-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Hy6hM9K5dHsU5seuEmKdLrV+rLsAAc4BSgwe0v0+zEEYIUaxvrEaQjY/IoV5fyn8 Iy0ZK31OkrfbEOCIpWU4JQ== 0000950168-98-001087.txt : 19980406 0000950168-98-001087.hdr.sgml : 19980406 ACCESSION NUMBER: 0000950168-98-001087 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980102 FILED AS OF DATE: 19980403 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TULTEX CORP CENTRAL INDEX KEY: 0000100166 STANDARD INDUSTRIAL CLASSIFICATION: KNIT OUTERWEAR MILLS [2253] IRS NUMBER: 540367896 STATE OF INCORPORATION: VA FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08016 FILM NUMBER: 98587536 BUSINESS ADDRESS: STREET 1: 101 COMMONWEALTH BLVD STREET 2: P O BOX 5191 CITY: MARTINSVILLE STATE: VA ZIP: 24115 BUSINESS PHONE: 7036322961 FORMER COMPANY: FORMER CONFORMED NAME: TULLY CORP OF VIRGINIA DATE OF NAME CHANGE: 19760330 FORMER COMPANY: FORMER CONFORMED NAME: SALE KNITTING CO INC DATE OF NAME CHANGE: 19720407 10-K 1 TULTEX CORP 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended January 3, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to ----------------------- Commission file number 1-8016 TULTEX CORPORATION ------------------ (Exact name of registrant as specified in its charter) Virginia 54-0367896 - -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 101 Commonwealth Boulevard, P. O. Box 5191, Martinsville, Virginia 24115 - ------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 540-632-2961 ------------ Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of exchange on which registered ------------------- ------------------------------------ Common Stock, $1 par value New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K [ ] State the aggregate market value of the voting stock held by non-affiliates of the registrant: $108,333,049 at March 10, 1998. - ------------------------------ (APPLICABLE TO CORPORATE REGISTRANTS) Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. 29,875,488 shares of Common Stock, $1 par value, as of March 10, 1998 - ---------- -- --------------- DOCUMENTS INCORPORATED BY REFERENCE List hereunder the following documents if incorporated by reference and the Part of the Form 10-K into which the document is incorporated: 1. Those portions of the Annual Report to Stockholders for the fiscal year ended January 3, 1998 ("1997 Annual Report to Stockholders") incorporated herein by reference in Part II, Items 5, 6, 7 and 8; and Part IV, Item 14. 2. Those portions of the Proxy Statement for the company's 1998 Annual Meeting of Stockholders ("1998 Proxy Statement") incorporated herein by reference in Part III, Items 10, 11, 12 and 13. Page 1 Item 1. Business General Tultex Corporation is a marketer and manufacturer of activewear and licensed sports apparel for consumers and sports enthusiasts. The company's diverse product line includes fleeced sweats, jersey products (outerwear T-shirts), and decorated jackets and caps. These products are sold under the company's own brands led by the Discus Athletic and LogoAthletic premium labels and under private labels, including Nike, Reebok and Pro Spirit. In addition, the company has numerous professional and college sports licenses to manufacture and market embroidered and screen-printed products with team logos and designs under its LogoAthletic, Logo 7 and TrackGear brands. The company is a licensee of professional sports apparel, holding licenses from the National Football League ("NFL"), Major League Baseball ("MLB"), the National Basketball Association ("NBA"), the National Hockey League("NHL") and the National Association for Stock Car Auto Racing ("NASCAR") to manufacture a full range of sports apparel for adults and children. During fiscal 1997, the company experienced a net loss (including a non-recurring charge) of $4,848,000, or $0.19 cents per share, compared with net income of $15,699,000, or $0.53 per share, in fiscal 1996. The 1997 loss followed disappointing holiday sales at retail in the company's categories of products. Retail demand for undecorated fleece products and licensed headwear and jackets slowed in the Thanksgiving / Christmas period, and replenishment orders did not materialize as anticipated. To a lesser extent, the company experienced competitive price pressures on its jersey products in the fourth quarter. Earlier in the year, the company's performance was negatively affected by bottlenecks in manufacturing and distribution processes, which caused delays in shipments as well as higher production costs at domestic and non-US facilities. In the fourth quarter, the company incurred a pretax charge of $9,120,000 which equates to $5,563,000, or $0.19 per share, on an after-tax basis. The charge resulted from initiatives undertaken by the company to improve its future cost structure which had a negative impact on operating results in 1997. These initiatives included the following: 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-US locations where costs are lower; o closing two distributor warehouses and a sales office, and reducing staff as the company streamlines its activewear operations. Historically, Tultex has been a producer of quality fleece products for sale to distributors and resale to consumers under private labels. However, in the 1980's, the activewear industry began to change. Increasing consumer demand reflecting more active and casual lifestyles and the industry's historically good long-term growth prospects and low fashion risk as compared to other apparel products, attracted large, well-financed companies which acquired competitors of the company. During the 1990s, merchandise retailers began to exert pressure on margins for lower-priced fleece products as well as requiring more complex distribution services in a compressed shipping season. Page 2 In recent years, Tultex has pursued a strategy to enhance its competitiveness and to capitalize on growth opportunities by becoming a consumer-oriented apparel maker able to compete in a changing industry. This strategy includes the following elements: Higher-Margin Products. The company seeks to strengthen its competitiveness through (i) the development of branded and private label, higher-quality and higher-margin products to supplement its traditionally strong position in the lower-priced segment of the business and (ii) since 1991, the manufacture of jersey products. The company has developed its own brands, promoting Discus Athletic and Logo Athletic for its premium products and using the Tultex and Logo 7 labels for the value-oriented and wholesale segments of the market. Discus Athletic's highly visible advertising during televised broadcasts of college football and basketball on the ESPN and ABC television networks and sports marketing sponsorships, such as Pro Beach Men's and Women's Volleyball, have contributed to a significant increase in sales of this brand since 1992. In addition, Tultex has partnering arrangements to supply higher-quality, private label products to companies such as Reebok and Nike, none of which accounted for more than 10% of the company's consolidated sales during 1997. Sales of the higher-margin branded and premium private label products has grown from 13.8% of consolidated sales in 1993 to 37.7% in 1996. As a result of the disappointing retail selling season in late 1997, this percentage declined to 30.9% in 1997. Licensed Apparel Business to Complement Activewear Business. Tultex's 1992 acquisitions of Logo 7, a marketer of licensed sports apparel, and Universal Industries, Inc. ("Logo Athletic/Headwear"), a marketer of sports licensed headwear, enabled the company to achieve the fourth largest market share (11.4%) in the higher-margin licensed apparel business in 1996. The company estimated that it held the third largest market share in this business in 1995. In addition, these acquisitions have created opportunities for significant manufacturing and distribution synergies with the company's activewear business. The promotion of the LogoAthletic brand of licensed apparel through television and print advertising, as well as promotional arrangements featuring Dallas Cowboys' Troy Aikman, Miami Dolphins' Dan Marino, Denver Broncos' John Elway, Kansas City Chiefs' Marcus Allen, and the Buffalo Bills' Bruce Smith, among others, has helped to increase the visibility and sales of LogoAthletic products. Customer Relationships. Tultex actively pursues relationships with department, sporting goods and other specialty stores, such as Sears, JC Penney, Modell's, Dillard's, Foot Locker, Champs and Sports Authority, to distribute its higher-margin branded and private label products. In addition, the company continues to supply high volume retailers such as Wal-Mart, Kmart and Target with private label, Tultex and Logo 7 products. The company believes that it provides customers with exceptional service and support. Its distribution capabilities are responsive to customers' changing delivery and inventory management requirements. The company also has cut part inventory programs with several customers which has improved lead times on certain customer product requirements. Emphasis on Wholesale Distribution. In 1997, Tultex continued its emphasis on distribution channels, by acquiring California Shirt Sales, Inc., Fullerton, California, a major jerseywear distributor in the western U.S. and T-Shirt City, Cincinnati, Ohio, a major distributor of jerseywear in the midwest. In March 1998, T-Shirt City opened a distributor warehouse in Charlotte, North Page 3 Carolina. This warehouse expanded the company's distributor one day delivery service to include the southeastern United States. These acquisitions complement the company's strategy to become more vertically integrated from the manufacture of fleece and jerseywear to distributing consumer products at wholesale to retailers. Vertical Integration. The company's activewear business is vertically integrated, spinning approximately 80-85% of the yarn it requires in three yarn plants located in North Carolina (the balance is purchased under yarn supply contracts) and knitting, dyeing and cutting fabric and sewing finished goods in six plants in Virginia and North Carolina, one plant in Jamaica and one plant in Mexico. The company's licensed sports operations are conducted from one plant in Indiana, one plant in Massachusetts, and one plant in North Carolina. Industry The company produces activewear and licensed sports apparel and headwear for sale at a broad range of price points through all major distribution channels. Activewear The company's activewear business consists of its fleecewear and jersey products. All activewear industry and market share data included herein has been estimated by the company based on data provided by NPD American Shopper Panel, a leading provider of market information on the textile industry. Fleecewear. The fleecewear industry had retail sales of approximately $7.5 billion in 1997. The predominant fleecewear products are sweatshirts and sweatpants. The basic fleecewear industry is characterized by: o low fashion risk - although fashion detailing changes often, basic garment styles are not driven by trends or fads; o overall stability - despite cyclical fluctuations, annual industry sales volume is estimated at approximately 700 million units for 1994 through 1997; o entry by well-financed acquirors - new entrants have been attracted by the industry's long-term growth and have been able to make large initial capital investments for manufacturing; o barriers to entry - barriers include large required capital investments, growing importance of brand-name recognition and established customer relationships; and o low threat of imports - the low labor portion of the cost of manufacturing fleecewear and the short delivery times required for inventory control by retail customers reduce the threat of competition from imports. Fleecewear products have registered significant improvements in fabric weights, blends, quality of Page 4 construction, size, style, and color availability over the past few years. In particular, garments are sized larger and typically use heavier, more shrink-resistant fabrics. In addition, acrylic-dominant blends have been supplanted by polyester-dominant and cotton-dominant blends. Despite these upgrades in product specifications, retail prices have remained relatively flat in real terms due to improvements in manufacturing technology and competitive pressures. Fleecewear exhibits a marked seasonality. For example, over the past three fiscal years, an average of 70.2% of the company's fleecewear unit sales have occurred in the third and fourth quarters. Jersey (Outerwear T-shirts). Unit retail sales of jersey products have grown 25.7% from 1994 to 1997 and in 1997 totaled $11.4 billion, or 1,227 million units. Like fleecewear, the industry characteristics of jersey apparel include low fashion risk and long-term growth. Imports are a greater threat as the weight/labor ratio and the freight costs involved are lower for jersey products than for fleecewear; however, the ability to produce large volumes with short delivery times gives domestic manufacturers an advantage over import competition in both fleecewear and jersey apparel. Industry Makeup and Retail Channels. Both the fleecewear and jerseywear industries are fragmented with no one manufacturer accounting for a significant portion of industry sales. In 1997, the five largest fleece manufacturers together accounted for an estimated 25.4% of the branded market in the fleecewear industry, with Sara Lee Corporation, Russell Corporation, Fruit-of-the-Loom, VF Corporation and Tultex accounting for approximately 8.0%, 6.8%, 4.6%, 3.1%, and 2.9% of the wholesale industry sales, respectively. In 1997, the 5 largest jersey manufacturers together accounted for an estimated 11.7% of the branded market in the jersey industry, with Sara Lee Corporation, Fruit-of-the-Loom, Russell Corporation, VF Corporation and Tultex accounting