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 September 30, 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 September 30,2000
<PAGE>
Cluett American Corp. and Subsidiaries
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
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Page
Report of Independent Auditors' 3
Condensed Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999 F-1
Condensed Consolidated Statements of Operations for the thirteen and thirty-nine
weeks ended September 30, 2000 and October 2, 1999 (not covered by Auditors'
Report) F-2
Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks ended
September 30, 2000 and October 2, 1999 (not covered by Auditors' Report) 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 September 30, 2000, and the related
condensed consolidated statements of operations and cash flows for the thirteen
and thirty nine-week periods ended September 30, 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 auditing standards generally accepted in the United States of America, 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 accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, 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
November 10, 2000
<PAGE>
F-1
Condensed Consolidated Balance Sheets
(Dollars In Thousands, except per share data)
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September December 31,
30, 1999
2000
----------------------------
(Unaudited) (Note 1)
Assets
Current assets:
Cash and cash equivalents.......................................... $ 4,198 $ 7,239
Accounts receivable, net........................................... 40,434 45,519
Inventories, net .................................................. 42,980 78,105
Net assets held for sale .......................................... 20,134 --
Prepaid expenses and other current assets.......................... 2,578 3,129
-----------------------
Total current assets.................................................. 110,324 133,992
Property, plant and equipment, net.................................... 27,844 47,794
Pension assets........................................................ 26,472 32,187
Deferred financing fees............................................... 10,412 10,842
Goodwill, net......................................................... -- 4,740
Due from Parent....................................................... 157 --
Other noncurrent assets............................................... 1,194 1,951
-----------------------
Total assets.......................................................... $176,403 $231,506
=======================
Liabilities and stockholder's deficit
Current liabilities:
Accounts payable and accrued expenses.............................. $ 38,342 $ 40,696
Accrued interest payable........................................... 9,742 3,861
Short-term debt and current portion of long-term debt.............. 24,472 14,209
Income taxes payable............................................... 1,795 1,970
-----------------------
Total current liabilities............................................. 74,351 60,736
Long-term debt and capital lease obligations.......................... 213,523 258,883
Dividends payable..................................................... 2,707 637
Other non-current liabilities......................................... 157 147
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) 62,154 58,329
Stockholder's deficit:
Common stock, $1 par value: authorized, issued and outstanding 1,000
shares.......................................................... 1 1
Additional paid-in capital......................................... 129,205 135,100
Accumulated (deficit).............................................. (305,088) (282,046)
Other comprehensive (loss)......................................... (607) (281)
------------------------
Total stockholder's (deficit)......................................... (176,489) (147,226)
------------------------
Total liabilities and stockholder's (deficit)......................... $176,403 $ 231,506
========================
</TABLE>
See accompanying notes.
<PAGE>
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars In Thousands)
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Thirteen weeks ended Thirty-nine weeks ended
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
---------------- -------------- --------------- ---------------
Not covered Not covered
by Auditors' by Auditors'
Report Report
Net sales.......................................... $47,427 $43,389 $126,109 $118,824
Cost of goods sold................................. 30,213 27,948 80,191 74,563
---------------- -------------- --------------- ---------------
Gross profit....................................... 17,214 15,441 45,918 44,261
Selling, general and administrative expenses....... 16,192 7,485 33,811 23,950
Restructuring and impairment (income)/charges...... (221) 819 (149) 547
---------------- -------------- --------------- ---------------
Operating income from continuing operations........ 1,243 7,137 12,256 19,764
Interest expense, net.............................. 6,527 6,478 21,127 18,881
Other expense, net................................. 59 2 114 29
---------------- -------------- --------------- ---------------
Income (loss) from continuing operations before
provision for income taxes...................... (5,343) 657 (8,985) 854
Provision for income taxes......................... 301 167 798 679
---------------- -------------- --------------- ---------------
Income (loss) from continuing operations .......... (5,644) 490 (9,783) 175
Discontinued operations:
Loss from operations of discontinued segment -- (5,429) (9,937) (11,803)
Income/(loss) on disposition of business
segment, including provision of $1,736 and
$(646) for phase-period operating
income(losses) during the thirteen and
thirty-nine week periods ended September 30,
2000, respectively........................... 876 -- (3,322) --
---------------- -------------- --------------- ---------------
Net (loss)......................................... $(4,768) $(4,939) $(23,042) $(11,628)
================ ============== =============== ===============
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See accompanying notes.
