TULTEX
(Photo of material with the words DISCUS stitched on it)
(Photo of Logo Athletic clothing label)
(Photo of sweatshirts)
(Photo of a jacket with the DISCUS logo stitched on it)
1995 ANNUAL REPORT
CONTENTS
1 Financial Highlights
3 To Our Stockholders
7 Balance Sheet
8 Statement of Income
9 Statement of Changes in Stockholders' Equity
10 Statement of Cash Flows
11 Notes to Financial Statements
28 Report of Independent Accountants
29 Management's Discussion and Analysis
34 Selected Financial Data
36 Common Stock Prices and Dividend Information
Inside Back Cover: General Information, Officers and Directors
ABOUT OUR COMPANY
Established in 1937, Tultex Corporation is a consumer-oriented marketer and
manufacturer of activewear and licensed sports apparel. The company offers
a wide range of products under various names. Its premium brands are Discus
Athletic(R) and Logo Athletic(R), and can be found in department stores,
sporting goods stores and specialty chains. The company is a private label
supplier of premium products to several major customers. In addition, the
company sells high-value products to mass merchandisers, wholesale clubs
and discount retailers under the Tultex(R), Logo 7(R) and Brittania(R) name.
Tultex remains committed to increasing shareholder value by focusing on
several strategies for growth, including:
(Bullet) Increasing sales of the company's premium and private label brands.
(Bullet) Capitalizing on partnerships with key customers and vendors.
(Bullet) Strengthening our balance sheet by reducing our debt to 40%
of capitalization.
(Bullet) Making the most of our human resources through team technology and
synergies existing between our divisions.
Tultex is headquartered in Martinsville, Virginia and operates facilities
throughout Virginia and North Carolina, as well as in Indianapolis,
Indiana; Mattapoisett, Massachusetts; and Montego Bay, Jamaica. The company
also has contract sewing operations in Mexico. Tultex employs approximately
6,900 people.
(Photo of sweatshirt in background)
(Photo of 49ers logo stitched on material)
(Photo of jacket with NFL label inside)
(Photo of jacket with Olympic Games label inside)
(Photo of Hornets cap)
FINANCIAL HIGHLIGHTS Tultex Corporation
Fiscal years ended: DEC. 30, 1995 Dec. 31, 1994 %Increase
(In thousands of dollars except per share data) (52 WEEKS) (52 weeks) (Decrease)
Operating Results:
Net sales and other income $585,289 $565,433 3.5%
Income before income taxes and extraordinary
loss on early extinguishment of debt $ 8,948 $ 14,435 (38.0)%
Net income before extraordinary loss on early
extinguishment of debt $ 5,548 $ 8,950 (38.0)%
Net income $ 1,802 $ 8,950 (79.9)%
Return on average common stockholders' equity (1) 1.0% 5.3% -
Per Share of Common Stock:
Net income before extraordinary loss on early
extinguishment of debt (2)(3) $ .15 $ .26 (42.3)%
Net income (2)(3) $ .02 $ .26 (92.3)%
Cash dividends (Note 6) $ .00 $ .05 (100.0)%
Book value (3) $ 5.83 $ 5.74 1.6%
Year-End Status:
Working capital $274,844 $122,854 123.7%
Property, plant and equipment-net $129,002 $134,884 (4.4)%
Total assets $475,799 $456,809 4.2%
Long-term debt $227,540 $ 83,002 174.1%
Common stockholders' equity $173,859 $171,903 1.1%
Shares of common stock outstanding 29,824,371 29,806,793 0.1%
Number of stockholders 2,932 3,423 (14.3)%
Number of employees 6,835 6,933 (1.4)%
Other:
Depreciation $ 23,163 $ 23,973 (3.4)%
Capital expenditures $ 17,337 $ 8,624 101.0%
Interest expense $ 21,952 $ 18,151 20.9%
Cash dividends - common and preferred $ 1,986 $ 1,774 12.0%
1
(1) After extraordinary loss on early extinguishment of debt of $3,746,000
during the first quarter of 1995.
(2) Based on weighted average number of shares outstanding.
(3) After considering preferred dividends in arrears at December 31, 1994. No
dividends were in arrears at December 30, 1995.
See Notes to Financial Statements.
2
TO OUR STOCKHOLDERS
Net income for the year ended December 30, 1995, was $8.6 million before
a $6.8 million after-tax charge related to the company's debt
refinancing and a required change in the method of accounting for
advertising costs. Results for fiscal 1994 were $6.2 million before a
one-time, after-tax gain on the sale of a facility. As reported, net
income was $1.8 million compared with $8.9 million for the year ended
December 31, 1994. Sales for the year just ended were $585.3 million
compared with $565.4 million for the year ended December 31, 1994.
Our overall operating performance during 1995 compares favorably with
the prior year in spite of the challenges faced by the apparel industry.
Historically high raw material costs, labor problems in professional
sports and weak consumer spending on apparel in the fall affected the
entire apparel chain from manufacturer to retailer.
Our company showed significant improvement in operating performance as
illustrated in the table below. Activewear's operating margin
improvements more than offset the decrease in our licensed business so
that overall EBIT increased 38%. The information presented below
reflects EBIT (earnings before interest, taxes and extraordinary item)
and operating margin as though advertising was expensed in 1993 and 1994
using the accounting method adopted in first quarter 1995.
OPERATING MARGIN BY BUSINESS SEGMENT (In millions of dollars)
Tultex Licensed Products 1993 1994 1995
Sales $214 $221 $197
EBIT 16 10 8
Operating margin% 7.5% 4.5% 4.1%
Tultex Activewear
Sales 320 344 388
EBIT 8 16 28
Operating margin% 2.5% 4.7% 7.2%
Total Tultex
Sales 534 565 585
EBIT 24 26 36
Operating margin% 4.5% 4.6% 6.2%
Caption appears in upper left margin and reads as follows:
LED BY DISCUS ATHLETIC, AS WELL AS INCREASES IN
OUR PRIVATE LABEL AND WHOLESALE BUSINESS,
ACTIVEWEAR SALES GREW 13% LAST YEAR, AND
OPERATING PROFITS INCREASED BY 75%.
3
We believe that the fundamentals of our business are good as we look to
the future. Demand for our product is increasing and raw material
prices, which have been at historical highs, are beginning to decline.
We continue to be successful in moving our business toward higher-margin
branded and private label sales. This is evident in our strong gains
with the company's Discus AthleticRegistration Mark and Logo
AthleticRegistration Mark brands. Our commitment to these brands
resulted in a 37% increase in branded sales for the year and helped us
move our margins up. Spring training is underway after an exciting
Playoff and World Series in baseball. Magic and Michael are back in the
NBA. Our spokesman Troy Aikman was the winning Super Bowl quarterback.
And, 1996 is an Olympic year.
ACTIVEWEAR
Led by Discus Athletic, as well as increases in our private label and
wholesale business, activewear sales grew 13% last year, and operating
profits for this business segment increased by 75%. In 1995, 44% of our
activewear dozens were sewn outside the United States, helping us to
lower cos ts while still providing good service to our customers. In
1996, we expect approximately 55% of our dozens to be sewn outside the
U.S. Some of our competitors are reducing capacity, particularly in
fleece, and we are continuing to take market share. As we began 1996,
our backlog was up 29% over the previous year.
Our customer relationships are excellent with the right customers. We're
partnered with the best in the business. In November, Tultex received
the Sears Platinum Circle Award, given to an elite set of partners with
whom Sears plans to grow its business. For the third consecutive year,
Tultex was the recipient of the Vendor of Excellence Award from the
Women's Department of Target stores. The Target Men's Department also
awarded Tultex the Vendor of Excellence Award for 1995. This is our
first year in supplying this program and the first award given by that
department in the last three years. We believe Sears and Target, among
others of our customers, have success formulas which will generate
continued growth for them, and for us.
Caption appears in lower right margin and reads as follows:
OUR CUSTOMER RELATIONSHIPS ARE EXCELLENT WITH
THE RIGHT CUSTOMERS. WE'RE PARTNERED WITH THE
BEST IN THE BUSINESS.
4
LICENSED PRODUCTS
Our licensed business, continuing to feel the effects from 1994's
professional player strikes and lockouts, struggled for three quarters
of 1995. But a strong year-end finish and higher order backlogs
indicate that licensed products is experiencing a strong recovery. The
Logo Athletic brand has gained in popularity and has taken market share.
Super Bowl Quarterback Troy Aikman continues as our primary spokesman
for the Logo Athletic brand and his association with the brand has been
instrumental in increasing its revenues from $0 in 1992 to $92 million
in 1995. We expect Logo Athletic sales to continue to grow in 1996. With
the success of our Logo Athletic brand and the prospect of full seasons
in all major sports and the Olympics, 1996 looks like a promising year
in licensed products-the best in several years. The Operating Margin
table shows the historic dynamics of our two businesses, Activewear and
Licensed Products. You can see what the positive impact of a turnaround
in licensed products would be.
