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 1, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to
Commission File Number: 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 1, 2000
<PAGE>
Cluett American Corp. and Subsidiaries
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
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Page
Item 1. Financial Statements (Unaudited)
Report of Independent Auditors' 3
Condensed Consolidated Balance Sheets as of July 1, 2000 and December 31, 1999 F-1
Condensed Consolidated Statements of Operations for the thirteen and twenty-six
weeks ended July 1, 2000 and July 3, 1999 F-2
Condensed Consolidated Statements of Cash Flows for the twenty-six weeks ended
July 1, 2000 and July 3, 1999 F-3
Notes to Condensed Consolidated Financial Statements F-4
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. 4
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 17
</TABLE>
<PAGE>
REPORT OF DELOITTE & TOUCHE, INDEPENDENT AUDITORS
Board of Directors and Stockholder
Cluett American Corp. and Subsidiaries
We have reviewed the accompanying condensed consolidated balance sheet of Cluett
American Corp. and subsidiaries as of July 1, 2000, and the related condensed
consolidated statements of operations and cash flows for the thirteen and twenty
six-week periods ended July 1, 2000. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles in the United States of
America.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of the Company as of December 31,
1999, and the related consolidated statements of operations, stockholder's
equity and cash flows for the year then ended (not presented herein); and in our
report dated March 29, 2000, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of December 31, 1999 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
August 14, 2000
<PAGE>
Condensed Consolidated Balance Sheets
(Dollars In Thousands, except per share data)
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July 1, December 31,
2000 1999
----------------------------
(Unaudited) (Note 1)
Assets
Current assets:
Cash and cash equivalents.......................................... $ 2,643 $ 7,239
Accounts receivable, net........................................... 39,602 45,519
Inventories, net .................................................. 41,068 78,105
Net assets from discontinued segment held for sale ................ 55,929 --
Prepaid expenses and other current assets.......................... 3,427 3,129
--------------------------
Total current assets.................................................. 142,669 133,992
Property, plant and equipment, net.................................... 28,380 47,794
Pension assets........................................................ 33,436 32,187
Deferred financing fees............................................... 10,365 10,842
Goodwill, net......................................................... -- 4,740
Other noncurrent assets............................................... 1,514 1,951
----------------------------
Total assets.......................................................... $216,364 $231,506
============================
Liabilities and stockholder's deficit
Current liabilities:
Accounts payable and accrued expenses.............................. $ 47,522 $ 40,696
Accrued interest payable........................................... 4,744 3,861
Short-term debt and current portion of long-term debt.............. 25,283 14,209
Income taxes payable............................................... 1,648 1,970
----------------------------
Total current liabilities............................................. 79,197 60,736
Long-term debt and capital lease obligations.......................... 243,721 258,883
Dividends payable..................................................... 664 637
Other non-current liabilities......................................... 154 147
Senior Exchangeable Preferred Stock Due 2010, cumulative, $.01
par value: authorized 4,950,000, issued and outstanding 636,592
shares in 2000 and 599,145 shares in 1999 (liquidation preference
of $63,659 in 2000 and $59,915 in 1999)............................ 62,167 58,329
Stockholder's deficit:
Common stock, $1 par value: authorized, issued and outstanding 1,000
shares.......................................................... 1 1
Additional paid-in capital......................................... 131,236 135,100
Accumulated deficit................................................ (300,320) (282,046)
Other comprehensive loss........................................... (456) (281)
---------------------------
Total stockholder's deficit........................................... (169,539) (147,226)
---------------------------
Total liabilities and stockholder's deficit........................... $ 216,364 $ 231,506
===========================
</TABLE>
See accompanying notes.
<PAGE>
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars In Thousands)
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Thirteen weeks ended Twenty-six weeks ended
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
---------------- -------------- -------------- ---------------
Not covered Not covered
by Auditors' by Auditors'
Report Report
Net sales.......................................... $38,856 $40,231 $79,388 $76,189
Cost of goods sold................................. 25,121 25,057 50,684 47,369
---------------- -------------- -------------- ---------------
Gross profit....................................... 13,735 15,174 28,704 28,820
Selling, general and administrative expenses....... 8,442 8,210 17,619 16,465
Restructuring and impairment charges............... 72 (272) 72 (272)
---------------- -------------- -------------- ---------------
Operating income from continuing operations........ 5,221 7,236 11,013 12,627
Interest expense, net.............................. 7,587 6,234 14,600 12,403
Other expense, net................................. 22 13 55 27
---------------- -------------- -------------- ---------------
Income (loss) from continuing operations before (2,388) 989 (3,642) 197
provision for income taxes......................
Provision for income taxes......................... 303 286 497 512
---------------- -------------- -------------- ---------------
Income (loss) from continuing operations .......... (2,691) 703 (4,139) (315)
Discontinued operations:
Loss from operations of discontinued segment (4,659) (5,227) (9,937) (6,374)
Loss on disposal of business segment,
including provision of $2,382 for operating
losses during phase-out period............... (4,198) -- (4,198) --
---------------- -------------- -------------- ---------------
Net loss........................................... $ (11,548) $(4,524) $(18,274) $ (6,689)
================ ============== ============== ===============
</TABLE>
See accompanying notes.
<PAGE>
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in Thousands)
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Twenty-six weeks ended
July 1, July 3,
2000 1999
----------------------------
Not covered
by Auditors'
Report
Operating activities
Net loss........................................................... $(18,274) $(6,689)
Adjustment to reconcile net loss to net cash and cash equivalents
used in operating activities:
Depreciation.................................................... 5,084 4,882
Deferred finance amortization................................... 853 791
Goodwill amortization........................................... 249 -
Impairment loss on disposition of assets........................ 4,497 -
Loss (gain) on disposal of assets............................... 367 (129)
Changes in operating assets and liabilities:
Accounts receivable............................................. 5,788 7,266
Inventories..................................................... (11,741) (14,788)
Prepaid expenses and other current assets....................... (118) 894
Pension and other non-current assets............................ (1,235) (1,480)
Accounts payable and accrued expenses........................... 7,750 (1,204)
Income taxes payable............................................ (322) 207
Other liabilities............................................... 7 (270)
Effect of changes in foreign currency........................... (374) (336)
----------------------------
Net cash and cash equivalents used in operating activities......... (7,469) (10,856)
Investing activities
Purchase of property, plant and equipment.......................... (2,974) (5,268)
Proceeds on disposal of property, plant and equipment.............. 5 1,103
----------------------------
Net cash and cash equivalents used in investing activities......... (2,969) (4,165)
Financing activities
Principal payments on long-term debt .............................. (16,215) (1,300)
Net borrowings under line-of-credit agreement ..................... 22,450 14,818
Principal payments on long-term note (CAT)......................... (393) -
Principal payments under capital lease obligation.................. - (5)
----------------------------
Net cash and cash equivalents provided by financing activities..... 5,842 13,513
Effect of exchange rate changes on cash............................ - 1
----------------------------
Net change in cash and cash equivalents............................ (4,596) (1,507)
Cash and cash equivalents at beginning of period................... 7,239 2,868
----------------------------
Cash and cash equivalents at end of period......................... $ 2,643 $ 1,361
============================
</TABLE>
See accompanying notes.
<PAGE>
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 1, 2000 are not necessarily indicative of the operating results that
may be expected for the year ending December 31, 2000.