<PAGE>
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in Thousands)
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Thirty-nine weeks ended
September 30, October 2,
2000 1999
----------------------------
Not covered
by Auditors'
Report
Operating activities
Net loss........................................................... $(23,042) $ (11,628)
Adjustment to reconcile net loss to net cash and cash equivalents
used in (provided by) operating activities:
Depreciation.................................................... 6,838 7,225
Deferred finance amortization................................... 1,296 1,235
Goodwill amortization........................................... 250 --
Write-down of property, plant and equipment..................... 54 360
Goodwill impairment loss....................................... 4,497 --
Loss/(gain) on disposal of fixed assets......................... 7 (57)
Loss on disposition of segment.................................. 2,676 --
Changes in operating assets and liabilities, net of effects of
disposition of net assets held for sale:
Accounts receivable............................................. 4,878 (4,229)
Inventories..................................................... (23,306) (13,932)
Prepaid expenses and other current assets....................... 718 282
Pension and other non-current assets............................ 4,046 (1,751)
Assets held for sale........................................... 1,488 --
Due from parent................................................ (157) --
Accounts payable and accrued expenses........................... (5,584) (1,762)
Income taxes payable............................................ (175) 352
Other liabilities............................................... 354 744
Effect of changes in foreign currency........................... (166) 763
----------------------------
Net cash and cash equivalents used in operating activities......... (25,328) (22,398)
Investing activities
Purchase of property, plant and equipment.......................... (3,733) (8,168)
Purchase of CAT, net of cash acquired.............................. -- (4,954)
Proceeds on disposition of net assets held for sale................ 51,180 --
Proceeds on disposal of property, plant and equipment.............. 12 1,115
----------------------------
Net cash and cash equivalents provided by (used in) investing
activities...................................................... 47,459 (12,007)
Financing activities
Principal payments under long-term debt ........................... (33,076) (2,634)
Net borrowings under line-of-credit agreement ..................... 8,309 38,352
(Repayments)/Borrowings on long-term note (CAT).................... (393) 2,881
Principal payments under capital lease obligation.................. (12) (11)
----------------------------
Net cash and cash equivalents (used in) provided by financing
activities...................................................... (25,172) 38,588
Effect of exchange rate changes on cash............................ -- 11
----------------------------
Net (decrease) increase in cash and cash equivalents............... (3,041) 4,194
Cash and cash equivalents at beginning of period................... 7,239 2,868
----------------------------
Cash and cash equivalents at end of period......................... $ 4,198 $ 7,062
============================
</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 accounting principles generally accepted in the United States of
America 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 accounting principles generally accepted
in the United States of America 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 thirty-nine week periods ended September 30,
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 accounting principles generally accepted in the United
States of America 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
September 30, 2000 and October 2, 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"). 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 $51.2 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
of the above noted cash consideration, which is subject to 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 with PVH provides for a
$5.0 million minimum guaranteed annual royalty fee to be paid 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 $39.3 million of 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 September 30, 2000 the net assets of the Operations are
classified as held for sale in the accompanying balance sheet and are comprised
of the following:
September
30, 2000
----------
Assets:
Inventories, net $10,249
Property, plant & equipment, net 16,066
------
Total assets 26,315
Liabilities:
Canadian revolving facility 6,181
-----
Total liabilities 6,181
Net assets held for sale $20,134
=======
<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 (Note 6).
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 $3.3 million loss on disposition of discontinued segment for the thirty-nine
weeks ending September 30, 2000 consists of a $2.7 million loss on disposition
and $0.6 million in operating losses during the phase out period. The $0.6
million in operating losses during the phase out period consist of $0.2 million
of operating income incurred from June 13, 2000 through September 30, 2000,
offset against $0.8 million of estimated operating losses from October 1, 2000
through December 31, 2000. In conjunction with the disposition, the Company
incurred $10.3 million in restructuring charges.
Net sales of the above noted entities for the thirteen and thirty-nine weeks
ended September 30, 2000 and October 2, 1999 are as follows:
Thirteen weeks ended Thirty-nine weeks ended
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
-------------- ----------- ------------- ----------
Net sales $ 12,256 $ 44,049 $ 108,136 $ 128,932
3. Inventories
Inventories from continuing operations consist of the following at the specified
date:
September 30, December 31,
2000 1999
------------- ------------
(Dollars In Thousands)
Finished goods $36,249 $60,854
Work in process 2,657 8,260
Raw materials and supplies 4,557 11,613
------------- ------------
43,463 80,727
Less: Allowance for obsolete and slow moving
inventory (483) (2,622)
------------- ------------
$42,980 $78,105
============= ============
4. Long-Term Obligations and Financing Arrangements
As of September 30, 2000, the Company had outstanding $238.0 million of debt
(excluding $6.2 million of Canadian debt classified as net assets held for sale)
consisting of $125.0 million in senior subordinated notes, a Senior Credit
Facility consisting of a $28.6 million term A loan, a $44.0 million term B loan,
$20.6 million in revolving credit borrowings, $19.5 million in Tranche C Loans,
and $0.3 million in Canadian Capital Lease Obligation. During the thirteen weeks
ended September 30, 2000, the Company had a net decrease in revolving credit
borrowings of $14.4 million and repaid $18.3 million in term loans and notes
payable. As a result of the Transactions, 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. Additionally, the Company repaid $1.1 million
under the Canadian revolving credit facility and extended the Canadian
facility's maturity date to August 8, 2001. The Canadian facility is included as
a component of net assets held for sale in the accompanying balance sheet.
<PAGE>
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
4. Long-Term Obligations and Financing Arrangements (continued)
On March 29, 2000, the Senior Credit Facility and the Investment and Deposit
agreement was amended. The March 2000 amendment required (i) Vestar Capital
Partners III, L.P.("Vestar") to infuse up to $30.0 million of new capital into
the Company and (ii) the Company to make $20.0 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
were not met by June 30, 2000. Through September 30, 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
accordingly, Vestar's requirement to infuse up to $30.0 million of new capital
and the Company's requirement to make $20.0 million in additional principal
payments on the Senior Credit Facilities was extinguished.
5. Comprehensive Loss
For the thirteen and thirty-nine week periods ending September 30, 2000 and
October 2, 1999, accumulated other comprehensive gain/(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 Thirty-nine weeks ended
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
---------------- -------------- --------------- ---------------
(Dollars In Thousands)
Net (loss)......................................... $(4,768) $(4,939) $(23,042) $(11,628)
Foreign currency translation adjustment............ (151) (992) (326) (442)
---------------- -------------- -------------- ---------------
Comprehensive loss................................. $(4,919) $(5,931) $(23,368) $(12,070)
================ ============== ============== ===============
</TABLE>
6. Restructuring and Impairment Charges
During 1999, the Company approved a plan to close its owned manufacturing
facility located in Enterprise, Alabama. The closure costs included severance
costs of $1.6 million for 308 employees at the Enterprise facility. In addition,
special termination benefits of $1.7 million related to 280 employees of the
Enterprise facility were provided through the Company's pension plan. All
terminations were completed by December 31, 1999. The Company also recorded an
impairment charge of $0.4 million to adjust the carrying value of the Enterprise
facility to fair market value based upon the consideration to be received. These
charges are included as a component of the loss from operations of discontinued
segment in the accompanying statement of operations.
