<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JULY 3, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 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 August 13, 1999: 66,905,348 Class A Common
Shares, $.01 par value (all of which are privately owned and not traded on a
public market).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet --
July 3, 1999 (Unaudited) and January 2, 1999.............. 2
Condensed Consolidated Statement of Operations (Unaudited)
for the Three and Six Months Ended July 3, 1999 and June
27, 1998.................................................. 3
Condensed Consolidated Statement of Cash Flows (Unaudited)
for the Six Months Ended July 3, 1999 and June 27, 1998... 4
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 24
</TABLE>
1
<PAGE> 3
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
JULY 3, JANUARY 2,
1999 1999
----------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents (including restricted cash)..... $ 19,600 $ 1,400
Notes and accounts receivable (less allowance for possible
losses of $10,000 and $12,000, respectively)........... 100,900 109,700
Inventories
Finished goods......................................... 549,100 500,700
Work in process........................................ 237,800 183,100
Materials and supplies................................. 69,900 58,200
---------- ----------
Total inventories................................. 856,800 742,000
Other..................................................... 43,600 41,100
---------- ----------
Total current assets.............................. 1,020,900 894,200
---------- ----------
Property, Plant and Equipment............................... 1,257,000 1,192,100
Less accumulated depreciation............................. 775,400 758,200
---------- ----------
Net property, plant and equipment.................... 481,600 433,900
---------- ----------
Other Assets
Goodwill (less accumulated amortization of $349,500 and
$336,200, respectively)................................ 673,000 686,300
Deferred income taxes..................................... 44,100 36,700
Other..................................................... 179,800 238,700
---------- ----------
Total other assets................................ 896,900 961,700
---------- ----------
$2,399,400 $2,289,800
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt...................... $ 66,400 $ 270,500
Trade accounts payable.................................... 63,100 119,700
Other accounts payable and accrued expenses............... 263,800 226,700
---------- ----------
Total current liabilities......................... 393,300 616,900
---------- ----------
Noncurrent Liabilities
Long-term debt............................................ 1,194,100 856,600
Other..................................................... 290,400 267,400
---------- ----------
Total noncurrent liabilities...................... 1,484,500 1,124,000
---------- ----------
Preferred Stock............................................. 71,700 --
---------- ----------
Common Stockholders' Equity................................. 449,900 548,900
---------- ----------
$2,399,400 $2,289,800
========== ==========
</TABLE>
See accompanying notes.
2
<PAGE> 4
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------- ---------------------
JULY 3, JUNE 27, JULY 3, JUNE 27,
1999 1998 1999 1998
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Net sales........................................... $551,700 $628,000 $960,400 $1,085,200
Cost of sales....................................... 426,300 421,400 740,600 730,900
-------- -------- -------- ----------
Gross earnings.................................... 125,400 206,600 219,800 354,300
Selling, general and administrative expenses........ 97,500 97,200 178,400 180,300
Goodwill amortization............................... 6,700 6,700 13,300 13,300
-------- -------- -------- ----------
Operating earnings................................ 21,200 102,700 28,100 160,700
Interest expense.................................... (24,900) (26,800) (46,500) (51,500)
Other income (expense) -- net....................... 2,100 (4,600) 7,600 (300)
-------- -------- -------- ----------
Earnings (loss) before income tax provision....... (1,600) 71,300 (10,800) 108,900
Income tax provision................................ (100) 6,000 (600) 12,400
-------- -------- -------- ----------
Net earnings (loss)............................... $ (1,500) $ 65,300 $(10,200) $ 96,500
======== ======== ======== ==========
</TABLE>
See accompanying notes.
3
<PAGE> 5
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------
JULY 3, JUNE 27,
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)....................................... $ (10,200) $ 96,500
Adjustments to reconcile to net cash used for operating
activities:
Preferred stock dividends.............................. (1,100) --
Depreciation and amortization.......................... 61,500 57,000
Deferred income tax provision.......................... (7,300) (900)
Increase in working capital............................ (94,800) (309,700)
Other-net.............................................. (29,900) (38,000)
--------- ---------
Net cash used for operating activities............... (81,800) (195,100)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures...................................... (22,100) (16,100)
Proceeds from asset sales................................. 18,300 57,600
Other-net................................................. (26,300) (1,400)
--------- ---------
Net cash provided by (used for) investing
activities.......................................... (30,100) 40,100
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt.................. 240,200 --
Proceeds under line-of-credit agreements.................. 546,300 639,600
Payments under line-of-credit agreements.................. (425,100) (380,200)
Principal payments on long-term debt and capital leases... (231,300) (116,100)
Common stock issued....................................... -- 6,600
Common stock repurchased.................................. -- (3,000)
--------- ---------
Net cash provided by financing activities............ 130,100 146,900
--------- ---------
Net increase in Cash and cash equivalents (including
restricted cash).......................................... 18,200 (8,100)
Cash and cash equivalents (including restricted cash)at
beginning of period....................................... 1,400 16,100
--------- ---------
Cash and cash equivalents (including restricted cash)at end
of period................................................. $ 19,600 $ 8,000
========= =========
</TABLE>
See accompanying notes.
4
<PAGE> 6
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. On March 4, 1999 Fruit of the Loom, LTD. ("FTL, Ltd."), a Cayman
Islands company, became the parent holding company of Fruit of the Loom, Inc.
("FTL, Inc." or the "Company") pursuant to a reorganization (the
"Reorganization") approved by the stockholders of FTL, Inc. on November 12,
1998. Ownership of essentially all of the businesses or subsidiaries of the
Company located outside the United States, other than certain interests of the
Company in Canada and Mexico, and the beneficial ownership of certain trademarks
will be transferred to FTL, Ltd. when the Reorganization is fully implemented.
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 Annual Report on Form 10-K for the year ended January
2, 1999. 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 and six months ended July 3, 1999 are
not necessarily indicative of results that may be expected for the full year.
In connection with the Reorganization, all outstanding shares of Class A
common stock of FTL, Inc. were automatically converted into Class A ordinary
shares of FTL, Ltd., and all outstanding shares of Class B common stock of FTL,
Inc. were automatically converted into shares of exchangeable participating
preferred stock of FTL, Inc. (the "FTL, Inc. Preferred Stock"). The FTL, Inc.
Preferred Stock (5,229,000 shares outstanding) in the aggregate (i) has a
liquidation value of $71,700,000, which is equal to the fair market value of the
FTL, Inc. Class B common stock based upon the $13.71 average closing price of
FTL, Inc. Class A common stock on the New York Stock Exchange for the 20 trading
days prior to March 4, 1999, (ii) is entitled to receive cumulative cash
dividends of 4.5% per annum of the liquidation value, payable quarterly, (iii)
is exchangeable at the option of the holder, in whole or from time to time in
part, at any time for 4,981,000 FTL, Ltd. Class A ordinary shares, (iv) is
convertible at the option of the holder, in whole or from time to time in part,
at any time for 4,981,000 shares of FTL, Inc. common stock, (v) participates
with the holders of FTL, Inc. common stock in all dividends and liquidation
payments in addition to its preference payments on an as converted basis, (vi)
is redeemable by FTL, Inc., at its option, after three years at a redemption
price equal to the then fair market value of FTL, Inc. Preferred Stock as
determined by a nationally recognized investment banking firm, and (vii) has the
right to vote on all matters put to a vote of the holders of FTL, Inc. common
stock, voting together with such holders as a single class, and is entitled to
the number of votes which such holder would have on an as converted basis.
The fixed dividend on the FTL, Inc. Preferred Stock of 4.5% of the
liquidation preference of $71,700,000 equals $3,200,000 on an annual basis. In
addition, preferred stockholders participate in FTL, Inc.'s earnings after
provision for the fixed preferred stock dividend. Participation in earnings is
determined as the ratio of preferred shares outstanding to the total of
preferred and common shares outstanding (7.2% at July 3, 1999). Preferred
stockholder participation in losses is limited to the preferred stockholders'
prior participation in earnings. Because FTL, Inc. had a loss in the three and
six months ended July 3, 1999, the preferred stock participation is limited to
the fixed preferred dividend of $800,000 and $1,100,000, respectively.
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 July 3, 1999 and June 27, 1998.
3. The Company's effective income tax rate of 5.0% for the first six
months of 1999 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 a provision for interest
on prior years' taxes.
5
<PAGE> 7
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
The Company's effective income tax rate of 11.4% for the first six months
of 1998 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 write-downs of goodwill, costs
associated with the closing or realignment of certain domestic manufacturing
facilities and attendant personnel reductions and charges related to inventory
write-downs and valuations, foreign operations and other corporate issues.
A rollforward of the 1995 special charges from January 2, 1999 through July
3, 1999 is presented below (in thousands of dollars):
<TABLE>
<CAPTION>
RESERVE RESERVE
BALANCE BALANCE
JANUARY 2, CASH INCOME OTHER JULY 3,
1999 PAYMENTS (EXPENSE) ACTIVITY 1999
---------- -------- --------- -------- -------
<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......................... -- -- -- -- --
Changes in estimates of insurance
liabilities....................... 9,500 4,200 -- -- 5,300
Costs related to expected increases
in workers' compensation and
health and welfare costs.......... -- -- -- -- --
Costs related to termination of
certain lease obligations......... -- -- -- -- --
Costs related to severance of the
hourly workforce.................. -- -- -- -- --
Other................................ 200 -- -- -- 200
------- ------ -- -- -------
9,700 4,200 -- -- 5,500
Severance.............................. -- -- -- -- --
Other asset write downs, valuation
reserves and other reserves.......... -- -- -- -- --
Changes in estimates of certain
retained liabilities of former
subsidiaries......................... 10,500 5,400 -- -- 5,100
Termination of management agreement.... -- -- -- -- --
------- ------ -- -- -------
$20,200 $9,600 $-- $-- $10,600
======= ====== == == =======
</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. These and other special charges totalled $441,700,000
($372,200,000 after tax).
6
<PAGE> 8
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
A rollforward of the 1997 special charges from January 2, 1999 through July
3, 1999 is presented below (in thousands of dollars):
<TABLE>
<CAPTION>
RESERVE RESERVE
BALANCE BALANCE
JANUARY 2, CASH INCOME OTHER JULY 3,
1999 PAYMENTS (EXPENSE) ACTIVITY 1999
---------- -------- --------- -------- --------
<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............. $ 60,100 $ 100 $-- $35,400 $ 24,600
Impairment of mills to be
sold................... 75,400 -- -- 54,900 20,500
Lease residual
guarantees............. 61,000 10,900 -- -- 50,100
Other equipment.......... 6,200 -- -- -- 6,200
-------- ------- -- ------- --------
202,700 11,000 -- 90,300 101,400
Severance costs............. 200 -- -- -- 200
Other accruals.............. 2,400 500 -- -- 1,900
-------- ------- -- ------- --------
205,300 11,500 -- 90,300 103,500
-------- ------- -- ------- --------
IMPAIRMENT OF EUROPEAN
MANUFACTURING AND
DISTRIBUTION FACILITIES
Impairment of long lived
assets................... -- -- -- -- --
Other accruals.............. 1,100 -- -- 200 900
-------- ------- -- ------- --------
1,100 -- -- 200 900
-------- ------- -- ------- --------
PRO PLAYER INCENTIVE
COMPENSATION AGREEMENT...... -- -- -- -- --
-------- ------- -- ------- --------
OTHER ASSET WRITE-DOWNS AND
RESERVES
Inventory valuation
provisions............... -- -- -- -- --
Other accruals.............. 11,300 900 -- 1,800 8,600
-------- ------- -- ------- --------
11,300 900 -- 1,800 8,600
-------- ------- -- ------- --------
CHANGES IN ESTIMATES OF
CERTAIN RETAINED LIABILITIES
OF FORMER SUBSIDIARIES...... 10,600 500 -- -- 10,100
-------- ------- -- ------- --------
Total pretax
charges........... $228,300 $12,900 $-- $92,300 $123,100
======== ======= == ======= ========
</TABLE>
Other activity includes $64,400,000 related to distribution centers and
yarn mills to be retained by the Company under its current operating plan. The
decision to retain one distribution center and two yarn mills at this time was
the result of continuing evolution in the mix of distribution resources needed
to service the Company's customers and overcapacity in U.S. yarn production
which prevented the Company from selling its two largest yarn mills at
acceptable prices. The Company had continued to operate these facilities pending
their sale. In accordance with GAAP these facilities have been included in
property, plant and equipment and
7
<PAGE> 9
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
are being depreciated at their impaired value which approximates current fair
value. Other activity also includes an additional $25,900,000 related to
facilities that have been sold.
