UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended October 30, 1994
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-9474
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FORSTMANN & COMPANY, INC.
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(Exact name of registrant as specified in its charter)
GEORGIA 58-1651326
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1185 Avenue of the Americas, New York, N.Y. 10036
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 642-6900
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of class)
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
State the aggregate market value of the voting stock held by non-
affiliates of the registrant. The aggregate market value shall be computed by
reference to the price at which the stock was sold, or the average bid and asked
prices of such stock, as of a specified date within 60 days prior to the date of
filing. Approximately $33,712,800 based on the published closing price
($6.00) on the NASDAQ National Market System on January 26, 1995.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
As of January 26, 1995 - 5,618,800 shares of Common Stock
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's definitive proxy statement to be mailed
to shareholders in connection with the registrant's April 4, 1995 Annual Meeting
of Shareholders are incorporated by reference into Part III hereof.
Item 1. BUSINESS
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General
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Forstmann & Company, Inc., a Georgia corporation (the "Company" or
"Forstmann"), is a leading designer, marketer and manufacturer of innovative,
high quality fabrics which are used primarily in the production of brand-name
and private label apparel for men and women. Forstmann's fabrics are used in
suits, dresses, sportwear, trousers, sportcoats and outerwear made by some of
the world's leading apparel manufacturers. The Company also produces
specialty fabrics for use in billiard and gaming tables, sports caps and
career uniforms. The Company's customers are demanding increasingly high
levels of service and innovation from their suppliers. To create fabrics to
meet shifting consumer tastes and stringent product specifications, the
Company works in partnership with its customers through extensive product
development and design efforts. To support its customer-oriented marketing
strategy, the Company's manufacturing operations are designed to accommodate
relatively short production runs of these customized fabrics. The Company
manufactures fabrics produced from 100% wool and wool blends and, recently,
of blends of other natural and man-made fibers. The Company believes that it
is the largest manufacturer of domestically produced woolen fabrics and the
second largest manufacturer of domestically produced worsted fabrics.
During the Company's 1994 fiscal year (the fifty-two week period from
November 1, 1993 through October 30, 1994) ("Fiscal Year 1994"), womenswear
and outerwear fabrics accounted for approximately 64.0% of revenues and
menswear fabrics accounted for approximately 28.5% of revenues. Specialty
fabrics, including government and other, accounted for its remaining
revenues.
Although Forstmann was incorporated in December 1985, its predecessors
have been in business for over 100 years. The Company is the successor to the
business of the Woolen and Worsted Fabrics Division of J.P. Stevens & Co.,
Inc., the assets of which the Company acquired in February 1986.
The principal executive offices of the Company are located at 1185
Avenue of the Americas, New York, New York 10036, and its telephone number is
(212) 642-6900.
Significant Events
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The 1992 Recapitalization
During fiscal year 1992, the Company completed a restructuring and
recapitalization (the "1992 Recapitalization") whereby the Company (a) merged
with an affiliated company (the "Merger"), which resulted in each issued and
outstanding share of the Company's common stock and non-voting common stock
prior to the Merger (except with respect to the shares held by dissenting
shareholders. See Item 3. Legal Proceedings) being converted into 1/2,172 of
an identical share of common stock of the Company without any payment or
other consideration in respect thereof (the "Reverse Stock Split"), (b)
accepted $46,240,100 aggregate face amount of the Split Coupon Notes in
exchange for $19,596,758 cash and 2,420,904 unregistered shares of the
Company's common stock (the "Exchange Offer"), (c) completed an initial
public offering and sold 2,750,000 shares of common stock at $8.37 net per
share (the "Public Offering"), and (d) received from Odyssey $3,712,500 of
the cash consideration Odyssey had received in the Exchange Offer as the
purchase price for 412,500 unregistered shares of the Company's common stock.
In connection with the Exchange Offer, in March 1992, the Company agreed that
it would not exercise its rights of optional redemption with respect to the
14-3/4% Senior Subordinated Notes and Split Coupon Notes due April 1999
(collectively, the "Subordinated Notes"). The 1992 Recapitalization reduced
the Company's long-term indebtedness by $46.2 million (see Note 14 to the
Financial Statements included in Item 8. of this Annual Report on Form 10-K).
2
Quasi Reorganization
The Company, with approval from its Board of Directors, revalued its
assets and liabilities to fair value as of the beginning of the Company's
1993 fiscal year (the fifty-two week period from November 2, 1992 through
October 31, 1993) ("Fiscal Year 1993") pursuant to the principles of quasi-
reorganization accounting (the "Quasi Reorganization"), which is a voluntary
accounting procedure that permits an entity which has emerged from previous
financial difficulty to restate its accounts to estimated fair values and to
eliminate its retained deficit against additional paid-in capital. Quasi
Reorganization fair value adjustments recorded during Fiscal Year 1993
resulted in a writedown of the Company's net assets of $22.5 million that was
charged to the Company's retained deficit account. Subsequent to the fair
value adjustments, the balance in the Company's retained deficit account of
$59.6 million was eliminated against the Company's additional paid-in capital
account. The fair value adjustments of the Quasi Reorganization had the
effect of reducing shareholders' equity from $51.1 million to $28.6 million
as of the beginning of Fiscal Year 1993.
At the effective date of the Quasi Reorganization, the Company had
certain unresolved contingencies related to specific environmental matters
and litigation with certain dissenting shareholders (the "Dissenters'
Proceeding") (see Item 3. Legal Proceedings). In accordance with the
principles of quasi-reorganization accounting, the difference between the
actual costs subsequently incurred to resolve these matters and the
liabilities recorded at the time of the Quasi Reorganization will be charged
or credited to additional paid-in capital, as appropriate. During Fiscal
Year 1994, $206,000 (net of income taxes) and $1,788,000 related to the
environmental matters and Dissenters' Proceeding, respectively, were charged
to additional paid-in capital as adjustments to the amounts initially
recorded in the Quasi Reorganization (see Note 14 to the Financial Statements
included in Item 8. of this Annual Report on Form 10-K).
Other Financing Events
The Company, as of October 30, 1992, entered into a five-year, $100
million senior secured credit facility with General Electric Capital
Corporation ("GECC"), as agent and lender (the "GECC Facility"). The GECC
Facility consisted of a $15 million term loan (the "Original Term Loan") and
an $85 million revolving line of credit (the "Revolving Line of Credit"). In
April 1993, the Original Term Loan was prepaid in full. The initial
borrowing under the GECC Facility, on November 13, 1992, repaid the Company's
then existing $85 million senior secured credit facility, which was scheduled
to expire in November 1994, and secured then outstanding letters of credit.
See "Financing Arrangements -- GECC Facility".
On April 5, 1993, the Company issued an aggregate of $20 million Senior
Secured Notes (the "Original Senior Secured Notes") and on March 30, 1994,
the Company issued an aggregate of $10 million Senior Secured Notes (the
"Additional Senior Secured Notes"), all of which are due October 30, 1997
(collectively the "Senior Secured Notes"). The net proceeds from the
Original Senior Secured Notes were used to repay the Original Term Loan and
to repay a portion of borrowings outstanding under the Revolving Line of
Credit. The net proceeds from the Additional Senior Secured Notes were used
to repay a portion of the borrowings outstanding under the Revolving Line of
Credit. The Senior Secured Notes were issued pursuant to an indenture, dated
April 5, 1993, which was amended and restated as of March 30, 1994 between
the Company and Shawmut Bank Connecticut, National Association, as trustee
(the "Senior Secured Notes Indenture"). See "Financing Arrangements --
Senior Secured Notes".
3
Subsequent to Fiscal Year 1994 certain financial covenants under the
GECC Facility, the Indenture to the Senior Secured Notes and the CIT
Equipment Facility (see Financing Arrangements -CIT Equipment Facility) were
further amended, in part to reflect the effect of rising interest rates,
final settlement of claims with the Company's remaining dissenting
shareholders as discussed in Item 3. Legal Proceeding -- Dissenters'
Proceedings and the additional debt the Company incurred to fund higher
working capital needs and capital expenditures. Also, the GECC Facility was
further amended to provide the $7.5 million Term Loan and the CIT Equipment
Facility (hereinafter defined) was amended to provide for up to $5.0 million
of additional equipment financing. In January 1995, the Company borrowed
$7.5 million under the Term Loan, the proceeds of which were used to repay
outstanding borrowings under the Revolving Line of Credit.
Description of Business
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MARKETS AND PRODUCTS. Forstmann fulfills many of the diverse fabric needs of
leading men's, women's and outerwear apparel makers by offering a collection
of wool, wool-blend, synthetic and synthetic-blend fabrics, as well as
fabrics blended with natural fibers such as linen, cotton and silk. These
fabrics are offered in a wide variety of styles, colors, weaves and weights
which can be used in tailored clothing, sportswear, coats for men and women,
as well as for specialty applications. The Company introduces new
collections throughout the year to ensure that its customers are frequently
exposed to the latest fabric offerings and to accommodate seasonal retail
cycles. This has resulted in stronger, year-round customer relationships and
more balanced manufacturing.
Womenswear and Outerwear. The Company designs, markets and manufactures
woolen and worsted fabrics for women's apparel in the moderate, better and
bridge price range for sportswear, suits and dresses, as well as for women's
outerwear. The fabric selection for women's apparel includes traditional
fabrics, such as 100% wool gabardines, crepes and 100% wool flannels, meltons
and velours, as well as additional fabrics made from 100% viscose and blends
of wool/nylon, wool/viscose, and viscose/linen. These additional fabrics
enable the Company to serve its womenswear customers year-round. The Company
is a dominant supplier of outerwear fabrics for women's woolen coats. In
Fiscal Year 1994, womenswear and outerwear accounted for 64.0% of total
revenue.
Menswear. The Company designs, markets and manufactures fabrics in the
moderate and better price range for men's apparel such as suits, sportcoats,
blazers, trousers and formal wear. The fabric selection includes traditional
fabrics, such as tropicals, gabardines and flannels in wool and wool blends,
as well as fabrics made from wool, man-made fibers such as viscose and
polyester and natural fibers such as silk, linen and cotton. These fabrics
have allowed the Company to expand from its traditional base of tailored
clothing manufacturers to new areas such as suit separates, casual sportswear
and weekend wear. In Fiscal Year 1994, menswear accounted for 28.5% of total
revenue.
Specialty Fabrics. The Company produces specialty fabrics for a wide
variety of end uses, including billiard and gaming tables, sports caps and
school uniforms. The Company is a leading billiard table fabric manufacturer
in the United States, selling directly to manufacturers and distributors. In
addition, during fiscal year 1992, the Company began distributing billiard
table fabric in Europe. The Company also is the sole supplier of wool fabric
used in the production of official major league baseball caps for on-field
play. Recently the Company has begun marketing career uniform apparel
designed to meet stringent requirements for comfort and durability and, in
some cases, washability. Although specialty fabrics currently represent a
small portion of total revenues, the Company considers its initiatives in the
specialty fabrics division important to its overall strategy of product
diversification and innovation.
4
Forstmann International. In July 1992, the Company formed its Forstmann
International division and entered into a licensing, technical information
and consulting arrangement with Compagnia Tessile, S.p.A., an Italian
corporation, and its affiliate. Under the arrangement, the Company has the
exclusive right to sell "Carpini/TM/ USA" fabrics for men's and women's
apparel in the United States, Canada and nonexclusive rights in Mexico for an
initial period of five years. These high quality fabrics, styled in Italy and
manufactured in Georgia, are marketed through a specialized sales force to
the designer and bridge apparel markets in North America. Additionally, the
Company imports certain fabrics from Carpini and its affiliate which the
Company markets in the United States and Canada.
MERCHANDISING AND MARKETING. The Company's merchandising and marketing
functions are integrated and include both the conceptualization
(merchandising) and the sale (marketing) of the product line. The Company's
merchandising and marketing functions are directed from its New York office
and are organized around the Company's three customer end-use divisions.
MANUFACTURING. The Company's vertically integrated facilities (which perform
operations beginning with opening, blending and spinning raw stock into yarn
through weaving, to dyeing and finishing fabric) enable the Company to
produce, in addition to woolens and worsteds, a wide variety of other natural
and synthetic-blend fabrics. The Company is the only major United States
mill which produces fabrics on both the woolen and worsted systems.
Woolen fabrics, such as flannels, are woven from yarns containing short,
unstraightened wool fibers which remain in a haphazard arrangement, creating
a "fuzzy" appearance. Worsted fabrics, such as gabardine and serge, are
woven from yarns composed of longer wool fibers that have been combed to
align the fibers in parallel and to remove shorter fibers.
For the production of woolen yarns, the Company purchases scoured
(cleansed and degreased) wool, which is then blended and carded to remove
impurities, disentangle locks and straighten individual fibers. The carded
wool is then spun into woolen yarn. To produce worsted yarns, the Company
purchases combed wool top, which is pin-drafted and straightened to produce
long staple wool fibers spun into worsted yarn. Polyester or other synthetic
fibers are, sometimes, combined with wool in the spinning process to produce
a variety of woolen and worsted blends.
Woolen, worsted or wool-blend yarns are woven to produce either greige
or patterned fabrics. Other yarns, such as viscose, linen, silk, polyester
or cotton (all of which the Company purchases from outside suppliers), are
sometimes woven directly into non-wool fabrics or combined with woolen or
worsted yarn.
After weaving, most fabric is piece-dyed and finished to impart the
desired color and feel (or "hand") to the fabric. Fabrics woven, dyed and
finished in this manner are referred to as "plain" fabrics. Multicolored
patterned fabrics, known as "fancy" fabrics, are woven from colored yarns
which are dyed by the Company either as scoured wool prior to spinning or in
packages of spun yarn. As with piece-dyed fabrics, fancy fabrics go through
various finishing processes to achieve the appropriate "hand" or feel.
The Company maintains a physical testing laboratory to ensure product
quality from blending through finishing. In addition, all fabrics go through
multiple cleaning stages and a final quality inspection prior to packaging
and shipping.
The Company's facilities are sufficiently flexible to allow the Company
to perform both short and long runs of all types of fabrics it produces.
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Carpini is a trademark of Carpini S.r.l.
5
CAPITAL INVESTMENT PROGRAM. During fiscal year 1992, the Company established
a six-year, $100 million capital investment program. This program is
designed to (i) reduce manufacturing costs, (ii) enhance product quality,
(iii) provide greater manufacturing flexibility while maintaining operating
efficiencies, (iv) improve the Company's technical capabilities to provide
new blends, styles and colors of fabrics to be offered. Through the end of
Fiscal Year 1994, the Company has made capital expenditures (including
capital leased assets) of $42.3 million in connection with this program and
entered into certain operating leases associated with machinery and
equipment, constituting approximately one-half of its capital investment
program. When completed, these investments will cover virtually every phase
of the Company's manufacturing operations, from yarn manufacturing to weaving
to fabric dyeing and finishing. The Company believes that the program will
improve productivity and produce savings in the areas of labor, energy, raw
material usage and asset maintenance. In light of increasing interest rates,
as well as increased borrowings to fund its working capital needs, the
Company is reassessing the timing of its capital investment program. The
Company expects spending for capital expenditures, primarily machinery and
equipment, in fiscal year 1995 to be slightly less than Fiscal Year 1994.
The Company has allocated approximately 35% of its planned expenditures
to the yarn-making process, in which major projects include updating fiber-
blending systems and modernizing spinning, card condenser and winding
equipment. Approximately 22% of its planned expenditures will be in the area
of weaving, in which major projects will include adding rapier looms.
Approximately 28% of its planned expenditures will be in the area of dyeing
and finishing, in which major projects will include adding a computerized dye
house formula and control process and dyeing equipment that is highly
flexible in batch size. The remaining planned expenditures will be for
management information systems and facilities. During Fiscal Year 1994, the
Company spent approximately $15.0 million on capital improvements, including
the modernization of certain bin blending and yarn-handling equipment and the
addition of certain yarn-making, dyeing and finishing equipment.
RAW MATERIALS. The Company's raw material costs constituted approximately
31% of its cost of goods sold during Fiscal Year 1994. The primary raw
material used by the Company is wool. As a result, the Company's costs are
dependent on its ability to manage its wool inventory and control its wool
costs. Approximately two-thirds of the Company's wool is imported from
Australia and substantially all of the balance is purchased in the United
States. The Company purchases its wool from brokers and is not dependent on
a single supply source. The Company's foreign wool purchases are denominated
in U.S. dollars and the Company generally does not incur any currency
exchange risk. However, future changes in the relative exchange rates
between United States and Australian dollars can materially affect the
Company's results of operations for financial reporting purposes. Much of
the Company's wool is purchased on extended payment terms. Recently, the
cost of certain raw wool categories sourced from Australia has risen
significantly, and a drought in Australia which has resulted in a reduction
in sheep herds indicates that such costs will continue to increase in the
near future. Based on the Company's forward purchase commitments and wool
market trends, the Company expects wool costs to increase significantly in
fiscal year 1995.
CUSTOMERS. The Company has more than 571 active customers. In Fiscal Year
1994, no single customer accounted for 10% or more of the Company's revenues.
Substantially all of the Company's customers are located within the
United States. During each of fiscal year 1992, Fiscal Year 1993 and Fiscal
Year 1994, less than two percent of the Company's revenues arose from non-
United States sales. In late 1994, a key executive was designated to create
and implement a plan to develop international sales of Forstmann's products.
Initially the Company will focus on developing export sales of its woolen
products to Western Europe, Japan and Pacific Rim countries.
6
BACKLOG. The Company's sales order backlog at January 1, 1995 was $61.3
million, a decrease of $12.0 million from the comparable period one year ago.
Excluding government orders, which yield lower gross profit margins, the
backlog at January 1, 1995 was $8.5 million less than the comparable period
one year ago. The decline in the backlog, excluding government orders, is
attributable to a decline in orders for women's outerwear, which was somewhat
offset by increases in orders for menswear, specialty, converted and Carpini
USA fabrics. The Company believes that the decline in orders for women's
outerwear is due to the exceptionally warm temperatures registered across the
country in the fall and early winter. Although the Company expects the
effects of the warmer weather, which depressed retail sales of women's
outerwear, to somewhat reverse itself during fiscal year 1995, there can be
no assurance that such will occur. Sales of women's outerwear represented
approximately 22% of net sales for Fiscal Year 1994. All of such backlog is
expected to be filled during the current fiscal year.
SEASONALITY. The wool fabric business is seasonal, with the vast majority of
orders placed from December through April for manufacture and shipment from
February through July to enable apparel manufacturers to produce apparel for
retail sale during the fall and winter seasons. As a result of normal
payment terms for sale of such fabrics, the Company receives the major
portion of its payments thereon during July through October. The Company's
worsted fabrics sales tend to be less seasonal because the lighter weight of
such fabrics makes them suitable for retail sale in the spring and summer
seasons as well as in the fall and winter seasons. The Company continues to
develop and implement an aggressive marketing plan for the sale of blended
fabrics and synthetics, which tend to be less seasonal.
COMPETITION. The textile business in the United States is highly competitive
and the Company competes with many other textile companies, some of which are
larger and have greater resources than the Company.
The Company believes that it is the largest domestic manufacturer of
woolen fabrics and the second largest domestic manufacturer of worsted
fabrics. The Company's principal competitors in the sale of woolen fabrics
are Warshaw Woolen Associates, Inc. and Carleton Woolen Mills, Inc., and its
principal competitors in the sale of worsted fabrics are Burlington
Industries Equity Inc. and The Worcester Company, Inc. The Company believes
that the principal competitive factors are fashion, quality, price and
service, with the significance of each factor depending upon the product
involved. The competitive position of the Company varies among the different
fabrics it manufactures. The Company believes that its competitive
advantages include its broad range of products, its ability to respond
effectively to changing customer demands and its ability to deliver products
in a timely manner.
Currently, imports of foreign-manufactured woolen and worsted
fabrics face strict quotas and high import duties upon entering the United
States. During calendar year 1993, imports of wool fabrics into the United
States increased approximately 4.9% from calendar year 1992. The Company
believes that such imports did not have a significant impact on its business
since such imports were primarily of fabrics which normally are marketed in
price ranges and are of a quality which are not within the price and quality
ranges of the Company's fabrics.
Two major trading agreements evolved during the last year which,
when implemented, are expected to have an impact on Forstmann's operations.
The North American Free Trade Agreement ("NAFTA"), which became effective on
January 1, 1994, is expected to have a long-term positive effect on the
Company's growth. The Company believes that an increasing percentage of
foreign-produced garments for sale in the United States, Canada and Mexico
will be manufactured in Mexico, as compared to the Far East. In order for
such garments to qualify for duty-free treatment into the United States and
Canada, the fabric has to be sourced from the United States, Canada or
Mexico. With limited wool fabric production capacity currently in Mexico and
Canada, this requirement represents a major opportunity for woolen mills in
the United States. The General Agreement on Trade and Tariffs ("GATT"),
reduces tariffs on wool fabric from about one third, to 25%, over a ten-year
period. In exchange for the tariff reduction, market access for products
manufactured in the United States to countries that are parties to GATT is
improved.
7
The Company believes that, overall, GATT will enable the Company to compete
more effectively in the world market, thereby offsetting the effect of the
tariff reductions.
TRADEMARKS. The Company owns the Forstmann (R) name, which it uses as a
trade name, as a trademark in connection with various merchandise, and as a
service mark. The Company owns rights to various trademarks registered in
the United States used in connection with its business and products,
including Forstmann(R), Fast Forward(R), Casuwools(R) and Formula One(R).