As a result of the Transactions, the Company recorded a $4.5 million C.A.T.
goodwill impairment charge and a $ 0.05 million writedown of property, plant and
equipment in June 2000 to adjust the carrying value of these assets to fair
market value based upon actual consideration to be received. These charges are
included as a component of the loss from operations of discontinued segment in
the accompanying statement of operations. In addition, the Company recorded
restructuring charges of $10.3 million in June 2000, consisting of $3.9 million
in severance for 1,000 employees, $3.5 million in professional fees, $0.7
million in facility closure costs and $2.2 million in other costs directly
associated with the restructuring. These charges are included as a component of
the loss on disposition of discontinued segment in the accompanying statement of
operations. The Company expects to complete this restructuring by December 31,
2000.
The following is a summary of impairment charges and the components of
restructuring reserve for the thirty-nine weeks ended September 30, 2000.
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-------------------------Restructuring------------------------------
---------------- ------------------ --------------- ---------------- -------------
Severance Costs Facility Closure Other Total Impairment
---------------- ------------------ --------------- ---------------- -------------
(Dollars in Thousands)
Balance, December 31, 1999 $ 276 $ 145 $ (24) $ 397 $ --
Charges -- 60 -- 60 --
Payments -- (50) -- (50) --
---------------- ------------------ --------------- ---------------- -------------
Balance, April 1, 2000 276 155 (24) 407 --
Charges 3,914 723 5,640 10,277 4,497
Payments -- (38) -- (38) --
---------------- ------------------ --------------- ---------------- -------------
Balance, July 1, 2000 4,190 840 5,616 10,646 --
---------------- ------------------ --------------- ---------------- -------------
Payments (4,190) (799) (5,616) $(10,605) --
Balance, September 30, 2000 $ -- $ 41 $ -- $ 41 $ --
================ ================== =============== ================ =============
</TABLE>
<PAGE>
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
7. Segment Data
The Company identifies its reportable segments based on the segments' product
offerings. As a result of the Company's June 13, 2000 decision to discontinue
the Shirt Groups 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, Arrow Factory
Stores, Inc., and unallocated corporate overhead charges are referred to
collectively as "All other". Segment data disclosures for the thirteen weeks and
thirty-nine weeks ended September 30, 2000 and October 2, 1999 have been
restated to reflect the above noted change.
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Thirteen weeks ended Thirty-nine weeks ended
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
------------------- ----------------- ------------------ -------------
(Dollars in Thousands)
Net sales
Sock $44,439 $42,776 $120,570 $115,685
Licensing 2,984 1,278 6,114 4,558
All Other 304 10 431 10
Intersegment (300) (675) (1,006) (1,429)
------- ------- -------- --------
$47,427 $43,389 $126,109 $118,824
======= ======= ======== ========
Operating income (loss) excluding
facility closing and reengineering
costs
Sock $5,520 $7,963 $15,585 $19,401
Licensing 2,494 848 4,599 3,298
All Other (6,992) (855) (8,077) (2,388)
------ ------ ------- -------
$1,022 $7,956 $12,107 $20,311
====== ====== ======= =======
Depreciation expense
Sock $1,569 $1,511 $4,712 $4,531
Licensing 20 17 58 52
All Other 165 815 2,068 2,642
------ ------ ------ -----
$1,754 $2,343 $6,838 $7,225
====== ====== ====== ======
Amortization expense
Sock - - - -
Licensing - - - -
All Other $444 $444 $1,546 $1,235
---- ---- ------ ------
$444 $444 $1,546 $1,235
==== ==== ====== ======
Identifiable assets
Sock $96,260 $ 88,561 $96,260 $ 88,561
Licensing 2,445 1,875 2,445 1,875
All Other 1,488 158,591 1,488 158,591
-------- -------- -------- --------
$100,193 $249,027 $100,193 $249,027
======== ======== ======== ========
</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 Thirty-nine weeks ended
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
---------------- ------------- ----------------- -------------
(Dollars In Thousands)
Net sales
Total net sales for reportable segments $47,423 $44,054 $126,684 $ 120,243
Other net sales 304 10 431 10
Elimination of intersegment net sales (300) (675) (1,006) (1,429)
------- ------- -------- -------
Total consolidated net sales $47,427 $43,389 $126,109 $118,824
======= ======= ======== ========
Operating profit (loss)
Total operating profit or loss for
reportable segments $8,014 $8,811 $ 20,184 $ 22,699
Other operating profit or loss (218) (538) (662) (538)
Unallocated amounts:
Corporate Income/(Expense) (1,136) (817) (3,027) (3,350)
Pension Income/(Expense) (5,638) 500 (4,388) 1,500
Restructuring & impairment (charges) credits 221 (819) 149 (547)
