<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 SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------- -------
COMMISSION FILE NUMBER 1-8941
FRUIT OF THE LOOM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-3361804
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
200 W. MADISON, SUITE 2700
CHICAGO, ILLINOIS 60606
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(312) 899-1320
(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 November 13, 2000: 66,905,348 Class A Common
Shares, $.01 par value and 5,229,421 shares of the Registrant's Preferred Stock,
$.01 par value (the Common and Preferred Stock is 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>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet--September 30, 2000 (Unaudited)
and January 1, 2000..................................................................... 2
Condensed Consolidated Statement of Operations (Unaudited) for the
Three and Nine Months Ended September 30, 2000 and October 2, 1999..................... 3
Condensed Consolidated Statement of Cash Flows (Unaudited) for the
Nine Months Ended September 30, 2000 and October 2, 1999................................ 4
Notes to Condensed Consolidated Financial Statements (Unaudited).......................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................... 30
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................................................... 40
</TABLE>
1
<PAGE> 3
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30, JANUARY 1,
2000 2000
------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents (including restricted cash) .... $ 101,000 $ 38,300
Notes and accounts receivable (less allowance for possible
losses of $31,400 and $35,000, respectively) ........... 217,100 230,500
Inventories
Finished goods ......................................... 482,400 477,300
Work in process ........................................ 62,900 114,800
Materials and supplies ................................. 40,700 51,600
----------- -----------
Total inventories .................................. 586,000 643,700
Net assets of discontinued operations .................... 2,500 29,300
Other .................................................... 31,600 27,600
----------- -----------
Total current assets ............................... 938,200 969,400
----------- -----------
Property, Plant and Equipment ............................ 1,065,900 1,095,200
Less accumulated depreciation .......................... 761,400 744,100
----------- -----------
Net property, plant and equipment .................. 304,500 351,100
----------- -----------
Other Assets
Goodwill (less accumulated amortization of $370,600 and
$352,100, respectively) ................................ 612,700 631,200
Other .................................................... 101,200 119,900
----------- -----------
Total other assets ................................. 713,900 751,100
----------- -----------
$ 1,956,600 $ 2,071,600
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Current maturities of long-term debt ..................... $ 794,900 $ 635,800
Trade accounts payable ................................... 36,500 17,900
Other accounts payable and accrued expenses .............. 257,100 195,000
----------- -----------
Total current liabilities .......................... 1,088,500 848,700
----------- -----------
Noncurrent Liabilities
Long-term debt ........................................... 408,500 593,500
Net liabilities of discontinued operations ............... 9,100 9,400
Notes and accounts payable -- affiliates ................. 91,100 --
Other .................................................... 24,400 37,900
----------- -----------
Total noncurrent liabilities ....................... 533,100 640,800
----------- -----------
Liabilities Subject to Compromise
Unrelated parties ........................................ 667,100 671,200
Affiliates ............................................... 454,900 454,900
----------- -----------
Total liabilities subject to compromise ............ 1,122,000 1,126,100
----------- -----------
Preferred Stock ............................................. 71,700 71,700
----------- -----------
Common Stockholders' Deficit ................................ (858,700) (615,700)
----------- -----------
$ 1,956,600 $ 2,071,600
=========== ===========
</TABLE>
See accompanying notes.
2
<PAGE> 4
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- --------------------------
SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, OCTOBER 2,
2000 1999 2000 1999
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales
Unrelated parties ...................................... $ 396,400 $ 480,500 $ 1,217,300 $ 1,368,800
Affiliates ............................................. 203,000 275,000 660,700 275,000
----------- ----------- ----------- -----------
599,400 755,500 1,878,000 1,643,800
----------- ----------- ----------- -----------
Cost of sales
Unrelated parties ...................................... 298,900 471,500 1,043,300 1,157,000
Affiliates ............................................. 231,900 355,400 743,600 355,400
----------- ----------- ----------- -----------
530,800 826,900 1,786,900 1,512,400
----------- ----------- ----------- -----------
Gross earnings (loss) ............................... 68,600 (71,400) 91,100 131,400
Selling, general and administrative expenses ............... 47,300 110,000 170,900 263,900
Goodwill amortization ...................................... 6,200 6,200 18,500 18,500
----------- ----------- ----------- -----------
Operating earnings (loss) ........................... 15,100 (187,600) (98,300) (151,000)
Interest expense ........................................... (32,200) (25,300) (92,800) (70,500)
Other (expenses) income-net ................................ (2,700) (24,900) 2,400 (16,100)
----------- ----------- ----------- -----------
Loss from continuing operations before
reorganization items and income tax provision ..... (19,800) (237,800) (188,700) (237,600)
Reorganization items ....................................... (9,300) -- (28,300) --
----------- ----------- ----------- -----------
Loss from continuing operations before
income tax provision .............................. (29,100) (237,800) (217,000) (237,600)
Income tax provision ....................................... 800 1,700 2,200 1,200
----------- ----------- ----------- -----------
Loss from continuing operations ..................... (29,900) (239,500) (219,200) (238,800)
Discontinued operations:
Loss from Sports & Licensing operations ................ -- (3,500) (2,600) (14,400)
----------- ----------- ----------- -----------
Net loss ............................................ $ (29,900) $ (243,000) $ (221,800) $ (253,200)
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
3
<PAGE> 5
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
SEPTEMBER 30, OCTOBER 2,
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss from continuing operations ............................ $ (219,200) $ (238,800)
Adjustments to reconcile to net operating cash flows:
Depreciation and amortization ........................... 81,800 87,600
Decrease (increase) in working capital .................. 129,700 (103,400)
Cash flows of discontinued operations ................... 23,400 (26,000)
Gain on marketable equity securities .................... (16,700) (3,900)
Other--net .............................................. (14,500) (20,700)
----------- -----------
Net operating cash flows before
reorganization items ................................. (15,500) (305,200)
Net cash used for reorganization items:
Professional fees paid ............................... (18,000) --
----------- -----------
Net operating cash flows ........................... (33,500) (305,200)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ....................................... (8,200) (27,400)
Proceeds from sale of marketable equity securities ......... 16,600 2,500
Proceeds from sale of Gitano ............................... 16,500 --
Proceeds from sale of property, plant and equipment ........ 3,300 20,500
Other--net ................................................. (800) (22,200)
----------- -----------
Net investing cash flows ........................... 27,400 (26,600)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
DIP financing proceeds ..................................... 1,040,300 --
DIP financing payments ..................................... (1,061,000) --
Proceeds from issuance of long-term debt ................... -- 240,200
Proceeds under line-of-credit agreements ................... -- 676,800
Payments under line-of-credit agreements ................... -- (486,800)
Principal payments on long-term debt and capital leases .... (1,600) (236,400)
Affiliate notes and accounts payable ....................... 91,100 174,700
Preferred dividends ........................................ -- (1,100)
----------- -----------
Net financing cash flows ........................... 68,800 367,400
----------- -----------
Net increase in Cash and cash
equivalents (including restricted cash) .................... 62,700 35,600
Cash and cash equivalents (including restricted
cash) at beginning of period ............................... 38,300 1,400
----------- -----------
Cash and cash equivalents (including restricted
cash) at end of period ..................................... $ 101,000 $ 37,000
=========== ===========
</TABLE>
See accompanying notes.
4
<PAGE> 6
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
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.") pursuant to a reorganization (the "Cayman Reorganization")
approved by the stockholders of FTL, Inc. on November 12, 1998. At the beginning
of the third quarter of 1999, FTL, Inc. transferred ownership of its Central
American subsidiaries which perform essentially all of the Company's sewing and
finishing operations for the U.S. market to FTL Caribe Ltd., a Cayman Islands
company directly wholly owned by FTL, Ltd.
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 1, 2000. 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 nine months ended
September 30, 2000 are not necessarily indicative of results that may be
expected for the full year. Certain prior year and first quarter amounts have
been reclassified to conform with the current year presentation.
In connection with the Cayman 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 (5,229,421 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 at any
time or in part from time to time, for 4,981,000 FTL, Ltd. Class A ordinary
shares, (iv) is convertible at the option of the holder, in whole at any time or
in part from time to 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.
5
<PAGE> 7
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
The fixed dividend on the FTL, Inc. Preferred Stock is 4.5% of the
liquidation preference of $71,700,000 and 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 September 30, 2000). Preferred
stockholder participation in losses is limited to the preferred stockholders'
prior participation in earnings. Because FTL, Inc. reported losses throughout
1999 and in the first nine months of 2000, the preferred stock participation is
limited to the fixed preferred dividends. The Company ceased recording dividends
on the FTL, Inc. Preferred Stock as of the date FTL, Inc.'s bankruptcy case
commenced since it is an unsecured obligation.
2. CHAPTER 11 FILING. On December 29, 1999 (the "Petition Date"), FTL,
Inc., its parent and 32 of its subsidiaries (collectively, the "Debtors") filed
voluntary petitions for relief under chapter 11 ("Chapter 11"), Title 11 of the
United States Code, U.S.C. Sections 101-1330 as amended (the "Bankruptcy Code"),
with the United States Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court"). The bankruptcy cases of the Debtors are being jointly
administered, for procedural purposes only, before the Bankruptcy Court under
Case No. 99-4497(PJW). Pursuant to Sections 1107 and 1108 of the Bankruptcy
Code, FTL, Inc., as debtor and debtor-in-possession, has continued to manage and
operate its assets and businesses pending the confirmation of a reorganization
plan and subject to the supervision and orders of the Bankruptcy Court. Because
FTL, Inc. currently is operating as debtor-in-possession under the Bankruptcy
Code, the existing directors and officers of FTL, Inc. continue to govern and
manage the operations of the Company, subject to the supervision and orders of
the Bankruptcy Court.
Certain subsidiaries were not included in the Chapter 11 filings.
Condensed consolidated financial statements of the entities in reorganization
are presented herein.
As part of the Chapter 11 cases, the Company routinely files pleadings,
documents and reports with the Bankruptcy Court which may contain updated,
additional or more detailed information about the Company, its assets,
liabilities or financial performance than is contained in this report. Copies of
filings in the Company's Chapter 11 cases are available during regular business
hours at the office of the Clerk of the Bankruptcy Court, United States
Bankruptcy Court for the District of Delaware, 5th Floor, 824 Market Street,
Wilmington, Delaware 19801. Certain filings may also be reviewed on the
Bankruptcy Court's electronic docket for the Company's Chapter 11 cases, which
is posted on the internet www.deb.uscourts.gov.
6
<PAGE> 8
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
REORGANIZATION PLAN PROCEDURES. The Debtors expect to reorganize their
affairs under the protection of Chapter 11 and to propose a Chapter 11 plan of
reorganization for themselves. Although management expects to file a plan of
reorganization which contemplates emergence from bankruptcy in 2001, there can
be no assurance at this time that a plan of reorganization proposed by the
Debtors will be approved or confirmed by the Bankruptcy Court, or if confirmed,
that such plan will be consummated. FTL, Inc. had the exclusive right to file a
plan of reorganization through April 27, 2000. The Bankruptcy Court granted an
extension of the exclusivity period through December 31, 2000 due to the
magnitude of the Company's operations and the complexity of the plan formulation
process. After the expiration of the exclusivity period (unless it is further
extended by order of the Bankruptcy Court), creditors will have the right to
propose reorganization plans.
The consummation of a plan of reorganization is the principal objective
of the Company's Chapter 11 cases. A plan of reorganization sets forth the means
by which claims against the Company and its debtor subsidiaries, including the
liabilities subject to compromise can be satisfied. The consummation of a plan
of reorganization for the Company and its debtor subsidiaries will require the
requisite vote of impaired creditors and stockholders under the Bankruptcy Code
and confirmation of the plan by the Bankruptcy Court. At this time it is not
possible to predict the outcome of the Debtors' Chapter 11 cases or their effect
on the Debtors' business. Management believes that it is highly unlikely that
current equity security holders will receive any distribution under any
reorganization plan as a result of the issuance of new equity to existing
creditors.