As we discussed in the 1994 annual report, we completed a refinancing of
our company's debt in March 1995. We believe the longer maturities and
increased covenant flexibility provided by this refinancing give us the
stable financial platform needed to continue investing in our brands
and to take advantage of new business opportunities as they arise.
Shareholders of record as of March 8, 1996 will be voting on a new
Consolidated Incentive Compensation Plan, which replaces all other
salaried incentive plans. It is designed so that no incentive
compensation is earned by any member of management unless there is an
improvement in our company's return on assets. Our Board strongly
believes this plan is designed such that it enhances share value.
Caption appears in upper left margin and reads as follows:
SUPER BOWL QUARTERBACK TROY AIKMAN
CONTINUES AS OUR PRIMARY SPOKESMAN FOR THE
LOGO ATHLETIC BRAND AND HIS ASSOCIATION WITH
LOGO ATHLETIC HAS BEEN INSTRUMENTAL IN
INCREASING ITS REVENUES FROM $0 IN 1992 TO
$92 MILLION IN 1995.
5
In 1995, we improved our business in a difficult industry and rugged
retail environment. In 1996, we expect to improve much more. Most of our
own personal net worth is invested in Tultex stock. We continue to be
buyers of the stock. Our money is where your money is, and we continue
to put more of it there, because we believe strongly in the company's
long-term future and the prospects for a good year in 1996.
Sincerely,
(Signature of John M. Franck appears here)
John M. Franck
Chairman of the Board
(Signature of Charles W. Davies, Jr. appears here)
Charles W. Davies, Jr.
President and Chief Executive Officer
March 22, 1996
Caption appears in upper right margin and reads as follows:
WE BELIEVE STRONGLY IN THE COMPANY'S
LONG-TERM FUTURE AND THE PROSPECTS FOR A
GOOD YEAR IN 1996.
6
BALANCE SHEET (In thousands of dollars Tultex Corporation
except share data)
ASSETS DEC. 30, 1995 Dec. 31, 1994
Current assets:
Cash and equivalents $ 1,981 $ 5,776
Accounts receivable, less allowance for doubtful accounts
of $4,227 (1995) and $2,115 (1994) 142,732 139,743
Inventories (Note 2) 157,946 130,183
Prepaid expenses 12,498 14,205
Total current assets 315,157 289,907
Property, plant and equipment, net of depreciation (Note 3) 129,002 134,884
Intangible assets 25,550 26,766
Other assets 6,090 5,252
TOTAL ASSETS $ 475,799 $ 456,809
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks (Note 4) $ - $ 1,000
Current maturities of long-term debt (Notes 5 and 19) 145 132,353
Accounts payable - trade 27,017 19,634
Accrued liabilities - other 11,868 11,102
Dividends payable (Note 6) 2 -
Income taxes payable 1,281 2,964
Total current liabilities 40,313 167,053
Long-term debt, less current maturities (Notes 5 and 19) 227,540 83,002
Deferrals:
Deferred income taxes (Note 8) 12,603 14,893
Other 6,286 4,760
Total deferrals 18,889 19,653
Stockholders' equity (Notes 5, 6, 7, 14 and 15):
5% cumulative preferred stock, $100 par value; authorized
- 22,000 shares, issued and outstanding - 1,975 shares
(1995 and 1994) 198 198
Series B, $7.50 cumulative convertible preferred stock;
authorized, issued and outstanding - 150,000 shares
(1995 and 1994) 15,000 15,000
Common stock, $1 par value; authorized - 60,000,000
shares, issued and outstanding - 29,824,371 shares
(1995) and 29,806,793 shares (1994) 29,824 29,807
Capital in excess of par value 5,347 5,279
Retained earnings 140,099 140,283
190,468 190,567
Less notes receivable from stockholders 1,411 3,466
Total stockholders' equity 189,057 187,101
Commitments and contingencies (Notes 11, 12 and 13)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 475,799 $ 456,809
The accompanying Notes to Financial Statements are an integral part of
this statement.
7
STATEMENT OF INCOME Tultex Corporation
Fiscal years ended: DEC. 30, 1995 Dec. 31, 1994 Jan. 1, 1994
(52 WEEKS) (52 weeks) (52 weeks)
(In thousands of dollars except per share data)
Net sales and other income $ 585,289 $ 565,433 $ 533,611
Costs and expenses:
Cost of products sold 432,062 419,769 395,727
Depreciation 23,163 23,973 23,364
Selling, general and administrative (Note 16) 99,164 93,510 88,433
Gain on sale of facilities - (4,405) -
Interest 21,952 18,151 16,996
Total costs and expenses 576,341 550,998 524,520
Income (loss) before income taxes and extraordinary loss
on early extinguishment of debt 8,948 14,435 9,091
Provision for income taxes (Note 8) 3,400 5,485 3,188
Net income (loss) before extraordinary loss on early
extinguishment of debt 5,548 8,950 5,903
Extraordinary loss on early extinguishment of debt
(Net of income taxes of $2,296) (Note 5) (3,746) - -
NET INCOME (LOSS) $ 1,802 $ 8,950 $ 5,903
INCOME (LOSS) PER COMMON SHARE:
Net income (loss) before extraordinary loss on
early extinguishment of debt $ .15 $ .26 $ .16
Extraordinary loss on early extinguishment of debt (.13) - -
NET INCOME (LOSS) $ .02 $ .26 $ .16
DIVIDENDS PER COMMON SHARE (Note 6) $ .00 $ .05 $ .20
The accompanying Notes to Financial Statements are an integral part of
this statement.
8
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Tultex Corporation
CAPITAL NOTES
5% SERIES B IN EXCESS RECEIVABLE- TOTAL
PREFERRED PREFERRED COMMON OF PAR RETAINED STOCK- STOCKHOLDERS'
STOCK STOCK STOCK VALUE EARNINGS HOLDERS EQUITY
(In thousands of dollars except share data)
BALANCE AS OF JAN. 2, 1993,
AS PREVIOUSLY REPORTED $198 $15,000 $28,878 $ 681 $132,378 $ (100) $177,035
Adjustment for cumulative effect on prior
years of applying retroactively the new
method of valuing inventories (Note 2) 1,758 1,758
BALANCE AS OF JAN. 2, 1993, AS ADJUSTED 198 15,000 28,878 681 134,136 (100) 178,793
Net income for the 52 weeks ended
Jan. 1, 1994 5,903 5,903
Employee stock purchases 175 1,208 (11) 1,372
Collections - stockholders' notes
receivable 61 61
Cash dividends on common stock
($.20 per share) (Note 6) (5,797) (5,797)
Cash dividends on preferred stock (Note 6) (1,135) (1,135)
BALANCE AS OF JAN. 1, 1994 198 15,000 29,053 1,889 133,107 (50) 179,197
Net income for the 52 weeks ended
Dec. 31, 1994 8,950 8,950
Employee stock purchases 754 3,390 (4,144) -
Collections - stockholders' notes
receivable 728 728
Cash dividends on common stock
($.05 per share) (Note 6) (1,490) (1,490)
Cash dividends on preferred stock (Note 6) (284) (284)
BALANCE AS OF DEC. 31, 1994 198 15,000 29,807 5,279 140,283 (3,466) 187,101
Net income for the 52 weeks ended
Dec. 30, 1995 1,802 1,802
Shares issued as payment of agency
commissions 17 68 85
Collections - stockholders' notes
receivable 2,055 2,055
Cash dividends on preferred stock (Note 6) (1,986) (1,986)
BALANCE AS OF DEC. 30, 1995 $198 $15,000 $29,824 $5,347 $140,099 $ (1,411) $189,057
The accompanying Notes to Financial Statements are an integral part of
this statement.
9
STATEMENT OF CASH FLOWS Tultex Corporation
Fiscal years ended: DEC. 30, 1995 Dec. 31, 1994 Jan. 1, 1994
(In thousands of dollars) (52 WEEKS) (52 weeks) (52 weeks)
OPERATING ACTIVITIES:
Net Income $ 1,802 $ 8,950 $ 5,903
Items not requiring (providing) cash:
Depreciation 23,163 23,973 23,364
Gain on sale of facilities - (4,405) -
Deferred income taxes (2,290) 879 1,880
Amortization of intangible assets 1,216 1,217 1,217
Unamortized deferred debt issuance costs 3,109 - -
Other deferrals 1,526 (942) 1,859
Changes in assets and liabilities:
Accounts receivable (2,989) (23,360) (6,503)
Inventories (27,763) 27,095 (27,112)
Prepaid expenses 2,636 (5,929) (2,598)
Accounts payable and accrued expenses 8,151 (3,093) (790)
Income taxes payable (1,683) 179 (3,113)
Cash provided (used) by operating activites (Notes 2, 5
and 8) 6,878 24,564 (5,893)
INVESTING ACTIVITIES:
Additions to property, plant and equipment (17,337) (8,624) (22,250)
Change in other assets (838) 1,264 (2,413)
Sales and retirements of property and equipment 56 5,947 299
Cash used by investing activities (18,119) (1,413) (24,364)
FINANCING ACTIVITIES:
Issuance (payment) of short-term borrowings (1,000) 1,000 (79,825)
Issuance (payment) of revolving credit facility borrowings 13,500 (17,000) 121,000
Issuance of long-term debt 110,052 2,054 -
Payments of long-term debt (111,222) (9,137) (2,268)
Cost of debt issuance (4,038) - -
Cash dividends (Note 6) (1,986) (1,774) (6,932)
Net proceeds from issuance of common stock 85 - -
Proceeds from stock plans 2,055 728 1,433
Cash provided (used) by financing activities 7,446 (24,129) 33,408
Net increase (decrease) in cash and equivalents (3,795) (978) 3,151
Cash and equivalents at beginning of year 5,776 6,754 3,603
Cash and equivalents at end of year $ 1,981 $ 5,776 $ 6,754
The accompanying Notes to Financial Statements are an integral part of
this statement.