The Balance Sheet at December 31, 1999 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, 1999, filed with the Securities and Exchange
Commission on March 30, 2000.
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
1, 2000 and July 3, 1999, respectively.
Certain amounts in the prior year financial statements and footnotes have been
reclassified to conform to the current year presentation.
2. Discontinued Operations
On June 13, 2000, Phillips-Van Heusen Corporation, ("PVH"), and the Company
announced an agreement (the "Agreement") for PVH to license the Arrow brand for
men's and boy's dress shirts and sportswear in the United States. In addition,
PVH and the Company agreed in principle for PVH to acquire the stock of Cluett
Designer Group, Inc., the licensee for Kenneth Cole dress shirts ("CDG"). The
closing of these transactions was subject to certain limited conditions and
governmental approvals. In conjunction with the Agreement, the Company approved
a plan to discontinue the Shirt Group segment's manufacturing and distribution
operations (the "Operations").
On July 24, 2000, the transactions contemplated by the Agreement, including the
Purchase and Sale Agreement among Cluett, Peabody & Co., Inc. ("CP"), Cluett,
Peabody Canada, Inc.("CP Canada"), Arrow Factory Stores Inc. ("AFS"), CDG,
Consumer Direct Corporation ("CDC"), Cluett, Peabody Holding Corp.("Holding"),
and PVH, (the "Purchase and Sale Agreement") and the Share Purchase Agreement
among CP, CDG, Bidermann Tailored Clothing Inc.("BTC"), and PVH (the "Share
Purchase Agreement") were closed. Each of the parties to the Purchase and Sale
Agreement and the Share Purchase Agreement other than PVH and CDG is, and prior
to the closing CDG was, a wholly-owned subsidiary of the Company.
Pursuant to the Purchase and Sale Agreement, (i) all of the outstanding shares
of capital stock of C.A.T. Industrial S.A. de C.V., ("C.A.T") a corporation
organized under the laws of Honduras, were sold to PVH by CP, AFS, CDG, CDC and
Holding, (ii) PVH purchased all of CP's and AFS's right, title and interest in
and to certain of the other assets (principally inventory) of CP and AFS used
primarily by CP and AFS in their Arrow label and private label men's and boy's
dress and sport shirt businesses and their Arrow factory outlet operations in
the United States and (iii) PVH purchased all of CP Canada's right, title and
interest in and to Arrow label dress and sport shirt inventory used in CP
Canada's United States "Career Apparel" business. Pursuant to the Share Purchase
Agreement, all of the outstanding shares of capital stock of CDG were sold by CP
and BTC to PVH.
<PAGE>
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
2. Discontinued Operations (continued)
The aggregate purchase price paid by PVH pursuant to the Purchase and Sale
Agreement and the Share Purchase Agreement for the stock and assets referred to
above was approximately $48.9 million in cash plus the assumption of $2.1
million of debt related to C.A.T., calculated as set forth in, and subject to
adjustment pursuant to, Article 3 of each of the Purchase and Sale Agreement and
the Share Purchase Agreement. The Company has deposited in escrow $2.0 million,
which is subject final inventory adjustment. The company has irrevocably and
unconditionally guaranteed the payment of any amount payable by CP or BTC to PVH
under each Agreement which is not paid by CP or BTC when due, including pursuant
to the purchase price adjustment and indemnification provisions of the
Agreements.
Pursuant to the Purchase and Sale Agreement, the Trademark License Agreement,
dated July 24, 2000, by and between Cluett Peabody Resources Corporation, a
Delaware corporation and a wholly-owned subsidiary of the Company ("CPR"), CP
and PVH was executed and delivered. Pursuant to the Trademark License Agreement,
CP granted to PVH an exclusive license to use trademarks related to CP's "Arrow"
clothing line in the United States and its territories and possessions in
connection with its manufacture, advertising, marketing, promotion,
distribution, offer to sell and sale of men's and boys' dress shirts, sports
shirts (including knit, woven and all forms of fleece), pants, shorts and
sweaters in certain specified channels of trade, including the Internet. CP also
granted to PVH the right to operate websites that use URLs that incorporate the
licensed trademarks. The Trademark License Agreement requires PVH to pay a $5.0
million minimum guaranteed annual royalty fee to CP, subject to increases based
on the achievement by PVH of certain sales targets. The initial term of the
license expires on June 30, 2007; however, PVH has the option to renew the
Trademark License Agreement for two additional five-year terms, provided it
meets certain conditions.
The Company used the net proceeds from the Purchase and Sale Agreement, the
Share Purchase Agreement and the Trademark License Agreement (collectively
referred to as the "Transactions") to repay outstanding borrowings under its
Senior Credit Facility and CP Canada's Credit Facility.
The Company expects to complete the disposition of the remaining net assets of
the Operations through sale by December 31, 2000 and accordingly, has reflected
the Operations as discontinued in the accompanying statements of operations.
Additionally, at July 1, 2000 the net assets of the Operations are classified as
held for sale in the accompanying balance sheet and are comprised of the
following:
July 1,
2000
------------
Assets
Inventories, net $46,980
Other assets 215
Property, plant & equipment, net 17,117
------
Total assets 64,312
Liabilities:
Accounts payable and accrued liabilities 155
Canadian revolving facility 6,113
Notes payable - C.A.T 2,115
-----
Total liabilities 8,383
Net assets held for sale $55,929
=======
<PAGE>
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
2. Discontinued Operations (continued)
As a result of the Transactions, the Company recorded a $4.5 million impairment
charge in June, 2000 to adjust the carrying value of goodwill to its fair market
value based upon actual consideration received from the Transactions. The
impairment charge is included as a component of the Company's loss from
operations of discontinued segment in the accompanying Statement of Operations.
The $4.2 million loss on disposal of the Operations includes $0.4 million of
operating losses incurred from June 13, 2000 through July 1, 2000, and $2.0
million of estimated operating losses from July 2, 2000 through December 31,
2000. Included in Accounts Payable and Accrued Expenses at July 1, 2000 is an
accrual of $10.6 million for costs directly associated with the disposal of the
Operations.
Net sales of the above noted entities for the thirteen and
twenty-six weeks ended July 1, 2000 and July 3, 1999:
Thirteen weeks ended Twenty-six weeks ended
July 1, 2000 July 3, 1999 July 1, 2000 July 3, 1999
------------- -------------- ------------- -------------
Net sales $ 50,993 $ 40,619 $ 97,673 $ 87,462
3. Inventories
Inventories consist of the following at the specified date:
July 1, December 31,
2000 1999
------------------ -----------------
(Dollars In Thousands)
Finished goods $34,180 $60,854
Work in process 2,420 8,260
Raw materials and supplies 4,926 11,613
------------------ -----------------
41,526 80,727
Less: Allowance for obsolete and slow moving
inventory (458) (2,622)
------------------ -----------------
$41,068 $78,105
================== =================
4. Long-Term Obligations and Financing Arrangements
As of July 1, 2000, the Company had outstanding $275.0 million of debt
consisting of $125.0 million in senior subordinated notes, a Senior Credit
Facility consisting of a $35.5 million term A loan, a $53.4 million term B loan,
$35.0 million in revolving credit borrowings and $19.9 million in Tranche C
Loans and $6.1 million in Canadian revolving credit borrowings. For the 2000
Quarter, the Company had a net decrease in revolving credit borrowings of $1.3
million and repaid $15.3 million in term loans and notes payable. As a result of
the Transactions that were completed on July 24, 2000, the Company permanently
reduced the Term A Loan, the Term B Loan and the Tranche C Loans by $6.8
million, $9.4 million and $8.7 million, respectively. In addition, the Company
made payments on the revolving credit borrowings, without a permanent reduction
in the revolving credit committed amounts and net of expense associated with the
Transactions of $13.3 million. The Canadian revolving credit facility was paid
down $1.1 million and the maturity date was extended to August 8, 2001.