FINANCIAL STATEMENT PRESENTATION. The consolidated financial statements
have been presented in accordance with the American Institute of Certified
Public Accountants Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization under the Bankruptcy Code" (SOP 90-7) and have been prepared
in accordance with generally accepted accounting principles applicable to a
going concern, which principles, except as otherwise disclosed, assume that
assets will be realized and liabilities will be discharged in the ordinary
course of business. As a result of the Chapter 11 cases and circumstances
relating to this event, including FTL, Inc.'s debt structure, default on all
pre-petition debt, negative cash flows, recurring losses, as well as current
economic conditions, such realization of assets and liquidation of liabilities
are subject to significant uncertainty. While under the protection of Chapter
11, the Company may sell or otherwise dispose of assets, and liquidate or settle
liabilities, for amounts other than those reflected in the financial statements.
Additionally, the amounts reported on the consolidated balance sheet could
materially change because of changes in business strategies and the effects of
any proposed plan of reorganization.
7
<PAGE> 9
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
The appropriateness of using the going concern basis is dependent upon,
among other things, confirmation of a plan of reorganization, future profitable
operations, the ability to comply with the terms of the debtor-in-possession
financing facility and the ability to generate sufficient cash from operations
and financing arrangements to meet obligations.
LIABILITIES SUBJECT TO COMPROMISE. In the Chapter 11 cases, under a
plan of reorganization, substantially all unsecured liabilities as of the
Petition Date are subject to compromise or other treatment. For financial
reporting purposes, those liabilities and obligations whose treatment and
satisfaction are dependent on the outcome of the Chapter 11 cases have been
segregated and classified in the consolidated balance sheets as liabilities
subject to compromise under reorganization proceedings. Generally, all actions
to enforce or otherwise repay pre-Chapter 11 liabilities as well as all pending
litigation against the Debtors are stayed while the Debtors continue their
business operations as debtors-in-possession. Unaudited schedules have been
filed by the Debtors with the Bankruptcy Court setting forth the assets and
liabilities of the Debtors as of the Petition Date as reflected in the Debtor's
accounting records. The ultimate amount of and settlement terms for such
liabilities are subject to an approved plan of reorganization and accordingly
are not presently determinable.
Under the Bankruptcy Code, the Debtors may elect to assume or reject
real estate leases, employment contracts, personal property leases, service
contracts and other prepetition executory contracts, subject to Bankruptcy Court
approval. Claims for damages resulting from the rejection of real estate leases
and other executory contracts will be subject to separate bar dates. The Debtors
have not reviewed all leases for assumption or rejection but will analyze their
leases and executory contracts and may assume or reject leases and contracts.
The rejection of any of these leases and executory contracts could result in
additional liabilities subject to compromise.
The principal categories of obligations classified as liabilities
subject to compromise to unrelated parties under reorganization cases are
identified below. The amounts below in total may vary significantly from the
stated amount of proofs of claim that will be filed with the Bankruptcy Court
and may be subject to future adjustment depending on Bankruptcy Court action,
further developments with respect to potential disputed claims, determination as
to the value of any collateral securing claims, or other events.
As stated above, additional claims may arise from the rejection of
additional real estate leases and executory contracts by the Debtors.
<TABLE>
<CAPTION>
SEPTEMBER 30, JANUARY 1,
2000 2000
------------ ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
8.875% Unsecured Senior Notes............................................... $ 248,500 $ 248,500
Trade accounts payable...................................................... 102,700 113,100
Environmental and product liability......................................... 34,100 35,400
Accrued severance........................................................... 27,400 27,400
Deferred compensation accrual............................................... 21,600 16,400
Other....................................................................... 232,800 230,400
------------ ----------
$ 667,100 $ 671,200
=========== ==========
</TABLE>
As a result of the Chapter 11 filing, no principal or interest payments
will be made on unsecured prepetition debt without Bankruptcy Court approval or
until a plan of reorganization providing for the repayment terms has been
confirmed by the Bankruptcy Court and becomes effective. Therefore, interest on
prepetition unsecured obligations has not been accrued after the Petition Date.
8
<PAGE> 10
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
REORGANIZATION ITEMS AND OTHER EXPENSES. Pursuant to SOP 90-7, revenues
and expenses, realized gains and losses, and provisions for losses resulting
from the reorganization of the business are reported in the Condensed
Consolidated Statement of Operations separately as reorganization items.
Professional fees are expensed as incurred. Interest expense is reported only to
the extent that it will be paid during the cases or that it is probable that it
will be an allowed claim.
The Company's 7% Debentures due March 15, 2011 were delisted as of June
14, 2000 upon notice from the NASDAQ-AMEX Market Group (the "Exchange") that the
Company has fallen below certain of the Exchange's continued listing guidelines.
3. No dividends were declared on the Company's common stock for the
nine-month periods ended September 30, 2000 and October 2, 1999. Management of
the Company believes that no dividends will be declared on the Company's common
stock while the Company's Chapter 11 cases are pending.
4. The Company's income tax provision for the third quarter and first
nine months of 2000 and 1999 consists of a provision for European income taxes.
The Company recorded no U.S. tax benefit at the U.S. statutory rate of 35% on
the pretax loss in the third quarter and first nine months of 2000 primarily
because the Company is unable to realize any current benefit from the operating
loss through carrybacks to prior years, is unable under the Chapter 11 cases to
implement certain income tax planning strategies and expects an operating loss
for 2000.
As a result of the Chapter 11 cases, the utilization of net operating
loss carryforwards and tax credit carryforwards of the Company may be limited
under the Internal Revenue Code. The Company is unable at the present time to
quantify what, if any, limitation may apply to the tax carryforward items.
5. On February 23, 2000 the Bankruptcy Court approved the Company's
plan to discontinue the operations of the Company's Pro Player Sports and
Licensing Division ("Pro Player"). In accordance with generally accepted
accounting principles, Pro Player has been treated as a discontinued operation
in the accompanying condensed consolidated financial statements. The assets of
Pro Player to be sold consist primarily of accounts receivable, inventories,
property, plant and equipment and intangibles. In connection with the Company's
decision to discontinue the operations of Pro Player, $47,500,000 was accrued in
the year ended January 1, 2000 for the loss on disposal of the assets of Pro
Player including a provision of $10,400,000 for expected operating losses during
the estimated phase-out period from February 24, 2000 through August 24, 2000.
The Company currently estimates the phase-out period will continue until the end
of the fourth quarter.
9
<PAGE> 11
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
Operating results for Pro Player are classified as Discontinued
Operations in the accompanying condensed consolidated statement of operations. A
portion of the Company's interest expense (in the amount of interest expense in
each period presented below) has been allocated to discontinued operations based
on the debt balance attributable to those operations. Income taxes have been
provided on a separate company basis. The Company's estimated loss on disposal
of Sports & Licensing operations recorded in the fourth quarter of 1999 included
a provision for Pro Player's anticipated operating losses from the February 23,
2000 measurement date until disposal. Accordingly, the portion of Pro Player's
net loss attributable to periods after February 23, 2000 has been charged to the
Company's reserve for loss on disposal. Results of Pro Player's operations were
as follows (in thousands of dollars):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, OCTOBER 2,
2000 1999 2000 1999
------------- ----------- ------------- ---------
<S> <C> <C> <C> <C>
Net sales ................................................. $ (500) $ 48,500 $ 29,100 $ 102,600
Cost of sales ............................................. 900 33,000 30,000 74,500
--------- --------- --------- ---------
Gross earnings (loss) ................................ (1,400) 15,500 (900) 28,100
Selling, general & administrative expenses ................ 500 16,800 13,500 36,900
Goodwill amortization ..................................... -- 500 1,000 1,500
--------- --------- --------- ---------
Operating loss ....................................... (1,900) (1,800) (15,400) (10,300)
Interest expense .......................................... -- (1,700) (1,500) (4,100)
Other expense--net ........................................ (1,100) -- (1,400) --
--------- --------- --------- ---------
Net loss ............................................. (3,000) (3,500) (18,300) (14,400)
Portion of net loss charged to reserve for loss
on disposal.............................................. 3,000 -- 15,700 --
--------- --------- --------- ---------
Loss from discontinued operations .................... $ -- $ (3,500) $ (2,600) $ (14,400)
========= ========= ========= =========
</TABLE>
Assets and liabilities of discontinued operations consisted of the
following (in thousands of dollars):
<TABLE>
<CAPTION>
SEPTEMBER 30, JANUARY 1,
2000 2000
------------ ----------
<S> <C> <C>
Accounts receivable ................................... $ 800 $ 19,100
Inventories ........................................... 6,900 22,400
Other current assets .................................. -- 700
Other accounts payable and accrued expenses ........... (5,200) (12,900)
-------- --------
Net current assets ................................ 2,500 29,300
-------- --------
Property, plant and equipment ......................... 5,000 7,500
Liabilities subject to compromise ..................... (14,100) (16,900)
-------- --------
Net noncurrent liabilities ........................ (9,100) (9,400)
-------- --------
Net assets (liabilities) of discontinued
operations....................................... $ (6,600) $ 19,900
======== ========
</TABLE>
Assets are shown at their expected net realizable values.
6. In the third quarter of 2000, the Company incurred costs in
connection with the closure of several manufacturing facilities in Mexico,
resulting in special charges aggregating $13,100,000 for write-downs of
inventory, other assets and contractual obligations. These charges are recorded
in results of operations in the accompanying condensed consolidated financial
statements in Cost of sales ($1,800,000) and Selling, general and administrative
expenses ($11,300,000).
In the third and fourth quarters of 1999, the Company recorded charges
for provisions and losses on the sale of close-out and irregular inventory,
costs related to impairment of certain European manufacturing facilities,
severance, a debt guarantee and other asset write-downs and reserves. These
charges totaled $345,800,000 ($126,600,000 in the third quarter and $219,200,000
in the fourth quarter).
10
<PAGE> 12
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
A rollforward of the 1999 special charges from January 1, 2000 through
September 30, 2000 is presented below (in thousands of dollars):
<TABLE>
<CAPTION>
RESERVE RESERVE
BALANCE AT BALANCE AT
JANUARY 1, CASH INCOME OTHER SEPTEMBER 30,
2000 PAYMENTS (EXPENSE) ACTIVITY 2000
----------- -------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Provisions and losses on the sales of
close-out and irregular merchandise............... $ 35,000 $ -- $ -- $ 20,100 $ 14,900
Severance............................................ 30,600 500 -- -- 30,100
Debt guarantee....................................... 30,000 700 -- -- 29,300
Other asset write downs and reserves................. 72,100 600 -- 27,500 44,000
----------- -------- -------- --------- -----------
$ 167,700 $ 1,800 $ -- $ 47,600 $ 118,300
=========== ======== ======== ========= ===========
</TABLE>
Other activity in the first nine months of 2000 consists of inventory
reserves which were relieved as the inventory was sold. Other activity does not
include amounts provided in the first nine months of 2000 for additional ongoing
normal lower of cost or market reserves.
11
<PAGE> 13
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
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).
