<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q/A
AMENDMENT NO. 1
------------------------
[X] AMENDMENT TO QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NUMBER 1-8941
FRUIT OF THE LOOM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 36-3361804
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
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) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Common shares outstanding at April 30, 1998: 66,248,942 shares of Class A
Common Stock, $.01 par value, and 5,684,276 shares of Class B Common Stock, $.01
par value.
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<PAGE> 2
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheet; March 28, 1998
(Unaudited) and
December 31, 1997........................................... 3
Condensed Consolidated Statement of Earnings (Unaudited);
Three Months Ended March 28, 1998 and March 31, 1997........ 4
Condensed Consolidated Statement of Cash Flows (Unaudited);
Three Months Ended March 28, 1998 and March 31, 1997........ 5
Notes to Condensed Consolidated Financial Statements
(Unaudited)................................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 17
</TABLE>
2
<PAGE> 3
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
ASSETS
<TABLE>
<CAPTION>
MARCH 28, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current Assets
Cash and cash equivalents (including restricted cash)..... $ 16,300 $ 16,100
Notes and accounts receivable (less allowance for possible
losses of $11,800 and $11,900, respectively)........... 114,900 98,100
Inventories
Finished goods......................................... 632,100 570,400
Work in process........................................ 251,300 212,300
Materials and supplies................................. 70,400 64,800
---------- ----------
Total inventories................................. 953,800 847,500
Other..................................................... 57,000 53,900
---------- ----------
Total current assets.............................. 1,142,000 1,015,600
---------- ----------
Property, Plant and Equipment............................... 1,209,300 1,232,200
Less accumulated depreciation............................. 728,900 717,800
---------- ----------
Net property, plant and equipment................. 480,400 514,400
---------- ----------
Other Assets
Goodwill (less accumulated amortization of $318,000 and
$311,400, respectively)................................ 706,300 712,900
Deferred income taxes..................................... 30,200 30,300
Other..................................................... 214,800 209,900
---------- ----------
Total other assets................................ 951,300 953,100
---------- ----------
$2,573,700 $2,483,100
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt...................... $ 28,400 $ 28,200
Trade accounts payable.................................... 116,000 234,100
Other accounts payable and accrued expenses............... 274,500 262,900
---------- ----------
Total current liabilities......................... 418,900 525,200
---------- ----------
Noncurrent Liabilities
Long-term debt............................................ 1,372,800 1,192,800
Other..................................................... 341,500 343,000
---------- ----------
Total noncurrent liabilities...................... 1,714,300 1,535,800
---------- ----------
Common Stockholders' Equity................................. 440,500 422,100
---------- ----------
$2,573,700 $2,483,100
========== ==========
</TABLE>
See accompanying notes.
3
<PAGE> 4
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 28, MARCH 31,
1998 1997
--------- ---------
<S> <C> <C>
Net sales................................................... $457,200 $501,000
Cost of sales............................................... 309,500 358,200
-------- --------
Gross earnings......................................... 147,700 142,800
Selling, general and administrative expenses................ 83,100 83,700
Goodwill amortization....................................... 6,600 6,700
-------- --------
Operating earnings..................................... 58,000 52,400
Interest expense............................................ (24,700) (18,900)
Other income (expense) -- net............................... 4,300 (1,800)
-------- --------
Earnings before income tax expense..................... 37,600 31,700
Income tax expense.......................................... 6,400 9,100
-------- --------
Net earnings........................................... $ 31,200 $ 22,600
======== ========
Earnings per common share -- Basic.......................... $ .43 $ .30
======== ========
Earnings per common share -- Diluted........................ $ .43 $ .29
======== ========
Average common shares outstanding:
Basic..................................................... 71,800 76,400
======== ========
Diluted................................................... 72,300 77,600
======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 28, MARCH 31,
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings.............................................. $ 31,200 $ 22,600
Adjustments to reconcile net cash used for operating
activities:
Depreciation and amortization.......................... 32,000 37,600
Deferred income tax expense (benefit).................. (100) 2,200
Increase in working capital............................ (231,300) (157,900)
Other -- net........................................... (24,600) (20,000)
--------- ---------
Net cash used for operating activities............ (192,800) (115,500)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures...................................... (6,400) (25,500)
Other -- net.............................................. 21,700 (2,100)
--------- ---------
Net cash provided by (used for) investing
activities...................................... 15,300 (27,600)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds under line-of-credit agreements.................. 284,100 306,500
Payments under line-of-credit agreements.................. (96,400) (137,900)
Principal payments on long-term debt and capital leases... (8,400) (3,000)
Common stock issued....................................... 1,400 7,200
Common stock repurchased.................................. (3,000) (30,000)
--------- ---------
Net cash provided by financing activities......... 177,700 142,800
--------- ---------
Net increase (decrease) in Cash and cash equivalents
(including restricted cash)............................ 200 (300)
Cash and cash equivalents (including restricted cash) at
beginning of period.................................... 16,100 18,700
--------- ---------
Cash and cash equivalents (including restricted cash) at
end of period.......................................... $ 16,300 $ 18,400
========= =========
</TABLE>
See accompanying notes.
