UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 4, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-8016
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TULTEX CORPORATION
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(Exact name of registrant as specified in its charter)
Virginia 54-0367896
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
101 Commonwealth Boulevard, P. O. Box 5191, Martinsville, Virginia 24115
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 540-632-2961
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
29,879,356 shares of Common Stock, $1 par value, as of November 8, 1997
PART I. FINANCIAL INFORMATION
Item 1.
Tultex Corporation
Consolidated Statement of Operations (Unaudited - $000's omitted except in
shares and per share data)
October 4, 1997 (and September 28, 1996)
Three Months Ended Nine Months Ended
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October 4,1997 September 28,1996 October 4,1997 September 28, 1996
-------------- ----------------- -------------- ------------------
Net Sales and Other Income $ 229,725 $ 215,390 $ 477,472 $ 448,891
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Costs and Expenses:
Cost of Products Sold 178,560 157,706 367,612 333,170
Depreciation 4,851 4,793 15,035 16,168
Selling, General and Administrative 26,973 25,949 68,691 70,524
Interest 7,853 5,931 20,195 15,799
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Total Costs and Expenses 218,237 194,379 471,533 435,661
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Income (Loss) Before Income Taxes 11,488 21,011 5,939 13,230
Benefit (Provision) for Income Taxes (Note 3) (4,479) (7,986) (2,315) (5,036)
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Net Income (Loss) 7,009 13,025 3,624 8,194
Preferred Dividend Requirement (Note 4) (143) (284) (664) (851)
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Balance Applicable to Common Stock $ 6,866 $ 12,741 $ 2,960 $ 7,343
============== ================= ============== ===================
Weighted Average Number of Common Shares
Outstanding 29,904,382 29,455,489 29,752,870 29,671,757
============== ================= ============== ===================
Net Income (Loss) Per Common Share $ .23 $ .43 $ .10 $ .25
============== ================= ============== ===================
Dividends Per Common Share (Note 4) $ .00 $ .00 $ .00 $ .00
============== ================= ============== ===================
Tultex Corporation
Consolidated Balance Sheet (Unaudited - $000's omitted)
October 4, 1997 (and December 28, 1996)
Assets October 4, 1997 December 28, 1996
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Current Assets:
Cash $ 1,964 $ 1,654
Accounts Receivable - Net of Allowances
for Doubtful Accounts-$4,431 (1997) and
$3,762 (1996) 189,749 160,107
Inventories (Note 2) 226,940 162,283
Prepaid Expenses 11,292 7,877
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Total Current Assets $ 429,945 $ 331,921
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Fixed Assets - Net 145,272 136,426
Intangible Assets (Note 6) 44,385 24,333
Other Assets 11,851 8,100
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Total Assets 631,453 500,780
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Liabilities and Stockholders' Equity
Current Liabilities:
Notes Payable to Banks $ 5,000 $ 5,628
Current Maturities of Long-Term Debt 525 424
Accounts Payable 44,612 33,981
Federal and State Income Taxes Payable 1,331 1,684
(Note 3)
Accrued Expenses 17,395 14,713
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Total Current Liabilities 68,863 56,430
Long-Term Debt, Less Current Maturities 342,640 223,616
Other Liabilities 17,344 17,806
Stockholders' Equity:
Five Percent Cumulative Preferred Stock 198 198
(Note 4)
Series B, Cumulative Convertible Preferred
Stock (Note 4) 7,500 15,000
Common Stock (Note 4) 29,879 29,334
Capital in Excess of Par Value 6,893 3,416
Retained Earnings 158,408 155,663
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Less Notes Receivable - Stockholders (272) (683)
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Total Stockholders' Equity 202,606 202,928
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Total Liabilities and Stockholders' Equity $ 631,453 $ 500,780
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Tultex Corporation
Consolidated Statement of Cash Flows (Unaudited - $000's omitted)
Nine Months Ended October 4, 1997 (and September 28, 1996)
Nine Months Ended
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October 4, 1997 September 28, 1996
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Operations:
Net Income (Loss) $ 3,624 $ 8,194
Items not Requiring (Providing) Cash:
Depreciation 15,035 16,168
Amortization of Intangible Assets 1,241 912
Deferred Income Taxes - -
Other Deferrals (462) (1,475)
Changes in Assets and Liabilities:
Accounts Receivable (14,627) (41,672)
Inventories (27,429) (24,586)
Prepaid Expenses (3,305) 3,864
Accounts Payable and Accrued Expenses (2,700) 24,176
Income Taxes Payable (403) 2,898