A rollforward of the 1997 special charges from January 1, 2000 through
September 30, 2000 is presented below (in thousands of dollars):
<TABLE>
<CAPTION>
RESERVE RESERVE
BALANCE BALANCE
JANUARY 1, CASH INCOME OTHER SEPTEMBER 30,
2000 PAYMENTS (EXPENSE) ACTIVITY 2000
---------- --------- -------- --------- ------------
<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........ $ 25,600 $ 100 $ -- $ 2,400 $ 23,100
Impairment of mills to be sold....................... 13,400 -- -- -- 13,400
Lease residual guarantees............................ 54,200 -- -- -- 54,200
Other equipment...................................... 6,100 -- -- -- 6,100
---------- --------- -------- --------- -----------
99,300 100 -- 2,400 96,800
Severance costs...................................... 200 -- -- -- 200
Other accruals....................................... 1,900 -- -- -- 1,900
---------- --------- -------- --------- -----------
101,400 100 -- 2,400 98,900
---------- --------- -------- --------- -----------
IMPAIRMENT OF EUROPEAN MANUFACTURING AND
DISTRIBUTION FACILITIES
Other accruals....................................... 200 -- -- 200 --
---------- --------- -------- --------- -----------
200 -- -- 200 --
---------- --------- -------- --------- -----------
OTHER ASSET WRITE-DOWNS AND RESERVES
Other accruals....................................... 4,200 -- -- 100 4,100
---------- --------- -------- --------- -----------
4,200 -- -- 100 4,100
---------- --------- -------- --------- -----------
CHANGES IN ESTIMATES OF CERTAIN RETAINED
LIABILITIES OF FORMER SUBSIDIARIES................ 9,300 500 -- -- 8,800
---------- --------- -------- --------- -----------
$ 115,100 $ 600 $ -- $ 2,700 $ 111,800
========== ========= ======== ========= ===========
</TABLE>
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.
12
<PAGE> 14
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
A rollforward of the 1995 special charges from January 1, 2000 through
September 30, 2000 is presented below (in thousands of dollars):
<TABLE>
<CAPTION>
RESERVE RESERVE
BALANCE BALANCE
JANUARY 1, CASH INCOME OTHER SEPT. 30,
2000 PAYMENTS (EXPENSE) ACTIVITY 2000
--------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Closing or realignment of manufacturing operations:
Changes in estimates of insurance liabilities....................... $ 500 $ 500 $ -- $ -- $ --
Other .............................................................. 200 -- -- -- 200
-------- ------- ---- ----- --------
700 500 -- -- 200
Changes in estimates of certain retained liabilities
of former subsidiaries.............................................. 2,200 1,300 -- -- 900
-------- ------- ---- ----- --------
$ 2,900 $ 1,800 $ -- $ -- $ 1,100
======== ======= ==== ===== ========
</TABLE>
13
<PAGE> 15
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
7. 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 September 30, 2000 related to discontinued operations consist
primarily of certain environmental reserves of approximately $32,100,000 and
product liability reserves of approximately $2,000,000. The Company has
purchased insurance coverage for potential cleanup cost expenditures from 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 2000
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 collateralized by
2,507,512 shares of FTL, Inc. Preferred Stock and all of Mr. Farley's assets,
including Mr. Farley's personal guarantee. In consideration of the guarantee,
which expired in September 2000, Mr. Farley is obligated to pay 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 total amount
guaranteed is $59,300,000 as of October 31, 2000. Based on management's
assessment of existing facts and circumstances of Mr. Farley's financial
condition, the Company recorded a $10,000,000 charge in the third quarter of
1999 and $20,000,000 in the fourth quarter of 1999 related to the Company's
exposure under the guarantee. The Company continues to evaluate its exposure
under the guarantee. Mr. Farley has not paid the Company the guarantee fee due
in 2000 and is in default under the loans and the reimbursement agreement with
the Company. The Company began paying interest on the loan in the first quarter
of 2000 including interest that was outstanding from the fourth quarter of 1999.
Through October 31, 2000, total payments made by the Company on behalf of Mr.
Farley's loan aggregated $4,700,000. In addition, unpaid guarantee fees owed the
Company by Mr. Farley through October 31, 2000 aggregated $1,300,000.
On June 2, 2000, Mr. Farley filed an action against Fruit of the Loom,
Inc. in the United States Bankruptcy Court for the District of Delaware seeking
declaratory relief regarding the parties' rights and obligations under a series
of agreements relating to the $65,000,000 credit facility provided to Mr. Farley
by Bank of America, N.A. and Credit Suisse First Boston (the "$65,000,000
Loan"). As alleged in the complaint, on March 24, 1999, Fruit of the Loom
executed a Guaranty of Payment under which Fruit of the Loom guaranteed Mr.
Farley's payment of his obligations under the $65,000,000 Loan. Also on March
24, 1999, Mr. Farley and Fruit of the Loom entered into a Reimbursement
Agreement under which Mr. Farley agreed to reimburse Fruit of the Loom for any
sums that it became obligated to pay to Mr. Farley's lenders under the Guaranty
of Payment. Mr. Farley seeks a declaration (i) that he is not contractually
obligated to make any payments to Fruit of the Loom under the Reimbursement
Agreement until Fruit of the Loom has paid all of Mr. Farley's outstanding
obligations under the $65,000,000 Loan pursuant to the Guaranty of Payment and
(ii) that Fruit of the Loom may not recover from Mr. Farley the costs of its
collection efforts under the Reimbursement Agreement.
14
<PAGE> 16
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
On July 3, 2000, Fruit of the Loom filed an answer and counterclaims
asserting causes of action for breach of contract and specific performance.
Fruit of the Loom seeks actual and consequential damages, costs, and attorney's
fees as well as the specific performance by Mr. Farley of his obligations under
the Reimbursement Agreement and related loan documents. Fruit of the Loom has
moved for summary judgment. That motion is pending. The Court has permitted
discovery to proceed during the pendency of Fruit of the Loom's summary judgment
motion.
On September 15, 2000, the bankruptcy reference was withdrawn in this
matter and the adversary proceeding was assigned to the United States District
Court for the District of Delaware. Management believes that Mr. Farley's action
is without merit and intends to defend against Mr. Farley's claim and to
prosecute its counterclaim vigorously.
William F. Farley, former Chairman of the Company's Board of Directors,
relinquished the additional duties of chief executive officer and chief
operating officer in August of 1999 at the direction of the Board. The Company
recorded a provision of $27,400,000 in the third quarter of 1999 for estimated
future severance and retirement obligations under Mr. Farley's employment
agreement. The Company terminated Mr. Farley's employment agreement in 1999.
Thereafter, the Company received approval from the Bankruptcy Court to reject
the agreement.
15
<PAGE> 17
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
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 September 30, 2000, the
Company had a contingent liability to repay, in whole or in part, grants
received of approximately $20,500,000 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 September 30, 1998, the New England Health Care Employees Pension
Fund filed a purported class action on behalf of all those who purchased FTL,
Inc. Class A Common Stock and publicly traded options between July 24, 1996 and
September 5, 1997 (the "Class Period") against the Company and William F.
Farley, Bernhard Hansen, Richard C. Lappin, G. William Newton, Burgess D. Ridge,
Larry K. Switzer and John D. Wigodsky, each of whom is a current or former
officer of the Company, in the United States District Court for the Western
District of Kentucky (the "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 was denied. The defendants filed a motion to change
venue from Bowling Green, Kentucky, to Chicago, Illinois. That motion has been
denied. The plaintiffs motion for class certification was granted. All
defendants have filed an answer to the complaint. Discovery has been initiated
against the individual defendants and against certain third-parties. The Company
filed a motion in the Bankruptcy Court seeking to enjoin further prosecution of
the New England Action pending the consummation of a plan of reorganization. The
Company and counsel for the plaintiff have reached agreement, subject to
documentation and approval of the Bankruptcy Court, to stay the New England
Action at least until January 15, 2001, subject to certain limited document
discovery against non-parties (other than any current or former officers and
directors) being permitted to proceed. Also, the plaintiffs may amend the
complaint to add additional parties. The action is not proceeding against the
Company at this time due to the automatic stay in the bankruptcy cases.
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.
16
<PAGE> 18
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
In March, April and May 2000, nine putative class actions were filed on
behalf of all those who purchased Fruit of the Loom, Inc. Class A common stock
between September 28, 1998 and November 4, 1999 against William F. Farley and G.
William Newton, each of whom is a current or former officer of the Company, in
the United States District Court for the Western District of Kentucky. The
lawsuits contain virtually identical allegations and assert the same causes of
action under the Securities Exchange Act of 1934, as amended (the "Act"). The
plaintiffs claim that the defendants engaged in conduct violating Section 10(b)
of the Act, and that Mr. Farley is also liable under Section 20(a) of the Act.
According to the plaintiffs in each action, the defendants made certain material
misrepresentations and failed to disclose certain material facts about the
Company's condition and prospects during the alleged class period, causing the
plaintiffs and the class to purchase Company stock at artificially inflated
prices. The plaintiffs ask for unspecified amounts as to damages, interest and
costs and ancillary relief.
The nine putative class action lawsuits are: i) Bernard Fidel v.
William Farley, et al., Civil Action No. 1:00 CV-48M (W.D. Ky.), filed on March
22, 2000; ii) Tom Maiden v. William Farley, et al., Civil Action No. 1:00 CV-49M
(W.D. Ky.), filed on March 27, 2000; iii) Adele Brody v. William Farley, et al.,
Civil Action No. 1:00 CV-50M (W.D. Ky.), filed on March 27, 2000; iv) Gregory
Nespole v. William Farley, et al., Civil Action No. 1:00 CV-53M (W.D. Ky.),
filed on March 29, 2000; v) Deborah Dyckman v. William Farley, et al., Civil
Action No. 1:00 CV-55M (W.D. Ky.), filed on March 30, 2000; vi) The Ezra
Charitable Trust v. William Farley, et al., Civil Action No. 1:00 CV-56M (W.D.
Ky.), filed on March 30, 2000; vii) Steven Clinton v. William Farley, et al.,
Civil Action No. 1:00 CV-59M (W.D. Ky.), filed on March 31, 2000; viii) Francis
Olearczyk v. William Farley, et al., Civil Action No. 1:00 CV-79M (W.D. Ky.),
filed on April 27, 2000; ix) Jeanne Buck v. William Farley, et al., Civil Action
No. 1:00 CV-93M (W.D. Ky.), filed on May 19, 2000. The Company filed a motion in
the Bankruptcy Court to stay these putative class actions pending consummation
of a plan of reorganization. The Company and counsel for the plaintiffs in the
putative class actions have reached agreement, subject to documentation and
approval of the Bankruptcy Court, to stay the putative class actions at least
until January 15, 2001, with the following exceptions:
(a) the plaintiffs shall be permitted to file amended complaints;
(b) the parties may pursue the selection of a lead plaintiff, class
certification and consolidation of any of the actions;
(c) the time for defendants to answer or move with respect to any
complaint shall be extended to November 14, 2000; and
(d) the parties may pursue document discovery, subject to limitations, of
certain non-parties other than the Company or current or former
officers or directors.
8. Comprehensive loss was as follows (in thousands of dollars):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 30, OCTOBER 2, SEPTEMBER 30, OCTOBER 2,
2000 1999 2000 1999
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Net loss ............................................... $ (29,900) $(243,000) $(221,800) $(253,200)
Unrealized gains on marketable equity securities:
Holding gains .................................. 4,400 -- 6,400 --
Realized gains reclassified to net loss ........ (300) -- (10,300) --
Foreign currency translation adjustments--net .......... (8,700) 5,700 (17,300) (10,900)
--------- --------- --------- ---------
Comprehensive loss ............................. $ (34,500) $(237,300) $(243,000) $(264,100)
========= ========= ========= =========
</TABLE>
9. DEBTOR FINANCIAL STATEMENTS. The following represents the
consolidation of the Company and its Debtor subsidiaries as of September 30,
2000 and January 1, 2000 and for the three and nine months ended September 30,
2000. Investments in nondebtor subsidiaries are presented using the equity
method.
