SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-8941
FRUIT OF THE LOOM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3361804
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5000 SEARS TOWER,
233 SOUTH WACKER DRIVE,
CHICAGO, ILLINOIS 60606
(Address of principal executive offices, including Zip Code)
(312) 876-1724
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) had been subject to such filing
requirements for the past 90 days.
Yes X No
Common shares outstanding at April 30, 1994:69,121,749 shares of
Class A Common Stock, $.01 par value and 6,690,976 shares of
Class B Common Stock, $.01 par value.
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed Consolidated Balance
Sheet; March 31, 1994
(Unaudited) and December 31,
1993 3
Condensed Consolidated Statement
of Earnings (Unaudited);
Three Months Ended March 31,
1994 and 1993 4
Condensed Consolidated Statement
of Cash Flows (Unaudited);
Three Months Ended March 31,
1994 and 1993 5
Notes to Condensed Consolidated
Financial Statements
(Unaudited) 6
Item 2. Management's Discussion and
Analysis of Financial
Condition and Results of
Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands of dollars)
<TABLE>
<CAPTION> March 31, December 31,
1994 1993
(Unaudited)
ASSETS
<S> <S> <C> <S> <C>
Current Assets
Cash and cash equivalents (including
restricted cash) . . . . . . . . . . . . . . . . . . . . . $ 18,600 $ 74,200
Notes and accounts receivable
(less allowance for possible losses
of $16,100) . . . . . . . . . . . . . . . . . . . . . . . 315,600 239,700
Inventories
Finished goods . . . . . . . . . . . . . . . . . . . . . . 530,200 454,500
Work in process . . . . . . . . . . . . . . . . . . . . . 124,200 94,000
Materials and supplies . . . . . . . . . . . . . . . . . . 29,800 25,600
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000 54,700
Total current assets . . . . . . . . . . . . . . . . . 1,053,400 942,700
Property, Plant and Equipment . . . . . . . . . . . . . . . . . . . 1,279,500 1,233,900
Less accumulated depreciation . . . . . . . . . . . . . . . . 389,600 367,900
Net property, plant and equipment . . . . . . . . . . 889,900 866,000
Other Assets
Goodwill (less accumulated amortization
of $214,900 and $207,200, respectively) . . . . . . . . . 977,800 895,300
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,300 30,000
Total other assets . . . . . . . . . . . . . . . . . . 1,032,100 925,300
$ 2,975,400 $ 2,734,000
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt . . . . . . . . . . . . $ 34,100 $ 34,000
Trade accounts payable . . . . . . . . . . . . . . . . . . . . 63,500 78,100
Other accounts payable and accrued expenses . . . . . . . . . 180,200 138,400
Total current liabilities . . . . . . . . . . . . . . 277,800 250,500
Noncurrent Liabilities
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 1,390,400 1,194,000
Deferred income taxes . . . . . . . . . . . . . . . . . . . . 48,800 51,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 185,400 191,500
Total noncurrent liabilities . . . . . . . . . . . . . 1,624,600 1,436,500
Common Stockholders' Equity . . . . . . . . . . . . . . . . . . . 1,073,000 1,047,000
$ 2,975,400 $ 2,734,000
</TABLE>
See accompanying notes.<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION> Three Months Ended
March 31,
1994 1993
<S> <S> <C> <S> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 438,200 $ 428,900
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . 292,400 271,200
Gross earnings . . . . . . . . . . . . . . . . . . . . . . . . 145,800 157,700
Selling, general and administrative expenses . . . . . . . . . . . 71,400 57,200
Goodwill amortization . . . . . . . . . . . . . . . . . . . . . . . 7,700 6,200
Operating earnings . . . . . . . . . . . . . . . . . . . . . . 66,700 94,300
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . (21,100) (17,600)
Other expense - net . . . . . . . . . . . . . . . . . . . . . . . . (2,200) (1,900)
Earnings before income tax expense and cumulative
effect of change in accounting principle . . . . . . . . . 43,400 74,800
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . 18,300 30,700
Earnings before cumulative effect of change in
accounting principle . . . . . . . . . . . . . . . . . . . 25,100 44,100
Cumulative effect of change in accounting for
