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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended September 29, 2001
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ________________________________ to _______________________________
Commission File Number 0-23161
Tropical Sportswear Int'l Corporation
(Exact name of registrant as specified in its charter)
Florida 59-3424305
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.
4902 W. Waters Avenue Tampa, FL 33634-1302
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (813) 249-4900
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $.01 per share
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. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
As of December 17, 2001 there were 7,702,374 shares of Common Stock outstanding. The aggregate market value of
the Common Stock held by non-affiliates of the registrant (assuming for purposes of this calculation, without
conceding, that all executive officers and directors are "affiliates"), based on the last sale price reported on
the Nasdaq National Market as of December 17, 2001, was approximately $86,544,176.
DOCUMENT INCORPORATED BY REFERENCE:
-----------------------------------
Certain portions for the Proxy Statement of the Annual Meeting of Shareholders of Tropical Sportswear Int'l
Corporation, to be held on January 29, 2002 are incorporated by reference in Part III of this Annual Report on
Form 10K.
TROPICAL SPORTSWEAR INT'L CORPORATION
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I Page No.
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Item 1 Business 4
Item 2 Properties 13
Item 3 Legal Proceedings 13
Item 4 Submission of Matters to a Vote of Security Holders 13
Item 4A Executive Officers of the Registrant 14
PART II
Item 5 Market for Registrant's Common Equity and Related Shareholder Matters 15
Item 6 Selected Financial Data 16
Item 7 Management's Discussion and Analysis of Financial Condition and Results
of Operations 16
Item 7A Quantitative and Qualitative Disclosures About Market Risk 27
Item 8 Financial Statements and Supplementary Data 27
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 27
PART III
Item 10 Directors and Executive Officers of the Registrant 28
Item 11 Executive Compensation 28
Item 12 Security Ownership of Certain Beneficial Owners and Management 28
Item 13 Certain Relationships and Related Transactions 28
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 29
Forward Looking Statements
Certain statements contained in this Annual Report on Form 10-K that are not purely historical may be forward
looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended, including statements regarding the Company's expectations,
hopes, beliefs, intentions, or strategies regarding the future. Forward looking statements are subject to the
safe harbor created by the Private Securities Litigation Reform Act of 1995. Forward looking statements include
statements regarding, among other things; (i) the Company's anticipated backlog and sales and their expected
impact on the Company's operations; (ii) potential acquisitions by the Company; (iii) the Company's future
financing plans; (iv) trends affecting the Company's financial condition or results of operations; and (v) the
Company's business, growth, operating and financing strategies. Among the factors that could cause actual
results to differ from the forward looking statements are; (i) the continued acceptance of the Company's existing
and new products by its major customers; (ii) the financial strength of the Company's major customers; (iii) the
ability of the Company to continue to use certain licensed trademarks and tradenames, including Victorinox(R), Bill
Blass(R), John Henry(R), and Van Heusen(R); (iv) delays associated with the timing of shipment and acceptance of
the Victorinox(R) apparel line; (v) delays or other difficulties in implementing the Company's business plans for
Duck Head; (vi) business disruptions and costs arising from acts of terrorism or military activities around the
globe; (vii) general economic conditions, including potential changes in demand in the retail market, price and
availability of raw materials and global manufacturing costs and restrictions; (viii) increases in costs; (ix)
regulatory matters affecting the Company, including quotas and tariffs; (x) international risks including
exchange rate fluctuations, trade disruptions, and political instability of foreign markets which the Company
produces in or purchases materials from; and (xi) other risk factors listed from time to time in the Company's
other reports filed with the Securities and Exchange Commission, especially those discussed under the heading
"Risk Factors." All forward looking statements included in this document are based on information available to
the Company on the date hereof, and the Company assumes no obligation to update any such forward looking
statement. Other factors that could cause actual results to differ from the forward looking statements are the
factors discussed in Items 1 through 3 and 7 of this report and the risks discussed under "Management's
Discussion and Analysis of Financial Condition and Results of Operations - Risk Factors Affecting the Company's
Business and Prospects" in Item 7.
PART I
Item 1. Business
General
Tropical Sportswear Int'l Corporation (the "Company") produces high quality casual and dress men's,
boys, and women's apparel and provides major apparel retailers with comprehensive brand management programs. The
Company's programs currently feature pants, shorts, shirts, coats, and denim jeans for men; pants, shorts and
shirts for boys; and pants and skirts for women. These products are marketed under Company owned national brands
such as Savane(R), Farah(R), and Duck Head(R), licensed brand names including Bill Blass(R), John Henry(R), Van
Heusen(R), and Victorinox(R), the makers of the original Swiss Army(TM) Knife and Company owned private brands
including Bay to Bay(R), Flyers(TM), Royal Palm(R), The Original Khaki Co.(R), Banana Joe(R), Two Pepper(R),
and Authentic Chino Casuals(R). The Company distinguishes itself by focusing on the apparel retailer's return
on investment. The Company also provides the retailer with consumer, product and market analysis, apparel design,
production, merchandising, and inventory forecasting. The Company markets its apparel through all major retail
distribution channels, including department and specialty stores, national chains, catalog retailers, discount
and mass merchants and wholesale clubs. In addition, with the recent acquisition of Duck Head Apparel Company, Inc.
("Duck Head"), the Company now operates a chain of 23 retail outlet stores. The Company's mission is to profitably
deliver apparel products faster, better and cheaper than anyone in the world.
The Company's apparel line focuses on basic, recurring styles with innovative design and fabrication
features. The Company believes its apparel line is less susceptible to fashion obsolescence and less seasonal in
nature than fashion styles. Most of the Company's products are derived from six production platforms, or
"chassis," each of which incorporates basic features requiring distinct manufacturing processes, such as
inclusion of an elastic waistband, a jeansband or button-flap pockets. The six basic chassis are modified to
produce separate styles through variations in cut, fabric and finish. This process enables the Company to
achieve both manufacturing consistency and efficiencies while producing a wide variety of products through
distinctions in color and style.
The Company manages the manufacture and distribution of the majority of its products utilizing its
cutting facilities in Tampa, Florida and El Paso, Texas, independent garment assembly contractors located
primarily in the Dominican Republic and Mexico, a product labeling and distribution facility located in Tampa,
Florida and a distribution facility located in Santa Teresa, New Mexico. With the use of a process known as
"modular" production, the garment assembly contractors are able to improve utilization of floor space in their
existing plants and increase their production volume. The Company also sources certain finished garments from
independent manufacturers located in the Pacific Rim, the Middle East and Mexico.
Under national brand programs, products are labeled at the assembly factory. Under private brand
programs, most products receive customer-specific labeling and packaging after receiving confirmation of a
customer order. As a result, the common stock keeping unit (i.e. style, color, and size, known as a "SKU"), is
differentiated only by labeling and packaging, enabling the products to be sold through different distribution
channels. This merchandising strategy offers quick-response execution of customer orders without the associated
risk of carrying customer-specific inventories. Under certain circumstances and on a limited basis, the Company
will apply a customer specific label to the product during the production process.
The Company believes it is well positioned to accommodate internal growth. The Company's current
facilities in Tampa, El Paso and Santa Teresa have enough capacity to accommodate an approximately 50% increase
in the Company's cutting and shipping volume. Many of the independent assembly contractors used by the Company
have flexible capacity and additional contractors are generally available.
The Company utilizes advanced technology in all aspects of its business. The Company's systems include,
among other things, apparel design, materials sourcing, production planning and logistics, customer order entry,
sales demand forecasting and order fulfillment, integrated with financial reporting and human resources. The
Company's use of technology produces greater efficiencies throughout the production process and results in
high-quality products, low-cost production and more effective and responsive customer order execution. Apparel
products are developed using a computer-aided-design ("CAD") system integrated with fabric cutting to maximize
product quality and materials yield. Accurate and timely order execution is achieved through electronic data
interchange ("EDI") order entry and quick replenishment of core SKUs. Substantially all orders are placed via
EDI. The Company's systems enable it to further assist the retailer by tracking point-of-sale ("POS") activity
by SKU and forecasting consumer demand and seasonal inventory requirements. An increasing number of customers
are utilizing the Company's sophisticated vendor managed inventory ("VMI") program. Under a VMI program, the
Company's system controls the customer's inventory levels by SKU and immediately orders replenishment of units
sold off the shelf. Orders generally are shipped to the retailer within two to three working days of receipt of
shipping instructions, utilizing a fully integrated inventory management and order fulfillment system.
The Company was founded in 1927. The Company's primary executive offices are located at 4902 West
Waters Avenue, Tampa, Florida 33634-1302, and its telephone number is 813-249-4900.
Industry
According to a retail industry research firm, the U.S. apparel industry totaled approximately $180
billion in retail sales in 2000. The industry grew approximately 0.4% and 3.1% in 2000 and 1999, respectively.
In 2000, the men's bottoms business represented approximately 9.3% of the total apparel market. The Company
believes that the apparel industry is characterized by the following trends:
Focus on Return on Investment. Major apparel retailers are focused on maximizing the return on their
investment in inventory and floor space. To achieve this, they are seeking partners who can deliver only the
best quality apparel products faster and cheaper than others.
Retail Merchandise Management Programs. Major apparel retailers are increasingly outsourcing apparel
merchandise management programs to minimize inventory risks, to increase profitability and return on investment,
and to enable them to replenish inventory rapidly. In addition, major apparel retailers are consolidating their
suppliers to improve customer service and to enhance economies of scale. The Company believes that its ability
to offer leading brands and private brand programs positions it well to capitalize on these trends.
Retail Consolidation of Branded Merchandise. Major apparel retailers are reducing the number of
national brands they offer in favor of a few of the most well recognized consumer brands. The Company believes
the Savane(R), Farah(R), Duck Head(R), Victorinox(R), Bill Blass(R), John Henry(R), and Van Heusen(R) brands are
favored by their respective customers and are well-positioned to gain market share.
High Quality Private Brand Apparel. There is an increased trend toward high quality, private brand
apparel. Private brand apparel bears the retailer's own name or a proprietary brand name exclusive to the
retailer. Private brand apparel allows the retailer greater control with respect to selling prices and gross
margins. Additionally, consumers often obtain a better value, in the form of higher quality fabric or finishes,
for the same retail price. An increase in consumer demand for private brand garments, coupled with retailers'
demands for higher margins, has resulted in retailers allocating more space to private brand products.
Luxury Fabrics. There is a growing trend in the United States toward luxury fabrics such as silks,
wool, Lycra(R), rayon and other micro-denier type fabrics, as well as various blends of these and other fabrics.
These fabrics have a very appealing texture and feel and apparel products made with these fabrics, while still
considered casual, have a dressier appearance and are generating strong consumer demand.
Expansion of Caribbean and Mexican Production. Since the passage of Section 807 of the Harmonized
Tariff Schedule of the United States (now found under tariff subheading 9802.00.80, but herein referred to as
"Section 807"), American apparel companies have increasingly utilized production facilities located in the
Caribbean Basin, including the Dominican Republic. The Company believes that the Dominican Republic offers
certain competitive advantages, including favorable pricing and better quality production, a long-standing and
relatively stable production network, and much shorter transportation periods as compared to goods assembled in
the Pacific Rim. During Fiscal 2001, the Company sourced approximately 43% of its products from facilities
located in the Caribbean Basin, approximately 38% from facilities located in Mexico, and approximately 19% from
facilities located elsewhere.
The Caribbean Basin Trade Partnership Act ("CBTPA") became effective on October 2, 2000. The CBTPA
generally grants duty and quota-free access to United States markets for garments cut in the United States or in
the Caribbean Basin and assembled in the Caribbean Basin from U.S. fabric and U.S. yarn. The CBTPA legislation
will be effective through September 30, 2008.
The North American Free Trade Agreement ("NAFTA"), effective 1994, has permitted Mexican manufacturers
to ship finished apparel products into the United States at no or reduced duties.
Business and Growth Strategies
The Company believes that its business and growth strategies position it to take advantage of key
industry trends including: (i) an increasing emphasis by major apparel retailers on return on investment and
rapid replenishment; (ii) an increase in retailer and consumer demand for high-quality private brand apparel;
(iii) a trend toward luxury fabrics and (iv) a trade policy which favors the manufacture of products in Mexico
and the Caribbean Basin. The key elements of the Company's business and growth strategies center around its
mission to do things faster, better and cheaper, and include the following key components:
Advanced Planning and Control Systems and Procedures. The Company employs advanced technology and
comprehensive operating systems and procedures that integrate and monitor each operation to maximize
efficiencies, increase productivity and enhance customer service. The Company makes substantial
investments in technology to maintain a competitive advantage and has historically upgraded its
technology every three years on a rolling one-third per year cycle.
High-Quality Products. The Company applies stringent quality standards throughout its operations, from
the design of its products through the shipment of customer orders. In Fiscal 2001, the application of
these standards resulted in a rate of customer returns for defects of less than 0.5%.
Innovative New Products. The Company believes that innovation is critical to succeeding in today's
apparel market. Fresh, new products with unique design or fabrication features help fuel consumer
demand. For example, in Fiscal 2000, the Company introduced a short that packs within itself. The
"packable" short was very well accepted with one large retailer selling over 100,000 units in a single
week. In Fiscal 2001, the Company launched sales of Victorinox(R) men's apparel, a collection featuring a
combination of sophisticated fabrics and functional designs, including high-end casual and technical
apparel.
Low-Cost and Flexible Operations. The Company is organized to effect a short production cycle.
Currently, it takes an average of 28 days from the receipt of raw materials through receipt of a
finished garment in its distribution centers. The Company believes its "chassis" production concept
allows it to execute production runs more cost-effectively than its competitors. The Company outsources
labor intensive garment assembly and finishing operations to independent manufacturers on a fixed cost
per unit basis. This strategy reduces the personnel and capital resources invested in the production
process and enables the Company to vary production levels with changes in customer demand.
Managed Inventory Risk. The Company believes that it effectively manages its inventory risk by (i)
producing focused lines of core apparel products, (ii) reducing the production cycle time and maximizing
production flexibility and (iii) tracking customer demand trends by SKU on a per store basis.
Customer Service. The Company provides customer satisfaction through high-quality products and
customized merchandise management programs. These programs serve to increase retailer margins by
outsourcing traditional retailer merchandising functions and reducing inventory risk and excessive
markdowns.
