TULTEX
1997
ANNUAL
REPORT
CONTENTS
1 Financial Highlights
2 To Our Stockholders
6 Balance Sheet
7 Statement of Operations
8 Statements of Changes in Stockholders' Equity
9 Statement of Cash Flows
10 Notes to Financial Statements
19 Report of Independent Accountants
20 Management's Discussion and Analysis
22 Common Stock Prices and Dividend Information
23 Selected Financial Data
24 General Information, Officers and Directors
Inside Back Cover:Plant Locations, Subsidiaries, Company-Owned Stores
ABOUT OUR COMPANY
Tultex Corporation is one of the world's largest manufacturers, marketers and
distributors of casual apparel, including activewear, licensed apparel and caps.
The vertically integrated company has broad distribution for its products in the
retail and wholesale channels. Products are sold under such brand names as
Discus Athletic(R), LogoAthletic(R), Logo7(R), Tultex(R) and Track Gear(TM).
Licenses include the NFL, NBA, MLB, NHL, NASCAR and college.
The company operates yarn, fabric, sewing and distribution facilities in
Virginia, North Carolina, Indiana, Massachusetts and Jamaica. In addition,
Tultex has contractors in Mexico, Central America, Canada and the Caribbean.
Licensed apparel is sourced from China, Korea and Taiwan. In the second quarter
of 1997, Tultex acquired two distributors, California Shirt Sales on the west
coast and T-Shirt City in the midwest. These acquisitions will further move the
company toward becoming a marketer and distributor.
Tultex remains committed to its strategies which include:
o shifting away from traditional manufacturing and toward sourcing, marketing
and distribution;
o continuing to promote and build its branded business;
o further reducing costs;
o improving debt-to-equity ratio.
[GRAPHIC APPEARS HERE]
Tultex Corporation
FINANCIAL HIGHLIGHTS
Fiscal years ended: Jan. 3, 1998 Dec. 28, 1996 % Increase
(53 weeks) (52 weeks) (Decrease)
- --------------------------------------------------------------------------------------------
(In thousands of dollars except per share data)
OPERATING RESULTS:
Net sales and other income $ 650,628 $ 636,341 2.2%
Income (loss) before income taxes $ (7,947) $ 26,933 (129.5)%
Net income (loss) $ (4,848) $ 16,699 (129.0)%
Return on average common stockholders' equity (3.0)% 8.6% --
- --------------------------------------------------------------------------------------------
PER SHARE OF COMMON STOCK:
- --------------------------------------------------------------------------------------------
Net income (loss) (1) $ (.19) $ .53 (135.8)%
Book value $ 6.23 $ 6.40 (2.7)%
- --------------------------------------------------------------------------------------------
YEAR-END STATUS:
Working capital $ 295,721 $ 275,491 7.3%
Property, plant and equipment-net $ 142,851 $ 136,426 4.7%
Total assets $ 538,226 $ 500,780 7.5%
Long-term debt $ 285,727 $ 223,616 27.8%
Common stockholders' equity $ 186,081 $ 187,730 (.9)%
Shares of common stock outstanding 29,875,488 29,333,571 1.8%
Number of stockholders 2,315 2,585 (10.4)%
Number of employees 6,708 6,618 1.4%
- --------------------------------------------------------------------------------------------
OTHER:
Depreciation $ 20,614 $ 21,497 (4.1)%
Capital expenditures $ 29,075 $ 29,048 .1%
Interest expense $ 27,611 $ 21,742 27.0%
Dividends - preferred $ 810 $ 1,135 (28.6)%
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(1) Based on weighted average number of shares outstanding.
See Notes to Financial Statements.
1
Tultex Corporation
TO OUR STOCKHOLDERS
1997 was a difficult and disappointing year for all of us at Tultex. Results
were negatively impacted by sourcing and production delays in the third quarter
and a precipitous drop in retail demand in the fourth quarter.
Sales for the year ended January 3, 1998 were $650,628,000 versus $636,341,000
during the previous 12 months. The net loss for the year just ended was
$4,848,000 or $0.19 per share compared with net income of $16,699,000 or $0.53
per share for the year ended December 28, 1996. The net loss includes a
fourth-quarter pretax charge of $9,120,000, which equates to $5,563,000 or $.19
per share on an after-tax basis. Excluding this non-recurring charge, net income
for fiscal 1997 was $715,000 or break even on an earnings per share basis after
giving consideration to preferred dividends.
This charge resulted from initiatives undertaken by our company to improve our
future cost structure which had a negative impact on operating results in 1997.
These initiatives include:
o bringing major capital projects on-line to improve textile manufacturing
efficiencies and yields;
o closing two domestic sewing plants in order to further shift sewing
production to non-U.S. locations where costs are lower;
o closing two distributor warehouses and a sales office, and reducing staff as
the company streamlines its activewear operations.
Our business, particularly in the second half, was hurt by operational problems,
pricing pressures and sluggish holiday sales. In the third quarter, we
experienced difficulties with non-U.S. contractors who did not meet production
schedules. These problems were further exacerbated by competitors shifting
rapidly to non-U.S. sewing, which further increased competition for reliable
contractors outside the United States.
We have addressed third-quarter operational problems in our sourcing area by
reducing the number of contractors utilized and dedicating more senior
management and technical resources at these locations. These factors, along with
continued migration of our production to non-U.S. locations, should reduce our
cost structure in 1998.
In the fourth quarter, particularly during the critical holiday shopping season,
sluggish sales at retail and pricing pressures in certain channels of
distribution tell the story of our missed sales and earnings targets. In
particular, demand for higher margin fleece and licensed apparel products was
weak at year-end. Many retailers cited warmer fall weather as a contributing
factor for weak consumer demand for outerwear.
1998 WILL BE CHALLENGING, BUT WE ARE
BETTER POSITIONED TO FACE THESE CHALLENGES...
While 1998 will be challenging for everyone in our industry, we can point to
several positives for improvement in 1998.
First, we will benefit from a full year of our distributor businesses and
increased penetration of our products through this channel. In 1997, we had $109
million in sales from our distributors in the eight months we owned them, with
approximately 40% of sales coming from our own Tultex products. In 1998, a full
year of our distributors and continued penetration of our own products, should
result in a doubling of sales of Tultex products through this channel.
Second, we have reduced sewing costs as a result of our sourcing initiative.
Third, we have eliminated the previously mentioned operational problems
experienced in the third quarter of 1997.
2
Tultex Corporation
Fourth, we completed several capital projects that will benefit us in 1998 by
improving manufacturing efficiencies and reducing costs. They include
installation of new equipment at our Roxboro, N.C. yarn plant in the second half
of 1997, which is expected to further drive our yarn manufacturing costs down.
Also, implementation of a major project in our knitting area to the
"knit-to-lot" concept and jumbo rolls should improve our work-in-process
inventories and fabric utilization. Finally, in our dyeing department in
Martinsville, we have eliminated pad dyeing and converted to the latest in
pressure vessel dyeing equipment which enables us to better serve our customers'
demands for a greater variety of shades and colors.
In the area of information technology, Tultex is in the process of implementing
the R3 version of SAP software, a totally-integrated information management
system.
Having completed or reached near completion on these capital-improvement
projects in 1997, we expect capital spending in 1998 to be lower.
WE REMAIN COMMITTED TO OUR STRATEGIES...
Despite the difficulties of 1997, we remain convinced that we have the right
strategies in place to grow our business and be successful. These strategies
include:
o shifting away from traditional manufacturing and toward sourcing, marketing
and distribution;
o continuing to promote and build our branded business;
o further reducing our costs;
o improving our debt-to-equity ratio.
The clear trend in our industry is a shift toward sourcing and away from owning
manufacturing assets. We have a much smaller percentage of our corporate assets
invested in manufacturing than we have had in the past, which allows us to be
more flexible and quickly respond to changing needs. In the past five years, we
have reduced the amount of money tied up in fixed assets as a percentage of
sales. As we continue to shift toward becoming a marketer and distributor, more
and more of our investments will be in these areas.
As we pursue our strategy of promoting our branded products, we will have to be
more creative. We have two objectives in 1998: reducing promotional costs as a
percentage of sales and taking advantage of new opportunities.
For instance, new to our marketing mix in licensed apparel will be on-field
jersey presence. LogoAthletic(R) has obtained a license to provide on-field
jerseys for six
[PHOTO APPEARS IN MIDDLE OF PAGE]
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Tultex Corporation
NFL teams--Buffalo Bills, Cincinnati Bengals, Indianapolis Colts, St. Louis
Rams, Seattle Seahawks and Tennessee Oilers. LogoAthletic will continue to
supply official sideline apparel to the coaching staff of all of the above
teams, as well as the Arizona Cardinals.
In addition to exposure from on-field and sideline presence, LogoAthletic
continues to be promoted by star players like Troy Aikman, Dan Marino, Super
Bowl Quarterback John Elway and Bruce Smith.
Products approved by licensors for the mass market are generating new sales in a
product category where Tultex previously had no distribution. These products are
principally jerseys for the NBA, NHL and Major League Baseball.
Discus Athletic(R) was impacted by sluggish second-half sales due to warmer
weather and an oversupply at retail. In addition, the yen/dollar ratio hurt our
Japanese sales of Discus Athletic products, but we anticipate a rebound in this
sector in 1998. We are encouraged by the reception of our Fall '98 line. Discus
will have its first women's retail placement for Fall 1998.
We also see opportunities for growth in 1998 through our Track Gear(TM) line of
apparel geared towards motorsports. Track Gear made a name for itself in the
NASCAR market, with sales tripling in 1997. NASCAR chose Track Gear as one of
four apparel licensees for its 50th Anniversary. We are excited about the
potential in motorsports. According to NASCAR, the audience for Winston Cup
racing has grown from 2.6 million in 1987 to 6.1 million in 1997 and we plan to
capitalize on this rapidly growing sport.
ABOUT OUR BOARD...
Over the past several years, we have consciously sought people for our board who
can help strengthen our company and broaden our perspective.
Seth Bernstein of J. P. Morgan & Company, Inc. joined the Board in February
1997. He is managing director and head of the Leveraged Finance Group at J. P.
Morgan and has more than 10 years of experience in investment banking.