On March 29, 2000, the Senior Credit Facility and the Investment and Deposit
agreement were amended. The March 2000 amendment requires (i) Vestar to infuse
up to $30 million of new capital into the Company and (ii) the Company to make
$20 million in additional principal payments on the Senior Credit Facilities
between June 30, 2000 (or in certain circumstances August 31, 2000) and December
31, 2000 if certain financial ratios are not met by June 30, 2000. As of July 1,
2000, the Company was in compliance with all financial covenants. Additionally,
on July 24, 2000, the Company satisfied all requirements under the March 2000
amendments, and as such, Vestar's requirement to infuse up to $30 million of new
capital and the Company's requirement to make $20 million in additional
principal payments on the Senior Credit Facilities have been extinguished.
<PAGE>
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
5. Comprehensive Loss
For the periods ending July 1, 2000 and July 3, 1999, accumulated other
comprehensive loss as shown in the consolidated balance sheets was comprised of
foreign currency translation adjustments. The components of comprehensive loss,
for these periods were as follows:
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Thirteen weeks ended Twenty-six weeks ended
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
---------------- -------------- -------------- ---------------
(Dollars In Thousands)
Net loss........................................... $(11,548) $(4,524) $(18,274) $ (6,689)
Foreign currency translation adjustment............ (107) (765) (175) (401)
----------------- -------------- -------------- ---------------
Comprehensive loss................................. $(11,655) $ (5,289) $(18,449) $ (7,090))
================= ============== ============== ===============
</TABLE>
<PAGE>
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
6. Restructuring and Facility Closure Charges
During the twenty-six week period ended July 1, 2000, the Company did not have
any terminations related to the 1999 approved restructuring plan. The following
is a summary of the components of the restructuring reserve at July 1, 2000.
Severance Costs Facility Closure Total
(Dollars in Thousands)
Balance, December 31, 1999 $ 276 $ 145 $ 421
Charges -- 60 60
Payments -- (50) (50)
------------ ------------ -----------
Balance, April 1, 2000 276 155 431
Payments -- (38) (38)
------------- ------------ -----------
Balance, July 1, 2000 $ 276 $ 117 $ 393
============= ============ ============
7. Segment Data
The Company identifies its reportable segments based on the segment's product
offerings. As a result of the Company's June 13, 2000 decision to discontinue
the Operations and license the Arrow tradename, the composition of the Company's
reportable segments changed. The licensing of the Arrow brand will result in
minimum annual license revenue of $5.0 million. Subsequent to June 13, 2000, the
Company conducted its business through two principal segments: the Sock Group
and the Licensing Group. The financial results associated with Latin America,
Apparel On-Line LLC, Cluett American Receivables, LLC and unallocated corporate
overhead charges are referred to collectively as "All other". Segment data
disclosures for the thirteen weeks and twenty-six weeks ended July 1, 2000 and
July 3, 1999 have been restated to reflect the above noted change, exclusive of
the $5.0 million in licensing revenue received on July 24, 2000.
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Thirteen weeks ended Twenty-six weeks ended
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
----------------- ------------- ------------ -------------
(Dollars in Thousands)
Net sales
Sock $37,323 $38,771 $76,131 $72,909
Licensing 1,478 1,460 3,130 3,280
All Other 55 -- 127 --
Intersegment (--) (--) (--) (--)
---- ---- ---- ----
38,856 40,231 79,388 76,189
====== ====== ====== ======
Operating income (loss) excluding
facility closing and reengineering
costs
Sock 4,954 6,916 10,065 11,438
Licensing 919 1,189 2,105 2,450
All Other (580) (1,141) (1,085) (1,533)
----- ------- ------- -------
5,293 6,964 11,085 12,355
===== ===== ====== ======
Depreciation expense
Sock 1,572 1,510 3,143 3,020
Licensing 19 18 38 35
All Other 952 922 1,903 1,827
--- --- ------ -----
2,543 2,450 5,084 4,882
===== ===== ===== =====
Amortization expense
Sock --- --- --- ---
Licensing --- 4 --- 10
All Other 555 392 1,102 781
--- --- ----- ---
555 396 1,102 791
=== === ===== ===
Identifiable assets
Sock 83,472 86,271 83,472 86,271
Licensing 2,131 1,821 2,131 1,821
All Other 1,575 89,607 1,575 89,607
----- ------ ----- ------
$87,178 $177,699 $87,178 $177,699
======= ======== ======= ========
</TABLE>
<PAGE>
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
7. Segment Data (Continued)
Reconciliation of Reportable Segments Net sales, Operating income and
Identifiable assets
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Thirteen weeks ended Twenty-six weeks ended
July 1, 2000 July 3, 1999 July 1, 2000 July 3, 1999
------------ ------------ ------------- -------------
(Dollars In Thousands)
Net sales
Total net sales for reportable segments $ 38,801 $ 40,231 $ 79,261 $ 76,189
Other net sales 55 -- 127 --
Elimination of intersegment net sales (--) (--) (--) (--)
---- ---- ---- ----
Total consolidated net sales 38,856 40,231 79,388 76,189
====== ====== ====== ======
Operating profit (loss)
Total operating profit or loss for
reportable segments 5,873 8,105 12,170 13,888
Other operating profit or loss (238) -- (444) (5,000)
Unallocated amounts:
Corporate expense before pension income (967) (1,641) (1,891) (2,533)
Pension income 625 500 1,250 1,000
Restructuring & impairment (charges) credits (72) 272 (72) (775)
----- ----- ------ -----
Total operating profit 5,221 7,236 11,013 6,580
===== ===== ====== =====
Depreciation and amortization
Total depreciation for reportable segments 1,591 1,528 3,181 3,055
Other depreciation 952 922 1,903 1,827
Amortization 555 396 1,102 791
--- --- ----- ---
Total depreciation and amortization 3,098 2,846 6,186 5,673
===== ===== ===== =====
Identifiable assets
Total assets for reportable segments 85,603 88,092 85,603 88,092
Other assets 1,575 89,607 1,575 89,607
Net assets held for sale 55,929 -- 55,929 --
Unallocated amounts:
Deferred finance costs 10,365 10,902 10,365 10,902
Pension assets 33,436 32,383 33,436 32,383
Other unallocated amounts 29,456 6,169 29,456 6,169
------ ----- ------ -----
Consolidated total $216,364 $227,153 $216,364 $227,153
======== ======== ======== ========
</TABLE>
<PAGE>
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
8. 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 current domestic subsidiaries, principally:
Cluett Peabody & Co., Inc., Great American Knitting Mills, Inc., Apparel
On-Line, LLC, 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 Notes are not guaranteed by
the remaining subsidiaries Bidermann Womenswear Corp. (formerly Ralph Lauren
Womenswear Inc. ) Cluett, Peabody Canada Inc., Cluett American Receivables, LLC,
Arrow de Mexico S.A. de C.V., and Arrow Inter-American & Co., Ltd. (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.
