cluett American Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
4. Segment Data (Continued)
Reconciliation of Reportable Segments Net Sales, Operating Income and
Identifiable Assets
<TABLE>
Thirteen weeks ended Twenty-six weeks ended
July 3, 1999 June 27, 1998 July 3, 1999 June 27, 1998
-------------- --- ----------- ------------- --- -------------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Net Sales
Total net sales for reportable segments $78,947 $71,566 $158,102 $157,294
Other net sales 1,904 5,847 5,606 14,507
Elimination of intersegment net sales (1,632) (1,134) (3,390) (3,167)
------- ------- ------- -------
Total consolidated net sales 79,219 76,279 160,318 168,634
====== ====== ======= =======
Operating Profit (Loss)
Total operating profit or loss
for reportable segments 4,081 5,417 8,888 14,817
Other operating profit or loss (894) (1,425)
Unallocated amounts:
Corporate expense (1,142) (48) (1,533) (8)
Facility closing and reengineering costs (775) (82) (775) (1,022)
----- ---- ------ -------
Total operating profit 2,164 4,393 6,580 12,362
===== ===== ===== ======
Assets
Total assets for reportable segments 177,204 174,728 177,204 174,728
All other assets 495 13,043 495 13,043
Unallocated amounts:
Deferred finance costs 10,902 11,560 10,902 11,560
Pension assets 32,383 31,224 32,383 31,224
Other unallocated amounts 6,169 2,770 6,169 2,770
----- ----- ----- -----
Consolidated total $227,153 $233,325 $227,153 $233,325
======== ======== ======== ========
</TABLE>
F-7
<PAGE>
Cluett American Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
5. Guarantor Subsidiaries
The Company's payment obligations under the Senior Credit Facility and the
Senior Subordinated Notes (the "Notes") are fully and unconditionally guaranteed
on a joint and several basis by its principal domestic subsidiaries: Cluett
Peabody & Co., Inc., Great American Knitting Mills, Inc., Cluett Designer Group
Inc., Consumer Direct Corporation and Arrow Factory Stores Inc. (collectively
the "Guarantor Subsidiaries"). Each of the Guarantor Subsidiaries is a direct or
indirect wholly-owned subsidiary of the Company. The Company's payment
obligations under the Senior Credit Facility and the Notes are not guaranteed by
the foreign operating subsidiaries Cluett, Peabody Canada Inc. and Arrow de
Mexico S.A. de C.V. (collectively the "Non-Guarantor Subsidiaries"). The
obligation of each Guarantor Subsidiary under its Guarantee of the Notes is
subordinated to such subsidiary's obligation under its guarantee of the Senior
Credit Facility.
Presented below is condensed consolidating financial information for the
Company, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries. In the
Company's opinion, separate financial statements and other disclosures
concerning each of the Guarantor Subsidiaries would not provide additional
information that is material to investors. Therefore, the Guarantor Subsidiaries
are consolidated in the presentation below. Investments in subsidiaries are
accounted for by the Company using the equity method of accounting. Earnings
(losses) of subsidiaries are, therefore, reflected in the Parent Company's
investments in and advances to/from subsidiaries account and earnings (losses).
The elimination entries eliminate investments in subsidiaries, the related
stockholder's deficit and other intercompany balances and transactions.
F-8
<PAGE>
Cluett American Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
5. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JULY 3, 1999
<TABLE>
(DOLLARS IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents ............................. $ -- $ 1,206 $ 155 $ -- $ 1,361
Accounts receivable, net .............................. -- 33,717 6,075 -- 39,792
Inventories (Note 2) .................................. -- 77,242 12,818 -- 90,060
Prepaid expenses and other
current assets ..................................... -- 2,467 652 -- 3,119
--------- --------- --------- --------- ---------
Total current assets ..................................... -- 114,632 19,700 -- 134,332
Investment in subsidiaries ............................... (93,019) -- -- 93,019 --
Intercompany receivable (payable) ........................ 15,000 (15,000) -- -- --
Property, plant and equipment, net ....................... -- 45,675 1,984 -- 47,659
Pension assets ........................................... -- 32,383 -- -- 32,383
Deferred financing fees .................................. -- 10,902 -- -- 10,902
Other noncurrent assets .................................. -- 1,053 824 -- 1,877
--------- --------- --------- --------- ---------
Total assets ............................................. $ (78,019) $ 189,645 $ 22,508 $ 93,019 $ 227,153
========= ========= ========= ========= =========
Liabilities and stockholder's deficit Current liabilities:
Accounts payable and accrued
expenses ........................................... $ -- $ 34,805 $ 3,229 $ -- $ 38,034
Accrued interest payable .............................. -- 3,149 -- -- 3,149
Short-term debt and current
portion of long-term debt .......................... -- 126,750 7,749 -- 134,499
Income taxes payable .................................. -- 1,475 207 -- 1,682
--------- --------- --------- --------- ---------
Total current liabilities ................................ -- 166,179 11,185 -- 177,364
Due to parent ............................................ -- 28,662 -- -- 28,662
Long-term debt and capital lease
obligations ........................................... -- 125,000 236 -- 125,236
Dividends payable ........................................ 601 -- -- -- 601
Other non-current liabilities ............................ -- 136 -- -- 136
Senior exchangeable preferred
stock, cumulative, $.01 par
value: authorized 4,950,000,
issued and outstanding 563,901
shares (liquidation preference ........................ 54,724 -- -- -- 54,724
of $56,390)
Stockholder's deficit .................................... (133,344) (130,332) 11,087 93,019 (159,570)
--------- --------- --------- --------- ---------
Total liabilities and ....................................