for approximately 3.9%, 3.6%, 1.5%, 1.4% and 1.3% of wholesale industry sales, respectively. The activewear industry has been characterized since the 1980s by acquisition of existing competitors by larger companies with substantial financial resources and manufacturing and distribution capabilities. These factors and the resulting price reductions and inventory build-ups have adversely affected participants in the activewear industry, including Tultex, particularly with respect to the fleecewear industry. Fleecewear is distributed through department stores, chain stores and sporting goods stores, although mass merchandisers, wholesale clubs, and other discount retailers represent a dominant and growing percentage of the total fleecewear market. Competitive Factors. The company believes that price and quality are the primary factors in consumer purchasing decisions. Brand name is often a proxy for quality; as a result, those companies with brand name recognition enjoy increased sales from this competitive advantage. Management believes that the market share of foreign competitors in the fleecewear and jersey industries is not significant. Licensed Apparel Estimated wholesale sales of professional sports licensed apparel (including headwear) for 1996 were approximately $2.4 billion, according to Sports Style Magazine, an industry publication. In general, the company believes that the prospects for its continued growth in this market are good, although growth is expected to be less rapid than in recent years due to increased competition. The continually changing fortunes of existing teams, together with the introduction of new franchises, has made the market extremely Page 5 dynamic, as interest in each team fluctuates with its performance. Manufacturers, such as the company, with the capacity to respond quickly to these changes with new products and designs enjoy a competitive advantage over smaller competitors. Industry Makeup and Retail Channels. The industry has expanded rapidly over the past five years, with the professional sports leagues granting large numbers of licenses. With this proliferation of licenses, individual competitor's sales growth slowed, though the top companies continued to gain market share. According to Sports Style Magazine, the top five companies accounted for approximately 68.1% of the market, with Starter Corporation, VF Corporation, Sara Lee Corporation, Tultex and Fruit-of-the-Loom accounting for approximately 17.9%, 15.5%, 12.0%, 11.4% and 11.3% of the wholesale industry sales in 1996, respectively. Imports of finished goods purchased by retailers directly or through import companies do not represent a significant factor in the industry as a whole, since there are no foreign licenses. However, all of the larger domestic companies competing in the market do use significant off-shore sourcing of finished outerwear goods. Licensed apparel products are generally sold through the same retail channels as activewear. Competitive Factors. There are significant barriers to entering the licensed sports apparel industry and expanding such a business to significant size. After expanding the number of licenses rapidly in recent years, the licensing associations have begun to consolidate their relationships with existing manufacturers and appear less likely to enter into licensing agreements with new entrants. New entrants would be required to devote considerable resources to developing their product mix and sales and distribution capabilities to compete effectively. Company Products Activewear ($441.3 million or 67.8% of 1997 consolidated sales) The principal activewear products of the company are fleeced knitwear items such as sweatshirts, jogging suits, hooded jackets, headwear and jersey apparel for work and casual wear. The company manufactures apparel products principally under the Discus Athletic and Tultex brands. Products carrying the Discus Athletic name are marketed for sale to chains such as Foot Locker, department stores such as Sears and sporting goods stores, while Tultex products are marketed for sale to mass merchandisers such as Wal-Mart and wholesale clubs such as Sam's. The company also manufactures private-label products for sale under many labels, including Nike, Reebok and Pro Spirit. Licensed Apparel and Headwear ($209.3 million or 32.2% of 1997 consolidated sales) The company's licensed apparel products include jackets, sweats, T-shirts, baseball-style caps and other headwear, embroidered or imprinted with professional and college sports and entertainment-related licensed designs and logos. These products are marketed under the LogoAthletic, Logo 7 and Track Gear brands. Under the Logo Athletic name, the company offers premium-quality jackets, caps and other activewear, including NFL "Pro-Line" authentic sideline gear and NBA "Authentics" apparel. Tultex, through Logo 7, acquired Pro-Line status from the NFL in 1993, a flagship program entitling the company to sell products identical to those worn on the sidelines by NFL players and coaches. Under the terms of the non- Page 6 exclusive Pro-Line contract, the company markets Pro-Line products at retail for all 30 NFL teams. The company's NFL Pro-Line and NBA Authentics products prominently feature the LogoAthletic name and trademark, which the company believes are key elements in developing the LogoAthletic brand. Under the Logo 7 brand, the company offers moderately-priced outerwear, fleecewear, T-shirts and caps with licensed designs and logos. The company also sells popularly-priced licensed fleecewear, jersey apparel and headwear. Under the Track Gear brand, the company offers items such as t-shirts, sweatshirts, windbreakers and hats featuring designs involving NASCAR drivers and cars. Customers; Marketing and Sales Customers The company offers a diverse product line for sale at a full range of price points through major distribution channels. Customers include chain stores such as Foot Locker, department stores such as Sears and J.C. Penney, sporting goods stores, and mass merchandisers such as Target, Wal-Mart and Kmart. The company's higher-quality fleecewear and jersey products, such as the Discus Athletic and Logo Athletic brands, are sold primarily through department and specialty stores and mail-order distribution channels rather than through mass merchandisers and wholesale clubs, thereby enabling Tultex to enhance the image of these branded and private label products and achieve higher margins. The Tultex and Logo 7 brands are marketed through mass merchandisers and wholesale clubs that compete more on price than brand. The following chart details the distribution channels for the company's branded products.
Brands Products Distribution Channels - ------ -------- --------------------- Discus Athletic Fleece and jersey activewear Sporting goods specialty stores and chain stores (Sports Authority, Modell's), retail chains (Sears), international distributors and sales agencies (Nissan Trading) Tultex Fleece and jersey activewear Mass merchants (Kmart, Wal-Mart), retail chains (Montgomery Ward), region- al discounters (Shopko, Hart's, Pamaida), distributors and mass merchant screenprinters (Brazos Sportswear, Jerry Leigh, Giant Merchandise), wholesale clubs (Sam's) LogoAthletic Licensed activewear, outerwear Retail chains (JC Penney, Sears), sport- and headwear ing goods specialty stores (Champs, Foot Locker), department stores (Dillard's, Mercantile) Logo 7 Licensed activewear, outerwear Mass merchants (Kmart, Target), distributors and headwear (West Coast Novelties), wholesale clubs (Sam's)
Page 7
Track Gear Licensed activewear, outerwear Retail chains, corporate accounts, and and headwear speedways
Marketing and Sales The company has shifted its marketing strategy in recent years to focus on the development of its own brands and sales through distribution channels that support higher margins. In particular, the company has devoted significant resources to the promotion of its Discus Athletic and LogoAthletic brands. Advertising expenses were $23.6 million and $21.6 million in 1997 and 1996, respectively. In 1993, the company began conducting advertising campaigns to promote its Discus Athletic and Logo Athletic brands. The Discus Athletic advertising campaign emphasizes quality and the usefulness of the product for many sports. The company believes that this positioning effectively differentiates the Discus Athletic line from competing specialized lines with powerful brand associations. To reinforce the association of the brand with competitive athletics, Discus Athletic advertises on ESPN's college football and ABC's college basketball. The Logo Athletic campaign focuses on establishing the "authenticity" of LogoAthletic products. The company believes that licensed apparel sales benefit substantially from the perception that products are the same as those worn by professional sports stars. LogoAthletic acquired NFL Pro-Line status in 1993. To provide visibility and reinforce this authenticity, the company provided sideline garments and caps predominately featuring the LogoAthletic trademark for eight NFL teams in 1997, the Cincinnati Bengals, Indianapolis Colts, St. Louis Rams, Arizona Cardinals, Tampa Bay Buccaneers, Buffalo Bills, Seattle Seahawks and Tennessee Oilers, as well as for several NFL All-Pro players, such as Denver Broncos' John Elway, Miami Dolphins' Dan Marino, Kansas City Chiefs' Marcus Allen and Buffalo Bills' Bruce Smith. As of January 3, 1998, Tultex operated a sales office in each of Boston and Chicago. These offices are the primary points of contact for customers and coordinate sales, distribution of sales information, certain advertising, point-of-sale displays and customer service. The company also employs seven independent sales representatives to market its Discus Athletic line in the fragmented sporting goods market. Logo 7's products are marketed through a sales force of 50 people, including Logo 7 employees and independent sales representatives. In 1996, the company renewed its agreement with Nissan Trading Co., Ltd., a subsidiary of Nissan Motor Co., to market and sell the company's Discus Athletic products in Japan. This agreement has been extended through 1999. International sales in 1997 and 1996 were immaterial. At January 3, 1998, Dominion Stores, Inc., a wholly-owned subsidiary, operated 10 outlet stores in North Carolina, Virginia and West Virginia, which sell surplus company apparel and apparel items of other manufacturers, and operated 20 The Sweatshirt Company retail stores in 14 states, which primarily sell first-quality company-made products and accessories, and operated 3 LogoAthletic stores in Indiana and Utah which primarily sell surplus licensed apparel. Dominion Stores' total sales in fiscal 1997 and 1996 were $15.5 million and $16.4 million, respectively. Licenses Most of the company's licensed products are sold through LogoAthletic. The company is a licensee of Page 8 professional sports apparel, maintaining a full complement of licenses with all of the major North American professional sports leagues -- the NFL, MLB, the NBA and the NHL - and the Collegiate Licensing company. The company also holds licenses for NASCAR. These licenses require the payment of royalties generally ranging from 8% to 15% of sales with future guaranteed royalties of approximately $2.4 million. The company's licenses with MLB expire in 1998, NFL and NHL in 1999 and NBA in 2000. The company's ability to compete is dependent on its ability to obtain and renew licenses, particularly those from the major professional sports leagues. The company enjoys long-standing relationships with its major league licensees, having been awarded its first licenses with the NFL in 1971, with the NBA in 1977, with MLB in 1980 and with the NHL in 1988. The company has no reason to believe that it will not be able to successfully renew these licenses. While the company has enjoyed long, successful and uninterrupted licensing relationships with its professional and collegiate athletic licensors, if a significant license or licenses were not renewed or replaced, the company's sales would likely be materially and adversely affected. In addition, the company's material licenses are non-exclusive and new or existing competitors may obtain similar licenses. Manufacturing and Distribution Because consumer value is a key competitive factor in the activewear industry, Tultex has focused on being a low-cost producer of high-quality goods. The company pursues this goal through cost reduction measures, plant modernization and improvement of garment characteristics, such as increasing the range of garment sizes, cloth weight, durability, style and comfort to meet consumer demands. The company continually reviews its cost structure and methods of manufacturing and distributing its products in order to remain cost competitive. Over the last several years, the company has closed or sold some of its costlier, less efficient plants, including two domestic sewing plants in 1998. The company expects that certain cost savings may be achieved through lower average production costs in the more modern facilities and higher capacity utilization in the remaining plants. The company's manufacturing process consists of yarn production; fabric construction including knitting, dyeing and finishing operations; apparel manufacturing including cutting and sewing operations; and, for garments with logos, screenprint and embroidery operations. As a result of its modernization efforts, the company believes that its manufacturing facilities are outfitted with some of the most efficient and technologically-advanced equipment in the industry. During fiscal 1989 through fiscal 1997, the company invested approximately $232 million to open new facilities, including sewing facilities in Roanoke, Virginia and Montego Bay, Jamaica (a leased facility), and the highly automated customer service center in Martinsville, Virginia, and to