The Forstmann name is registered in various countries, including Austria,
Australia, the Benelux countries, Canada, Denmark, France, Germany, Hong
Kong, Ireland, Japan, Switzerland and the United Kingdom, under International
Class 24. In addition, the Company has applied to register the Forstmann
name in various countries, including Indonesia, Italy, Norway, Portugal,
Spain and Sweden. The Company believes that no individual trademark or trade
name, other than Forstmann(R), is material to the Company's business.
EMPLOYEES. As of January 1, 1995, the Company employed approximately 2,450
hourly-paid, full-time skilled personnel at its plants and approximately 440
additional salaried, supervisory, management and administrative employees.
None of the Company's employees is represented by a union or a labor
organization. The Company has never experienced a strike and believes that
its relations with its employees are good.
EXECUTIVE OFFICERS OF THE REGISTRANT
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The executive officers of the Company are:
Position with the
Name Age Company
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Christopher L. Schaller 53 Chairman of the Board
of Directors, President and
Chief Executive Officer
William B. Towne 50 Executive Vice President
and Chief Financial Officer
Fred D. Matheson 47 Executive Vice President--
Manufacturing
Richard Pactor 57 Executive Vice President--
Product Development
and President of the
Forstmann International division
Peter Roaman 44 Executive Vice President--
Marketing and Styling
Rodney J. Peckham 39 Vice President and Treasurer
Jane S. Pollack 49 Vice President, Secretary and
General Counsel
Gary E. Schafer 43 Vice President and Corporate
Controller
8
The business experience of each of the executive officers during the past
five years is as follows:
Christopher L. Schaller joined the Company in April 1990 as President and
Chief Operating Officer, at which time he was also elected a director. Mr.
Schaller became Chief Executive Officer in October 1990 and Chairman of the
Board of Directors in March 1992. From 1988 until joining the Company, Mr.
Schaller was President of the Apparel Fabrics Division of WestPoint Stevens,
Inc. (a textile manufacturer).
William B. Towne joined the Company in June 1990 as Vice President and
Chief Financial Officer. He also served as Treasurer from June 1990 to
November 1990, and in March 1991, Mr. Towne was elected an Executive Vice
President. Prior to joining the Company, Mr. Towne served with Tambrands,
Ltd. (a manufacturer of consumer products), as Chief Financial Officer and
Director of Finance-Europe from 1989 to June 1990.
Fred D. Matheson joined the Company in October 1990 as Executive Vice
President--Manufacturing. Prior thereto, Mr. Matheson served with Fieldcrest
Cannon Inc. (a manufacturer of consumer textiles and consumer products), as
Executive Vice President.
Richard Pactor joined the Company in December 1988 as Executive Vice
President--Product Development, and was named President of the Forstmann
International division in July 1992.
Peter Roaman joined the Company in June 1989 as Vice President--
Womenswear and was elected Senior Vice President--Marketing in December 1990
and Executive Vice President--Marketing and Styling in July 1991.
Jane S. Pollack joined the Company in May 1993 as Vice President and
General Counsel and was elected Secretary in September 1993. Prior thereto,
Ms. Pollack was Associate General Counsel and Assistant Secretary of Athlone
Industries, Inc. (a manufacturer of specialty steels and consumer products).
Rodney J. Peckham was elected a Vice President of the Company in January
1991 and Treasurer in March 1992. From August 1986 until he became
Treasurer, Mr. Peckham was Corporate Controller, and from December 1992 to
September 1993 he also served as Secretary.
Gary E. Schafer was elected Vice President and Corporate Controller of
the Company in March 1992. In 1990, when Mr. Schafer joined the Company, he
served as Director of Cost Accounting. Prior thereto, Mr. Schafer was Chief
Financial Officer of Racal-Milgo Skynetworks (a telecommunications company).
9
ENVIRONMENTAL MATTERS. By the nature of its operations, the Company's
manufacturing facilities are subject to various federal, state and local
environmental laws and regulations, including the Clean Air Act, the Clean
Water Act, the Resource Conservation and Recovery Act and the Comprehensive
Environmental Response, Compensation and Liability Act. Although the Company
occasionally has been subject to proceedings and orders pertaining to
emissions into the environment, the Company believes that it is in
substantial compliance with existing environmental laws and regulations.
Pursuant to Georgia's Hazardous Site Response Act (the "Response Act"),
property owners in Georgia were required to notify the Environmental
Protection Division of the Georgia Department of Natural Resources (the
"GDNR") of known releases of regulated substances on their properties above
certain levels by March 22, 1994. Pursuant to the Response Act, the Company
notified the GDNR of two releases at the Dublin facility, one relating to the
presence of trichloroethylene at the site, and one relating to another
constituent near the southern property boundary. Based upon the Company's
March 1994 notification, the GDNR has determined that a release exceeding a
reportable quantity has occurred at the site. As a result, the site has been
listed on the Georgia Hazardous Site Inventory ("HSI"), which currently
consists of 277 other sites. The Company has also recently notified the GDNR
of another possible release near the western property boundary of the Dublin
facility, asserting vigorously that this release should not be listed on the
HSI. This release was identified by the Company through the sampling
procedures in connection with the Company's environmental remediation plan
submitted to the GDNR in May 1992. The GDNR intends to evaluate the sites on
the HSI to determine which sites need corrective action. The GDNR has
finalized procedures for determining corrective action levels under the
Response Act. In January 1995, the GDNR notified the Company that, pursuant
to the Response Act, the Company is required to submit a compliance status
report and compliance status certification with respect to the site by June
30, 1995. The GDNR has also informed the Company of its obligation to
identify all other potentially responsible parties, and, in compliance
therewith, the Company plans to identify the prior owner and operator of the
Dublin facility.
The Company believes that, based on its review and after meetings with
counsel and engineering specialists, no material liability, in excess of
amounts already recorded by the Company will result from this matter.
However, depending upon how the GDNR will implement its new corrective action
regulations, the remedial expenditures required, in the aggregate, could be
material.
Financing Arrangements
----------------------
The Company's long-term debt as of October 30, 1994, consists of
indebtedness outstanding under the GECC Facility, the Senior Secured Notes,
the CIT Equipment Facility (hereinafter defined), the capital lease
obligations and the Subordinated Notes. (See Note 7 to the Financial
Statements included in Item 8. of this Annual Report on Form 10-K.)
GECC FACILITY. The Company entered into the GECC Facility as of October
30, 1992, for borrowings of up to $100 million. Subject to certain borrowing
base limitations, the GECC Facility provides for a maximum available non-
amortizing Revolving Line of Credit (which includes a $7.5 million letter of
credit facility) of $85 million and had a term loan of $15 million (the
"Original Term Loan"). On April 5, 1993, the Company issued the Senior
Secured Notes in the aggregate principal amount of $20 million and prepaid in
full the Original Term Loan. In January 1995, the GECC Facility was amended,
subject to loan availability to provide the $7.5 million Term Loan. In
January 1995, the Company borrowed $7.5 million under the Term Loan, the
proceeds of which were used to repay a portion of outstanding borrowings
under the Revolving Line of Credit.
SENIOR SECURED NOTES. On April 5, 1993, the Company issued an aggregate
of $20 million Senior Secured Notes. On March 30, 1994, the Company issued
the Additional Senior Secured Notes in the aggregate principal amount of $10
million. The proceeds from the sale of the Senior Secured Notes were used to
repay the Original Term Loan and to reduce outstanding borrowings under the
Revolving Line of Credit.
CIT EQUIPMENT FACILITY. On December 27, 1991, the Company entered into a
loan and security agreement (as amended, the "CIT Equipment Facility") with
the CIT Group/Equipment Financing, Inc. ("CIT") to finance the acquisition
of, and to refinance borrowings incurred to acquire, various textile
machinery and equipment. CIT has made purchase money loans to the Company
pursuant to the CIT Equipment Facility in the principal amount of
10
$656,123 at an interest rate of 8.61% per annum on December 27, 1991, of
$1,262,595 at an interest rate of 7.86% per annum on September 15, 1992, of
$2,584,230 at an interest rate of 8.55% per annum on December 31, 1992, of
$1,209,995 at an interest rate of 7.75% per annum on August 2, 1993, of
$1,988,150 at an interest rate of 7.45% per annum on August 24, 1993, of
$1,653,137 at an interest rate of 7.36% per annum on October 22, 1993 and of
$1,113,005 at an interest rate of 7.74% per annum on December 29, 1993. The
Company is obligated to provide CIT with irrevocable letters of credit in an
amount equal to 25% of the original principal amount of each loan incurred
after August 1, 1993 through December 31, 1993, which requirement expires on
or after January 31, 1996. Subsequent to Fiscal Year 1994 the CIT Equipment
Facility was amended to provide for up to two additional loans not to exceed
an aggregate of $5.0 million of additional equipment financing equal to 80%
of the acquisition cost of machinery and equipment, net of all taxes,
freight, installation and certain other fees, costs and expenses. The
commitment period ends on July 31, 1995. On December 22, 1994, the Company
borrowed $2.5 million at an interest rate of 10.58%. The interest rate on the
remaining loan available under the CIT Equipment Facility is fixed at the
Treasury Rate (as defined) plus 287 basis points. Each loan under the CIT
Equipment Facility is payable in 60 monthly installments. The Company may
prepay all, but not less than all, of its loans under the CIT Equipment
Facility after July 1995, at a premium of 400 basis points, declining ratably
over the remaining loan term.
SUBORDINATED INDEBTEDNESS. In April 1989, through an underwritten public
offering, the Company sold $100 million of the Subordinated Notes which
currently have an interest rate until maturity of 14-3/4%. As of January 1,
1995, an aggregate of $100,000,000 face amount of the Subordinated Notes
were outstanding - an aggregate of $43,365,100 of which are owned by the
Company. The Subordinated Notes are subordinated to all existing senior
indebtedness of the Company (which currently consist of the loans under the
GECC Facility, the Senior Secured Notes and the CIT Equipment Facility) and
any extensions, modifications or refinancings thereof. The Subordinated
Notes Indenture limits, subject to certain financial tests, the incurrence of
additional indebtedness and prohibits the incurrence of any indebtedness
senior to the Subordinated Notes that is subordinated to the Company's then
existing senior indebtedness. The Subordinated Notes Indenture contains
restrictions relating to payment of dividends, the repurchase of capital
stock and the making of certain other restricted payments, certain
transactions with affiliates and subsidiaries, and certain mergers,
consolidations and sales of assets. In addition, the Subordinated Notes
Indenture requires the Company to make an offer to purchase (1) a portion of
the Subordinated Notes if (a) the Company's adjusted tangible net worth (as
defined) falls below $15 million at the end of any two consecutive fiscal
quarters or (b) the Company consummates an asset sale (as defined) at certain
times or (2) all of the Subordinated Notes if a change of control (as
defined) occurs. In connection with the Exchange Offer, the Company
acquired, and did not retire or cancel, $46,240,100 aggregate face amount of
the Subordinate Notes. The Company used $2,875,000 of such Subordinated
Notes to satisfy the January 31, 1993 mandatory redemption required in the
Subordinated Notes Indenture. The Company is required to redeem on April 15,
1998, $50.0 million of the aggregate face amount of the Subordinated Notes at
a redemption price equal to par, plus accrued interest to the redemption
date. The remaining Subordinated Notes are due on April 15, 1999. The
Company may use the remaining $43,365,100 of the Subordinated Notes acquired
in the Exchange Offer to satisfy partially the April 15, 1998 mandatory
redemption required in the Subordinated Notes Indenture.
11
Item 2. PROPERTIES
----------
Information regarding the Company's manufacturing facilities, all of
which are owned, is as follows:
Approximate
Square Feet of
Building Acreage
-------- --------------
Dublin Plant 363,000 295
Dublin, Georgia
Nathaniel Plant 313,000 *
Dublin, Georgia
Milledgeville Plant 580,000 141
Milledgeville, Georgia
Louisville Plant 153,000 393
Louisville, Georgia
Tifton Plant 244,000 99
Tifton, Georgia
* The Nathaniel plant adjoins the Dublin plant and is located on the same
property.
The Company owns a 24,000 square foot office building adjoining its
Dublin plant, which is used for administrative offices.
The Company leases approximately 29,470 square feet of office space at
1185 Avenue of the Americas, New York City (the "1185 Lease"), for its
principal executives offices, its styling, sales and marketing operations and
its Forstmann International division. Such lease will expire in October 1996
and the Company believes it has adequate time to obtain suitable premises
elsewhere.
The Company also leases storage facilities in Georgia and a regional
sales office in Dallas, Texas, primarily on a short-term basis.
The Company believes that its facilities are adequate to serve its
present needs and, with its planned capital expenditures, allow for expanded
future production. Substantially all of the Company's properties, plants and
equipment are encumbered by security interests under the GECC Facility and
the Senior Secured Notes Indenture. See "Business -- Financing Arrangements"
in Item 1 of this Annual Report on Form 10-K.
Item 3. LEGAL PROCEEDINGS
-----------------
The Company is a party to legal actions arising out of the ordinary
course of business. The Company has no material pending legal proceedings.
Dissenters' Proceeding
----------------------
As required under Georgia Statute O.C.G.A. (S)14-2-1330, the Company
commenced, on July 10, 1992, a civil action against: Resolution Trust
Corporation as receiver for Columbia Savings & Loan Association, F.A., (the
12
"RTC"); James E. Kjorlien; Gary M. Smith; Grace Brothers, Ltd.; The Henley
Group; Randall D. Smith, Jeffrey A. Smith and Russell B. Smith, as Trustees
for Lake Trust dtd 9/4/91; (the Non-RTC defendants) and the record owners of
the shares of the Non-RTC defendants (the "Dissenters' Proceeding"). The RTC
and Non-RTC defendants were record owners or beneficial holders of an
aggregate of 1,473,562 shares of the Company's then existing voting and non-
voting common stock (the "Pre-Merger Stock") who dissented from the Merger.
Under Georgia law, holders of the outstanding shares of Pre-Merger Stock who
were deemed to have dissented from the Merger became entitled to payment of
the "fair value" of their Pre-Merger Stock, determined as of a time
immediately before consummation of the Merger plus interest on that amount
from the date of the Merger.
In September 1994, the Company settled the claims of the RTC in exchange
for payment by the Company of $475,000 and the issuance of 30,000 shares of
the Company's common stock. In December 1994, in settlement of the remaining
claims, the Company paid the Non-RTC defendants $365,000. The action has
been dismissed and no claims remain pending in the Dissenters' Proceeding.
Item 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
--------------------------
During the fourth quarter of Fiscal Year 1994, no matters were submitted
by the Company to a vote of its shareholders.
13
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
-------------------------------------
The Company's Common Stock is traded on the NASDAQ National Market System
("NASDAQ-NMS"), the automated quotation system of The National Association of
Securities Dealers, Inc. (the "NASD") under the symbol "FSTM".
The following table sets forth the high and low sales prices for each
quarterly fiscal period of the Common Stock on the NASDAQ-NMS, as reported by
the NASD. These quotations represent prices between dealers, do not include
retail markup, markdown or commission and may not necessarily represent
actual transactions.
High Sales Price Low Sales Price
---------------- ---------------
Fiscal Year 1993
----------------
1st Fiscal Quarter
(November 2, 1992 through
January 31, 1993) $ 9-1/4 $ 5-1/2
2nd Fiscal Quarter
(February 1 through
May 2) 9-1/4 7
3rd Fiscal Quarter
(May 3 through
August 1) 9-1/4 7-1/4
4th Fiscal Quarter
(August 2 through
October 31) 11-1/2 8-1/4
Fiscal Year 1994
----------------
1st Fiscal Quarter
(November 1, 1993 through
January 30, 1994) 12 10-1/2
2nd Fiscal Quarter
(January 31 through
May 1) 12 9
3rd Fiscal Quarter
(May 2 through
July 31) 11-3/4 10-3/4
4th Fiscal Quarter
(August 1 through
October 30) 11-1/2 6-1/4
At December 31, 1994, the Company had 49 record holders of its Common
Stock, including CEDE & Co., the nominee of Depositary Trust Company, that
held 2,719,088 shares of Common Stock as nominee for an unknown number of
beneficial holders.
14
The Company has not paid, and has no present intention to pay in the
foreseeable future, any cash dividends in respect of its Common Stock. The GECC
Facility prohibits and the Senior Secured Notes Indenture and the Subordinated
Notes Indenture restrict the payment of cash dividends. The payment of future
cash dividends, if any, would be made only from assets legally available
therefor, and would generally depend on the Company's financial condition,
results of operations, current and anticipated capital requirements, plans for
expansion, if any, restrictions under its then existing credit and other debt
instruments and arrangements, and other factors deemed relevant by the Company's
Board of Directors, in its sole discretion.
15
Item 6. SELECTED FINANCIAL DATA
-----------------------
Presented below are selected operating statement data for the Company for the
fiscal years ended October 30, 1994, October 31, 1993, November 1, 1992, October
27, 1991 and October 28, 1990. Also presented are selected balance sheet data
for the Company as of October 30, 1994, October 31, 1993, November 1, 1992,
October 27, 1991 and October 28, 1990. The selected financial data have been
derived from the audited financial statements of the Company, are not covered by
the report of the Company's independent public accountants and should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Item 7 of this Annual Report on Form 10-K and the
Company's financial statements (and the related notes and schedules thereto) in
Item 8 of this Annual Report on Form 10-K.
FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED ENDED ENDED
OCTOBER 30, OCTOBER 31, NOVEMBER 1, OCTOBER 27, OCTOBER 28,
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
OPERATING STATEMENT DATA(1): (amounts in thousands, except per share and share information)
Net sales.......................................... $237,085 $233,365 $208,908 $194,622 $196,401
Gross profit....................................... 47,852 51,018 39,833 31,863 24,127
Operating income................................... 23,417 26,618/(2)/ 21,847 5,570/(2)/ 9,489
Income (loss) before income taxes and
extraordinary loss............................... 5,900 10,869 3,864 (15,584) (18,482)/(3)/
Income tax (provision) benefit..................... (2,331) (4,245) (5,690)/(4)/ 6,047 6,968
Income (loss) before extraordinary loss............ 3,569 6,624 (1,826) (9,537) (11,514)
Net income (loss).................................. 3,569 6,624 (3,005)/(5)/ (9,537) (11,514)
Income (loss) applicable to common shareholders.... 3,339 6,415 (3,245) (9,752) (16,107)
Per share and share information (pro forma as to
1992 and 1991)(6):
Income (loss) before extraordinary loss
applicable to common shareholders............. .60 1.15 .61 (1.08) /(7)/
Income (loss) applicable to common shareholders .60 1.15 .40 (1.08) /(7)/
Common shares outstanding...................... 5,592,022shs. 5,585,014shs. 5,585,014shs. 5,585,014shs. /(7)/
OTHER OPERATING DATA:
Income before interest, income taxes,
depreciation, amortization and loss from
abandoned property and other assets............... 37,066 37,946 32,583 26,271 20,422
Capital expenditures............................... 14,979 14,955 12,354 6,986 4,859
AS OF AS OF AS OF AS OF AS OF
OCTOBER 30, OCTOBER 31, NOVEMBER 1, OCTOBER 27, OCTOBER 28,
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA/(8)/: (amounts in thousands)
Current assets..................................... $140,801 $130,172 $123,626 $112,519 $ 99,394
Property, plant and equipment, net of accumulated
depreciation and amortization.................... 79,479 76,521 92,231 89,974 98,496
Total assets....................................... 229,256 215,567 223,424 209,027 207,113
Long-term debt..................................... 155,597 136,038 115,705 156,593 151,636
Old Senior Preferred Stock......................... 0 0 0 0 31,817
Senior Preferred Stock, redeemable................. 2,425 2,195 4,930 4,690 0
Shareholders' equity (deficiency).................. 35,836 33,890 51,083 8,337 (14,095)
- ----------
Notes to Operating Statement Data and Balance Sheet Data next page.
16
(1) The year ended November 1, 1992 ("Fiscal Year 1992") consists of a 53
week period. The years ended October 30, 1994 ("Fiscal Year 1994"),
October 31, 1993 ("Fiscal Year 1993"), October 27, 1991 ("Fiscal Year
1991") and October 28, 1990 ("Fiscal Year 1990") consist of 52 week
periods. No cash dividends on the Common Stock were paid during any of
the foregoing periods.
(2) After taking into account a $9.2 million provision in Fiscal Year 1991
and a $1.0 million provision in Fiscal Year 1993 for a non-cash loss from
abandonment, disposal and impairment of machinery and equipment and other
assets to reflect their remaining future economic value.
(3) Includes $4.6 million debt restructuring and recapitalization expenses
incurred in connection with the 1990 Recapitalization.
(4) The Company recorded a net deferred income tax expense of $4.2 million
primarily to reflect previously recognized income tax benefits.
(5) After taking into account an extraordinary loss of $1.2 million, net of
income tax benefit, resulting from a debt refinancing.
(6) The per share and share information for Fiscal Year 1992 and Fiscal Year
1991 is presented on a pro forma basis to give effect to the transactions
described in Note 12 to the Financial Statements included in Item 8 of
this Annual Report on Form 10-K, as if such transactions occurred at the
beginning of Fiscal Year 1991 and as if such transactions were effected
as a recapitalization of the Company. The per share information for
Fiscal Year 1994 and 1993 is actual.
