Document/Exhibit Description Pages Size
1: 10-K Annual Report Ftl 1994 67 293K
6: EX-10 Employment Agreement Between Farley Industries, 27 114K
Inc., Fruit of the Loom, Inc. and Earl
C. Shanks.
7: EX-10 Employment Agreement Between Farley Industries, 27 112K
Inc., Fruit of the Loom, Inc. and Larry
K. Switzer.
4: EX-10 Employment Agreement Between Farley Industries, 27 116K
Inc., Fruit of the Loom, Inc. and
Richard C. Lappin.
5: EX-10 Employment Agreement Between Farley Industries, 27 115K
Inc., Fruit of the Loom, Inc. and
Richard M. Cion.
3: EX-10 Employment Agreement Between Fruit of the Loom, 25 109K
Inc. and John B. Holland.
2: EX-10 Employment Agreement Between Fruit of the Loom, 25 110K
Inc. and William Farley.
8: EX-11 Computation of Earnings Per Common Share 2 11K
9: EX-22 List of Subsidiaries of the Company 3 17K
10: EX-24 Consent of Independent Auditors 1 8K
11: EX-27 Financial Data Schedule 1 9K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number 1-8941
FRUIT OF THE LOOM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3361804
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5000 Sears Tower,
233 South Wacker Drive,
Chicago, Illinois 60606
(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code: (312) 876-1724
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
Class A Common Stock, $.01 par value New York Stock Exchange
7% Debentures Due 2011 American Stock Exchange
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 the Registrant's knowledge, in definitive proxy 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 (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
As of March 10, 1995, there were outstanding 69,170,456 shares of the
Registrant's Class A Common Stock, par value $.01 per share, and 6,690,976
shares of the Registrant's Class B Common Stock, par value $.01 per share. The
aggregate market value of the Registrant's Class A Common Stock held by
nonaffiliates at March 21, 1995 was approximately $1,692,000,000.
Documents Incorporated by Reference
Part III incorporates by reference information from the proxy statement for
the Annual Meeting of Stockholders to be held on May 16, 1995.
FRUIT OF THE LOOM, INC.
1994 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 4. Submission of Matters to a Vote of Security Holders
(None) . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . 15
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . 18
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . 24
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure (None) . . . . . . . . . . 58
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . 58
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . 60
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Item 13. Certain Relationships and Related Transactions . . . . . . . . . 60
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
PART I
ITEM 1. BUSINESS
Fruit of the Loom, Inc. ("Fruit of the Loom" or the "Company") is a
vertically integrated international basic apparel company, emphasizing branded
products for consumers ranging from infants to senior citizens. It is the
largest domestic producer of underwear and of activewear for the imprinted
market, selling products principally under the FRUIT OF THE LOOM , BVD , SCREEN
STARS , BEST , MUNSINGWEAR , WILSON , BOTANY 500 and JOHN HENRY brand names.
Fruit of the Loom also manufactures and markets sports licensed apparel bearing
the names, tradenames and logos of the National Football League, the National
Basketball Association, Major League Baseball and the National Hockey League,
professional sports teams and most major colleges and universities, as well as
the likenesses of certain popular professional athletes under the PRO PLAYER ,
SALEM , SALEM SPORTSWEAR and OFFICIAL FAN brands. The Company manufactures
and markets men's and boys' basic and fashion underwear, activewear for the
imprint market, casualwear, jeanswear using the GITANO brand name, licensed
sports apparel, women's and girls' underwear, infants' and toddlers' apparel
and family socks. The Company is a fully integrated manufacturer, performing
most of its own spinning, knitting, cloth finishing, cutting, sewing and
packaging. Management believes that the Company is a low cost producer in the
markets it serves. Management considers the Company's primary strengths to be
its excellent brand recognition, low cost production, strong relationships with
mass merchandisers and discount chains and its ability to effectively service
its customer base.
The Company manufactures and markets underwear and activewear (which both
include T-shirts). Management believes that consumer awareness of the value
and excellent quality at competitive prices of FRUIT OF THE LOOM brand products
will benefit the Company in the current retail environment where consumers are
more value conscious.
During the last five calendar years, the Company has been the market
leader in men's and boys' underwear, with an annual market share ranging from
approximately 38% to 40%. In 1994, the Company's share in the men's and boys'
underwear market was approximately 38% compared to an approximate 33% share for
its closest competitor.
The Company offers a broad array of men's and boys' underwear, including:
briefs, boxer shorts, T-shirts and A-shirts, colored and "high fashion" (as
well as RIBBED WHITES ) underwear. It sells all-cotton and cotton-blend
underwear under its FRUIT OF THE LOOM and BVD brand names. Products sold under
the BVD brand name are priced higher than those sold under the FRUIT OF THE
LOOM brand name and are generally designed to appeal to a more premium market.
Under licensing arrangements, the Company manufactures and markets men's and
boys' underwear bearing the MUNSINGWEAR, KANGAROO , BOTANY 500 and JOHN HENRY
trademarks as well as certain activewear bearing the MUNSINGWEAR and BOTANY 500
trademarks in the United States and certain foreign markets.
Management believes the Company is the largest of the domestic activewear
manufacturers that supply screen printers and that it has a market share of
approximately 33% of the screen print T-shirt market. The Company produces and
sells blank shirts and fleecewear under the SCREEN STARS brand name and premium
fleecewear and T-shirts under the FRUIT OF THE LOOM, LOFTEEZ and BEST BY
ITEM 1. BUSINESS - (Continued)
FRUIT OF THE LOOM labels. These products are manufactured in a variety of
styles and colors and are sold to distributors, screen printers and specialty
retailers, who generally apply a decoration prior to sale at retail. Product
quality, delivery responsiveness and price are important factors in the sale of
activewear. Management believes that the Company's recent capacity additions
and its low cost position afford it a competitive advantage in this market.
The Company markets casualwear under the FRUIT OF THE LOOM, BVD and
MUNSINGWEAR brands. The Company markets a selection of jersey and fleece tops,
shorts and bottoms. There are separate Spring and Fall lines with updated
color selections for each of the men's, women's, boys' and girls' categories.
A national marketing program includes national advertising and local
cooperative advertising, promotions and in-store merchandising. The casualwear
market is fragmented and has no dominant brands.
In 1993, twenty new styles were introduced in the casualwear line with
more fashion treatments, color selections and heavier fabrics; sixty-three new
styles were added in 1994 which emphasized casualwear tailored specifically for
ladies and girls. Late in the fourth quarter of 1994, the Company reevaluated
its continued expansion of the FRUIT OF THE LOOM casualwear line. As a result
of the Company's reevaluation, a substantial number of slower moving or less
profitable items have been removed from the line.
In March 1994, the Company purchased certain assets of the Gitano Group,
Inc. ("Gitano"), including the GITANO and other trademarks. Gitano designs,
manufactures (including contract manufacturing) and markets women's and men's
jeanswear and jeans related sportswear. During 1994 and prior to the
acquisition of the certain Gitano assets by the Company, Gitano provided
certain merchandising, marketing and design functions for its largest customer
which then directly contracted for the merchandise from third party sources.
Following the acquisition by the Company, Gitano reverted to a traditional role
of an apparel wholesaler, carrying and financing its jeanswear and jeans
related product inventories and selling these goods to its customers.
Accordingly, the former arrangement of providing merchandise, marketing and
design services to its largest customer on a fee basis was terminated in late
1994. In addition to its core apparel products, Gitano licenses the production
and sale of a variety of accessories and other products bearing the GITANO
trademark.
The Company entered the imprinted licensed sportswear business through its
acquisitions of Salem Sportswear Corporation ("Salem"), Artex Manufacturing Co.
Inc. ("Artex") and Pro Player, Inc. ("Pro Player"), which were acquired in
November 1993, January 1994 and August 1994, respectively. The Company
designs, manufactures and markets sports apparel under licenses granted by
major American sports leagues, professional players and many American colleges
and universities. The Company sells a wide variety of quality sportswear,
including T-shirts, sweatshirts, shorts and light outerwear under the SALEM,
SALEM SPORTSWEAR and OFFICIAL FAN brands. The Company manufactures and markets
a wide variety of decorated sportswear to retail stores, college book stores
and mass merchants. The Company is currently one of only three companies using
the "dual" license concept of combining licensed cartoon characters with the
logos of major professional sports leagues. The Company has licenses from all
the major professional sports leagues as well as from the Walt Disney Company
and Warner Bros. for LOONEY TUNES . Under its PRO PLAYER brand, the Company
ITEM 1. BUSINESS - (Continued)
designs and markets heavy jackets, light jackets, headwear and other outerwear
bearing the logos or insignia of professional and college teams and leagues.
In addition, the Company (under license agreements) manufactures and markets
sportswear featuring the well known WILSON trademark. In late December 1994,
the Company announced the closing of substantially all of the operating
locations of Artex and the consolidation of these operations into existing
Company facilities.
The Company produces women's and girls' underwear, in white and colors,
under the FRUIT OF THE LOOM brand name. The Company introduced its women's and
girls' lines in 1984 using the branded, packaged product strategy that it had
successfully employed in the men's and boys' market. In 1994 the Company
introduced a new panty program with all new product, new fit, new construction
and re-designed packaging. The Company's products are packaged, typically
three to a pack, making them convenient for the merchant to handle and display.
During the last five calendar years, in the fragmented women's and girls'
underwear market, the Company was one of the branded market leaders with a
market share ranging from approximately 13% to 17%. In 1994, the Company's
share in the women's and girls' underwear market was approximately 13% compared
to a market share of 26% for the largest competing brand. No other competitor
had more than a 4% market share in 1994.
The Company granted a license to Warnaco Inc. whereby Warnaco Inc.
manufactures and sells bras, slips, camisoles and other products under the
FRUIT OF THE LOOM brand name in North America. The Company also licenses the
use of the FRUIT OF THE LOOM brand name to a select group of companies who
manufacture a variety of products such as ladies athleticwear and sheer
hosiery.
The Company offers a broad array of childrenswear including decorated
underwear (generally with pictures of licensed movie or cartoon characters)
under the FUNPALS and FUNGALS brand names and layette sets under the FRUIT OF
THE LOOM brand and the recently developed WINNIE THE POOH license which
includes both packaged and hanging sets.
The Company entered the basic family sock market in mid-1986 through
acquisitions and management believes the Company is now one of the two largest
domestic manufacturers and that no manufacturer has more than a 10% market
share.
Marketing and Distribution
The Company sells its products to over 22,000 accounts, including all
major discount and mass merchandisers, wholesale clubs and screen printers.
The Company also sells to many department, specialty, drug and variety stores,
national chains, supermarkets and sports specialty stores. The Company's
products are principally sold by a nationally organized direct sales force of
full-time employees. Certain of the Company's imprinted sportswear products are
sold through independent sales representatives. The Company's products are
shipped from 17 primary distribution centers to over 82,000 customer locations.
Management believes that one of the Company's primary strengths is its
excellent relationships with mass merchandisers and discount chains. These
retailers accounted for approximately 66% of the men's and boys' underwear and
ITEM 1. BUSINESS - (Continued)
Marketing and Distribution - (Concluded)
approximately 58% of the women's and girls' underwear sold in the United States
in 1994, up from approximately 56% and 54%, respectively, in 1990. The Company
supplied approximately 50% of the men's and boys' underwear and approximately
20% of the women's and girls' underwear sold by discount and mass merchandisers
in the United States in 1994. During the last several years many of the
Company's principal customers have revamped their inventory and distribution
systems requiring their suppliers to offer more flexible product deliveries.
In response to these demands, the Company has invested heavily in warehousing
and distribution facilities.
Sales to one customer amounted to approximately 15.6%, 13.4% and 11.8% of
consolidated net sales in 1994, 1993 and 1992, respectively. Additionally,
sales to a second customer amounted to approximately 11.8%, 12.3% and 10.2% of
consolidated net sales in 1994, 1993 and 1992, respectively. Management does
not believe the loss of any one customer would adversely affect its business as
a large percentage of these sales would shift to other outlets due to the high
degree of brand awareness and consumer loyalty to the Company's products. The
Company's business is seasonal to the extent that approximately 56% of annual
sales occur in the second and third quarters. Sales are generally the lowest
in the first quarter.
International Operations
The Company primarily sells activewear through its foreign operations,
principally in the United Kingdom, continental Europe, Canada, Mexico and
Japan. The Company's approach has generally been to establish production in
foreign markets by both acquiring existing manufacturing facilities and
building new plants in order to decrease the impact of foreign currency
fluctuations on international sales and to better serve these markets. The
Company has established manufacturing plants in Canada, the Republic of Ireland
and Northern Ireland (United Kingdom) as a means of accomplishing these
objectives. In addition, the Company has established manufacturing operations
in Mexico, Honduras, El Salvador and Jamaica to assemble fabrics which have
been manufactured and cut in the Company's United States' operations, as well
as externally sourced fabric, into finished goods for sale principally in the
United States. The Company has established manufacturing operations in Morocco
where fabrics from the Republic of Ireland are cut and sewn and returned to
Europe for sale.
Since 1990, the Company's international sales have more than doubled.
Sales from international operations during 1994 were $325,800,000 and were
principally generated from products manufactured at the Company's foreign
facilities. These international sales accounted for approximately 14.2% of the
Company's net sales in 1994. Management believes international sales will
continue to be a source of growth for the Company, particularly in Europe.
This growth will depend on continued demand for the Company's products in
diverse international marketplaces. See "Business Segment and Major Customer
Information" in the Notes to Consolidated Financial Statements.
ITEM 1. BUSINESS - (Continued)
Manufacturing
Principal manufacturing operations consist of spinning, knitting, cloth
finishing, cutting, sewing and packaging. In addition, licensed sportswear
products are generally produced by applying decorative images, most often by
screen printing or embroidery, to blank garments. The Company knits yarn into
fabric using a multiple-knitting technique that produces long tubes of fabric
corresponding in weight and diameter to various sizes and styles required to
make underwear and activewear. Substantially all of the Company's products are
either bleached to remove the ecru color of natural cotton or dyed for colored
products. To achieve certain colors, the fabric must be bleached and dyed.
Computer controlled die cutting is used in all areas where management
believes it is more efficient. Fabric is distributed to employees operating
individual sewing machines. To increase efficiency, each employee specializes
in a particular function, such as sewing waistbands on briefs. Quality
checkpoints occur at many intervals in the manufacturing process, and each
garment is inspected prior to packaging.
Competition
All of the Company's markets are highly competitive. Competition in the
underwear and activewear markets is generally based upon quality, price and
delivery. The Company's vertically integrated manufacturing structure,
supplemented with some off-shore sewing of fabrics supplied by the Company's
domestic knitting operations, allows it to produce high quality products at
costs which management believes are among the lowest in the industry. The
Company has recently invested additional capital in warehousing and
distribution facilities to service its customer base effectively. In response
to market conditions, the Company, from time to time, reviews and adjusts its
product offerings and pricing structure. Where appropriate, the Company uses
contract manufacturing to further minimize its costs. Such contract
manufacturing accounted for less than 5% of the Company's total production in
1994.
Licensing and Trademarks
The Company owns the FRUIT OF THE LOOM, BVD, SCREEN STARS, BEST, LOFTEEZ
and certain other trademarks, which are registered or protected by common law
in the United States and in many foreign countries. These trademarks are used
on men's, women's and children's underwear and activewear and sportswear
marketed by the Company. The Company owns the GITANO trademark which is
registered in the United States and in many foreign countries for use
principally in connection with women's jeanswear, sportswear and certain other
apparel and accessory items.
The Company licenses properties from different companies for its decorated
underwear products. Among the characters licensed are: THE LITTLE MERMAID ,
BEAUTY AND THE BEAST , 101 DALMATIANS , BATMAN , BATMAN FOREVER , LOONEY TUNES,
SONIC THE HEDGEHOG , BIKER MICE FROM MARS , MIGHTY MORPHIN POWER RANGERS , LAMB
CHOP , THE SWAN PRINCESS , VR TROOPERS , SKELETON WARRIORS , PEANUTS ,
POCAHONTAS and WINNIE THE POOH. The Company also has a license to use the
MUNSINGWEAR, KANGAROO, BOTANY 500 and JOHN HENRY trademarks on its men's and
ITEM 1. BUSINESS - (Continued)
Licensing and Trademarks - (Concluded)
boys' underwear and certain activewear. The Company has a license to use the
WILSON brand on its sweatshirts and sweatpants, T-shirts, shorts and other
athletic activewear.
In addition, the Company owns the SALEM, SALEM SPORTSWEAR, OFFICIAL FAN
and PRO PLAYER trademarks for its licensed sportswear business. The Company
licenses properties, including team insignia, images of professional athletes
and college logos, from the National Football League, the National Basketball
Association, Major League Baseball, the National Hockey League, professional
players' associations and certain individual players and many American colleges
and universities. These owned and licensed trademarks are used on sports
apparel, principally T-shirts, shorts, sweatshirts and jerseys, marketed by the
Company. The Company also licenses properties from the Walt Disney Company and
Warner Bros. for LOONEY TUNES for use in a dual license concept combining
cartoon characters with major professional sports leagues.