----- ----- --- ------
Total operating profit $ 1,243 $7,137 $ 12,256 $ 19,764
========= ====== ======== =======
Depreciation and amortization
Total depreciation for reportable segments $ 1,589 $ 1,528 $ 4,770 $ 4,583
Other depreciation 165 815 2,068 2,642
Amortization 444 444 1,546 1,235
--- --- ----- -----
Total depreciation and amortization $ 2,198 $ 2,787 $ 8,384 $ 8,460
========= ======== ======== ========
Identifiable assets
Total assets for reportable segments $ 98,705 $ 90,436 $ 98,705 $ 90,436
Other assets 1,488 105,416 1,488 105,416
Net assets held for sale 20,134 -- 20,134 --
Unallocated amounts:
Deferred finance costs 10,412 10,507 10,412 10,507
Pension assets 26,472 32,883 26,472 32,883
Other unallocated amounts 19,192 9,785 19,192 9,785
------ ----- ------ -----
Consolidated total $176,403 $249,027 $176,403 $249,027
======== ======== ======== ========
</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
SEPTEMBER 30, 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C> <C> <C>
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
Assets
Current assets:
Cash and cash equivalents...... $ -- $ 4,058 $ 140 -- $ 4,198
Accounts receivable, net....... -- 33,652 6,782 -- 40,434
Inventories, net............... -- 42,980 -- -- 42,980
Assets from discontinued
segment held for sale....... -- 14,323 5,811 -- 20,134
Prepaid expenses and other
current assets.............. -- 2,022 556 -- 2,578
-- ----- --- -- -----
Total current assets.............. -- 97,035 13,289 -- 110,324
Investment in subsidiaries........ (122,735) -- -- 122,735 --
Property, plant and equipment, net -- 27,836 8 -- 27,844
Pension assets.................... -- 26,472 -- -- 26,472
Deferred financing fees........... -- 10,412 -- -- 10,412
Due from parent................... -- 157 -- -- 157
Other noncurrent assets.......... -- 665 529 -- 1,194
-- --- --- -- -----
Total assets...................... $(122,735) $ 162,577 $ 13,826 $ 122,735 $ 176,403
========== ========== =========== =========== =============
Liabilities and stockholder's deficit Current liabilities:
Accounts payable and accrued
expenses.................... $ -- $ 35,867 $ 2,475 $ -- $ 38,342
Accrued interest payable....... -- 9,742 -- -- 9,742
Short-term debt and current
portion of long-term debt... -- 24,472 -- -- 24,472
Income taxes payable........... -- 1,588 207 -- 1,795
-- ----- --- -- -----
Total current liabilities......... -- 71,669 2,682 -- 74,351
Long-term debt and capital lease
obligations.................... -- 213,311 212 -- 213,523
Dividends payable................. 2,707 -- -- -- 2,707
Other non-current liabilities..... -- 157 -- -- 157
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) 62,154 -- -- -- 62,154
Stockholder's deficit............. (187,596) (122,560) 10,932 122,735 (176,489)
--------- --------- ------ ------- ---------
Total liabilities and
stockholder's deficit.......... $(122,735) $ 162,577 $ 13,826 $ 122,735 $ 176,403
========== ========= =========== ========== ============
</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
assets............................... -- 2,422 707 -- 3,129
Total current assets....................... -- 114,764 19,228 -- 133,992
Investment in subsidiaries................. (103,443) -- -- 103,443 --
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............................... $(103,443) $209,594 $ 21,912 $103,443 $231,506
========== ======== ========= ======== ========
Liabilities and stockholder's deficit
Currentliabilities:
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
payable................................. 637 -- -- -- 637
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...................... (162,409) (99,473) 11,213 103,443 (147,226)
--------- -------- ------ ------- ---------
Total liabilities and stockholder's deficit $(103,443) $209,594 $ 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 SEPTEMBER 30, 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C> <C> <C>
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
Net sales............................. $ -- $ 47,427 $ -- $ -- $47,427
Cost of goods sold.................... -- 30,213 -- -- 30,213
-- ------ -- -- ------
Gross profit.......................... -- 17,214 -- -- 17,214
Selling, general and administrative
expenses........................... -- 16,192 -- -- 16,192
Restructuring and impairment charges..
-- (221) -- -- (221)
-- ----- -- -- -----
Operating income (loss) from
continuing operations.............. -- 1,243 -- -- 1,243
Loss on investments in subsidiaries .. (1,018) -- -- 1,018 --
Interest expense, net................. -- 6,527 -- -- 6,527
Other expense, net.................... -- 59 -- -- 59
-- -- -- -- --
Income (loss) from continuing
operations before provision for
income taxes.......................
(1,018) (5,343) -- 1,018 (5,343)
Provision for income taxes............ -- 301 -- -- 301
-- --- -- -- ---
Income (loss) from continuing
operations ........................
