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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended September 26, 1998 or
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-9734
ONEITA INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 57-0351045
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
4130 Faber Place Drive, Suite 200 29405
Ashley Corporate Center (Zip Code)
Charleston, SC
Registrant's telephone number including area code: (843) 529-5225
Securities registered pursuant to Section 12(b) of the act:
Title of Class Name of Each Exchange on which registered
Common Stock, $.25 par value NASDAQ Electronic Bulletin Board
Securities registered pursuant to Section 12(g) of the Act: None
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 report) and (2) has been subject
to such filing requirements for the past 90 days: Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K:
The aggregate market value of the voting stock held by nonaffiliates of
the Registrant, as of November 30, 1998 was approximately $ 680,000.
The number of shares outstanding of each of the Registrant's classes of
Common Stock, as of November 30, 1998 was 9,149,339 shares.
Documents incorporated by reference: Part III - Registrant's definitive
proxy statement to be filed pursuant to Regulation 14-A of the Securities
Exchange Act of 1934.
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PART I
ITEM ONE - BUSINESS (Dollars in thousands)
Oneita Industries, Inc. (the "Company" or "Oneita") manufactures and
markets high quality activewear and infantswear. Oneita's activewear includes
T-shirts and sweatshirts for screen printing sold under the Oneita Power-T(R),
Oneita Power 50 Plus(R), Oneita Power-Sweats(R) and Oneita Colorwear(R) brand
names. Oneita's infantswear includes layette and playwear sold primarily under
private labels. Activewear products are marketed to the imprinted sportswear
industry and to retailers and infantswear products are marketed to major
retailers.
Historically, Oneita has achieved growth by building a brand name
activewear and infantswear business with a high quality image. As a result of
realigning its product mix to concentrate on these products, the Company's net
sales of activewear increased from $37,400 in 1987 to $112,900 and $91,400 in
1997 and 1998, respectively, and net sales of infantswear increased from $14,200
in 1987 to $22,100 and $22,000 in 1997 and 1998, respectively.
Oneita expanded its activewear products by introducing sweatshirts in 1991
under the Oneita Power-Sweats label. In infantswear, Oneita has focused on
developing a variety of products, each targeted at specific retail markets,
including department stores, chain stores and mass merchandisers.
PRODUCTS
Oneita manufactures and markets T-shirts and sweatshirts (activewear) for
the imprinted sportswear (screenprint) industry. Screen printing consists of
imprinting designs, patterns or letters ranging from simple lettering to complex
color patterns on apparel. Oneita's T-shirts, in management's opinion, are of
high quality because they are heavy in weight, have full cut specifications and
possess long-lasting construction features such as shoulder-to-shoulder taping
and a seamless tubular collar design.
Oneita introduced sweatshirts in 1991 to its activewear line under the
Oneita Power-Sweats label. The Company sells sweatshirts to the same customers
to whom it sells T-shirts and believes that its ability to do so results in
stronger relationships with such customers and the addition of new customers for
both T-shirts and sweatshirts. In 1997, the ONEITA'S KIDS line was expanded with
new styles of fleecewear and T-shirts.
Historically, Oneita's business has been seasonal with respect to T-shirt
sales to the extent that approximately 50% of annual T-shirt sales have been in
the February through June period. Sweatshirts provide a seasonal balance for
Oneita since its customers tend to stock higher levels of T-shirts in the spring
and summer months and higher levels of sweatshirts in the fall and winter
months.
The Company sells activewear through in-house salespersons to approximately
270 customers located throughout the United States, including 34 distributors.
The Company also sells activewear to distributors in Europe, Canada and the
Pacific Rim. Such export sales accounted for approximately $2,000 of net sales
in both 1997 and 1998.
The market for T-shirts for the screen printing industry is very
competitive and is based upon quality, service, price, availability of product
and name recognition. Oneita's primary competitors, Fruit of the Loom, Inc.,
Russell Corporation and Sara Lee Knit Products (a subsidiary of Sara Lee
Corporation) are larger, have substantially greater resources and in the
aggregate account for a majority of the T-shirt market.
Oneita believes that it competes favorably in quality, price, customer
service and availability of product. While in prior years, foreign competition
did not have a material effect on the sale of activewear within the U. S.
market, recent years have seen increases in the importation of T-shirts. In
order to reduce inventory levels and in response to competitive market
conditions, the Company reduced its selling prices by approximately 15% in 1996
and 10% in each of 1997 and 1998.
During 1995, Oneita expanded its Power 50 Plus line (a premium T-shirt
comprised of 60% cotton and 40% polyester), enhanced its "PFD" T-shirt
collection (an all-cotton shirt that is re-dyed by customers) and also
introduced a new T-shirt, the Power Rib-T. In 1996, the PFD program was further
expanded by the offering of the Colorwear Collection, a garment-dyed assortment
of both old and new styles in new colors. In 1997 the number of activewear
product offerings were reduced due to competitive market conditions and in an
effort to increase manufacturing efficiencies.
Oneita manufactures and sells private label cotton and cotton blend layette
and playwear for infants and toddlers. Layette is apparel for newborns while
playwear is apparel for infants and toddlers up to 36 months of age. In 1986,
Oneita began to manufacture and market higher priced infantswear under its own
brand names. In
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fiscal 1997 and 1998, net sales of infantswear under the Company's own brand
names accounted for less than 5% of its total infantswear sales.
Oneita sells its private label infantswear to major department stores and
major retail chain stores.
Oneita has redirected its infantswear sales efforts by de-emphasizing small
orders and higher priced playwear and concentrating on sales of layette and
basic infantswear to larger customers, including mass merchandisers. The Company
markets infantswear primarily through in-house salespeople.
The infantswear market is highly competitive and consists of companies,
including William H. Carter, Gerber Products Company and Oshkosh B' Gosh, Inc.
which are larger and have substantially greater market share and resources than
the Company. The Company believes that it competes favorably with other
manufacturers of private label products as well as with other manufacturers of
high quality brand name infantswear on the basis of quality, service, price and
availability of product.
MANUFACTURING
The Company's strategy has been to decrease cost through operating its
facilities at maximum capacity and, from time to time, using outside contractors
to meet increased customer demand. In addition, the Company has an on-going
program to modernize its manufacturing facilities through the addition of
technologically-advanced equipment. Since 1993, the Company has added
approximately $49,000 of technologically advanced machinery and equipment. These
expenditures are intended to increase manufacturing efficiencies thereby
reducing unit operating cost. Operations at the Company's new Fayette, Alabama
Textile facility commenced in October 1996 and production at this facility
currently is at 100% of capacity.
The Company's manufacturing operations consist of knitting, bleaching and
dyeing, cutting and sewing, and packaging. The Company's operations begin with
raw yarns. The yarn is knitted into four basic fabric constructions (jersey,
fleece, rib and interlock) from which the Company produces its products. The
knitted fabric is batched in lots for bleaching or scoured and dyed in a variety
of both pressure and atmospheric vessels for color, consistency and quality.
Next, the finishing operation sets the width and length and pre-shrinks the
fabric. The finished fabric lots are then transported to a cutting operation
which cuts specific garment parts such as sleeves, collars, cuffs and bodies for
sewing. The cut parts are sewn together in an assembly line. Various sewing
threads, stitches, trims and colors are mixed and matched for desired styling.
The finished garments are inspected, folded and packaged. Quality assurance
systems are utilized throughout the manufacturing process to check raw
materials, in-process inventories and finished products.
During fiscal 1996, the Company closed two manufacturing plants located in
South Carolina and reduced its administrative and supervisory staff as part of a
restructuring plan to streamline and consolidate the Company's manufacturing and
administrative operations. In December 1995, the Company consolidated its five
activewear warehouse locations in South Carolina to one warehouse near Atlanta,
Georgia.
In September 1997, the Company announced a plan to further consolidate
certain of its operations in order to lower its costs and make its operations
more efficient. The consolidation involved the closing of one facility, the
write down to estimated fair value of certain excess production equipment and
the shift of more assembly operations to existing offshore facilities.
The Company's six manufacturing facilities are located in South Carolina,
Alabama, Jamaica and Mexico. In fiscal 1998, substantially all of the Company's
T-shirts were sewn in facilities located in Jamaica and Mexico.
SALES TO MAJOR CUSTOMERS
Net sales to the Company's ten largest customers for the year ended
September 26, 1998 accounted for approximately 56% of the Company's total sales
for such period. One customer, SanMar Corporation, a distributor of activewear
for screen printing, accounted for approximately 16% of total net sales in
fiscal 1998. Net sales to the Company's five largest activewear customers in
fiscal 1998 accounted for approximately 36% of the Company's total net sales.
Net sales to the Company's five largest infantswear customers for 1998 accounted
for approximately 19% of the Company's total net sales.
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EFFECT OF IMPORTS
In prior years, United States quota and tariffs restricted the quantity and
increased the cost of apparel items which foreign producers could export to the
United States. Foreign competitors, whose chief competitive advantage are lower
labor costs, tended to focus on items with high labor content, such as higher
priced sportswear. Oneita's products are not as labor intensive as other
manufactured apparel and, therefore, were less sensitive to foreign competition.
In November 1994, the United States Congress approved the North American
Free Trade Agreement ("NAFTA"), which is intended to eliminate barriers to trade
among the United States, Canada and Mexico over a ten year period. In December
1994, the Uruguay round of negotiations under the auspices of the General
Agreement on Tariffs and Trade ("GATT") was concluded. GATT will require that
quotas on apparel and textile products be phased out over a ten year period and
tariffs on such products be reduced by approximately 11% over the same ten year
period. The Company believes import competition will increase and accelerate as
quotas are phased out.
Over the last several years, the Company, as well as other domestic apparel
manufacturers, moved much of its sewing operations offshore to reduce costs and
compete with increased import competition that is resulting from the trade
agreements mentioned above. In 1998 substantially all of the Company's T-shirts
were sewn in its offshore plants. The Company believes that its 1998
consolidation of operations will combine low cost textile manufacturing in the
United States with the sewing of most of its products offshore so that the
Company can continue to be competitive.
RAW MATERIALS
The principal raw materials used in the Company's products are cotton and
cotton-blend yarns. These yarns are readily available from numerous domestic and
foreign suppliers. Market prices of cotton and cotton-blend yarns fluctuate from
time to time. In previous years, the Company has purchased quantities of these
yarns under supply contracts generally at fixed prices with various expiration
dates. At September 26, 1998, the Company was not a party to any significant
supply contracts for these cotton yarns; instead purchasing most of its current
requirements within the spot market at favorable prices. The Company may enter
into yarn contracts in 1999 depending on anticipated market prices. For the year
ended September 26, 1998 the Company purchased approximately 43% of its yarn
from Avondale Mills, Inc., the owner of 24.8% of the Company's Common Stock.
Other raw materials, such as chemicals, dyes and packaging materials, are
purchased on the open market. The sources and availability of these materials
are believed to be adequate to meet present needs.
BACKLOG
The Company's backlog of unfilled orders was approximately $21,600 at
September 26, 1998, compared with approximately $11,600 at September 27, 1997.
The amount of unfilled orders at a particular time is affected by a number of
factors. Accordingly, the amount of unfilled orders may not be indicative of
eventual shipments. The Company expects to ship substantially all of its
September 26, 1998 backlog of unfilled orders by September 30, 1999.
TRADEMARKS AND LICENSES
The Company has registered the Oneita Power-T(R), Oneita Power 50 Plus(R),
ONEITA'S KIDS(R) and Oneita Power-Sweats(R) trademarks and certain other
trademarks. The expiration dates of these trademarks range from July 2006 to
December 2008. The loss of certain of these trademarks would have a material
adverse effect upon the Company's business.
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EMPLOYEES
At September 26, 1998, the Company had approximately 2,350 full time
employees. Approximately 130 of the Company's manufacturing employees are
covered by a collective bargaining agreement with the Union of Needletraders,
Industrial and Textile Employees. The agreement which expired in October 1998
has been extended and the Company and its union are engaged in discussions to
renew the agreement for an additional three years.
The Company considers its employee relations to be satisfactory.
EXECUTIVE OFFICERS OF THE REGISTRANT
At September 26, 1998, the executive officers of the Company were as follows:
<TABLE>
<CAPTION>
Served as
Officer
Name Age Since Positions and Offices
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
C. Michael Billingsley 47 1996 President and Chief Executive Officer
William H. Boyd 51 1986 Vice President - Administration and Treasurer
Edward I. Kramer 64 1986 Secretary
</TABLE>
ITEM TWO - PROPERTIES (Dollars in thousands)
As of September 26, 1998, the Company occupied approximately 1,082 square
feet of manufacturing, general office and warehouse space at its facilities in
Alabama, Georgia, New York, South Carolina, Jamaica and Mexico. Approximately
509 square feet are under real estate leases with aggregate minimum annual
rental commitments of approximately $1,611. Set forth below is a summary of the
facilities owned or leased by the Company.