17
<PAGE> 19
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
FRUIT OF THE LOOM, INC. AND DEBTOR SUBSIDIARIES
(DEBTOR IN POSSESSION)
SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30, JANUARY 1,
2000 2000
----------- -----------
ASSETS (UNAUDITED)
<S> <C> <C>
Current Assets
Cash and cash equivalents (including restricted cash) .................................. $ 77,800 $ 18,200
Notes and accounts receivable (less allowance for possible losses
$20,400 and of $23,600) .............................................................. 157,700 179,500
Inventories
Finished goods ...................................................................... 420,400 421,900
Work in process ..................................................................... 47,900 94,100
Materials and supplies .............................................................. 33,400 44,400
----------- -----------
Total inventories ................................................................ 501,700 560,400
Net assets of discontinued operations .................................................. 2,500 29,300
Other .................................................................................. 23,000 6,600
----------- -----------
Total current assets ............................................................. 762,700 794,000
----------- -----------
Property, Plant and Equipment ............................................................. 924,100 923,300
Less accumulated depreciation .......................................................... 689,800 657,000
----------- -----------
Net property, plant and equipment ................................................ 234,300 266,300
----------- -----------
Other Assets
Goodwill (less accumulated amortization of $370,600 and $352,100) ...................... 612,700 631,200
Investment in nondebtor subsidiaries ................................................... 211,900 220,300
Receivable from nondebtor subsidiaries ................................................. 75,400 52,200
Other .................................................................................. 100,500 117,800
----------- -----------
Total other assets ............................................................... 1,000,500 1,021,500
----------- -----------
$ 1,997,500 $ 2,081,800
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Current maturities of long-term debt ................................................... $ 787,500 $ 635,200
Trade accounts payable ................................................................. 23,600 7,000
Other accounts payable and accrued expenses ............................................ 235,400 109,200
----------- -----------
Total current liabilities ........................................................ 1,046,500 751,400
----------- -----------
Noncurrent Liabilities
Long-term debt ......................................................................... 385,300 556,300
Net liabilities of discontinued operations ............................................. 9,100 9,400
Payable to nondebtor subsidiaries ...................................................... 52,300 --
Other .................................................................................. 24,500 37,800
----------- -----------
Total noncurrent liabilities ..................................................... 471,200 603,500
----------- -----------
Liabilities Subject to Compromise
Unrelated parties ...................................................................... 667,100 671,200
Payable to nondebtor subsidiaries and affiliates ....................................... 599,700 599,700
----------- -----------
Total liabilities subject to compromise .......................................... 1,266,800 1,270,900
----------- -----------
Exchangeable Preferred Stock .............................................................. 71,700 71,700
----------- -----------
Common Stockholders' Deficit .............................................................. (858,700) (615,700)
----------- -----------
$ 1,997,500 $ 2,081,800
=========== ===========
</TABLE>
18
<PAGE> 20
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
FRUIT OF THE LOOM, INC. AND DEBTOR SUBSIDIARIES
(DEBTOR IN POSSESSION)
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PERIOD ENDED SEPTEMBER 30, 2000
-------------------------------
THREE NINE
MONTHS MONTHS
-------------- -------------
<S> <C> <C>
Net Sales
Unrelated parties ........................................................... $ 333,700 $ 1,014,400
Affiliates .................................................................. 203,000 660,700
----------- -----------
536,700 1,675,100
----------- -----------
Cost of Sales
Unrelated parties ........................................................... 233,100 853,200
Affiliates .................................................................. 256,700 796,200
----------- -----------
489,800 1,649,400
----------- -----------
Gross earnings ........................................................... 46,900 25,700
Selling, general and administrative expenses ................................... 35,800 125,300
Goodwill amortization .......................................................... 5,900 18,200
----------- -----------
Operating earnings (loss) ................................................ 5,200 (117,800)
Interest expense ............................................................... (31,500) (90,900)
Equity in earnings of nondebtor subsidiaries ................................... 3,500 9,100
Other income--net .............................................................. 2,000 11,000
----------- -----------
Loss from continuing operations before reorganization items and income tax
provision .............................................................. (20,800) (188,600)
Reorganization items ........................................................... (8,900) (27,900)
----------- -----------
Loss from continuing operations before income tax provision .............. (29,700) (216,500)
Income tax provision ........................................................... 200 2,700
----------- -----------
Loss from continuing operations .......................................... (29,900) (219,200)
Discontinued operations
Loss--Sports & Licensing operations ......................................... -- (2,600)
----------- -----------
Net loss ....................................................................... $ (29,900) $ (221,800)
=========== ===========
</TABLE>
19
<PAGE> 21
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
FRUIT OF THE LOOM, INC. AND DEBTOR SUBSIDIARIES
(DEBTOR IN POSSESSION)
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS OF DOLLARS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss from continuing operations ............................................. $ (219,200)
Adjustments to reconcile to net operating cash flows:
Equity in earnings of nondebtor subsidiaries ............................. (9,100)
Depreciation and amortization ............................................ 73,700
Decrease in working capital .............................................. 189,800
Cash flows of discontinued operations .................................... 23,400
Gain on sale of marketable equity securities ............................. (16,700)
Other--net ............................................................... (900)
-----------
Net operating cash flows before reorganization items ................... 41,000
Net cash used for reorganization items:
Professional fees paid ................................................. (18,000)
-----------
Net operating cash flows ............................................. 23,000
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ........................................................ (7,300)
Proceeds from sale of marketable equity securities .......................... 16,600
Proceeds from sale of Gitano ................................................ 16,500
Affiliate notes and accounts receivable ..................................... (23,300)
Other--net .................................................................. 2,500
-----------
Net investing cash flows ............................................. 5,000
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
DIP financing proceeds ...................................................... 1,040,300
DIP financing payments ...................................................... (1,061,000)
Affiliate notes and accounts payable ........................................ 52,300
-----------
Net financing cash flows ............................................. 31,600
-----------
Net increase in cash and cash equivalents (including restricted cash) .......... 59,600
Cash and cash equivalents (including restricted cash) at beginning of period ... 18,200
-----------
Cash and cash equivalents (including restricted cash) at end of period ......... $ 77,800
===========
</TABLE>
20
<PAGE> 22
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
10. 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, wholly-owned 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
September 30, 2000 and January 1, 2000, and supplemental condensed
consolidating summaries of operations and cash flows for the nine
months ended September 30, 2000 and October 2, 1999;
(b) The non-guarantor subsidiaries combined;
(c) The Guarantor Subsidiaries combined, with investments in
non-guarantor subsidiaries accounted for using the equity method and
with net assets of discontinued operations segregated;
(d) Fruit of the Loom, Inc. with investments in subsidiaries
accounted for using the equity method; and
(e) Elimination entries necessary to consolidate the Company
and all of its subsidiaries.
Separate financial statements of individual Guarantor Subsidiaries are
not presented because the Guarantor Subsidiaries are jointly, severally and
unconditionally liable under the guarantees, are wholly-owned by the Company,
management has determined that they are not material to investors and the
Company believes the supplemental guarantor/non-guarantor condensed
consolidating financial statements as presented are more meaningful in
understanding the financial position of the Company and its Guarantor
Subsidiaries.
21
<PAGE> 23
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 2000
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMBINED COMBINED FRUIT ELIMINATIONS
NON-GUARANTOR GUARANTOR OF THE AND
ASSETS SUBSIDIARIES SUBSIDIARIES LOOM, INC. RECLASSIFICATION CONSOLIDATED
------------- ------------ ---------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents
(including restricted cash) .................... $ 20,000 $ 7,200 $ 73,800 $ $ 101,000
Notes and accounts receivable
(less allowance for possible losses
of $31,400) ...................................... 51,200 165,600 300 217,100
Inventories,
Finished goods ................................. 56,000 426,400 -- 482,400
Work in process ................................ 10,100 52,800 -- 62,900
Materials and supplies ......................... 7,800 32,900 -- 40,700
--------- ----------- ----------- ----------- -----------
Total inventories .......................... 73,900 512,100 -- 586,000
Net assets of discontinued operations ............ -- 2,500 -- 2,500
Other ............................................ 7,800 20,700 3,100 31,600
--------- ----------- ----------- ----------- -----------
Total current assets ....................... 152,900 708,100 77,200 938,200
--------- ----------- ----------- ----------- -----------
Property, Plant and Equipment ....................... 131,500 929,200 5,200 1,065,900
Less accumulated depreciation ....................... 68,500 690,400 2,500 761,400
--------- ----------- ----------- ----------- -----------
Net property, plant and equipment ................ 63,000 238,800 2,700 304,500
--------- ----------- ----------- ----------- -----------
Other Assets
Goodwill (less accumulated amortization
of $370,600) ................................... -- 27,700 585,000
612,700
Affiliate notes and accounts receivable--net ..... -- -- 1,190,800 (1,190,800) --
Investment in subsidiaries ....................... -- 141,700 -- (141,700) --
Other ............................................ 1,700 45,100 54,400 101,200
--------- ----------- ----------- ----------- -----------
Total other assets ......................... 1,700 214,500 1,830,200 (1,332,500) 713,900
--------- ----------- ----------- ----------- -----------
$ 217,600 $ 1,161,400 $ 1,910,100 $(1,332,500) $ 1,956,600
========= =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Current maturities of long-term debt ............. $ 7,300 $ 100 $ 787,500 $ $ 794,900
Trade accounts payable ........................... 10,200 25,800 500 36,500
Other accounts payable and accrued expenses ...... 17,600 160,100 79,400 257,100
--------- ----------- ----------- ----------- -----------
Total current liabilities .................. 35,100 186,000 867,400 1,088,500
--------- ----------- ----------- ----------- -----------
Noncurrent Liabilities
Long-term debt ................................... 23,200 7,700 377,600 408,500
Losses in excess of investment in subsidiaries ... -- -- 1,017,900 (1,017,900) --
Net liabilities of discontinued operations ....... -- 9,100 -- 9,100
Notes and account payable - affiliates ........... 17,500 24,500 -- 49,100 91,100
Other ............................................ 100 23,600 700 24,400
--------- ----------- ----------- ----------- -----------
Total noncurrent liabilities ............... 40,800 64,900 1,396,200 (968,800) 533,100
--------- ----------- ----------- ----------- -----------
Liabilities Subject to Compromise
Unrelated parties ................................ -- 233,600 433,500 667,100
Affiliates ....................................... -- 1,694,800 -- (1,239,900) 454,900
--------- ----------- ----------- ----------- -----------
Total liabilities subject to compromise .... -- 1,928,400 433,500 (1,239,900) 1,122,000
--------- ----------- ----------- ----------- -----------
Preferred Stock ..................................... -- -- 71,700 71,700
--------- ----------- ----------- ----------- -----------