Savane(R) Brand Support. The Company provides significant financial support for the Savane(R) brand
including in-store fixtures, co-op advertising support, other advertising, and a dedicated staff of
Company employees that visit stores to help arrange product and coordinate product delivery and
stocking. The Company believes these services build brand recognition and customer loyalty as well as
support for the brand by the retailer.
Expand Private Brand Programs for Major Retailers. The Company believes that it can leverage its
high-quality, low-cost products, strong customer service and merchandise management capabilities to
increase private brand market share as retailers outsource and consolidate private brand programs.
E-Commerce. The Company intends to expand its operations into the Internet retailing business in
partnership with its existing customers.
Global Expansion. The Company intends to expand with its major apparel retail customers as they develop
international markets. Certain retailers are expanding into Europe and Mexico. With its established
operations in the United Kingdom and Texas, the Company is well positioned to capitalize on this trend.
New Product Introductions. The Company will continue to develop and bring to market innovative products
that complement existing core product lines. Targeted product categories include lines of men's casual
shirts and women's sportswear. The Duck Head acquisition brought with it a well-established line of
shirts as well as relevant merchandising experience. The Company expects to introduce its line of
shirts to the Company's distribution channels in Fiscal 2002. Since speed to market is critical, the
Company believes its short product development cycle time gives it a competitive advantage.
Licensing. The Company will continue with its strategy of obtaining the exclusive use of well
recognized, high quality brands through licensing agreements similar to the recently signed Victorinox(R)
license that was signed in Fiscal 2001.
Acquisitions. The Company actively pursues the acquisition of additional established brands and the
acquisition of producers of complementary new product lines that would be accretive to shareholder
value. In August 2001, the Company acquired Duck Head. Duck Head produces men's and boys' casual
sportswear products, including shirts, shorts and pants, which are marketed under the Duck Head(R) brand
to leading apparel retailers and through a chain of 23 outlet retail stores.
Products
The Company produces a core line of high quality men's casual and dress pants, shirts, shorts and denim
jeans as well as a core line of high quality women's sportswear. The Company recently began producing a line of
boys' denim products. Duck Head had been producing a line of boys' and girls' tops and bottoms. The following
table sets forth sales mix expressed as a percentage of net sales for Fiscal 2001:
Casual Pants 49%
Dress Pants 23
Shorts (including Denim) 18
Denim Jeans 7
Women's & Other 3
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100%
========
The Company's apparel line focuses on basic, recurring styles with innovative design and fabrication
features. The Company believes its apparel line is less susceptible to fashion obsolescence and less seasonal in
nature than fashion styles. In order to continue to bring newness to the market, the Company introduces fashion
oriented products on a limited basis. Key fabrics include 100% cotton and blends utilizing silk, Tencel(R), rayon,
wool, Lycra(R) and other micro-denier type fabrics as well as various blends of these and other fabrics.
The Company's marketing teams examine domestic and international trends in the apparel industry as well
as industries outside the sphere of apparel, including the technology, automobile, grocery and home furnishings
industries, to determine trends in styling, color, consumer preferences and lifestyle. Virtually all of the
Company's products are designed by its in-house staff utilizing CAD technology, which enables the Company to
produce computer simulated samples that display how a particular style will look in a given color and fabric.
The Company can quickly generate samples and alter the simulated samples in response to customer input. The use
of CAD technology reduces the time and costs associated with producing actual sewn samples prior to customer
approval and allows the Company to create custom designed products meeting the specific needs of a customer. The
Company's product content and construction specifications require the use of matched finish thread throughout the
garment, surge seaming of all pockets, rigorous attention to seam construction, color matching of all components
and the generous use of fabric to produce a fuller, more comfortable fit and to reduce costly customer returns.
Customers and Customer Service
The Company markets its products across all major apparel retail channels including department stores,
discounters and mass merchants, wholesale clubs, national chains, specialty stores, catalog retailers and the
Internet. Sales to the Company's five largest customers represented approximately 58.2%, 51.8% and 51.1% of net
sales during Fiscal 2001, 2000 and 1999, respectively. Sales to Wal-Mart (including Sam's Club, the nation's
largest chain of wholesale clubs), accounted for approximately 32.9%, 25.7% and 24.5% of net sales during Fiscal
2001, 2000 and 1999, respectively. The Company also sells its products to other major retailers, including Belk
Inc., BJ's Wholesale Clubs, Costco Wholesale Group, Dayton Hudson Group, Dillards Department Stores, Federated
Department Stores, J.C. Penney, Kohl's Department Stores, Marmaxx Group, May Company Department Stores,
Phillips-Van Heusen, Saks Incorporated Department Stores and Sears. The following table sets forth net sales by
distribution channel for Fiscal 2001:
Department Stores 31%
Discounters and Mass Merchants 22
Wholesale Clubs 21
National Chains 12
Outlet & Other 10
Specialty Stores 4
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100%
=========
With the recent acquisition of Duck Head, the Company now operates a chain of 23 outlet retail stores.
The Company offers its customers comprehensive brand management programs, which provide: (i) merchandise
planning and support; (ii) consistently high quality products; (iii) value-added services, such as custom
labeling and packaging design, just-in-time electronic order execution, and retail profitability analysis; and
(iv) access to advanced sales forecasting and inventory management systems and Internet order fulfillment. The
Company believes that close collaboration with its customers provides the Company's employees the opportunity to
better understand the fashion, fabric and pricing strategies of the customer and leads to the generation of
products that are more consistent with customer expectations. At the same time, the customer is given the
opportunity, at minimal expense and risk, to benefit from the Company's substantial expertise in designing,
packaging and labeling high quality products.
Product Labeling and Packaging
The Company differentiates its products through customized labeling, point-of-sale packaging and other
brand identification techniques. For most of its customers, the Company manages the design and production of
labeling and packaging materials. Management regularly analyzes consumer product labeling and packaging and
consumer targeting trends evident in other retailing formats, including the automobile, grocery and home
furnishings industries. The Company primarily ships products directly to its customers' retail stores in
floor-ready form and offers innovative packaging and displays.
Marketing and Sales
The Company's products are sold by sales and marketing executives located across the United States, each
of whom has many years of experience in the apparel industry. The Company also maintains sales and marketing
support teams in Tampa, Florida and El Paso, Texas dedicated to analyzing sales and marketing data.
The Company offers each of its existing and prospective customers a marketing plan tailored to the
customer's market niche. Using its marketing data and industry experience, the Company is able to create for
each existing and prospective customer and each particular product, a marketing plan that outlines optimum
volume, timing and pricing strategies, as well as expected markdowns, sell-through and profit margins.
The Company operates an EDI system, that allows it to accept EDI orders 24 hours a day and typically
ship orders within two to three working days. In Fiscal 2001, substantially all orders were received via EDI.
Operations
Overview. The Company cuts its fabric principally at its Tampa, Florida and El Paso, Texas facilities
before offshore assembly and finishing. The Company believes that the use of independent international suppliers
to assemble components cut at the Company's facilities enables it to provide customers with high quality goods at
significantly lower prices than if it operated its own assembly facilities. The Company also imports finished
goods, principally denim jeans and shorts, shirts and coats from Mexico, the Pacific Rim and the Middle East.
Purchasing. The Company principally purchases raw materials, including fabrics, thread, trim and
labeling and packaging materials, from domestic sources based on quality, pricing and availability. Prior to
shipment, the Company generally undertakes a quality audit at its major suppliers to assure that quality
standards are met. An additional quality audit is performed upon receipt of all raw materials. The Company has
no long-term agreements with any of its suppliers. The Company projects raw material requirements through a
series of planning sessions, taking into account orders received and future projections by style and color. This
data is then used to purchase the raw material components needed by production time frame in order to meet
customers' requirements.
Cutting. The Company utilizes advanced computerized equipment for spreading, marking and cutting
fabric. The Company's CAD system positions all component parts of a single garment in close proximity on the
same bolt of fabric to ensure color consistency. This process also enables the Company to utilize approximately
92% of the fabric. Quality audits in the cutting facility are performed during various stages, from spreading of
fabric through preparation for shipment to independent manufacturers for assembly.
Assembly. Component parts are shipped by common carrier to independent foreign manufacturers,
principally in the Dominican Republic and Mexico, for assembly and finishing. There are no formal arrangements
regarding the production of garments between the Company and any of its independent contractors, but the Company
believes that its relations with its contractors are generally good. Using independent contractors allows the
Company to shift its sources of supply depending upon production and delivery requirements and cost, while at the
same time reducing the need for significant capital expenditures, work-in-process inventory and a large
production work force. The Company arranges for the assembly or production of its products primarily based on
orders received. A significant portion of its customers' orders are received prior to placement of its initial
manufacturing orders. The Company inspects prototypes of each product before production runs are commenced.
Random in-line quality control checks are performed during and after assembly before the garments leave the
contractor. The Company currently has a team of full-time production and quality control personnel on-site in
the Dominican Republic and Mexico.
At the time of the acquisition, Duck Head operated a garment assembly plant in Costa Rica. The Company
recently decided to close this plant. All production will be completed and the plant will be closed by the end
of December 2001. The Company also owns a sewing plant in Mexico that was acquired in connection with the Savane
acquisition. This plant was closed in June 2001.
Imports and Import Regulations
The Company presently imports garments under three separate scenarios having distinct customs and trade
consequences: (i) direct imports of finished goods (from the Pacific Rim, the Middle East and Mexico);
(ii) imports of Company owned assembled parts from the Dominican Republic; and (iii) imports of Company owned
assembled parts from Mexico.
For direct importation, imported garments are normally taxed at most favored nation ("MFN") tariffs and
are subject to a series of bilateral quotas that regulate the number of garments that may be imported annually
into the United States. These tariffs generally range between 17% and 35%, depending upon the nature of the
garment (e.g., shirt, pant), its construction and its chief weight by fiber.
The Caribbean Basin Trade Partnership Act ("CBTPA") became effective on October 2, 2000. CBTPA
generally grants duty and quota-free access for garments cut in the United States or in the Caribbean Basin and
assembled in the Caribbean Basin from U.S. fabric and U.S. yarn. The CBTPA legislation will be effective through
September 30, 2008. Prior to this legislation, for most of the merchandise sourced from these Caribbean Basin
countries by the Company, the so-called "807" program allowed merchandise to be admitted into the United States
with a substantial tariff reduction. In essence, reduction in dutiable value was equal to the value of
U.S. components incorporated into these assembled goods plus southbound international freight and insurance.
The Company also imports finished goods from Mexico under the North American Free Trade Agreement,
commonly known as NAFTA. Under NAFTA, merchandise that qualifies is accorded reduced or duty-free access and is
not subject to any quota.
Personnel
At November 30, 2001, the Company had 1,750 associates, including 1,315 in the United States, 226 in
Costa Rica, 22 in the Dominican Republic, 44 in Mexico, 93 in the United Kingdom, 41 in Australia, and nine in
New Zealand. Approximately 6% of the Company's employees are members of the Union of Needletrades Industrial and
Textile Employees. The collective bargaining agreement with these employees expires in February 2003. In
connection with the closure of the Company's garment manufacturing plant in Chihuahua, Mexico, its contract with
Sindicato de Trabajadores de la Industria Costurera, Similaries y Conexes, C.T.M was terminated. The Company
considers its relations with its employees to be generally good.
The Company is committed to developing and maintaining a well-trained workforce. The Company provides
or pays for thousands of hours of continuing education annually for its employees on subjects ranging from
computers to foreign languages. The Company is equally committed to the well-being of its employees. The
Company offers its full-time employees and their families a comprehensive benefits package that includes a 401(k)
plan with a company matching contribution, a choice of group health insurance plans, disability insurance, term
life insurance (with an option to purchase additional coverage), a choice of dental plans, and a vision plan.
The Company also offers tuition reimbursement. The Company maintains a recreation area, health club facilities
and a hair salon in Tampa for the use and enjoyment of its employees and their families. The Company also enjoys
long-standing relationships with certain of its independent assembly contractors in the Dominican Republic and
Mexico and has contributed financial resources to improving conditions for their employees.
Management Information Systems
The Company believes that advanced information processing is critical to its business. The Company's
philosophy is to utilize modern technology where it will enhance its competitive position. Consequently, the
Company continues to upgrade its management information systems in order to maintain better control of its
inventory and to provide management with information that is current and accurate. The Company's management
information systems provide, among other things, comprehensive order processing, production, accounting and
management information for the Company's marketing, manufacturing, importing and distribution functions. To
support the Company's flexible inventory replenishment program, the Company has an EDI system through which
customer inventories can be tracked and orders automatically placed with the Company by the retailer.
In the first quarter of Fiscal 2001, the Company implemented a new integrated operating and management
information system at its Tampa location ("Enterprise 2000"). The components of Enterprise 2000 integrate such
functions as production planning, purchasing and scheduling, customer order management, inventory warehouse
management, accounting and human resources.
Human Rights Policy
The Company has a comprehensive human rights policy. The policy is consistent with the Responsible
Apparel Production Principles, which are endorsed by the American Apparel and Footwear Association and other
Caribbean Basin apparel manufacturing associations. The Company's policy focuses on working conditions at the
independent assembly contractors utilized by the Company and, among other things, prohibits under age labor and
poor working conditions. Compliance with the policy is mandatory and is closely monitored in the following
ways: (1) Company employees or its agents routinely visit each independent contractor plant, (2) management of
the Company periodically visits independent contractor plants and (3) an independent third party agency utilized
by many companies in the apparel industry performs audits periodically and reports the results to the Company.
The Company will promptly discontinue production with any independent contractor that does not comply with the
policy.
Competition
The apparel industry is highly competitive and the Company competes with numerous apparel manufacturers,
including brand name and private label producers, as well as retailers that have established, or may establish,
internal product development and sourcing capabilities. The principal markets in which the Company competes are
the United States, United Kingdom, Ireland, Germany, Canada, Mexico, Australia and New Zealand. Many of the
Company's competitors and potential competitors have greater financial, manufacturing and distribution resources
than the Company. The Company believes that it competes favorably on the basis of quality and value of its
programs and products and the long-term customer relationships it has developed. Nevertheless, any increased
competition from manufacturers or retailers could result in reductions in unit sales or prices, or both, which
could have a material adverse effect on the Company's business and results of operations.