stockholder's deficit ................................. $ (78,019) $ 189,645 $ 22,508 $ 93,019 $ 227,153
========= ========= ========= ========= =========
</TABLE>
F-9
<PAGE>
Cluett American Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
5. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
(DOLLARS IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents ............................. $ -- $ 2,396 $ 472 $ -- $ 2,868
Accounts receivable, net .............................. -- 42,599 4,187 -- 46,786
Inventories (Note 2) .................................. -- 63,158 11,441 -- 74,599
Prepaid expenses and other
current assets ..................................... -- 3,168 804 -- 3,972
--------- --------- --------- --------- ---------
Total current assets ..................................... -- 111,321 16,904 -- 128,225
Investment in subsidiaries ............................... (86,330) -- -- 86,330 --
Intercompany receivable (payable) ........................ 15,000 (15,000) -- -- --
Property, plant and equipment, net ....................... -- 46,112 2,012 -- 48,124
Pension assets ........................................... -- 31,383 -- -- 31,383
Deferred financing fees .................................. -- 11,198 -- -- 11,198
Other noncurrent assets .................................. -- 1,012 833 -- 1,845
--------- --------- --------- --------- ---------
Total assets ............................................. $ (71,330) $ 186,026 $ 19,749 $ 86,330 $ 220,775
========= ========= ========= ========= =========
Liabilities and stockholder's deficit Current liabilities:
Accounts payable and accrued
expenses ........................................... $ -- $ 35,449 $ 4,658 $ -- $ 40,107
Accrued interest payable ............................. -- 2,332 -- -- 2,332
Short-term debt and current
portion of long-term debt .......................... -- 6,600 3,648 -- 10,248
Income taxes payable .................................. -- 1,268 207 -- 1,475
--------- --------- --------- --------- ---------
Total current liabilities ................................ -- 45,649 8,513 -- 54,162
Due to parent ............................................ -- 27,974 -- -- 27,974
Long-term debt and capital lease
obligations ........................................... -- 235,450 231 -- 235,681
Dividends payable ........................................ 605 -- -- -- 605
Other non-current liabilities ............................ -- 111 -- -- 111
Senior exchangeable preferred
stock, cumulative, $.01 par
value: authorized 4,950,000,
issued and outstanding 530,730
shares (liquidation preference ........................ 51,288 -- -- -- 51,288
of $53,073)
Stockholder's deficit .................................... (123,223) (123,158) 11,005 86,330 (149,046)
--------- --------- --------- --------- ---------
Total liabilities and ....................................
stockholder's deficit ................................. $ (71,330) $ 186,026 $ 19,749 $ 86,330 $ 220,775
========= ========= ========= ========= =========
</TABLE>
F-10
<PAGE>
Cluett American Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
5. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THIRTEEN WEEKS ENDED JULY 3, 1999
<TABLE>
(DOLLARS IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
<S> ........................................... <C> <C> <C> <C> <C>
Net sales ..................................... $ -- $ 70,749 $ 8,470 $ -- $ 79,219
Cost of goods sold ............................ -- 50,076 6,634 -- 56,710
-------- -------- -------- -------- --------
Gross profit .................................. -- 20,673 1,836 -- 22,509
Selling, general and administrative
expenses ................................... -- 17,565 2,005 -- 19,570
Facility closing and re-engineering ........... -- 222 553 -- 775
-------- -------- -------- -------- --------
Operating income(loss) ........................ -- 2,886 (722) -- 2,164
Loss on investments in subsidiaries ........... (4,524) -- -- 4,524 --
Interest expense, net ......................... -- 6,235 160 -- 6,395
Other expense, net ............................ -- 13 -- -- 13
-------- -------- -------- -------- --------
Loss before reorganization costs and
income taxes ............................... (4,524) (3,362) (882) 4,524 (4,244)
Bankruptcy reorganization costs ............... -- -- -- -- --
-------- -------- -------- -------- --------
Income (loss) before provision for
income taxes ............................... (4,524) (3,362) (882) 4,524 (4,244)
Provision for income taxes .................... -- 286 (6) -- 280
-------- -------- -------- -------- --------
Net loss ...................................... $ (4,524) $ (3,648) $ (876) $ 4,524 $ (4,524)
======== ======== ======== ======== ========
</TABLE>
F-11
<PAGE>
Cluett American Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
5. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THIRTEEN WEEKS ENDED JUNE 27, 1998
<TABLE>
(DOLLARS IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Net sales ............................ $ -- $ 67,761 $ 8,518 $ -- $ 76,279
Cost of goods sold ................... -- 46,263 6,269 -- 52,532
-------- -------- -------- -------- --------
Gross profit ......................... -- 21,498 2,249 -- 23,747
Selling, general and administrative
expenses .......................... -- 16,900 2,372 -- 19,272
Facility closing and reengineering
costs ............................. -- 82 -- -- 82
-------- -------- -------- -------- --------
Operating income (loss) .............. -- 4,516 (123) -- 4,393
Income on investment in subsidiaries .
432 -- -- (432) --
Interest (income) expense, net ....... -- 3,856 (546) -- 3,310
Other (income) expense, net .......... -- 151 (9) -- 142
-------- -------- -------- -------- --------
Income before reorganization costs
and income taxes .................. 432 509 432 (432) 941
Bankruptcy reorganization costs ...... -- 11,644 -- -- 11,644
-------- -------- -------- -------- --------
Income (loss) before provision for
income taxes ...................... 432 (11,135) 432 (432) (10,703)
Provision for income taxes ........... -- 322 -- -- 322
-------- -------- -------- -------- --------
Net income (loss) .................... $ 432 $(11,457) $ 432 $ (432) $(11,025)
======== ======== ======== ======== ========
</TABLE>
F-12
<PAGE>
Cluett American Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
5. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
TWENTY-SIX WEEKS ENDED JULY 3, 1999
<TABLE>
(DOLLARS IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Net sales ............................ $ -- $ 144,044 $ 16,274 $ -- $ 160,318
Cost of goods sold ................... -- 101,566 12,531 -- 114,097
--------- --------- --------- --------- ---------
Gross profit ......................... -- 42,478 3,743 -- 46,221
Selling, general and administrative
expenses .......................... -- 34,832 4,034 -- 38,866
Facility closing and reengineering
costs ............................. -- 222 553 -- 775
--------- --------- --------- --------- ---------
Operating income (loss) .............. -- 7,424 (844) -- 6,580
Income on investment in subsidiaries .