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Cash Provided (Used) by Operations (29,026) (11,521)
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Investing Activities:
Additions to Property, Plant and
Equipment (24,992) (21,377)
Business Acquisitions (Note 6) (57,694) -
Additions to Other Assets (3,644) (3,800)
Sales and Retirements of Property and
Equipment 2,069 -
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Cash Provided (Used) by Investing
Activities (84,261) (25,177)
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Financing Activities:
Issuance (Payment) of Short-Term
Borrowings (746) -
Issuance of Long-Term Debt 89,405 -
Issuance (Payment) of Revolving Credit
Facility Borrowings 29,400 41,500
Payments on Long-Term Debt (516) (140)
Cash Dividends (Note 4) (664) (851)
Proceeds From Stock Plans 2,264 380
Purchase of Preferred Stock (7,688) -
Issuance of Common Stock 4,225 -
Purchase of Common Stock (2,083) (2,092)
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Cash Provided (Used) by Financing
Activities 113,597 38,797
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Net Increase (Decrease) in Cash 310 2,099
Cash at End of Prior Year 1,654 1,981
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Cash at End of Period $ 1,964 $ 4,080
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TULTEX CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
October 4, 1997
NOTE 1 - The accompanying consolidated financial statements
furnished in this quarterly 10-Q Report reflect all adjustments,
consisting only of normal recurring adjustments, which are, in
the opinion of management, necessary for a fair statement of the
results of the interim periods. This balance sheet, statement of
income and statement of cash flows have been prepared from the
company's records and are subject to audit and year-end
adjustments.
NOTE 2 - A summary of inventories by component follows.
(In thousands of dollars):
October 4, 1997 December 28, 1996
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Raw Materials $ 29,398 $ 31,253
Supplies 10,612 6,297
Goods-in-Process 25,417 21,464
Finished Goods 161,513 103,269
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Total Inventory $ 226,940 $ 162,283
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NOTE 3 - Income taxes are provided based upon income reported for
financial reporting purposes. Deferred income taxes are provided
for the temporary differences between the financial reporting
basis and the tax basis of the company's assets and liabilities.
NOTE 4 - Five percent cumulative preferred stock is $100 par
value, 22,000 shares authorized, shares issued and outstanding
1,975 shares (1997and 1996). The stated quarterly dividend was
declared on July 29, 1997, and paid on October 1, 1997.
Series B preferred stock is cumulative, convertible preferred
stock, $7.50 Series B, $100 stated value, 150,000 shares
authorized. The entire 150,000 shares were issued and
outstanding during 1996. On May 30, 1997 the company redeemed
75,000 of the 150,000 shares at a redemption price (including
accrued but unpaid dividends) of $103.75 per share. The stated
quarterly dividend on the remaining 75,000 shares was declared on
July 29, 1997, and paid on October 1, 1997.
Common stock, $1 par value, 60,000,000 shares authorized, shares
issued and outstanding were 29,879,356 at October 4, 1997, and
29,333,571 at December 28, 1996. There were no dividends
declared on the company's common stock for the three month period
ended October 4, 1997.
NOTE 5 - Income (loss) per common share is computed using the
weighted average number of common shares outstanding.
NOTE 6 - On April 16, 1997, the company acquired California Shirt
Sales, Inc., ("CSS") an apparel distributor in 11 western states
and Hawaii. The company purchased substantially all assets, totaling $58.8
million, including cash of $223 thousand, and assumed certain liabilities
totaling $11.9 million. The acquisition was recorded using the purchase method
of accounting. Acquisition consideration was comprised of 554,098 shares of
the company's common stock valued at $4.2 million based on a price of $7.625
per share, cash payment of $7.0 million, subordinated indebtedness issued for
$14.4 million, and the assumption of liabilities totaling $33.2 million. The
purchase price has been allocated to the acquired assets and liabilities
assumed based on their fair values resulting in goodwill of $12.1 million to
be amortized over 25 years. The historical recorded values of CSS assets and
liabilities were not materially different from their fair values.
The operating results of CSS have been included in the
consolidated statements of income from the date of acquisition.
The following pro forma unaudited consolidated operating results
of the company and CSS have been prepared as if the acquisition
had been made at the beginning of the periods presented and
include pro forma adjustments to reflect intercompany
transactions, amortization of goodwill and transaction financing,
as well as the income tax effect of these items.