Trademarks and Licenses
The Company holds or has applied for over 750 United States and worldwide trademark registrations
covering its various brand names including Savane(R), Farah(R), Duck Head(R), Flyers(TM), Original Khaki Co.(R),
Authentic Chino Casuals(R), Two Pepper(R), and Bay to Bay(R). The word marks Savane(R), Farah(R), Duck Head(R),
and Bay to Bay(R) are registered with the United States Patent and Trademark Office. In addition, the word marks
Savane(R), Farah(R), Duck Head(R), and Bay to Bay(R) are registered in various countries worldwide. Pursuant to
separate license agreements, the Company has the exclusive rights to use, (i) the Bill Blass(R) trademark with
respect to casual pants, shorts and jeans, (ii) the John Henry(R) trademark with respect to men's bottoms and
coats, and (iii) the Van Heusen(R) trademark with respect to men's pants, jeans and shorts. The license agreement
with respect to the Bill Blass(R) trademark expires in 2005 and is subject to a renewal option that would extend
the expiration date through 2010. The license agreement with respect to the John Henry(R) trademark expires in 2003
and is subject to seven renewal options that would extend the expiration date through 2038. The license
agreement with respect to the Van Heusen(R) trademark has expired and is currently being renegotiated. The Company
continues to sell product with the Van Heusen(R) label under the previous license terms. In October 2000, the
Company entered into a license agreement with Swiss Army Brands, Inc., for the use of the Victorinox(R), makers
of the original Swiss Army Knife(TM), brand. The license agreement has an initial term of five years, with
automatic renewal terms and conditions thereafter. Under this agreement, the Company has the exclusive worldwide
license to design, manufacture and market men's and women's apparel products under the Victorinox(R) brand.
Factoring of Accounts Receivable
The Company sells substantially all of its trade accounts receivable to two factors that assume
virtually all of the credit risk with respect to collection of such accounts. Each factor pays the Company the
receivable amount upon the earlier of (i) receipt by the factor of payment from the Company's customer or
(ii) 120 days past the due date for such payment. The factor approves the credit of the Company's customers prior
to sale. If the factor disapproves or limits a sale to a customer and the Company decides to proceed with the
sale, the Company bears some credit risk. The Company is currently on month to month agreements with both of its
factors and is evaluating whether to bring all accounts receivable functions in house and limit the involvement
of the factors to providing credit insurance.
Seasonality
Historically, the Company's business has been seasonal, with higher sales and income in the second and
third fiscal quarters. In addition, certain of the Company's products, such as shorts and corduroy pants, tend
to be seasonal in nature. In the event such products represent a greater percentage of the Company's sales in
the future, the seasonality of the Company's sales may be increased.
Backlog
In advance of the month units are to ship, the Company receives "hold for confirmation" orders from
customers which are used to plan production. These orders are not commitments to purchase and are subject to
change until they are confirmed. Therefore, orders that the Company currently has not may be indicative of
future sales. This increases the difficulty in forecasting the demands of the Company's customers.
Item 2. Properties
The Company's corporate headquarters are located in Tampa, Florida and are owned by the Company. The
Company considers both its domestic and international facilities to be suitable and adequate to meet its current
needs and to have sufficient production capacity for current operations. (See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Risk Factors Affecting the Company's Business and
Prospects."). The following table reflects the general location, use and approximate size of the Company's
significant real properties:
Approximate Owned/
Location Use Square Footage Leased (1)
- -------------------------------- ------------------------------------------- ------------------ ------------
Tampa, Florida Corporate offices/Distribution center 305,000 Owned
Tampa, Florida Fabric cutting facility 110,000 Owned
El Paso, Texas Administrative office 51,000 Leased
El Paso, Texas Fabric cutting facility 205,000 Leased
Santa Teresa, New Mexico Distribution center 250,000 Leased
Winder, Georgia Administrative office/Distribution center 236,000 Owned (2)
New York, New York Office/Showroom 4,000 Leased
Chihuahua, Mexico Office/Warehouse 73,800 Owned (2)
San Fran Cisco, Costa Rica Garment manufacturing plant 60,000 Leased(3)
San Fran Cisco, Costa Rica Office/Warehouse 27,500 Owned (2)
Cartago, Costa Rica Office/Warehouse 77,000 Owned (4)
Auckland, New Zealand Office/Warehouse 9,000 Owned
Sydney, Australia Office/Warehouse 29,000 Leased
Suva, Fiji Three garment manufacturing plants 35,000 Leased(5)
Witham, United Kingdom Office/Distribution center 57,000 Leased
- -------------------------
The 23 Duck Head retail outlet stores consist of approximately 86,000 square feet of leased property in nine
states. These leases expire at various dates through 2005.
(1) See Note 6 of Notes to Consolidated Financial Statements for a discussion of lease terms.
(2) Currently unoccupied and for sale.
(3) Recently announced closure. Company will terminate lease by February 2002.
(4) Currently leased to a third party and for sale.
(5) The facilities are leased by a 50% joint venture in which the Company is a party.
Item 3. Legal Proceedings
The Company is not a party to any legal proceedings other than various claims and lawsuits arising in
the normal course of business. Management of the Company does not believe that any such claims or lawsuits will
have a material adverse effect on the Company's financial condition or results of operation.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 4A. Executive Officers of the Registrant
The following table provides the names and ages of the Company's executive officers, and the positions
and offices currently held by each of them:
Name Age Position(s)
---- --- -----------
William W. Compton 58 Chairman of the Board and Chief Executive Officer
Michael Kagan 62 Vice Chairman of the Board, Executive Vice President,
Chief Financial Officer and Secretary
Christopher B. Munday 36 President
Richard J. Domino 53 Executive Vice President, President Tropical Sportswear Division
Michael R. Mitchell 48 Executive Vice President, President, Savane International Corp.
President, Victorinox Division
Gregory L. Williams 48 Executive Vice President and General Counsel
William W. Compton has served as Chairman of the Board and Chief Executive Officer of the Company and
its predecessors since November 1989. He has also served as President of the Company and its predecessors from
January 2001 to August 2001 and from November 1989 to November 1994. Mr. Compton has over 30 years of experience
in the apparel industry. Mr. Compton has also served as Chairman of the American Apparel and Footwear
Association ("AAFA") and currently serves on the AAFA Board of Directors. He is also a member of the Executive
Committee of the AAFA Board of Directors. Mr. Compton also serves as a member of the Board of Directors for the
Center for Entreprenuership for Brigham Young University. Prior to joining the Company's predecessor, he served
as President and Chief Operating Officer of Munsingwear, Inc., an apparel manufacturer and marketer,
President/Executive Vice President of Corporate Marketing for five apparel divisions of McGregor/Faberge
Corporation and President of Farah U.S.A. Inc. and as a Director of Farah.
Michael Kagan has served as Executive Vice President, Chief Financial Officer, Secretary and Vice
Chairman of the Board of the Company and its predecessors since November 1989. He was also Treasurer of the
Company and its predecessors from November 1989 to January 1998. Mr. Kagan has more than 30 years experience in
the apparel industry. Prior to joining the Company's predecessor, Mr. Kagan served as Senior Vice President of
Finance for Munsingwear, Inc. and as Executive Vice President and Chief Operating Officer of Flexnit Company,
Inc., a manufacturer of women's intimate apparel.
Christopher B. Munday was appointed President of the Company in July 2001, and has served as a Director
of the Company since November 2001. He joined the Company as Managing Director of the Company's European
Division in June of 1999. Prior to joining the Company, Mr. Munday was Managing Director of Tela Ltd., a branded
tissue company, which was acquired by Kimberly-Clark Corporation in 1999. Mr. Munday has extensive sales,
marketing and operations experience having held numerous senior positions in Scott Paper Company and
Kimberly-Clark Corporation. Mr. Munday has a B.A. (Hons) degree, an M.B.A. and is a member of the Institute of
Directors.
Richard J. Domino joined the Company in 1988 and has served as Executive Vice President of the Company
and President of the Tropical Sportswear Division since November 1994. Mr. Domino served as Senior Vice
President of Sales and Marketing from January 1994 to October 1994 and Vice President of Sales from December 1989
to December 1993. He has over 25 years experience in apparel-related sales and marketing.
Michael R. Mitchell serves as Executive Vice President of the Company and President of the Savane
Division and the Victorinox Division. He has served as President of Savane since March 1994, and was appointed
President of Victorinox in September 2001. Prior to then, Mr. Mitchell was employed by Savane since 1981 in various
sales and marketing capacities. He also served on the Savane Board of Directors from March 1994 until June 1998.
Gregory L. Williams has served as Executive Vice President and General Counsel of the Company since July
1999. Before joining the Company, Mr. Williams practiced commercial law in Tampa, Florida for 18 years.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
The Company's Common Stock has traded on The Nasdaq National Market under the symbol "TSIC" since in its
initial public offering on October 28, 1997. The initial public offering price of the Common Stock was $12.00
per share. Prior to such time, there was no established public trading market for the Company's Common Stock.
At December 17, 2001, there were approximately 80 record holders of the Company's Common Stock, and the Company
estimates that there were approximately 1,350 beneficial holders on the same date. The following sets forth the
quarterly high and low last sale prices per share of the Common Stock as reported by the Nasdaq National Market
for the last two fiscal years.
Fiscal Year Ended
September 30, 2000 High Low
------------------ ---- ---
First Quarter 21 9/16 16
Second Quarter 16 5/8 11
Third Quarter 23 3/4 12 1/16
Fourth Quarter 22 1/4 16 1/8
Fiscal Year Ended
September 29, 2001 High Low
------------------ ---- ---
First Quarter 19 12 10/16
Second Quarter 19 1/4 13 15/16
Third Quarter 20 13/16 17 1/4
Fourth Quarter 21 1/4 16 15/16
The transfer agent and registrar for the Common Stock is Firstar Trust Services, Milwaukee, Wisconsin.
The Company has not declared or paid any cash dividends on its Common Stock since 1989. The Company
currently anticipates that all of its earnings will be retained for development and expansion of the Company's
business and does not anticipate declaring or paying any cash dividends in the foreseeable future. Moreover, the
Company's various credit agreements contain covenants expressly prohibiting the payment of any cash dividends.
Item 6. Selected Financial Data
The following selected financial data (in thousands, except share and per share data) are derived from
the consolidated financial statements of the Company for each of the five fiscal years in the period ended
September 29, 2001. These consolidated financial statements have been audited and reported upon by Ernst & Young
LLP, independent certified public accountants.
Fiscal Year Ended
----------------- --------------- ------------ --------------- ----------------
September 29, September 30, October 2, October 3, September 27,
Statements of Income Data: 2001 2000 1999 1998 1997
---------------------------------------- ----------------- --------------- ------------ --------------- ----------------
Net sales $436,436 $472,985 $420,691 $263,976 $151,692
Gross profit 124,556 137,522 117,922 68,889 36,055
Selling, general and administrative
expenses 88,509 88,719 80,511 43,204 19,443
Other charges 2,774 1,006 3,999 - -
Operating income 33,273 47,797 33,412 25,685 16,612
Interest expense 15,261 17,351 18,586 6,866 2,889
Income before income taxes 17,023 29,195 13,853 17,283 13,176
Net income before extraordinary item 10,430 17,503 8,251 10,802 8,269
Extraordinary item 800 - - - -
Net income 11,230 17,503 8,251 10,802 8,269
Net income per common share before
extraordinary item-diluted $ 1.34 $ 2.27 $ 1.05 $ 1.43 $ 1.37
Extraordinary item 0.11 - - - -
Net income per common share-diluted $ 1.45 $ 2.27 $ 1.05 $ 1.43 $ 1.37
Weighted average number of shares
used in the calculation - 7,771,000 7,725,000 7,838,000 7,550,000 6,015,000
diluted (1)
As of Fiscal Year Ended
----------------- --------------- ------------ --------------- ----------------
September 29, September 30, October 2, October 3, September 27,
Balance Sheet Data: 2001 2000 1999 1998 1997
---------------------------------------- ----------------- --------------- ------------ --------------- ----------------
Working capital $130,905 $111,627 $120,041 $107,397 $30,234
Total assets 309,230 294,528 289,322 297,476 69,658
Long-term debt and obligations
under capital leases 151,314 145,541 170,894 171,494 24,055
Shareholders' equity 86,267 75,834 59,823 50,964 26,651
- ---------------
(1) Computed on the basis described in Notes to Consolidated Financial Statements.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
General
The Company manages the production of a majority of all of its products utilizing its facilities in
Tampa, Florida and El Paso, Texas and through independent assembly contractors located primarily in the Dominican
Republic and Mexico. The Company also sources finished goods from independent suppliers. For goods assembled by
independent manufacturers, the Company purchases and inventories all of its raw materials and cuts its fabric in
its Tampa, Florida and El Paso, Texas cutting facilities based on expected customer orders. The Company ships
cut fabric parts and other product components via common carrier to the independent manufacturers, who assemble
components into finished garments (except for labeling and packaging in the case of private brand products) and
perform certain finishing processes. The Company has no material contractual arrangements with its independent
manufacturers and pays them based on a specified unit price for actual first-quality units produced.
Accordingly, a substantial portion of the Company's production labor and overhead is variable. The Company ships
assembled goods from the Dominican Republic, Mexico and Costa Rica to its Tampa, Florida and Santa Teresa, New
Mexico distribution centers via common carrier. Upon receipt of a customer order confirmation, the Company ships
the product directly to customers or, in the case of private brand products, attaches designated labels and
point-of-sale packaging and then ships the product to customers.
The following discussion of the Company's results of operations and financial condition should be read
in conjunction with the Company's consolidated financial statements and notes thereto contained in Item 14 of
this report.
Results of Operations
As a result of the acquisition of Duck Head in August 2001, the Fiscal 2001, 2000 and 1999 results of
operations are not be comparable nor are they comparable to years prior to the acquisition. The following table
sets forth, for the periods indicated, selected items in the Company's consolidated statements of operations
expressed as a percentage of net sales:
Fiscal Year Ended
-------------------------------------------------------
September 29, September 30, October 2,
2001 2000 1999
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 71.5 70.9 72.0
---- ---- ----
Gross profit 28.5 29.1 28.0
Selling, general and
administrative expenses 20.3 18.8 19.1
Other charges 0.6 0.2 1.0
--- --- ---
Operating income 7.6 10.1 7.9
Interest expense 3.5 3.7 4.4
Other expense, net 0.2 0.2 0.2
--- --- ---
Income before income taxes 3.9 6.2 3.3
Provision for income taxes 1.5 2.5 1.3
Net income before extraordinary item
2.4 3.7 2.0
--- --- ---
Extraordinary item 0.2 - -
--- --- ---
Net income 2.6% 3.7% 2.0%
==== ==== ====
Fiscal 2001 Compared to Fiscal 2000
Net Sales. Net sales for Fiscal 2001 decreased to $436.4 million as compared to $473.0 million for
Fiscal 2000. The decrease was primarily due to lower average selling prices caused by the weak retail
environment.
