10-K 1 itxn20151231_10k.htm FORM 10-K itxn20151231_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, 2015

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 $182,616.

 

The number of shares outstanding of the registrant’s common stock, $0.01 par value per share, as of March 15, 2016, 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

11

     

ITEM 4.

MINE SAFETY DISCLOSURES

12

     

PART II

     

ITEM 5.

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

12

     

ITEM 7.

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

13

     

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

23

     

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

23

     

ITEM 9A.

CONTROLS AND PROCEDURES

23

     

ITEM 9B.

OTHER INFORMATION

24

     

PART III

     

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

24

     

ITEM 11.

EXECUTIVE COMPENSATION

27

     

ITEM 12.

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

29

     

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

31

     

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

32

     

PART IV

     

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

33

     

SIGNATURES  

  37
   

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 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 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 important factors including, without limitation, the following, 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, adoption and implementation of the proposed Trans-Pacific Partnership agreement currently under negotiation, significant budget constraints, and potential further cost reductions in various governmental agencies, including the U.S. Defense Department, that 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;

 

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 as it becomes due;

 

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

 

lower than anticipated demand for our products;

 

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

 

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

 

our ability to develop new products that gain customer acceptance;

 

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

 

risks associated with foreign operations and foreign supply sources, including changes in foreign currency exchange rates, international laws, and regulations that could increase our cost of doing business or affect the comparability of our results between financial periods;

 

our ability to successfully maintain and/or upgrade 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;

 

risks associated with cyber-attacks and information technology breaches;

 

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

 

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

 

other factors not presently known to us or that we do not currently deem to be material.

  

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 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 performance synthetic apparel fabrics, automotive safety fabrics, technical and value added fabrics, contract fabrics for interior furnishings, and other textile products used in a variety of niche industrial and commercial applications. 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 WL Ross & Co. LLC, our controlling stockholder (“WLR LLC”), 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).

 

ITG’s strategy is to be the preeminent global supplier of solution-based, value-added performance products and services for the textile supply chain. Combined with capabilities in the U.S., Mexico and China, the Company’s facilities 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.

 

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 four operating segments that are reported to the chief operating decision maker (“CODM”) and three reportable segments that are presented herein. The reporting of the Company’s operations to the CODM in four 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.

 

 
4

 

  

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 spandex. 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.

 

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 U.S. 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.

 

All Other

 

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

 

Discontinued Operations

 

On September 23, 2014, the Company completed the sale of the net assets related to Narricot Industries LLC (“Narricot”), and the Company deconsolidated all operations related to its ITG-Phong Phu Joint Venture facility in Vietnam (“ITG-PP”) as of May 25, 2012. The results of operations related to the Narricot and ITG-PP businesses are presented as discontinued operations for all periods presented in this Form 10-K. For more information regarding the sale of Narricot and the deconsolidation of ITG-PP, 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 tangible 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, 2015 and 2014 (in thousands).

  

 
5

 

  

     

Year Ended December 31,

 
   

2015

   

2014

 

Net Sales:

               

Bottom-weight Woven Fabrics

  $ 568,223     $ 563,167  

Commission Finishing

    41,877       31,712  

All Other

    781       891  
      610,881       595,770  

Intersegment sales

    (474 )     (324 )
    $ 610,407     $ 595,446  

  

     

Year Ended December 31,

 
   

2015

   

2014

 

Net Sales:

               

United States

  $ 247,094     $ 233,324  

Mexico

    200,696       209,892  

Other Foreign

    162,617       152,230  
    $ 610,407     $ 595,446  

 

      December 31,  
   

2015

   

2014

 

Long-lived Assets:

               

United States

  $ 17,916     $ 17,217  

China

    47,799       52,154  

Mexico

    40,931       34,906  
    $ 106,646     $ 104,277  

 

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 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. 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 consolidated accounts receivable as of December 31, 2015. One customer, V.F. Corporation, accounted for approximately 10% of the Company’s consolidated accounts receivable as of December 31, 2014, and such customer accounted for approximately 12% of the Company’s consolidated net sales in 2015 and approximately 10% of the Company’s consolidated net sales in 2014, which sales were in the bottom-weight woven fabrics segment. Additionally, the Company believes that two of its customers, Levi Strauss & Co. (in the bottom-weight woven fabrics segment) and the U.S. Department of Defense (in the bottom-weight woven fabrics and commission finishing segments), are able to direct certain of their respective producers to purchase products directly from the Company for use in these customers’ products. Although neither Levi Strauss & Co. nor the U.S. Department of Defense are directly liable for the payment by any of those producers for products purchased from the Company, the Company believes that continued sales to the producers of Levi Strauss & Co. and U.S. Department of Defense products are dependent upon the Company maintaining strong supplier/customer relationships with each of Levi Strauss & Co. and the U.S Department of Defense. The loss of or reduction in business from any key customer or supplier could have a material adverse effect on the Company’s overall results of operations, cash flows or financial position.

  

 
6

 

 

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. In addition, Competition in the textile industry 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.

 

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 leveled off in recent periods, 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 additional 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.

 

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.

 

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.

 

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. 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, the principal raw materials used in the Company’s 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. While there has been some volatility in cotton pricing historically, pricing has stabilized over the last 18 months. In response to increases in raw material or dyes and chemical costs in the open market or under our committed purchase contracts, we generally attempt to increase sales prices in order to preserve margins. However, if we incur increased raw material or other costs that we are unable to recoup through price increases, or experience interruptions in our raw materials supply, our business, results of operations, financial condition and cash flows may be materially adversely affected.

 

 
7

 

 

In August 2014, the Company sold its 50% equity interest in the Summit Yarn LLC and Summit Yarn Holdings joint ventures (together, “Summit Yarn”) to its joint venture partner, Parkdale America, LLC (“Parkdale”). The Company’s yarn purchase agreement with Summit Yarn was amended upon completion of the sale of the joint ventures to provide for a continuing long-term supply of yarn for certain of the Company’s operations. Purchases of raw materials from Summit Yarn and Parkdale were approximately $57.2 million in 2015, which purchases were in the bottom-weight woven fabrics segment.

 

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, and the price of the primary synthetic fibers and dyes and chemicals used in the Company’s products, nylon and polyester, is heavily influenced by petroleum prices.

 

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, 2015, the Company employed approximately 4,750 individuals worldwide on a full time basis. The Company believes it is in compliance with federally regulated minimum wage requirements in all of its locations. Employees at the Company’s White Oak plant 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.

 

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 generally 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.

 

 
8

 

 

Customers of the automotive safety business often require the Company’s products to meet specific requirements for design validation. In such instances, the Company and its customers typically 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. Asbestos materials are present at certain of the Company’s facilities, and applicable regulations would require the Company to handle and dispose of these items in a special manner if these facilities were to undergo certain major renovations or if they were demolished. The Company expects to maintain these facilities by repair and maintenance activities that do not involve the removal of any of these items and has not identified any need for major renovations caused by technology changes, operational changes or other factors. 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.

 

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 $5.6 million and $6.2 million in 2015 and 2014, respectively.

 

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, and specialty fabrics with performance characteristics such as increased flexibility without compromising comfort, 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, moisture wicking for a lasting cooling sensation, increased fabric flexibility, and sun protection properties woven into fabrics, without compromising comfort, hand aesthetics or appearance. These products generally target markets in activewear, workwear and military apparel as well as in hospitals and home fashions. For example, originally introduced 20 years ago, Burlington WorldWide’s XALT™ technology revolutionized the waterproof, breathable market and has been reintroduced with a more advanced film and adhesive technology, paired with innovative Burlington fabric designs including yarn innovations, Plaidology™, and stretch heather constructions. The XALT™ group consists of three core components - specially engineered fabrics, breathable film technology and Burlington’s Durepel® Plus water-repellent finish. 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. The innovation efforts of Cone 3D are focused in the areas of performance, comfort, uniqueness, and sustainability by identifying new fibers and raw materials, incorporating distinctive fiber blends and fabric constructions, and engineering unique process technologies, all supported by sustainable practices. For example, Cone Denim’s recent development efforts have resulted in ultra-high molecular weight fiber that offers increased strength and durability with minimum weight, and Cone 3D has been qualified to offer final product recycled bottle content certification to end users.

 

 
9

 

 

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 provide assurances 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 with a focus on operational improvements and cost reductions, as well as seek appropriate opportunities to 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 improve the Company’s overall liquidity and financial results.

 

In April 2014, the Company implemented an initiative to reduce its corporate administrative cost structure. Because the Company’s size, complexity and business structure has decreased in recent years, the Company’s board of directors determined that cost savings could be achieved with the restructuring of the Company’s executive structure. As a result of this restructuring, the Company and one of its executive officers entered into an agreement in April 2014 that provides certain benefits through December 30, 2017. Such benefits and other related corporate costs in the aggregate amount of $3.0 million were recorded in 2014.

 

Hourly and salaried workforce reductions of 53 employees undertaken at our worsted wool fabric manufacturing facility in Mexico resulted in severance and other termination benefits of $0.1 million being recorded in 2014 in the bottom-weight woven fabrics segment. These workforce reductions were primarily attributable to the outlook for lower product demand at this facility.  

 

 
10

 

 

 

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, 2015 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

Carlisle Finishing Plant (Carlisle, South Carolina)

 

Commission finishing and government (2)

 

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

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

Yecapixtla Plant (Yecapixtla, Morelos)

 

Apparel (denim) (1)

 

Mexico

 

493,000

____________

  

 

(1)

Bottom-weight woven fabrics segment

 

 

(2)

Commission finishing segment

 

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.

  

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. 

 

 
11

 

  

 

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. 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 LLC, 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, 2015 and 2014, 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, 2015

               

First Quarter

  $ 0.20     $ 0.065  

Second Quarter

    0.1325       0.02  

Third Quarter

    0.10       0.06  

Fourth Quarter

    0.10       0.08  
                 

Year Ended December 31, 2014

               

First Quarter

  $ 0.2201     $ 0.1015  

Second Quarter

    0.246       0.1501  

Third Quarter

    0.21       0.16  

Fourth Quarter

    0.21       0.12  

 

As of February 29, 2016, there were approximately 340 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.