modernize other facilities. Open-end spinning frames were acquired to increase yarn production and reduce costs, higher color quality and lower dyeing costs were achieved from the installation of new jet dyeing equipment, new dryers were added in the fabric finishing process, automated cutting machines were introduced, and new information systems were implemented. Page 9 Tultex's highly-automated customer service center, opened in 1991, has expanded the company's distribution capabilities. The customer service center allows the company to package and ship its products according to the more detailed color, size and quantity specifications typically required by high-volume retailers and department stores. The company has improved its utilization of the customer service center and believes that its strategy of increasing sales of retail products, which require more sophisticated packaging, will continue to improve utilization of the customer service center. In spring 1992, LogoAthletic moved its operations to a newly-constructed, leased facility built to its specifications. This 650,000 square foot building allowed LogoAthletic to centralize operations, increase inventory control, improve material flow and will allow for future expansion. Tultex manufactures yarn at three facilities located in North Carolina, which have a combined production capacity of 1.4 million pounds per week, utilizing modern, open-end spinning frames. For its knitting operations, Tultex operates approximately 500 modern high-speed, latch-needle circular knitting machines, which produce various types of fabrics. The company believes its dyeing operations are among the most modern and technologically efficient in the industry; dyeing operations are computer-controlled, allowing precise duplication of dyeing procedures to ensure "shade repeatability" and color-fast properties. The finishing operations employ mechanical squeezing and steaming equipment. The Martinsville cutting facility uses advanced Bierrebi automatic continuous cutting machines with computer-controlled hydraulic die-cutting heads and "lay-up" machines and high-speed reciprocating knives. Sewing production at the company's eight sewing facilities is organized on an assembly-line basis. The company relies on a knitting ticket system to track and report the manufacturing process from yarn inventory through the knitting of individual rolls of fabric into greige cloth storage. From this point, the shop floor control module of the Cullinet manufacturing system monitors and reports the movement of each production lot through the operations of dyeing, finishing, cutting and sewing. Each sewing plant then electronically transmits an advance shipping notice to the automated customer service center so the distribution planning module at the center can plan the arrival and storage/packing of the sewn garments. Frontier knitting monitor systems, cutting production systems, and sewing production systems use computer-based data collection on each knitting, cutting, and sewing machine to monitor machine and operator efficiency, data that is useful for quality control, incentive-based payroll data, and production management information. The company decorates its unfinished licensed apparel products using screenprinting or embroidery at LogoAthletic's facilities in Indianapolis and Logo Athletic/Headwear facilities in Massachusetts. Automatic silkscreen machines and dryers are used for longer runs, and hand-operated presses are used for shorter or more complicated runs. Embroidery is applied using high-speed, computerized stitching equipment. Sourcing The company currently maintains full package sourcing utilizing vendor-direct relationships and agents for over $70 million at cost in the following apparel categories: Page 10
Product Country of Origin - -------------------------------------- ----------------- Headwear South Korea, China, Taiwan, Dominican Republic Outerwear-Jackets South Korea, Pakistan Collar and Placket Shirts Pakistan, Guatemala Decorated Fashion Fleece China Windwear Bangladesh, Mongolia, Sri Lanka, South Korea, Hong Kong Baseball Shirts Guatemala Mock Turtlenecks Mexico Mesh Silhouettes South Korea Novelty Jersey India, Pakistan Fashion T's and Tank Tops Mexico
Sourced headwear accounts for approximately 35% of total sourced products. The company utilizes 807 sewing assembly for generating cost savings on garments requiring labor intensive needle work. These operations are performed at company maintained locations in Jamaica and Mexico and by various contractors. Approximately 65% of the company's sewing is done outside the United States. Raw Materials The company's principal raw materials for the production of activewear are cotton and polyester. Cotton content in fleecewear typically is 50% and in jersey apparel typically is 100%. The company is producing increasing amounts of fleecewear containing 90-100% cotton. Fleecewear and jersey manufacturers are extremely sensitive to fluctuations in cotton and polyester prices as these materials represent approximately 30% of the manufacturing cost of the product. In addition, the company is indirectly impacted by increasing costs of raw materials in its licensed apparel business because the company purchases finished goods containing cotton and polyester and these higher raw material costs often are effectively passed on to the company. In 1997, the company's average price per pound of fiber (cotton and polyester) purchased was $.68, compared with $.75 in 1996. In 1998, Tultex expects to use approximately 55 million pounds of raw cotton and 20 million pounds of polyester staple in its manufacture of fleecewear and jersey apparel. Tultex makes advance purchases of raw cotton based on projected demand. As of March 11, 1998 the company has contracted to purchase substantially all of its raw cotton needs for 1998 and has fixed the price on approximately 60% of its raw cotton needs. To the extent cotton prices increase before the company fixes the price for the remainder of its raw cotton needs, the company's results of operations could be adversely affected. Also in 1998, the company expects to use an additional 15 million pounds of finished yarn which will be purchased. Trademarks The company increasingly promotes and relies upon its trademarks, including Discus Athletic, LogoAthletic, Tultex, TrackGear and Logo 7, many of which are registered in the United States and many foreign countries. Page 11 Seasonality The company's business is seasonal. The majority of fleecewear sales and related net income occur in the third and fourth quarters, coinciding with cooler weather and the playing seasons of popular professional and college sports. Jersey sales peak in the second and third quarters of the year, somewhat offsetting the seasonality of fleecewear sales. Environmental Matters The company is subject to various federal, state and local environmental laws and regulations governing, among other things, the discharge, storage, handling and disposal of a variety of substances and wastes used in or resulting from its operations, including, but not limited to, the Water Pollution Control Act, as amended; the Clean Air Act, as amended; the Resource Conservation and Recovery Act, as amended; the Toxic Substances Control Act, as amended; and the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. The company returns dyeing wastes for treatment to the City of Martinsville, Virginia's municipal wastewater treatment systems operated pursuant to a permit issued by the state. The city has filed a timely application to renew its permit. In 1989, the city adopted a plan for removing the coloration, caused by the dye wastes, from the water by using polymer chemicals to combine with the extremely small particles of the dye to create a sludge-like substance that can be retrieved from the water at the city's wastewater treatment plant and disposed of as non-hazardous waste in the city's landfill. To cover the cost to the city, the company pays 50 to 80 cents per thousand gallons of water above regular water costs. The expenditures required do not have a material effect on the company's earnings or competitive position. The company's operations also are governed by laws and regulations relating to employee safety and health, principally the Occupational Safety and Health Act and regulations thereunder, which, among other things, establish exposure limitations for cotton dust, formaldehyde, asbestos and noise, and regulate chemical and ergonomic hazards in the workplace. The company believes that it is in material compliance with the aforementioned laws and regulations and does not expect that future compliance and actions responding to routine inspections will have a material adverse effect on its capital expenditures, earnings or competitive position in the foreseeable future. However, there can be no assurances that environmental and other legal requirements will not become more stringent in the future or that the company will not incur significant costs in the future to comply with such requirements. 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 the Page 12 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. Litigation The company is not currently a party to any legal proceedings the results of which it believes could have a material adverse impact on its business or financial condition. Employees The company had approximately 6,708 employees at January 3, 1998, of which 5,752 or 85.7% were paid hourly. Hourly employees at the company's Martinsville and South Boston, Virginia facilities are represented by the Union of Needletrades, Industrial and Textile Employees. The company's labor contracts with the union, covering all hourly employees at the Martinsville and South Boston facilities, expire in 1998. The negotiation of new contracts are underway. As of January 3, 1998, the company's hourly employees represented by the Union accounted for approximately 38.4% of the company's total employees and 44.8% of the company's hourly employees. None of the company's other employees are represented by a union. The following table summarizes the approximate number of employees in the company's principal divisions at January 3, 1998.
Division Salary Hourly Total - -------- ------ ------ ----- Activewear 813 5,009 5,822 Licensed Apparel 143 743 886 --- --- --- Total 956 5,752 6,708 ================ ======== =======
Page 13 Item 2. Properties Most of the company's principal physical facilities (other than those of LogoAthletic) are located in Virginia and North Carolina, within a 150 - mile radius of the City of Martinsville. All buildings are well-maintained. The company and its subsidiaries also lease sales offices and retail outlets in major cities from coast to coast. The location, approximate size and use of the company's principal owned properties are summarized in the following table:
Square Location Footage Use - -------- ------- --- Martinsville, VA 1,100,000 Manufacturing (apparel) and administrative offices Koehler, VA 60,000 Equipment Storage South Boston, VA 130,000 Sewing (apparel) Bastian, VA 53,500 Sewing (apparel) Longhurst, NC 287,000 Manufacturing (yarn) Roxboro, NC 110,000 Manufacturing (yarn) Mayodan, NC 612,000 Manufacturing, warehousing and shipping (yarn and apparel) Vinton, VA 50,000 Sewing (apparel) Martinsville, VA 502,200 Warehousing and distribution (apparel) Mattapoisett, MA 116,250 Distribution (headwear) Asheville, NC 106,650 Manufacturing (apparel) Tamaulipas, Mexico 23,500 Sewing (apparel)
Page 14 The following table presents certain information relating to the company's principal leased facilities: Lease Expira- Current Square tion Annual Location Footage Date Rental Use - ------------------------------------------------------------------------------------
Montego Bay, 28,422 4/30/98 113,688 Sewing (apparel) Jamaica Montego Bay, 38,088 12/31/98 152,352 Sewing (apparel) Jamaica Martinsville, VA 300,000 06/01/98 684,000 Warehousing (apparel) Indianapolis, IN 650,000 05/31/07 1,408,000 Distribution (licensed apparel) Charlotte, NC 34,000 10/30/00 134,892 Distribution (licensed apparel) Fullerton, CA 205,000 12/31/04 762,600 Distribution (apparel) Fullerton, CA 12,630 12/31/98 60,840 Warehousing (apparel) Oakland, CA 22,282 07/31/99 70,404 Distribution (apparel) San Diego, CA 23,812 Monthly 142,872 Distribution (apparel) Honolulu, HI 8,257 Monthly 67,088 Distribution (apparel) Seattle, CA 34,020 09/30/00 178,308 Distribution (apparel) Las Vegas, NV 31,889 07/31/03 168,372 Distribution (apparel) Tempe, AZ 20,400 03/31/02 100,368 Distribution (apparel) Cincinnati, OH 105,000 02/28/99 199,200 Distribution (apparel) Charlotte, NC 38,400 02/28/03 151,680 Distribution (apparel)
Manufacturing equipment, substantially all of which is owned by the company, includes carding, spinning and knitting machines, jet-dye machinery, dryers, cloth finishing machines, cutting and sewing equipment and automated storage/retrieval equipment. This machinery is modern and kept in good repair. The company leases a fleet of trucks and tractor-trailers which are used for transportation of raw materials and for interplant transportation of semi-finished and finished products. The company's facilities and its manufacturing equipment are considered adequate for its needs. Page 15 Item 3. Legal Proceedings. None. Item 4. Submission of Matters to a Vote of Security Holders. None. PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters. As of February 27, 1998 there were 2,291 record holders of the Company's common stock. Other information required by Item 5 of Form 10-K appears under the heading "Common Stock Prices and Dividend Information" on page 22 and in "Note 6" of "Notes to Financial Statements" on page 12 of the company's 1997 Annual Report to Stockholders and is incorporated herein by reference. Item 6. Selected Financial Data. The information required by Item 6 of Form 10-K appears on page 23 of the company's 1997 Annual Report to Stockholders and is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The information required by Item 7 of Form 10-K appears on pages 20 through 22 of the company's 1997 Annual Report to Stockholders and is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data. The consolidated financial statements, together with the report thereon of Price Waterhouse LLP, dated February 11, 1998, appearing on pages 6 through 19 of the company's 1997 Annual Report to Stockholders are incorporated by reference in this Annual Report on Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. With respect to the directors of the company, the information required by Item 10 of Form 10-K appears on pages 3 through 5 of the company's 1998 Proxy Statement and is incorporated herein by reference. Page 16 Pursuant to General Instruction G to Form 10-K, the following information is furnished concerning the executive officers of the company. Executive Officers of the Company