<TABLE>
<CAPTION>
Location Primary Use Square Feet
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Charleston, SC Administrative Offices 16,000 (a)
Andrews, SC Manufacturing 176,000
Atlanta, GA Distribution 412,000 (b)
Cullman, AL Manufacturing/Distribution 177,000
Fayette, AL Manufacturing 220,000
Juarez, Mexico Manufacturing 28,000 (c)
Montego Bay, Jamaica (2 locations) Manufacturing 49,000 (d)
New York, NY Sales and Marketing 4,000 (e)
</TABLE>
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(a) Premises are leased through September 1, 1999 at an annual rental of $263
per year. The Company has an option to renew for two additional five (5)
year periods.
(b) Premises are leased through November 1999 at an annual rental of $964 per
year.
(c) Premises are leased through October 1, 1999 at an annual rental of $144.
The Company has an option to purchase the premises for $900, or it may
renew the lease at the end of the lease term.
(d) Premises are leased through November 30, 2002 and June 30, 2000 at annual
rentals of $35 and $110, respectively.
(e) Premises are leased through April, 2000 at an annual rental of $95.
- ----------------
The Company believes that its facilities and equipment are well
maintained and are sufficient to meet current production levels and that its
facilities are sufficient to meet anticipated sales and growth through 1999.
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ITEM THREE - LEGAL PROCEEDINGS
On January 23, 1998, the Company filed a Chapter 11 petition with the
United States Bankruptcy Court for the District of Delaware under Chapter 11 of
the Bankruptcy Code.
The Company is not a party to any other material pending legal proceedings.
ITEM FOUR - SUBMISSION OF MATTER TO A VOTE OF THE SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1998.
PART II
ITEM FIVE - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock has traded on the NASDAQ Electronic Bulletin
Board under the symbol "ONETQ" since January 21, 1998. Prior to January 21, 1998
the Company's Common Stock was traded on the New York Stock Exchange under the
symbol "ONA". As of November 30, 1998, there were approximately 100 holders of
record of the Company's Common Stock. The following table shows for the periods
indicated the quarterly range in the high and low sales prices for these
securities.
<TABLE>
<CAPTION>
1998 1997
---- ----
High Low High Low
Fiscal Period :
<S> <C> <C> <C> <C>
First Quarter ...... $0.688 $0.250 $4.250 $1.250
Second Quarter ..... 0.270 0.031 2.250 1.250
Third Quarter ...... 0.750 0.220 1.500 0.375
Fourth Quarter ..... 0.450 0.150 1.625 0.375
</TABLE>
No cash dividends have been paid since the Company's initial public
offering. See Note 3 to "Notes to Consolidated Financial Statements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
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ITEM SIX - SELECTED FINANCIAL DATA (In thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
----------------------------------------------------------------------------
Operations :
<S> <C> <C> <C> <C> <C>
Net sales ........................... $ 113,376 $ 135,006 $ 168,346 $ 175,036 $ 193,459
Cost of goods sold .................. 122,962 139,303 192,094 146,820 166,051
Interest expense, net ............... 3,253 7,863 7,001 3,006 3,868
(Loss) income before income taxes ... (40,373) (40,656) (56,632) 4,372 (6,794)
Income taxes ........................ 0 0 (2,939) 1,552 27
Net (loss) income ................... (40,373) (40,656) (53,693) 2,820 (6,821)
Financial data :
Inventories ......................... $ 26,184 $ 31,214 $ 43,883 $ 79,968 $ 44,720
Accounts receivable ................. 10,185 17,200 25,675 29,438 35,757
Depreciation, amortization and
goodwill writeoff (see note below) 5,300 6,974 5,886 4,649 11,443
Working capital ..................... (62,395) (42,595) (13,582) 72,904 60,885
Longterm debt and
capital lease obligations ......... 717 2,032 3,125 37,404 17,133
Shareholders' equity (deficiency) ... (49,115) (8,742) 37,743 77,840 76,022
Total assets ........................ 51,851 86,977 129,525 165,017 120,917
Common Stock data :
Net (loss) income per share ......... $ (4,41) $ (4.44) $ (7.58) $ .40 $ (.98)
Book value per share ................ $ (5.37) $ (0.96) $ 3.49 $ 11.32 $ 10.92
Number of common
shares outstanding ............ 9,149 9,149 9,149 6,879 6,961
</TABLE>
Net loss for fiscal 1998 includes an impairment loss of $16,992. See Note 8
to the Company's financial statements for the fiscal year ended September 26,
1998.
Net loss for fiscal 1998, 1997, 1996, 1995 and 1994 includes after-tax
amounts of $(1,900), $15,282, $6,229, $2,519 and $4,700, respectively, for
restructuring charges (credits) as described in Note 9 to the Company's
financial statements for the fiscal year ended September 26, 1998. See Note 1 to
the Company's financial statements for the fiscal year ended September 26, 1998.
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ITEM SEVEN - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(In thousands, except share and per share amounts)
RESULTS OF OPERATIONS
1998 Compared 1997
Net sales of the Company for the year ended September 26, 1998 were
$113,400 as compared to $135,000 in the prior year, a decrease of $21,600 or
16.0% . $10,600 of the sales decrease was attributable to lower units sold as a
result of high inventory balances in customers' warehouses and increased
competition in the marketplace. Lower unit selling prices further reduced sales
by $10,990 and were caused by continued production overcapacity in the industry
and lower priced imports.
Gross loss for 1998 increased $5,300 primarily due to reduced revenues of
$10,990 attributable to decreased sales prices mentioned above offset by lower
raw material prices of $1,800 and improved manufacturing efficiencies and cost
reductions of $3,890. Gross profit, as a percentage of net sales, decreased to
(8.5)% compared to (3.2)% in the prior year. Market pressures that resulted in
reduced sales volumes and prices and operating losses during the year ended
September 26, 1998 are continuing in fiscal 1999.
Selling, general and administrative expenses for 1998 decreased $2,831 or
23.6% from 1997 due primarily to reduced advertising expense.
Interest expense, net of interest income, was $3,253 compared to $7,862 for
last year. The decrease was due to interest not accruing since January 23, 1998,
the date of the Company's Chapter 11 filing (more fully discussed below), on
$70,654 of debt subject to restructuring.
Net loss for fiscal year 1998 was $40,373 compared to $40,656 for fiscal
year 1997. Included in the net loss for 1998 were asset impairment losses
totaling $16,992 discussed below. Included in the net loss for 1997 were
restructuring costs totaling $15,282 related to the consolidation discussed
below.
Financial Accounting Standard No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Because negative earnings
before interest, depreciation and amortization caused by adverse market
conditions has continued into fiscal year 1999, and because of various
alternative strategies being considered by the Company, including the possible
sale of the Company, an impairment loss of $16,992 was recorded in the fourth
fiscal quarter of 1998. This represents the write down of property, plant and
equipment of $16,300 and the write-off of goodwill and other intangibles of
$692.
In September 1997, the Company announced a plan to consolidate certain of
its operations in order to lower its costs and make its operations more
efficient. The consolidation involved the closing of one facility, the write
down to estimated fair value of certain excess production equipment and the
shift of more assembly operations to existing offshore facilities.
1997 Compared 1996
Net sales of the Company for the year ended September 27, 1997 were
$135,000 as compared to $168,300 in the prior year, a decrease of $33,300 or
19.8% . $21,500 of the sales decrease was attributable to lower units sold as a
result of high inventory balances in customers' warehouses and increased
competition in the marketplace. Lower unit selling prices further reduced sales
by $11,800 and were caused by production overcapacity in the industry and lower
priced imports.
Gross profit for 1997 increased $19,400 from the prior year due to lower
raw material prices of $1,200 and improved manufacturing efficiencies and cost
reductions of $14,900 as well as 1996 second quarter writedowns of $10,500
offset by reduced revenues of $11,800 attributable to decreased prices and
promotional pricing resulting from the Company's efforts to reduce inventory
levels and from generally lower selling prices within the marketplace. Gross
profit, as a percentage of net sales, increased to (3.2)% compared to (14.1)% in
the prior year.
Selling, general and administrative expenses for 1997 decreased $6,400 or
32.8% from 1996 due primarily to reductions in the Company's administrative and
supervisory staff.
Interest expense, net of interest income, was $7,900 compared to $7,000 for
last year. The increase was due to higher average borrowings as well as higher
interest rates.
Net loss for fiscal year 1997 was $40,656 compared to $53,693 for fiscal
year 1996. Included in the net loss for 1997 were restructuring costs totaling
$15,282 related to the consolidation discussed below. Included in the net loss
for 1996 were restructuring costs totaling $6,229 related to the shutdown of two
facilities located in South Carolina and reductions in administrative and
supervisory staffing. In 1996 and 1997 the Company reduced its administrative
and supervisory staff by approximately 340 persons which reduced costs by
approximately $12,000.
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LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of $62,395 at September 26,
1998 compared to a deficit of $42,595 at September 27, 1997. This change was
caused primarily by reductions in accounts receivable and inventories and by
$9,990 of borrowings under a debtor-in-possession facility.
The Company had a decrease in cash of $1,000 for fiscal 1998 compared to
a decrease in cash of $7,481 last year. Cash used in operating activities for
fiscal 1998 was $9,045 compared to $2,219 last year. The primary components of
cash provided by operating activities for both periods were decreases in
receivables and inventories as well as the adjustment for depreciation and
amortization offset by net losses in both periods. During the year ended
September 26, 1998, the Company paid and charged $3,929 to the consolidation
reserve (see Note 8).
Cash used in investing activities for fiscal 1998 consisted mostly of
capital expenditures of $955.
At September 26 1998, the Company was and continues to be in
non-compliance with certain terms of its long-term revolving credit agreement, a
loan agreement with an institutional lender, and subordinated notes held by
Robert M. Gintel. Mr. Gintel resigned as Chairman of the Board and as a director
of the Company on August 8, 1997. These obligations, $57,000, $6,154 and $7,500
in principal amount, respectively, have been classified as current liabilities.
On December 31, 1998, the Company reached an agreement with Robert Gintel
pursuant to which Mr. Gintel assigned for the sum of three dollars his
subordinated notes and unexpired warrants to Oneita Mexicana S.A. de C.V., a
wholly owned subsidiary of the Company.
On January 23, 1998, the Company filed a Chapter 11 petition with the
United States Bankruptcy Court for the District of Delaware under Chapter 11 of
the Bankruptcy Code, together with a Plan of Reorganization seeking to implement
a debt restructuring with its lenders and a Disclosure Statement. Subsequently,
an Amended Plan of Reorganization ("Amended Plan")and an Amended Disclosure
Statement were filed in the Chapter 11 case. Pursuant to the Amended Plan, the
restructured obligations, which aggregate $70,654, plus accrued interest and
fees, were expected to be exchanged for; 1) payment of $15,000 in cash, 2) the
issuance of various notes totaling $38,500 and 3) 79.75% of the outstanding
Common Stock of the Company. Interest on these obligations from January 23
through September 26, 1998 totaling $5,445 has not been accrued and was not
payable under the Amended Plan due to the Chapter 11 case. The Company believes
that any claim asserted by the holders of these obligations for interest after
January 23, 1998 will not be allowed in the bankruptcy case. Prior to the
commencement of the Chapter 11 case, the holders of the debt mentioned above
entered into agreements with the Company agreeing, among other things, to
cooperate with the Company in implementing the Amended Plan and delivered
ballots voting in favor of the Amended Plan. In March 1998 the Amended
Disclosure Statement was approved by the Bankruptcy Court, however, the Company
is unable to implement the Amended Plan due to a lack of available working
capital. Pursuant to the terms of the agreements entered into with the holders
of certain indebtedness, such parties are no longer required to cooperate in
implementing the Amended Plan which now has been abandoned.
On December 7, 1998, the Bankruptcy Court granted a motion extending the
time period through February 18,1999 during which only the Company may file a
Plan of Reorganization. The Company has reached an agreement with the current
holders of the indebtedness under its long term revolving credit agreement and
the loan agreement with its institutional lender ( the "Prepetition Lender
Group" ) pursuant to which the Prepetition Lender Group may at any time after
December 17, 1998 file a plan of reorganization so long as such plan is
supported by a majority of the Prepetition Lender Group holding at least
two-thirds in dollar amount of the aggregate claims under the long term
revolving credit agreement and the loan agreement with the institutional lender.