  

 
12

 

 

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 UnderEquity Compensation Plans

(Excluding Securities

Reflected in Column(a))

(c)

 

Equity compensation plans approved by security holders

    1,679     $ 10.10       4,000,000  
                         

Equity compensation plans not approved by security holders

    -     $ -       -  

Total

    1,679     $ 10.10       4,000,000  

 

In connection with the Merger, the Company assumed the Equity Incentive Plan (the “Equity Incentive Plan”) of Former ITG. No further grants of equity awards are authorized to be made under this plan, and as of December 31, 2015, a total of 1,679 shares may be issued under outstanding awards at a weighted average exercise price of $10.10 under this plan.

 

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 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 performance synthetic apparel fabrics, technical and value added fabrics, contract fabrics for interior furnishings, automotive safety fabrics, and other textile products used in a variety of niche industrial and commercial applications.

 

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 four operating segments that are reported to the chief operating decision maker (“CODM”) and three reportable segments that are presented herein. The bottom-weight woven fabrics segment consists 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 all other segment consists of expenses related to transportation services and other miscellaneous items. The narrow fabrics and ITG-PP businesses are presented as discontinued operations in the Company’s consolidated statements of operations for all periods presented in this report.

 

 
13

 

 

Strategy

 

ITG’s strategy is to be the preeminent global supplier of solution-based, value-added performance products and services for the textile supply chain. Combined with capabilities in the U.S. Mexico, and China, the Company’s facilities 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

 

The textile industry in general has seen a slowdown or leveling off of imports of textile products into the U.S. from other countries over the last few years due to, among other things, a narrowing of labor, energy and production cost differentials, the slowing pace of economic growth in China and an increased interest in U.S.-produced goods, partially offset in recent periods by lower shipping costs due to lower fuel prices and a strong U.S. dollar keeping the cost of foreign goods from rising. The strengthening of the U.S. dollar against the Mexican peso beginning in the fourth quarter of 2014 and continuing through 2015, as well as the devaluation of the Chinese yuan against the U.S. dollar beginning in the third quarter of 2015, have had a net positive effect on the Company’s operating expenses. Capital investment in the U.S. textile industry has increased in recent periods, compared to other domestic manufacturing spending which has decreased in certain sectors or remained flat overall. While improved consumer confidence and certain cyclical patterns in recent periods have led to gains in certain of our apparel fabrics businesses, competitive pressures, consolidations at the retail level affecting certain of our customers, the end or reduction of certain of our military programs, and continued uncertainty regarding longer-term macroeconomic growth prospects and the overall economic environment have negatively affected certain of our businesses. Uncertainty regarding unemployment levels, further government and municipal deficit reduction measures, and the prospects for sustained economic recovery continue to impact consumer and governmental spending, 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, implementing cost saving initiatives and sourcing decisions, negotiating higher sales prices for certain products, negotiating new working capital and other financing arrangements, focusing on new product development, and a focus on consistent productivity improvements.

 

The Company’s bottom-weight woven fabrics segment has historically entered into firm purchase commitments for cotton and wool commodity raw materials, the principal raw materials used in the Company’s 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 expecting operating requirements as well as to meet the product specifications and sourcing requirements of anticipated future customer orders. While there has been some volatility in cotton pricing historically, pricing has stabilized over the last 18 months, in part due to Chinese release of supply resulting from an over accumulation of cotton reserves in past years. Despite general expectations for the 2015/2016 crop year to result in greater consumption than production, significant worldwide cotton inventories are expected to keep downward pressure on cotton futures prices. The price of the primary synthetic fibers and dyes and chemicals used in the Company’s products, nylon and polyester, is heavily influenced by petroleum prices which have also fluctuated over the last several years, also resulting in fluctuations in the Company’s gross margins. In response to increases in raw material or dyes and chemical costs in the open market or under our committed purchase contracts, we generally attempt to increase sales prices in order to maintain sufficient margins. However, if we incur increased raw material or other costs that we are unable to recoup through price increases, or experience interruptions in our raw materials supply, our business, results of operations, financial condition and cash flows may be materially adversely affected.

  

Restructuring Charges

 

Restructuring charges for 2014 included severance and other termination benefits and related costs of $3.0 million related to the restructuring of the Company’s executive structure, as well as severance and other termination benefits of $0.1 million due to workforce reductions at our worsted wool fabric manufacturing facility in Mexico.

  

 
14

 

 

Results of Operations

 

Net sales and income 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, 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 2015 and 2014 were primarily attributable to commission finishing sales of $0.5 million and $0.3 million, respectively.

  

   

Year Ended

December 31,

 
   

2015

   

2014

 
                 

Net Sales:

               

Bottom-weight Woven Fabrics

  $ 568,223     $ 563,167  

Commission Finishing

    41,877       31,712  

All Other

    781       891  
      610,881       595,770  

Intersegment sales

    (474 )     (324 )
    $ 610,407     $ 595,446  
                 

Income (Loss) From Continuing Operations Before Income Taxes:

               

Bottom-weight Woven Fabrics

  $ 48,950     $ 34,356  

Commission Finishing

    2,935       1,473  

Total reportable segments

    51,885       35,829  

Corporate expenses

    (12,135 )     (10,261 )

Other operating income - net

    4,349       3,368  

Impairment charge

    (1,199 )      

Restructuring charges

          (3,116 )

Interest expense

    (27,366 )     (28,789 )

Other income (expense) - net

    2,791       14,016  
      18,325       11,047  

Income tax expense

    (1,089 )     (3,486 )

Equity in losses of unconsolidated affiliates

    (105 )     (109 )

Income from continuing operations

    17,131       7,452  

Discontinued operations, net of income taxes:

               

Loss from discontinued operations

    (66 )     (6,559 )

Loss on disposal of net assets

          (501 )

Loss from discontinued operations

    (66 )     (7,060 )

Net income

  $ 17,065     $ 392  

 

Comparison of Year Ended December 31, 2015 to Year Ended December 31, 2014

 

Consolidated: Consolidated net sales in 2015 and 2014 were $610.4 million and $595.4 million, respectively. Higher sales volumes resulting from increased demand for denim and new programs in the worsted wool non-government uniform fabrics, higher sales volumes and an improved product mix related to new patterns in the commission finishing business, and higher selling prices and an improved product mix in the technical fabrics and synthetic fabrics businesses were partially offset by lower demand in the synthetic fabrics business, decreased sales volumes resulting from U.S. governmental budget constraints and program changes affecting certain military uniform businesses, competitive pressures in the airbag business, governmental budget constraints, and employment declines in the oil and gas industry affecting certain technical fabrics businesses, as well as lower selling prices and a less favorable product mix primarily in the denim and municipal government wool uniform businesses due to lower cotton costs, fashion shifts, and competitive pricing pressures.

  

 

 
15

 

 

Gross profit in 2015 was $87.6 million, or 14.4% of net sales, compared to $71.4 million, or 12.0% of net sales, in 2014. Gross profit margins increased primarily due to lower raw material and energy costs, higher sales volume in the Company’s denim fabric and municipal government wool fabric businesses, lower manufacturing costs due to higher production, higher selling prices and an improved product mix in the synthetic fabrics, technical fabrics and U.S. government wool uniform businesses, as well as favorable impacts from changes in foreign currency exchange rates. Such improvements were partially offset by lower selling prices and a less favorable product mix primarily in the denim and municipal government wool uniform businesses, higher labor costs, as well as lower sales volumes in the U.S. government wool uniform, synthetic fabrics, technical fabrics and airbag businesses. Operating income in 2015 was $42.9 million compared to $25.8 million in 2014. Operating income increased in 2015 as compared to the prior year period primarily due to the higher gross profit margins described above, lower restructuring charges of $3.1 million, and higher gains on disposal of property, plant and equipment of $0.8 million, partially offset by higher selling and administrative expenses of $2.1 million and a note receivable impairment charge of $1.2 million, each as described below.

 

Bottom-weight Woven Fabrics: Net sales in the bottom-weight woven fabrics segment were $568.2 million in 2015 compared to $563.2 million in 2014. The increase in net sales of $5.0 million was primarily due to higher sales volumes of $29.7 million from increased demand for denim and new programs in the wool uniform business, as well as $13.2 million resulting from higher selling prices and an improved product mix in the technical fabrics and synthetic fabrics businesses. Such improvements were partially offset by lower sales volumes of $15.2 million primarily resulting from lower demand and program changes in the synthetic fabrics business, U.S. governmental budget constraints and program changes affecting certain military wool uniform fabrics businesses, competitive pressures in the airbag business, and governmental budget constraints, military program shifts and declines in the oil and gas industry affecting certain technical fabrics businesses, as well as lower selling prices and a less favorable product mix of $22.9 million primarily in the denim and municipal government wool uniform businesses due to lower cotton costs, fashion shifts, and competitive pricing pressures.

 

Income in the bottom-weight woven fabrics segment was $49.0 million in 2015 compared to $34.4 million in 2014. The increase in income was primarily due to lower raw material and energy costs of $33.3 million, higher sales volumes in the Company’s municipal government wool fabric and denim fabric businesses of $4.6 million, $1.6 million of lower manufacturing costs due to increased production, higher selling prices and an improved product mix of $8.1 million in the synthetic fabrics, technical fabrics and U.S. government wool uniform businesses, as well as favorable impacts from changes in foreign currency exchange rates of $6.2 million. These increases were partially offset by lower selling prices and a less favorable product mix of $22.6 million primarily in the denim and municipal government wool uniform businesses, $8.7 million of lower sales volumes in the U.S. government wool uniform, synthetic fabrics, technical fabrics and airbag businesses, and higher selling and administration and labor costs of $7.9 million.