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.
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 ("CERCLA"), 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 July 3, 1999 related to discontinued operations consist primarily of
certain environmental reserves of approximately $29,000,000 and product
liability reserves of approximately $4,000,000. During 1998, the Company
purchased insurance coverage for potential cleanup cost expenditures from
approximately the level of current environmental reserves up to $100,000,000 for
certain sites with on-going remediation, pollution liability coverage for claims
arising out of pollution conditions at owned locations including continuing
operations, sold facilities and non-owned sites and product liability coverage
for claims arising out of products manufactured by the sold operations.
Management believes that adequate reserves have been established to cover
potential claims based on facts currently available and current Superfund and
CERCLA 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 1999 and future years.
On February 24, 1999, the Board of Directors, excluding Mr. Farley,
authorized the Company to guarantee a bank loan of $65,000,000 to Mr. Farley in
connection with Mr. Farley's refinancing and retirement of his $26,000,000 and
$12,000,000 loans previously guaranteed by the Company and other indebtedness of
Mr. Farley. The Company's obligations under the guarantee are secured by
2,507,512 shares of FTL, Inc. Preferred Stock and all of Mr. Farley's assets. In
consideration of the guarantee, which is scheduled to expire in September 2000,
Mr. Farley pays an annual guarantee fee equal to 2% of the outstanding principal
balance of the loan. The Board of Directors 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 July 3, 1999, the Company had
a contingent liability to repay, in whole or in part, grants received of
approximately $27,100,000 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.
On July 1, 1998, the New England Health Care Employees Pension Fund filed a
purported class action on behalf of all those who purchased Fruit of the Loom,
Inc. Class A Common Stock and publicly traded
8
<PAGE> 10
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
options between July 24, 1996 and September 5, 1997 (the "Class Period") against
the Company and William Farley, Bernhard Hansen, Richard C. Lappin, G. William
Newton, Burgess D. Ridge, Larry K. Switzer and John D. Wigodsky, each of whom
are current or former officers of the Company, in the United States District
Court for the Western District of Kentucky ("New England Action"). The plaintiff
claims that the defendants engaged in conduct violating Section 10(b) of the
Securities Exchange Act of 1934, as amended (the "Act"), and that the Company
and Mr. Farley are also liable under Section 20(a) of the Act. According to the
plaintiff, the Company, with the knowledge and assistance of the individual
defendants, made certain material misrepresentations and failed to disclose
certain material facts about the Company's condition and prospects during the
Class Period, causing the plaintiff and the class to buy Company stock or
options at artificially inflated prices. The plaintiff also alleges that during
the Class Period, the individual defendants sold stock of the Company while
possessing material non-public information. The plaintiff asks for unspecified
amounts as damages, interest and costs and ancillary relief. The defendants
filed a motion to dismiss the action, which is fully briefed and awaiting court
action. The defendants also filed a motion to change venue from Bowling Green,
Kentucky, and such motion has been denied.
Management believes that the suit is without merit, and management and the
Company intend to defend it vigorously. Management believes, based on
information currently available, that the ultimate resolution of this litigation
will not have a material adverse effect on the financial condition or results of
the operations of the Company, but the ultimate resolution of the suit, if
unfavorable, could be material to the results of operations of a particular
future period.
On August 26, 1998, Carol Bradley filed a purported derivative action on
behalf of the Company, against William Farley, Richard C. Lappin, Omar Z. Al
Askari, Dennis S. Bookshester, Henry A. Johnson, Mark H. McCormack, Larry K.
Switzer, A. Lorne Weil and Sir Brian Wolfson, each of whom is a current or
former director of the Company, and the Company, as a nominal defendant, in the
Warren Circuit Court of the State of Kentucky. The plaintiff asserts various
common law claims against the individual defendants including, inter alia,
breach of fiduciary duty, waste of corporate assets, breach of contract and
constructive fraud claims. The plaintiff also asserts an insider trading claim
against defendants Farley, Lappin and Switzer. The claims asserted against the
individual defendants are based on the same alleged misrepresentations and
omissions which form the basis of the claims asserted by the plaintiff in the
New England Action as described above. The plaintiff seeks unspecified
compensatory and punitive damages, attorneys' fees and costs and ancillary
relief.
On September 18, 1998, defendant Farley, with the consent of the Company,
removed the action to the United States District Court for the Western District
of Kentucky. Those defendants subsequently filed a motion to dismiss on the
ground that the plaintiff failed to make an appropriate demand on the Company
prior to filing the action. In August 1999, the motion was granted in favor of
the defendants and the case was dismissed.
6. The Company's debt instruments, principally its Credit Agreement,
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. As of the most recent covenant compliance reporting date, the
Company is in compliance with all of the financial covenants under its Credit
Agreement. However, it is probable the Company will not be in compliance with
certain financial covenants in its Credit Agreement at the end of the third
quarter. If the Company fails to comply with certain of the financial covenants
in its Credit Agreement, a default will occur which will cross default to the
Company's other existing debt agreements. In the event that a default does
occur, the Company will need to cure the default with its bank lenders. The
Company will endeavor to obtain waivers, renegotiate covenants or obtain other
financing which, if obtained, will cure the default with its bank lenders and
cure the cross default to the other existing debt agreements. However, there can
be no assurance that the Company will be able to obtain waivers, renegotiate
covenants or obtain other
9
<PAGE> 11
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
financing. If an event of default exists, the lenders are entitled to demand
payment and/or foreclose upon their collateral.
7. Comprehensive income was as follows (in thousands of dollars).
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ -------------------
JULY 3, JUNE 27, JULY 3, JUNE 27,
1999 1998 1999 1998
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net earnings (loss).......................... $(1,500) $65,300 $(10,200) $ 96,500
Foreign currency translation
adjustments -- net......................... (5,100) (400) (16,600) (12,300)
------- ------- -------- --------
Comprehensive income (loss)................ $(6,600) $64,900 $(26,800) $ 84,200
======= ======= ======== ========
</TABLE>
8. The Company's 8 7/8% senior notes due April 2006 ("8 7/8% Senior
Notes") are fully and unconditionally guaranteed on a senior unsecured basis,
jointly and severally, by each of the Company's principal domestic subsidiaries
(the "Guarantor Subsidiaries"). Substantially all of the Company's operating
income and cash flow is generated by its subsidiaries. As a result, funds
necessary to meet the Company's debt service obligations are provided in part by
distributions or advances from its subsidiaries. Under certain circumstances,
contractual and legal restrictions, as well as the financial condition and
operating requirements of the Company's subsidiaries could limit the Company's
ability to obtain cash from its subsidiaries for the purpose of meeting its debt
service obligations. There are currently no significant restrictions on the
ability of the Guarantor Subsidiaries to make distributions to the Company.
The supplemental guarantor condensed consolidating financial statements
present:
a) Supplemental condensed consolidating balance sheets as of July 3,
1999 and January 2, 1999, and supplemental condensed consolidating
summaries of operations and cash flows for the six months ended July 3,
1999 and June 27, 1998;
b) The non-guarantor subsidiaries combined;
c) Fruit of the Loom, Inc. and Guarantor Subsidiaries consolidated,
with investments in non-guarantor subsidiaries accounted for using the
equity method; and
d) Elimination entries necessary to consolidate the Company and all of
its subsidiaries.
Separate financial statements of Guarantor Subsidiaries are not presented
because the Guarantor Subsidiaries are jointly, severally and unconditionally
liable under the guarantees, and the Company believes the supplemental guarantor
condensed consolidated financial statements as presented are more meaningful in
understanding the financial position of the Company and its Guarantor
Subsidiaries.
10
<PAGE> 12
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET -- (UNAUDITED)
JULY 3, 1999
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMBINED FRUIT OF THE LOOM, INC. ELIMINATIONS
NON-GUARANTOR AND GUARANTOR AND
SUBSIDIARIES SUBSIDIARIES RECLASSIFICATIONS CONSOLIDATED
------------- ----------------------- ----------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents
(including restricted cash)..... $ 3,500 $ 16,100 $ $ 19,600
Notes and accounts receivable (less
allowance for possible losses of
$10,000)........................ 77,300 23,600 100,900
Inventories
Finished goods.................. 76,200 472,900 549,100
Work in process................. 11,900 225,900 237,800
Materials and supplies.......... 6,400 63,500 69,900
-------- ---------- --------- ----------
Total inventories.......... 94,500 762,300 856,800
Other.............................. 2,500 41,100 43,600
-------- ---------- --------- ----------
Total current assets....... 177,800 843,100 1,020,900
-------- ---------- --------- ----------
Property, Plant and Equipment........ 193,700 1,063,300 1,257,000
Less accumulated depreciation...... 80,400 695,000 775,400
-------- ---------- --------- ----------
Net property, plant and
equipment....................... 113,300 368,300 481,600
-------- ---------- --------- ----------
Other Assets
Goodwill (less accumulated
amortization of $349,500)....... -- 673,000 673,000
Affiliate notes and accounts
receivable -- net............... 2,500 -- (2,500) --
Investment in subsidiaries......... -- 218,600 (218,600) --
Deferred income taxes.............. -- 44,100 44,100
Other.............................. 2,900 176,900 179,800
-------- ---------- --------- ----------
Total other assets......... 5,400 1,112,600 (221,100) 896,900
-------- ---------- --------- ----------
$296,500 $2,324,000 $(221,100) $2,399,400
======== ========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term
debt............................ $ 600 $ 65,800 $ $ 66,400
Trade accounts payable............. 10,200 52,900 63,100
Other accounts payable and accrued
expenses........................ 25,600 238,200 263,800
-------- ---------- --------- ----------
Total current
liabilities.............. 36,400 356,900 393,300
-------- ---------- --------- ----------
Noncurrent Liabilities
Long-term debt..................... 41,400 1,152,700 1,194,100
Affiliate notes and accounts
payable -- net.................. -- 2,500 (2,500) --
Other.............................. 100 290,300 290,400
-------- ---------- --------- ----------
Total noncurrent
liabilities.............. 41,500 1,445,500 (2,500) 1,484,500
-------- ---------- --------- ----------
Preferred Stock...................... -- 71,700 71,700
-------- ---------- --------- ----------
Common Stockholders' Equity.......... 218,600 449,900 (218,600) 449,900
-------- ---------- --------- ----------
$296,500 $2,324,000 $(221,100) $2,399,400
======== ========== ========= ==========
</TABLE>
11
<PAGE> 13
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL CONDENSED CONSOLIDATING SUMMARY OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JULY 3, 1999
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMBINED FRUIT OF THE LOOM, INC. ELIMINATIONS
NON-GUARANTOR AND GUARANTOR AND
SUBSIDIARIES SUBSIDIARIES RECLASSIFICATIONS CONSOLIDATED
------------- ----------------------- ----------------- ------------
<S> <C> <C> <C> <C>
Net sales............................ $155,200 $820,400 $(15,200) $960,400
Cost of sales........................ 117,200 638,600 (15,200) 740,600
-------- -------- -------- --------
Gross earnings..................... 38,000 181,800 219,800
Selling, general and administrative
expenses........................... 31,700 146,700 178,400
Goodwill amortization................ -- 13,300 13,300
-------- -------- -------- --------
Operating earnings................. 6,300 21,800 28,100
Interest expense..................... (1,800) (44,700) (46,500)
Affiliated interest income