(In thousands, except per share data)
Three Months Ended (Unaudited) Nine Months Ended (Unaudited)
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Oct. 4, 1997 Sept. 28, 1996 Oct. 4, 1997 Sept. 28, 1996
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Net Sales $ 229,725 $ 235,262 $ 498,992 $ 509,157
Net Income $ 7,009 $ 13,637 $ 3,314 $ 7,723
Net Income
per Share $ .23 $ .44 $ .09 $ .23
The pro forma results are not necessarily indicative of the
results of operations of the combined companies that would have
occurred had the acquisition occurred at the beginning of the
periods presented, nor are they necessarily indicative of future
operating results.
On May 6, 1997, the company acquired T-Shirt City, Inc., ("TSC")
an apparel distributor in the Midwestern United States. The
company purchased substantially all assets totaling $16.6 million, including
cash of $173 thousand, and assumed certain liabilities totaling $5.4 million.
The transaction was recorded using the purchase method of accounting.
Acquisition consideration included a cash payment of $1.8 million and the
assumption of liabilities totaling $14.8 million. The purchase price has
been allocated to the acquired assets and liabilities assumed based on their
fair values resulting in goodwill of $9.1 million to be amortized
over 25 years. The historical recorded values of TSC assets and
liabilities were not materially different from their fair values.
The pro forma effect of this acquisition has not been presented
because amounts would not differ materially from actual results.
Tultex Corporation
Management's Discussion and Analysis of Financial Condition and
Results of Operations
October 4, 1997
Forward-Looking Information
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This Quarterly Report on Form 10-Q may contain certain forward-
looking statements reflecting the company's current expectations.
Although the company believes that the expectations reflected in
any such forward-looking statements are reasonable, it can give
no assurances that such expectations would prove to have been
correct. Important factors that could cause actual results to
differ materially from the company's expectations include the
financial strength of the retail industry, the level of consumer
spending on apparel and the company's ability to timely satisfy customer
demand for its products, the competitive pricing environment within
the apparel industry, the company's substantial leverage and the
restrictive covenants in its borrowing documents, fluctuations in
the price of cotton and polyester used by the company in the
manufacture of its products, and the seasonality and cyclicality
of the fleecewear and licensed apparel industries. Such
statements are provided in accordance with the safe harbor
provisions of the Private Litigation Reform Act of 1995.
Investors should consider other risks and uncertainties discussed
in other documents filed by the company with the Securities and
Exchange Commission.
Results of Operations
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The following table presents the company's consolidated statement
of operations items as a percentage of net sales.
Three Months Ended Nine Months Ended
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10/04/97 09/28/96 10/04/97 09/28/96
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Net Sales and Other Income 100.0% 100.0% 100.0% 100.0%
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Cost of Products Sold 77.7 73.2 77.0 74.3
Depreciation 2.1 2.2 3.1 3.6
Selling, General and Administrative 11.8 12.1 14.4 15.7
Interest 3.4 2.8 4.2 3.5
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Total Costs and Expenses 95.0 90.3 98.7 97.1
Income (Loss) Before Income Taxes 5.0 9.7 1.3 2.9
Benefit (Provision) for Income Taxes 1.9 3.7 .5 1.1
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Net Income (Loss) 3.1% 6.0% .8% 1.8%
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Note: Certain items have been rounded to cause the columns to add to 100%.
Net sales and other income for the three months ended October 4, 1997 increased
$14.3 million, or 6.7%, from the third quarter of 1996. Activewear sales of
$149.3 million represent an increase of $18.3 million, or 14.0%, as compared
to the third quarter of 1996. The activewear increase resulted from the
inclusion of sales for California Shirt Sales and T-Shirt City which were
acquired during the second quarter of 1997. Licensed apparel sales of $80.4
million in the third quarter of 1997 represent a decrease of $4.0 million,
or 4.7%, as compared to the same period of the prior year. The licensed
apparel sales decrease resulted from Olympic sales during the third quarter of
1996 as well as softness in sales of Major League Baseball and National
Basketball Association products during 1997. In addition, the licensed
apparel division was affected by production and distribution bottlenecks which
are described in the "cost of products sold" section of this report.
For the nine months to date, net sales and other income increased $28.6
million, or 6.4%, due to a 13.3% increase in activewear sales, partially
offset by a 5.4% decrease in licensed apparel sales. The activewear sales
increase was primarily due to the acquisitions of CSS and TSC.