 

Commission Finishing: Net sales in the commission finishing segment were $41.9 million in 2015 compared to $31.7 million in 2014. The increase was primarily due to higher sales volumes and an improved product mix of $11.6 million related to new patterns as well as new customers in the segment’s governmental business, partially offset by $1.4 million of lower sales volumes and a less favorable product mix related to certain other commission finishing apparel markets. The commission finishing segment reported income from operations of $2.9 million in 2015 compared to $1.5 million in 2014, with such increase primarily due to higher sales volumes and an improved product mix in the segment’s governmental business, partially offset by higher labor costs, quality issues related to certain equipment in the first quarter of 2015, lower sales volumes and a less favorable product mix in certain commission finishing markets, and higher bad debt expense.

 

All Other: Net sales in the all other segment were $0.8 million and $0.9 million in 2015 and 2014, respectively, which primarily represented sales in the Company’s transportation business.

 

SELLING AND ADMINISTRATIVE EXPENSES: Consolidated selling and administrative expenses (including amounts allocated to the Company’s reportable segments discussed above and bad debt expense or recoveries) were $47.9 million in 2015 and $45.8 million in 2014. As a percentage of net sales, this expense was 7.8% in 2015 compared to 7.7% in 2014. Lower costs for salaries, employee disability expense, employee prescription drug claims, professional fees, insurance expense and outside sales commissions were offset by higher costs related to employee medical claims, higher incentive compensation expense, and bad debt expenses.

 

OTHER OPERATING INCOME—NET: Other operating income–net primarily includes grant income from the U.S. Department of Agriculture Wool Trust Fund of $3.2 million in 2015 and $3.0 million in 2014. Other operating income-net in 2015 and 2014 also includes net gains related to the disposal of other miscellaneous property and equipment of $1.1 million and $0.4 million, respectively.

  

 
16

 

 

IMPAIRMENT CHARGE: In 2014, the Company completed the sale of certain assets in the Company’s former narrow fabrics segment. The sale price included a three-year secured promissory note for $3.2 million which was deemed by the Company to be impaired during 2015. The Company recorded an impairment charge of $1.2 million in 2015 based on various appraisals and offers for the collateral underlying this note.

 

RESTRUCTURING CHARGES: Restructuring charges for 2014 included severance and other termination benefits and related costs of $3.0 million related to the restructuring of the Company’s executive structure, as well as severance and other termination benefits of $0.1 million due to workforce reductions at our worsted wool fabric manufacturing facility in Mexico.

 

INTEREST EXPENSE: Interest expense was $27.4 million in 2015 in comparison with $28.8 million in 2014. The decrease was primarily due to lower outstanding balances under the Company’s U.S. revolving credit facility and lower outstanding balances related to certain of the Company’s term loans due to scheduled and early repayments of such loans, and lower interest rates as a result of recent refinancings of certain of the Company’s bank credit facilities, partially offset by new term loans at the Company’s Parras Cone subsidiary related to the purchase of a new equipment and the construction of a natural gas powered cogeneration facility. The magnitude of such net decrease is lessened due to the fact that interest expense in 2014 was reduced by the cancellation, as of December 31, 2013, of $21.9 million in principal and accrued interest of the Company’s related party Tranche B Notes under a previously disclosed Stipulation and Settlement Agreement entered into by the Company in February 2014, which received court approval on August 29, 2014. Non-cash related party payable in-kind interest expense was $20.5 million in 2015 and $18.1 million in 2014 including the effect of the above legal settlement recorded in 2014.

 

OTHER INCOME (EXPENSE)—NET: In 2014, the Company recorded a gain of $9.4 million on the sale of its 50% equity interest in its Summit Yarn joint ventures. In 2014, the Company recorded a net recovery of $0.9 million in third party legal fees not related to current operations and recorded a $3.8 million recovery of such legal fees under a previously disclosed Stipulation and Settlement Agreement, resulting in a net gain of $4.7 million. Other income (expense) - net in 2015 and 2014 also included net foreign currency exchange gains of $2.3 million and net foreign currency exchange losses of $0.1 million, respectively, related to the Company’s operations in Mexico and China, as well as unrealized net gains on certain derivative instruments of $0.2 million in 2015.

 

INCOME TAX EXPENSE: Income tax expense was $1.1 million in 2015 compared to $3.5 million in 2014. Income tax expense in 2015 and 2014 reflects current and deferred income tax expense primarily related to the Company’s profitable subsidiaries in Mexico, including taxable income which is generated under that country’s maquiladora export assembly program. Income tax expense in 2015 also reflects a net decrease in the valuation allowance and the expiration of certain tax attributes of $5.5 million primarily related to profitable operations during the period, income tax expense of $3.3 million related to the negative impact of local foreign currency adjustments related to U.S. dollar-denominated net assets in Mexico and China, other foreign tax adjustments of $3.3 million, and state income tax expense and other U.S. tax adjustments of $0.2 million. Income tax expense in 2014 also reflects a net decrease in the valuation allowance of $8.0 million partially offset by other foreign tax adjustments in Mexico of $5.2 million, $2.1 million related to the negative impact of local foreign currency adjustments related to U.S. dollar-denominated net assets in Mexico, and state income tax expense and other U.S. tax adjustments of $0.2 million. 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.

 

DISCONTINUED OPERATIONS: Loss from discontinued operations in 2015 included less than $0.1 million related to the planned disposition of the assets of the idled ITG-PP facility. Loss from discontinued operations in 2014 included $6.4 million related to the Narricot business, including the loss on the disposal of its net assets of $0.5 million, and $0.1 million related to the planned disposition of the assets of the idled ITG-PP facility.

 

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, $73.4 million at December 31, 2015, 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, $181.4 million at December 31, 2015, is payable to related parties, namely certain entities affiliated with WLR LLC, with a maturity date of June 30, 2019.

  

 
17

 

 

The Company amended or refinanced certain credit agreements in the fourth quarter of 2014 to extend the maturities of certain instruments to 2019 and lower interest rates on outstanding debt in the U.S. In January 2015, the Company’s subsidiaries in Mexico refinanced their outstanding term loans by entering into new term loan agreements resulting in outstanding amounts becoming due in January 2020. As a component thereof, the Company’s Parras Cone subsidiary obtained an option to increase borrowings by up to $7.0 million until January 2016; such option was reduced to $4.0 million upon the execution of an additional term loan facility in July 2015 as described below, and Parras Cone has borrowed the full $4.0 million against this commitment. In July 2015, Parras Cone entered into an additional six year, $7.0 million term loan agreement with proceeds to be used to build a natural gas powered cogeneration facility at its plant location in Mexico. Parras Cone can draw upon this $7.0 million commitment until July 2016. Through the date hereof, Parras Cone has borrowed $4.2 million against this $7.0 million commitment. In August 2015, Parras Cone entered into a revolving credit agreement that provides for borrowing availability of up to $18.0 million through August 2018. This agreement replaced its $18.0 million revolving receivables factoring agreement. In February 2016, Parras Cone entered into an additional 66 month, $2.5 million term loan agreement with proceeds to be used to purchase new machinery and equipment. During the third quarter of 2015, the Company’s Cone Denim Jiaxing subsidiary in China fully repaid its term loan prior to its scheduled maturity date.

 

The following table presents a summary of the Company’s debt obligations payable to unrelated third parties as of December 31, 2015 (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

  $ 2,836     $ 3,975     $ 6,811  

Short-term borrowings

    750       31,650       32,400  
      3,586       35,625       39,211  

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

    10,776       37,813       48,589  

Total third party debt

  $ 14,362     $ 73,438     $ 87,800  

 

The ITG parent company (U.S.) has also guaranteed an additional $5.3 million of certain of the above international debt through stand-by letters of credit, which amounts are not included in the table above.

 

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 maintain its foreign operations, and result in the Company incurring significant non-cash impairment or other charges or have a material adverse effect on the Company’s ability to execute on its strategy.

 

During 2015, the Company’s principal sources of funds consisted of proceeds from net sales, net borrowings under revolving loans, and term loans and short term borrowings under bank financing facilities. The Company’s principal uses of cash during 2015 were to fund working capital needs which are generally lower at the beginning of the year and the end of the year due to seasonality and increase during the year to support mid-year sales, capital expenditures, pension plan contributions, and payment of principal, interest and fees on various indebtedness, and the Company expects that its cash uses in the foreseeable future will be for similar matters. Based on current expectations, we believe that the cash on hand, cash flow expected to be generated by our operations and funds available under our credit facilities and short-term borrowings should be sufficient to service our debt payments requirements in the near term, to satisfy our day-to-day working capital needs and to fund our planned capital expenditures. Any material deterioration in our results of operations, however, may result in a material reduction in cash from operations, our losing the ability to borrow under our U.S. revolving credit facility or replenish our short-term borrowings currently in place. 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. However, the Company expects that if it is not timely able to meet its obligations under a financing agreement, it will 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.

 

 
18

 

  

Comparison of Cash Flows for Year Ended December 31, 2015 to Year Ended December 31, 2014

 

OPERATING ACTIVITIES: Net cash provided by operating activities was $51.0 million in 2015 compared to $32.4 million in 2014. Cash flows from operating activities in 2015 were positively impacted by improved gross margins primarily as the result of lower raw material costs, the favorable impact from changes in foreign currency exchange rates and higher sales volumes in certain businesses, lower days sales outstanding in accounts receivable, lower cash tax payments, lower cash interest payments, as well as the elimination of net cash outflows related to the disposed Narricot business, partially offset by cash received as a part of a previously disclosed Stipulation and Settlement Agreement in 2014.

 

INVESTING ACTIVITIES: Net cash used in investing activities was $19.5 million in 2015 compared to net cash provided by investing activities of $1.8 million in 2014. Capital expenditures and deposits related to purchases of equipment were $20.2 million in 2015 and $13.1 million in 2014. Capital expenditures and deposits for equipment in 2015 were primarily related to upgrading equipment at our U.S. and Mexico facilities in 2015 and at our Mexico facilities in 2014, to support our manufacturing and cost reduction efforts in the bottom-weight woven fabrics segment. As we continue with our upgrading and cost reduction plans, we expect to spend approximately $22.0 million to $23.0 million on capital expenditures during all of 2016, including in connection with the construction of the above referenced natural gas powered cogeneration facility in Mexico. In 2014, the Company received net cash proceeds of $9.6 million and $4.2 million from the sale of Summit Yarn and the Narricot business, respectively. In 2015 and 2014, the Company received net cash proceeds of $0.8 million and $0.7 million, respectively, from the sale of other property, plant and equipment. Investing activities also included $0.1 million of investments in the Company’s unconsolidated affiliates in 2015, and $0.4 million of distributions from the Company’s unconsolidated affiliates in 2014.

