10-K 1 itxn20131231_10k.htm FORM 10-K itxn20131231_10k.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION 

WASHINGTON, D.C. 20549


FORM 10-K


ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2013

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             .

Commission File Number 000-23938


INTERNATIONAL TEXTILE GROUP, INC.

(Exact name of registrant as specified in its charter)


Delaware

33-0596831

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

   

804 Green Valley Road

Suite 300

Greensboro, North Carolina

27408

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (336) 379-6299


SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

NONE

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

Common Stock, par value $.01 per share

(Title of Class)


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. 

Yes    No 

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. 

Yes    No 

 

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    No 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  ☒  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 or any amendment to this Form 10-K.  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer

Accelerated Filer

       

Non-Accelerated Filer

(Do not check if a smaller reporting company)

Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No 

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant (based upon the assumption, solely for purposes of this computation, that W.L. Ross & Co. LLC and its affiliates (the majority stockholders of the Company) and all of the officers and directors of the registrant were affiliates of the registrant) as of the last business day of the registrant’s most recently completed second fiscal quarter was $319,124.

 

The number of shares outstanding of the registrant’s common stock, $0.01 par value per share, as of March 15, 2014, was 17,468,327.

 

 

DOCUMENTS INCORPORATED BY REFERENCE:

NONE



 
1

 

 

TABLE OF CONTENTS

  

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

3

   

PART I

 

ITEM 1.

BUSINESS

4

     

ITEM 2.

PROPERTIES

11

     

ITEM 3.

LEGAL PROCEEDINGS

12

     

ITEM 4.

MINE SAFETY DISCLOSURES

13

     

PART II

 

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

13

     

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

14

     

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

25

     

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

25

     

ITEM 9A.

CONTROLS AND PROCEDURES

25

     

ITEM 9B.

OTHER INFORMATION

25

     

PART III

 

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

26

     

ITEM 11.

EXECUTIVE COMPENSATION

26

     

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

26

     

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

26

     

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

26

     

PART IV

 

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

27

     

SIGNATURES

32

     

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

F-1

 

 
2

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K includes forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are statements that are not historical in nature, and may relate to predictions, current expectations and future events. Forward-looking statements may include statements preceded by, followed by or that include the words “may,” “could,” “would,” “should,” “believe,” “expect,” “anticipate,” “plan,” “estimate,” “continue,” “likely,” “target,” “project,” “intend,” or similar expressions. Readers are cautioned not to place undue reliance on such forward-looking statements, as they involve significant risks and uncertainties.

 

Forward-looking statements are inherently predictive and speculative and are not a guarantee of performance. No assurance can be given that any of such statements, or the results predicted thereby, will prove to be correct. All forward-looking statements are based on management’s current beliefs and assumptions, such as assumptions with respect to general economic and industry conditions, cost and availability of raw materials, the timing of full production at the Company’s operations in China, the ability to maintain compliance with the requirements under various credit facilities, national and international legislation and regulation, and potential financing sources and opportunities, among others, all of which in turn are based on currently available information and estimates. Any of these assumptions could prove inaccurate, which could cause actual results to differ materially from those contained in any forward-looking statement.

 

In addition to changes to the underlying beliefs and assumptions, developments with respect to, the following, or other factors, could cause our actual results to differ materially from those made or implied by any forward-looking statements:

 

 

national, regional and international economic conditions and the continued uncertain economic outlook;

 

adverse changes or increases in U.S. government policies that are unfavorable to domestic manufacturers, including among other things, significant budget constraints and potential further cost reductions in various governmental agencies, including the U.S. Defense Department, that could result from the ongoing sequestration process and could affect certain of our businesses and result in impairments of our goodwill and/or indefinite lived intangible assets;

 

our financial condition, which may put us at a competitive disadvantage compared to our competitors that have less debt;

 

our ability to generate sufficient cash flows, improve our liquidity or fund significant capital expenditures;

 

significant increases in the underlying interest rates on which our floating rate debt is based;

 

our ability to comply with the covenants in our financing agreements, or to obtain waivers of these covenants when and if necessary;

 

our ability to repay or refinance our debt currently due or as it becomes due;

 

actions by our lenders to accelerate any of our indebtedness or proceed against the collateral securing such indebtedness;

 

lower than anticipated demand for our products;

 

our dependence on the success of, and our relationships with, our largest customers;

 

our ability to develop new products that gain customer acceptance;

 

competitive pricing pressures on our sales, and our ability to achieve cost reductions required to sustain global cost competitiveness;

 

significant increases or volatility in the prices of raw materials and rising energy costs, and our ability to plan for and respond to the impact of those changes;

 

risks associated with foreign operations and foreign supply sources;

 

successfully maintaining and/or upgrading our information technology systems;

 

our ability to protect our proprietary information and prevent or enforce third parties from making unauthorized use of our products and technology;

 

the funding requirements of our defined benefit pension plan or lower than expected investment performance by our pension plan assets;

 

changes in existing environmental laws or their interpretation, more vigorous enforcement by regulatory agencies or the discovery of currently unknown conditions;

 

changes in, appeals of, or other judicial inquiry into the settlement agreement relating to certain ongoing litigation described herein; and

 

risks associated with cyber attacks and information technology breaches.

 

Forward-looking statements also make assumptions about risks and uncertainties. Many of these factors are beyond the Company’s ability to control or predict and their ultimate impact could be material. Further, forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update publicly any of them in light of new information or future events.

 

 
3

 

 

PART I

 

ITEM 1.     BUSINESS

 

Company Overview

 

Business

 

International Textile Group, Inc. (“ITG”, the “Company”, “we”, “us” or “our”) is a global, diversified textile manufacturer headquartered in Greensboro, North Carolina, with operations principally in the United States, Mexico, and China. The Company believes it is one of the world’s largest and most diversified producers of denim fabrics and the largest producer of better denim fabrics for products distributed through department stores and specialty retailers. In addition, the Company believes it is one of the largest worsted wool manufacturers and commission printers and finishers in North America, and is a leading developer, marketer and manufacturer of other fabrics and textile products. ITG’s long-term focus includes realizing the benefits of its global expansion, including reaching full production at the Company’s facilities in China, as described below.

 

The Company, a Delaware corporation incorporated in 1994, was formerly known as Safety Components International, Inc. (“SCI”). The Company combined with a company formerly known as International Textile Group, Inc. (“Former ITG”) in October 2006 (the “Merger”) in a negotiated transaction. Upon completion of the Merger, SCI changed its name to “International Textile Group, Inc.”

 

Former ITG was formed in August 2004 by certain entities affiliated with Wilbur L. Ross, Jr., the chairman of the Company’s board of directors (“WLR”) to consolidate the businesses of leading textile and fabric manufacturers, including Burlington Industries, Inc. (a manufacturer of textile products for apparel and interior furnishing products) and Cone Mills Corporation (a manufacturer of textile products, primarily denim, for apparel and interior furnishing products).

 

Products and Segments

 

The Company is organized and managed primarily according to product categories and manufacturing processes rather than by markets or end-use customers. The Company currently has five operating segments that are reported to the chief operating decision maker (“CODM”) and four reportable segments that are presented herein. The reporting of the Company’s operations to the CODM in five segments is consistent with how the Company is managed and how resources are allocated by the CODM.

 

Bottom-weight Woven Fabrics

 

The bottom-weight woven fabrics segment includes heavy weight woven fabrics with a high number of ounces of material per square yard. The Company produces apparel fabrics (including denim, cotton, synthetic and worsted) for use in garments, typically bottoms (i.e., pants or shorts). Demand for apparel fabric generally arises, directly or indirectly, from apparel wholesalers and retailers. Generally, wholesalers and retailers do not manufacture garments themselves, but instead they use “cut and sew” contractors who convert apparel fabric into finished garments. When an apparel wholesaler or retailer contracts for finished garments from the cut and sew contractors, they will usually specify which fabric manufacturers’ product is to be used. The cut and sew contractor then purchases apparel fabric directly from the designated fabric manufacturer.

 

Through its Cone Denim business unit, the Company manufactures and markets a wide variety of denim apparel fabrics for the global jeanswear market. Denims are generally “yarn-dyed,” which means that the yarn is dyed before the fabric is woven. The result is a fabric with variations in color that give denim its distinctive appearance. Denim fabrics are marketed under the Cone Denim® brand name to the premium and vintage jeanswear markets, where styling and innovation are important factors, as well as to the fashion and better basic jeanswear markets, where pricing is more important. The Company’s product developers and designers work directly with customers to provide differentiated denim products. In addition to a focus on product development, Cone Denim provides differentiated solutions to customers through its global network of plants and commercial ventures. This allows the Company to offer superior denim products to internationally known jeanswear brands and retailers who are seeking to differentiate themselves based on fashion, lifestyle branding and superior supply chain management.

 

Worsted and synthetic fabrics are marketed under the Burlington® WorldWide and Raeford® Uniform brand names. Worsted fabrics include 100% wool and wool blended fabrics primarily targeted at branded men’s apparel customers and the uniform career apparel trade. Worsted fabrics marketed under the Burlington WorldWide brand name are also produced for the military dress uniform business. The Company believes it is the largest producer of worsted fabrics for products produced for the U.S. military and fabrics protected by the Berry Amendment legislation, which generally requires that U.S. military uniform fabric be manufactured in the United States. Synthetic fabrics include 100% polyester, nylon and polyester blended fabrics with wool, rayon and lycra. These products are targeted for the production of men’s and women’s apparel, performance activewear and uniform career apparel. The Company also produces technical and value added fabrics used in a variety of niche industrial and commercial applications including highly engineered materials used in numerous applications and a broad range of industries, such as fire service apparel, ballistics materials, filtration, military fabrics and outdoor awnings and covers.

 

 
4

 

 

The Company owns and operates a dyeing and finishing plant in China, which supports the Company’s synthetic apparel business, primarily for customers who cut garments in the Eastern hemisphere. Targeted areas of growth for this plant include expansion of the protective barrier fabrics business as well as the activewear business in both the U.S. and Europe, increased commission processing of apparel and interior furnishings fabrics for other Chinese mills, and increased market share in the men's apparel business.

 

Through its automotive safety business, the Company produces automotive airbag fabrics, which are components of airbag modules. Component manufacturers such as the Company that sell their products to airbag module integrators are generally referred to as Tier 2 suppliers to the automotive industry. Airbag module integrators, which sell complete airbag modules to automobile manufacturers, are generally referred to as Tier 1 suppliers to the automotive industry. Tier 1 suppliers generally produce a majority of the components required for a complete airbag module, but outsource varying portions of non-proprietary components, such as airbag fabric and airbag cushions, to Tier 2 suppliers that specialize in the production of individual airbag components. The Company has positioned itself as one of only a limited number of independent airbag fabrics suppliers in North America, and also exports airbag fabric into Europe.

 

Commission Finishing

 

The Company manufactures fabrics for battle dress uniforms (camouflage) sold primarily to the U.S. Government and to government contractors. The Company is a significant producer of military prints that are used to service the battle dress uniform business primarily for the United States government, but also for other governments and commercial interests. The Company believes it is one of the largest commission printers and finishers in North America. Commission textile dyeing, printing and finishing services are also provided by the Company for decorative fabrics and specialty prints. The Company’s capabilities in this business include preparation, surface enhancement, dyeing and finishing services.

 

Narrow Fabrics

 

The narrow fabrics segment consists of narrow webbing products for safety restraint products such as seat belts, as well as for military and technical uses including webbing for backpacks, parachute cords, duffel bags, helicopter slings, hose coverings and fall protection.

 

All Other

 

The all other segment consists of operations related to transportation services and other miscellaneous items.

 

Discontinued Operations

 

The Company deconsolidated all operations related to its ITG-Phong Phu Joint Venture facility in Vietnam (“ITG-PP”) as of May 25, 2012. Also as described herein, on October 7, 2013, substantially all of the operating assets of the Company’s facility in Nicaragua (Cone Denim de Nicaragua or "CDN") were transferred to a third party in full settlement of CDN’s debt and lease financing obligations. The results of operations related to the ITG-PP and CDN businesses are presented as discontinued operations for all periods presented in this Form 10-K. For more information regarding the deconsolidation of ITG-PP and the derecognition of CDN, see Note 2 of the Notes to Consolidated Financial Statements.

 

Segment and Geographic Information

 

The Company generally attributes its revenues based on the shipping destination of products and attributes its long-lived assets to a particular country based on the location of the assets within each of the Company’s production facilities (see Item 2. “Properties”). The following table presents sales from continuing operations and long-lived assets (including long-lived assets classified as assets held for sale) by reportable segment and geographic area as of and for the fiscal years ended December 31, 2013 and 2012 (in thousands).

 

 
5

 

 

   

Year

Ended

December 31,

2013

   

Year

Ended

December 31,

2012

 
                 

Net Sales:

               

Bottom-weight Woven Fabrics

  $ 578,348     $ 566,340  

Commission Finishing

    21,287       30,929  

Narrow Fabrics

    24,123       26,801  

All Other

    958       1,035  
      624,716       625,105  

Intersegment sales

    (504 )     (6,030 )
    $ 624,212     $ 619,075  

 

   

Year

Ended

December 31,

2013

   

Ended

Year

December 31,

2012

 

Net Sales:

               

United States

  $ 260,859     $ 274,309  

Mexico

    212,024       219,411  

Other Foreign

    151,329       125,355  
    $ 624,212     $ 619,075  

 

   

December 31,

2013

   

December 31,

2012

 

Long-lived Assets:

               

United States

  $ 23,525     $ 27,383  

China

    57,880       63,525  

Mexico

    24,046       24,084  

Nicaragua

          25,989  
    $ 105,451     $ 140,981  

 

 

 

 

Business Strategy and International Initiatives

 

ITG’s strategy is to be the leading global supplier of solution-based, value-added performance products and services for the textile supply chain. Combined with capabilities in the U.S. and Mexico, the Company’s facilities in China are a key part of the Company’s comprehensive global supply chain solution that is intended to allow the Company to seamlessly supply products and related services to customers worldwide. We believe geographically aligning with our customers is a critical component of our success.