(expense).......................... (500) 500 --
Equity in earnings of Non-Guarantor
Subsidiaries....................... -- 2,100 (2,100) --
Other income (expense) -- net........ (1,500) 9,100 7,600
-------- -------- -------- --------
Earnings (loss) before income tax
provision....................... 2,500 (11,200) (2,100) (10,800)
Income tax provision................. 400 (1,000) (600)
-------- -------- -------- --------
Net earnings (loss)................ $ 2,100 $(10,200) $ (2,100) $(10,200)
======== ======== ======== ========
</TABLE>
12
<PAGE> 14
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL CONDENSED CONSOLIDATING SUMMARY OF CASH FLOWS -- (UNAUDITED)
SIX MONTHS ENDED JULY 3, 1999
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMBINED FRUIT OF THE LOOM, INC. ELIMINATIONS
NON-GUARANTOR AND GUARANTOR AND
SUBSIDIARIES SUBSIDIARIES RECLASSIFICATION CONSOLIDATED
------------- ----------------------- ---------------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)................. $ 2,100 $ (10,200) $ (2,100) $ (10,200)
Adjustments to reconcile to net cash
used for operating activities:
Equity in earnings of
Non-Guarantor Subsidiaries..... -- (2,100) 2,100 --
Preferred stock dividends........ -- (1,100) (1,100)
Depreciation and amortization.... 6,300 55,200 61,500
Deferred income tax provision.... -- (7,300) (7,300)
Increase in working capital...... (9,300) (85,500) (94,800)
Other-net........................ (2,600) (27,300) (29,900)
-------- --------- -------- ---------
Net cash used for operating
activities.................. (3,500) (78,300) (81,800)
-------- --------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures................ (9,000) (13,100) (22,100)
Proceeds from asset sales........... -- 18,300 18,300
Affiliate notes and accounts
receivable....................... -- (30,200) 30,200 --
Other-net........................... (6,800) (19,500) (26,300)
-------- --------- -------- ---------
Net cash used for investing
activities..................... (15,800) (44,500) 30,200 (30,100)
-------- --------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of
long-term debt................... -- 240,200 240,200
Proceeds under line-of-credit
agreements....................... 15,200 531,100 546,300
Payments under line-of-credit
agreements....................... (12,400) (412,700) (425,100)
Principal payments on long-term debt
and capital leases............... (12,000) (219,300) (231,300)
Affiliate notes and accounts
payable.......................... 30,200 -- (30,200) --
-------- --------- -------- ---------
Net cash provided by financing
activities..................... 21,000 139,300 (30,200) 130,100
-------- --------- -------- ---------
Net increase in Cash and cash
equivalents (including restricted
cash)............................... 1,700 16,500 18,200
Cash and cash equivalents (including
restricted cash) at beginning of
period.............................. 1,800 (400) 1,400
-------- --------- -------- ---------
Cash and cash equivalents (including
restricted cash) at end of period... $ 3,500 $ 16,100 $ $ 19,600
======== ========= ======== =========
</TABLE>
13
<PAGE> 15
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JANUARY 2, 1999
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMBINED FRUIT OF THE LOOM, INC. ELIMINATIONS
NON-GUARANTOR AND GUARANTOR AND
SUBSIDIARIES SUBSIDIARIES RECLASSIFICATIONS CONSOLIDATED
------------- ----------------------- ----------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents (including
restricted cash) ..................... $ 1,800 $ (400) $ $ 1,400
Notes and accounts receivable (less
allowance for possible losses of
$12,000).............................. 65,100 44,600 109,700
Inventories
Finished goods........................ 80,700 420,000 500,700
Work in process....................... 13,700 169,400 183,100
Materials and supplies................ 5,700 52,500 58,200
-------- ---------- --------- ----------
Total inventories................ 100,100 641,900 742,000
Other................................... 1,500 39,600 41,100
-------- ---------- --------- ----------
Total current assets............. 168,500 725,700 894,200
-------- ---------- --------- ----------
Property, Plant and Equipment............. 203,800 988,300 1,192,100
Less accumulated depreciation........... 82,100 676,100 758,200
-------- ---------- --------- ----------
Net property, plant and equipment..... 121,700 312,200 433,900
-------- ---------- --------- ----------
Other Assets
Goodwill (less accumulated amortization
of $336,200).......................... -- 686,300 686,300
Affiliate notes and accounts receivable
-- net................................ 32,700 -- (32,700) --
Investment in subsidiaries.............. -- 230,300 (230,300) --
Deferred income taxes................... -- 36,700 36,700
Other................................... 2,800 235,900 238,700
-------- ---------- --------- ----------
Total other assets............... 35,500 1,189,200 (263,000) 961,700
-------- ---------- --------- ----------
$325,700 $2,227,100 $(263,000) $2,289,800
======== ========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt.... $ 600 $ 269,900 $ $ 270,500
Trade accounts payable.................. 11,400 108,300 119,700
Other accounts payable and accrued
expenses.............................. 26,200 200,500 226,700
-------- ---------- --------- ----------
Total current liabilities........ 38,200 578,700 616,900
-------- ---------- --------- ----------
Noncurrent Liabilities
Long-term debt.......................... 57,100 799,500 856,600
Affiliate notes and accounts payable --
net................................... -- 32,700 (32,700) --
Other................................... 100 267,300 267,400
-------- ---------- --------- ----------
Total noncurrent liabilities..... 57,200 1,099,500 (32,700) 1,124,000
-------- ---------- --------- ----------
Common Stockholders' Equity............... 230,300 548,900 (230,300) 548,900
-------- ---------- --------- ----------
$325,700 $2,227,100 $(263,000) $2,289,800
======== ========== ========= ==========
</TABLE>
14
<PAGE> 16
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL CONDENSED CONSOLIDATING SUMMARY OF OPERATIONS -- (UNAUDITED)
SIX MONTHS ENDED JUNE 27, 1998
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMBINED FRUIT OF THE LOOM, INC. ELIMINATIONS
NON-GUARANTOR AND GUARANTOR AND
SUBSIDIARIES SUBSIDIARIES RECLASSIFICATIONS CONSOLIDATED
------------- ----------------------- ----------------- ------------
<S> <C> <C> <C> <C>
Net sales...................... $178,000 $937,400 $(30,200) $1,085,200
Cost of sales.................. 124,800 636,300 (30,200) 730,900
-------- -------- -------- ----------
Gross earnings............... 53,200 301,100 354,300
Selling, general and
administrative expenses...... 33,100 147,200 180,300
Goodwill amortization.......... -- 13,300 13,300
-------- -------- -------- ----------
Operating earnings........... 20,100 140,600 160,700
Interest expense............... (7,000) (46,100) 1,600 (51,500)
Affiliated interest income
(expense).................... (500) 500 --
Equity in loss of Non-Guarantor
Subsidiaries................. -- (4,500) 4,500 --
Other income
(expense) -- net............. (15,300) 16,600 (1,600) (300)
-------- -------- -------- ----------
Earnings (loss) before income
tax provision............. (2,700) 107,100 4,500 108,900
Income tax provision........... 1,800 10,600 12,400
-------- -------- -------- ----------
Net earnings (loss).......... $ (4,500) $ 96,500 $ 4,500 $ 96,500
======== ======== ======== ==========
</TABLE>
15
<PAGE> 17
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL CONDENSED CONSOLIDATING SUMMARY OF CASH FLOWS -- (UNAUDITED)
SIX MONTHS ENDED JUNE 27, 1998
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMBINED FRUIT OF THE LOOM, INC. ELIMINATIONS
NON-GUARANTOR AND GUARANTOR AND
SUBSIDIARIES SUBSIDIARIES RECLASSIFICATION CONSOLIDATED
------------- ----------------------- ---------------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)...................... $ (4,500) $ 96,500 $ 4,500 $ 96,500
Adjustments to reconcile to net cash used
for operating activities:
Equity in loss of Non-Guarantor
Subsidiaries......................... -- 4,500 (4,500) --
Depreciation and amortization.......... 5,700 51,300 57,000
Deferred income tax provision.......... 200 (1,100) (900)
Increase in working capital............ (42,600) (267,100) (309,700)
Other-net.............................. 900 (38,900) (38,000)
--------- --------- --------- ---------
Net cash used for operating
activities........................ (40,300) (154,800) (195,100)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures..................... (3,600) (12,500) (16,100)
Proceeds from asset sales................ -- 57,600 57,600
Affiliate notes and accounts
receivable............................. (14,900) 48,600 (33,700) --
Investment in Non-Guarantor Subsidiary
common stock........................... -- (299,000) 299,000 --
Liquidation of investment in affiliated
trust.................................. -- 100,800 (100,800) --
Other-net................................ -- (1,400) (1,400)
--------- --------- --------- ---------
Net cash provided by (used for)
investing activities................. (18,500) (105,900) 164,500 40,100
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds under line-of-credit
agreements............................. 14,900 624,700 639,600
Payments under line-of-credit
agreements............................. (6,400) (373,800) (380,200)
Principal payments on long-term debt and
capital leases......................... (200,200) (16,700) 100,800 (116,100)
Affiliate notes and accounts payable..... (48,600) 14,900 33,700 --
Non-Guarantor Subsidiary common stock
issued to parent....................... 299,000 -- (299,000) --
Common stock issued...................... -- 6,600 6,600
Common stock repurchased................. -- (3,000) (3,000)
--------- --------- --------- ---------
Net cash provided by financing
activities........................... 58,700 252,700 (164,500) 146,900
--------- --------- --------- ---------
Net decrease in cash and cash equivalents
(including restricted cash).............. (100) (8,000) (8,100)
Cash and cash equivalents (including
restricted cash) at beginning of
period................................... 4,600 11,500 16,100
--------- --------- --------- ---------
Cash and cash equivalents (including
restricted cash) at end of period........ $ 4,500 $ 3,500 $ $ 8,000
========= ========= ========= =========
</TABLE>
16
<PAGE> 18
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 that 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,
uncertainties and other factors which could cause the Company's actual results,
performance or achievements to differ materially from those expressed in, or
implied by, these statements. These risks, uncertainties and other factors
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 new products, the Company's
successful planning and execution of production necessary to maintain
inventories at levels sufficient to meet customer demand, the Company's
effective income tax rate, the success of planned advertising, marketing and
promotional campaigns, international activities, the resolution of legal
proceedings and other contingent liabilities and weather conditions in the
locations in which the Company manufacturers and sells its products. 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 July 3, 1999 and the Company's consolidated financial
statements and related notes contained in the Company's Annual Report on Form
10-K for the year ended January 2, 1999.
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.
In connection with the transfer of substantially all of its sewing
operations to offshore locations, and the related increase in the use of foreign
contract manufacturers, the Company is in the process of completing enhanced
inventory control procedures. Until such time as such procedures are completed,
the Company remains subject to increased risks regarding the management of its
inventory. These risks, such as inventory shrinkage and obsolescence, could
result in the Company incurring additional write-downs; however, the Company
believes it has adequate reserves for these potential write-downs. Although the
Company is not currently aware of any facts that would require any substantial
write-down of its inventory, there can be no assurance that write-downs will not
be recognized in the future.
The 1995 and 1997 restructuring activities are generally progressing as
expected except for the decision to retain one distribution center and two yarn
mills at this time due to continuing evolution in the mix of distribution
resources needed to service the Company's customers and overcapacity in U.S.
yarn production which prevented the Company from selling its two largest yarn
mills at acceptable prices. Management currently anticipates completion of these
activities by the end of 1999. There can be no assurance, however, that all
activities will be completed by the end of 1999.
17
<PAGE> 19
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION -- (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
Second Quarter and First Six Months of 1999 Compared with 1998
The table below sets forth selected operating data (in millions of dollars
and as percentages of net sales).