Gross Profit. Gross profit decreased to $124.6 million, or 28.5% of net sales, for Fiscal 2001, from
$137.5 million, or 29.1% of net sales for Fiscal 2000. The reduction in the gross margin was primarily due to a
reduction in average selling prices without a comparable reduction in the average cost per unit.
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased to
$88.5 million, or 20.3% of net sales, for Fiscal 2001, from $88.7 million, or 18.8% of net sales, for Fiscal
2000. The increase in operating expenses as a percentage of net sales was primarily due to lower sales volume,
coupled with incremental expenses associated with the start-up of the Victorinox(R) apparel line.
Other Charges. During Fiscal 2001, the Company recorded pre-tax charges of approximately $596,000 for
severance related to a workforce reduction, $848,000 related to design and development costs that was acquired in
connection with the Victorinox(R) license, and $900,000 related to the closure of its sewing plant in Chihuahua,
Mexico. The Company also incurred pre-tax costs of approximately $430,000 related to the pursuit of certain
assets of Bugle Boy Industries, Inc. During Fiscal 2000, the Company recorded a pre-tax charge of $1.0 million
related to severance for the former Chief Executive Officer of Savane.
Interest Expense. Interest expense decreased to $15.3 million for Fiscal 2001 from $17.4 million for
Fiscal 2000. The decrease was primarily due to lower average outstanding borrowings under the Company's credit
facility, and to a lesser extent due to lower interest rates.
Income Taxes. The Company's effective tax rate for Fiscal 2001 was 38.7% as compared with 40.0% for
Fiscal 2000. The decrease in the effective rate is primarily the result of tax planning strategies implemented
by the Company, which serve to reduce taxable income in various states within which the Company operates.
Extraordinary Item. The Company recorded an extraordinary gain of $800,000 related to the excess of the
preliminary fair value of Duck Head's net assets acquired over the price the Company paid. The preliminary fair
value estimates are subject to change, and subsequent changes will be reflected as additional extraordinary gain
or loss.
Net Income. As a result of the above factors, net income for Fiscal 2001 was $11.2 million, or 2.6% of
net sales, as compared with $17.5 million, or 3.7% of net sales for Fiscal 2000.
Fiscal 2000 Compared to Fiscal 1999
Net Sales. Net sales for Fiscal 2000 were $473.0 million as compared to $420.7 million for Fiscal 1999,
an increase of $52.3 million or 12.4%. The increase was primarily due to an increase in units shipped.
Gross Profit. Gross profit for Fiscal 2000 was $137.5 million, or 29.1% of net sales, as compared with
$117.9 million, or 28.0% of net sales for Fiscal 1999. The dollar increase was primarily due to the increase in
sales volume. The increase in gross profit as a percentage of net sales was primarily due to increased
production efficiencies and other cost saving measures.
Selling, General and Administrative Expenses. Selling, general and administrative expenses for Fiscal
2000 were $88.7 million, or 18.8% of net sales, as compared to $80.5 million, or 19.1% of net sales for Fiscal
1999. The dollar increase was primarily due to an increase in overall sales volume. The decrease in selling,
general and administrative expenses as a percentage of net sales was due to the leveraging of fixed costs against
a higher sales base, and other cost cutting measures, offset, in part, by increased spending for merchandising
and product development, as well as higher incentive based compensation accruals, as a result of the Company's
increase in sales and profitability.
Other Charges. In the first quarter of Fiscal 2000, the Company recorded a pre-tax charge of $1.0
million for severance payments to the former Chief Executive Officer of Farah/Savane who resigned as an officer
and director of the Company effective December 30, 1999.
Interest Expense. Interest expense for Fiscal 2000 was $17.4 million as compared to $18.6 million for
Fiscal 1999. The decrease was primarily due to lower average outstanding borrowings under the Company's credit
facility, offset in part, by higher interest rates.
Income Taxes. The Company's effective tax rate for Fiscal 2000 was 40.0% as compared with 40.4% for
Fiscal 1999. The effective tax rate was higher in Fiscal 1999 primarily due to the relative impact of
non-deductible goodwill amortization expense.
Net Income. As a result of the above factors, net income for Fiscal 2000 was $17.5 million, or 3.7% of
net sales, as compared to $8.3 million, or 2.0% of net sales, for Fiscal 1999.
Liquidity and Capital Resources
The Company's primary capital requirements are funding its growth in operations and capital
expenditures. The Company has historically financed its growth in sales and the resulting increase in inventory
and receivables through a combination of operating cash flow and borrowings under its senior credit facility.
Consistent with industry practice, the Company is often required to post letters of credit when placing an order
with certain international manufacturers.
The Company's revolving credit line (the "Facility") provides for borrowings of up to $110 million,
subject to certain borrowing base limitations. Borrowings under the Facility bear interest at variable rates
(5.1% at September 29, 2001) and are secured by substantially all of the Company's domestic assets. The Facility
matures in June 2003. As of September 29, 2001, an additional $65.4 million was available for borrowings under
the Facility.
On May 28, 1999, the Company entered into a real estate loan ("Real Estate Loan") agreement secured by
the Company's distribution center, cutting facility, and administrative offices in Tampa, Florida. The Real
Estate Loan was used to refinance $9.5 million outstanding on the Company's previous real estate loan and to
finance up to $6.0 million of the costs related to an expansion of the Company's Tampa, Florida distribution
facility. In March 2000, the Real Estate Loan was converted to a secured term loan. Principal and interest are
due monthly on the refinanced amount and the loan bears interest at the 30-day London Interbank Offered Rate
("LIBOR") plus an applicable margin. The principal payments are based on a 20-year amortization with all
outstanding principal due on or before May 15, 2008.
Borrowings under the Real Estate Loan bear interest at a rate of 30-day LIBOR plus an applicable margin
(3.8% at September 29, 2001). Under the terms of an interest-rate swap agreement associated with the Real Estate
Loan, effectively $7.0 million of borrowings under the Real Estate Loan bear interest at a fixed base rate plus
an applicable margin (7.6% at September 29, 2001). As of September 29, 2001, the combined effective interest
rate on the Real Estate Loan was approximately 6.4%.
The Company has outstanding $100 million of senior subordinated notes (the "Notes") that were issued
through a private placement. Under the terms of the indenture underlying the Notes, the Company is paying
semi-annual interest at the rate of 11% through June 2008, at which time the entire principal amount is due. The
net proceeds from the Notes were used to repay a portion of the borrowings outstanding under a bridge loan that
was used to finance the purchase of Savane in June 1998.
The Company's credit agreements contain significant financial and operating covenants, including
requirements that the Company maintain certain financial ratios, prohibitions on the ability of the Company to
incur certain additional indebtedness or to pay dividends, and restrictions on its ability to make capital
expenditures. During Fiscal 2001, the Company amended the terms of the Facility to adjust certain of the
financial covenants. The Company is currently in compliance with all covenants under its credit agreements.
Pursuant to two separate factoring agreements (the "Factoring Agreements"), the Company factors
substantially all of its accounts receivable. The Factoring Agreements provide that the factor will pay the
Company an amount equal to the gross amount of the Company's accounts receivable from customers, reduced by
certain offsets, including among other things, discounts, returns, and a commission payable by the Company to the
factor. The commission averages 0.23% of the gross amount factored. The factor subjects all sales to its credit
review process and assumes 99.9% of the credit risk for amounts factored pursuant to the Factoring Agreements.
Funds are transferred to reduce outstanding borrowings under the Facility once payment is received from the
factor. The factor pays the Company the receivable amount upon the earlier of (i) receipt by the factor of
payment from the Company's customer or (ii) 120 days past the due date for such payment. The Company is
currently on month to month agreements with both of its factors and is evaluating whether to bring all accounts
receivable functions in house and limit the involvement of the factors to providing credit insurance.
As a result of the acquisition of Duck Head in August 2001, certain consolidation and cost savings
activities have transpired that will continue to impact the Company's capital resources. Specifically, the
Company has chosen to exit certain owned or leased facilities. The sale of owned facilities will generate cash
while the payment of lease termination costs will use cash. As of September 29, 2001, the Company had assets
held for sale with carrying values of $6.6 million and has exit related accruals of $4.2 million. The Company
plans to complete its exit plans in the next twelve months.
The Company has historically financed its capital expenditures through a combination of operating cash
flow and long-term borrowings. Capital expenditures were $7.9 million for Fiscal 2001, and primarily related to
the replacement of the existing computer systems at the Company's Tampa, Florida location and the upgrade or
replacement of various other equipment and computer systems including hardware and software.
During Fiscal 2002, the Company anticipates capital expenditures will be approximately $20 million.
Significant capital projects include the consolidation of facilities in the El Paso, Texas area, and the upgrade
or replacement of various other equipment and computer systems including hardware and software.
On September 29, 2001 and September 30, 2000, the Company had working capital of $130.9 million and
$111.6 million, respectively. The increase in working capital was primarily due to a $6.3 million increase in
inventory and a $5.8 million increase in assets held for sale (primarily as a result of the Duck Head
acquisition), offset by a $6.4 million decrease in accounts receivable, and a $3.4 million decrease in accounts
payable and accrued expenses. The Company expects its working capital needs will continue to fluctuate based on
seasonal changes in sales, accounts receivable and trade accounts payable.
The Company believes that its existing working capital, borrowings available under the Facility and
internally generated funds provide sufficient resources to support current business activities.
Impact of Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard
No. 141, "Business Combinations" ("Statement No. 141") and Statement of Financial Accounting Standard No. 142,
"Goodwill and Other Intangible Assets" ("Statement No. 142"). Statement No. 141 prohibits the use of the
pooling-of-interests method for business combinations completed after June 30, 2001, and requires the recognition
of intangible assets separately from goodwill. Statement No. 141 is effective for any business combination that
is completed after June 30, 2001. Statement No. 142 includes requirements to test goodwill and indefinite lived
intangible assets for impairment rather than amortize them. Goodwill and other indefinite lived intangible
assets would be tested for impairment, and any impairment charge resulting from the initial application of
Statement No. 142 would be classified as a cumulative change in accounting principle. Statement No. 142 is
effective for companies with fiscal years beginning after December 15, 2001.
The acquisition of Duck Head in August 2001 was accounted for in accordance with Statements No. 141.
The Company also adopted Statement No. 142 on September 30, 2001 and will no longer amortize its remaining
goodwill and other indefinite lived intangible assets, but will test them for impairment on a periodic basis.
The provisions of Statement No. 142 also require the completion of a transitional impairment test within six
months of adoption, with any impairment identified treated as a cumulative effect of a change in accounting
principle. The Company intends to complete this transitional impairment testing during Fiscal 2002. Application
of the non-amortization provisions of Statement No. 142 are expected to result in an increase to net income after
tax of approximately $831,000 ($0.11 per diluted share) per year.
Inflation
The impact of inflation on the Company's operating results has been moderate in recent years, reflecting
generally lower rates of inflation in the economy and relative stability in the Company's cost of sales. In
prior years, the Company has been able to adjust its selling prices and improve efficiencies to substantially
offset increased costs. While inflation has not had, and the Company does not expect that it will have, a
material impact upon operating results, there is no assurance that the Company's business will not be materially
adversely affected by inflation in the future.
Risk Factors Affecting the Company's Business and Prospects
Our financial success is linked to that of our customers, commitment to our products and our ability to satisfy
and maintain our customers.
Our financial success is directly related to the success of our customers and the willingness of our
customers, in particular our major customers, to continue buying our products. Sales to the Company's five
largest customers represented approximately 58.2%, 51.8% and 51.1% of net sales during Fiscal 2001, 2000 and
1999, respectively. Sales to Wal-Mart (including Sam's Club, the nation's largest chain of wholesale clubs),
accounted for approximately 32.9%, 25.7% and 24.5% of net sales during Fiscal 2001, 2000 and 1999, respectively.
We do not have long-term contracts with any of our customers. Sales to our customers are generally on
an order-by-order basis and are subject to rights of cancellation and rescheduling by the customer or by us.
Accordingly, the number of unfilled orders at any given time is not indicative of the number that will eventually
be shipped. If we cannot timely fill our customers' orders, our relationships with our customers may suffer, and
this could have a material adverse effect on us, especially if the relationship is with a major customer.
Furthermore, if any of our major customers experiences a significant downturn in its business, or fails to remain
committed to our programs or brands, then these customers may reduce or discontinue purchases from us, which
would have a material adverse effect on our business, results of operations and financial condition. See "Item
1. Business-Customers and Customer Service."
We are subject to changes in the apparel industry, including changing fashion trends and consumer preferences.
The apparel industry has historically been subject to cyclical variations. A recession in the general
economy, or any other events or uncertainties that discourage consumers from spending, could have a significant
effect on our sales and profitability. We believe that our success is largely dependent on our ability to
anticipate and respond promptly to changing consumer demands and fashion trends in the design, styling and
production of our products. If we cannot gauge consumer needs and fashion trends and respond appropriately, then
consumers may not purchase our products and this would have a material adverse effect on our business, results of
operations, and financial condition.
Various apparel retailers, some of which are or have been our customers, have in recent years
experienced financial problems. Many have been subject to bankruptcy, restructuring, or liquidation, while others
have consolidated ownership and centralized buying decisions. This increases our risk of extending credit to
these retailers, and may lead us to reduce or discontinue business with such customers, or to assume more credit
risk relating to their receivables. Any one of these actions could have a material adverse effect on our
business, results of operations and financial condition.
We compete with manufacturers and retailers in the highly competitive apparel industry.
We compete with many apparel manufacturers, including brand name and private label producers and
retailers who have, or may have, the capability to develop their product and source their products internally.
Our products are also in competition with many designer and non-designer product lines. Our products compete
primarily on the basis of price, quality, and our ability to satisfy customer orders in a timely manner. Our
failure to satisfy any one of these factors could cause our customers to purchase products from our competitors.