Common Stockholder's Equity (Deficit) ............... 141,700 (1,017,900) (858,700) 876,200 (858,700)
--------- ----------- ----------- ----------- -----------
$ 217,600 $ 1,161,400 $ 1,910,100 $(1,332,500) $ 1,956,600
========= =========== =========== =========== ===========
</TABLE>
22
<PAGE> 24
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL CONDENSED CONSOLIDATING SUMMARY OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMBINED COMBINED FRUIT ELIMINATIONS
NON-GUARANTOR GUARANTOR OF THE AND
SUBSIDIARIES SUBSIDIARIES LOOM, INC. RECLASSIFICATION CONSOLIDATED
------------ ------------ ---------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales
Unrelated parties.................................... $ 56,700 $ 339,700 $ $ $ 396,400
Affiliates........................................... -- 210,500 (7,500) 203,000
--------- --------- --------- --------- -----------
56,700 550,200 (7,500) 599,400
--------- --------- --------- --------- -----------
Cost of sales
Unrelated parties.................................... 43,100 255,800 298,900
Affiliates........................................... -- 239,400 (7,500) 231,900
--------- --------- --------- --------- -----------
43,100 495,200 (7,500) 530,800
--------- --------- --------- --------- -----------
Gross earnings..................................... 13,600 55,000 68,600
Selling, general and administrative expenses............ 11,000 33,800 2,500 47,300
Goodwill amortization................................... -- 300 5,900 6,200
--------- --------- --------- --------- -----------
Operating earnings (loss).......................... 2,600 20,900 (8,400) 15,100
Interest expense........................................ (700) (200) (31,300) (32,200)
Affiliated interest income (expense).................... (800) (34,100) 34,900 --
Equity in losses of subsidiaries........................ -- 1,000 (21,900) 20,900 --
Other income (expense)--net............................. 400 (8,900) 5,800 (2,700)
--------- --------- --------- --------- -----------
Earnings (loss) from continuing operations before
reorganization items and income tax provision.... 1,500 (21,300) (20,900) 20,900 (19,800)
Reorganization items.................................... -- (300) (9,000) (9,300)
--------- --------- --------- --------- -----------
Earnings (loss) from continuing operations before
income tax provision........................... 1,500 (21,600) (29,900) 20,900 (29,100)
Income tax provision.................................... 500 300 -- 800
--------- --------- --------- --------- -----------
Loss from continuing operations.................... 1,000 (21,900) (29,900) 20,900 (29,900)
Discontinued operations:
Loss--Sports & Licensing operations.................. -- -- -- -- --
--------- --------- --------- --------- -----------
Net earnings (loss)................................ $ 1,000 $ (21,900) $ (29,900) $ 20,900 $ (29,900)
========= ========= ========= ========= ===========
</TABLE>
23
<PAGE> 25
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL CONDENSED CONSOLIDATING SUMMARY OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMBINED COMBINED FRUIT ELIMINATIONS
NON-GUARANTOR GUARANTOR OF THE AND
SUBSIDIARIES SUBSIDIARIES LOOM, INC. RECLASSIFICATION CONSOLIDATED
------------- ------------ ---------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales
Unrelated parties................................. $ 189,100 $ 1,028,200 $ $ $ 1,217,300
Affiliates........................................ -- 685,800 (25,100) 660,700
--------- ----------- ----------- ------------ -----------
189,100 1,714,000 (25,100) 1,878,000
--------- ----------- ----------- ------------ -----------
Cost of sales
Unrelated parties................................. 144,800 898,500 1,043,300
Affiliates........................................ -- 768,700 (25,100) 743,600
--------- ----------- ----------- ------------ -----------
144,800 1,667,200 (25,100) 1,786,900
--------- ----------- ----------- ------------ -----------
Gross earnings.................................. 44,300 46,800 91,100
Selling, general and administrative expenses......... 37,100 125,800 8,000 170,900
Goodwill amortization................................ -- 800 17,700 18,500
--------- ----------- ----------- ------------ -----------
Operating earnings (loss)....................... 7,200 (79,800) (25,700) (98,300)
Interest expense..................................... (1,900) (600) (90,300) (92,800)
Affiliated interest income (expense)................. (2,100) (108,500) 110,600 --
Equity in losses of subsidiaries..................... -- (200) (188,700) 188,900 --
Other income (expense)--net.......................... (2,400) 6,100 (1,300) 2,400
--------- ----------- ----------- ------------ -----------
Earnings (loss) from continuing operations
before reorganization items and income tax
provision..................................... 800 (183,000) (195,400) 188,900 (188,700)
Reorganization items................................. -- (1,900) (26,400) (28,300)
--------- ----------- ----------- ------------ -----------
Earnings (loss) from continuing operations before
income tax provision........................ 800 (184,900) (221,800) 188,900 (217,000)
Income tax provision................................. 1,000 1,200 -- 2,200
--------- ----------- ----------- ------------ -----------
Loss from continuing operations................. (200) (186,100) (221,800) 188,900 (219,200)
Discontinued operations:
Loss--Sports & Licensing operations............... -- (2,600) -- -- (2,600)
--------- ----------- ----------- ------------ -----------
Net loss........................................ $ (200) $ (188,700) $ (221,800) $ 188,900 $ (221,800)
========= =========== =========== ============ ===========
</TABLE>
24
<PAGE> 26
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL CONDENSED CONSOLIDATING SUMMARY OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMBINED COMBINED FRUIT ELIMINATIONS
NON-GUARANTOR GUARANTOR OF THE AND
SUBSIDIARIES SUBSIDIARIES LOOM, INC. RECLASSIFICATION CONSOLIDATED
------------- ------------ ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss from continuing operations................... $ (200) $ (186,100) $ (221,800) $ 188,900 $ (219,200)
Adjustments to reconcile to net operating
cash flows:
Equity in losses of subsidiaries................ -- 200 188,700 (188,900) --
Depreciation and amortization................... 7,600 48,200 26,000 81,800
Decrease (increase) in working capital.......... (16,000) 105,100 40,600 129,700
Cash flows of discontinued operations........... -- 23,400 -- 23,400
Gain on marketable equity securities............ -- (16,700) -- (16,700)
Other--net...................................... (10,400) (16,300) 12,200 (14,500)
---------- ------------ ------------ ------------ ------------
Net operating cash flows
before reorganization items................. (19,000) (42,200) 45,700 (15,500)
Net cash used for reorganization items.......... -- (1,900) (16,100) (18,000)
--------- ------------ ------------- ------------ -----------
Net operating cash flows................ (19,000) (44,100) 29,600 -- (33,500)
---------- ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.............................. (400) (7,800) -- (8,200)
Proceeds from sale of marketable equity
securities...................................... -- 16,600 -- 16,600
Proceeds from sale of Gitano...................... 16,500 16,500
Proceeds from sale of property, plant and
equipment....................................... 100 3,200 -- 3,300
Affiliate notes and accounts receivable........... 4,300 -- 55,800 (60,100) --
Other--net........................................ -- (1,000) 200 (800)
--------- ------------ ------------ ------------ ------------
Net investing cash flows................ 4,000 27,500 56,000 (60,100) 27,400
--------- ----------- ------------ ------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
DIP financing proceeds............................ -- -- 1,040,300 1,040,300
DIP financing payments ........................... -- -- (1,061,000) (1,061,000)
Principal payments on
long-term debt and capital leases............... (1,600) -- -- (1,600)
Affiliate notes and accounts payable.............. 17,500 13,500 -- 60,100 91,100
--------- ----------- ------------ ------------ -----------
Net financing cash flows................ 15,900 13,500 (20,700) 60,100 68,800
--------- ----------- ------------- ------------ -----------
Net increase in Cash and cash equivalents (including
restricted cash).................................. 900 (3,100) 64,900 -- 62,700
Cash and cash equivalents (including restricted cash)
at beginning of period............................ 19,100 10,300 8,900 38,300
--------- ----------- ------------ ------------ -----------
Cash and cash equivalents (including restricted cash)
at end of period.................................. $ 20,000 $ 7,200 $ 73,800 $ -- $ 101,000
========= =========== ============ ============ ===========
</TABLE>
25
<PAGE> 27
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JANUARY 1, 2000
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMBINED COMBINED FRUIT ELIMINATIONS
NON-GUARANTOR GUARANTOR OF THE AND
SUBSIDIARIES SUBSIDIARIES LOOM, INC. RECLASSIFICATION CONSOLIDATED
------------- ------------ ---------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents
(including restricted cash)..................... $ 19,100 $ 10,300 $ 8,900 $ $ 38,300
Notes and accounts receivable
(less allowance for possible losses of $35,000)... 43,300 187,000 200 230,500
Inventories
Finished goods.................................. 59,800 417,500 -- 477,300
Work in process................................. 10,000 104,800 -- 114,800
Materials and supplies.......................... 7,200 44,400 -- 51,600
--------- ----------- ------------ ------------ -----------
Total inventories........................... 77,000 566,700 -- 643,700
Net assets of discontinued operations............. -- 29,300 -- 29,300
Other ............................................ 2,200 21,100 4,300 27,600
--------- ----------- ------------ ------------ -----------
Total current assets........................ 141,600 814,400 13,400 969,400
--------- ----------- ------------ ------------ -----------
Property, Plant and Equipment........................ 162,100 928,100 5,000 1,095,200
Less accumulated depreciation........................ 84,400 657,600 2,100 744,100
--------- ----------- ------------ ------------ -----------
Net property, plant and equipment................. 77,700 270,500 2,900 351,100
--------- ----------- ------------ ------------ -----------
Other Assets
Goodwill (less accumulated amortization of $352,100) -- 28,500 602,700 631,200
Affiliate notes and accounts receivable--net...... 4,300 -- 1,235,600 (1,239,900) --
Investment in subsidiaries........................ -- 154,200 -- (154,200) --
Other ............................................ 2,000 62,900 55,000 119,900
--------- ----------- ------------ ------------ -----------
Total other assets.......................... 6,300 245,600 1,893,300 (1,394,100) 751,100
--------- ----------- ------------ ------------- -----------
$ 225,600 $ 1,330,500 $ 1,909,600 $ (1,394,100) $ 2,071,600
========= =========== ============ ============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Current maturities of long-term debt.............. $ 700 $ -- $ 635,100 $ $ 635,800
Trade accounts payable............................ 9,800 8,100 -- 17,900
Other accounts payable and accrued expenses....... 23,600 130,500 40,900 195,000
--------- ----------- ------------ ------------ -----------
Total current liabilities................... 34,100 138,600 676,000 848,700
--------- ----------- ------------ ------------ -----------
Noncurrent Liabilities
Long-term debt.................................... 37,200 18,000 538,300 593,500
Losses in excess of investment in subsidiaries.... -- -- 807,800 (807,800) --
Net liabilities of discontinued operations........ -- 9,400 -- 9,400
Other ............................................ 100 35,900 1,900 37,900
--------- ----------- ------------ ------------ -----------
Total noncurrent liabilities................ 37,300 63,300 1,348,000 (807,800) 640,800
--------- ----------- ------------ ------------- -----------
Liabilities Subject to Compromise
Unrelated parties................................. -- 241,600 429,600 671,200
Affiliates........................................ -- 1,694,800 -- (1,239,900) 454,900
--------- ----------- ------------ ------------- -----------
Total liabilities subject to compromise..... -- 1,936,400 429,600 (1,239,900) 1,126,100
--------- ----------- ------------ ------------- -----------
Preferred Stock...................................... -- -- 71,700 71,700
--------- ----------- ------------ ------------ -----------
Common Stockholder's Equity (Deficit)................ 154,200 (807,800) (615,700) 653,600 (615,700)
--------- ------------ ------------- ------------ ------------
$ 225,600 $ 1,330,500 $ 1,909,600 $ (1,394,100) $ 2,071,600
========= =========== ============ ============= ===========
</TABLE>
26
<PAGE> 28
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL CONDENSED CONSOLIDATING SUMMARY OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED OCTOBER 2, 1999
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMBINED COMBINED FRUIT ELIMINATIONS
NON-GUARANTOR GUARANTOR OF THE AND
SUBSIDIARIES SUBSIDIARIES LOOM, INC. RECLASSIFICATION CONSOLIDATED
------------- ------------ ---------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales
Unrelated parties................................. $ 63,900 $ 416,600 $ $ $ 480,500
Affiliates........................................ -- 284,900 (9,900) 275,000
--------- ----------- ------------ ------------ -----------
63,900 701,500 (9,900) 755,500
--------- ----------- ------------ ------------ -----------
Cost of sales
Unrelated parties................................. 58,400 413,100 471,500
Affiliates........................................ -- 365,300 (9,900) 355,400
--------- ----------- ------------ ------------ -----------
58,400 778,400 (9,900) 826,900
--------- ----------- ------------ ------------ -----------
Gross earnings (loss)........................... 5,500 (76,900) (71,400)
Selling, general and administrative expenses......... 17,000 57,800 35,200 110,000