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------- -------------------
JULY 3, JUNE 27, JULY 3, JUNE 27,
1999 1998 1999 1998
------- -------- ------- --------
<S> <C> <C> <C> <C>
Net sales..................................... $551.7 $628.0 $960.4 $1,085.2
Gross earnings................................ 125.4 206.6 219.8 354.3
Gross margin.................................. 22.7% 32.9% 22.9% 32.6%
Operating earnings............................ 21.2 102.7 28.1 160.7
Operating margin.............................. 3.8% 16.4% 2.9% 14.8%
</TABLE>
Net sales decreased $76,300,000 or 12.1% in the second quarter and
$124,800,000 or 11.5% in the first half compared to 1998. Fourth quarter 1998
production disruptions, including Hurricane Mitch and the warm fall weather that
impaired fleece sales, had a greater than anticipated impact on product
availability in Retail Products and Activewear in the first half of 1999.
Revenues in the second quarter and first half of 1999 were reduced by
approximately $60,000,000 and $105,000,000 because production could not be
increased quickly enough to meet demand. The increased demand was expected to
offset a one-time decline in sales of approximately $30,000,000 and $65,000,000
in the second quarter and first half of 1999 from lower Gitano sales due to
customer mix, the elimination of Winnie the Pooh licensed product and lower
Activewear pricing. Men's and boy's underwear sales grew 5.7% and 7.9% in the
second quarter and first half of 1999 compared with the corresponding periods of
1998. Casualwear fleece sales declined 60.7% and 58.0% in the second quarter and
first half of 1999 as the Company's customers requested shipments be deferred to
the third quarter. Activewear sales declined 20.2% and 22.5% in the second
quarter and first half of 1999 due to price competition and product
availability. Sales of sports licensed products were impacted by the soft demand
in the sports licensed market. In Europe, sales were down on lower imprint and
retail volume and unfavorable currency effects.
Segment net sales were as follows (in millions of dollars).
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------- -------------------
JULY 3, JUNE 27, JULY 3, JUNE 27,
1999 1998 1999 1998
------- -------- ------- --------
<S> <C> <C> <C> <C>
NET SALES
Retail Products............................. $283.1 $299.3 $474.2 $ 496.0
Activewear.................................. 172.6 216.2 282.7 364.8
Sports & Licensing.......................... 21.9 40.1 54.1 82.8
Europe...................................... 59.9 72.4 124.8 141.6
Other....................................... 14.2 -- 24.6 --
------ ------ ------ --------
$551.7 $628.0 $960.4 $1,085.2
====== ====== ====== ========
</TABLE>
Gross earnings decreased $81,200,000 or 39.3% in the second quarter and
$134,500,000 or 38.0% in the first half of 1999 compared with a year ago. Gross
margin declined 10.2 percentage points to 22.7% of sales for the quarter and 9.7
percentage points to 22.9% of sales for the first half of 1999. Principal
factors were lower volume and Activewear price decreases along with the sale of
higher cost Retail Products and Activewear inventory manufactured in the second
half of 1998. Higher costs incurred to accelerate production in the first half
of 1999 will negatively impact gross earnings and margin in the second half of
1999.
18
<PAGE> 20
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION -- (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
Operating earnings decreased $81,500,000 or 79.4% in the second quarter and
$132,600,000 or 82.5% in the first half of 1999 compared with a year ago.
Operating margin declined 12.6 percentage points to 3.8% of sales for the second
quarter and 11.9 percentage points to 2.9% of sales for the first half. The
unfavorable comparisons were due to the gross earnings and margin declines noted
above. Selling, general and administrative expense was essentially unchanged in
the second quarter and decreased $1,900,000 or 1.1% in the first half of 1999 as
lower advertising more than offset additional Year 2000 remediation costs in the
second quarter and first half of 1999. Selling, general and administrative
expense as a percent of sales increased 2.2 percentage points to 17.7% in the
second quarter and 2.0 percentage points to 18.6% in the first half on lower
sales.
Segment operating earnings were as follows (in millions of dollars).
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- ---------------------
JULY 3, JUNE 27, JULY 3, JUNE 27,
1999 1998 1999 1998
------- -------- ------- --------
<S> <C> <C> <C> <C>
OPERATING EARNINGS (LOSS)
Retail Products......................... $20.5 $ 51.7 $ 27.1 $ 75.6
Activewear.............................. 10.2 44.2 6.8 70.8
Sports & Licensing...................... (4.9) (1.4) (7.5) --
Europe.................................. (1.2) 10.6 6.5 19.0
Other................................... 3.3 4.3 8.5 8.6
Goodwill................................ (6.7) (6.7) (13.3) (13.3)
----- ------ ------ ------
$21.2 $102.7 $ 28.1 $160.7
===== ====== ====== ======
</TABLE>
Interest expense decreased $1,900,000 or 7.1% in the second quarter and
$5,000,000 or 9.7% in the first half compared with 1998. The decrease largely
reflected a lower average debt level, resulting from the positive cash flow from
operations in the twelve months ended July 3, 1999. Average borrowing rates were
slightly higher in 1999.
Other income (expense) -- net in the second quarter was favorable
$6,700,000 when compared to the same 1998 period. Principal factors included a
gain on sale of one of the Company's distribution centers in 1999 compared with
a loss on sale of the Company's denim manufacturing facility in 1998. The 1998
period, however, benefited from a reduction in the liability related to the Acme
Boot guarantees. Receivable securitization costs totalled $2,100,000 in the 1999
period compared with $3,000,000 in the 1998 period.
Other income (expense) -- net in the first half was favorable $7,900,000
when compared to the same 1998 period. The asset sale comparison was less
favorable than the second quarter because the first quarter of 1998 included
gains on the sale of two corporate airplanes. The first half of 1999, however,
also included a recovery on previously settled litigation and gains on certain
investments. Receivable securitization costs totalled $4,600,000 in the first
half of 1999 compared with $6,100,000 in last year's first half.
The Company's effective income tax rate of 5.0% for the first six months of
1999 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 a provision for interest on prior
years' taxes.
The Company's effective income tax rate of 11.4% for the first six months
of 1998 differed from the U.S. Federal statutory rate of 35% primarily due to
the impact of foreign earnings, certain of which are taxed
19
<PAGE> 21
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION -- (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
at lower rates than in the U.S., partially offset by goodwill amortization, a
portion of which is not deductible for U.S. Federal income taxes, and state
income taxes.
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 $615,000,000 of revolving lines of credit and $250,000,000 under
its receivables purchase agreement. As of August 17, 1999, approximately
$39,100,000 was available and unused under the revolving lines and $33,700,000
was available and unused under the receivables purchase agreement.
Operating activities used a net of $81,800,000 in cash in the first half of
1999, compared with a net use of $195,100,000 by operations in the same 1998
period. In reconciling from net earnings (loss) to net operating cash flows, the
year-to-year change reflected a reduction of $214,900,000 in the first half
working capital increase compared with 1998. Net earnings (loss) plus
depreciation and amortization, however, was $102,200,000 lower than the same
period last year.
Investing activities used $30,100,000 in 1999, compared with $40,100,000
provided in the 1998 period. Proceeds from asset sales were $39,300,000 lower,
and the 1999 period included a payment of $10,900,000 under the Company's
synthetic lease agreement and a repayment of $6,800,000 of employment grants
under agreement with the Republic of Ireland. Capital spending, primarily to
support offshore assembly operations, increased $6,000,000 compared with the
first half of 1998 and is anticipated to total approximately $40,000,000 for the
full year.
Net proceeds from financing activities were $130,100,000 in 1999, down from
$146,900,000 in 1998 due to the favorable comparison in operating cash flows. On
March 25, 1999, the Company issued $250,000,000 of its 8 7/8% Senior Notes. Net
proceeds of approximately $240,200,000 were initially used to repay outstanding
borrowings under the Company's Credit Agreement.
In order to satisfy its repurchase obligation arising from the
Reorganization, the Company commenced an offer on April 5, 1999 to repurchase
all $250,000,000 of its 7 7/8% Senior Notes due October 15, 1999 (the "7 7/8%
Senior Notes") at a price equal to 101% of the principal amount thereof plus
accrued and unpaid interest. This offer expired on May 20, 1999. Holders of
$204,200,000 of aggregate principal amount of the 7 7/8% Senior Notes tendered
their notes. On June 4, 1999, the Company paid these tendering holders an
aggregate purchase price of $206,300,000 plus accrued interest. The remaining
$45,800,000 principal amount of the 7 7/8% senior notes will mature by the terms
of the indenture for these notes on October 15, 1999. The availability under the
Bank Credit Agreement created by the issuance of the 8 7/8% Senior Notes was
used to repurchase the 7 7/8% Senior Notes tendered in the offer. The Company
expects to repay the balance of the 7 7/8% Senior Notes at maturity through cash
flow from operations and availability under the Credit Agreement.
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 January 1998
were 5,890,000 shares at an aggregate cost of $193,200,000.
The Company has a receivables purchase agreement whereby it can currently
sell to a third party 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 $298,000,000 of eligible receivables at July 3,
1999 and $220,700,000 of eligible receivables at January 2, 1999 were sold to
the Company's unconsolidated receivable financing subsidiary,
20
<PAGE> 22
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION -- (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
reducing consolidated notes and accounts receivable. Proceeds of approximately
$246,300,000 and $208,800,000 from the ultimate purchaser at the respective
balance sheet dates were used to reduce borrowings outstanding under the
Company's revolving lines of credit. Such proceeds as of January 2, 1999,
included advances from the ultimate purchaser totalling $55,900,000 which were
included in trade accounts payable.
Based on the Company's current operating and financial forecast, management
believes the funding available to the Company is sufficient to meet anticipated
requirements for capital expenditures, working capital and other needs. However,
there can be no assurance the Company will achieve its current forecast. If the
Company fails to achieve its current forecast, adequate funding under its
current credit lines may not be available for operating needs. If the Company's
actual performance does result in inadequate funding, the Company has several
potential options including the sale of certain assets, tighter management of
working capital or obtaining additional debt or equity financing through the
capital markets.
The Company's debt instruments, principally its Credit Agreement, 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. As of the most recent covenant compliance reporting date, the
Company is in compliance with all of the financial covenants under its Credit
Agreement. However, it is probable the Company will not be in compliance with
certain financial covenants in its Credit Agreement at the end of the third
quarter. If the Company fails to comply with certain of the financial covenants
in its Credit Agreement, a default will occur which will cross default to the
Company's other existing debt agreements. In the event that a default does
occur, the Company will need to cure the default with its bank lenders. The
Company will endeavor to obtain waivers, renegotiate covenants or obtain other
financing which, if obtained, will cure the default with its bank lenders and
cure the cross default to the other existing debt agreements. However, there can
be no assurance that the Company will be able to obtain waivers, renegotiate
covenants or obtain other financing. If an event of default exists, the lenders
are entitled to demand payment and/or foreclose upon their collateral.
THE EURO
The adoption of a common currency by countries of the European Economic
Community beginning January 1, 1999 may ultimately expose the Company's European
operations to certain risk factors such as the resulting cross-border
transparency of pricing differences. Certain system conversion costs will also
necessarily be incurred. Because the Company already competes throughout Western
Europe, however, the emergence of a single market in this region would not
immediately expose the Company to increased competition and may present
opportunities for further economies of scale. Management has not completed its
study of the impact on the Company but anticipates no material adverse effect on
the Company's financial position or results of operations. Sales in the affected
countries totalled less than 10% of consolidated net sales in 1999 and 1998.
ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued FAS 133,
Accounting for Derivative Instruments and Hedging Activities. The new Statement
requires all derivatives to be recorded on the balance sheet at fair value and
establishes "special accounting" for the following three different types of
hedges: hedges of changes in the fair value of assets, liabilities, or firm
commitments (referred to as fair value hedges); hedges of the variable cash
flows of forecasted transactions (cash flow hedges); and hedges of foreign
currency exposures of net investments in foreign operations. Though the
accounting treatment and criteria for each of the three types of hedges are
unique, they all result in offsetting changes in fair values or cash flows of
both the hedge and the hedged item being recognized in earnings in the same
period. Changes in fair value of
21
<PAGE> 23
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION -- (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
derivatives that do not meet the criteria of one of these three categories of
hedges are included in income. As amended by FAS 137 in June 1999, the Statement
is effective for years beginning after June 15, 2000, but companies can early
adopt as of the beginning of any fiscal quarter that begins after June 1998.
Management has not completed its review of FAS 133.
YEAR 2000
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
The Company presently believes that with modifications or replacements of
existing software and certain hardware, the Year 2000 Issue can be mitigated.
However, if such modifications and replacements are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Company.
The Company's plan to resolve the Year 2000 Issue involves the following
four phases: inventory/assessment, remediation, testing, and implementation. To
date, the Company has completed its assessment of mission-critical systems that
could be affected by the Year 2000 date. The completed assessment indicated that
most of the Company's significant information technology systems could be
affected, particularly the order, billing, and inventory systems. That
assessment also indicated that software and hardware (embedded chips) used in
production and manufacturing systems (hereafter also referred to as operating
equipment) also are at risk. Affected systems include technologies used in
various aspects of the manufacturing/distribution process. In addition, the
Company is gathering information about the Year 2000 compliance status of its
significant customers, suppliers and subcontractors, and continues to monitor
their compliance.
For its information technology exposures of mission critical systems,
through July 3, 1999, the Company is over 95% complete on the remediation phase
and expects to complete testing and deployment no later than September 1999. The
Company is 90% complete on the remediation phase of less critical systems, with
completion of testing and redeployment phases for those systems by September
1999. Additionally, the Company is monitoring critical software suppliers so
that any compliance changes in their products will be addressed in Company
systems.
The assessment phase of the operating equipment finished December 1998.
Remediation and replacement efforts are now underway for mission critical and
higher priority equipment that is not currently Year 2000 compliant.
Remediation, testing and implementation for these systems are scheduled to
finish by September 1999. Non-compliant equipment that is deemed of lesser
importance will be remediated or replaced by November 1999.
The Company's order entry system interfaces directly with significant
customers. The Company is in the process of working with customers to ensure
that the Company's systems that interface directly with third parties are Year
2000 compliant by September 1999. The Company has completed its assessment and
remediation of these systems. Testing and implementation has begun and is
expected to be complete by September 1999.
22
<PAGE> 24
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION -- (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
The Company has queried its significant suppliers and subcontractors, none
of which share information systems with the Company (external agents). The
Company will continue to solicit Year 2000 compliance responses from suppliers
in an effort to reduce risk. To date, the Company is not aware of any external
agent with a Year 2000 issue that would materially impact the Company's results
of operations, liquidity, or capital resources. However, the Company has no
means of ensuring that external agents will be Year 2000 ready. The inability of
external agents to complete their Year 2000 resolution process in a timely
fashion could materially impact the Company. The effect of non-compliance by
external agents is not determinable.
The Company is utilizing both internal and external resources to reprogram
or replace, test, and implement the software, hardware and operating equipment
for Year 2000 modifications. The total cost of the Year 2000 project is
estimated at $18,400,000 and is being funded through operating cash flows.
Through July 3, 1999, the Company has incurred costs, related to all phases of
the Year 2000 project, totaling approximately $15,600,000, all of which has been
expensed, including $3,400,000 in the three months ended July 3, 1999. All
remaining expenditures related to repair of hardware and software will be
expensed as incurred.
Management believes the Company has an effective program in place to
resolve the Year 2000 Issue in a timely manner. As noted above, the Company has
not yet completed all necessary phases of the Year 2000 program. In the event
that the Company does not complete any additional phases, the Company would
consider implementing remediated programs that have not been fully tested, thus
putting order/invoicing systems and other mission critical programs in jeopardy.
Additionally, the Company would be unable to fully manufacture or ship product
if no further Year 2000 effort were expended. Finally, disruptions in the
economy generally resulting from Year 2000 issues could also materially
adversely affect the Company. The Company could be subject to litigation for
computer systems product failure, for example equipment shutdown or failure to
properly date business records. The amount of potential liability and lost
revenue cannot be reasonably estimated at this time.
The Company has determined a need for contingency plans to cover loss or
disruption of critical applications, vendors, communication/community systems,
and equipment. These plans were drafted in the first quarter of 1999, were
completed in the second quarter, and will be approved in the third quarter of
1999. Training and other preparations for contingency plan execution will take
place through December 1999 as needed. Continuous updates will be made as more
information is made available by external agents and the Company can better
assess its risks.
23
<PAGE> 25
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
(the "Credit Agreement"), 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)* First Amendment to Credit Agreement dated March 26, 1998;
Second Amendment to Credit Agreement dated July 2, 1998;
Third Amendment to Credit Agreement date December 31, 1998;
Fourth Amendment to Credit Agreement dated March 10, 1999;
Second Amended and Restated Pledge Agreement dated March 10,
1999 related to the Credit Agreement; and Bond Pledge
Agreement dated March 10, 1999 related to the Credit
Agreement (incorporated herein by reference to Exhibit 4(c)
to the Company's Annual Report on Form 10-K for the year
ended January 2, 1999).
4(c)* Indenture dated as of March 25, 1999, among Fruit of the
Loom, Inc., as issuer, Fruit of the Loom, Ltd., as
guarantor, certain subsidiaries of Fruit of the Loom, Inc.,
as guarantors, and The Bank of New York, as trustee of the
8 7/8% Senior Notes due 2006 (incorporated herein by
reference to exhibit 4(c) to the Company's Quarterly Report
on Form 10-Q for the quarter ended April 3, 1999).
4(d) Fifth Amendment to Credit Agreement dated July 20, 1999.
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
No reports on Form 8-K were filed by the Registrant during the quarter
ended July 3, 1999.
24
<PAGE> 26
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)
/s/ G. WILLIAM NEWTON
--------------------------------------
G. William Newton
Vice President Finance
and Acting Chief Financial Officer
(Principal Financial Officer and duly
authorized to sign on behalf of
Registrant)
Date: August 17, 1999
25
<PAGE> 1
Exhibit 4(d)
FIFTH AMENDMENT TO THE CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO THE CREDIT AGREEMENT (this "Amendment") is
entered into as of July 20, 1999 among FRUIT OF THE LOOM, INC., a Delaware
corporation (the "Borrower"), Fruit of the Loom, Ltd., a Cayman Islands company
(the "Parent") and certain Subsidiaries of the Borrower as Guarantors, the
Lenders party hereto and BANK OF AMERICA, N.A. (f/k/a NationsBank, N.A.), as
Administrative Agent for the Lenders (the "Administrative Agent"). Capitalized
terms used herein and not otherwise defined shall have the meanings ascribed
thereto in the Credit Agreement (as defined below).
R E C I T A L S
---------------
WHEREAS, the Borrower, the Guarantors (other than the Parent), the
Lenders and the Administrative Agent entered into that certain Credit Agreement,
dated as of September 19, 1997 (as amended by that certain First Amendment to
the Credit Agreement dated as of March 26, 1998, that certain Second Amendment
to the Credit Agreement dated as of July 2, 1998, that certain Third Amendment
to the Credit Agreement dated as of December 31, 1998, that certain Fourth
Amendment to the Credit Agreement dated as of March 10, 1999 and as further
amended or otherwise modified from time to time, and to which the Parent was
added as a Guarantor and Credit Party pursuant to that certain Joinder Agreement
dated as of March 10, 1999, the "Credit Agreement");
WHEREAS, the Borrower has requested that the Lenders agree to amend
certain terms of the Credit Agreement; and
WHEREAS, the Required Lenders have agreed to such amendments to the
Credit Agreement as more fully set forth below.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
A G R E E M E N T
-----------------
1. Definitions.
(a) New Definitions. The following definition is added
to Section 1.1 of the Credit Agreement, in the appropriate
alphabetical order, to read as follows:
"CSFB Advantage Lease Financing" means, collectively,
(i) that certain lease financing arrangement among Union
Underwear Company, Inc. and certain of its Subsidiaries as
Lessees, The Chase Manhattan Bank (as successor to Chemical
Bank) as Owner Trustee, Credit Suisse First Boston as
Administrative Agent and the other parties thereto and (ii)
all leases, participation agreements, guarantees and other
operative documents therefor.
<PAGE> 2
"Equity Issuance" means any issuance by a Credit
Party to any Person (other than another Credit Party) of
shares of its capital stock, common shares of beneficial
interest or other equity interests, including pursuant to the
exercise of options or warrants or pursuant to the conversion
of any debt securities to equity.
"Real Estate Collateral" means those Real Properties
owned by the Credit Parties which are located within the
United States.
"Synthetic Lease Creditors" means the holders of the
Indebtedness guaranteed by the Borrower and certain of its
Subsidiaries pursuant to the guaranty agreement executed by
the Borrower and such subsidiaries in connection with CSFB
Advantage Lease Financing as set forth on Schedule 6.10.
(b) Change from "Borrower" to "Parent". Each of the following
definitions or parts thereof set forth in Section 1.1 of the Credit
Agreement is amended to delete the word "Borrower" in all of its
instances therein and to insert the word "Parent" in substitution
therefor:
(i) the definition of "Consolidated Net Tangible Assets";
(ii) the definition of "Consolidated Total Assets";
(iii) the definition of "Domestic Subsidiary";
(iv) the definition of "First Tier Foreign Subsidiary";
(v) the definition of "Foreign Subsidiaries";
(vi) clause (c) of the definition of "Funded Debt";
(vii) the definition of "Guarantor";
(viii) the definition of "Industrial Development Bonds";
(ix) the definition of "Material Subsidiary";
(x) the definition of "Permitted Accounts Receivable
Securitization";
(xi) the definition of "Permitted IDB Indebtedness";
(xii) the definition of "Receivables Facility Assets"; and
(xiii) the definition of "Receivables Subsidiary".
(c) Bond Pledge Agreement. The definition of "Bond Pledge
Agreement" set forth in Section 1.1 of the Credit Agreement is amended
to add the words "and the Synthetic Lease Creditors" to the end
thereof.
(d) Applicable Percentage. The definition of "Applicable
Percentage" set forth in Section 1.1 of the Credit Agreement is amended
and restated in its entirety to read as follows:
"Applicable Percentage" means the higher pricing
(i.e. the most expensive pricing) as determined by (a) the
appropriate applicable percentages corresponding to the lowest
Pricing Level available, as determined by the Unsecured Senior
Debt Rating in effect as of the most recent Calculation Date,
as shown in Pricing Grid A below or (b) the appropriate
applicable percentages corresponding to the Pricing
2
<PAGE> 3
Level as determined by the Leverage Ratio in effect as of
the most recent Calculation Date, as shown in Pricing
Grid B below.