income taxes . . . . . . . . . . . . . . . . . . . . . . . -- 3,400
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,100 $ 47,500
Earnings per common share:
Earnings before cumulative effect of change in
accounting principle . . . . . . . . . . . . . . . . . . . $ .33 $ .58
Cumulative effect of change in accounting for
income taxes . . . . . . . . . . . . . . . . . . . . . . . -- .04
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . $ .33 $ .62
Average common shares outstanding . . . . . . . . . . . . . . 76,000 76,000
</TABLE>
See accompanying notes.<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(In thousands of dollars)
<TABLE>
<CAPTION> Three Months Ended
March 31,
1994 1993
Cash Flows from Operating Activities
<S> <S> <C> <S> <C>
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,100 $ 47,500
Adjustments to reconcile to net cash
provided by operating activities:
Cumulative effect of change in
accounting for income taxes . . . . . . . . . . . . . -- (3,400)
Deferred income taxes . . . . . . . . . . . . . . . . . . 600 5,400
Increase in working capital . . . . . . . . . . . . . . . (105,500) (131,200)
Other-net . . . . . . . . . . . . . . . . . . . . . . . . (500) (8,800)
Net cash used for operating activities . . . . . . . . (46,200) (62,500)
Cash Flows from Investing Activities
Capital expenditures . . . . . . . . . . . . . . . . . . . . . (39,700) (59,200)
Acquisition of Gitano . . . . . . . . . . . . . . . . . . . . (100,000) --
Acquisition of Artex . . . . . . . . . . . . . . . . . . . . . (44,500) --
Other-net . . . . . . . . . . . . . . . . . . . . . . . . . . (21,200) 4,200
Net cash used for investing activities . . . . . . . . (205,400) (55,000)
Cash Flows from Financing Activities
Increase in short-term notes payable . . . . . . . . . . . . . -- 100,800
Net borrowings under long-term credit agreements . . . . . . . 202,900 --
Principal payments on long-term debt
and capital leases . . . . . . . . . . . . . . . . . . . . (6,900) (28,500)
Issuances of common stock . . . . . . . . . . . . . . . . . . -- 100
Other-net . . . . . . . . . . . . . . . . . . . . . . . . . . -- (900)
Net cash provided by financing activities . . . . . . 196,000 71,500
Net decrease in Cash and cash
equivalents (including restricted cash) . . . . . . . . . (55,600) (46,000)
Cash and cash equivalents (including restricted
cash) at beginning of period . . . . . . . . . . . . . . . 74,200 57,400
Cash and cash equivalents (including restricted
cash) at end of period . . . . . . . . . . . . . . . . . . $ 18,600 $ 11,400
</TABLE>
See accompanying notes.<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. No dividends were declared on the Company's common stock for
the three month periods ended March 31, 1994 and 1993.
2. In late January 1994 the Company acquired Artex
Manufacturing Co., Inc. ("Artex") for approximately
$44,500,000 (the "Artex Acquisition"). In late March 1994
the Company acquired certain assets of the Gitano Group,
Inc. ("Gitano") for approximately $100,000,000 (the "Gitano
Acquisition" and, together with the Artex Acquisition, the
"Acquisitions"). The Acquisitions were accounted for using
the purchase method of accounting. Accordingly, the
purchase price was preliminarily allocated to assets and
liabilities based on their estimated fair values as of the
date of the Acquisitions. The cost in excess of the net
assets acquired in the Acquisitions was approximately
$89,500,000 and is being amortized over periods ranging from
15 to 20 years. The results of operations of Artex and
Gitano are not material in relation to the Company's
consolidated financial statements and, therefore, pro forma
financial information has not been presented.
3. Effective January 1, 1993, the Company recorded the
cumulative effect of an accounting change related to the
initial adoption of Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" ("SFAS No.
109") resulting in a $3,400,000 ($.04 per share) benefit in
the first quarter of 1993. Under SFAS No. 109, the liability
method is used in accounting for income taxes.
4. The condensed consolidated financial statements contained
herein should be read in conjunction with the consolidated
financial statements and related notes contained in the
Company's 1993 Annual Report on Form 10-K.