The Company had previously obtained permission from the Bankruptcy Court to
continue to pay most pre-petition claims held by trade creditors in order to
avoid any disruption in its business. In addition, the Company had previously
obtained authority from the Bankruptcy Court to continue to use cash collateral
pursuant to a stipulation and to borrow up to $10,000 from Foothill Capital
Corp. under a Debtor-in-Possession Facility. The Debtor-in-Possession Facility,
which matures on February 2, 1999, is secured by a pledge of certain property,
plant and equipment. The Company has requested from Foothill Capital Corp. a 90
day extension of the facility; however, there is no indication that such an
extension will be granted. The Company had obtained a commitment from Foothill
Capital Corp., subject to certain conditions, for a new revolving credit
facility pursuant to which financing would have been available upon emergence
from the Chapter 11 case. However, such commitment expired as the Amended Plan
was not implemented on or before July 31, 1998.
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In light of the foregoing, there can be no assurance that a Plan of
Reorganization will be confirmed.
The Company's liquidity requirements in the Chapter 11 case which are
anticipated to consist primarily of capital expenditures and working capital
requirements are expected to be financed by the use of cash collateral and its
Debtor-in Possession Facility. At September 26, 1998 the Debtor-in Possession
Facility was fully borrowed. Upon any emergence from the Chapter 11 case, the
Company's liquidity requirements are expected to be financed from operating
cash flow and a new facility principally secured by its accounts receivable and
inventory; however, no assurance can be given that such financing will be
available or sufficient. A number of strategies, including liquidation of the
Company, sale of the Company and a financial restructuring of the Company have
been (and continue to be) evaluated by the Company's management and board of
directors. In December 1998, the board of directors authorized management and
its advisors to pursue a sale of the Company. The opinion of the Company's
independent public accountants covering the financial statements for the year
ended September 26, 1998 includes a paragraph describing the auditor's
substantial doubt about the Company's ability to continue as a going concern.
YEAR 2000 COMPLIANCE
Management has initiated a plan to prepare the Company's computer systems
and applications for the Year 2000. The Company expects that it will replace
most of its current non-compliant software by purchasing new integrated software
developed primarily for the textile/apparel industry and that it will be 75%
compliant by June 30, 1999 and 100% compliant by September 30, 1999. As of
September 26, 1998 the Company has spent approximately $100 on the Year 2000
compliance issue and expects total cost to be approximately $600, which the
Company expects to fund out of current operating funds in its fiscal year 1999.
The Company has no contingency plan to operate in the event that its
business systems are not Year 2000 Compliant. The status will be evaluated in
August 1999 to determine whether such a plan is necessary.
EFFECTS OF INFLATION
The Company believes that the relatively moderate rates of inflation in
recent years have not had a significant impact on its sales and profitability.
FORWARD LOOKING STATEMENTS
All statements other than statements of historical fact included in this
report regarding the Company's financial position, business strategy, Year 2000
Compliance, and the plans and objectives of the Company's management for the
future operations, are forward-looking statements. When used herein, words such
as "anticipate," "believe," "estimate," "expect," intend" and similar
expressions, as they relate to the Company or its management, identify
forward-looking statements. Such forward-looking statements are based on the
beliefs of the Company's management, as well as assumptions made by and
information currently available to the Company's management. Actual results
could differ materially from those contemplated by the forward-looking
statements as a result of certain factors, including but not limited to,
competitive factors and pricing pressures, changes in legal and regulatory
requirements, technological change or difficulties, product development risks,
commercialization and trade difficulties and general economic conditions. Such
statements reflect the current views of the Company with respect to future
events and are subject to these and other risks, uncertainties and assumptions
relating to the operations, results of operations, growth strategy and liquidity
of the Company. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by this paragraph.
ITEM EIGHT - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data listed in the accompanying
Index to Financial Statements and Schedules are attached as part of this report.
ITEM NINE - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
10
<PAGE> 11
PART III
ITEM TEN - DIRECTORS AND EXECUTIVE OFFICERS OF THE DIRECTORS OF THE COMPANY
REGISTRANT
The Company's Certificate of Incorporation presently provides for a Board
of Directors consisting of not less than three nor more than nine directors, who
serve until the next Annual Meeting of Stockholders or until their successors
have been chosen and qualify. The Company's Board of Directors now consists of
seven directors as set forth below.
Jack R. Altherr, Jr.(2)(3)(4) Meyer A. Gross(1)(3) H. Varnell Moore(1)(4)
C. Michael Billingsley(4) John G. Hudson(1)(4) Lewis Rubin(2)(3)
G. Stephen Felker(1)
(1) Member of Compensation Committee.
(2) Member of Nominating Committee.
(3) Member of Audit Committee.
(4) Member of Executive Committee.
PRINCIPAL OCCUPATION OF DIRECTORS
MR. JACK R. ALTHERR, JR. (49), a director of the Company since February
1996, has been Vice Chairman of Avondale Incorporated and of Avondale Mills,
Inc. since May 1996, and Chief Financial Officer since October 1988 and Director
since 1993 of Avondale Mills, Inc. In addition, Mr. Altherr served in various
administrative and financial positions with Avondale Mills, Inc. from July 1982
to October 1988. See "Certain Transactions".
MR. C. MICHAEL BILLINGSLEY (47), a director of the Company since March
1996, has been President and Chief Executive Officer of the Company since March
1996. Prior to joining the Company, from July 1990 to March 1996, Mr.
Billingsley was Corporate Vice President of Avondale Mills, Inc. and President
of Avondale Yarns. See "Certain Transactions".
MR. G. STEPHEN FELKER (47), a director of the Company since August 1996,
has been Chairman of the Board and Chief Executive Officer since 1986 and
President since 1995 of Avondale Mills, Inc., and President and Chief Executive
Officer since 1980 and Chairman of the Board since 1992 of Avondale
Incorporated. Mr. Felker is also a director of Wachovia Bank of Georgia. See
"Certain Transactions".
MR. MEYER A. GROSS (62), a director of the Company since June 1988, has
been a practicing attorney in the State of New York since 1961 and, since 1985
has been a partner in the law firm of Schweitzer Cornman Gross & Bondell LLP and
its predecessor firms, intellectual property counsel to the Company.
MR. JOHN G. HUDSON (73), a director of the Company since December 1990. Mr.
Hudson is also a director of West Point Stevens, Inc.
MR. H. VARNELL MOORE (62), a director of the Company since November 1994,
was President, Chief Executive Officer and a director of Woolrich, Inc., a
manufacturer of outdoor wear, from July 1993 through May 1996. For more than
three years prior thereto, he was President of Wrangler, a division of VF
Corporation, a manufacturer of sportswear and other apparel.
MR. LEWIS RUBIN (61), a director of the Company since October 1993, has
been President, Chief Executive Officer and a director of XTRA Corporation, a
transportation equipment leasing company, since April 1990.
11
<PAGE> 12
OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
NAME OFFICE HELD
C. Michael Billingsley ........... President and Chief Executive Officer
William H. Boyd .................. Vice President-Administration and Treasurer
Edward I. Kramer ................. Secretary
MR. WILLIAM H. BOYD (51), Vice President-Administration since January 1986
and Treasurer since September 1994, has been employed by the Company in various
accounting and financial positions since August 1982.
MR. EDWARD L. KRAMER (64), has been a practicing attorney in the State of
New York since 1960, and is a member of the law firm of Blau, Kramer, Wactlar &
Lieberman, P.C., counsel to the Company. Mr. Kramer was appointed Secretary in
August 1988. See "Certain Transactions".
ITEM ELEVEN - EXECUTIVE COMPENSATION
(In thousands, except share and per share amounts)
The following table sets forth the annual and long-term compensation with
respect to the Chief Executive Officer and one other executive officer whose
total annual salary and bonus equaled or exceeded $100 for services rendered for
the fiscal years ended September 26, 1998, September 27, 1997 and September 28,
1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION (1) STOCK
FISCAL OPTION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS # COMPENSATION (2)
- --------------------------- ---- ------ ----- -------- ----------------
<S> <C> <C> <C> <C> <C>
C. Michael Billingsley.............. 1998 $300 $ -- -- $ 1.8
Chief Executive Officer 1997 300 50 120,000 1.2
1996 156 50 -- .6
William H. Boyd..................... 1998 $108 -- -- $ 1.4
Vice President, Treasurer 1997 108 -- 5,000 1.4
1996 108 -- -- 1.5
</TABLE>
(1) No Other Annual Compensation is shown because the amounts of perquisites
and other non-cash benefits provided by the Company do not exceed the
lesser of $50.0 or 10% of the total annual base salary and bonus disclosed
in this table for the respective officer
(2) All Other Compensation includes (a) for fiscal 1998, $1.2 and $0.8 of
premiums paid by the Company in respect of term life insurance policies on
each of Messrs. Billingsley and Boyd, and $0.6 contributed by the Company
to Messrs. Billingsley and Boyd's account pursuant to the Company's 401(k)
Savings Plan, (b) for fiscal 1997, $1.2 and $0.8 of premiums paid by the
Company in respect of term life insurance policies on each of Messrs.
Billingsley and Boyd, and $0.6 contributed by the Company to Mr. Boyd's
account pursuant to the Company's 401(k) Savings Plan, and (c) for fiscal
1996, $0.6 and $0.8 of premiums paid by the Company in respect of term life
insurance policies on each of Messrs. Billingsley and Boyd, and $0.7
contributed by the Company to Mr. Boyd's account pursuant to the Company's
401(k) Savings Plan.
12
<PAGE> 13
STOCK OPTION GRANTS IN LAST FISCAL YEAR
There were no stock options granted to executive officers during the year
ended September 26, 1998.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
No stock options were exercised during fiscal 1998. The following table
sets forth all unexercised stock option grants to the executive officers named
in the "Summary Compensation Table" as of September 26, 1998.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY
SHARES NUMBER OF UNEXERCISED OPTIONS AT
ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END (2)
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
C. Michael Billingsley ....... -- -- 77,000 43,000 -- --
William H. Boyd ............. -- -- 7,500 2,500 -- --
</TABLE>
(1) Values are calculated by subtracting the exercise price from the fair
market value of the Common Stock as of the exercise date.
(2) Based upon the closing price of the Company's Common Stock of $0.15 on
September 26, 1998.
EXECUTIVE MANAGEMENT INCENTIVE PROGRAM
The Company has an executive management incentive program which is intended
to provide financial incentives to senior management and other key employees, as
defined, of the Company upon meeting certain predetermined objectives. These
objectives include the Company attaining certain levels of earnings and eligible
employees achieving individual performance goals as determined by the Board of
Directors. The Board of Directors, in its sole discretion, shall determine those
employees eligible for the executive management incentive program at the
beginning of each year.
For the year ended September 26, 1998, approximately 13 employees were
eligible to participate in the executive management incentive program. No
amounts have been or will be paid under the executive management incentive
program for the fiscal year ended September 26, 1998.
401(k) SAVINGS PLAN
The Company sponsors a retirement plan (the 401(k) Savings Plan) intended
to be qualified under section 401(k) of the Internal Revenue Code of 1986, as
amended. All employees over age 21 who have completed at least 1,000 hours in
their first year of employment by the Company are eligible to participate in the
401(k) Savings Plan. Employees may contribute to the 401(k) Savings Plan on a
tax deferred basis up to 15% of their total annual salary, but in no event more
than the maximum permitted by the Code ($10.0 in calendar 1998). The Company
matches all employee contributions up to $0.5 per year per employee , and all
Company contributions are fully vested. As of September 26, 1998, approximately
1,000 employees had elected to participate in the 401(k) Savings Plan. For the
fiscal year ended September 26, 1998, the Company contribution is approximately
$295.0 to the 401(k) Savings Plan, of which $0.6 was a contribution for each of
Messrs. Billingsley and Boyd.
Effective May 1, 1993, the Company's profit sharing plan was merged with
and into the 401(k) Savings Plan, and now operates as part of the 401(k) Savings
Plan. For each plan year, the Company contributes to the profit sharing
component of the 401(k) Savings Plan an amount equal to the lesser of (a) $450.0
(b) the greater of (i) 3.765% of its net income, as defined, for the fiscal year
ending during such plan year, or (ii) $120.0 (c) 15% of that year's
participants' earnings plus any available carryover from prior years or (d) the
maximum amount permitted by law based on available or accrued profits. Employees
may also contribute one to ten percent (in whole multiples) of their earnings to
the profit sharing component of the 401(k) Savings Plan, up to a maximum of (i)
25% of compensation for the plan year, or (ii) $30. All Company contributions
are fully vested and are
13
<PAGE> 14
allocated to employees' accounts proportionally based on their respective
earnings, up to a maximum of $20 per year per participant.
STOCK PLANS
Stock Option Plan
Under the Company's Stock Option Plan (the "Plan"), key employees,
directors and officers may be granted options to purchase an aggregate of
514,652 shares of the Company's Common Stock. The term "key employees" includes
employees whose judgment, initiative and efforts are deemed valuable for the
successful conduct and development of the Company's business. The Plan is
administered by the Compensation Committee (the "Committee"), consisting of at
least three members of the Board of Directors. The Committee, subject to
provisions in the Plan, will designate, in its discretion, which persons are to
be granted options, the number of shares subject to each option, the number of
options to be granted and the period of each option. Each recipient must be an
employee of the Company at the time of grant and throughout the period ending on
the day three months before the date of exercise. Under the terms of the Plan,
the exercise price of the shares subject to each option granted will be not less
than 100% of the fair market value at the date of grant, or 110% of such fair
market value for options granted to any employee or director who own stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company. Adjustments will be made to the purchase price
in the event of stock dividends, corporate reorganizations, or similar events.