In 1994, the Company entered into a licensing agreement with the Walt
Disney Company whereby the Company's European subsidiary will offer for sale a
variety of casualwear apparel products bearing the world famous DISNEY
characters in Europe, Eastern Europe and the Middle East. Collections to be
offered will include T-shirts, sweatshirts, sweatpants, shorts, shirts,
turtlenecks, polos and leggings as well as a number of denim products.
Products are expected to be available in retail stores in the Fall of 1995.
Imports
The Company did not experience a negative impact from the implementation
of the North American Free Trade Agreement (NAFTA). NAFTA's strict rule of
origin, which generally requires apparel to be made from North American spun
yarn and North American knit or woven fabric, should continue to prevent Mexico
from becoming an export platform for low-wage manufacturers from outside the
region. The Company believes that its more capital and technology intensive
yarn spinning, knitting and cloth finishing operations in the United States
remain at an advantage to import competitors. Nonetheless, apparel imports
from Mexico are increasing. As the Company produces more garments in total,
the Company is increasing the capacity of its more labor intensive assembly
operations in Mexico, the Caribbean and Central America. This action is
necessary to help the Company remain competitive as import competition
increases.
As with Mexico, imports from the Caribbean and Central America likely will
continue to rise more rapidly than imports from other parts of the world. This
is because Section 9802 (previously Section 807) of the United States tariff
schedule grants preferential quotas for Caribbean and Central American
countries when United States made and cut fabrics are used, and duty is paid
only on the value added outside the United States. United States apparel and
textile manufacturers, including the Company, will continue to use Section 9802
to compete with direct imports. The use of Section 9802 will accelerate if the
United States Congress adopts the proposed "NAFTA Parity" for the countries of
the Caribbean and Central America, which, among other things, would grant duty
free treatment for apparel assembled in the region from United States
components.
ITEM 1. BUSINESS - (Continued)
Imports - (Concluded)
Direct imports accounted for approximately 21% of the United States men's
and boys' underwear market (46% if Section 9802 imports are included) in 1994
and approximately 39% (81% including Section 9802 imports) of the women's and
girls' underwear market. With regard to activewear and cotton socks, imports
accounted for approximately 35% and 2.4% of these respective markets in 1993,
the latest period for which data is available.
U.S. tariffs and quotas established under the international agreement
known as the Multifiber Arrangements (MFA) limit the growth of imports from low
wage foreign suppliers such as China, India and Pakistan. Consequently,
management does not believe that imports from these countries presently pose a
significant threat to its business. Import competition will continue to
increase and accelerate as MFA quotas are phased out. Quotas will be
completely eliminated on January 1, 2005. The Company will monitor closely the
impact of the MFA quota phase out and will respond as necessary to maintain its
low-cost position.
Employees
The Company employs approximately 37,400 persons. Approximately 5,200
employees, principally international, are covered by collective bargaining
agreements.
Miscellaneous
Materials and Supplies. Materials and supplies used by the Company are
available in adequate quantities. The primary raw materials used in the
manufacturing processes are cotton and polyester which are subject to the price
volatility of the commodity markets. The Company enters into futures contracts
as hedges for its purchases of cotton for inventory.
Other. The Company was incorporated under the laws of the state of
Delaware in 1985. The principal executive offices of the Company are located
at 233 South Wacker Drive, 5000 Sears Tower, Chicago, Illinois 60606, telephone
(312)876-1724. As used in this Annual Report on Form 10-K, the term "the
Company" refers to Fruit of the Loom, Inc. and its subsidiaries, together with
its predecessor, Northwest Industries, Inc. ("Northwest"), unless otherwise
stated or indicated by the context. Market share data contained herein are for
domestic markets and are based upon information supplied to the Company by the
National Purchase Diary, which management believes to be reliable.
ITEM 2. PROPERTIES
The Company has properties and facilities aggregating approximately
20,652,000 square feet of usable space, of which approximately 8,463,000 square
feet of facilities are under leases expiring through 2016. Management believes
that the Company's facilities and equipment are in good condition and that the
Company's properties, facilities and equipment are adequate for its current
operations. The Company has invested approximately $1.4 billion in capacity
expansion and plant modernization programs during the past nine calendar years.
Capital spending, primarily to enhance distribution and yarn manufacturing
capabilities and to establish offshore assembly operations, is expected to
approximate $125,000,000 to $140,000,000 in 1995. Management believes that
these prior investments, together with planned capital expenditures, will allow
the Company to accommodate current and anticipated sales growth and remain a
low cost producer in the next several years.
Set forth below is a summary of the principal facilities owned or leased
by the Company:
[Download Table]
No. of Square Feet
Primary Use Locations Owned Leased
Manufacturing . . . . . . . . . . . . . 61 7,714,000 2,976,000
Warehouse and distribution . . . . . . . 71 4,336,000 5,129,000
Sales and administration . . . . . . . . 35 139,000 358,000
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in certain legal proceedings
and have retained liabilities, including certain environmental liabilities,
such as those under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, its regulations and similar state statutes
("Superfund Legislation") in connection with the sale of certain discontinued
operations, some of which were significant generators of hazardous waste. The
Company and its subsidiaries have also retained certain liabilities related to
the sale of products in connection with the sale of certain discontinued
operations. The Company's retained liability reserves at December 31, 1994
related to discontinued operations consist primarily of certain environmental
and product liability reserves of approximately $79,100,000. The Company has
recorded receivables related to these liabilities of approximately $36,700,000
which, management believes, will be recovered from insurance and other sources.
Management and outside environmental consultants evaluate, on a site-by-site or
a claim-by-claim basis, the extent of environmental damage, the type of
remediation that will be required and the Company's proportionate share of
those costs as well as the Company's liability in each case. The Company's
retained liability reserves related to discontinued operations principally
pertain to 11 specifically identified environmental sites and the
aforementioned product liabilities. Five sites and the total product
liabilities individually represent more than 10% of the net reserve and, in the
ITEM 2. LEGAL PROCEEDINGS - (Continued)
aggregate, represent approximately 96% of the net reserve. Management believes
it has adequately estimated the impact of remediating identified sites, the
expected contribution from other potentially responsible parties and recurring
costs for managing sites as well as the ultimate resolution of the product
liability claims. Management currently estimates actual payments before
recoveries to range from approximately $9,200,000 to $24,200,000 annually
between 1995 and 1998 and $14,300,000 in total subsequent to 1998. Only the
long-term monitoring costs of approximately $6,600,000 primarily scheduled to
be paid in 1999 and beyond have been discounted. The discount rate used was
10%. The undiscounted aggregate long-term monitoring costs, to be paid over
approximately the next 20 years, is approximately $17,800,000. Management
believes that adequate reserves have been established to cover potential claims
based on facts currently available and current Superfund Legislation. The
Company has provided the foregoing information in accordance with Staff
Accounting Bulletin 92.
Generators of hazardous wastes which were disposed of at offsite locations
which are now superfund sites are subject to claims brought by state and
Federal regulatory agencies under Superfund Legislation and by private citizens
under Superfund Legislation and common law theories. Since 1982, the United
States Environmental Protection Agency (the "EPA") has actively sought
compensation for response costs and remedial action at offsite disposal
locations from waste generators under the Superfund Legislation, which
authorizes such action by the EPA regardless of fault, legality of original
disposal or ownership of a disposal site. The EPA's activities under the
Superfund Legislation can be expected to continue during 1995 and future years.
In February 1986, the Company completed the sale of stock of its then
wholly owned subsidiary, Universal Manufacturing Corporation ("Universal"), to
MagneTek, Inc., ("MagneTek"). At the time of the sale there was a suit pending
against Universal and Northwest by L.M.P. Corporation ("LMP"). The suit (the
"LMP Litigation") alleged that Universal and Northwest fraudulently induced LMP
to sell its business to Universal and then suppressed the development of
certain electronic lighting ballasts in breach of the agreement of sale, which
required Universal to pay to LMP a percentage of the net profits from such
business from 1982 through 1986. Two additional plaintiffs, Stevens
Luminoptics Partnership and Calmont Technologies Inc., joined the litigation in
1986. In December 1989 and January 1990, a jury returned certain verdicts
against Universal and also returned verdicts in favor of Northwest and on
certain issues in favor of Universal. A judgment totalling $25,800,000, of
which $7,500,000 represented punitive damages, reflecting these verdicts was
entered by the Alameda County, California Superior Court in January 1990
against Universal.
In April 1992, the California Court of Appeals reversed the $25,800,000
judgment against Universal and affirmed those verdicts favorable to Universal
and Northwest. In July 1992, the California Supreme Court denied the
plaintiffs' petition for review. The case was then remanded to the trial
court. In October 1994, following a retrial of the LMP Litigation, a jury
returned a verdict of approximately $96,000,000 against Universal. The jury
verdict included breach of contract and fraud damages and approximately
$6,000,000 in punitive damages. The Company is obligated to indemnify
Universal for damages incurred in this case.
ITEM 2. LEGAL PROCEEDINGS - (Continued)
Management of the Company believes that the jury's decision is incorrect
and is contrary to the evidence. Based on discussions with counsel and on
other information currently available, management believes that the court
committed numerous errors during the trial and, accordingly, that the judgment
will not stand on appeal. The Company intends to vigorously appeal this
verdict.
In March 1988, a class action suit entitled Endo et al. v. Albertine, et
al. was filed in the United States District Court for the Northern District of
Illinois (the "District Court") against the Company, its then directors,
certain of its then executive officers, its then underwriters and the Company's
current independent auditors in connection with the Company's initial public
offering of Class A Common Stock and certain debt securities in March 1987.
The suit alleges, among other things, violations of Federal and state
securities laws against all of the defendants, as well as breaches of fiduciary
duties by the director and officer defendants, and seeks unspecified damages.
Motions to dismiss the complaint were filed by all defendants. In
December 1990, a magistrate judge recommended that the District Court dismiss
all of the plaintiffs' claims with prejudice. On January 29, 1993, the
District Court adopted in part and rejected in part the magistrate judge's
recommendation for dismissal of the complaint. As a result, the litigation
will continue as to various remaining counts of the complaint. Both the
defendants and the plaintiffs filed motions for summary judgment which were
denied in all material respects. Management and the Board of Directors believe
that this suit is without merit and intend to continue to vigorously defend
against this litigation.
On December 23, 1993, James J. Locke, as Trustee of Locke Family Trust,
and I. Jack Saline filed a lawsuit against the Company and certain of its then
officers and directors, including William Farley and John B. Holland, in the
District Court. The lawsuit was then amended to add additional plaintiffs. On
April 19, 1994, the District Court granted plaintiffs' motion for class
certification. The plaintiffs claim that all of the defendants engaged in
conduct violating Section 10b of the Securities Exchange Act of 1934, as
amended (the "Act"), and that Mr. Farley and Mr. Holland also violated Section
20a of the Act. According to the plaintiffs, beginning before June 1992 and
continuing through early June 1993, the Company, with the knowledge and
assistance of the individual defendants, issued positive public statements
about its expected sales increases and growth through 1993 and afterwards.
They also allege that beginning in approximately mid-1992 and continuing
afterwards, the Company's business was not as strong and its growth prospects
were not as certain as represented. The plaintiffs further allege that during
the end of 1992 and beginning of 1993, certain of the individual defendants
traded the stock of the Company while in the possession of material, non-public
information. The plaintiffs ask for unspecified amounts as compensatory
damages, pre-judgment and post-judgment interest, attorneys' fees, expert
witness fees and costs and ask the District Court to impose a constructive
trust on the proceeds of the individual defendants' trades to satisfy any
potential judgment. Management believes that this suit is without merit and
management and the Company intend to vigorously defend against this litigation.
ITEM 3. LEGAL PROCEEDINGS - (Concluded)
Management believes, based on information currently available, that the
ultimate resolution of the aforementioned litigation will not have a material
adverse effect on the financial condition or operations of the Company.
In March 1992, the Company received a refund of approximately $60,000,000
relating to Federal income taxes paid by Northwest plus interest thereon
applicable to the tax years 1964-1968. However, in September 1992, the
Internal Revenue Service (the "IRS") issued a statutory notice of deficiency in
the amount of approximately $7,300,000 for the taxable years from which the
March 1992 refund arose, exclusive of interest which would have accrued from
the date the IRS asserted the tax was due until payment, presently a period of
about 27 years. In October 1994 the United States Tax Court ruled in favor of
the Company in the above case. In January 1995 the IRS filed an appeal with
the United States Court of Appeals for the Seventh Circuit. The Company
believes, based on information currently available, that the IRS position is
without merit and that the Company will prevail in this appeal.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
William Farley, an executive officer and director of the Company, holds
100% of the common stock of Farley Inc. ("FI"). William Farley and FI together
own all of the Class B Common Stock of the Company outstanding. See
"Consolidated Statement of Common Stockholders' Equity" in the Notes to
Consolidated Financial Statements. William Farley also owns 318,000 shares of
the Class A Common Stock of the Company. As of March 10, 1995, there were
2,593 registered holders of record of the Class A Common Stock of the Company.
Common Stock Prices and Dividends Paid
The Company's Class A Common Stock is listed on the New York Stock
Exchange. Prior to December 3, 1993, the Company's Class A Common Stock was
listed on the American Stock Exchange. The following table sets forth the high
and low market prices of the Class A Common Stock for 1994 and 1993:
[Enlarge/Download Table]
Market Prices
1994 1993
High Low High Low
1st Quarter . . . . . . . . . . . . . . $ 31-5/8 $ 23 $ 49-1/4 $ 40
2nd Quarter . . . . . . . . . . . . . . 33 25-3/4 43-1/2 29-3/4
3rd Quarter . . . . . . . . . . . . . . 27-1/2 23-1/4 34 27-3/4
4th Quarter . . . . . . . . . . . . . . 29-7/8 24-5/8 38-1/8 22-7/8
No dividends were declared on the Company's common stock issues during
1994 or 1993. The Company does not currently anticipate paying any dividends
in 1995. For restrictions on the present or future ability to pay dividends,
see "Long-Term Debt" in the Notes to Consolidated Financial Statements.
ITEM 6. SELECTED FINANCIAL DATA
(In Millions, Except Per Share Data)
[Enlarge/Download Table]
Year Ended December 31,
1994 1993 1992 1991 1990
Earnings Statement Data<F1>:
Net sales . . . . . . . . . . . . . . . . $2,297.8 $1,884.4 $1,855.1 $1,628.1 $1,426.8
Gross earnings . . . . . . . . . . . . . 646.5 647.4 660.3 525.6 506.6
Operating earnings . . . . . . . . . . . 235.0<F2> 381.5 409.9 319.3 300.3
Interest expense . . . . . . . . . . . . 95.4 72.7 82.1 114.9 129.4
Earnings before income tax expense,
extraordinary items and cumulative effect
of change in accounting principle . . 133.5 367.1 319.9 201.0 148.6
Earnings before extraordinary items
and cumulative effect of change
in accounting principle . . . . . . . 60.3 212.8<F3> 188.5 111.0<F4> 77.1<F5>
Earnings per common share before extraordinary items and cumulative
effect of change in accounting principle:
Primary . . . . . . . . . . . . . . . .79 2.80<F3> 2.48 1.60<F4> 1.25<F5>
Fully diluted . . . . . . . . . . . . .79 2.80<F3> 2.48 1.55<F4> 1.18<F5>
Average common shares outstanding:
Primary . . . . . . . . . . . . . . . 76.0 76.0 76.0 69.4<F6><F7> 61.9
Fully diluted . . . . . . . . . . . . 76.0 76.0 76.0 72.8<F6> 67.3
Year Ended December 31,
1994 1993 1992 1991 1990
Balance Sheet Data:
Total assets . . . . . . . . . . . . . . $3,163.5 $2,734.0 $2,281.9 $2,114.9 $2,151.2
Long-term debt . . . . . . . . . . . . . 1,440.2 1,194.0 756.3 811.2<F6><F7> 1,014.4
Deferred and noncurrent income taxes . . 43.4 51.0 49.1 167.4 156.3
Other noncurrent liabilities . . . . . . 222.3 191.5 187.9 77.3 67.5
Common stockholders' equity . . . . . . . 1,125.8 1,047.0 855.0 688.7<F6><F7> 417.9
<FN>
<F1> This information should be read in conjunction with "ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS" and the Financial Statements and Supplementary Data.
<F2> Includes pretax charges of approximately $40 to write inventories down
to net realizable value and a pretax charge of $18 related to the
write-off of Artex intangibles.
<F3> Includes a pretax gain of $67.3 ($.55 per share on both a primary and
fully diluted basis) from the Company's investment in Acme Boot Company,
Inc. ("Acme Boot"). Excluding this gain, earnings per share were $2.25
on both a primary and fully diluted basis.
<F4> Includes the effect of a court ordered refund of Federal income taxes
of $10.5, plus interest of $49.4, ($.57 per share on both a primary and
fully diluted basis), a pretax charge of $10.2 ($.12 per share on both
a primary and fully diluted basis) for certain obligations and other
matters related to former subsidiaries and a pretax charge of $39.2
($.45 per share on both a primary and fully diluted basis) to write down
the Company's investment in Acme Boot to its then market value.