The information furnished herein reflects all adjustments
(consisting only of normal recurring adjustments) which are,
in the opinion of management, necessary to a fair statement
of the results of the interim periods and is not necessarily
indicative of results for the entire year.
The Company uses the last-in, first-out ("LIFO") method of
accounting for the majority of inventories for financial
reporting purposes. Interim determinations of LIFO
inventories are necessarily based on management's estimates
of year-end inventory levels and costs. Subsequent changes
in these estimates, including the final year-end LIFO
determination, and the effect of such changes on earnings
are recorded in the interim periods in which they occur.
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
accompanying condensed consolidated financial statements for the
period ended March 31, 1994 and the Company's Annual Report on
Form 10-K for the year ended December 31, 1993.
The table below sets forth selected operating data (in millions
of dollars and as percentages of net sales) of the Company.
Three Months Ended
March 31,
1994 1993
Net sales $438.2 $ 428.9
Gross earnings $145.8 $ 157.7
Gross margin 33.3% 36.8%
Operating earnings $ 66.7 $ 94.3
Operating margin 15.2% 22.0%
Net Sales
Net sales increased 2.2% in the first quarter of 1994 compared to
the same period of 1993. The increased net sales in the first
quarter of 1994 were primarily due to the results of the
Company's new sportswear line, principally due to the
acquisitions of Salem Sportswear Corporation ("Salem") in
November 1993 and Artex in January 1994, and volume increases in
its international operations. These increases were partially
offset by lower unit volume of domestic activewear and underwear
and lower selling prices (principally for domestic activewear as
a result of the Company's new pricing strategy announced in the
second half of 1993). The volume decreases in domestic
activewear and underwear were impacted by promotions which were
run in the first and fourth quarters of 1993 and which were not
repeated in the first quarter of 1994.
Gross Earnings
Gross earnings decreased 7.5% in the first quarter of 1994 as
compared to the same period of 1993. The gross margin was 33.3%
in the first quarter of 1994 as compared to 36.8% in the same
period of 1993. The decrease in gross earnings and margin in the
first quarter of 1994 as compared to 1993 was primarily due to
the unfavorable effects of reduced operating schedules for
certain of the Company's facilities in the early portion of the
first quarter of 1994 combined with the effect of lower prices.
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Operating Earnings
Operating earnings decreased 29.3% compared to the first quarter
of 1993 while the operating margin decreased 6.8 percentage
points to 15.2% of net sales at March 31, 1994. The decreases
resulted from the decreases in gross earnings and gross margin
and higher selling, general and administrative expenses in 1994.
Selling, general and administrative expenses increased to 16.3%
of net sales in the first quarter of 1994 compared to 13.3% of
net sales in the same period of 1993. The increases in selling,
general and administrative expenses were primarily attributable
to higher royalty costs in 1994, principally due to the
acquisitions of the Salem and Artex licensed sports apparel
operations. In addition, higher selling and other administrative
costs arose both from the acquisitions of Salem and Artex and
from the Company's continuing effort to improve customer service
by making investments in added distribution capabilities,
computer systems and other infrastructure required to service
customers more effectively.
Interest Expense
Interest expense for the first quarter of 1994 increased 19.9%
from the same period of 1993 and was principally attributable to
the effect of higher debt levels which more than offset the
effects of lower average interest rates on the Company's debt
instruments. Higher debt levels were primarily due to the
acquisitions of Salem, Artex and Gitano, which were financed
through borrowings under the Company's $800,000,000 revolving
demand line of credit (the "New Credit Agreement"), and higher
working capital levels.
Income Taxes
The effective income tax rate for the first quarter of 1994 and
1993 differed from the Federal statutory rate of 35% and 34% in
1994 and 1993, respectively, primarily due to the impact of
goodwill amortization, a portion of which is not deductible for
Federal income tax purposes, state income taxes and the provision
for interest related to prior years' taxes.
In the first quarter of 1993, the Company recorded the cumulative
effect of an accounting change related to the adoption of SFAS
No. 109 resulting in a $3,400,000 ($.04 per share) benefit.