Goodwill amortization................................ -- 300 5,900 6,200
--------- ----------- ------------ ------------ -----------
Operating loss.................................. (11,500) (135,000) (41,100) (187,600)
Interest expense..................................... (800) (200) (24,300) (25,300)
Affiliated interest income (expense)................. (300) (6,700) 7,000 --
Equity in loss of subsidiaries....................... -- (13,600) (173,400) 187,000 --
Other income (expense)--net.......................... (700) (13,000) (11,200) (24,900)
--------- ----------- ------------ ------------ -----------
Loss from continuing operations
before income tax provision................. (13,300) (168,500) (243,000) 187,000 (237,800)
Income tax provision................................. 300 1,400 -- 1,700
--------- ----------- ------------ ------------ -----------
Loss from continuing operations................. (13,600) (169,900) (243,000) 187,000 (239,500)
Discontinued operations:
Loss - Sports & Licensing operations.............. -- (3,500) -- (3,500)
--------- ----------- ------------ ------------ -----------
Net loss........................................ $ (13,600) $ (173,400) $ (243,000) $ 187,000 $ (243,000)
========= =========== ============ ============ ===========
</TABLE>
27
<PAGE> 29
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL CONDENSED CONSOLIDATING SUMMARY OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED OCTOBER 2, 1999
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMBINED COMBINED FRUIT ELIMINATIONS
NON-GUARANTOR GUARANTOR OF THE AND
SUBSIDIARIES SUBSIDIARIES LOOM, INC. RECLASSIFICATION CONSOLIDATED
------------- ------------ ---------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales
Unrelated parties................................. $ 219,100 $ 1,149,700 $ $ $ 1,368,800
Affiliates........................................ -- 300,100 (25,100) 275,000
--------- ----------- ------------ ------------- -----------
219,100 1,449,800 (25,100) 1,643,800
--------- ----------- ------------ ------------- -----------
Cost of sales
Unrelated parties................................. 175,600 981,400 1,157,000
Affiliates........................................ -- 380,500 (25,100) 355,400
--------- ----------- ------------ ------------- -----------
175,600 1,361,900 (25,100) 1,512,400
--------- ----------- ------------ ------------- -----------
Gross earnings.................................. 43,500 87,900 131,400
Selling, general and administrative expenses......... 48,700 166,100 49,100 263,900
Goodwill amortization................................ -- 800 17,700 18,500
--------- ----------- ------------ ------------ -----------
Operating loss.................................. (5,200) (79,000) (66,800) (151,000)
Interest expense..................................... (2,600) (400) (67,500) (70,500)
Affiliated interest income (expense)................. (800) (54,000) 54,800 --
Equity in loss of subsidiaries....................... --- (11,500) (162,600) 174,100 --
Other income (expense)--net.......................... (2,200) (2,800) (11,100) (16,100)
---------- ------------ ------------- ------------ ------------
Loss from continuing operations
before income tax provision................. (10,800) (147,700) (253,200) 174,100 (237,600)
Income tax provision................................. 700 500 -- 1,200
--------- ----------- ------------ ------------ -----------
Loss from continuing operations................. (11,500) (148,200) (253,200) 174,100 (238,800)
Discontinued operations:
Loss - Sports & Licensing operations.............. -- (14,400) -- (14,400)
--------- ------------ ------------ ------------ ------------
Net loss........................................ $ (11,500) $ (162,600) $ (253,200) $ 174,100 $ (253,200)
========== ============ ============= ============ ============
</TABLE>
28
<PAGE> 30
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL CONDENSED CONSOLIDATING SUMMARY OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED OCTOBER 2, 1999
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMBINED COMBINED FRUIT ELIMINATIONS
NON-GUARANTOR GUARANTOR OF THE AND
SUBSIDIARIES SUBSIDIARIES LOOM, INC. RECLASSIFICATION CONSOLIDATED
------------- ------------ ---------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss from continuing operations................... $ (11,500) $ (148,200) $ (253,200) $ 174,100 $ (238,800)
Adjustments to reconcile to net operating cash flows:
Equity in (earnings) loss of subsidiaries....... -- 11,500 162,600 (174,100) --
Depreciation and amortization................... 10,400 55,400 21,800 87,600
Increase in working capital..................... 10,000 (170,300) 56,900 (103,400)
Cash flows of discontinued operations........... -- (26,000) -- (26,000)
Gain on marketable equity securities............ -- (3,900) -- (3,900)
Other--net...................................... 400 (14,400) (6,700) (20,700)
--------- ------------ ------------- ------------ ------------
Net operating cash flows...................... 9,300 (295,900) (18,600) -- (305,200)
--------- ------------ ------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.............................. (11,400) (16,000) -- (27,400)
Proceeds from sale of marketable equity securities -- 2,500 -- 2,500
Proceeds from sale of property, plant and equipment 200 20,300 -- 20,500
Affiliate notes and accounts receivable....... 27,300 -- (161,600) 134,300 --
Other--net........................................ (6,800) (15,400) -- (22,200)
---------- ------------ ------------ ------------ ------------
Net investing cash flows...................... 9,300 (8,600) (161,600) 134,300 (26,600)
--------- ------------ ------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt.......... -- -- 240,200 240,200
Proceeds under line-of-credit agreements.......... 18,100 -- 658,700 676,800
Payments under line-of-credit agreements.......... (18,100) -- (468,700) (486,800)
Principal payments on long-term debt and
capital leases.................................. (12,200) (400) (223,800) (236,400)
Affiliate notes and accounts payable.............. -- 309,000 -- (134,300) 174,700
Preferred dividends............................... -- -- (1,100) (1,100)
--------- ----------- ------------- ------------ ------------
Net financing cash flows...................... (12,200) 308,600 205,300 (134,300) 367,400
---------- ----------- ------------ ------------- -----------
Net increase in cash and cash equivalents
(including restricted cash)....................... 6,400 4,100 25,100 35,600
Cash and cash equivalents (including restricted cash)
at beginning of period............................ 1,800 (2,000) 1,600 1,400
--------- ------------ ------------ ------------ -----------
Cash and cash equivalents (including restricted cash)
at end of period.................................. $ 8,200 $ 2,100 $ 26,700 $ -- $ 37,000
========= =========== ============ ============ ===========
</TABLE>
29
<PAGE> 31
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 that 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 ability of the Company to
continue operating as a going concern and successfully emerge from bankruptcy
pursuant to a reorganization plan that provides for the Company to remain
substantially intact, the Company's ability to successfully execute its
corporate strategy in a competitive marketplace, the financial strength of the
retail industry, particularly the mass merchant channel, the level of consumer
spending for apparel, the amount of sales of the Company's activewear
screenprint products, the competitive pricing environment within the basic
apparel segment of the apparel industry, the Company's ability to develop,
market and sell new products, the Company's 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, political and regulatory
uncertainty that could influence international activities, the resolution of
legal proceedings and other contingent liabilities, and weather conditions in
the locations in which the Company manufactures 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.
CHAPTER 11 FILING
The Company believes that its vertically-integrated organization
historically made it one of the lowest-cost producers in its industry. To
maintain its low cost position, the Company relocated substantially all of its
domestic assembly operations offshore. In 1999, approximately 99% of the
Company's garments for sale in the United States were assembled offshore
compared to approximately 12% at the beginning of 1995. A number of difficulties
attended this transition. Prior operating management of the Company made the
decision in early 1998 to reduce inventories, close two distribution facilities
and one of the Company's knitting operations. The decision to reduce inventory
levels was accompanied by the temporary shutdown in the fourth quarter of 1998
of a number of the Company's textile plants. Upon resuming production in the
first quarter of 1999, the level of irregular inventory increased as a result of
hiring inexperienced workers. The deficiency in output from these plants and the
unexpectedly strong demand for key retail and activewear products resulted in
shortages of available products, which negatively impacted sales and required
the Company to incur additional costs (including freight) in an attempt to
maintain service levels with its major customers. The decision to close one of
the Company's knitting operations extended the time required to produce
necessary inventory and exacerbated the problem. In order to maintain customer
service at acceptable levels, the Company increased its usage of external
contractors, overtime labor, and time-sensitive and expensive methods of
transporting materials and products, all of which resulted in significant
unfavorable manufacturing variances. Accordingly, the Company's financial
performance and cash flow in 1999 reflect these difficulties.
On February 23, 2000 the Bankruptcy Court approved the Company's plan
to discontinue the operations of Pro Player which had historically been
unprofitable. In accordance with generally accepted accounting principles, Pro
Player has been treated as a discontinued operation in the accompanying
condensed consolidated financial statements. In connection with the Company's
decision to discontinue the operations of Pro Player, $47,500,000 was accrued
for the loss on disposal of the assets of Pro Player including a provision of
$10,400,000 for expected operating losses during the phase-out period from
February 24, 2000 through August 24, 2000. The Company currently estimates the
phase-out period will continue until the end of the fourth quarter.
30
<PAGE> 32
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)
In June 2000, the Company entered into an agreement to sell
substantially all of the assets of its Gitano Fashions Ltd. subsidiary to VF
Corp. for $17,500,000 which approximated book value. The transaction was
consummated on July 7, 2000. On the closing date VF Corp. acquired the Gitano
trademark and all of the Company's Gitano jeanswear inventory. In connection
with the sale of inventory, the Company has agreed to provide
distribution services to VF Corp. through December 2000.
The Company continues to review the divestiture of certain non-core
assets. A gain or loss may be recorded on the divestitures but the amount cannot
be determined at this time. In addition, restructuring costs may be incurred
which the Company is unable to quantify at this time.
On December 29, 1999, the Debtors filed voluntary petitions for relief
under Chapter 11 and are presently operating their business as
debtors-in-possession subject to the jurisdiction of the Bankruptcy Court. For
further discussion of the Chapter 11 cases, see Notes to Condensed Consolidated
Financial Statements.
Currently, there is no Company or creditor sponsored plan of
reorganization. There can be no assurance that any plan of reorganization will
be confirmed under the Bankruptcy Code. If the Company is unable to obtain
confirmation of a plan of reorganization, its creditors or equity security
holders may seek other alternatives for the Company, which include soliciting
bids for the Company or parts thereof through an auction process or possible
liquidation. There can be no assurance that upon consummation of a plan of
reorganization there will be improvement in the Company's financial condition or
results of operations. The Company has, and will continue to incur professional
fees and other cash demands typically incurred in bankruptcy.
The Company's consolidated financial statements have been prepared on a
going concern basis which contemplates continuity of operations, realization of
assets and liquidation of liabilities and commitments in the normal course of
business. The Chapter 11 filing, related circumstances, and the losses from
operations, raise substantial doubt about the Company's ability to continue as a
going concern. The appropriateness of reporting on the going concern basis is
dependent upon, among other things, confirmation of a plan of reorganization,
future profitable operations, and the ability to generate sufficient cash from
operations and financing sources to meet obligations (see LIQUIDITY AND CAPITAL
RESOURCES and Notes to Condensed Consolidated Financial Statements). As a result
of the filing and related circumstances, however, such realization of assets and
liquidation of liabilities are subject to significant uncertainty. While under
the protection of Chapter 11, the Debtors may sell or otherwise dispose of
assets and liquidate or settle liabilities for amounts other than those
reflected in the accompanying condensed consolidated financial statements.
Further, a plan of reorganization could materially change the amounts reported
in the accompanying condensed consolidated financial statements. The condensed
consolidated financial statements do not include any adjustments relating to the
recoverability of the value of recorded asset amounts or the amounts and
classifications of liabilities that might be necessary as a consequence of a
plan of reorganization.
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 September 30, 2000 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 1, 2000.