Lynn Beasley, executive vice president for R. J. Reynolds Tobacco Company, was
elected to the board in July. She oversees marketing for R. J. Reynolds Tobacco
and has been involved in marketing and brand development throughout her 15-plus
years with the company.
With Ms. Beasley's strong background in marketing and Mr. Bernstein's expertise
in financial matters, we
[PHOTO APPEARS IN MIDDLE OF PAGE]
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Tultex Corporation
[PHOTO APPEARS HERE]
TULTEX BOARD OF DIRECTORS (STANDING FROM LEFT): LATHAN M. EWERS, JR., JOHN M.
FRANCK, CHAIRMAN, SETH P. BERNSTEIN AND BRUCE M. JACOBSON; (SEATED FROM LEFT):
RICHARD M. SIMMONS, JR., F. KENNETH IVERSON, CHARLES W. DAVIES, JR., PRESIDENT
AND CHIEF EXECUTIVE OFFICER, LYNN J. BEASLEY AND H. RICHARD HUNNICUTT, JR.
are confident that these newest additions to our board, as well as our veteran
members, will be great assets to our company and our shareholders.
Again, 1997 was a challenging year for us and our industry given the marketplace
and changing customer needs, yet we improved our competitive position. In 1998,
we believe our cost reduction efforts and new opportunities, coupled with a full
year of our distributor business, will lead to better results for our
shareholders.
Sincerely,
/s/ John M. Franck
John M. Franck
Chairman of the Board
/s/ Charles W. Davies, Jr.
Charles W. Davies, Jr.
President and Chief Executive Officer
5
Tultex Corporation
BALANCE SHEET
(in thousands of dollars except share data)
Assets Jan. 3, 1998 Dec. 28, 1996
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CURRENT ASSETS:
Cash and equivalents $ 2,507 $ 1,654
Accounts receivable, less allowance for doubtful accounts
of $4,205 (1997) and $3,762 (1996) 123,315 160,107
Inventories (Note 2) 199,855 162,283
Prepaid expenses 9,290 7,877
Income taxes refundable 2,696 --
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Total current assets 337,663 331,921
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Property, plant and equipment, net of depreciation (Note 3) 142,851 136,426
Intangible assets 44,190 24,333
Other assets 13,522 8,100
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Total Assets $ 538,226 $ 500,780
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Liabilities and Stockholders' Equity
- ------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Notes payable to banks (Note 4) $ 5,000 $ 5,628
Current maturities of long-term debt (Notes 5 and 19) 527 424
Accounts payable - trade 26,437 33,981
Accrued liabilities - other 9,975 14,429
Dividends payable (Note 6) 3 284
Income taxes payable -- 1,684
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Total current liabilities 41,942 56,430
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Long-term debt, less current maturities (Notes 5 and 19) 285,727 223,616
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OTHER LONG-TERM LIABILITIES:
Deferred income taxes (Note 8) 11,278 12,890
Other 5,167 4,916
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Total other long-term liabilities 16,445 17,806
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STOCKHOLDERS' EQUITY (Notes 5, 6, 7, 14 and 15):
5% cumulative preferred stock, $100 par value; authorized - 22,000
shares, issued and outstanding - 1,975 shares (1997 and 1996) 198 198
Series B, $7.50 cumulative convertible preferred stock; authorized -
150,000 shares, issued and outstanding - 75,000 shares (1997) and
150,000 shares (1996) 7,500 15,000
Series C, 4.5% cumulative convertible preferred stock; authorized - 100,000
shares, issued and outstanding - 33,260 (1997) 333 --
Common stock, $1 par value; authorized - 60,000,000 shares, issued and
outstanding - 29,875,488 shares (1997) and 29,333,571 shares (1996) 29,875 29,334
Capital in excess of par value 6,893 3,416
Retained earnings 150,005 155,683
Unearned stock compensation (91) --
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194,713 203,611
Less notes receivables from stockholders 601 683
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Total stockholders' equity 194,112 202,928
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Commitments and contingencies (Notes 11, 12 and 13)
Total Liabilities and Stockholders' Equity $ 538,226 $ 500,780
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The accompanying Notes to Financial Statements are an integral part of this
statement.
6
Tultex Corporation
STATEMENT OF OPERATIONS
Fiscal years ended: Jan.3, 1998 Dec. 28, 1996 Dec. 30, 1995
(53 weeks) (52 weeks) (52 weeks)
- ----------------------------------------------------------------------------------------------
(In thousands of dollars except per share data)
Net sales and other income $650,628 $636,341 $585,289
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COSTS AND EXPENSES:
Cost of products sold 508,998 469,715 432,062
Depreciation 20,614 21,497 23,163
Selling, general and administrative (Note 16) 101,352 96,454 99,164
Interest 27,611 21,742 21,952
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Total costs and expenses 658,575 609,408 576,341
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Income (loss) before income taxes and extraordinary
loss on early extinguishment of debt (7,947) 26,933 8,948
Provision (benefit) for income taxes (Note 8) (3,099) 10,234 3,400
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Income (loss) before extraordinary loss on
early extinguishment of debt (4,848) 16,699 5,548
Extraordinary loss on early extinguishment of debt
(Net of income taxes of $2,296) (Note 5) -- -- (3,746)
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Net Income (Loss) $ (4,848) $ 16,699 $ 1,802
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Preferred dividend requirement (810) (1,135) (1,135)
Balance applicable to common stock (5,658) 15,564 667
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Income (Loss) per Common
Share:
Income (loss) before extraordinary loss
on early extinguishment of debt:
Basic $ (.19) $ .53 $ .15
Diluted (.19) .52 .15
Extraordinary loss on early extinguishment of debt -- -- (.13)
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Net Income (Loss):
Basic $ (.19) $ .53 $ .02
Diluted (.19) .52 .02
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Dividends per Common Share (Note 6) $ .00 $ .00 $ .00
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The accompanying Notes to Financial Statements are an integral part of this
statement.
7
Tultex Corporation
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Capital Unearned Notes Total
5% Series B Series C in Excess Stock Receivable- Stock-
Preferred Preferred Preferred Common of Par Retained Compen- Stock- holders'
Stock Stock Stock Stock Value Earnings sation holders Equity
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(In thousands of dollars)
Balance as of
December 31, 1994 $198 $15,000 $ -- $29,807 $5,279 $140,283 $ -- $(3,466) $187,101
Net income for the 52
weeks ended
Dec. 30, 1995 1,802 1,802
Shares issued as payment
of agency commissions 17 68 85
Collections - stockholders'
notes receivable 2,055 2,055
Dividends on preferred stock (1,986) (1,986)
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Balance as of
December 30, 1995 198 15,000 -- 29,824 5,347 140,099 -- (1,411) 189,057
Net income for the 52
weeks ended
Dec. 28, 1996 16,699 16,699
Exercise of stock options 7 28 35
Repurchase of common stock (497) (1,959) (2,456)
Collections - stockholders'
notes receivable 728 728
Dividends on preferred stock (1,135) (1,135)
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Balance as of
December 28, 1996 198 15,000 -- 29,334 3,416 155,663 -- (683) 202,928
Net loss for 53 weeks ended
January 3, 1998 (4,848) (4,848)
Issuance of preferred stock 333 333
Repurchase of preferred
stock (7,500) (7,500)
Exercise of stock options 293 1,352 (320) 1,325
Repurchase of common
stock (336) (1,734) (2,070)
Restricted stock awards 31 196 (227) --
Stock compensation 136 136
Shares issued in CSS
acquisition 554 3,671 4,225
Restricted stock awards lost (1) (8) (9)
Collections - stockholders'
notes receivable 402 402
Dividends on preferred
stock (810) (802)
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Balance as of
January 3, 1998 $198 $ 7,500 $333 $29,875 $ 6,893 $150,005 $(91) $(601) $194,112
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The accompanying Notes to Financial Statements are an integral part of this
statement.
8
Tultex Corporation
STATEMENT OF CASH FLOWS
Fiscal years ended: Jan. 3, 1998 Dec. 28, 1996 Dec. 30, 1995
(53 weeks) (52 weeks) (52 weeks)
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(in thousands of dollars)
Operating Activities:
Net income (loss) $ (4,848) $ 16,699 $ 1,802
ITEMS NOT REQUIRING (PROVIDING) CASH:
Depreciation 20,614 21,497 23,163
Deferred income taxes (1,612) 287 (2,290)
Amortization of intangible assets 3,380 1,217 1,216
Unamortized deferred debt issuance costs -- -- 3,109
Other non-cash items 140 -- --
Other long-term liabilities 238 (1,370) 1,526
CHANGES IN ASSETS AND LIABILITIES, NET OF EFFECT OF ACQUISITIONS:
Accounts receivable 34,832 (17,375) (2,989)
Inventories (344) (4,337) (27,763)
Prepaid expenses (2,043) 4,621 2,636
Accounts payable and accrued expenses (28,263) 9,525 8,151
Income taxes payable (4,380) 403 (1,683)
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Cash provided by operating activities 17,714 31,167 6,878
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Investing Activities:
Additions to property, plant and equipment (29,075) (29,048) (17,337)
Business acquisitions (21,875) -- --
Change in other assets (4,315) (2,010) (838)
Sales and retirements of property and equipment 2,995 127 56
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Cash used by investing activities (52,270) (30,931) (18,119)
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Financing Activities:
Issuance (payment) of short-term borrowings (628) 5,628 (1,000)
Issuance (payment) of revolving credit facility borrowings (27,400) (3,900) 13,500
Issuance of long-term debt 75,000 400 110,052
Payments on long-term debt (745) (145) (111,222)
Cost of debt issuance (2,204) -- (4,038)
Cash dividends (1,091) (853) (1,986)
Purchase of preferred stock (7,500) -- --
Proceeds from stock plans 402 728 2,055
Net proceeds (payments) from issuance (repurchase) of common stock (425) (2,421) 85
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Cash provided (used) by financing activities 35,409 (563) 7,446
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Net increase (decrease) in cash and equivalents 853 (327) (3,795)
Cash and equivalents at beginning of year 1,654 1,981 5,776
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Cash and equivalents at end of year $ 2,507 $ 1,654 $ 1,981
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The accompanying Notes to Financial Statements are an integral part of this
statement.