 

Cone Denim (Jiaxing) Limited, a technologically advanced vertical denim plant in the city of Jiaxing, Zhejiang Province, China, was established in 2007 as a joint venture 51% owned by the Company. In September 2011, the Company acquired the remaining 49% noncontrolling interest in Cone Denim (Jiaxing) Limited, which resulted in the termination of the joint venture investment agreement. Cone Denim (Jiaxing) Limited provides customers with an option for high quality, premium denims produced in China, which we believe is undersupplied despite the high level of capacity for basic denims in China. Cone Denim (Jiaxing) produced over 23 million yards of fabric in 2013, a 64% increase over the previous year, as a result of increased demand and higher net sales in 2013. Chinese cotton prices and U.S. cotton quotas impact volume and pricing out of this facility.

 

 
6

 

 

The Company owns a fabric dyeing and finishing plant in Jiaxing, China. Jiaxing Burlington Textile Company Limited is a high-technology, high-quality piece dyeing and finishing plant that produces synthetic apparel fabrics and contract interior furnishing fabrics. As sales demand has increased, this facility has expanded its capacity utilization, and production of fabric in 2013 and 2012 approximated 10 million and 8 million yards, respectively, as a result of increased demand and higher net sales in 2013.

 

The Company’s international initiatives, including its significant foreign operations and exports to foreign markets, remain subject to a number of risks not attendant to operations in the United States, including, but not limited to, disruptions of markets, changes in import and export or other laws, changes in future quantitative limits, duties or tariffs, currency restrictions and currency exchange rate fluctuations.

 

Customers

 

The Company markets and sells its products to a diversified, worldwide customer base within the bottom-weight woven fabric, government uniform fabric, decorative fabric, automotive safety and specialty fabric and services markets. The Company markets and sells its products to leading apparel brands in the world within the bottom-weight woven fabric market.

 

The Cone Denim and Burlington WorldWide divisions serve customers throughout the apparel and specialty fabric supply chains, including a variety of cut and sew contractors and apparel wholesalers and retailers, worldwide. The Company believes it is a leading supplier to the world’s leading jeanswear brands. The Company also believes it is a leading supplier to the U.S. military, directly and indirectly, of worsted wool fabrics for dress uniforms and printed fabrics for battle dress uniforms. In addition, printed fabrics for battle dress uniforms are marketed through the Company’s commission finishing segment.

 

The Company’s business is dependent on the success of, and its relationships with, its largest customers. No single customer accounted for 10% or more of the Company’s accounts receivable as of December 31, 2013, and one customer, V.F., Corporation, accounted for approximately 10% of the Company’s net sales in 2013 and 2012. Additionally, the Company believes that Levi Strauss & Co. (“Levi Strauss”) is able to direct certain of its garment producers to purchase denim (or other fabric) directly from the Company for use in Levi Strauss products. Although Levi Strauss is not directly liable in any way for the payment by any of those producers for fabric purchased from the Company, the Company believes that continued sales to Levi Strauss’ garment producers are dependent upon the Company maintaining a strong supplier/customer relationship with Levi Strauss. The loss of any key customer, a material slowdown in the business of one of its key customers or a worsening of certain supplier/customer relationships could have a material adverse effect on the Company’s overall results of operations, cash flows or financial position.

 

Competition

 

The worldwide textile industry is highly fragmented and competitive. The industry, in certain of the Company’s segments, is characterized by low barriers to entry, many regional and local competitors and a significant number of global competitors. No single company dominates the market, and many companies compete only in limited segments of the industry. Certain of the Company’s products also compete with non-textile products. In many markets, the Company competes with large, integrated enterprises, as well as small, niche regional manufacturers. Textile competition is based in varying degrees on price, product styling and differentiation, quality, response time and customer service. The importance of each of these factors depends upon the needs of particular customers and, within certain of the Company’s segments, the degree of fashion risk inherent in the product.

 

Competition is based on various criteria, including ability to meet stringent performance and technical requirements and similarly high ongoing quality standards, ability to develop seasonal programs and keep up with temporary and/or seasonal demand, ongoing technical and design innovation, on-time delivery, creating solutions that meet customer needs, and price. The Company is focused on creating value-added performance products and services using advanced technical and design innovations across several key businesses, and attempting to differentiate the performance of its textile products from its competitors. The Company believes that it has a strong brand heritage and certain key core competencies, including in technical product development, product quality, yarn and fabric formation, color application and color consistency, application of technology to greige fabrics, and proprietary technology transfer, all of which allow the Company to increase the breadth of its value-added product lines to customers and compete more effectively.

 

Imports of foreign-made textile and apparel products, such as denim, men’s worsted wool tailored suiting fabrics, men’s and women’s synthetic active wear fabrics, and dobby fabric used in the commercial and institutional contract interior furnishings market, are a significant source of competition. While imports of textile and apparel garments from Asia have recently leveled off, the Company cannot predict the level of future imports from China, Vietnam and similar countries that may have price advantages as a result of lower labor costs and improving production and distribution facilities. Any future growth of imports could place competitive pressures on the Company’s U.S. and Mexican manufacturing locations. The Company has strategically located certain of its operations in China in order to, among other things, more effectively compete with lower cost producers, and believes that its geographic manufacturing diversity provides certain competitive benefits including the ability to increase lower cost production based on industry conditions.

 

 
7

 

 

Entry into the market for U.S. military dress uniform fabrics is greatly limited by precise product specifications established by the U.S. Department of Defense, particularly those regarding color matching. We believe the Company’s ability to meet the U.S. Department of Defense’s strict product specifications has positioned the Company as a long-standing preferred supplier under such military contracts.

 

The Company’s current automotive safety business generally competes with various Tier 2 suppliers for airbag fabric sales. The automotive supply market, which includes the airbag fabric business in which the Company’s automotive safety business operates, is also highly competitive. Some of the Company’s competitors may have greater financial or other resources than the Company, or may be more diversified in product offerings than the Company, although the Company believes it is well positioned to compete in this market based on its long history of providing high quality products meeting stringent technical manufacturing requirements.

 

Raw Materials

 

The Company uses many types of fiber, both natural (principally cotton and wool) as well as synthetic (polyester, nylon, polypropylene, acrylic, rayon, Tencel®, Nomex, and acetate), in the manufacture of its textile fabrics. The Company sources raw materials from a range of suppliers and strives to maintain multiple relationships for all key materials to limit exposure to any one supplier. Other materials, such as dyes and chemicals, are generally available, but, as in the case of the Company’s primary raw materials, continued availability is dependent to varying degrees upon the adequacy and cost of the polymers used in production, as well as petroleum prices.

 

Cotton and wool are generally available from a wide variety of domestic and foreign sources. Because our customers generally do not purchase our products under long-term supply contracts, but rather on a purchase order basis, we seek to ensure that products are available to meet customer demands while effectively managing inventory levels. The Company’s bottom-weight woven fabrics segment has historically entered into firm purchase commitments for cotton and wool commodity raw materials used in the manufacture of apparel fabrics. Such non-cancellable firm purchase commitments are secured to provide the Company with a consistent supply of a commercially acceptable grade of raw materials necessary to meet expected operating requirements as well as to meet the product specifications and sourcing requirements with respect to anticipated future customer orders. Prices for cotton and wool have declined in recent periods from historical highs. However, prices continue to fluctuate and cotton prices remain high as compared to historical levels. In response to higher raw material costs in the open market or under our committed purchase contracts, we have in recent periods been able to increase sales prices to some extent in order to maintain sufficient margins, and we expect to continue to attempt to increase sales prices as necessary in the future.

 

Synthetic fibers, principally polyester, are also generally available from a wide variety of sources both domestically and abroad. However, the prices of those fibers are influenced heavily by demand, manufacturing capacity, petroleum prices and the cost of the underlying polymers. Petroleum prices have fluctuated over recent periods, although such prices remain high compared to historical levels, which has increased our costs and negatively impacted our margins in recent periods.

 

While we have been able to pass on some increased raw material costs to our customers, the Company’s margins were negatively impacted by higher raw material and energy costs that remained in the Company’s inventories primarily during the first half of 2012. If the Company incurs increased raw material or other costs that it is unable to recoup through price increases, or if decreases in raw material prices lead to downward pressures on the Company’s sales prices while higher costs remain in the Company’s inventories, or if we experience interruptions in raw materials supply, our business, results of operations, financial condition and cash flows may be adversely affected.

 

Employees

 

As of December 31, 2013, the Company employed approximately 4,800 individuals worldwide on a full time basis. The Company believes it is in full compliance with federally regulated minimum wage requirements in all of its locations. Employees at the Company’s White Oak and Boykins plants in the United States and at its facilities in Mexico and China are unionized. The Company has not experienced any work stoppages related to its work force and considers its relations with its employees and all unions currently representing its employees to be good.

 

 
8

 

 

Regulatory

 

The Company’s operations are subject to various product safety, environmental, employee safety, wage, and transportation-related statutes and other U.S. and foreign governmental regulations. The Company believes that it is in substantial compliance with existing laws and regulations and has obtained or applied for the necessary permits to conduct its business operations.

 

As a provider of textile products internationally, the sale of the Company’s products is subject to various regulations governing trade among countries. The Company seeks to maximize the benefits that may be achievable under trade laws of various countries. For example, under the North American Free Trade Agreement, or NAFTA, entered into between the United States, Mexico and Canada, there are no textile or apparel quotas between the United States and either Mexico or Canada for products that meet certain origin criteria. Because the Company is an apparel fabrics manufacturer and a resident, diversified textile product manufacturer in Mexico, the Company believes that NAFTA is advantageous to the Company. Generally, trade agreements such as NAFTA affect the Company’s business by reducing or eliminating the duties and/or quotas assessed on products manufactured in a particular country. However, trade agreements can also impose requirements that limit the countries from which ITG can purchase raw materials and set quantitative limits on products that may be imported from a particular country.

 

The Berry Amendment, enacted in 1941, is one of multiple statutes that impose “domestic source” requirements on products used in government procurement contracts. The Berry Amendment, in pertinent part, requires the Department of Defense, or DOD, to purchase only domestically produced apparel and fabrics. Under the requirement, these items must be made with 100% U.S. content and labor. The DOD may waive the Berry Amendment requirement and purchase foreign made goods under certain circumstances, such as “emergency” acquisitions or when U.S.-origin products are unavailable. The Kissell Amendment of the American Recovery and Reinvestment Act, passed in February 2009 and modeled after the Berry Amendment, has expanded the U.S.-origin requirements to certain products purchased by the U.S. Department of Homeland Security. The Kissell Amendment applies to government procurement of uniforms and other textiles for the Transportation Security Administration, the U.S. Coast Guard, the U.S. Customs and Border Patrol, Immigration and Customs Enforcement, and the Secret Service. In addition to the Berry and Kissell amendments, the U.S. military fabric market is supported by the Buy American Act which was passed in 1933 and requires the U.S. government to prefer U.S-made products in its purchases. The United States and other countries in which the Company’s products are manufactured and sold may impose new duties or tariffs, change standards for the classification of products or implement other constraints or restrictions. Management monitors developments and risks related to duties, tariffs, quantitative limits and other trade-related matters pending with the U.S. and foreign governments.

 

Customers of the automotive safety business often require the Company’s products to meet specific requirements for design validation. The Company and its customers jointly participate in design and process validations and customers have reliability and performance criteria which must be met prior to qualifying suppliers and awarding a purchase order. The Company also performs process capability studies and designs experiments to determine whether the manufacturing processes meet or exceed the quality levels required by each customer. In addition, certain customers in the Company’s other businesses require or request stringent compliance with various guidelines related to, among others, labor, employee health and safety, legal, ethical, consumer safety, environmental and other corporate social responsibility issues. The Company’s practices under such programs have been well received to date.

 

Environmental

 

The Company’s operations and properties are subject to a wide variety of environmental laws. Such laws may impose joint and several liability for violations or environmental clean-up responsibilities, and may apply to conditions at properties presently or formerly owned or operated by an entity or its predecessor as well as to conditions of properties at which wastes or other contamination attributable to an entity or its predecessor have been sent or otherwise come to be located. The nature of the Company’s operations expose it to the risk of claims with respect to such matters and there can be no assurance that violations of such laws have not occurred or will not occur or that material costs or liabilities will not be incurred in connection with such claims. The Company believes that it currently is in compliance with applicable environmental regulations in all material respects.

  

However, future events, such as new information, changes in existing environmental laws or their interpretation, or more vigorous enforcement policies of regulatory agencies, may give rise to additional required expenditures or liabilities that could be material. Although no assurances can be given in this regard, in the opinion of management, no material expenditures beyond those accrued are expected to be required for the Company’s environmental control efforts and the final outcomes of these matters are not expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows.

 

 
9

 

 

Research and Development

 

The Company is committed to research and development of new products, product and process improvements, and improving the quality of its existing products. These efforts are primarily channeled toward improving the quality, styling and performance of its fabrics and related products. The Company’s research and development costs were approximately $6.6 million in each of 2013 and 2012.

 

Both Burlington WorldWide and Cone Denim have a history of research and development projects which have resulted in new products such as denim fabrics with unique appearances, specialty fabrics with performance characteristics such as moisture wicking and stain repellency, and fabric with fire retardant properties. The Company’s Burlington Labs group, which is a part of the bottom-weight woven fabrics segment, works with technology vendors to develop new fabric innovations in exchange for exclusivity commitments from these vendors on new products and to explore and develop proprietary technologies exclusive to Burlington WorldWide, including chemical formulations, fiber enhancements and fabric processing applications designed to lead to new fabric innovations. These innovations include odor absorption, insect repellency, flame retardancy and sun protection properties woven into fabrics without compromising hand aesthetics and appearance. These products are generally used in activewear and military apparel as well as in hospitals and home fashions. Cone Denim is recognized worldwide for value-added product innovation and market forward fashion, and its Cone 3D group is engaged in a number of new proprietary product development efforts intended to further expand the Company’s value-added product line. For example, Cone Denim’s recent development efforts have resulted in it being qualified to offer final product recycled bottle content certification to end users.