Many of our competitors and potential competitors have greater financial, manufacturing and distribution
resources than we do. If manufacturers or retailers increase their competition with us, or if our current
competitors become more successful in competing with us, we could experience material adverse effects on our
business, results of operations and financial condition. See "Item 1. Business - Competition."
We may experience delays or other difficulties in implementing our operating plans for Duck Head.
We may experience unanticipated conditions and contingencies in connection with implementing our
operating plans for Duck Head. As a result, we may not achieve projected revenue and earnings for Fiscal 2002 and
thereafter, and we may have difficulties achieving anticipated cost savings related to the acquisition, including
reductions in staff and the consolidation of facilities. The success of the acquisition of Duck Head is also
dependent upon the continued acceptance of Duck Head's existing and new products by its major customers, and the
financial strength of Duck Head's major customers.
Fluctuations in the price, availability and quality of the fabrics or other raw materials we use could increase
our cost of sales and reduce our ability to meet our customers' demands.
The principal fabrics used in our apparel consist of cotton, wool, synthetic and blended fabrics. The
price we pay for these fabrics is mostly dependent on the market prices for the raw materials used to produce
them, namely cotton, wool, rayon and polyester. Depending on a number of factors, including crop yields and
weather patterns, the market price of these raw materials may fluctuate significantly. Some of our suppliers are
experiencing financial difficulties. This increases the risk that we will be unable to obtain raw materials at
the price or quality or with the ease that we have historically obtained them. Moreover, only a limited number
of suppliers are available to supply the fabrics at the level of quality we require. If we have to procure
fabrics from sources other than our current suppliers, the quality of the fabric may be significantly different
from that obtained from our current suppliers. Fluctuations in the price, availability and quality of the
fabrics or raw materials could increase our cost of sales and reduce our ability to meet our customers' demands.
We cannot assure you that we will be able to pass along to our customers all, or any portion of, any increases in
the prices paid for the fabrics used in the manufacture of our products. See "Item 1. Business Operations."
We depend upon independent manufacturers in the production of our apparel.
We use independent manufacturers to assemble or produce a substantial portion of our products. We
depend on these manufacturers' ability to finance the assembly or production of goods ordered and to maintain
manufacturing capacity. We do not exert direct control over these independent manufacturers, however, so we may
be unable to obtain timely delivery of acceptable products. We generally do not have long-term contracts with
any of these independent manufacturers. As a result, we cannot be assured of an uninterrupted supply of our
product from our independent manufacturers. If there is an interruption, we may not be able to substitute
suitable alternative manufacturers because such substitutes may not be available, or they may not be able to
provide us with products or services of a comparable quality, at an acceptable price or on a timely basis. See
"Item 1. Business - Operations."
Our ability to successfully conduct assembly and production operations in facilities in foreign countries depends
on many factors beyond our control.
During Fiscal 2001, a significant portion of our products were assembled or produced by independent
manufacturers in the Dominican Republic and Mexico. It is possible that we will experience difficulties with
these independent manufacturers, including reduced production capacity, failure to meet production deadlines or
increases in manufacturing costs as more fully discussed above. Also, using foreign manufacturers requires us to
order products further in advance to account for transportation time. If we overestimate customer demand, we may
have to hold goods in inventory, and we may be unable to sell these goods at the same margins as we have in the
past. On the other hand, if we underestimate customer demand, we may not be able to fill orders in time.
Other problems we may encounter by using foreign manufacturers include, but are not limited to work
stoppages; transportation delays and interruptions; delays and interruptions from natural disasters; political
instability; involvement in wars or other similar conflicts such as terrorist attacks; economic disruptions;
expropriation; nationalization; imposition of tariffs; imposition of import and export controls; and changes in
government policies.
We are also exposed to foreign currency risk. In the past, most of our contracts to have goods
assembled or produced in foreign countries were negotiated in United States dollars. If the value of the United
States dollar decreases, then the price that we pay for our products could increase, and it is possible that we
would not be able to pass this increase on to our customers. See "Item 1. Business--Operations."
To acquire Savane we incurred a substantial amount of debt that will require successful future operating
performance and financial results and that imposes important limitations on us.
To finance our acquisition of Savane, we increased our outstanding indebtedness and our leverage. The
degree to which we are leveraged will have important consequences, including the following:
o a substantial portion of our cash flow from operations will be dedicated to the payment of principal and
and interest on our debt;
o our ability to obtain additional financing in the future for working capital, capital expenditures,
acquisitions or other purposes may be impaired;
o our leverage may increase our vulnerability to economic downturns and limit our ability to withstand
competitive pressures;
o our ability to capitalize on significant business opportunities may be limited; and
o our leverage may place us at a competitive disadvantage in relation to less leveraged competitors.
Our ability to meet our debt service obligations will depend on our future operating performance and
financial results, which will be subject in part to factors beyond our control. Although we believe that our
cash flow will be adequate to meet our interest and principal payments, there can be no assurance that we will
generate earnings in the future sufficient to cover our fixed charges. If we are unable to generate earnings in
the future sufficient to cover our fixed charges and are unable to borrow funds from existing credit facilities
or from other sources, we may be required to refinance all or a portion of our existing debt or to sell all or a
portion of our assets, either of which may be at terms that are unfavorable to us. There can be no assurance
that a refinancing would be possible, nor can there be any assurance as to the timing of any asset sales or the
proceeds that we could realize therefrom. In addition, the terms of the debt restrict our ability to sell assets
and the use of the proceeds therefrom.
If for any reason, including a shortfall in anticipated operating results or proceeds from asset sales,
we were unable to meet our debt service obligations, we would be in default under the terms of our existing
debt. In the event of such a default, some of our lenders could elect to declare certain debt to be immediately
due and payable, including accrued and unpaid interest. In addition, such lenders could proceed against the
collateral securing the debt, which consists of substantially all of our current and future personal property.
Default on our senior debt obligation could result in a default under our other debt or result in bankruptcy.
The terms of our existing debt place significant restrictions on our ability to pursue financial and strategic
opportunities.
The terms of our existing debt contain a number of significant covenants that, among other things,
restrict our ability to dispose of assets, incur additional debt, repay other debt, pay dividends, make certain
investments or acquisitions, repurchase or redeem capital stock, engage in mergers or consolidations, engage in
certain transactions with subsidiaries and affiliates, and engage in certain corporate activities.
There can be no assurance that these restrictions will not adversely affect our ability to finance
future operations or capital needs or engage in other business activities that may be in our best interest. In
addition, the terms of our existing debt require us to maintain compliance with certain financial ratios. Our
ability to comply with such ratios may be affected by events beyond our control. A breach of any of these terms
or our inability to comply with the required financial ratios could result in a default under the terms of the
Company's debt and the acceleration of all or a portion of such debt, or result in bankruptcy.
We may not be able to successfully identify, acquire and profitably operate companies and businesses that are
compatible with our operations.
We continually evaluate the potential acquisition of other complementary companies and brands. This
includes our efforts to enter into new agreements to license additional brands. Our search may not yield any
complementary companies or brands, and even if we do find a suitable acquisition we may not be able to obtain
sufficient financing to fund the purchase. We may not be able to successfully integrate the operations of any
company that we acquire into our own operations and we cannot assure you that the acquired operation will achieve
the results we expected. For example, the acquired business may not achieve revenues, profits or operational
efficiencies at the same levels as our existing operations or at the levels that it achieved prior to our
acquiring it. The success of any acquisition will also depend upon our ability to retain or hire and then train
key personnel. Acquiring another company or business may also have negative effects on our business, results of
operations and financial condition because our officers and directors may focus their attention on completing or
integrating the acquisition, or because other resources may be diverted to fulfilling the needs of the
acquisition.
We compete with other companies who have greater resources than we do for the opportunities to buy other
companies and businesses and to expand our operations. As a result, even if we do identify a suitable
acquisition, we may lose the acquisition to a competitor who offers a more attractive purchase price. In such
event, we may incur significant costs in pursuing an acquisition without success.
Our use of our trademarks and trade dress may subject us to claims of infringement by other parties.
We use many trademarks in our business, some of which have been registered with the United States Patent
and Trademark Office. We believe these registered and common law trademarks and other proprietary rights are
important to our competitive position and to our success. The use and registration of our trademarks and the use
of our trade dress are challenged periodically.
Despite our efforts to the contrary, our trademarks and proprietary rights may violate the proprietary
rights of others. If any of our trademarks or other proprietary rights were found to violate the proprietary
rights of others, or were subjected to some other challenge, we cannot assure you that we would be permitted to
continue using these trademarks or other proprietary rights. Furthermore, if we were sued for alleged
infringement of another's proprietary rights, the party claiming infringement might have greater resources than
we do to pursue its claims, and we could be forced to incur substantial costs to defend the litigation.
Moreover, if the party claiming infringement prevails, we could be forced to pay significant damages, or to enter
into expensive royalty or licensing arrangements with the prevailing party.
Pursuant to licensing agreements, we also have exclusive rights to use trademarks owned by other
companies in promoting, distributing and selling their products. We have periodically been involved in
litigation regarding these licensing agreements. We cannot assure you that these licensing agreements will
remain in effect or that they will be renewed. In addition, any future disputes concerning these licenses may
cause us to incur significant litigation costs or force us to suspend use of the trademarks. See "Business -
Trademarks and Licenses."
Our products that are imported into the United States are subject to certain restrictions and tariffs.
Most of our import operations are subject to bilateral textile agreements between the United States and
a number of other countries. These agreements establish quotas for the amount and type of goods that can be
imported into the United States from these countries. These agreements allow the United States, in certain
circumstances, to impose restraints at any time on the importation of additional or new categories of
merchandise. Future bilateral textile agreements may also contain similar restraints. Excluding the countries
covered under CBTPA and NAFTA, our imported products are also subject to United States customs duties. The
United States and the countries in which we manufacture our products may adjust quotas, duties, tariffs or other
restrictions currently in effect. There are no assurances that any adjustments would benefit us. These same
countries may also impose new quotas, duties, tariffs or other restrictions. Furthermore, the United States may
bar imports of products that are found to be made by convicts, or forced or indentured labor. The United States
may also withdraw the "most favored nation" status of certain countries, which could result in the imposition of
higher tariffs on products imported from those countries. All of these changes could have a material adverse
effect on our business, results of operations and financial condition. See "Item 1. Business - Imports and
Import Regulations."
Our success depends upon our ability to recruit qualified personnel and to retain senior management.
Our continued success is dependent on retaining our senior management as well as attracting and
retaining qualified management, administrative and operating personnel. If we lose any members of our senior
management, or if we do not recruit and retain other qualified personnel, then our business, results of
operations and financial condition could be materially adversely affected. See "Item 1. Business - Executive
Officers of the Registrant."
Additionally, some of our employees are members of unions with which the Company has entered into
collective bargaining agreements. If upon the expiration of these agreements, the Company is unable to renew
these agreements or enter into new agreements that are satisfactory to the Company, the employees covered by
these agreements may strike or otherwise be unwilling to work for the Company. The Company may not be able to
replace these employees in a timely manner. The loss of these employees may impact the Company's ability to
manufacture and deliver its products to customers on a timely basis, which could have a material adverse effect
on our business, results of operations and financial condition.
Fluctuations in foreign exchange rates may affect our operating results and financial position.
Fluctuations in foreign exchange rates between the U.S. dollar and the currencies in each of the
countries in which we operate, may affect the results of out international operations reported in U.S. dollars
and the value of such operations' net assets reported in U.S. dollars. The results of operations and financial
condition of our businesses may be affected by the relative strength of the currencies in countries where our
products are currently sold. Our results of operations and financial condition may be adversely affected by
fluctuations in foreign currencies and by translations of the financial statements of our foreign subsidiaries
from local currencies into U.S. dollars.
Our management information systems are an integral part of our operations and must be updated regularly to
respond to changing business needs.
We rely upon our management information systems to provide distribution services and to track operating
results. Further modification and refinement will be required as we grow and our business needs change. If we
experience a significant system failure or if we are unable to modify our management information systems to
respond to changes in our business needs, then our ability to properly and timely produce and distribute our
products could be adversely affected. See "Item 1. Business - Management Information Systems."
Principal shareholders of our company have a great deal of influence over the constitution of our board of
directors, and over matters submitted to a vote of shareholders.
The following table sets forth our principal shareholders and the percentage of our common stock that
they each own or control:
Name of Shareholder and Title Percentage of Shares of
(if applicable) Common Stock Owned
- ----------------------------------------------------------- ------------------------------
William W. Compton 14.7%
Chairman of the Board and Chief Executive Officer
Michael Kagan 9.1%
Vice Chairman of the Board, Executive Vice President
Chief Financial Officer and Secretary
Accel, S.A. de C.V. 21.0%
(a Mexican corporation) ("Accel")
Pursuant to our Amended and Restated Articles of Incorporation, Accel currently has the right to
nominate two persons to stand for election to our eight member Board of Directors, and separate family limited
partnerships controlled by Mr. Compton and by Mr. Kagan, respectively, each have the right to nominate one person
to stand for election to our Board of Directors. Each of the following has entered into a shareholders'
agreement:
o Accel;
o Mr. Compton;
o Mr. Kagan;
o The Compton Family Limited Partnership;
o The Kagan Family Limited Partnership.
The shareholders' agreement provides that each of the parties will vote the shares of common stock each
owns or controls to elect the nominees of the other parties to our board of directors. Given their collective
ownership our common stock, and the terms of the shareholders' agreement, these parties will have the ability to
significantly influence the election of our directors and the outcome of all other issues submitted to a vote of
our shareholders. These shareholders may act in a manner that is contrary to your best interests.
Our sales and income levels are seasonal.
Our business has generally been seasonal, with higher sales and income in the second and third fiscal
quarters. Also, some of our products, such as shorts and corduroy pants, tend to be seasonal in nature. If
these types of seasonal products represent a greater percentage of our sales in the future, the seasonality of
our sales may be increased. This could alter the differences in sales and income levels in the second and third
fiscal quarters from the first and fourth fiscal quarters.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company's market risk is limited to fluctuations in interest rates as it pertains to the Company's
borrowings under the Facility and the Real Estate Loan. As of September 29, 2001, the Company's interest rates
on borrowings under the Facility and Real Estate Loan were 5.1% and 6.4%, respectively. If the interest rates on
the Company's borrowings average 100 basis points more in Fiscal 2002 than they did in Fiscal 2001, the Company's
interest expense would increase and income before income taxes would decrease by $401,000. This amount is
determined solely by considering the impact of the hypothetical change in the interest rate on the Company's
borrowing cost without consideration for other factors such as actions management might take to mitigate its
exposure to interest rate changes.