Cost of products sold as a percentage of sales increased to 77.7% for the
third quarter of 1997 compared to 73.2% for the comparable third quarter
of last year. For the comparative nine-month periods, cost as a percentage
of sales increased from 74.3% in 1996 to 77.0% in 1997. The third-quarter
margin as a percentage of sales was negatively impacted by bottlenecks in
the manufacturing and distribution processes which caused delays in
shipments as well as higher production costs at both our domestic and non-U.S.
facilities. The company has taken steps to prevent these issues from
reoccurring, including the addition of on-site technical personnel at
contractor locations, realignment of management and reassessment of on-going
relationships with certain non-performing contractors.
Depreciation expense increased $58,000, or 1.2%, during the third quarter of
1997 compared to the comparable period of the prior year. Depreciation
expense decreased $1.1 million, or 7.0% for the nine months of 1997 compared
to the first nine months of 1996. This decrease was the result of certain
assets becoming fully depreciated during 1996. The company invested $25.0
million in fixed assets during the first nine months of 1997.
Selling, general and administrative expenses ("S, G&A") increased
$1.0 million for the third quarter of 1997 compared to the same period of
1996. As a percentage of sales, S,G&A expenses were 11.8% compared to 12.1%
for the third quarter of 1996. During the nine month period ended October 4,
1997, S, G&A expenses were $68.7 million, or 14.4% of sales, compared to
$70.5 million, or 15.7% of sales, for the comparable period of the prior year.
The primary reasons for this decrease were a $937 thousand reduction
in royalty expenses and a $557 thousand reduction in advertising expenses for
the first nine months of 1997 as compared to the same period of 1996.
Interest expense as a percentage of sales increased from 2.8%, or $5.9
million, for the third quarter of 1996 to 3.4%, or $7.9 million, for the
comparable period of 1997. The 1997 increase is due to higher average
borrowings and higher average borrowing rates. The higher average borrowings
resulted from the company's two distributor acquisitions which occurred during
the second quarter of 1997. The higher average borrowing rates were primarily
due to the issuance of $75 million of 9 5/8% Senior Notes which carry a higher
rate than the company's revolving credit facility borrowings. The nature of
the company's business requires extensive seasonal borrowings to support its
working capital needs. For the first nine months of 1997, working capital
borrowings averaged $129.7 million at an average rate of 7.3% compared to $134.2
million and 7.0%, respectively, for the comparable period of the prior year.
Benefit (Provision) for income taxes reflects an effective rate for combined
federal and state income taxes of 39% for the first nine months of 1997 and
38% for the comparable period of 1996.
On April 16, 1997, the company acquired California Shirt Sales, Inc., an
apparel distributor in 11 western states and Hawaii. Acquisition consideration
was comprised of a combination of the company's common stock and subordinated
indebtedness, and assumption of bank indebtedness. On May 6, 1997, the
company acquired T-Shirt City, Inc., an apparel distributor in the Midwestern
United States. These acquisitions complement the company's strategy of
becoming more marketing and distribution oriented and taking advantage of
distribution efficiencies. See Note 6 to Financial Statements.
Financial Condition, Liquidity and Capital Resources
- ----------------------------------------------------
Net working capital at October 4, 1997 increased $85.6 million from year-end
1996 due primarily to higher inventories and accounts receivable. Net
accounts receivable increased $29.6 million from December 28, 1996 to
October 4, 1997, primarily due to the seasonality of the company's business.
Receivables normally peak in September and October and begin to decline in
December as shipment volume decreases and cash is collected.
Inventories traditionally increase during the first half of the year to
support second-half shipments. Compared to December 28, 1996, inventories
increased $64.7 million, or 39.8%. The distributor acquisitions accounted
for $30.7 million, or 47.4% of this increase.
The current ratio at October 4, 1997 was 6.2 compared to 5.9 at
December 28, 1996. The increase in the ratio from the beginning of the year
was mainly due to higher inventories and accounts receivable.
On April 15, 1997, the company sold $75 million of 9 5/8% Senior Notes due
2007. Proceeds from the sale of the Senior Notes were used to repay existing
indebtedness and redeem $7,500,000 of the Series B, $7.50 cumulative
convertible preferred stock. On May 15, 1997, the company entered into a
three-year $187 million revolving credit facility which replaced its existing
three year facility due to expire in 1998. The terms of the new facility are
substantially equivalent to those of the former revolving credit facility,
except that the maximum borrowing amount under the new facility is $187
million, compared with $225 million under the old facility. Reduction of the
borrowing limit reflects the proceeds from the sale of $75 million Senior Notes.