 

Intellectual Property

 

The Company maintains a portfolio of patents, trade secrets, trademarks and copyrights. The Company and its affiliates hold a number of patents that relate to technical improvements, and the enhancement of product performance, with respect to airbag fabric and technical related products, which will expire at various times in the future. The Company also has several registered trademarks for brand names for some of its technical fabrics. While the Company’s intellectual property portfolio is an important Company asset, neither its business as a whole nor any particular segment is materially dependent upon any one particular patent, trademark, copyright, or trade secret. As the laws of many countries do not protect intellectual property to the same extent as the laws of the United States, the Company cannot ensure that it will be able to adequately protect its intellectual property assets outside of the United States. The failure to protect our intellectual property assets could have a material adverse effect on our business.

 

The Company engages in both active and passive branding in its various business segments, and seeks to leverage the heritage and authenticity of its established, widely-recognized brands and brand names, including Cone Denim ®, Burlington House® and Burlington® in its bottom-weight woven fabrics segment, as well as its Raeford® Uniform brand name in its bottom-weight woven fabrics and government uniform fabrics.

 

Restructuring Activities

 

The Company continues to examine its manufacturing operations and evaluate opportunities to reconfigure manufacturing and supply chain operations focusing on operational improvements and cost reductions, as well as reduce the Company’s general and administrative expenses. The Company also continuously evaluates opportunities to restructure operations in an effort to better align its manufacturing base with long-term opportunities and increase return on investment. Management continuously evaluates the financial and operating results of our various businesses, and may seek to take various actions, including transferring operations, closing plants, idling operations or disposing of assets from time to time in order to respond to changing economic circumstances and to better execute on the Company’s long-term strategy.

 

Restructuring Activities in the Commission Finishing Segment

 

Beginning in the second quarter of 2012, workforce reductions of mostly hourly employees have been made at the Company’s commission finishing facility primarily as a result of the Company’s ongoing cost saving initiatives as well as the outlook for lower product demand in certain of the segment’s government contract businesses. Workforce reductions of 27 employees were made at the commission finishing facility resulting in severance and other termination benefits of $0.1 million in 2013. Workforce reductions of 50 employees were made at the commission finishing facility resulting in severance and other termination benefits of $0.2 million in 2012.

 

 
10

 

 

Restructuring Activities in the Bottom-weight Woven Fabrics Segment

 

Hourly and salaried workforce reductions of 45 employees undertaken at the U.S. denim facility resulted in severance and other termination benefits of $0.3 million recorded in 2012. Salaried workforce reductions of 21 employees undertaken at a denim facility in Mexico resulted in severance and other termination benefits of $0.3 million in 2012. These workforce reductions were primarily attributable to the Company’s ongoing cost saving initiatives and, in the case of activities at the U.S. denim facility, the outlook for lower product demand at this facility. Restructuring recoveries in 2013 were due to the expiration of COBRA benefits of $0.1 million primarily related to employees at the U.S. denim facility.

 

Other Restructuring Activities

 

Certain cost reduction programs associated with selling, administrative and other functions at the Company’s corporate headquarters and other locations resulted in the termination of approximately 15 employees in 2012, and the Company recorded pension settlement charges of less than $0.1 million in 2013 and $0.1 million in 2012 related to these programs.

 

ITEM 2.      PROPERTIES

 

The Company’s corporate headquarters are located in Greensboro, North Carolina in a facility that is leased by the Company, and the Company owns all of its manufacturing facilities. The Company believes all facilities and machinery and equipment are in good condition and are suitable for the Company’s needs. The Company’s principal manufacturing and distribution facilities at December 31, 2013 are listed below:

 

PRINCIPAL PROPERTIES

 

Facility Name (Location)

 

Products and Segment

 

Country Location

 

Approximate

Floor Area
(Sq. Ft.)

 

Burlington Finishing Plant (Burlington, North Carolina)

 

Synthetic apparel and interior furnishings fabrics finishing (1)

 

U.S.

    426,000  

Boykins Plant (Boykins, Virginia)

 

Narrow webbing (2)

 

U.S.

    213,000  

Carlisle Finishing Plant (Carlisle, South Carolina)

 

Commission finishing and government (3)

 

U.S.

    665,000  

Dunean Plant (Greenville, South Carolina)

 

Automotive safety and technical fabrics (1)

 

U.S.

    826,000  

Raeford Plant (Raeford, North Carolina)

 

Apparel and government (worsted) (1)

 

U.S.

    647,000  

Richmond Plant (Cordova, North Carolina)

 

Apparel, government and automotive safety (synthetic, worsted) (1)

 

U.S.

    556,000  

White Oak Plant (Greensboro, North Carolina)

 

Apparel (denim) (1)

 

U.S.

    1,567,000  

Casimires Plant (Yecapixtla, Morelos)

 

Apparel (worsted) (1)

 

Mexico

    699,000  

Cone Denim Jiaxing Plant (Jiaxing Zhejiang)

 

Apparel (denim) (1)

 

China

    630,000  

ITG-Phong Phu Plant (DaNang)

 

Idled facility (4), (5)

 

Vietnam

    513,000  

Jiaxing Burlington Textile Company (Jiaxing, Zhejiang)

 

Apparel (synthetic) and interior furnishings fabrics finishing (1)

 

China

    187,000  

Parras Cone Plant (Parras de la Fuente, Coahuila)

 

Apparel (denim) (1)

 

Mexico

    652,000  

Summit Yarn Plant (Yecapixtla, Morelos)

 

Apparel (denim) (1), (4)

 

Mexico

    280,000  

Yecapixtla Plant (Yecapixtla, Morelos)

 

Apparel (denim) (1)

 

Mexico

    493,000  

 


 

(1)

Bottom-weight woven fabrics segment

(2)

Narrow fabrics segment

(3)

Commission finishing segment

(4)

Joint venture

(5)

The operations of ITG-PP have been deconsolidated as of May 25, 2012 as a result of the Company having entered into the Enforcement Agreement described elsewhere herein.

 

 
11

 

 

ITEM 3.     LEGAL PROCEEDINGS

 

In the ordinary course of business and from time to time, we are involved in various pending or threatened legal proceedings. The Company may also be liable for environmental contingencies with respect to environmental cleanup activities. We cannot predict with certainty the outcome of any legal or environmental proceedings to which we are, or are threatened to become, a party. In our opinion, however, adequate liabilities have been recorded for losses that are probable to result from presently known and expected legal proceedings and environmental remediation requirements and are reasonably estimable. If such liabilities prove to be inadequate, however, it is reasonably possible that we could be required to record a charge to our earnings that could be material to our financial condition, results of operations and cash flows in a particular future period.

 

The Company has previously disclosed that it is a party, as a nominal defendant only, to a consolidated class action lawsuit and related derivative action (together, the “Consolidated Action”), which consolidated three factually identical lawsuits filed in 2008 and 2009 under the caption In re International Textile Group, Inc. Merger Litigation, pending in the Court of Common Pleas, Greenville County, South Carolina (the “Court”), C.A. No. 2009-CP-23-3346. The Consolidated Action relates to the Merger. The Consolidated Action names as defendants, among others, certain individuals who were officers and directors, and certain stockholders, of Former ITG or the Company at the time of, and an entity which was an independent financial advisor to the Company in connection with, the Merger (the “Non-Company Defendants”). The plaintiffs in the Consolidated Class Action contend that certain of the Non-Company Defendants breached certain fiduciary duties, and have also made related claims, in connection with the Merger.

 

On February 19, 2014, the Company, as a nominal defendant, the plaintiffs and the Non-Company Defendants entered into a Stipulation and Settlement Agreement (the “Settlement Agreement”) relating to the Consolidated Action. The Settlement Agreement, which was preliminarily approved by the Court on February 19, 2014 and remains subject to the final approval of the Court as described below, provides, among other things, that in settlement of the Consolidated Action, (i) certain of the Non-Company Defendants will make an aggregate $36.0 million cash payment thereunder (the “Cash Settlement”), which includes a $16.0 million cash payment from the independent financial advisor and its insurers and a $20.0 million cash payment from other Non-Company Defendants and their insurers, (ii) $21.9 million in principal and accrued interest of the Company’s senior subordinated notes (which are designated as “senior subordinated notes—related party” on the Company’s balance sheets and have a maturity date of June 6, 2015), held by certain affiliates of the Company (the “Affiliates”), will be cancelled, together with all additional interest that accrues on such notes from December 31, 2013 through the effective date of the Settlement Agreement (collectively, the “Cancelled Notes”), and (iii) 10,315,727 shares of the Company’s Series A convertible preferred stock (the “Series A Preferred Stock”), having a liquidation value of $257.9 million as of December 31, 2013, and 11,488 shares of the Company’s Series C preferred stock (the “Series C Preferred Stock”), having a liquidation value of $11.5 million as of December 31, 2013, in each case together with any additional shares of Series A Preferred Stock and Series C Preferred Stock that accrue with respect to such shares through the effective date of the Settlement Agreement (collectively, the “Cancelled Preferred Stock”), all of which are held by the Affiliates, will be cancelled on the effective date of the Settlement Agreement. As of December 31, 2013, the Company had a total of $163.5 million in aggregate principal and accrued interest of senior subordinated notes outstanding, and had outstanding shares of Series A Preferred Stock with an aggregate liquidation value of approximately $337.0 million, and of Series C Preferred Stock with an aggregate liquidation value of approximately $126.0 million.

 

If the Settlement Agreement receives final approval by the Court, the Cancelled Notes and the Cancelled Preferred Stock will be cancelled, and the Company’s respective obligations, and the Affiliates’ respective rights, thereunder will be terminated, effective as of December 31, 2013. The Company expects that when such cancellations take effect following final approval of the Settlement Agreement, they will not have an impact on the Company’s consolidated statements of operations but will have an impact on its consolidated balance sheet by reducing the Company’s long-term debt and stockholders’ deficit, by the amount of the Cancelled Notes, and by reducing the aggregate liquidation value of the Series A Preferred Stock and the Series C Preferred Stock by the respective values of the Cancelled Preferred Stock. The Company cannot determine the amount of cash, if any, from the Cash Settlement that may be available for use by the Company after such funds are applied in accordance with the Settlement Agreement to pay fees and expenses of various legal and other advisors in connection with the Consolidated Action. In accordance with the terms of the Settlement Agreement, the claims administrator has distributed the required notices relating to the proposed settlement of the Consolidated Action. The Court has scheduled a hearing to consider final approval of the Settlement Agreement on June 23, 2014, and the Company anticipates that, if approved, the Settlement Agreement would take effect in the third quarter of 2014.

 

 
12

 

 

Primarily as a result of its production of automotive safety products, the Company is engaged in a business that could expose it to possible claims for injury resulting from the failure of its products. To date, however, the Company has not been named as a defendant in any automotive product liability lawsuit, nor has it been threatened with any such lawsuit. The Company maintains product liability insurance coverage, which management believes to be adequate. However, a claim brought against the Company resulting in a product recall program or a final judgment in excess of its insurance coverage could have a material adverse effect on the Company.

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

Not applicable.

 

PART II

 

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

The Company’s common stock is quoted on the OTC Markets Group Inc. (formerly known as Pink OTC Markets Inc.) over-the-counter “OTCQB” marketplace tier under the symbol “ITXN.” The OTCQB marketplace tier includes securities of companies in the OTC Markets Group Inc. electronic quotation system that are registered and current in their reporting with the applicable regulatory authority, such as the SEC. As a result of the significant concentration of stock ownership by affiliates of WLR, as described elsewhere herein, there is only a limited public trading market in the Company’s common stock. There can be no assurances that an active trading market in the Company’s common stock will develop and, if it does develop, will be sustained. The following table sets forth the range of high and low bids on the common stock during each quarter within the years ended December 31, 2013 and 2012, respectively, as reported by the OTC Markets Group Inc. The prices in the table reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.

 

 

   

High

   

Low

 
                 

Year Ended December 31, 2013

               

First Quarter

  $ 0.005     $ 0.003  

Second Quarter

    0.26       0.0051  

Third Quarter

    0.20       0.08  

Fourth Quarter

    0.15       0.12  
                 

Year Ended December 31, 2012

               

First Quarter

  $ 0.05     $ 0.02  

Second Quarter

    0.03       0.015  

Third Quarter

    0.01       0.007  

Fourth Quarter

    0.015       0.0015  

 

 

 

 

As of February 28, 2014, there were approximately 350 holders of record of the Company’s common stock.

 

To date, the Company has not paid any cash dividends to its stockholders and does not currently have plans to do so in the foreseeable future. The Company intends to use earnings to fund its significant debt repayment obligations. Further, the Company’s various credit agreements (as described below) and certain other agreements by which the Company is bound may, from time to time, restrict the Company’s ability to pay dividends.

 

 
13

 

 

Equity Compensation Plan Information 

 

  

Plan Category

 

Number of Securities to

be Issued Upon

Exercise of Outstanding

Options, Warrants and

Rights

(a)

   

Weighted Average

Exercise Price of

Outstanding Options,

Warrants and Rights

(b)

   

Number of Securities Remaining

Available for Future Issuance Under

Equity Compensation Plans

(Excluding Securities

Reflected in Column(a))

(c)

 

Equity compensation plans approved by security holders

    340,500     $ 10.10       4,000,000  
                         

Equity compensation plans not approved by security holders

    -     $ -       -  

Total

    340,500     $ 10.10       4,000,000  

 

In connection with the Merger, the Company assumed the Equity Incentive Plan (the “Equity Incentive Plan”) and the Stock Option Plan for Non-Employee Directors (the “Directors’ Plan”) of Former ITG. No further grants of equity awards are authorized to be made under either of these plans. As of December 31, 2013, a total of 306,913 and 33,587 shares may be issued under outstanding awards at a weighted average exercise price of $10.10 under each of the Equity Incentive Plan and the Directors’ Plan, respectively.

 

On April 1, 2008, the board of directors approved the Company’s 2008 Equity Incentive Plan (the “2008 Equity Plan”). Effective as of June 9, 2008, the stockholders of the Company approved and ratified the adoption of the 2008 Equity Plan. A total of 3,000,000 shares of the Company’s common stock and 1,000,000 shares of Series B convertible preferred stock (the “Series B Preferred Stock”) have been reserved for issuance under the 2008 Equity Plan. There have been no awards issued under the 2008 Equity Plan.