During fiscal 1998, no options were granted under the Plan. As of September 26,
1998, options to purchase 61,200 shares were exercisable and options to purchase
215,881 shares have been exercised.
Non-Qualified Stock Option Plan
In February 1990, the Company's stockholders approved a Non-Qualified Stock
Option Plan (the "Non-Qualified Plan") which covers 453,876 shares of the
Company's Common Stock. The options become exercisable in installments as
determined at the time of grant by the Board of Directors. During fiscal 1998,
no options were granted under the Non-Qualified Plan. As of September 26, 1998,
options to purchase 64,200 shares were exercisable, and 57,040 options have been
exercised.
Outside Director Stock Option Plan
In February 1995, the Company's stockholders approved an Outside Director
Stock Option Plan (the "Director Plan") which covers 60,000 shares of the
Company's Common Stock and became effective November 15, 1994. All directors of
the Company who are not employees of the Company, of which there are presently
six (6), are eligible to participate in the Director Plan. The Director Plan is
administered by the Board of Directors. Under the Director Plan, each
non-employee director annually is granted options to purchase 2,000 shares of
Common Stock at a price equal to the fair market value on the date of grant.
During fiscal 1998, no options were granted under the Director Plan.
Employee Stock Purchase Plan
In February 1996, the Company's stockholders approved an Employee Stock
Purchase Plan (the "Stock Purchase Plan") which makes available 250,000 shares
of the Company's Common Stock for purchase by eligible employees of the Company
and certain of its subsidiaries. An eligible employee may elect to participate
in the Stock Purchase Plan by authorizing limited payroll deductions to be
applied to the purchase of Common Stock. As of September 26, 1998, the Stock
Purchase Plan had not yet been implemented.
14
<PAGE> 15
ITEM TWELVE - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of November 30, 1998 certain information
with regard to ownership of the Company's Common Stock by, (i) each beneficial
owner of 5% of more of the Company's Common Stock, based on reports filed with
the Securities and Exchange Commission; (ii) each director and each executive
officer named in the "Summary Compensation Table"; and (iii) all executive
officers and directors of the Company as a group:
<TABLE>
<CAPTION>
SHARES OF
NAME AND ADDRESS COMMON STOCK PERCENT OF
OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS (1)
<S> <C> <C>
Avondale Mills, Inc. (2).............................. 2,270,833 24.2%
Meyer A. Gross........................................ 10,000 (3) -
John G. Hudson........................................ 34,500 (4) -
H. Varnell Moore...................................... 9,500 (4) -
Lewis Rubin........................................... 27,500 (4) -
C. Michael Billingsley................................ 82,250 (5) -
Jack R. Altherr, Jr................................... 4,000 (6) (8) -
G. Stephen Felker..................................... 20,500 (7) (8) -
William H. Boyd....................................... 11,658 (9) -
Directors and officers as a group (9 persons)......... 199,908 (10) 2.1%
</TABLE>
(1) Unless otherwise indicated, (a) no director beneficially owns more than 1%
of the Company's Common Stock; and (b) ownership represents sole voting and
investment power.
(2) The address for Avondale Mills, Inc. is P.O. Box 1109, Monroe, Georgia
30655
(3) Includes options exercisable within sixty (60) days of September 26, 1998
for 3,000 shares under the Company's Non-Qualified Stock Option Plan and
6,000 shares under the Company's Outside Director Stock Option Plan.
(4) Includes options exercisable within sixty (60) days of September 26, 1998
for 9,500 shares under the Company's Outside Director Stock Option Plan.
(5) Includes options exercisable within sixty (60) days of September 26, 1998
for 38,500 shares under each of the Company's Stock Option Plan and
Non-Qualified Stock Option Plan.
(6) Represents options exercisable within sixty (60) days of September 26, 1998
for 4,000 shares of the Company's Common Stock under the Company's Outside
Director Stock Option Plan.
(7) Represents options exercisable within sixty (60) days of September 26, 1998
for 2,000 shares of the Company's Common Stock under the Company's Outside
Director Stock Option Plan.
(8) Does not include 2,270,833 shares of Common Stock owned of record by
Avondale Mills, Inc. of which Messrs. Altherr and Felker are executive
officers and directors and thus may share certain voting, investment and
dispositive powers.
(9) Includes options exercisable within sixty (60) days of September 26, 1998
for 3,750 shares of the Company's Common Stock under each of the
Company's Stock Option Plan and Non-Qualified Stock Option Plan.
(10) Includes options exercisable within sixty (60) days of September 26, 1998
for an aggregate of 42,250 shares of the Company's Common Stock under the
Company's Stock Option Plan, 45,250 shares under the Company's
Non-Qualified Stock Option Plan, and 40,500 shares under the Company's
Outside Director Stock Option Plan.
15
<PAGE> 16
ITEM THIRTEEN - CERTAIN TRANSACTIONS
(Dollars in thousands, except per share amounts)
In January 1996, the Company issued 10% subordinated notes to Avondale
Mills, Inc. and Robert M. Gintel in the aggregate principal amount of $15,000
maturing February 26, 1999, concurrently with the funding of the Company's new
bank credit facility. In August 1996, the note issued to Avondale Mills, Inc.,
in the principal amount of $7,500, along with accrued interest thereon, was
converted into 2,270,833 shares of Common Stock of the Company at a rate of
$3.50 principal amount of notes per share of Common Stock in a transaction
exempt from the registration requirements of the Securities Act of 1933, as
amended, pursuant to Section 4(2)thereof. The remaining notes payable to Mr.
Gintel are subordinated to the Company's bank debt and certain other senior
debt. The proceeds from issuance of the subordinated notes have been used for
working capital and capital expenditures. During fiscal 1996, the Company
determined not to proceed with a proposed rights offering of Common Stock which
had been intended to repay the subordinated notes issued to Avondale Mills Inc.
and 50% of the subordinated notes payable to Mr. Gintel. In addition, in
connection with the issuance of one of the notes to Robert M. Gintel, the
Company issued to Robert M. Gintel a warrant to purchase up to 125,000 shares of
Common Stock at $7.00 per share. The issuance of such warrant was approved by
stockholders of the Company in February 1996.
During fiscal 1998, the Company made purchases totaling approximately
$16,300 of yarn and other raw materials from Avondale Mills, Inc. Messrs.
Altherr, Jr. and Felker are directors of the Company and are directors and
executive officers of Avondale Mills, Inc. C. Michael Billingsley, the Company's
President and Chief Executive Officer, is a former executive officer of Avondale
Mills, Inc. John G. Hudson, a director of the Company, is a former President and
Chief Operating Officer of Avondale Mills, Inc. See "Security Ownership",
"Principal Occupations of Directors".
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors consisted
during fiscal 1998 of Messrs. Hudson (Chairman), Gross, and Moore.
In accordance with rules promulgated by the Securities and Exchange
Commission, the information included under the captions "Compensation Committee
Report on Executive Compensation" and "Company Stock Performance" will not be
deemed to be filed or to be proxy soliciting material or incorporated by
reference in any prior or future filings by the Company under the Securities Act
of 1933 or the Securities Exchange Act of 1934.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation of the Company's executive officers is generally
determined by the Compensation Committee of the Board of Directors. Except as
otherwise disclosed herein each member of the Compensation Committee is a
director who is not an employee of the Company or any of its affiliates.
GENERAL POLICIES
The Company's compensation programs are intended to enable the Company to
attract, motivate, reward and retain the management talent required to achieve
aggressive corporate objectives in a rapidly changing industry, and thereby
increase stockholder value. It is the Company's policy to provide incentives to
its senior management to achieve both short-term and long-term objectives and to
reward exceptional performance and contributions to the development of the
Company's business. To attain these objectives, the Company's executive
compensation program includes a competitive base salary, coupled with a
substantial cash incentive component under its executive management incentive
program which is "at risk" based on the performance of the Company's business,
primarily as reflected in the achievement of financial goals. As a general
matter, as an executive officer's level of management responsibility in the
Company increases a greater portion of his or her potential total compensation
depends upon the Company's performance as measured by objective standards over
one or more years.
16
<PAGE> 17
Stock options are granted to employees, including the Company's executive
officers, by the Compensation Committee under the Company's Stock Option Plan
and Non-Qualified Stock Option Plan. The Committee believes that stock options
provide an incentive that focuses the executive's attention on managing the
Company from the perspective of an owner with an equity stake in the business.
Generally, options are awarded with an exercise price equal to the market value
of Common Stock on the date of grant, have a maximum term of five to ten years
and become exercisable for half of the option shares one year from the date of
grant and for all of the option shares two years from the date of grant.
From time to time, the Compensation Committee utilizes the services of
independent consultants to perform analyses and to make recommendations to the
Committee relative to executive compensation matters. No compensation consultant
is paid on a retainer basis and none such services were utilized during fiscal
1998.
RELATIONSHIP OF COMPENSATION TO PERFORMANCE
The Compensation Committee annually establishes, subject to the approval of
the Board of Directors and any applicable employment agreements, the salaries
which will be paid to the Company's executive officers during the coming year.
In setting salaries, the Compensation Committee takes into account several
factors, including the Company's existing salary structure, the extent to which
an individual has participated in the incentive compensation and stock option
plans maintained by the Company and its affiliates, and qualitative factors
bearing on an individual's experience, responsibilities, management and
leadership abilities, and job performance.
The Compensation Committee also determines the terms of the Company's
executive management incentive program. In doing so, the Compensation Committee
reviews management's plans for the Company's growth and profitability,
determines the criteria to be used for the determination of bonus awards under
the executive management incentive program and fixes the levels of target and
maximum awards for participants and the level of attainment of financial
performance objectives necessary for awards to be made under each incentive
compensation plan.
For fiscal 1998, no bonuses were paid or will be paid pursuant to the
Company's executive management incentive program because none of the financial
targets thereunder were achieved. Under that plan, target awards for such
officers ranging from 20% to 50% of the participant's salary at year end were
payable depending upon the level of the Company's operating income (or in the
case of certain officers who had management responsibility for one of the
Company's operating groups, depending in part on the performance of such
individual and his operating group). Under the terms of this plan, no incentive
bonus was payable to an executive officer unless a specified level of the
Company's operating income or the operating group's or individual's performance
target, as the case may be, was achieved. The plan was designed in such a way as
to disproportionately increase or decrease a participant's incentive bonus in
the event that actual results exceed or fall short, respectively, of targeted
levels.
Stock options are granted to key employees, including the Company's
executive officers, by the Compensation Committee under the Plan and the
Non-Qualified Plan. Among the Company's executive officers, the number of shares
subject to options granted to each individual generally depends upon his or her
base salary and the level of that officer's management responsibility. The
largest grants are awarded to the officers who, in the view of the Compensation
Committee, have the greatest potential impact on the Company's profitability and
growth. Previous grants of stock options are reviewed but are not considered the
most important factor in determining the size of any executive's stock option
award in a particular year. For fiscal 1998, no stock options were granted
pursuant to the Plan and the Non-Qualified Plan.
COMPENSATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER
For fiscal 1998, Mr. C. Michael Billingsley, the Company's President and
Chief Executive Officer, received a base salary at the annual rate of $300. Such
compensation was approved by the Compensation Committee, taking into account,
among other things, the existing compensation structure for the prior chief
executive officer of the Company.
The Compensation Committee
John G. Hudson, Chairman
Meyer A. Gross
H. Varnell Moore
17
<PAGE> 18
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section (16)a of the Exchange Act requires the Company's executive
officers, directors and persons who own more than ten percent of a registered
class of the Company's equity securities ("Reporting Persons") to file reports
of ownership and changes in ownership on Forms 3, 4 and 5 with the Securities
and Exchange Commission (the "SEC") and the New York Stock Exchange (the
"NYSE"). These Reporting Persons are required by SEC regulation to furnish the
Company with copies of all Forms 3, 4 and 5 they file with the SEC and the NYSE.
Based solely upon the Company's review of the copies of the forms it has
received, the Company believes that all Reporting Persons complied on a timely
basis with all filing requirements applicable to them with respect to
transactions during fiscal 1998.