Name Office Age - ------------------------------------------------------------------------------------------------------- John M. Franck Chairman of the Board of Directors 45 Charles W. Davies, Jr. President and Chief Executive Officer 49 O. Randolph Rollins Executive Vice President and General Counsel 55 Walter J. Caruba Vice President - Marketing and Sales 50 Anthony J. Pichirallo Vice President - Wholesale Marketing 39 W. Jack Gardner, Jr. Vice President - Operations 54 Jefferson K. Judkins Vice President - Customer Service 38 John J. Smith Vice President 55 Suzanne H. Wood Vice President and Chief Financial Officer 38 Jeffrey F. Kies Corporate Controller 41 Robin H. Gehman Treasurer 43 Kathy H. Rogers Secretary 39
John M. Franck, Chairman of the Board of Directors, was Chairman of the Board of Directors and Chief Executive Officer from January 1991 to January 1995, and served as President and Chief Operating Officer from November 1988 to January 1991. Mr. Franck is a director of Piedmont Trust Bank, Martinsville, Virginia. Charles W. Davies, Jr., President and Chief Executive Officer of the Company since January 1995, was President and Chief Operating Officer from January 1991 to January 1995, and Executive Vice President from December 1989 to January 1991. From February 1988 through November 1989, he was President and Chief Executive Officer of Signal Apparel Company in Chattanooga, Tennessee. From March 1986 to February 1988, Mr. Davies was President of Little Cotton Manufacturing Company in Wadesboro, North Carolina, and from December 1984 through February 1986 was Senior Vice President of Fieldcrest-Cannon in Kannapolis, North Carolina. Page 17 O. Randolph Rollins became Executive Vice President and General Counsel in October 1994. From 1995 to 1996 he was Chief Financial Officer. Prior thereto, Mr. Rollins was a partner with the law firm of920411346 McGuire, Woods, Battle & Boothe, Richmond, Virginia, from 1973 to 1990 and from January 1994 to October 1994. From 1990 to January 1994, Mr. Rollins served in the Cabinet of Virginia's Governor L. Douglas Wilder, first as Deputy Secretary of Public Safety and from 1992 through January 14, 1994 as Secretary of Public Safety of the Commonwealth of Virginia. Mr. Rollins is the brother-in-law of John M. Franck. Walter J. Caruba became Vice President - Marketing and Sales in September 1992. He served as Vice President Distribution between October 1990 and September 1992. He served as General Manager - Planning from November 1989 to October 1990 and was Director - Production Control from December 1985 to November 1989. Anthony J. Pichirallo became Vice President - Wholesale Marketing in February 1997. He served as General Manager - Wholesale from July 1991 until that time. W. Jack Gardner, Jr. became Vice President - Operations in September 1994 and served as General Manager - Fabric Manufacturing from January 1988 until that time. Jefferson K. Judkins became Vice President - Customer Service in August 1997. He previously served as General Manager - Customer Service from February 1997 until July 1997 after serving as Retail Sales Manager since October 1992. John J. Smith became Vice President in September 1992. Prior thereto, he served as Vice President - Sales and Marketing since December 1987 after serving as Director - Corporate Planning since May 1987. He was Manager Information Systems & Services between December 1985 and May 1987. Suzanne H. Wood became Vice President and Chief Financial Officer in February 1996. Prior to that appointment, Ms. Wood was Corporate Controller. In the ten years prior to joining the company, she was employed by Price Waterhouse LLP, most recently as Audit Senior Manager. Jeffrey F. Kies became Corporate Controller in August 1996. Prior to joining the company, he was employed by R. J. Reynolds Tobacco Co. as Senior Financial Manager. Robin H. Gehman became Treasurer in May 1997. In the sixteen years prior to joining the company, he was employed by VF Corporation, most recently as Vice President of Finance for Bassett Walker, Inc. Kathy H. Rogers became Secretary in January 1996. She also continues as Director - - Corporate Communications, a position she has held since September 1992. She was Manager - Employee Communications between May 1989 and September 1992. All terms of office will expire concurrently with the meeting of directors following the next annual meeting of stockholders at which the directors are elected. Page 18 Item 11. Executive Compensation. The information required by Item 11 of Form 10-K appears on pages 6 through 7 and pages 9 through 11 of the company's 1998 Proxy Statement and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required by Item 12 of Form 10-K appears on page 1 and 2 of the company's 1998 Proxy Statement and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. The information required by Item 13 of Form 10-K appears on page 5 of the company's 1998 Proxy Statement and is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) The following documents are filed as part of this report:
(1) Financial Statements: Page in Annual Report* --------------------- ---------------------- Report of Independent Accountants 19 Balance Sheet at January 3, 1998 and December 28, 1996 6 Statement of Operations for each of the three years in the period ended January 3, 1998 7 Statement of Changes in Stockholders' Equity for each of the three years in the period ended January 3, 1998 8 Statement of Cash Flows for each of the three years in the period ended January 3, 1998 9 Notes to Financial Statements 10 - 19 (2) Financial Statement Schedule: Page in Form 10-K ----------------------------- ----------------- Report of Independent Accountants on Financial Statement Schedule: F-1 Consolidated Financial Statement Schedule for each of the three years in the period ended January 3, 1998: II-Valuation and Qualifying Accounts and Reserves F-2
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. *Incorporated by reference from the indicated pages of the 1997 Annual Report to Stockholders. Page 19 (3) Exhibits
3.1 Restated Articles of Incorporation (filed as Exhibit 3.1 to the company's Form 10-K for the year ended December 29, 1990 and incorporated herein by reference) 3.2 Articles of Amendment to the Restated Articles of Incorporation (filed as Exhibit 3 to the company's 8-K dated January 31, 1992 and incorporated herein by reference) 3.3 By-laws of Tultex Corporation (filed as Exhibit 3.3 to the company's Amendment No. 1 to Form S-1 dated March 17, 1995 and incorporated herein by reference) 3.4 Articles of Incorporation of AKOM Ltd. (filed as Exhibit 3.4 to the company's Amendment No. 1 to Form S-1 dated March 17, 1995 and incorporated herein by reference) 3.5 By-laws of AKOM, Ltd. (filed as Exhibit 3.5 to the company's Amendment No. 1 to Form S-1 dated March 17, 1995 and incorporated herein by reference) 3.6 Articles of Incorporation of Dominion Stores, Inc. (filed as Exhibit 3.6 to the company's Amendment No. 1 to Form S-1 dated March 17, 1995 and incorporated herein by reference) 3.7 By-laws of Dominion Stores, Inc. (filed as Exhibit 3.7 to the company's Amendment No. 1 to Form S-1 dated March 17, 1995 and incorporated herein by reference) 3.8 Articles of Incorporation of Tultex International, Inc. (filed as Exhibit 3.8 to the company's Amendment No. 1 to Form S-1 dated March 17, 1995 and incorporated herein by reference) 3.9 By-laws of Tultex International, Inc. (filed as Exhibit 3.9 to the company's Amendment No. 1 to Form S-1 dated March 17, 1995 and incorporated herein by reference) 3.10 Articles of Incorporation of Logo 7, Inc. (filed as Exhibit 3.10 to the company's Amendment No. 1 to Form S-1 dated March 17, 1995 and incorporated herein by reference) 3.11 By-laws of Logo 7, Inc. (filed as Exhibit 3.11 to the company's Amendment No. 1 to Form 3.12 S-1 dated March 17, 1995 and incorporated herein by reference) 3.12 Articles of Incorporation of Universal Industries, Inc. (filed as Exhibit 3.12 to the company's Amendment No. 1 to Form S-1 dated March 17, 1995 and incorporated herein by reference) 3.13 By-laws of Universal Industries, Inc. (filed as Exhibit 3.13 to the company's Amendment No. 1 to Form S-1 dated March 17, 1995 and incorporated herein by reference) 3.14 Articles of Incorporation of Tultex Canada, Inc. (filed as Exhibit 3.14 to the company's Amendment No. 1 to Form S-1 dated March 17, 1995 and incorporated herein by reference) 3.15 By-laws of Tultex Canada, Inc. (filed as Exhibit 3.15 to the company's Amendment No. 1 to Form S-1 dated March 17, 1995 and incorporated herein by reference) 3.16 Articles of Incorporation of SweatJet, Inc. (filed as Exhibit 3.16 to the company's Amendment No. 1 to Form S-1 dated March 17, 1995 and incorporated herein by reference) 3.17 By-laws of SweatJet, Inc. (filed as Exhibit 3.17 to the company's Amendment No. 1 to Form S-1 dated March 17, 1995 and incorporated herein by reference) 4.1 Indenture among Tultex Corporation, the Guarantors and First Union National Bank of Virginia, as Trustee, relating to the Senior Notes dated March 23, 1995 (filed as Exhibit to the company's Amendment No. 1 to Form S-1 dated March 17, 1995 and incorporated herein by reference) 4.2 Senior Note (included in Exhibit 4.1 as filed with the company's Amendment No. 1 to Form S-1 dated March 17, 1995 and incorporated herein by reference) 4.3 Subsidiary Guarantee (included in Exhibit 4.1 as filed with the company's Amendment No. 1 Page 20 to Form S-1 dated March 17, 1995 and incorporated herein by reference) 4.4 Indenture between Tultex Corporation and the Guarantors, and First Union National Bank of Virginia, as Trustee, relating to the notes (filed as Exhibit 4.1 to the company's Form S-4 filed with the SEC on April 16, 1997 and incorporated herein by reference) 10.1 Tultex Corporation 1987 Stock Option Plan (filed as Exhibit B to the company's Definitive Proxy Statement dated and mailed January 15, 1988 and incorporated herein by reference) 10.2 Tultex Corporation 1990 Stock Option Plan (filed as Exhibit A to the company's Definitive Proxy Statement dated and mailed February 14, 1991 and incorporated herein by reference) 10.3 Supplemental Retirement Plan (filed as an exhibit to the company's Form 10-K for the fiscal year ended December 30, 1990 and incorporated herein by reference) 10.4 Tultex Corporation Salaried Employees' Common Stock Purchase Plan, dated February 11, 1994 (filed as Exhibit 4.5 to the company's Registration Statement Form S-8 dated February 11, 1994 and incorporated herein by reference) 10.5 Form of Employment Continuity Agreement (filed as exhibits to the company's Form 10-Q for the quarter ended April 1, 1989 and the company's Form 10-Q for the quarter ended March 31, 1990 and incorporated herein by reference) 10.6 Standstill Agreement, dated as of January 31, 1992, among Tultex Corporation, Logo 7, Inc. (Ind.), Melvin Simon and Herbert Simon (filed as Exhibit 10(b) to the company's Form 8-K dated January 31, 1992 and incorporated herein by reference) 10.7 Credit Agreement for $187 million credit facility, dated May 18, 1997 (filed as Exhibit 10.8 to the company's Form 10-Q for the quarter ended July 5, 1997 and incorporated herein by reference) 10.8 Amendment, consent and waiver relating to the $187 million credit facility, dated as of November 4, 1997 (filed as Exhibit 10.9 to the company's Form 10-Q for the quarter ended October 4, 1997 and incorporated herein by reference) 10.9 Amendment, consent and waiver relating to the $187 million credit facility, dated as of March 11, 1998 (filed herewith) 11 The computation of earnings per share can be clearly determined from the financial statements of the Company contained in the Annual Report to Stockholders 13 The company's 1997 Annual Report to Stockholders (filed herewith) 21 Subsidiaries of the company (filed herewith) 23 Consent of Price Waterhouse LLP (filed herewith) 99 The company's 1998 Proxy Statement dated March 21, 1998 (filed herewith) (b) Reports of Form 8-K No reports on Form 8-K were filed for the quarter ended January 3, 1998. Page 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Tultex Corporation (Registrant) /s/ Charles W. Davies, Jr. By: Charles W. Davies, Jr., President and CEO Date: April 3, 1998 ------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. April 3, 1998 /s/ Charles W. Davis, Jr. - ------------- ------------------------- Charles W. Davies, Jr., President, CEO & Director (Principal Executive Officer) April 3, 1998 /s/ Suzanne H. Wood - ------------- ------------------- Suzanne H. Wood, Vice President and Chief Financial Officer (Principal Financial Officer) April 3, 1998 /s/ Jeffrey F. Kies - ------------- ------------------- Jeffrey F. Kies, Controller (Principal Accounting Officer) April 3, 1998 /s/ John M. Franck - ------------- ------------------ John M. Franck, Director (Chairman) April 3, 1998 /s/ Seth P. Bernstein - ------------- --------------------- Seth P. Bernstein, Director April 3, 1998 /s/ Lathan M. Ewers - ------------- ------------------- Lathan M. Ewers, Jr., Director April 3, 1998 /s/ H. Richard Hunnicut, Jr. - ------------- ---------------------------- H. Richard Hunnicutt, Jr., Director April 3, 1998 /s/ F. Kenneth Iverson - ------------- ---------------------- F. Kenneth Iverson, Director April 3, 1998 /s/ Bruce M. Jacobson - ------------- --------------------- Bruce M. Jacobson, Director