10
NOTES TO FINANCIAL STATEMENTS Tultex Corporation
Fiscal years ended December 30, 1995, December 31, 1994 and
January 1, 1994.
NOTE 1-ACCOUNTING POLICIES
Tultex Corporation is a marketer and vertically integrated manufacturer
of activewear and licensed sports apparel which is considered a single
business segment.The company's product line includes fleeced
sweats, jersey products and decorated jackets and caps.The significant
accounting policies followed by Tultex Corporation and its subsidiaries in
preparing the accompanying consolidated financial statements are as follows:
Basis of Consolidation: The consolidated financial statements include
the accounts of the company and its subsidiaries. All significant intercompany
balances and transactions are eliminated in consolidation.
Cash and Equivalents:The company considers cash on hand, deposits
in banks, certificates of deposit and short-term marketable securities as
cash and equivalents for the purposes of the statement of cash flows.
Such cash equivalents have maturities of less than 90 days.
Inventories: Inventories are recorded at the lower of cost or market,
with cost determined on the first-in, first-out (FIFO) method. See Note 2
for information concerning the change in the method of valuing
inventories from the last-in, first-out (LIFO) method to the FIFO method
during 1993.
Property, Plant and Equipment: Land, buildings and equipment are
carried at cost. Major renewals and betterments are charged to the
property accounts while replacements, maintenance and repairs which
do not improve or extend the lives of the respective assets are
expensed currently. Interest is capitalized on major capital expenditures
during the period of construction.There was no interest capitalized in
the three years ended December 30, 1995. Depreciation is provided on
the straight-line method for all depreciable assets over their estimated
useful lives as follows:
Classification Estimated Useful Lives
Land improvements 20 years
Buildings and improvements 12-50 years
Machinery and equipment 3-20 years
11
Intangible Assets: Goodwill and licenses are being amortized on a
straight-line basis over 25 years.The company continually evaluates
the existence of goodwill impairment on the basis of whether the
goodwill is fully recoverable from projected, undiscounted net cash
flows of the related asset.The gross amount of goodwill was $3,909,000 at
December 30, 1995 and December 31, 1994. Accumulated amortization of goodwill
was $625,000 and $469,000 at December 30, 1995 and December 31, 1994,
respectively.The gross amount of licenses was $26,507,000 at December 30, 1995
and December 31, 1994. Accumulated amortization of licenses was $4,241,000 and
$3,181,000 at December 30, 1995 and December 31, 1994, respectively.
Pensions: Pension expense includes charges for amounts not less than the
actuarially determined current service costs plus amortization of prior service
costs over 30 years.The company funds amounts accrued for pension expense not
in excess of the amount deductible for federal income tax purposes.
Revenue Recognition:The company recognizes the sale when the
goods are shipped or ownership is assumed by the customer.
Income Taxes: Income taxes are provided based upon income reported
for financial statement purposes. Deferred income taxes reflect the tax
effect of temporary differences between financial and taxable income.
Net Income per Common Share: Net income per common share is
computed using the weighted average number of common shares
outstanding during the period after giving retroactive effect to stock
splits and stock dividends and after deducting the preferred dividend
requirements which accrued during the period.The weighted average
number of common shares outstanding were 29,810,000, 29,685,000
and 28,961,000 for fiscal 1995, 1994 and 1993, respectively. Fully
diluted net income per common share is not materially different from
primary net income per common share for fiscal 1995, 1994 and 1993.
Fiscal Year:The company's fiscal year ends on the Saturday nearest to
December 31, which periodically results in a fiscal year of 53 weeks.
Other Postretirement Benefits: As further described in Note 9, the
company changed its method of accounting for the costs of certain life
insurance and medical benefits for eligible retirees and dependents in
1993.
Fair Value of Financial Instruments: Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instru-
ments," requires disclosure about the fair value of certain instruments.
Cash, accounts receivable, accounts payable, accrued liabilities and
variable rate debt are reflected in the financial instruments at fair value
because of the short-term maturity of these instruments.The estimated
fair value of the company's fixed rate debt is disclosed in Note 5.
Use of Estimates in Preparation of Financial Statements:The prepara-
tion 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 and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
12
Tultex Corporation
New Accounting Standard: In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), which
established a fair value-based method of accounting and requires certain
disclosures related to stock-based compensation plans. SFAS 123, which is
effective in fiscal 1996, will require the company to determine whether it
will adopt the fair value-based method of accounting or provide certain
required pro forma disclosures in the notes to financial statements. Management
does not expect the adoption of the standard to have a material effect on the
company's financial position or results of operations.
NOTE 2-INVENTORIES
The components of inventories are as follows:
(In thousands DEC. 30, Dec. 31, Jan. 1,
of dollars) 1995 1994 1994
Raw materials $ 20,803 $ 25,704 $ 29,291
Goods in process 17,645 13,453 11,956
Finished goods 113,290 87,436 112,296
Supplies 6,208 3,590 3,735
Total inventories $157,946 $130,183 $157,278
During the fourth quarter of 1993, the company changed its method of
determining the cost of inventories from the LIFO method to the FIFO
method. Under the current economic environment of low inflation, the
company believes that the FIFO method will result in a better measure-
ment of operating results.This change has been applied by retroac-
tively restating the accompanying consolidated financial statements.
This change in method did not materially impact net income for 1993.
The balance of retained earnings for the year ended January 2, 1993
has been adjusted for the effect (net of income taxes) of applying
retroactively the new method of valuing inventories.
NOTE 3-PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consist of the following:
DEC. 30, Dec. 31,
(In thousands of dollars) 1995 1994
Land and improvements $ 3,779 $ 3,760
Buildings and improvements 68,757 68,262
Machinery and equipment 219,352 207,518
Construction in progress 6,494 2,444
298,382 281,984
Less accumulated depreciation 169,380 147,100
Net property, plant and equipment $ 129,002 $ 134,884
13
In 1994, the company sold one of its yarn manufacturing facilities.The
net proceeds and gain from the sale amounted to $5,500,000 and
$4,405,000, respectively.
NOTE 4-SHORT TERM AGREEMENTS
The company currently has short-term lines of credit with two lending
banks totaling $8,000,000.There were no borrowings outstanding
under these lines at December 30, 1995. Borrowings outstanding at
December 31, 1994 were $1,000,000 with interest at 6.1%.
The company utilizes letters of credit for foreign sourcing of inventory.
Trade letters of credit outstanding were $3,648,000, $2,026,000 and
$9,715,000 at December 30, 1995, December 31, 1994 and January 1,
1994, respectively.
NOTE 5-LONG TERM DEBT
DEC. 30, Dec. 31,
(In thousands of dollars) 1995 1994
Amount due under revolving
credit agreements $117,500 $104,000
10 5/8% senior notes due
March 15, 2005 110,000 -
8 7/8% senior notes due
June 1, 1999 - 95,000
Term loan due July 31, 1996 - 15,997
Other indebtedness 185 358
227,685 215,355
Less current maturities 145 132,353
Total long-term debt $227,540 $ 83,002
In March 1995, the company sold $110 million of 10 5/8% senior notes
due March 15, 2005. Net proceeds from the sale, together with
borrowings under the revolving credit facility, were used to pay
principal, accrued interest and prepayment expenses related to the
$95,000,000 aggregate principal amount of 8 7/8% senior notes due
June 1, 1999 and the $15,997,000 aggregate principal amount term
loan due July 31, 1996. In connection with the repayment of the 8 7/8%
senior notes and the term loan, the company was required to write off
unamortized debt issuance costs and incurred a prepayment penalty.
The resultant one-time, after-tax charge amounted to $3,746,000 or 13
cents per share.
Concurrent with the sale of the 10 5/8% senior notes, the company
entered into a three-year $225,000,000 revolving credit facility which
replaced its existing two-year facility due to expire on October 5, 1995.
The terms of the new agreement are substantially equivalent to those in
the former facility and provide for borrowings at or below prime.