 

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Overview 

 

Our Company

 

International Textile Group, Inc. (“ITG,” the “Company,” “we,” “us” or “our”) is a global, diversified textile manufacturer headquartered in Greensboro, North Carolina, with operations principally in the United States, Mexico, and China. The Company believes it is one of the world’s largest and most diversified producers of denim fabrics and the largest producer of better denim fabrics for products distributed through department stores and specialty retailers. In addition, the Company believes it is one of the largest worsted wool manufacturers and commission printers and finishers in North America, and is a leading developer, marketer and manufacturer of other fabrics and textile products.

 

The Company is organized and managed primarily according to product categories and manufacturing processes rather than by markets or end-use customers. The Company currently has five operating segments that are reported to the chief operating decision maker (“CODM”) and four reportable segments that are presented herein. The bottom-weight woven fabrics segment is comprised of heavy weight woven fabrics with a high number of ounces of material per square yard, including woven denim fabrics, synthetic fabrics, worsted and worsted wool blend fabrics used for government uniform fabrics for dress U.S. military uniforms, airbag fabrics used in the automotive industry, and technical and value added fabrics used in a variety of niche industrial and commercial applications, including highly engineered materials used in numerous applications and a broad range of industries, such as for fire service apparel, ballistics materials, filtration, military fabrics and outdoor awnings and covers. The commission finishing segment consists of textile printing and finishing services for customers primarily focusing on decorative fabrics and specialty prints as well as government uniform fabrics primarily for battle fatigue U.S. military uniforms. The narrow fabrics segment consists of narrow webbing products for safety restraint products such as seat belts and military and technical uses. The all other segment consists of expenses related to transportation services and other miscellaneous items. The Company’s Cone Denim de Nicaragua business and the ITG-PP business in Vietnam are presented as discontinued operations in all periods presented in this report.

 

 
14

 

 

Strategy

 

ITG’s strategy is to be the leading global supplier of solution-based, value-added performance products and services for the textile supply chain. Combined with capabilities in the U.S. and Mexico, the Company’s facilities in China are a key part of the Company’s comprehensive global supply chain solution that is intended to allow the Company to seamlessly supply products and related services to customers worldwide. We believe geographically aligning with our customers is a critical component of our success.

 

Business and Industry Trends

 

Improved consumer confidence and increased capital investment by companies in recent periods have led to a modest near-term economic recovery which has positively impacted our denim business. Also, imports of textile products into the U.S. from China and other countries with low-cost producers have slowed down or leveled off over the last few years. However, the global economic environment continues to be uncertain and volatile. Continued uncertainty regarding unemployment levels, further government and municipal deficit reduction measures, including potential further reductions in U.S. Defense Department spending, and the prospects for sustained economic recovery continue to impact consumer, military and municipal spending and our businesses, which could have adverse effects in the significant markets in which we operate. The Company has taken, and expects to continue to take, steps to counter this continued economic uncertainty. These actions include, among other things, negotiating higher sales prices for certain products, negotiating new working capital and other financing arrangements, focusing on new product development projects and implementing cost saving initiatives.

 

The Company’s bottom-weight woven fabrics segment has historically entered into firm purchase commitments for cotton and wool commodity raw materials used in the manufacture of apparel fabrics. Such non-cancellable firm purchase commitments are secured to provide the Company with a consistent supply of a commercially acceptable grade of raw materials necessary to meet operating requirements as well as to meet the product specifications and sourcing requirements of anticipated future customer orders. Prices for cotton and wool, principal raw materials for the Company’s products, have declined in recent periods from historical highs. However, prices continue to fluctuate and cotton prices remain high as compared to historical levels. In response to higher raw material costs in the open market or under our committed purchase contracts, we have in recent periods been able to increase sales prices to some extent in order to maintain sufficient margins, and we expect to continue to attempt to increase sales prices as necessary in the future. The price of the primary synthetic fibers used in the Company’s products, nylon and polyester, is influenced heavily by petroleum prices. Petroleum prices have fluctuated over the last two years, although such prices remain high compared to historical levels, which has increased the price of synthetic fibers and negatively impacted our margins in recent period.

 

While we have been able to pass on some increased raw material costs to our customers, the Company’s margins were negatively impacted by higher raw material and energy costs that remained in the Company’s inventories primarily during the first half of 2012. If the Company incurs increased raw material or other costs that it is unable to recoup through price increases, or experiences interruptions in its raw materials supply, our business, results of operations, financial condition and cash flows may be adversely affected.

 

Restructuring Charges 

 

As a result of the macro-economic conditions discussed above and the continued financial challenges facing the Company, the Company initiated a restructuring plan in late 2011 that focused on reducing overall operating expenses by implementing manufacturing and other cost reduction initiatives, such as workforce reductions at certain denim and commission finishing facilities and in certain administrative functions to improve efficiencies. The 2012 restructuring charges are primarily related to workforce reductions at the Company’s White Oak denim facility in the amount of $0.3 million, the Parras Cone denim facility in the amount of $0.3 million, the Carlisle finishing facility in the amount of $0.2 million, and the Company’s multi-segment selling and administrative cost reduction plan in the amount of $0.1 million. The 2013 restructuring recoveries are primarily related to the expiration of COBRA benefits of $0.1 million related to employees at the Company's White Oak denim facility, partially offset by workforce reductions at the Company’s Carlisle finishing facility in the amount of $0.1 million.

 

 
15

 

 

Results of Operations

 

Net sales and income (loss) from continuing operations before income taxes for the Company’s reportable segments are presented below (in thousands). The Company evaluates performance and allocates resources based on profit or loss before interest, income taxes, expenses associated with refinancing activities, restructuring and impairment charges, certain unallocated corporate expenses, and other income (expense) - net. Intersegment sales and transfers are recorded at cost or at arms’ length when required by certain transfer pricing rules. Intersegment net sales for 2013 and 2012 were primarily attributable to commission finishing sales of $0.5 million and $6.0 million, respectively.

 

    Year Ended  
   

December 31,

2013

   

December 31,

2012

 
                 

Net Sales:

               

Bottom-weight Woven Fabrics

  $ 578,348     $ 566,340  

Commission Finishing

    21,287       30,929  

Narrow Fabrics

    24,123       26,801  

All Other

    958       1,035  
      624,716       625,105  

Intersegment sales

    (504 )     (6,030 )
    $ 624,212     $ 619,075  
                 

Income (Loss) From Continuing Operations Before Income Taxes:

               

Bottom-weight Woven Fabrics

  $ 42,725     $ 29,066  

Commission Finishing

    (821 )     (445 )

Narrow Fabrics

    (3,421 )     (2,653 )

All Other

    (76 )     2  

Total reportable segments

    38,407       25,970  

Corporate expenses

    (8,141 )     (13,688 )

Other operating income - net

    3,148       9,478  

Impairment charge

    (2,049 )      

Restructuring charges (recoveries)

    10       (928 )

Interest expense

    (30,867 )     (41,680 )

Other income (expense) - net

    (9,487 )     (6,243 )
      (8,979 )     (27,091 )

Income tax benefit (expense)

    10,375       (4,060 )

Equity in income (losses) of unconsolidated affiliates

    124       (595 )

Income (loss) from continuing operations

    1,520       (31,746 )

Discontinued operations, net of taxes:

               

Loss from discontinued operations

    (6,103 )     (13,389 )

Loss on deconsolidation of subsidiary

          (22,204 )

Gain on derecognition of net assets

    27,874        

Income (loss) from discontinued operations

    21,771       (35,593 )

Net income (loss)

    23,291       (67,339 )

Less: net loss attributable to noncontrolling interests

          (2,666 )

Net income (loss) attributable to International Textile Group, Inc.

  $ 23,291     $ (64,673 )

 

 
16

 

 

Comparison of Year Ended December 31, 2013 to Year Ended December 31, 2012

 

Consolidated: Consolidated net sales in 2013 and 2012 were $624.2 million and $619.1 million, respectively, an increase of $5.1 million, or 0.8%. The increase in sales was primarily due to sales volume increases in the denim, U.S. government uniform, synthetic fabrics and worsted wool businesses, including due to new programs in the Company’s denim and synthetic fabrics operations and in its technical fabrics business, as well as higher selling prices and an improved product mix in the Company’s U.S. government uniform and worsted wool businesses. These increases were partially offset by lower selling prices primarily in the denim business as market selling prices declined due to lower cotton prices, volume declines due to budget constraints impacting certain non-uniform government-related businesses and foreign military uniform fabrics, municipal technical fabrics, and narrow fabrics, and volume declines resulting from competitive pressures in the airbag business.

 

Gross profit in 2013 was $74.3 million, or 11.9% of net sales, compared to $58.3 million, or 9.4% of net sales, in 2012. Gross profit margins improved primarily due to the benefit of the lower cost of cotton in the denim business, higher selling prices and an improved product mix primarily in the U.S. government uniform and worsted wool businesses, and higher sales volumes primarily in the U.S. government uniform and synthetic operations as well as in the Company’s denim and worsted wool businesses, partially offset by higher manufacturing costs in the Company’s bottom-weight woven fabrics segment as well as manufacturing inefficiencies as a result of lower capacity utilization in the Company’s narrow fabrics and commission finishing segments. Operating income in 2013 was $31.4 million compared to $20.8 million in 2012, including a one-time gain of $6.0 million related to the sale of certain “Burlington” trademark rights in 2012. Excluding such gain, operating income increased in 2013 as compared to 2012 primarily due to the higher gross profit margins described above as well as lower selling and administrative expenses of $1.9 million and lower restructuring charges of $0.9 million, partially offset by an impairment charge of $2.0 million, each as described below.

 

Bottom-weight Woven Fabrics: Net sales in the bottom-weight woven fabrics segment were $578.3 million in 2013 compared to $566.3 million in 2012. The increase in sales of $12.0 million resulted from $58.4 million of higher sales volumes primarily due to increased demand for certain specialty fabrics in the Company’s denim and technical fabrics businesses, the replenishment of inventories and the acceleration of certain programs in the U.S. government uniform and worsted wool businesses, and improved economic conditions affecting the U.S. denim, synthetic fabrics and worsted wool businesses, as well as $3.3 million resulting from higher selling prices and an improved product mix primarily in the U.S. government uniform and worsted wool businesses. Such improvements in this segment were partially offset by lower selling prices of $37.0 million, primarily in the denim business as market selling prices declined due to lower cotton prices and in the technical fabrics business due to an unfavorable product mix, as well as volume declines of $12.6 million resulting from competitive pressures in the airbag business and certain governmental budget constraints affecting certain non-uniform government-related businesses and foreign military uniform fabrics.

 

Income in the bottom-weight woven fabrics segment was $42.7 million in 2013 compared to $29.1 million in 2012. The increase in income was primarily due to lower cotton costs and an improved product mix of $16.2 million primarily in the denim, U.S. government uniform and synthetic fabrics businesses, and higher sales volumes of $20.2 million in all of the segment’s businesses except for the airbag and foreign military uniform fabrics businesses. These improvements were partially offset by $19.5 million of higher costs related to manufacturing, selling and administration due mainly to commissions related to higher sales, and certain raw materials, as well as unfavorable impacts from changes in foreign currency exchange rates of $2.5 million and lower royalty income of $0.7 million due to the sale of certain trademark rights in July 2012.

 

Commission Finishing: Net sales in the commission finishing segment were $21.3 million in 2013 compared to $30.9 million in 2012. The decrease from the prior year was primarily due to sales volume decreases of $9.6 million, primarily in the first half of 2013, resulting from decreased sales to certain U.S. and foreign militaries as a result of government budget constraints and certain foreign political factors, as well as the loss of customers in the traditional commission finishing market primarily related to government budget constraints which indirectly affect these customers. Loss in the commission finishing segment was $0.8 million in 2013 compared to $0.4 million in 2012. Manufacturing inefficiencies of $2.5 million, as a result of lower capacity, and an unfavorable product mix of $0.3 million were partially offset by lower labor and energy costs of $2.4 million as a result of production curtailments.

 

Narrow Fabrics: Net sales in the narrow fabrics segment were $24.1 million and $26.8 million in 2013 and 2012, respectively. The decrease from the prior year was primarily due to lower sales volumes of $2.7 million related to certain government budget pressures. Loss in the narrow fabrics segment was $3.4 million in 2013, compared to $2.7 million in 2012. The decrease in operating results was primarily due to manufacturing inefficiencies of $1.5 million related to lower sales volumes and lower selling prices of $0.2 million, partially offset by lower employee labor and benefit costs of $1.0 million.

 

 
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All Other: Net sales in the all other segment were $1.0 million in 2013 and 2012, which primarily represented sales in the Company’s transportation business that incurred net losses of $0.1 million in 2013 compared to less than $0.1 million in 2012.

 

SELLING AND ADMINISTRATIVE EXPENSES: Selling and administrative expenses (including bad debt expense) were $44.0 million in 2013 and $46.0 million in 2012. As a percentage of net sales, this expense was 7.1% in 2013 and 7.4% in 2012. Selling and administrative expenses decreased in 2013 primarily due to lower employee medical claims expense and lower professional fees, partially offset by higher compensation-related expenses, such as incentive compensation and retention awards and sample and testing expenses.

 

OTHER OPERATING INCOME—NET: Other operating income–net includes grant income from the U.S. Department of Commerce Wool Trust Fund of $3.0 million in 2013 and $3.2 million in 2012. The Company records such grant income upon confirmation of the availability of funds from this trust. Other operating income-net in 2012 also includes a gain of $6.0 million related to the sale of certain “Burlington” trademark rights. Other operating income-net in 2013 and 2012 includes net gains related to the disposal of other miscellaneous property and equipment of $0.1 million and $0.3 million, respectively.

 

IMPAIRMENT CHARGE: During 2013, the Company recorded a long-lived asset impairment charge of $2.0 million related to the narrow fabrics segment primarily due to reduced sales and continued negative operating results arising from certain government budget pressures and a slower than expected increase in other product sales.

 

RESTRUCTURING CHARGES (RECOVERIES): Restructuring recoveries for 2013 are primarily related to the expiration of COBRA benefits related to certain prior year restructuring plans of $0.1 million, partially offset by workforce reductions at the Company’s commission finishing facility in the amount of $0.1 million. Restructuring charges in 2012 include severance and other termination benefits of $0.2 million related to workforce reductions at the commission finishing facility, $0.3 million at a denim facility in Mexico, $0.3 million at the U.S. denim facility and $0.1 million from the Company’s multi-segment selling and administrative cost reduction plan.