(6,689) -- -- 6,689 --
Interest expense, net ................ -- 12,404 278 -- 12,682
Other expense, net ................... -- 29 -- -- 29
--------- --------- --------- --------- ---------
Loss before reorganization costs and
income taxes ...................... (6,689) (5,009) (1,122) 6,689 (6,131)
Bankruptcy reorganization costs ...... -- -- -- -- --
--------- --------- --------- --------- ---------
Income (loss) before provision for
income taxes ...................... (6,689) (5,009) (1,122) 6,689 (6,131)
Provision for income taxes ........... -- 512 46 -- 558
--------- --------- --------- --------- ---------
Net income (loss) .................... $ (6,689) $ (5,521) $ (1,168) $ 6,689 $ (6,689)
========= ========= ========= ========= =========
</TABLE>
F-13
<PAGE>
Cluett American Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
5. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
TWENTY-SIX WEEKS ENDED JUNE 27, 1998
<TABLE>
(DOLLARS IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Net sales ............................ $ -- $ 150,611 $ 18,023 $ -- $ 168,634
Cost of goods sold ................... -- 103,586 12,852 -- 116,438
--------- --------- --------- --------- ---------
Gross profit ......................... -- 47,025 5,171 -- 52,196
Selling, general and administrative
expenses .......................... -- 34,032 4,780 -- 38,812
Facility closing and reengineering
costs ............................. -- 1,022 -- -- 1,022
--------- --------- --------- --------- ---------
Operating income ..................... -- 11,971 391 -- 12,362
Income on investment in subsidiaries .
(9) -- -- 9 --
Interest expense, net ................ -- 6,899 222 -- 7,121
Other (income) expense, net .......... -- (2) 144 -- 142
--------- --------- --------- --------- ---------
Income before reorganization costs
and income taxes .................. (9) 5,074 25 9 5,099
Bankruptcy reorganization costs ...... -- 13,179 -- -- 13,179
--------- --------- --------- --------- ---------
Income (loss) before provision for
income taxes ...................... (9) (8,105) 25 9 (8,080)
Provision for income taxes ........... -- 570 34 -- 604
--------- --------- --------- --------- ---------
Net income (loss) ................ $ (9) $ (8,675) $ (9) $ 9 $ (8,684)
========= ========= ========= ========= =========
</TABLE>
F-14
<PAGE>
Cluett American Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
5. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
TWENTY-SIX WEEKS ENDED JULY 3, 1999
<TABLE>
(DOLLARS IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Operating activities
Net loss ............................... $ (6,689) $ (5,521) $ (1,168) $ 6,689 $ (6,689)
Adjustment to reconcile net loss to net
cash and cash equivalents provided by
(used in) operating activities:
Loss on investments in subsidiaries .. 6,689 -- -- (6,689) --
Depreciation ......................... -- 4,727 155 -- 4,882
Amortization ......................... -- 791 -- -- 791
Loss on disposal of assets ........... -- (129) -- -- (129)
Changes in operating assets and ...... -- (6,597) (3,114) -- (9,711)
liabilities
-- ----- ----- -- -----
Net cash and cash equivalents used in
operating activities ................... -- (6,729) (4,127) -- (10,856)
Investing activities
Purchase of fixed assets ............... -- (5,263) (5) -- (5,268)
Proceeds on disposal of fixed assets ... -- 1,102 1 -- 1,103
-- ----- - -- -----
Net cash and cash equivalents used in
investing activities ................... -- (4,161) (4) -- (4,165)
Financing activities
Proceeds on the credit facility ........ -- 11,000 3,818 -- 14,818
Principal payments on long term debt ... -- (1,300) -- -- (1,300)
Principal payments on capital leases ... -- -- (5) -- (5)
-- ----- ----- -- -----
Net cash and cash equivalents provided
by financing activities ................ -- 9,700 3,813 -- 13,513
Effect of foreign currency translation . -- -- 1 -- 1
Net change in cash and cash equivalents -- (1,190) (317) -- (1,507)
Cash and cash equivalents at beginning . -- 2,396 472 -- 2,868
of year -- ----- --- -- -----
Cash and cash equivalents at end of .... $ -- $1,206 $ 155 $ -- $ 1,361
period ................................. == ===== === == =====
</TABLE>
F-15
<PAGE>
Cluett American Corp.and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)(continued)
5. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
TWENTY-SIX WEEKS ENDED JUNE 27, 1998
<TABLE>
(DOLLARS IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Operating activities
Net income (loss) .................... $ (8,684) $ (8,675) $ (9) $ 8,684 $ (8,684)
(loss) to net cash and cash
equivalents provided by (used in)
operating activities:
Loss on investment in subsidiaries . 8,684 -- -- (8,684) --
Depreciation and amortization ...... -- 4,029 166 -- 4,195
Loss on disposal ................... -- 442 1,463 -- 1,905
Changes of liabilities subject to
compromise ...................... -- (22,442) -- -- (22,442)
Changes in operating assets and .... -- (2,851) (5,159) -- (8,010)
liabilities
-- ------ ----- -- ------
Net cash and cash equivalents used in
operating activities ................. -- (29,497) (3,539) -- (33,036)
Investing activities
Purchase of fixed assets ............. -- (5,605) (135) -- (5,740)
Proceeds on disposal of fixed assets . -- -- 178 -- 178
-- ----- --- -- -----
Net cash and cash equivalents used in
investing activities ................. -- (5,605) 43 -- (5,562)
Financing activities
Issuance of preferred stock .......... -- 48,125 -- -- 48,125
Distribution to parent ............... -- (87,524) -- -- (87,524)
Net proceeds on long term debt ....... -- 222,000 -- -- 222,000
Net borrowings (payments) under
line-of-credit agreement ............. -- (1,756) 3,693 -- 1,937
Principal payments on pre-petition
credit facility ...................... -- (146,490) -- -- (146,490)
Principal payments on capital leases . -- (433) (12) -- (445)
-- ------- ----- -- -------
Net cash and cash equivalents
provided by financing activities ..... -- 33,922 3,681 -- 37,603
Effect of foreign currency translation -- -- (9) -- (9)
Net change in cash and cash .......... -- (1,180) 176 -- (1,004)
equivalents
Cash and cash equivalents at
beginning of year .................... -- 9,551 468 -- 10,019
-- ----- --- -- ------
Cash and cash equivalents at end of .. $ -- $ 8,371 $ 644 $ -- $ 9,015
period == ===== === == =====
</TABLE>
F-16
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations: Thirteen weeks ended July 3, 1999 vs. June 27, 1998
The following table is derived from the Company's Consolidated Statements of
Operations and sets forth, for the period indicated, net sales, gross profit,
operating income, interest expense, bankruptcy reorganization costs and net loss
of the Company:
<TABLE>
<S> <C> <C>
Thirteen weeks ended
July 3, June 27,
1999 1998
------------------------------
(Dollars In Thousands)
Net sales................................................................. $79,219 $76,279
Gross profit.............................................................. 22,509 23,747
Operating income ......................................................... 2,164 4,393
Interest expense ......................................................... 6,395 3,310
Bankruptcy reorganization costs........................................... -- 11,644
Net loss.................................................................. $(4,524) $(11,025)
</TABLE>
Net Sales: For the second quarter 1999, net sales for reportable segments
(excludes YSL, Burberrys and Canadian retail terminated businesses) were up 10%
versus the prior year. The Shirt Group had an 11% net sales increase versus the
second quarter of 1998 and the Sock Group recorded a 10% second quarter net
sales increase versus the same period last year. The second quarter net sales
growth from the Shirt Group relates primarily to strong growth in Kenneth Cole
and a more moderate increase in Arrow. The second quarter net sales growth from
the Sock Group relates to a strong rebound in Gold Toe sales from a sluggish
first quarter combined with solid growth in the Nautica and Jockey sock
offerings.