<F5> Includes a pretax charge of $16.3 ($.17 and $.16 per share on a primary
and fully diluted basis, respectively) for certain obligations and other
matters related to former subsidiaries. Excluding this charge, earnings
per share were $1.42 and $1.34 on a primary and fully diluted basis,
respectively.
<F6> In May 1991, the Company completed the underwritten primary offering of
7.5 shares of its Class A Common Stock (the "Stock Offering"). The
Company used the proceeds of approximately $101.5 from the Stock
Offering to reduce borrowings under its domestic bank agreements.
<F7> In July 1991, the Company called for redemption all of its 6-3/4%
Convertible Subordinated Debentures due March 1, 2002 (the "Debentures")
totaling $59.9. The Debentures were converted into Class A Common Stock
of the Company at a conversion price of $11.25 per share. Approximately
5.3 shares were issued in the conversion.
</FN>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The table below sets forth selected operating data (in millions of dollars
and as percentages of net sales) of the Company:
[Enlarge/Download Table]
Year Ended December 31,
1994 1993 1992
Net sales . . . . . . . . . . . . . . . . . $ 2,297.8 $ 1,884.4 $ 1,855.1
Gross earnings . . . . . . . . . . . . . . . $ 646.5 $ 647.4 $ 660.3
Gross margin . . . . . . . . . . . . . . . . 28.1% 34.4% 35.6%
Operating earnings . . . . . . . . . . . . . $ 235.0 $ 381.5 $ 409.9
Operating margin . . . . . . . . . . . . . . 10.2% 20.2% 22.1%
Operations
1994 Compared to 1993
Net sales increased 21.9% in 1994 compared to 1993. The increase in net
sales in 1994 was primarily due to the results of the Company's new licensed
sports apparel line, principally as a result of the acquisitions of Salem in
November 1993, Artex in January 1994 and Pro Player in August 1994. Also,
volume increases in certain of the Company's existing businesses reflecting
improved demand and the introduction of new programs and products in 1994
contributed to the sales increase in 1994. In addition, the 1994 results
include the operations of Gitano since April 1994. These increases were
partially offset by the negative effects of lower average selling prices
(principally for domestic activewear in the first six months of 1994).
Gross earnings decreased .1% in 1994 compared to 1993. The gross margin
was 28.1% in 1994 compared to 34.4% in 1993. In December 1994, the Company
announced the closing of substantially all of the operations of Artex,
consolidating the manufacturing portion of those operations into existing
Company-owned facilities. In addition, the Company's casualwear businesses,
Fruit of the Loom casualwear and Gitano, undertook significant product line
reduction programs during the fourth quarter, and administrative consolidations
resulted in the elimination of the New York casualwear group. The Company also
undertook a comprehensive review of its other domestic product offerings during
the last quarter of 1994. As a result of this review, a substantial number of
slower moving or less profitable items have been removed, principally from the
casualwear and licensed sports apparel lines, and written down to net
realizable value. The total of the various inventory related charges was
approximately $40,000,000. In addition, gross earnings and gross margin have
been impacted by the effects of lower prices and promotional activities, other
general cost increases, including cotton cost increases, and manufacturing
inefficiencies as certain sewing operations are transferred to offshore
locations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
Operations - (Continued)
1994 Compared to 1993 - (Continued)
Operating earnings decreased 38.4% compared to 1993 while the operating
margin decreased ten percentage points to 10.2% of net sales in 1994. The
decreases in operating earnings resulted from higher selling, general and
administrative expenses and goodwill amortization (from the acquisitions of
Salem, Artex, Gitano and Pro Player) in 1994, coupled with the decrease in
gross earnings. Selling, general and administrative expenses increased to
16.4% of net sales in 1994 compared to 12.7% of net sales in 1993. Higher
selling and other administrative costs arose both from the acquisitions of
Salem, Artex, Gitano and Pro Player and from the Company's continuing effort to
improve customer service by making investments in added distribution
capabilities, computer systems and other infrastructure required to service
customers more effectively. In addition, selling, general and administrative
expenses in 1994 include charges related to the consolidation of the Company's
licensed sportswear operations.Costs associated with the closing of the Artex
operations included the write-off of approximately $18,000,000 of intangibles.
The increases in selling, general and administrative expenses also include
higher royalty costs in 1994, principally due to the acquisitions of the Salem,
Artex and Pro Player licensed sports apparel operations.
Interest expense in 1994 increased 31.2% from 1993. The increase was
principally attributable to the effect of higher debt levels in 1994. Higher
debt levels were primarily due to the acquisitions of Salem, Artex, Gitano and
Pro Player, which were financed through borrowings under the Company's
$800,000,000 revolving line of credit (the "New Credit Agreement"), and higher
working capital levels.
Included in other expense - net in 1994 is $16,000,000 of service fee
income from Gitano's operations which represented Gitano's transition to a
marketing service organization from a traditional wholesaler base. These
revenues are not expected to recur after 1994 as Gitano reverts to a
traditional apparel wholesaler. This was partially offset by $12,500,000 of
charges to provide for certain obligations of and legal expenses pertaining to
litigation related to retained liabilities of former subsidiaries. In
addition, other expense - net in 1994 and 1993 included approximately
$8,100,000 and $7,900,000, respectively, of deferred debt fee amortization and
bank fees.
In 1993 the Company received approximately $72,900,000 from Acme Boot
representing the entire unpaid principal and liquidation preference (including
accrued interest and dividends) on its investment in the securities of the
affiliate. The Company recorded a pretax gain of $67,300,000 related to the
investment in Acme Boot upon the receipt of the above mentioned proceeds. See
"Related Party Transactions" in the Notes to Consolidated Financial Statements.
The effective income tax rate for 1994 and 1993 differed from the Federal
statutory rate of 35% primarily due to the impact of goodwill amortization, a
portion of which is not deductible for Federal income tax purposes, state
income taxes and the provision for interest related to prior years' taxes.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
Operations - (Continued)
1994 Compared to 1993 - (Concluded)
In 1993 the Company recorded an extraordinary charge of $8,700,000 ($.11
per share) in connection with the refinancing of its bank credit agreements and
the redemption of its 12-3/8% Senior Subordinated Debentures due 2003 (the
"12-3/8% Notes"). The extraordinary charge consisted principally of the non-
cash write-off of the related unamortized debt expense on the bank credit
agreements, the 12-3/8% Notes and other debt issues and the premiums paid in
connection with the early redemption of the 12-3/8% Notes, both net of income
tax benefits.
In the first quarter of 1993, the Company recorded the cumulative effect
of an accounting change related to the adoption of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("Statement No.
109"), resulting in a $3,400,000 ($.04 per share) benefit.
Earnings per share before extraordinary items and cumulative effect of
change in accounting principle decreased 71.8% to $.79 from $2.80 for 1993.
Net earnings per share in 1993 were $2.73 and included an $.11 extraordinary
charge related to the early retirement of debt and a $.04 benefit related to
the cumulative effect of a change in accounting for income taxes.
Management believes that the relatively moderate rate of inflation over
the past few years has not had a significant impact on the Company's sales or
profitability.
1993 Compared to 1992
Net sales increased 1.6% in 1993 from 1992. The increased net sales for
1993 as compared to 1992 are due to volume increases in casualwear,
international activewear and underwear combined with price increases
(principally for domestic activewear and casualwear). These increases more
than offset the adverse effects of volume declines in domestic activewear,
unfavorable foreign currency exchange rate comparisons on international sales
between the two periods and increased sales of promotional and closeout
merchandise in 1993. With respect to international operations, the Company's
approach has been to establish production in foreign markets by both acquiring
existing manufacturing facilities and building new plants in order to better
serve these markets. Management believes international sales will continue to
be a source of growth for the Company, particularly in Europe. However, any
such growth is subject to the risk that the Company's products in diverse
international marketplaces will not be widely accepted.
Gross earnings decreased 2.0% in 1993 compared to 1992. The gross margin
was 34.4% in 1993 compared to 35.6% in 1992. The decrease in gross earnings in
1993 is due primarily to the unfavorable effects of operating certain
facilities on reduced production schedules in response to lower than expected
consumer demand, inventory valuation adjustments and unfavorable changes in
product mix due to promotions and closeouts. These decreases more than offset
the favorable effects of the sales price and volume increases discussed above
and lower raw material costs.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
Operations - (Concluded)
1993 Compared to 1992 - (Concluded)
Operating earnings decreased 6.9% compared to 1992 and the operating
margin decreased 1.9 percentage points to 20.2% in 1993. The decreases are due
to lower gross earnings and gross margin as well as higher selling, general and
administrative expenses. Selling, general and administrative expenses
increased to 12.7% of net sales in 1993 compared to 12.1% in the prior year.
The spending increase is primarily attributable to increased selling expenses
resulting from increased royalty payments and increased shipping expenses. The
shipping expense increase results from a shift in product mix to more
casualwear and an increased number of shipments as customer order patterns have
changed to include an increased number of smaller quantity shipments.
Interest expense for 1993 decreased 11.4% from 1992. Lower interest
expense is principally attributable to the effect of lower interest rates on
the Company's debt instruments which more than offset the effects of higher
average debt levels during 1993. The lower interest rates are principally due
to the Company's refinancing of its 10-3/4% Notes (as hereinafter defined) with
a 7-7/8% senior note issue in the fourth quarter of 1992. In addition, lower
average prime and LIBOR interest rates on the Company's variable rate debt
instruments in 1993 compared to 1992 contributed to the lower average interest
rates.
The effective income tax rate before extraordinary items and cumulative
effect of change in accounting principle for 1993 and 1992 differed from the
Federal statutory rate of 35% and 34%, respectively, primarily due to the
impact of goodwill amortization, which is not deductible for Federal income tax
purposes, state income taxes and the provision for interest related to prior
years' taxes.
In 1992, the Company redeemed all of its $280,000,000 principal amount of
10-3/4% Senior Subordinated Notes due July 15, 1995 (the "10-3/4% Notes"). The
Company recorded an extraordinary charge of approximately $9,900,000 ($.13 per
share) in connection with the redemption of the 10-3/4% Notes, which consisted
principally of the premiums paid in connection with the early redemption of the
10-3/4% Notes and the non-cash write-off of the related unamortized debt
expense, both net of income tax benefits.
Earnings per share before extraordinary items and cumulative effect of
change in accounting principle were $2.80 for 1993 compared to $2.48 for 1992,
a 12.9% increase. Net earnings per share in 1993 were $2.73 and include an
$.11 extraordinary charge related to the early retirement of debt and a $.04
benefit related to the cumulative effect of a change in accounting for income
taxes. Included in earnings per share before extraordinary items and
cumulative effect of change in accounting principle and net earnings per share
in 1993 is the effect of a gain related to the Company's investment in Acme
Boot of $.55 per share.
Liquidity and Capital Resources
Funds generated from the Company's operations are the major source of
liquidity and are supplemented by funds obtained from capital markets including
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
Liquidity and Capital Resources - (Concluded)
bank facilities. During 1994, the Company obtained bank revolving lines of
credit for certain of its foreign operations and separate letter of credit
facilities to replace certain letters of credit which were outstanding under
the New Credit Agreement at December 31, 1993.
In connection with the verdict in the LMP Litigation, the Company posted a
bond on November 9, 1994 in an amount equal to one and one-half times the value
of the judgment as collateral for the judgment during the pendency of an appeal
of the verdict. In order to obtain the bond, a $73,000,000 letter of credit
was required which reduced the Company's borrowing availability under the New
Credit Agreement.
The Company has available for the funding of its operations approximately
$846,200,000 of revolving lines of credit. As of March 21, 1995 approximately
$88,600,000 was available and unused under these facilities.
Net cash provided by operating activities for the years ended December 31,
1994 and 1993 were $215,100,000 and $89,800,000, respectively. The primary
components of cash provided by operating activities in 1994 were net earnings
plus depreciation and amortization (totaling $216,100,000) partially offset by
an increase in working capital of $3,600,000. In 1994, increases in trade
accounts payable of $32,500,000 and other working capital declines (primarily
increased other current liabilities) of $60,600,000 only partially offset
increases in accounts receivable of $23,300,000 and inventories of $73,400,000.
The primary components of cash provided by operating activities in 1993 were
net earnings plus depreciation and amortization (totaling $329,100,000)
partially offset by an increase in working capital of $152,200,000. The
working capital increase in 1993 was principally caused by higher inventories
of $130,700,000. The increases in inventory in both 1994 and 1993 reflected
the Company's ongoing efforts to improve customer service and, in 1994, the
effect of the acquisitions of Artex, Gitano and Pro Player. In 1993, the
Company realized a gain from its investment in Acme Boot of approximately
$67,300,000, the cash effect of which was included in investing activities for
1993.
Net cash used for investing activities in 1994 and 1993 were $430,800,000
and $335,900,000, respectively. Capital expenditures, net of amounts
attributable to capital leases of $40,600,000 and $2,900,000 in 1994 and 1993,
respectively, were $246,400,000 and $259,600,000 in 1994 and 1993,
respectively. In 1994 the Company used approximately $192,100,000 on the
acquisitions of Artex, Gitano and Pro Player, the funds for which were provided
by borrowings under the New Credit Agreement. In 1993, the Company used
approximately $157,600,000 on the acquisition of Salem. Also in 1993, the
Company received approximately $72,900,000 in proceeds from the investment in
Acme Boot. Capital spending, primarily to enhance distribution and yarn
manufacturing capabilities and to establish and support offshore assembly
operations, is anticipated to approximate $125,000,000 to $140,000,000 in 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
Liquidity and Capital Resources - (Concluded)
Net cash provided by financing activities in 1994 and 1993 was
$190,900,000 and $262,900,000, respectively, and consisted principally of
borrowings under the Company's bank credit agreements.
In September 1994 the Company entered into a five year operating lease
agreement with two automatic annual renewal options, primarily for certain
machinery and equipment. The total cost of the assets to be covered by the
lease is limited to $200,000,000. The total cost of assets under lease as of
December 31, 1994 was approximately $76,000,000. The lease provides for a
substantial residual value guarantee by the Company at the termination of the
lease and includes purchase and renewal options at fair market values.
Management believes the funding available to it is sufficient to meet
anticipated requirements for capital expenditures, working capital and other
needs.
The Company's debt instruments, principally its bank agreements, contain
covenants restricting its ability to sell assets, incur debt, pay dividends and
make investments and requiring the Company to maintain certain financial
ratios. See "Long-Term Debt" in the Notes to Consolidated Financial
Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
Report of Ernst & Young LLP, Independent Auditors . . . . . . . . . . . 25
Consolidated Balance Sheet - December 31, 1994 and 1993 . . . . . . . . 26
Consolidated Statement of Earnings for Each of the Years Ended December
31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . 28
Consolidated Statement of Cash Flows for Each of the Years Ended
December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . 29
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . 30
Supplementary Data (Unaudited) . . . . . . . . . . . . . . . . . . . . . 56
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts . . . . . . . . . . . 65
Note: All other schedules are omitted because they are not applicable or
not required.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors of
Fruit of the Loom, Inc.
We have audited the accompanying consolidated balance sheet of Fruit of
the Loom, Inc. and Subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of earnings and cash flows for each of the
three years in the period ended December 31, 1994. Our audits also included
the financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Fruit of the Loom, Inc. and Subsidiaries at December 31, 1994 and 1993, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as whole, presents fairly in all material respects
the information set forth therein.
As discussed in the Notes to Consolidated Financial Statements, the
Company changed its method of accounting for income taxes in 1993.
ERNST & YOUNG LLP
Chicago, Illinois
February 14, 1995
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
[Enlarge/Download Table]
December 31,
1994 1993
ASSETS (In thousands of dollars)
Current Assets
Cash and cash equivalents (including restricted cash) . . . . . . . . . . $ 49,400 $ 74,200
Notes and accounts receivable (less allowance for possible
losses of $20,700,000 and $16,100,000, respectively) . . . . . . . . . 295,600 239,700
Inventories
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . 496,200 454,500
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . 141,500 94,000
Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . 39,100 25,600
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,800 54,700
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 1,076,600 942,700
Property, Plant and Equipment
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,300 9,100
Buildings, structures and improvements . . . . . . . . . . . . . . . . . . 435,600 325,200
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . 1,041,300 867,900
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . 35,200 31,700
1,531,400 1,233,900
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . 473,200 367,900
Net property, plant and equipment . . . . . . . . . . . . . . . . 1,058,200 866,000
Other Assets
Goodwill (less accumulated amortization of $242,400,000 and
$207,200,000, respectively) . . . . . . . . . . . . . . . . . . . . . 965,800 895,300
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,900 30,000
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . 1,028,700 925,300
$ 3,163,500 $ 2,734,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . $ 23,100 $ 34,000
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 113,300 78,100
Accrued payroll and vacation pay . . . . . . . . . . . . . . . . . . . . . 33,100 25,700
Accrued insurance obligations . . . . . . . . . . . . . . . . . . . . . . 23,600 15,500
Accrued advertising and promotion . . . . . . . . . . . . . . . . . . . . 23,400 15,400
Accrued pension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,800 18,700
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,300 14,300
Other accounts payable and accrued expenses . . . . . . . . . . . . . . . 77,200 48,800
Total current liabilities . . . . . . . . . . . . . . . . . . . . 331,800 250,500
Noncurrent Liabilities
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,440,200 1,194,000
Net deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . 43,400 51,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222,300 191,500
Total noncurrent liabilities . . . . . . . . . . . . . . . . . . . 1,705,900 1,436,500
Common Stockholders' Equity
Common stock and capital in excess of par value, $.01 par value;
authorized, Class A, 200,000,000 shares, Class B,
30,000,000 shares; issued and outstanding:
Class A Common Stock, 69,160,349 and 69,032,919 shares, respectively . 463,700 459,600
Class B Common Stock, 6,690,976 shares . . . . . . . . . . . . . . . . 4,400 4,400
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 680,600 620,300
Currency translation adjustments . . . . . . . . . . . . . . . . . . . . . (22,900) (37,300)
Total common stockholders' equity . . . . . . . . . . . . . . . . 1,125,800 1,047,000
$ 3,163,500 $ 2,734,000
See accompanying notes.