 

FINANCING ACTIVITIES: Net cash used in financing activities of $27.5 million in 2015 includes the full repayment of $12.6 million outstanding under the Company’s factoring loan facility in Mexico, net repayments of short-term bank borrowings of $9.2 million, proceeds from the issuance of term loans of $8.2 million, repayment of term loans and capital lease obligations of $13.3 million, net repayments under revolving lines of credit of $0.4 million, and the payment of financing fees of $0.2 million. Net cash used in financing activities of $28.3 million in 2014 reflects mainly the net repayment of borrowings under revolving lines of credit of $22.2 million primarily using proceeds from the sale of Summit Yarn, the sale of the Narricot business and proceeds from the payment as a part of a previously disclosed Stipulation and Settlement Agreement, the repayment of term loans and capital lease obligations of $15.1 million, proceeds from the issuance of term loans of $9.5 million, net short-term bank borrowings of $0.6 million related mainly to the Company’s denim operations, and the payment of financing fees of $0.9 million.    

 

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, 2015, the Company had raw material and service contract commitments totaling $34.0 million and capital expenditure commitments of $11.5 million related to new looms and other equipment upgrades at various U.S. and foreign plant locations not reflected as liabilities on the accompanying consolidated balance sheet. In July 2015, the Company committed to build a new natural gas generation facility at the Company’s Parras Cone plant location in Mexico. Construction of the natural gas facility began in August 2015 and is expected to be completed by the third quarter of 2016.

 

At December 31, 2015, the frozen Burlington Industries defined benefit pension plan had an actuarially determined projected benefit obligation in excess of plan assets of approximately $10.5 million. The Company contributed $2.5 million to this plan during each of fiscal year 2015 and 2014. The Company estimates making total contributions to this plan in the range of $1.1 million to $1.5 million in 2016, with such lower estimated funding amounts in 2016 primarily due to certain actuarially determined shortfall calculations from previous years becoming fully amortized in 2015. 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, 2015, 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, 2015 or 2014, except as noted below.

  

 
19

 

 

In 2011, the Company entered into a Guaranty of Payment (as amended and restated, the “Guaranty”) in favor of WLR Recovery Fund IV, L.P. (“Fund IV”), which is controlled by WLR LLC. One member of our board of directors is also affiliated with various investment funds controlled by WLR LLC (collectively, the “WLR Affiliates”) that directly own a majority of our voting stock. As of December 31, 2015, Cone Denim (Jiaxing) Limited had outstanding short-term working capital loans from various Chinese financial institutions, including approximately $1.1 million guaranteed by a $1.4 million standby letter of credit with Fund IV pursuant to the Guaranty. The obligations of the Company under the Guaranty 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. 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. In 2015 and 2014, the Company incurred guarantee fees of $0.2 million and $0.6 million, respectively.

 

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 the volatility of certain foreign currencies and has designated certain of such instruments as cash flow hedges under hedge accounting rules in 2015 and 2014. The Company did not designate its natural gas derivative contracts or its Euro foreign currency derivative contracts as hedges for any of the periods presented herein. The fair value of net derivative liabilities recognized in the December 31, 2015 and 2014 consolidated balance sheets were $2.3 million and $0.8 million, respectively. The total amount, net of income taxes, of net losses on derivative instruments recognized in the consolidated statements of operations was $3.8 million in 2015 and the total amount of net gains on derivative instruments recognized was less than $0.1 million in 2014. The amount, net of income taxes, recognized in other comprehensive loss related to the effective portion of derivative instruments was a loss of $1.3 million in 2015 and a loss of $0.5 million in 2014.

 

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 2015 represented 23%, 26%, 26% and 25%, 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 continued uncertainties 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 changes in one or more of these factors, or in the general economic environment or any other relevant factor will be reflected in the financial statements in the period in which such change occurs. 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.

  

 
20

 

 

Revenue Recognition. Sales are recorded upon shipment or delivery, depending on when title and the risks and rewards of ownership passes, to unaffiliated customers, collectability is reasonably assured and pricing is fixed or determinable. 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 income. Accruals are made for sales and other allowances based on the Company’s experience. 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 income.

 

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 occur based on prior experience.

 

 

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 the estimated 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.

  

 
21

 

 

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 a 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 line-of-credit 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 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.

 

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 expected 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 income. 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.

 

 
22

 

 

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.

 

 

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, 2015 in accordance with the criteria established in Internal Control - Integrated Framework (2013) 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, 2015.

 

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.  

 

 
23

 

 

 

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, 2015 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

  

 

ITEM 9B.

OTHER INFORMATION

 

None.

 

PART III

 

 

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Executive Officers and Directors

 

The following table provides the names, ages and positions of the individuals who currently serve as members of the board of directors, or as executive officers, of the Company.

 

Name

Age

Positions and Offices

Kenneth T. Kunberger

56

President and Chief Executive Officer and Director

Robert E. Garren

59

Vice President, Human Resources and Corporate Communications

Craig J. Hart

53

Vice President and Treasurer

Neil W. Koonce

68

Vice President, General Counsel and Secretary

Gail A. Kuczkowski

60

Executive Vice President and Chief Financial Officer

James W. Payne

66

President, Carlisle Finishing

Jeffrey H. Peck

55

President, Burlington Worldwide Group

William P. Carmichael

72

Director

John W. Gildea

72

Director

Su Yeo

43

Director

 

Kenneth T. Kunberger is the President and Chief Executive Officer, and a director of the Company. He has held this position since May 2014. Previously, he was Chief Operating Officer of the Company, a position he held since December 2011. Prior to that, he served as President of ITG Apparel & Specialty Fabrics Group for the Company, a position he held since January 2009 and prior to that, was President of the Burlington Worldwide division of ITG from the completion of the Merger to January 2009. Prior thereto, he held that position with Former ITG from its inception in August 2004. Prior to that, he served as Executive Vice President, Sales and Marketing, of the Sportswear and Casualwear divisions of Burlington Industries from 1998 to 2002, as President of Burlington Industries Worldwide-North America division from 2002 to 2004, and as President of Burlington Industries’ Apparel Fabrics division in 2004. Through his more than 30 years of experience in the textile industry, Mr. Kunberger has significant experience with, and an understanding of, the management of multi-location, global operations, including specifically with respect to manufacturing, marketing and sales issues and the operational and organizational issues involved. In addition, as our chief executive officer, he is uniquely able to advise the board of directors on the opportunities and challenges of managing the Company, as well as its day-to-day operations and risks.

 

Robert E. Garren is Vice President, Human Resources and Corporate Communications of the Company. Mr. Garren has been Vice President, Human Resources and Corporate Communication of ITG since the completion of the Merger. Prior thereto, he held those positions with Former ITG from its inception in August 2004. Prior to that, he served as Vice President, Human Resources and Corporate Communications of Burlington Industries from 2003 to 2004 and as Director of Compensation and Benefits of Burlington Industries from 1998 to 2003.

 

Craig J. Hart is Vice President and Treasurer of the Company. Mr. Hart joined ITG in December 2007 from Remy International, Inc., a manufacturer of various electrical and automotive components and parts, where he had served as Treasurer since 2004. Mr. Hart joined Remy International, Inc. in February 1997. Previously, he worked for Pontarelli Builders, a contractor and construction company, as Director of Financial Services and prior thereto, at a family wealth management office in Chicago, IL in various financial roles.

 

Neil W. Koonce is Vice President, General Counsel and Secretary of the Company. Mr. Koonce has been the Vice President and General Counsel of the Company since the completion of the Merger and has been the Secretary of the Company since January 2012. Prior to the Merger, he was the Vice President and General Counsel of Former ITG from its inception in August 2004. Mr. Koonce served as General Counsel of Cone Mills Corporation from 1987 to 1989, General Counsel and Vice President of Cone Mills Corporation from 1989 to 1999 and Vice President, General Counsel and Secretary of Cone Mills Corporation from 1999 to 2004.

  

 
24

 

 

Gail A. Kuczkowski is Executive Vice President and Chief Financial Officer. She has held these positions since December 2011. Previously, she held the position of Vice President and Chief Accounting Officer since joining the Company in January 2008. On April 17, 2009, Ms. Kuczkowski was also designated as the officer performing the functions of the principal financial officer of the Company. Prior to joining the Company, Ms. Kuczkowski served as Director, Global Accounting at INVISTA, an integrated fiber and polymers business, from September 2006 and as Assistant Corporate Controller from May 2004 until September 2006. Prior thereto, she served as Chief Financial Officer for US/Canada of KoSa, a producer of commodity and specialty polyester fibers, polymers and intermediates, from December 2002 to May 2004. Ms. Kuczkowski began her career at Price Waterhouse (now PricewaterhouseCoopers), a public accounting and financial consulting firm.

 

James W. Payne is President of the Carlisle Finishing LLC business segment and his responsibilities also currently include the manufacturing operations of Burlington Finishing and effective November 1, 2014, Safety Components facilities of the Company. Mr. Payne’s responsibilities also included Narricot Industries LLC until the business was sold in September 2014. Mr. Payne has been the President of the Carlisle Finishing LLC business since January 2007. Previously he was President of the Carlisle Finishing division and held that position since the completion of the Merger. Prior to that, Mr. Payne was the President of the Carlisle Finishing division of Former ITG since 2005 and Executive Vice President of the Carlisle Finishing division of Former ITG from August 2004 to 2005. Prior to that, he served as Executive Vice President of the Carlisle Finishing division of Cone Mills from 1997 to 2004.