Page 22
April 3, 1998 /s/ Richard M. Simmons - ------------- ---------------------- Richard M. Simmons, Jr., Director April 3, 1998 /s/ Lynn J. Beasley - ------------- ------------------- Lynn J. Beasley, Director
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Tultex Corporation Our audits of the consolidated financial statements referred to in our report dated February 11, 1998 appearing on page 19 of the 1997 Annual Report to Stockholders of Tultex Corporation, (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K), also included an audit of the Financial Statement Schedule listed in the accompanying index of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ Price Waterhouse LLP PRICE WATERHOUSE LLP Winston-Salem, North Carolina February 11, 1998 TULTEX CORPORATION SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS CONSOLIDATED AND RESERVES (In thousands of dollars)
Balance at Additions Balance beginning charged to at end Reserve for doubtful accounts of period operations Acquisitions Reductions(1) of period - ----------------------------- --------- ---------- ------------ ---------- ----------- For the fifty-two weeks ended December 30, 1995 $ 2 ,115 $ 7,061 $ 0 $ (4,949) $ 4,227 ============== ============== ============== ============ =========== For the fifty-two weeks ended December 28, 1996 $ 4,227 $ 3,707 $ 0 $ (4,172) $ 3,762 ============== ============== ============== ============== ============== For the fifty-three weeks ended January 3, 1998 $ 3 ,762 $ 3,606 $ 1,512 $ (4,675) $ 4,205 ============== ============== ============== ============== ==============
(1) Amounts represent write-off of uncollectible receivable balances. F-2 Exhibit Index 10.9 Amendment, consent and waiver relating to the $187 million credit facility 13 The company's 1997 Annual Report to Stockholders 21 Subsidiaries of the Company 23 Consent of Price Waterhouse 99 The company's 1998 Proxy Statement EXHIBITS ANNUAL REPORT ON FORM 10-K PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 3, 1998 TULTEX CORPORATION COMMISSION FILE NUMBER 1-8016 EX-10 2 TULTEX CORP - EXHIBIT 10.9 AMENDMENT, CONSENT AND WAIVER THIS AMENDMENT, CONSENT AND WAIVER dated as of March 11, 1998 (the "Amendment") relating to the Credit Agreement referenced below, by and among TULTEX CORPORATION, a Virginia corporation (the "Borrower"), the Guarantors and Banks identified therein, and NATIONSBANK, N.A., as Administrative Agent (the "Administrative Agent"). Terms used but not otherwise defined shall have the meanings provided in the Credit Agreement. WITNESSETH WHEREAS, a $187 million credit facility has been extended to Tultex Corporation pursuant to the terms of that Credit Agreement dated as of May 15, 1997 (as amended and modified the "Credit Agreement") among Tultex Corporation, the Guarantors and Banks identified therein, Corestates Bank, N.A., and First Union National Bank of Virginia, as co-agents and NationsBank, N.A., as Administrative Agent; WHEREAS, the Borrower has requested certain modifications under of the Credit Agreement; WHEREAS, such modifications and waiver requires the consent of the Required Banks; WHEREAS, the Required Banks have consented to the requested modifications and waiver on the terms and conditions set forth herein; NOW, THEREFORE, IN CONSIDERATION of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Section I.1. of the Credit Agreement is amended to add the following definitions: "Consolidated EBITDA" means for any period for the Consolidated Borrower Group, the sum of Consolidated Net Income plus Interest Charges plus all provisions for any federal, state or other domestic and foreign income taxes plus depreciation and amortization, in each case on a consolidated basis determined in accordance with generally accepted accounting principles applied on a consistent basis, but excluding for purposes hereof extraordinary gains and losses and related tax effects thereon. Except as otherwise expressly provided, the applicable period shall be for the four consecutive fiscal quarters ending as of the date of determination. "Consolidated Leverage Ratio" means, as of the last day of any fiscal quarter, the ratio of Consolidated Funded Debt on such day to Consolidated EBITDA for the period of four consecutive fiscal quarters ending as of such day. 2. In Section I.1. of the Credit Agreement the pricing grid in the definition of "Applicable Percentage" is amended to read as follows:
Applicable Percentage --------------------- Eurodollar Loans Standby Consolidated and Letter of Leverage Fed Funds Adjusted CD Credit Commitment Ratio Swingline Loans Loans Fee Fee ----- --------------- ----- --- --- > 5.75 2.50% 2.625% 2.50% 0.500% < 5.75 but >5.00 2.25% 2.375% 2.25% 0.500% - < 5.00 but >4.25 2.00% 2.125% 2.00% 0.375% - < 4.25 but >3.50 1.75% 1.875% 1.75% 0.375% - < 3.50 but >2.75 1.50% 1.625% 1.50% 0.250% - < 2.75 1.25% 1.375% 1.25% 0.250% -
3. In the first sentence of Section 2.11(b) of the Credit Agreement the phrase "of one-fourth of one percent (1/4%)" is deleted and replaced with "equal to the Applicable Percentage for the Commitment fee". 4. In Section 6.11(a) regarding Consolidated Tangible Net Worth, the reference to "$130,000,000" is modified and replaced with the following: "$118,000,000 beginning the Determination Date occurring as of the end of the second fiscal quarter of 1998 and thereafter" 5. Section 6.11(b) of the Credit Agreement is amended to read as follows: (b) Consolidated Funded Debt to Consolidated Tangible Capitalization Ratio. On each Determination Date the Borrower will not permit the ratio of the aggregate outstanding principal amount of Consolidated Funded Debt to Consolidated Tangible Capitalization to exceed: Fiscal Year 1QE 2QE 3QE 4QE 1998 .73 .78 .78 .71 1999 .70 .70 .70 .65 2000 .65 .60 .60 .60 and on each Determination Date thereafter at .60. 6. Section 6.11(C) of the Credit Agreement is amended to read as follows: ( c ) Fixed Charges Coverage Ratio. The Borrower will keep and maintain as of each Determination Date to occur during the periods shown a ratio of Net Income Available for Fixed Charges to Fixed Charges for a period of four consecutive fiscal quarters ending as of the Determination Date of not less than:
Fiscal Year 1QE 2QE 3QE 4QE ----------- --- --- --- --- 1998 .80 .85 1.05 1.25 1999 1.25 1.25 1.25 1.25 and on each Determination Date thereafter at 1.25. 7. The Required Banks hereby waive any Default or Event of Default which existed or may have existed prior to the effective date of this Amendment solely on account of noncompliance with the Fixed Charges Coverage Ratio under Section 6.11( c ) of the Credit Agreement prior to its amendment hereunder. 8. The Borrower hereby represents and warrants in connection herewith that as of the date hereof (after giving effect hereto) (i) the representations and warranties set forth in Section 5 of the Credit Agreement are true and correct in all material respects (except those which expressly relate to an earlier date), and (ii) no Default or Event of Default presently exists under the Credit Agreement. 9. The effectiveness of this Amendment is subject to satisfaction of the following conditions: (a) receipt by the Administrative Agent of copies of this Amendment executed by the Credit Parties and Required Lenders; (b) receipt by the Administrative Agent of corporate resolutions and legal opinions relating to this Amendment in form and substance satisfactory to the Administrative Agent and Required Lenders; and (c) receipt by the Administrative Agent of an amendment fee of 12.5 b.p.s. on the Commitment of the Lenders approving this Amendment. 10. Except as expressly modified hereby, all of the terms and provisions of the Credit Agreement remain in full force and effect. 11. The Borrower agrees to pay all reasonable costs and expenses in connection with the preparation, execution and delivery of this Amendment, including the reasonable fees and expenses of the Administrative Agent's legal counsel.
12. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original. It shall not be necessary in making proof of this Amendment to produce or account for more than one such counterpart. 13. This Amendment, as the Credit Agreement, shall be deemed to be a contract under, and shall for all purposes be construed in accordance with, the laws of the Commonwealth of Virginia. (Remainder of Page Intentionally Left Blank) IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written. BORROWER: TULTEX CORPORATION a Virginia Corporation By: /s/ Suzanne H. Wood _______________________________ Title: Vice President & CFO GUARANTORS: DOMINION STORES, INC., a Virginia corporation By: /s/ Suzanne H. Wood ______________________________ Title: Vice President LOGOATHLETIC, INC., a Virginia corporation By: Suzanne H. Wood ______________________________ Title: Chief Financial Officer LOGOATHLETIC HEADWEAR, INC. a Massachusetts corporation By: Suzanne H. Wood ______________________________ Title: Chief Financial Officer CALIFORNIA SHIRT SALES, INC. By: Suzanne H. Wood ______________________________ Title: Vice President BANKS: NATIONSBANK, N.A., individually in its capacity as a Bank and in its capacity as Administrative Agent By:______________________________ Title: CORESTATES BANK, N.A., individually in its capacity as a Bank and in its capacity as a Co-Agent By:______________________________ Title: FIRST UNION NATIONAL BANK, individually in its capacity as a Bank and in its capacity as a Co-Agent By:______________________________ Title: BANK OF TOKYO - MITSUBISHI TRUST COMPANY By:______________________________ Title:
THE FIRST NATIONAL BANK OF CHICAGO By:______________________________ Title: PNC BANK, NATIONAL ASSOCIATION By:______________________________ Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By:______________________________ Title: EX-13 3 EXHIBIT 13 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)% - --------------------------------------------------------------------------------------------
(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] 3 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] 4 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 - ------------------------------------------------------------------------------------------------------------ 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 -- - ------------------------------------------------------------------------------------------------------------ Total current assets 337,663 331,921 - ------------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------------ Total Assets $ 538,226 $ 500,780 - ------------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------------ Total current liabilities 41,942 56,430 - ------------------------------------------------------------------------------------------------------------ Long-term debt, less current maturities (Notes 5 and 19) 285,727 223,616 - ------------------------------------------------------------------------------------------------------------ OTHER LONG-TERM LIABILITIES: Deferred income taxes (Note 8) 11,278 12,890 Other 5,167 4,916 - ------------------------------------------------------------------------------------------------------------ Total other long-term liabilities 16,445 17,806 - ------------------------------------------------------------------------------------------------------------ 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) -- - ------------------------------------------------------------------------------------------------------------ 194,713 203,611 Less notes receivables from stockholders 601 683 - ------------------------------------------------------------------------------------------------------------ Total stockholders' equity 194,112 202,928 - ------------------------------------------------------------------------------------------------------------ Commitments and contingencies (Notes 11, 12 and 13) Total Liabilities and Stockholders' Equity $ 538,226 $ 500,780 - ------------------------------------------------------------------------------------------------------------
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 - ---------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------- Total costs and expenses 658,575 609,408 576,341 - ---------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------- 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) - ---------------------------------------------------------------------------------------------- Net Income (Loss) $ (4,848) $ 16,699 $ 1,802 - ---------------------------------------------------------------------------------------------- Preferred dividend requirement (810) (1,135) (1,135) Balance applicable to common stock (5,658) 15,564 667 - ---------------------------------------------------------------------------------------------- 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) - ---------------------------------------------------------------------------------------------- Net Income (Loss): Basic $ (.19) $ .53 $ .02 Diluted (.19) .52 .02 - ---------------------------------------------------------------------------------------------- Dividends per Common Share (Note 6) $ .00 $ .00 $ .00 - ----------------------------------------------------------------------------------------------