The Company has entered into an interest rate swap agreement that is intended to maintain the
fixed/variable mix of the interest rate on the Real Estate Loan within defined parameters. Variable rates are
predominantly linked to the LIBOR. Any differences paid or received on an interest rate swap agreement are
recognized as adjustments to interest expense over the life of each swap, thereby adjusting the effective
interest rate on the underlying obligation.
Item 8. Financial Statements and Supplementary Data
The information called for by this Item is contained in pages 30 through 55 of this report.
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 information under the captions "Election of Directors" and "Other Matters - Section 16(a) Beneficial
Reporting Compliance" in the Company's Proxy Statement for its Annual Meeting of Shareholders to be held on
January 29, 2002 (the "2001 Proxy Statement") is incorporated herein by reference. The information called for by
this Item, with respect to Executive Officers, is set forth in Item 4A of this report under the caption
"Executive Officers of the Registrant."
Item 11. Executive Compensation
The information under the captions "Election of Directors - Compensation of Directors" and "Election of
Directors - Executive Compensation" in the Company's 2001 Proxy Statement is incorporated by reference. In no
event shall the information contained in the 2001 Proxy Statement under the captions "Election of Directors -
Executive Compensation - Compensation Committee Report on Executive Compensation" and "Shareholder Return
Comparison" be incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information under the caption "Election of Directors - Stock Ownership" in the Company's 2001 Proxy
Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information under the caption "Election of Directors - Executive Compensation - Compensation
Committee Interlocks and Insider Participation" and "Certain Transactions" in the Company's 2001 Proxy Statement
is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Index to Financial Statements
Page
----
Report of Independent Certified Public Accountants 30
Consolidated Balance Sheets 31
Consolidated Statements of Income 32
Consolidated Statements of Shareholders' Equity 33
Consolidated Statements of Cash Flows 34
Notes to Consolidated Financial Statements 35
(a) 2. Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
(a) 3. Exhibits
The Index to Exhibits attached hereto lists the exhibits that are filed as part of this report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of Fiscal 2001.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Tropical Sportswear Int'l Corporation
We have audited the accompanying consolidated balance sheets of Tropical Sportswear Int'l Corporation as
of September 29, 2001 and September 30, 2000, and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended September 29, 2001. 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 auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. 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 financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Tropical Sportswear Int'l Corporation at September 29, 2001 and September 30,
2000, and the consolidated results of its operations and its cash flows for each of the three years in the period
ended September 29, 2001, in conformity with accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
/s/ Ernst & Young LLP
----------------------
Tampa, Florida
November 13, 2001
TROPICAL SPORTSWEAR INT'L CORPORATION
CONSOLIDATED BALANCE SHEETS
September 29, 2001 and September 30, 2000
(In thousands, except share data)
2001 2000
------------------- ------------------
ASSETS
Current assets:
Cash $ 1,714 $ 1,767
Accounts receivable, net 86,908 93,292
Inventories, net 73,083 66,754
Deferred income taxes 15,040 10,614
Prepaid expenses and other 10,829 4,521
Assets held for sale 7,846 2,016
------------------- ------------------
Total current assets 195,420 178,964
Property and equipment 76,305 68,649
Less accumulated depreciation and amortization (28,864) (21,761)
------------------- ------------------
47,441 46,888
Other assets 16,914 16,390
Trademarks, net 12,866 13,854
Excess of cost over fair value of net assets of acquired 36,589 38,432
subsidiary, net
------------------- ------------------
Total assets $ 309,230 $ 294,528
=================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 35,417 $ 44,522
Accrued expenses and other 26,556 20,824
Current portion of long-term debt 1,128 883
Current portion of obligations under capital leases 1,414 1,108
------------------- ------------------
Total current liabilities 64,515 67,337
Long-term debt 145,962 140,343
Obligations under capital leases 2,810 3,207
Deferred income taxes 6,402 4,925
Other 3,274 2,882
------------------- ------------------
Total liabilities 222,963 218,694
Commitments and contingencies
Shareholders' equity:
Preferred stock, $100 par value; 10,000,000 shares authorized;
no shares issued and outstanding -- --
Common stock, $.01 par value; 50,000,000 shares authorized;
7,697,332 and 7,637,727 shares issued and outstanding in
2001 and 2000, respectively 77 76
Additional paid in capital 18,851 17,830
Retained earnings 70,514 59,284
Accumulated other comprehensive loss (3,175) (1,356)
------------------- ------------------
Total shareholders' equity 86,267 75,834
------------------- ------------------
Total liabilities and shareholders' equity $ 309,230 $ 294,528
=================== ==================
See accompanying notes.
TROPICAL SPORTSWEAR INT'L CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Fiscal Year Ended
-----------------------------------------------------------
September 29, September 30, October 2,
2001 2000 1999
----------------- ----------------- -----------------
Net sales $436,436 $472,985 $420,691
Cost of goods sold 311,880 335,463 302,769
----------------- ----------------- -----------------
Gross profit 124,556 137,522 117,922
Selling, general and administrative expenses 88,509 88,719 80,511
Other charges 2,774 1,006 3,999
----------------- ----------------- -----------------
Operating income 33,273 47,797 33,412
Other expenses:
Interest 15,261 17,351 18,586
Other, net 989 1,251 973
----------------- ----------------- -----------------
16,250 18,602 19,559
----------------- ----------------- -----------------
Income before income taxes and extraordinary item
17,023 29,195 13,853
Provision for income taxes 6,593 11,692 5,602
----------------- ----------------- -----------------
Income before extraordinary item 10,430 17,503 8,251
Extraordinary item-gain on negative goodwill 800 -- --
----------------- ----------------- -----------------
Net income $11,230 $17,503 $8,251
================= ================= =================
Basic net income per share:
Income before extraordinary item $1.36 $2.29 $1.08
Extraordinary item 0.11 -- --
----------------- ----------------- -----------------
Net income per share $1.47 $2.29 $1.08
================= ================= =================
Diluted net income per share:
Income before extraordinary item $1.34 $2.27 $1.05
Extraordinary item 0.11 -- --
----------------- ----------------- -----------------
Net income per share $1.45 $2.27 $1.05
================= ================= =================
See accompanying notes.
TROPICAL SPORTSWEAR INT'L CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
Accumulated
Other
Additional Compre-
Preferred Stock Common Stock Paid In Retained hensive
--------------- ------------
Shares Amount Shares Amount Capital Earnings Income Total
------ ------ ------ ------ ------- -------- ------ -----
Balance at October 3, 1998 -- -- 7,600 $76 $17,270 $33,530 $ 88 $50,964
Net income -- -- -- -- -- 8,251 -- 8,251
Foreign currency
translations adjustment -- -- -- -- -- -- 343 343
--------
Total comprehensive income -- -- -- -- -- -- -- 8,594
Stock option exercises -- -- 19 -- 265 -- -- 265
---------- ----------- ---------- ---------- ------------ ---------- -------------- --------
Balance at October 2, 1999 -- -- 7,619 76 17,535 41,781 431 59,823
Net income -- -- -- -- -- 17,503 -- 17,503
Foreign currency
translation adjustment -- -- -- -- -- -- (1,787) (1,787)
--------
Total comprehensive income -- -- -- -- -- -- -- 15,716
Stock option exercises -- -- 19 -- 295 -- -- 295
---------- ----------- ---------- ---------- ------------ ---------- -------------- --------
Balance at September 30, -- -- 7,638 76 17,830 59,284 (1,356) 75,834
2000
Net income -- -- -- -- -- 11,230 -- 11,230
Foreign currency translation
adjustment and other -- -- -- -- -- -- (1,819) (1,819)
--------
Total comprehensive income -- -- -- -- -- -- -- 9,411
Stock option exercises -- -- 59 1 1,021 -- -- 1,022
---------- ----------- ---------- ---------- ------------ ---------- -------------- --------
Balance at September 29, 2001 -- -- 7,697 $77 $18,851 $70,514 ($3,175) $86,267
========== =========== ========== ========== ============ ========== ============== ========
See accompanying notes.
TROPICAL SPORTSWEAR INT'L CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Fiscal Year Ended
------------------------------------------------------
September 29, September 30, October 2,
2001 2000 1999
---------------- --------------- ---------------
Operating activities
Net income $ 11,230 $ 17,503 $ 8,251
Adjustments to reconcile net income to net
cash provided by operating activities:
(Gain)loss on disposal of property and equipment (142) 19 88
Termination of system implementation -- -- 3,999
Depreciation and amortization 10,149 8,858 9,500
Provision for allowances and doubtful accounts 1,583 73 1,286
Provision for excess and obsolete inventory (371) (342) (3,335)
Deferred income taxes 2,417 2,325 6,350
Extraordinary item-gain on negative goodwill (800) -- --
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 9,767 (16,994) (5,156)
Inventories 424 5,769 15,553
Prepaid expenses and other assets (1,450) 8,530 (1,103)
Increase (decrease) in liabilities:
Accounts payable (9,245) 12,600 (5,529)
Accrued expenses and other (4,092) (116) (11,744)
-------------- --------------- ---------------
Net cash provided by operating activities 19,470 38,225 18,160
Investing activities
Capital expenditures (7,882) (11,366) (15,094)
Acquisition of subsidiary, net of cash acquired (12,440) -- (477)
Proceeds from sale of property and equipment 740 153 448
Other -- -- 323
-------------- --------------- ---------------
Net cash used in investing activities (19,582) (11,213) (14,800)
Financing activities
Proceeds of long-term debt 236 5,014 10,854
Proceeds from exercise of stock options 1,022 295 265
Principal payments of long-term debt (5,470) (1,335) (10,295)
Principal payments of capital leases (1,352) (1,558) (2,527)
Net proceeds from (repayment of) long-term
revolving credit line borrowings 6,445 (27,821) (2,490)
-------------- --------------- ---------------
Net cash provided by (used in) financing activities 881 (25,405) (4,193)
Change in currency translation and other (822) (1,447) 343
-------------- --------------- ---------------
Net increase (decrease) in cash (53) 160 (490)
Cash at beginning of year 1,767 1,607 2,097
-------------- --------------- ---------------
Cash at end of year $ 1,714 $ 1,767 $ 1,607 1,607
============== =============== ===============
See accompanying notes.
TROPICAL SPORTSWEAR INT'L CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 29, 2001, September 30, 2000, and October 2, 1999
(Tables in thousands, except share and per share amounts)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Tropical Sportswear Int'l Corporation and
its wholly-owned subsidiaries, Savane International Corp. ("Savane") and its subsidiaries, Tropical Sportswear
Company, Inc., Duck Head Apparel Company LLC and its subsidiaries, Delta Merchandising, Inc. and Apparel Network
Corporation (collectively, the "Company"). All significant intercompany balances and transactions have been
eliminated in consolidation.
Nature of Operations
The Company's principal line of business is the marketing, design, manufacture and distribution of
sportswear, primarily men's and women's casual pants and shorts. The principal markets for the Company include
major retailers within the United States, United Kingdom, Ireland, Germany, Mexico, Australia, and New Zealand.
The Company subcontracts a substantial portion of the assembly of its products with independent manufacturers in
the Dominican Republic and Mexico and, at any point in time, a majority of the Company's work-in-process
inventory is located in those countries.
Accounting Period
The Company operates on a 52/53-week annual accounting period ending on the Saturday nearest
September 30th. The years ended September 29, 2001, September 30, 2000, and October 2, 1999 each contain 52 weeks.
Net Income Per Share
Net income per share is computed by dividing net income by the weighted average number of common and
common equivalent shares outstanding.
Basic and diluted net income per share are computed as follows:
Fiscal Year Ended
----------------------------------------------------------
September 29, September 30, October 2,
2001 2000 1999
---------------- ----------------- --------------
Numerator for basic and diluted net
income per share:
Net income $11,230 $ 17,503 $ 8,251
Denominator for basic net income per
share:
Weighted average shares of common
stock outstanding 7,656,642 7,627,141 7,614,282
Effect of dilutive stock options
using the treasury stock method 113,948 97,599 233,535
---------------- ----------------- --------------
Denominator for diluted net income per
share 7,770,590 7,724,740 7,837,817
================ ================= ==============
Net income per share:
Basic $1.47 $2.29 $1.08
================ ================= ==============
Diluted $1.45 $2.27 $1.05
================ ================= ==============
At September 29, 2001, September 30, 2000 and October 2, 1999 there were 1.4 million, 1.3 million and
585,000 stock options, respectively, excluded from the computation of diluted earnings per share because the
effect of their inclusion in the calculation would have been anti-dilutive.
Accumulated Other Comprehensive Income (Loss)
Other comprehensive loss for Fiscal 2001, composed of foreign currency translations of $1.1 million
and the fair value of a cash flow hedge of $720,000, totaled $1.8 million, (net of income tax benefit of $1.1
million). For Fiscal 2000 and 1999, other comprehensive loss or income was composed exclusively of foreign
currency translations. Fiscal 2000 other comprehensive loss was $1.8 million (net of income tax benefit of $1.1
million). Fiscal 1999 other comprehensive income was $343,000 (net of income tax expense of $233,000). Total
comprehensive income amounted to $9.4 million, $15.7 million, and $8.6 million for Fiscal 2001, 2000 and 1999,
respectively.
Revenue Recognition
Based on its terms of F.O.B. shipping point, the Company records sales upon the shipment of finished
products to the customer.
Foreign Currencies
Foreign entities whose functional currency is the local currency translate net assets at year-end rates and
income and expense accounts at average exchange rates. Adjustments resulting from these translations are reflected
in the Shareholders' equity section as a component of other comprehensive income (loss).
Advertising and Promotion Costs
Advertising and promotion costs are expensed in the year incurred. Advertising and promotion expense was
$9.7 million, $15.7 million, and $12.3 million, in Fiscal 2001, 2000, and 1999, respectively.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out
method. The Company records provisions for markdowns and losses on excess and slow-moving inventory to the
extent the cost of inventory exceeds estimated net realizable value.
Property and Equipment
Property and equipment are stated at cost. The Company primarily uses straight-line depreciation
methods over periods that approximate the assets' estimated useful lives.