31
<PAGE> 33
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)
SPECIAL CHARGES. During the five years in the period ended January 1,
2000, the Company moved substantially all of its sewing and finishing operations
to locations in the Caribbean, Mexico and Central America as part of its
strategy to reduce its cost structure and remain a low cost producer in the U.S.
markets it serves. In the third and fourth quarters of 1999, the Company
recorded charges for provisions and losses on the sale of close-out and
irregular inventory to reflect the reduced market prices for these categories of
inventory, costs related to impairment of certain European manufacturing
facilities, severance, a debt guarantee and other asset write-downs and
reserves. 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. During 1995, the Company took several actions in an
effort to substantially reduce the Company's cost structure, streamline
operations and further improve customer service. These actions included the
closing of certain domestic manufacturing operations, further consolidation of
the Company's Gitano and licensed sportswear operations and the accelerated
migration of some sewing operations to lower cost, offshore locations. No
amounts were charged to results of operations during the first nine months of
2000 related to the above noted special charges. During the first nine months of
1999, $126,600,000 were charged to results of operations related to the above
noted special charges.
In the third quarter of 2000, the Company incurred costs in connection
with the closure of several manufacturing facilities in Mexico, resulting in
special charges aggregating $13,100,000 for write-downs of inventory, other
assets and contractual obligations. These charges are included in results of
operations in the accompanying condensed consolidated financial statements.
The elimination of certain non-core businesses and low
volume/unprofitable products, along with continuing competitive market
conditions, has resulted in lower projected sales volume. As a result, the
Company has made the strategic decision to close additional manufacturing
facilities in the fourth quarter of 2000. The Company estimates the charge
related to the shutdowns will range from $50,000,000 to $75,000,000 which will
be recorded in the fourth quarter of 2000. The cash portion of this charge is
estimated to range from $10,000,000 to $15,000,000.
THIRD QUARTER AND FIRST NINE MONTHS OF 2000 COMPARED WITH 1999
The table below sets forth selected operating data for the Company (in
millions of dollars and as percentages of net sales).
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- --------------------------
SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, OCTOBER 2,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales................................................ $ 599.4 $755.5 $ 1,878.0 $1,643.8
Gross earnings (loss).................................... 68.6 (71.4) 91.1 131.4
Gross margin............................................. 11.4% (9.5%) 4.9% 8.0%
Operating earnings (loss)................................ 15.1 (187.6) (98.3) (151.0)
Operating margin......................................... 2.5% (24.8%) (5.2%) (9.2%)
</TABLE>
32
<PAGE> 34
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 table below sets forth selected operating data for the Company on
sales to unrelated parties (in millions of dollars and as percentages of net
sales).
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------- --------------------------
SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, OCTOBER 2,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales................................................ $ 396.4 $ 480.5 $ 1,217.3 $1,368.8
Gross earnings........................................... 97.5 9.0 174.0 211.8
Gross margin............................................. 24.6% 1.9% 14.3% 15.5%
Operating earnings (loss)................................ 28.7 (110.3) (30.7) (73.7)
Operating margin......................................... 7.2% (23.0%) (2.5%) (5.4%)
</TABLE>
Net sales decreased $156,100,000 in the third quarter and increased
$234,200,000 in the first nine months of 2000 compared to the corresponding
periods of 1999; net sales to unrelated parties decreased $84,100,000 or 17.5%
in the third quarter and $151,500,000 or 11.1% in the first nine months of 2000
compared to 1999. Retail product sales decreased $45,000,000 and $61,900,000 in
the third quarter and first nine months of 2000 compared to 1999. Of the total,
Casualwear sales decreased $43,400,000 or 41.3% in the third quarter and
$43,600,000 or 26.5% in the first nine months of 2000 compared to corresponding
periods of 1999. These decreases occurred principally due to a shortfall in the
volume of Fleece and reflect a reduction in point of sale at a major customer.
In addition, the sale of the Company's Gitano jeanswear division resulted in
lower sales of $10,000,000 in the third quarter and $13,100,000 in the first
nine months of 2000 compared to corresponding periods of 1999. Intimate apparel
sales increased $800,000 or 4.8% in the third quarter but decreased $5,600,000
or 9.3% in the first nine months of 2000 compared to corresponding periods of
1999. The decrease in the nine month period related to reduced sales of Nylon
and Close Comfort product styles. Men's and boys' underwear sales increased by
$7,500,000 or 5.6% in the third quarter and decreased $700,000 or 0.2% in the
first nine months of 2000 compared to corresponding periods of 1999. Higher
sales of men's and boys' underwear in the third quarter of 2000 related to Fruit
of the Loom branded basic men's and boys' cotton products which more than offset
lower Munsingwear and private label sales. A portion of the decrease in retail
is in products that the Company will no longer offer in the future. Activewear
sales decreased $25,800,000 or 19.3% in the third quarter and $29,300,000 or
7.0% in the first nine months of 2000 compared to corresponding periods of 1999.
Domestic Activewear Tees and Fleece accounted for $16,600,000 and $8,200,000 of
the third quarter decrease. Lower Activewear shipments occurred due to the
impact of poor 1999 service along with increased competitive activity. Also, the
Company reduced its product offerings of Activewear products. In addition, the
reduction in sales resulted in part from a decrease in selling prices in the
third quarter and first nine months of 2000 as compared to the corresponding
periods of 1999. European sales declined $6,700,000 or 14.0% in the third
quarter and $29,700,000 or 17.2% in the first nine months of 2000 compared to
corresponding periods of 1999. These decreases were due primarily to unfavorable
foreign currency impacts resulting from the devaluation of the Euro in relation
to the U.S. dollar and lower volume of retail products. The reduction in retail
volume reflected the continuing impact of the Company's decision to pursue the
up-market retail channel in 1999. The reductions in both periods were partially
offset by additional volume of Activewear products. Sales of other products
represent yarn and denim sales which the Company effectively discontinued
selling subsequent to 1999.
33
<PAGE> 35
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)
Segment net sales were as follows (in millions of dollars).
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------- -------------------------
SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, OCTOBER 2,
2000 1999 2000 1999
---- ---- ---- ----
<S> <S> <C> <C> <C>
NET SALES
Retail Products....................................... $ 247.0 $ 292.0 $ 686.3 $ 748.2
Activewear............................................ 108.1 133.9 387.3 416.6
Europe................................................ 41.2 47.9 143.0 172.7
Other................................................. 0.1 6.7 0.7 31.3
------- ------- --------- ---------
Subtotal - Unrelated Parties..................... 396.4 480.5 1,217.3 1,368.8
Affiliates....................................... 203.0 275.0 660.7 275.0
------- ------ --------- ---------
Total............................................ $599.4 $755.5 $1,878.0 $ 1,643.8
====== ====== ======== ==========
</TABLE>
Gross earnings increased $140,000,000 in the third quarter and
decreased $40,300,000 in the first nine months of 2000 compared to corresponding
periods of 1999. Gross earnings on sales to unrelated parties increased
$88,500,000 in the third quarter of 2000 but decreased $37,800,000 or 17.8% in
the first nine months of 2000 compared to corresponding periods of 1999. Gross
margin on sales to unrelated parties improved 22.7 percentage points to 24.6% of
sales for the third quarter and declined 1.2 percentage points to 14.3% of sales
for the first nine months of 2000. Amounts charged to cost of sales in the first
nine months of 2000 represent costs incurred in the second half of 1999 and
first quarter of 2000 when the inventory that was sold in the first nine months
of 2000 was manufactured. The higher costs incurred in the last half of 1999
were charged to cost of sales in the first six months of 2000. Production costs
decreased substantially in 2000. The Company experienced a significant
improvement in gross margin in the third quarter of 2000 as a result of the
decrease in production costs. In the third quarter of 2000, lower production
costs accounted for $47,400,000 of the increase in gross earnings, obsolete
inventory accounted for $13,600,000 of the increase and price increases
aggregated $3,000,000. In the first nine months of 2000, higher production costs
accounted for $21,200,000 of the decline in gross earnings and price decreases
aggregated $14,000,000. Charges for obsolete inventory decreased $8,500,000 in
the first nine months of 2000 compared with the first nine months of 1999. The
Company experienced a favorable earnings impact related to sales of close-out
and irregular merchandise aggregating $8,100,000 in the third quarter and
$15,200,000 in the first nine months of 2000 compared with corresponding periods
of 1999. The Company reduced the amount provided for physical inventory losses
by $36,300,000 in the third quarter (from $40,800,000 in 1999 to $4,500,000 in
2000) and $25,300,000 in the first nine months of 2000 (from $44,500,000 in 1999
to $19,200,000 in 2000) compared with corresponding periods of 1999. Lower
volume and unfavorable mix decreased gross earnings by $29,300,000 in the third
quarter and $40,200,000 in the first nine months of 2000 compared with
corresponding periods of 1999.
The Company experienced operating earnings in the third quarter of 2000
on sales to unrelated parties of $28,700,000 compared to an operating loss on
sales to unrelated parties of $110,300,000 in the third quarter of 1999. For the
first nine months of 2000, the Company experienced an operating loss on sales to
unrelated parties of $30,700,000 compared to an operating loss on sales to
unrelated parties of $73,700,000 in the first nine months of 1999. In addition
to the change in gross earnings were lower selling, general, and administrative
expenses of $50,500,000 in the third quarter and $80,800,000 in the first nine
months of 2000 compared to the corresponding periods of 1999. These reductions
were principally lower severance costs, salaries, advertising and promotion,
legal and professional and office expenses in 2000 and due to expenditures for
Y2K remediation in 1999. In addition, the consolidation of the Company's sales
and marketing organization resulted in lower selling, general and administrative
expenses in the third quarter and first nine months of 2000. The costs of the
closure of several manufacturing facilities in Mexico aggregated $13,100,000
($11,300,000 of which was charged to selling, general and administrative expense
in the third quarter of 2000) partially offset the decreases noted above.
Selling, general and administrative expenses as a percent of net sales on sales
to unrelated parties decreased 7.7 percentage points to 15.8% in the third
quarter and 4.2 percentage points to 15.3% in the first nine months of 2000.
34
<PAGE> 36
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)
Segment operating earnings (loss) were as follows (in millions of
dollars).
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- ----------------------------
SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, OCTOBER 2,
2000 1999 2000 1999
------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
OPERATING EARNINGS (LOSS)
Retail Products.......................................... $ 36.4 $ (60.6) $ 13.0 $ (33.5)
Activewear............................................... 3.9 (35.5) (32.3) (28.7)
Europe................................................... 1.9 (10.7) 5.7 (4.2)
Other.................................................... 5.8 2.7 14.5 11.2
Goodwill................................................. (6.2) (6.2) (18.5) (18.5)
Mexico closure........................................... (13.1) -- (13.1) --
------ ------- ------ -------
Subtotal - Unrelated Parties........................ 28.7 (110.3) (30.7) (73.7)
Affiliates.......................................... (13.6) (77.3) (67.6) (77.3)
------ ------- ------ ------
Total............................................... $ 15.1 $(187.6) $(98.3) $(151.0)
====== ======= ====== =======
</TABLE>
Interest expense increased $6,900,000 to $32,200,000 in the third
quarter and $22,300,000 in the first nine months of 2000 to $92,800,000 compared
to the corresponding periods of 1999. The increase reflected a higher average
interest rate. The Company also had a higher average borrowing level reflecting
the elimination of the Company's accounts receivable securitization in the
fourth quarter of 1999. Although the average borrowing level was higher, the
Company did not record interest on $248,500,000 of unsecured 87/8% senior notes
(the "Unsecured Notes") in the first nine months of 2000 in accordance with SOP
90-7. The Unsecured Notes are included in Liabilities Subject to Compromise in
the accompanying Condensed Consolidated Balance Sheet.