Total long-term debt at October 4, 1997 included the senior notes totaling
$185 million and $143 million outstanding under the revolving credit facility.
At the end of the third quarter of 1997, the company was in compliance with its
covenants or had received waivers for any violations. The lenders also amended
certain covenant requirements relating to the company's quarter ended
January 3, 1997.
On May 30, 1997, the company redeemed 75,000 shares of the 150,000
outstanding shares of its $7.50 Series B, $100 stated value Preferred Stock
at a redemption price (including accrued but unpaid dividends) of $103.75
per share.
On July 29, 1997 the company's Board of Directors authorized the purchase of
an additional 1 million shares increasing the total authorized shares for the
program dated March 20, 1996 to 2 million shares. As of October 4, 1997, a
total of 833,400 shares had been purchased and retired. Stockholders' equity
decreased $322,000 during the first nine months of 1997 as a result of the
preferred stock redemption of $7.7 million, preferred dividends of $664,000
and stock repurchases of $2.1 million partially offset by common shares issued
of $4.2 million, net income for the period of $3.6 million and proceeds from
stock plans of $2.3 million. Debt as a percentage of total capitalization
was 63.2% compared to 58.0% at September 28, 1996.
For the first nine months of 1997, net cash used by operations was $29.0
million versus $11.5 million for the same period last year. Cash used for
capital asset additions increased $3.6 million in 1997 compared to the first
nine months of 1996. Cash provided by financing activities in 1997 increased
$74.8 million as compared to the first nine months of 1996 primarily as a
result of higher seasonal borrowing requirements and the distributor
acquisitions. The company expects that annual cash flows from income and
non-cash items, supplemented by the revolving credit facility, will be
adequate to support requirements for the remainder of 1997.
New Accounting Standards
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In February 1997, the Financial Accounting Standards Board (the "Board") issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("FAS 128"), which replaces the presentation of primary and fully diluted
earnings per share ("EPS") with basic and diluted EPS, respectively. FAS 128
simplifies the standards for computing earnings per share and makes them
comparable to international EPS standards. It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator
of the diluted EPS computation.
The company must adopt this Statement in the fourth quarter of 1997. Pro forma
basic and diluted EPS were both $.23 for the quarter ended October 4, 1997 and
$.43 for the quarter ended September 28, 1996. Pro forma basic and diluted EPS
were both $.10 for the nine months ended October 4, 1997 and $.25 for the nine
months ended September 28, 1996.
In June 1997, the Board issued FAS 130, "Reporting Comprehensive Income". This
Statement requires that changes in the amounts of comprehensive income items,
which are currently reported as separate components of equity, be shown in a
financial statement, displayed as prominently as other financial statements.
The common components of other comprehensive income would include foreign
currency translation adjustments, minimum pension liability adjustments and/or
unrealized gains or losses on available-for-sale securities. The Statement
does not require a specific format for the financial statement in which
comprehensive income is reported, but does require that an amount representing
total comprehensive income be reported in that statement.
This Statement is effective for the company in fiscal 1998; however, management
has not yet completed its assessment of the manner in which comprehensive
income might be displayed.
In June 1997, the Board issued FAS 131, "Disclosures about Segments of an
Enterprise and Related Information". This Statement will change the way the
company reports information about segments of their business in their annual
financial statements and requires the company to report selected segment
information in their quarterly reports issued to shareholders. It also
requires entity-wide disclosures about the products and services an entity
provides, the material countries in which it holds assets and reports
revenues, and its major customers. The Statement requires the company
disclose segment data based on how management makes decisions about
allocating resources to segments and measuring their performance.
This Statement is effective for the company in fiscal 1998; however,
management has not yet completed its assessment of how this statement
impacts existing segment disclosure.
TULTEX CORPORATION
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits
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10.9 Amendment, consent and waiver relating to the $187
million credit facility, dated November 14, 1997.
(b) Reports on Form 8-K
-------------------
None
Items 1, 2, 3, 4 and 5 are inapplicable and are omitted.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned
thereunto duly authorized.
TULTEX CORPORATION
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(Registrant)
Date November 18, 1997 /s/ C. W. Davies, Jr.
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C. W. Davies, Jr., President and Chief
Executive Officer
Date November 18, 1997 /s/ S. H. Wood
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Suzanne H. Wood,
Vice President and Chief Financial Officer