(1,018) (5,644) -- 1,018 (5,644)
Discontinued operations:
Estimated income on disposal of
business segment and operating
income during the phase out
period................................ -- 70 806 -- 876
-- -- --- -- ---
Net loss.............................. $(1,018) $(5,574) $ 806 $1,018 $(4,768)
======== ======== ========= ====== ========
</TABLE>
<PAGE>
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
8. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THIRTEEN WEEKS ENDED OCTOBER 2, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C> <C> <C>
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
Net sales............................. $ -- 43,389 $ -- $ -- $ 43,389
Cost of goods sold.................... -- 27,948 -- -- 27,948
-- ------ -- -- ------
Gross profit.......................... -- 15,441 -- -- 15,441
Selling, general and administrative
expenses........................... -- 7,485 -- -- 7,485
Restructuring Charges -- 819 -- -- 819
--- -- ---
Operating income from continuing
operations......................... -- 7,137 -- -- 7,137
Loss on investments in subsidiaries .. (4,939) -- -- 4,939 --
Interest expense, net................. -- 6,478 -- -- 6,478
Other expense, net.................... -- 2 -- -- 2
-- - -- -- -
Income (loss) from continuing
operations before provision for
income taxes....................... (4,939) 657 -- 4,939 657
Provision for income taxes............ -- 167 -- -- 167
-- --- -- -- ---
Income (loss) from continuing
operations ........................ (4,939) 490 -- 4,939 490
Discontinued operations:
Loss from operations of discontinued
segment............................ -- 4,404 1,025 -- 5,429
-- ----- ----- -- -----
Net income (loss)..................... $ (4,939) $ (3,914) $ (1,025) $ 4,939 $ (4,939)
=========== ========== ========== ======= =========
</TABLE>
<PAGE>
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
8. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THIRTY-NINE WEEKS ENDED SEPTEMBER 30, 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C> <C> <C>
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
Net sales $ -- $ 126,109 $ -- $ -- $ 126,109
Cost of goods sold.................... -- 80,191 -- -- 80,191
-- ------ -- -- ------
Gross profit.......................... -- 45,918 -- -- 45,918
Selling, general and administrative
expenses........................... -- 33,766 45 -- 33,811
Restructuring Charges................. -- (149) -- -- (149)
-- ----- -- -- -----
Operating income (loss) from
continuing operations.............. -- 12,301 (45) -- 12,256
Loss on investment in subsidiaries.... (19,292) -- -- 19,292 --
Interest expense, net................. -- 21,025 102 -- 21,127
Other expense, net.................... -- 114 -- -- 114
-- --- -- -- ---
Loss from continuing operations
before income taxes................ (19,292) (8,838) -- 19,292 (8,985)
Provision for income taxes............ -- 798 -- -- 798
-- --- -- -- ---
Loss from continuing operations ...... (19,292) (9,636) (147) 19,292 (9,783)
Discontinued operations:
Loss from operations of discontinued
segment............................ -- (10,634) 697 -- (9,937)
Income/(loss) on disposition of
business segment................... -- ( 3,423) 101 -- (3,322)
-- ------- --- -- -------
Net Loss.............................. $(19,292) $ (23,693) $ 651 $ 19,292 $(23,042)
========= ========== ======= ======== =========
</TABLE>
<PAGE>
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
8. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THIRTY-NINE WEEKS ENDED OCTOBER 2, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C> <C> <C>
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
Net sales............................. $ -- 118,824 $ -- $ -- $ 118,824
Cost of goods sold.................... -- 74,563 -- -- 74,563
-- ------ -- -- ------
Gross profit.......................... -- 44,261 -- -- 44,261
Selling, general and administrative
expenses........................... -- 23,950 -- -- 23,950
Restructuring Charges................. -- 547 -- -- 547
-- --- -- -- ---
Operating income ..................... -- 19,764 -- -- 19,764
Loss on investment in subsidiaries.... (11,628) -- -- 11,628 --
Interest expense, net................. -- 18,881 -- -- 18,881
Other expense, net.................... -- 29 -- -- 29
-- -- -- --
Income (loss) before reorganization
costs and income taxes............. (11,628) 854 -- 11,628 854
Bankruptcy reorganization costs....... -- -- -- -- --
-- -- -- -- --
Income (loss) before provision for
income taxes....................... (11,628) 854 -- 11,628 854
Provision for income taxes............ -- 679 -- -- 679
-- --- -- -- ---
Income (loss) from continuing
operations ........................ (11,628) 175 -- 11,628 175
Discontinued operations:
Loss from operations of discontinued
segment............................ -- (9,610) (2,193) -- (11,803)
-- ------- ------- -- --------
Net income (loss)..................... $ (11,628) $ (9,435) $ (2,193) $ 11,628 $ (11,628)
=========== ========= ========== =========== ============
</TABLE>
<PAGE>
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
8. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THIRTY-NINE WEEKS ENDED SEPTEMBER 30, 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C> <C> <C>
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
Operating activities
Net loss................................ $(19,292) $ (21,525) $(1,517) $ 19,292 $ (23,042)
Adjustment to reconcile net loss to net
cash and cash equivalents provided by
(used in) operating activities:
Loss on investments in subsidiaries... 19,292 -- -- (19,292) --
Write-down of property, plant, and
equipment......................... -- 54 -- -- 54
Depreciation.......................... -- 6,633 205 -- 6,838
Amortization.......................... -- 1,546 -- -- 1,546
Impairment and loss on disposal of
assets.................................. -- 7,180 -- -- --
Changes in operating assets and -- (19,252) 1,348 -- (17,904)
liabilities............................. --- -------- ----- ------ --------
Net cash and cash equivalents used in
operating activities.................... -- (25,364) 36 -- (25,328)
Investing activities
Purchase of fixed assets................ -- (3,709) (24) -- (3,733)
Proceeds on disposal of fixed assets.... -- 12 -- -- 12
Proceeds on disposal of discontinued
operations................. -- 51,180 -- -- 51,180
Net cash and cash equivalents used in
investing activities.................... -- 47,483 (24) -- 49,573
Financing activities
Net borrowing under line-of-credit -- (33,076) -- -- (33,076)
agreements
Principal payments on long term debt.... -- 8,309 -- -- 8,309
Principal payments on long note (CAT)... -- (393) -- -- (393)
Principal payments on capital leases.... -- - (12) -- (12)
-- - --- ----
Net cash and cash equivalents provided
by financing activities................. -- (25,160) (12) -- (25,172)
Effect of exchange rate changes on cash. -- -- -- -- --
-- -- -- -- --
Net change in cash and cash equivalents. -- (3,041) -- -- (3,041)
Cash and cash equivalents at beginning
of year................................. -- 7,231 8 -- 7,239
Cash and cash equivalents at end of
period.................................. $ -- $ 4,190 $ 8 -- $ 4,198
=== ====== = == =====
</TABLE>
<PAGE>
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
8. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THIRTY-NINE WEEKS ENDED OCTOBER 2, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C> <C> <C>