COMPANY STOCK PERFORMANCE
The following graph sets forth the cumulative total stockholder return to
the Company's stockholders during the five year period ended September 26, 1998,
as well as two overall stock market indices, the S&P 500 Index and the Russell
2000 as well as the Company's peer group index (S&P Textiles (Apparel)):
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG ONEITA INDUSTRIES, INC., THE S&P 500 INDEX, THE
RUSSELL 2000 INDEX AND THE S&P TEXTILES (APPAREL) INDEX
<TABLE>
<CAPTION>
DATE ONEITA INDUSTRIES, INC. S&P 500 RUSSELL 2000 S&P TEXTILES
(APPAREL)
<S> <C> <C> <C> <C> <C>
9/93 $100 $100 $100 $100
9/94 169 103 102 109
9/95 130 134 126 106
9/96 61 161 143 145
9/97 9 227 190 157
9/98 2 247 157 106
</TABLE>
- -----------
*$100 invested on September 30, 1993 in Stock or Index--Including reinvestment
of dividends. Fiscal years ending September.
18
<PAGE> 19
PART IV
ITEM FOURTEEN - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K
(a) Financial Statements:
See Index to Consolidated Financial Statements and Schedules at page
F-1.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by Registrant in the last quarter of
the year covered by this report.
(c) Exhibits:
3.1 Certificate of Incorporation (incorporated by reference to
Exhibit 3(a) of Form S-1 Registration Statement No. 33-16972)
3.2 By-laws as amended (incorporated by reference to Exhibit 3.1 of
Form 10-Q for the quarter ended March 31, 1994)
10.1 Stock Option Plan (incorporated by reference to Exhibit 10(a) of
Form S-1 Registration Statement No. 33-16972)
10.2 1989 Non-Qualified Stock Option Plan (incorporated by reference
to Exhibit 10.2 of Annual Report on Form 10-K for the year ended
September 30, 1990)
10.3 $60,000 Revolving Credit Agreement dated January 26, 1996 among
the Company, SunTrust Bank, Atlanta, First Union National Bank
of South Carolina and NatWest Bank N.A. (incorporated by
reference to Exhibit 10.28 of Form 10-Q for the quarter ended
December 31, 1995)
10.4 10% Subordinated Notes dated January 26, 1996 in the principal
amount of $7,500 issued to Robert M. Gintel (incorporated by
reference to Exhibit 10.25 of Form 10-Q for the quarter ended
December 31, 1995)
10.5 Note Agreement dated as of December 20, 1988, between Registrant
and an institutional lender, as amended. (Incorporated by
reference to Exhibit 10.10 of Annual Report on Form 10-K for the
year ended September 30, 1988 and Exhibit 10.26 to Annual Report
on Form 10-K for the year ended September 30, 1995)
10.6 Letter of Credit Agreement dated as of October 1, 1989, between
the Registrant and Trust Company Bank (incorporated by reference
to Exhibit 10.12 of Annual Report on Form 10-K for the year
ended September 30, 1989)
10.7 Lease Agreement dated as of October 1, 1989, between the
Registrant and the Industrial Development Board of the City of
Fayette, Alabama (incorporated by reference to Exhibit 10.13 of
the Annual Report on Form 10-K for the year ended September 30,
1989)
10.8 Guaranty Agreement dated as of October 1, 1989, between the
Registrant and Trust Company Bank (incorporated by reference to
Exhibit 10.14 of Annual Report on Form 10-K for the year ended
September 30, 1989)
10.9 Form of Indemnification Agreement between Registrant and its
officers and directors (incorporated by reference to Exhibit 28
to Current Report on Form 8-K dated July 30, 1991)
10.10 Note Purchase Agreement dated as of December 28, 1995 among
Registrant, Robert M. Gintel and Avondale Mills, Inc.
(incorporated by reference to Exhibit 10.24 of Annual Report on
Form 10-K for the year ended September 30, 1995)
10.11 Agreement dated August 15, 1996 (related to note conversion)
between Registrant and Avondale Mills, Inc. (incorporated by
reference to Exhibit 10.17 of Annual Report on Form 10-K for the
year ended September 28, 1996)
11 Computation of Earnings Per Share *
22 The following lists the Company's significant subsidiaries, all
of which are wholly-owned by the Company. The names of certain
subsidiaries which do not, when considered in the aggregate,
constitute a significant subsidiary have been omitted.
Name of Subsidiary Jurisdiction of Incorporation
------------------ -----------------------------
Oneita - Strathleven Limited Jamaica
Oneita Freeport Limited Jamaica
Oneita Mexicana S. A. de C.V. Mexico
23 Consent of Arthur Andersen LLP *
27 Financial Data Schedule *
* Filed herewith
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 22nd day of
December, 1998.
Oneita Industries, Inc.
By: /s/ C. Michael Billingsley
-------------------------------------
C. Michael Billingsley
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed on December 22, 1998 by the following persons in the capacities
indicated:
Signatures Title
/s/ C. Michael Billingsley President and Chief Executive Officer
- --------------------------
C. Michael Billingsley
/s/ William H. Boyd Vice President and Treasurer
- ------------------- (Principal Accounting Officer)
William H. Boyd
/s/ Jack R. Altherr, Jr. Director
- ------------------------
Jack R. Altherr, Jr.
/s/ G. Stephen Felker Director
- ---------------------
G. Stephen Felker
/s/ Meyer A. Gross Director
- ------------------
Meyer A. Gross
Director
- ------------------
John G. Hudson
/s/ H. Varnell Moore Director
- --------------------
H. Varnell Moore
/s/ Lewis Rubin Director
- ---------------
Lewis Rubin
20
<PAGE> 21
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
ONEITA INDUSTRIES, INC.
(Information required by Part III, Item 8 of Form 10-K)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants F-2
FINANCIAL STATEMENTS
Consolidated balance sheets - September 26, 1998 and September 27, 1997 F-4
Consolidated statements of operations for the three years ended September 26, 1998 F-5
Consolidated statements of cash flows for the three years ended September 26, 1998 F-6
Consolidated statements of shareholders' equity for the three years ended September 26, 1998 F-7
Notes to consolidated financial statements F-8
FINANCIAL STATEMENT SCHEDULE
Schedule II - Valuation and Qualifying Accounts F-19
</TABLE>
Other schedules are omitted as they are not applicable or not required under the
rules of Regulation S-X.
F-1
<PAGE> 22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Oneita Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Oneita
Industries, Inc. (a Delaware corporation) and subsidiaries as of September 26,
1998 and September 27, 1997, and the related consolidated statements of
operations, cash flows and shareholders' equity for each of the three years in
the period ended September 26, 1998. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Oneita
Industries, Inc. and subsidiaries as of September 26, 1998 and September 27,
1997 and the results of their operations and their cash flows for each of the
three years in the period ended September 26, 1998, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the accompanying
consolidated financial statements, the Company has incurred significant losses
during each of the last three years and unaudited interim information indicates
that losses are continuing for fiscal 1999. As discussed in Note 1 to the
accompanying consolidated financial statements, on January 23, 1998, the Company
filed a Chapter 11 petition with the United States Bankruptcy Court for the
District of Delaware under Chapter 11 of the Bankruptcy Code, together with a
Plan of Reorganization seeking to implement a debt restructuring with its
lenders and a Disclosure Statement. Subsequently, an Amended Plan of
Reorganization ("Amended Plan") and an Amended Disclosure Statement were filed
in the Chapter 11 case. In March 1998 the Amended Disclosure Statement was
approved by the Bankruptcy Court, however, the Company is unable to implement
the Amended Plan due to a lack of available working capital and the Amended
Plan has been abandoned. As discussed in Note 3 to the accompanying
consolidated financial statements, the Company obtained permission from the
Bankruptcy Court to borrow up to $10,000 under a debtor-in-possession facility
which is secured by a pledge of certain property, plant and equipment and
includes covenants relating to minimum operating results and maximum capital
expenditures. Unaudited interim financial information indicated the Company is
not in compliance with the minimum operating results requirement. Also the
Company is not in compliance with certain terms of its long-term revolving
credit agreement and a loan agreement with an institutional lender. These
matters, among others, raise substantial doubt about the Company's ability to
continue as a going concern. As described in Note 1, the results of a number of
alternative strategies including liquidation of the Company, sale of the
Company and a financial restructuring of the Company have been (and continue to
be) evaluated by the Company's management and board of directors. In December
1998, the board of directors authorized management and its advisors to pursue a
sale of the Company. As a result of the authorizations and evaluations, the
Company has reduced the recorded values of its property, plant and equipment
and certain intangibles as of September 26, 1998 by $16,992 to reflect
estimated realizable amounts. The Company has not adopted a formal plan of
liquidation and there are strategies available that would allow the Company to
continue to operate, therefore, the financial statements have been prepared
assuming the Company will continue as a going concern. The financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index to consolidated financial statements and schedule is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not a required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Columbia, South Carolina,
December 22, 1998.
F-2
<PAGE> 23
CONSOLIDATED BALANCE SHEETS
ONEITA INDUSTRIES, INC.
<TABLE>
<CAPTION>
September 26, September 27,
1998 1997
------------- -------------
(In thousands, except share amounts)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ............................... $ 656 $ 1,654
Accounts receivable, less allowance for doubtful accounts
of $879 in 1998 and $836 in 1997 ................... 10,185 17,200
Inventories ............................................. 26,184 31,214
Prepaid expenses and other current assets ............... 829 1,024
--------- ---------
Total current assets ............................... 37,854 51,092
Property, plant and equipment, at cost, net of depreciation
and amortization (Note 8)............................ 12,268 32,733
Deferred charges and other assets ......................... 1,729 3,152
--------- ---------
$ 51,851 $ 86,977
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Note payable ............................................ $ 9,990 $ --
Long-term debt in default classified as current ......... 70,654 70,654
Current portion of capital lease obligations ............ 1,314 1,405
Accounts payable ........................................ 6,827 4,117
Accrued liabilities ..................................... 11,464 17,511
--------- ---------
Total current liabilities ......................... 100,249 93,687
Capital lease obligations ................................. 717 2,032
Commitments and contingencies (Note 10)
Shareholders' Equity :
Preferred Stock, $1.00 par value, 2,000,000 shares
authorized, none issued ......................... -- --
Common Stock, $.25 par value, 15,000,000 authorized
shares, 9,149,339 shares outstanding ........... 2,287 2,287
Capital in excess of par value ........................ 75,420 75,420
Accumulated deficit ................................... (126,822) (86,449)
--------- ---------
(49,115) (8,742)
--------- ---------
$ 51,851 $ 86,977
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these balance sheets.
F-3
<PAGE> 24
CONSOLIDATED STATEMENTS OF OPERATIONS
ONEITA INDUSTRIES, INC.
<TABLE>
<CAPTION>
Years Ended
----------------------------------------------
Sept. 26, 1998 Sept. 27, 1997 Sept. 28, 1996
-------------- -------------- --------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Net sales ............................................. $ 113,376 $ 135,006 $ 168,346
Cost of goods sold .................................... 122,962 139,303 192,094
--------- --------- ---------
Gross loss ............................................ (9,586) (4,297) (23,748)
Selling, general and administrative expenses .......... 9,186 12,017 19,654
Asset impairment loss (Note 8)......................... 16,922 0 0
Consolidation charges (credits) (Note 9)............... (1,900) 15,282 6,229
--------- --------- ---------
Loss from operations .................................. (33,864) (31,596) (49,631)
Other expense:
Reorganization expense ............................ 3,256 1,197 0
Interest expense, net of interest income of $252 in
1998, $395 in 1997 and $424 in 1996 (contractual
interest in 1998 was $8,698, see note 1) ....... 3,253 7,863 7,001
--------- --------- ---------
Loss before income taxes .............................. (40,373) (40,656) (56,632)
--------- --------- ---------
Benefit for income taxes :
State and local ................................... 0 0 (270)
Federal ........................................... 0 0 (2,669)
--------- --------- ---------
0 0 (2,939)
--------- --------- ---------
Net loss .............................................. $ (40,373) $ (40,656) $ (53,693)
========= ========= =========
Net loss per share (Note 2) ........................... $ (4.41) $ (4.44) $ (7.58)
========= ========= =========
Weighted average number of shares outstanding ......... 9,149 9,149 7,084
========= ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-4
<PAGE> 25
CONSOLIDATED STATEMENTS OF CASH FLOWS
ONEITA INDUSTRIES, INC.