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 - ----------------------------------------------------------------------------------------------------------------------------------- (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) - ----------------------------------------------------------------------------------------------------------------------------------- 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) - ----------------------------------------------------------------------------------------------------------------------------------- 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) - ----------------------------------------------------------------------------------------------------------------------------------- Balance as of January 3, 1998 $198 $ 7,500 $333 $29,875 $ 6,893 $150,005 $(91) $(601) $194,112 - -----------------------------------------------------------------------------------------------------------------------------------
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) - ---------------------------------------------------------------------------------------------------------------- (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) - ---------------------------------------------------------------------------------------------------------------- Cash provided by operating activities 17,714 31,167 6,878 - ---------------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------------- Cash used by investing activities (52,270) (30,931) (18,119) - ---------------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------------- Cash provided (used) by financing activities 35,409 (563) 7,446 - ---------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and equivalents 853 (327) (3,795) Cash and equivalents at beginning of year 1,654 1,981 5,776 - ---------------------------------------------------------------------------------------------------------------- Cash and equivalents at end of year $ 2,507 $ 1,654 $ 1,981 - ----------------------------------------------------------------------------------------------------------------
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 - -------------------------------------------------------------------------------- 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 EX-21 4 TULTEX CORP - EXHIBIT 21 Exhibit 21 Subsidiaries of the Registrant During fiscal 1997, the company had the following subsidiaries, all of which are included in the consolidated financial statements incorporated in this report: AKOM, Ltd., a Cayman Islands, B.W.I. corporation (100% owned) Dominion Stores, Inc., a Virginia corporation (100% owned) Tultex International, Inc., a Virginia corporation (100% owned) LogoAthletic, Inc., a Virginia corporation (100% owned) LogoAthletic/Headwear, Inc., a Massachusetts corporation (100% owned) Tultex Canada, Inc., a Canadian corporation (100% owned) Track Gear, Inc., a Virginia corporation (100% owned) California Shirt Sales, Inc., a Virginia corporation (100% owned) Tultex/T-Shirt City, Inc. a Virginia corporation (100% owned) EX-23 5 TULTEX CORP - EXHIBIT 23 Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-12394, 33-20194, 33-43595 and 33-52247) of Tultex Corporation of our report dated February 11, 1998 appearing on page 19 of the Annual Report to Stockholders which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on page F-1 of this Form 10-K. /s/ Price Waterhouse LLP PRICE WATERHOUSE LLP Winston-Salem, North Carolina April 1, 1998 EX-27 6 FDS -- TULTEX
5 YEAR JAN-03-1998 JAN-03-1998 2,507,000 0 127,520,000 4,205,000 199,855,000 337,663,000 346,463,000 203,612,000 538,226,000 41,942,000 291,254,000 0 8,031,000 29,875,000 156,206,000 538,226,000 650,628,000 650,628,000 528,310,000 612,964,000 0 0 27,611,000 (7,942,000) (3,099,000) (4,848,000) 0 0 0 (4,848,000) (.19) (.19)
EX-99 7 TULTEX CORP - EXHIBIT 99 [Tultex Logo appears here] Tultex Corporation P.O. Box 5191 Martinsville, VA 24115 540-632-2961 Dear Stockholder: You are cordially invited to attend the Annual Meeting of Stockholders of Tultex Corporation to be held on Tuesday, May 5, 1998 at 10:00 a.m. at our Customer Service Center in Martinsville, Virginia. Your Board of Directors and management look forward to greeting you personally and discussing the affairs of our Company. At this year's meeting, we are asking that you (1) elect a Board of Directors and (2) ratify the appointment of Price Waterhouse LLP as auditors. In addition to this usual business, the officers will present their reports and be available for questions from stockholders. THE DIRECTORS BELIEVE THESE PROPOSALS ARE IN THE BEST INTEREST OF ALL OF THE COMPANY'S STOCKHOLDERS AND UNANIMOUSLY RECOMMEND THAT YOU VOTE FOR EACH OF THEM. Please send in your proxy card as soon as possible. Thank you for your continued interest and support. Sincerely, /s/ John M. Franck /s/ Charles W. Davies, Jr. John M. Franck Charles W. Davies, Jr. Chairman of the Board President and Chief Executive Officer March 27, 1998 [Tultex Logo appears here] Tultex Corporation P.O. Box 5191 Martinsville, VA 24115 540-632-2961 Notice of Annual Meeting of Stockholders NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Tultex Corporation will be held at the Company's Customer Service Center, State Route 174, Martinsville, Virginia, on Tuesday, May 5, 1998 at 10:00 a.m. for the following purposes: 1. To elect a Board of Directors, consisting of nine persons, to serve for the ensuing year; 2. To ratify the Board of Directors' appointment of Price Waterhouse LLP, independent accountants, as auditors for the Company for fiscal 1998; and 3. To transact such other business as may properly come before the meeting. Your attention is directed to the accompanying proxy statement for further information with respect to the matters to be acted upon at the meeting. Only holders of Common Stock, Cumulative Convertible Preferred Stock, $7.50 Series B and Cumulative Convertible Preferred Stock, 4.5% Series C, of record at the close of business on March 13, 1998, are entitled to notice of and to vote on matters to be acted on at the Annual Meeting. If you are present at the Annual Meeting, you may vote in person even though you have previously delivered your proxy. By Order of the Board of Directors Kathy H. Rogers, Secretary March 27, 1998 [Tultex Logo appears here] Tultex Corporation P.O. Box 5191 Martinsville, VA 24115 540-632-2961 Proxy Statement dated and mailed MARCH 27, 1998 General Proxies in the form enclosed are solicited by the Board of Directors for the 1998 Annual Meeting of Stockholders to be held at 10:00 a.m. on Tuesday, May 5, 1998 at the Company's Customer Service Center, State Route 174, Martinsville, Virginia. Any stockholder giving a proxy may revoke it at any time before it is voted by written notice to the Company, P. O. Box 5191, Martinsville, Virginia 24115, Attention: Kathy H. Rogers, Corporate Secretary, by the execution of a proxy with a later date, or by voting in person the shares represented by the proxy. The cost of solicitation of proxies will be borne by the Company. In addition to the use of the mails, proxies may be solicited personally or by telephone by regular employees of the Company, but no special compensation will be paid to any regular employees for personal solicitation of proxies. Banks, brokerage houses and other institutions, nominees and fiduciaries will be requested to forward the soliciting material to beneficial owners and to obtain authorization for the execution of proxies. The Company will, upon request, reimburse such parties for their reasonable expenses in forwarding proxy material to their beneficial owners. A majority of the votes entitled to be cast on matters to be considered at the meeting constitutes a quorum. If a share is represented for any purpose at the meeting, for quorum purposes it is present for all matters considered at the meeting. Abstentions and shares held of record by a broker or its nominee ("Broker Shares") that are voted on any matter are included in determining the number of votes present or represented at the meeting. Broker Shares that are not voted on any matter at the meeting are not included in determining whether a quorum is present. Directors are elected by a plurality of the votes cast by holders of Common Stock, Series B Preferred Stock and Series C Preferred Stock; the vote required on other matters is disclosed under the caption for such matters. Votes that are withheld and Broker Shares that are not voted (commonly referred to as "broker non-votes") are not included in determining the number of votes cast in the election of directors or on other matters. Ownership of Equity Securities On March 13, 1998, the date for determining stockholders entitled to notice of and to vote at the Annual Meeting, there were outstanding and entitled to vote 29,875,488 shares of Common Stock, 75,000 shares of Cumulative Convertible Preferred Stock, $7.50 Series B (the "Series B Preferred Stock"), and 33,260 shares of Cumulative Convertible Preferred Stock, 4.5% Series C (the "Series C Preferred Stock"). The Common Stock, the Series B Preferred Stock, and the Series C Preferred Stock have one vote per share on all matters and vote together on all matters, including those to be acted on at the Annual Meeting. 1 The table below presents certain information as of the Record Date regarding beneficial ownership of shares of Common Stock by all directors and nominees for director, by the Chief Executive Officer and the four next most highly compensated executive officers, by all directors and executive officers, by all directors and executive officers as a group, and by owners of 5% or more of the Common Stock. The Series B Preferred Stock is owned by Simon Trust Partnership No. 3 (25%), Herbert Simon Trust No. 3 (25%) and L. G. Sale Corporation, Inc. (50%), respectively. The Series C Preferred Stock is owned by John Box (74%) and Todd Hines (26%).
Sole Voting Aggregate and Investment Percentage Name Power (1) Other (2) Owned - --------------------------------------------------- ------------------ ----------- ----------- Directors: Charles W. Davies, Jr. ............................ 239,520 shs. 142 shs. * % John M. Franck .................................... 746,582 141,233 2.97 Lynn J. Beasley ................................... 2,024 -- * Seth P. Bernstein ................................. 2,518 -- * Lathan M. Ewers, Jr. .............................. 500 -- * H. Richard Hunnicutt, Jr. ......................... 35,000 -- * F. Kenneth Iverson ................................ 7,920 -- * Bruce M. Jacobson ................................. 6,268 -- * Richard M. Simmons, Jr. ........................... 182,921 615 * Officers: O. Randolph Rollins ............................... 113,286 362,748 1.59 Anthony J. Pichirallo ............................. 28,234 -- * Walter J. Caruba .................................. 45,665 -- * John J. Smith ..................................... 47,524 47 * Executive officers and directors as a group (20 persons including those named above) ......... 1,601,774 504,785 7.04 Dimensional Fund Advisors, Inc. 1299 Ocean Avenue, 11th Floor Santa Monica, CA ................................. 1,497,872(3) 5.01 Pioneering Management Corporation 60 State Street Boston, MA ....................................... 2,873,500(4) 9.62
- ---------- * Less than 1% (1) Includes shares that may be acquired by certain of the Company's officers within 60 days under the Company's stock option plans and phantom stock credited to certain directors in 1997 under the Directors Compensation Plan. (2) Includes shares (a) owned by or with certain relatives; (b) held in various fiduciary capacities; and (c) held by certain corporations. (3) Dimensional Fund Advisors, Inc., a registered investment advisor, is deemed to have beneficial ownership of 1,497,872 shares, all of which shares are held in portfolios of DFA Investment Dimensions Group Inc., a registered open-end investment company, or in series of the DFA Investment Trust Company, a Delaware business trust, or the DFA Group Trust and DFA Participation Group Trust, investment vehicles for qualified employee benefit plans, all of which Dimensional Fund Advisors Inc. serves as investment manager. Dimensional disclaims beneficial ownership of all such shares. (4) As reported in Schedule 13G filed by Pioneering Management Corporation, January 30, 1998. 2 Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Securities Exchange Act of 1934 requires that the Corporation's directors and executive officers, and persons who own more than 10% of a registered class of the Company's equity securities, file with the Securities and Exchange Commission initial reports of ownership and reports of change in ownership of Common Stock and other equity securities of the Company. The same persons are also required by SEC regulation to furnish the Company with copies of all Section 16(a) forms that they file. Based solely on its review of the forms required by Section 16(a) of the Securities Exchange Act of 1934 that have been received by the Company or written representations from certain reporting persons that no annual statements on Form 5 were required because of late filing, the Company believes that all filing requirements applicable to its officers, directors and beneficial owners of greater than 10% of its Common Stock have been complied with. Election of Directors Proxies will be voted for the election of nine nominees as directors to serve until the 1999 Annual Meeting of Stockholders. The election of each nominee for director requires the affirmative vote of the holders of a plurality of the shares cast in the election of directors. Votes that are withheld and shares held in street name that are not voted in the election of directors will not be included in determining the number of votes cast. All of the nominees are presently members of the Board. Lynn J. Beasley was elected a director by the Board of Directors since last year's annual meeting. The Board of Directors has no reason to believe that any of the nominees will be unavailable for service if elected, but if any are unavailable, proxies will be voted for such substitute as the Board may designate.