5
<PAGE> 6
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The condensed consolidated financial statements contained herein should be
read in conjunction with the consolidated financial statements and related
notes contained in the Annual Report on Form 10-K, as amended by a Form
10-K/A, of Fruit of the Loom, Inc. (the "Company") for the year ended
December 31, 1997. The information furnished herein reflects all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the results of operations
of the interim periods. Operating results for the three months ended March
28, 1998 are not necessarily indicative of results that may be expected for
the full year.
Effective January 1, 1998, the Company changed its year end from December 31
to a 52 or 53 week year ending on the Saturday nearest December 31. All
quarterly reporting periods are prepared on a 4-4-5 accounting cycle with
each quarter ending on the Saturday nearest the calendar quarter end.
2. No dividends were declared on the Company's common stock for the three-month
periods ended March 28, 1998 and March 31, 1997.
3. The Company's effective income tax rate of 17.0% and 29.0% for the first
three months of 1998 and 1997, respectively, differed from the Federal
statutory rate of 35% primarily due to the impact of foreign earnings,
certain of which are taxed at lower rates than in the United States,
partially offset by goodwill amortization, a portion of which is not
deductible for Federal income taxes, and state income taxes.
4. In 1995, management announced plans to close certain manufacturing
operations and to take other actions to reduce costs and improve operations.
As a result, the Company recorded charges of approximately $372,900,000
($287,400,000 after tax) related to impairment writedowns of goodwill, costs
associated with the closing or realignment of certain domestic manufacturing
facilities and attendant personnel reductions and charges related to
inventory writedowns and valuations, foreign operations and other corporate
issues.
During the first quarter of 1997, the Company finalized certain of the
estimates recorded in connection with the above noted charges. As a result
of finalizing these estimates, earnings before income tax expense for the
first quarter of 1997 were increased by $7,500,000; these amounts were
recorded as a reduction to selling, general and administrative expenses.
6
<PAGE> 7
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
A rollforward of the 1995 special charges from December 31, 1997 through
March 28, 1998 is presented below (in thousands of dollars):
<TABLE>
<CAPTION>
RESERVE RESERVE
BALANCE AT CASH INCOME OTHER BALANCE AT
DECEMBER 31, PAYMENTS (EXPENSE) ACTIVITY MARCH 28,
1997 Q1 1998 Q1 1998 Q1 1998 1998
------------ -------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Impairment write down of goodwill............. $ -- $ -- $-- $-- $ --
Closing or realignment of manufacturing
operations:
Loss on disposal of closed facilities,
improvements and equipment................ 200 200 -- -- --
Changes in estimates of insurance
liabilities............................... 14,000 -- -- -- 14,000
Costs related to expected increases in
workers' compensation and health and
welfare costs............................. 5,200 -- -- -- 5,200
Costs related to termination of certain
lease obligations......................... 1,000 -- -- -- 1,000
Costs related to severance of the hourly
workforce................................. -- -- -- -- --
Other....................................... 2,700 -- -- -- 2,700
------- ---- -- -- -------
23,100 200 -- -- 22,900
------- ---- -- -- -------
Severance..................................... 200 200 -- -- --
Other asset write downs, valuation reserves
and other reserves.......................... 3,900 -- -- -- 3,900
Changes in estimates of certain retained
liabilities of former subsidiaries.......... 16,200 -- -- -- 16,200
Termination of management agreement........... -- -- -- -- --
------- ---- -- -- -------
$43,400 $400 $-- $-- $43,000
======= ==== == == =======
</TABLE>
In the fourth quarter of 1997, the Company recorded charges for costs
related to the closing and disposal of a number of domestic manufacturing
and distribution facilities, impairment of manufacturing equipment and other
assets and certain European manufacturing and distribution facilities, and
other costs associated with the Company's world-wide restructuring of
manufacturing and distribution facilities.