14
Tultex Corporation
NOTE 5 (Continued)
All subsidiaries of the company full and unconditionally guarantee the
company's obligations under the 10 5/8% senior notes on a joint and
several basis.
The senior notes and revolving credit facility contain provisions regarding
maintenance of net worth, indebtedness levels and restrictions on the payment
of cash dividends. At December 30, 1995, the company was in compliance with all
debt covenants. Consolidated retained earnings, which were free of dividend
restrictions, amounted to $5,080,000 at December 30, 1995.
Interest paid by the company in 1995, 1994 and 1993 was $22,412,000,
$18,598,000 and $16,830,000, respectively.The weighted average interest rates
on borrowings under the revolving credit facility at December 30, 1995 and
December 31, 1994 were 7.6% and 5.2%, respectively.
The aggregate maturities of long-term debt for each of the next five
fiscal years are as follows:
(In thousands of dollars) Total
1996 $ 145
1997 24
1998 117,509*
1999 7
2000 -
*Includes maturity of $117,500,000 outstanding under revolving credit
facility.
At December 30, 1995 the fair value of the 10 5/8% Senior notes
exceeded the carrying amount by approximately $2,100,000. Such fair
value was determined using valuation techniques that considered cash
flows discounted at current market rates in effect at the end of the year.
NOTE 6-DIVIDENDS
At December 30, 1995, dividends payable represented amounts paid on the
company's 5% cumulative preferred stock on January 2, 1996. All stated
dividends on the Series B cumulative preferred stock had been declared and
paid prior to December 30, 1995.
During the second quarter of 1994, the company suspended the
payment of dividends on its common stock. As of December 30, 1995,
common stock dividends had not been reinstated.
NOTE 7-STOCK OPTIONS
In 1988, the company's stockholders ratified the 1987 Stock Option Plan
under which 700,000 shares of common stock were reserved for stock
option grants to certain officers and employees.The plan provided that
options may be granted at prices not less than the fair market value on
the date the option is granted, which means the closing price of a share
15
of common stock as reported on the New York Stock Exchange
composite tape on such day. Some options remain unexercised from the
1987 Stock Option Plan, which expired November 19, 1992.
On March 21, 1991, the company's stockholders ratified the 1990 Stock
Option Plan under which 700,000 shares of common stock were
reserved for stock option grants to certain officers and employees.
Options granted under the 1990 Plan may be incentive stock options
("ISOs") or nonqualified stoc k options.The option price will be fixed by
the Executive Compensation Committee of the Board at the time the
option is granted, but in the case of an ISO, the price cannot be less
than the share's fair market value on the date of grant. Grants must be
made before October 18, 2000 and generally expire within 10 years of
the date of grant. In exercising options, an employee may receive a loan
from the company for up to 90% of the exercise price. Outstanding loans
are shown as a reduction of stockholders' equity on the balance sheet.
On May 19, 1994, the stockholders approved an increase of 500,000
shares in the maximum number of shares to be issued pursuant to the
exercise of options granted under the Plan, extended the date that
grants could be made to October 27, 2003, and provided that no
participant may be granted options in any calendar year for more than
50,000 shares of common stock.
A summary of the changes in the number of common shares under
option for each of the three previous years follows:
Year Ended Number Per Share
December 30, 1995 of Shares Option Price
Outstanding at beginning of year 1,225,400 $ 5.13-$9.75
Granted 181,000 $ 5.00-$5.50
Exercised - -
Expired 82,300 $ 7.50-$7.63
Cancelled 25,700 $ 5.00-$9.75
Outstanding at end of year 1,298,400 $ 5.00-$9.75
Exercisable at end of year 1,098,400 $ 5.00-$9.75
Shares reserved for future grant:
Beginning of year 190,000
End of year 23,000
16
Tultex Corporation
Year Ended Number Per Share
December 31, 1994 of Shares Option Price
Outstanding at beginning of year 928,233 $ 6.88-$9.75
Granted 397,500 $ 5.13-$6.00
Exercised - -
Expired 20,000 $ 9.13
Cancelled 80,333 $ 6.00-$9.75
Outstanding at end of year 1,225,400 $ 5.13-$9.75
Exercisable at end of year 1,025,400 $ 5.13-$9.75
Shares reserved for future grant:
Beginning of year 39,900
End of year 190,000
Year Ended Number Per Share
January 1, 1994 of Shares Option Price
Outstanding at beginning of year 1,015,833 $ 7.50-$9.63
Granted 280,000 $ 6.88-$9.75
Exercised 175,600 $ 7.63-$9.63
Expired 165,000 $ 7.88
Cancelled 27,000 $ 7.63-$9.63
Outstanding at end of year 928,233 $ 6.88-$9.75
Exercisable at end of year 748,233 $ 6.88-$9.75
Shares reserved for future grant:
Beginning of year 307,400
End of year 39,900
NOTE 8-PROVISION FOR INCOME TAXES
The components of the provision for federal and state income taxes are
summarized as follows:
(In thousands DEC. 30, Dec. 31, Jan. 1,
of dollars) 1995 1994 1994
Currently payable:
Federal $ 4,965 $4,072 $ 1,192
State 725 534 116
5,690 4,606 1,308
Deferred:
Federal (1,778) 590 1,723
State (512) 289 157
(2,290) 879 1,880
Total provision $ 3,400 $5,485 $ 3,188
17
Tultex Corporation
Deferred income taxes resulted from the following temporary differences:
(In thousands DEC. 30, Dec. 31, Jan. 1,
of dollars) 1995 1994 1994
Depreciation $ 63 $ 579 $ 2,095
Inventory (1,593) 1,388 (24)
Pension (395) 31 (486)
Abandonment loss - - 187
Intangible assets 608 299 283
Postretirement benefits (156) (58) (172)
AMT credit carryforward 1,255 (1,617) -
Bad debt and other
allowances (1,133) 99 (2)
Accrued liabilities (512) - -
Other (427) 158 (1)
Total $ (2,290) $ 879 $ 1,880
NOTE 8 (CONTINUED)
Significant components of the deferred tax liabilities and assets are as
follows:
DEC. 30, Dec. 31,
(In thousands of dollars) 1995 1994
Deferred tax liabilities:
Tax over book depreciation $ 16,632 $ 16,569
Spare parts inventory 776
Intangible assets 1,332 724
Inventory - 177
Other - 303
Gross deferred tax liabilities 17,964 18,549
Deferred tax assets:
Bad debt and other allowances 1,599 466
Inventory reserves 640 -
Postretirement benefits 390 234
Pension obligations 1,326 931
Worker's compensation 227 225
AMT credit carryforward 362 1,617
Accrued liabilities 512 -
Other 305 183
Gross deferred tax assets 5,361 3,656
Net deferred tax liabilities $ 12,603 $ 14,893
18
Tultex Corporation
A reconciliation of the statutory federal income tax rates with the company's
effective income tax rates for 1995, 1994 and 1993 was as follows:
DEC. 30, Dec. 31 Jan. 1,
1995 1994 1994
Statutory federal rate ..................... 35% 35% 34
State rate, net ............................ 3 3 2
Other ...................................... -- -- (1)
Effective income tax rate .................... 38% 38% 35
Income tax payments were $4,895,000, $4,659,000 and $4,512,000 for fiscal 1995,
1994 and 1993, respectively.
The company recently underwent an examination by the Internal Revenue Service
for the years ended 1991, 1992 and 1993. The outcome of this examination did
not materially impact the company's financial position or results of operations.
NOTE 9-EMPLOYEE BENEFITS
All qualified employees of the parent company and its Universal subsidiary are
covered by a noncontributory, defined benefit plan. The benefits are based on
years of service and the employee's highest five consecutive calendar years of
compensation paid during the 10 most recent years before retirement. Prior
service costs are amortized over 30 years.The status of the defined benefit
plan as of December 30, 1995 and December 31, 1994 was as follows:
(In thousands of dollars) 1995 1994
Fair value of plan assets, primarily
listed stocks and corporate and
government debt $ 35,631 $ 34,594
Accumulated benefit obligation,
including vested benefits of $33,735
and $26,733, respectively 34,320 27,393
Additional benefits based on
estimated future salary levels 4,512 6,002
Projected benefit obligation 38,832 33,395
Plan assets in excess of projected
benefit obligation (3,201) 1,199
Unrecognized net (gain) loss 2,025 (1,273)
Unrecognized net transitional assets (1,369) (1,838)
Unrecognized prior service cost 502 145
Accrued pension liability $ (2,043) $ (1,767)
The following rate assumptions were made for the plan:
1995 1994
Discount rate of return on
projected benefit obligation 7.75% 8.5%
Rate of return on plan assets 10.0% 10.0%
19
Tultex Corporation
The long-term rate of salary progression for 1995 reflected an increase of 3.5%
for the first two years, followed by 4% for six years with an ultimate rate of
increase of 5% thereafter.The long-term rate for 1994 reflected no anticipated
rate increase for the first year, followed by 3.5% for two years, 4% for six
years and 5% thereafter.