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
Operating activities
Net loss................................ $ (11,628) $ (9,435) $ (2,193) $ 11,628 $ (11,628)
Adjustment to reconcile net loss to net
cash and cash equivalents provided by
(used in) operating activities:
Loss on investments in subsidiaries... 11,628 -- -- (11,628) --
Depreciation.......................... -- 7,001 224 -- 7,225
Amortization.......................... -- 1,235 -- -- 1,235
Gain on disposal of assets............ -- (57) -- -- (57)
Changes in operating assets and
liabilities............................. -- (15,697) (3,476) -- (19,173)
Net cash and cash equivalents used in
operating activities.................... -- (16,953) (5,445) -- (22,398)
Investing activities
Purchase of fixed assets................ -- (8,083) (85) -- (8,168)
Purchase of CAT, net of cash acquired... -- (4,954) -- -- (4,954)
Proceeds on disposal of fixed assets.... -- 1,114 1 -- 1,115
-- ----- -- -- -----
Net cash and cash equivalents used in
investing activities.................... -- (11,923) (84) -- (12,007)
Financing activities
Net borrowings under line-of-credit
agreement............................... -- 33,100 5,252 -- 38,352
Net activity on long term debt.......... -- 247 -- 247
Principal payments on capital leases.... -- -- (11) -- (11)
-- -- ---- -- ----
Net cash and cash equivalents provided
by financing activities................. -- 33,347 5,241 -- 38,588
Effect of foreign currency translation.. -- -- 11 -- 11
-- -- -- -- --
Net change in cash and cash equivalents. -- 4,471 (277) -- 4,194
Cash and cash equivalents at beginning
of year................................. -- 2,396 472 -- 2,868
Cash and cash equivalents at end of
period.................................. $ -- $ 6,867 $ 195 $ -- $ 7,062
== ============ ============= =========== =============
</TABLE>
<PAGE>
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
9. New Accounting Pronouncements
In June 1998, the Financial Accounting Standard Board ("FASB") issued Statement
of Financial Accounting Standards No. ("SFAS") 133 "Accounting for Derivative
Instruments And Hedging Activities". This statement (as amended by SFAS No.'s
137 and 138) is effective January 2001. This statement establishes accounting
and reporting standards for derivative instruments including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity realize all derivatives as either assets or liabilities in the
balance sheet measured at fair value. The Combined Companies will adopt SFAS 133
on January 1, 2001. Management does not expect the adoption of SFAS 133 to have
a significant impact on the financial position or results of operations of the
Company, because the Company does not have significant derivative activity.
<PAGE>
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
On June 13, 2000, PVH and the Company announced an agreement (the "Agreement")
for PVH to license the Arrow brand for men's and boys' dress shirts and
sportswear in the United States. In addition, PVH and the Company agreed in
principle for PVH to acquire the stock of CDG. 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 CP, CP Canada, AFS, CDG, CDC, Holding, and
PVH, (the "Purchase and Sale Agreement") and the Share Purchase Agreement among
CP, CDG, 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. 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 boys' 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 $51.2 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
of the above noted cash consideration, which is subject to a 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 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 with PVH provides for a $5.0 million minimum guaranteed annual
royalty fee to be paid 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 $39.3 million of 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.
<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 September 30, 2000 the net assets of the Operations are
classified as held for sale in the accompanying balance sheet and are comprised
of the following:
September
30, 2000
---------
Assets:
Inventories, net $10,249
Property, plant & equipment, net 16,066
------
Total assets 26,315
Liabilities:
Canadian revolving facility 6,181
-----
Total liabilities 6,181
Net assets held for sale $20,134
=======
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 $3.3 million loss on disposition of discontinued segment for the thirty-nine
weeks ending September 30, 2000 consist of a $2.7 million loss on disposition
and $0.6 million in operating losses during the phase out period. The $0.6
million in operating losses during the phase out period consist of $0.2 million
of operating income incurred from June 13, 2000 through September 30, 2000
offset against $0.8 million of estimated operating losses from October 1, 2000
through December 31, 2000. In conjunction with the disposition, the Company
incurred $10.3 million in restructuring charges.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results of Operations: Thirteen weeks ended September 30, 2000 vs. October 2,
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
September 30, October 2,
2000 1999
------------------------------
(Dollars In Thousands)
Net sales................................................................. $47,427 $ 43,389
Gross profit.............................................................. 17,214 15,441
Operating income from continuing operations .............................. 1,243 7,137
Interest expense ......................................................... 6,527 6,478
Loss from operations of discontinued segment ............................. -- (5,429)
Income on disposition of business ........................................ 876 --
Net loss.................................................................. $(4,768) $ (4,939)
</TABLE>
Net Sales: For the thirteen weeks ended September 30, 2000 (the "2000 Quarter")
net sales from continuing operations increased $4.0 million to $47.4 million
compared to $43.4 million for the thirteen weeks ended October 2, 1999 (the
"1999 Quarter"). This increase is primarily comprised of the $1.3 million PVH
minimum license revenue and a $1.7 million increase in Sock Group revenue due to
increased volume.
Gross Profit: For the 2000 Quarter, gross profit increased $1.7 million to $17.2
million compared to the 1999 Quarter. This increase is due primarily to the PVH
minimum license revenue for which no related cost of sales was incurred. Gross
profit percentage for the 2000 Quarter increased 2.0% to 36.3% compared to 35.6%
for the 1999 Quarter. This increase is due primarily to the PVH minimum license
revenue. Excluding the impact of the PVH license fee revenue, gross profit
percentage decreased 5.3% to 33.7% in the 2000 Quarter. This decrease is
primarily due to product mix deterioration, or higher sales volumes of lower
margin product.
Operating Income from Continuing Operations: The Company's income from
continuing operations for the 2000 Quarter decreased $5.9 million to $1.2
million compared to $7.1 million for the 1999 Quarter. This decrease is due to
the $1.7 million increase in gross profit and a $1.0 million decrease in
restructuring and impairment charges, offset against an $8.7 million increase in
selling, general and administrative expenses primarily due to a $6.3 million
increase in pension expense and $0.7 million in Sock Group Gold Toe product
packaging changes initiated in 2000.