7
<PAGE> 8
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
These and other special charges totalled $441,700,000 ($372,200,000 after
tax). Following is a summary of the 1997 special charges and related reserve
balances at December 31, 1997 (in thousands of dollars):
<TABLE>
<CAPTION>
RESERVE
1997 CASH OTHER BALANCE AT
SPECIAL PAYMENTS ACTIVITY DECEMBER 31,
CHARGES IN 1997 IN 1997 1997
-------- -------- -------- ------------
<S> <C> <C> <C> <C>
CLOSING AND DISPOSAL OF U.S MANUFACTURING
AND DISTRIBUTION FACILITIES
Loss on sale of facilities, improvements
and equipment:
Sewing, finishing and distribution
facilities........................... $ 66,600 $ -- $ -- $ 66,600
Impairment of mills to be sold......... 75,400 -- -- 75,400
Lease residual guarantees.............. 61,000 -- -- 61,000
Other equipment........................ 29,600 -- 22,100 7,500
-------- ------ ------- --------
232,600 -- 22,100 210,500
Severance costs........................... 8,400 -- -- 8,400
Other accruals............................ 10,400 -- -- 10,400
-------- ------ ------- --------
251,400 -- 22,100 229,300
-------- ------ ------- --------
IMPAIRMENT OF EUROPEAN MANUFACTURING AND
DISTRIBUTION FACILITIES
Impairment of long lived assets........... 42,800 -- 42,800 --
Other accruals............................ 1,300 -- -- 1,300
-------- ------ ------- --------
44,100 -- 42,800 1,300
-------- ------ ------- --------
PRO PLAYER INCENTIVE COMPENSATION
AGREEMENT................................. 22,000 -- -- 22,000
-------- ------ ------- --------
OTHER ASSET WRITE DOWNS AND RESERVES
Inventory valuation provisions............ 49,800 -- -- 49,800
Other accruals............................ 53,800 7,400 9,200 37,200
-------- ------ ------- --------
103,600 7,400 9,200 87,000
-------- ------ ------- --------
CHANGES IN ESTIMATES OF RETAINED LIABILITIES
OF FORMER SUBSIDIARIES.................... 20,600 -- 8,000 12,600
-------- ------ ------- --------
Total pretax charges.............. $441,700 $7,400 $82,100 $352,200
======== ====== ======= ========
</TABLE>
8
<PAGE> 9
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
A rollforward of the 1997 special charges from December 31, 1997 through
March 28, 1998 is presented below (in thousands of dollars):
<TABLE>
<CAPTION>
RESERVE
BALANCE AT CASH INCOME OTHER BALANCE AT
DECEMBER 31, PAYMENTS (EXPENSE) ACTIVITY MARCH 28,
1997 Q1 1998 Q1 1998 Q1 1998 1998
------------ -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
CLOSING AND DISPOSAL OF U.S
MANUFACTURING AND DISTRIBUTION
FACILITIES
Loss on sale of facilities,
improvements and equipment:
Sewing, finishing and
distribution
facilities............... $ 66,600 $ -- $ -- $ -- $ 66,600
Impairment of mills to be
sold..................... 75,400 -- -- 100 75,300
Lease residual
guarantees............... 61,000 -- -- -- 61,000
Other equipment............ 7,500 -- -- -- 7,500
-------- ------ ------ ------- --------
210,500 -- -- 100 210,400
Severance costs............... 8,400 1,200 -- -- 7,200
Other accruals................ 10,400 2,100 -- -- 8,300
-------- ------ ------ ------- --------
229,300 3,300 -- 100 225,900
-------- ------ ------ ------- --------
IMPAIRMENT OF EUROPEAN
MANUFACTURING AND DISTRIBUTION
FACILITIES
Impairment of long lived
assets..................... -- -- -- -- --
Other accruals................ 1,300 -- -- -- 1,300
-------- ------ ------ ------- --------
1,300 -- -- -- 1,300
-------- ------ ------ ------- --------
PRO PLAYER INCENTIVE
COMPENSATION AGREEMENT........ 22,000 -- -- -- 22,000
-------- ------ ------ ------- --------
OTHER ASSET WRITE DOWNS AND
RESERVES
Inventory valuation
provisions................. 49,800 -- 4,900 11,000 33,900
Other accruals................ 37,200 2,900 -- 300 34,000
-------- ------ ------ ------- --------
87,000 2,900 4,900 11,300 67,900
-------- ------ ------ ------- --------
CHANGES IN ESTIMATES OF RETAINED
LIABILITIES OF FORMER
SUBSIDIARIES.................. 12,600 -- -- -- 12,600
-------- ------ ------ ------- --------
Total pretax
charges............. $352,200 $6,200 $4,900 $11,400 $329,700
======== ====== ====== ======= ========
</TABLE>
Other activity in 1997 represents assets written off. Other activity in the
first quarter of 1998 principally consisted of sales of inventory which had
been written down as part of the 1997 special charges. Amounts received for
the inventory sold were in excess of amounts estimated, resulting in
reductions in cost of sales and increases to earnings before income tax
expense of $4,900,000 in the first quarter of 1998.