Net sales in the All Other segment were down $3.9 million from the prior year
reflecting an exit from the YSL, Burberrys and Canadian retail store businesses.
Net sales for the second quarter of 1999 represent the final liquidation of the
inventory associated with the YSL and Burberrys businesses.
Gross Profit: For the second quarter of 1999, gross profit decreased $1.2
million (with $1.4 million of the deterioration relating to All Other or
terminated businesses) from the second quarter of 1998. The Sock Group improved
its second quarter gross margin from 31.8% to 35.4% of net sales year over year.
This improvement relates primarily to lower manufacturing and material costs of
production. The Shirt Group's gross margin decreased from 30.5% in 1998 to 21.9%
for the same period in 1999. This drop was caused by a combination of factors
including a sales mix erosion, significant freight expense increases, and
negative manufacturing variances (particularly at domestic sewing and cutting
operations). The sales mix erosion is primarily in the staple dress shirt arena,
which is historically the Shirt Group's most profitable segment. The marketplace
is in a fancy dress shirt cycle (which offers lower gross margins and higher
markdown risk) and overall sales conditions for staple dress shirts remain
depressed. The freight expense increase relates to the Shirt Group's failure to
hedge its shipping costs out of Asia, which have skyrocketed in the last 9
months. The negative manufacturing variances arose out of increased make in
dress shirts plus domestic plant inefficiencies.
Operating Income: The Company's operating income declined to $2.2 million from
$4.4 million for the thirteen weeks ended July 3, 1999, primarily due to the
Shirt Group's reduced gross margin discussed above and the Shirt Group's
increased selling, distribution, general & administrative spending.
Additionally, during the second quarter, the Company incurred net restructuring
costs of $775,000 as a result of the consolidation of certain administrative
functions within the Shirt Group.
Interest expense: Interest expense increased $3.1 million for the thirteen weeks
ended July 3, 1999 as a result of higher debt levels existing after the
Recapitalization which was completed on May 18, 1998.
Bankruptcy Reorganization Costs: The Company's bankruptcy proceedings concluded
in May 1998. As a result, there were no bankruptcy reorganization costs for the
thirteen weeks ended July 3, 1999. For the thirteen weeks ended June 27, 1998,
bankruptcy reorganization costs represented payment of post-petition interest,
default interest and fees to creditors in accordance with the terms of the
bankruptcy reorganization plan.
Net loss: Net loss for the thirteen weeks ended July 3, 1999 decreased $6.5
million to a loss of $4.5 million from a loss of $11.0 million for the same
period in 1998. This reduction was primarily related to the decline in the
bankruptcy reorganization costs offset by the decline in the Shirt Group's
operating profit and the Company's overall increased interest expense.
1
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Results of Operations: Twenty-six weeks ended July 3, 1999 vs. June 27, 1998
The following table is derived from the Company's Consolidated Statements of
Operations and sets forth, for the period indicated, net sales, gross profit,
operating income, interest expense, bankruptcy reorganization costs and net
income (loss) of the Company:
<TABLE>
<S> <C> <C>
Twenty-six weeks ended
July 3, June 27,
1999 1998
------------------------------
(Dollars In Thousands)
Net sales................................................................. $160,318 $168,634
Gross profit.............................................................. 46,221 52,196
Operating income ......................................................... 6,580 12,362
Interest expense ......................................................... 12,682 7,121
Bankruptcy reorganization costs........................................... -- 13,179
Net loss.................................................................. $(6,689) $(8,684)
</TABLE>
Net Sales: For the twenty-six weeks ended July 3, 1999, net sales for reportable
segments (excluding the YSL, Burberrys and Canadian retail terminated
businesses) were up 1% versus the prior year. The Shirt Group had a 1% net sales
decrease versus the first half of 1998 and the Sock Group recorded a 2% first
half net sales increase versus the same period last year. Both groups had a
sluggish or disappointing first quarter of 1999 offset by an improved level of
sales activity in the second quarter of 1999 as compared to the prior year.
Net sales in the All Other segment (YSL, Burberrys and Canadian retail
businesses) were down $8.9 million from the prior year reflecting the decision
to exit the businesses in 1998. $5.6 million of All Other net sales in the first
six months of 1999 represent the final liquidation of the YSL and Burberrys
inventory.
Gross Profit: For the twenty-six weeks ended July 3 1999, gross profit decreased
$6.0 million (with $4.0 million of the deterioration relating to All Other or
terminated businesses) from the first half of 1998. The Sock Group improved its
first half gross margin from 32.0% to 35.0% of net sales year over year. The
Shirt Group's gross margin decreased from 29.6% of net sales to 24.3% for the
same period in 1999. The reasons for the improvement, in the case of the Sock
Group, and the decline, in the case of the Shirt Group, are consistent with
those as outlined for the second quarter of 1999.
Operating Income: The Company's operating income declined to $6.6 million from
$12.4 million for the twenty-six weeks ended July 3, 1999, primarily due to the
Shirt Group's gross margin deterioration and the gross margin loss due to
terminated licenses discussed above.
Interest expense: Interest expense increased $5.6 million for the twenty-six
weeks ended July 3, 1999 as a result of higher debt levels existing after the
Recapitalization which was completed on May 18, 1998.
Bankruptcy Reorganization Costs: The Company's bankruptcy proceedings concluded
in May 1998. As a result, there were no bankruptcy reorganization costs for the
twenty-six weeks ended July 3, 1999. For the twenty-six weeks ended June 27,
1998, bankruptcy reorganization costs represented payment of post-petition
interest, default interest, and fees to creditors in accordance with the terms
of the bankruptcy reorganization plan.