9
NOTES TO FINANCIAL STATEMENTS
Tultex Corporation
Fiscal years ended January 3, 1998, December 28, 1996 and
December 30, 1995
Note 1--The Company and Significant Accounting Policies
Tultex Corporation is a marketer and vertically integrated manufacturer of
activewear and licensed sports apparel which is considered a single business
segment. The company's product lines include fleeced sweats, jersey products and
decorated jackets and caps. The significant accounting policies followed by
Tultex Corporation and its subsidiaries in preparing the accompanying
consolidated financial statements are as follows:
BASIS OF CONSOLIDATION--The consolidated financial statements include the
accounts of the company and its subsidiaries. All significant intercompany
balances and transactions are eliminated in consolidation.
CASH AND EQUIVALENTS--The company considers cash on hand, deposits in banks,
certificates of deposit and short-term marketable securities as cash and
equivalents for the purposes of the statement of cash flows. Such cash
equivalents have original maturities of less than 90 days.
INVENTORIES--Inventories are recorded at the lower of cost or market, with cost
determined on the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT--Substantially all land, buildings and equipment
are carried at cost. Major renewals and betterments are capitalized while
replacements, maintenance and repairs which do not improve or extend the lives
of the respective assets are expensed currently. Construction in progress
includes capital project and computer system costs in the process of
implementation. Depreciation is provided on the straight-line method for all
depreciable assets over their estimated useful lives as follows:
Classification Estimated Useful Lives
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Land improvements 20 years
Buildings and improvements 12-50 years
Machinery and equipment 3-20 years
INTANGIBLE ASSETS--Goodwill and licenses are being amortized on a straight-line
basis over 25 years. The company continually evaluates the existence of goodwill
impairment on the basis of whether the goodwill is fully recoverable from
projected, undiscounted net cash flows of the related asset. The gross amount of
goodwill was $25,569,000 at January 3, 1998 and $3,909,000 at December 28, 1996.
Accumulated amortization of goodwill was $1,525,000 at January 3, 1998 and
$782,000 at December 28, 1996, respectively. The gross amount of licenses was
$26,507,000 at January 3, 1998 and December 28, 1996. Accumulated amortization
of licenses was $6,362,000 and $5,301,000 at January 3, 1998 and December 28,
1996, respectively.
PENSIONS--Pension expense includes charges for amounts not less than the
actuarially determined current service costs plus amortization of prior service
costs over 30 years. The company funds amounts accrued for pension expense not
in excess of the amount deductible for federal income tax purposes. REVENUE
RECOGNITION--The company recognizes the sale when the goods are shipped or
ownership is assumed by the customer.
INCOME TAXES--Income taxes are provided based upon income reported for financial
statement purposes. Deferred income taxes reflect the tax effect of temporary
differences between financial and taxable income.
NET INCOME (LOSS) PER COMMON SHARE--Net income (loss) per common share is
computed using the weighted average number of common shares and dilutive common
equivalent shares outstanding during the period after deducting the preferred
dividend requirements which accrued during the period. The weighted average
number of common shares outstanding were 29,783,000, 29,589,000 and 29,810,000
for fiscal 1997, 1996 and 1995, respectively. The dilutive effect of stock
options is computed using the treasury stock method. In 1997, the company
adopted Statement of Financial Standards (SFAS) No. 128, "Earnings Per Share."
The standard requires companies to report basic and diluted earnings per share.
A reconciliation of basic and diluted earnings per share for each of the fiscal
years presented is shown in the following table.
(In thousands except per share data) 1997 1996 1995
- --------------------------------------------------------------------------------
Weighted average number of
common shares outstanding 29,783 29,589 29,810
- --------------------------------------------------------------------------------
Income (loss) available to
common shareholders $(5,658) $15,564 $4,413
- --------------------------------------------------------------------------------
Earnings (loss) per
common share-basic $ (.19) $ .53 $ .15
- --------------------------------------------------------------------------------
Weighted average number of
common shares outstanding 29,783 29,589 29,810
Add: Dilutive effect of stock options,
computed using the treasury
stock method -- 149 3
- --------------------------------------------------------------------------------
Weighted average number of
common and common equivalent
shares outstanding 29,783 29,738 29,813
- --------------------------------------------------------------------------------
Income (loss) available to
common shareholders $(5,658) $15,564 $4,413
- --------------------------------------------------------------------------------
Earnings (loss) per
common share-diluted $ (.19) $ .52 $ .15
- --------------------------------------------------------------------------------
FISCAL YEAR--The company's fiscal year ends on the Saturday nearest to December
31, which periodically results in a fiscal year of 53 weeks.
FAIR VALUE OF FINANCIAL INSTRUMENTS--Statement of Financial Accounting Standards
No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosure about the fair value of certain instruments. The company believes the
carrying amounts for cash, accounts receivable, accounts payable, accrued
liabilities and variable rate debt approximate fair value because of the
short-term maturity of these instruments. The estimated fair value of the
company's fixed rate debt and interest rate swap is disclosed in Note 5.
10
Tultex Corporation
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS--The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
NEW ACCOUNTING STANDARDS--In 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." These statements, which are effective for
fiscal years beginning after December 15, 1997, expand or modify disclosures and
will have no impact on the company's consolidated financial position, results of
operations or cash flows.
Note 2--Inventories
The components of inventories are as follows:
(In thousands Jan. 3, Dec. 28,
of dollars) 1998 1996
- -------------------------------------------------------------
Raw materials $ 30,198 $ 31,253
Goods in process 19,391 21,464
Finished goods 139,308 103,269
Supplies 10,958 6,297
- -------------------------------------------------------------
Total inventories $199,855 $162,283
- -------------------------------------------------------------
Note 3--Property, Plant and Equipment Property, plant and equipment consist of
the following:
Jan. 3, Dec. 28,
(In thousands of dollars) 1998 1996
- ---------------------------------------------------------------
Land and improvements $ 3,973 $ 4,193
Buildings and improvements 63,017 64,991
Machinery and equipment 248,596 235,499
Construction in progress 30,877 18,657
- ---------------------------------------------------------------
346,463 323,340
Less accumulated depreciation 203,612 186,914
- ---------------------------------------------------------------
Net property, plant and equipment $ 142,851 $136,426
- ---------------------------------------------------------------
Note 4--Short Term Agreements
The company currently has short-term lines of credit with four banks totaling
$18,000,000. The company's revolving credit facility limits outstanding
borrowings under these lines to $10,000,000. Borrowings outstanding at January
3, 1998 and December 28, 1996 were $5,000,000 with interest at 6.9% for both
periods, respectively.
The company utilizes letters of credit for foreign sourcing of inventory. Trade
letters of credit outstanding were $5,503,000, $3,206,000 and $3,648,000 at
January 3, 1998, December 28, 1996 and December 30, 1995, respectively.
Note 5--Long Term Debt
Jan. 3, Dec. 28,
(In thousands of dollars) 1998 1996
- ------------------------------------------------------------
Amount due under revolving
credit agreements $ 86,200 $113,600
10 5/8% senior notes due
March 15, 2005 110,000 110,000
9 5/8% senior notes due
April 15, 2007 75,000 --
10% convertible subordinated
notes due April 15, 2007 9,715 --
9% convertible subordinated
notes due April 15, 2007 4,690
Other indebtedness 649 440
- ------------------------------------------------------------
286,254 224,040
Less current maturities 527 424
- ------------------------------------------------------------
Total long-term debt $285,727 $223,616
- ------------------------------------------------------------
In March 1995, the company sold $110 million of 10 5/8% senior notes due March
15, 2005. Net proceeds from the sale, together with borrowings under the
revolving credit facility, were used to repay existing borrowings. In connection
with the repayment of certain loans, the company was required to write off
unamortized debt issuance costs and incurred a prepayment penalty. The resultant
one-time, after-tax charge amounted to $3,746,000 or 13 cents per share.
On April 15, 1997, the company sold $75 million of 9 5/8% senior notes due 2007.
Proceeds from the sale of the senior notes were used to repay existing
indebtedness and redeem $7,500,000 of the Series B, $7.50 cumulative convertible
preferred stock.
On May 15, 1997, the company entered into a three-year $187 million revolving
credit facility which replaced its existing three-year facility due to expire in
1998. The terms of the new facility are substantially equivalent to those of the
former revolving credit facility, except that the maximum borrowing under the
new facility is $187 million, compared with $225 million under the old facility.
Reduction of the borrowing limit reflects the sale of the $75 million senior
notes described above.
In connection with the purchase of California Shirt Sales, Inc. (see Note 18),
the company issued $9,715,000 of 10% convertible subordinated notes due April
15, 2007 and $4,690,000 of 9% convertible subordinated notes due April 15, 2007.
Commencing on April 15, 1999, the holder of the notes may convert, at his
option, up to 20% per annum of the original principal amount into the company's
common stock. The number of common shares will be determined by dividing the
principal amount of the notes to be converted by the closing price of the
company's common stock on the business day prior to the submission of shares for
conversion.
11
Tultex Corporation
Note 5 (continued)
Certain subsidiaries of the company fully and unconditionally guarantee the
company's obligations under both the 10 5/8% senior notes and the 9 5/8% senior
notes on a joint and several basis.
The senior notes and revolving credit facility contain provisions regarding
maintenance of net worth, indebtedness levels and restrictions on the payment of
cash dividends. At January 3, 1998, the company was in compliance or had
obtained waivers for any violations of the covenants. Consolidated retained
earnings free of dividend restrictions imposed by the debt covenants amounted to
$5,353,000 at January 3, 1998.
Interest paid by the company in 1997, 1996 and 1995 was $26,042,000,
$21,654,000 and $22,412,000, respectively. The weighted average interest rates
on borrowings under the revolving credit facility at January 3, 1998 and
December 28, 1996 were 7.3% and 6.9%, respectively.
The aggregate maturities of long-term debt for each of the next five fiscal
years are as follows:
(In thousands of dollars) Total
- ----------------------------------------------------------
1998 $ 527
1999 111
2000 86,207*
2001 4
2002 --
*Includes maturity of $86,200 outstanding under revolving credit facility.
At January 3, 1998 and December 28, 1996, the fair value of the 10 5/8% senior
notes exceeded the carrying amount by approximately $3,800,000 and $10,800,000,
respectively. At January 3, 1998, the fair value of the 10% convertible
subordinate notes due 2007 exceeded the carrying value by approximately
$369,000. The carrying values of the 9 5/8% senior notes and the 9% convertible
subordinated notes due 2007 exceeded the fair values by approximately $500,000
and $108,000, respectively. Such fair values were determined using valuation
techniques that considered cash flows discounted at current market rates in
effect at the end of the year.