<PAGE>
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
8. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JULY 1, 2000
(DOLLARS IN THOUSANDS)
<TABLE>
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NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
Assets
Current assets:
Cash and cash equivalents...... $ -- $ 2,503 $ 140 $ - $ 2,643
Accounts receivable, net....... -- 33,270 6,332 -- 39,602
Inventories, net............... -- 41,068 -- -- 41,068
Assets from discontinued
segment held for sale....... 49,466 12,576 62,042
Prepaid expenses and other
current assets.............. -- 2,788 639 -- 3,427
-- ----- --- -- -----
Total current assets.............. -- 129,095 19,687 -- 148,782
Investment in subsidiaries........ (121,717) -- -- 121,717 --
Intercompany receivable (payable) 15,000 (15,000) -- -- --
Property, plant and equipment, net -- 28,372 8 -- 28,380
Pension assets.................... -- 33,436 -- -- 33,436
Deferred financing fees........... -- 10,365 -- -- 10,365
Goodwill, net..................... -- -- -- -- --
Other noncurrent assets........... -- 930 584 -- 1,514
-- --- --- -- -----
Total assets...................... $ (106,717) $ 187,198 $ 20,279 $ 121,717 $ 222,477
========= ======= ====== ======= =======
Liabilities and stockholder's deficit Current liabilities:
Accounts payable and accrued
expenses.................... $ -- $ 45,426 $ 2,096 $ - $ 47,522
Accrued interest payable....... 4,744 -- 4,744
Short-term debt and current
portion of long-term debt... -- 25,283 6,113 -- 31,396
Income taxes payable........... -- 1,441 207 -- 1,648
-- ----- --- -- -----
Total current liabilities......... -- 76,894 8,416 -- 85,310
Due to parent.....................
Long-term debt and capital lease
obligations.................... -- 243,502 219 -- 243,721
Dividends payable................. 664 -- -- -- 664
Other non-current liabilities..... -- 154 -- -- 154
Commitments & Contingencies:
Senior exchangeable preferred
stock, cumulative, $.01 par
value: authorized 4,950,000,
issued and outstanding 636,592
shares (liquidation preference
of $63,659) 62,167 -- -- -- 62,167
Stockholder's deficit............. (169,548) (133,352) 11,644 121,717 (169,539)
--------- --------- ------ ------- ---------
Total liabilities and
stockholder's deficit.......... $ (106,717) $ 187,198 $ 20,279 $ 121,717 $ 222,477
========= ======= ====== ======= =======
</TABLE>
<PAGE>
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
8. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C> <C> <C>
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
Assets
Current assets:
Cash and cash equivalents............... $ -- $ 7,099 $ 140 $ -- $ 7,239
Accounts receivable, net................ -- 40,635 4,884 -- 45,519
Inventories, net........................ -- 64,608 13,497 -- 78,105
Prepaid expenses and other current -- 2,422 707 -- 3,129
assets............................... -- ----- --- -- -----
Total current assets....................... -- 114,764 19,228 -- 133,992
Investment in subsidiaries................. (103,443) -- -- 103,443 --
Intercompany receivable (payable) ......... 15,000 (15,000) -- -- --
Property, plant and equipment, net......... -- 45,802 1,992 -- 47,794
Deferred financing fees.................... -- 10,842 -- -- 10,842
Pension assets............................. -- 32,187 -- -- 32,187
Goodwill, net.............................. -- 4,740 -- -- 4,740
Other noncurrent assets.................... -- 1,259 692 -- 1,951
-- ----- --- -- -----
Total assets............................... $(88,443) $194,594 $ 21,912 $103,443 $231,506
========= ======== ========== ======== ========
Liabilities and stockholder's deficit Current liabilities:
Accounts payable and accrued expenses... $ -- $ 38,239 $ 2,457 $ -- $ 40,696
Accrued interest payable................ -- 3,861 -- -- 3,861
Short-term debt and current portion of
long-term debt....................... -- 6,405 7,804 -- 14,209
Income taxes payable.................... -- 1,763 207 -- 1,970
-- ----- --- -- -----
Total current liabilities.................. -- 50,268 10,468 -- 60,736
Long-term debt and capital lease -- 258,652 231 -- 258,883
obligations.............................
Other non-current liabilities.............. -- 147 -- -- 147
Redeemable preferred stock dividends 637 -- -- -- 637
payable.................................
Commitments and contingencies:
Senior exchangeable preferred stock due 2010
cumulative, $.01 par value: authorized
4,950,000 shares, issued and outstanding
599,145 shares (liquidation preference of
$59,915)................................. 58,329 -- -- -- 58,329
Stockholder's deficit...................... (147,409) (114,473) 11,213 103,443 (147,226)
--------- --------- ------ ------- ---------
Total liabilities and stockholder's deficit $(88,443) $194,594 $ 21,912 $103,443 $231,506
========= ======== ========= ======== ========
</TABLE>
<PAGE>
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
8. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THIRTEEN WEEKS ENDED JULY 1, 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C> <C> <C>
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
Net sales............................. $ -- $ 38,856 $ -- $ -- $ 38,856
Cost of goods sold.................... -- 25,121 -- -- 25,121
-- ------ -- -- ------
Gross profit.......................... -- 13,735 -- -- 13,735
Selling, general and administrative
expenses........................... -- 8,397 45 -- 8,442
Restructuring and impairment charges..
-- 72 -- -- 72
-- -- -- -- --
Operating income (loss) from
continuing operations.............. -- 5,266 (45) -- 5,221
Loss on investments in subsidiaries .. (11,548) -- -- 11,548 --
Interest expense, net................. -- 7,485 102 -- 7,587
Other expense, net.................... -- 22 -- -- 22
-- -- -- -- --
Income (loss) from continuing
operations before provision for
income taxes.......................
(11,548) (2,241) (147) 11,548 (2,388)
Provision for income taxes............ -- 303 -- -- 303
-- --- -- -- ---
Income (loss) from continuing
operations ........................ (11,548) (2,544) (147) 11,548 (2,691)
Discontinued operations:
Loss from operations of discontinued
segment............................ -- (5,255) 596 -- (4,659)
Estimated loss on disposal of
business segment and operating
losses during the phase out period.
-- (3,493) (705) -- (4,198)
-- ------- ----- -- -------
Net loss.............................. $ (11,548) $ (11,292) $ (256) $ 11,548 $ (11,548)
======== ======== ===== ======== ========
</TABLE>
<PAGE>
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
8. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THIRTEEN WEEKS ENDED JULY 3, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C> <C> <C>
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
Net sales............................. $ -- $ 40,231 $ -- $ -- $ 40,231
Cost of goods sold.................... -- 25,057 -- -- 25,057
-- ------ -- -- ------
Gross profit.......................... -- 15,174 -- -- 15,174
Selling, general and administrative
expenses........................... -- 8,210 -- -- 8,210
--
Restructuring Charges (272) -- (272)
----- -- -----
Operating income (loss) from -- 7,236 -- -- 7,236
continuing operations..............