Net loss: Net loss for the twenty-six weeks ended July 3, 1999 decreased $2.0
million to a loss of $6.7 million from a loss of $8.7 million for the same
period in 1998. This reduction was primarily related to the decline in the
bankruptcy reorganization costs offset by the decline in the Shirt Group's
operating profit and the Company's overall increased interest expense.
In a continuing effort to reduce operating costs and increase efficiencies, the
Company incurred net restructuring costs of $775,000, during the second quarter
1999, as a result of the consolidation of certain functions within the Shirt
Group. This consolidation is expected to yield annual cost savings of
approximately $600,000 beginning in 2000.
In order to reduce its current domestic to imported goods manufacturing ratio,
improve productivity and asset utilization, the Company announced, on August 2,
1999, plans to close its owned manufacturing facility located in Enterprise,
Alabama. The closure, which is expected to occur by October 15, 1999, will yield
annual pre-tax cost savings of approximately $3.2 million. The restructuring
plan, which is anticipated to cost approximately $1.8 million, includes
severance and benefits to terminate approximately 280 employees and costs
related to the physical closure of the facility. The Company will record the
restructuring costs during the third quarter in accordance with the requirements
of Emerging Issues Task Force Pronouncement 94-3.
2
<PAGE>
Liquidity and Capital Resources
The Company's primary cash requirements are to fund the Company's working
capital needs, primarily inventory and accounts receivable, the purchase of
property and equipment and payment of debt service requirements related to the
Company's financing agreements. The Company has a Senior Credit Facility
comprised of three loans, including 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 revolving
credit facility matures in 2004. Interest for borrowings under the revolving
credit facility is based on either, at the Company's option, LIBOR plus 250
basis points or the Alternative Base rate plus 150 basis points. The Company
believes that its borrowing capacity under this facility plus internally
generated funds are adequate to fund its capital expenditures and its working
capital and debt service requirements.
The Senior Credit Facility (which was amended on December 18, 1998 and March 19,
1999) is secured by virtually all domestic assets of the Company and its
domestic subsidiaries and contains a number of covenants that, among other
things, restrict the ability of the Company and its subsidiaries, other than
pursuant to specified exceptions, to dispose of assets, incur additional
indebtedness, incur guarantee obligations, repay other indebtedness, pay
dividends, create liens on assets, enter into leases, make investments, loans or
advances, make acquisitions, engage in mergers or consolidations, make capital
expenditures, enter into sale and leaseback transactions, change the nature of
their business or engage in certain transactions with subsidiaries and
affiliates and otherwise restrict corporate activities. In addition, under the
Senior Credit Facility the Company is required to comply with specified
financial ratios and tests, including minimum fixed charge coverage and interest
coverage ratios and maximum leverage ratios, including a senior leverage ratio
and a total leverage ratio, each of which is tested as of the last day of each
fiscal quarter of the Company. During the quarter, the Company was not in
compliance with certain financial ratios and its lenders granted it a waiver for
this quarter. As a result, the Company currently has full use of its credit
facilities. The Company is in the process of renegotiating its financial
covenants and expects to have an agreement in place prior to the end of the
third calendar quarter. Despite the waiver, accounting rules require that the
Company classify any outstandings under the Senior Credit Facility as a current
liability until such time as a longer term agreement becomes effective.
The Company typically makes capital expenditures related primarily to the
maintenance and improvement of manufacturing facilities and equipment
modernization. Net capital spending in both the first twenty-six weeks of 1999
was $4.2 million and 1998 was $5.6 million. The Company anticipates overall
capital spending levels for 1999 to be approximately $9.3 million. The Company's
principal sources of cash to fund these capital requirements are net cash
provided by operating activities as well as borrowings, if needed, under its
Senior Credit Facility.
Net cash used by operations for the twenty-six weeks ended July 3, 1999 was
$(10.9) million, as compared to $(33.0) million for the same period in the prior
year. The significant improvement in cash used by operations was primarily due
to the settlement of certain prepetition liabilities, which were paid during the
second quarter of 1998. For 1999, the net cash used by operations results
primarily from an inventory increase at the Shirt Group. Inventory levels were
higher at the Shirt Group because of the growth in Kenneth Cole, the timing
differences of shipments year over year, and a build up in staple dress shirt
inventory arising out of sales softness during the period.
For the twenty-six weeks ended July 3, 1999, net cash provided by financing
activities was $13.5 million compared with $37.6 million for the twenty-six
weeks ended June 27, 1998.
3
<PAGE>
Year 2000 Risk
As is more fully described in the Company's Annual Report filed on Form 10-K for
the fiscal year ended December 31, 1998, the Company has undertaken various
initiatives intended to ensure that its computer equipment and software will
function properly with respect to dates in the year 2000 and thereafter. Based
upon its identification and assessment efforts to date, the Company believes
that certain of the computer equipment and software it currently uses will
require replacement or modification. In addition, in the ordinary course of
replacing computer equipment and software, the Company attempts to obtain
replacements that it believes are Year 2000 compliant. Utilizing both internal
and external resources to identify and assess needed Year 2000 remediation, the
Company currently anticipates that its Year 2000 identification, assessment,
remediation, and testing efforts, will be completed by August 30, 1999, and that
such efforts will be completed prior to any currently anticipated impact on its
computer equipment and software.
<TABLE>
<S> <C> <C>
YEAR 2000 INITIATIVE TIME FRAME PERCENT COMPLETE
Initial IT Systems Assessment December 1998 100%
Remediation and Testing of Central/Distributed Systems August 1999 85%
Remediation and Testing of Store/Distribution Systems August 1999 85%
Upgrades to Telephone/PBX/Other Systems December 1998 100%
EDI Trading Partner Conversions August 1999 90%
Identification, Assessment, Remediation, & Testing
of Desktop Systems August 1999 90%
Identification, Assessment & Testing of Non-IT Systems December 1998 100%
</TABLE>
The Company has also mailed letters to its significant vendors, service
providers and customers to determine the extent to which interfaces with such
entities are vulnerable to Year 2000 issues and whether the products and
services purchased from or by such entities are Year 2000 compliant. As of July
1999, the Company had received responses from approximately 90% of such third
parties, and 100% of the companies that have responded have provided written
assurances that they expect to address all their significant Year 2000 issues on
a timely basis.