 

Jeffrey H. Peck is President of the Burlington Worldwide Group and has served in this role since January 2012. Previously he oversaw the Apparel and Specialty Fabrics division and was responsible for the worsted and specialty fabrics markets for the Company, a position he had held since January 2009. Prior to that, Mr. Peck was Executive Vice President for the Burlington Worldwide division of ITG, responsible for the synthetic and specialty fabrics apparel markets from 2007 to 2009. Prior to that, he served as Managing Director of the Burlington WorldWide operations in Asia and was based in Hong Kong for a two-year assignment. Prior to that, Mr. Peck served as Executive Vice President of the Burlington WorldWide division of Former ITG. Prior to that, he held a similar position for Burlington Industries from 2001 to 2004.

 

William P. Carmichael has been a director of the Company since November 2012. Mr. Carmichael, a private consultant, co-founded The Succession Fund in 1998 to provide an exit strategy to owners of privately held companies. This Fund was sold in 2007. Prior to forming The Succession Fund, Mr. Carmichael worked for Price Waterhouse (now PricewaterhouseCoopers) for four years, and has twenty-six years of experience in various financial positions with global consumer product companies. Mr. Carmichael currently serves on the boards of directors of The Finish Line, Inc., hh gregg, Inc., and as Trustee of the Columbia Funds, Tri-Continental Corporation and Columbia Seligman Premium Technology Growth Company. Mr. Carmichael also served on the following boards, Cobra Electronics Corporation until August 2014, McMoRan Exploration from June 2010 to 2013, and Simmons Bedding from 2004 to 2010. Mr. Carmichael is a member of the advisory council of NYSE Governance Services. Mr. Carmichael brings to the Company considerable expertise in investments and in mergers and acquisitions in small and middle market companies. In addition, Mr. Carmichael’s experience serving on the board of directors of several other public companies allows us to leverage his experiences with respect to, among other things, appropriate oversight and related board actions.

 

John W. Gildea has been a director of the Company since February 2012. Mr. Gildea founded Gildea Management Company, a management company specializing in investments in middle market companies in the United States and Europe, in 1984. Mr. Gildea currently serves on the board of directors of Misonix, Inc., and Sothic Capital, a UK based distressed fund. He also served on the board of directors of Country Pure, a private company, from 2010 to 2014, America Service Group Inc. from 2006 to 2011 and Sterling Chemicals, Inc. from 2002 to 2011. Mr. Gildea brings to the Company considerable expertise in investments in middle market companies in the United States and Europe, which we believe provides significant insight to the Company. In addition, Mr. Gildea’s experience serving on the board of directors of several other public companies allows us to leverage his experiences with respect to, among other things, appropriate oversight and related board actions.

 

Su Yeo has been a director of the Company since June 2015 and she is a principal of WLR LLC. Ms. Yeo is an experienced and versatile financial services executive with over 18 years of experience in principal investing, debt restructuring and investment banking roles. Prior to joining W.L. Ross & Co., Ms. Yeo spent more than 16 years at Morgan Stanley and Lehman Brothers where she was involved globally in mergers and acquisitions, capital raises, principal investments and corporate workouts and restructurings. Ms. Yeo brings to the Company considerable expertise in investments and in mergers and acquisitions, and the Company believes her experience and skills benefit the board of directors’ discussions related to financing, corporate development, corporate governance, and strategic opportunities.

 

 
25

 

 

The term of office of each executive officer expires when a successor is elected and qualified. There was no, nor is there presently, any arrangement or understanding between any officer or director and any other person (except directors or officers acting solely in their capacities as such) pursuant to which the officer or director was selected.

 

Director Qualifications

 

The Company believes the members of its board of directors have the proper mix of relevant experience and expertise given the Company’s businesses and organizational structure, together with a level of demonstrated integrity, judgment, leadership and collegiality, to effectively advise and oversee management in executing the Company’s strategy.

 

Nominating Committee; Nominating Procedure

 

The Company’s board of directors does not have a standing nominating committee (and consequently does not have a nominating committee charter), and all directors participate in the consideration of director-nominees. The Company believes that it is not necessary to have a standing nominating committee because of the fact that certain entities affiliated with WLR LLC own approximately 82% of the outstanding common stock and approximately 84% of the voting power of the Company and, therefore, have the ability to control the election of all directors. The board of directors of the Company does not currently have a formal policy for stockholder recommendations for director-nominees for the aforementioned reasons.

 

Audit Committee

 

The Company’s board of directors has a standing audit committee currently composed of two directors, William P. Carmichael (chair) and Su Yeo. The Company’s board of directors has determined that Mr. Carmichael is an audit committee financial expert (within the meaning of Item 407(d) of Regulation S-K, promulgated under the Exchange Act) with respect to the Company. In making such determination, the board took into consideration, among other things, the express provision in Item 407(d) of Regulation S-K that the designation of a person as an audit committee financial expert shall not impose any greater responsibility or liability on that person than the responsibility and liability imposed on such person as a member of the audit committee and the board of directors, nor shall it affect the duties and obligations of other audit committee members or the board. The common stock of the Company is not traded on the New York Stock Exchange (the “NYSE”) or any other national securities exchange; however, the Company’s board of directors has determined that Mr. Carmichael is independent within the meaning of NYSE Rule 303A.02 and Rule 10A-3(b) promulgated under Section 10A of the Exchange Act.

 

Code of Ethics

 

The Company has adopted a code of ethics, the Standard of Business Conduct that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or any persons performing similar functions, as well as to its directors and other employees. A copy of this code of ethics has been filed as an Exhibit to this Form 10-K.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Pursuant to Section 16(a) of the Exchange Act, the Company’s directors and executive officers, and any persons who beneficially own more than 10% of the Company’s common stock, are required to file initial reports of ownership and reports of certain changes in ownership with the SEC. Based solely upon our review of copies of such reports, we believe that our directors and executive officers, and beneficial owners of more than 10% of our common stock, timely complied with all applicable filing requirements for our 2015 fiscal year.

 

Stockholder Communications with the Board of Directors

 

The Company currently does not have a formal process for stockholders to send communications to the board of directors. Because the Company’s public stockholder base is small, the Company’s board of directors believes a formal process is unnecessary.   

 

 
26

 

 

 

ITEM 11.

 EXECUTIVE COMPENSATION 

 

The Company’s board of directors has a standing compensation committee with Mr. Gildea serving as chair. The common stock of the Company is listed on the OTC Markets Group Inc. (formerly known as Pink OTC Markets Inc.) over-the-counter “OTCQB” marketplace tier and not on the NYSE or any other national securities exchange; therefore, the members of the compensation committee are not required to be independent within the meaning of NYSE Rule 303A.02.

 

The general functions of the compensation committee include approval (or recommendation to the board of directors) of the compensation arrangements for the Company’s senior management, directors and other key employees, review of benefit plans in which officers and directors are eligible to participate, and the making of grants under the Company’s equity compensation plans. The Company’s compensation committee does not have a charter.

 

Summary Compensation Table

 

The following table sets forth information regarding the compensation of the Named Executive Officers, consisting of our current principal executive officer and the other two most highly compensated individuals who served as executive officers at December 31, 2015.

 

Summary Compensation Table

   

 

 

   

 

 

   

Non-Equity

Incentive

Plan

   

 

 

All Other
   

 

 

 

 

   

 

   

Compensa-

    Compensa-          
Name and Principal     Salary     tion (1)     tion (2)     Total  
Position Year   $     $     $     $  
                                   

Kenneth T. Kunberger

2015   $ 575,000     $ 640,030     $ 45,631     $ 1,260,661  

President and Chief

2014   $ 536,667     $ 447,000     $ 98,470     $ 1,082,137  

Executive Officer

                                 
                                   

Jeffrey H. Peck

2015   $ 326,354     $ 200,000     $ 30,889     $ 557,243  

President,

2014   $ 325,000     $ 184,000     $ 49,507     $ 558,507  

Burlington WorldWide

                                 
                                   

Gail A. Kuczkowski

2015   $ 277,083     $ 225,000     $ 29,650     $ 531,733  

Executive Vice President

2014   $ 275,000     $ 189,000     $ 47,703     $ 511,703  

and Chief Financial Officer

                                 

 

Notes:

 

1.

For 2015 and 2014, represents amounts earned under the Company's applicable annual cash incentive program, referred to as the Management Incentive Plan ("MIP"). For additional detail on the MIP and the determination of the cash awards thereunder, see "Management Incentive Plan."

 

2.

2015 amounts for Mr. Kunberger, Mr. Peck and Ms. Kuczkowski include car allowances, Company matching contributions to the Company’s 401(k) plan, premiums for supplemental long-term disability coverage, premiums for life insurance benefits and contractual interest payments made on vested retention and bonus awards.

 

Management Incentive Plan

 

Under the MIP, cash incentive bonus opportunities, defined as a percentage of base salary, are established for each participant. Each participant then has the opportunity to earn a threshold, target, or maximum bonus amount that is contingent upon achieving the performance goals set by the Compensation Committee.

  

 
27

 

 

In 2015, the Compensation Committee established performance goals for the named executive officers under the MIP with 60% of the bonus opportunity based on earnings before interest, taxes, depreciation, amortization, restructuring and impairment charges and other non-operating income and 40% based on net working capital (accounts receivable, inventory and accounts payable) and cash flow performance. In 2014, the compensation committee established performance goals for the named executive officers under the MIP with 60% of the bonus opportunity based on earnings before interest, taxes, depreciation, amortization, impairment charges and other non-operating income and 40% based on cash flow performance. Both of the above earnings and cash flow measures excluded the following items from their calculations: approved capital expenditures financed by debt, and MIP expense and cash payments. In 2015 and 2014, MIP awards for Mr. Kunberger and Ms. Kuczkowski were based on total company performance, and MIP awards for Mr. Peck were based on business unit performance.

 

Bonus payments are paid to participants in the calendar year following the end of the plan year. The compensation committee retains the right, in its sole discretion, to adjust awards (individually or in the aggregate) to recognize extraordinary situations.