Name Age Director Since - ---------------------------------------- ----- --------------- Lynn J. Beasley ................... 40 1997 Seth P. Bernstein ................. 37 1997 Charles W. Davies, Jr. ............ 49 1990 Lathan M. Ewers, Jr. .............. 56 1993 John M. Franck .................... 45 1984 H. Richard Hunnicutt, Jr. ......... 59 1981 F. Kenneth Iverson ................ 72 1995 Bruce M. Jacobson ................. 48 1992 Richard M. Simmons, Jr. ........... 71 1973
Lynn J. Beasley is Executive Vice President of R. J. Reynolds Tobacco Company, Winston-Salem, NC. Ms. Beasley has been employed by R. J. Reynolds since 1982. Seth P. Bernstein is a Managing Director of and Head of the Leveraged Finance Group of J. P. Morgan & Company, Inc., New York. Mr. Bernstein has been employed by J. P. Morgan since 1984. Charles W. Davies, Jr. became President and Chief Executive Officer on January 1, 1995, after serving as President and Chief Operating Officer since January 1991, and prior thereto as Executive Vice President since December 1989. Lathan M. Ewers, Jr. has been a partner since 1976 in Hunton & Williams, Richmond, Virginia, counsel to the Company. 3 John M. Franck became Chairman of the Board of Directors and Chief Executive Officer on January 1, 1991. He retired as Chief Executive Officer on January 1, 1995, and as an employee of the Company on July 1, 1997. He currently serves as Chairman of the Board. Mr. Franck is President and CEO of Quibell Spring Water Beverages, a privately-owned beverage company located in Roanoke, Virginia. Mr. Franck is a director of Piedmont Trust Bank, a subsidiary of MainStreet BankGroup, Incorporated. H. Richard Hunnicutt, Jr. was Chairman and Chief Executive Officer of the Company from November 1988 through December 1990, when he retired. He was President and Chief Operating Officer from 1984 to 1988. F. Kenneth Iverson was Chairman and Chief Executive Officer of Nucor, Inc., Charlotte, North Carolina, a steel producer, from 1984 through January 1, 1996, when he retired. He continues as Chairman of Nucor. Bruce M. Jacobson is a senior partner in the certified public accounting firm of Katz, Sapper & Miller, Indianapolis, Indiana, and has been a partner in such firm since 1977. Richard M. Simmons, Jr. is a retired business executive. He was President of American Furniture Company from 1961 to 1987 and its Chairman from 1974 to 1986. Committees of the Board The standing committees of the Board of Directors are the Audit Committee, the Nominating Committee and the Executive Compensation Committee. The Audit Committee reviews with management and the Company's auditors the scope of the annual audit, the results of the audit and the Company's internal accounting and control systems. The Audit Committee also recommends to the full Board of Directors the auditors to be appointed by the Board (subject to stockholder ratification) and reviews the auditors' services to the Company and their fees. The Nominating Committee reviews the qualifications of possible candidates recommended by stockholders, provided that stockholder recommendations are submitted in writing addressed to the Secretary of the Company, are accompanied by statements signed by the recommended candidates of their willingness to serve, if elected, and are received not later than 120 days before the date that proxy material is mailed to stockholders for the annual meeting of stockholders at which the recommended candidates, if approved by the Nominating Committee and the incumbent Board of Directors, would be nominated by the Board for election by the stockholders. The Executive Compensation Committee administers the Company's stock option plans and other incentive programs, approves or recommends to the Board changes in compensation for the Chief Executive Officer and approves all Company employee benefit programs. The members of Committees of the Board are: Audit Committee -- Bruce M. Jacobson and Richard M. Simmons, Jr. Nominating Committee -- H. Richard Hunnicutt, Jr., F. Kenneth Iverson and John M. Franck Executive Compensation Committee -- Seth P. Bernstein, Lathan M. Ewers, Jr. and Bruce M. Jacobson. The Board of Directors held four regular meetings and two special meetings during the fiscal year ended January 3, 1998. The Audit Committee held four meetings during the year, the Executive Compensation Committee held three meetings, and the Nominating Committee held one meeting. 4 Compensation of Directors Directors of the Company who are not full-time employees are paid a fee of $2,500 for each fiscal quarter. In addition, they are paid $1,000 for each Board meeting attended and $1,000 for each Committee meeting attended which does not occur on the same date as a Board meeting day. They are paid $500 for each Committee meeting attended that does occur on the same day as a Board meeting. The Chairman of the Board is paid twice the fee paid other directors for each fiscal quarter and each meeting attended. The Board of Directors has adopted the 1996 Directors Compensation Plan, which permits directors to defer their retainer and meeting fees for the purchase of the Company's Common Stock. Deferred fees are credited with "phantom" Common Stock valued at fair market value. Directors receive distribution of their accounts at death, disability, termination of service as a director, or on six-months' notice. Directors who participate are general unsecured creditors of the Company for their account balances. At the time account balances are distributed in the form of Common Stock, directors pay federal and state income taxes on the Common Stock distributed valued at its fair market value, and the Company is able to deduct as an ordinary business expense an amount equal to the fair market value of the stock distributed. Certain Relationships and Related Transactions Seth P. Bernstein is a Managing Director at J.P. Morgan and Company, Inc., which provides investment banking services to the Company. In 1997, the Company paid J.P. Morgan and Company, Inc. $1,707,044 for investment banking services, which included acting as co-lead manager of the private placement of $75 million principal amount of the Company's 9 5/8% Senior Notes due 2007. Lathan M. Ewers, Jr. is a partner in the law firm of Hunton & Williams, counsel to the Company, which provides legal services to the Company and its subsidiaries. The Company believes that the terms of the transactions described above are comparable to terms available for similar transactions with entities unaffiliated with its officers and directors. 5 Executive Compensation The following table presents information relating to total compensation of the Chief Executive Officer and the four next most highly compensated executive officers of the Company during the fiscal year ended January 3, 1998. SUMMARY COMPENSATION TABLE
Long Term Annual Compensation Awards Compensation - ------------------------------------------------------------ ------------------------------------------------- (e) (g) (a) (d) Restricted (f) All Name and (b) (c) Bonus $ Stock Options/ Other Principal Position Year Salary $ (1) Award(s)(1) SARs Compensation - -------------------------- ------ ---------- --------- -------------- -------------- --------------- Charles W. Davies, Jr. 1997 300,000 -- -- shs. 110,000 shs. -- President and 1996 300,000 87,570 3,020 10,000 -- Chief Executive Officer 1995 300,000 -- -- 7,500 -- O. Randolph Rollins 1997 209,167 -- -- 15,000 -- Executive Vice President 1996 200,004 41,881 1,444 10,000 -- and General Counsel 1995 200,004 -- -- 7,500 7,007(2) Anthony J. Pichirallo 1997 164,500 -- -- 55,000 35,707(3) Vice President- 1996 136,700 19,005 606 5,000 -- Wholesale 1995 127,530 13,084 -- 4,000 -- Walter J. Caruba 1997 174,000 -- -- 15,000 -- Vice President- 1996 159,000 33,295 1,148 10,000 -- Sales & Marketing 1995 156,000 -- -- 7,500 -- John J. Smith 1997 166,200 -- -- 15,000 -- Vice President 1996 158,400 33,169 1,144 10,000 -- 1995 156,400 2,817 -- 7,500 --
- ---------- (1) Bonus represents cash Incentive Awards under the Consolidated Incentive Plan (CIP) and Restricted Stock Awards represent Restricted Stock awarded under the CIP. Shareholders approved the CIP at the 1996 Annual Meeting. The CIP provides for cash Incentive Awards based primarily on return on assets, for activewear and licensed apparel employees, and for Restricted Stock Awards equal to 25% of the cash Incentive Award. Restricted Stock Awards are valued at fair market value at the time of grant, and vest 20% per year. Holders of Restricted stock vote the shares and receive any dividends paid thereon. Accelerated vesting of shares occurs in the event of change in control, death, disability, normal retirement or other circumstances determined by the Executive Compensation Committee. No Cash Incentive or Restricted Stock Awards were granted in 1997. (2) Represents payment of residence relocation reimbursement. (3) Represents a reward recognition payment which was not part of the incentive compensation plan. 6 The following tables present information concerning stock options granted to the Chief Executive Officer and the four next most highly compensated executive officers of the Company and exercises of options by such persons. OPTION GRANTS IN LAST FISCAL YEAR TABLE
Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Individual Grants Option Term - ------------------------------------------------------------------------------------------- ---------------------- Number % Total of Securities Options Underlying Granted to Options Granted Employees in Exercise Expiration Name (Shares) # Fiscal Year or Base Price Date 5% 10% - ---------------------------- ----------------- -------------- --------------- ------------- ---------- ----------- Charles W. Davies, Jr. ..... 25,000 4.07% $ 8.25 3/20/2002 $ 56,983 $125,918 15,000* 2.44 8.25 1/28/2003 35,665 82,071 35,000 5.69 5.81 10/17/2000 32,418 68,813 35,000 5.69 5.81 7/30/2006 112,176 276,334 O. Randolph Rollins ........ 15,000 2.44 5.81 10/17/2000 13,893 29,492 Anthony J. Pichirallo ...... 15,000 2.44 8.25 3/20/2002 34,190 75,551 20,000 3.25 5.81 10/17/2000 18,525 39,322 20,000 3.25 5.81 7/30/2006 64,101 157,904 Walter J. Caruba ........... 15,000 2.44 5.81 10/17/2000 13,893 29,492 John J. Smith .............. 15,000 2.44 5.81 10/17/2000 13,893 29,492
* Shares were repriced and expiration date extended. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUE TABLE
Number of Unexercised Value of Unexercised Options at FY-End in-the-Money Options at Shares FY-End Shares Acquired Value Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable - ---------------------------- ----------------- ---------- ------------- --------------- ------------- -------------- Charles W. Davies, Jr. ..... -- -- 162,500 145,000 -- -- O. Randolph Rollins ........ -- -- 52,500 30,000 -- -- Anthony J. Pichirallo ...... -- -- 19,500 55,000 -- -- Walter J. Caruba ........... 10,000 $31,250 35,500 15,000 -- -- John J. Smith .............. -- -- 35,500 15,000 -- --
7 RETIREMENT PLAN. The Company maintains for the benefit of its eligible employees a defined benefit pension plan qualified under Section 401(a) of the Internal Revenue Code. The following table illustrates annual retirement benefits payable under the plan at the indicated Final Average Compensation and Credited Service levels, assuming retirement at age 65 in 1997:
Years of Service ------------------------------------------------- Final Average Earnings 10 20 30 40 - ------------------------ ---------- ---------- ---------- ---------- $100,000................ $10,200 $20,400 $30,600 $35,600 150,000 ............... 16,200 32,400 48,600 56,100 200,000 ............... 22,200 44,400 66,600 76,600 250,000 ............... 28,200 56,400 84,600 97,100 300,000 ............... 34,200 68,400 102,600 117,600 400,000 ............... 46,200 92,400 138,600 158,600