Pension expense in 1995, 1994 and 1993 included the following components:
(In thousands of dollars) 1995 1994 1993
Service cost-benefits earned
during the period $ 1,285 $ 1,707 $ 1,861
Interest on projected benefit
obligation 2,814 2,808 2,893
Actual (gain) loss on plan assets (4,542) 4,587 (2,362)
Net deferral 719 (9,000) (1,919)
Net periodic pension cost $ 276 $ 102 $ 473
The company's policy has been to fund the minimum required contribution after
the end of the fiscal year plus interest on the contribution from the end of
the plan year until paid.The company's Universal Industries subsidiary
historically funded the maximum required contribution during the year.
The company has a nonqualified, unfunded supplementary retirement
plan for which it has purchased cost recovery life insurance on the lives
of the participants.The company is the sole owner and beneficiary of
such policies.The amount of coverage is designed to provide sufficient
revenues to recover all costs of the plan if assumptions made as to
mortality experience, policy earnings and other factors are realized.
Expenses related to the plan were $577,000 in 1995, $536,000 in 1994
and $547,000 in 1993.The actuarially determined liability which has
been included in other deferrals was $3,434,000 at December 30, 1995,
$3,506,000 at December 31, 1994 and $3,190,000 at January 1, 1994.
20
Tultex Corporation
The following table sets forth the plan's status and amounts recognized
in the company's financial statements at December 30, 1995 and
December 31, 1994:
(In thousands of dollars) 1995 1994
Fair value of plan assets $ - $ -
Accumulated benefit obligation,
including vested benefits of
$3,288 and $3,406, respectively 3,434 3,506
Additional benefits based on
estimated future salary levels 402 433
Projected benefit obligation 3,836 3,939
Projected benefit obligation in excess
of plan assets (3,836) (3,939)
Unrecognized net loss 1,229 1,271
Unrecognized prior service cost 260 280
Unrecognized transitional obligation 892 992
Adjustment required to recognize
minimum liability (1,979) (2,110)
Unfunded accrued
supplementary cost $ (3,434) $ (3,506)
Net supplementary pension cost for the three years included the
following components:
(In thousands of dollars) 1995 1994 1993
Service cost-benefits earned
during the period $ 85 $139 $110
Interest on projected benefit
obligation 309 255 276
Net amortization 183 142 161
Net periodic supplementary
pension cost $577 $536 $547
Substantially all employees meeting certain service requirements are
eligible to participate in the company's employee savings (401-k) plan.
Employee contributions are limited to a percentage of their compensa-
tion, as defined in the plan.The plan does not provide for any company
contributions.
Substantially all employees are eligible to receive bonuses or profit-
sharing distributions, the amounts of which are determined by the labor
contract for employees covered by the collective bargaining agreement
and on a discretionary basis for all other employees. Such expenses
amounted to $2,044,000 in 1995, $1,791,000 in 1994 and $2,329,000 in 1993.
The company also provides certain postretirement medical and life
insurance benefits to substantially all employees who retire with a
21
Tultex Corporation
NOTE 9 (Continued)
minimum of 20 years of service for the period of time until the employee and
any dependents reach age 65.The medical plan requires monthly contributions by
retired participants which are dependent on the participant's length of service,
age at the date of retirement and Medicare eligibility.The life insurance plan
is noncontributory. Prior to 1993, the company expensed the costs relating to
these unfunded plans as incurred.
In 1993, the company adopted Statement of Financial Accounting Standards (SFAS)
No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions.
The standard required companies to recognize the estimated costs of providing
postretirement benefits on an accrual basis.The company elected the delayed
recognition method of adoption which allows amortization of the initial transi-
tional obligation over a 20-year period. At January 2, 1993, the actuarially
determined accumulated postretirement benefit obligation was $5,101,000.
The amounts recognized in the company's balance sheet at December 30, 1995
and December 31, 1994 were as follows:
(In thousands of dollars) 1995 1994
Accumulated postretirement benefit obligation $ (6,973) $ (7,066)
Unrecognized transitional obligation 4,334 4,590
Unrecognized loss 1,770 1,847
Accrued liability $ (869) $ (629)
Net periodic postretirement benefit cost for 1995, 1994 and 1993
included the following components:
(In thousands of dollars) 1995 1994 1993
Service cost-benefits earned
during the period $ 207 $ 198 $ 171
Interest on accumulated
postretirement benefit obligation 564 398 402
Amortization of accumulated
postretirement benefit obligation 256 256 256
Amortization of loss 63 - -
Total periodic postretirement
benefit cost $ 1,090 $ 852 $ 829
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.75% for 1995, 8.5% for 1994 and 8% for 1993.The assumed
medical cost trend rate was 11% in 1994, declining by 1% per year until an
ultimate rate of 5.5% is achieved. For 1995, the rate used was 10%, still
declining by 1% per year until reaching an ultimate goal of 5.5%.The effect of a
1% increase in the assumed health care cost trend rates for each future year
would have increased the aggregate of 1995 service cost and interest cost by
$69,000, and would have increased the December 30, 1995 accumulated
postretirement benefit obligation by $456,000.
The adoption of SFAS No. 112, "Employers' Accounting for Postemployment
Benefits" in 1994 had no material impact on the company's results of operations
or financial position, as the company does not have significant post-employ-
ment benefits.
22
Tultex Corporation
NOTE 10-QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the unaudited quarterly financial information
for the years ended December 30, 1995 and December 31, 1994.
(In thousands of dollars
except per share data) 1995 1994
Net Sales and Other Income
1st quarter $ 84,138 $ 86,294
2nd quarter 120,986 101,900
3rd quarter 207,911 208,931
4th quarter 172,254 168,308
Total $585,289 $ 565,433
Gross Profit
1st quarter $ 20,445 $ 18,511
2nd quarter 25,275 18,757
3rd quarter 46,303 44,136
4th quarter 39,833 42,049
Total $131,856 $ 123,453
Income Before Income Taxes and Extraordinary Loss on Early
Extinguishment of Debt
1st quarter $(12,882) $ (7,916)
2nd quarter (88) (4,892)
3rd quarter 14,889 11,924
4th quarter 7,029 15,319
Total $ 8,948 $ 14,435
Income Before Extraordinary Loss on Early Extinguishment of Debt
1st quarter $ (7,987) $ (4,908)
2nd quarter (62) (3,033)
3rd quarter 9,239 7,393
4th quarter 4,358 9,498
Total $ 5,548 $ 8,950
Net Income
1st quarter $(11,733) $ (4,908)
2nd quarter (62) (3,033)
3rd quarter 9,239 7,393
4th quarter 4,358 9,498
Total $ 1,802 $ 8,950
Net Income per Common Share Before Extraordinary Loss on Early
Extinguishment of Debt
1st quarter $ (.27) $ (.18)
2nd quarter (.01) (.11)
3rd quarter .30 .24
4th quarter .13 .31
Total $ .15 $ .26
23
Tultex Corporation
(In thousands of dollars
except per share data) 1995 1994
Net Income per Common Share
1st quarter $ (.40) $ (.18)
2nd quarter (.01) (.11)
3rd quarter .30 .24
4th quarter .13 .31
Total $ .02 $ .26
NOTE 11-COMMITMENTS
At December 30, 1995, the company was obligated under a number of
noncancellable, renewable operating leases as follows:
Data Manufacturing
(In thousands Processing Facilities and
of dollars) Equipment Other Total
1996 $ 2,755 $ 6,275 $ 9,030
1997 2,706 4,846 7,552
1998 1,588 3,867 5,455
1999 1,051 2,608 3,659
2000 - 2,203 2,203
2001 and after - 13,831 13,831
$ 8,100 $33,630 $41,730
Rental expense charged to income was $13,128,000 in 1995,
$13,358,000 in 1994 and $15,092,000 in 1993.
The company has entered into various licensing agreements which permit it to
market apparel with copyrighted logos and characters from the sports and
entertainment industries. Under the terms of these agreements, the company is
required to pay minimum guaranteed fees to certain licensors.The remaining
minimum obligations under these agreements at December 30, 1995 were
approximately $5,800,000 in fiscal 1996 and $8,000,000 in fiscal 1997.
NOTE 12-EMPLOYMENT AGREEMENTS
The company has entered into employment continuity agreements with
certain of its executives which provide for the payments to these execu-
tives of amounts up to three times their annual compensation plus
continuation of certain benefits if there is a change in control in the
company (as defined) and a termination of their employment.The
maximum contingent liability at December 30, 1995 under these agree-
ments was approximately $4,496,000. Under predefined events of
termination the company could incur a maximum liability of $1,123,000.
NOTE 13-CONCENTRATION OF CREDIT RISK
The company's concentration of credit risk is limited due to the large
number of primarily domestic customers who are geographically
dispersed.The company has no customer that constituted 10% of net
sales in 1995.There was one customer that constituted 10.4% of net
sales in 1994 and no such customer in 1993. As disclosed on the
balance sheet, the company maintains an allowance for doubtful
accounts to cover estimated credit losses.