 

Employment Agreements, Termination of Employment Arrangements and Change of Control Payments

 

The Company has entered into an employment agreement with Mr. Kunberger. The employment agreement provides that Mr. Kunberger will be eligible to receive severance payments in the event of a termination without “cause” or resignation for “good reason” (both as defined in the employment agreement). In the event of a termination without cause or resignation with good reason, Mr. Kunberger would be entitled to a prorated portion of his target bonus amount (as specified in the employment agreement) for the year in which the termination occurs and to payments equal to two times his base salary, car allowance, and club dues benefit, plus two times the average of his previous two years’ annual bonus. Mr. Kunberger would also receive an amount equal to the COBRA premiums for himself and any eligible dependents, with a full gross-up for all applicable federal, state, and local taxes, for the period he and/or his dependents remain eligible for COBRA, but not to exceed eighteen months from the termination date. These severance payments would be due to Mr. Kunberger as outlined above in the event of termination without cause, for good reason, or in connection with a change of control of the Company, as defined in the employment agreement. In addition to the severance payments noted above, any unvested equity awards for Mr. Kunberger would become fully vested and the holding requirement would cease to apply in the event of a change of control of the Company.

 

In addition, the Company has entered into severance agreements with Mr. Peck and Ms. Kuczkowski which provide that they will be eligible to receive severance payments equal to eighteen months base salary in the event of termination without “cause” or resignation for “good reason” (both as defined in the severance agreement).

 

Benefit Plans

 

The Company maintains a tax-qualified Section 401(k) defined contribution plan. Under this plan, the Company provides a matching contribution of 100% of the first 3% of a participant’s eligible compensation which is contributed to this plan, and 50% of the next 2% of the participant’s eligible contributed compensation up to the federal limits on earnings and contributions. The Company does not maintain any active, ongoing nonqualified deferred compensation plan.

 

The Company maintains a legacy defined benefit pension plan, the Retirement System of Burlington Industries LLC and Affiliated Companies (the “Plan”), covering certain employees of the Company and its affiliated companies. The Plan was amended effective October 1, 2003 to suspend employee contributions and to prevent participation of new members, effectively “freezing” the Plan. The Plan provides an annual benefit payable to an eligible participant at age 65 equal to the greater of (a) the sum of (i) the number of years of the member’s continuous participation prior to October 1, 1984, multiplied by the sum of 0.75% of the first $12,000 of such participant’s annual salary at September 30, 1984, plus 1.5% of the excess over $12,000, and (ii) one-half of the participant’s contributions after September 30, 1984, (b) one-half of the participant’s total contributions or (c) an amount determined under applicable Federal law requiring a minimum return on a participant’s personal contributions. This benefit represents a life annuity with a guaranteed minimum return on personal contributions and may, at the participant’s election, be paid as a lump sum.

 

Outstanding Equity Awards at Fiscal Year-End

 

No equity awards to the Named Executive Officers were outstanding as of December 31, 2015.

 

Director Compensation

 

The Company has available for use a combination of cash and stock-based incentive compensation to attract and retain certain qualified candidates to serve on its board. In setting director compensation, the Company considers the significant amount of time that directors expend in fulfilling their duties as directors as well as the expertise and knowledge required. Compensation levels are reviewed periodically by the board of directors and adjusted as deemed appropriate. Executive officers who serve as directors of the Company are not entitled to additional compensation for such services. In addition, the board of directors of the Company has deemed it appropriate that only non-employee directors who are not affiliated with WLR LLC should receive compensation for service as a member of the Board. Each non-employee director not affiliated with WLR LLC receives an annual retainer of $40,000 for services as a director. In addition to this retainer, each of those directors receives $1,500 per day for all board and committee meetings attended in person, and $750 per day for all board and committee meetings attended by telephone or video conference. Further, the Chair of the Audit Committee receives an annual retainer of $10,000 and the Chair of the Compensation Committee receives an annual retainer of $5,000. All fees are paid on a quarterly basis. The Company also reimburses non-employee directors for expenses incurred in attending board and committee meetings.

  

 
28

 

 

In addition, from time to time, certain of the Company’s directors may be entitled to certain additional compensation for providing services to the Company other than in the ordinary course of their service as a director.

 

The amounts set out in the table below consist of all amounts paid to non-employee members of the Company’s board of directors for their service as a board member of the Company in 2015. The Committee chose not to make any equity-based awards in 2015.

 

2015 Director Compensation (1)

 

Name

 

Fees Earned
or Paid in
Cash

($)

   

Stock
Awards
($)

   

Total ($)

 

Stephen W. Bosworth (1)

  $ 15,750     $     $ 15,750  

William P. Carmichael

  $ 129,000     $     $ 129,000  

Michael J. Gibbons (1)

  $     $     $  

John W. Gildea

  $ 123,000     $     $ 123,000  

Harvey L. Tepner (1)

  $     $     $  

Daniel D. Tessoni (1)

  $ 20,000     $     $ 20,000  

David L. Wax (1)

  $     $     $  

Su Yeo

  $     $     $  

__________________

 

 

(1)

See the Summary Compensation Table above for information on the compensation paid to Kenneth T. Kunberger. Mr. Bosworth and Dr. Tessoni each retired from the Company’s board of directors as of April 1, 2015. Mr. Wax retired from the Company’s board of directors as of June 17, 2015. Mr. Tepner retired from the Company’s board of directors as of August 31, 2015. Mr. Gibbons retired from the Company’s board of directors as of February 29, 2016.

   

 

ITEM 12.

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

  

The following table sets forth certain information with respect to the beneficial ownership of shares of ITG common stock, Series C preferred stock (the “Series C Preferred Stock”) and Series A convertible preferred stock (the “Series A Preferred Stock”) as of March 15, 2016 by (1) each person (including any group deemed a “person” under Section 13(d)(3) of the Exchange Act) known to ITG to beneficially own more than 5% of ITG’s common stock, (2) each of ITG’s Named Executive Officers, (3) each of ITG’s directors and (4) all directors and current executive officers of ITG as a group. Information relating to beneficial ownership is based upon “beneficial ownership” concepts set forth in rules of the SEC. Under those rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of, or to direct the disposition of, such security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership (such as by exercise of options) within 60 days. Under such rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may disclaim any beneficial interest. Except as indicated in notes to the table, directors and executive officers possessed sole voting and investment power with respect to all of their respective shares in the table. Shares not outstanding which are subject to options exercisable within 60 days by persons in the group or a named individual are deemed to be outstanding for the purpose of computing the percentage of outstanding shares of common stock owned by the group or such individual.

 

This table is based, in part, upon information supplied to ITG by its officers, directors and principal stockholders, and Schedules 13D filed with the SEC, as applicable. 

 

 
29

 

  

Name

 

Number of
Shares of
Common
Stock
Beneficially
Owned

   

Number of
Shares of
Series C Preferred
Stock (1)
Beneficially
Owned

   

Number of
Shares of
Series A Preferred
Stock (2)
Beneficially
Owned

   

Percent of
Common
Stock
Beneficially

Owned

   

Percent of
Series C Preferred
Stock
Beneficially

Owned

   

Percent of
Series A Preferred
Stock
Beneficially

Owned

   

Percent of
Total Voting
Power

Beneficially
Owned (1)(2)

 

WL Ross & Co. LLC and Affiliated Entities (3)

    14,334,155       114,628       2,900,099       82.1 %     100 %     91.6 %     83.6 %

Kenneth T. Kunberger

    30,530                   *                   *  

Jeffrey H. Peck

    13,568                   *                   *  

Gail A. Kuczkowski

                                         

William P. Carmichael

                                         

John W. Gildea

                                         

Su Yeo (4)

                                         

All directors and current executive officers as a group (11 persons) (5)

    14,424,722       114,628       2,900,099       82.6 %     100 %     91.6 %     84.0 %

  

——————

 

NOTES:

 

*

Represents less than 1% of the outstanding class of stock.

 

(1)

Shares of Series C Preferred Stock generally do not have any voting rights except as may be prescribed under the Delaware General Corporation Law; provided, however, that for so long as any shares of Series C Preferred Stock are outstanding, certain fundamental corporate actions set forth in the Certificate of Designation of Series C Preferred Stock may not be taken without the consent or approval of the holders of 66 2/3% of the outstanding Series C Preferred Stock.

 

(2)

Shares of Series A Preferred Stock vote together with shares of the Company’s common stock on all matters submitted to a vote of the Company’s stockholders. Each share of Series A Preferred Stock is entitled to one vote per share on all such matters.

 

(3)

WLR Recovery Fund II, L.P. (“Fund II”) directly owns 268,244 shares of common stock, WLR Recovery Fund III L.P. (“Fund III”) directly owns 4,356,639 shares of common stock and International Textile Holdings, Inc. (“Holdings”) directly owns 9,709,272 shares of common stock of the Company. Fund II is the majority stockholder of Holdings, WLR Recovery Associates II LLC (“Associates II”) is the general partner of Fund II and WLR Recovery Associates III LLC (“Associates III”) is the general partner of Fund III. Wilbur L. Ross, Jr., our controlling stockholder and who served as the Chairman of our board of directors until November 2014, is the managing member of each of Associates II and Associates III. Accordingly, Associates II, Associates III and Mr. Ross may be deemed to share voting and dispositive power over the shares of common stock owned by Fund II, Fund III and Holdings. WLR Recovery Fund IV, L.P. (“Fund IV”) directly owns 114,250 shares of Series C Preferred Stock and WLR IV Parallel ESC, L.P. (“ESC”) directly owns 378 shares of Series C Preferred Stock. WLR/GS Master Co-Investment, L.P. directly owns 2,900,099 shares of Series A Preferred Stock. Mr. Ross has certain voting and dispositive power with respect to securities owned by Fund IV, ESC and WLR/GS Master Co-Investment, L.P. As a result, Mr. Ross may be deemed to beneficially own such shares of Series C Preferred Stock owned by Fund IV and ESC as well as such shares of Series A Preferred Stock owned by WLR/GS Master Co-Investment, L.P. To the extent Mr. Ross is deemed to beneficially own any of the foregoing shares, he disclaims such ownership. The address of Mr. Ross and such entities is, c/o WL Ross & Co. LLC, 1166 Avenue of the Americas, 25th Floor New York, New York 10036.