Loss on investments in subsidiaries .. (4,524) -- -- 4,524 --
Interest expense, net................. -- 6,234 -- -- 6,234
Other expense, net.................... -- 13 -- -- 13
-- -- -- -- --
Income (loss) from continuing
operations before provision for
income taxes....................... (4,524) 989 -- 4,524 989
Provision for income taxes............ -- 286 -- -- 286
-- --- -- -- ---
Income (loss) from continuing
operations ........................ (4,524) 703 -- 4,524 703
Discontinued operations:
Loss from operations of discontinued
segment............................ -- (4,351) (876) -- (5,227)
-- ------- ----- -- -------
Net loss.............................. $ (4,524) $ (3,648) $ (876) $ 4,524 $ (4,524)
======= ======= ===== ===== =======
</TABLE>
<PAGE>
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
8. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
TWENTY-SIX WEEKS ENDED JULY 1, 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C> <C> <C>
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
Net sales............................. $ -- $ 79,388 $ $ -- $ 79,388
Cost of goods sold.................... -- 50,684 -- -- 50,684
-- ------ -- -- ------
Gross profit.......................... -- 28,704 -- -- 28,704
Selling, general and administrative
expenses........................... -- 17,574 45 -- 17,619
Restructuring Charges.................
-- 72 -- -- 72
-- -- -- -- --
Operating income (loss) from
continuing operations.............. -- 11,058 (45) -- 11,013
Loss on investment in subsidiaries.... (18,274) -- -- 18,274 --
Interest expense, net................. -- 14,498 102 -- 14,600
Other expense, net.................... -- 55 -- -- 55
-- -- -- -- --
Loss from continuing operations
before reorganization costs and
income taxes....................... (18,274) (3,495) (147) 18,274 (3,642)
Bankruptcy reorganization costs....... -- -- -- -- --
-- -- -- -- --
Income (loss) from continuing
operations before provision for
income taxes....................... (18,274) (3,495) (147) 18,274 (3,642)
Provision for income taxes............ -- 497 -- -- 497
-- --- -- -- ---
Loss from continuing operations ...... (18,274) (3,992) (147) 18,274 (4,139)
Discontinued operations:
Loss from operations of discontinued
segment............................ -- (10,634) 697 -- (9,937)
Estimated loss on disposal of
business segment and operating
losses during the phase out period. -- (3,493) (705) -- (4,198)
-- ------- ----- -- -------
Net Loss.............................. $ (18,274) $ (18,119) $ (155) $ 18,274 $ (18,274)
======= ======== ===== ===== ========
</TABLE>
<PAGE>
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
8. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
TWENTY-SIX WEEKS ENDED JULY 3, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C> <C> <C>
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
Net sales............................. $ -- $ 76,189 $ -- $ -- $ 76,189
Cost of goods sold.................... -- 47,369 -- -- 47,369
-- ------ -- -- ------
Gross profit.......................... -- 28,820 -- -- 28,820
Selling, general and administrative
expenses........................... -- 16,465 -- -- 16,465
Restructuring Charges.................
-- (272) -- -- (272)
-- ----- -- -- -----
Operating income (loss)............... -- 12,627 -- -- 12,627
Loss on investment in subsidiaries....
(6,689) -- -- 6,689 --
Interest expense, net................. -- 12,403 -- -- 12,403
Other expense, net.................... -- 27 -- -- 27
-- -- -- --
Loss before reorganization costs and
income taxes....................... (6,689) 197 -- 6,689 197
Bankruptcy reorganization costs....... -- -- -- -- --
-- -- -- -- --
Income (loss) before provision for
income taxes....................... (6,689) 197 -- 6,689 197
Provision for income taxes............ -- 512 -- -- 512
-- --- -- -- ---
Loss from continuing operations ...... (6,689) (315) -- 6,689 (315)
Discontinued operations:
Loss from operations of discontinued
segment............................ -- (5,206) (1,168) -- (6,374)
-- ------- ------- -- -------
Net Loss.............................. $ (6,689) $ (5,521) $ (1,168) $ 6,689 $ (6,689)
====== ======= ======= ===== =======
</TABLE>
<PAGE>
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
8. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
TWENTY-SIX WEEKS ENDED JULY 1, 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C> <C> <C>
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
Operating activities
Net loss................................ $ (18,274) $ (18,119) $ (155) $ 18,274 $ (18,274)
Adjustment to reconcile net loss to net
cash and cash equivalents provided by
(used in) operating activities:
Loss on investments in subsidiaries... 18,274 -- -- (18,274) --
Depreciation.......................... -- 4,932 152 -- 5,084
Amortization.......................... -- 1,102 -- -- 1,102
Loss on disposal of assets............ -- 4,864 -- -- 4,864
Changes in operating assets and
liabilities............................. -- (270) 25 -- (245)
-- ------- --- -- -----
Net cash and cash equivalents used in
operating activities.................... -- (7,491) 22 -- (7,469)
Investing activities
Purchase of fixed assets................ -- (2,952) (22) -- (2,974)
Proceeds on disposal of fixed assets.... -- 5 -- 5
-- ---- -- -- -----
Net cash and cash equivalents used in
investing activities.................... -- (2,947) (22) -- (2,969)
Financing activities
Net borrowing under line-of-credit agreements -- 6,235 -- -- 6,235
Principal payments on long term debt.... -- -- -- -- --
Principal payments on long note (CAT)... -- (393) -- -- (393)
Principal payments on capital leases.... -- -- -- -- --
-- -- -- -- --
Net cash and cash equivalents provided
by financing activities................. -- 5,842 -- -- 5,842
Effect of exchange rate changes on cash. -- -- -- -- --
-- -- -- -- --
Net change in cash and cash equivalents. -- (4,596) -- -- (4,596)
Cash and cash equivalents at beginning
year................................. -- 7,231 8 -- 7,239
-- ----- - -- -----
Cash and cash equivalents at end of period $ -- $ 2,635 $ 8 $ -- $ 2,643
===== ======= ======= ======= ======
</TABLE>
<PAGE>
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
8. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
TWENTY-SIX WEEKS ENDED JULY 3, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C> <C> <C>
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
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
liabilities............................. -- (6,597) (3,114) -- (9,711)
-- ------- ------- -- -------
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
Net borrowings under line-of-credit -- 11,000 3,818 -- 14,818
agreement
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
of year................................. -- 2,396 472 -- 2,868
-- ----- --- -- -----
Cash and cash equivalents at end of period $ -- $ 1,206 $ 155 $ -- $ 1,361
== ===== === == =====
</TABLE>
<PAGE>
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
On June 13, 2000, Phillips-Van Heusen Corporation, ("PVH"), and the Company
announced an agreement (the "Agreement") for PVH to license the Arrow brand for
men's and boy's dress shirts and sportswear in the United States. In addition,
PVH and the Company agreed in principle for PVH to acquire the stock of Cluett
Designer Group, Inc., the licensee for Kenneth Cole dress shirts ("CDG"). The
closing of these transactions was subject to certain limited conditions and
governmental approvals. In conjunction with the Agreement, the Company approved
a plan to discontinue the Shirt Group segment's manufacturing and distribution
operations (the "Operations").
On July 24, 2000, the transactions contemplated by the Agreement, including the
Purchase and Sale Agreement among Cluett, Peabody & Co., Inc. ("CP"), Cluett,
Peabody Canada, Inc.("CP Canada"), Arrow Factory Stores Inc. ("AFS"), CDG,
Consumer Direct Corporation ("CDC"), Cluett, Peabody Holding Corp.("Holding"),
and PVH, (the "Purchase and Sale Agreement") and the Share Purchase Agreement
among CP, CDG, Bidermann Tailored Clothing Inc.("BTC"), and PVH (the "Share
Purchase Agreement") were closed. Each of the parties to the Purchase and Sale
Agreement and the Share Purchase Agreement other than PVH and CDG is, and prior
to the closing CDG was, a wholly-owned subsidiary of the Company.