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------------
Sept. 26, 1998 Sept. 27, 1997 Sept. 28, 1996
-------------- -------------- --------------
(In thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss .............................................. $(40,373) $(40,656) $(53,693)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ....................... 5,300 6,974 5,886
Consolidation and impairment charges ................ 16,992 8,060 2,494
Provision for losses on accounts receivable ......... 2 792 400
Decrease in deferred income taxes ................... -- -- (1,621)
Loss on sale of property and equipment ............. 33 1,395 874
Change in assets and liabilities:
Decrease in receivables ............................. 7,014 9,671 3,860
Decrease in inventories ............................ 5,030 12,669 36,085
Decrease (increase) in prepaid expenses and
other assets ..................................... 294 (2,303) 647
(Decrease) increase in accounts payable
and accrued liabilities .......................... (3,337) 1,179 (593)
-------- -------- --------
Total adjustments ..................................... 31,328 38,437 48,032
-------- -------- --------
Net cash used in operating activities ............... (9,045) (2,219) (5,661)
-------- -------- --------
Cash Flows From Investing Activities:
Proceeds from sale of property, plant and equipment ... 418 641 819
Acquisition of property, plant and equipment .......... (955) (2,832) (9,184)
Decrease in equipment lease deposits ................. -- -- 883
-------- -------- --------
Net cash used in investing activities ............... (537) (2,191) (7,482)
-------- -------- --------
Cash Flows From Financing Activities:
Short-term borrowings ................................. 9,990 -- 2,000
Proceeds from issuance of long-term debt .............. -- -- 22,219
Payment of long-term debt and capital lease obligations (1,406) (3,071) (4,690)
-------- -------- --------
Net cash provided by (used in) financing activities . 8,584 (3,071) 19,529
-------- -------- --------
Net increase (decrease) in cash and cash equivalents .... (998) (7,481) 6,386
Cash and cash equivalents at beginning of year .......... 1,654 9,135 2,749
-------- -------- --------
Cash and cash equivalents at end of year ................ $ 656 $ 1,654 $ 9,135
======== ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-5
<PAGE> 26
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ONEITA INDUSTRIES, INC.
<TABLE>
<CAPTION>
Common Stock
----------------------------------------
Capital in Retained
Number Par Excess of (Deficit) Treasury
of Shares Value Par Value Earnings Stock
---------- ---------- ---------- ---------- ----------
(In thousands, except share amounts)
<S> <C> <C> <C> <C> <C>
Balances as of September 28, 1996... 9,269,739 $ 2,318 $ 76,728 $ (45,793) $ (1,339)
Net loss ....................... -- -- -- (40,656) --
Retirement of treasury stock.... (120,400) (31) (1,308) -- 1,339
---------- ---------- ---------- ---------- ----------
Balances as of September 27, 1997... 9,149,339 2,287 75,420 (86.449) --
Net loss ....................... -- -- -- (40,373) --
---------- ---------- ---------- ---------- ----------
Balances as of September 26, 1998... 9,149,339 $ 2,287 $ 75,420 $ (126,822) $ --
========== ========== ========== ========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-6
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ONEITA INDUSTRIES, INC.
(In thousands, except share and per share amounts)
(1) CHAPTER 11 BANKRUPTCY PROCEEDINGS AND FINANCIAL RESTRUCTURING DEVELOPMENTS :
The Company has incurred net losses of $40,373 and $40,656 for the years
ended September 26, 1998 and September 27, 1997. The Company is highly
leveraged, has no short-term liquidity and is unable to service its debts.
At September 26 1998, the Company was and continues to be in non-compliance
with certain terms of its long-term revolving credit agreement, a loan agreement
with an institutional lender, and subordinated notes held by Robert M. Gintel.
Mr. Gintel resigned as Chairman of the Board and as a director of the Company on
August 8, 1997. These obligations, $57,000, $6,154 and $7,500 in principal
amount, respectively, have been classified as current liabilities. On December
31, 1998, the Company reached an agreement with Robert Gintel pursuant to which
Mr. Gintel assigned for the sum of three dollars his subordinated notes and
unexpired warrants to Oneita Mexicana S.A. de C.V., a wholly owned subsidiary
of the Company. The Company will recognize a gain on this early extinguishment
of debt in the second fiscal quarter of 1999.
On January 23, 1998, the Company filed a Chapter 11 petition with the
United States Bankruptcy Court for the District of Delaware under Chapter 11 of
the Bankruptcy Code, together with a Plan of Reorganization seeking
to implement a debt restructuring with its lenders and a Disclosure Statement.
Subsequently, an Amended Plan of Reorganization ("Amended Plan")and an Amended
Disclosure Statement were filed in the Chapter 11 case. Pursuant to the Amended
Plan, the restructured obligations, which aggregate $70,654, plus accrued
interest and fees, were expected to be exchanged for; 1) payment of $15,000 in
cash, 2) the issuance of various notes totaling $38,500 and 3) 79.75% of the
outstanding Common Stock of the Company. Interest on these obligations from
January 23 through September 26, 1998 totaling $5,445 has not been accrued and
was not payable under the Amended Plan due to the Chapter 11 case. The Company
believes that any claim asserted by the holders of these obligations for
interest after January 23, 1998 will not be allowed in the bankruptcy case.
Prior to the commencement of the Chapter 11 case, the holders of the debt
mentioned above entered into agreements with the Company agreeing, among other
things, to cooperate with the Company in implementing the Amended Plan and
delivered ballots voting in favor of the Amended Plan. In March 1998 the Amended
Disclosure Statement was approved by the Bankruptcy Court, however, the Company
is unable to implement the Amended Plan due to a lack of available working
capital. Pursuant to the terms of the agreements entered into with the holders
of certain indebtedness, such parties are no longer required to cooperate in
implementing the Amended Plan which now has been abandoned.
On December 7, 1998, the Bankruptcy Court granted a motion extending the
time period through February 18,1999 during which only the Company may file a
Plan of Reorganization. The Company has reached an agreement with the current
holders of the indebtedness under its long term revolving credit agreement and
the loan agreement with its institutional lender ( the "Prepetition Lender
Group" ) pursuant to which the Prepetition Lender Group may at any time after
December 17, 1998 file a plan of reorganization so long as such plan is
supported by a majority of the Prepetition Lender Group holding at least
two-thirds in dollar amount of the aggregate claims under the long term
revolving credit agreement and the loan agreement with the institutional lender.
The Company had previously obtained permission from the Bankruptcy Court
to continue to pay most pre-petition claims held by trade creditors in order to
avoid any disruption in its business. In addition, the Company had previously
obtained authority from the Bankruptcy Court to continue to use cash collateral
pursuant to a stipulation and to borrow up to $10,000 from Foothill Capital
Corp. under a Debtor-in-Possession Facility. The Debtor-in-Possession Facility,
which matures on February 2, 1999, is secured by a pledge of certain property,
plant and equipment. The Company has requested from Foothill Capital Corp. a 90
day extension of the facility; however, there is no indication that such an
extension will be granted. The Company had obtained a commitment from Foothill
Capital Corp., subject to certain conditions, for a new revolving credit
facility pursuant to which financing would have been available upon emergence
from the Chapter 11 case. However, such commitment expired as the Amended Plan
was not implemented on or before July 31, 1998.
A number of strategies including liquidation of the Company, sale of the
Company and a financial restructuring of the Company have been (and continue to
be) evaluated by the Company's management and board of directors. In December
1998, the board of directors authorized management and its advisors to pursue a
sale of the Company.
In light of the foregoing, there can be no assurance that a Plan of
Reorganization will be confirmed.
F-7
<PAGE> 28
The Company has incurred $3,256 of reorganization expense related to debt
restructuring and the bankruptcy filing during the year ended September 26, 1998
and $1,197 related to debt restructuring during the year ended September 27,
1997.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES :
NATURE OF BUSINESS AND LIQUIDITY -
Oneita Industries, Inc. (the Company) manufacturers and markets high
quality activewear including T-shirts and fleecewear, and infantswear primarily
for the newborn and toddler markets. These products are marketed to the
imprinted sportswear industry and to major retailers.
Market pressures that resulted in reduced sales volumes and prices and
operating losses during the year ended September 26, 1998 are continuing in
fiscal 1999. Management's operating plans include continued close monitoring of
costs and concentrating the manufacturing and sales efforts on a more profitable
product mix. In September 1997, the Company announced a plan to consolidate
certain of its operations in order to further lower its costs and make its
operations more efficient. The consolidation involved the closing of one
facility, the write down to estimated fair value of certain excess production
equipment and the shift of more assembly operations to existing offshore
facilities.
The accompanying consolidated financial statements have been prepared on
the basis of accounting principles applicable to a going concern and contemplate
the realization of assets and the settlement of liabilities and commitments in
the normal course of business.
BASIS OF PRESENTATION -
The consolidated financial statements of the Company include the accounts
of the Company and all of its subsidiaries. All material intercompany accounts
and transactions have been eliminated. The Company's fiscal year ends on the
last Saturday in September.
CASH FLOWS -
The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents. Cash payments for
interest expense were $3,263, $7,447, and $6,598, in fiscal 1998, 1997, and
1996, respectively. Cash payments for income taxes were $5,277 in fiscal 1995.
In fiscal 1997, income tax refunds of $2,620 were received by the Company.
In January 1996, the Company utilized its $60,000 revolving credit
arrangement to repay $50,000 of its then existing debt. In August 1996, $7,767
of subordinated debt plus accrued interest, less deferred financing costs, was
converted into Common Stock of the Company. See Note 6.
INVENTORIES -
Inventories are stated at the lower of cost or market and include material,
labor and manufacturing overhead costs. The Company uses the first-in, first-out
method for valuing its inventories. Inventories are comprised of the following:
<TABLE>
<CAPTION>
Sept. 26, 1998 Sept. 27, 1997
-------------- --------------
<S> <C> <C>
Finished goods ........................... $15,812 $20,095
Work in process .......................... 8,115 9,313
Raw materials and supplies ............... 2,257 1,806
------- -------
$26,184 $31,214
======= =======
</TABLE>
PROPERTY, PLANT AND EQUIPMENT -
See Notes 8 and 9 as to the write-down of property, plant and equipment to
estimated fair value. Depending upon Company strategies as described in Note 1
and as authorized by the board of directors, these values could be further
written-down in the future. Property, plant and equipment are recorded at cost.
Additions and improvements are capitalized, while maintenance and repairs are
expensed when incurred. Depreciation of property, plant and equipment is
provided primarily on a straight-line basis over the estimated useful lives of
the assets and over the term of the lease for assets in use under capital
leases. Leasehold improvements are amortized over the life of the lease or life
of the improvement, whichever is shorter.
F-8
<PAGE> 29
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
Estimated Sept. 26, Sept. 27,
Useful Life 1998 1997
----------- --------- ---------
<S> <C> <C> <C>
Factory machinery and equipment ...... 7-9 $12,254 $28,516
Buildings and building improvements .. 15-20 5,887 12,886
Land ................................. -- 268 352
------- -------
18,409 41,754
Less accumulated depreciation ........ 6,141 9,021
------- -------
$12,268 $32,733
======= =======
</TABLE>
Fourth quarter results for 1998 and 1997 and second quarter results for
1996 include non-cash pretax charges of $16,300, $8,060 and $2,000 (included in
impairment loss discussed in Note 8 and consolidation charges discussed in Note
9) related to asset write-downs and write-offs. Certain assets were evaluated
and the net book value of these assets was adjusted to the estimated fair
market value.
Maintenance and repairs related to the Company's property, plant and
equipment amounted to $1,315, $1,960, and $2,659 for the fiscal years ended
September 1998 , 1997, and 1996, respectively.
DEFERRED CHARGES AND OTHER ASSETS -
During the fourth fiscal quarter of 1998, the Company wrote-off $372 of
goodwill and $320 of other intangibles (see Note 8). Deferred charges and other
assets include goodwill at September 27, 1997 which represent costs in excess
of net assets acquired of $388, which is net of accumulated amortization of
$137.
Other assets at September 26, 1998 and September 27, 1997 includes a
certificate of deposit at the Company's lead bank in the amount of $1,386 which
has been pledged as collateral securing a letter of credit issued for the
benefit of the Company's casualty insurance company.
INCOME TAXES -
Income tax expense is based on reported income adjusted for differences
that do not enter into the computation of taxes payable under applicable tax
laws. Deferred income taxes are provided for timing differences between book
and taxable income. The primary components of deferred taxes result from the
differences in the reporting of depreciation, asset revaluations, inventory
valuation and accruals not currently deductible.
At September 26, 1998, net operating loss carry forwards estimated to be
approximately $94,000 are available ( to the extent not limited by a change in
control as a result of implementation of any plan of reorganization, see Note 1)
to reduce future income taxes payable by the Company. The carry forwards expire
in fifteen years.
The following table summarizes the benefit for federal and state taxes on
income:
<TABLE>
<CAPTION>
Years Ended
-------------------------------------------
Sept. 26, Sept. 27, Sept. 28,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal ........... $ -- $ -- $(1,988)
State ............. -- -- (270)
--------- ------- -------
-- -- (2,258)
Deferred:
Federal .......... -- -- (681)
State ............ -- --
--------- ------- -------
-- -- (681)
--------- ------- -------
Net tax benefit ............... $ -- $ -- $(2,939)
========= ======= =======
</TABLE>
F-9
<PAGE> 30
The effective income tax rate differs from the United States federal
statutory rate as follows:
<TABLE>
<CAPTION>
Years Ended
-----------------------------------
Sept. 26, Sept. 27, Sept. 28,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
United States federal statutory rate benefit (35.0)% (35.0)% (35.0)%
State and local income taxes ............... 0.0 0.0 (0.3)
Goodwill amortization ...................... 0.1 0.1 0.1
Losses carried forward for future years .... 34.9 34.9 29.9
Other ...................................... 0.0 0.0 0.1
----- ----- -----
0.0% (0.0)% (5.2)%
===== ===== =====
</TABLE>
Due to the loss carryforward position, the Company has eliminated its
deferred tax debits and credits. Deferred income taxes will be reinstated when
the carry forwards are recognized for tax purposes.