 

INTEREST EXPENSE: Interest expense of $30.9 million in 2013 was $10.8 million lower than interest expense of $41.7 million in 2012 primarily due to the exchange on July 24, 2012 of approximately $112.5 million of the Company’s related party unsecured subordinated notes for shares of Series C Preferred Stock of the Company (see Note 13 of the Notes to Consolidated Financial Statements) and the repayment of $16.7 million of the Company’s Tranche A senior subordinated notes on March 29, 2013, partially offset by higher outstanding balances on the Company’s Tranche B senior subordinated notes (related party) and the Tranche A senior subordinated notes prior to their repayment in March 2013. Non-cash payable in-kind interest expense was $19.0 million in 2013 and $29.5 million in 2012, including $18.5 million and $27.0 million, respectively, of non-cash related party interest expense. Also partially offsetting the reduced interest expense were higher interest costs in 2013 due to increased penalty interest amounts on the Tranche A senior subordinated notes prior to their repayment in March 2013.

 

OTHER INCOME (EXPENSE)—NET: In 2013 and 2012, the Company paid or accrued $7.1 million and $6.1 million, respectively, in legal fees not related to current operations. In 2012, the Company recorded $0.8 million in income from insurance reimbursements received or expected to be received for legal fees incurred by the Company. The Company did not have any similar insurance reimbursement in 2013. Other expense - net in 2013 and 2012 also included foreign currency exchange losses of $2.3 million and $0.9 million, respectively, related to the Company’s operations in Mexico and China.

 

INCOME TAX BENEFIT (EXPENSE): Income tax benefit (expense) was $10.4 million in 2013 in comparison with $(4.1) million in 2012. Income taxes were lower in 2013 primarily due to major tax reforms in Mexico (as discussed below), deferred income tax benefits from the Company’s subsidiaries in Mexico resulting from certain statutory income tax rate changes, certain foreign exchange effects resulting in lower taxable earnings in Mexico, and management's determination to release certain income tax valuation allowances under GAAP. The Company has tax holidays in certain jurisdictions that provide for a reduced tax rate for a defined number of taxable years in these jurisdictions. The Company has recorded valuation allowances to reduce the U.S. and certain foreign deferred tax assets for the portion of the tax benefit that management considers that it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of these deferred tax assets will be dependent upon the generation of future taxable income in the jurisdictions in which these deferred tax assets were recognized. Income tax expense for 2013 is different from the amount obtained by applying statutory rates to loss from continuing operations before income taxes primarily due to an income tax benefit of $10.0 million resulting from tax reforms in Mexico which were enacted in the fourth quarter of 2013, an increase of $2.8 million in the valuation allowance related to an increase in net operating loss carryforwards, $0.1 million related to foreign income tax rate differentials and adjustments, state income tax benefits of $0.6 million and certain foreign and domestic business expenses that are not tax deductible. In addition, in 2013 the Company recognized a $16.8 million deferred tax asset related to additional net operating losses resulting from positions taken by the Company for claims filed against certain assets in Vietnam and the related impact on certain of the Company’s income tax returns filed during 2013, with the benefit of such losses fully offset by an increase of $16.8 million in the valuation allowance resulting in a zero net effect on the Company’s consolidated financial statements. Income tax expense for 2012 is different from the amount obtained by applying statutory rates to loss from continuing operations before income taxes primarily due to an increase of $13.7 million in the valuation allowance related to an increase in net operating losses and net deferred tax assets and $0.7 million related to foreign income tax rate differentials and adjustments, partially offset by state income taxes of $0.9 million.

 

 
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In December 2013, Mexico enacted major income tax reform legislation which, among other things, established the corporate income tax rate at 30%, repealed the flat tax regime, and repealed certain consolidation filing provisions. Such changes resulted in a net deferred income tax benefit of approximately $10.0 million in 2013 due to the release of various uncertain income tax positions primarily related to consolidation filing provisions, as well as changes in statutory rates and certain other regulations. Such income tax reform is not expected to materially impact the Company’s income taxes payable in Mexico in future periods.

 

DISCONTINUED OPERATIONS: Net sales in the Company’s discontinued ITG-PP business, which was deconsolidated on May 25, 2012, were $0.0 million and $6.2 million in 2013 and 2012, respectively. There were no net sales in the CDN business, which was idled in 2009, in either period. Loss from discontinued operations in 2013 included $6.0 million related to the CDN business and $0.1 million related to the planned disposition of the assets of the idled ITG-PP facility. Loss from discontinued operations in 2012 included $7.7 million related to the CDN business and $5.7 million related to the planned disposition of the assets of the idled ITG-PP facility. The Company recorded a non-cash gain related to the derecognition of certain CDN net assets of $27.9 million in 2013, which is also included in discontinued operations. The Company recorded a loss on deconsolidation of the ITG-PP business of $22.2 million in 2012, which is also included in discontinued operations, of which $22.0 million is a non-cash loss.

 

NONCONTROLLING INTERESTS: Net losses attributable to noncontrolling interests were $2.7 million in 2012. There were no net losses attributable to noncontrolling interests in 2013. Amounts in 2012 resulted primarily from the idling of ITG-PP.

 

Liquidity and Capital Resources

 

The Company has a significant amount of debt outstanding and will require substantial cash flows to service this debt in future periods. A substantial portion of the Company’s debt is payable by various of the Company’s subsidiaries organized in foreign jurisdictions and is non-recourse to the ITG parent company. In addition, a substantial portion of the Company’s debt, $163.5 million at December 31, 2013, is payable to related parties (namely, certain entities affiliated with Wilbur L. Ross, Jr., the Company’s chairman of the board and controlling stockholder). As previously disclosed, the Company amended or refinanced certain credit agreements in the first quarter of 2013 that extended the maturities of those instruments and resulted in the extinguishment of certain high interest rate debt in the U.S. In addition, in June 2013, Parras Cone de Mexico, S.A. de C.V. (“Parras Cone”), a wholly-owned subsidiary of the Company in Mexico entered into a $5.0 million credit facility providing for the purchase of machinery and equipment. On March 5, 2014, Parras Cone obtained a three year renewal of its revolving receivables factoring agreement through March 6, 2017 in an amount not to exceed $16.0 million. As a result of the execution and effectiveness of certain agreements related to certain obligations and assets of CDN, a total of $52.6 million outstanding under the CDN Loan and the CZF Lease (each as defined in Note 8 to the Notes to Consolidated Financial Statements) have been fully extinguished, and the Company has derecognized such obligations, as well as $24.8 million of assets securing such obligations, as of October 7, 2013 in its consolidated balance sheet.

 

The following table presents a summary of the Company’s debt obligations payable to unrelated third parties as of December 31, 2013 (in thousands). Amounts in the column labeled “U.S.” represent debt guaranteed by, or otherwise with recourse to, the ITG parent company. Amounts in the column labeled “International” represent debt of various of the Company’s international subsidiaries, but not guaranteed by, or with recourse to, the ITG parent company.

 

 

   

U.S.

   

International

   

Total

 
                         

Current portion of long-term debt

  $ 3,060     $ 10,671     $ 13,731  

Short-term borrowings

    4,293       39,045       43,338  
      7,353       49,716       57,069  

Bank debt and other long-term obligations, net of current maturities

    55,258       32,301       87,559  

Total third party debt

  $ 62,611     $ 82,017     $ 144,628  

  

 
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The ITG parent company (U.S.) has also guaranteed an additional $6.3 million of certain of the above international debt through stand-by letters of credit which is not included in the table above.

 

None of the Company’s Tranche B Notes payable to related parties ($163.5 million at December 31, 2013) is included in the table above, or is current or short-term.

 

Notwithstanding the non-recourse nature of a significant portion of the debt in the table above, the failure by any of the Company’s international subsidiaries to timely meet their respective obligations when due could also materially adversely impact the Company’s ability to execute on its strategy, and result in the Company incurring significant non-cash impairment or other charges.

 

The Company generated cash from operations, obtained additional third-party financing and refinanced certain debt obligations during 2013, and the Company’s principal uses of cash were to fund operations related to working capital needs, capital expenditures, pension plan contributions, and payment of principal, interest and fees on various indebtedness. The Company expects that its cash uses in 2014 will be for similar matters. Our significant leverage may adversely affect our business and financial performance and restrict our operating flexibility. The level of our indebtedness and our ongoing cash flow requirements expose the Company to a risk that continued or additional adverse economic developments or adverse developments in our business could make it difficult to meet the financial and operating covenants contained in our credit facilities, as well as our debt service requirements. Our success in generating future cash flows will depend, in part, on our ability to increase our sales, manage working capital efficiently, continue to reduce operating costs at our plants, and increase selling prices to offset any increase in raw material or other costs in all segments of our business.

 

In the event that the Company or one of its subsidiary borrowers is not able to timely meet its obligations under any financing agreement, a lender or other secured party may have rights to proceed against any collateral securing such obligations. The Company has estimated that the fair value of the collateral securing its obligations is sufficient to satisfy such debt obligations. In such event, however, the Company expects it would seek to amend those agreements, or enter into replacement financing arrangements to satisfy its obligations. There can be no assurances as to the availability of any necessary long-term financing and, if available, that any potential source of long-term financing would be available on terms and conditions acceptable to the Company. The inability to complete any necessary financings at times, and on terms, acceptable to the Company, or the exercise of any available remedies by lenders, which could result in the acceleration of such indebtedness or, in some instances, the right to proceed against the underlying collateral, would negatively affect the Company’s ability to execute on its strategy and have a material adverse effect on the Company’s financial condition and future results of operations.

 

Comparison of Year Ended December 31, 2013 to Year Ended December 31, 2012

 

OPERATING ACTIVITIES: Net cash provided by operating activities was $20.3 million in 2013 compared to $45.9 million in 2012. The decrease in cash flows was primarily due to higher expenditures for inventory to support increased sales orders, the unfavorable impact of foreign exchange rates, higher cash taxes in Mexico due to positive earnings and higher contributions to the Company’s pension plan, partially offset by higher cash flows from improved earnings. Cash generated in 2012 was related substantially to significantly declining cotton costs and lower inventory levels in certain businesses.

 

INVESTING ACTIVITIES: Net cash used in investing activities was $6.9 million in 2013 compared to $1.0 million in 2012. Capital expenditures were $4.9 million in 2013 and $2.0 million in 2012, and capital expenditures are projected to be approximately $12.0 million to $14.0 million in 2014. Investing activities in 2013 included $2.7 million in deposits and other costs related to equipment to be purchased in the first quarter of 2014. In 2013 and 2012, the Company received net cash proceeds of $0.2 million and $0.9 million, respectively, from the sale of property, plant and equipment. Investing activities in 2012 also included $0.1 million of investments in and advances to the Company’s unconsolidated affiliates. Further, investing activities in 2013 and 2012 included $0.5 million and $0.4 million respectively, of distributions from the Company’s unconsolidated affiliates.

 

FINANCING ACTIVITIES: Net cash used in financing activities of $12.9 million in 2013 reflects repayment of term loans and capital lease obligations of $18.4 million, proceeds from increased bank revolving lines of credit of $4.6 million, proceeds from the issuance of new term loans of $13.3 million, net proceeds from short-term bank borrowings of $5.3 million related mainly to the Company’s operations in China, the payment of financing fees of $0.8 million, and the repayment of the principal amount of certain Notes of $16.7 million using proceeds primarily from the refinanced bank debt and related activities. Net cash used in financing activities of $45.4 million in 2012 reflects net repayments of short-term bank borrowings of $13.2 million primarily related to Cone Denim (Jiaxing) Limited and U.S. cotton financing, repayments of term loans and capital lease obligations of $15.5 million, net repayments of $16.2 million on bank revolving loans, payment of fees related to the issuance of preferred stock of $0.5 million, and payment of financing fees of $0.2 million. In addition, checks issued in excess of deposits decreased by $0.1 million and increased by $0.2 million in 2013 and 2012, respectively.

 

 
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See Notes 8 and 13 of the Notes to Consolidated Financial Statements included herein for a discussion of the Company’s long-term debt, short-term borrowings and preferred stock.

 

Commitments

 

As of December 31, 2013, the Company had raw material and service contract commitments totaling $36.0 million and capital expenditure commitments of $3.0 million. ITG plans to fund these obligations from cash generated from operations and, depending upon limitations in its various loan agreements and to the extent available to the Company, from a combination of borrowings under its 2011 Credit Agreement and other external sources of financing as management deems appropriate. ITG believes that future external financings may include, but may not be limited to, additional borrowings under existing, or any new, credit agreements, the issuance of equity or debt securities or additional funding from certain entities affiliated with the chairman of the Company’s board of directors, depending upon the availability and perceived cost of any such financing at the appropriate time. ITG cannot provide any assurances that any financing will be available to it upon acceptable terms, if at all, at any time in the future.

 

At December 31, 2013, the frozen Burlington Industries defined benefit pension plan had an actuarially determined projected benefit obligation in excess of plan assets of approximately $12.6 million. The Company contributed $3.3 million to this plan during fiscal year 2013, and $2.2 million in 2012. The Company estimates making total contributions in 2014 in the range of $2.5 million to $3.0 million. Actual future contributions will be dependent upon, among other things, plan asset performance, the liquidity of the plan assets, actual and expected future benefit payment levels (which are partially dependent upon employment reductions, if any, which may occur during any business restructuring) and other actuarial assumptions.

 

Off-Balance Sheet Arrangements

 

As of December 31, 2013, the Company and various consolidated subsidiaries of the Company were borrowers under various bank credit agreements (collectively, the “Facilities”). Certain of the Facilities are guaranteed by either the Company and/or various consolidated subsidiaries of the Company. The guarantees are in effect for the duration of the related Facilities. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 460, “Guarantees,” provides guidance on the disclosures to be made by a guarantor about its obligations under certain guarantees that it has issued and specific disclosures related to product warranties. The Company does not provide product warranties within the disclosure provisions of FASB ASC 460. The Company did not have any off-balance sheet arrangements that were material to its financial condition, results of operations or cash flows as of December 31, 2013 or December 31, 2012, except as noted below.