(7) As a result of the complexity of the 1990 Recapitalization, pro forma
information for Fiscal Year 1990 has not been included, since such
information would not provide a meaningful comparison to the subsequent
periods.
(8) The Company revalued its assets and liabilities to fair value as of the
beginning of Fiscal Year 1993 pursuant to the principles of quasi-
reorganization accounting as more fully described in Note 14 to the
Financial Statements included in Item 8 of this Annual Report on Form
10-K.
17
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
---------------------------------------------------------------
Results of Operations
---------------------
The Fifty-Two Week Period Ended October 30, 1994 ("Fiscal Year 1994")
compared to the Fifty-Two Week Period ended October 31, 1993 ("Fiscal Year
1993")
Net sales for Fiscal Year 1994 were $237.1 million, an increase of less
than 2% from Fiscal Year 1993. Total yards of fabric sold decreased 1%
during Fiscal Year 1994. The increase in sales is attributable primarily to
an increase in the sale of menswear fabrics which the Company believes is the
result of focusing the menswear product line on specific market niches over
the last two years. A decline in the sale of womenswear fabrics somewhat
offset the increase in the sale of menswear fabrics. Womenswear fabric sales
declined due to an over-ordering of certain wool fabrics by the Company's
customers in Fiscal Year 1993 which was somewhat offset by a shift from
woolen to worsted fabrics due to changing fashion trends in Fiscal Year 1994.
Excluding government sales ($2.9 million in Fiscal Year 1994 and $0.1 million
in Fiscal Year 1993) which traditionally yield lower gross profit margins,
net sales for Fiscal Year 1994 increased less than 0.5% from Fiscal Year
1993.
Cost of goods sold increased to $189.2 million from $182.3 million in
Fiscal Year 1993. Gross profit decreased 6.2% in Fiscal Year 1994 to $47.9
million, and gross profit margin for Fiscal Year 1994 was 20.2% compared to
21.9% for Fiscal Year 1993. Production of certain fabrics and related yarns,
particularly during the fourth quarter of Fiscal Year 1994, was slowed in
response to the decline in womenswear fabrics. The lowering of production,
its resultant lower absorption of manufacturing costs, as well as an
unusually high increase in healthcare claims and workers' compensation
expenses, adversely effected gross profit for the year. Fiscal Year 1994 and
Fiscal Year 1993 include the effects of the Company's Quasi Reorganization
(hereinafter defined) which was effected as of the beginning of Fiscal Year
1993.
Selling, general and administrative expenses, excluding the provision for
uncollectible accounts, increased 7.6% to $22.4 million in Fiscal Year 1994,
compared to $20.7 million in Fiscal Year 1993. Human resources related
expenses increased $0.3 million during Fiscal Year 1994 due to the hiring of
personnel for marketing and in-house legal counsel and the lowering of the
assumed discount rate used to measure the accumulated benefit obligation for
the Company's hourly and salaried pension plans under SFAS No. 87,
"Employers' Accounting for Pensions," as of the end of Fiscal Year 1993. The
increase in human resources related expenses was partially offset by a $1.0
million decline in incentive compensation expense in Fiscal Year 1994. Due
to the modernization and computerization of the Company's styling, sales and
marketing operations in New York, coupled with other computer equipment
upgrades, facility, depreciation and amortization expenses were higher in
Fiscal Year 1994 than in the Fiscal Year 1993. During the fourth quarter of
Fiscal Year 1994, approximately $0.3 million in costs associated with
potential acquisitions were expensed as such potential acquisitions did not
materialize.
The provision for uncollectible accounts declined from $2.7 million in
Fiscal Year 1993 to $2.2 million in Fiscal Year 1994. The provision for
uncollectible accounts in Fiscal Year 1993 includes the effect of several of
the Company's customers filing for protection under the Federal Bankruptcy
Code, which customers, at the time of such filings, owed the Company an
aggregate of $2.5 million.
18
Interest expense for Fiscal Year 1994 was $17.5 million compared to $15.7
million in Fiscal Year 1993. The $1.8 million increase in interest expense
in Fiscal Year 1994 primarily was due to higher interest rates and additional
borrowings under the Company's various financing facilities. Increases in
the Federal Reserve discount rates during Fiscal Year 1994 have resulted in
the Company's interest rates applicable to borrowings under the Revolving
Line of Credit and Senior Secured Notes increasing by approximately 1.5% per
annum since the beginning of Fiscal Year 1994.
In Fiscal Year 1994, the Company recorded an income tax provision of $2.3
million. The Company's effective tax rate was 39.5% on income before taxes
for Fiscal Year 1994, while the effective tax rate for Fiscal Year 1993 was
38.5%.
As a result of the foregoing, the Company's net income was $3.6 million
in Fiscal Year 1994 compared to net income of $6.6 million in Fiscal Year
1993.
Preferred stock in-kind dividends and accretion to redemption value was
$230,000 in Fiscal Year 1994 compared to $209,000 in Fiscal Year 1993. As a
result of the foregoing, the Company's income applicable to common
shareholders was $3.3 million in Fiscal Year 1994, compared to income
applicable to common shareholders of $6.4 million in Fiscal Year 1993.
In light of the Federal Reserve discount rates increasing during Fiscal
Year 1994, which effect is expected to continue during fiscal year 1995, and
the Company's higher borrowings under its floating interest rate debt
facilities, the Company expects interest expense in fiscal year 1995 to be
significantly higher than in Fiscal Year 1994. As further discussed in
Liquidity and Capital Resources, during fiscal year 1995, the Company is
-------------------------------
reassessing its capital investment program and is more closely monitoring its
inventory levels. Further, the Company expects wool costs to increase
significantly in fiscal year 1995 due to recent increases which the Company
began to realize during the fourth quarter of Fiscal Year 1994 and a drought
in Australia which has resulted in a reduction in sheep herds.
The Company's sales order backlog at January 1, 1995 was $61.3 million,
$12.0 million less than the comparable period one year ago. Excluding
government orders, which yield lower gross profit margins, the backlog at
January 1, 1995 was $8.5 million less than the comparable period in the prior
year. The decline in the backlog, excluding government orders, is
attributable to a decline in orders for women's outerwear fabrics, which was
somewhat offset by increases in orders for menswear, specialty, converted and
Carpini/TM/ USA fabrics. The Company believes that the decline in orders for
women's outerwear is due to the exceptionally warm temperatures registered
across the country in the fall and early winter. Although the Company
expects the effects of the warmer temperatures, which depressed retail sales
of women's coats, to somewhat reverse itself during fiscal year 1995, there
can be no assurance that such market inprovement will occur. Sales of
women's outerwear fabrics represented approximately 22% of net sales for
Fiscal Year 1994.
19
The Fifty-Two Week Period Ended October 31, 1993 ("Fiscal Year 1993")
compared to the Fifty-Three Week Period Ended November 1, 1992 ("Fiscal Year
1992")
The Company, with approval from its Board of Directors, revalued its
assets and liabilities to fair value as of the beginning of Fiscal Year 1993
pursuant to the principles of quasi-reorganization accounting (the "Quasi
Reorganization"). The fair value adjustments were revised in the fourth
quarter of Fiscal Year 1993 to adjust certain amounts initially recorded,
which had been based upon estimates (principally the write-down of property,
plant and equipment and the accrual of costs to effect the Quasi
Reorganization). The Quasi Reorganization directly affected cost of goods
sold, interest expense, income tax provision and preferred stock in-kind
dividends and accretion for Fiscal Year 1993 and will affect future reported
results of operations. As a result of the fair value adjustments made in the
Quasi Reorganization (a) the value of inventories was reduced, which affects
cost of goods sold to the extent such inventories are utilized, (b) the value
of property, plant and equipment was reduced, which affects cost of goods
sold as the related property is depreciated, (c) the value of the hourly
pension plan's net assets was eliminated, which affects cost of goods sold to
the extent such value would have been amortized, (d) an accrual for
unfavorable (commitment price exceeded fair value) wool purchase commitments
was recorded, which subsequently reduced cost of goods sold in the periods
wool was delivered and subsequently sold as finished product, (e) interest
expense was decreased as a result of the reduction of deferred financing
costs and the valuation of long-term debt, (f) income tax provision was
increased due to the effect of the above items, and (g) preferred stock in-
kind dividends and accretion was reduced as a result of the decrease in value
of the preferred stock. As a result of the Quasi Reorganization, the Company
estimates that earnings per share during each of the next five years will be
$0.18 higher, principally due to lower depreciation and interest charges.
Additionally, the Company recognized a one-time benefit to cost of goods sold
during Fiscal Year 1993 of $3.0 million ($1.8 million net of income taxes or
$0.33 per share) related to the reversal of unfavorable wool purchase
commitments recorded as a liability in connection with the Quasi
Reorganization.
Since Fiscal Year 1993 comprises fifty-two weeks and Fiscal Year 1992
comprises fifty-three weeks, and because of the effects of the Quasi
Reorganization with respect to Fiscal Year 1993, the results for the
respective fiscal years are not directly comparable. Because the Company's
customers place orders based on their calendar month needs, the Company
believes that net sales, unlike certain manufacturing and selling, general
and administrative expenses, were not significantly impacted by one less week
in Fiscal Year 1993 and were not affected by the Quasi Reorganization.
Net sales for Fiscal Year 1993 were $233.4 million, an increase of 11.7%
from Fiscal Year 1992. Total yards of fabric sold increased 12.5% during
Fiscal Year 1993, which outpaced net sales growth, as volume continued to
grow fastest in styles with per yard selling prices below last year's average
per yard selling price. Excluding government sales (minimal during Fiscal
Year 1993) which traditionally yield selling prices per yard in excess of the
Company's average price per yard, but lower gross profit margins, net sales
for Fiscal Year 1993 increased 14.0% from Fiscal Year 1992. Such increase
was primarily attributable to an increase in womenswear (including outerwear)
fabric sales, which comprised approximately two-thirds of net sales in both
Fiscal Year 1993 and Fiscal Year 1992.
Cost of goods sold increased to $182.3 million in Fiscal Year 1993 from
$169.1 million in Fiscal Year 1992. Gross profit increased 28.1% in Fiscal
Year 1993 to $51.0 million from $39.8 million in Fiscal Year
20
1992, and gross profit margin for Fiscal Year 1993 was 21.9%, compared to
19.1% for Fiscal Year 1992. This improvement was primarily attributable to
the effects of the Quasi Reorganization, strategic raw wool purchasing,
improved manufacturing efficiencies and an improved product mix.
Selling, general and administrative expenses, excluding the provision for
uncollectible accounts, increased 23.5% to $20.7 million in Fiscal Year 1993,
compared to $16.8 million in Fiscal Year 1992. Such increase was due, in
part, to the hiring of additional marketing and management information
services personnel. In addition, the formation of Forstmann International, a
licensing, technical information and consulting arrangement with Carpini (see
Note 11 to the Financial Statements included in Item 8 of this Annual Report
on Form 10-K), an exclusive licensing arrangement for fire retardant for wool
fabrics and the formation of a converting function responsible for
coordinating the dyeing and finishing of greige fabrics purchased throughout
the world contributed to the increase in Fiscal Year 1993 in selling, general
and administrative expenses. Expenses incurred in connection with these
endeavors during Fiscal Year 1992 were negligible. Legal and investor
relation costs incurred during Fiscal 1993 increased as a result of the
Company's initial public offering consummated during the second quarter of
Fiscal Year 1992. In addition, the Company's incentive compensation expense
increased during Fiscal Year 1993 as a result of both the Company's improved
financial performance and the accrual of estimated liabilities related to the
equity referenced deferred incentive awards granted in March 1992 to certain
key executives of the Company.
The provision for uncollectible accounts increased to $2.7 million in
Fiscal Year 1993, compared to $1.2 million in Fiscal Year 1992. Such
provision (and the allowance for uncollectible accounts) is based on a
specific review and assessment of the collectibility of aged balances
included in accounts receivable and a general assessment of the
collectibility of remaining accounts based, in part, on historical trends and
the state of the economy and its effect on the Company's customers. Most of
the Company's customers are in apparel industries, which industries generally
have experienced an economic downturn. Included in the provision for
uncollectible accounts is the Company's loss of approximately $0.4 million on
the sale of receivables of Leslie Fay (which filed a petition for
reorganization on April 5, 1993) recorded through April 5, 1993 and the
write-off of $0.3 million related to the settlement of a long-term note
receivable.
The loss from disposal and impairment of machinery and equipment of $1.0
million during Fiscal Year 1993 related to the Company's disposal and write-
down of idle equipment to reflect its remaining future economic value.
Interest expense for Fiscal Year 1993 was $15.7 million. The $2.2
million decrease in interest expense in Fiscal Year 1993 compared to Fiscal
Year 1992 primarily was due to lower interest rates on the Company's
borrowings under the GECC Facility (hereinafter defined) and the Senior
Secured Floating Rate Notes due October 30, 1997 initially issued on April 5,
1993 in an aggregate principal amount of $20 million (the "Original Senior
Secured Notes") compared to the interest rates on borrowings under a prior
revolving credit facility. Borrowings under the GECC Facility and the
Original Senior Secured Notes bear interest, at the Company's option at a
floating rate (which is based on the prime lending rate, as defined) or fixed
rate (which is based on LIBOR), payable monthly as to the Revolving Line of
Credit and quarterly as to the Original Senior Secured Notes. The Company
benefited favorably from the use of the fixed interest rate option during
Fiscal Year 1993. The fixed interest rate was approximately 1.0% less than
the prime base interest rate during Fiscal Year 1993. Further, the Company
benefited more in Fiscal Year 1993 than in Fiscal Year 1992 from the
repurchase of $46.2 million face amount of Subordinated Notes in connection
with the consummation of the offer for up to $50 million aggregate face
amount of
21
the Subordinated Notes (the "Exchange Offer") in March 1992. Interest
expense on increased wool purchases, to take strategic advantage of lower
wool prices, partially offset the overall decrease in interest expense.
In Fiscal Year 1993, the Company recognized an income tax provision of
$4.2 million on income before income taxes, while in Fiscal Year 1992, the
Company recognized an income tax provision of $5.7 million. Reference is
made to Note 9 to the 1994 Financial Statements for information concerning
such provisions.
As a result of the foregoing, the Company's income before extraordinary
loss was $6.6 million for Fiscal Year 1993, compared to a loss of $1.8
million for Fiscal Year 1992. Pro forma income before extraordinary loss for
Fiscal Year 1992 was $3.6 million, which gives effect to the 1992
Recapitalization transactions described in Note 14 to the Financial
Statements, as if such transactions occurred at the beginning of Fiscal Year
1992.
The Company's income applicable to common shareholders was $6.4 million
or $1.15 per share for Fiscal Year 1993, compared to a loss applicable to
common shareholders of $3.2 million or $0.58 per share for Fiscal Year 1992.
Included in Fiscal Year 1992's loss is a $1.2 million extraordinary loss, net
of a $0.7 million deferred income tax benefit, which resulted from the write-
off of unamortized deferred financing costs caused by the Company's debt
refinancing at the end of Fiscal Year 1992. Pro forma income before
extraordinary loss applicable to common shareholders for Fiscal Year 1992 was
$3.4 million or $0.61 per share.
Liquidity and Capital Resources
-------------------------------
The Company historically has financed its operations and investing
activities through a combination of borrowings, equipment leasing, and
internally generated funds. The Company's financing needs have arisen
principally in connection with modernization and expansion of the Company's
production capacity and with increased working capital needs that have
accompanied sales growth. During Fiscal Year 1994, additional borrowings
were needed to finance an increase in inventories and accounts receivable.
Inventories at October 30, 1994 were approximately equal to inventories at
October 31, 1993. However, during Fiscal Year 1994, inventories were higher
on average than in Fiscal Year 1993 as a result of an increase in raw
materials purchased to take advantage of favorable wool prices during the
first half of Fiscal Year 1994 and an increase in work-in-process inventories
due to the decline in womenswear woolen sales. Accounts receivable increased
at the end of Fiscal Year 1994 due to higher sales and the granting of
extended payment terms to customers, in response to competitive pressures in
certain markets.
The Company, as of October 30, 1992, entered into a loan agreement with
General Electric Capital Corporation (the "GECC Facility"), which, as
subsequently amended, includes a $7.5 million term loan (the "Term Loan") and
an $85.0 million revolving line of credit (the "Revolving Line of Credit")
(which includes a $7.5 million letter of credit facility). The Term Loan and
borrowings under the Revolving Line of Credit are subject to certain
borrowing base limitations and are due in October 1997.
The Company's cash requirements, including working capital and capital
expenditures during Fiscal Year 1994, were funded from the proceeds from
borrowings under the Revolving Line of Credit and the sale of $10 million of
additional Senior Secured Floating Rate Notes due October 30, 1997 (the
"Additional Senior Secured Notes," collectively, with the Original Senior
Secured Notes, the "Senior Secured Notes"). At October 30, 1994 the
aggregate amount of revolving loans and letters of credit outstanding under
the Revolving Line of Credit was approximately $61.7 million and loan
availability, in excess of the Company's outstanding borrowings and letters
of credit, was approximately $7.5 million.
22
During Fiscal Year 1994, the Company and CIT Group/Equipment Financing,
Inc. amended its loan and security agreement (the "CIT Equipment Facility")
to increase the Company's permitted adjusted leverage ratio (the ratio of
total liabilities to tangible net worth) from 160% to 170% for the period
January 31, 1994 through October 30, 1994. The Company's adjusted leverage
ratio increased during Fiscal Year 1994 due in part to the effects of: (1)
the assumed discount rate assumption used to measure the accumulated benefit
obligation for the Company's pension plans under SFAS No. 87, "Employers'
Accounting for Pensions," being lowered from 8.75% to 7.0% at the end of
Fiscal Year 1993 which resulted in the recognition of a $1.9 million accrual
of additional pension liability in excess of accumulated benefit obligation
and a charge to shareholders' equity of $1.1 million, net of deferred income
taxes; (2) settling claims with the Company's dissenting shareholders as
discussed in Note 11 to the Financial Statements; and (3) the additional debt
the Company incurred to fund higher working capital needs and capital
expenditures. Absent the amendments to the CIT Equipment Facility, an
adjusted leverage ratio of more than 160% during the Company's second, third
or fourth quarters of Fiscal Year 1994 would have been an event of default
under the CIT Equipment Facility. In addition, such an event of default
would have triggered a cross default under the terms of the GECC Facility.
The lender under the GECC Facility has consented to the amendments to the CIT
Equipment Facility and acknowledged that no event of default under the GECC
Facility exists as a result of the events giving rise to such amendments.
Subsequent to Fiscal Year 1994 certain financial covenants under the GECC
Facility, the Indenture to the Senior Secured Notes and the CIT Equipment
Facility were further amended, in part to reflect the effect of rising
interest rates, final settlement of claims with the Company's remaining
dissenting shareholders as discussed in Note 11 to the Financial Statements
and the additional debt the Company incurred to fund higher working capital
needs and capital expenditures. Also, the GECC Facility was further amended
to provide the $7.5 million Term Loan and the CIT Equipment Facility was
amended to provide for up to $5.0 million of additional equipment financing.
On January 23, 1995, the Company borrowed $7.5 million under the Term Loan,
the proceeds of which were used to repay a portion of outstanding borrowings
under the Revolving Line of Credit. On December 22, 1994, the Company
borrowed $2.5 million under the CIT Equipment Facility at an interest rate of
10.58% payable in sixty equal monthly installments.
Capital additions, including capital lease obligations, for plant and
equipment were $15.0 million in Fiscal Year 1994. The Company expects
spending for capital expenditures, primarily machinery and equipment, in
fiscal year 1995 to be slightly less than Fiscal Year 1994. The Company has
completed approximately one-half of its $100 million capital investment
program which commenced in Fiscal Year 1992. In light of increasing interest
rates, as well as increased borrowings to fund its working capital needs, the
Company is reassessing the timing of its capital investment program. Capital
additions, including capital lease obligations, for plant and equipment were
$15.0 million in Fiscal Year 1993 and $12.4 million in Fiscal Year 1992.
The Company believes that cash generated from operations, borrowings
under the Revolving Line of Credit, and permitted operating and capital
leases will be sufficient to fund its fiscal year 1995 working capital and
capital expenditures requirements. After fiscal year 1995, additional
sources of financing will be needed to support expected working capital
needs, capital expenditures and maturities of its long-term debt facilities
which increase significantly in fiscal year 1996 and fiscal year 1997 (see
Note 7 to the Financial Statements). Due to the seasonal nature of the
Company's core woolen and worsted business, the Company's borrowings under
its Revolving Line of Credit tend to increase throughout each fiscal year
until the fourth quarter, when, at year-end, borrowings tend to be the
lowest.
23
Net cash used by operating activities during Fiscal Year 1994 was $2.5
million, an increase of $2.9 million from Fiscal Year 1993. Historically,
during the first half of its fiscal year, the Company utilizes cash to fund
operations, whereas operations provide cash during the second half of the
Company's fiscal year. Net cash used in investing activities during Fiscal
Year 1994, primarily for capital expenditures, was $13.2 million, a decrease
of $3.7 million from Fiscal Year 1993. Such decrease was due to the Company
acquiring approximately $3.6 million of its capital investments under capital
leases in Fiscal Year 1994 as compared to none in Fiscal Year 1993. Cash
utilized to fund the Company's operations and investing activities during
Fiscal Year 1994 was obtained primarily from borrowings, net of repayments,
under the Revolving Line of Credit ($11.5 million), proceeds from the sale of
the Additional Senior Secured Notes ($9.7 million, net of underwriter's fee
of $0.3 million) and Equipment Facilities ($1.1 million).