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
[Enlarge/Download Table]
Year Ended December 31,
1994 1993 1992
(In thousands, except per share data)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,297,800 $ 1,884,400 $ 1,855,100
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . 1,651,300 1,237,000 1,194,800
Gross earnings . . . . . . . . . . . . . . . . . . . . . . . 646,500 647,400 660,300
Selling, general and administrative expenses . . . . . . . . . 376,300 240,100 225,000
Goodwill amortization . . . . . . . . . . . . . . . . . . . . . 35,200 25,800 25,400
Operating earnings . . . . . . . . . . . . . . . . . . . . . 235,000 381,500 409,900
Interest expense . . . . . . . . . . . . . . . . . . . . . . . (95,400) (72,700) (82,100)
Gain on Acme Boot investment . . . . . . . . . . . . . . . . . -- 67,300 --
Other expense-net . . . . . . . . . . . . . . . . . . . . . . . (6,100) (9,000) (7,900)
Earnings before income tax expense,
extraordinary items and cumulative effect
of change in accounting principle . . . . . . . . . . . 133,500 367,100 319,900
Income tax expense . . . . . . . . . . . . . . . . . . . . . . 73,200 154,300 131,400
Earnings before extraordinary items and cumulative
effect of change in accounting principle . . . . . . . . 60,300 212,800 188,500
Extraordinary items - loss on early
retirement of debt and debt redemption . . . . . . . . . -- (8,700) (9,900)
Earnings before cumulative effect of change
in accounting principle . . . . . . . . . . . . . . . . 60,300 204,100 178,600
Cumulative effect of change in accounting
for income taxes . . . . . . . . . . . . . . . . . . . . -- 3,400 --
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . $ 60,300 $ 207,500 $ 178,600
Earnings per common share:
Earnings before extraordinary items and cumulative
effect of change in accounting principle . . . . . . . . $ .79 $ 2.80 $ 2.48
Extraordinary items . . . . . . . . . . . . . . . . . . . . -- (.11) (.13)
Cumulative effect of change in accounting for
income taxes . . . . . . . . . . . . . . . . . . . . . . -- .04 --
Net earnings per common share . . . . . . . . . . . . . . . $ .79 $ 2.73 $ 2.35
Average common shares outstanding . . . . . . . . . . . . . 76,000 76,000 76,000
See accompanying notes.
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
[Enlarge/Download Table]
Year Ended December 31,
1994 1993 1992
Cash Flows from Operating Activities (In thousands of dollars)
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . $ 60,300 $ 207,500 $ 178,600
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . 155,800 121,600 107,500
Deferred income taxes . . . . . . . . . . . . . . . . . (7,600) 30,200 (9,200)
(Increase) decrease in notes and accounts receivable . . (23,300) 14,200 (35,100)
Increase in inventories . . . . . . . . . . . . . . . . (73,400) (130,700) (83,100)
Increase (decrease) in trade accounts payable . . . . . 32,500 (6,000) 31,100
Other working capital changes . . . . . . . . . . . . . 60,600 (29,700) 38,600
Extraordinary items . . . . . . . . . . . . . . . . . . -- 8,700 9,900
Cumulative effect of change in accounting for income taxes -- (3,400) --
Gain on Acme Boot investment . . . . . . . . . . . . . . -- (67,300) --
Decrease in income taxes and interest receivable . . . . -- -- 59,900
Net payments on retained liabilities
related to former subsidiaries . . . . . . . . . . . (14,400) (38,600) (30,500)
Other-net . . . . . . . . . . . . . . . . . . . . . . . 24,600 (16,700) (20,200)
Net cash provided by operating activities . . . . . 215,100 89,800 247,500
Cash Flows from Investing Activities
Capital expenditures . . . . . . . . . . . . . . . . . . . . (287,000) (262,500) (188,900)
Less amount attributable to capital leases . . . . . . . . . 40,600 2,900 --
Capital expenditures . . . . . . . . . . . . . . . . (246,400) (259,600) (188,900)
Acquisition of Gitano . . . . . . . . . . . . . . . . . . . (91,400) -- --
Acquisition of Pro Player . . . . . . . . . . . . . . . . . (55,700) -- --
Acquisition of Artex . . . . . . . . . . . . . . . . . . . . (45,000) -- --
Acquisition of Salem . . . . . . . . . . . . . . . . . . . . -- (157,600) --
Net proceeds from Acme Boot investment . . . . . . . . . . . -- 72,900 --
Other-net . . . . . . . . . . . . . . . . . . . . . . . . . 7,700 8,400 (3,900)
Net cash used for investing activities . . . . . . . (430,800) (335,900) (192,800)
Cash Flows from Financing Activities
Net borrowings under long-term debt agreements . . . . . . . 232,300 782,400 337,900
Principal payments on long-term debt and capital leases . . (42,200) (100,700) (100,100)
(Decrease) increase in short-term notes payable . . . . . . -- (65,100) 17,500
Refinancing of long-term debt . . . . . . . . . . . . . . . -- (267,900) --
Prepayment of long-term debt . . . . . . . . . . . . . . . . -- (82,300) (280,000)
Debt redemption premiums . . . . . . . . . . . . . . . . . . -- (3,300) (11,500)
Net proceeds from issuance of common stock . . . . . . . . . 800 1,700 7,600
Other-net . . . . . . . . . . . . . . . . . . . . . . . . . -- (1,900) (100)
Net cash provided by (used for) financing activities 190,900 262,900 (28,700)
Net (decrease) increase in cash and cash
equivalents (including restricted cash) . . . . . . . . . . (24,800) 16,800 26,000
Cash and cash equivalents (including restricted
cash) at beginning of year . . . . . . . . . . . . . . . . . 74,200 57,400 31,400
Cash and cash equivalents (including restricted
cash) at end of year . . . . . . . . . . . . . . . . . . . . $ 49,400 $ 74,200 $ 57,400
See accompanying notes.
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Significant Accounting Policies
Principles of Consolidation. The consolidated financial statements of the
Company include the accounts of the Company and all of its subsidiaries. All
material intercompany accounts and transactions have been eliminated.
Inventories. Inventory costs include material, labor and factory
overhead. Inventories are stated at the lower of cost or market (net
realizable value). Approximately 71.9% and 78.9% of year-end inventory amounts
at December 31, 1994 and 1993, respectively, are determined using the last-in,
first-out cost method. If the first-in, first-out method had been used, such
inventories would have been $41,500,000 and $29,400,000 higher than reported at
December 31, 1994 and 1993, respectively. The remainder of the inventories are
determined using the first-in, first-out method.
Property, Plant and Equipment. Property, plant and equipment is stated at
cost. Depreciation, which includes amortization of assets under capital
leases, is based on the straight-line method over the estimated useful lives of
depreciable assets. Interest costs incurred in the construction or acquisition
of property, plant and equipment are capitalized.
Goodwill. Goodwill is amortized using the straight-line method over
periods ranging from 15 to 40 years.
Pre-operating Costs. Pre-operating costs associated with the start-up of
significant new production facilities are deferred and amortized over three
years.
Futures Contracts. The Company periodically enters into futures contracts
as hedges for its purchases of cotton for inventory. Gains and losses on these
hedges are matched to inventory purchases and charged or credited to cost of
sales as such inventory is sold.
Forward Contracts. The Company has entered into forward contracts to
cover its principal and interest obligations on certain foreign currency
denominated bank loans. The original discount on these contracts is amortized
over the life of the contract and serves to reduce the effective interest cost
of these loans. In addition, the Company has entered into forward contracts to
cover the future obligations of certain foreign subsidiaries for certain
inventory purchases. Gains and losses related to qualifying hedges of firm
commitments are deferred and are matched to inventory purchases and charged or
credited to cost of sales as such inventory is sold. Gains and losses related
to anticipated transactions that do not qualify as hedges are recognized as
components of other income or expense as they are incurred.
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Summary of Significant Accounting Policies - (Concluded)
Deferred Grants. The Company has negotiated grants from the governments
of the Republic of Ireland and of Northern Ireland. The grants are being used
for employee training, the acquisition of property and equipment and other
governmental business incentives such as general employment. Employee training
grants are recognized in income in the year in which the costs to which they
relate are incurred by the Company. Grants for the acquisition of property and
equipment are netted against the related capital expenditure. Grants for
property and equipment under operating leases are amortized to income as a
reduction of rents paid. Unamortized amounts netted against fixed assets under
these grants at December 31, 1994 and 1993 were $33,500,000 and $28,500,000,
respectively. At December 31, 1994 and 1993, the Company has a contingent
liability to repay, in whole or in part, grants received of approximately
$54,300,000 and $43,500,000, respectively, in the event that the Company does
not meet defined average employment levels or terminates operations in the
Republic of Ireland or Northern Ireland.
Income Taxes. Effective January 1, 1993, the Company adopted Statement
No. 109. Under Statement No. 109, the liability method is used in accounting
for income taxes. Prior to the adoption of Statement No. 109, income tax
expense was determined using the deferred method.
Pension Plans. The Company maintains pension plans which cover
substantially all employees. The plans provide for benefits based on an
employee's years of service and compensation. The Company funds the minimum
contributions required by the Employee Retirement Income Security Act of 1974.
Acquisitions
In late January 1994 the Company acquired Artex for approximately
$45,000,000. In late March 1994 the Company acquired certain assets of Gitano
for approximately $91,400,000. In August 1994 the Company acquired Pro Player
for approximately $55,700,000, including approximately $14,200,000 of Pro
Player debt which was repaid by the Company. The principals of Pro Player, who
are also key employees of that business, may also be entitled to receive
compensation based in part on the attainment of certain levels of operating
performance by the acquired entity. In November 1993 the Company acquired
Salem for approximately $157,600,000, including approximately $23,900,000 of
Salem debt which was repaid by the Company. The aforementioned acquisitions
(collectively, the "Acquisitions") were accounted for using the purchase method
of accounting. Accordingly, the purchase prices were preliminarily allocated
to assets and liabilities based on their estimated fair values as of the date
of the Acquisitions. The cost in excess of the net assets acquired in the
Acquisitions was approximately $215,000,000 and is being amortized over periods
ranging from 15 to 20 years. The results of operations of Salem, Artex, Gitano
and Pro Player are not material in relation to the Company's consolidated
financial statements and, therefore, pro forma financial information has not
been presented.
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Short-term
investments (consisting primarily of certificates of deposit, overnight
deposits or Eurodollar deposits) totaling $4,100,000 and $16,100,000 were
included in cash and cash equivalents at December 31, 1994 and 1993,
respectively. These investments were carried at cost, which approximated
quoted market value.
Included in short-term investments at December 31, 1994 and 1993 was
$1,500,000 and $6,400,000, respectively, of restricted cash collateralizing
domestic subsidiaries' letters of credit and insurance obligations.
Short-Term Notes Payable
In August 1993, the Company entered into the New Credit Agreement. See
"Long-Term Debt." Certain indebtedness of the Company under preexisting
secured domestic bank agreements was refinanced with the proceeds of loans
under the New Credit Agreement and the preexisting bank agreements were
terminated at that time.
Prior to August 1993, the Company's domestic bank agreements consisted of
revolving lines of credit, bank term loans (the"Term Loan Facilities"), a
special purpose loan, a capital expenditure facility (the "Capital Expenditure
Facility") and a letter of credit facility (collectively, the "Credit
Agreements"). All borrowings under the Credit Agreements represented loans to
the Company's principal operating subsidiary.
Under the Credit Agreements, the Company had $350,000,000 available for
the funding of its operations under revolving lines of credit (the "Revolving
Credit Facilities"). The Revolving Credit Facilities were scheduled to expire
on June 30, 1995. Borrowings under the Revolving Credit Facilities were due on
demand and were collateralized under the terms of the Credit Agreements.
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Long-Term Debt
(In thousands of dollars)
[Enlarge/Download Table]
December 31,
Interest Rate 1994 1993
Senior Secured
Foreign Facility Loans, maturing 1994-1995 . . . . . Variable<F1> $ -- $ 22,100
Capitalized lease obligations, maturing
1994-2017<F2> . . . . . . . . . . . . . . . . . 3.1 - 12.96% 116,900 90,700
Total senior secured . . . . . . . . . . . . . 116,900 112,800
Senior Unsecured
Foreign Facility Loans, maturing 1994-1995 . . . . . Variable<F1> 5,400 --
Foreign Credit Facilities, maturing 1996-1997 . . . Variable<F3> 38,000 --
New Term Loan, maturing 1998 . . . . . . . . . . . . Variable<F4> 40,000 40,000
New Credit Agreement, maturing 1999 . . . . . . . . Variable<F5> 521,700 329,900
Fixed rate debt, maturing 1999<F6> . . . . . . . . . . 7.97% 249,100 249,000
Fixed rate debt, maturing 2003<F7> . . . . . . . . . . 6.61 148,900 148,800
Fixed rate debt, maturing 2008 . . . . . . . . . . . . 6.97 123,400 128,400
Fixed rate debt, maturing 2011<F8> . . . . . . . . . . 12.6 71,900 71,100
Fixed rate debt, maturing 2023<F9> . . . . . . . . . . 7.49 148,000 148,000
Total Senior Unsecured . . . . . . . . . . . . . 1,346,400 1,115,200
Total . . . . . . . . . . . . . . . . . . . . . . . . 1,463,300 1,228,000
Less current maturities . . . . . . . . . . . . . . . . . . (23,100) (34,000)
Total long-term debt . . . . . . . . . . . . . . . . . . . $ 1,440,200 $ 1,194,000
<FN>
<F1> Interest ranged from 1.89% to 3.60% during 1994 and from .5% to 9.15%
during 1993. (These rates are net of discount amortization. The
Company has entered into forward contracts that fix the dollar amount
of interest that has to be paid.)
<F2> Represents the present value of future rentals on capitalized leases.
The capitalized leases are secured by the related property under lease.
<F3> Interest ranged from 5.68% to 7.10% during 1994. The weighted average
interest rate for borrowings outstanding at December 31, 1994 was
approximately 6.25%.
<F4> Interest ranged from 4.0% to 6.86% during 1994 and from 4.12% to 6.0%
during 1993. The weighted average interest rate for borrowings
outstanding under the New Term Loan at December 31, 1994 was
approximately 6.65%.
<F5> Interest ranged from 3.41% to 8.5% during 1994 and from 3.38% to 6.0%
during 1993.
<F6> Net of unamortized discount of $900 and $1,000 in 1994 and 1993,
respectively (nominal rate 7.875%).
<F7> Net of unamortized discount of $1,100 and $1,200 in 1994 and 1993,
respectively (nominal rate 6.5%).
<F8> Net of unamortized discount of $53,100 and $53,900 in 1994 and 1993,
respectively (nominal rate 7%).
<F9> Net of unamortized discount of $2,000 (nominal rate 7.375%).
</FN>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Long-Term Debt - (Continued)
The New Credit Agreement provides the Company with an $800,000,000
revolving line of credit which expires in June 1999 and includes a letter of
credit facility. At December 31, 1994 approximately $73,000,000 of letters of
credit were issued under the New Credit Agreement to secure a bond posted in
connection with the appeal of the LMP Litigation. At December 31, 1993
approximately $59,800,000 of letters of credit were issued under the New Credit
Agreement to secure certain insurance and debt obligations reflected in the
accompanying Consolidated Balance Sheet, which letters of credit were replaced
with separate letter of credit facilities in 1994. Borrowings under the New
Credit Agreement bear interest at a rate approximating the prime rate (8.5% at
December 31, 1994) or, at the election of the Company, at rates approximating
LIBOR (6.5% at December 31, 1994) plus 30 basis points. The Company also pays
a facility fee (the "Facility Fee") under the New Credit Agreement equal to 15
basis points on the aggregate commitments thereunder. Interest rates and the
Facility Fee are subject to increase or decrease based upon the Company's
unsecured debt rating. The weighted average interest rate for borrowings
outstanding under the New Credit Agreement at December 31, 1994 was
approximately 6.45%. Borrowings under the New Credit Agreement are guaranteed
by certain of the Company's subsidiaries.