 

In 2011, the Company entered into the Guaranty in favor of Fund IV. Pursuant to the Guaranty, the Company has guaranteed the prompt payment, in full, of the reimbursement obligations of Fund IV under certain letter of credit agreements to which Fund IV is a party and under which Fund IV has agreed to be responsible for certain obligations of ITG-PP, up to a total amount of $15.5 million. Also pursuant to the Guaranty, the Company is required to pay a per annum amount equal to 10% of the amount of any such outstanding letters of credit. The obligations of the Company are payable in cash or, if cash is not permitted to be paid pursuant to the terms and conditions of the 2011 Credit Agreement and related documentation, then such amounts are payable in additional Tranche B Notes. As of December 31, 2013, the total obligations under such letters of credit guaranteed by the Company were $6.5 million. In each of 2013 and 2012, the Company incurred and accrued guarantee fees of $0.7 million. The Guaranty will continue in force until the underlying obligations are satisfied or terminated.

 

Derivative Instruments

 

Derivative instruments used periodically by the Company for foreign currency, cotton, wool and natural gas purchases consist primarily of forward purchase contracts. The Company does not utilize financial instruments for trading or other speculative purposes. The Company has historically qualified for the “normal purchases exception” under GAAP for derivatives related to its cotton and wool forward purchase contracts and certain of its natural gas contracts and, as a result, these derivative instruments are not marked to market in the Company’s consolidated financial statements. The Company monitors its risk associated with the volatility of certain foreign currencies against its functional currency, the U.S. dollar. The Company periodically uses certain derivative financial instruments to reduce exposure to volatility of certain foreign currencies and has designated such instruments as cash flow hedges under hedge accounting rules in 2013. The Company did not designate its natural gas forward purchase contracts as hedges for any of the periods presented herein. The fair value of derivative instruments recognized in the December 31, 2013 and December 31, 2012 consolidated balance sheets were $(0.3) million and $0.0 million, respectively. The amount of loss recognized in accumulated other comprehensive income (loss) related to the effective portion of derivative instruments was $0.2 million and $0.0 million as of December 31, 2013 and 2012, respectively. The total amount of net gains (losses) on derivative instruments recognized in the consolidated statements of operations was $0.1 million in 2013 and $(0.1) million in 2012.

 

 
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Seasonality

 

The strongest portion of the consumer apparel sales cycle is typically March through November as customers target goods to be sold at retail for the back-to-school fall, holiday and spring seasons. Consumer apparel fabric sales have become increasingly seasonal, as well, as customers have begun to rely more upon contract sewing and have sought to compress the supply cycle to mirror retail seasonality. Sales in the Company’s other businesses are generally not seasonal and can vary based on numerous factors. Our consolidated net sales from continuing operations in each of the first, second, third and fourth quarters of 2013 represented 24%, 26%, 26% and 24%, respectively, of our total net sales from continuing operations for the year.

 

Working capital requirements vary throughout the year. Working capital generally increases during the first half of the year as inventory builds up to support peak shipping periods and then moderates during the second half of the year, particularly during the fourth quarter, as those inventories are sold and accounts receivable are collected. Cash provided by operating activities is generally higher in the second half of the year due to generally higher earnings during that period and reduced working capital requirements.

 

Critical Accounting Policies, Assumptions and Use of Estimates

 

Management’s Discussion and Analysis of the Company’s Financial Condition and Results of Operations is based upon the Company’s consolidated financial statements. The consolidated financial statements of the Company are prepared in conformity with GAAP. The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make decisions that impact the reported amounts and the related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and assumptions on which to base estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to the valuation of trade receivables, inventories, goodwill and other intangible assets, impairment of long-lived assets, income taxes, and insurance costs, among others. These estimates and assumptions are based on managements’ best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including an evaluation of the current global economic climate. Management monitors economic conditions and other factors and adjusts such estimates and assumptions when facts and circumstances dictate. Illiquid credit markets, volatile foreign currency and equity values and declines in the global economic environment have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results may differ from these estimates under different assumptions or conditions. Changes in these estimates resulting from continuing changes in the economic environment will be reflected in the financial statements of future periods. The Company’s management believes the critical accounting policies listed below are the most important to the fair presentation of the Company’s financial condition and results of operations. These policies require the most significant judgments and estimates of the Company’s management in the preparation of the Company’s consolidated financial statements.

 

Revenue Recognition. Sales are recorded upon shipment or delivery, depending on when title and the risks and rewards of ownership passes, to unaffiliated customers. The Company classifies amounts billed to customers for shipping and handling in net sales, and costs incurred for shipping and handling in cost of sales in the consolidated statement of operations. Taxes assessed by a governmental authority that are imposed directly on a revenue-producing transaction are presented on a net basis in the consolidated statements of operations.

 

Accounts Receivable, Net. Trade accounts receivable are recorded at the invoiced amount and bear interest in certain cases that is recognized as the interest is received. The Company continuously performs credit evaluations of its customers, considering numerous inputs including, but not limited to, each customer’s financial position; past payment history; cash flows; management capability; historical loss experience; and general and industry economic conditions and prospects. The Company estimates its allowance for doubtful accounts based on a combination of historical and current information regarding the balance of accounts receivable, as well as the current composition of the pool of accounts receivable. The Company determines past due status on accounts receivable based on the contractual terms of the original sale. Accounts receivable that management believes to be ultimately uncollectible are written off upon such determination. While our credit losses have historically been within our calculated estimates, it is possible that future losses could differ significantly from those estimates. The Company records sales returns as a reduction to sales, cost of sales, and accounts receivable and an increase to inventory based on return authorizations for off-quality goods. Returned products that are recorded as inventories are valued based upon expected realizability. We do not believe the likelihood is significant that materially higher bad debt losses or sales returns will result based on prior experience.

 

 
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Inventories. Inventories represent direct materials, labor and overhead costs incurred for products not yet delivered or returned. Inventories are valued at the lower of cost or market value using the FIFO method. ITG reviews its inventory on a quarterly basis to identify excess or slow moving products, discontinued and to-be-discontinued products, and off-quality merchandise. For those items in inventory that are so identified, ITG estimates their market value based on historical and expected realization trends. This evaluation requires forecasts of future demand, market conditions and selling prices. If the forecasted market value is less than cost, ITG writes down its inventory to reflect the lower value of that inventory. This methodology recognizes inventory exposures at the time such losses are evident rather than at the time goods are actually sold. However, if actual market conditions and selling prices were less favorable than we project, additional inventory write downs may be necessary.

 

Valuation of Long-lived Assets. In accordance with FASB ASC 360, “Property, Plant, and Equipment”, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. For assets held and used, an impairment may occur if projected undiscounted cash flows are not in excess of the carrying value of the assets. In such cases, additional analysis is conducted to determine the amount of loss to be recognized. The impairment loss is determined by the difference between the carrying amount of the asset and the fair value measured by future discounted cash flows or prices for similar assets. The analysis requires estimates of the amount and timing of projected cash flows and, where applicable, judgments associated with, among other factors, the appropriate discount rate. Such estimates are critical to determining whether any impairment charge should be recorded and the amount of such charge if an impairment loss is deemed to be necessary. The Company reviews the estimated useful lives of intangible assets when impairment testing is performed. If events and circumstances warrant a change in the estimated useful life, the remaining carrying amount is amortized over the revised estimated useful life. Should business conditions deteriorate, which could impact our estimates of future cash flows and fair value, there exists the potential that additional impairment charges could be required, which charges could have a material adverse effect on our consolidated financial statements.

 

Goodwill, Intangible Assets and Deferred Charges. Goodwill represents the excess of cost over the fair value of assets of businesses acquired. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually in accordance with the provisions of FASB ASC 350, “Intangibles-Goodwill and Other”. The Company performs its annual goodwill impairment testing as of October 1 of each fiscal year, and the Company also tests goodwill for impairment between annual tests if events occur or circumstances change that raise questions about recoverability.

 

Intangible assets with estimable useful lives are amortized over their respective estimated useful lives. The Company continually monitors conditions that may affect the carrying value of its intangible assets. When conditions indicate potential impairment of such assets, the Company evaluates the estimated fair value of the assets. When the estimated fair value of an asset is less than the carrying value of the asset, the impaired asset is written down to its estimated fair value, with a charge to operations in the period in which impairment is determined. Should future business conditions deteriorate, which could impact our estimates of future cash flows and fair value, there exists the potential that additional impairment charges could be required, which charges could have a material adverse effect on our consolidated financial statements.

 

Costs incurred in connection with financing activities are deferred and amortized over the lives of the respective financing instruments using the straight-line method, which approximates the effective interest rate method, and are charged to interest expense. Recognition of such deferred costs may be accelerated upon certain modifications or exchanges of the underlying financing instruments.

 

Insurance. Insurance liabilities are recorded based upon the claim reserves established through actuarial methods and estimates, as well as historical claims experience, demographic factors, severity factors, expected trend rates and other actuarial assumptions. To mitigate a portion of its insurance risks, the Company maintains insurance for individual claims exceeding certain dollar limits. Provisions for estimated losses in excess of insurance limits are provided at the time such determinations are made. The accruals associated with the exposure to these liabilities, as well as the methods used in such evaluations, are reviewed by management for adequacy at the end of each reporting period and any adjustments, if any, are currently reflected in earnings. Actual costs may vary from these estimates.

 

Commitments and Contingencies. Liabilities for loss contingencies, including environmental remediation costs not within the scope of FASB ASC 410, “Asset Retirement and Environmental Obligations”, arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Legal costs incurred in connection with loss contingencies, net of estimated insurance recoveries, are expensed as incurred. Any recoveries of costs from third parties, which are probable of realization, are separately recorded as assets, and are not offset against the related liability, in accordance with FASB ASC 210-20, “Balance Sheet - Offsetting”. The Company accrues for losses associated with environmental remediation obligations not within the scope of FASB ASC 410 when such losses are probable and reasonably estimable. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study. Such accruals are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value.

 

 
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Income Taxes. The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions, the most significant of which are Mexico and China. Income taxes are accounted for under the rules of FASB ASC 740, “Income Taxes”, and a full income tax provision is computed for each reporting period. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the change in rate. A valuation allowance is provided for deferred income tax assets when, in the opinion of management, it is more likely than not that some or all of its deferred income tax assets will not be realized. In evaluating the future realization of its deferred income tax assets, ITG considers both positive and negative evidence related to expected future reversals of existing taxable temporary differences, projections of future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in prior carryback years, and potential tax-planning strategies. The Company records interest and penalties related to income tax settlements in income tax expense in the consolidated statement of operations. Significant judgments are required in order to determine the realizability of the deferred income tax assets. Changes in the expectations regarding the realization of deferred income tax assets could materially impact income tax expense in future periods. For uncertain income tax positions on the Company’s income tax returns, the Company first determines whether it is more likely than not that each income tax position would be sustained upon audit. The Company then estimates and measures any tax benefit as the amount that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authorities. If the Company later modifies its evaluations, the Company records the related changes in the tax provision during the period in which such determinations are made.

 

For a discussion of recently adopted accounting pronouncements that are of significance, or potential significance, to the Company, see “Recently Adopted Accounting Pronouncements” in Note 1 to the Company’s consolidated financial statements included elsewhere herein.

 

For a discussion of recently issued accounting pronouncements that are of significance, or potential significance, to the Company, see “Recently Issued Accounting Pronouncements” in Note 1 to the Company’s consolidated financial statements included elsewhere herein.

 

 
24

 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The information required by this item appears in Items 15(a) (1) and (2) of this Annual Report on Form 10-K.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”), the Company’s management, under the supervision and with the participation of its principal executive and principal financial officer, conducted an evaluation as of the end of the period covered by this report, of the effectiveness of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based on that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of such date.

 

Management’s Report on Internal Control Over Financial Reporting

 

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined by Exchange Act Rule 13a-15(f), for the Company. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with GAAP.

 

Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Under the direction of the Company’s principal executive officer and principal financial officer, management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2013 in accordance with the criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has concluded that such internal control over financial reporting was effective as of December 31, 2013.

 

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to the permanent exemption from the internal control audit provided for certain filers under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.

 

Changes in Internal Control Over Financial Reporting

 

There has been no change in the Company’s internal control over financial reporting that occurred during the quarter ended December 31, 2013 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

ITEM 9B.

OTHER INFORMATION

 

None.

 

 
25

 

 

PART III

 

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

In accordance with General Instruction G.(3) of Form 10-K, the registrant intends to file with the United States Securities and Exchange Commission the information required by this Item not later than 120 days after the end of the fiscal year covered by this Form 10-K.

 

ITEM 11.

EXECUTIVE COMPENSATION

 

In accordance with General Instruction G.(3) of Form 10-K, the registrant intends to file with the United States Securities and Exchange Commission the information required by this Item not later than 120 days after the end of the fiscal year covered by this Form 10-K.

 

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

In accordance with General Instruction G.(3) of Form 10-K, the registrant intends to file with the United States Securities and Exchange Commission the information required by this Item not later than 120 days after the end of the fiscal year covered by this Form 10-K.

 

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

 

In accordance with General Instruction G.(3) of Form 10-K, the registrant intends to file with the United States Securities and Exchange Commission the information required by this Item not later than 120 days after the end of the fiscal year covered by this Form 10-K.

 

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

In accordance with General Instruction G.(3) of Form 10-K, the registrant intends to file with the United States Securities and Exchange Commission the information required by this Item not later than 120 days after the end of the fiscal year covered by this Form 10-K.

 

 
26

 

 

PART IV

 

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

(a)(1)

The Company’s consolidated financial statements, related notes thereto and report of our independent registered public accounting firm required by Item 8 are listed in the index on page F-1 herein.

 

(2)

Unless otherwise attached, all financial statement schedules are omitted because they are not applicable or the required information is shown in the Company’s consolidated financial statements or the notes thereto.