In 1997, the company entered into an interest rate swap agreement with an
aggregate notional amount of $110 million to swap the 10 5/8% senior notes fixed
rate with a variable rate. The agreement is effective until March 15, 2000. The
differential to be paid or received is accrued as interest rates change and is
recognized as an adjustment to interest expense in the statement of operations.
The fair value of the swap agreement, which reflected a loss of approximately $5
thousand at January 3, 1998 based on quoted market prices and discounted cash
flows, is not recognized in the financial statements. The company is exposed to
credit loss in the event of nonperformance by the counterparties, with such
exposure limited to the amount to be received over the remaining term of the
agreement. The company does not anticipate nonperformance by the counterparties
and expects no material loss will result from such agreements.
Note 6--Dividends
During the second quarter of 1994, the company suspended the payment of
dividends on its common stock. As of January 3, 1998, common stock dividends had
not been reinstated.
Note 7--Stock Options
In 1988, the company's stockholders ratified the 1987 Stock Option Plan under
which 700,000 shares of common stock were reserved for stock option grants to
certain officers and employees. The plan provided that options may be granted at
prices not less than the fair market value on the date the option is granted,
which means the closing price of a share of common stock as reported on the New
York Stock Exchange composite tape on such day.
On March 21, 1991, the company's stockholders ratified the 1990 Stock Option
Plan under which 700,000 shares of common stock were reserved for option grants
to certain officers and employees. Options granted under the 1990 Plan may be
incentive stock options ("ISOs") or nonqualified stock options. The option price
will be fixed by the Executive Compensation Committee of the Board at the time
the option is granted, but in the case of an ISO, the price cannot be less than
the share's fair market value on the date of grant. Grants must be made before
October 18, 2000 and generally expire within 10 years of the date of grant. In
exercising options, an employee may receive a loan from the company for up to
90% of the exercise price. Outstanding loans are shown as a reduction of
stockholders' equity on the balance sheet. On May 19, 1994, the stockholders
approved an increase of 500,000 shares in the maximum number of shares to be
issued pursuant to the exercise of options granted under the Plan and extended
the date that grants could be made to October 27, 2003.
On April 30, 1996, the company's stockholders ratified the 1996 Stock Incentive
Plan under which 700,000 shares of common stock were reserved for stock option
grants and other awards.
A summary of the changes in the number of common shares under option for each of
the three previous years follows:
Year Ended Number Per Share
January 3, 1998 of Shares Option Price
- ---------------------------------------------------------------------------
Outstanding at beginning of year 1,463,600 $4.88-$9.75
Granted 615,000 $5.81-$8.25
Exercised 243,000 $4.88-$8.00
Expired 349,200 $8.38-$9.63
Cancelled 2,500 $9.63-$9.75
- ---------------------------------------------------------------------------
Outstanding at end of year 1,483,900 $4.88-$9.75
- ---------------------------------------------------------------------------
Exercisable at end of year 1,355,400 $4.88-$9.75
- ---------------------------------------------------------------------------
Shares reserved for future grant:
Beginning of year 517,800
- ---------------------------------------------------------------------------
End of year 165,600
- ---------------------------------------------------------------------------
12
Year Ended Number Per Share
December 28, 1996 of Shares Option Price
- ------------------------------------------------------------------
Outstanding at beginning of year 1,298,400 $5.00-$9.75
Granted 293,000 $4.88
Exercised 7,000 $4.88-$6.00
Expired 30,000 $8.25-$8.38
Cancelled 90,800 $4.88-$9.75
- ------------------------------------------------------------------
Outstanding at end of year 1,463,600 $4.88-$9.75
- ------------------------------------------------------------------
Exercisable at end of year 1,333,600 $4.88-$9.75
- ------------------------------------------------------------------
Shares reserved for future grant:
Beginning of year 23,000
- ------------------------------------------------------------------
End of Year 517,800
- ------------------------------------------------------------------
Year Ended Number Per Share
December 30, 1995 of Shares Option Price
- ------------------------------------------------------------------
Outstanding at beginning of year 1,225,400 $5.13-$9.75
Granted 181,000 $5.00-$5.50
Exercised -- --
Expired 82,300 $7.50-$7.63
Cancelled 25,700 $5.00-$9.75
- ------------------------------------------------------------------
Outstanding at end of year 1,298,400 $5.00-$9.75
- ------------------------------------------------------------------
Exercisable at end of year 1,098,400 $5.00-$9.75
- ------------------------------------------------------------------
Shares reserved for future grant:
Beginning of year 190,000
- ------------------------------------------------------------------
End of year 23,000
- ------------------------------------------------------------------
The company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
which establishes a fair value-based method of accounting for stock-based
compensation. Accordingly, no compensation cost has been recognized for the
stock option plans. Had compensation cost for the company's three stock option
plans been determined based on the fair value at the grant date for awards in
1997 and 1996 consis-tent with provisions of SFAS 123, the company's net income
(loss) and net income (loss) per share would have been reduced to the pro forma
amounts indicated in the table below:
Fiscal Years Ended
--------------------------------
(In thousands of dollars) Jan. 3, 1998 Dec. 28, 1996
- --------------------------------------------------------------------
Net income (loss) - as reported $(4,848) $16,699
Net income (loss) - pro forma $(5,132) $16,316
Net income (loss) per share -
as reported $ (.19) $ .53
Net income (loss) per share -
pro forma $ (.20) $ .51
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions used
for grants in 1997 and 1996: dividend yield of 0.0%; expected volatility of
34.84% for 1997 and 36.16% for 1996; weighted average risk-free interest rate of
5.96% for 1997 and 6.67% for 1996; and expected lives of 5 years.
Note 8--Income Taxes
The components of the provision for federal and state income taxes are
summarized as follows:
Jan. 3, Dec. 28, Dec. 30,
(In thousands of dollars) 1998 1996 1995
- -------------------------------------------------------------
CURRENTLY PAYABLE:
Federal $(1,367) $ 8,437 $ 4,965
State (120) 1,510 725
- -------------------------------------------------------------
(1,487) 9,947 5,690
- -------------------------------------------------------------
DEFERRED:
Federal (1,387) 297 (1,778)
State (225) (10) (512)
- -------------------------------------------------------------
(1,612) 287 (2,290)
- -------------------------------------------------------------
Total provision (benefit) $(3,099) $10,234 $ 3,400
- -------------------------------------------------------------
Significant components of deferred tax liabilities and assets are as follows:
Jan. 3, Dec. 28,
(In thousands of dollars) 1998 1996
- ---------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Tax over book depreciation $14,343 $15,523
Intangible assets 1,887 1,631
- ---------------------------------------------------------------
Gross deferred tax liabilities 16,230 17,154
- ---------------------------------------------------------------
DEFERRED TAX ASSETS:
Bad debt and other allowances 1,573 1,398
Inventory reserves 877 376
Postretirement benefits 614 402
Pension obligations 141 891
Reserve for plant closings 215 --
Charitable contribution 243 --
Accrued liabilities 937 751
Other 352 446
- ---------------------------------------------------------------
Gross deferred tax assets 4,952 4,264
- ---------------------------------------------------------------
Net deferred tax liabilities $11,278 $12,890
- ---------------------------------------------------------------
13
Note 8 (Continued)
A reconciliation of the statutory federal income tax rates with the com-pany's
effective income tax rates for 1997, 1996 and 1995 was as follows:
Jan. 3, Dec. 28, Dec. 30,
1998 1996 1995
- --------------------------------------------------------
Statutory federal rate 35% 35% 35%
State rate, net 3 3 3
Other 1 -- --
- --------------------------------------------------------
Effective income tax rate 39% 38% 38%
- --------------------------------------------------------
Income tax payments were $3,416,000, $8,597,000 and $4,895,000 for fiscal 1997,
1996 and 1995, respectively.
Note 9--Employee Benefits
All qualified employees of the parent company and its LogoAthletic/Headwear,
Inc. subsidiary are covered by a noncontributory, defined benefit plan. The
benefits are based on years of service and the employee's highest five
consecutive calendar years of compensation paid during the 10 most recent years
before retirement. Prior service costs are amortized over 30 years. The status
of the defined benefit plan as of January 3, 1998 and December 28, 1996 was as
follows:
(In thousands of dollars) 1997 1996
- --------------------------------------------------------------------
Fair value of plan assets, primarily
listed stocks and corporate and
government debt $45,894 $38,218
- --------------------------------------------------------------------
Accumulated benefit obligation,
including vested benefits of
$39,937 and $33,652, respectively 40,824 34,457
Additional benefits based on estimated
future salary levels 5,693 4,834
- --------------------------------------------------------------------
Projected benefit obligation 46,517 39,291
- --------------------------------------------------------------------
Projected benefit obligation
in excess of plan assets (623) (1,073)
Unrecognized net loss 1,754 669
Unrecognized net transitional assets (430) (899)
Unrecognized prior service cost 388 445
- --------------------------------------------------------------------
(Accrued) prepaid pension cost $ 1,089 $ (858)
- --------------------------------------------------------------------
The following rate assumptions were made for the plan:
1997 1996
- --------------------------------------------------------------------
Discount rate of return on
projected benefit obligation 7.50% 7.75%
Rate of return on plan assets 10.00% 10.00%
The long-term rate of salary progression for 1997 reflected an increase of 4%
for eight years with an ultimate rate of increase of 5% thereafter. The
long-term rate for 1996 reflected an increase of 3.5% for the first year,
followed by 4% for six years with an ultimate rate increase of 5% thereafter.
Pension expense in 1997, 1996 and 1995 included the following components:
(In thousands of dollars) 1997 1996 1995
- --------------------------------------------------------------------
Service cost-benefits earned
during the period $ 1,594 $ 1,591 $ 1,285
Interest on projected benefit
obligation 2,858 2,862 2,814
Actual loss on plan assets (9,040) (5,307) (4,542)
Net deferral 4,953 1,415 719
- --------------------------------------------------------------------
Net periodic pension cost $ 365 $ 561 $ 276
- --------------------------------------------------------------------
The company's policy has been to fund the minimum required contribution
after the end of the fiscal year plus interest on the contribution from the end
of the plan year until paid.