In 1994 the Company obtained $84,400,000 of standby letter of credit
facilities from its bank lenders. At December 31, 1994 approximately
$83,300,000 of letters of credit were issued under this facility to secure
various insurance and other obligations reflected in the accompanying
Consolidated Balance Sheet. In addition, the Company has $95,000,000 of trade
letter of credit facilities. At December 31, 1994 the Company has $51,100,000
of documentary letters of credit outstanding under these facilities to finance
various trade activities.
In August 1993, the Company's wholly-owned subsidiary, Fruit of the Loom
Canada, Inc. issued an unsecured senior note due 2008 (the "Canadian Note") in
a private placement transaction with certain insurance companies. The Canadian
Note is fully guaranteed by the Company and its principal operating
subsidiaries and ranks pari passu in right of payment with the New Credit
Agreement.
In 1993, the Company redeemed its 12-3/8% Notes. The Company recorded an
extraordinary charge in 1993 of approximately $8,700,000 ($.11 per share)
relating to the early extinguishment of debt, primarily in connection with the
refinancing of the Credit Agreements and the redemption of the 12-3/8% Notes.
The extraordinary charge consists principally of the non-cash write-off of the
related unamortized debt expense on the Credit Agreements, the 12-3/8% Notes
and other debt issues and the premiums paid in connection with the early
redemption of the 12-3/8% Notes, both net of income tax benefits.
In 1993, the Company issued $150,000,000 principal amount of its 6-1/2%
Notes due 2003 (the "6-1/2% Notes") and $150,000,000 principal amount of its
7-3/8% Debentures due 2023 (the "7-3/8% Debentures"). The 6-1/2% Notes and the
7-3/8% Debentures will mature November 15, 2003 and November 15, 2023,
respectively, and may not be redeemed by the Company prior to maturity. The
35 FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Long-Term Debt - (Continued)
6-1/2% Notes and the 7-3/8% Debentures are general, unsecured obligations of
the Company. However, the obligations of the Company under the New Credit
Agreement, the Canadian Note and the Foreign Credit Facilities are guaranteed
by certain of the Company's subsidiaries and such debt effectively ranks ahead
of the 6-1/2% Notes and the 7-3/8% Debentures with respect to such guarantees.
In addition to refinancing its Revolving Credit Facilities under the New
Credit Agreement, the Company also refinanced its Term Loan Facilities and its
Capital Expenditure Facility. Under the terms of the Credit Agreements, the
Company had a term loan which required quarterly principal payments with final
maturity at June 30, 1995. The Company also had an additional $100,000,000
term loan which had a final maturity of June 30, 1995. Borrowings under the
Term Loan Facilities were collateralized under the terms of the Credit
Agreements on a pari passu basis with borrowings under the Revolving Credit
Facilities. All borrowings under the Term Loan Facilities were repaid through
borrowings under the New Credit Agreement in 1993.
Under the Credit Agreements, the Company originally had a Capital
Expenditure Facility of up to $75,000,000 to be drawn down at various times
prior to March 31, 1991, if necessary, to finance capital expenditures. At
December 31, 1992, $44,100,000 was outstanding under the Capital Expenditure
Facility and no additional borrowings were available under this facility. The
Capital Expenditure Facility required quarterly principal payments which
commenced in June 1991 with final maturity scheduled on June 30, 1995. All
borrowings under the Capital Expenditure Facility were repaid through
borrowings under the New Credit Agreement in 1993.
In 1992, the Company issued $250,000,000 principal amount of its 7-7/8%
Senior Notes Due 1999 (the "7-7/8% Notes"). The 7-7/8% Notes will mature on
October 15, 1999 and may not be redeemed by the Company prior to maturity. The
7-7/8% Notes are general, unsecured obligations of the Company and rank pari
passu in right of payment with all existing and future senior obligations of
the Company. However, the obligations of the Company under the New Credit
Agreement, the Canadian Note and the Foreign Credit Facilities are guaranteed
by certain of the Company's subsidiaries and such debt effectively ranks ahead
of the 7-7/8% Notes with respect to such guarantees.
In 1992, the Company redeemed all of its 10-3/4% Notes. The redemption
was funded through borrowings under the Credit Agreements and the proceeds from
the issuance of the 7-7/8% Notes. The Company recorded an extraordinary charge
of approximately $9,900,000 ($.13 per share) in connection with the redemption
of the 10-3/4% Notes, which consisted principally of the premiums paid in
connection with the early redemption of the 10-3/4% Notes and the non-cash
write-off of the related unamortized debt expense, both net of income tax
benefits.
The New Credit Agreement imposes certain limitations on, and requires
compliance with covenants from, the Company and its subsidiaries including,
among other things: (i) maintenance of certain financial ratios and compliance
with certain financial tests and limitations; (ii) limitations on incurrence of
additional indebtedness and granting of certain liens and guarantees; and (iii)
36 FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Long-Term Debt - (Concluded)
restrictions on mergers, sale and leaseback transactions, asset sales and
investments. The New Credit Agreement also allows the Company to pay dividends
on its common stock so long as, among other things, the aggregate amount of
such dividends paid since August 16, 1993 does not exceed the sum of
$75,000,000 and fifty percent of the Company's consolidated net earnings since
June 30, 1993.
The New Credit Agreement provides for the acceleration of amounts
outstanding thereunder should any person or entity other than William Farley,
or any person or entity controlled by William Farley, control more than 50% of
the voting stock or voting rights associated with such stock of the Company.
The aggregate amount of scheduled annual maturities of long-term debt for
each of the next five years is: $23,100,000 in 1995; $38,100,000 in 1996;
$36,000,000 in 1997; $51,100,000 in 1998; and $780,600,000 in 1999.
Cash payments of interest on debt were $86,600,000, $67,100,000 and
$89,700,000 in 1994, 1993 and 1992, respectively. These amounts exclude
amounts capitalized.
Financial Instruments
Certain of the Company's foreign subsidiaries enter into forward exchange
contracts to hedge currency exposure relative to certain inventory purchases
and principal and interest obligations of certain foreign currency denominated
bank loans. The Company primarily sells European currencies and purchases
United States dollars. As of December 31, 1994 the primary foreign currencies
sold forward to hedge the foreign currency exposure relative to inventory
purchases expressed in United States dollar equivalents were as follows:
$1,800,000 Italian lira, $1,900,000 German marks, $2,000,000 British pounds and
$1,800,000 French francs. At December 31, 1994, the Company had bought forward
Greek drachma relative to its Greek drachma denominated debt obligations, the
value of which was the United States dollar equivalent of $5,600,000. The
original discount of the purchased forward contracts serves to reduce the
effective interest cost of the drachma denominated loans and effectively makes
these loans the equivalent of United States dollar based loans. All of the
aforementioned contracts mature in less than one year.
The fair value of the Company s foreign exchange forward contracts was
estimated based on quoted market prices of comparable contracts. At December
31, 1994 and 1993, the fair value for the Company's forward contracts
approximated their face value.
The fair values of financial guarantees and letters of credit approximate
the face value of the underlying instruments.
The fair values of the Company's non-publicly traded long-term debt were
estimated using discounted cash flow analyses, based on the Company s current
incremental borrowing rates for similar types of borrowing arrangements. Fair
values for publicly traded long-term debt were based on quoted market prices
37 FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Financial Instruments - (Concluded)
when available. At December 31, 1994 and 1993, the fair value of the Company's
debt was approximately $1,369,000,000 and $1,305,800,000, respectively.
The Company monitors its positions with, and the credit quality of, the
financial institutions which are counterparties to its off-balance-sheet
financial instruments and does not anticipate nonperformance of the
counterparties. The Company does not require collateral from its
counterparties and management believes that the Company would not realize a
material loss in the event of nonperformance by the counterparties.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. The
Company sells its products to most major discount and mass merchandisers,
wholesale clubs and screen printers as well as many department, specialty, drug
and variety stores, national chains, supermarkets and sports specialty stores.
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral or other security to support customer receivables.
The Company's ten largest customers accounted for approximately 40.2% of net
sales in 1994 and approximately 29% of gross accounts receivable at December
31, 1994. The Company routinely assesses the financial strength of its
customers and, as a consequence, management believes that its trade receivable
credit risk exposure is limited.
Contingent Liabilities
The Company and its subsidiaries are involved in certain legal proceedings
and have retained liabilities, including certain environmental liabilities,
such as those under Superfund Legislation, in connection with the sale of
certain discontinued operations, some of which were significant generators of
hazardous waste. The Company and its subsidiaries have also retained certain
liabilities related to the sale of products in connection with the sale of
certain discontinued operations. The Company's retained liability reserves at
December 31, 1994 related to discontinued operations consist primarily of
certain environmental and product liability reserves of approximately
$79,100,000. The Company has recorded receivables related to these
environmental liabilities of approximately $36,700,000 which management
believes will be recovered from insurance and other sources. Management and
outside environmental consultants evaluate, on a site-by-site or a claim-by-
claim basis, the extent of environmental damage, the type of remediation that
will be required and the Company's proportionate share of those costs as well
as the Company's liability in each case. The Company's retained liability
reserves related to discontinued operations principally pertain to 11
specifically identified environmental sites and the aforementioned product
liabilities. Five sites and the total product liabilities individually
represent more than 10% of the net reserve and in the aggregate represent
approximately 96% of the net reserve. Management believes they have adequately
estimated the impact of remediating identified sites, the expected contribution
from other potentially responsible parties and recurring costs for managing
sites as well as the ultimate resolution of the product liability claims.
Management currently estimates actual payments before recoveries to range from
approximately $9,200,000 to $24,200,000 annually between 1995 and 1998 and
38 FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Contingent Liabilities - (Continued)
$14,300,000 in total subsequent to 1998. Only the long-term monitoring costs
of approximately $6,600,000, primarily scheduled to be paid in 1999 and beyond
have been discounted. The discount rate used was 10%. The undiscounted
aggregate long-term monitoring costs, to be paid over approximately the next 20
years, is approximately $17,800,000. Management believes that adequate
reserves have been established to cover potential claims based on facts
currently available and current Superfund Legislation. The Company has
provided the foregoing information in accordance with Staff Accounting Bulletin
92.
Generators of hazardous wastes which were disposed of at offsite locations
which are now superfund sites are subject to claims brought by state and
Federal regulatory agencies under Superfund Legislation and by private citizens
under Superfund Legislation and common law theories. Since 1982, the EPA has
actively sought compensation for response costs and remedial action at offsite
disposal locations from waste generators under the Superfund Legislation, which
authorizes such action by the EPA regardless of fault, legality of original
disposal or ownership of a disposal site. The EPA's activities under the
Superfund Legislation can be expected to continue during 1995 and future years.
In February 1986, the Company completed the sale of stock of its then
wholly owned subsidiary, Universal, to MagneTek. At the time of the sale there
was a suit pending against Universal and Northwest by LMP. The suit alleged
that Universal and Northwest fraudulently induced LMP to sell its business to
Universal and then suppressed the development of certain electronic lighting
ballasts in breach of the agreement of sale, which required Universal to pay to
LMP a percentage of the net profits from such business from 1982 through 1986.
Two additional plaintiffs, Stevens Luminoptics Partnership and Calmont
Technologies Inc., joined the litigation in 1986. In December 1989 and January
1990, a jury returned certain verdicts against Universal and also returned
verdicts in favor of Northwest and on certain issues in favor of Universal. A
judgment totalling $25,800,000, of which $7,500,000 represented punitive
damages, reflecting these verdicts was entered by the Alameda County,
California Superior Court in January 1990 against Universal.
In April 1992, the California Court of Appeals reversed the $25,800,000
judgment against Universal and affirmed those verdicts favorable to Universal
and Northwest. In July 1992, the California Supreme Court denied the
plaintiffs' petition for review. The case was then remanded to the trial
court.
Pursuant to the stock purchase agreement (the "Stock Purchase Agreement")
under which Universal was sold, the Company agreed to indemnify MagneTek for a
two-year period following the sale of Universal for certain contingent
liabilities. MagneTek brought suit against the Company for declaratory and
other relief in connection with the indemnification under the Stock Purchase
Agreement. In April 1992, the Los Angeles County, California Superior Court
found that the Company was obligated by the Stock Purchase Agreement to
indemnify MagneTek for any liability that may be assessed against MagneTek or
Universal in the LMP Litigation and to reimburse MagneTek for, among other
things, its costs and expenses in defending that case. The court entered a
39 FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Contingent Liabilities - (Continued)
judgment requiring the Company to reimburse and indemnify MagneTek in two
stages: currently, to reimburse MagneTek for costs of defense and related
expenses in the LMP Litigation, plus costs of litigating the indemnity case
with the Company; and at a later date, if and when any liability in the LMP
Litigation is finally determined or a settlement is reached in that case, to
reimburse and/or indemnify MagneTek for that amount as well. In 1993 the
Company paid approximately $9,600,000 in settlement of its obligations to
MagneTek related to the litigation expenses incurred by MagneTek.
In October 1994, following a retrial of the LMP Litigation, a jury
returned a verdict of approximately $96,000,000 against Universal. The jury
verdict included breach of contract and fraud damages and approximately
$6,000,000 in punitive damages. The Company is obligated to indemnify
Universal for damages incurred in this case.
Management of the Company believes that the jury's decision is incorrect
and is contrary to the evidence. Based on discussions with counsel and on
other information currently available, management believes that the court
committed numerous errors during the trial and, accordingly, that the judgment
will not stand on appeal. The Company intends to vigorously appeal this
verdict.
In March 1988, a class action suit entitled Endo et al. v. Albertine, et
al. was filed in the District Court against the Company, its then directors,
certain of its then executive officers, its then underwriters and the Company's
current independent auditors in connection with the Company's initial public
offering of Class A Common Stock and certain debt securities in March 1987.
The suit alleges, among other things, violations of Federal and state
securities laws against all of the defendants, as well as breaches of fiduciary
duties by the director and officer defendants, and seeks unspecified damages.
Motions to dismiss the complaint were filed by all defendants. In
December 1990, a magistrate judge recommended that the District Court dismiss
all of the plaintiffs' claims with prejudice. In January 1993, the District
Court adopted in part and rejected in part the magistrate judge's
recommendation for dismissal of the complaint. As a result, the litigation
will continue as to various remaining counts of the complaint. Both the
defendants and the plaintiffs filed motions for summary judgment which were
denied in all material respects. Management and the Board of Directors believe
that this suit is without merit and intend to continue to vigorously defend
against this litigation.
On December 23, 1993, James J. Locke, as Trustee of Locke Family Trust,
and I. Jack Saline filed a lawsuit against the Company and certain of its then
officers and directors, including William Farley and John B. Holland, in the
District Court. The lawsuit was then amended to add additional plaintiffs. On
April 19, 1994, the District Court granted plaintiffs' motion for class
certification. The plaintiffs claim that all of the defendants engaged in
conduct violating Section 10b of the Securities Exchange Act of 1934 and that
Mr. Farley and Mr. Holland also violated Section 20a of the Act. According to
the plaintiffs, beginning before June 1992 and continuing through early June
40 FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Contingent Liabilities - (Concluded)
1993, the Company, with the knowledge and assistance of the individual
defendants, issued positive public statements about its expected sales
increases and growth through 1993 and afterwards. They also allege that
beginning in approximately mid-1992 and continuing afterwards, the Company's
business was not as strong and its growth prospects were not as certain as
represented. The plaintiffs further allege that during the end of 1992 and
beginning of 1993, certain of the individual defendants traded the stock of the
Company while in the possession of material, non-public information. The
plaintiffs ask for unspecified amounts as compensatory damages, pre-judgment
and post-judgment interest, attorneys' fees, expert witness fees and costs and
ask the District Court to impose a constructive trust on the proceeds of the
individual defendants' trades to satisfy any potential judgment. Management
believes that this suit is without merit and management and the Company intend
to vigorously defend against this litigation.
Management believes, based on information currently available, that the
ultimate resolution of the aforementioned litigation will not have a material
adverse effect on the financial condition or operations of the Company.
In August 1991, two creditors of a former subsidiary of Northwest, Lone
Star Steel Company, Inc. (a wholly owned subsidiary of Lone Star Technologies,
Inc., a publicly owned company) brought suit against the Company in the
Superior Court of the State of Delaware. In this suit, the creditors sought
damages of approximately $13,100,000, plus interest, against the Company for
what they alleged was the remaining liability under certain leases. In January
1993, the Superior Court of Delaware issued an Opinion and Order finding that
the leases were in default, but made no findings as to the amount of damages.
The Company appealed the ruling and on June 4, 1993 the Supreme Court of
Delaware entered an order affirming the Opinion and Order of the Superior Court
of Delaware issued in January 1993. In December 1993, the Company paid the
lessors approximately $9,500,000 in settlement of this suit.
In 1992, the Company was named in a suit seeking to enforce the terms of a
former subsidiary's lease on which the Company was contingently obligated. The
Company paid approximately $17,500,000 in 1992 in settlement of the suit and
its contingent obligations under the lease.
In June 1994, pursuant to authorization from the Company's Board of
Directors, the Company guaranteed a loan from a bank in an amount up to
$12,000,000 to Mr. Farley, the Company's Chairman of the Board and Chief
Executive Officer. In exchange for the guarantee the Company received an
annual fee from Mr. Farley equal to 1% of the value of the loan covered by the
guarantee. The guarantee is secured by a second lien on certain shares of the
Company held by the bank for other loans made to Mr. Farley. See "Related
Party Transactions."