5. The Company and its subsidiaries are involved in certain legal proceedings
and have retained liabilities, including certain environmental liabilities,
such as those under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, its regulations and similar state
statutes ("Superfund Legislation"), in connection with the sale of certain
discontinued operations, some of which were significant generators of
hazardous waste. The Company and its subsidiaries have also retained certain
liabilities related to the sale of products in connection with the sale of
certain discontinued operations. The Company's retained liability reserves
at March 28, 1998 related to discontinued
9
<PAGE> 10
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
operations consist primarily of certain environmental reserves of
approximately $43,500,000 and product liability reserves of approximately
$16,900,000. The Company has recorded receivables related to these
liabilities of approximately $13,800,000, which management believes will be
recovered from insurance and other sources. Management believes that
adequate reserves have been established to cover potential claims based on
facts currently available and current Superfund Legislation.
Generators of hazardous wastes which were disposed of at offsite locations
which are now superfund sites are subject to claims brought by state and
Federal regulatory agencies under Superfund Legislation and by private
citizens under Superfund Legislation and common law theories. Since 1982,
the United States Environmental Protection Agency (the "EPA") has actively
sought compensation for response costs and remedial action at offsite
disposal locations from waste generators under the Superfund Legislation,
which authorizes such action by the EPA regardless of fault, legality of
original disposal or ownership of a disposal site. The EPA's activities
under the Superfund Legislation can be expected to continue during the
remainder of 1998 and future years.
In June 1994, pursuant to authorization from the Company's Board of
Directors, the Company guaranteed a loan from a bank in an amount up to
$12,000,000 to Mr. William Farley, the Company's Chairman and Chief
Executive Officer. In exchange for the guarantee the Company receives an
annual fee from Mr. Farley equal to 1% of the value of the loan covered by
the guarantee. The guarantee is secured by a second lien on certain shares
of the Company held by the bank for other loans made to Mr. Farley.
On November 20, 1997, the Board of Directors, excluding Mr. Farley and other
employee Directors, upon recommendation of a Special Committee of the Board
of Directors, comprised of Messrs. Al Askari and Wolfson, guaranteed a bank
loan to Mr. Farley in the amount of $26,000,000. The proceeds of this loan
were used by Mr. Farley to purchase all of the Zero Coupon Convertible
Subordinated Debentures due 2012 of Farley Inc. held by non-affiliated third
parties. Mr. Farley owns 100% of Farley Inc. In consideration of the
guarantee, Mr. Farley pays the Company an annual guarantee fee equal to
1 1/8% of the outstanding principal balance of the loan. The loan is secured
by a second lien on 2,507,512 shares of Class B Common Shares of the Company
held by Mr. Farley and other assets. The loan matures on November 19, 1998.
The Special Committee received an opinion from an independent financial
advisor that the terms of the transaction are commercially reasonable.
The Company has negotiated grants from the governments of the Republic of
Ireland, Northern Ireland and Germany. The grants are being used for
employee training, the acquisition of property and equipment and other
governmental business incentives such as general employment. At March 28,
1998 the Company has a contingent liability to repay, in whole or in part,
grants received of approximately $63,300,000 in the event that the Company
does not meet defined average employment levels or terminates operations in
the Republic of Ireland, Northern Ireland and Germany.
In connection with the Company's transaction with Acme Boot Company, Inc.
("Acme Boot") during 1993, the Company guaranteed, on an unsecured basis,
the repayment of debt incurred by Acme Boot under Acme Boot's bank credit
facility (the "Acme Boot Credit Facility"). Farley Inc. owns 100% of the
common stock of Acme Boot. At March 28, 1998, the Acme Boot Credit Facility
provides for up to $30,000,000 of loans and letters of credit. The Acme Boot
Credit Facility is secured by first liens on substantially all of the assets
of Acme Boot and its subsidiaries. At March 28, 1998, approximately
$28,900,000 in loans and letters of credit were outstanding under the Acme
Boot Credit Facility.