 

(4)

Excludes shares beneficially owned by WLR LLC and affiliated entities. Ms. Yeo is a director of the Company and a Principal of WLR LLC. Ms. Yeo disclaims beneficial ownership of all shares held by WLR LLC and affiliated entities.

 

(5)

Includes all shares held by WLR LLC and affiliated entities. Ms. Yeo is a director of the Company and a Principal of WLR LLC. Ms. Yeo disclaims beneficial ownership of all shares held by WLR LLC and affiliated entities.

 

The information required to be disclosed in this Item 12 by Item 201(d) of Regulation S-K is included in Item 5 “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” in this Form 10-K.

   

 
30

 

 

 

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

 

Wilbur L. Ross, Jr., who served as the Chairman of our Board of Directors until November 2014, is Chairman and Chief Strategy Officer of WLR LLC. Su Yeo, a member of our board of directors, is a principal at WLR LLC.

 

WLR LLC may from time-to-time provide advisory services to the Company (consisting of consulting and advisory services in connection with strategic and financial planning, investment management and administration and other matters relating to our business and operations of a type customarily provided by sponsors of U.S. private equity firms to companies in which they have substantial investments, including any consulting or advisory services that the Company’s board of directors reasonably requests). In return for such services, WLR LLC may charge a quarterly management fee of $0.5 million and is reimbursed for any reasonable out-of-pocket expenses (including expenses of third-party advisors retained by WLR LLC). Per the Note Purchase Agreement, as amended, the payment of the management fees may not occur while a default or event of default has occurred and is continuing or would arise as a result of such payment, or at any time while payable in-kind (“PIK”) interest on the Company’s Tranche A senior subordinated notes (see Note 8 “Long-Term Debt and Short-Term Borrowings”) was unpaid. As a result, WLR LLC did not charge the Company for management fees in 2015 or 2014. At December 31, 2015, $2.5 million related to management fees was payable to WLR LLC on a non-interest bearing basis.

 

The Company has entered into a marketing and service arrangement with OCM India Limited (“OCM”), which is owned by certain affiliates of WLR LLC. Under the arrangement, the Company provides certain operations, marketing and service assistance to OCM in exchange for a service fee. In 2015 and 2014, the Company received $0.1 million and $0.2 million, respectively, from OCM for service fees and sales commissions.

 

From time to time, the WLR Affiliates have purchased or received PIK Interest Tranche B Notes. The Company also issued additional Tranche B Notes of $1.2 million in 2014 to Fund IV in connection with the Guaranty as described below. Under a previously disclosed Stipulation and Settlement Agreement, $21.9 million in principal and accrued interest of the Tranche B Notes outstanding as of December 31, 2013 was cancelled, together with all additional interest that accrued on such notes from December 31, 2013 through August 29, 2014. The largest aggregate principal amount outstanding under the Tranche B Notes during 2015 and 2014 was $181.4 million and $173.5 million, respectively. The Company has not repaid any principal on any of the Tranche B Notes, and all interest on the Tranche B Notes to date has been accrued or converted to additional principal amounts. At December 31, 2015 and 2014, $181.4 million and $160.9 million aggregate principal amount of Tranche B Notes was outstanding, respectively, with an interest rate of 12.0%, including interest that has been converted to principal.

 

Also under the previously disclosed Stipulation and Settlement Agreement, $11.4 million (11,475 shares) and $257.6 million (10,304,963 shares) of Series C Preferred Stock and Series A Preferred Stock, respectively, and certain related dividends in arrears were cancelled in 2014.

 

The Company has obligations under an amended Guaranty of Payment (as amended and restated, 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 was a party and under which Fund IV agreed to be responsible for certain obligations of ITG-PP, up to a total amount of $15.5 million. Under the 2011 Credit Agreement, the lenders (i) were entitled to receive payment under a $3.7 million evergreen standby letter of credit executed by Fund IV (the “Fund IV LC”), or (ii) the Company’s investments in ITG-PP discussed above were required to be repaid to the Company by ITG-PP no later than one month prior to the March 31, 2016 expiration date of the Fund IV LC. In August 2014, the Company entered into Consent and Amendment No. 11 to the 2011 Credit Agreement which provided, among other things, for the termination of the Fund IV LC. On October 14, 2014, the Fund IV LC was terminated and an additional $1.2 million of principal amount of Tranche B Notes were issued in satisfaction of the Company’s obligations thereunder for accrued guaranty fees. Cone Denim (Jiaxing) Limited has outstanding short-term working capital loans from various Chinese financial institutions, including approximately $1.1 million guaranteed by a $1.4 million standby letter of credit with a WLR Affiliate pursuant to the Guaranty. 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. 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. In 2015 and 2014, the Company incurred guarantee fees of $0.2 million and $0.6 million, respectively, and the amount of such accrued guaranty fees outstanding as of December 31, 2015 was $1.2 million.

 

The Company, Fund IV and the agent under the Company’s 2011 Credit Agreement have entered into a support agreement pursuant to which the lenders under the 2011 Credit Agreement can draw upon an evergreen standby letter of credit in the amount of $17.0 million (the “WLR LC”) executed by Fund IV if the Company’s excess availability (as defined in the 2011 Credit Agreement) falls below certain predefined levels; no such amounts have been drawn by the lenders as of December 31, 2015. On December 18, 2014, the Company entered into Amendment No. 12 to the 2011 Credit Agreement. This amendment provides for, among other things, future reductions of the WLR LC of up to $5.0 million, or termination of the WLR LC, based upon amounts of the term loan repaid under the 2011 Credit Agreement, the maintenance of a specified fixed charge coverage ratio, the level of average excess availability, and certain other conditions.

  

 
31

 

 

Director Independence

 

The common stock of the Company is not traded on the NYSE or any other national securities exchange; however, for purposes of determining director independence, the Company has adopted the independence definitions as set out in Section 303A.02 of the New York Stock Exchange's Listed Company Manual. Based on the independence standards and all of the relevant facts and circumstances, the Company’s board of directors determined that Mr. Carmichael and Mr. Gildea had no material relationship with the Company and thus are independent under Section 303A.02 of the listing standards of the NYSE.

   

 

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

The Company’s independent registered public accounting firm for the Company’s 2015 and 2014 fiscal years was Grant Thornton LLP. The following table provides information on the fees billed to the Company by Grant Thornton LLP and other member firms of Grant Thornton International Ltd. for its services to the Company during the Company’s fiscal years ended December 31, 2015 and 2014.

  

     

Year Ended

December 31,

 
   

2015

   

2014

 

Audit Fees

  $ 1,180,000     $ 1,188,000  

Tax Fees

    2,200       2,000  

Total Fees

  $ 1,182,200     $ 1,190,000  

  

In the above table, in accordance with applicable SEC rules, “audit fees” are fees billed by the independent registered public accounting firm for professional services for the audit of the consolidated financial statements included in the Company’s Annual Report on Form 10-K, including audits of the foreign subsidiary statutory reports of the Company’s foreign subsidiaries for their respective fiscal years, and reviews of financial statements included in the Company’s quarterly reports on Form 10-Q, or for services that are normally provided by auditors in connection with statutory and regulatory filings or engagements. In the above table, “tax fees” are fees billed by the independent registered public accounting firm to the Company for tax compliance work for certain of the Company’s foreign subsidiaries for their respective fiscal years.

 

The audit committee of the Company’s board of directors has established a policy requiring its approval of all audits, and any non-audit, services prior to the provision of these services by the Company’s independent registered public accounting firm. Pursuant to this policy, the audit committee annually approves a detailed request for annual audit and other permitted services up to specified dollar limits. In determining whether to pre-approve permitted services, the audit committee considers whether such services are consistent with SEC rules and regulations. If the Company’s management believes additional services are necessary or that the dollar amount of previously approved services must be increased, management must seek specific prior approval for these services from the audit committee. To ensure prompt handling of unexpected matters, the Company’s audit committee has delegated to its chairperson the authority to pre-approve permissible non-audit services and fees and to amend or modify pre-approvals that have been granted by the entire audit committee. A report of any such actions taken by the committee chairperson must be provided to the audit committee at the audit committee meeting following such action. None of the services described above were approved by the audit committee pursuant to the exception provided by Rule 2-01(c)(7)(i)(C) of Regulation S-X of the SEC during either of the periods presented.