The company has a nonqualified, unfunded supplementary retirement plan for which
it has purchased cost recovery life insurance on the lives of the participants.
The company is the sole owner and beneficiary of such policies. The amount of
coverage is designed to provide sufficient revenues to recover all costs of the
plan if assumptions made as to mortality experience, policy earnings and other
factors are realized.
The following table sets forth the supplementary plan's status and amounts
recognized in the company's financial statements at January 3, 1998 and December
28, 1996:
(In thousands of dollars) 1997 1996
- -----------------------------------------------------------------
Fair value of plan assets $ -- $ --
Accumulated benefit obligation,
including vested benefits of $2,734
and $2,883, respectively 3,200 3,051
Additional benefits based on estimated
future salary levels 344 344
- -----------------------------------------------------------------
Projected benefit obligation 3,544 3,395
- -----------------------------------------------------------------
Projected benefit obligation less than
plan assets (3,544) (3,395)
Unrecognized net loss 1,162 866
Unrecognized prior service cost 220 240
Unrecognized transitional obligation 701 801
Adjustment required to recognize
minimum liability (1,659) (1,563)
- -----------------------------------------------------------------
Unfunded accrued supplementary
pension cost $(3,120) $(3,051)
- -----------------------------------------------------------------
14
Net supplementary pension cost for the three years included the following
components:
(In thousands of dollars) 1997 1996 1995
- --------------------------------------------------------------------
Service cost-benefits earned
during the period $109 $102 $ 85
Interest on projected benefit obligation 240 275 309
Net amortization 161 180 183
- --------------------------------------------------------------------
Net periodic supplementary
pension cost $510 $557 $577
- --------------------------------------------------------------------
Substantially all employees meeting certain requirements are eligible to
participate in the company's employee savings (401-K) plan. Employee
contributions are limited to a percentage of their compensation, as defined in
the plan. The plan does not provide for any company contributions.
Substantially all employees are eligible to receive certain bonuses or
profit-sharing amounts, the amounts of which are determined by the labor
contract for employees covered by the collective bargaining agreement, the
Tultex Corporation Consolidated Incentive Plan for certain salaried employees,
and management discretion for all other employees. The Tultex Corporation
Consolidated Incentive Plan was designed to provide a performance-based
incentive for employees of the company who are in a position to contribute
materially to the success of the company and its subsidiaries. Awards under the
plan are determined by the company's performance against established performance
goals. Total bonus expenses amounted to $1,942,000 in 1997, $3,734,000 in 1996
and $2,044,000 in 1995.
The company also provides certain postretirement medical and life insurance
benefits to substantially all employees who retire with a minimum of 20 years of
service for the period of time until the employee and any dependents reach age
65. The medical plan requires monthly contributions by retired participants
which are dependent on the participant's length of service, age at the date of
retirement and Medicare eligibility. The life insurance plan is noncontributory.
In 1993, the company adopted Statement of Financial Standards (SFAS) No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." The
standard requires companies to recognize the estimated costs of providing
postretirement benefits on an accrual basis. The company elected the delayed
recognition method of adoption which allows amortization of the initial
transitional obligation of $5,101,000 over a 20-year period.
The amounts recognized in the company's balance sheet at January 3, 1998 and
December 28, 1996 were as follows:
(In thousands of dollars) 1997 1996
- ----------------------------------------------------------------
Accumulated postretirement
benefit obligation $(7,044) $(7,634)
Unrecognized transitional obligation 3,821 4,077
Unrecognized loss 1,608 2,499
- ----------------------------------------------------------------
Accrued liability $(1,615) $(1,058)
- ----------------------------------------------------------------
Net periodic postretirement benefit costs for 1997, 1996 and 1995 included the
following components:
(In thousands of dollars) 1997 1996 1995
- -----------------------------------------------------------------------
Service cost - benefits earned during
the period $ 244 $ 198 $ 207
Interest on accumulated post-
retirement benefit obligation 558 523 564
Amortization of accumulated post-
retirement benefit obligation 256 256 256
Amortization of loss 102 63 63
- -----------------------------------------------------------------------
Total periodic postretirement
benefit cost $1,160 $1,040 $1,090
- -----------------------------------------------------------------------
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.5% for 1997 and 7.75% for 1996. The assumed medical cost trend
rate was 8% and 9% in 1997 and 1996, respectively, declining by 1% per year
until an ultimate goal of 5.5% is achieved. The effect of a 1% increase in the
assumed health care cost trend rates for each future year would have increased
the aggregate of 1997 service cost and interest cost by $90,000, and would have
increased the January 3, 1998 accumulated postretirement benefit obligation by
$579,000.
The company does not have significant postemployment benefits requiring accrual
under Statement of Financial Accounting Standards (SFAS) No. 112, "Employers'
Accounting for Postemployment Benefits."
Note 10--Quarterly Financial Information (Unaudited)
The following is a summary of the unaudited quarterly financial information for
the years ended January 3, 1998 and December 28, 1996.
15
Tultex Corporation
(In thousands of dollars
except per share data) 1997 1996
- ----------------------------------------------------------
NET SALES AND OTHER INCOME
1st quarter $ 99,630 $ 95,303
2nd quarter 148,117 138,198
3rd quarter 229,725 215,390
4th quarter 173,156 187,450
- ----------------------------------------------------------
Total $ 650,628 $636,341
- ----------------------------------------------------------
GROSS PROFIT
1st quarter $ 21,035 $ 20,005
2nd quarter 28,231 27,556
3rd quarter 46,614 53,263
4th quarter 26,438 45,943
- ----------------------------------------------------------
Total $ 122,318 $146,767
- ----------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES
1st quarter $ (6,952) $ (8,901)
2nd quarter 1,403 1,120
3rd quarter 11,488 21,011
4th quarter (13,886) 13,703
- ----------------------------------------------------------
Total $ (7,947) $ 26,933
- ----------------------------------------------------------
NET INCOME (LOSS)
1st quarter $ (4,235) $ (5,520)
2nd quarter 850 689
3rd quarter 7,009 13,025
4th quarter (8,472) 8,505
- ----------------------------------------------------------
Total $ (4,848) $ 16,699
- ----------------------------------------------------------
NET INCOME (LOSS) PER COMMON SHARE
1st quarter $ (.15) $ (.19)
2nd quarter .02 .01
3rd quarter .23 .43
4th quarter (.29) .28
- ----------------------------------------------------------
Total $ (.19) $ .53
- ----------------------------------------------------------
Note 11--Commitments
At January 3, 1998, the company was obligated under a number of noncancellable,
renewable operating leases as follows:
Data Manufacturing
(In thousands Processing Facilities and
of dollars) Equipment Other Total
- ------------------------------------------------------------
1998 $3,612 $ 7,549 $11,161
1999 2,941 5,622 8,563
2000 1,458 4,886 6,344
2001 31 3,990 4,021
2002 -- 3,781 3,781
2003 and after -- 12,346 12,346
- ------------------------------------------------------------
Total $8,042 $38,174 $46,216
- ------------------------------------------------------------
Rental expense charged to income was $16,857,000 in 1997, $13,287,000 in 1996
and $13,128,000 in 1995.
The company has entered into various licensing agreements which permit it to
market apparel with copyrighted logos from the sports industry. Under the terms
of these agreements, the company is required to pay minimum guaranteed fees to
certain licensors. The remaining minimum obligations under these agreements at
January 3, 1998 were approximately $2,400,000.
Note 12--Employment Agreements
The company has entered into employment continuity agreements with certain of
its executives which provide for the payments to these executives of amounts up
to three times their annual compensation plus continuation of certain benefits
if there is a change in control in the company (as defined) and a termination of
their employment. The maximum contingent liability at January 3, 1998 under
these agreements was approximately $4,204,000.
Note 13--Concentration of Credit Risk
The company's concentration of credit risk is limited due to the large number of
primarily domestic customers who are geographically dispersed. The company has
no customer that constituted 10% of net sales in 1997, 1996 or 1995. As
disclosed on the balance sheet, the company maintains an allowance for doubtful
accounts to cover estimated credit losses.
Note 14--Shareholder Rights Plan
In March 1990, the Board of Directors of the company adopted a Shareholder
Rights Plan and declared a dividend of one right for each outstanding share of
common stock to shareholders of record on April 2, 1990. Each right entitles the
registered holder to purchase from the company, until the earlier of March 22,
2000 or the redemption of the rights, one one-thousandth of a share of newly
authorized Junior Participating Cumulative Preferred Stock, Series A, without
par value, at an exercise price of $40. The rights are not exercisable or
transferable apart from the common stock until the earlier of (i) 10 days
following the public announcement that a person or a group of affiliated persons
has acquired or obtained the right to acquire beneficial ownership of 10% or
more of the company's outstanding common stock or (ii) 10 business days
following the commencement of a tender offer or exchange offer that would result
in a person or a group owning 10% or more of the company's outstanding common
stock. The company may redeem the rights at a price of $.01 per right at any
time prior to the acquisition of 10% or more of the company's outstanding common
stock or certain other triggering events.
Note 15--Stock Purchase Plan
In February 1994, the company initiated the Salaried Employees' Stock Purchase
Plan. Under the plan, employees could elect to purchase shares of the company's
common stock in amounts ranging from 20-30% of their annual salary. Employees
pay for the stock through payroll deductions over a 60-month period. Interest at
6% per annum will be charged until the stock is fully paid and the shares are
held by the company until that time. Under the plan, 753,667 shares were issued
at a price of $5.50. Of the $4,144,000 loans recorded for the shares, $3,835,000
has been collected,
16
Tultex Corporation
leaving an outstanding balance at January 3, 1998 of $309,000. Interest income
realized in 1997, 1996 and 1995 on the loans was $35,000, $64,000 and $138,000,
respectively. In January 1995, the directors of the company approved an
amendment to the plan that allows an employee options for early payment of the
loan.
Note 16--Advertising Costs
In fiscal 1995, the company adopted the provisions of the Accounting Standards
Executive Committee's Statement of Position on Reporting Advertising Costs
("Statement"). The Statement required that certain advertising costs which were
previously deferred and amortized over an anticipated benefit period be
recognized currently in the statement of income. Advertising expense charged to
income was $23,632,000 in 1997, $21,614,000 in 1996 and $22,706,000 in 1995.