Also, in April 1995, Acme Boot entered into an additional secured credit
facility with its bank lender (the "New Acme Credit Agreement"). In April
1995, Acme Boot used approximately $25,400,000 under this facility to
repurchase certain of its debt, preferred stock and common stock. In
November 1995, Acme
10
<PAGE> 11
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Boot used approximately $11,300,000 under this facility to repurchase
substantially all of the remaining portions of its publicly held debt,
preferred stock and common stock issues. The New Acme Credit Agreement is
secured by a second lien on substantially all of the assets of Acme Boot and
its subsidiaries. In addition, the Company has guaranteed, on an unsecured
basis, repayment of debt incurred or created under the New Acme Credit
Agreement. In exchange for the additional guarantee, the Company received
$6,000,000 of initial liquidation preference of Acme Boot's Series C 10%
Redeemable Junior Preferred Stock (the "Junior Preferred Stock"). The
Company has fully reserved for the amount of the Junior Preferred Stock. The
Acme Boot Credit Facility and the New Acme Credit Agreement provide that no
dividends may be paid in cash on the Junior Preferred Stock subject to
certain tests. The Junior Preferred Stock carries voting rights representing
5% of the total voting power of Acme Boot so long as any of Acme Boot's
12 1/2% Preferred Stock is outstanding. The Acme 12 1/2% Preferred Stock
currently carries voting rights representing in the aggregate 25% of the
total voting power of Acme Boot. If none of the Acme 12 1/2% Preferred Stock
is outstanding, the Junior Preferred Stock will carry voting rights
representing 25% of the total voting power of Acme Boot. At March 28, 1998,
approximately $36,700,000 remains available and outstanding under the New
Acme Credit Agreement which expires in July 1998. In addition, the Company
loaned Acme Boot $8,000,000 in August 1997 to provide Acme Boot with
supplemental working capital. This loan was made in the form of a demand
note payable and is senior to all indebtedness of Acme Boot. At March 28,
1998, $8,000,000 remains outstanding under the senior note.
Summarized unaudited financial information for Acme Boot follows (in
thousands of dollars):
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 28, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
Current assets......................................... $ 30,100 $ 29,900
Noncurrent assets...................................... 3,300 3,400
-------- --------
$ 33,400 $ 33,300
======== ========
Current liabilities.................................... $ 85,200 $ 81,500
Noncurrent liabilities................................. 11,400 11,800
Preferred stock........................................ 4,600 4,300
Common stockholders' deficit........................... (67,800) (64,300)
-------- --------
$ 33,400 $ 33,300
======== ========
</TABLE>
CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
MARCH 28, 1998 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
Net sales......................................... $ 8,800 $11,100
======= =======
Gross earnings.................................... $ 1,400 $ 2,000
======= =======
Operating loss.................................... $(1,800) $(1,400)
======= =======
Net loss.......................................... $(3,200) $(2,900)
======= =======
</TABLE>
As a result of the operating performance of Acme Boot and management's
assessment of existing facts and circumstances of Acme Boot's financial
condition, the Company increased its reserve by $32,000,000
11
<PAGE> 12
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
from $35,000,000 to $67,000,000 during the third quarter of 1997 to fully
reserve the Company's exposure under the Acme Boot guarantees.
In April 1998, Farley Inc. signed a letter of intent to sell certain assets
and liabilities of Acme Boot. In order to adequately capitalize Acme Boot
until this transaction can be completed, the Company intends to increase the
amount of its direct loan to Acme Boot from $8,000,000 to $10,000,000 in May
of 1998. The sale is expected to allow the Company to recover the
$10,000,000 loan.
In August 1994, the Company acquired Pro Player, Inc. ("Pro Player") for
approximately $55,700,000 including approximately $14,200,000 of Pro Player
debt which was repaid by the Company. The principals of Pro Player, who are
also key employees of that business, may also be entitled to receive
compensation up to a maximum of $47,100,000, based in part on the attainment
of certain levels of operating performance by the acquired entity in 1998
and 1999. In the fourth quarter of 1997, the Company recorded a $22,000,000
charge related to this compensation agreement, based on its assessment of
the probability that Pro Player's operating performance would result in such
amount being earned.
6. As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income ("FAS 130"). FAS 130
establishes new rules for the reporting and display of comprehensive income
and its components. The adoption of FAS 130 had no impact on the Company's
Net earnings or Stockholders' Equity. Rather, FAS 130 requires foreign
currency translation adjustments, minimum pension liability adjustments and
unrealized gains or losses on available-for-sale securities, all of which
were reported separately in Stockholders' Equity prior to adoption, to be
included in new disclosures related to comprehensive income.
For the first quarter of 1998 and 1997, comprehensive income totaled
$19,300,000 and $8,900,000, respectively. The principal difference from
reported net income was reductions of $11,900,000 in 1998 and $12,900,000 in
1997 related to foreign currency translation adjustments resulting from the
financial statement translation of the accounts of certain of the Company's
foreign operations from local currencies to the U.S. dollar. These
adjustments reflect the strengthening of the U.S. dollar with respect to the
currencies of a number of Western European countries where the Company has
made long-term operating commitments.