24
Tultex Corporation
NOTE 14- SHAREHOLDER RIGHTS PLAN
In March 1990, the Board of Directors of the company adopted a
Shareholder Rights Plan and declared a dividend of one right for each
outstanding share of common stock to shareholders of record on April
2, 1990. Each right entitles the registered holder to purchase from the
company, until the earlier of March 22, 2000 or the redemption of the
rights, one one-thousandth of a share of newly authorized Junior
Participating Cumulative Preferred Stock, Series A, without par value, at
an exercise price of $40.The rights are not exercisable or transferable
apart from the common stock until the earlier of (i) 10 days following the
public announcement that a person or a group of affiliated persons has
acquired or obtained the right to acquire beneficial ownership of 10% or
more of the company's outstanding common stock or (ii) 10 business
days following the commencement of a tender offer or exchange offer
that would result in a person or group owning 10% or more of the
company's outstanding common stock.The company may redeem the
rights at a price of $.01 per right at any time prior to the acquisition of
10% or more of the company's outstanding common stock or certain
other triggering events.
NOTE 15-STOCK PURCHASE PLAN
In February 1994, the company initiated the Salaried Employees' Stock
Purchase Plan. Under the plan, employees could elect to purchase
shares of the company's common stock in amounts ranging from 20-
30% of their annual salary. Employees will pay for the stock through
payroll deductions over a 60-month period. Interest at 6% per annum
will be charged until the stock is fully paid and the shares will be held by
the company until that time. Under the plan, 753,667 shares were
issued at a price of $5.50. Of the $4,144,000 loans recorded for the
shares, $2,777,000 has been collected, leaving an outstanding balance
at December 30, 1995 of $1,367,000. Interest income realized in 1995
and 1994 on the loans was $138,000 and $188,000, respectively. In
January 1995, the directors of the company approved an amendment to
the plan that allows an employee options for early payment of the loan.
NOTE 16-ADVERTISING COSTS
In fiscal 1995, the company adopted the provisions of the Accounting
Standards Executive Committee's Statement of Position on Reporting
Advertising Costs ("Statement"). The Statement required that certain
advertising costs which were previously deferred and amortized over an
anticipated benefit period be recognized currently in the statement of
income. Advertising expense charged to income was $22,706,000 in
1995, $14,669,000 in 1994 and $9,934,000 in 1993. Selling, general
and administrative expenses reported on the statement of income
increased by approximately $5,000,000 in 1995 as a result of adopting
this change in accounting method.
25
Tultex Corporation
NOTE 17-UNIONIZATION OF FACILITIES
In August 1994, hourly employees at the company's Martinsville,
Virginia facilities voted for representation by the Amalgamated Clothing
and Textile Workers Union (now known as the Union of Needletrades,
Industrial and Textile Employees or UNITE).Tultex accepted a three-
year contract with UNITE, which was ratified by an employee vote in
March 1995.The contract covers approximately 2,100 employees in the
Martinsville area. In May 1995, hourly employees at the company's
South Boston, Virginia sewing facility voted for representation by
UNITE. A three-year contract was ratified by an employee vote in
August 1995.The contract covers approximately 550 employ
South Boston area.
NOTE 18-INVESTMENT IN JOINT VENTURE
In November 1995, the company and four other investors completed
the formation of Wide Open Performance Wear, Inc.Through its
investment of $750,000 in cash, the company acquired a minority
ownership in this newly-formed sportswear company which markets
garments screenprinted with NASCAR graphics.
NOTE 19-CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Wholly-owned Majority-owned
(In thousands of dollars) Parent Subsidiaries Subsidiary Eliminations Consolidated
As of and for the year ended
December 30, 1995
Current assets $267,300 $ 206,137 $ 3,559 $ (161,839) $ 315,157
Noncurrent assets 182,927 38,089 - (60,374) 160,642
Total assets $450,227 $ 244,226 $ 3,559 $ (222,213) $ 475,799
Current liabilities $ 25,222 $ 173,849 $ 2,956 $ (161,714) $ 40,313
Noncurrent liabilities 246,463 (22) (51) 39 246,429
Total liabilities $271,685 $ 173,827 $ 2,905 $ (161,675) $ 286,742
Net sales $386,300 $ 214,230 $ 8,681 $ (23,922) $ 585,289
Costs and expenses 373,466 219,240 8,073 (24,438) 576,341
Pretax net income (loss) $ 12,834 $ (5,010) $ 608 $ 516 $ 8,948
26
Tultex Corporation
Wholly-owned Majority-owned
(In thousands of dollars) Parent Subsidiaries Subsidiary Eliminations Consolidated
As of and for the year ended
December 31, 1994
Current assets $242,754 $110,927 $ 1,938 $ (65,712) $ 289,907
Noncurrent assets 185,383 41,894 - (60,375) 166,902
Total assets $428,137 $158,821 $ 1,938 $ (126,087) $ 456,809
Current liabilities $153,163 $ 76,728 $ 1,698 $ (64,536) $ 167,053
Noncurrent liabilities 101,098 1,611 (56) 2 102,655
Total liabilities $254,261 $ 78,339 $ 1,642 $ (64,534) $ 269,708
Net sales $341,420 $240,239 $ 3,644 $ (19,870) $ 565,433
Costs and expenses 327,931 239,748 3,931 (20,612) 550,998
Pretax net income (loss) $ 13,489 $ 491 $ (287) $ 742 $ 14,435
Wholly-owned Majority-owned
(In thousands of dollars) Parent Subsidiaries Subsidiary Eliminations Consolidated
As of and for the year ended
January 1, 1994
Current assets $237,088 $ 111,401 $ 2,906 $ (62,704) $ 288,691
Noncurrent assets 203,828 44,578 - (62,132) 186,274
Total assets $440,916 $ 155,979 $ 2,906 $ (124,836) $ 474,965
Current liabilities $ 15,597 $ 80,895 $ 2,442 $ (53,796) $ 45,138
Noncurrent liabilities 257,459 486 (51) (7,264) 250,630
Total liabilities $273,056 $ 81,381 $ 2,391 $ (61,060) $ 295,768
Net sales $323,785 $ 234,278 $ 6,489 $ (30,941) $ 533,611
Costs and expenses 320,689 227,673 6,632 (30,474) 524,520
Pretax net income (loss) $ 3,096 $ 6,605 $ (143) $ (467) $ 9,091
27
Tultex Corporation
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Tultex Corporation
In our opinion, the accompanying consolidated balance sheet and related
consolidated statements of income, of cash flows and of changes in stockholders'
equity present fairly, in all material respects, the financial position of
Tultex Corporation and its subsidiaries (the company) at December 30, 1995 and
December 31, 1994, and the results of their operations and their cash flows for
each of the three years in the period ended December 30, 1995, in conformity
with generally accepted accounting principles.These financial statements are the
responsibility of the company's management; our responsibility is to express an
opinion on these financial statements based on our audits.We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reason-
able assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and significant estimates made by management, and evaluating the
overall financial statement presentation.We believe that our audits provide a
reasonable basis for the opinion expressed above.
In 1993, the company changed its method of valuing inventory and accounting
for postretirement medical and life insurance benefits, as discussed in Notes 2
and 9 of Notes to Financial Statements, respectively. In addition, in 1995, the
company changed its method of recording advertising costs, as discussed in Note
16 of Notes to Financial Statements.
(Signature of Price Waterhouse LLP)
PRICE WATERHOUSE LLP
Winston-Salem, North Carolina
February 6, 1996
28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF Tultex Corporation
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The company changed its method of determining cost of inventories
from the last-in, first-out (LIFO) method to the first-in, first-out (FIFO)
method during the fourth quarter of fiscal 1993.This change has been
applied retroactively by restating all prior periods.
RESULTS OF OPERATIONS
The following table presents the company's consolidated statement of
operations items as a percentage of net sales:
DEC. 30, 1995 Dec. 31, 1994 Jan. 1, 1994
(52 WEEKS) (52 weeks) (52 weeks)
Net sales and
other income 100.0% 100.0% 100.0%
Cost of products sold 73.8 74.2 74.1
Depreciation 4.0 4.2 4.4
Selling, general and
administrative 16.9 16.5 16.6
Gain on sale of facilities (0.7) - -
Interest 3.8 3.2 3.2
Total costs and expenses 98.5 97.4 98.3
Income (loss) before
income taxes and extra-
ordinary loss on early
extinguishment of debt 1.5 2.6 1.7
Provision for income taxes .6 1.0 0.6
Income (loss) before extra-
ordinary loss on early
extinguishment of debt .9 1.6 1.1
Extraordinary loss on early
extinguishment of debt
(net of income taxes of
$2,296) (.6) - -
Net income (loss) .3% 1.6% 1.1%
Note: Certain items have been rounded to cause the columns to add to 100%.