Pursuant to the Purchase and Sale Agreement, (i) all of the outstanding shares
of capital stock of C.A.T. Industrial S.A. de C.V., ("C.A.T") a corporation
organized under the laws of Honduras, were sold to PVH by CP, AFS, CDG, CDC and
Holding, (ii) PVH purchased all of CP's and AFS's right, title and interest in
and to certain of the other assets (principally inventory) of CP and AFS used
primarily by CP and AFS in their Arrow label and private label men's and boy's
dress and sport shirt businesses and their Arrow factory outlet operations in
the United States and (iii) PVH purchased all of CP Canada's right, title and
interest in and to Arrow label dress and sport shirt inventory used in CP
Canada's United States "Career Apparel" business. Pursuant to the Share Purchase
Agreement, all of the outstanding shares of capital stock of CDG were sold by CP
and BTC to PVH.
The aggregate purchase price paid by PVH pursuant to the Purchase and Sale
Agreement and the Share Purchase Agreement for the stock and assets referred to
above was approximately $48.9 million in cash plus the assumption of $2.1
million of debt related to C.A.T., calculated as set forth in, and subject to
adjustment pursuant to, Article 3 of each of the Purchase and Sale Agreement and
the Share Purchase Agreement. The Company has deposited in escrow $2.0 million,
which is subject final inventory adjustment. The company has irrevocably and
unconditionally guaranteed the payment of any amount payable by CP or BTC to PVH
under each Agreement which is not paid by CP or BTC when due, including pursuant
to the purchase price adjustment and indemnification provisions of the
Agreements.
Pursuant to the Purchase and Sale Agreement, the Trademark License Agreement,
dated July 24, 2000, by and between Cluett Peabody Resources Corporation, a
Delaware corporation and a wholly-owned subsidiary of the Company ("CPR"), CP
and PVH was executed and delivered. Pursuant to the Trademark License Agreement,
CP granted to PVH an exclusive license to use trademarks related to CP's "Arrow"
clothing line in the United States and its territories and possessions in
connection with its manufacture, advertising, marketing, promotion,
distribution, offer to sell and sale of men's and boys' dress shirts, sports
shirts (including knit, woven and all forms of fleece), pants, shorts and
sweaters in certain specified channels of trade, including the Internet. CP also
granted to PVH the right to operate websites that use URLs that incorporate the
licensed trademarks. The Trademark License Agreement requires PVH to pay a $5.0
million minimum guaranteed annual royalty fee to CP, subject to increases based
on the achievement by PVH of certain sales targets. The initial term of the
license expires on June 30, 2007; however, PVH has the option to renew the
Trademark License Agreement for two additional five-year terms, provided it
meets certain conditions.
The Company used the proceeds from the Purchase and Sale Agreement, the Share
Purchase Agreement and the Trademark License Agreement (collectively referred to
as the "Transactions") to repay outstanding borrowings under its Senior Credit
Facility and CP Canada's Credit Facility.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
The Company expects to complete the disposition of the remaining net assets of
the Operations through sale by December 31, 2000 and accordingly, has reflected
the Operations as discontinued in the accompanying statements of operations.
Additionally, at July 1, 2000 the net assets of the Operations are classified as
held for sale in the accompanying balance sheet and are comprised of the
following:
As a result of the Transactions, the Company recorded a $4.5 million impairment
charge in June, 2000 to adjust the carrying value of goodwill to its fair market
value based upon actual consideration received from the Transactions. The
impairment charge is included as a component of the Company's loss from
operations of discontinued segment in the accompanying Statement of Operations.
The $4.2 million loss on disposal of the Operations includes $0.4 million of
operating losses incurred from June 13, 2000 through July 1, 2000, and $2.0
million of estimated operating losses from July 2, 2000 through December 31,
2000. Included in Accounts Payable and Accrued Expenses at July 1, 2000 is an
accrual of $10.6 million for costs directly associated with the disposal of the
Operations.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results of Operations: Thirteen weeks ended July 1, 2000 vs. July 3, 1999
The following table is derived from the Company's Condensed Consolidated
Statements of Operations and sets forth, for the period indicated, net sales,
gross profit, income from continuing operations, interest expense, loss on
discontinued operations and net loss of the Company:
<TABLE>
<S> <C> <C>
Thirteen weeks ended
July 1, July 3,
2000 1999
------------------------------
(Dollars In Thousands)
Net sales................................................................. $ 38,856 $40,231
Gross profit.............................................................. 13,735 15,174
Income from continuing operations ........................................ 5,221 7,236
Interest expense ......................................................... 7,587 6,234
Loss on discontinued operations .......................................... (8,857) (5,227)
Net loss.................................................................. $(11,548) $(4,524)
</TABLE>
Net Sales: For the thirteen weeks ended July 1, 2000 (the "2000 Quarter") net
sales from continuing operations declined $1.4 million to $38.9 million compared
to $40.2 million for the same period last year. Timing of sales at the Sock
Group accounts for virtually all of the year-over-year decline; as will be
discussed below, first half sales at the Sock Group are up $3.2 million
year-over-year following a 13.7% increase in the first quarter 2000. Net sales
in the Licensing Group were flat at $1.5 million for the quarter.
Gross Profit: For the 2000 Quarter, gross profit decreased to $13.7 million from
$15.2 million for the thirteen weeks ended July 3, 1999 (the "1999 Quarter").
Gross margin at the Sock Group decreased from 35.4% in the 1999 Quarter to 32.7%
in the 2000 Quarter. The $1.5 million gross profit decline is due to lower
volume in the second quarter of $.5 million and product mix deterioration of $1
million.
Income from Continuing Operations: The Company's income from continuing
operations for the 2000 Quarter decreased $2.0 million to $5.2 million compared
to $7.2 million for the 1999 Quarter. This change is due to the decline in gross
profit discussed above. In addition, the Sock Group initiated a packaging change
in 2000 for its Gold Toe products; costs associated with this initiative
approximated $0.6 million in the 2000 Quarter.
Interest expense: Interest expense increased $1.4 million for the 2000 Quarter
as a result of increased debt levels and higher interest rates.
Loss on discontinued operations: In connection with the Company's decision to
discontinue the Shirt Group segment's manufacturing and distribution operations,
the Company reclassified operating losses for this segment as loss on
discontinued operations. For the 2000 Quarter, operating losses for this segment
were $8.9 million, which included a goodwill impairment charge of $4.5 million
and estimated operating losses of $2.3 million during the phase out period. For
the 1999 Quarter, operating losses for this segment were $4.7 million.