Selling, general and administrative expenses reported on the statement of income
increased by approximately $5,000,000 in 1995 as a result of adopting this
change in method of accounting for advertising costs.
Note 17--Unionization of Facilities
In August 1994, hourly employees at the company's Martinsville, Virginia
facilities voted for representation by the Amalgamated Clothing and Textile
Workers Union (now known as the Union of Needletrades, Industrial and Textile
Employees or UNITE). Tultex accepted a three-year contract with UNITE, which was
ratifed by an employee vote in March 1995. The contract covers approximately
2,100 employees in the Martinsville area. The company is currently renegotiating
this contract and expects completion during 1998. In May 1995, hourly employees
at the company's South Boston, Virginia sewing facility voted for representation
by UNITE. A three-year contract was ratified by an employee vote in August 1995.
The contract covers approximately 500 employees in the South Boston area.
Note 18--Mergers and Acquisitions
On April 16, 1997, the company acquired California Shirts Sales, Inc. ("CSS"),
an apparel distributor in 11 western states and Hawaii. The company purchased
substantially all assets totaling $58.8 million, including cash of $223
thousand, and assumed certain liabilities totaling $11.9 million. The
acquisition was recorded using the purchase method of accounting. Acquisition
consideration was comprised of 554,098 shares of the company's common stock
valued at $4.2 million on a price of $7.625 per share, cash payment of $7.0
million, subordinated indebtedness issued for $14.4 million, and the assumption
of liabilities totaling $33.2 million. The purchase price has been allocated to
the acquired assets and liabilities assumed based on their fair values resulting
in goodwill of $12.1 million to be amortized over 25 years. The historical
recorded values of CSS assets and liabilities were not materially different from
their fair values.
The operating results of CSS have been included in the consolidated statements
of income from the date of acquisition. The following pro forma unaudited
consolidated operating results of the company and CSS have been prepared as if
the acquisition had been made at the beginning of the periods presented and
include pro forma adjustments to reflect intercompany transactions, amortization
of goodwill and transaction financing, as well as the income tax effect of these
items.
Years Ended (Unaudited)
Jan. 3, 1998 Dec. 28, 1996
- ----------------------------------------------------------------
(In thousands, except per share data)
Sales $672,148 $718,966
Net income (loss) (5,968) 13,251
Net income (loss) per share (.20) .44
The proforma results are not necessarily indicative of the results of operations
of the combined companies that would have occurred had the acquistions occurred
at the beginning of the periods presented, nor are they necessarily indicative
of future operating results.
On May 6, 1997, the company acquired T-Shirt City, Inc. ("TSC"), an apparel
distributor in the Midwestern United States. The company purchased substantially
all assets totaling $16.6 million, including cash of $173 thousand, and assumed
certain liabilities totaling $5.4 million. The transaction was recorded using
the purchase method of accounting. Acquisition consideration included a cash
payment of $1.8 million and the assumption of liabilities totaling $14.8
million. The purchase price has been allocated to the acquired assets and
liabilities assumed based on their fair values resulting in goodwill of $9.1
million to be amortized over 25 years. The historical recorded values of TSC
assets and liabilities were not materially different from their fair values. The
pro forma effect of this acquisition has not been presented because these
amounts would not differ materially from actual results.
During the fourth quarter of 1997, the company acquired 100% ownership of Track
Gear, Inc., a manufacturer and marketer of imprinted motorsports apparel. The
company previously owned 51% of Track Gear, Inc.'s common shares. The company
purchased the interests of four other investors for $478,000 cash and new Series
C preferred stock of $333,000. The cumulative preferred stock is convertible and
bears interest at 4.5% per annum. At the option of the holder, the Series C
preferred shares may be converted, commencing on the second anniversary of the
date of issue, into common stock of the company at a conversion ratio of one
share of Series C preferred stock for one share of common stock.
17
Tultex Corporation
Note 19--Condensed Consolidating Financial Information
The following financial information presents condensed consolidated financial
data which includes (i) the parent company only ("Parent"), (ii) the
wholly-owned guarantor subsidiaries on a combined basis ("Wholly-owned Guarantor
Subsidiaries"), (iii) the wholly-owned non-guarantor subsidiaries on a combined
basis (Wholly-owned Non-guarantor Subsidiaries), (iv) the majority-owned
subsidiary (Majority-owned Subsidiary) and (iv) the company on a consolidated
basis.
Wholly-owned Wholly-owned
Guarantor Non-guarantor Majority-owned
(In thousands of dollars) Parent Subsidiaries Subsidiaries Subsidiary Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
As of and for the year ended
January 3, 1998
Current assets $230,643 $168,877 $ 64,126 $ -- $(125,983) $337,663
Noncurrent assets 257,804 33,638 22,706 -- (113,585) 200,563
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $488,447 $202,515 $ 86,832 $ -- $(239,568) $538,226
- ------------------------------------------------------------------------------------------------------------------------------------
Current liabilities $ 19,925 $117,462 $ 24,989 $ -- $(120,434) $ 41,942
Noncurrent liabilities 299,145 2,247 (306) -- 1,086 302,172
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities $319,070 $119,709 $ 24,683 $ -- $(119,348) $344,114
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $391,153 $231,033 $ 116,824 $ -- $ (88,382) $650,628
Cost and expenses 411,044 224,382 111,566 -- (88,417) 658,575
- ------------------------------------------------------------------------------------------------------------------------------------
Pretax income (loss) $ (19,891) $ 6,651 $ 5,258 $ -- $ 35 $ (7,947)
- ------------------------------------------------------------------------------------------------------------------------------------
Wholly-owned Wholly-owned
Guarantor Non-guarantor Majority-owned
(In thousands of dollars) Parent Subsidiaries Subsidiaries Subsidiary Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
As of and for the year ended
December 28, 1996
Current assets $275,694 $158,955 $ -- $ 1,729 $(104,457) $331,921
Noncurrent assets 189,088 36,405 -- 1,005 (57,639) 168,859
Total assets $464,782 $195,360 $ -- $ 2,734 $(162,096) $500,780
Current liabilities $ 38,074 $116,763 $ -- $ 2,390 $(100,797) $ 56,430
Noncurrent liabilities 242,011 (161) -- (405) (23) 241,422
Total liabilities $280,085 $116,602 $ -- $ 1,985 $(100,820) $297,852
Net sales $411,151 $253,318 $ -- $ 2,489 $ (30,617) $636,341
Cost and expenses 396,370 240,784 -- 3,426 (31,172) 609,408
Pretax income (loss) $ 14,781 $ 12,534 $ -- $ (937) $ 555 $ 26,933
18
Wholly-owned Wholly-owned
Guarantor Non-guarantor Majority-owned
(In thousands of dollars) Parent Subsidiaries Subsidiaries Subsidiary Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
As of and for the year ended
December 30, 1995
Current assets $267,300 $206,137 $ -- $ 3,559 $(161,839) $315,157
Noncurrent assets 182,927 38,089 -- -- (60,374) 160,642
Total assets $450,227 $244,226 $ -- $ 3,559 $(222,213) $475,799
Current liabilities $ 25,222 $173,849 $ -- $ 2,956 $(161,714) $ 40,313
Noncurrent liabilities 246,463 (22) -- (51) 39 246,429
Total liabilities $271,685 $173,827 $ -- $ 2,905 $(161,675) $286,742
Net sales $386,300 $214,230 $ -- $ 8,681 $ (23,922) $585,289
Cost and expenses 373,466 219,240 -- 8,073 (24,438) 576,341
Pretax income (loss) $ 12,834 $ (5,010) $ -- $ 608 $ 516 $ 8,948
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Tultex Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows and of changes in
stockholders' equity present fairly, in all material respects, the financial
position of Tultex Corporation and its subsidiaries (the company) at January 3,
1998 and December 28, 1996, and the results of their operations and their cash
flows for each of the three years in the period ended January 3, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
In 1995, the company changed its method of accounting for advertising costs, as
discussed in Note 16 of Notes to Financial Statements.
/s/ Price Waterhouse LLP
Winston-Salem, North Carolina
February 11, 1998
19
Tultex Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Information
This Annual Report may contain certain forward-looking statements reflecting the
company's current expectations. Although the company believes that the
expectations reflected in any such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from the
company's expectations include the financial strength of the retail industry,
the level of consumer spending on apparel, the company's ability to profitably
and timely satisfy customer demand for its products, the competitive pricing
environment within the apparel industry, the company's substantial leverage and
the restrictive covenants in its borrowing documents, fluctuations in the price
of cotton and polyester used by the company in the manufacture of its products,
the company's relationship with its partially unionized workforce, and the
seasonality and cyclicality of the fleecewear and licensed apparel industries.
Such statements are provided in accordance with the safe harbor provisions of
the Private Litigation Reform Act of 1995. Investors should consider other risks
and uncertainties discussed in other documents filed by the company with the
Securities and Exchange Commission.
Results of Operations
The following table presents the company's consolidated statement of operations
as a percentage of net sales:
Jan. 3, 1998 Dec. 28, 1996 Dec. 30, 1995
(53 weeks) (52 weeks) (52 weeks)
- --------------------------------------------------------------------------------
Net sales and
other income 100.0% 100.0% 100.0%
- --------------------------------------------------------------------------------
Cost of products sold 78.2 73.8 73.8
Depreciation 3.2 3.4 4.0
Selling, general and
administrative 15.6 15.2 16.9
Interest 4.2 3.4 3.8
- --------------------------------------------------------------------------------
Total costs and expenses 101.2 95.8 98.5
- --------------------------------------------------------------------------------
Income (loss) before
income taxes and extra-
ordinary loss on early
extinguishment of debt (1.2) 4.2 1.5
Provision (benefit)
for income taxes (.5) 1.6 .6
- --------------------------------------------------------------------------------
Income (loss) before extra-
ordinary loss on early
extinguishment of debt (.7) 2.6 .9
Extraordinary loss on early
extinguishment of debt
(net of income taxes of
$2,296) -- -- (.6)
- --------------------------------------------------------------------------------
Net income (loss) (.7)% 2.6% .3%
- --------------------------------------------------------------------------------
Note: Certain items have been rounded to cause the columns to add to 100%.