Working capital at October 30, 1994 was $112.7 million, an increase of
$20.0 million from October 31, 1993. This increase resulted, in part, from a
$10.6 million increase in current assets, primarily attributable to an
increase in accounts receivable of $10.1 million. The increase in accounts
receivable is due to the Company granting extended payment terms for the sale
of certain products in response to competitive pressures in certain markets
and an increase in sales during the fourth quarter of Fiscal Year 1994 over
the fourth quarter of Fiscal Year 1993. Further, working capital increased
as a result of a $9.4 million temporary decrease in current liabilities,
primarily accounts payable, as a result of the timing of the Company's wool
purchases. Such increase in working capital was funded primarily from
borrowings under the Revolving Line of Credit and proceeds from the sale of
the Additional Senior Secured Notes.
Historically, the Company experiences an increase in accounts receivable
during the first three quarters of its fiscal year (primarily during the
second and third quarters), due to the seasonal increase in sales which
typically occurs in January through July of each year. This seasonal pattern
is influenced by the industry practice of providing coating fabric customers
with favorable billing terms (referred to as "dating"), which permit payment
60 days beyond July 1 for invoices billed in January through June. Accounts
receivable at October 30, 1994 included $8.2 million of receivables with
dating, an increase of $6.0 million compared to October 31, 1993. This
increase in dating is partially attributable to the competitive pressures and
the granting of extended credit terms referred to above.
Inventories remained relatively constant from October 31, 1993 to October
30, 1994. Due primarily to rising wool costs, the Company reduced raw
materials from $18.1 million at October 31, 1993 to $9.9 million at October
30, 1994. The decline in raw materials was offset by an $8.6 million
increase in work-in-process which is primarily due to the manufacturing of
certain fabric components to fill an existing government order and the
purchasing of greige cloth for converting. During the fourth quarter of
Fiscal Year 1994, work-in-process and finished goods inventories increased
$4.6 million, which was $1.0 million less than the fourth quarter of Fiscal
Year 1993. This decline was due to the Company curtailing production levels
during the fourth quarter of Fiscal Year 1994 in response to softness in
women's outerwear and sportswear markets.
The Company purchases a significant amount of its raw wool inventory from
Australia. Since all of the Company's forward purchase commitments for raw
wool are denominated in U.S. dollars, there is no actual currency exposure on
outstanding contracts. However, future changes in the relative exchange
rates between United States and Australian dollars can materially affect the
Company's results of operations for financial reporting purposes. Recently,
the cost of certain raw wool categories sourced from Australia has risen
significantly, and a drought in Australia which has resulted in a
24
reduction in sheep herds indicates that such costs will continue to increase
in the near future. Based on the Company's forward purchase commitments and
wool market trends, the Company expects wool costs to increase significantly
in fiscal year 1995.
The Company's assumed discount rate (the "discount rate") used to measure
the accumulated benefit obligation for its hourly and salaried pension plans
under SFAS No. 87, "Employers' Accounting for Pensions," as of the end of
Fiscal Year 1994 was increased from 7.00% to 8.75% based on the composition
of the accumulated benefit obligation and current economic conditions. As of
the end of Fiscal Year 1994 the Company's hourly pension plan's accumulated
benefit obligation exceeded the plan assets at fair value by $0.5 million.
As of the end of Fiscal Year 1993, the discount rate was lowered from 8.75%
to 7.00% based on then prevailing economic conditions. The lowering of the
discount rate at the end of Fiscal Year 1993 caused the Company's hourly and
salaried pension plan's accumulated benefit obligation to exceed plan assets
at fair value by $1,466,000 and $118,000, respectively.
During Fiscal Year 1994, the Company reduced its accrued additional
pension liability in excess of accumulated benefit obligation from $1,900,000
to $943,000 and reduced the $1,101,000 excess of additional pension liability
over unrecognized prior service cost, net of $719,000 deferred tax benefit
charged to shareholders' equity at the end of Fiscal Year 1993 to $525,000,
net of $343,000 deferred tax benefit. Based primarily on the raising of the
discount rate, the Company estimates that net periodic pension cost for both
the hourly and salaried pension plans during fiscal year 1995 will be
approximately $0.4 million lower than in Fiscal Year 1994.
The Company does not believe that inflation has had a material impact on
its business. The Company expects wool costs to be significantly higher in
fiscal year 1995 than Fiscal Year 1994. Higher average borrowings to fund
the Company's working capital needs and capital investment program, coupled
with increases in the Federal Reserve discount rates during Fiscal Year 1994,
will cause the Company's interest expense and cash interest payments to
increase significantly during fiscal year 1995.
25
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report ...................................... 27
Balance Sheets as of October 30, 1994
and October 31, 1993 .............................................. 28
Statements of Operations for the Fifty-Two
Weeks Ended October 30, 1994 and October 31, 1993
and the Fifty-Three Weeks Ended November 1, 1992................... 29
Statements of Cash Flows for the Fifty-Two
Weeks Ended October 30, 1994 and October 31, 1993
and the Fifty-Three Weeks Ended November 1, 1992................... 30
Statements of Changes in Shareholders' Equity
for the Fifty-Three Weeks Ended
November 1, 1992 and the Fifty-Two Weeks
Ended October 31, 1993 and October 30, 1994 ....................... 32
Notes to Financial Statements for the
Fifty-Two Weeks Ended October 30, 1994
and October 31, 1993, and the Fifty-Three Weeks
Ended November 1, 1992 ............................................ 33
26
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Forstmann & Company, Inc.:
We have audited the accompanying balance sheets of Forstmann & Company, Inc.
as of October 30, 1994 and October 31, 1993 and the related statements of
operations, shareholders' equity and cash flows for the fifty-two weeks ended
October 30, 1994 and October 31, 1993 and the fifty-three weeks ended
November 1, 1992. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Forstmann & Company, Inc. at October 30,
1994 and October 31, 1993 and the results of its operations and its cash
flows for the fifty-two weeks ended October 30, 1994 and October 31, 1993 and
the fifty-three weeks ended November 1, 1992, in conformity with generally
accepted accounting principles.
As discussed in Note 14 to the financial statements, the Company effected a
quasi reorganization as of November 2, 1992 (the beginning of fiscal year
1993) and revalued its assets and liabilities to fair value at such date and
during the fifty-two weeks ended October 30, 1994, the Company recorded
certain adjustments to the quasi reorganization related to unresolved
contingencies as of the effective date of the quasi reorganization. As
discussed in Note 9 to the financial statements, the Company changed its
method of accounting for income taxes to conform with Statement of Financial
Accounting Standards No. 109.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Atlanta, Georgia
December 8, 1994
(January 23, 1995 as to paragraph 2 of Note 7)
27
FORSTMANN & COMPANY, INC.
- --------------------------------------------------------------------------------
BALANCE SHEETS
OCTOBER 30, 1994 AND OCTOBER 31, 1993
NOTES 1994 1993
----- ------------ ------------
ASSETS
CURRENT ASSETS:
Cash.......................................... $ 49,000 $ 53,000
Accounts receivable, net of allowance
of $2,100,000 and $2,195,000................ 57,089,000 48,816,000
Current income taxes receivable............... 9 1,500,000 -
Inventories................................... 3 76,881,000 76,936,000
Current deferred tax assets................... 9 4,339,000 2,869,000
Other current assets.......................... 943,000 1,498,000
------------ ------------
Total current assets........................ 140,801,000 130,172,000
Property, plant and equipment, net.............. 4 79,479,000 76,521,000
Other assets.................................... 5 8,976,000 8,874,000
------------ ------------
Total....................................... $229,256,000 $215,567,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt.......... 7 $ 2,714,000 $ 2,821,000
Accounts payable.............................. 13,153,000 24,580,000
Accrued liabilities........................... 6,11 12,272,000 10,110,000
------------ ------------
Total current liabilities................... 28,139,000 37,511,000
Long-term debt.................................. 7 155,597,000 136,038,000
Deferred tax liability.......................... 9 6,316,000 4,033,000
Accrued additional pension liability in
excess of accumulated benefit obligation...... 10 943,000 1,900,000
Commitments and contingencies................... 11
Redeemable preferred stock, $1.00 par value,
100,000 shares authorized, 54,110.8 and
51,487.7 shares issued and outstanding
(aggregate redemption and liquidation value
of $100 per share or $5,411,080 and
$5,148,774, respectively)..................... 8 2,425,000 2,195,000
SHAREHOLDERS' EQUITY: 10,11
Common stock, $.001 par value, 20,000,000
shares authorized, 5,618,800 and 5,585,014
shares issued and outstanding............... 5,619 5,585
Non-voting common stock, $.001 par value,
120,000 shares authorized, nil shares
issued and outstanding......................
Additional paid-in capital.................... 26,602,381 28,570,415
Excess of additional pension liability
over unrecognized prior service cost,
net of deferred income tax benefit of
$343,000 and $719,000....................... (526,000) (1,101,000)
Retained earnings since November 2, 1992...... 9,754,000 6,415,000
------------ ------------
Total shareholders' equity.................. 35,836,000 33,890,000
------------ ------------
Total....................................... $229,256,000 $215,567,000
============ ============
See notes to financial statements.
28
FORSTMANN & COMPANY, INC.
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE FIFTY-TWO WEEKS ENDED OCTOBER 30, 1994
AND OCTOBER 31, 1993 AND THE FIFTY-THREE WEEKS ENDED NOVEMBER 1, 1992
NOTES 1994 1993 1992
----- ------------- ------------- -------------
Net sales................................ $237,085,000 $233,365,000 $208,908,000
Cost of goods sold....................... 189,233,000 182,347,000 169,075,000
------------ ------------ ------------
Gross profit............................. 47,852,000 51,018,000 39,833,000
Selling, general and administrative
expenses............................... 22,377,000 20,723,000 16,780,000
Provision for uncollectible accounts
and notes receivable................... 2,167,000 2,714,000 1,206,000
Gain (loss) from abandonment, disposal
and impairment of machinery and
equipment.............................. 4 109,000 (963,000) -
------------ ------------ ------------
Operating income......................... 23,417,000 26,618,000 21,847,000
Interest expense......................... 17,517,000 15,749,000 17,983,000
------------ ------------ ------------
Income before income taxes and
extraordinary loss..................... 5,900,000 10,869,000 3,864,000
Income tax provision..................... 9 2,331,000 4,245,000 5,690,000
------------ ------------ ------------
Income (loss) before extraordinary loss.. 3,569,000 6,624,000 (1,826,000)
Extraordinary loss from debt
refinancing, net of $0.7 million
income tax benefit..................... 7 - - (1,179,000)
------------ ------------ ------------
Net income (loss)........................ 3,569,000 6,624,000 (3,005,000)
Preferred stock in-kind dividends
and accretion to redemption
value.................................. 8 (230,000) (209,000) (240,000)
------------ ------------ ------------
Income (loss) applicable to common
shareholders........................... $ 3,339,000 $ 6,415,000 $ (3,245,000)
============ ============ ============
Per share and share information (pro
forma as to 1992): 12
Income before extraordinary loss
applicable to common
shareholders....................... $.60 $ 1.15 $.61
Extraordinary loss................... - - ( .21)
------------ ------------ ------------
Income applicable to common
shareholders....................... $.60 $ 1.15 $.40
============ ============ ============
Weighted average common shares
outstanding........................ 5,592,022 5,585,014 5,585,014
============ ============ ============
See notes to financial statements.
29
FORSTMANN & COMPANY, INC.
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
FOR THE FIFTY-TWO WEEKS ENDED OCTOBER 30, 1994
AND OCTOBER 31, 1993 AND THE FIFTY-THREE WEEKS
ENDED NOVEMBER 1, 1992
1994 1993 1992
------------ ------------ ------------
Net income (loss)............................... $ 3,569,000 $ 6,624,000 $ (3,005,000)
------------ ------------ ------------
Adjustments to reconcile net income (loss)
to net cash provided (used) by
operating activities:
Depreciation and amortization................ 13,942,000 10,347,000 12,476,000
Income tax provision......................... 2,331,000 4,245,000 5,782,000
Income tax payments.......................... (3,429,000) (1,075,000) (335,000)
Deferred interest payable.................... - - 3,837,000
Provision for uncollectible accounts
and notes receivable........................ 2,167,000 2,714,000 1,206,000
Loss (gain) from abandonment, disposal
and impairment of machinery and
equipment and other assets.................. (109,000) 963,000 7,000
Foreign currency transaction gain............ (10,000) (80,000) -
Changes in current assets and current
liabilities, exclusive of quasi-
reorganization adjustments:
Accounts receivable........................ (10,071,000) (6,535,000) (2,456,000)
Inventories................................ 55,000 (13,776,000) (9,035,000)
Other current assets....................... 102,000 (101,000) (909,000)
Accounts payable........................... (11,427,000) 4,116,000 6,451,000
Accrued liabilities........................ 1,019,000 (4,044,000) (3,782,000)
Investment in notes receivable, net.......... 161,000 (131,000) (786,000)
Deferred financing costs..................... (821,000) (2,898,000) (3,001,000)
Extraordinary loss from debt
refinancing, net of tax benefit............. - - 1,179,000
------------ ------------ ------------
Total adjustments............................... (6,090,000) (6,255,000) 10,634,000
------------ ------------ ------------
Net cash provided (used) by
operating activities....................... (2,521,000) 369,000 7,629,000
------------ ------------ ------------
Cash flows used in investing activities:
Investment in property, plant and
equipment.................................... (11,338,000) (14,955,000) (11,909,000)
Investment in computer information systems.... (2,054,000) (2,217,000) (2,464,000)
Net proceeds from disposal of machinery
and equipment................................ 185,000 277,000 54,000
------------ ------------ ------------
Net cash used by investing activities ...... (13,207,000) (16,895,000) (14,319,000)
------------ ------------ ------------
Cash flows from financing activities:
Net borrowings (repayments) under Credit
Facilities................................... 11,478,000 (9,268,000) 3,212,000
Proceeds from the Original Term Loan.......... - 15,000,000 -
Repayment of the Original Term Loan........... - (15,000,000) -
Proceeds from sales of Senior Secured Notes... 10,000,000 20,000,000 -
Borrowings under the CIT Equipment Facility... 1,113,000 7,436,000 2,007,000
Repayment of other financing arrangements..... (6,090,000) (1,641,000) (1,370,000)
Incentive stock options exercised............. 26,000 - -
Cash paid in connection with Dissenters'
Proceeding................................... (803,000) - -
Sale of common stock to majority
shareholder.................................. - - 3,713,000
Cash paid in connection with Exchange
Offer........................................ - - (21,136,000)
Net proceeds from Public Offering............. - - 20,177,000
------------ ------------ ------------
Net cash provided by
financing activities...................... 15,724,000 16,527,000 6,603,000
------------ ------------ ------------
30
FORSTMANN & COMPANY, INC.
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE FIFTY-TWO WEEKS ENDED OCTOBER 30, 1994
AND OCTOBER 31, 1993 AND THE FIFTY-THREE WEEKS
ENDED NOVEMBER 1, 1992
1994 1993 1992
------------ ------------ ------------
Net increase (decrease) in cash................. (4,000) 1,000 (87,000)
Cash at beginning of period..................... 53,000 $ 52,000 $ 139,000
------------ ------------ ------------
Cash at end of period........................... $ 49,000 $ 53,000 $ 52,000
============ ============ ============
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest..... $ 17,316,000 $ 16,046,000 $ 12,606,000
============ ============ ============
Cash paid during the period for
income taxes................................ $ 3,429,000 $ 1,075,000 $ 335,000
============ ============ ============
Supplemental schedule for non-cash
investing and financing activities:
Capital lease obligations incurred........... $ 3,641,000 $ - $ 445,000
============ ============ ============
Preferred stock in-kind dividends and
accretion to redemption value............... $ 230,000 $ 209,000 $ 240,000
============ ============ ============
Supplemental schedule of changes in
current assets and current liabilities:
Accounts receivable trade, net:
(Increase) from operations.................. $(10,071,000) $ (6,535,000) $ (2,456,000)
Provision for uncollectible accounts........ 1,798,000 2,104,000 1,206,000
------------ ------------ ------------
Net (increase)............................. $ (8,273,000) $ (4,431,000) $ (1,250,000)
============ ============ ============
Inventories:
(Increase) from operations.................. $ (235,000) $(13,441,000) $ (8,333,000)
(Decrease) increase in market
reserves................................... 290,000 (335,000) (702,000)
Quasi-reorganization adjustment............. - 14,781,000 -
------------ ------------ ------------
Net decrease (increase).................... $ 55,000 $ 1,005,000 $ (9,035,000)
============ ============ ============
Accrued liabilities:
Increase (decrease) from operations......... $ 1,019,000 $ (4,044,000) $ (3,782,000)
Quasi-reorganization adjustments............ 1,172,000 4,048,000 -
------------ ------------ ------------
Net increase (decrease).................... $ 2,191,000 $ 4,000 $ (3,782,000)
============ ============ ============
See notes to financial statements.
31
FORSTMANN & COMPANY, INC.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE FIFTY-THREE WEEKS ENDED NOVEMBER 1, 1992 AND
THE FIFTY-TWO WEEKS ENDED OCTOBER 31, 1993 AND OCTOBER 30, 1994
Pension
Common Stock Liability
----------------- Additional Over Prior Retained Total
Non- Paid-In Service (Deficit) Shareholders'
Voting Voting Capital Cost Earnings Equity
-------- ------- ------------- ------------ ------------- --------------
Balance, October 27,
1991.................. $ 4,857 $ 112 $ 42,179,031 $ - $(33,847,000) $ 8,337,000
1992 Recapitalization:
Reverse Stock Split... (4,856) (112) 4,968 - - -
Exchange Offer........ 2,421 - 22,098,579 - - 22,101,000
Public Offering....... 2,750 - 20,174,750 - - 20,177,500
Sale of common stock
to majority
shareholder......... 413 - 3,712,087 - - 3,712,500
Loss applicable to
common shareholders... - - - - (3,245,000) (3,245,000)
------- ------ ------------ ----------- ------------ ------------
Balance, November 1,
1992.................. 5,585 - 88,169,415 - (37,092,000) 51,083,000
Quasi Reorganization.... - - (59,599,000) - 37,092,000 (22,507,000)
Excess of additional
pension liability
over unrecognized
prior service cost,
net of tax benefit.... - - - (1,101,000) - (1,101,000)
Income applicable to
common shareholders... - - - - 6,415,000 6,415,000
------- ------ ------------ ----------- ------------ ------------
Balance, October 31,
1993.................. 5,585 - 28,570,415 (1,101,000) 6,415,000 33,890,000
Adjustments to Quasi
Reorganization........ 30 - (1,993,660) - - (1,993,630)
Adjustments to pension
liability over prior
service cost.......... - - - 575,000 - 575,000
Incentive stock
options exercised..... 4 - 25,626 - - 25,630
Income applicable to
common shareholders... - - - - 3,339,000 3,339,000
------- ------ ------------ ----------- ------------ ------------
Balance, October 30,
1994.................. $ 5,619 $ - $ 26,602,381 $ (526,000) $ 9,754,000 $ 35,836,000
======= ====== ============ =========== ============ ============
See notes to financial statements.
32
FORSTMANN & COMPANY, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS FOR THE FIFTY-TWO WEEKS
ENDED OCTOBER 30, 1994 AND OCTOBER 31, 1993 AND
THE FIFTY-THREE WEEKS ENDED NOVEMBER 1, 1992
1. LINES OF BUSINESS
Forstmann & Company, Inc. (the "Company") designs, manufactures and markets
woolen, worsted and other fabrics primarily used in the production of brand name
and private label apparel for men and women, as well as specialty fabrics for
use in billiard and gaming tables, sports caps and career uniforms. A majority
(50.4%) of the Company's common stock is owned by Odyssey Partners, L.P.
("Odyssey").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year - The Company has adopted a fiscal year ending on the Sunday
nearest to October 31. The fiscal years ended October 30, 1994 and October 31,
1993 comprise fifty-two weeks ("Fiscal Year 1994" and "Fiscal Year 1993",
respectively), whereas the fiscal year ended November 1, 1992 comprises fifty-
three weeks ("Fiscal Year 1992").
Revenue Recognition - Generally, sales and related costs are recognized when
goods are sold and then shipped to the Company's customers. A portion of such
sales is made on extended terms of up to 240 days. At October 30, 1994, $8.2
million of sales made on extended terms were included in accounts receivable
under terms of specific sales.
When customers, under the terms of specific orders, request that the Company
manufacture, invoice and ship goods on a bill and hold basis, the Company
recognizes revenue based on the completion date required in the order and actual
completion of the manufacturing process. Accounts receivable included bill and
hold receivables of $19.4 million at October 30, 1994 and $15.9 million at
October 31, 1993.
None of the Company's customers accounts for 10% or more of the Company's
revenues.