Net loss: Net loss for 2000 Quarter increased $7.0 million to $11.5 million
compared to a $4.5 million loss for the 1999 Quarter. The increase was primarily
related to impairment charges and estimated operating losses from the
discontinued segment, gross profit decreases in the Sock Group and higher
interest expense for the period, all as discussed above.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Results of Operations: Twenty-six weeks ended July 1, 2000 vs. July 3, 1999
The following table is derived from the Company's Condensed Consolidated
Statements of Operations and sets forth, for the period indicated, net sales,
gross profit, income from continuing operations, interest expense, loss on
discontinued operations and net loss of the Company:
<TABLE>
<S> <C> <C>
Twenty-six weeks ended
July 1, July 3,
2000 1999
------------------------------
(Dollars In Thousands)
Net sales................................................................. $ 79,388 $76,189
Gross profit.............................................................. 28,704 28,820
Income from continuing operations......................................... 11,013 12,627
Interest expense ......................................................... 14,600 12,403
Loss on discontinued operations .......................................... (14,135) (6,374)
Net loss.................................................................. $(18,274) $(6,689)
</TABLE>
Net Sales: For the twenty-six weeks ended July 1, 2000 (the "2000 Period"), net
sales for reportable segments were up 4.2% versus the prior year. The Sock Group
recorded a 4.5% first half net sales increase, or $3.2 million, versus the same
period last year, driven by volume. Licensing revenue for the period was down
modestly to $3.1 million from $3.3 million in the prior-year period.
Gross Profit: For the 2000 Period, gross profit was essentially flat as the Sock
Group's increased sales volume was offset by its first half gross margin
decline, from 35.0% to 33.4% of net sales year over year. As was previously
stated, this margin decline is due to product mix deterioration, or higher sales
volumes of lower margin product.
Income from Continuing Operations: The Company's income from continuing
operations declined to $11.0 million from $12.6 million for the 2000 Period,
primarily due to increased promotional expense at the Sock Group resulting from
a new Gold Toe packaging initiative, launched in 2000.
Interest expense: Interest expense increased $2.2 million for the 2000 Period as
a result of increased debt levels and higher prevailing interest rates.
Loss on discontinued operations: In connection with the Company's decision to
discontinue the Shirt Group segment's manufacturing and distribution operations,
the Company reclassified operating losses for this segment as loss on
discontinued operations. For the 2000 Period, operating losses for this segment
were $14.1 million, which included a goodwill impairment charge of $4.5 million
and estimated operating losses of $2.3 million during the phase out period.
Net loss: Net loss for 2000 Period increased $11.6 million to $18.3 million
compared to a $6.7 million loss for the 1999 Period. The increase was primarily
related to estimated operating losses from the discontinued segment, impairment
charges, higher interest expense for the period and higher promotional costs in
the Sock Group, all as discussed above.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Liquidity and Capital Resources
The Company broadly defines liquidity as its ability to generate sufficient cash
flow from operating activities to meet its obligations and commitments. In
addition, liquidity includes the ability to obtain appropriate debt and equity
financing and, to convert into cash, those assets that are no longer required to
meet existing strategic and financial objectives. Therefore, liquidity cannot be
considered separately from capital resources that consist of current or
potentially available funds for use in achieving long range business objectives
and meeting debt service commitments.
In 1999, the Company obtained a revolving credit facility ( the "Additional
Revolver") which is guaranteed by Vestar and bears interest, at the Company's
option, at either the Eurodollar rate plus 1.5% or the Prime rate plus 0.5%.
This facility was originally set to expire on December 31, 2000.
On March 29, 2000, the Additional Revolver was increased to $12.0 million and
was incorporated into the Senior Credit Facility as Tranche C (the "Tranche C
Loan"). During the 2000 Quarter, the Tranche C Loan was increased to $28.3
million. Borrowings under the Tranche C Loan are due and payable on December 31,
2001 and are guaranteed by Vestar.
The Company's liquidity needs arise primarily from debt service on the
indebtedness and the funding of working capital and capital expenditures. As of
July 1, 2000, the Company had outstanding $275.0 million of debt consisting of
$125.0 million in senior subordinated notes, a Senior Credit Facility consisting
of a $35.5 million term A loan, a $53.4 million term B loan, $35.0 million in
revolving credit borrowings and $19.9 million in Tranche C Loans and $6.1
million in Canadian revolving credit borrowings. For the 2000 Quarter, the
Company had a net decrease in revolving credit borrowings of $1.3 million and
repaid $15.3 million in term loans and notes payable. As a result of the
Transactions that were completed on July 24, 2000, the Company permanently
reduced the Term A Loan, the Term B Loan and the Tranche C Loans by $6.8
million, $9.4 million and $8.7 million, respectively. In addition, the Company
made payments on the revolving credit borrowings, without a permanent reduction
in the revolving credit committed amounts and net of expense associated with the
Transactions of $13.3 million. The Canadian revolving credit facility was paid
down $1.1 million.
On May 12, 2000, the Company formed a special purpose non-guarantee subsidiary
for the purpose of accounts receivable sales transactions allowed under the
Senior Credit Facility. The Company has the right, but not the obligation, to
sell up to $24.0 million of accounts receivable on or before June 30, 2000. On
May 12, 2000 and June 29, 2000, the Company sold approximately $6.4 million and
$8.2 million of accounts receivable, respectively.
Cash Flows
Cash and cash equivalents decreased to $2.6 million at July 1, 2000 from $7.2
million at December 31, 1999 as a result of $5.9 million and $3.0 million in net
cash used in operating and investing activities, respectively. These cash uses
were offset by $5.8 million in net cash provided by financing activities. Net
cash used in operating activities resulted primarily from the Company's $18.3
million net loss and a $11.7 million increase in inventories offset by $6.2
million in non-cash depreciation and amortization charges, $4.9 million in
impairment and non-cash losses associated with assets held for sale, a $5.8
million reduction in accounts receivable and a $7.8 million increase in accounts
payable and accrued expense. Net cash used in investing activities resulted from
$3.0 million in capital expenditures. Net cash provided by financing activities
resulted primarily from $22.5 million in proceeds on credit facility borrowings
offset by a $16.2 million principal payments on the Company's Long-term debt.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Covenant Restrictions
The Senior Credit Facility 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, and a minimum Sock Group EBITDA test each of which
is tested as of the last day of each fiscal quarter of the Company and its
subsidiaries. The amendments in December 1998, March 1999, September 1999 and
March 2000 revised the original covenants. Additionally, the September 1999
amendment requires Vestar to infuse up to $30 million of new capital if certain
leverage ratios are not met.
At December 31, 1999, the Company was not in compliance with its financial ratio
covenants and received a waiver dated March 29, 2000. The March 2000 waiver and
amendment also revised on-going covenants and the Company expects to meet these
covenants in 2000.
On March 29, 2000, the Senior Credit Facility and the Investment and Deposit
agreement were amended. The March 2000 amendment requires (i) Vestar to infuse
up to $30 million of new capital into the Company and (ii) the Company to make
$20 million in additional principal payments on the Senior Credit Facilities
between June 30, 2000 (or in certain circumstances August 31, 2000) and December
31, 2000 if certain financial ratios are not met by June 30, 2000. As of July 1,
2000, the Company was in compliance with all financial covenants. Additionally,
on July 24, 2000, the Company satisfied all requirements under the March 2000
amendments, and as such, Vestar's requirement to infuse up to $30 million of new
capital and the Company's requirement to make $20 million in additional
principal payments on the Senior Credit Facilities have been extinguished.
Capital Expenditures
Capital spending for the 2000 Period was $3.0 million and related primarily to
general improvements to the Company's manufacturing facilities. Total capital
spending for 2000 is expected to be $5.5 million and also relates primarily to
general improvements to the Company's manufacturing facilities.