 

 
32

 

 

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 May 1, 2014, by and between International Textile Group, Inc. and Kenneth T. Kunberger (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 March 31, 2014)

 

 
33

 

 

 

*10.6

Agreement and General Release, dated April 30, 2014, by and between International Textile Group, Inc. and Joseph L. Gorga (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q (File No. 0000-23938) for the quarter ended March 31, 2014)

 

*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 Severance Letter with certain officers of International Textile Group, Inc., (incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the fiscal year ended December 31, 2014)

 

*10.11

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)

 

*10.12

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)

 

*10.13

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)

 

*10.14

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)

 

*10.15

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)

 

*10.16

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)

 

10.17

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)

 

10.18

Form of Amended and Restated Credit Agreement, originally dated as of March 30, 2011, (as amended to date), 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 10.18 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the fiscal year ended December 31, 2014)

 

10.19

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)

 

10.20

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)

 

10.21

English translation of amended and restated Factoring Discount Line Opening Agreement, dated as of August 15, 2014, 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 10.3 to the Company’s Quarterly Report on Form 10-Q (File No. 000-23938) for the quarter ended September 30, 2014)

 

10.22

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)

 

10.23

English translation of secured Credit Agreement, dated as of April 15, 2014, 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 March 31, 2014)

 

10.24

English translation of Loan Agreement, dated as of January 28, 2015, 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 10.24 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the fiscal year ended December 31, 2014)

 

10.25

English translation of Loan Agreement, dated as of July 6, 2015, 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 quarterly period ended June 30, 2015)

 

10.26

English translation of Loan Agreement, dated as of February 3, 2016, by and among Parras Cone de Mexico, S.A. de C.V., and Banco Nacional de Mexico, S.A. as lender thereto

 

 
34

 

 

 

10.27

English translation of Revolving Credit Loan Agreement, dated as of August 14, 2015, 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 quarterly period ended June 30, 2015)

 

10.28

English translation of Loan Agreement, dated as of January 28, 2015, 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 10.25 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the fiscal year ended December 31, 2014)

 

10.29

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)

 

10.30

English translation of form of promissory noted relating to secured Credit Agreement dated as of April 15, 2014, 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 March 31, 2014)

 

10.31

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)

 

10.32

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)

 

10.33

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)

 

10.34

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)

 

10.35

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)

 

10.36

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 10.59 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the fiscal year ended December 31, 2009)

 

10.37

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)

 

10.38

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)

 

10.39

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)

 

10.40

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)

 

10.41

Amendment No. 8 to Senior Subordinated Note Purchase Agreement, dated as of June 30, 2014, 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, 2014)

 

10.42

Amendment No. 9 to Senior Subordinate Note Purchase Agreement, dated as of August 27, 2014, 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 September 30, 2014)

 

10.43

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)

  

 
35

 

 

 

10.44

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)

 

10.45

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)

 

10.46

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)

 

10.47

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)

 

10.48

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)

 

10.49

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)

 

10.50

Sixth 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 18, 2014 (incorporated by reference to Exhibit 10.47 to the Company’s Annual Report on Form 10-K (File No. 000-23938) for the fiscal year ended December 31, 2014)

 

*10.51

International Textile Group, Inc. Management Incentive Plan for 2015

 

*10.52

International Textile Group, Inc. 2016 Management Incentive Plan

 

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 Principal 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 Principal 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

 

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

 

 
36

 

 

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 23, 2016

 

 

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/ Kenneth T. Kunberger

 

Director, President and Chief Executive Officer

 

March 23, 2016

Kenneth T. Kunberger        
         

/s/ Gail A. Kuczkowski

 

Executive Vice President and Chief Financial Officer

 

March 23, 2016

Gail A. Kuczkowski   (Principal Financial and Accounting Officer)    
         

/s/ William P. Carmichael

 

Director

 

March 23, 2016

William P. Carmichael        
         

/s/ John W. Gildea

 

Director

 

March 23, 2016

John W. Gildea        
         

/s/ SU YEO

 

Director

 

March 23, 2016

Su Yeo        

 

 
37

 

  

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, 2015 and 2014

F-3

   

Consolidated Statements of Income for the years ended December 31, 2015 and 2014

F-4

   

Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2015 and 2014

F-5

   

Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2015 and 2014

F-6

   

Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014

F-7

   

Notes to Consolidated Financial Statements

F-8

  

 
F-1

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

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 Subsidiary Companies (the Company) as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income (loss), stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2015. 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 Subsidiary Companies as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America.

 

As discussed in Note 1 to the consolidated financial statements, the Company adopted new accounting guidance in 2015 and 2014, related to the presentation of debt issuance costs and deferred income taxes

 

/s/ GRANT THORNTON LLP

 

Raleigh, North Carolina

March 23, 2016

  

 
F-2

 

 

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

 

 

Assets

 

December 31,

2015

   

December 31,

2014

 
           

(As recast)

 

Current assets:

               

Cash and cash equivalents

  $ 12,314     $ 9,466  

Accounts receivable, less allowances of $1,303 and $684, respectively

    59,313       61,463  

Sundry notes and receivables

    10,298       11,475  

Inventories

    99,157       93,940  

Prepaid expenses

    2,224       3,176  

Other current assets

    1,011       708  

Total current assets

    184,317       180,228  

Property, plant and equipment, net

    106,646       104,277  

Intangibles and deferred charges, net

    1,052       1,267  

Goodwill

    2,740       2,740  

Deferred income taxes

    7,049       6,620  

Other assets

    7,599       3,990  

Total assets

  $ 309,403     $ 299,122  

Liabilities and Stockholders’ Deficit

               

Current liabilities:

               

Current portion of bank debt and other long-term obligations

  $ 6,811     $ 12,237  

Short-term borrowings

    32,400       43,764  

Accounts payable

    45,389       40,318  

Sundry payables and accrued liabilities

    23,803       22,236  

Income taxes payable

    1,010       732  

Total current liabilities

    109,413       119,287  

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

    48,589       60,957  

Senior subordinated notes - related party, including PIK interest

    181,362       160,877  

Income taxes payable

    2,248       3,114  

Deferred income taxes

    695       629  

Other liabilities

    17,161       20,589  

Total liabilities

    359,468       365,453  

Commitments and contingencies

               

Stockholders' deficit:

               

Series C preferred stock (par value $0.01 per share; 5,000,000 shares authorized; 114,628 shares issued and outstanding; and aggregate liquidation value of $134,748 and $124,351 at December 31, 2015 and 2014, respectively)

    114,183       114,183  

Series A convertible preferred stock (par value $0.01 per share; 15,000,000 shares authorized; 3,165,071 shares issued and outstanding; and aggregate liquidation value of $92,089 and $85,407 at December 31, 2015 and 2014, respectively)

    79,127       79,127  

Common stock (par value $0.01 per share; 150,000,000 shares authorized; 17,468,327 shares issued and outstanding at December 31, 2015 and 2014)

    175       175  

Capital in excess of par value

    21,944       21,944  

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

    (411 )     (411 )

Accumulated deficit

    (257,526 )     (274,591 )

Accumulated other comprehensive loss, net of taxes

    (7,557 )     (6,758 )

Total stockholders' deficit

    (50,065 )     (66,331 )

Total liabilities and stockholders' deficit

  $ 309,403     $ 299,122  

 

See accompanying Notes to Consolidated Financial Statements

  

 
F-3

 

 

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

 

 

   

Year Ended

December 31,

 
   

2015

   

2014

 
                 

Net sales

  $ 610,407     $ 595,446  

Cost of goods sold

    522,793       524,096  

Gross profit

    87,614       71,350  

Selling and administrative expenses

    47,491       45,835  

Provision for (recovery of) bad debts

    373       (53 )

Other operating income - net

    (4,349 )     (3,368 )

Impairment charge

    1,199       -  

Restructuring charges

    -       3,116  

Income from operations

    42,900       25,820  

Non-operating other income (expense):

               

Interest income

    250       240  

Interest expense - related party PIK interest

    (20,485 )     (18,060 )

Interest expense - third party

    (6,881 )     (10,729 )

Other income (expense) - net

    2,541       13,776  

Total non-operating other income (expense) - net

    (24,575 )     (14,773 )
                 

Income from continuing operations before income taxes and equity in losses of unconsolidated affiliates

    18,325       11,047  

Income tax expense

    (1,089 )     (3,486 )

Equity in losses of unconsolidated affiliates

    (105 )     (109 )

Income from continuing operations

    17,131       7,452  

Discontinued operations, net of income taxes:

               

Loss from discontinued operations

    (66 )     (6,559 )

Loss on disposal of net assets

    -       (501 )

Total loss from discontinued operations

    (66 )     (7,060 )

Net income

  $ 17,065     $ 392  
                 

Net income

  $ 17,065     $ 392  

Accrued preferred stock dividends, including arrearages for the period

    (17,079 )     (15,792 )

Net loss attributable to common stock

  $ (14 )   $ (15,400 )
                 

Net income (loss) per share attributable to common stock, basic:

               

Income (loss) from continuing operations

  $ -     $ (0.48 )

Loss from discontinued operations

    -       (0.40 )
    $ -     $ (0.88 )

Net income (loss) per share attributable to common stock, diluted:

               

Income (loss) from continuing operations

  $ -     $ (0.48 )

Loss from discontinued operations

    -       (0.40 )
    $ -     $ (0.88 )
                 

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 Income (Loss)
(Amounts in thousands)

  

   

Year Ended

December 31,

 
   

2015

   

2014

 
                 
                 

Net income

  $ 17,065     $ 392  
                 

Other comprehensive income (loss), net of taxes:

               

Cash flow hedge adjustments

    (1,285 )     (520 )

Pension and postretirement liability adjustments

    486       (610 )

Other comprehensive loss

    (799 )     (1,130 )
                 

Net comprehensive income (loss)

  $ 16,266     $ (738 )

 

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)

 

 

   

Series C

Preferred stock

   

Series A

Preferred stock

    Common stock    

Capital

in

excess

of par

   

Treasury

stock

   

Accumulated

   

Accumulated

other

comprehensive

         
   

Shares

   

Amount

   

Shares

   

Amount

   

Shares

   

Amount

   

value

   

amount

   

deficit

   

loss

   

Total

 
                                                                                         

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 )
                                                                                         

Net income

                                                    392             392  

Cancellation of preferred stock

    (11,475 )     (11,431 )     (10,304,963 )     (257,624 )                             269,055              

Cancellation of related party debt

                                        21,944                         21,944  

Net actuarial gains (losses) on benefit plans, net of taxes

                                                          (610 )     (610 )

Foreign currency cash flow hedges, net of taxes

                                                          (520 )     (520 )

Balance at December 31, 2014

    114,628       114,183       3,165,071       79,127       17,468,327       175       21,944       (411 )     (274,591 )     (6,758 )     (66,331 )
                                                                                         

Net income

                                                    17,065             17,065  

Foreign currency cash flow hedges, net of taxes

                                                          (1,285 )     (1,285 )

Net actuarial gains (losses) on benefit plans, net of taxes

                                                          486       486  

Balance at December 31, 2015

    114,628     $ 114,183       3,165,071     $ 79,127       17,468,327     $ 175     $ 21,944     $ (411 )   $ (257,526 )   $ (7,557 )   $ (50,065 )

 

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,

 
   

2015

   

2014