Interest expense: Interest expense remained consistent at $6.5 million for both
the 2000 and 1999 Quarters.
Loss from operations of discontinued segment: In connection with the Company's
June 13, 2000 decision to discontinue the Shirt Group segment's manufacturing
and distribution operations, the Company reclassified operating income/(losses)
for this segment as discontinued operations. Loss from operations of
discontinued segment includes the operations of the discontinued segment through
June 13, 2000. Income from operations of discontinued segment for the 2000
Quarter is included as a component of the income/loss on disposition of
business. Loss from operations of discontinued segment for the 1999 Quarter was
$5.4 million.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Income/(loss) on disposition of business: Income/(loss) on disposition of
business includes the loss on the disposition of the net assets of the
discontinued segment plus the estimate of segment operating income/(loss) during
the phase-out period (the period from June 13, 2000 through December 31, 2000,
the date by which Company management believes the plan of disposition will be
completed). Income on disposition of business for the 2000 Quarter is the result
of adjustments to both the loss on disposition and the phase out period
income/(loss) as compared to the corresponding amounts recorded in the
twenty-six weeks ended July 1, 2000 based on actual results and/or revisions to
previously recorded estimates. For the 2000 Quarter, income on disposition of
$0.9 million results from a $0.9 million increase in the loss on disposition
offset against a $1.8 million decrease in estimated phase-out period losses as
compared to the corresponding amounts recorded in the twenty-six weeks ended
July 1, 2000.
Net loss: As a result of the above, net loss for the 2000 Quarter decreased $0.1
million to $4.8 million compared to $4.9 million for the 1999 Quarter.
Results of Operations: Thirty-nine weeks ended September 30, 2000 vs. October 2,
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>
Thirty-nine weeks ended
September 30, October 2,
2000 1999
------------------------------
(Dollars In Thousands)
Net sales................................................................. $ 126,109 $ 118,824
Gross profit.............................................................. 45,918 44,261
Operating income from continuing operations............................... 12,256 19,764
Interest expense ......................................................... 21,127 18,881
Loss from operations of discontinued segment.............................. (9,937) (11,803)
Loss on disposition of business .......................................... (3,322) --
Net loss.................................................................. $(23,042) $(11,628)
</TABLE>
Net Sales: For the thirty-nine weeks ended September 30, 2000 (the "2000
Period"), net sales from continuing operations increased $7.3 million to $126.1
million from $118.8 million for the thirty-nine weeks ended October 2, 1999
(the"1999 Period"). This increase is primarily comprised of the $1.3 million PVH
license revenue and a $4.9 million increase in Sock Group revenue due to
increased volume.
Gross Profit: Gross profit for the 2000 Period, increased $1.6 million to $45.9
million compared to $44.3 million for the 1999 Period. This increase is due
primarily to the PVH license revenue for which no related cost of sales was
incurred. Gross profit percentage for the 2000 Period decreased 2.2% to 36.4%
compared to 37.2% for the 1999 Period. Excluding the impact of the PVH license
fee revenue, gross profit percentage decreased 4.8% to 35.4% in the 2000
Quarter. This decrease is primarily due to product mix deterioration, or higher
sales volumes of lower margin product.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Operating Income from Continuing Operations: The Company's income from
continuing operations declined $7.5 million to $12.3 million for the 2000 Period
from $19.8 million for the 1999 Period. This decrease is due primarily to the
$1.7 million increase in gross profit and a $0.7 million decrease in
restructuring and impairment charges, offset against a $9.9 million increase in
selling, general and administrative expenses. The increase in selling, general
and administrative expense is primarily due to a $6.3 million increase in
pension expense, and $1.1 million in Sock Group selling expense due to headcount
increases and $2.3 in Sock Group advertising expense driven by Gold Toe product
packaging changes initiated in 2000.
Interest expense: Interest expense increased $2.2 million to $21.1 million for
the 2000 Period compared to $18.9 million for the 1999 Period as a result of
increased debt levels and higher prevailing interest rates during the 2000
Period.
Loss from operations of discontinued segment: In connection with the Company's
June 13, 2000 decision to discontinue the Shirt Group segment's manufacturing
and distribution operations, the Company reclassified operating income/(losses)
for this segment as discontinued operations. Loss from operations of
discontinued segment includes the operations of the discontinued segment through
June 13, 2000. Loss from operations of discontinued segment decreased $1.9
million to a loss of $9.9 million for the 2000 Period compared to a loss of
$11.8 million for the 1999 Period. The decrease is due primarily to a $6.4
million improvement in operations in the 2000 Period compared to the 1999 Period
as a result of the Company's restructuring plans implemented through the end of
1999, offset against a $4.5 million C.A. T. goodwill impairment charge recorded
in the 2000 Period.
Income/(loss) on disposition of business: Income/(loss) on disposition of
business includes the loss on the disposition of the net assets of the
discontinued segment plus the estimate of segment operating income/(loss) during
the phase-out period (the period from June 13, 2000 through December 31, 2000,
the date by which Company management believes the plan of disposition will be
completed). Loss on disposition of business for the 2000 Period was $3.3 million
consisting of $2.7 million loss on the disposition of the net assets of the
discontinued segment and a $0.6 million estimate of phase-out period losses. The
$0.6 million in phase-out period losses includes $0.2 million in operating
income for the period from June 13, 2000 through September 30, 2000 offset
against $0.8 million in estimated phase-out period losses for the period from
October 1, 2000 through December 31, 2000.