Financing Sources and Cash Flows
At July 1, 2000 the Company had $2.6 million in cash and cash equivalents and
additional availability of $10.3 million under the revolving credit facilities
included in the Senior Credit Facility, after consideration of $11.7 million in
open trade letters of credit and $1.4 million of stand-by letters of credit. At
July 1, 2000, the Company also had additional availability of $2.3 million under
the Canadian revolving credit facility, after consideration of $1.7 million in
open trade letters of credit.
Based upon the current level of operations, management believes that cash flow
from operations and available cash, together with available borrowings under the
revolving credit facilities, are adequate to meet the Company's future liquidity
needs until at least the end of 2000. The Company may, however, need to
refinance all or a portion of the principal of the Senior Credit Facility on or
prior to maturity and there can be no assurance that the Company will be able to
effect any such refinancing. In addition, there can be no assurances that the
Company's business will generate sufficient cash flow from operations, that
anticipated revenue growth and operating improvements will be realized or that
future borrowings will be available under the Senior Credit Facility in an
amount sufficient to (i) enable the Company to service its indebtedness or (ii)
fund its other liquidity needs.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
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, 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 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, 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>
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, 1999, 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, 1999.
<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 1, 2000.
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 filed reports on Form 8-K on June 13, 2000 and July 25, 2000 and
subsequently filed reports on Form 8-K/A on August 8, 2000.
(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).
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).
<PAGE>
4.3 Certificate of Designations of the 121/2% 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).
<PAGE>
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 10.2.3 to the Company's Annual
Report on Form 10-K (Reg No. 333-58059) filed on March 29, 1999).
10.2.4 Fourth Amendment to the Credit Agreement and Assignment dated September
30, 1999 by an among Cluett American Corp., Cluett American Investment Corp.,
Cluett American Group, Inc. and certain subsidiaries, the Existing Lender, New
Lender, and agents (incorporated by reference to Exhibit 10.2.4 to the Company's
Quarterly Report on Form 10-Q (Reg No. 333-58059) filed on November 16, 1999).
10.2.5 Investment and Deposit Agreement between Vestar Capital Partners and Bank
of America dated September 30, 1999 (incorporated by reference to Exhibit 10.2.5
to the Company's Quarterly Report on Form 10-Q (Reg No. 333-58059) filed on
November 16, 1999).
10.2.6 $3.0 million Credit Agreement dated as of November 9, 1999 among Cluett
American Corp, as the borrower Bank of America, N.A. and Vestar Capital Partners
III, L.P. as guarantor (incorporated by reference to Exhibit 10.2.6 to the
Company's Quarterly Report on Form 10-Q (Reg No. 333-58059) filed on November
16, 1999).
10.2.7 $7.5 million Amended and Restated Credit Agreement dated as of February
17, 2000, among Cluett American Corp, as the borrower, Bank of America, N.A. and
Vestar Capital Partners III, L.P., as guarantor (incorporated by reference to
Exhibit 10.2.7 to the Company's Annual Report on Form 10-K (Reg NO. 333-58059)
filed on March 30, 2000).
10.2.8 Fifth Amendment to Credit Agreement and Waiver dated March 29, 2000 by
and among Cluett American Corp., Cluett American Investment Corp., Cluett
American Group, Inc. and certain subsidiaries, the Existing Lender, New Lender,
and agents (incorporated by reference to Exhibit 10.2.8 to the Company's Annual
Report on Form 10-K (Reg NO. 333-58059) filed on March 30, 2000).
10.2.9 Amended and Restated Investment and Deposit Agreement between Vestar
Capital Partners III, L.P. and Bank of America dated March 29, 2000
((incorporated by reference to Exhibit 10.2.9 to the Company's Annual Report on
Form 10-K (Reg NO. 333-58059) filed on March 30, 2000).
*10.2.9.1 Six Amendment to Credit Agreement and Waiver dated June 30, 2000 by
and among Cluett American Corp., Cluett American Investment Corp., Cluett
American Group, Inc. and certain subsidiaries, the Existing Lender, New Lender,
and agents filed herewith as Exhibit 10.2.9.1.
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>
10.16 Limited Liability Company Agreement of Cluett American Receivables, LLC,
entered into by Great American Knitting Mills, Inc. as the sole equity member
and Dwight Jenkins and Lori Rezza as the special members (incorporate by
reference to Exhibit 10.16 to the Company's Quarterly Report on Form 10-Q (Reg
No. 333-58059) filed on May 16, 2000).
10.16.1 Receivable Transfer Agreement dated May 12, 2000 between Great American
Knitting Mills, Inc. and Cluett American Receivables, LLC (incorporate by
reference to Exhibit 10.16.1 to the Company's Quarterly Report on Form 10-Q (Reg
No. 333-58059) filed on May 16, 2000).
10.16.2 Receivable Purchase Agreement entered into between Cluett American
Receivable, LLC and Banc of America Commercial Corp. dated May 12, 2000
(incorporate by reference to Exhibit 10.16.2 to the Company's Quarterly Report
on Form 10-Q (Reg No. 333-58059) filed on May 16, 2000).
10.16.3 Partial Release Agreement dated May 12, 2000, by and among Bank of
America, N.A. f/k/a/ Nationsbank, N.A. as agent for the Lenders under the Credit
Agreement, Great American Knitting Mills, Inc. and Cluett American Corp.
(incorporate by reference to Exhibit 10.16.3 to the Company's Quarterly Report
on Form 10-Q (Reg No. 333-58059) filed on May 16, 2000).
10.16.4 Guarantee Agreement dated May 12, 2000 made by Cluett American Corp.
(incorporate by reference to Exhibit 10.16.4 to the Company's Quarterly Report
on Form 10-Q (Reg No. 333-58059) filed on May 16, 2000).
10.16.5 Repurchase Agreement dated May 12, 2000 made by Vestar Capital Partners
III, L.P. in favor of Banc of America Commercial Corporation (incorporate by
reference to Exhibit 10.16.5 to the Company's Quarterly Report on Form 10-Q (Reg
No. 333-58059) filed on May 16, 2000).
16.1 Letter from Ernst & Young LLP, former Certifying Accountants (incorporated
by reference to Exhibit 16.1 to the Company's Current Report filed on Form 8-K
(Reg. No. 333-58059) filed on January 10,2000).
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
<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 14, 2000 /s/ Bryan P. Marsal
---------------------------------------
Bryan P. Marsal
Director, President and Chief
Executive Officer
August 14, 2000 /s/ W. Todd Walter
----------------------------------------
W. Todd Walter
Vice President and Chief Financial
Officer
<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>
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 April 1, 2000:
Deductions from asset accounts:
Allowance for doubtful accounts $ 1,620 $ 234 $ -- $ 106 (1) $ 1,748
Customer allowances 8,554 3,220 -- 3,865 (1) 7,909
Inventory reserves 2,622 2,150 -- 1,283 (1) 3,489
----- ----- ---- --------- -----
Total $12,796 $5,604 $ -- $5,254 (1) $13,146
======= ====== ===== =========== =======
Period Ended July 1, 2000:
Deductions from asset accounts:
Allowance for doubtful accounts $ 1,748 $ 167 $ -- $ 19 (1) $ 1,896
Customer allowances 7,909 3,832 -- 1,369 (1) 10,372
Inventory reserves 3,489 833 -- 2,539 (1) 1,783
----- ---- ---- ---------- -----
Total $13,146 $4,832 $ -- $3,927 (1) $14,051
======= ====== ======= =========== =======
</TABLE>
(1) Write offs, net of recoveries.