The benefits shown are annual payments based on an employee attaining age 65 during the 1997 plan year. Under current provisions of the Internal Revenue Code, these amounts are limited to $125,000. Compensation is limited to $160,000. The amounts in the table are based upon the formula in the current Salaried Plan assuming retirement after attainment of normal retirement age. In no case will the benefit amount be less than the minimum accrued benefit at May 31, 1994 based on the 401(a)(17) compensation limit of $235,840 plus additional accruals for service after May 31, 1994. Benefits under the Retirement Plan are not subject to any deduction for Social Security or other offset amounts. The number of credited years of service for each person named in the Summary Compensation Table are as follows: Charles W. Davies, Jr. -- 21 years, O. Randolph Rollins -- 3 years, John J. Smith -- 13 years, Walter J. Caruba -- 20 years, and Anthony J. Pichirallo -- 10 years. The Company maintains a supplemental benefit plan to provide key management personnel who have satisfied the eligibility requirements with supplemental retirement benefits, including a retirement benefit which, when aggregated with the benefit available under the retirement plan, is equivalent to 50% of their final average earnings for 30 years of service. The eligibility requirements include being 100% vested under the retirement plan. The majority of this benefit will be funded through the retirement plan, with the balance being funded by the Company through a supplemental nonqualified program which is funded through the purchase of life insurance policies on each covered individual. Benefits under the supplemental benefit plan are fully vested after five years of service. The estimated annual benefits under the supplemental benefit plan for each officer named in the Summary Compensation Table as of December 31, 1997 are as follows: O. Randolph Rollins -- $0, Charles W. Davies, Jr. -- $57,761, John J. Smith -- $19,399, Walter J. Caruba -- $20,679, and Anthony J. Pichirallo -- $10,245. Employment Contracts and Employment Continuity Agreements The Company has entered into employment continuity agreements with the five officers named in the Summary Compensation Table, which provide for their continued employment in the event of a change in control of the Company and the payment of compensation and benefits if their employment is terminated following a change in control. The Board of Directors believes that these agreements will enable key employees to conduct the Company's business with less concern for personal economic risk when 8 faced with a possible change in control. The Board believes the agreements also should enhance the Company's ability to attract new key executives as needed. The agreements define "change in control" as occurring when a person becomes the owner of 20% or more of the Company's voting securities or when there is a change in a majority of the members of the Board of Directors, direct or indirect, as a result of a cash tender or exchange offer, a merger or other business combination, a sale of assets, a contested election of directors or a combination of such transactions. Upon a change in control, the Company agrees to continue the employee's employment with responsibilities, compensation and benefits identical to or greater than those prior to the change in control until the earlier of the third anniversary following the change in control or the employee's normal retirement date. If employment is terminated without cause by the Company during this period, or if the employee voluntarily terminates employment within six months after receiving lesser responsibilities, compensation or benefits or after being relocated without his consent, and the employee has made an offer to work that has been rejected by the Company, the Company must pay the employee compensation as follows: (i) three times the employee's annual base salary as of his termination date, (ii) three times the employee's average incentive bonus payable for the two fiscal years prior to the termination date, (iii) cash or property due as a result of exercise of stock options, and (iv) amounts the employee is entitled to receive under the Company's tax-qualified benefit plans and, at the employee's expense, health care coverage under welfare plans. This compensation will be reduced, if necessary, to assure that any payments would not be "excess parachute payments" under the Internal Revenue Code, which imposes significant penalties on payments under such severance agreements which equal or exceed 300% of an employee's average annual compensation during the five most recent taxable years ending prior to a change in control. The Company must pay all legal fees and expenses incurred by the employee in seeking to obtain these benefits. All agreements continue in effect from year to year unless the Company notifies the employee before an anniversary date that the agreement will terminate. The Company has entered into similar agreements with other members of management. Executive Compensation Committee's Report on Executive Compensation This report by the Executive Compensation Committee is required by rules of the Securities and Exchange Commission. It is not to be deemed incorporated by reference by any general statement which incorporates by reference this Proxy Statement into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, and it is not to be otherwise deemed filed under either such Act. Three directors comprise the Executive Compensation Committee of the Board of Directors. None of these directors serves on the board of the other committee member's company or organization and none of the executive officers of Tultex serve on the board of any committee member's organization. The Committee has access to outside consultants and counsel. The Committee oversees three elements of executive compensation: base pay or salary, annual performance bonus, and long-term compensation, which consists of a stock option plan approved by shareholders. The Committee seeks to provide a competitive compensation package that enables the Company to attract and retain key executives, to integrate pay programs with the business objectives of the 9 Company, and to link individual executive compensation with the Company's performance. The Committee surveys other comparable companies and believes that Tultex's current executive compensation generally is in line with comparable companies. BASE PAY. The salary paid to the Company's executives is targeted to be competitive with related industry companies of similar size, taking into account the responsibilities and experience of individual officers. In general, the base salaries are fixed at lower levels to emphasize result-oriented factors reflected in a bonus potential and the value of stock options. The Committee reviews salaries and pay ranges for the named executives, and salaries may be increased based on the Committee's assessment of an individual's performance and contributions to Tultex's goals. Upon the recommendation of the chief executive officer, the Committee approved no increases in salary for the officers named in the Summary Compensation Table in 1997; the increases reflected in the table were approved by the Committee in 1996 for implementation in late 1996 and early 1997. INCENTIVE AWARDS. The Consolidated Incentive Plan enables the Company's senior executives to earn cash Incentive Awards based primarily on return on assets, with a separate secondary goal based on Operating Cycle Days for activewear and licensed apparel employees. Approximately 617 officers and employees are eligible to participate in the Cash Incentive Plan. The five named executives earned no cash incentive awards in 1997. The Consolidated Incentive Plan also provides for Restricted Stock Awards equal to 25% of the cash Incentive Award as long-term incentive for executive officers. LONG-TERM INCENTIVE. The Company awards long-term compensation through its Stock Option Plan and as Restricted Stock Awards under the Consolidated Incentive Plan. Approximately 617 officers and employees are eligible to receive grants under the stock option plan, including the five named executives. Options normally extend for 10 years, are priced at fair market value on the date of grant, and are intended to provide incentive for future performance rather than reward past performance. Together with base pay and cash Incentive Awards, the Committee considers the record of comparable companies in determining grants to be made to the named executives. In 1997, the Committee recommended and the Board of Directors approved options for the named executives as reflected in the Option Grants in Last Fiscal Year Table. The options granted to these five officers represent 36.6% of options granted to employees in 1997. No Restricted Stock Awards were awarded in fiscal 1997. 1997 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER. In setting the Chief Executive Officer's base salary, the Committee compares his salary to the salaries of other chief executive officers in the Company's peer group, including those included in the performance graph. Mr. Davies was paid at the same annual rate in 1997, as in 1996, and is currently being paid at the same annual rate in 1998. Mr. Davies is eligible to participate in the same bonus and long-term executive compensation plans as the other named executives. The Committee's approach to setting Mr. Davies' target annual compensation is to set a compensation level commensurate with his responsibilities and the objectives of his position that would be competitive with other textile and apparel companies of comparable size. EXECUTIVE COMPENSATION COMMITTEE Seth P. Bernstein Lathan M. Ewers, Jr. Bruce M. Jacobson Dated: March 27, 1997 10 Compensation Committee Interlocks and Insider Participation The following two directors, with Bruce M. Jacobson., comprise the Executive Compensation Committee of the Board of Directors. Seth P. Bernstein is a Managing Director at J.P. Morgan and Company, Inc., which provides investment banking services to the Company. In 1997, the Company paid J.P. Morgan and Company, Inc. $1,707,044 for investment banking services, which included acting as co-lead manager of the private placement of $75 million principal amount of the Company's 9 5/8% Senior Notes due 2007. Lathan M. Ewers, Jr., is a partner in the law firm of Hunton & Williams, counsel to the Company, which provides legal services to the Company and its subsidiaries. PERFORMANCE OF COMPANY'S COMMON STOCK The following graph compares the performance of the Company's Common Stock to (1) the Standard & Poor 500 Index and (2) a Peer Group Index for the Company's last five fiscal years. The Company's Peer Group consists of Fruit of the Loom, Inc., Oneita Industries, Inc., Russell Corporation, Starter Corporation, and the Company. The Company has changed its peer group to better reflect the Company's competition since entering the licensed apparel business and shifting its emphasis toward marketing and distribution. The graph assumes that $100 was initially invested on December 31, 1991 in the Company's Common Stock and in each index and that all dividends were reinvested. 11 COMPARISON OF FIVE YEAR CUMULATIVE SHAREHOLDER RETURN [Comparison Graph appears here with the following plot points]
Base Period Dec. 92 Dec. 93 Dec. 94 Dec. 95 Dec. 96 Dec. 97 ------------ ------------ ------------ ------------ ------------ ------------ Tultex 100 $ 83.02 $ 58.35 $ 49.37 $ 83.78 $ 48.62 S&P 500 Index 100 110.08 111.53 153.45 188.68 251.63 New Peer Group 100 61.30 62.12 55.62 75.25 54.56 Old Peer Group 100 84.94 91.45 80.57 86.72 72.68
Old Peer Group: New Peer Group: Oneita Industries, Inc. Fruit of the Loom, Inc. - CLA Russell Corp. Oneita Industries, Inc. Signal Apparel Co. Russell Corp. Techknits, Inc. Starter Corp. Tultex Corp. Tultex Corp.
Ratification of Appointment of Auditors The Board of Directors has appointed Price Waterhouse LLP, independent certified public accountants, to examine the financial statements of the Company for the fiscal year ending January 2, 1999. Shareholders will be asked to ratify this appointment at the Annual Meeting. Ratification of Price Waterhouse LLP requires the affirmative vote of a majority of Common Stock and Series B Preferred Stock and Series C Preferred Stock (voting together) voted at the Annual Meeting. Price Waterhouse LLP has been the Company's independent accountants since 1971. 12 Representatives of Price Waterhouse LLP are expected to be present at the meeting and will be given an opportunity to make a statement if they desire to do so. They are expected to be available to respond to appropriate questions. The Board of Directors Unanimously Recommends a Vote "FOR" Ratification of Price Waterhouse LLP as Auditors. Stockholder Proposals Stockholders having proposals which they desire to present at next year's annual meeting should, if they desire that such proposals be included in the Board of Directors' proxy and proxy statement relating to such meeting, submit such proposals in time to be received by the Company at its principal executive offices in Martinsville, Virginia, not later than November 13, 1998. To be so included, all such submissions must comply with the requirements of Rule 14a-8 of the Securities and Exchange Commission under the Securities Exchange Act of 1934 and the Board of Directors directs the close attention of interested stockholders to that Rule. Other Matters As of the date of this Proxy Statement, the Board of Directors knows of no matter to come before the meeting other than those stated in the notice of the meeting. As to other matters, if any, that may properly come before the meeting, it is intended that proxies in the accompanying form will be voted in accordance with the best judgment of the persons named therein. We hope that you will be able to attend this meeting in person, but if you cannot be present, please execute the enclosed proxy and return it in the accompanying envelope (no postage required) as promptly as possible. Your stock will be voted in accordance with the instructions you give on the proxy, and in the absence of any such instructions will be voted FOR election of directors and FOR the ratification of appointment of auditors, as described herein. Kathy H. Rogers Secretary Martinsville, Virginia March 27, 1998 13 ******************************************************************************** APPENDIX [GRAPHIC OMITTED] Tultex Corporation Common Stock Proxy P.O. Box 5191
The Board of Directors recommends a vote FOR Proposals 1 and 2. (1) Election of Directors Martinsville, VA 24115 This Proxy is Solicited on Behalf of the Board of Directors The undersigned hereby appoints John M. Franck, Kathy H. Rogers and Regina C. Haynes, and each of them, with full power of substitution to each, Proxies to vote all Common Stock of the undersigned in Tultex Corporation at the annual meeting to be held on May 5, 1998, and at any and all adjourn ments thereof. The Board of Directors recommends a vote FOR Proposals 1 and 2. (1) Election of Directors [ ] FOR [ ] VOTE WITHHELD (2) [ ] FOR [ ] AGAINST [ ] ABSTAIN (3)
The proxy, when properly executed, will be voted in the manner directed by the undersigned stockholder. If no direction is made, this proxy will be voted for Proposals 1 and 2. Please sign exactly as name appears below. When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporation name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person. Please sign and return, whether or not you plan to attend the meeting. - -------------------------- ---------------------- ---------------------- , 1998 Signature Signature if held jointly Date
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