Allowance for Uncollectible Accounts - Based on a review and assessment of the
collectibility of aged balances included in accounts receivable, the Company
establishes a specific allowance for uncollectible accounts. Additionally, the
Company establishes a general allowance for uncollectible accounts based, in
part, on historical trends and the state of the economy and its effect on the
Company's customers. The Company also establishes allowances for estimated
sales returns. The Company grants credit to certain customers, most of which
are companies in apparel industries, which industries generally have experienced
an economic downturn. The ability of such customers to honor their debts is
somewhat dependent upon the apparel business sector. No individual customer's
accounts receivable balance exceeded 7% of gross accounts receivable at October
30, 1994.
Inventories - Inventories are stated at the lower of cost, determined
principally by the last-in, first-out ("LIFO") method, or market.
Property, Plant and Equipment - Property, plant and equipment is recorded at
cost, net of accumulated depreciation and amortization. Depreciation and
amortization is computed using the straight-line method over the estimated
useful lives of the assets or the lease terms of certain capital lease assets.
For income tax purposes, accelerated methods of depreciation are used.
Maintenance and repairs are charged to income, and renewals or betterments are
capitalized.
Deferred Financing Costs - Costs incurred to obtain financing are included as
other assets and amortized using the straight-line method over the expected
maturities of the related debt.
33
Computer Information Systems - Costs directly associated with the initial
purchase, development and implementation of computer information systems are
deferred and included as other assets. Such costs are amortized on a straight-
line basis over the expected useful life of the systems, principally five years.
Ongoing maintenance costs of computer information systems are expensed.
Environmental Remediation Liabilities - The Company recognizes environmental
remediation liabilities when a loss is probable and can be reasonably estimated.
Estimates are developed in consultation with environmental consultants and legal
counsel and are periodically revised based on expenditures against established
reserves and the availability of additional information. Such liabilities are
included on the balance sheet as accrued liabilities.
Earnings Per Share - The computations of per share information for Fiscal
Years 1994 and 1993 are based on actual shares outstanding during the years and
on actual income applicable to common shareholders. Shares issuable upon the
exercise of employee stock options do not have a material dilutive effect on
earnings per share for the periods presented. The computation of per share
information for Fiscal Year 1992 gives effect to (a) the 1992 Recapitalization
(hereinafter defined, see Note 14) and (b) elimination of the income tax
provision (benefit) arising from the ownership change for federal income tax
purposes which is more fully described in Note 9, as if such transactions
occurred at the beginning of Fiscal Year 1992 and as if such transactions were
effected as a recapitalization of the Company.
New Accounting Standards - Statement of Financial Accounting Standards
("SFAS") No. 112, "Employers' Accounting for Postemployment Benefits,"
establishes accounting standards for employers that provide benefits to former
or inactive employees after employment but before retirement and is effective
for fiscal years beginning after December 15, 1993. The Company expects that
there will be no material effect upon implementing SFAS No. 112 on its financial
position or results of operations.
Reclassifications - Certain prior years' financial statement balances have
been reclassified to conform with the current year's presentations.
3. INVENTORIES
Inventories consist of the following at October 30, 1994 and October 31, 1993
(in thousands):
1994 1993
-------- --------
Raw materials and supplies........ $ 9,873 $18,073
Work-in-process................... 53,730 45,165
Finished products................. 15,471 15,601
Less market reserves.............. (2,193) (1,903)
------- -------
Total........................ 76,881 76,936
Difference between LIFO carrying
value and current replacement
cost............................ 2,558 (1,565)
------- -------
Current replacement cost.......... $79,437 $75,371
======= =======
Although current replacement cost for inventories at October 31, 1993 was less
than LIFO carrying value, the Company's management believed that the carrying
value would be recovered through future sales which would yield normal profit
margins.
34
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at October 30, 1994 and
October 31, 1993 (in thousands):
1994 1993
--------- --------
Land............................... $ 1,100 $ 1,100
Buildings.......................... 16,382 15,016
Machinery and equipment............ 78,657 68,406
Construction in progress........... 3,906 1,598
-------- -------
Total........................... 100,045 86,120
Less accumulated depreciation and
amortization..................... (20,566) (9,599)
-------- -------
Net........................ $ 79,479 $76,521
======== =======
Capital lease assets (principally machinery and equipment) at October 30, 1994
and October 31, 1993 was $3,799,000 and $3,077,000, respectively. Accumulated
amortization related to such capital lease assets at October 30, 1994 and
October 31, 1993 was $1,278,000 and $587,000, respectively.
Depreciation expense and amortization of capital lease assets was $11,945,000
for Fiscal Year 1994, $9,685,000 for Fiscal Year 1993 and $10,007,000 for Fiscal
Year 1992.
The Company recognized a $963,000 loss from disposal and impairment of
machinery and equipment during Fiscal Year 1993 related to the disposal and
write-down of idle equipment to reflect its remaining future economic value.
5. OTHER ASSETS
Other assets consist of the following at October 30, 1994 and October 31, 1993
(in thousands):
1994 1993
------ ------
Computer information systems,
net of accumulated amortization
$2,669,000 and $1,577,000........ $5,896 $5,128
Deferred financing costs, net of
accumulated amortization of
$1,512,000 and $629,000.......... 2,961 3,024
Other.............................. 119 722
------ ------
Total.............................. $8,976 $8,874
====== ======
6. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following at October 30, 1994 and
October 31, 1993 (in thousands):
1994 1993
------- -------
Salaries and wages
(including related payroll
taxes)........................... $ 1,314 $ 1,150
Incentive compensation and ERA's.. 1,027 2,070
Vacation.......................... 2,022 1,933
Employee benefit plans............ 834 304
Interest on long-term debt........ 773 648
Medical insurance premiums........ 1,540 1,322
Environmental remediation......... 589 446
Dissenters' settlement............ 831 -
Other............................. 3,342 2,237
------- -------
Total........................... $12,272 $10,110
======= =======
35
7. LONG-TERM DEBT
Long-term debt consists of the following at October 30, 1994 and October 31,
1993 (in thousands):
1994 1993
--------- ---------
Credit Facilities.................. $ 58,696 $ 47,218
Senior Secured Notes............... 27,000 20,000
Subordinated Notes................. 56,632 56,632
Equipment Facilities............... 7,082 8,318
Capital lease obligations
(see Note 11).................... 4,572 1,655
-------- --------
Total.......................... 153,982 133,823
Debt premium - Subordinated Notes.. 4,329 5,036
Current portion of long-term debt.. (2,714) (2,821)
-------- --------
Long-term debt............. $155,597 $136,038
======== ========
Credit Facilities - The Company entered into a five-year loan agreement as of
October 30, 1992 with General Electric Capital Corporation ("GECC"), as agent
and lender, for borrowings up to $100 million (the "GECC Facility"). The GECC
Facility provides revolving loans up to a maximum of $85 million (the "Revolving
Line of Credit") (which includes a $7.5 million letter of credit facility) and
provided a $15 million term loan (the "Original Term Loan"). In January 1995,
the GECC Facility was amended, subject to loan availability (as defined), to
provide a $7.5 million term loan (the "Term Loan"). On January 23, 1995, the
Company borrowed $7.5 million under the Term Loan, the proceeds of which were
used to repay a portion of outstanding borrowings under the Revolving Line of
Credit.
The initial borrowings under the GECC Facility were used to repay the
outstanding borrowings under the $85 million Senior Secured Revolving Credit
Facility between the Company and various lenders (the "Bank Facility") and to
secure previously issued letters of credit. The revolving loans under the Bank
Facility were payable in full on November 2, 1994. Unamortized deferred
financing costs of $1.9 million related to the Bank Facility were written off in
Fiscal Year 1992 and such write-off, net of a $0.7 million deferred income tax
benefit, was reflected as an extraordinary loss in the Company's statement of
operations for Fiscal Year 1992.
Outstanding borrowings (including outstanding letters of credit) under the
Revolving Line of Credit cannot exceed the sum of (1) 85% of eligible accounts
receivable (other than bill and hold accounts receivable), (2) the lesser of (a)
$10 million, or (b) a percentage (based on aging) of eligible bill and hold
accounts receivable, (3) 60% of eligible inventory (other than seconds and
samples), and (4) the lesser of (a) $3 million, or (b) 60% of eligible inventory
consisting of samples and seconds. The Company's borrowing base is subject to
reserves determined by GECC. At October 30, 1994, the Company's loan
availability as defined in the GECC Facility, in excess of its outstanding
borrowings and letters of credit, was approximately $7.5 million.
Borrowings under the Revolving Line of Credit bear interest, at the Company's
option, at a floating rate (which is based on a defined index rate) or a fixed
rate (which is based on LIBOR), payable monthly. The floating rate is 1.5% per
annum above the index rate, and the fixed rate is 3.0% per annum above LIBOR.
At October 30, 1994, the Revolving Line of Credit bore interest at the fixed
rate of 8.25% per annum through December 31, 1994 and was adjusted to 8.98% per
annum on January 1, 1995 through January 31, 1995.
Proceeds from the Company's ordinary operations are applied to reduce the
principal amount of borrowings outstanding under the Revolving Line of Credit.
Unused portions of the Revolving Line of Credit may be borrowed and reborrowed,
subject to availability in accordance with the then applicable commitment and
borrowing base limitations.
36
The Company's obligations under the GECC Facility are secured by liens on
substantially all of the Company's assets. The GECC Facility expires in October
1997.
Subject to certain exceptions, the GECC Facility restricts, among other
things, the incurrence of indebtedness, the sale of assets, the incurrence of
liens, the making of certain restricted payments, the making of specified
investments, the payment of cash dividends and the making of certain fundamental
corporate changes and amendments to the Company's corporate organizational and
governance instruments. In addition, the Company is required to satisfy, among
other things, certain financial performance criteria, including minimum tangible
net worth levels, interest coverage, fixed charge and current ratios, minimum
EBITDA levels, maximum leverage ratios, inventory and accounts receivable
turnover ratios and maximum capital expenditure levels.
The Company pays GECC, for the account of each of the lenders party to the
GECC Facility, a fee of 0.5% per annum on the average daily unused portion of
the Revolving Line of Credit. In addition, the Company pays GECC, for its own
account, an agency fee of $150,000 per annum and certain fees in connection with
extending and making available letters of credit.
Senior Secured Notes - On April 5, 1993, the Company issued an aggregate of
$20 million Senior Secured Floating Rate Notes and on March 30, 1994, the
Company issued an aggregate of $10 million Senior Secured Floating Rate Notes,
all of which are due October 30, 1997 (collectively the "Senior Secured Notes").
The proceeds from the sale of the Senior Secured Notes were used to repay the
Original Term Loan and to reduce outstanding borrowings under the Revolving Line
of Credit.
Borrowings under the Senior Secured Notes bear interest, at the Company's
option, at a floating rate (which is based on the prime lending rate, as
defined) or a fixed rate (which is based on LIBOR), payable quarterly. The
floating rate is 1.75% per annum above the prime lending rate, as defined, and
the fixed rate is 3.25% per annum above LIBOR. The Senior Secured Notes bear
interest at the fixed rate of 8.94% per annum from October 30, 1994 through
January 31, 1995.
The Senior Secured Notes require principal payments of $4.0 million on October
31, 1995, $5.0 million on October 31, 1996 and a final payment of the unpaid
principal balance on October 30, 1997. The Company may redeem, on any interest
payment date, all or any portion of the Senior Secured Notes at a redemption
price of 100% of the principal amount to be redeemed.
In addition, under the Indenture to the Senior Secured Notes (the "Senior
Secured Notes Indenture"), the net proceeds from the sale or other disposition
by the Company of assets (excluding, among other things, the sales of inventory
in the ordinary course of business and dispositions of equipment which are in
excess of permitted sales of equipment, whereby the proceeds of such sales are
used to purchase permitted assets) are required to be deposited with the Senior
Secured Notes Indenture trustee. If the net proceeds deposited with the trustee
aggregates $1.0 million in excess of the amount of such proceeds which will be
reinvested within twelve months of deposit with the trustee, the Company is
required to make an offer to redeem an applicable portion of the Senior Secured
Notes. As of October 30, 1994, under the terms of the Senior Secured Notes
Indenture, the Company had not deposited any net proceeds with the trustee.
The Company's obligations under the Senior Secured Notes are secured by liens
on substantially all of the Company's assets. The Senior Secured Notes
Indenture contains restrictions similar to that of the GECC Facility. Further,
the Senior Secured Notes Indenture requires the Company to satisfy, among other
things, certain financial performance criteria, including minimum adjusted
tangible net worth levels, fixed charge and interest coverage ratios and minimum
EBITDA levels. Generally, such financial performance criteria are less
stringent than similar financial performance criteria required by the GECC
Facility.
Subordinated Notes - On April 20, 1989, through an underwritten public
offering, the Company sold $100 million of 14-3/4% Senior Subordinated Notes due
37
April 15, 1999 (the "14-3/4% Notes") (effective rate 15%). In connection with a
recapitalization of the Company in 1990 (the "1990 Recapitalization"), the
Company amended the Indenture to the 14-3/4% Notes (the "Subordinated Notes
Indenture") and holders of 95.735% of the outstanding 14-3/4% Notes agreed to a
reduction in the interest rate payable on such 14-3/4% Notes to 6% per annum for
the period commencing October 16, 1990 through October 15, 1992 by accepting
Split Coupon Redeemable Amended Senior Subordinated Notes (the "Split Coupon
Notes") in exchange for the 14-3/4% Notes. The Company issued additional Split
Coupon Notes under the Subordinated Notes Indenture with a face value of
$2,872,050 on November 19, 1990 in settlement of $2,273,706 of interest due to
certain holders of the 14-3/4% Notes on October 15, 1990. The interest rate
reduction and issuance of additional notes in lieu of cash reduced the effective
interest rate on the outstanding 14-3/4% Notes and Split Coupon Notes
(collectively the "Subordinated Notes") to 12.35% per annum.
The Subordinated Notes are subordinated to all existing and future senior
indebtedness (as defined) of the Company. The Subordinated Notes Indenture
limits, subject to certain financial tests, the incurrence of additional senior
indebtedness and prohibits the incurrence of any indebtedness senior to the
Subordinated Notes that is subordinated to the Company's then existing senior
indebtedness. The Subordinated Notes Indenture contains restrictions relating
to payment of dividends, the repurchase of capital stock and the making of
certain other restricted payments, certain transactions with affiliates and
subsidiaries, and certain mergers, consolidations and sales of assets. In
addition, the Subordinated Notes Indenture requires the Company to make an offer
to purchase (1) a portion of the Subordinated Notes if (a) the Company's
adjusted tangible net worth (as defined) falls below $15 million at the end of
any two consecutive fiscal quarters or (b) the Company consummates an asset sale
(as defined) at certain times or (2) all of the Subordinated Notes if a change
of control (as defined) occurs.
In connection with the Exchange Offer (hereinafter defined, see Note 14), the
Company acquired, and did not retire or cancel, $46,240,100 aggregate face
amount of the Subordinated Notes. The Company used $2,875,000 of such
Subordinated Notes to satisfy the January 31, 1993 mandatory redemption required
in the Subordinated Notes Indenture. The Company is required to redeem on April
15, 1998, $50.0 million of the aggregate face amount of the Subordinated Notes
at a redemption price equal to par, plus accrued interest to the redemption
date. The remaining Subordinated Notes are due on April 15, 1999. The Company
may use the remaining $43,365,100 of the 14-3/4% Notes acquired in the Exchange
Offer to satisfy partially the April 15, 1998 mandatory redemption required in
the Subordinated Notes Indenture.
As a result of the Exchange Offer, the effective interest rate on the
outstanding Subordinated Notes increased from 12.35% to 12.55% per annum.
Subsequently, as a result of the Quasi Reorganization (hereinafter defined, see
Note 14), the Subordinated Notes were fair valued, which, for financial
reporting purposes, resulted in the elimination of the previously existing
deferred interest payable and debt discount, the creation of a debt premium of
$5,663,000 and a decrease in the effective interest rate on the outstanding
Subordinated Notes to 12.43% per annum.
Equipment Facilities - The Company is a party to a loan and security agreement
(the "CIT Equipment Facility") with the CIT Group/Equipment Financing, Inc.
("CIT") which provides financing for the acquisition of, and to refinance
borrowings incurred to acquire, various textile machinery and equipment.
Pursuant to the CIT Equipment Facility, commencing on December 27, 1991 and
through December 31, 1992, the Company borrowed an aggregate of $4,502,948 at
interest rates ranging from 7.86% to 8.61% per annum.
On August 2, 1993, the CIT Equipment Facility was amended to permit up to four
additional loans not to exceed an aggregate of $6.0 million with the commitment
period ending on January 31, 1994. Through October 30, 1994, the Company
borrowed an aggregate of $5,964,327 at interest rates ranging from 7.36% to
7.75% per annum. At October 30, 1994, an aggregate of $7,082,000 was
38
outstanding under the CIT Equipment Facility. On December 22, 1994, the CIT
Equipment Facility was further amended to permit up to two additional loans not
to exceed an aggregate of $5.0 million with the commitment period ending on July
31, 1995. On December 22, 1994, the Company borrowed $2.5 million at an
interest rate of 10.58%. The interest rate on the remaining loan available
under the CIT Equipment Facility is fixed at the Treasury Rate (as defined) plus
287 basis points.
Each loan under the CIT Equipment Facility is a five-year purchase money loan,
secured by a first (and only) perfected security interest in the equipment, and
is payable in 60 consecutive installments of principal plus interest, payable
monthly in arrears.
The Company may prepay all, but not less than all, of its loans under the CIT
Equipment Facility after July 1995, at a premium of 400 basis points, declining
ratably over the remaining loan term. The Company is required to provide CIT
with an irrevocable letter of credit in an amount equal to 25% of the original
principal amount of each additional loan made under the $6.0 million amendment
which requirement terminates on January 31, 1996 or thereafter.
Aggregate Maturities - At October 30, 1994, aggregate long-term debt
maturities excluding capital lease obligations (see Note 11), are as follows (in
thousands):
Fiscal Year Amount
----------- --------
1995......... $ 1,714
1996......... 11,073
1997......... 78,659
1998......... 7,881
1999......... 50,083
Thereafter... -
--------
Total..... $149,410
========
8. REDEEMABLE PREFERRED STOCK
The Company's senior preferred stock, with a dividend rate of 5% per annum, is
non-voting, except in limited circumstances, and ranks senior to any
subsequently issued class or series of preferred stock. The Company is
prohibited from paying cash dividends on the senior preferred stock under its
existing financial arrangements (see Note 7), except that the Company may, at
its option, pay such dividends through the issuance of additional shares of
senior preferred stock with an aggregate liquidation preference equal to the
dollar value of the required dividend. The senior preferred stock, plus
accumulated unpaid dividends, is mandatorily redeemable on December 15, 2010
(and earlier under certain circumstances upon a change in control (as defined))
at a price equal to the liquidation preference thereof.
As a result of the Company effecting the Quasi Reorganization, the senior
preferred stock was fair valued, resulting in a decrease in the carrying value
of $2,944,000, which is being accreted to redemption value. The fair valuation
resulted in an effective dividend rate of 10.11% per annum.
9. INCOME TAXES
At the beginning of Fiscal Year 1993, the Company adopted SFAS No. 109,
"Accounting for Income Taxes." This statement supersedes SFAS No. 96,
"Accounting for Income Taxes," which the Company adopted in fiscal year 1988.
The adoption of SFAS No. 109 did not have an effect on the Company's results of
operations for Fiscal Year 1993.
39
The provision for income taxes, exclusive of the amounts related to
extraordinary items, is as follows (in thousands):
1994 1993 1992
------ ------ ------
Current... $1,759 $ 624 $ 282
Deferred.. 572 3,621 5,408
------ ------ ------
Total... $2,331 $4,245 $5,690
====== ====== ======
The Company's statutory rate, including state income taxes (net of federal
benefit), for Fiscal Years 1994, 1993 and 1992 was 39.5%, 38.5% and 38.0%,
respectively. The Company's effective rate rose to 38.5% in Fiscal Year 1993
due to a change in the tax status of the Company. The Company's effective rate
rose to 39.5% in Fiscal Year 1994 due to the Omnibus Budget Reconciliation Act
of 1993 which increased the corporate income tax rate from 34% to 35% for
taxable income in excess of $10.0 million, as well as made certain other changes
to the corporate tax law.
A reconciliation between federal income taxes at the statutory rate and the
Company's income tax provision is as follows:
1994 1993 1992
------ ------ -------
Federal statutory tax rate........... 35.00% 34.00% 34.00%
State income taxes, net of federal
benefit............................. 4.50 4.50 4.00
Recapture of prior net operating
losses.............................. - - 146.28
Tax credits recapture................ - - 8.36
Benefit of built-in gain recognized.. - - (45.74)
Other................................ .01 .56 .35
----- ----- ------
Income tax provision................. 39.51% 39.06% 147.25%
===== ===== ======
At October 30, 1994, the Company had cumulative net operating loss
carryforwards for federal income tax purposes of $15.5 million, of which $7.4
million is available to offset future taxable income as discussed below. For
federal income tax purposes, net operating loss carryforwards begin to expire in
the year 2002.
As a result of the 1992 Recapitalization, the Company underwent an ownership
change as defined in Section 382 of the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code"). This ownership change limits the
Company's ability to utilize its net operating loss carryforwards. During
Fiscal Year 1992, the Company recorded a non-cash deferred income tax provision
of $6.0 million to reflect the recapture of previously recognized benefits of
the Company's losses and credits incurred in prior years. Reducing the $6.0
million non-cash charge for Fiscal Year 1992 was a $1.8 million permanent income
tax benefit resulting from certain events that occurred subsequent to the
ownership change, which will enable the Company to utilize a portion of its net
operating loss carryforwards existing prior to the ownership change.