Trademarks
Trademarks represent the fair value of the Savane(R)and Farah(R)trademarks that were acquired with the
acquisition of Savane (see Note 9). The trademarks effectively have an indefinite legal life and their value has
been amortized through September 29, 2001, on the straight-line basis over a period of 30 years. Accumulated
amortization totaled $1,645,000, $1,146,000 and $646,000 at September 29, 2001, September 30, 2000 and October 2,
1999, respectively. Effective September 30, 2001, the Company adopted Statement of Financial Accounting Standard
No. 142 "Goodwill and Other Intangible Assets" ("Statement No. 142"), and will no longer amortize the remaining
value of its trademarks, but will test them for impairment on a periodic basis. In connection with the Company's
acquisition of Duck Head Apparel Company, Inc. ("Duck Head"), the fair value of the Duck Head trademarks was
estimated at approximately $13.3 million. The fair value assigned to the Duck Head trademark in the preliminary
allocation of the purchase price was reduced to zero as a result of non long-lived assets exceeding the price the
Company paid for Duck Head (See Note 8).
Excess of Cost Over Fair Value of Net Assets of Acquired Subsidiary
The excess of cost over fair value of net assets of acquired subsidiary is primarily related to the
acquisition of Savane (see Note 9) and has been amortized through September 29, 2001, on the straight-line basis
over a period of 30 years. Accumulated amortization totaled $4,318,000, $3,045,000 and $1,660,000 at September
29, 2001, September 30, 2000 and October 2, 1999, respectively. Effective September 30, 2001, the Company adopted
Statement No. 142, and will no longer amortize the remaining goodwill from the acquisition of Savane, but will
test for impairment on a periodic basis. In connection with the Company's acquisition of Duck Head, the
preliminary fair value of Duck Head's non long-lived assets exceeded the price the Company paid, which in
accordance with SFAS No. 142, resulted in an extraordinary gain (See Note 8 ).
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in
the United States requires management to make estimates and assumptions that affect the reported amount of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Actual results could differ from the
estimates.
Impairment of Long-Lived Assets
Impairment losses are recorded on goodwill and long-lived assets used in operations when impairment
indicators are present and the undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. When impairment is indicated, a loss is recognized for the excess of the carrying
values over the fair values.
Derivative Accounting
The Company adopted the provisions of Statement of Financial Accounting Standard No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("Statement No. 133"), effective October 1, 2000. Under the
terms of Statement No. 133, all derivative instruments are required to be accounted for at fair value and
recorded on the consolidated balance sheet. The Company entered into an interest-rate swap agreement (the
"Agreement") to modify the interest characteristics of a portion of its outstanding debt. The Agreement is
designated to hedge the interest payments related to a portion of the principal balance of the Company's variable
rate mortgage debt. The Agreement involves the exchange of amounts based on a fixed interest rate for amounts
based on variable interest rates over the life of the Agreement without an exchange of the notional amount upon
which the payments are based. The differential to be paid or received as interest rates change is accrued and
recognized as an adjustment of interest expense related to the debt. The notional amount of the Agreement is
$7.0 million and the Agreement expires in May 2008. Since the Agreement qualifies for the "short-cut" method of
accounting for cash flow hedges, the fair value of the Agreement and related changes in the fair value as a
result of changes in market interest rates are recognized in the statement of financial position.
Financial Instruments
The Company's financial instruments include cash, accounts receivable, accounts payable, long-term debt
and obligations under capital leases. The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash, accounts receivable and accounts payable: The carrying amounts reported in the balance
sheets approximate fair value.
Long-term debt and obligations under capital leases: The carrying amount of the Company
borrowings under its variable rate long-term debt agreements approximate their fair value. The
fair value of the Company's fixed rate long-term debt and obligations under capital leases is
estimated using discounted cash flow analyses, based on the estimated current incremental
borrowing rate for similar types of borrowing agreements.
Interest-rate swap agreement: The carrying amount was determined using fair value estimates
from third parties.
The carrying amounts and fair value of the Company's long-term debt and obligations under capital
leases and interest-rate swap agreement are as follows:
September 29, 2001 September 30, 2000
---------------------------- ----------------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------ ------------ ------------ ------------
Long-term debt and obligations
under capital leases $151,314 $146,206 $145,541 $135,347
Interest-rate swap agreement N/A ($720) N/A $80
Reclassifications
Certain amounts in the Fiscal 2000 and 1999 financial statements have been reclassified to conform to
the Fiscal 2001 presentation.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting
Standard No. 141, "Business Combinations" ("Statement No. 141) and Statement of Financial Accounting Standard
No. 142, "Goodwill and Other Intangible Assets" ("Statement No. 142"). Statement No. 141 prohibits the use of
the pooling-of-interests method for business combinations completed after June 30, 2001, and requires the
recognition of intangible assets separately from goodwill. Statement No. 141 is effective for any business
combination that is completed after June 30, 2001. Statement No. 142 includes requirements to test goodwill and
indefinite lived intangible assets for impairment rather than amortize them. Goodwill and other indefinite lived
intangible assets would be tested for impairment, and any impairment charge resulting from the initial
application of Statement No. 142 would be classified as a cumulative change in accounting principle. Statement
No. 142 is effective for companies with fiscal years beginning after December 15, 2001.
The acquisition of Duck Head in August 2001 was accounted for in accordance with Statements No. 141.
The Company also adopted Statement No. 142 on September 30, 2001 and will no longer amortize its remaining
goodwill and other indefinite lived intangible assets, but will test them for impairment on a periodic basis.
The provisions of Statement No. 142 also require the completion of a transitional impairment test within six
months of adoption, with any impairment identified treated as a cumulative effect of a change in accounting
principle. The Company intends to complete this transitional impairment test during Fiscal 2002. Application of
the non-amortization provisions of Statement No. 142 are expected to result in an increase to net income of
approximately $831,000 ($0.11 per diluted share) per year.
Statement of Cash Flows
Supplemental cash flow information:
Year Ended
----------------- -- ----------------- -- ------------------
September 29, September 30, October 2,
2001 2000 1999
----------------- ----------------- ------------------
Cash paid for:
Interest $14,943 $16,988 $18,360
Income taxes 4,635 10,155 1,641
Capital lease obligations of $1,151,000, $216,700, and $767,000 were incurred when the Company entered
into leases for new equipment in the years ended September 29, 2001, September 30, 2000, and October 2, 1999,
respectively. In Fiscal 1999, the Company sold $4.1 million of equipment in return for notes receivable and the
termination of system implementation write-off was net of a $5.3 million settlement receivable.
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
September 29, September 30,
2001 2000
------------------ -----------------
Receivable from factor $79,899 $89,314
Receivable from trade accounts 11,130 5,976
Reserve for allowances and doubtful accounts (4,121) (1,998)
------------------ -----------------
$86,908 $93,292
================== =================
The Company has two separate factoring agreements. Under the agreements, substantially all of the
Company's trade receivables are assigned on an ongoing basis, without recourse, except for credit losses on the
first 0.10% of amounts factored. The factoring agreements are with national companies, which, in management's
opinion, are highly creditworthy. The purchase price of each receivable is the net face amount, less a factoring
discount of 0.18% to 0.25%. The Company is currently on month to month agreements with both of its factors.
3. INVENTORIES
Inventories consist of the following:
September 29, September 30,
2001 2000
-------------------- ----------------
Raw materials $ 6,898 $7,599
Work in process 14,327 19,788
Finished goods 58,858 43,834
Reserve for excess and slow moving inventory (7,000) (4,467)
-------------------- ----------------
$73,083 $66,754
==================== ================
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
September 29, September 30, Life
2001 2000 (Years)
----------------- ---------------- -----------
Land $ 7,442 $4,194 --
Land improvements 2,041 1,987 15
Buildings and improvements 15,245 14,779 3 - 50
Machinery and equipment 48,901 38,751 3 - 12
Leasehold improvement 2,484 2,438 5 - 25
Construction in progress 192 6,500 --
----------------- ----------------
$76,305 $68,649
================= ================
During Fiscal 2001, 2000 and 1999, the Company capitalized interest cost of $107,000, $215,000, and
$329,000, respectively, for buildings and improvements, and machinery and equipment in the process of
construction. Total depreciation expense was $8.2 million, $6.8 million, and $7.6 million, for the years ended
September 29, 2001, September 30, 2000, and October 2, 1999, respectively.
5. DEBT
Long-term debt consists of the following:
September 29, September 30,
2001 2000
------------------ -----------------
Revolving credit line $32,131 $25,686
Real estate loan 13,968 14,690
Senior subordinated notes 100,000 100,000
Other 991 850
------------------ -----------------
147,090 141,226
Less current maturities 1,128 883
------------------ -----------------
$145,962 $140,343
================== =================
The Company maintains a revolving credit line (the "Facility") which provides for borrowings of up to
$110 million, subject to certain borrowing base limitations. Borrowings under the Facility bear variable rates of
interest based on LIBOR plus an applicable margin (5.1% at September 29, 2001) and are secured by substantially
all of the Company's domestic assets. The Facility matures in June 2003. Debt issue costs of $1.4 million were
incurred in connection with the Facility and are included in other assets. These costs are being amortized to
interest expense over the life of the Facility using the effective interest method. As of September 29, 2001, an
additional $65.4 million was available for borrowings under the Facility.
On May 28, 1999, the Company entered into a real estate loan ("Real Estate Loan") agreement secured by the
Company's distribution center, cutting facility, and administrative offices in Tampa, Florida. The Real Estate Loan
was used to refinance $9.5 million outstanding on the Company's previous real estate loan and to finance up to $6.0
million of the costs related to an expansion to the Company's Tampa distribution facility. In March 2000, the Real
Estate Loan was converted to a secured term loan. Principal and interest are due monthly on the refinanced amount
and the loan bears interest at the 30-day London Interbank Offered Rate ("LIBOR") plus an applicable margin. The
principal payments are based on a 20-year amortization with all outstanding principal due on or before May 15, 2008.
Borrowings under the Real Estate Loan bear interest at a rate of 30-day LIBOR plus an applicable margin
(3.8% at September 29, 2001). Under the terms of an interest-rate swap agreement associated with the Real Estate
Loan, effectively $7.0 million of borrowings under the Real Estate Loan bear interest at a fixed base rate plus
an applicable margin (7.6% at September 29, 2001). As of September 29, 2001, the combined effective interest
rate on the Real Estate Loan was approximately 6.4%.
The Company has outstanding $100 million of senior subordinated notes (the Notes) that were issued
through a private placement. Under the terms of the indenture underlying the Notes, the Company is paying
semi-annual interest at the rate of 11% through June 2008, at which time the entire principal amount is due. The
net proceeds from the Notes were used to repay a portion of the borrowings outstanding under the Bridge Facility.
Debt issue costs of $4.1 million were incurred and are included in other assets. These costs are being amortized
to interest expense over the life of the Notes using the effective interest method.
The Company's debt agreements contain certain covenants, the most restrictive of which are as follows:
(i) achievement of specified fixed charge coverage ratios; (ii) maintenance of debt to earnings before interest,
taxes, depreciation and amortization at specified levels; (iii) limitations on annual capital expenditures; (iv)
limitations on liens; and (v) prohibition of the payment of dividends. The Company is in compliance with all such
covenants.
The scheduled maturities of long-term debt are as follows:
Fiscal Year Amount
---------------- -------------
2002 $ 1,128
2003 33,032
2004 912
2005 924
2006 937
Thereafter 110,157
6. LEASES
The Company leases administrative facilities, production facilities, retail outlet stores, and certain
equipment under non-cancelable leases. Future minimum lease payments under operating leases and the present value
of future minimum capital lease payments as of September 29, 2001 are as follows:
Operating Capital
Fiscal Year Leases Leases
- ------------------------------------------------------ ----------------- -----------------
2002 $5,087 $ 1,692
2003 4,458 1,452
2004 3,561 1,255
2005 2,517 314
2006 2,081 62
Thereafter 5,811 --
----------------- -----------------
Total minimum lease payments $23,515 4,775
=================
Less amount representing interest 551
-----------------
Present value of minimum capital lease payments 4,224
Less current installments 1,414
-----------------
$2,810
=================
The following summarizes the Company's assets under capital leases:
September 29, September 30,
2001 2000
-------------------- ----------------
Machinery and equipment $9,170 $8,464
Accumulated amortization 3,352 2,502
Amortization of assets under capital leases has been included in depreciation. Total rental expense for
operating leases for Fiscal 2001, 2000, and 1999, was $4.4 million, $5.0 million, and $4.6 million, respectively.
7. INCOME TAXES
Deferred income tax assets and liabilities are provided to reflect the future tax consequences of
differences between the tax bases of assets and liabilities and their reported amounts in the financial
statements.
For financial reporting purposes, income before income taxes includes the following components:
Year Ended
----------------------------------------------------------
September 29, September 30, October 2,
2001 2000 1999
----------------- ---------------- -----------------
Domestic $15,808 $28,811 $11,196
Costa Rica 7 5 1,507
Australia (321) (626) 910
United Kingdom 1,397 884 (370)
Other foreign 132 121 610
----------------- ---------------- -----------------
$17,023 $29,195 $13,853
================= ================ =================
The components of the income tax provision (benefit) are as follows:
Year Ended
----------------------------------------------------------
September 29, September 30, October 2,
2001 2000 1999
----------------- ---------------- -----------------
Current:
Federal $3,627 $8,280 $(1,169)
State 409 1,039 43
Australia - - 328
Other foreign 141 48 50
----------------- ---------------- -----------------
4,177 9,367 (748)
Deferred:
Federal 2,798 2,240 5,919
State (273) 310 431
Australia (109) (225) -
----------------- ---------------- -----------------
2,416 2,325 6,350
----------------- ---------------- -----------------
$6,593 $11,692 $5,602
================= ================ =================
The reconciliation of income taxes computed at the U.S. Federal statutory tax rate to the Company's
income tax provision is as follows:
Year Ended
----------------------------------------------------------
September 29, September 30, October 2,
2001 2000 1999
----------------- ---------------- -----------------
Income tax expense at Federal
statutory rate (35% in 2001,
35% in 2000 and 34% in 1999) $5,957 $10,218 $4,710
State taxes, net of Federal tax benefit 160 877 474
Income (losses) of foreign subsidiaries 7 3 (170)
Amortization of goodwill 399 428 420
Other 70 166 168
----------------- ---------------- -----------------
$6,593 $11,692 $5,602
================= ================ =================
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for income taxes. Certain of the
Company's foreign subsidiaries have undistributed accumulated earnings of approximately $20.2 million, as
adjusted for U.S. tax purposes at September 29, 2001. No U.S. tax has been provided on the undistributed
earnings because the Company intends to indefinitely reinvest such earnings in the foreign operations. The
amount of the unrecognized deferred tax liability associated with the undistributed earnings that have not been
previously taxed in the U.S. was approximately $4.4 million at September 29, 2001. If earnings are repatriated,
foreign tax credits can offset a portion of the U.S. tax on such earnings. The amount of $4.4 million has been
calculated net of the foreign tax credits.