29
Tultex Corporation
Fiscal Year 1995 Compared to Fiscal Year 1994
Net Sales and Other Income for the year ended December 30, 1995
increased $19.9 million, or 3.5%, over the prior year level of $565.4
million.The increase was attributable primarily to increased sales
volume in the activewear line.This increase was partially offset by
decreases in licensed apparel and licensed headwear sales due to the
National Hockey League lockout, Major League Baseball strike and
retailer reluctance to buy National Basketball Association apparel until a
labor agreement was reached in September. Activewear sales in fiscal
1995 increased $43.4 million or 12.6% over fiscal 1994 from $344.4
million to $387.8 million. Licensed apparel sales decreased $17.2
million or 11.3% to $135.4 million as compared to fiscal 1994, while
licensed headwear sales decreased $6.4 million or 9.4% to $62.0
million. Sales of Discus Athletic(R) activewear increased 29.9% to $75.8
million, and sales of Logo Athletic(R) licensed apparel increased 42.8% to
$92.0 million. Sales of jersey products were $93.1 million for the fiscal
year ended December 30, 1995, representing 24.0% of the company's
activewear sales during such period compared to 16.5% for fiscal 1994.
Cost of Products Sold as a percentage of sales improved in fiscal 1995,
decreasing from 74.2% in fiscal 1994 to 73.8%.This reduction resulted
primarily from manufacturing efficiencies realized from increased
production schedules and higher average selling prices. Costs were
reduced in spite of growth in jersey volume, which typically produces
lower margins, and increased raw material costs. Raw material costs
were higher in 1995 than in 1994 as a result of the increased price of
both raw cotton and polyester fiber. Cotton prices fluctuate based on the
relationship between supply and demand, with prices increasing as
demand increases and/or supply decreases.The company expects its
cotton prices for 1996 to be relatively unchanged from 1995. As of March
12, 1996, the company has fixed the price on approximately 50% of its
planned cotton purchases for fiscal 1996.
Depreciation expense as a percentage of sales was 4.0% for fiscal 1995
and 4.2% for fiscal 1994. Depreciation expense in 1995 was $23.2
million, which was $0.8 million or 3.4% lower than fiscal 1994 levels due
to relatively low capital expenditures.
Selling, General and Administrative ("S,G&A") e xpenses increased $5.7
million in 1995. As a percentage of net sales, S,G&A expenses were
16.9% in 1995 and 16.5% in 1994. Higher S,G&A expenses in 1995
resulted from higher advertising expenses and increases in the
company's provision for bad debts. Included in the company's 1995
advertising expenses were $5.0 million in deferred advertising costs
which were charged off as required by the Accounting Standards
Executive Committee's Statement of Position on Reporting Advertising
Costs.This statement first became effective for the company at the
beginning of fiscal 1995.The decision to increase the bad debt provision
was made in response to difficulties currently facing customers in the
retail and wholesale business sectors.
Operating income (income before interest, income taxes and gain on
sale of facility) increased 9.6% during the 1995 fiscal year to $30.9
million compared to $28.2 million for fiscal 1994.This increase was due
to the improved performance of the company's activewear business.
30
Tultex Corporation
Interest expense as a percentage of sales increased from 3.2% of sales
in fiscal 1994 to 3.8% of sales in fiscal 1995. Interest expense increased
$3.8 million or 20.9% in 1995 over 1994, from $18.2 million to $22.0
million primarily as a result of higher average rates partially offset by
lower average borrowing requirements.The nature of the company's
business requires extensive seasonal borrowings to support its working
capital needs. During fiscal 1994, revolving credit facility borrowings
averaged $155.3 million at an average rate of 5.2%. During fiscal 1995,
average borrowings under the revolving credit facility were $136.4 at an
average rate of 7.6%.The reduction in average borrowings was due to
the company's continuing emphasis on increasing cash management.
Provision for Income Taxes is a function of pretax earnings and the
combined effective rate of federal and state income taxes.The effective
rate for combined federal and state income taxes was 38% in 1995 and
1994.The provision for income taxes decreased $2.1 million in 1995 as
a result of lower pretax earnings. As a percentage of net sales, it
decreased to 0.6% in fiscal 1995 from 1.0% in fiscal 1994.
Fiscal Year 1994 Compared to Fiscal Year 1993
Net Sales and Other Income for fiscal 1994 increased $31.8 million or
6.0% over 1993 from $533.6 million to $565.4 million.The 1994 sales
growth was due to increased sales volume in the activewear and
licensed headwear lines partially offset by a decrease in other licensed
apparel sales. Unit sales volume of activewear apparel increased 12%
from the prior year's level, while the average selling price of activewear
decreased approximately 3% from 1993.The 1994 average selling
price decline of activewear products was primarily due to proportion-
ately higher shipping volume of jersey products, which sell at lower
prices than fleece garments.
Cost of Products Sold as a percentage of sales in fiscal 1994 remained
relatively unchanged from 1993, increasing from 74.1% to 74.2%.
Continuing efficiency improvements and overhead reductions during
1994 helped contain total costs. Costs were contained notwithstanding
growth of jersey volume, which typically produces lower margins,
increased raw material costs and product improvements. Utilization of
the company's manufacturing and distribution facilities improved in the
second half of 1994 as a result of the increased demand for activewear.
Raw material costs were higher in 1994 than in 1993 as a result of the
increased price of raw cotton.
Depreciation expense as a percentage of sales decreased to 4.2% of
sales for 1994 from 4.4% for 1993. Depreciation expense increased by
$0.6 million or 2.6% over 1993 from $23.4 million to $24.0 million, due
to fixed asset additions.
Selling, General and Administrative expenses decreased as a percent-
age of sales to 16.5% in 1994 from 16.6% in 1993. S,G&A expenses
increased $5.1 million in 1994.This increase was primarily attributable
to higher advertising costs and sales commissions in activewear lines,
especially relating to the company's Discus Athletic brand, and higher
royalties in the licensed apparel lines.
31
Tultex Corporation
Interest expense was 3.2% of sales for both 1994 and 1993. Interest
expense increased $1.2 million or 7.1% in 1994 over 1993, from $17.0
million to $18.2 million, primarily as a result of higher average borrow-
ings to finance working capital requirements.
Provision for Income Taxes reflects an effective tax rate for combined
federal and state income taxes of 38% in 1994 and 35% in 1993.The
increase in provision for income taxes was due to higher pretax
earnings and higher effective federal and state income tax rates.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net working capital at December 30, 1995 increased $152.0 million or
123.7% to $274.8 million from $122.8 million at December 31, 1994.
This increase resulted primarily from the completion of the refinancing
which is described later and which caused the reclassification of $104.0
million of borrowings from current maturities at year-end 1994 to long-
term debt at year-end 1995. Net accounts receivable increased $3.0
million from December 31, 1994 to December 30, 1995.
Inventories traditionally increase during the first half of the year to
support second-half shipments. In 1995, inventories peaked on July 1
1995. As of December 30, 1995, inventories had increased approxi-
mately $27.8 million or 21.3% from December 31, 1994, while sales
had increased 3.5% in fiscal 1995 versus fiscal 1994.The increase in
inventory, particularly fleece product, was due to lower than anticipated
consumer spending at retail during the latter part of fourth quarter.
Additionally, the company increased its jersey inventory supply in order
to meet anticipated first quarter 1996 sales demand.The current ratio
(ratio of current assets to current liabilities) at December 30, 1995 was
7.8 compared to 1.7 at December 31, 1994.The increase in the current
ratio was due mainly to higher current maturities of debt at year-end
1994.
In first quarter 1995, the company signed a three-year $225 million
revolving credit facility which replaced its existing facility due to expire
on October 5, 1995.The credit facility has a three-year term which
expires in April 1998 but which allows for two one-year extensions. In
first quarter 1995, the company also sold $110 million of 10 5/8% senior
notes due March 15, 2005.The senior notes require no principal
payments until 2005 with interest due semi-annually.These notes,
which were priced at par, were used to repay existing indebtedness of
the company. In connection with these transactions, the company
recognized a one-time, after-tax charge of $3,746,000, or 13 cents per
share, representing unamortized debt issuance costs and a prepayment
premium. While this refinancing has resulted in higher interest expense,
the company believes that the longer maturity and increased covenant
flexibility provided under the terms of these agreements will allow the
company to continue its long-term investment in brand promotion and
higher margin products.Total indebtedness at December 30, 1995
consisted primarily of the senior notes totaling $110.0 million and
$117.5 million outstanding under the revolving credit facility.The
company's average credit facility borrowings during fiscal 1995 were
$136.4 million and its peak borrowing was $182.6 million at September
5, 1995. As of December 30, 1995, the company was in compliance
with all debt covenants.