The Company believes that the cost of its Year 2000 identification, assessment,
remediation, and testing efforts, as well as currently anticipated costs to be
incurred by the Company with respect to Year 2000 issues of third parties, will
not exceed $600,000, which expenditures will be funded from operating cash
flows. Such amount represents less than 3% of the Company's total actual and
anticipated IT expenditures for fiscal 1997 through fiscal 1999. As of July 23,
1999, the Company had incurred costs of approximately $490,000 related to its
Year 2000 identification, assessment, remediation, and testing efforts. All of
the $490,000 relates to analysis, repair, or replacement of existing software,
upgrades to existing software, or evaluation of information received from
significant vendors, service providers, or customers. Other non-Year 2000 IT
efforts have not been materially delayed or impacted by Year 2000 initiatives.
The Company presently believes that the Year 2000 issue will not pose
significant operational problems for the Company. However, if all Year 2000
issues are not properly identified, or assessment, remediation, and testing are
not effected timely with respect to Year 2000 problems that are identified,
there can be no assurance that the Year 2000 issue will not materially adversely
impact the Company's results of operations or adversely affect the Company's
relationships with customers, vendors, or others. Additionally, there can be no
assurance that the Year 2000 issues of other entities will not have a material
adverse impact on the Company's systems or results of operations.
The Company has begun, but not yet completed, a comprehensive analysis of the
operational problems and costs (including loss of revenues) that would be
reasonably likely to result from the failure by the Company and certain third
parties to complete efforts to achieve Year 2000 compliance on a timely basis. A
contingency plan has not been developed for dealing with the most reasonably
likely worst case scenario, and such scenario has not yet been clearly
identified. The Company currently plans to complete such analysis and
contingency planning by December 31, 1999.
The Company has engaged an independent expert to evaluate its Year 2000
identification, assessment, remediation, and testing efforts.
4
<PAGE>
The costs of the Company's Year 2000 identification, assessment, remediation,
and testing efforts and the dates on which the Company believes it will complete
such efforts are based upon management's best estimates, which were derived
using numerous assumptions regarding future events, including the continued
availability of certain resources, third-party remediation plans, and other
factors. There can be no assurance that these estimates will prove to be
accurate and actual results could differ materially from those currently
anticipated. Specific factors that could cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in Year 2000 issues, the ability to identify, assess, remediate, and test all
relevant computer codes and imbedded technology, and similar uncertainties. In
addition, variability of definitions of "compliance with Year 2000" and the
myriad of different products and services, and combinations thereof, sold by the
Company may lead to claims whose impact on the Company is not currently
estimable. No assurance can be given that the aggregate cost of defending and
resolving such claims, if any, will not materially adversely affect the
Company's results of operations. Although some of the Company's agreements with
manufacturers and others from whom it purchases products for resale contain
provisions requiring such parties to indemnify the Company under some
circumstances, there can be no assurance that such indemnification arrangements
will cover all of the Company's liabilities and costs related to claims by third
parties related to the Year 2000 issue.
5
<PAGE>
Backlog and Seasonality
The amount of the Company's backlog orders at any particular time is affected by
a number of factors, including seasonality and scheduling of the manufacturing
and shipment of products. In general, the Company's electronic data interchange
("EDI") system and vendor managed inventory systems have resulted in shortened
lead times between submission of purchase orders and delivery and has lowered
the level of backlog orders. Consequently, the Company believes that the amount
of its backlog is not an appropriate indicator of future production levels.
The industries in which the Company operates are cyclical. Purchases of apparel
tend to decline during recessionary periods and also may decline at other times.
A recession in the general economy or uncertainties regarding future economic
prospects could affect consumer spending habits and could have an adverse effect
on the Company's results of operations. Weak sales and resulting markdown
requests from customers could also have a material adverse effect on the
Company's business, results of operations and financial condition.
The Company's business is seasonal, with higher sales and income during its
third and fourth quarters. The third and fourth quarters coincide with the
Company's two peak retail selling seasons: (i) the first season runs from the
start of the back-to-school and fall selling seasons, beginning in August and
continuing through September; and (ii) the second season runs from the start of
the Christmas selling season beginning with the weekend following Thanksgiving
and continuing through the week after Christmas.
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 half of the year particularly weak.
Cautionary Statement Regarding Forward-Looking Statements
The Quarterly Report on Form 10-Q contains certain statements which describe the
Company's beliefs concerning future business conditions and the outlook for the
Company based on currently available information. The preceding Management's
Discussion and Analysis contains forward-looking statements regarding the
Company's performance, financial condition, liquidity and the adequacy of its
capital resources. These forward looking statements are subject to risks,
uncertainties and other factors which could cause the Company's actual results,
performance, condition or achievement to differ materially from those expressed
in, or implied by these statements. As a result, the Company cautions that the
forward-looking statements are qualified by the financial strength of the retail
industry, the risks of increased competition from other manufacturers of men's
dress shirts and socks, 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, the Company's ability to reach an agreement with
its lenders 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company has exposure to fluctuations in interest rates and foreign currency
exchange rates. The Company operates under a senior credit facility at variable
interest rates. Interest expense is primarily affected by the general level of
U.S. interest rates, LIBOR and European base rates. The Company is subject to
risk from sales and loans to its foreign subsidiary as well as sales, purchases
from third party customers, suppliers and creditors, denominated in foreign
currencies. Currently, the Company does not engage in any material derivative
type instruments in order to hedge against interest rate and Canadian foreign
currency exchange rate fluctuations. However, the Company feels it is limited in
its exposure of foreign currency exchange rate changes as most inventory
purchase contracts are denominated in US Dollars.
The Company evaluated its market risks (floating interest rate, fixed interest
rate and currency risks) at the fiscal year ended December 31, 1998, which is
disclosed in the Company's annual report filed on Form 10-K. There has not been
any material change (adverse or favorable) in the risk factors identified since
the evaluation performed by the Company at December 31, 1998.
6
<PAGE>
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are involved in various legal proceedings, both
as plaintiff and as defendant, which are normal to its business. It is the
opinion of management that the aforementioned actions and claims, if determined
adversely to the Company, will not have a material adverse effect on the
financial condition or operations of the Company taken as a whole.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the quarter
ended July 3, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) (1) Financial Statements
Included in Part I, Item 1
(2) Financial Statement Schedules
Schedule II - Valuation and Qualifying
Accounts
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable and therefore have been
omitted.