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (b) operating loss
and tax credit carryforwards. The tax effects of significant items comprising
the Company's net deferred tax liability at October 30, 1994 and October 31,
1993 are as follows (in thousands):
40
1994 1993
-------- ---------
Deferred tax liabilities:
Differences between book and tax
basis of property, plant and
equipment............................ $ 9,922 $ 10,724
Inventories............................ - 1,548
Deferred interest payable.............. 1,742 2,034
Other.................................. 379 196
-------- --------
Total................................ 12,043 14,502
-------- --------
Deferred tax assets:
Operating loss carryforwards........... (6,126) (8,597)
Alternative minimum tax carryforwards.. (516) (906)
Allowance for uncollectible accounts... (830) (1,108)
Inventories............................ (800) -
Long-term debt......................... (1,710) (1,989)
Other.................................. (3,650) (4,304)
-------- --------
Total................................ (13,632) (16,904)
Valuation allowance.................... 3,566 3,566
-------- --------
Net deferred tax liability........... $ 1,977 $ 1,164
======== ========
To the extent that the book basis of the Company's assets and liabilities was
adjusted in the Quasi Reorganization, the Company adjusted its deferred tax
assets and liabilities pursuant to the principles of quasi-reorganization
accounting.
The valuation allowance relates to operating loss carryforwards incurred prior
to the Company's Quasi Reorganization that were charged to expense in Fiscal
Year 1992 at the time of the ownership change for federal income tax purposes
which resulted from the 1992 Recapitalization. Certain future events may result
in such benefits being utilized in the Company's future income tax returns,
which the Company will record as a reduction in the valuation allowance and, in
accordance with the principles of quasi-reorganization accounting, a credit to
additional paid-in-capital.
10. EMPLOYEE BENEFIT PLANS
The Company has established and presently maintains qualified pension plans
and qualified and non-qualified profit sharing and savings plans covering
eligible hourly and salaried employees. The qualified noncontributory defined
benefit pension plans cover substantially all salaried and hourly employees.
Pension plan assets consist primarily of common stocks, bonds and United
States government securities. The plans provide pension benefits that are
determined by years of service and for salaried plan participants are based on
the plan participants' average compensation for the last five years of service
and for hourly plan participants are based on the plan's applicable hourly rate
for each specific participant's year of service. The Company's funding policy
is to make the annual contribution required by applicable regulations and
recommended by its actuary.
41
Net periodic pension cost for the periods indicated include the following
components at October 30, 1994, October 31, 1993 and November 1, 1992,
(in thousands, except assumption percentages):
1994 1993 1992
------------------- ------------------- -------------------
Hourly Salaried Hourly Salaried Hourly Salaried
Pension Pension Pension Pension Pension Pension
Plan Plan Plan Plan Plan Plan
-------- --------- -------- --------- -------- ---------
Service cost............. $ 568 $ 878 $ 413 $ 563 $ 367 $ 524
Interest cost............ 532 476 463 379 402 356
Return on plan assets.... (390) (356) (393) (339) (355) (270)
----- ----- ----- ----- ----- -----
Net periodic pension
cost................... $ 710 $ 998 $ 483 $ 603 $ 414 $ 610
===== ===== ===== ===== ===== =====
Assumptions used in
the accounting are:
Discount rates........... 8.75% 8.75% 7.00% 7.00% 8.75% 8.75%
Rate of increase in
compensation levels.... - 5.50% - 5.50% - 5.50%
Expected long-term rate
of return on assets.... 8.00% 8.00% 8.00% 8.00% 8.00% 8.00%
The following schedule sets forth the funded status of the hourly and salaried
pension plans and the plan assets (accrued pension costs) included in the
Company's balance sheets at October 30, 1994 and October 31, 1993,
(in thousands):
1994 1993
------------------- -------------------
Hourly Salaried Hourly Salaried
Pension Pension Pension Pension
Plan Plan Plan Plan
-------- --------- -------- ---------
Actuarial present value
of pension obligation:
Vested...................... $(6,184) $(4,945) $(6,806) $(4,643)
Nonvested................... (617) (327) (661) (395)
------- ------- ------- -------
Accumulated benefit obligation.. (6,801) (5,272) (7,467) (5,038)
Effects of projected future
compensation levels.......... - (907) - (1,494)
------- ------- ------- -------
Projected benefit obligation... (6,801) (6,179) (7,467) (6,532)
Plan assets at fair value...... 6,224 5,325 6,001 4,920
Unrecognized net loss (gain)... 943 (242) 1,883 954
------- ------- ------- -------
Plan assets (accrued pension
costs) included in balance
sheet........................ $ 366 $(1,096) $ 417 $ (658)
======= ======= ======= =======
The Company's assumed discount rate ("discount rate") used to measure the
accumulated benefit obligation for its hourly and salaried pension plans under
SFAS No. 87, "Employers' Accounting for Pensions," as of the end of Fiscal Year
1994 was increased from 7.00% to 8.75% based on the composition of the
accumulated benefit obligation and current economic conditions. As of the end
of Fiscal Year 1993 the discount rate was lowered from 8.75% to 7.00% based on
then prevailing economic conditions. The Company's hourly pension plan benefit
obligation exceeds the plan assets at fair value at the end of Fiscal Year 1994
by $577,000. During Fiscal Year 1994, the Company reduced its accrued
additional pension liability in excess of accumulated benefit obligation from
$1,900,000 to $943,000 and reduced the $1,101,000 excess of additional pension
liability over unrecognized prior service cost, net of $719,000 deferred tax
benefit charged to shareholders' equity at the end of Fiscal Year 1993 to
$526,000, net of $343,000 deferred tax benefit.
42
The Company has a qualified salaried employees' savings, investment and profit
sharing plan under Section 401(k) of the Internal Revenue Code (the "Qualified
Plan"). The Company has adopted a non-qualified salaried employees' savings,
investment and profit sharing plan covering certain employees not covered under
the Qualified Plan.
On September 18, 1992, the Company adopted the Forstmann & Company, Inc.
Common Stock Incentive Plan, as subsequently amended (the "Option Plan"), for
key employees of the Company, pursuant to which 450,000 shares of common stock
were reserved for issuance by the Company. On March 30, 1994, the Company's
shareholders increased the number of shares reserved for issuance by the Company
under the Option Plan to 700,000. Options granted under the Option Plan may be
either incentive stock options ("ISOs"), which are intended to meet the
requirements of Section 422 of the Internal Revenue Code, or non-qualified stock
options ("NSOs").
The Compensation Committee of the Company's Board of Directors may grant under
the Option Plan (1) ISOs at an exercise price per share which is not less than
the fair market value (as defined) of the common stock at the date of grant and
(2) NSOs at an exercise price not less than $.001 per share. The Option Plan
further provides that the maximum period in which options may be exercised will
be determined by the Compensation Committee, except that ISOs may not be
exercised after the expiration of ten years from the date of grant (five years
in the case of an optionee who is a 10% shareholder). The Option Plan requires
that ISOs terminate on the date the optionee's employment with the Company
terminates, except in the case of death, disability, termination of employment
without cause or a change of control (as defined) of the Company, as determined
by the Compensation Committee. Options are non-transferable, except by will or
by the laws of descent and distribution, and may be exercised upon the payment
of the option price in cash or any other form of consideration acceptable to the
Compensation Committee.
The following summarizes stock option activity:
1994 1993
------------ ------------
Shares under option at beginning
of fiscal year.................. 247,300 115,000
Granted........................... - 137,800
Exercised......................... (3,797) -
Terminated........................ (2,235) (5,500)
----------- -----------
Shares under option at end of
fiscal year..................... 241,268 247,300
=========== ===========
Options exercisable at end of
fiscal year..................... 158,928 -
=========== ===========
Options available for future
grant........................... 454,935 202,700
=========== ===========
Option prices per share:
Granted........................... $ - $ 6.75
Exercised......................... $ 6.75 $ -
Outstanding at end of
fiscal year..................... $6.75-$9.00 $6.75-$9.00
On December 8, 1994, an additional 39,197 of the ISOs granted at an exercise
price of $6.75 per share became exercisable. On January 6, 1995, the
Compensation Committee granted an aggregate of 225,000 ISOs to 14 management
level employees of the Company at an exercise price of $8.50 per share.
Five senior officers of the Company were granted equity referenced deferred
incentive awards ("ERAs") on March 4, 1992, which generally vest three years
after grant and are exercisable only if, after vesting, the Company's common
stock maintains a market price of at least $9.00 per share for a continuous
period of 30 days provided that such event occurs before March 4, 1998. Upon
exercise, the ERAs have a value of $9.00, multiplied by the number of shares
covered by the senior officer's ISOs, thus permitting the officers to be
reimbursed, on a pre-tax basis, for the exercise price of their ISOs. The
senior officers will be entitled
43
to exercise their ERAs even if they determine not to exercise their ISOs. At
October 30, 1994, $919,000 had been accrued in connection with the ERAs.
On December 8, 1992, the Compensation Committee approved a supplemental
retirement benefit plan (the "SERP") to provide additional retirement benefits
to senior officers of the Company. The SERP provides supplemental retirement
income benefits, supplemental welfare benefit coverage and death benefits to
senior officers who have been selected by the Compensation Committee. The level
of benefits a participant may receive depends upon the participant's accrued or
projected benefits under the Company's tax-qualified pension plan, the
participant's length of service with the Company and the circumstances under
which the participant retires. If a participant is terminated from employment
without cause or after a change in control (as defined), the participant will
receive the same benefits which would have been provided by the SERP if the
participant continued in the Company's employ until age 62. As of October 30,
1994, $55,000 of contributions have been made to the SERP. During Fiscal Years
1994 and 1993, $128,000 and $64,000, respectively, was expensed in connection
with the SERP.
11. COMMITMENTS AND CONTINGENCIES
Lease Commitments - Aggregate future minimum lease commitments under operating
leases and capital leases with an initial or remaining non-cancellable term in
excess of one year, together with the present value of the minimum capital lease
payments at October 30, 1994, are as follows (in thousands):
Operating Capital
Fiscal Year Leases Leases
----------- --------- -------
1995.................................. $2,376 $1,374
1996.................................. 2,212 1,333
1997.................................. 672 1,046
1998.................................. 517 924
1999.................................. 320 922
Thereafter............................ 413 56
------ ------
Total minimum lease payments.......... $6,510 $5,655
======
Less amount representing interest.. 1,083
------
Present value of minimum lease
payments......................... 4,572
Less current portion of capital
lease obligations................ 1,000
------
Long-term portion of capital
lease obligations................ $3,572
======
Rental expense under operating leases was $2.2 million for Fiscal Year 1994
and Fiscal Year 1993 and $2.4 million for Fiscal Year 1992.
License & Royalty Agreements - In July 1992, the Company formed its Forstmann
International division and entered into a licensing, technical information and
consulting arrangement with Compagnia Tessile, S.p.A., an Italian corporation,
and its affiliate (collectively "Carpini/TM/"). Under the arrangement, the
Company has the exclusive right to manufacture "Carpini/TM/ USA for Forstmann
International" fabrics for women's and men's apparel for distribution and sale
in the United States, Canada and Mexico for an initial period through December
31, 1997. The Company also has the right to acquire certain technical
information. In consideration of the licensing and consulting arrangement, the
Company has agreed to pay Carpini an annual royalty and guaranteed minimum fee
as follows (in thousands):
Fiscal Year Amount
----------- ------
1995........ $ 458
1996........ 738
1997........ 1,325
1998........ 522
44
Additionally, the Company is required to pay Carpini a sales fee equal to five
percent (5%) of annual net sales of "Carpini USA" fabrics, after deducting the
annual guaranteed minimum fee. Further, the arrangement permits the Company to
purchase certain fabrics manufactured by Carpini which can be resold by the
Company in the United States and Canada.
Purchase Commitments - In the ordinary course of business, the Company has
significant purchase orders for raw wool outstanding, which generally require
the placement of an order six to nine months prior to delivery. Additionally,
at October 30, 1994 the Company had outstanding commitments to purchase
machinery and equipment with an approximate value of $8.5 million.
Letters of Credit - At October 30, 1994, the Company had outstanding letters
of credit aggregating $2,959,372.
Litigation - The Company is a party to legal actions arising out of the
ordinary course of business. In the opinion of management, after consultation
with counsel, the resolution of these claims will not have a material adverse
effect on the financial position or results of operations of the Company.
Environmental - By the nature of its operations, the Company is subject to
various governmental environmental regulations and occasionally has been subject
to proceedings and orders pertaining to emissions into the environment. As part
of its completion of the identification and valuation of the assets acquired and
liabilities assumed in connection with the acquisition of the Company on
December 13, 1988, the Company accrued $1.9 million for environmental matters
based on the Company's estimate at that time that it would incur between $1.9
million and $3.5 million in costs to remove excess wastes accidentally released
into the environment, to upgrade existing waste facilities and to monitor
chemical levels in the groundwater.
Pursuant to the Georgia Hazardous Site Response Act (the "Response Act"),
property owners in Georgia were required to notify the Environmental Protection
Division of the Georgia Department of Natural Resources (the "GDNR") of known
releases of regulated substances on their properties above certain levels by
March 22, 1994. Pursuant to the Response Act, the Company notified the GDNR of
two historical releases at the Company's Dublin, Georgia facility, one relating
to the presence of trichloroethylene at the site and one relating to another
constituent near the southern property boundary. Based upon the Company's March
1994 notification, the GDNR has determined that a release exceeding a reportable
quantity has occurred at the site. As a result, the site has been listed on the
Georgia Hazardous Site Inventory ("HSI"), which currently consists of 277 other
sites. The Company has also recently notified the GDNR of another possible
release near the western property boundary of the Dublin facility, asserting
vigorously that this release should not be listed on the HSI. This release was
identified by the Company through the sampling procedures in connection with the
Company's Environmental Plan. The GDNR intends to evaluate most of the sites on
the HSI to determine which sites need corrective action. The GDNR has finalized
procedures for determining corrective action levels under the Response Act. In
January 1995, the GDNR notified the Company that it is a Responsible Party for
the site, and has informed the Company that, pursuant to the Response Act, the
Company is required to submit a compliance status report and compliance status
certification with respect to the site by June 30, 1995. The GDNR has also
informed the Company of its obligation to identify all other potentially
responsible parties, and, in compliance therewith, the Company plans to identify
the prior owner and operator of the Dublin facility.
Based on an environmental remediation plan that the Company submitted to the
GDNR in May 1992 for investigation and remediation of groundwater, and
additional soil and groundwater sampling (the "Environmental Plan"), and on
advice of outside environmental consultants, the Company estimated that the
remaining costs associated with the Environmental Plan as of October 30, 1994
was $589,000 and such amount was accordingly reflected in the Company's
financial statements at that date. The Company believes that, based on its
review as described above, costs incurred to date and after meetings with
counsel and engineering specialists, no material liability, in addition to
amounts already recorded by the Company, will result from these matters.
However, depending upon how the GDNR will implement its new corrective action
regulations, the remedial expenditures required, in the aggregate, could be
material.
45
Dissenters' Proceeding - As required under Georgia Statute O.C.G.A. (S) 14-2-
1330, the Company commenced, on July 10, 1992, a civil action against:
Resolution Trust Corporation as receiver for Columbia Savings & Loan
Association, F.A. (the "RTC"); James E. Kjorlien; Gary M. Smith; Grace Brothers,
Ltd.; The Henley Group; Randall D. Smith, Jeffrey A. Smith and Russell B. Smith,
as Trustees for Lake Trust dtd 9/4/91; (the "Non-RTC defendants") and the record
owners of the shares of the Non-RTC defendants (the "Dissenters' Proceeding").
The RTC and Non-RTC defendants were record owners or beneficial holders of an
aggregate of 1,473,562 shares of the Company's then existing voting and non-
voting common stock who dissented (the "Pre-Merger Stock") from the Merger
(hereinafter defined, see Note 14). Under Georgia law, holders of the
outstanding shares of Pre-Merger Stock who were deemed to have dissented from
the Merger became entitled to payment of the "fair value" of their Pre-Merger
Stock, determined as of a time immediately before consummation of the Merger
plus interest on that amount from the date of the Merger.
In September 1994, the Company settled the claims of the RTC in exchange for
payment by the Company of $475,000 and the issuance of 30,000 shares of the
Company's common stock. In December 1994, in settlement of the remaining
claims, the Company paid the Non-RTC defendants $365,000. The action has been
dismissed and no claims remain pending in the Dissenters' Proceeding. Total
costs of $1,788,000, including legal fees to settle the Dissenters' Proceeding,
were charged to additional paid-in capital during Fiscal Year 1994 in accordance
with the principles of quasi-reorganization accounting (see Note 14).
12. PRO FORMA INCOME AND INCOME PER SHARE (UNAUDITED)
The following information for Fiscal Year 1992 gives effect to (a) the 1992
Recapitalization (see Note 14) and (b) the elimination of the income tax
provision, net of benefit, arising from the ownership change for federal income
tax purposes which is more fully described in Note 9, as if such transactions
occurred at the beginning of Fiscal Year 1992 and as if such transactions were
affected as a recapitalization of the Company (in thousands):
1992
-----------
Loss before extraordinary loss,
as reported........................... $ (1,826)
Reduction in interest expense........... 1,985
Income tax provision on the reduction
in interest expense................... (754)
Elimination of income tax provision,
net of benefit, related to ownership
change.............................. 4,222
Preferred stock in-kind dividends....... (240)
----------
Pro forma income applicable to common
shareholders.......................... $ 3,387
==========
Pro forma income per share applicable
to common shareholders................ $.61
==========
Pro forma common shares outstanding..... $5,585,014
==========
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount and estimated fair value of the Company's financial
instruments at October 30, 1994 are as follows (in thousands):
Carrying Estimated
Amount Fair Value
-------- ----------
Assets:
Cash................................ $ 49 $ 49
Accounts receivable................. 57,089 57,089
Liabilities:
Accounts payable.................... 13,153 13,153
Long-term debt (other than capital..
lease obligations)................ 153,739 153,185
Senior preferred stock.............. 2,425 2,097
46
Considerable judgement is required in developing the estimates of fair value
presented herein. Accordingly, these estimates are not necessarily indicative
of the amounts the Company could realize in a current market exchange. The use
of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Cash, accounts receivable, notes receivable and accounts payable - The
carrying amount of these items is a reasonable estimate of their fair value.
Long-term debt (other than capital lease obligations) - Based upon the nature
of the Company's Revolving Line of Credit and Senior Secured Notes, the Company
believes its carrying amount approximates fair value. The Company's
Subordinated Notes are publicly traded on occasion, and the fair value is based
on estimates of market value for instruments with similar terms and remaining
maturities. Interest rates that are currently available to the Company for
issuance of fixed rate debt with similar terms and remaining maturities are used
to estimate the fair value of the Company's Equipment Facilities.
Senior preferred stock - The discounted cash flow of the senior preferred
stock based on estimates of market requirements for instruments with similar
terms and remaining maturities as provided by a third-party financial
institution is used to estimate the fair value of the Company's senior preferred
stock.
14. RECAPITALIZATION AND QUASI REORGANIZATION
Recapitalization - During Fiscal Year 1992, the Company completed a
restructuring and recapitalization (the "1992 Recapitalization") whereby the
Company (a) merged with an affiliated company (the "Merger"), which resulted in
each issued and outstanding share of the Company's common stock and non-voting
common stock prior to the Merger (except with respect to the Pre-Merger Stock)
being converted into 1/2,172 of an identical share of common stock of the
Company without any payment or other consideration in respect thereof (the
"Reverse Stock Split"), (b) accepted $46,240,100 aggregate face amount of the
Split Coupon Notes in exchange for $19,596,758 cash and 2,420,904 unregistered
shares of the Company's common stock (the "Exchange Offer"), (c) completed an
initial public offering and sold 2,750,000 shares of common stock at $8.37 net
per share (the "Public Offering"), and (d) received from Odyssey $3,712,500 of
the cash consideration Odyssey had received in the Exchange Offer as the
purchase price for 412,500 unregistered shares of the Company's common stock.
Quasi Reorganization - The Company, with approval from its Board of Directors,
revalued its assets and liabilities to fair value as of the beginning of Fiscal
Year 1993 pursuant to the principles of quasi-reorganization accounting (the
"Quasi Reorganization"), which is a voluntary accounting procedure that permits
an entity which has emerged from previous financial difficulty to restate its
accounts to estimated fair values and to eliminate its retained deficit against
additional paid-in capital. The Quasi Reorganization fair value adjustments
recorded during Fiscal Year 1993 resulted in a write-down of the Company's net
assets of $22,507,000 that was charged to the Company's retained deficit
account. The assets and liabilities principally affected by the fair value
adjustments and the amounts of such adjustments are as follows (in thousands):
47
Increase (Decrease)
in Net Assets
-------------------
Inventories........................ $(14,781)
Property, plant and equipment...... (19,740)
Deferred financing costs........... (1,726)
Net assets of hourly pension plan.. (245)
Other accrued liabilities.......... (4,048)
Long-term debt..................... (6,114)
Deferred interest payable.......... 5,752
Deferred tax liability............. 15,451
Senior preferred stock............. 2,944
--------
Net decrease....................... $(22,507)
========
Subsequent to the fair value adjustments, the balance in the Company's
retained deficit account of $59,599,000 was eliminated against the Company's
additional paid-in capital account.