Net loss: As a result of the above, net loss for the 2000 Period increased $11.4
million to $23.0 million compared to a net loss of $11.6 million for the 1999
Period.
<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 was guaranteed by Vestar and bore 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 second 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 balance of the Tranche C Loan as of
September 30, 2000 is $19.5 million.
The Company's liquidity needs arise primarily from debt service on the
indebtedness and the funding of working capital and capital expenditures. As of
September 30, 2000, the Company had outstanding $238.0 million of debt
consisting of $125.0 million in senior subordinated notes, a Senior Credit
Facility consisting of a $28.6 million term A loan, a $44.0 million term B loan,
$20.6 million in revolving credit borrowings, $19.5 million in Tranche C Loans
and $0.3 million in Canadian Capital Lease Obligation. During the thirteen weeks
ended September 30, 2000, the Company had a net decrease in revolving credit
borrowings of $14.4 million and repaid $18.3 million in term loans and notes
payable. As a result of the Transactions, 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. Additionally, the Company repaid $1.1 million
under the Canadian revolving credit facility and extended the Canadian
facility's maturity date to August 8, 2001. The Canadian facility is included as
a component of net assets held for sale in the accompanying balance sheet.
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 had 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. No further accounts
receivable sales are allowed under the credit agreement.
Cash Flows
Cash and cash equivalents decreased $3.0 million at September 30, 2000 from $
7.2 million at December 31, 1999, as a result of $25.3 million and $25.2 million
in cash used in operations and financing activities, respectively offset by
$47.5 million in net cash provided by investing activities. Net cash used in
operating activities resulted primarily from the Company's $23.0 million net
loss, a $23.3 million increase in inventories, a $5.6 million decrease in
accounts payable and accrued expenses, and non cash charges of $6.9 million in
depreciation, $4.5 million in goodwill impairment, and a $2.7 million loss on
disposition of segment. Net cash provided by investing activities resulted
primarily from $51.2 million in proceeds received from the Transactions offset
against $3.7 million in capital expenditures. Net cash used in financing
activities resulted primarily from $33.1 million in principle payments of
long-term debt and $0.4 million in C.A.T. debt repayments offset by $8.3 million
in net borrowings under the Company's line of credit agreement.
<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 required Vestar to infuse up to $30.0 million of new capital if
certain leverage ratios were not met.
On March 29, 2000, the Senior Credit Facility and the Investment and Deposit
agreement were amended. The March 2000 amendment required (i) Vestar to infuse
up to $30.0 million of new capital into the Company and (ii) the Company to make
$20.0 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 were not met by June 30, 2000. On 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 $30.0 million of
new capital and the Company's requirement to make $20.0 million in additional
principal payments on the Senior Credit Facilities were extinguished. On
September 30, 2000, the Company was in compliance with all covenants of the
Senior Credit Facility.
Capital Expenditures
Capital spending for the 2000 Period was $3.7 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 September 30, 2000 the Company had $4.2 million in cash and cash equivalents
and additional availability of $27.9 million under the revolving credit
facilities included in the Senior Credit Facility, after consideration of $1.4
million of stand-by letters of credit. At September 30, 2000, the Company also
had additional availability of $2.9 million under the Canadian revolving credit
facility, after consideration of $1.0 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. 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 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 September 30, 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).
<PAGE>
2.3Stockholders' Agreement dated as of May 18, 1998 among Cluett American
Investment Corp., Vestar Capital Partners III, L.P., A&M Investment Associates
#7, LLC, the Co-Investors named therein, the Original Equity Holders named
therein and the Management Investors named therein (incorporated by reference to
Exhibit 2.3 to the Company's Registration Statement on Form S-4 (Reg. No.
333-58059) filed on June 30, 1998).
2.4 Joinder Agreement dated as of June 30, 1998 among Cluett American Investment
Corp., Vestar Capital Partners III, L.P. and each other signatory thereto (an
"Additional Stockholder") (incorporated by reference to Exhibit 2.4 to the
Company's Registration Statement on Form S-4 (Reg. No. 333-58059) filed on June
30, 1998).
3.1 Restated Certificate of Incorporation of Cluett American Corp. (incorporated
by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-4
(Reg. No. 333-58059) filed on June 30, 1998).
3.2 Bylaws of Cluett American Corp. (incorporated by reference to Exhibit 3.2 to
the Company's Registration Statement on Form S-4 (Reg. No. 333-58059) filed on
June 30, 1998).
4.1 Indenture between Cluett American Corp. and The Bank of New York, as Trustee
(incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-4 (Reg. No. 333-58059) filed on June 30, 1998).
4.2 Exchange Debenture Indenture between Cluett American Corp. and The Bank of
New York, as Trustee (incorporated by reference to Exhibit 4.2 to the Company's
Registration Statement on Form S-4 (Reg. No. 333-58059) filed on June 30, 1998).
4.3 Certificate of Designations of the 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).
<PAGE>
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 10.2.3 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 III,
L.P. 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).
<PAGE>
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).
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)
<PAGE>
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
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)
November 13, 2000 /s/ Bryan P. Marsal
-----------------------------------------------
Bryan P. Marsal
Director, President and Chief Executive Officer
November 13, 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
======= ====== ===== =========== =======
Period Ended September 30, 2000:
Deductions from asset accounts:
Allowance for doubtful accounts $ 1,896 $ 18 $ -- $ 56 (1) $ 1,858
Customer Allowances 10,372 1,081 -- 2,807 (1) 8,646
Inventory reserves 1,783 ( 782) -- 341 (1) 660
----- ------ -- ------- ---
Total $14,051 $ 317 $ -- $ 3,204 (1) $11,164
======= ====== ===== =========== =======
(1) Write offs, net of recoveries.
</TABLE>