7. The following table sets forth the computation of basic and diluted earnings
per common share (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
MARCH 28, MARCH 31,
1998 1997
--------- ---------
<S> <C> <C>
NUMERATOR
Net earnings............................................. $31,200 $22,600
======= =======
DENOMINATOR
For basic earnings per common share -- weighted average
shares outstanding..................................... 71,800 76,400
Effect of dilutive employee stock options................ 500 1,200
------- -------
For diluted earnings per common share -- weighted average
shares outstanding and assumed conversions............. 72,300 77,600
======= =======
Earnings per common share:
Basic.................................................. $ .43 $ .30
======= =======
Diluted................................................ $ .43 $ .29
======= =======
</TABLE>
12
<PAGE> 13
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING INFORMATION
The Company desires to provide investors with meaningful and useful
information. Therefore, this 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. Wherever possible, the Company has identified these "forward
looking" statements (as defined in Section 21E of the Securities Exchange Act of
1934) by words such as "anticipates," "believes," "estimates," "expects" and
similar expressions. These forward looking statements are subject to risks and
uncertainties which could cause the Company's actual results, performance and
achievements to differ materially from those expressed in, or implied by, these
statements. These risks and uncertainties include, but are not limited to, the
following: the financial strength of the retail industry (particularly the mass
merchant channel), the level of consumer spending for apparel, demand for the
Company's activewear screenprint products, the competitive pricing environment
within the basic apparel segment of the apparel industry, the Company's ability
to develop, market and sell new products, the Company's effective income tax
rate, the Company's ability to successfully move labor-intensive segments of the
manufacturing process outside of the United States, the success of planned
advertising, marketing and promotional campaigns, international activities and
the resolution of legal proceedings and other contingent liabilities. The
Company assumes no obligation to update publicly any forward looking statements,
whether as a result of new information, future events or otherwise.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
accompanying condensed consolidated financial statements and related notes for
the period ended March 28, 1998 and the Company's consolidated financial
statements and related notes contained in the Company's Annual Report on Form
10-K/A for the year ended December 31, 1997.
The table below sets forth selected operating data (in millions of dollars
and as percentages of net sales) of the Company.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------
MARCH 28, 1998 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
Net sales....................... $457.2 $501.0
Gross earnings.................. $147.7 $142.8
Gross margin.................... 32.3% 28.5%
Operating earnings.............. $ 58.0 $ 52.4
Operating margin................ 12.7% 10.5%
</TABLE>
SPECIAL CHARGES
During the first quarter of 1998, the Company sold certain inventory which
had been written down as part of the 1997 special charges. Amounts received for
the inventory sold were in excess of amounts estimated, resulting in reductions
in cost of sales and increases to earnings before income tax expense of
$4,900,000 in the first quarter of 1998.
The 1995 and 1997 restructuring activities are progressing as expected and
management currently anticipates completion of these activities by the end of
1999.
NET SALES
Net sales decreased $43,800,000 or 8.7% in the first quarter of 1998
compared with the first quarter of 1997. Principal factors were lower volume in
retail and activewear lines. Retail sales were impacted by reduced
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shipments of men's and boys' underwear, casualwear fleece and women's and girls'
underwear. Activewear sales declined on lower shipments of T-shirts and fleece
for the screenprint market. In addition, activewear sales declined due to a
reduction in list prices in December 1997, offset partially by the elimination
of promotional programs in the first quarter of 1998. Sports & Licensing sales
improved slightly due to increased sales of close-outs which were partially
offset by unfavorable mix. European sales declined slightly as unfavorable
currency translation adjustments due to the strong dollar more than offset
increased volume.
GROSS EARNINGS
Gross earnings increased $4,900,000 or 3.4% in the first quarter of 1998
compared with the first quarter of 1997. Gross margin improved 3.8 percentage
points to 32.3% for the quarter. The most significant factor in the margin
improvement was cost savings from the Company's offshore sewing and other cost
reduction initiatives. In addition, no activewear promotional programs were
offered in the first quarter of 1998, benefiting both gross earnings and margin
in the period. Volume decreases and reductions in list prices on activewear
products in December 1997, however, reduced the rate of improvement in
consolidated gross earnings and margin in the first quarter of 1998. Retail
gross earnings and margin improved substantially despite lower sales. Although
activewear gross earnings declined modestly on lower volume, gross margin
increased 3.4 percentage points. Sports & Licensing results were slightly behind
last year, and gross earnings and margin from European operations were
significantly better, principally due to cost reductions.
OPERATING EARNINGS
Operating earnings increased $5,600,000 in the first quarter of 1998
compared with the corresponding 1997 period. Operating margin improved 2.2
percentage points to 12.7%. Gross earnings and margin improved as noted above,
while selling, general and administrative expense declined $600,000 or .7%. This
decline in expenses reflected the recording of compensation expense related to a
performance share compensation plan for certain executive officers in the first
quarter of 1997, along with reductions in personnel, distribution center
depreciation and sales commissions (due to a higher sales mix of products which
carry no commission) in the first quarter of 1998. These favorable variances
were substantially offset by changes in estimates recorded in connection with
the special charges taken in 1995 which were finalized in the first quarter of
1997 (reducing selling, general and administrative expense by $7,500,000 in the
first quarter of 1997) and increases in advertising and promotion expenses in
the first quarter of 1998. Selling, general and administrative expense was 18.2%
of sales in the first quarter of 1998 compared with 16.7% of sales in the first
quarter of 1997.