32
Tultex Corporation
In fiscal 1995, net cash provided by operations was $6.9 million
compared to $24.6 million in fiscal 1994. Cash used for capital
expenditures increased $8.7 million in fiscal 1995 from $8.6 million to
$17.3 million.The company has budgeted approximately $16 million for
capital expenditures in fiscal 1996. Cash provided by financing activities
was $7.4 million for fiscal 1995 compared to cash used by financing
activities of $24.1 million as a result of increased borrowing require-
ments.The company expects that its short-term borrowing needs will be
met through cash generated from operations and borrowings under the
revolving credit facility. In addition, the notes will require no scheduled
repayments until their maturity in 2005. Debt as a percentage of
capitalization was 54.6% at December 30, 1995 compared to 53.6% at
December 31, 1994.The company's long-term goal is to reduce debt as
a percentage of total capitalization to 40%.
Stockholder's equity increased $2.0 million during fiscal 1995 primarily
due to net income of $1.8 million and net proceeds from the employee
stock purchase plan of $2.1 million.This increase was partially offset by
cash dividends on the company's preferred stock of $1.9 million.
Substantially contemporaneously with the consummation of the senior
note offering, the company paid the current dividend and existing
dividend arrearage on its preferred stock totaling $1.4 million and has
continued paying quarterly dividends thereon.
33
SELECTED FINANCIAL DATA Tultex Corporation
1995 1994 1993 1992 1991
(In thousands of dollars except per share data) (52 WEEKS) (52 weeks) (52 weeks) (53 weeks) (52 weeks)
Summary of Operations:
Net sales and other income $ 585,289 $ 565,433 $ 533,611 $ 503,946 $ 349,910
Costs and operating expenses 554,389 532,847 507,524 470,155 330,079
Operating income 30,900 32,586 26,087 33,791 19,831
Interest expense 21,952 18,151 16,996 13,540 9,064
Income before income taxes, cumulative effect of a
change in accounting principle and extraordinary
loss on early extinguishment of debt 8,948 14,435 9,091 20,251 10,767
Provision for income taxes 3,400 5,485 3,188 7,060 3,443
Income before cumulative effect of a change in
accounting principle and extraordinary loss on early
extinguishment of debt 5,548 8,950 5,903 13,191 7,324
Cumulative effect of a change in accounting principle - - - - 2,848
Extraordinary loss on early extinguishment of debt (3,746) - - - -
Net Income 1,802 8,950 5,903 13,191 10,172
Less preferred dividend requirement 1,135 1,135 1,135 1,041 10
Balance to common stock $ 667 $ 7,815 $ 4,768 $ 12,150 $ 10,162
Weighted average number of common shares
outstanding* 29,810 29,685 28,961 28,872 28,862
Shares outstanding at year end* 29,824 29,807 29,053 28,878 28,862
34
Tultex Corporation
1995 1994 1993 1992 1991
(In thousands of dollars except per share data) (52 WEEKS) (52 weeks) (52 weeks) (53 weeks) (52 weeks)
Income before cumulative effect of a change in
accounting principle and extraordinary loss on early
extinguishment
of debt $ .15 $ .26 $ .16 $ .42 $ .25
Net income $ .02 $ .26 $ .16 $ .42 $ .35
Dividends declared (Note 6) $ .00 $ .05 $ .20 $ .20 $ .32
Book value $ 5.83 $ 5.74 $ 5.64 $ 5.67 $ 5.44
Year-End Data:
Current assets $ 315,157 $ 289,907 $ 288,691 $ 249,327 $171,692
Current liabilities 40,313 167,053 45,138 122,610 86,681
Working capital $ 274,844 $ 122,854 $ 243,553 $ 126,717 $ 85,011
Inventories $ 157,946 $ 130,183 $ 157,278 $ 130,166 $ 89,368
Property, plant and equipment (net) 129,002 134,884 151,775 153,188 140,426
Total assets 475,799 456,809 474,965 435,818 314,957
Bank notes payable - 1,000 - 79,825 55,762
Current portion of long-term debt 145 132,353 8,524 2,268 2,443
Capital Invested:
Long-term debt $227,540 $ 83,002 $230,914 $118,438 $ 56,827
Stockholders' equity 189,057 187,101 179,197 178,793 157,091
Total capital in vested $ 416,597 $270,103 $ 410,111 $297,231 $213,918
Return on average total capital invested 0.5% 2.6% 1.7% 5.2% 4.6%
Long-term debt as a percentage of total capital 54.6% 30.7% 56.3% 39.8% 26.6%
Years prior to 1993 have been restated to reflect the acquisition of
Universal Industries, Inc. treated as a pooling of interests, and to reflect a
change in accounting method from LIFO to FIFO.
*As adjusted for stock splits, stock dividends and shares issued in
pooling-of-interests acquisition of Universal Industries, Inc. in 1992.
35
COMMON STOCK PRICES AND
DIVIDEND INFORMATION Tultex Corporation
The company's common stock is listed on the New York Stock Exchange under
the symbol TTX.The following table shows the daily high, low and closing
quotations and dividends per share paid by quarters:
52 Weeks ended December 30, 1995 52 Weeks ended December 31, 1994
Range of Quotations Range of Quotations
Dividends Dividends
Quarter Ended Low High Close per Share Low High Close per Share
April 1 $4 1/8 $5 1/8 $4 5/8 $ - $5 1/8 $7 7/8 $6 7/8 $ .05
July 1 4 5/8 5 7/8 5 5/8 - 4 1/8 7 1/8 4 3/4 -
September 30 5 1/4 6 1/2 5 3/8 - 4 1/2 5 3/8 4 3/4 -
December 30 4 5 3/8 4 1/8 - 4 1/4 6 4 7/8 -
See Note 5 to Consolidated Financial Statements for restrictions of
consolidated retained earnings. At December 30, 1995, $5,080,000 of consolidated
retained earnings were free of dividend restrictions.
SHARES OF STOCK
The average number of shares of common stock for the year was
29,810,415 shares.The common shares outstanding at year-end
amounted to 29,824,371.
STOCK DIVIDENDS AND STOCK SPLITS
Stock dividends and stock splits in the last 10 years include a
three-for-two split on July 31, 1987, and a two-for-one stock split on
July 31, 1986.
36
GENERAL INFORMATION
Stock Listing
Traded on the New York Stock Exchange under the symbol -- TTX
Form 10-K Request
Copies of the company's report to the Securities and Exchange Commission on Form
10-K may be obtained without charge by writing to:
Kathy Rogers
Corporate Secretary
Tultex Corporation
P.O. Box 5191
Martinsville, VA 24115
or by calling 540-632-2961, extension 3830
Shareholder Relations
If you have questions regarding your stock, you may contact:
Regina Haynes
Supervisor-Shareholder Relations
Tultex Corporation
P.O. Box 5191
Martinsville, VA 24115
540-632-2961, extension 3831
Corporate Office
Tultex Corporation
P.O. Box 5191
Martinsville, VA 24115
540-632-2961
FAX: 540-632-8000
General Counsel
Hunton & Williams
P.O. Box 1535
Richmond, VA 23212
804-788-8200
Independent Accountants
Price Waterhouse LLP
1800 One Triad Park
Winston-Salem, NC 27101
910-725-0691
Transfer Agent
First Union National Bank of NC
Shareholder Services Group
230 South Tryon Street
Charlotte, NC 28288-1153
800-829-8432
Corporate Officers
J. M. Franck
Chairman of the Board
C. W. Davies, Jr.
President and Chief Executive Officer
O. R. Rollins
Executive Vice President and General Counsel
J. J. Smith
Vice President-Customer Services
W. J. Gardner, Jr.
Vice President-Operations
B. A. Ratliff
Vice President-Sourcing, Contracting and Strategic Planning
D. P. Shook
Vice President-Administration
W. J. Caruba
Vice President-Sales and Marketing
S. H. Wood
Vice President and Chief Financial Officer
K. W. Walsh
Treasurer
K. H. Rogers
Corporate Secretary
R. C. Haynes
Assistant Secretary
W. T. Moore
Assistant Treasurer
Board of Directors
J. M. Franck
C. W. Davies, Jr.
L. M. Ewers, Jr.
Partner
Hunton & Williams, Attorneys at Law
I. M. Groves, Jr.
Retired Chairman and Chief Executive Officer
Mainstreet BankGroup, Incorporated
(formerly Piedmont BankGroup, Incorporated)
H. R. Hunnicutt, Jr.
Retired Chairman and Chief Executive Officer of the Company
F. K. Iverson
Chairman
Nucor Corporation
B. M. Jacobson
Partner
Katz, Sapper & Miller
Certified Public Accountants
R. M. Simmons Jr.
Retired Chairman of the Board
Virginia Carolina Freight Lines, Inc.
Committees of the Board
Audit Committee
I. M. Graves, Jr.
B. M. Jacobson
Executive Compensation Committee
L. M. Ewers, Jr.
R. M. Simmons, Jr.
Nominating Committee
J. M. Franck
H. R. Hunnicutt, Jr.
F. K. Iverson
We would like to take this opportunity to express our sadness upon the death of
J. Burness Frith, who retired from our board in May 1995. He had been a director
of the company since 1978. He will be missed by all of us at Tultex, as well as
the Martinsville and Henry County community.
TULTEX
Tultex Corporation
PO Box 5191
Martinsville VA 24115