At the effective date of the Quasi Reorganization, the Company had certain
unresolved contingencies related to specific environmental matters and the
Dissenters' Proceeding (see Note 11). In accordance with the principles of
quasi-reorganization accounting, the difference between the actual costs
subsequently incurred to resolve these matters and the liabilities recorded at
the time of the Quasi Reorganization will be charged or credited to additional
paid-in capital, as appropriate. During Fiscal Year 1994, $206,000 (net of
income taxes) and $1,788,000 related to the environmental matters and
Dissenters' Proceeding, respectively, were charged to additional paid-in capital
as adjustments to the amounts initially recorded in the Quasi Reorganization.
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for Fiscal Year 1994 and Fiscal Year 1993 are
summarized as follows (in thousands, except per share information):
Fiscal Quarter
------------------------------------
First Second Third Fourth
-------- ------- ------- --------
Fiscal Year 1994
- ----------------
Net sales.................... $37,451 $76,508 $69,092 $54,034
Gross Profit................. 8,768 18,566 14,173 6,345
Income (loss) applicable to
common shareholders........ (1,197) 5,229 2,391 (3,084)
Income (loss) per share
applicable to common
shareholders............... (.21) .94 .43 (.55)
Fiscal Quarter
-----------------------------------
First Second Third Fourth
------- ------- ------- -------
Fiscal Year 1993
- ----------------
Net sales.................... $43,124 $71,649 $66,073 $52,519
Gross Profit................. 8,330 17,097 15,329 10,262
Income (loss) applicable to
common shareholders........ (73) 3,493 3,017 (22)
Income (loss) per share
applicable to common
shareholders............... (.01) .63 .54 -
48
During the fourth quarter of Fiscal Year 1994, the Company accrued an
additional amount for workers' compensation expense of approximately $550,000
and increased its inventory valuation by $1,165,000 for the effects of LIFO
accounting. Also, during the fourth quarter of Fiscal Year 1994, the Company
incurred significant unfavorable manufacturing variances resulting from a
slowdown of production and a shift in product mix at its manufacturing
facilities.
During the fourth quarter of Fiscal Year 1993, the Company recognized a
provision for uncollectible accounts of $900,000, an increase of $500,000 from
the fourth quarter of Fiscal Year 1992. The additional provison was based on
the Company's continuing review and assessment of the collectibility of aged
balances included in accounts receivable. Also, during the fourth quarter of
Fiscal Year 1993, the Company recognized $1,100,000 for incentive compensation
expense.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
---------------------------------------------
Deloitte & Touche LLP, independent public accountants, currently is, and for
more than the Company's last two fiscal years has been, the Company's
independent accounting firm. Since the beginning of such two fiscal year
period, (i) Deloitte & Touche LLP has not expressed reliance, in its audit
report, on the audit services of any other accounting firm, and (ii) there have
been no reported disagreements between the Company and Deloitte & Touche LLP on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure.
49
PART III
Item 10. DIRECTORS AND EXECUTIVE
OFFICERS OF THE REGISTRANT
--------------------------
The information required for this Item 10 is incorporated by reference from
the Company's definitive proxy statement to be filed with the Securities and
Exchange Commission (the "Commission") pursuant to Regulation 14A under the
Securities Exchange Act of 1934 ("Regulation 14A") within 120 days after the end
of the Company's fiscal year covered by this Annual Report on Form 10-K.
Item 11. EXECUTIVE COMPENSATION
----------------------
The information required for this Item 11 is incorporated by reference from
the Company's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A within 120 days after the end of the Company's fiscal
year covered by this Annual Report on Form 10-K.
Item 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------
The information required for this Item 12 is incorporated by reference from
the Company's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A within 120 days after the end of the Company's fiscal
year covered by this Annual Report on Form 10-K.
Item 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
-------------------------
The information required for this Item 13 is incorporated by reference from
the Company's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A within 120 days after the end of the Company's fiscal
year covered by this Annual Report on Form 10-K.
50
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------
(a) Documents filed as part of this Annual Report on Form 10-K:
1. Financial Statements.
All financial statements required to be filed as part of this Annual
Report on Form 10-K are filed under Item 8. A listing of such financial
statements is set forth in Item 8, which listing is incorporated herein
by reference.
2. Schedules.
Schedules for the Fifty-Three Weeks Ended November 1, 1992 and the
Fifty-Two Weeks Ended October 31, 1993 and October 30, 1994.
SCHEDULE
NUMBER
--------
VIII. Valuation and Qualifying Accounts
Schedules other than those listed above are omitted because (a) they are
not required or are not applicable or (b) the required information is
shown in the financial statements or notes related thereto.
(b) No Current Report on Form 8-K was filed by the Company during the fourth
quarter of its fiscal year ended October 30, 1994.
(c) Exhibits
3.1(a) Articles of Restatement setting forth the Amended and Restated Articles
of Incorporation of the Company, as filed with the Secretary of State
of Georgia on November 19, 1990 (Exhibit 3(i)1. to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 31, 1994).
3.1(b) Articles of Correction, as filed with the Secretary of State of Georgia
on December 18, 1990 (Exhibit 3(i)2. to the Company's Quarterly Report
on Form 10-Q for the quarter ended July 31, 1994).
3.1(c) Articles of Merger of Forstmann Georgia Corp. and the Company, as filed
with the Secretary of State of Georgia on March 3, 1992 (Exhibit 3(i)3.
to the Company's Quarterly Report on Form 10-Q for the quarter ended
July 31, 1994).
3.1(d)* Articles of Amendment to the Articles of Incorporation of the Company,
as filed with the Secretary of State of Georgia on April 5, 1994.
3.2(a) By-Laws of the Company (Exhibit 4.4 to the Company's Registration
Statement (No. 33-55770) on Form S-8).
3.2(b) Amended and Restated By-Laws of the Company on March 30, 1994 (Exhibit
3(ii) to the Company's Quarterly Report on Form 10-Q for the quarter
ended July 31, 1994).
4.1(a) Amended and Restated Indenture, dated as of November 19, 1990, relating
to Senior Subordinated Notes due April 15, 1999 (Exhibit 2 to the
Company's Current Report on Form 8-K dated November 19, 1990).
4.1(b) First Supplemental Indenture, dated as of November 29, 1990, relating
to Senior Subordinated Notes due April 15, 1999 (Exhibit 3 to the
Company's Current Report on Form 8-K dated November 19, 1990).
4.1(c) Second Supplemental Indenture, dated as of March 4, 1992, relating to
Senior Subordinated Notes due April 15, 1999 (Exhibit 4.3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended February
2, 1992).
4.2 Form of 14-3/4% Senior Subordinated Note due April 15, 1999 (Exhibit A
to Exhibit 4.1(a) hereof, as amended by Exhibits 4.1(b) and 4.1(c)
hereof).
4.3 Form of Amended Senior Subordinated Note due April 15, 1999 (Exhibit B
to Exhibit 4.1(a) hereof, as amended by Exhibits 4.1(b) and 4.1(c)
hereof).
4.4(a) Loan Agreement, dated as of October 30, 1992, between the Company and
General Electric Capital Corporation ("GECC"), as lender and agent for
the lenders named therein ("Loan Agreement") (Exhibit 4.4(a) to the
Company's Annual Report on Form 10-K for the year ended November 1,
1992).
4.4(b) Security Agreement, dated as of November 13, 1992, by the Company, in
favor of GECC, as lender and agent for the lenders named therein
(Exhibit 4.4(b) to the Company's Annual Report on Form 10-K for the
year ended November 1, 1992).
4.4(c) Form of Trademark Security Agreement, dated as of November 13, 1992, by
the Company, in favor of GECC, as lender and agent for the lenders
named therein (Exhibit 4.4(c) to the Company's Annual Report on Form
10-K for the year ended November 1, 1992).
4.4(d) Form of Deed to Secure Debt, Assignment of Leases and Rents, Security
Agreement and Fixture Filing, dated as of November 13, 1992, between
the Company and GECC, as agent (Exhibit 4.4(d) to the Company's Annual
Report on Form 10-K for the year ended November 1, 1992).
4.4(e) First Amendment, dated as of November 13, 1992, to the Loan Agreement
(Exhibit 19.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended August 1, 1993).
4.4(f) Form of Promissory Note for the Loan Agreement (Exhibit 19.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended August 1,
1993).
4.4(g) Second Amendment, dated as of December 30, 1992, to the Loan Agreement
(Exhibit 19.3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended August 1, 1993).
4.4(h) Third Amendment, dated as of April 5, 1993, to the Loan Agreement
(Exhibit 19.5 to the Company's Quarterly Report on Form 10-Q for the
quarter ended August 1, 1993).
51
4.4(i) Consent and Waiver Letter, dated as of June 10, 1994, to the Company
from GECC (Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q
for the quarter ended July 31, 1994).
4.4(j) Fourth Amendment, dated as of June 11, 1993, to the Loan Agreement
(Exhibit 19.6 to the Company's Quarterly Report on Form 10-Q for the
quarter ended August 1, 1993).
4.4(k) Fifth Amendment, dated as of August 2, 1992, to the Loan Agreement
(Exhibit 4.4(j) to the Company's Annual Report on Form 10-K for the
year ended October 31, 1993).
4.4(l) Sixth Amendment, dated as of October 29, 1993, to the Loan Agreement
(Exhibit 4.4(k) to the Company's Annual Report on Form 10-K for the
year ended October 31, 1993).
4.4(m) Seventh Amendment, dated as of March 30, 1994, to the Loan Agreement
(Exhibit 4.9 to the Company's Quarterly Report on Form 10-Q for the
quarter ended May 1, 1994).
4.4(n)* Eighth Amendment, dated as of August 29, 1994, to the Loan Agreement.
4.4(o) Consent and Waiver Letter, dated as of September 12, 1994, to the
Company from GECC (Exhibit 4.6 to the Company's Quarterly Report on
Form 10-Q for the quarter ended July 31, 1994).
4.4(p)* Ninth Amendment, dated as of November 4, 1994, to the Loan Agreement.
4.4(q)* Tenth Amendment, dated January 4, 1995, to the Loan Agreement.
4.4(r)* Eleventh Amendment, dated as of January 23, 1995, to the Loan
Agreement.
4.5(a) Loan and Security Agreement ("Loan and Security Agreement"), dated
December 27, 1991, between the Company and The CIT Group/Equipment
Financing, Inc. ("CIT") (Exhibit 28.2 to the Company's Quarterly Report
on Form 10-Q for the quarter ended February 2, 1992).
4.5(b) Amendment, dated September 2, 1992, to the Loan and Security Agreement
(Exhibit 4.5(b) to the Company's Annual Report on Form 10-K for the
year ended November 1, 1992).
4.5(c) Amendment, dated October 30, 1992, to the Loan and Security Agreement
(Exhibit 4.5(c) to the Company's Annual Report on Form 10-K for the
year ended November 1, 1992).
4.5(d) Amendment, dated December 31, 1992, to the Loan and Security Agreement
(Exhibit 4.5(d) to Post-Effective Amendment No. 4 to the Company's
Registration Statement (No. 33-38520) on Form S-1).
4.5(e) Amendment, dated as of July 30, 1993, to the Loan and Security
Agreement (Exhibit 4.5(e) to Post-Effective Amendment No. 4 to the
Company's Registration Statement (No. 33-38520) on Form S-1).
4.5(f) Third Amendment to the Loan and Security Agreement, dated as of June
13, 1994 (Exhibit 4.4 to the Company's Quarterly Report on Form 10-Q
for the quarter ended July 31, 1994.)
4.5(g) Fourth Amendment to the Loan and Security Agreement, dated as of
September 12, 1994 (Exhibit 4.5 to the Company's Quarterly Report on
Form 10-K for the quarter ended July 31, 1994).
4.5(h)* Fifth Amendment to the Loan and Security Agreement, dated as of
December 22, 1994.
4.6(a) Indenture, dated as of April 5, 1993, between the Company and Shawmut
Bank Connecticut, National Association ("Shawmut"), as trustee,
relating to the Senior Secured Floating Rate Notes ("Senior Secured
Notes") (Exhibit 4.6(a) to Post-Effective Amendment No. 4 to the
Company's Registration Statement (No. 33-38520) on Form S-1).
4.6(b) Form of Senior Secured Note due October 30, 1997 (Exhibit 4.6(b) to
Post-Effective Amendment No. 4 to the Company's Registration Statement
(No. 33-38520) on Form S-1).
4.6(c) Form of Deed to Secure Debt, Assignments of Leases and Rents, Security
Agreements and Fixture Filings, dated as of April 5, 1993, between the
Company and Shawmut, as trustee (Exhibit 4.6(c) to Post-Effective
Amendment No. 4 to the Company's Registration Statement (No. 33-38520)
on Form S-1).
4.6(d) Security Agreement, dated as of April 5, 1993, between the Company and
Shawmut, as trustee (Exhibit 4.6(d) to Post-Effective Amendment No. 4
to the Company's Registration Statement (No. 33-38520) on Form S-1).
52
4.6(e) Form of Trademark Security Agreement, dated as of April 5, 1993,
between the Company and Shawmut, as trustee (Exhibit 4.6(e) to Post-
Effective Amendment No. 4 to the Company's Registration Statement (No.
33-38520) on Form S-1).
4.6(f) Form of Patent Security Agreement, dated as of April 5, 1993, between
the Company and Shawmut, as trustee (Exhibit 19.4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended August 1, 1993).
4.6(g) Amended and Restated Indenture, dated as of March 30, 1994, between the
Company and Shawmut Bank of Connecticut, National Association, as
trustee, relating to the Senior Secured Notes (Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended May 1,
1994).
4.6(h) Form of Original Senior Secured Note (incorporated herein by reference
to Exhibit 4.6(g)).
4.6(i) Form of Additional Senior Secured Note (incorporated herein by
reference to Exhibit 4.6(g).
4.6(j) Form of First Amendment to Deed to Secure Debt, Assignments of Leases
and Rents, Security Agreements and Fixture Filings, dated as of March
30, 1994, between the Company and Shawmut Bank Connecticut, National
Association, as trustee (Exhibit 4.4 to the Company's Quarterly Report
on Form 10-Q for the quarter ended May 1, 1994).
4.6(k) First Amendment to Pledge and Security Agreement, dated as of March 30,
1994 between the Company and Shawmut Bank Connecticut, National
Association, as trustee (Exhibit 4.5 to the Company's Quarterly Report
on Form 10-Q for the quarter ended May 1, 1994).
4.6(l) First Amendment to Trademark Security Agreement (foreign), dated as of
March 30, 1994, between the Company and Shawmut Bank Connecticut,
National Association, as trustee (Exhibit 4.6 to the Company's
Quarterly Report on Form 10-Q for the quarter ended May 1, 1994).
4.6(m) First Amendment to Trademark Security Agreement (U.S.), dated as of
March 30, 1994, between the Company and Shawmut Bank Connecticut,
National Association, as trustee (Exhibit 4.7 to the Company's
Quarterly Report on Form 10-Q for the quarter ended May 1, 1994).
4.6(n) First Amendment to Patent Security Agreement, dated as of March 30,
1994, between the Company and Shawmut Bank Connecticut, National
Association, as trustee (Exhibit 4.8 to the Company's Quarterly Report
on Form 10-Q for the quarter ended May 1, 1994).
4.6(o)* Supplemental Indenture, dated as of January 23, 1995, between the
Company and Shawmut Bank Connecticut, National Association, as trustee,
relating to the Senior Secured Notes.
10.1(a) J. P. Stevens & Co., Inc. Trademark Assignments to the Company,
effective December 28, 1985, dated January 29, 1986 (Exhibit 10(h) to
the Company's Registration Statement (No. 33-27296) on Form S-1).
10.1(b) Lease, dated July 21, 1986, between the Company and 1185 Avenue of the
Americas Associates ("1185 Associates") (Exhibit 10(t) to the Company's
Registration Statement (No. 33-27296) on Form S-1).
10.1(c) Lease Modification Agreement, dated December 5, 1991, between the
Company and 1185 Associates (Exhibit 10.7 to the Company's Registration
Statement (No. 33-44417) on Form S-1).
10.1(d) Consent to Lease Modification Agreement, dated May 11, 1992, between
the Company and 1185 Associates (Exhibit 10.2(c) to the Company's
Annual Report on Form 10-K for the year ended November 1, 1992).
10.1(e) Lease Modification Agreement, dated May 11, 1992, between the Company
and 1185 Associates (Exhibit 10.1(d) to the Company's Annual Report on
Form 10-K for the year ended November 1, 1992).
10.2(a) Amended Note Registration Rights Agreement, dated as of November 19,
1990, among the Company and the parties thereto (Exhibit 10.4 to the
Company's Registration Statement (No. 33-38520) on Form S-1).
10.2(b) Common Stock Registration Rights Agreement, dated as of November 19,
1990, among the Company, Columbia Savings & Loan Association, CSL
Investments, Executive Life Insurance Company and the parties thereto
(Exhibit 10.5 to the Company's Registration Statement (No. 33-38520) on
Form S-1).
10.2(c) Preferred Stock Registration Rights Agreement, dated as of November 19,
1990, between the Company and Executive Life Insurance Company (Exhibit
10.6 to the Company's Registration Statement (No. 33-38520) on
Form S-1).
53
10.2(d)* Common Stock Registration Rights Agreement, dated as of September 9,
1994, between the Company and Resolution Trust Corporation as receiver
for Columbia Savings & Loan Association, F.A.
10.3(a)* Common Stock Incentive Plan as amended as of March 30, 1994.
10.3(b) Form of Incentive Stock Option Agreement (Exhibit 4.2(a) to the
Company's Registration Statement (No. 33-55770) on Form S-8).
10.3(c) Alternative Form of Incentive Stock Option Agreement (Exhibit 4.2(b) to
the Company's Registration Statement (No. 33-55770) on Form S-8).
10.4(a) Form of Equity Referenced Deferred Incentive Award Agreement ("ERA")
(Exhibit 10.13 to the Company's Registration Statement (No. 33-44417)
on Form S-1).
10.4(b)* Amendment, dated February 10, 1994, to the ERA Agreement, dated
February 26, 1992.
10.5(a) Form of Change in Control Agreement (Exhibit 10.6 to the Company's
Annual Report on Form 10-K for the year ended November 1, 1992).
10.5(b) Employment Agreement dated December 16, 1993 between the Company and
Christopher L. Schaller. (Exhibit 10.5(b) to the Company's Annual
Report on Form 10-K for the year ended October 31, 1993).
10.5(c) Form of Employment Agreement for Executive Vice Presidents. (Exhibit
10.5(c) to the Company's Annual Report on Form 10-K for the year ended
October 31, 1993).
10.6(a) Supplemental Retirement Benefit Plan (Exhibit 10.7 to the Company's
Annual Report on Form 10-K for the year ended November 1, 1992).
10.6(b) Trust Agreement, dated December 30, 1993, of the Supplemental
Retirement Benefit Plan Trust. (Exhibit 10.6(b) to the Company's Annual
Report on Form 10-K for the year ended October 31, 1993).
10.7* Management Incentive Plan - Fiscal Year 1995.
10.8 Non-Qualified Salaried Employees' Savings, Investment and Profit
Sharing Plan (Exhibit 10.9 to the Company's Annual Report on Form 10-K
for the year ended November 1, 1992).
10.9(a)* Form of Indemnity Agreement, effective as of February 7, 1994, between
the Company and its corporate officers.
10.9(b)* Form of Indemnity Agreement, effective as of February 7, 1994,
between the Company and its directors.
10.10(a)*License Agreement, dated July 1, 1992, between Campagia Tessile
S.p.A. ("licensor") and the Company.
10.10(b)*Guarantee Agreement, dated July 1, 1992, between the Licensor and
the Company.
10.10(c)*Italian Fabrics Purchase Agreement, dated July 1, 1992, between the
Licensor and the Company.
10.10(d)*Liquidated Damages Agreement, dated July 1, 1992, between the Licensor
and the Company.
10.10(e)*Use of the mark "Carpini" Agreement, dated July 1, 1992, between the
Licensor and the Company.
10.10(f)*Consultancy/Sales Fee Agreement, dated July 1, 1992, between
Woolverton Limited ("Consultant") and the Company.
10.10(g)*Guarantee Agreement, dated July 1, 1992, between the Consultant and
the Company.
10.10(h)*Consultation for Purchase of Italian Fabrics Agreement, dated July
1, 1992, between the Consultant and the Company.
10.10(i)*Liquidated Damages Agreement, dated July 1, 1992, between the
Consultant and the Company.
10.10(j)*Renegotiation of Sales Fee Arrangements for Non-Registration of
Marks, dated July 1, 1992, between the Consultant and the Company.
54
11.1* Computation of per share earnings.
23.1* Consent of Deloitte & Touche LLP.
27.1* Financial Data Schedule.
* Filed herewith.
55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: January 26, 1995 By: /s/ Christopher L. Schaller
----------------------------
Christopher L. Schaller
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Christopher L. Schaller President and Chief January 26, 1995
- --------------------------------- Executive Officer
Christopher L. Schaller and Director
(Principal Executive
Officer)
/s/ William B. Towne Executive Vice January 26, 1995
- --------------------------------- President and
William B. Towne Chief Financial
Officer (Principal
Financial and
Accounting Officer)
/s/ Stephen Berger Director January 26, 1995
- ---------------------------------
Stephen Berger
/s/ Cameron Clark, Jr. Director January 26, 1995
- ---------------------------------
Cameron Clark, Jr.