 

(3)

Exhibits:

 

2.1

Agreement and Plan of Merger, dated as of August 29, 2006, by and among Safety Components International, Inc., SCI Merger Sub, Inc. and International Textile Group Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the year ended December 31, 2006)

3.1

Second Amended and Restated Certificate of Incorporation of International Textile Group, Inc. (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (File No. 000-23938) filed with the Commission on October 26, 2006)

3.2

Certificate of Designation of Series A Convertible Preferred Stock (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K (File No. 000-23938) filed with the Commission on March 8, 2007)

3.3

Certificate of Increase of Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 000-23938) filed with the Commission on July 3, 2012)

3.4

Certificate of Increase of Series A Convertible Preferred Stock of International Textile Group, Inc. (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (File No.000-23938) for the quarter ended June 30, 2013)

3.5

Certificate of Designation of Series B Convertible Preferred Stock (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K (File No. 000-23938) filed with the SEC on June 11, 2008)

3.6

Certificate of Designation of Series C Preferred Stock (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K (File No. 000-23938) filed with the Commission on July 30, 2012)

3.7

Amended and Restated Bylaws of International Textile Group, Inc. (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K (File No. 000-23938) filed with the Commission on October 26, 2006)

4.1

Form of Stockholders Agreement, dated as of March 2, 2007, by and among International Textile Group, Inc., WLR Recovery Fund II, L.P., WLR Recovery Fund III, L.P. and WLR/GS Master Co-Investment, L.P., and the other investors from time to time party thereto (incorporated by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the fiscal year ended December 31, 2006)

4.2

Form of Senior Subordinated Note (Tranche A) (incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the fiscal year ended December 31, 2011)

4.3

Form of Senior Subordinated Note (Tranche B) entered into in December 2009 (incorporated by reference to Exhibit 4.5 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the fiscal year ended December 31, 2009)

4.4

Form of Senior Subordinated Note (Tranche B) entered into in September 2010 and January 2011 (incorporated by reference to Exhibit 4.6 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the fiscal year ended December 31, 2010)

* 10.0

Form of Addendum to Employment Agreement with certain officers of International Textile Group, Inc. (incorporated by reference to Exhibit 10.0 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the fiscal year ended December 31, 2009)

* 10.1

Form of Stock Option Agreement - Class A and B (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the fiscal year ended March 31, 2001)

* 10.2

Form of Stock Option Agreement - Class C (incorporated by reference to Exhibit 10.25 to the Company’s Quarterly Report on Form 10-Q (File No. 000-23938) for the quarter ended June 29, 2002)

* 10.3

International Textile Group, Inc. Amended and Restated Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the fiscal year ended December 31, 2006)

* 10.4

International Textile Group, Inc. Amended and Restated Stock Option Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the fiscal year ended December 31, 2006)

* 10.5

Employment Agreement, effective as of January 1, 2008, by and between International Textile Group, Inc. and Joseph L. Gorga (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 000-23938) for the quarter ended March 31, 2008)

 

 
27

 

 

* 10.6

Employment Agreement, effective as of January 1, 2005, by and between International Textile Group, Inc. and Kenneth T. Kunberger (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the fiscal year ended December 31, 2006)

* 10.7

Form of Severance Letter with certain officers of International Textile Group, Inc. (incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the fiscal year ended December 31, 2006)

* 10.8

Form of Addendum to Severance Letter with certain officers of International Textile Group, Inc. (incorporated by reference to Exhibit 10.10.1 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the fiscal year ended December 31, 2009)

* 10.9

Form of Severance Letter with certain officers of International Textile Group, Inc. (incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the fiscal year ended December 31, 2009)

* 10.10

Form of Indemnification Agreement entered into with certain officers and directors (incorporated by reference to Exhibit 10.30.1 to the Company’s Current Report on Form 8-K (File No. 000-23938) filed with the Commission on December 8, 2005)

* 10.11

Form of Amended and Restated Indemnification Agreement entered into with certain officers and directors (incorporated by reference to Exhibit 10.10.1 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the fiscal year ended December 31, 2005)

* 10.12

Form of Indemnification Agreement for officers and directors (incorporated by reference to Exhibit 10.1 to Form 10-Q (File No. 000-23938) for the quarter ended March 31, 2009)

* 10.13

International Textile Group, Inc. 2008 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-23938), filed with the SEC on June 11, 2008)

* 10.14

Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 000-23938), filed with the Commission on June 11, 2008)

* 10.15

Form of Performance Share Award Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (File No. 000-23938), filed with the Commission on June 11, 2008)

10.16

Description of arrangement regarding certain management services provided by W.L. Ross & Co. LLC to International Textile Group, Inc. (incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the fiscal year ended December 31, 2006)

10.17

Amended and Restated Credit Agreement, dated as of March 30, 2011, by and among International Textile Group, Inc. and certain of its subsidiaries, as borrowers, General Electric Capital Corporation, as agent and lender, and the other lenders and other parties signatory thereto (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q (File No. 000-23938) for the quarter ended March 31, 2011)

10.18

Consent and Amendment No. 1 to Credit Agreement, dated as of May 26, 2011, by and among International Textile Group, Inc., the other borrowers and credit parties signatory thereto, General Electric Capital Corporation, as agent and a lender, and the other lenders signatory thereto (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (File No. 000-23938) for the quarter ended June 30, 2011)

10.19

Amendment No. 2 to Credit Agreement, dated as of June 17, 2011, by and among International Textile Group, Inc., the other borrowers and credit parties signatory thereto, General Electric Capital Corporation, as agent and a lender, and the other lenders signatory thereto (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q (File No. 000-23938) for the quarter ended June 30, 2011)

10.20

Limited Waiver and Amendment No. 3 to Credit Agreement, dated as of November 14, 2011, by and among International Textile Group, Inc., the other borrowers and credit parties signatory thereto, General Electric Capital Corporation, as agent and a lender, and the other lenders signatory thereto (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the fiscal year ended December 31, 2011)

10.21

Consent and Amendment No. 4 to Credit Agreement, dated as of December 27, 2011, by and among International Textile Group, Inc., the other borrowers and credit parties signatory thereto, General Electric Capital Corporation, as agent and a lender, and the other lenders signatory thereto (incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the fiscal year ended December 31, 2011)

10.22

Limited Waiver and Amendment No. 5 to Credit Agreement, dated as of March 30, 2012, by and among International Textile Group, Inc., the other borrowers and credit parties signatory thereto, General Electric Capital Corporation, as agent and a lender, and the other lenders signatory thereto (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 000-23938) for the quarter ended March 31, 2012)

10.23

Amendment No. 6 to Credit Agreement, dated as of June 14, 2012, by and among International Textile Group, Inc., the other borrowers and credit parties signatory thereto, General Electric Capital Corporation, as agent and a lender, and the other lenders signatory thereto (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 000-23938) for the quarter ended June 30, 2012)

10.24

Consent and Amendment No. 7 to Credit Agreement, dated as of July 25, 2012, by and among International Textile Group, Inc., the other borrowers and credit parties signatory thereto, General Electric Capital Corporation, as agent and a lender, and the other lenders signatory thereto (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 000-23938) for the quarter ended June 30, 2012)

 

 
28

 

 

10.25

Amendment No. 8 to Credit Agreement, dated as of December 20, 2012, by and among International Textile Group, Inc., the other borrowers and credit parties signatory thereto, General Electric Capital Corporation, as agent and a lender, and the other lenders signatory thereto (incorporated by reference to exhibit 10.25 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the year ended December 31, 2012)

10.26

Amendment No. 9 to Credit Agreement, dated as of March 12, 2013, by and among International Textile Group, Inc., the other borrowers and credit parties signatory thereto, General Electric Capital Corporation, as agent and a lender, and the other lenders signatory thereto (incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the year ended December 31, 2012)

10.27

Limited Waiver and Amendment No. 10 to Credit Agreement, dated as of March 29, 2013, by and among International Textile group, Inc., the other borrowers and credit parties signatory thereto, General Electric Capital Corporation, as agent and a lender, and the other lenders signatory thereto (incorporate by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 000-23938) for the quarter ended March 31, 2013

10.28

English translation of Term Loan Agreement, dated as of March 23, 2011, by and among Burlington Morelos S.A. de C.V. and Banco Nacional De Mexico, S.A., as lender thereto (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q (File 000-23938) for the quarter ended March 31, 2011)

10.29

English translation of Simple Credit Agreement Secured by a Second Package Mortgage, dated as of March 27, 2013, by and among Burlington Morelos, S.A. de C.V. and subsidiary companies, and Banco Nacional De Mexico, S.A. as lender thereto, (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q (File No. 000-23938) for the quarter ended March 31, 2013)

10.30

English translation of Factoring Discount Line Opening Agreement, dated as of March 23, 2011, by and among Parras Cone de Mexico, S.A. de C.V. and Banco Nacional De Mexico, S.A., as lender thereunder (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q (File No. 000-23938) for the quarter ended March 31, 2011)

10.31

English translation of amended and restated Factoring Discount Line Opening Agreement, dated as of March 2, 2012, by and among Parras Cone de Mexico, S.A. de C.V. and Banco Nacional De Mexico, S.A., as lender thereunder (incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the year ended December 31, 2011)

10.32

English translation of amended and restated Factoring Discount Line Opening Agreement, dated as of March 7, 2013, by and among Parras Cone de Mexico, S.A. de C.V. and Banco Nacional De Mexico, S.A., as lender thereto (incorporated by reference to Exhibit 10.30 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the year ended December 31, 2012)

10.33

English translation of amended and restated Factoring Discount Line Opening Agreement, dated as of March 5, 2014, by and among Parras Cone de Mexico, S.A. de C.V. and Banco Nacional De Mexico, S.A., as lender thereto

10.34

English translation of secured Credit Agreement, dated as of June 18, 2013, by and among Parras Cone de Mexico, S.A. de C.V. and Banco Nacional De Mexico, S.A. as lender thereto (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No.000-23938) for the quarter ended June 30, 2013)

10.35

English translation of form of promissory note relating to secured Credit Agreement dated as of June 18, 2013, by and among Parras Cone de Mexico, S.A. de C.V. and Banco Nacional De Mexico, S.A. as lender thereto (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 000-23938) for the quarter ended June 30, 2013)

10.36

Stock Exchange Agreement, dated as of March 8, 2007, by and between WLR Recovery Fund III, L.P., the other individuals listed on the signature page thereto and International Textile Group, Inc. (incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the fiscal year ended December 31, 2006)

10.37

Debt Exchange Agreement, dated as of July 24, 2012, by and among International Textile Group, Inc. and each of WLR Recovery Fund III, L.P., WLR Recovery Fund IV, L.P. and WLR IV Parallel ESC, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-23938) filed with the Commission on July 30, 2012)

10.38

Senior Subordinated Note Purchase Agreement, dated as of June 6, 2007, among International Textile Group, Inc. and each of the purchasers signatory thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-23938) filed with the Commission on June 12, 2007)

10.39

Amendment No. 1 to Senior Subordinated Note Purchase Agreement, dated as of April 15, 2008, among International Textile Group, Inc. and each of the purchasers signatory thereto (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q (File No. 000-23938) for the quarter ended March 31, 2008)

10.40

Amendment No. 2 to Senior Subordinated Note Purchase Agreement, dated as of December 24, 2008, among International Textile Group, Inc. and each of the purchasers signatory thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-23938) filed with the Commission on December 31, 2008)

 

 
29

 

 

10.41

Amendment No. 3 to the Senior Subordinated Note Purchase Agreement dated as of December 22, 2009, by and among International Textile Group, Inc. and purchasers signatory thereto (incorporated by reference to Exhibit to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the fiscal year ended December 31, 2009)

10.42

Amendment No. 4 to Senior Subordinated Note Purchase Agreement, dated as of March 16, 2011, by and among International Textile Group, Inc. and the purchasers signatory thereto (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 000-23938) for the quarter ended March 31, 2011)

10.43

Amendment No. 5 to Senior Subordinated Note Purchase Agreement, dated as of March 30, 2011, by and among International Textile Group, Inc. and the purchasers signatory thereto (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 000-23938) for the quarter ended March 31, 2011)

10.44

Amendment No. 6 to Senior Subordinated Note Purchase Agreement, dated as of May 23, 2011, by and among International Textile Group, Inc. and the purchasers signatory thereto (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 000-23938) for the quarter ended June 30, 2011)

10.45

Amendment No. 7 to Senior Subordinated Note Purchase Agreement, dated as of June 17, 2011, by and among International Textile Group, Inc. and the purchasers signatory thereto (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 000-23938) for the quarter ended June 30, 2011)

10.46

Consent and Modification of Senior Subordinated Note Purchase Agreement and Tranche B Notes, dated as of August 12, 2010, by and among International Textile Group, Inc. and purchasers signatory thereto (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 000-23938) for the quarter ended September 30, 2010)

10.47

Consent to Senior Subordinated Note Purchase Agreement dated as of January 7, 2011, by and among International Textile Group, Inc. and the purchasers signatory thereto (incorporated by reference to Exhibit 10.65 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the fiscal year ended December 31, 2010)

10.48

Limited Waiver Agreement (May 8, 2009) to Senior Subordinated Note Purchase Agreement, dated as of December 24, 2008, among International Textile Group, Inc. and each of the purchasers signatory thereto (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q (File No. 000-23938) for the quarter ended June 30, 2009)

10.49

Limited Waiver Agreement (June 1, 2009) to Senior Subordinated Note Purchase Agreement, dated as of December 24, 2008, among International Textile Group, Inc. and each of the purchasers signatory thereto (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q (File No. 000-23938) for the quarter ended June 30, 2009)

10.50

Limited Waiver Agreement (June 26, 2009) to Senior Subordinated Note Purchase Agreement, dated as of December 24, 2008, among International Textile Group, Inc. and each of the purchasers signatory thereto (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q (File No. 000-23938) for the quarter ended June 30, 2009)

10.51

Limited Waiver Agreement (July 22, 2009) to Senior Subordinated Note Purchase Agreement, dated as of December 24, 2008, among International Textile Group, Inc. and each of the purchasers signatory thereto (incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q (File No. 000-23938) for the quarter ended June 30, 2009)

10.52

Limited Waiver Agreement to Senior Subordinated Note Purchase Agreement, dated as of July 22, 2009, among International Textile Group, Inc. and each of the purchasers signatory thereto (incorporated by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q (File No. 000-23938) for the quarter ended June 30, 2009)

10.53

Fourth Amended and Restated Support Agreement by and between International Textile Group, Inc. and WLR Recovery Fund IV, LP, and General Electric Capital Corporation dated December 27, 2011 (incorporated by reference to Exhibit 10.45 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the fiscal year ended December 31, 2011)

14.1

International Textile Group, Inc. Standards of Business Conduct (incorporated by reference to Exhibit 14.1 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the fiscal year ended December 31, 2006)

21.1

Subsidiaries of International Textile Group, Inc.