(3) List of Exhibits
(b) The Company did not file any reports on Form 8-K during the thirteen
weeks ended July 3, 1999
(c) Exhibits: See (a)(3) above for a listing of the exhibits included as part of
this report.
(d) Financial Statement Schedules: See (a)(1) and (a)(2) above for a listing
of the financial statements and schedules submitted as part of this
report.
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------------------------------------------------------------------------------
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).
7
<PAGE>
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).
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 an 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).
10.2.1 Second Amendment to the Credit Agreement and Assignment dated as
December 18, 1998 by an 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 10.2.1 to the Company's Annual
Report on Form 10-K (Reg No. 333-58059) filed on March 29, 1999).
10.2.2 Third Amendment to the Credit Agreement and Assignment dated as of
March 19, 1999 by an 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 10.2.1 to the Company's Annual
Report on Form 10-K (Reg No. 333-58059) filed on March 29, 1999).
*10.2.3 Waiver to the Credit Agreement and Assignment dated July 28, 1999
by an 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
10.2.1 to the Company's Annual Report on Form 10-K (Reg No. 333-58059)
filed on March 29, 1999).
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).
8
<PAGE>
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).
+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).
21 List of Subsidiaries (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).
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).
*27 Financial Data Schedule (filed herewith as Exhibit 27)
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).
+ This is a management contract or compensatory plan or arrangement
* Filed herewith
9
<PAGE>
SIGNATURES
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.
CLUETT AMERICAN CORP.
(Registrant)
August 12, 1999 /s/ Bryan P. Marsal
-------------------------------------------
Bryan P. Marsal
Director, President and Chief Executive Officer
August 12, 1999 /s/ W. Todd Walter
-------------------------------------------
W. Todd Walter
Vice President and Chief Financial
and Accounting Officer
10
<PAGE>
EXHIBIT INDEX
10.2.3 Waiver to the Credit Agreement and Assignment dated as of July
28, 1999
27 Financial Data Schedule
11
<PAGE>
Item 6 (d). Financial Statement Schedules
SCHEDULE II
CLUETT AMERICAN CORP.
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
Period Ended July 3, 1999:
Deductions from
asset accounts:
Allowance for
Doubtful Accounts $1,568 $ 400 (a) $ -- (b) $ 43(c) $ 1,925
Customer Allowances 6,894 4,444 -- 4,529(c) 6,809
Inventory reserves 5,149 822 (d) -- 3,437 2,534
----- ------- -------- ---------- -----
Total $13,611 $5,666 $ -- $ 8,009 $11,268
======= ============ ======== ========== ======
<FN>
(a) Provision for doubtful accounts.
(b) Recoveries of doubtful accounts previously written off.
(c) Primarily uncollectible accounts charged against the allowance
provided therefor.
(d) Primarily related to the liquidation of excess inventory
</FN>
</TABLE>
12
Exhibit 10.2.3
WAIVER AGREEMENT
THIS WAIVER AGREEMENT (this "Waiver"), dated as of July 28, 1999, is by
and among Cluett American Corp. (the "Borrower"), Cluett American Investment
Corp. (the "Parent"), Cluett American Group, Inc. ("Interco") and certain
subsidiaries of the Parent identified on the signature pages hereto (together
with the Parent and Interco, the "Guarantors"), the lenders identified on the
signature pages hereto (the "Lenders"), Bank of America, N.A., formerly
NationsBank, N.A., as agent for the Lenders (in such capacity, the "Agent") and
Gleacher NatWest Inc., as documentation agent (the "Documentation Agent").
W I T N E S S E T H
WHEREAS, the Borrower, the Guarantors, the Lenders, the Agent and the
Documentation Agent have entered into that certain Credit Agreement dated as of
May 18, 1998 and as amended as of May 27, 1998, December 18, 1998 and March 19,
1999 (as so amended, the "Credit Agreement");
WHEREAS, the Required Lenders have agreed to waive certain Defaults and
Events of Default as set forth herein;
NOW, THEREFORE, in consideration of the agreements herein contained,
the parties hereby agree as follows:
PART I
DEFINITIONS
SUBPART 1.1. Certain Definitions. Unless otherwise defined herein or the
context otherwise requires, the following term used in this Waiver, including
its preamble and recitals, has the following meaning:
"Waiver Effective Date" is defined in Subpart 3.1.
SUBPART 1.2. Other Definitions. Unless otherwise defined herein or the
context otherwise requires, terms used in this Waiver, including its preamble
and recitals, have the meanings provided in the Credit Agreement.
PART II
WAIVER
The Required Lenders hereby waive the Defaults and Events of Default
caused by the Borrower's failure to comply with the requirements of Section 7.11
of the Credit Agreement for the fiscal quarter ended June 30, 1999.
PART III
CONDITIONS TO EFFECTIVENESS
SUBPART 3.1. Waiver Effective Date. This Waiver shall be and become
effective as of June 30, 1999 (the "Waiver Effective Date") when all of the
conditions set forth in this Part III shall have been satisfied.
SUBPART 3.2. Execution of Counterparts of Waiver. The Agent shall have
received executed counterparts (or other evidence of execution, including
facsimile signatures, satisfactory to the Agent) of this Waiver, which
collectively shall have been duly executed on behalf of each of the Borrower,
the Guarantors and the Required Lenders.
SUBPART 3.3. Other Documents. The Agent shall have received such other
documents as the Agent may reasonably request.
13
<PAGE>
PART IV
MISCELLANEOUS
SUBPART 4.1. Cross-References. References in this Waiver to any Part or
Subpart are, unless otherwise specified, to such Part or Subpart of this Waiver.
SUBPART 4.2. Instrument Pursuant to Credit Agreement. This Waiver is a
Credit Document executed pursuant to the Credit Agreement and shall (unless
otherwise expressly indicated therein) be construed, administered and applied in
accordance with the terms and provisions of the Credit Agreement.