In connection with the Company's transaction with Acme Boot during 1993,
the Company guaranteed, on an unsecured basis, the repayment of debt incurred
or created by Acme Boot under Acme Boot's bank credit facility. See "Related
Party Transactions." At December 31, 1994 Acme Boot has a bank credit facility
which provides for up to $30,000,000 of loans and letters of credit, subject to
a borrowing base. Acme Boot's bank credit facility is secured by first liens
on substantially all of the assets of Acme Boot and its subsidiaries (which are
approximately $71,900,000 at December 31, 1994). At December 31, 1994
approximately $9,300,000 in loans and letters of credit were outstanding under
Acme Boot's bank credit facility.
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Lease Commitments
The Company and its subsidiaries lease certain manufacturing, warehousing
and other facilities and equipment. The leases generally provide for the
lessee to pay taxes, maintenance, insurance and certain other operating costs
of the leased property. The leases on most of the properties contain renewal
provisions.
In September 1994, the Company entered into a five year operating lease
agreement with two automatic annual renewal options, primarily for certain
machinery and equipment. The total cost of the assets to be covered by the
lease is limited to $200,000,000. The total cost of assets under lease as of
December 31, 1994 was approximately $76,000,000. The lease provides for a
substantial residual value guarantee by the Company at the end of the initial
lease term and includes purchase and renewal options at fair market values.
The table of future minimum operating lease payments which follows below
excludes any payment related to the residual value guarantee which is due upon
termination of the lease. The Company has the right to exercise a purchase
option with respect to the leased equipment or the equipment can be sold to a
third party. The Company expects the fair market value of the leased
equipment, subject to the purchase option or sold to a third party, to
substantially reduce or eliminate the Company's payment under the residual
value guarantee. The Company is obligated to pay the difference between the
maximum amount of the residual value guarantee and the fair market value of the
equipment at the termination of the lease. At December 31, 1994 the maximum
amount of the residual value guarantee relative to the assets under the lease
at December 31, 1994 is approximately $50,900,000.
Following is a summary of future minimum payments under capitalized leases
and under operating leases that have initial or remaining noncancelable lease
terms in excess of one year at December 31, 1994 (in thousands of dollars):
[Enlarge/Download Table]
Capitalized Operating
Leases Leases
Year Ending December 31,
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,900 $ 20,100
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,200 20,200
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,400 16,800
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,800 14,500
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,800 11,500
Years subsequent to 1999 . . . . . . . . . . . . . . . . . 117,100 6,100
Total minimum lease payments . . . . . . . . . . . . . . . . . . 193,200 $ 89,200
Imputed interest . . . . . . . . . . . . . . . . . . . . . . . . (76,300)
Present value of minimum capitalized lease payments . . . . . . . 116,900
Current portion . . . . . . . . . . . . . . . . . . . . . . . . . (12,200)
Long-term capitalized lease obligations . . . . . . . . . . . . . $ 104,700
43 FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Lease Commitments - (Concluded)
Assets recorded under capital leases are included in Property, Plant and
Equipment as follows (in thousands of dollars):
[Enlarge/Download Table]
December 31,
1994 1993
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,800 $ 1,200
Buildings, structures and improvements . . . . . . . . . . . . 72,900 39,000
Machinery and equipment . . . . . . . . . . . . . . . . . . . 94,800 94,200
177,500 134,400
Accumulated depreciation . . . . . . . . . . . . . . . . . . . (78,500) (67,600)
$ 99,000 $ 66,800
Rental expense for operating leases amounted to $20,200,000, $11,600,000
and $9,100,000 in 1994, 1993 and 1992, respectively.
Stock Plans
At December 31, 1994 and 1993, approximately 1,494,700 and 1,546,600
shares, respectively, of Class A Common Stock were reserved for issuance under
the Company's 1987 Stock Option Plan (the "Plan"). Under the terms of the
Plan, options may be granted to eligible employees of the Company, its parent
and its subsidiaries at a price not less than the market price on the date of
grant. Option shares must be exercised within the period prescribed by the
Compensation Committee of the Board of Directors at the time of grant but not
later than ten years and one day from the date of grant. The Plan provides for
the granting of qualified and nonqualified stock options.
The following summarizes the activity of the Plan for 1994:
[Enlarge/Download Table]
Option Price Shares
Per Share Under Option
Outstanding at December 31, 1993 . . . . . . . . $6-3/8 to $47-5/8 1,515,400
Options granted . . . . . . . . . . . . . . . . $25-3/8 to $30-7/8 37,000
Options exercised . . . . . . . . . . . . . . . $6-3/8 to $20-1/4 (51,900)
Options canceled . . . . . . . . . . . . . . . . $14-1/2 to $41-3/8 (66,200)
Outstanding at December 31, 1994 . . . . . . . . $6-3/8 to $47-5/8 1,434,300
Exercisable at December 31, 1994 . . . . . . . . $6-3/8 to $47-5/8 1,427,300
In 1994 the Company established the Executive Incentive Compensation Plan
(the "1994 Plan"). The 1994 Plan provides for the granting of non-qualified
stock options, incentive stock options, performance shares and annual incentive
awards. The 1994 Plan is administered by the Compensation Committee of the
Board of Directors and provides for the granting of up to 3,600,000 shares
44 FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Stock Plans - (Continued)
under the plan, which shares are reserved and available for purchase under the
provisions of the plan. Stock options may be granted under the 1994 Plan to
eligible employees of the Company, its parent and its subsidiaries at a price
not less than the market price on the date of grant. Options granted vest at
such time as prescribed by the Compensation Committee, but in no event may any
option be exercisable prior to six months following its grant. No option
granted shall be exercisable later than the tenth anniversary date of its
grant. The Company granted 664,100 options to eligible employees in 1994 at
prices ranging from $24.75 to $30.88.
Performance shares may be granted to eligible employees of the Company,
its parent and its subsidiaries. Each performance share shall have a value
equal to the market price of the Company's Class A Common Stock on the date the
performance share is earned. The Compensation Committee of the Board of
Directors sets performance goals to be achieved over performance periods of not
less than two years. The extent to which performance goals based on total
shareholder return over a two year period are met will determine the number of
performance shares earned by participants. Payment of earned performance
shares shall be made in either cash or shares of Class A Common Stock within
seventy five days following the close of the performance period.
In 1993, the Company's stockholders approved the Company's Directors'
Stock Option Plan (the "Directors' Plan"). The Directors' Plan provides for
the issuance of options to purchase up to 175,000 shares of Class A Common
Stock, which shares are reserved and available for purchase upon the exercise
of options granted under the Directors' Plan. Only directors who are not
employees of the Company, any parent or subsidiary of the Company or Farley
Industries, Inc. ("FII") are eligible to participate in the Directors' Plan.
The Directors' Plan is administered by the Company's Board of Directors. Under
the Directors' Plan each non-employee director is initially granted an option
to purchase 7,500 shares of Class A Common Stock. On the date of each annual
meeting at which such person is elected or after which the person continues as
a non-employee director, such non-employee director shall be granted an option
to purchase 2,500 shares of Class A Common Stock (the "Annual Options"). The
options are exercisable at a price per share equal to the fair market value per
share of the Class A Common Stock on the date of grant. Option shares must be
exercised not later than ten years from the date of grant and do not become
exercisable until the first anniversary of the date of grant.
The following summarizes the activity of the Directors' Plan for 1994:
[Download Table]
Option Price Shares
Per Share Under Option
Outstanding at December 31, 1993 . . . . . . . . $31-1/4 to $42 57,500
Annual Options granted . . . . . . . . . . . . . $30-7/8 15,000
Outstanding at December 31, 1994 . . . . . . . . $30-7/8 to $42 72,500
Exercisable at December 31, 1994 . . . . . . . . $31-1/4 to $42 57,500
45 FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Stock Plans - (Concluded)
In 1992, the Company established the 1992 Executive Stock Option Plan (the
"1992 Plan"). The 1992 Plan provides for the issuance of options to purchase
up to 975,000 shares of Class A Common Stock, which shares are reserved and
available for purchase upon the exercise of stock options granted under the
1992 Plan. The 1992 Plan is administered by the Compensation Committee of the
Board of Directors. In 1992, options to purchase 975,000 shares of Class A
Common Stock were granted under the 1992 Plan to two directors of the Company
who are also employees of the Company. The options are exercisable at a price
of $28.88 per share (which was the closing price of the Class A Common Stock on
the date of grant). Pursuant to the terms of the grants, options for the
shares vest (subject to acceleration under certain circumstances) as follows:
(i) one-third of the options granted vest immediately upon grant; (ii)
one-third of the options granted vest if the closing price of the Class A
Common Stock reaches or exceeds $45 per share for 90 consecutive days within
six years from the date of grant; and (iii) the remaining one-third of the
options granted vest if the closing price of the Class A Common Stock reaches
or exceeds $60 per share for 90 consecutive days within six years from the date
of grant. All vested options expire 10 years and one day after the date of
grant. Options which do not vest because the Company's stock price has not
reached the targeted price levels for vesting expire six years after the date
of grant. As of December 31, 1994, 325,000 of these options are exercisable
and none of these options have been exercised or canceled.
In July 1991, the Company granted an option to purchase 50,000 shares of
the Class A Common Stock to a director of the Company who is also an employee
of FII at a purchase price of $10.25 per share. The exercise period of the
option terminates ten years and one day from the date of grant. As of December
31, 1994, none of these options have been exercised or canceled.
At December 31, 1994 and 1993, approximately 238,800 and 268,000 shares,
respectively, of Class A Common Stock were reserved for issuance under the
Company's 1989 Stock Grant Plan. Under the terms of this plan, eligible
employees of the Company, its parent and its subsidiaries are awarded shares,
subject to forfeitures or certain restrictions which generally expire three
years from the date of the grant. Shares are awarded in the name of the
employee, who has all the rights of a shareholder, subject to the above
mentioned restrictions. The Company canceled 11,400 previously issued shares
during 1994. The Company granted approximately 40,600 shares to eligible
employees during 1994.
At December 31, 1994 and 1993, approximately 298,600 and 344,900 shares,
respectively, of Class A Common Stock were reserved for issuance under the
Company's 1987 Long-Term Bonus Plan. Under the terms of this plan, eligible
employees of the Company's operating subsidiary participate in cash and stock
bonus pools for four year plan periods. Awards under this plan are payable in
a combination of cash and stock. No new four year plan period began subsequent
to December 31, 1990. The Company issued approximately 46,300 shares to
eligible employees during 1994.
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Consolidated Statement of Common Stockholders' Equity
[Enlarge/Download Table]
Year Ended December 31,
1994 1993 1992
(in thousands)
Common Shares
Balance, beginning of period . . . . . . . . . . . . . . . . . 75,724 75,554 74,794
Class A shares issued upon exercise of options . . . . . . . . 52 106 701
Class A shares issued under long-term bonus plan . . . . . . . 46 52 45
Class A shares issued under stock grant plan-net . . . . . . . 29 12 14
Balance, end of period . . . . . . . . . . . . . . . . . . . . 75,851 75,724 75,554
Common Stock and Capital in Excess of Par Value
Balance, beginning of period . . . . . . . . . . . . . . . . . $ 464,000 $ 458,400 $ 441,200
Class A shares issued upon exercise of options . . . . . . . . 1,000 2,400 15,100
Class A shares issued under long-term bonus plan . . . . . . . 1,100 2,400 1,500
Class A shares issued under stock grant plan-net . . . . . . . 2,000 700 600
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 100 --
Balance, end of period . . . . . . . . . . . . . . . . . . . . $ 468,100 $ 464,000 $ 458,400
Retained Earnings
Balance, beginning of period . . . . . . . . . . . . . . . . . $ 620,300 $ 412,800 $ 234,200
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . 60,300 207,500 178,600
Balance, end of period . . . . . . . . . . . . . . . . . . . . $ 680,600 $ 620,300 $ 412,800
Currency Translation Adjustments
Balance, beginning of period . . . . . . . . . . . . . . . . . $ (37,300) $ (16,200) $ 13,300
Translation adjustments-net . . . . . . . . . . . . . . . . . 14,400 (21,100) (29,500)
Balance, end of period . . . . . . . . . . . . . . . . . . . . $ (22,900) $ (37,300) $ (16,200)
Holders of Class A Common Stock are entitled to receive, on a cumulative
basis, the first dollar per share of dividends declared. Thereafter, holders
of Class A Common Stock and Class B Common Stock will share ratably in any
dividends declared. Each share of Class A Common Stock is entitled to one vote
and each share of Class B Common Stock is entitled to five votes. The Class B
Common Stock is convertible into the Class A Common Stock on a share for share
basis.
Approximately 9.2% of the Company's common stock at December 31, 1994 is
held by FI and William Farley. Because these affiliates hold all of the Class
B Common Stock of the Company outstanding, which has five votes per share, they
control approximately 32.9% of all voting rights of the Company. All actions
submitted to a vote of stockholders are voted on by holders of Class A Common
Stock and Class B Common Stock voting together as a single class, except for
the election of directors. With respect to the election of directors, holders
of the Class A Common Stock vote as a separate class and are entitled to elect
25% of the total number of directors constituting the entire Board of Directors
47 FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Consolidated Statement of Common Stockholders' Equity - (Concluded)
and, if not a whole number, then the holders of the Class A Common Stock are
entitled to elect the nearest higher whole number of directors that is at least
25% of the total number of directors. If, at the record date for any
stockholder meeting at which directors are elected, the number of shares of
Class B Common Stock outstanding is less than 12.5% of the total number of
shares of both classes of common stock outstanding, then the holders of Class A
Common Stock would vote together with the holders of Class B Common Stock to
elect the remaining directors to be elected at such meeting, with the holders
of Class A Common Stock having one vote per share and the holders of Class B
Common Stock having five votes per share. At December 31, 1994, FI and William
Farley's combined ownership of Class B Common Stock is approximately 8.8% of
the total common stock of the Company outstanding. As a result, Mr. Farley
does not have the sole ability to elect those members of the Company's Board of
Directors who are not separately elected by the holders of the Company's Class
A Common Stock.
Business Segment and Major Customer Information
The Company operates in only one business segment consisting of the
manufacturing and marketing of basic apparel. Sales to one customer amounted
to approximately 15.6%, 13.4% and 11.8% of consolidated net sales in 1994, 1993
and 1992, respectively. Additionally, sales to a second customer amounted to
approximately 11.8%, 12.3% and 10.2% of consolidated net sales in 1994, 1993
and 1992, respectively.
Sales, operating earnings and identifiable assets are as follows (in
thousands of dollars):
[Enlarge/Download Table]
Year Ended December 31,
1994 1993 1992
Net Sales
Domestic . . . . . . . . . . . . . . . . $ 1,972,000 $ 1,634,600 $ 1,616,800
Foreign . . . . . . . . . . . . . . . . 325,800 249,800 238,300
Total . . . . . . . . . . . . . . . . . $ 2,297,800 $ 1,884,400 $ 1,855,100
Operating Earnings
Domestic . . . . . . . . . . . . . . . . $ 234,500 $ 368,900 $ 388,100
Foreign . . . . . . . . . . . . . . . . 21,900 29,800 36,100
General corporate expenses . . . . . . . (21,400) (17,200) (14,300)
Total . . . . . . . . . . . . . . . . . $ 235,000 $ 381,500 $ 409,900
December 31,
1994 1993 1992
Identifiable Assets
Domestic . . . . . . . . . . . . . . . . $ 2,661,000 $ 2,390,700 $ 1,985,200
Foreign . . . . . . . . . . . . . . . . 442,400 300,500 278,100
Corporate . . . . . . . . . . . . . . . 60,100 42,800 18,600
Total . . . . . . . . . . . . . . . . . $ 3,163,500 $ 2,734,000 $ 2,281,900
Corporate assets presented above consist primarily of cash and other
short-term investments, deferred financing costs and, in 1994, a receivable
related to anticipated environmental recoveries and, in 1992, the investment
in Acme Boot. Corporate assets in 1994 and 1993 also include Federal income
taxes receivable.