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
Net sales and other income of $650.6 million for the year ended January 3, 1998
represents an increase of $14.3 million, or 2.2%, over the prior year. This
increase resulted from the acquisition of California Shirt Sales and T-Shirt
City during the second quarter of 1997 and was partially offset by lower fleece
and licensed apparel sales. Activewear sales of $441.3 million in 1997 represent
an increase of $33.0 million, or 8.1%, as compared to 1996. Licensed sales of
$209.3 million in 1997 represent a decrease of $18.7 million, or 8.2%, as
compared to fiscal 1996. The licensed apparel sales decrease resulted from the
absence of Olympic sales in 1997 as compared to 1996, as well as softness in
sales of Major League Baseball and National Basketball Association products
during 1997.
Cost of products sold as a percentage of sales was 78.2% for 1997 and 73.8% for
1996. The increase as a percentage of sales was due to sales mix, competitive
pricing, higher operating costs and a charge of $8.1 million taken during the
fourth quarter of 1997. The charge related to costs and unfavorable operating
variances which resulted from bringing major capital projects on-line, the
effect of reduced operating schedules, closing two domestic sewing plants and
closing two distributor warehouses. Cost of products sold as a percentage of
sales excluding the charge was 77.0% for fiscal 1997.
Depreciation expense as a percentage of sales was 3.2% for fiscal 1997 and 3.4%
for fiscal 1996. The $883,000 decrease in depreciation expense during 1997 was
the result of certain assets becoming fully depreciated, and was partially
offset by depreciation expense incurred on 1997 capital additions.
Selling, general and administrative expenses ("S,G&A") increased $4.9 million in
1997. The primary reason for the increase was the inclusion of expenses for the
recently acquired California Shirt Sales and T-Shirt City subsidiaries. In
addition, a charge of $1.0 million was incurred in 1997 due to staff reductions
and the closing of a sales office. Advertising expenses also increased $2.0
million for fiscal 1997 compared to fiscal 1996. As a percentage of sales, S,G&A
expenses were 15.6% in 1997 and 15.2% in 1996.
Operating income (income before interest and income taxes) decreased 59.5%
during the 1997 fiscal year to $19.7 million compared to $48.7 million for
fiscal 1996.
Interest expense as a percentage of sales increased from 3.4% in 1996 to 4.2% in
1997. Interest expense increased from $21.7 million to $27.6 million in 1997,
primarily as a result of higher average borrowings and higher average rates. The
nature of the company's primary business requires extensive seasonal borrowings
to support working capital needs. During fiscal 1997, working capital borrowings
averaged $130.1 million at an average rate of 7.3% compared to $137.5 million
and 6.9%, respectively, for the comparable period of the prior year.
Provision (benefit) for income taxes is a function of pretax earnings and the
combined effective rate of federal and state income taxes. This combined rate
was 39% in 1997 and 38% in 1996. The provision for income taxes decreased $13.3
million in 1997 as a result of the pretax loss, representing (.5)% of net sales
as compared to 1.6% in fiscal 1996.
20
Tultex Corporation
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Net sales and other income of $636.3 million for fiscal 1996 increased $51.0
million, or 8.7%, over the 1995 level of $585.3 million. The 1996 sales growth
was due to increased sales volumes, and was further supported by a shift in
sales mix to premium products. During 1996, sales of higher margin branded and
premium private label products increased 23.7% and sales to the screenprint and
distributor channels increased 10.2%. Sales of jersey products were $112.4
million for 1996, representing 27.5% of the company's activewear sales as
compared to 24.0% for 1995.
Cost of products sold as a percentage of sales was 73.8% for both 1996 and 1995.
The increased margins achieved from the sale of premium products in 1996 were
offset by higher raw material costs and the increased percentage of jersey
product sales which are at lower margins. The higher raw material costs were due
to raw cotton and polyester prices which peaked in the first half of 1996.
Depreciation expense as a percentage of sales decreased from 4.0% for 1995 to
3.4% for 1996. Depreciation expense decreased from $23.2 million in 1995 to
$21.5 million in 1996, due to relatively low capital expenditures.
Selling, general and adminstrative expenses decreased as a percentage of sales
to 15.2% for 1996 from 16.9% for 1995. This decrease is primarily due to the
one-time charge of $5.0 million for deferred advertising costs required to be
recognized in 1995. Excluding the effect of this charge in 1996, S,G&A expenses
reflect higher advertising costs which were used to support the increase in
sales. This increase in advertising spending was partially offset by a decrease
in the bad debt provision resulting from improved collection experience.
Interest expense as a percentage of sales decreased from 3.8% in 1995 to 3.4% in
1996. Interest expense decreased from $22.0 million in 1995 to $21.7 million in
1996 due to lower average rates. Average working capital borrowings of $137.5
million at an average rate of 6.9% in 1996 compared with $136.4 million and 7.6%
for 1995, respectively.
Provision for income taxes reflects an effective rate for combined federal and
state income of 38% for both 1996 and 1995.
Financial Condition, Liquidity and Capital Resources
Net working capital at January 3, 1998 of $295.7 million was $20.2 million
higher than the December 28, 1996 amount of $275.5 million. Net accounts
receivable decreased $36.8 million from December 28, 1996 to January 3, 1998 due
to lower fourth quarter sales.
Inventories traditionally increase throughout the first half of the year to
support second-half shipments. In 1997, inventories peaked on August 9, 1997 at
$266.9 million and then declined to $199.9 million on January 3, 1998. As of
January 3, 1998, inventories had increased $37.6 million or 23.2% from December
28, 1996. This increase was due to the distributor acquisitions and was
comprised primarily of jersey products. The current ratio (ratio of current
assets to current liabilities) at January 3, 1998 was 8.1 compared to 5.9 for
December 28, 1996. The increase in the ratio was mainly due to increased
inventories and lower accounts payable and income taxes payable.
On April 15, 1997, the company sold $75 million of 9 5/8% senior notes due 2007.
Proceeds from the sale of the senior notes were used to repay existing
indebtedness and redeem $7,500,000 of the Series B, $7.50 cumulative convertible
preferred stock. On May 15, 1997, the company entered into a three-year $187
million revolving credit facility which replaced its existing three-year
facility due to expire in 1998. The terms of the new facility are substantially
equivalent to those of the former revolving credit facility, except that the
maximum borrowing amount under the new facility is $187 million, compared with
$225 million under the old facility. Reduction of the borrowing limit reflects
the proceeds from the sale of $75 million senior notes.
Total indebtedness at January 3, 1998 consisted primarily of senior notes
totaling $185.0 million and $86.2 million outstanding under the revolving credit
facility. The company's average credit facility borrowings during fiscal 1997
were $130.1 million and its peak borrowing was $172.0 million at September 11,
1997. At January 3, 1998, the company was in violation of a debt covenant of its
revolving credit facility. A waiver was received for this violation. The
company's revolving credit facility lenders also amended certain future covenant
requirements contained in the agreement.
On May 30, 1997, the company redeemed 75,000 shares of the 150,000 outstanding
shares of its $7.50 Series B, $100 stated value Preferred Stock at a redemption
price (including accrued but unpaid dividends) of $103.75 per share.
On July 29, 1997, the company's Board of Directors authorized the purchase of an
additional 1 million shares, increasing the total authorized shares for the
program dated March 20, 1996 to 2 million shares. As of January 3, 1998, a total
of 833,400 shares had been purchased and retired.
Stockholders' equity decreased $8.8 million during fiscal 1997 as a result of
the preferred stock redemption of $7.5 million, the net loss for the period of
$4.8 million, preferred dividends of $810,000 and stock repurchases of $2.1
million, partially offset by common shares issued of $4.2 million, preferred
stock issued of $333,000 and proceeds from stock plans of $1.9 million. Debt as
a percentage of total capitalization was 60.0% compared to 53.1% at December 28,
1996.
In fiscal 1997, net cash provided by operations was $17.7 million compared to
$31.2 million in fiscal 1996. Cash used for capital expenditures was
approximately $29.0 million for fiscal 1997 and fiscal 1996. The company has
budgeted $11.0 million for capital expenditures in fiscal 1998. Cash provided by
financing activities was $35.4 million for fiscal 1997 compared to cash used by
financing activities of $563,000 in 1996 as a result
21
Tultex Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
of the issuance of the $75 million senior notes partially offset by lower
revolving credit facility borrowings. The company expects that its short-term
borrowing needs will be met through cash generated from operations and
borrowings under the revolving credit facility.
Year 2000
In prior years, certain computer programs were written using two digits rather
than four to define the applicable year. These programs were written without
considering the impact of the upcoming change in the century and may experience
problems handling dates beyond the year 1999. This could cause computer
applications to fail or to create erroneous results unless corrective measures
are taken. Incomplete or untimely resolution of the Year 2000 issue could have a
material adverse impact on our company's business, operations or financial
condition in the future. The company has been assessing the impact that the Year
2000 issue will have on its computer systems since 1995. In response to these
assessments, which are ongoing, the company has reviewed critical business
systems and developed a plan to resolve existing system deficiencies. Management
expects substantial implementation in 1998 of enterprise-wide computer systems
which are Year 2000 compliant. As of January 3, 1998, approximately $18 million
has been capitalized relating to this implementation. The company is also
surveying critical suppliers and customers to determine the status of their Year
2000 compliance programs.
Based on the company's review and plans, the company believes future costs
relating to the Year 2000 issue will not have a material impact on its
consolidated financial position, results of operations or cash flows.
COMMON STOCK PRICES AND DIVIDEND INFORMATION
The company's common stock is listed on the New York Stock Exchange under the
symbol TTX. The following table shows the daily high, low and closing quotations
by quarters:
53 Weeks ended January 3, 1998 52 Weeks ended December 28, 1996
------------------------------ --------------------------------
Range of Quotations Range of Quotations
------------------- -------------------
Quarter Ended Low High Close Low High Close
- -----------------------------------------------------------------------------------
April 5 $6 3/8 $8 5/8 $7 5/8 $3 7/8 $4 7/8 $4 5/8
July 5 5 1/4 8 5 15/16 4 1/2 5 7/8 4 3/4
October 4 5 1/2 7 5 3/4 4 1/4 5 5/8 5 3/8
January 3 3 5/8 5 3/4 4 5 3/8 7 3/4 7
See Note 5 to Consolidated Financial Statements for restrictions on consolidated
retained earnings imposed by debt covenants. At January 3, 1998, $5,353,000 of
consolidated retained earnings were free of such dividend restrictions.