Significant components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
Years Ended
---------------------------------
Sept. 26, 1998 Sept. 27, 1997
-------------- --------------
<S> <C> <C>
Current deferred tax debits applicable to:
Benefit plan accruals ........................... $ 928 $ 1,177
Other ........................................... 4,685 4,787
-------- --------
5,613 5,964
Valuation allowance ............................. (5,613) (5,964)
-------- --------
$ 0 $ 0
======== ========
Noncurrent deferred tax debits (credits) applicable to:
Depreciation and amortization differences ....... $ (3,215) $ (3,477)
Asset reevaluations ............................. 8,813 3,108
Losses carried forward for future years ......... 32,900 25,900
Other ........................................... (707) (646)
-------- --------
37,791 24,885
Valuation allowance ............................. (37,791) (24,885)
-------- --------
$ 0 $ 0
======== ========
</TABLE>
BENEFIT PLAN -
The Company sponsors a defined contribution retirement plan available to
all employees who meet plan requirements. The amount of the Company's
contributions are determined by formulas outlined in the plan document. The
Company's contributions to the plan for the years ended September 1998, 1997 and
1996 were $415, $509 and $463 respectively.
The Company does not provide any additional post-retirement benefits to its
employees.
REVENUE RECOGNITION -
The Company recognizes revenue upon shipment of products to customers.
USE OF ESTIMATES -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
F-10
<PAGE> 31
RECLASSIFICATIONS -
Certain balances in the prior year financial statements have been
reclassified to conform with the 1998 presentation.
EARNINGS PER SHARE -
Net income (loss) per share is calculated using the weighted average number
of shares of Common Stock outstanding during each period, adjusted to reflect
the dilutive effect of shares usable for stock options.
RELATED PARTY TRANSACTIONS -
At September 26, 1998, Avondale Mills, Inc. owned 24.8% of the Company's
outstanding Common Stock. Two members of the Company's board of directors are
executives of Avondale Mills, Inc. For the year ending September 26, 1998, the
Company purchased 43% of its yarn requirements (approximately $16,300) from
Avondale Mills, Inc. At September 26, 1998 the Company had no accounts payable
to Avondale Mills.
(3) NOTE PAYABLE :
On January 23, 1998 the Company entered into a Loan and Security Agreement,
a Debtor-in-Possession Facility, with Foothill Capital Corp. which provides for
advances up to $10,000. In March 1998 the Bankruptcy Court granted the Company
authority to borrow under the facility and at September 26, 1998, $9,990 was
outstanding. The loan matures on February 2, 1999, bears interest at prime plus
1%, and is secured by most of the Company's property, plant and equipment. The
Company has requested a 90 day extension of the facility; however, there is no
indication that such an extension will be granted. The loan agreement contains
certain financial covenants including minimum operating results and limits on
capital expenditures. At September 26, 1998 the Company was in compliance with
the terms of the loan agreement; however, 1999 unaudited interim financial
information indicates the Company is not in compliance with the minimum
operating results requirement. The Company has notified Foothill Capital Corp.
of the non-compliance.
(4) LIABILITIES :
The following table sets forth prepetition liabilities subject to
compromise from those not subject to compromise and postpetition liabilities as
of September 26, 1998:
<TABLE>
<CAPTION>
Prepetition Liabilities
------------------------
Not
Subject Subject Post
to to Petition Total
Compromise Compromise Liabilities Liabilities
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Current Liabilities:
Notes payable ........... -- -- $ 9,990 $ 9,990
Long-term debt in default $ 70,654 -- -- 70,654
Current portion of
capital leases ........ -- $ 1,314 -- 1,314
Accounts payable ........ -- 1,301 5,526 6,827
Accrued liabilities ..... 1,575 417 9,472 11,464
-------- -------- -------- --------
$ 72,229 $ 3,032 $ 24,988 $100,249
======== ======== ======== ========
Capital Lease Obligations .. -- $ 717 -- $ 717
======== ======== ======== ========
</TABLE>
F-11
<PAGE> 32
(5) ACCRUED LIABILITIES :
Accrued liabilities include the following amounts at :
<TABLE>
<CAPTION>
Sept. 26, 1998 Sept. 27, 1997
-------------- --------------
<S> <C> <C>
Interest ................................. $ 1,825 $ 1,835
Payroll .................................. 1,555 1,815
Employee benefits ........................ 2,381 3,092
Restructuring and reorganization ......... 1,866 8,006
Other .................................... 3,837 2,763
------- -------
$11,464 $17,511
======= =======
</TABLE>
(6) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS :
<TABLE>
<CAPTION>
Sept. 26, 1998 Sept. 27, 1997
-------------- --------------
<S> <C> <C>
Long-term debt -
Notes payable to banks ................ $57,000 $57,000
Senior promissory notes ............... 6,154 6,154
Subordinated Debt ..................... 7,500 7,500
Capital leases -
Industrial development bonds ......... 1,563 2,907
Other ................................. 468 530
------- -------
72,685 74,091
Less current portion .................. 1,314 1,405
Less long-term debt in default ........ 70,654 70,654
------- -------
$ 717 $ 2,032
======= =======
</TABLE>
In January 1996, the Company entered into a $60,000, three-year loan
agreement with three of its banks. The proceeds of the loan were used to pay off
a then existing bank credit facility and existing short-term bank lines totaling
$50,000. The remaining $7,000 was used for working capital and capital
expenditures. The loan is secured by substantially all of the Company's accounts
receivable and inventory. At September 26, 1998, $57,000 was outstanding under
this agreement. The facility matures in January 1999. Interest is charged under
variable rate options which approximate the banks' prime rate. The loan
agreement contains certain financial covenant and ratio requirements such as
minimum working capital and net worth and debt to equity and debt coverage as
defined. At September 26, 1998, the Company was not in compliance with certain
terms of the loan agreement (see Note 1).
In January 1996, the Company issued to Robert M. Gintel subordinated
notes in the aggregate amount of $7,500. The notes are subordinated to the
Company's bank debt and certain other senior debt, mature in February 1999 and
bear interest at 10%. Concurrent with the issuance of the notes, Oneita issued
to Mr. Gintel warrants to purchase 125,000 shares of Oneita Common Stock at
$7.00 per share. On December 31, 1998, the Company reached an agreement with
Robert Gintel pursuant to which Mr. Gintel assigned for the sum of three
dollars his subordinated notes and unexpired warrant to Oneita Mexicana S.A. de
C.V., a wholly owned subsidiary of the Company.
In December 1988, the Company entered into a $20,000 loan agreement with
an institutional lender which provides for interest at a fixed rate of 11.34%.
The principal is due in semi-annual payments of $1,539. The loan agreement
contains certain financial ratio and covenant requirements such as minimum
working capital, debt to equity and debt coverage, as defined, and stock
redemption and dividend limitations. At September 26, 1998, the Company was not
in compliance with certain terms of the loan agreement (see Note 1).
In October 1989, the Company entered into a $10,000 capital lease
obligation with the Industrial Development Board of the City of Fayette, Alabama
through whom industrial development revenue bonds were issued. The bonds bear
interest and fees at a fixed rate of 8.2% per year. The principal is due in
quarterly payments of $313.
F-12
<PAGE> 33
Future minimum payments under capital lease obligations consist of the
following at September 26, 1998:
<TABLE>
<S> <C>
1999 ............................................................. $ 1,483
2000 ............................................................. 451
2001 ............................................................. 91
2002 ............................................................. 91
2003 ............................................................. 91
Later years ...................................................... 114
--------
Total minimum lease payments ..................................... 2,321
Less amount representing interest ................................ 290
--------
Present value of net minimum lease payments
( including current portion of $1,314 ) .................. $ 2,031
========
</TABLE>
Prior to January 1996, the Company had uncommitted bank lines of credit
totaling $30,000 which provided for interest at below the prime rate. During
fiscal 1996, the maximum amount of short-term borrowings outstanding was
$25,000, the average amount outstanding was $7,956, and the weighted average
interest rate was 7.7%. Average amounts outstanding were determined by using
daily balances and the weighted average interest rate during the period was
computed by dividing the actual interest expense by the average short-term
borrowings outstanding.
(7) STOCK OPTIONS :
The Company has an Incentive Stock Option Plan (the "Option Plan"), which
was approved by the shareholders in 1988, under which 514,652 shares of Common
Stock have been reserved for grants to directors, officers and key employees.
The prices for the shares covered by each option will not be less than 100% of
the fair market value at the date of the grant. Options expire five years from
the date of the grant and become exercisable in installments as determined by
the Board of Directors commencing one year after the date of the grant. No
charges or credits to income are made with regard to options granted under the
Option Plan.
Transactions under the Option Plan are as follows -
<TABLE>
<CAPTION>
Number Option
of Shares Price
--------- ------
<S> <C> <C>
Outstanding at September 28, 1996 .. 70,938 $8.93
Granted ..................... 85,000 $2.93
Exercised ................... --
Terminated .................. (20,025) $8.91
-------
Outstanding at September 27, 1997 .. 135,913 $5.18
Granted ..................... --
Exercised ................... --
Terminated .................. (45,713) $7.02
-------
Outstanding at September 26, 1998 .. 90,200 $4.24
=======
</TABLE>
The outstanding options expire at various dates through 2002. At September
26, 1998 options for 61,200 shares are exercisable at $4.88 per
share and there are 208,571 options available for grant.
In 1990, the Company's shareholders approved a Non-Qualified Stock Option
Plan under which 453,876 shares of Common Stock have been reserved for grants.
Options expire five years after the date of the grant and become exercisable in
installments as determined by the Board of Directors.
F-13
<PAGE> 34
Transactions under the Non-Qualified Stock Option Plan are as follows:
<TABLE>
<CAPTION>
Number Option
of Shares Price
--------- ------
<S> <C> <C>
Outstanding at September 28, 1996 .. 116,062 $10.84
Granted ..................... 85,000 $ 2.63
Exercised ................... --
Terminated .................. (19,675) $ 9.01
-------
Outstanding at September 27, 1997 .. 181,387 $ 7.19
Granted .................... --
Exercised .................. --
Terminated ................. (88,187) $10.34
-------
Outstanding at September 26, 1998 .. 93,200 $ 4.21
=======
</TABLE>
The outstanding options expire at various dates through 2002. At September
26, 1998, options for 64,200 shares are exercisable at $4.93 per share
and there are 296,757 options available for grant.
In February 1994, the Board of Directors approved the Outside Directors
Stock Option Plan for Oneita Industries, Inc. (the "Directors Plan") under which
60,000 shares of Common Stock have been reserved for grants to outside
directors. The exercise price for the shares covered by each option will not be
less than 100% of the fair market value at the date of grant. Options expire
five years from the date of the grant and become exercisable after the first
anniversary of the grant. At September 26, 1998 there were options to purchase
40,500 shares outstanding with exercise prices of $6.61 per share.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation", which establishes a fair value-based method of accounting for
stock-based compensation. Accordingly, no compensation cost has been recognized
for the stock option plans. Had compensation cost for the Company's three stock
option plans been determined based on the fair value at the grant date for
awards in 1997 consistent with provisions of SFAS 123, there would have been no
material change in the Company's net loss.
(8) ASSET IMPAIRMENT LOSS:
Financial Accounting Standard No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Because negative
earnings before interest, depreciation and amortization caused by adverse
market conditions has continued into fiscal year 1999, and because of various
alternative strategies being considered by the Company including the possible
sale of the Company, an impairment loss of $16,992 has been recorded in the
fourth fiscal quarter of 1998. This represents the write down of property plant
and equipment of $16,300 based on liquidation basis appraisals, and the
write-off of goodwill and other intangibles of $692.
(9) CONSOLIDATION AND RESTRUCTURING CHARGES :
In September 1997, the Company announced a plan to consolidate certain of
its operations in order to further lower its costs and make its operations more
efficient. The consolidation involved the closing of one facility, the write
down to estimated fair value of certain excess production equipment and the
shift of more assembly operations to existing offshore facilities. The operating
results for the year ended September 27, 1997 reflected a pretax charge of $
15,282 related to this consolidation of which $8,060 was a non-cash charge and
$7,171 was accrued for cash payments to be made through 1999.