<TABLE>
<CAPTION>
PRICING GRID A
UNSECURED SENIOR DEBT RATING
----------------------------
Applicable Applicable
Percentage Applicable Percentage Applicable
for Applicable Percentage for Percentage
Unsecured Revolving-A Percentage for Letter Revolving for
Pricing Senior Eurocurrency for Term of A-Facility Base Rate
Level Debt Rating Loans Loans Credit Fees Fees Loans
----- ----------- ----- ----- ----------- ---- -----
<S> <C> <C> <C> <C> <C> <C>
I >BBB+ from .675% .875% .675% .20% 0%
-
S&P or Baa1
from Moody's
II >BBB from .775% 1.00% .775% .225% 0%
-
S&P or Baa2
from Moody's
but < BBB+
from S&P or
Baa1 from
Moody's
III >BBB- from 1.00% 1.25% 1.00% .25% 0%
-
S&P or Baa3
from Moody's
but < BBB
from S&P or
Baa2 from Moody's
IV >BB+ from 1.125% 1.50% 1.125% .375% 0%
-
S&P or Ba1
from Moody's
but < BBB-
from S&P or
Baa3 from
Moody's
V >BB from 1.375% 1.75% 1.375% .375% .25%
-
S&P or Ba2
from Moody's
but < BB+
from S&P or
Ba1 from
Moody's
VI <BB- from 1.50% 2.00% 1.50% .50% .50%
-
S&P or Ba3
from Moody's
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
PRICING GRID B
LEVERAGE RATIO
--------------
Applicable Applicable
Percentage Applicable Percentage Applicable
for Applicable Percentage for Percentage
Unsecured Revolving-A Percentage for Letter Revolving for
Pricing Senior Eurocurrency for Term of A-Facility Base Rate
Level Debt Rating Loans Loans Credit Fees Fees Loans
----- ----------- ----- ----- ----------- ---- -----
<S> <C> <C> <C> <C> <C> <C>
I <3.25 to 1.0 1.375% 1.75% 1.375% .375% .25%
II >3.25 to 1.0 but 1.50% 2.00% 1.50% .50% .50%
-
<3.75 to 1.0
III >3.75 to 1.0 but 1.75% 2.25% 1.75% .50% .75%
-
<4.25 to 1.0
IV >4.25 to 1.0 but 2.00% 2.50% 2.00% .50% 1.00%
-
<4.75 to 1.0
V >4.75 to 1.0 2.25% 2.75% 2.25% .50% 1.25%
-
</TABLE>
The Applicable Percentage for Loans, the Letter of
Credit Fees and the Facility Fees shall, in each case, be
determined and adjusted on the date (each a "Calculation
Date") five Business Days after (x) the date by which the
Borrower is required to provide the officer's certificate in
accordance with the provisions of Section 7.1(c) or (y) the
date there is a change in the Unsecured Senior Debt Rating;
provided that if the Borrower fails to timely provide the
officer's certificate required by Section 7.1(c) for any
fiscal quarter, the Applicable Percentage for Loans, the
Letter of Credit Fees and the Facility Fees shall be based on
the higher of the applicable percentages corresponding to the
then current Unsecured Senior Debt Rating or Pricing Level V
of Pricing Grid B, until such time that an appropriate
officer's certificate is provided whereupon the Pricing Level
shall be determined by the then current Leverage Ratio or
Unsecured Senior Debt Rating, as applicable. Each
determination of the Applicable Percentage shall be effective
from one Calculation Date until the next Calculation Date. Any
adjustment in the Applicable Percentage shall be applicable to
all existing Loans and Letters of Credit as well as any new
Loans made or Letters of Credit issued.
In the event the two Unsecured Senior Debt Ratings
would provide for two different Pricing Levels in Pricing Grid
A, the Pricing Level determined by reference to the Unsecured
Senior Debt Rating shall be the Pricing Level that is one
level lower (i.e. lower priced) than the highest (i.e. most
expensive) Pricing Level indicated by the two Unsecured Senior
Debt Ratings.
The Borrower shall promptly deliver to the
Administrative Agent, at the address set forth on Schedule
11.1 and at the Agency Services Address, information regarding
any change in the Unsecured Senior Debt Rating, as determined
by S&P and Moody's, or any change in the Leverage Ratio that
would change an existing Pricing Level pursuant to Pricing
Grid A or Pricing Grid B.
4
<PAGE> 5
(e) Collateral Documents. The definition of "Collateral
Documents" set forth in Section 1.1 of the Credit Agreement is amended
and restated in its entirety to read as follows:
"Collateral Documents" means the Pledge Agreements,
the Bond Pledge Agreement, the Security Agreement, all
instruments, reports and other documents with respect to Real
Estate Collateral executed by the Credit Parties and delivered
to the Collateral Agent in accordance with Section 7.14 and
such other documents executed and delivered in connection with
the attachment and perfection of the Collateral Agent's
security interest in the Collateral, including, without
limitation, UCC financing statements.
(f) Collateral Effective Date. Section 1.1 of the
Credit Agreement is amended to delete the definition of "Collateral
Effective Date" set forth therein in its entirety.
(g) Collateral Period. Section 1.1 of the Credit
Agreement is amended to delete the definition of "Collateral Period"
set forth therein in its entirety.
(h) Collateral Termination Date. Section 1.1 of the
Credit Agreement is amended to delete the definition of "Collateral
Termination Date" set forth therein in its entirety.
(i) Farley Creditors. The definition of "Farley
Creditors" set forth in Section 1.1 of the Credit Agreement is amended
and restated in its entirety to read as follows:
"Farley Creditors" means the holders of that certain
Indebtedness, in an aggregate amount up to $65 million, of
William Farley that is unconditionally guaranteed in full by
the Borrower, the Parent and the Material Domestic
Subsidiaries of the Borrower.
(j) Permitted Investments. Clause (o) of the definition
of "Permitted Investments" set forth in Section 1.1 of the Credit
Agreement is amended to delete the amount "$25,000,000" therein and to
insert the amount "$20,000,000" in substitution therefor.
(k) Permitted Liens. That portion of the definition of
"Permitted Liens" set forth in Section 1.1 of the Credit Agreement
beginning with clause (m) thereof to the end of such definition is
amended and restated in its entirety to read as follows:
(m) pro rata Liens in favor of the Noteholders, the
Farley Creditors and the Synthetic Lease Creditors as set
forth in the terms of any Collateral Document executed and
delivered by the Credit Parties to the Collateral Agent, for
the benefit of the Lenders, the Noteholders, the Farley
Creditors and the Synthetic Lease Creditors and (n) Liens in
connection with Indebtedness permitted by Sections 8.1(l) and
(m) and (o) Liens in connection with that Indebtedness
5
<PAGE> 6
permitted by Section 8.1(c), repayment of which Indebtedness
is secured by a lien on any asset owned by any Foreign
Subsidiary.
(l) Pledge Agreements. The definition of "Pledge
Agreements" set forth in Section 1.1 of the Credit Agreement is
amended and restated in its entirety to read as follows:
"Pledge Agreements" means any Pledge Agreement (as
amended, modified, extended, renamed or restated from time to
time) executed and delivered by the Credit Parties in favor of
the Collateral Agent, for the benefit of the Lenders, the
Noteholders, the Farley Creditors and the Synthetic Lease
Creditors.
(m) Security Agreement. The definition of "Security
Agreement" set forth in Section 1.1 of the Credit Agreement is amended
and restated in its entirety to read as follows:
"Security Agreement" means any Security Agreement (as
amended, modified, extended, renewed or restated from time to
time) executed and delivered by the Credit Parties in favor of
the Collateral Agent for the benefit of the Lenders, the
Noteholders, the Farley Creditors and the Synthetic Lease
Creditors.
2. Change from "Borrower" to "Parent". The following Sections
or parts thereof set forth in the Credit Agreement are amended to delete the
word "Borrower" in all of its instances therein and to insert the word "Parent"
in substitution therefor:
(a) clauses (x) and (y) of Section 2.2(a);
(b) Section 6.11;
(c) Section 6.14;
(d) Section 6.17;
(e) Section 6.18(a); provided that, to the extent the phrase "to
the best knowledge of the Borrower" appears in such section,
such phrase is specifically retained in its current form;
(f) Sections 7.1(f)(b) and 7.1(g)(iii);
(g) Section 8.9(c);
(h) Section 8.11(d)(ii); and
(i) Sections 9.1(f), 9.1(g)(excluding clause (iii) thereof)
and 9.1(i).
3. Mandatory Prepayments. Section 3.3(b) of the Credit Agreement
is amended to add a new paragraph (ii) thereto, to read as follows:
(ii) Equity Issuance. Upon receipt by a Credit Party or
any of its Domestic Subsidiaries of the proceeds from an Equity
Issuance, the Borrower shall immediately forward to the Administrative
Agent an amount equal to (A) 100% of the gross proceeds from such
Equity Issuance minus (B) actual transaction costs payable to third
parties in
6
<PAGE> 7
connection therewith as a prepayment of the Loans (to be applied as set
forth in paragraph (iii) below).
4. Application of Prepayments. Paragraph (ii) of Section 3.3(b)
of the Credit Agreement shall become paragraph (iii) thereof, and is amended and
restated in its entirety to read as follows:
(iii) Application of Prepayments. All amounts required to
be paid pursuant to Section 3.3(b)(i)(A) shall be applied first to
Revolving-A Loans, second to Swing Line Loans and third to a cash
collateral account in respect of LOC Obligations. All amounts required
to be paid pursuant to Sections 3.3(b)(ii) shall be applied first to
the outstanding Term Loans (in direct order of Principal Amortization
Payments) until the Term Loans have been paid in full, second to
Revolving-A Loans (with a corresponding reduction in the Revolving-A
Committed Amount), third to Swing Line Loans and fourth to a cash
collateral account in respect of LOC Obligations. All amounts payable
under Section 3.3(b) shall be applied, to the extent applicable, first
to Base Rate Loans and then to Eurocurrency Loans in direct order of
Interest Period maturities.
5. Issuing Lender Fees. Clause (A) of paragraph (ii) of Section
3.4(b) of the Credit Agreement is amended and restated in its entirety to read
as follows:
(A) a fee equal to (x) if the definition of Applicable
Percentage provides that Pricing Grid A or Pricing Level I, II, III or
IV of Pricing Grid B is applicable on the date of issuance of the
Letter of Credit, one-eighth of one percent (.125%) per annum on the
total sum of all Letters of Credit issued by such Issuing Lender, or
(y) if the definition of Applicable Percentage provides that Pricing
Level V of Pricing Grid B is applicable on the date of issuance of the
Letter of Credit (as set forth in the definition of Applicable
Percentage), one-fifth of one percent (.20%) per annum on the total sum
of all Letters of Credit issued by such Issuing Lender, such fee to be
paid in arrears on the first day of each fiscal quarter of the Borrower
(as well as on the Revolving-A Loan Maturity Date) for the immediately
preceding fiscal quarter (or portion thereof) and
6. Remedies. The final sentence of Section 4.6 of the Credit
Agreement is amended and restated in its entirety to read as follows:
The Guarantors acknowledge and agree that their obligations
hereunder shall be secured in accordance with the terms of the
Collateral Documents and that the Lenders may exercise their remedies
thereunder in accordance with the terms thereof.
7. Subsidiaries. The second sentence of Section 6.15 of the
Credit Agreement is amended to delete the first eleven (11) words at the
beginning thereof and to insert the following words in substitution therefor:
"Information on Schedule 6.15 shall".
8. Collateral Documents. A new Section 6.26 of the Credit
Agreement is added to read as follows:
7
<PAGE> 8
6.26 COLLATERAL DOCUMENTS.
The Collateral Documents create valid security interests in,
and Liens on, the Collateral purported to be covered thereby, which
security interests and Liens are and will remain perfected security
interests and Liens, prior to all other Liens other than Permitted
Liens. Each of the representations and warranties made by the Credit
Parties and their Subsidiaries in the Collateral Documents is true and
correct in all material respects.
9. ERISA. Clause (ii) of Section 7.1(g) of the Credit Agreement
is amended and restated in its entirety to read as follows:
(ii) with respect to any Multiemployer Plan, the receipt
of notice as prescribed in ERISA or otherwise of any withdrawal
liability assessed against the Parent or any of its Subsidiaries or
ERISA Affiliates, or of a determination that any Multiemployer Plan is
in reorganization or insolvent (both within the meaning of Title IV of
ERISA);
10. Environmental. The final sentence of subparagraph (h)(i) of
Section 7.1 of the Credit Agreement shall be amended to delete the words "during
any Collateral Period".