Shares of Stock
The average number of shares of common stock for the year was 29,782,946. The
common shares outstanding at year-end amounted to 29,875,488.
22
Tultex Corporation
SELECTED FINANCIAL DATA
1997 1996 1995 1994 1993
(In thousands of dollars except per share data) (53 weeks) (52 weeks) (52 weeks) (52 weeks) (52 weeks)
- ---------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS:
Net sales and other income $ 650,628 $ 636,341 $ 585,289 $ 565,433 $ 533,611
Costs and operating expenses 630,964 587,666 554,389 532,847 507,524
- ---------------------------------------------------------------------------------------------------------------------------------
Operating income 19,664 48,675 30,900 32,586 28,087
Interest expense 27,611 21,742 21,952 18,151 16,996
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and extraordinary loss
on early extinguishment of debt (7,947) 26,933 8,948 14,435 9,091
Provision (benefit) for income taxes (3,099) 10,234 3,400 5,485 3,188
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary loss on early
extinguishment of debt (4,848) 16,699 5,548 8,950 5,903
Extraordinary loss on early extinguishment of debt -- -- (3,746) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) (4,848) 16,669 1,802 8,950 5,903
Less preferred dividend requirement 810 1,135 1,135 1,135 1,135
- ---------------------------------------------------------------------------------------------------------------------------------
Balance to common stock $ (5,658) $ 15,564 $ 667 $ 7,815 $ 4,768
- ---------------------------------------------------------------------------------------------------------------------------------
Weighted average number of common shares outstanding 29,783 29,589 29,810 29,685 28,961
- ---------------------------------------------------------------------------------------------------------------------------------
Shares outstanding at year end 29,875 29,334 29,824 29,807 29,053
- ---------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE:
Income (loss) before extraordinary loss on early
extinguishment of debt $ (.19) $ .53 $ .15 $ .26 $ .16
Net income (loss) $ (.19) $ .53 $ .02 $ .26 $ .16
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends declared (Note 6) $ .00 $ .00 $ .00 $ .05 $ .20
- ---------------------------------------------------------------------------------------------------------------------------------
Book value $ 6.23 $ 6.40 $ 5.83 $ 5.74 $ 5.64
- ---------------------------------------------------------------------------------------------------------------------------------
YEAR-END DATA:
Current assets $ 337,663 $ 331,921 $315,157 $289,907 $ 288,691
Current liabilities 41,942 56,430 40,313 167,053 45,138
- ---------------------------------------------------------------------------------------------------------------------------------
Working capital $ 295,721 $ 275,491 $274,844 $122,854 $ 243,553
- ---------------------------------------------------------------------------------------------------------------------------------
Inventories $ 199,855 $ 162,283 $157,946 $130,183 $ 157,278
Property, plant and equipment (net) $ 142,851 $ 136,426 $129,002 $134,884 $ 151,775
Total assets $ 538,226 $ 500,780 $475,799 $456,809 $ 474,965
Bank notes payable $ 5,000 $ 5,628 $ -- $ 1,000 $ --
Current portion of long-term debt $ 527 $ 424 $ 145 $132,353 $ 8,524
- ---------------------------------------------------------------------------------------------------------------------------------
CAPITAL INVESTED:
Long-term debt $ 285,727 $ 223,616 $227,540 $ 83,002 $ 230,914
Stockholders' equity 194,112 202,928 189,057 187,101 179,197
- ---------------------------------------------------------------------------------------------------------------------------------
Total capital invested $ 479,839 $ 426,544 $416,597 $270,103 $ 410,111
- ---------------------------------------------------------------------------------------------------------------------------------
Return on average total capital invested (1.1)% 4.0% 0.5% 2.6% 1.7%
Long-term debt as a percentage of total capital 59.5% 52.4% 54.6% 30.7% 56.3%
- ---------------------------------------------------------------------------------------------------------------------------------
23
GENERAL INFORMATION
Stock Listing
Traded on the New York Stock Exchange
under the symbol - TTX
Form 10-K Request Copies of the company's report to the Securities and Exchange
Commission on Form 10-K may be obtained without charge
by writing to:
Kathy Rogers
Corporate Secretary
Tultex Corporation
P.O. Box 5191
Martinsville, VA 24115
or by calling: 540-632-2961,x3830
or by e-mail: krogers@tultex.com
Shareholder Relations
If you have questions regarding your stock, you may contact:
Regina Haynes
Supervisor-Shareholder Relations
Tultex Corporation
P.O. Box 5191
Martinsville, VA 24115
540-632-2961, x3831
FAX: 540-632-8000
Corporate Office
Tultex Corporation
101 Commonwealth Boulevard
Martinsville, VA 24112
540-632-2961
FAX: 540-632-8000
Internet Address: www.tultex.com
General Counsel
Hunton & Williams
P.O. Box 1535
Richmond, VA 23212
804-788-8200
Independent Accountants
Price Waterhouse LLP
200 W. 2nd Street
Winston-Salem, NC 27101
336-725-0691
Transfer Agent
First Union National Bank of NC
Shareholder Services Administration Group
NC 1153
1525 West W.T. Harris Blvd., 3C3
Charlotte, NC 28288-1153
800-829-8432
Corporate Officers
C. W. Davies, Jr.
President and
Chief Executive Officer
O. R. Rollins
Executive Vice President
and General Counsel
W. J. Caruba
Vice President-
Sales and Marketing
W. J. Gardner, Jr.
Vice President-
Operations
J. K. Judkins
Vice President-
Customer Service
A. J. Pichirallo
Vice President-
Wholesale
J. J. Smith
Vice President
S. H. Wood
Vice President
and Chief Financial Officer
J. F. Kies
Controller
R. H. Gehman
Treasurer
K. H. Rogers
Corporate Secretary
R. C. Haynes
Assistant Secretary
W. T. Moore
Assistant Treasurer
Board of Directors
J. M. Franck
Chairman of the Board
C. W. Davies, Jr.
L. J. Beasley
Executive Vice President
RJ Reynolds Tobacco Co.
S. P. Bernstein
Managing Director,
Head of Leveraged Finance Group
J. P. Morgan & Company, Inc.
L. M. Ewers, Jr.
Partner
Hunton & Williams, Attorneys at Law
H. R. Hunnicutt, Jr.
Retired Chairman and Chief Executive Officer
of the Company
F. K. Iverson
Chairman
Nucor Corporation
B. M. Jacobson
Senior Partner
Katz, Sapper & Miller
Certified Public Accountants
R. M. Simmons, Jr.
Retired Chairman and President
American Furniture Company
Committees of the Board
Audit Committee
B. M. Jacobson
R. M. Simmons, Jr.
Executive Compensation Committee
S. P. Bernstein
L. M. Ewers, Jr.
B. M. Jacobson
Nominating Committee
J. M. Franck
H. R. Hunnicutt, Jr.
F. K. Iverson
24
PLANT LOCATIONS
COMPANY-OWNED STORE LOCATIONS
YARN MANUFACTURING
Mayodan, North Carolina
Roxboro, North Carolina (2 Plants)
FABRIC MANUFACTURING
Asheville, North Carolina
Martinsville, Virginia
APPAREL MANUFACTURING
Bastian, Virginia
Martinsville, Virginia
Roanoke, Virginia
South Boston, Virginia
Mayodan, North Carolina
CUSTOMER SERVICE CENTER
Beaver Creek Industrial Park
Martinsville, Virginia
SUBSIDIARIES
Akom Limited
Montego Bay, Jamaica
California Shirt Sales, Inc.
Fullerton, California
Dominion Distribution, Inc.
Brownsville, Texas
Dominion Stores, Inc.
Martinsville, Virginia
LogoAthletic, Inc.
Indianapolis, Indiana
LogoAthletic/Headwear, Inc.
Mattapoisett, Massachusetts
Tultex/T-Shirt City, Inc.
Cincinnati, Ohio
Track Gear, Inc.
Charlotte, North Carolina
Tultex Canada, Inc.
Edmonton, Alberta, Canada
TULTEX MILL OUTLET STORES
550 Franklin Street
Martinsville, Virginia
Hupps Mill Plaza
South Boston, Virginia
Riverside Shopping Center
Danville, Virginia
5327 Williamson Road
Roanoke, Virginia
3225 Old Forest Road
Lynchburg, Virginia
East Lee Highway
Chilhowie, Virginia
1105 Stafford Drive
Princeton, West Virginia
Meadow Green Shopping Center
Eden, North Carolina
905 North Madison Avenue
Roxboro, North Carolina
Willowdale Shopping Center
Durham, North Carolina
THE SWEATSHIRT COMPANY
Outlets at Birch Run
Birch Run, Michigan
Horizon Outlet Center
Monroe, Michigan
Lake Erie Factory Outlet
Milan, Ohio
Horizon Outlet Center
Oshkosh, Wisconsin
Factory Stores of America at
North Bend
North Bend, Washington
Seaside Factory Outlet Center
Seaside, Oregon
Belz Factory Outlet Mall
Pigeon Forge, Tennessee
Factory Outlets
Post Falls, Idaho
Crossings Outlet Square
Tannersville,Pennsylvania
Rockvale Square
Lancaster, Pennsylvania
Factory Stores of America at Nuttree II
Vacaville, California
Pacific Outlet Center
Gilroy, California
Natoma Station Factory Outlets
Folsom, California
Horizon Outlet Center
Fremont, Indiana
Horizon Outlet Center
Edinburgh, Indiana
North Hampton Factory Outlet
North Hampton, New Jersey
Factory Stores of America
Nashville, Tennessee
Five Oaks Factory Stores
Sevierville, Tennessee
Bend Factory Outlets
Bend, Oregon
Ocean Outlets Seaside
Rehoboth Beach, Delaware
Sikeston Factory Outlet Stores
Miner, Missouri
Nebraska Crossing Factory Stores
Gretna, Nebraska
LOGOATHLETIC STORES
5668 George Town Road
Indianapolis, Indiana
2333 Post Drive
Indianapolis, Indiana
Factory Stores of America at Draper
Draper, Utah
TULTEX
TULTEX CORPORATION
P.O. BOX 5191
MARTINSVILLE, VA 24115