The 1997 consolidation charge included a provision for employee severance
and related payments resulting from announced plant closings and job transfers
of $1,986 which was expected to be paid in fiscal 1998. Due to employee
reductions through attrition and due to many severed employees finding
comparable jobs at nearby Oneita plants, approximately $1,000 of the original
provision will not be spent. Additionally, at September 26, 1998 most
consolidation activities related to plant closure costs have been completed and
approximately $900 of the original provision is not expected to be spent.
Accordingly, the Company has reduced its consolidation and restructuring
reserves by crediting operations in the amount of $1,900.
F-14
<PAGE> 35
The following table sets forth spending related to the consolidation.
<TABLE>
<CAPTION>
Plant Employee Equipment
Closure Severance Lease
Costs Payments Payments Total
------- --------- --------- -----
<S> <C> <C> <C> <C>
Accrued at September 27, 1997.. $3,154 $1,986 $2,031 $7,171
Amount paid in the year
ended September 26,1998.... 2,016 953 960 3,929
Estimated amount remaining at
September 26, 1998 ......... 211 60 1,071 1,342
------ ------ ------ ------
Amount credited to operations.. $ 927 $ 973 $ 0 $1,900
====== ====== ====== ======
</TABLE>
The operating results for the year ended September 28, 1996 reflect a
pretax charge of $6,229 to streamline and consolidate the Company's
manufacturing and administrative operations. The charge reflects the costs of
equipment relocation, staff reductions and retraining and transitional employee
salaries and benefits.
(10) MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK :
Major customers are those that individually account for more than 10% of
the Company's consolidated net sales. Sales to one customer were 15.8%, 16.3%
and 16.5% of consolidated net sales in fiscal years 1998, 1997 and 1996,
respectively. The Company has incurred advertising expenses of $680, $3,300 and
$3,800 for the fiscal years 1998, 1997 and 1996, respectively.
Substantially all of the Company's sales are to apparel distributors and
retailers. This could unfavorably affect the Company's overall exposure to
credit risk inasmuch as these customers could be affected by similar economic or
other conditions. The Company performs periodic credit evaluations of its
customers' financial condition and establishes an allowance for doubtful
accounts based upon factors surrounding the credit risk of specific customers,
historical trends and other information. Historically, the Company's
uncollectible accounts receivable have not been significant, and typically the
Company does not require collateral for its accounts receivable.
In addition, in assessing its concentration of credit risk related to cash
and cash equivalents, the Company places its cash and cash equivalents, which
may at times exceed FDIC insurance limits, in domestic financial institutions.
(11) COMMITMENTS AND CONTINGENCIES :
The Company and its subsidiaries rent real property and equipment under
operating leases expiring at various dates. Most of the real property leases
have escalation clauses relating to increases in real property taxes.
Future minimum payments under noncancelable operating leases (of which
$1,071 relate to payments for equipment considered excess and therefore included
in the 1997 consolidation charge) consist of the following at September 26,
1998:
<TABLE>
<S> <C>
1999 $3,496
2000 1,363
2001 171
2002 58
------
$5,088
======
</TABLE>
Rent expense for all operating leases was $3,170, $4,649 and $6,131 for the
years ended September 26, 1998, September 27, 1997 and September 28, 1996,
respectively.
Management has initiated a plan to prepare the Company's computer systems
and applications for the Year 2000 and expects that it will replace most of its
current non-compliant software by purchasing new integrated software developed
primarily for the textile/apparel industry and that it will be 75% compliant by
F-15
<PAGE> 36
June 30, 1999 and 100% compliant by September 30, 1999. As of September 26, 1998
the Company has spent approximately $100 on the Year 2000 compliance issue and
expects total cost to be approximately $600, which the Company expects to fund
out of current operating funds in its fiscal year 1999. The Company has no
contingency plan to operate in the event that its business systems are not Year
2000 Compliant. The status will be evaluated in August 1999 to determine whether
such a plan is necessary.
From time to time, the Company is a party to litigation incidental to its
business. The Company is not currently a party to any litigation, outside of the
Bankruptcy Proceedings, which in the opinion of management and the Company's
counsel would have a material effect on the financial position of the Company.
(12) QUARTERLY FINANCIAL INFORMATION (UNAUDITED) :
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------
Sept. 26, June 27, March 28, Dec. 27,
1998 1998 1998 1997
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net sales ......... $ 24,953 $ 30,764 $ 31,317 $ 26,342
Gross loss ........ (2,017) (140) (2,544) (4,885)
Net loss .......... (21,033) (2,021) (7,265) (10,054)
Net loss per share $ (2.30) $ (0.22) $ (0.79) $ (1.10)
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------
Sept. 27, June 28, March 29, Dec. 28,
1997 1997 1997 1996
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net sales ......... $ 33,045 $ 35,549 $ 32,515 $ 33,897
Gross profit (loss) (4,148) 516 77 (742)
Net loss .......... (24,725) (4,782) (5,239) (5,910)
Net loss per share $ (2.70) $ (.52) $ (.57) $ (.65)
</TABLE>
Net loss per share amounts are computed independently for each of the quarters
presented, on the basis described in Note 2. Accordingly, the sum of the
quarters are not equal to the full year net (loss) income per share amount.
Net loss for the fourth quarter of fiscal 1998 included charges of $16,992 for
impairment losses as described in Note 8.
Net losses for the fourth quarter of fiscal 1998, the third quarter of fiscal
1998 and the fourth quarter of fiscal 1997 included pre-tax charges (credits) of
$(600), $(1,300) and $15,282, respectively, for consolidation and restructuring
charges as described in Note 9.
Gross loss for the quarters of fiscal 1998 were adversely affected by reduced
unit sales prices as compared to the first three quarters of 1997.
F-16
<PAGE> 37
SCHEDULE II
ONEITA INDUSTRIES, INC. AND SUBSIDIARIES - VALUATION AND QUALIFYING ACCOUNTS
For The Years Ended September 26, 1998 and September 27, 1997 and September 28,
1996
(In thousands)
<TABLE>
<CAPTION>
Balance at Additions Charged Balance at
Beginning (Credited) to Costs (Deductions) End of
Description of Period and Expenses Recoveries Period
- ----------- ---------- ------------------- ------------ ----------
<S> <C> <C> <C> <C>
For the Year Ended September 26, 1998:
Allowance for doubtful accounts .... 836 2 41 879
Consolidation reserve accrual ...... 7,171 (1,900) (3,929) 1,342
For the Year Ended September 27, 1997:
Allowance for doubtful accounts .... 1,117 792 (1,073) 836
Consolidation reserve accrual ...... 0 7,222 (51) 7,171
For the Year Ended September 28, 1996:
Allowance for doubtful accounts .... 971 400 (254) 1,117
Consolidation reserve accrual ...... 0 0 0 0
</TABLE>
F-17
<PAGE> 38
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
ONEITA INDUSTRIES, INC.
Form 10 - K
E X H I B I T I N D E X
Exhibit
Number Exhibit Description
- ------- -------------------
(a) Financial Statements: See Index to Consolidated Financial Statements and
Schedules at page F-1.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by Registrant in the last quarter of the
year covered by this report.
(c) Exhibits:
3.1 Certificate of Incorporation (incorporated by reference to Exhibit
3(a) of Form S-1 Registration Statement No. 33-16972)
3.2 By-laws as amended (incorporated by reference to Exhibit 3.1 of Form
10-Q for the quarter ended March 31, 1994)
10.1 Stock Option Plan (incorporated by reference to Exhibit 10(a) of Form
S-1 Registration Statement No. 33-16972)
10.2 1989 Non-Qualified Stock Option Plan (incorporated by reference to
Exhibit 10.2 of Annual Report on Form 10-K for the year ended
September 30, 1990)
10.3 $60,000 Revolving Credit Agreement dated January 26, 1997 among the
Company, SunTrust Bank, Atlanta, First Union National Bank of South
Carolina and NatWest Bank N.A. (incorporated by reference to Exhibit
10.28 of Form 10-Q for the quarter ended December 31, 1996)
10.4 10% Subordinated Notes dated January 26, 1997 in the principal amount
of $7,500 issued to Robert M. Gintel (incorporated by reference to
Exhibit 10.25 of Form 10-Q for the quarter ended December 31, 1996)
10.5 Note Agreement dated as of December 20, 1988, between Registrant and
an institutional lender, as amended. (Incorporated by reference to
Exhibit 10.10 of Annual Report on Form 10-K for the year ended
September 30, 1988 and Exhibit 10.26 to Annual Report on Form 10-K for
the year ended September 28, 1995)
10.6 Letter of Credit Agreement dated as of October 1, 1989, between the
Registrant and Trust Company Bank (incorporated by reference to
Exhibit 10.12 of Annual Report on Form 10-K for the year ended
September 30, 1989)
10.7 Lease Agreement dated as of October 1, 1989, between the Registrant
and the Industrial Development Board of the City of Fayette, Alabama
(incorporated by reference to Exhibit 10.13 of the Annual Report on
Form 10-K for the year ended September 30, 1989)
<PAGE> 39
10.8 Guaranty Agreement dated as of October 1, 1989, between the
Registrant and Trust Company Bank (incorporated by reference to
Exhibit 10.14 of Annual Report on Form 10-K for the year ended
September 30, 1989)
10.9 Form of Indemnification Agreement between Registrant and its
officers and directors (incorporated by reference to Exhibit 28 to
Current Report on Form 8-K dated July 30, 1991)
10.10 Note Purchase Agreement dated as of December 28, 1996 among
Registrant, Robert M. Gintel and Avondale Mills, Inc. (incorporated
by reference to Exhibit 10.24 of Annual Report on Form 10-K for the
year ended September 28, 1997)
10.11 Agreement dated August 15, 1997 (related to note conversion) between
Registrant and Avondale Mills, Inc. (incorporated by reference to
Exhibit 10.17 of Annual Report on Form 10-K for the year ended
September 27, 1998)
11 Computation of Earnings Per Share *
22 The following lists the Company's significant subsidiaries, all of
which are wholly-owned by the Company. The names of certain
subsidiaries which do not, when considered in the aggregate,
constitute a significant subsidiary have been omitted.
Name of Subsidiary Jurisdiction of Incorporation
------------------ -----------------------------
Oneita - Strathleven Limited Jamaica
Oneita Freeport Limited Jamaica
Oneita Mexicana S. A. de C.V. Mexico
23 Consent of Arthur Andersen LLP *
27 Financial Data Schedule *
- ----------
* Filed herewith
<PAGE> 1
EXHIBIT 11
ONEITA INDUSTRIES, INC.
Statement Regarding Computation of Per Share Earnings
For the Years Ended September 26, 1998, September 27, 1997 and
September 28, 1996
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------------
Sept. 26, 1998 Sept. 27, 1997 Sept. 28 1996
-------------- -------------- -------- ----
<S> <C> <C> <C>
Net loss per share:
Net loss ................................. $(40,373) $(40,656) $(53,693)
======== ======== ========
Shares:
Weighted average shares ................ 9,149 9,149 7,084
Add shares related to dilutive effect of
outstanding stock options ............ -- -- --
-------- -------- --------
Weighted average number of shares
outstanding ......................... 9,149 9,149 7,084
======== ======== ========
Net loss per share ....................... $ (4.41) $ (4.44) $ (7.58)
======== ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report,
dated December 22, 1998, included in Oneita Industries, Inc.'s Form 10K for the
year ended September 26, 1998, and to the incorporation by reference of our
report into the Company's previously filed Registration Statements on Form S-8
(Registration No. 33-30576, 33-34778, 33-62970 and 33-75834) and Registration
Statements on Form S-3 (Registration Nos. 33-88600 and 33-70524), and to all
references to our Firm included in these Registration Statements.
/s/ Arthur Andersen LLP
Columbia, South Carolina,
January 22, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED SEPTEMBER 26, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-26-1998
<PERIOD-END> SEP-26-1998
<CASH> 656,000
<SECURITIES> 0
<RECEIVABLES> 11,064,000
<ALLOWANCES> 879,000
<INVENTORY> 26,184,000
<CURRENT-ASSETS> 38,854,000
<PP&E> 18,409,000
<DEPRECIATION> 6,141,000
<TOTAL-ASSETS> 51,851,000
<CURRENT-LIABILITIES> 100,249,000
<BONDS> 717,000
0
0
<COMMON> 2,287,000
<OTHER-SE> (51,402,000)
<TOTAL-LIABILITY-AND-EQUITY> 51,851,000
<SALES> 113,376,000
<TOTAL-REVENUES> 113,376,000
<CGS> 122,962,000
<TOTAL-COSTS> 122,962,000
<OTHER-EXPENSES> 27,534,000
<LOSS-PROVISION> 2,000
<INTEREST-EXPENSE> 3,253,000
<INCOME-PRETAX> (40,373,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (40,373,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (40,373,000)
<EPS-PRIMARY> (4.41)
<EPS-DILUTED> (4.41)
</TABLE>