11. Financial Covenants. Section 7.2 of the Credit Agreement is
amended and restated in its entirety to read as follows:
As of the end of each fiscal quarter set forth below, the
Leverage Ratio, Interest Coverage Ratio and Fixed Charge Coverage Ratio
shall satisfy the following minimum and maximum requirements:
<TABLE>
<CAPTION>
Minimum Fixed
Minimum Interest Charge Coverage
Coverage Ratio Ratio
Maximum (for the twelve-month (for the twelve-month
Fiscal Quarter Ending: Leverage Ratio period ending on such date) period ending on such date)
---------------------- -------------- --------------------------- ---------------------------
<S> <C> <C> <C>
June 30, 1999 6.0 to 1.0 1.0 to 1.0 1.40 to 1.0
September 30, 1999 6.0 to 1.0 1.0 to 1.0 1.40 to 1.0
December 31, 1999 5.0 to 1.0 1.0 to 1.0 1.50 to 1.0
March 31, 2000 3.25 to 1.0 2.25 to 1.0 2.25 to 1.0
June 30, 2000 3.25 to 1.0 2.25 to 1.0 2.25 to 1.0
September 30, 2000 3.0 to 1.0 2.50 to 1.0 2.25 to 1.0
December 31, 2000 3.0 to 1.0 2.50 to 1.0 2.25 to 1.0
and thereafter
</TABLE>
12. Audits/Inspections. Clause (a) of Section 7.11 of the Credit
Agreement is amended and restated in its entirety to read as follows:
(a) so long as no Event of Default shall have occurred
and be continuing, (i) no verification of accuracy of information
shall include contacting the account debtors under any accounts
receivable of any Credit Party and (ii) such visits and inspections
shall not (A) disrupt the normal business operations of any Credit
Party, (B) be conducted by more than 5 Persons at any one time or (C)
occur more frequently than annually and
8
<PAGE> 9
13. Additional Credit Parties. Section 7.12 of the Credit
Agreement is amended and restated in its entirety to read as follows:
7.12 ADDITIONAL CREDIT PARTIES.
At the time any Person becomes a Material Domestic Subsidiary
of a Credit Party, the Borrower shall so notify the Administrative
Agent and promptly thereafter (but in any event within 30 days after
the date thereof) shall (a) cause such Person to execute a Joinder
Agreement in substantially the same form as Exhibit 7.12, (b) cause
such Credit Party to execute an appropriate pledge agreement in
substantially the form of the Pledge Agreements and otherwise in a form
reasonably acceptable to the Collateral Agent, which pledge agreement
will obligate such Credit Party to cause all of the equity interests of
such Person to be delivered to the Collateral Agent (together with
undated stock powers, if applicable, signed in blank) and pledged to
the Collateral Agent, (c) if such Person has any Subsidiaries, cause
such Person to execute a pledge agreement in substantially the form of
the Pledge Agreements and otherwise in a form reasonably acceptable to
the Collateral Agent, which pledge agreement will obligate such Person
to cause all of the equity interests of its Domestic Subsidiaries and
65% of the equity interests of its Material First Tier Foreign
Subsidiaries to be delivered to the Collateral Agent (together with
undated stock powers, if applicable, signed in blank) and pledged to
the Collateral Agent, (d) cause such Person to execute a security
agreement in substantially the same form of the Security Agreements and
otherwise in a form reasonably acceptable to the Collateral Agent,
which security agreement will obligate such Person to cause all of its
personal property collateral to be pledged to the Collateral Agent, (e)
cause such Person to execute and deliver to the Collateral Agent all
such instruments, reports and other documents with respect to its Real
Estate Collateral as required by the terms of Section 7.14 and (f)
deliver, or cause such Person to deliver, such other documentation as
the Collateral Agent may reasonably request in connection with the
foregoing, including, without limitation, certified resolutions and
other organizational and authorizing documents of such Person,
favorable opinions of counsel to such Person (which shall cover, among
other things, the legality, validity, binding effect and enforceability
of the documentation referred to above) and all appropriate UCC-1
financing statements or other similar documents, in form, content and
scope reasonably satisfactory to the Collateral Agent, relating to the
Collateral.
14. Collateral. Section 7.13 of the Credit Agreement is amended
and restated in its entirety to read as follows:
7.13 COLLATERAL.
(a) If, subsequent to the Closing Date, a Credit Party
shall (i) acquire any real property, any patented, registered or
applied for intellectual property or any securities or (ii) acquire
any other personal property required to be delivered to the Collateral
Agent as Collateral hereunder or under any of the Collateral
Documents, the Borrower shall immediately notify the Collateral Agent
of same.
9
<PAGE> 10
(b) Each Credit Party shall take such action, as
reasonably requested by the Collateral Agent and at its own expense,
to ensure that the Lenders have a perfected Lien in all material
Collateral of the Credit Parties as set forth in the Collateral
Documents (whether now owned or hereafter acquired), subject only to
Permitted Liens. Such actions to be required by the Collateral Agent
may include, but are not limited to, delivery of UCC financing
statements or other similar documents, patent, trademark or copyright
filings, mortgage documents (in accordance with Section 7.14) and
legal opinions with respect thereto. No Credit Party shall change the
locations of its personal property except as permitted by the
Collateral Documents with appropriate notice to the Collateral Agent.
15. Real Estate Collateral. Section 7.14 of the Credit Agreement
is amended and restated in its entirety to read as follows:
7.14. REAL ESTATE COLLATERAL.
(a) With respect to the Real Estate Collateral not
listed on Schedule 7.14, on or before September 20, 1999, the Credit
Parties shall deliver to the Collateral Agent all such documents as
are reasonably requested by the Collateral Agent to evidence its lien
and encumbrance upon such Real Estate Collateral, in form and
substance acceptable to the Collateral Agent in its reasonable
discretion, such documents to include, without limitation:
(i) fully executed and notarized mortgages,
deeds of trust or deeds to secure debt (each a "Mortgage"
and collectively the "Mortgages") encumbering the fee
interest in such Real Estate Collateral (each a "Mortgaged
Property" and collectively the "Mortgaged Properties") in
compliance with all recording requirements of applicable
state law;
(ii) a title report obtained by the Credit
Parties in respect of each of the Mortgaged Properties;
(iii) an ALTA mortgagee title insurance policy in
form and substance, issued by such company, in such amounts
and with such assurances as are acceptable to the Collateral
Agent in its reasonable discretion;
(iv) evidence as to flood hazards, if any, with
respect to each of the Mortgaged Properties together with
copies of federal or other insurance policies or certificates
of insurance of the Credit Parties evidencing flood insurance
(if indicated by any such evidence of flood hazard) reasonably
satisfactory to the Collateral Agent and naming the
Administrative Agent as sole loss payee;
(v) maps or plats of an as-built survey of the
sites of the Mortgaged Properties certified to the
Collateral Agent and the applicable title insurance company
in a manner reasonably satisfactory to them, dated a date
satisfactory to each of the Collateral Agent and such title
insurance company by an independent
10
<PAGE> 11
professional licensed land surveyor reasonably satisfactory
to each of the Collateral Agent and such title insurance
company; and
(vi) all environmental inspections and reports
with respect to the Mortgaged Properties required by
applicable Environmental Laws or otherwise reasonably
requested by the Collateral Agent.
(b) With respect to Real Estate Collateral listed on
Schedule 7.14,
(i) on or before January 15, 2000, the Credit
Parties shall complete the sale of such Real Estate
Collateral in accordance with Section 8.5(j); or
(ii) if any such Real Estate Collateral is not
sold pursuant to subsection (b)(i) above, on or before
February 15, 2000, the Credit Parties shall deliver to the
Collateral Agent all such documents with respect to such
Real Estate Collateral required by subsection (a) above.
16. Indebtedness.
(a) The parenthetical set forth in Section 8.1(c) of the
Credit Agreement is amended to delete the words "to the holder of such
Indebtedness," therein and to insert the words "to all holders of such
Indebtedness" in substitution therefor.
(b) Section 8.1 of the Credit Agreement is amended to
add a new subsection (l) to read as follows:
(l) that certain Guaranty of Payment (the
"Farley Guaranty"), dated as of March 24, 1999, executed by
the Borrower, the Parent and certain Subsidiaries of the
Borrower in favor of NationsBank, N.A. as Administrative
Agent for the Farley Creditors for the benefit of William
Farley (and renewals, refinancings, replacements or
extensions thereof on terms and conditions no more
favorable, in the aggregate, to the holders of such
Indebtedness, than such existing Indebtedness and in a
principal amount not in excess of that outstanding as of the
date of such renewal, refinancing, replacement or extension
plus any financed fees and expenses, including without
limitation prepayment premiums and break funding fees,
incurred by the applicable Credit Party in connection with
any such renewal, refinancing, replacement or extension;
provided, however, that, with respect to any Indebtedness
which is being renewed, refinanced, replaced or extended,
the principal amount thereof which is permitted to be
renewed, refinanced, replaced or extended pursuant to the
terms of this clause (l) shall be an amount equal to the
aggregate commitments of the lenders under the documents
evidencing the Indebtedness which is being so renewed,
refinanced, replaced or extended plus any financed fees and
expenses, including without limitation prepayment premiums
and break funding fees, incurred by the applicable Credit
Party in connection with any such renewal, refinancing,
replacement or extension); and
11
<PAGE> 12
(c) Subsection (l) of Section 8.1 of the Credit Agreement
shall become subsection (m) thereof, and is amended and restated in its
entirety to read as follows:
(m) other Indebtedness; provided, however, that
the aggregate amount of Indebtedness permitted under this
Section 8.1(m), when added (without duplication) to the
aggregate amount of sale leaseback transactions then
outstanding and permitted under Section 8.6, shall not
exceed $10,000,000 (it being understood that the calculation
of each such aggregate amount will not include Indebtedness
outstanding and permitted under Sections 8.1(a)-(l),
including Indebtedness listed on Schedule 6.10 and
refinancings thereof permitted pursuant to Section 8.1(c)
and the Farley Guaranty and refinancings thereof permitted
pursuant to Section 8.1(l)).
17. Consolidation and Merger. Clauses (b) and (c) of Section 8.4
of the Credit Agreement are amended and restated in their entirety to read as
follows:
(b) if the merger or consolidation involves a Credit
Party, the Person formed by such consolidation or into which a Credit
Party is merged shall either (i) be such Credit Party or (ii) be a
Domestic Subsidiary and shall expressly assume in writing all of the
obligations of such Credit Party under the Credit Documents; provided
that (A) if the transaction is between the Borrower and another Person
or the Parent and another Person, the Borrower or Parent, as
applicable, must be the surviving entity and (B) the Borrower and the
Parent may not merge into each other.
(c) if the merger or consolidation involves a Material
First Tier Foreign Subsidiary, the Lenders receive 65% of the Voting
Stock of the surviving Material First Tier Foreign Subsidiary, if any;
18. Sale or Lease of Assets. Section 8.5 of the Credit Agreement
is amended to add a paragraph to the end thereof to read as follows:
Upon a sale of assets permitted by this Section 8.5, the
Collateral Agent shall promptly deliver to the Borrower, upon the
Borrower's request and at the Borrower's expense, such documentation as
is reasonably necessary to evidence the release of the Lenders'
security interest in such assets, including, without limitation,
amendments or terminations of UCC financing statements.
19. Sale Leasebacks. That portion of Section 8.6 of the Credit
Agreement beginning with clause (b)(ii) thereof through the end of such
definition is amended and restated in its entirety to read as follows:
(ii) other sale leaseback transactions; provided,
however, that the aggregate amount of sale leaseback transactions
permitted under this clause (ii), when added (without duplication) to
the aggregate amount of Indebtedness then outstanding and permitted
under Section 8.1(m), shall not exceed $10,000,000 (it being
understood that
12
<PAGE> 13
the calculation of each such aggregate amount will not include
Indebtedness outstanding and permitted under Sections 8.1(a)-(l),
including Indebtedness listed on Schedule 6.10 and refinancings
thereof permitted pursuant to Section 8.1(c) and the Farley Guaranty
and refinancings thereof permitted pursuant to Section 8.1(l).