SUBPART 4.3. Representations and Warranties. Each Credit Party hereby
represents and warrants that (i) each Credit Party that is party to this Waiver:
(a) has the requisite corporate power and authority to execute, deliver and
perform this Waiver, as applicable, and (b) is duly authorized to, and has been
authorized by all necessary corporate action, to execute, deliver and perform
this Waiver, (ii) the Borrower has no claims, counterclaims, offsets, or
defenses to the Credit Documents and the performance of its obligations
thereunder, or if the Borrower has any such claims, counterclaims, offsets, or
defenses to the Credit Documents or any transaction related to the Credit
Documents, the same are hereby waived, relinquished and released in
consideration of the Lenders' execution and delivery of this Waiver, (iii) the
representations and warranties contained in Section 6 of the Credit Agreement
are, subject to the limitations set forth therein, true and correct in all
material respects on and as of the date hereof as though made on and as of such
date (except for those which expressly relate to an earlier date) and (iv) after
giving effect to this Waiver, no Default or Event of Default exists under the
Credit Agreement on and as of the date hereof or will occur as a result of the
transactions contemplated hereby.
SUBPART 4.5. Liens. The Borrower and the Guarantors, as applicable, affirm
the liens and security interests created and granted in the Credit Documents and
agree that this Waiver shall in no manner adversely affect or impair such liens
and security interest.
SUBPART 4.6. Acknowledgment of Guarantors. The Guarantors acknowledge and
consent to all of the terms and conditions of this Waiver and agree that this
Waiver and all documents executed in connection herewith do not operate to
reduce or discharge the Guarantors' obligations under the Credit Agreement or
the other Credit Documents. The Guarantors further acknowledge and agree that
the Guarantors have no claims, counterclaims, offsets, or defenses to the Credit
Documents and the performance of the Guarantors' obligations thereunder or if
the Guarantors did have any such claims, counterclaims, offsets or defenses to
the Credit Documents or any transaction related to the Credit Documents, the
same are hereby waived, relinquished and released in consideration of the
Lenders' execution and delivery of this Waiver.
SUBPART 4.7. No Other Changes. Except as expressly modified in this Waiver,
all the terms, provisions and conditions of the Credit Documents shall remain
unchanged and shall continue in full force and effect.
SUBPART 4.8. Counterparts. This Waiver may be executed by the parties
hereto in several counterparts (including facsimile counterparts), each of which
shall be deemed to be an original and all of which shall constitute together but
one and the same agreement.
SUBPART 4.9. Entirety. This Waiver, the Credit Agreement and the other
Credit Documents embody the entire agreement between the parties and supersede
all prior agreements and understandings, if any, relating to the subject matter
hereof. These Credit Documents represent the final agreement between the parties
and may not be contradicted by evidence of prior, contemporaneous or subsequent
oral agreements of the parties.
SUBPART 4.10. Governing Law. THIS WAIVER AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
14
<PAGE>
IN WITNESS WHEREOF the Borrower, the Guarantors and the Required
Lenders have caused this Waiver to be duly executed on the date first above
written.
BORROWER: CLUETT AMERICAN Corp.
By:
Name: Bryan P. Marsal
Title: President
GUARANTORS: Cluett American Investment Corp.,
- ----------
a Delaware corporation
Cluett American Group, Inc.,
a Delaware corporation
CONSUMER DIRECT CORPORATION,
a Delaware corporation
ARROW FACTORY STORES, INC.,
a Delaware corporation
GAKM RESOURCES CORPORATION,
a Delaware corporation
CLUETT PEABODY RESOURCES CORPORATION,
a Delaware corporation
CLUETT PEABODY HOLDING CORP.,
a Delaware corporation
CLUETT, PEABODY & CO., INC.,
a Delaware corporation
BIDERTEX SERVICES INC.,
a Delaware corporation
GREAT AMERICAN KNITTING MILLS, INC.,
a Delaware corporation
CLUETT DESIGNER GROUP, INC.,
a Delaware corporation
BIDERMANN TAILORED CLOTHING, INC.,
a Delaware corporation
By:
Name: Bryan P. Marsal
Title: President
15
<PAGE>
LENDERS: BANK OF AMERICA, N. A., formerly
NationsBank, N.A.
By:
Name:
Title:
NATIONAL WESTMINSTER BANK PLC
By:
Name:
Title:
FLEET BANK, N.A.
By:
Name:
Title:
BANKBOSTON, N.A.
By:
Name:
Title:
FLEET BUSINESS CREDIT CORPORATION
(successor in interest to Sanwa Business
Credit Corporation)
By:
Name:
Title:
[Signatures Continued]
16
<PAGE>
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC.
By:
Name:
Title:
By:
Name:
Title:
FIRST SOURCE FINANCIAL LLP,
By: First Source Financial Inc., its manager
By:
Name:
Title:
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, NEW YORK BRANCH
By:
Name:
Title:
SUMMIT BANK
By:
Name:
Title:
MARINE MIDLAND BANK
By:
Name:
Title:
[Signatures Continued]
17
<PAGE>
AG CAPITAL FUNDING PARTNERS, L.P.
By: Angelo Gordon & Co., L.P. as Investment Advisor
By:
Name:
Title:
NEW YORK LIFE INSURANCE COMPANY
By:
Name:
Title:
SENIOR DEBT PORTFOLIO
By: Boston Management and Research,
as Investment Advisor
By:
Name:
Title:
ML CLO XX PILGRIM AMERICA (CAYMAN) LTD.
By:
Name:
Title:
STRATA FUNDING LTD.
By:
Name:
Title:
SANKATY HIGH YIELD ASSET PARTNERS, L.P.
By:
Name:
Title:
[Signatures Continued]
18
<PAGE>
MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.
By:
Name:
Title:
EATON VANCE SENIOR INCOME TRUST
By:
Name:
Title:
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001064435
<NAME> Cluett American Corp
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-1-1999
<PERIOD-END> Jul-3-1999
<CASH> 1,361
<SECURITIES> 0
<RECEIVABLES> 39,792
<ALLOWANCES> 0
<INVENTORY> 90,060
<CURRENT-ASSETS> 134,332
<PP&E> 47,659
<DEPRECIATION> 0
<TOTAL-ASSETS> 227,153
<CURRENT-LIABILITIES> 177,364
<BONDS> 0
0
54,724
<COMMON> 1
<OTHER-SE> (159,570)
<TOTAL-LIABILITY-AND-EQUITY> 227,153
<SALES> 160,318
<TOTAL-REVENUES> 160,318
<CGS> 114,097
<TOTAL-COSTS> 38,866
<OTHER-EXPENSES> 29
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,682
<INCOME-PRETAX> (6,131)
<INCOME-TAX> 558
<INCOME-CONTINUING> (6,689)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,689)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