Earnings Per Share
For the first three months of 1994, earnings per share before
cumulative effect of change in accounting principle decreased
43.1% from the same period of 1993. Earnings per share before
<PAGE>
cumulative effect of change in accounting principle were $.33 for
the first three months of 1994 compared to $.58 for the same
period of 1993. Net earnings per share in 1993 were $.62 and
included a $.04 benefit related to the cumulative effect of a
change in accounting for income taxes.
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONCLUDED
Effects of Inflation
Management believes that the moderate rate of inflation over the
past few years has not had a significant impact on the Company's
sales or profitability.
Liquidity and Capital Resources
Funds generated from the Company's operations are the major
source of liquidity and are supplemented by funds derived from
capital markets including bank facilities. The Company has
available for the funding of its operations an $800,000,000
revolving demand line of credit. As of May 6, 1994 approximately
$203,000,000 was available and unused under this facility.
Net cash used for operating activities in the three months ended
March 31, 1994 and 1993 was $46,200,000 and $62,500,000,
respectively. The primary components of cash used for operating
activities in the first quarter of 1994 and 1993 were increases
in working capital of $105,500,000 and $131,200,000,
respectively. The working capital increases in the first quarter
of 1994 and 1993 were driven by higher inventories ($90,800,000
and $113,000,000, respectively) and higher accounts receivable
($53,000,000 and $51,100,000, respectively) which were partially
offset by changes in other working capital items. The increases
in inventory and accounts receivable in the first quarter of 1994
and 1993 reflect the seasonality of the Company's business as it
enters its peak selling season and the Company's ongoing efforts
to improve customer service.
Net cash used for investing activities in the three months ended
March 31, 1994 and 1993 was $205,400,000 and $55,000,000,
respectively. Capital expenditures were $39,700,000 and
$59,200,000 in the first quarter of 1994 and 1993, respectively.
In the first quarter of 1994 the Company spent approximately
$144,500,000 on the acquisitions of Artex and Gitano. Such funds
were provided by borrowings under the New Credit Agreement.
Capital spending, primarily to enhance distribution capabilities,
is anticipated to approximate $175,000,000 to $200,000,000 in
1994.
Net cash provided by financing activities in the three months
ended March 31, 1994 and 1993 was $196,000,000 and $71,500,000,
<PAGE>
respectively, and consisted principally of borrowings under the
Company's bank credit agreements.
Management believes the funding available to it is sufficient to
meet anticipated requirements for capital expenditures, working
capital and other needs.
The Company's debt instruments, principally the New Credit
Agreement, contain covenants restricting its ability to sell
assets, incur debt, pay dividends and make investments and
requiring the Company to maintain certain financial ratios.
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
4(a)* $800,000,000 Credit Agreement dated as of August 16,
1993, among the several banks and other financial
institutions from time to time parties thereto (the
"Lenders"), Bankers Trust Company, a New York banking
corporation, as administrative agent for the Lenders
thereunder, Chemical Bank, NationsBank of North
Carolina N.A., The Bank of New York and the Bank of
Nova Scotia, as co-agents (incorporated herein by
reference to Exhibit 4.3 to the Company's Registration
Statement on Form S-3, Reg. No. 33-50567 (the "1993 S-
3").
4(b)* Subsidiary Guarantee Agreement dated as of August 16,
1993 by each of the guarantors signatory thereto in
favor of the beneficiaries referred to therein
(incorporated herein by reference to Exhibit 4.4 to the
1993 S-3).
* Document is available at the Public Reference Section of the
Securities and Exchange Commission, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 (Commission file No.
1-8941).
The Registrant has not listed nor filed as an Exhibit to this
Quarterly Report certain instruments with respect to long-term
debt representing indebtedness of the Registrant and its
subsidiaries which do not exceed 10% of the total assets of the
Registrant and its subsidiaries on a consolidated basis.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the Registrant
agrees to furnish such instruments to the Securities and Exchange
Commission upon request.
b. Reports on Form 8-K
No report on Form 8-K was filed by the Registrant during the
quarter ended March 31, 1994.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FRUIT OF THE LOOM, INC.
(Registrant)
Date: May 13, 1994 MICHAEL F. BOGACKI
Michael F. Bogacki
Vice President and Controller
<PAGE>