20. Restricted Payments.
(a) Clause (b)(i) of Section 8.8 of the Credit
Agreement is amended to add the word "and" at the end thereof.
(b) Clause (b)(ii) of Section 8.8 of the Credit
Agreement is amended to delete the words "$15 million per year"
therein and to insert the words "$4 million per year" in substitution
therefor and to delete the word "and" at the end thereof.
(c) Clause (b)(iii) of Section 8.8 of the Credit
Agreement is deleted in its entirety.
21. Notices. Schedule 11.1 to the Credit Agreement is replaced
in its entirety by the revised Schedule 11.1 attached hereto.
22. Further Assurances. Section 11.15 of the Credit Agreement is
amended and restated in its entirety to read as follows:
11.15 FURTHER ASSURANCES.
The Credit Parties agree, upon the request of the Agents, to
promptly take such actions, as reasonably requested, as are necessary
to carry out the intent of this Credit Agreement and the other Credit
Documents, including, but not limited to, such actions as are necessary
to ensure that the Lenders have a perfected security interest in the
Collateral covered by such Collateral Document subject to no liens
other than Permitted Liens.
23. Collateral Termination Date. Section 11.20 of the Credit
Agreement is deleted in its entirety.
24. Conditions Precedent. The effectiveness of this Amendment is
subject to receipt by the Administrative Agent of the following:
(a) copies of this Amendment duly executed by the Credit
Parties and by the Required Lenders.
(b) an Amendment to the Security Agreement duly executed
by the Credit Parties, in form and substance acceptable to the
Required Lenders.
13
<PAGE> 14
(c) an Amendment to the Second Amended and Restated
Pledge Agreement duly executed by the Credit Parties, in form and
substance acceptable to the Required Lenders.
(d) an Amendment to the Bond Pledge Agreement duly
executed by the Credit Parties, in form and substance acceptable to
the Required Lenders.
(e) a certificate of the corporate secretary of each of
the Credit Parties certifying as to resolutions or authorization of
each Credit Party approving and adopting this Amendment, the Amendment
to the Security Agreement, the Amendment to the Second Amended and
Restated Pledge Agreement, the Amendment to the Bond Pledge Agreement
and the transactions contemplated herein and therein and authorizing
execution and delivery hereof and thereof.
(f) an opinion or opinions from counsel to the Credit
Parties, relating to this Amendment, the Amendment to the Security
Agreement, the Amendment to the Second Amended and Restated Pledge
Agreement, the Amendment to the Bond Pledge Agreement and the
transactions contemplated herein and therein, in form and substance
satisfactory to the Administrative Agent, addressed to the
Administrative Agent on behalf of the Lenders and dated as of the date
hereof.
(g) the execution and delivery of such UCC financing
statements and such patent, trademark and copyright filings or the
taking of such other actions as the Collateral Agent may reasonably
request in order to perfect the Lenders' security interest in the
Collateral.
(h) the payment of an amendment fee to each Lender who
executes this Amendment of one-quarter of one percent (.25% ) of its
current total Commitment and the payment of such other fees as agreed
to between the Borrower and the Administrative Agent.
(i) an agreement with the Synthetic Lease Creditors (or
an agent on their behalf) that the assets subject to the CSFB
Advantage Lease Financing will be liquidated and applied to the
balance outstanding under the CSFB Advantage Lease Financing prior to
any claim being made by such Synthetic Lease Creditors with respect to
the Collateral.
25. Ratification of Credit Agreement. The term "Credit Agreement"
as used in each of the Credit Documents shall hereafter mean the Credit
Agreement as amended by this Amendment. Except as herein specifically agreed,
the Credit Agreement is hereby ratified and confirmed and shall remain in full
force and effect according to its terms.
26. Authority/Enforceability. Each of the Credit Parties, the
Administrative Agent and the Lenders represents and warrants as follows:
(a) It has taken all necessary action to authorize the
execution, delivery and performance of this Amendment.
14
<PAGE> 15
(b) This Amendment has been duly executed and delivered
by such Person and constitutes such Person's legal, valid and binding
obligations, enforceable in accordance with its terms, except as such
enforceability may be subject to (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or
similar laws affecting creditors' rights generally and (ii) general
principles of equity (regardless of whether such enforceability is
considered in a proceeding at law or in equity).
(c) No consent, approval, authorization or order of, or
filing, registration or qualification with, any court or governmental
authority or third party is required in connection with the execution,
delivery or performance by such Person of this Amendment.
27. No Default/Release. The Credit Parties represent and warrant
to the Lenders that (a) the representations and warranties of the Credit Parties
set forth in Section 6 of the Credit Agreement are true and correct as of the
date hereof, (b) no event has occurred and is continuing which constitutes a
Default or an Event of Default except as is being cured by the execution and
delivery of this Amendment and (c) they have no claims, counterclaims, offsets,
credits or defenses to their obligations under the Credit Documents or to the
extent they have any they are hereby released in consideration of the Required
Lenders entering into this Amendment.
28. Counterparts/Telecopy. This Amendment may be executed in
any number of counterparts, each of which when so executed and delivered shall
be an original, but all of which shall constitute one and the same instrument.
Delivery of executed counterparts by telecopy shall be effective as an original
and shall constitute a representation that an original will be delivered.
29. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA.
[remainder of page intentionally left blank]
15
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
BORROWER:
- ---------
FRUIT OF THE LOOM, INC.,
a Delaware corporation
By: /s/ Brian J. Hanigan
---------------------------------------
Name: Brian J. Hanigan
Title: Vice President and Treasurer
GUARANTORS:
- -----------
FRUIT OF THE LOOM, LTD.,
a Cayman Islands company
UNION UNDERWEAR COMPANY, INC.,
a New York corporation
ALICEVILLE COTTON MILL, INC.,
an Alabama corporation
THE B.V.D. LICENSING CORPORATION,
a Delaware corporation
FAYETTE COTTON MILL, INC.,
an Alabama corporation
FOL CARIBBEAN CORPORATION,
a Delaware corporation
FRUIT OF THE LOOM ARKANSAS, INC.,
an Arkansas corporation
FRUIT OF THE LOOM CARIBBEAN, INC.,
a Delaware corporation
FRUIT OF THE LOOM, INC.,
a New York corporation
FRUIT OF THE LOOM TEXAS, INC.,
a Texas corporation
16
<PAGE> 17
FTL SALES COMPANY, INC.,
a New York corporation
GITANO FASHIONS LIMITED,
a Delaware corporation
GREENVILLE MANUFACTURING, INC.,
a Mississippi corporation
JET SEW TECHNOLOGIES, INC.,
a New York corporation
MARTIN MILLS, INC.,
a Louisiana corporation
PRO PLAYER, INC.,
a New York corporation
RABUN APPAREL, INC.,
a Georgia corporation
RUSSELL HOSIERY MILLS, INC.,
a North Carolina corporation
SALEM SPORTSWEAR CORPORATION,
a Delaware corporation
SHERMAN WAREHOUSE CORPORATION,
a Mississippi corporation
UNION SALES, INC.,
a Delaware corporation
UNION YARN MILLS, INC.,
an Alabama corporation
WHITMIRE MANUFACTURING, INC.,
a South Carolina corporation
WINFIELD COTTON MILL, INC.,
an Alabama corporation
FTL REGIONAL SALES COMPANY, INC.,
a Delaware corporation
LEESBURG YARN MILLS, INC.,
17
<PAGE> 18
an Alabama corporation
SALEM SPORTSWEAR, INC.,
a New Hampshire corporation
FRUIT OF THE LOOM TRADING COMPANY,
a Delaware corporation
DEKALB KNITTING CORPORATION,
an Alabama corporation
By: /s/ Brain J. Hanigan
---------------------------------------
Name: Brian J. Hanigan
Title: Vice President and a Financial
Officer of each of the foregoing
entities identified as a Guarantor
18
<PAGE> 19
LENDERS:
- --------
BANK OF AMERICA, N.A. (F/K/A NATIONSBANK, N.A)
individually in its capacity as a Lender and in
its capacity as Administrative Agent and
Collateral Agent
By: /s/ Leesa Sluder
---------------------------------------------
Name: Leesa Sluder
Title: Senior Vice President
19
<PAGE> 20
SIGNATURE PAGE TO FIFTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
BANKERS TRUST COMPANY
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
20
<PAGE> 21
SIGNATURE PAGE TO FIFTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
THE BANK OF NEW YORK
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
21
<PAGE> 22
SIGNATURE PAGE TO FIFTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
THE BANK OF NOVA SCOTIA
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
22
<PAGE> 23
SIGNATURE PAGE TO FIFTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
THE CHASE MANHATTAN BANK
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
23
<PAGE> 24
SIGNATURE PAGE TO FIFTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
ABN AMRO BANK N.V.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
24
<PAGE> 25
SIGNATURE PAGE TO FIFTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
25
<PAGE> 26
SIGNATURE PAGE TO FIFTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
BANK OF AMERICA NT & SA
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
26
<PAGE> 27
SIGNATURE PAGE TO FIFTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
CREDIT AGRICOLE INDOSEUZ
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
27
<PAGE> 28
SIGNATURE PAGE TO FIFTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
CREDIT LYONNAIS CHICAGO BRANCH
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
28
<PAGE> 29
SIGNATURE PAGE TO FIFTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
CREDIT SUISSE FIRST BOSTON
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
29
<PAGE> 30
SIGNATURE PAGE TO FIFTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
THE FIRST NATIONAL BANK OF CHICAGO
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
30
<PAGE> 31
SIGNATURE PAGE TO FIFTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
THE FUJI BANK, LIMITED
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
31
<PAGE> 32
SIGNATURE PAGE TO FIFTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
GULF INTERNATIONAL BANK B.S.C.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
32
<PAGE> 33
SIGNATURE PAGE TO FIFTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
HIBERNIA NATIONAL BANK
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
33
<PAGE> 34
SIGNATURE PAGE TO FIFTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
34
<PAGE> 35
SIGNATURE PAGE TO FIFTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
35
<PAGE> 36
SIGNATURE PAGE TO FIFTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
THE NORTHERN TRUST COMPANY
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
36
<PAGE> 37
SIGNATURE PAGE TO FIFTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
CO-PERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A. "RABOBANK
NEDERLAND", NEW YORK BRANCH
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
37
<PAGE> 38
SIGNATURE PAGE TO FIFTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
SOCIETE GENERALE
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
38
<PAGE> 39
SIGNATURE PAGE TO FIFTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
TORONTO DOMINION (TEXAS), INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
39
<PAGE> 40
SIGNATURE PAGE TO FIFTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
UNION BANK OF CALIFORNIA, N.A.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
40
<PAGE> 41
SIGNATURE PAGE TO FIFTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
THE ASAHI BANK, LTD., NEW YORK BRANCH
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
41
<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> 6-MOS
<FISCAL-YEAR-END> JAN-1-2000
<PERIOD-END> JUL-3-1999
<CASH> 19,600
<SECURITIES> 0
<RECEIVABLES> 110,900
<ALLOWANCES> 10,000
<INVENTORY> 856,800
<CURRENT-ASSETS> 1,020,900
<PP&E> 1,257,000
<DEPRECIATION> 775,400
<TOTAL-ASSETS> 2,399,400
<CURRENT-LIABILITIES> 393,300
<BONDS> 1,194,100
0
71,700
<COMMON> 255,600
<OTHER-SE> 194,300
<TOTAL-LIABILITY-AND-EQUITY> 2,399,400
<SALES> 960,400
<TOTAL-REVENUES> 960,400
<CGS> 740,600
<TOTAL-COSTS> 740,600
<OTHER-EXPENSES> (7,600)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,500
<INCOME-PRETAX> (10,800)
<INCOME-TAX> (600)
<INCOME-CONTINUING> (10,200)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,200)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