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Pension Plans
Pension expense was $11,700,000, $5,500,000 and $4,900,000 in 1994, 1993
and 1992, respectively. The net pension expense is comprised of the following
(in thousands of dollars):
[Enlarge/Download Table]
Year Ended December 31,
1994 1993 1992
Components:
Service cost - benefits earned during the period . . . . $ 11,700 $ 7,700 $ 7,000
Interest cost on projected benefit obligation . . . . . 12,800 10,800 9,600
Return on assets:
Actual loss (gain) . . . . . . . . . . . . . . . . . 800 (5,900) (11,600)
Deferred actuarial (losses) gains . . . . . . . . . (13,500) (5,800) 1,200
Amortization of unrecognized net loss . . . . . . . . . 1,200 -- --
Amortization of unrecognized January 1, 1987 net
transition asset . . . . . . . . . . . . . . . . . . (1,300) (1,300) (1,300)
Net periodic pension cost . . . . . . . . . . . $ 11,700 $ 5,500 $ 4,900
Assumptions:
Discount rate . . . . . . . . . . . . . . . . . . . . . 7.75% 9% 9%
Rates of increase in compensation levels . . . . . . . . 5-8% 5-8% 5-8%
Expected long-term rate of return on assets . . . . . . 10% 10% 10%
The following table sets forth the funded status of the plans and amounts
recognized in the Company's Consolidated Balance Sheet (in thousands of
dollars):
[Enlarge/Download Table]
December 31,
1994 1993
Actuarial present value of benefit obligations:
Vested benefits . . . . . . . . . . . . . . . . . . . . $ 106,400 $ 106,000
Non-vested benefits . . . . . . . . . . . . . . . . . . 10,200 10,600
Accumulated benefit obligation . . . . . . . . . . . 116,600 116,600
Effect of projected future salary increases . . . . . . 52,400 50,500
Projected benefit obligation . . . . . . . . . . . . . . . . 169,000 167,100
Plan assets at fair value . . . . . . . . . . . . . . . . . 118,200 125,100
Plan assets less than projected
benefit obligation . . . . . . . . . . . . . . . . . . . (50,800) (42,000)
Unrecognized loss . . . . . . . . . . . . . . . . . . . . . 39,700 33,300
Unrecognized prior service cost . . . . . . . . . . . . . . (200) (200)
Unrecognized net transition asset at end of period . . . . . (8,500) (9,800)
Unfunded accrued pension cost at end of period . . . . . . . $ (19,800) $ (18,700)
The discount rate for purposes of determining the funded status of the plans
at December 31, 1994 and 1993 was 8.25% and 7.75%, respectively.
50 FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Pension Plans - (Concluded)
Plan assets, which are primarily invested in United States Government,
international and domestic corporate debt securities, equity securities, real
estate and venture capital funds, are commingled in a master trust which
includes the assets of the pension plans of substantially all affiliated
companies controlled directly and indirectly by William Farley (the "Master
Trust"). Plan assets, except those that are specifically identified to a
particular plan, are shared in different proportions by each of the plans in
the Master Trust ("Allocated Assets"). Any gains and losses associated with
the Allocated Assets are spread among each of the plans based on each plan's
respective share of the Allocated Assets market value. The Company's plan
assets represent approximately 69.3% and 51.8% of the Master Trust Allocated
Assets at December 31, 1994 and 1993, respectively.
Included in the Master Trust Allocated Assets at December 31, 1994 and 1993
were 647,852 shares (with a cost of $5,100,000 and a market value of
$17,500,000 and $15,600,000, respectively) of the Company's Class A Common
Stock.
As of December 31, 1994 and 1993, the Master Trust holds 348,012 shares
(with a cost of $7,700,000 and a market value of $9,400,000 and $8,400,000,
respectively) of the Company's Class A Common Stock that is specifically
identified to the retirement plans of FI. Any change in market value
associated with these shares is allocated entirely to the FI plans and does not
effect the Master Trust Allocated Assets.
Depreciation Expense
Depreciation expense, including amortization of capital leases, approximated
$107,600,000, $84,300,000 and $67,800,000 in 1994, 1993 and 1992, respectively.
Advertising Expense
Advertising, which is expensed as incurred, approximated $70,800,000,
$52,800,000 and $62,500,000 in 1994, 1993 and 1992, respectively.
Income Taxes
Income taxes are included in the Consolidated Statement of Earnings as
follows (in thousands of dollars):
[Enlarge/Download Table]
Year Ended December 31,
1994 1993 1992
Income tax expense on earnings
before extraordinary items and cumulative
effect of change in accounting principle $ 73,200 $ 154,300 $ 131,400
Extraordinary items . . . . . . . . . . . . -- (4,700) (5,100)
Cumulative effect of change in
accounting for income taxes . . . . . . -- (3,400) --
Total income tax expense . . . . . . . . $ 73,200 $ 146,200 $ 126,300
Included in earnings before extraordinary items and cumulative effect of
change in accounting principle are foreign losses of $15,500,000 in 1994 and
foreign earnings of $17,000,000 and $34,600,000 in 1993 and 1992, respectively.
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Income Taxes - (Continued)
The components of income tax expense (benefit) related to earnings before
extraordinary items and cumulative effect of change in accounting principle
were as follows (in thousands of dollars):
[Enlarge/Download Table]
Year Ended December 31,
1994 1993 1992
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . $ 73,600 $ 111,100 $ 124,100
State . . . . . . . . . . . . . . . . . . . . . . . . . . 6,100 10,100 9,700
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . 1,100 2,900 6,800
Total current . . . . . . . . . . . . . . . . . . . . 80,800 124,100 140,600
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . (7,400) 28,500 (9,000)
State . . . . . . . . . . . . . . . . . . . . . . . . . . (200) 1,800 (400)
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . -- (100) 200
Total deferred . . . . . . . . . . . . . . . . . . . . (7,600) 30,200 (9,200)
Total . . . . . . . . . . . . . . . . . . . . . . $ 73,200 $ 154,300 $ 131,400
Deferred income taxes related to earnings before extraordinary items and
cumulative effect of change in accounting principle were as follows (in
thousands of dollars):
[Enlarge/Download Table]
Year Ended December 31,
1994 1993 1992
Depreciation and amortization . . . . . . . . . . . . . . . $ 17,000 $ 10,300 $ 5,700
Inventory valuation . . . . . . . . . . . . . . . . . . . . (7,000) 3,600 (2,000)
Intangible valuation . . . . . . . . . . . . . . . . . . . . (6,100) -- --
Payments on certain obligations of former subsidiaries . . . -- 13,500 9,900
Interest on income taxes receivable, net of tax refund . . . -- -- (16,900)
Interest on prior years' taxes . . . . . . . . . . . . . . -- -- 3,600
Other-net . . . . . . . . . . . . . . . . . . . . . . . . . (11,500) 2,800 (9,500)
Deferred income tax expense (benefit) . . . . . . . . . $ (7,600) $ 30,200 $ (9,200)
The income tax rate on earnings before extraordinary items and cumulative
effect of change in accounting principle differed from the Federal statutory
rate as follows:
[Enlarge/Download Table]
Year Ended December 31,
1994 1993 1992
Federal statutory rate . . . . . . . . . . . . . . . . . . 35.0% 35.0% 34.0%
Goodwill amortization . . . . . . . . . . . . . . . . . . 7.9 2.5 2.7
State income taxes, net of Federal tax benefit . . . . . . 2.9 2.1 1.9
Interest on prior years' taxes . . . . . . . . . . . . . . 5.2 2.1 1.9
Foreign operating losses . . . . . . . . . . . . . . . . . 4.1 -- --
Other-net . . . . . . . . . . . . . . . . . . . . . . . . (.3) .3 .6
Effective rate . . . . . . . . . . . . . . . . . . . . 54.8% 42.0% 41.1%
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Income Taxes - (Continued)
Deferred income taxes are provided for temporary differences between
income tax and financial statement recognition of revenues and expenses.
Deferred tax liabilities (assets) are comprised of the following (in thousands
of dollars):
[Enlarge/Download Table]
December 31,
1994 1993
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . $ 120,600 $ 92,100
Items includible in future tax years . . . . . . . . . . . . . . . . . . 39,700 21,000
Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . 160,300 113,100
Inventory valuation reserves . . . . . . . . . . . . . . . . . . . . . . (27,900) (4,800)
Accrued employee benefit expenses . . . . . . . . . . . . . . . . . . . (23,200) (18,300)
Acquired tax benefits and basis differences . . . . . . . . . . . . . . (14,800) (14,400)
Allowance for possible losses on receivables . . . . . . . . . . . . . . (6,200) (5,800)
Items deductible in future tax years . . . . . . . . . . . . . . . . . . (44,800) (18,800)
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . (116,900) (62,100)
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . $ 43,400 $ 51,000
Effective January 1, 1993, the Company recorded the cumulative effect of a
change in accounting principle related to the initial adoption of Statement No.
109 resulting in a $3,400,000 ($.04 per share) benefit.
In 1993, the Company paid the IRS approximately $28,300,000 in settlement
of Federal income tax assessments for the tax periods ended December 31, 1984
and July 31, 1985 (the final predecessor tax periods). This amount included
approximately $14,800,000 of accrued interest. The Company had previously
established reserves for these matters and these payments did not have an
impact on the 1993 tax provision.
The IRS previously asserted income tax deficiencies, excluding statutory
interest which accrues from the date the tax was due until payment, for the
Company of approximately $93,000,000 for the years 1978-1980 and $15,400,000
for the years 1981-1983. The Company had protested the IRS's asserted tax
deficiencies for these six years with respect to a number of issues and also
had raised certain affirmative tax issues that bear on these years. Settlement
agreements with respect to all the 1978-1980 and 1981-1983 protested and
affirmative issues resulted in the Company receiving a refund of approximately
$5,900,000, including interest, in January 1993.
In an unrelated matter, the IRS declined to seek United States Supreme
Court review of a decision by the United States Court of Appeals for the Third
Circuit which reversed a lower court ruling and directed the lower court to
order a refund to the Company of approximately $10,500,000 in Federal income
taxes collected from a predecessor of the Company, plus approximately
$49,400,000 in interest thereon applicable to the tax years 1964-1968. The
Company received the full refund of approximately $60,000,000 in March 1992.
However, in September 1992 the IRS issued a statutory notice of deficiency in
54 FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Income Taxes - (Concluded)
the amount of approximately $7,300,000 for the taxable years from which the
March 1992 refund arose, exclusive of interest which would accrue from the date
the IRS asserted the tax was due until payment, presently a period of about 27
years. In October 1994, the United States Tax Court ruled in favor of the
Company in the above case. In January 1995 the IRS filed an appeal with the
United States Court of Appeals for the Seventh Circuit. The Company believes,
based on information currently available, that the IRS position is without
merit and that the Company will prevail in this appeal.
Cash payments for income taxes were $49,000,000, $137,500,000 and
$131,600,000 in 1994, 1993 and 1992, respectively.
Other Expense-Net
Included in other expense-net in 1994 is $16,000,000 of service fee income
from Gitano's operations which represent Gitano's transition to a marketing
service organization from a traditional wholesaler base. These revenues are
not expected to recur after 1994 as Gitano reverts to a traditional apparel
wholesaler. This service fee revenue was partially offset by $12,500,000 of
charges to provide for certain obligations of and legal expenses pertaining to
litigation related to retained liabilities of former subsidiaries. In
addition, included in other expense-net in 1994, 1993 and 1992 was deferred
debt fee amortization and bank fees of approximately $8,100,000, $7,900,000 and
$10,100,000, respectively.
Earnings Per Share
Primary earnings per share are based on the weighted average number of
common shares and equivalents outstanding during the year.
Related Party Transactions
Under the terms of a management agreement between FII and the Company, FII
provides the Company, to the extent that the Company may request, (i) general
management services which include, but are not limited to, financial
management, legal, tax, accounting, corporate development, human resource and
personnel advice; (ii) investment banking services in connection with the
acquisition or disposition of the assets or operations of a business or entity;
(iii) financing services in connection with the arrangement by FII of public or
private debt (including letter of credit facilities); and (iv) other financial,
accounting, legal and advisory services rendered outside the ordinary course of
the Company's business. FII is owned and controlled by Mr. Farley; its
approximately 60 employees provide services to companies owned or controlled by
Mr. Farley, including the Company. Certain of the executive officers of the
Company are employed by, and receive their compensation from, FII. These
officers devote their time as needed to those companies owned and controlled by
Mr. Farley and, accordingly, do not devote full time to any single company,
including the Company.
In consideration for investment banking and financing services, the
Company pays FII fees established by FII and determined to be reasonable by FII
in relation to (i) the size and complexity of the transaction; and (ii) the
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Concluded)
Related Party Transactions - (Concluded)
fees customarily charged by other advisors for similar investment banking and
financing services; provided, such fees shall not exceed two percent of the
total consideration paid or received by the Company or two percent of the
aggregate amount available for borrowing or use under the subject agreement or
facility. Fees for investment banking and financing services are generally
payable to FII upon the closing of the subject transaction or agreement.
Effective January 1994, the Company entered into a new management
agreement (the "Management Agreement") with FII pursuant to which FII agreed to
render substantially similar services to the Company as under the prior
management agreements. Under the terms of a management agreement, the Company
pays a fee to FII based on FII's cost of providing management services. The
Company paid management fees to FII of approximately $8,800,000 in 1994,
approximately $9,900,000 in 1993 and approximately $7,000,000 in 1992. At
December 31, 1994 approximately $600,000 was owed for management services
related to 1994, which amount was paid in February 1995. The Company also paid
a financing fee of approximately $2,500,000 to FII in 1994 for financing
services related to 1993, which costs were capitalized as deferred financing
costs in 1994. The Company paid a financing fee to FII during 1992 of
approximately $2,300,000, which costs were capitalized as deferred financing
costs in 1992. It is anticipated that the Company will enter into a management
agreement for 1995 under substantially the same terms and conditions as the
Management Agreement.
Concurrently with entering into the management agreement with FII in 1992,
the Company's Board of Directors determined to employ Mr. Farley directly as
Chairman and Chief Executive Officer of the Company. Mr. Farley did not
receive compensation in 1994, 1993 or 1992 from FII for his services as
Chairman and Chief Executive Officer of the Company.
In June 1994, pursuant to authorization from the Company's Board of
Directors, the Company guaranteed a loan from a bank in an amount up to
$12,000,000 to Mr. Farley, the Company's Chairman of the Board and Chief
Executive Officer. In exchange for the guarantee the Company received an
annual fee from Mr. Farley equal to 1% of the value of the loan covered by the
guarantee. The guarantee is secured by a second lien on certain shares of the
Company held by the bank for other loans made to Mr. Farley. See "Contingent
Liabilities".
The Company completed the sale of the stock of Acme Boot at book value,
which approximated fair market value, to an affiliate in June 1987 for an
aggregate of $38,400,000 of cash and preferred stock and subordinated
debentures of the affiliate. The Company recognized no earnings in 1992
related to its investment in the securities of the affiliate because of the
inability of the affiliate to make payments under the terms of the securities.
In the fourth quarter of 1993, the Company received approximately $72,900,000
from Acme Boot representing the entire unpaid principal and liquidation
preference (including accrued interest and dividends) on its investment in the
securities of the affiliate. The Company recorded a pretax gain of
approximately $67,300,000 in connection with the investment in Acme Boot upon
the receipt of the above mentioned proceeds. See "Contingent Liabilities."
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
SUPPLEMENTARY DATA
Quarterly Financial Summary (Unaudited)
(In millions of dollars, except per share amounts)
[Enlarge/Download Table]
Quarter Total
First Second Third Fourth Year
1994
Net sales . . . . . . . . . . . . . . . . . $ 438.2 $ 635.2 $ 640.4 $ 584.0 $2,297.8
Gross earnings . . . . . . . . . . . . . . 145.8 190.8 201.5 108.4 646.5
Operating earnings (loss) . . . . . . . . . 66.7 91.5 98.4 (21.6)<F1> 235.0
Net earnings (loss) . . . . . . . . . . . . 25.1 38.7 40.2 (43.7) 60.3
Net earnings (loss) per common share . . . .33 .51 .53 (.58) .79
Quarter Total
First Second Third Fourth Year
1993
Net sales . . . . . . . . . . . . . . . . . $ 428.9 $ 523.0 $ 484.2 $ 448.3 $1,884.4
Gross earnings . . . . . . . . . . . . . . 157.7 192.8 175.1 121.8 647.4
Operating earnings . . . . . . . . . . . . 94.3 121.7 108.4 57.1 381.5
Earnings before extraordinary items
and cumulative effect of change in
accounting principle . . . . . . . . . 44.1 58.4 48.6 61.7 212.8
Net earnings . . . . . . . . . . . . . . . 47.5<F2> 58.4 40.0<F3> 61.6<F4> 207.5
Earnings per common share before
extraordinary items and
cumulative effect of change
in accounting principle . . . . . . . .58<F2> .77 .64<F3> .81<F4> 2.80
<FN>
<F1> Includes pretax charges of approximately $40 to write inventories down
to net realizable value and a pretax charge of $18 related to the
write-off Artex intangibles.
<F2> In the first quarter of 1993, the Company recorded the cumulative
effect of a change in accounting principle related to the adoption of
Statement No. 109 resulting in a $3.4 ($.04 per share) benefit.
<F3> In connection with the refinancing of the Credit Agreements and the
redemption of the 12-3/8% Notes in the third quarter of 1993, the
Company recorded an extraordinary charge of approximately $8.6 ($.11
per share) which consists principally of the non-cash write-off of the
related unamortized debt expense on the Credit Agreements and the
12-3/8% Notes and the premiums paid in connection with the early
redemption of the 12-3/8% Notes, both net of income tax benefits.
<F4> In the fourth quarter of 1993, the Company recorded a pretax gain of
approximately $67.3 ($.55 per share) related to its investment in
Acme Boot.