/s/ Steven M. Friedman Director January 26, 1995
- ---------------------------------
Steven M. Friedman
/s/ F. Peter Libassi Director January 26, 1995
- ---------------------------------
F. Peter Libassi
/s/ Alain Oberrotman Director January 26, 1995
- ---------------------------------
Alain Oberrotman
56
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Shareholders of
Forstmann & Company, Inc.:
We have audited the financial statements of Forstmann & Company, Inc. as of
October 30, 1994 and October 31, 1993 and the related statements of operations,
shareholders' equity, and cash flows for the fifty-two weeks ended October 30,
1994 and October 31, 1993 and the fifty-three weeks ended November 1, 1992 and
have issued our report thereon dated December 8, 1994 (January 23, 1995 as to
paragraph 2 of Note 7)(which expresses an unqualified opinion and includes an
explanatory paragraph relating to the Company's quasi reorganization and its
changes in its method of accounting for income taxes)(included elsewhere in the
Annual Report on Form 10-K). Our audits also included the financial statements
listed in Item 14(a)2 of this Annual Report on Form 10-K. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present faily in all material respects
the information set forth therein.
/s/Deloitte & Touche LLP
- ------------------------
Deloitte & Touche LLP
Atlanta, Georgia
December 8, 1994
57
SCHEDULE VIII
FORSTMANN & COMPANY, INC.
VALUATION AND QUALIFYING ACCOUNTS
THE FIFTY-THREE WEEKS ENDED NOVEMBER 1, 1992 AND THE FIFTY-TWO WEEKS
ENDED OCTOBER 31, 1993 AND OCTOBER 30, 1994
Additions
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions of Period
- ----------- ---------- ---------- ------------------ ----------
Allowance for Doubtful Accounts:
- --------------------------------
Fifty-Three Weeks Ended
November 1, 1992 $6,836,000 $1,206,000 $ (189,000) /(1)/ $7,853,000
Fifty-Two Weeks Ended
October 31, 1993 $7,853,000 $2,714,000 $(8,372,000) /(1)/ $2,195,000
Fifty-Two Weeks Ended
October 30, 1994 $2,195,000 $2,167,000 $(2,262,000) /(1)/ $2,100,000
Inventory Market Reserves:
- --------------------------
Fifty-Three Weeks Ended
November 1, 1992 $2,940,000 $ (702,000) /(2)/ $2,238,000
Fifty-Two Weeks Ended
October 31, 1993 $2,238,000 $ (335,000) /(2)/ $1,903,000
Fifty-Two Weeks Ended
October 30, 1994 $1,903,000 $ 290,000 $2,193,000
/(1)/ Accounts written off net of recoveries of accounts previously written off.
/(2)/ Net reduction due to disposal of identified excess cloth and yarn
inventories.
58
EXHIBIT INDEX
-------------
Sequential
Exhibit No. Description Page No.
- ----------- ------------ ----------
3.1(a) Articles of Restatement setting forth the
Amended and Restated Articles of Incorporation
of the Company, as filed with the Secretary
of State of Georgia on November 19, 1990
(Exhibit 3(i)1. to the Company's Quarterly
Report on Form 10-Q for the quarter ended
July 31, 1994). *
3.1(b) Articles of Correction, as filed with the
Secretary of State of Georgia on
December 18, 1990 (Exhibit 3(i)2. to the
Company's Quarterly Report on Form 10-Q
for the quarter ended July 31, 1994). *
3.1(c) Articles of Merger of Forstmann Georgia Corp.
and the Company, as filed with the Secretary
of State of Georgia on March 3, 1992
(Exhibit 3(i)3. to the Company's Quarterly
Report on Form 10-Q for the quarter ended
July 31, 1994). *
3.1(d) Articles of Amendment to the Articles of
Incorporation of the Company, as filed with
the Secretary of State of Georgia on
April 5, 1994.
3.2(a) By-Laws of the Company (Exhibit 4.4 to the
Company's Registration Statement (No. 33-55770)
on Form S-8). *
3.2(b) Amended and Restated By-Laws of the Company
on March 30, 1994 (Exhibit 3(ii) to the
Company's Quarterly Report on Form 10-Q
for the quarter ended July 31, 1994). *
4.1(a) Amended and Restated Indenture, dated as of
November 19, 1990, relating to Senior
Subordinated Notes due April 15, 1999
(Exhibit 2 to the Company's Current Report
on Form 8-K dated November 19, 1990). *
4.1(b) First Supplemental Indenture, dated as of
November 29, 1990, relating to Senior
Subordinated Notes due April 15, 1999
(Exhibit 3 to the Company's Current Report
on Form 8-K dated November 19, 1990). *
4.1(c) Second Supplemental Indenture, dated as of
March 4, 1992, relating to Senior Subordinated
Notes due April 15, 1999 (Exhibit 4.3 to the
Company's Quarterly Report on Form 10-Q
for the quarter ended February 2, 1992). *
__________
*Incorporated herein by reference as indicated.
(i)
EXHIBIT INDEX
-------------
Sequential
Exhibit No. Description Page No.
- ----------- ------------ ----------
4.2 Form of 14-3/4% Senior Subordinated Note
due April 15, 1999 (Exhibit A to Exhibit
4.1(a) hereof, as amended by Exhibits
4.1(b) and 4.1(c) hereof). *
4.3 Form of Amended Senior Subordinated Note
due April 15, 1999 (Exhibit B to Exhibit
4.1(a) hereof, as amended by Exhibits
4.1(b) and 4.1(c) hereof). *
4.4(a) Loan Agreement, dated as of October 30, 1992,
between the Company and General Electric
Capital Corporation ("GECC"), as lender
and agent for the lenders named therein
("Loan Agreement") (Exhibit 4.4(a) to the
Company's Annual Report on Form 10-K for the
year ended November 1, 1992). *
4.4(b) Security Agreement, dated as of November
13, 1992, by the Company, in favor of GECC,
as lender and agent for the lenders named
therein (Exhibit 4.4(b) to the Company's
Annual Report on Form 10-K for the year
ended November 1, 1992). *
4.4(c) Form of Trademark Security Agreement, dated
as of November 13, 1992, by the Company, in
favor of GECC, as lender and agent for the
lenders named therein (Exhibit 4.4(c) to the
Company's Annual Report on Form 10-K for the
year ended November 1, 1992). *
4.4(d) Form of Deed to Secure Debt, Assignment of
Leases and Rents, Security Agreement and
Fixture Filing, dated as of November 13,
1992, between the Company and GECC, as agent
(Exhibit 4.4(d) to the Company's Annual
Report on Form 10-K for the year ended
November 1, 1992). *
4.4(e) First Amendment, dated as of November 13,
1992, to the Loan Agreement (Exhibit 19.1
to the Company's Quarterly Report on
Form 10-Q for the quarter ended August
1, 1993). *
4.4(f) Form of Promissory Note for the Loan
Agreement (Exhibit 19.2 to the Company's
Quarterly Report on Form 10-Q for the
quarter ended August 1, 1993). *
__________
*Incorporated herein by reference as indicated.
(ii)
EXHIBIT INDEX
-------------
Sequential
Exhibit No. Description Page No.
- ----------- -------------- ----------
4.4(g) Second Amendment, dated as of December
30, 1992, to the Loan Agreement (Exhibit
19.3 to the Company's Quarterly Report
on Form 10-Q for the quarter ended
August 1, 1993). *
4.4(h) Third Amendment, dated as of April 5,
1993, to the Loan Agreement (Exhibit
19.5 to the Company's Quarterly Report
on Form 10-Q for the quarter ended
August 1, 1993). *
4.4(i) Consent and Waiver Letter, dated as of
June 10, 1994, to the Company from GECC
(Exhibit 4.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended
July 31, 1994). *
4.4(j) Fourth Amendment, dated as of June 11, 1993,
to the Loan Agreement (Exhibit 19.6 to the
Company's Quarterly Report on Form 10-Q for
the quarter ended August 1, 1993). *
4.4(k) Fifth Amendment, dated as of August 2, 1992,
to the Loan Agreement (Exhibit 4.4(j) to the
Company's Annual Report on Form 10-K for the
year ended October 31, 1993). *
4.4(l) Sixth Amendment, dated as of October 29, 1993,
to the Loan Agreement (Exhibit 4.4(k) to the
Company's Annual Report on Form 10-K for the
year ended October 31, 1993). *
4.4(m) Seventh Amendment, dated as of March 30, 1994,
to the Loan Agreement (Exhibit 4.9 to the
Company's Quarterly Report on Form 10-Q for
the quarter ended May 1, 1994). *
4.4(n) Eighth Amendment, dated as of August 29, 1994,
to the Loan Agreement.
4.4(o) Consent and Waiver Letter, dated as of September
12, 1994, to the Company from GECC (Exhibit 4.6
to the Company's Quarterly Report on Form 10-Q
for the quarter ended July 31, 1994). *
4.4(p) Ninth Amendment, dated as of November 4, 1994,
to the Loan Agreement.
4.4(q) Tenth Amendment, dated January 4, 1995, to the
Loan Agreement.
4.4(r) Eleventh Amendment, dated as of January 23,
1995, to the Loan Agreement.
__________
*Incorporated herein by reference as indicated.
(iii)
EXHIBIT INDEX
-------------
Sequential
Exhibit No. Description Page No.
- ----------- ------------- ----------
4.5(a) Loan and Security Agreement ("Loan and
Security Agreement"), dated December 27,
1991, between the Company and The CIT
Group/Equipment Financing, Inc. ("CIT")
(Exhibit 28.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended
February 2, 1992). *
4.5(b) Amendment, dated September 2, 1992, to the
Loan and Security Agreement (Exhibit 4.5(b)
to the Company's Annual Report on Form 10-K
for the year ended November 1, 1992). *
4.5(c) Amendment, dated October 30, 1992, to the
Loan and Security Agreement (Exhibit 4.5(c)
to the Company's Annual Report on Form 10-K
for the year ended November 1, 1992). *
4.5(d) Amendment, dated December 31, 1992, to the
Loan and Security Agreement (Exhibit 4.5(d)
to Post-Effective Amendment No. 4 to the
Company's Registration Statement (No. 33-38520)
on Form S-1). *
4.5(e) Amendment, dated as of July 30, 1993, to the
Loan and Security Agreement (Exhibit 4.5(e)
to Post-Effective Amendment No. 4 to the
Company's Registration Statement (No. 33-38520)
on Form S-1). *
4.5(f) Third Amendment to the Loan and Security
Agreement, dated as of June 13, 1994 (Exhibit
4.4 to the Company's Quarterly Report on Form
10-Q for the quarter ended July 31, 1994.) *
4.5(g) Fourth Amendment to the Loan and Security
Agreement, dated as of September 12, 1994
Exhibit 4.5 to the Company's Quarterly Report
on Form 10-K for the quarter ended July 31,
1994). *
4.5(h) Fifth Amendment to the Loan and Security
Agreement, dated as of December 22, 1994.
__________
*Incorporated herein by reference as indicated.
(iv)
EXHIBIT INDEX
-------------
Sequential
Exhibit No. Description Page No.
- ----------- ------------- ----------
4.6(a) Indenture, dated as of April 5, 1993,
between the Company and Shawmut Bank
Connecticut, National Association ("Shawmut"),
as trustee, relating to the Senior
Secured Floating Rate Notes ("Senior
Secured Notes") (Exhibit 4.6(a) to
Post-Effective Amend-ment No. 4 to the
Company's Registration Statement
(No. 33-38520) on Form S-1). *
4.6(b) Form of Senior Secured Note due October
30, 1997 (Exhibit 4.6(b) to Post-Effective
Amendment No. 4 to the Company's
Registration Statement (No. 33-38520)
on Form S-1). *
4.6(c) Form of Deed to Secure Debt, Assignments
of Leases and Rents, Security Agreements
and Fixture Filings, dated as of April
5, 1993, between the Company and Shawmut,
as trustee (Exhibit 4.6(c) to
Post-Effective Amendment No. 4 to the
Company's Registration Statement
(No. 33-38520) on Form S-1). *
4.6(d) Security Agreement, dated as of April 5,
1993, between the Company and Shawmut,
as trustee (Exhibit 4.6(d) to
Post-Effective Amendment No. 4 to the
Company's Registration Statement
No. 33-38520) on Form S-1). *
4.6(e) Form of Trademark Security Agreement,
dated as of April 5, 1993, between the
Company and Shawmut, as trustee (Exhibit
4.6(e) to Post-Effective Amendment No. 4
to the Company's Registration Statement
(No. 33-38520) on Form S-1). *
4.6(f) Form of Patent Security Agreement, dated as
of April 5, 1993, between the Company and
Shawmut, as trustee (Exhibit 19.4 to the
Company's Quarterly Report on Form 10-Q
for the quarter ended August 1, 1993). *
4.6(g) Amended and Restated Indenture, dated as of
March 30, 1994, between the Company and
Shawmut Bank of Connecticut, National
Association, as trustee, relating to the
Senior Secured Notes (Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for
the quarter ended May 1, 1994). *
__________
*Incorporated herein by reference as indicated.
(v)
EXHIBIT INDEX
-------------
Sequential
Exhibit No. Description Page No.
- ----------- ----------- ----------
4.6(h) Form of Original Senior Secured Note
(incorporated herein by reference to
Exhibit 4.6(g)). *
4.6(i) Form of Additional Senior Secured Note
(incorporated herein by reference to
Exhibit 4.6(g). *
4.6(j) Form of First Amendment to Deed to
Secure Debt, Assignments of Leases
and Rents, Security Agreements and Fixture
Filings, dated as of March 30, 1994, between
the Company and Shawmut Bank Connecticut,
National Association, as trustee (Exhibit
4.4 to the Company's Quarterly Report on
Form 10-Q for the quarter ended May 1, 1994). *
4.6(k) First Amendment to Pledge and Security
Agreement, dated as of March 30, 1994 between
the Company and Shawmut Bank Connecticut,
National Association, as trustee (Exhibit
4.5 to the Company's Quarterly Report on
Form 10-Q for the quarter ended May 1, 1994). *
4.6(l) First Amendment to Trademark Security
Agreement (foreign), dated as of March 30,
1994, between the Company and Shawmut Bank
Connecticut, National Association, as trustee
(Exhibit 4.6 to the Company's Quarterly
Report on Form 10-Q for the quarter ended
May 1, 1994). *
4.6(m) First Amendment to Trademark Security
Agreement (U.S.), dated as of March 30, 1994,
between the Company and Shawmut Bank
Connecticut, National Association, as trustee
(Exhibit 4.7 to the Company's Quarterly
Report on Form 10-Q for the quarter ended
May 1, 1994). *
4.6(n) First Amendment to Patent Security Agreement,
dated as of March 30, 1994, between the
Company and Shawmut Bank Connecticut,
National Association, as trustee (Exhibit
4.8 to the Company's Quarterly Report on
Form 10-Q for the quarter ended May 1, 1994). *
4.6(o) Supplemental Indenture, dated as of January 23,
1995, between the Company and Shawmut Bank
Connecticut, National Association, as trustee,
relating to the Senior Secured Notes.
__________
*Incorporated herein by reference as indicated.
(vi)
EXHIBIT INDEX
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Sequential
Exhibit No. Description Page No.
- ----------- ----------- ----------
10.1(a) J. P. Stevens & Co., Inc. Trademark
Assignments to the Company, effective
December 28, 1985, dated January 29,
1986 (Exhibit 10(h) to the Company's
Registration Statement (No. 33-27296)
on Form S-1). *
10.1(b) Lease, dated July 21, 1986, between the
Company and 1185 Avenue of the Americas
Associates ("1185 Associates") (Exhibit
10(t) to the Company's Registration
Statement (No. 33-27296) on Form S-1). *
10.1(c) Lease Modification Agreement, dated
December 5, 1991, between the Company
and 1185 Associates (Exhibit 10.7 to the
Company's Registration Statement
(No. 33-44417) on Form S-1). *
10.1(d) Consent to Lease Modification Agreement,
dated May 11, 1992, between the Company
and 1185 Associates (Exhibit 10.2(c) to
the Company's Annual Report on Form 10-K
for the year ended November 1, 1992). *
10.1(e) Lease Modification Agreement, dated
May 11, 1992, between the Company and
1185 Associates (Exhibit 10.1(d) to the
Company's Annual Report on Form 10-K for
the year ended November 1, 1992). *
10.2(a) Amended Note Registration Rights Agreement,
dated as of November 19, 1990, among the
Company and the parties thereto (Exhibit
10.4 to the Company's Registration Statement
(No. 33-38520) on Form S-1). *
10.2(b) Common Stock Registration Rights Agreement,
dated as of November 19, 1990, among the
Company, Columbia Savings & Loan Association,
CSL Investments, Executive Life Insurance
Company and the parties thereto (Exhibit
10.5 to the Company's Registration Statement
(No. 33-38520) on Form S-1). *
10.2(c) Preferred Stock Registration Rights Agreement,
dated as of November 19, 1990, between the
Company and Executive Life Insurance Company
(Exhibit 10.6 to the Company's Registration
Statement (No. 33-38520) on Form S-1). *
__________
*Incorporated herein by reference as indicated.
(vii)
EXHIBIT INDEX
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Sequential
Exhibit No. Description Page No.
- ----------- ------------- ----------
10.2(d) Common Stock Registration Rights Agreement,
dated as of September 9, 1994, between the
Company and Resolution Trust Corporation as
receiver for Columbia Savings & Loan
Association,F.A.
10.3(a) Common Stock Incentive Plan as amended
as of March 30, 1994.
10.3(b) Form of Incentive Stock Option Agreement
(Exhibit 4.2(a) to the Company's Registration
Statement (No. 33-55770) on Form S-8). *
10.3(c) Alternative Form of Incentive Stock Option
Agreement (Exhibit 4.2(b) to the Company's
Registration Statement (No. 33-55770)
on Form S-8). *
10.4(a) Form of Equity Referenced Deferred Incentive
Award Agreement ("ERA") (Exhibit 10.13 to
the Company's Registration Statement
(No. 33-44417) on Form S-1). *
10.4(b) Amendment, dated February 10, 1994, to the
ERA Agreement, dated February 26, 1992.
10.5(a) Form of Change in Control Agreement (Exhibit
10.6 to the Company's Annual Report on
Form 10-K for the year ended November 1, 1992). *
10.5(b) Employment Agreement dated December 16, 1993
between the Company and Christopher L. Schaller.
(Exhibit 10.5(b) to the Company's Annual
Report on Form 10-K for the year ended
October 31, 1993). *
10.5(c) Form of Employment Agreement for Executive
Vice Presidents. (Exhibit 10.5(c) to the
Company's Annual Report on Form 10-K for the
year ended October 31, 1993). *
10.6(a) Supplemental Retirement Benefit Plan (Exhibit
10.7 to the Company's Annual Report on
Form 10-K for the year ended November 1, 1992). *
10.6(b) Trust Agreement, dated December 30, 1993,
of the Supplemental Retirement Benefit Plan
Trust. (Exhibit 10.6(b) to the Company's
Annual Report on Form 10-K for the year ended
October 31, 1993). *
__________
*Incorporated herein by reference as indicated.
(viii)
EXHIBIT INDEX
-------------
Sequential
Exhibit No. Description Page No.
- ----------- ------------ ----------
10.7 Management Incentive Plan - Fiscal Year 1995.
10.8 Non-Qualified Salaried Employees' Savings,
Investment and Profit Sharing Plan (Exhibit
10.9 to the Company's Annual Report on Form
10-K for the year ended November 1, 1992). *
10.9(a) Form of Indemnity Agreement, effective as of
February 7, 1994, between the Company and its
corporate officers.
10.9(b) Form of Indemnity Agreement, effective
as of February 7, 1994, between the
Company and its directors.
10.10(a) License Agreement, dated July 1, 1992,
between Campagia Tessile S.p.A. ("licensor")
and the Company.
10.10(b) Guarantee Agreement, dated July 1, 1992,
between the Licensor and the Company.
10.10(c) Italian Fabrics Purchase Agreement, dated
July 1, 1992, between the Licensor and
the Company.
10.10(d) Liquidated Damages Agreement, dated
July 1, 1992, between the Licensor and the
Company.
10.10(e) Use of the mark "Carpini" Agreement, dated
July 1, 1992, between the Licensor and the
Company.
10.10(f) Consultancy/Sales Fee Agreement, dated
July 1, 1992, between Woolverton Limited
("Consultant") and the Company.
10.10(g) Guarantee Agreement, dated July 1, 1992,
between the Consultant and the Company.
10.10(h) Consultation for Purchase of Italian Fabrics
Agreement, dated July 1, 1992, between the
Consultant and the Company.
10.10(i) Liquidated Damages Agreement, dated
July 1, 1992, between the Consultant and
the Company.
10.10(j) Renegotiation of Sales Fee Arrangements
for Non-Registration of Marks, dated
July 1, 1992, between the Consultant and
the Company.
11.1 Computation of per share earnings.
23.1 Consent of Deloitte & Touche LLP.
27.1 Financial Data Schedule.
__________
*Incorporated herein by reference as indicated.
(ix)