Other income (expense)-net was favorable $22,200,000 in the third
quarter and $18,500,000 in the first nine months of 2000 compared to the
corresponding periods of 1999. Principal components of net other expense in the
third quarter of 2000 included adequate protection payments (interest payments)
in the amount of $1,500,000 related to the guarantee of personal indebtedness of
the Company's former Chairman, bank fees of $1,100,000 and losses on the sale of
property, plant and equipment of $1,100,000. These unfavorable impacts were
partially offset by a $900,000 gain on marketable equity securities. Principal
components of net other expense in the third quarter of 1999 included a
$10,000,000 charge for a loss contingency on the Company's guarantee of personal
indebtedness of the Company's former Chairman, an $8,000,000 charge for a loss
contingency related to a vacation pay settlement in Louisiana, asset
securitization expense of $2,700,000, debt waiver fees of $2,000,000 and bank
fees of $2,300,000. Principal components of net other income in the first nine
months of 2000 included a $16,700,000 gain on the sale of marketable equity
securities partially offset by adequate protection payments (interest payments)
in the amount of $4,400,000 related to the guarantee of personal indebtedness of
the Company's former Chairman, bank fees of $2,800,000, unfavorable currency
translation of $2,700,000 and losses on the sale of property, plant and
equipment of $1,600,000. Principal components of net other expense in the first
nine months of 1999 included a $10,000,000 charge for a loss contingency on the
Company's guarantee of personal indebtedness of the Company's former Chairman,
an $8,000,000 charge for a loss contingency related to a vacation pay settlement
in Louisiana, asset securitization expense of $7,300,000, a write off of debt
premium fees of $2,000,000, debt waiver fees of $2,000,000 and bank fees of
$4,900,000. These favorable impacts were partially offset by an $10,200,000 gain
on the sale of two facilities, a $3,900,000 gain on previously settled
litigation and a $3,900,000 gain on marketable equity securities.
35
<PAGE> 37
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)
Reorganization items represent costs incurred by the Company during the
Chapter 11 cases. The reorganization items in the third quarter and first nine
months of 2000 aggregated $9,300,000 and $28,300,000, respectively, and
consisted of professional fees, including legal, accounting and other services
provided to the Company during the Chapter 11 cases. At September 30, 2000,
$10,300,000 of the $28,300,000 incurred in the first nine months of 2000 is
accrued and included in Other accounts payable and accrued expenses in the
accompanying condensed consolidated balance sheet.
The Company's income tax provision for the third quarter and first nine
months of 2000 and 1999 consists of a provision for European income taxes. The
Company recorded no U.S. tax benefit at the U.S. statutory rate of 35% on the
pretax loss in the third quarter and first nine months of 2000 primarily because
the Company is unable to realize any current benefit from the operating loss
through carrybacks to prior years, is unable under the Chapter 11 cases to
implement certain income tax planning strategies and expects an operating loss
for 2000.
As a result of the Chapter 11 cases, the utilization of net operating
loss carryforwards and tax credit carryforwards of the Company may be limited
under the Internal Revenue Code. The Company is unable at the present time to
quantify what, if any, limitation may apply to the tax carryforward items.
36
<PAGE> 38
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)
LIQUIDITY AND CAPITAL RESOURCES
FTL, Inc. and substantially all of its subsidiaries, as
debtors-in-possession, are parties to a Postpetition Credit Agreement dated as
of December 29, 1999 (the "DIP Facility") with Bank of America as agent. The DIP
Facility has been approved by the Bankruptcy Court and includes a total
commitment of $625,000,000 which is comprised of revolving notes of $475,000,000
and a term note of $150,000,000. Letter of Credit obligations under the revolver
portion of the DIP Facility are limited to $175,000,000. The DIP Facility is
intended to provide the Company with the cash and liquidity to conduct its
operations and pay for merchandise shipments at normal levels during the course
of the Chapter 11 cases.
The maximum borrowings, excluding the term commitments, under the DIP
Facility are limited to the sum of 85% of eligible accounts receivable, 50%-65%
of eligible inventory and the assets existing as of the Petition Date. Various
percentages of the proceeds from the sales of assets (as defined in the DIP
Facility) will permanently reduce the commitments under the DIP Facility.
Qualification of accounts receivable and inventory items as "eligible" is
subject to unilateral change at the discretion of the lenders. Availability,
based on eligible accounts receivable and inventory, under the DIP Facility
(including unrestricted invested cash) at October 28, 2000 was in excess of
$350,000,000.
The lenders under the DIP Facility have a super-priority administrative
expense claim against the estates of the Debtors. The DIP Facility expires on
June 30, 2001. The DIP Facility is secured by substantially all of the assets of
FTL, Ltd. and its subsidiaries and a perfected pledge of stock of substantially
all FTL, Ltd.'s subsidiaries, including those subsidiaries that did not file
Chapter 11. The DIP Facility contains restrictive covenants including, among
other things, the maintenance of minimum earnings before interest, taxes,
depreciation and amortization and restructuring expenses as defined, limitations
on the incurrence of additional indebtedness, liens, contingent obligations,
sale of assets, capital expenditures and a prohibition on paying dividends. The
DIP loan limits annual capital expenditures to a maximum of $46,000,000. The
Company expects to submit a reorganization plan prior to the expiration of the
DIP Facility. A component of that plan will be a financing agreement to succeed
the DIP Facility.
Cash used for operating activities totaled $33,500,000 in the first
nine months of 2000 compared with cash used totaling $305,200,000 in the first
nine months of 1999. The current year period benefited from a reduction in
inventory and from $23,400,000 in net proceeds from the liquidation of the Pro
Player business. Inventory increased in the first nine months of 1999, and
discontinued operations used $26,000,000.
In the first nine months of 2000, the primary factors in reconciling
from the loss from continuing operations of $219,200,000 to cash used for
operating activities of $33,500,000 were a decrease in working capital of
$129,700,000, depreciation and amortization of $81,800,000, and cash flows of
$23,400,000 from discontinued operations, partially offset by a gain on
marketable equity securities of $16,700,000 and $18,000,000 of reorganization
payments.
In the first nine months of 1999, the primary factors in reconciling
from the loss from continuing operations of $238,800,000 to cash used for
operating activities totaling $305,200,000 were an increase in working capital
of $103,400,000, cash flows of $26,000,000 used by discontinued operations, gain
on the sale of property, plant and equipment of $10,500,000 and currency
translation of $5,200,000, partially offset by depreciation and amortization of
$87,600,000.
37
<PAGE> 39
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)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Net cash provided by investing activities in the first nine months of
2000 was $27,400,000 compared with cash used for investing activities totaling
$26,600,000 in the first nine months of 1999. Capital expenditures were lower
($8,200,000 in the first nine months of 2000 compared with $27,400,000 in the
first nine months of 1999). In addition, proceeds from the sale of marketable
equity securities aggregated $16,600,000 in the first nine months of 2000. Net
cash used for investing activities in the first nine months of 1999 included
payments of $12,900,000 under the minimum value guarantee provision of 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, is anticipated to approximate
$40,000,000 in 2000.
Net cash provided by financing activities was $68,800,000 in the first
nine months of 2000 compared with net cash provided by financing activities of
$367,400,000 in the first nine months of 1999. Cash and cash equivalents
increased $62,700,000 and $35,600,000 in the first nine months of 2000 and the
first nine months of 1999, respectively.
In December 1996, the Company entered into a three-year receivables
purchase agreement that enabled it to 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 varied based upon the
level of eligible receivables. The agreement was refinanced in the fourth
quarter of 1999 and increased to $275,000,000 and subsequently terminated with
the Company's bankruptcy filing. Consequently, none of the Company's trade
receivables were securitized at September 30, 2000. Under the agreement,
approximately $289,700,000 of eligible net receivables at October 2, 1999 were
sold to the Company's unconsolidated receivable financing subsidiary, reducing
consolidated notes and accounts receivable. Proceeds of approximately
$221,500,000 from the ultimate purchaser outstanding at October 2, 1999 were
used to reduce borrowings under the Company's revolving lines of credit.
The Company believes that cash on hand, amounts available under the DIP
Facility and funds from operations will enable the Company to meet its current
liquidity and capital expenditure requirements during the Bankruptcy cases,
although no assurances can be given in this regard. Until a plan of
reorganization is approved, the Company's long-term liquidity and the adequacy
of its capital resources cannot be determined.
Inherent in a successful plan of reorganization is a capital structure
which permits the Company to generate sufficient cash flow after reorganization
to meet its restructured obligations and fund the current obligations of the
Company. Under the Bankruptcy Code, the rights and treatment of pre-petition
creditors and stockholders may be substantially altered. At this time, it is not
possible to predict the outcome of the Chapter 11 cases, in general, or the
effects of such cases on the business of the Company or on the interests of
creditors and stockholders. Management believes that it is highly unlikely that
current equity security holders will receive any distribution under any
reorganization plan as a result of the issuance of new equity to existing
creditors.
The Company's debt instruments (excluding the DIP facility),
principally its bank agreements, contain covenants restricting its ability to
sell assets, incur debt, pay dividends and make investments and requiring the
Company to maintain certain financial ratios. The Company is in default under
the debt instruments (excluding the DIP facility).
38
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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)
ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 1999. In June 1999 the
Financial Accounting Standards Board issued Statement No. 137 Deferral of the
Effective Date of FASB Statement No. 133, which defers the effective date to all
fiscal quarters for fiscal years beginning after June 15, 2000. The Statement
permits early adoption as of the beginning of any fiscal quarter after its
issuance. The Company expects to adopt the new Statement effective for the
quarter ending March 31, 2001. The Statement will require the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If the derivative
is a hedge, depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value, based upon criteria
set forth in Statement No. 133, will be immediately recognized in earnings. The
Company believes the impact of Statement 133 will not be material to the results
of operations or financial position of the Company.
39
<PAGE> 41
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
3(a)* Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3(a) to the Company's Annual
Report on Form 10-K for the year ended January 1, 2000).
3(b)* By-Laws of the Company (incorporated herein by reference to Exhibit
4(b) to the Company's Registration Statement on Form S-2, Reg. No.
33-8303).
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)* Rights Agreement, dated as of March 8, 1996 between Fruit of the Loom,
Inc. and Chemical Mellon Shareholder Services, L.L.C., Rights Agent
(incorporated herein by reference to Exhibit 4(c) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995).
4(c)* 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(d)* 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 87/8% 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(e)* Fifth Amendment to Credit Agreement dated July 20, 1999 (incorporated
herein by reference exhibit 4(d) to the Company's Quarterly Report on
Form 10-Q for the quarter ended July 3, 1999).
4(f)* Security Agreement dated March 10, 1999 (incorporated by reference to
Exhibit 4(e) to the Company's Quarterly Report on Form 10-Q for the
quarter ended October 2, 1999).
4(g)* First Amendment to Security Agreement dated July 20, 1999
(incorporated by reference to Exhibit 4(f) to the Company's Quarterly
Report on Form 10-Q for the quarter ended October 2, 1999).
4(h)* Sixth Amendment to Credit Agreement and Limited Waiver dated October
13, 1999 (incorporated by reference to Exhibit 4(g) to the Company's
Quarterly Report on Form 10-Q for the quarter ended October 2, 1999).
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FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION - (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
a. EXHIBITS (CONTINUED)
4(i)* Loan and Security Agreement dated as of October 29, 1999, among the
financial institutions from time to time parties thereto (the
"Lenders"), Bank of America, National Association as administrative
"Agent" for the Lenders, Banc of America Securities LLC, as
"Syndication Agent", and FTL Receivables Company, as "Borrower"
(incorporated by reference to Exhibit 4(h) to the Company's Quarterly
Report on Form 10-Q for the quarter ended October 2, 1999).
4(j)* $625,000,000 Debtor-in-Possession Credit Facility dated as of December
29, 1999, with Bank of America, N.A. (incorporated by reference to the
Company's Current Report on Form 8-K dated December 29, 1999).
27 Financial Data Schedule.
* Previously filed.
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 September 30, 2000.
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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: November 14, 2000
42