</FN>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of December 31, 1994 were as
follows:
Name Age Position
William Farley 52 Chairman of the Board
and Chief Executive Officer
John B. Holland 62 President and Chief Operating
Officer
Richard C. Lappin 50 Vice-Chairman of the Board
Richard M. Cion 51 Senior Executive Vice
President-Corporate Development
Larry K. Switzer 51 Executive Vice President and
Chief Financial Officer
Michael F. 40 Vice President and Controller
Bogacki
Burgess D. Ridge 50 Vice President-Administration
Earl C. Shanks 38 Vice President and Treasurer
Officers serve at the discretion of the Board of Directors. Messrs.
Lappin, Cion, Switzer, Bogacki, Ridge and Shanks are employed by FII which
provides management services to companies owned or managed by Mr. Farley. They
devote their time to those companies as needed and, accordingly, do not devote
full time to any single company, including the Company. Certain of the
executive officers, as noted below, are also executive officers of FI and were
executive officers of VBQ, Inc. ("VBQ"), formerly a defense contractor and an
affiliate of FI. Certain of the executive officers, as noted below, were also
executive officers of Valley Fashions Corp. (formerly West Point Acquisition
Corp. and currently West Point Stevens, Inc.). During 1992, FI and Valley
Fashions Corp. emerged from bankruptcy proceedings and VBQ became the subject
of a Chapter 7 liquidation.
William Farley. Mr. Farley has been Chairman of the Board and Chief
Executive Officer of the Company since May 1985. Mr. Farley has also been
Chairman and a director of Acme Boot for more than the past five years. During
the past five years, Mr. Farley has also been Chairman and Chief Executive
Officer of FII. He has held substantially similar positions with FI since
1982, VBQ from 1984 until January 1992, West Point-Pepperell, Inc. ("West
Point") from April 1989 until October 1992 and Valley Fashions Corp. from March
1989 until October 1992.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - (Continued)
John B. Holland. Mr. Holland has been a director of the Company since
November 1992 and President of the Company since May 1992. Mr. Holland has
served as Chief Operating Officer of the Company for more than the past five
years. Mr. Holland served as Vice Chairman of West Point from April 1989 until
September 1992 and as a director of West Point from April 1989 until September
1992. Mr. Holland served as Vice Chairman of Valley Fashions Corp. from March
1989 until June 1990. Mr. Holland is also a director of Dollar General Corp.
and First Kentucky National Corp.
Richard C. Lappin. Mr. Lappin has been a director of the Company since
December 1990 and Vice Chairman of the Company since October 1991. Mr. Lappin
has been Vice Chairman and Chief Executive Officer of Acme Boot since February
1991 and a director of Acme Boot since December 1993. Mr. Lappin has been
President and Chief Operating Officer of FII since February 1991. From October
1989 to February 1991, Mr. Lappin served in various capacities with FI,
including President and Chief Executive Officer of the Doehler Jarvis and
Southern Fastening Systems divisions of FI.
Richard M. Cion. Mr. Cion has been Senior Executive Vice President of the
Company since June 1990, of FII and Acme Boot since February 1990 and of West
Point from February 1990 until October 1992. Mr. Cion was also a director of
West Point from April 1989 until October 1992. Mr. Cion served as a director
of Valley Fashions Corp. from April 1989 until June 1992. Mr. Cion was also
Senior Executive Vice President of Valley Fashions Corp. from March 1992 until
October 1992. From April 1988 to February 1990, Mr. Cion was a Managing
Director with Drexel Burnham Lambert Incorporated, an investment banking firm.
Larry K. Switzer. Mr. Switzer has been Senior Executive Vice President
and Chief Financial Officer of the Company, FII and FI since May 1994. From
September 1992 to March 1993 Mr. Switzer was Executive Vice President and Chief
Financial Officer of Alco Standard Corporation, a manufacturer and marketer of
office equipment and supplies. Mr. Switzer was Senior Vice President and Chief
Financial Officer of S.C. Johnson & Son, Inc., a manufacturer and marketer of
household cleaning and pest control products, from before 1990 to August 1992.
Michael F. Bogacki. Mr. Bogacki has been Corporate Controller of the
Company, FII and FI since October 1988. Mr. Bogacki was appointed Vice
President of FII in November 1989, of the Company in May 1990 and of FI in June
1990 and of Acme Boot in February 1991. In June 1991, Mr. Bogacki was
appointed Assistant Secretary of the Company. Mr. Bogacki was Corporate
Controller of Valley Fashions Corp. from March 1989 until November 1992. Mr.
Bogacki was also Vice President of Valley Fashions Corp. from June 1991 until
November 1992.
Burgess D. Ridge. Mr. Ridge was Assistant Treasurer of the Company, FII
and FI from before 1990 until October 1991. Mr. Ridge was appointed Vice
President Administration of FII and FI in August 1991 and of the Company in
October 1991.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - (Concluded)
Earl C. Shanks. Mr. Shanks served as Vice President-Taxes and Assistant
Secretary of the Company, FII and FI from before 1990 until June 1991. In June
1991, Mr. Shanks became Treasurer of the Company, FII, Acme Boot and FI. Mr.
Shanks was Vice President and Assistant Secretary of West Point from April 1989
until November 1992. Mr. Shanks served as Vice President-Taxes and Assistant
Secretary of Valley Fashions Corp. from March 1989 until June 1991. Mr. Shanks
was Vice President and Treasurer of Valley Fashions Corp. from June 1991 until
November 1992. During the past five years Mr. Shanks has been Vice President
of Acme Boot. Mr. Shanks was Vice President-Taxes of VBQ from before 1990 to
January 1992.
Information relating to the directors of the Company is set forth in the
Registrant's proxy statement for its Annual Meeting of Stockholders to be held
on May 16, 1995 (the "Proxy Statement") to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act
of 1934, as amended, and is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation is set forth in the Proxy
Statement to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended, and is
hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to the security ownership of certain beneficial
owners and management is set forth in the Proxy Statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A of the Securities
Exchange Act of 1934, as amended, and is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Under the terms of a management agreement between FII and the Company, FII
provides the Company, to the extent that the Company may request, (i) general
management services which include, but are not limited to, financial
management, legal, tax, accounting, corporate development, human resource and
personnel advice; (ii) investment banking services in connection with the
acquisition or disposition of the assets or operations of any business or
entity; (iii) financing services in connection with the arrangement by FII of
public or private debt (including letter of credit facilities); and (iv) other
financial, accounting, legal and advisory services rendered outside the
ordinary course of the Company's business. FII is owned and controlled by Mr.
Farley; its approximately 60 employees provide services to companies owned or
controlled by Mr. Farley, including the Company. Certain of the executive
officers of the Company are employed by, and receive their compensation from,
FII. These officers devote their time as needed to those companies owned and
controlled by Mr. Farley and, accordingly, do not devote full time to any
single company, including the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - (Concluded)
In consideration for investment banking and financing services, the
Company pays FII fees established by FII and determined to be reasonable by FII
in relation to (i) the size and complexity of the transaction; and (ii) the
fees customarily charged by other advisors for similar investment banking and
financing services; provided, such fees shall not exceed two percent of the
total consideration paid or received by the Company or two percent of the
aggregate amount available for borrowing or use under the subject agreement or
facility. Fees for investment banking and financing services are generally
payable to FII upon the closing of the subject transaction or agreement.
Effective January 1994, the Company entered into the Management Agreement
with FII pursuant to which FII agreed to render substantially similar services
to the Company as under the prior management agreements. Under the terms of a
management agreement, the Company pays a fee to FII based on FII's cost of
providing management services. The Company paid management fees to FII of
approximately $8,800,000 in 1994, approximately $9,900,000 in 1993 and
approximately $7,000,000 in 1992. At December 31, 1994 approximately $600,000
was owed for management services related to 1994, which amount was paid in
1995. The Company also paid a financing fee of approximately $2,500,000 to FII
in 1994 for financing services related to 1993, which costs were capitalized as
deferred financing costs in 1994. The Company paid a financing fee to FII
during 1992 of approximately $2,300,000, which costs were capitalized as
deferred financing costs in 1992. It is anticipated that the Company will
enter into a management agreement for 1995 under substantially the same terms
and conditions as the Management Agreement.
Concurrently with entering into the new management agreement with FII in
1992, the Company's Board of Directors determined to employ Mr. Farley directly
as Chairman and Chief Executive Officer of the Company. Mr. Farley did not
receive compensation in 1994, 1993 or 1992 from FII for his services as
Chairman and Chief Executive Officer of the Company.
In June 1994, pursuant to authorization from the Company's Board of
Directors, the Company guaranteed a loan from a bank in an amount up to
$12,000,000 to Mr. Farley, the Company's Chairman of the Board and Chief
Executive Officer. In exchange for the guarantee, the Company received an
annual fee from Mr. Farley equal to 1% of the value of the loan covered by the
guarantee. The guarantee is secured by a second lien on certain shares of the
Company held by the bank for other loans made to Mr. Farley.
The Company completed the sale of the stock of Acme Boot at book value,
which approximated fair market value, to an affiliate in June 1987 for an
aggregate of $38,400,000 of cash and preferred stock and subordinated
debentures of the affiliate. The Company recognized no income in 1992 related
to its investment in the securities of the affiliate because of the inability
of the affiliate to make payments under the terms of the securities. In the
fourth quarter of 1993, the Company received approximately $72,900,000 from
Acme Boot representing the entire unpaid principal and liquidation preference
(including accrued interest and dividends) on its investment in the securities
of the affiliate. The Company recorded a pretax gain of approximately
$67,300,000 in connection with the investment in Acme Boot upon the receipt of
the above mentioned proceeds. See "Contingent Liabilities."
Information relating to certain relationships and related transactions is
set forth in the Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934,
as amended, and is hereby incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) Financial statements, financial statement schedule and exhibits
1. Financial Statements
The financial statements listed in the Index to Financial Statements and
Supplementary Data on page 24 are filed as part of this Annual Report.
2. Financial Statement Schedule
The schedule listed in the Index to Financial Statements and Supplementary
Data on page 24 are filed as part of this Report.
3. Exhibits
The exhibits listed in the Index to Exhibits on pages 66 and 67 are filed
part of this Annual Report.
(b) Reports on Form 8-K
No report on Form 8-K was filed during the fourth quarter of 1994.
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, in the
City of Chicago, State of Illinois, on March 28, 1995.
FRUIT OF THE LOOM, INC.
BY: LARRY K. SWITZER
(Larry K. Switzer
Executive Vice President and
Chief Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities indicated on
March 28, 1995.
Name Capacity
WILLIAM FARLEY Chairman of the Board and
(William Farley) Chief Executive Officer (Principal
Executive Officer) and Director
LARRY K. SWITZER Executive Vice President
(Larry K. Switzer) and Chief Financial Officer
(Principal Financial Officer)
MICHAEL F. BOGACKI Vice President and
(Michael F. Bogacki) Controller (Principal
Accounting Officer)
OMAR Z. AL ASKARI Director
(Omar Z. Al Askari)
DENNIS S. BOOKSHESTER Director
(Dennis S. Bookshester)
JOHN B. HOLLAND Director
(John B. Holland)
LEE W. JENNINGS Director
(Lee W. Jennings)
HENRY A. JOHNSON Director
(Henry A. Johnson)
RICHARD C. LAPPIN Director
(Richard C. Lappin)
A. LORNE WEIL Director
(A. Lorne Weil)
SIR BRIAN G. WOLFSON Director
(Sir Brian G. Wolfson)
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
(In thousands of dollars)
[Enlarge/Download Table]
Balance at Additions Balance
Beginning Charged to Charged to at End
Description: of Period Costs and Expense Other Accounts<F1> Deductions<F2> of Period
Year Ended December 31, 1994:
Reserves deducted from assets
to which they apply:
Accounts receivable allowances:
Doubtful accounts . . . . . . . . $ 12,500 $ 6,000 $ 1,100 $ 7,600 $ 12,000
Sales discounts, returns, and
allowances . . . . . . . . . . 3,600 20,300 600 15,800 8,700
$ 16,100 $ 26,300 $ 1,700 $ 23,400 $ 20,700
Year Ended December 31, 1993:
Reserves deducted from assets
to which they apply:
Accounts receivable allowances:
Doubtful accounts . . . . . . . . $ 10,800 $ 4,100 $ 2,800 $ 5,200 $ 12,500
Sales discounts, returns, and
allowances . . . . . . . . . . 3,500 3,600 -- 3,500 3,600
$ 14,300 $ 7,700 $ 2,800 $ 8,700 $ 16,100
Year Ended December 31, 1992:
Reserves deducted from assets
to which they apply:
Accounts receivable allowances:
Doubtful accounts . . . . . . . . $ 11,400 $ 5,100 $ 600 $ 6,300 $ 10,800
Sales discounts, returns, and
allowances . . . . . . . . . . 2,800 900 -- 200 3,500
$ 14,200 $ 6,000 $ 600 $ 6,500 $ 14,300
<FN>
<F1> Recoveries of bad debts and, in 1994 and 1993, the effect of the Acquisitions.
<F2> Bad debts written off and allowances and discounts taken by customers.
</FN>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
(Item 14(a)(3) and 14(c))
Description
3(a)* - Restated Certificate of Incorporation of the Company and Certificate
of Amendment of the Restated Certificate of Incorporation of the
Company (incorporated herein by reference to Exhibit 3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1993).
3(b)* - By-Laws of the Company (incorporated herein by reference to Exhibit
4(b) to the Company's Registration Statement on Form S-2, Reg. No.
33-8303 (the "S-2")).
4(a)* - $800,000,000 Credit Agreement dated as of August 16, 1993, among the
several banks and other financial institutions from time to time
parties thereto (the "Lenders"), Bankers Trust Company, a New York
banking corporation, as administrative agent for the Lenders
thereunder, Chemical Bank, NationsBank of North Carolina N.A., The
Bank of New York and the Bank of Nova Scotia, as co-agents
(incorporated herein by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-3, Reg. No. 33-50567 (the "1993 S-
3")).
4(b)* - Subsidiary Guarantee Agreements dated as of August 16, 1993 by each
of the guarantors signatory thereto in favor of the beneficiaries
referred to therein (incorporated herein by reference to Exhibit 4.4
to the 1993 S-3).
10(a)* - Fruit of the Loom 1989 Stock Grant Plan dated January 1, 1989
(incorporated herein by reference to Exhibit 10(b) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1988).
10(b)* - Fruit of the Loom 1987 Stock Option Plan (incorporated herein by
reference to Exhibit 10(b) to the S-2).
10(c)* - Fruit of the Loom, Inc. Stock Option Agreement for Richard C. Lappin
(incorporated herein by reference to Exhibit 10(d) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1991).
10(d)* - Fruit of the Loom 1992 Executive Stock Option Plan (incorporated
herein by reference to the Company's Registration Statement on Form
S-8, Reg. No. 33-57472).
10(e)* - Fruit of the Loom, Inc. Directors' Stock Option Plan (incorporated
herein by reference to the Company's Registration Statement on Form
S-8, Reg. No. 33-50499).
10(f)* - Fruit of the Loom, Inc. Executive Incentive Compensation Plan
(incorporated herein by reference to Exhibit A to the Company's
Proxy Statement for its annual meeting on May 17, 1994).
10(g)* - Guarantee of Payment dated as of June 27, 1994 by Fruit of the Loom,
Inc. and NationsBank of Florida N.A. (incorporated herein by
reference to Exhibit 10(a) to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1994(the "10-Q")).
See footnotes on following page.
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS - (Concluded)
(Item 14(a)(3) and 14(c))
Description
10(h)* - Stock Pledge Agreement dated as of June 27, 1994 between William F.
Farley and Fruit of the Loom, Inc. (incorporated herein by reference
to Exhibit 10(b) to the 10-Q).
10(i)* - Management Agreement between Farley Industries, Inc. and the Company
dated as of January 1, 1994 (incorporated herein by reference to
Exhibit 10(c) to the 10-Q).
10(j) - Employment Agreement between Fruit of the Loom, Inc. and William
Farley.
10(k) - Employment Agreement between Fruit of the Loom, Inc. and John B.
Holland.
10(l) - Employment Agreement between Farley Industries, Inc., Fruit of the
Loom, Inc. and Richard C. Lappin.
10(m) - Employment Agreement between Farley Industries, Inc., Fruit of the
Loom, Inc. and Richard M. Cion.
10(n) - Employment Agreement between Farley Industries, Inc., Fruit of the
Loom, Inc. and Earl C. Shanks.
10(o) - Employment Agreement between Farley Industries, Inc., Fruit of the
Loom, Inc. and Larry K. Switzer.
11 - Computation of Earnings Per Common Share.
22 - Subsidiaries of the Company.
24 - Consent of Ernst & Young LLP.
27 - Financial Data Schedule.
* Document is available at the Public Reference Section of the Securities and
Exchange Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 (Commission file #1-8941).
The Registrant has not listed or filed as Exhibits to this Annual Report
certain instruments with respect to long-term debt representing indebtedness of
the Company and its subsidiaries which do not individually exceed 10% of the
total assets of the Registrant and its subsidiaries on a consolidated basis.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the Registrant agrees to
furnish such instruments to the Securities and Exchange Commission upon
request.
Dates Referenced Herein and Documents Incorporated by Reference
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