INTEREST EXPENSE
Interest expense increased $5,800,000 or 30.7% for the first quarter of
1998 compared with the first quarter of 1997. The increase was largely due to a
significantly higher average debt level resulting principally from purchases of
the Company's common stock ($146,600,000 since March 31, 1997), the LMP
settlement ($102,200,000 in the second half of 1997) and a greater investment in
working capital needed to better service customers while the Company completes
the offshore movement of its sewing and finishing operations and realigns its
domestic manufacturing and distribution facilities.
OTHER INCOME (EXPENSE) -- NET
The favorable variance in other income (expense) -- net compared with the
first quarter of 1997 reflected gains of $6,400,000 on the sale of two corporate
airplanes in the first quarter of 1998. Other income (expense) -- net included
losses totaling $3,100,000 and $2,500,000 in the first quarter of 1998 and 1997,
respectively, from sales of accounts receivable pursuant to its receivables
purchase agreement. In addition, other income (expense) -- net in the first
quarter of 1998 and 1997 included translation gains of $1,400,000 and $800,000.
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INCOME TAXES
The Company's effective income tax rate of 17.0% and 29.0%, respectively,
for the first three months of 1998 and 1997 differed from the Federal statutory
rate of 35% primarily due to the impact of foreign earnings, certain of which
are taxed at lower rates than in the United States, partially offset by goodwill
amortization, a portion of which is not deductible for Federal income taxes, and
state income taxes.
EARNINGS PER COMMON SHARE
Earnings per common share -- basic were $0.43 and $0.30 and earnings per
common share -- diluted were $0.43 and $0.29 in the first quarter of 1998 and
1997, respectively. Average common shares were reduced compared with the first
quarter of 1997 by the repurchase of approximately 4,700,000 shares between
March 31, 1997 and March 28, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Funds generated from the Company's operations are its major source of
liquidity and are supplemented by funds obtained from capital markets including
bank facilities. The Company has available for the funding of its operations
approximately $819,100,000 of revolving lines of credit. As of May 8, 1998,
approximately $135,100,000 was available and unused under these facilities.
Net cash used for operating activities was $192,800,000 in the first
quarter of 1998 compared with $115,500,000 in the first quarter of 1997. The
primary factor in the unfavorable comparison with 1997 was the reduction in
trade accounts payable which included advances of $83,100,000 at December 31,
1997, owed to the ultimate purchaser of the Company's receivables under its
receivables purchase agreement. Other changes in working capital were consistent
from year to year. In addition to the repayment of advances, the working capital
increases in 1998 and 1997 were primarily driven by higher inventories
($106,300,000 and $101,300,000, respectively), higher accounts receivable
($16,800,000 and $12,600,000, respectively) and lower accounts payable
($35,000,000 and $30,500,000, respectively). The increases in working capital in
1998 and 1997 reflect the seasonality of the Company's business as it enters its
peak selling season.
Investing activities generated $15,300,000 in the 1998 period compared with
net cash uses totaling $27,600,000 in the same 1997 period. Capital expenditures
in 1998 were $6,400,000 or $19,100,000 lower than the same 1997 period and
corporate airplane sales in 1998 added $21,600,000 in proceeds. Capital
spending, primarily to support offshore assembly operations, is anticipated to
approximate $57,000,000 in 1998.
Net cash provided by financing activities totaled $177,700,000 in the first
quarter of 1998 compared with $142,800,000 in the first quarter of 1997. The
Company borrowed $19,100,000 more under its revolving credit facilities in 1998
and paid $27,000,000 less toward stock repurchases. Offsetting factors were
higher payments on long-term debt and capital leases ($5,400,000) and lower
proceeds from issuance of common stock ($5,800,000).
In November 1996, the Company's Board of Directors authorized the purchase
of up to $200,000,000 of the Company's common stock in open market and privately
negotiated transactions. Total purchases under the program through March 28,
1998 were 5,890,000 shares at an aggregate cost of $193,200,000.
In December 1996, the Company entered into a three-year receivables
purchase agreement whereby it can currently sell up to a $250,000,000 undivided
interest in a defined pool of its trade accounts receivable. The maximum amount
outstanding as defined under the agreement varies based upon the level of
eligible receivables. Under the agreement, approximately $221,000,000 of
receivables at March 28, 1998 and $183,000,000 of receivables at December 31,
1997 were sold to the Company's unconsolidated, wholly-owned special purpose
entity, reducing consolidated notes and accounts receivable. Proceeds of
approximately $171,500,000 and $214,500,000 from the ultimate purchaser at the
respective balance sheet dates were used to reduce amounts outstanding under the
Company's revolving lines of credit.