23.1

Consent of Grant Thornton LLP

31.1

Certification of Chief Executive Officer as required by Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Principal Financial and Accounting Officer as required by Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of Principal Financial and Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 
30

 

 

99.1

Charter of the Audit Committee of the Board of Directors (incorporated by reference to Exhibit 10.1 to Form 10-K/A (File No. 000-23938) filed on April 29, 2009)

   

101.INS

XBRL Instance Document

   

101.SCH

XBRL Taxonomy Extension Schema Document

   

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

   

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

   

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

   

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

 


 

*     Management contract or compensatory plan or arrangement

 

 
31

 

 

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.

 

 

INTERNATIONAL TEXTILE GROUP, INC.

 

 

 

 

By:

/s/ Gail A. Kuczkowski

 

 

Gail A. Kuczkowski

 

 

Executive Vice President and Chief Financial Officer

 

 

 

 

Date: March 26, 2014

 

 

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.

 

 

 

Name and Signature

 

Title

 

Date

         
/s/ JOSEPH L. GORGA   Director, President and Chief   March 26, 2014

Joseph L. Gorga

 

Executive Officer

   
         
/s/ WILBUR L. ROSS, JR.   Director, Chairman of the Board   March 26, 2014

Wilbur L. Ross, Jr.

       
         

/s/ GAIL A. KUCZKOWSKI

 

Executive Vice President and Chief Financial Officer

  March 26, 2014

Gail A. Kuczkowski

 

(Principal Financial and Accounting Officer)

   
         

/s/ STEPHEN W. BOSWORTH

  Director   March 26, 2014

Stephen W. Bosworth

       
         

/s/ WILLIAM P. CARMICHAEL

  Director   March 26, 2014

William P. Carmichael

 

 

   
         

/s/ MICHAEL J. GIBBONS

  Director   March 26, 2014

Michael J. Gibbons

 

 

   
         

/s/ JOHN W. GILDEA

  Director   March 26, 2014

John W. Gildea

 

 

   
         

/s/ HARVEY L. TEPNER

  Director   March 26, 2014

Harvey L. Tepner

 

 

   
         

/s/ DANIEL D. TESSONI

  Director   March 26, 2014

Daniel D. Tessoni

 

 

   
         

/s/ DAVID L. WAX

  Director   March 26, 2014

David L. Wax

       

 

 
32

 

 

INTERNATIONAL TEXTILE GROUP, INC. AND SUBSIDIARY COMPANIES

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 

 

 

 

PAGE 

   

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

F-2

   

CONSOLIDATED FINANCIAL STATEMENTS:

 

   

Consolidated Balance Sheets as of December 31, 2013 and 2012

F-3

   

Consolidated Statements of Operations for the years ended December 31, 2013 and 2012

F-4

   

Consolidated Statements of Comprehensive Operations for the years ended December 31, 2013 and 2012

F-5

   

Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2013 and 2012

F-6

   

Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012

F-7

   

Notes to Consolidated Financial Statements

F-8

 

 
F-1

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Board of Directors and Stockholders

International Textile Group, Inc. and Subsidiary Companies:

 

We have audited the accompanying consolidated balance sheets of International Textile Group, Inc. (a Delaware corporation) and Subsidiaries (the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive operations, stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of International Textile Group, Inc. and Subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America.

 

/s/ GRANT THORNTON LLP

 

Charlotte, North Carolina

March 26, 2014

 

 
F-2

 

 

INTERNATIONAL TEXTILE GROUP, INC. AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
(Dollar amounts in thousands, except per share data)

 

   

December 31,

2013

   

December 31,

2012

 
Assets                

Current assets:

               

Cash and cash equivalents

  $ 3,780     $ 3,240  

Accounts receivable, less allowances of $1,003 and $682, respectively

    71,399       66,680  

Sundry notes and receivables

    9,767       10,929  

Inventories

    102,515       109,604  

Deferred income taxes

    2,240       2,040  

Prepaid expenses

    3,714       2,908  

Assets held for sale

          29  

Other current assets

    881       767  

Total current assets

    194,296       196,197  

Investments in and advances to unconsolidated affiliates

          18  

Property, plant and equipment, net

    105,451       140,952  

Intangibles and deferred charges, net

    1,676       2,112  

Goodwill

    2,740       2,740  

Deferred income taxes

    8,792       2,233  

Other assets

    4,371       1,623  

Total assets

  $ 317,326     $ 345,875  

Liabilities and Stockholders’ Deficit

               

Current liabilities:

               

Current portion of bank debt and other long-term obligations

  $ 13,731     $ 17,260  

Callable debt

          38,006  

Short-term borrowings

    43,338       36,969  

Accounts payable

    47,748       46,051  

Sundry payables and accrued liabilities

    20,328       32,610  

Income taxes payable

    1,551       7,571  

Deferred income taxes

          4,624  

Total current liabilities

    126,696       183,091  

Bank debt and other long-term obligations, net of current portion

    87,559       84,393  

Senior subordinated notes

          16,656  

Senior subordinated notes - related party

    163,520       145,051  

Income taxes payable

    3,823       1,806  

Deferred income taxes

    2,584       2,534  

Other liabilities

    20,681       25,191  

Total liabilities

    404,863       458,722  

Commitments and contingencies

               

Stockholders' deficit:

               

International Textile Group, Inc. stockholders' deficit:

               

Series C preferred stock (par value $0.01 per share; 5,000,000 shares authorized; 126,103 and 116,502 shares issued and outstanding; and aggregate liquidation value of $126,244 and $116,013 at December 31, 2013 and 2012, respectively)

    125,614       116,013  

Series A convertible preferred stock (par value $0.01 per share; 15,000,000 shares authorized; 13,470,034 and 12,505,687 shares issued and outstanding; and aggregate liquidation value of $337,103 and $312,642 at December 31, 2013 and 2012, respectively)

    336,751       312,642  

Common stock (par value $0.01 per share; 150,000,000 shares authorized; 17,468,327 shares issued and outstanding at December 31, 2013 and 2012)

    175       175  

Capital in excess of par value

          33,710  

Common stock held in treasury, 40,322 shares at cost

    (411 )     (411 )

Accumulated deficit

    (544,038 )     (567,312 )

Accumulated other comprehensive loss, net of taxes

    (5,628 )     (7,706 )

Total International Textile Group, Inc. stockholders’ deficit

    (87,537 )     (112,889 )

Noncontrolling interest

          42  

Total stockholders' deficit

    (87,537 )     (112,847 )

Total liabilities and stockholders' deficit

  $ 317,326     $ 345,875  

 

See accompanying Notes to Consolidated Financial Statements

 

 
F-3

 

 

INTERNATIONAL TEXTILE GROUP, INC. AND SUBSIDIARY COMPANIES
Consolidated Statement of Operations
(Amounts in thousands, except per share data)

 

   

Year Ended

December 31,

 
   

2013

   

2012

 
                 

Net sales

  $ 624,212     $ 619,075  

Cost of goods sold

    549,911       560,824  

Gross profit

    74,301       58,251  

Selling and administrative expenses

    43,902       46,063  

Provision for (recovery of) bad debts

    133       (94 )

Other operating income - net

    (3,148 )     (9,478 )

Impairment charge

    2,049       -  

Restructuring charges (recoveries)

    (10 )     928  

Income from operations

    31,375       20,832  

Non-operating other income (expense):

               

Interest income

    97       84  

Interest expense - related party

    (18,469 )     (26,974 )

Interest expense - third party

    (12,398 )     (14,706 )

Other income (expense) - net

    (9,584 )     (6,327 )

Total non-operating other income (expense) - net

    (40,354 )     (47,923 )

Loss from continuing operations before income taxes and equity in income (losses) of unconsolidated affiliates

    (8,979 )     (27,091 )

Income tax (expense) benefit

    10,375       (4,060 )

Equity in income (losses) of unconsolidated affiliates

    124       (595 )

Income (loss) from continuing operations

    1,520       (31,746 )

Discontinued operations, net of taxes:

               

Loss from discontinued operations

    (6,103 )     (13,389 )

Loss on deconsolidation of subsidiary

    -       (22,204 )

Gain on derecognition of net assets

    27,874       -  

Income (loss) from discontinued operations

    21,771       (35,593 )

Net income (loss)

    23,291       (67,339 )

Less: net loss attributable to noncontrolling interests

    -       (2,666 )

Net income (loss) attributable to International Textile Group, Inc.

  $ 23,291     $ (64,673 )
                 

Net income (loss) attributable to International Textile Group, Inc.

  $ 23,291     $ (64,673 )

Accrued preferred stock dividends, including arrearages for the period

    (34,202 )     (26,778 )

Net loss attributable to common stock of International Textile Group, Inc.

  $ (10,911 )   $ (91,451 )
                 

Net income (loss) per share attributable to common stock of International Textile Group, Inc., basic:

               

Loss from continuing operations

  $ (1.87 )   $ (3.35 )

Income (loss) from discontinued operations

    1.25       (1.89 )
    $ (0.62 )   $ (5.24 )

Net income (loss) per share attributable to common stock of International Textile Group, Inc., diluted:

               

Loss from continuing operations

  $ (1.87 )   $ (3.35 )

Income (loss) from discontinued operations

    1.25       (1.89 )
    $ (0.62 )   $ (5.24 )
                 

Weighted average number of shares outstanding - basic

    17,468       17,468  

Weighted average number of shares outstanding - diluted

    17,468       17,468  

 

See accompanying Notes to Consolidated Financial Statements

 

 
F-4

 

 

INTERNATIONAL TEXTILE GROUP, INC. AND SUBSIDIARY COMPANIES

Consolidated Statements of Comprehensive Operations
(Amounts in thousands)

 

   

Year Ended

December 31,

 
   

2013

   

2012

 
                 
                 

Net income (loss)

  $ 23,291     $ (67,339 )
                 

Other comprehensive income (loss), net of taxes:

               

Cash flow hedge adjustments

    (246 )     -  

Pension and postretirement liability adjustments

    2,324       (481 )

Other comprehensive income (loss)

    2,078       (481 )
                 

Net comprehensive income (loss)

    25,369       (67,820 )
                 

Less: net comprehensive loss attributable to noncontrolling interests

    -       (2,666 )
                 

Net comprehensive income (loss) attributable to International Textile Group, Inc.

  $ 25,369     $ (65,154 )

 

See accompanying Notes to Consolidated Financial Statements

 

 
F-5

 

 

INTERNATIONAL TEXTILE GROUP, INC. AND SUBSIDIARY COMPANIES

Consolidated Statements of Stockholders’ Deficit
(Amounts in thousands, except share data)

 

    International Textile Group, Inc. Stockholders                  
   

Series C

Preferred stock

   

Series A

Preferred stock

    Common stock    

Capital in excess of par

   

Treasury stock

   

Accumulated

   

Accumulated other comprehensive

   

Non- controlling

         
   

Shares

   

Amount

   

Shares

   

Amount

   

Shares

   

Amount

   

 value

   

amount

   

deficit

   

loss

   

interests

   

Total

 
                                                                                                 

Balance at December 31, 2011

        $       11,595,895     $ 289,897       17,468,327     $ 175     $ 60,488     $ (411 )   $ (502,639 )   $ (7,225 )   $ (15,808 )   $ (175,523 )
                                                                                                 

Net loss

                                                    (64,673 )           (2,666 )     (67,339 )

Actuarial losses on benefit plans, net of taxes

                                                          (481 )           (481 )

Exchange of unsecured related party notes for Series C preferred stock, net of fees

    112,469       111,980                                                                               111,980  

Deconsolidation of subsidiary

                                                                18,516       18,516  

Preferred stock dividends

    4,033       4,033       909,792       22,745                   (26,778 )                              

Balance at December 31, 2012

    116,502       116,013       12,505,687       312,642       17,468,327       175       33,710       (411 )     (567,312 )     (7,706 )     42       (112,847 )
                                                                                                 

Net income

                                                    23,291                   23,291  

Actuarial gains on benefit plans, net of taxes

                                                          2,324             2,324  

Peso cash flow hedges

                                                          (246 )           (246 )

Liquidation and dissolution of majority-owned subsidiary

                                                    (17 )           (42 )     (59 )

Preferred stock dividends

    9,601       9,601       964,347       24,109                   (33,710 )                              

Balance at December 31, 2013

    126,103     $ 125,614       13,470,034     $ 336,751       17,468,327     $ 175     $     $ (411 )   $ (544,038 )   $ (5,628 )   $     $ (87,537 )

 

See accompanying Notes to Consolidated Financial Statements

 

 
F-6

 

 

INTERNATIONAL TEXTILE GROUP, INC. AND SUBSIDIARY COMPANIES
Consolidated Statements of Cash Flows
(Amounts in thousands)

 

   

Year Ended

December 31,

 
   

2013

   

2012

 

OPERATIONS

               

Net income (loss)

  $ 23,291     $ (67,339 )

Adjustments to reconcile net income (loss) to cash provided by operations:

               

Non-cash loss on deconsolidation of subsidiary

    -       22,204  

Non-cash gain on derecognition of net assets

    (27,874 )     -  

Non-cash restructuring and impairment charges

    2,071       96  

Provision for (recovery of) bad debts

    133       (94 )

Depreciation and amortization of property, plant and equipment

    14,451       17,278  

Amortization of deferred financing costs

    1,061       1,039  

Deferred income taxes

    (11,370 )     1,491  

Equity in (income) losses of unconsolidated affiliates

    (124 )     595  

Gain on sale of assets

    (123 )     (294 )

Noncash interest expense

    19,040       29,463  

Foreign currency remeasurement losses

    1,427       757  

Contributions to pension and postretirement benefit plans

    (3,376 )     (2,248 )

Payment of interest on payment-in-kind notes

    (505 )     -  

Change in operating assets and liabilities:

               

Accounts receivable

    (4,787 )     6,474  

Inventories

    6,465       29,945  

Other current assets

    224       (358 )

Accounts payable and accrued liabilities

    3,790       1,072  

Income taxes payable

    (4,007 )