On July 11, 1997, the Company filed with the Securities and Exchange
Commission a shelf registration statement on Form S-3 (the "Registration
Statement") to register under the Securities Act of 1933, as
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amended, the sale of up to $850,000,000 of its debt securities, preferred stock
and Class A Common Stock (collectively, the "Securities"). The Registration
Statement does not relate to any particular offering of Securities; rather, the
Registration Statement was filed to provide the Company with the flexibility to
engage in future offerings without the delay which could result from the filing
of new registration statements at that time. The types of Securities offered,
and their terms, will be determined prior to any particular offering. The
Company anticipates that the net proceeds from any future sale of the Securities
would be used for general corporate purposes, including, but not limited to,
working capital, capital expenditures, expansion of existing properties,
development of new projects, prepayment of outstanding indebtedness, investments
and acquisitions.
Management believes the funding available to the Company is sufficient to
meet anticipated requirements for capital expenditures, working capital and
other needs. The Company's debt instruments, principally its bank agreements,
contain covenants restricting the Company's ability to sell assets, incur debt,
pay dividends and make investments and require the Company to maintain certain
financial ratios.
ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued FAS 131,
Disclosures about Segments of an Enterprise and Related Information. FAS 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. FAS 131 is
effective for annual financial statements for fiscal years beginning after
December 15, 1997. Management has not completed its review of FAS 131.
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FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
<TABLE>
<S> <C>
4(a)* $900,000,000 Credit Agreement dated as of September 19,
1997, among the several banks and other financial
institutions from time to time parties thereto (the
"Lenders"), NationsBank, N.A., as administrative agent for
the Lenders thereunder, Chase Manhattan Bank, Bankers Trust
Company, The Bank of New York and the Bank of Nova Scotia,
as co-agents (incorporated herein by reference to Exhibit
4(a) to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997).
4(b)* Rights Agreement, dated as of March 8, 1996 between Fruit of
the Loom, Inc. and Chase Mellon Shareholder Services,
L.L.C., Rights Agent (incorporated herein by reference to
Exhibit 4(c) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995).
27 Financial Data Schedule.
</TABLE>
- ---------------
* 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 individually
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
In February, 1998, the Company filed a Current Report on Form 8-K dated
February 11, 1998, reporting the Company's February 11, 1998 press release
announcing that the Company had filed a registration statement and preliminary
proxy material with the Securities and Exchange Commission regarding a
reorganization of the Company.
In February, 1998, the Company filed a Current Report on Form 8-K dated
February 12, 1998 reporting the Company's February 12, 1998 press release
announcing its earnings for the three months and years ended December 31, 1997
and 1996. The financial statements attached to the press release consisted of a
condensed consolidated balance sheet as of December 31, 1997 and 1996, a
condensed consolidated statement of operations for the three months and years
ended December 31, 1997 and 1996 and a condensed consolidated statement of cash
flows for the years ended December 31, 1997 and 1996.
In February, 1998, the Company filed a Current Report on Form 8-K/A dated
February 23, 1998, reporting the Company's February 12, 1998 press release
announcing its earnings for the three months and years ended December 31, 1997
and 1996. The financial statements attached to the press release consisted of a
condensed consolidated balance sheet as of December 31, 1997 and 1996, a
condensed consolidated statement of operations for the three months and years
ended December 31, 1997 and 1996 and a condensed consolidated statement of cash
flows for the years ended December 31, 1997 and 1996.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amended report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FRUIT OF THE LOOM, INC.
(Registrant)
By: /s/ LARRY K. SWITZER
------------------------------------
Larry K. Switzer
Senior Executive Vice President
and Chief Financial Officer
(Principal Financial Officer
and duly authorized to sign
on behalf of Registrant)
Date: August 7, 1998
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's quarterly report on Form 10-Q and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-28-1998
<CASH> 16,300
<SECURITIES> 0
<RECEIVABLES> 126,700
<ALLOWANCES> 11,800
<INVENTORY> 953,800
<CURRENT-ASSETS> 1,142,000
<PP&E> 1,209,300
<DEPRECIATION> 728,900
<TOTAL-ASSETS> 2,573,700
<CURRENT-LIABILITIES> 418,900
<BONDS> 1,372,800
0
0
<COMMON> 317,900
<OTHER-SE> 122,600
<TOTAL-LIABILITY-AND-EQUITY> 2,573,700
<SALES> 457,200
<TOTAL-REVENUES> 457,200
<CGS> 309,500
<TOTAL-COSTS> 309,500
<OTHER-EXPENSES> (4,300)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,700
<INCOME-PRETAX> 37,600
<INCOME-TAX> 6,400
<INCOME-CONTINUING> 31,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,200
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
</TABLE>