The temporary differences that give rise to significant portions of the deferred tax assets and
liabilities as of September 29, 2001 and September 30, 2000 are presented below:
Year Ended
----------------------------------------
September 29, September 30,
2001 2000
------------------ ----------------
Deferred tax assets:
Accounts receivable $ 1,553 $ 846
Inventory 4,023 2,428
U.S. Federal NOL carryforwards 6,526 5,094
U.S. State NOL carryforwards 1,732 95
Foreign NOL carryforwards 1,765 2,165
Tax credits 298 497
Accrued exit costs - U.S. 5,178 5,492
Accrued exit costs - foreign 1,632 1,847
Other accrued expenses and reserves- U.S. 6,110 2,357
Other accrued expenses and reserves-foreign 206 -
Deferred tax liabilities:
Depreciation (2,992) (3,056)
Trademarks (5,003) (5,147)
Other items (3,843) (3,405)
------------------ ----------------
Net deferred tax asset 17,185 9,213
Valuation allowance (3,840) (2,200)
------------------ ----------------
Deferred tax asset, net of valuation allowance $13,345 $7,013
================== ================
Classified as follows:
Current asset $15,040 $10,614
Non-current asset 4,707 1,324
Non-current liability (6,402) (4,925)
------------------ ----------------
$13,345 $7,013
================== ================
A valuation allowance to reduce the deferred tax assets reported is required if, based on the weight of
the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be
realized. For Fiscal 2001 and 2000, management determined that respective valuation allowances of $3.8 million
and $2.2 million, respectively, were necessary to reduce the deferred tax assets relating to certain state net
operating loss carryforwards, foreign net operating loss carryforwards, foreign tax credit carryforwards and
other accruals not expected to result in a future realizable benefit.
At September 29, 2001, the Company's United Kingdom subsidiary had a foreign operating loss of $1.4
million which carries forward indefinitely. For domestic purposes, the Company has Federal net operating loss
carryforwards for tax purposes of approximately $17.8, million which will expire through 2021. The net operating
loss carryforwards will be subject to certain tax law provisions that limit the utilization of net operating
losses that were generated in pre-acquisition years and were acquired through changes in ownership. These
limitations were considered during management's evaluation of the need for a valuation allowance. The Company
has AMT credit carryforwards of $298,000, which carry forward indefinitely.
8. ACQUISITION OF DUCK HEAD APPAREL COMPANY, INC.
On August 9, 2001, the Company completed the acquisition of 100% of the outstanding stock of Duck Head
Apparel Company, Inc. ("Duck Head"). The total purchase price, including cash paid for common stock acquired, cash
paid for the fair value of outstanding stock options, and cash paid for fees and expenses, amounted to $17.9
million. Cash acquired totaled $5.5 million. The acquisition of Duck Head was made to expand the Company's
portfolio of brands.
The acquisition was accounted for using the purchase method of accounting and the results of operations
for Duck Head have been included in the consolidated statements of income since the acquisition date. The
preliminary fair value of identifiable tangible and intangible net assets acquired was $28.2 million. This
resulted in an initial excess of the fair value of the net assets acquired over the purchase price of
approximately $10.3 million. The Company then reduced the fair value assigned to Duck Head's long-lived assets,
including trademarks and property and equipment from $9.5 million to zero. The remaining $800,000 was recorded
as an extraordinary gain in the consolidated statement of income.
Subsequent to the acquisition, the Company began performing a thorough analysis of Duck Head's
operations and developed a plan to exit certain activities and terminate certain personnel. The major activities
to date include, among other things, the elimination of redundant personnel and the closure of Duck Head's
administrative offices and distribution center in Georgia. Personnel termination costs of approximately $3.8
million related to the termination of substantially all of Duck Head's employees were accrued in connection with
the acquisition. Through the end of Fiscal 2001, approximately $2.0 million of these termination costs had been
paid. The administrative offices and distribution center in Georgia and a building in Costa Rica are included in
"Assets held for sale" in the consolidated balance sheet. The Company has valued these facilities held for sale
at an estimated net realizable value of $6.6 million based on local market conditions, and expects to dispose of
these facilities during Fiscal 2002. At September 29, 2001, the Company had remaining accrued liabilities of
approximately $4.2 million related to exit costs which primarily consist of estimated lease termination costs for
certain of Duck Head's retail outlet stores and other exit related costs. Additional exit activity and further
analysis is currently being performed. The Company expects to complete these exit activities in the next twelve
months. Subsequent changes in the estimated fair value of assets acquired or additional exit activities will be
reflected as additional extraordinary gain or loss until the analysis is completed.
9. ACQUISITION OF SAVANE INTERNATIONAL CORP.
The Company has remaining accrued liabilities related to the acquisition of Savane International Corp.
of approximately $5.2 million related to exit costs which primarily consist of estimated lease termination costs
and related expenses. The activity in the exit accruals during Fiscal 2001 and 2000 were as follows:
Year Ended
---------------------------------------
September 29, September 30,
2001 2000
----------------- ------------------
Beginning balance $ 5,592 $ 6,030
Reductions/payments (442) (438)
----------------- ------------------
Ending balance $5,150 $5,592
================= ==================
The exit reserve consists of lease termination costs related to the Company's plan to consolidate its
Savane operations in El Paso, Texas. Construction for a new divisional headquarters and cutting facility is in
progress, to be followed by construction of a new distribution center.
A manufacturing facility in Costa Rica is included in "Assets held for sale" in the consolidated balance
sheet. The Company has valued this facility held for sale at an estimated net realizable value of $1.2 million
based on local market conditions, and expects to dispose of this facility during Fiscal 2002.
10. COMMITMENTS AND CONTINGENCIES
As of September 29, 2001, the Company had approximately $6.4 million of outstanding trade letters of
credit with various expiration dates through February 2002.
The Company is involved in litigation regarding with the former Chief Executive Officer of Duck Head
regarding the terms of his employment agreement with the Company. The litigation is in the early stages and the
Company intends to vigorously defend this claim. The Company does not believe that the outcome of this claim
will have a materially adverse affect on its business, financial positions or results of operation. The Company
is not involved in any other legal proceedings that the Company believes could reasonably be expected to have a
material adverse effect on the Company's business, financial position or results of operations.
11. EMPLOYEE BENEFIT PLANS
Defined Contribution Plans
The Company has a 401(k) profit sharing plan under which all domestic employees are eligible to
participate. Employee contributions are voluntary and subject to Internal Revenue Service limitations. The
Company matches, based on annually determined factors, employee contributions provided the employee completes
certain levels of service annually and is employed as of December 31 of each plan year. For Fiscal 2001, 2000,
and 1999, the Company recorded expenses of $584,000, $533,000, and $585,000, respectively, related to the plan.
Certain non-U.S. employees participate in defined contribution plans with varying vesting and
contribution provisions. For Fiscal 2001, 2000 and 1999, the Company recorded expenses of $263,000, $309,000 and
$304,000, respectively, related to these plans.
Defined Benefit Plan
Under the defined benefit plan, which covers certain Savane cutting and distribution center associates,
the basic monthly pension payable to a participant upon normal retirement equals the product of the participant's
monthly benefit rate times the number of years of credited service. Assets of the defined benefit plan are
invested primarily in U.S. government obligations, corporate bonds, and equity securities.
The Company's policy is to fund accrued pension cost when such costs are deductible for tax purposes.
Net periodic pension cost for the years ended September 29, 2001 and September 30, 2000, included the following
components:
September 29, September 30,
2001 2000
----------------- -----------------
Service cost-benefits earned during the period $ 33 $ 28
Interest cost on projected benefit obligation 576 571
Estimated return on plan assets (731) (763)
Net amortization and deferral 155 112
----------------- -----------------
Net periodic pension cost (credit) $ 33 $ (52)
================= =================
The following table sets forth the funded status of the defined benefit plan:
September 29, September 30,
2001 2000
----------------- ----------------
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATION:
Accumulated benefit obligation $8,201 $8,027
Projected benefit obligation 8,201 8,027
Plan assets at market value 7,580 8,037
----------------- ----------------
Funded status (621) 10
Unrecognized transition liability being recognized over
average future service of plan participants 74 141
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions 2,572 1,907
----------------- ----------------
Prepaid expense $2,025 $2,058
================= ================
The following table provides a reconciliation of beginning and ending balances of the benefit obligation
of the defined benefit plan:
September 29, September 30,
2001 2000
----------------- ----------------
CHANGE IN BENEFIT OBLIGATION:
Projected benefit obligation, beginning of year $8,027 $7,938
Service cost 33 28
Interest cost 577 571
Benefits paid (732) (704)
Actuarial (gain) loss 296 194
----------------- ----------------
Projected benefit obligation, end of year $8,201 $8,027
================= ================
The following table provides a reconciliation of the beginning and ending balances of the fair value
of plan assets of the defined benefit plan:
September 29, September 30,
2001 2000
----------------- ----------------
CHANGE IN PLAN ASSETS:
Plan assets at fair value, beginning of year $8,037 $8,362
Actual return on plan assets 275 379
Benefits paid (732) (704)
----------------- ----------------
Plan assets at fair value, end of year $7,580 $8,037
================= ================
In determining the benefit obligations and service cost of the Company's defined benefit plan, a
weighted average discount rate and an expected long-term rate of return on plan assets of 7.5% and 9.5%,
respectively, were used for Fiscal 2001 and Fiscal 2000.
12. STOCK OPTION PLANS
The Company has adopted various stock option plans since 1996 which combined reserve 1,760,000 shares of
the Company's common stock for future issuance. The per share exercise price of each stock option granted under
these plans will be equal to the quoted fair market value of the stock on the date of grant, except in the case
of a more than 10% shareholder for which grants are priced at 110% of fair market value of the stock on the date
of grant.
The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25") and related interpretations in accounting for its employee stock options because,
as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting
for Stock Based Compensation," ("Statement No. 123") requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma information regarding net income and earnings per share is required by Statement No. 123,
which also requires that the information be determined as if the Company has accounted for its employee stock
options granted subsequent to December 31, 1994 under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions for Fiscal 2001, 2000 and 1999, respectively: risk-free interest rate of
4.4%, 5.9%, and 6.1%; a dividend yield of 0%, 0% and 0%; volatility factor of the expected market price of the
Company's common stock of .48, .67 and .87; and a weighted-average expected life of the option of eight years,
nine years, and seven years.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded
options that have no vesting restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including the expected stock price volatility. Because the
Company's employee stock options have characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value
of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense
over the options' vesting period. The Company's pro forma information for Fiscal 2001, 2000 and 1999 is (in
thousands except for net income per share information):
Year Ended
---------------- -- ----------------- -- ----------------
September 29, September 30, October 2,
2001 2000 1999
---------------- ----------------- ----------------
Pro forma net income $9,584 $13,440 $6,352
Pro forma net income per share-basic $1.25 $1.76 $0.83
Pro forma net income per share-diluted $1.23 $1.74 $0.81
A summary of the Company's stock option activity, and related information follows:
2001 2000 1999
-------------------------- -------------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Price Per Price Per Price Per
Options Share Options Share Options Share
------------ ----------- ----------- ----------- ---------- -----------
Outstanding - beginning of
year 1,421,881 $16.58 808,633 $16.24 485,700 $13.53
Granted 233,680 17.56 765,655 17.32 382,600 19.55
Exercised (59,605) 15.85 (18,692) 12.16 (19,035) 11.78
Canceled/expired (123,960) 18.18 (133,715) 19.31 (40,632) 15.88
------------ ----------- ----------- ----------- ---------- -----------
Outstanding-end of year 1,471,996 $16.64 1,421,881 $16.58 808,633 $16.24
============ =========== =========== =========== ========== ===========
Weighted-average fair value of
options granted during the year $14.66 $12.04 $12.64
The exercise price range of outstanding and exercisable options as of September 29, 2001 follows:
Outstanding Exercisable Exercise Price
Options Options Range Per Share
- ----------------- -------------- ------------------------
375,375 365,161 $10.25 - $13.20
536,058 382,408 $13.81 - $17.31
402,563 117,646 $18.17 - $19.69
158,000 116,838 $19.75 - $27.75
- ----------------- --------------
1,471,996 982,053
================= ==============
The weighted-average remaining contractual life of the outstanding options is eight years. The initial
term for options is generally ten years. The vesting period is three years for 1,136,896 options and 335,100
options were immediately vested.
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations:
Net Income
Net Gross Net Per
Sales Profit Income Share - Diluted
----------- ------------ ------------- --------------------
Year Ended September 29, 2001
First Quarter $ 98,552 $28,808 $ 2,710 $0.35
Second Quarter 123,523 35,810 4,939 0.64
Third Quarter 107,328 28,537 1,420 0.18
Fourth Quarter 107,033 31,401 2,161 0.27
Year Ended September 30, 2000
First Quarter $ 101,675 $29,602 $ 2,348 $0.30
Second Quarter 124,201 37,133 5,227 0.68
Third Quarter 123,044 36,085 5,740 0.74
Fourth Quarter 124,065 34,702 4,188 0.54
14. SEGMENT AND GEOGRAPHIC INFORMATION
The Company has one reportable segment, the design, sourcing and marketing of sportswear apparel. The
information for this segment is the information used by the Company's chief operating decision-maker to evaluate
operating performance. International sales represented approximately 9.1%, 7.8%, and 8.3% of net sales for
Fiscal 2001, 2000 and 1999, respectively. No foreign country or geographic area accounted for more than 10% of
net sales in any of the periods presented. Long-term assets of international operations represented
approximately 2.3%, 2.6% and 1.9% of the Company's long-term assets at September 29, 2001, September 30, 2000 and
October 2, 1999, respectively.
In Fiscal 2001, two customers accounted for approximately 19% and 17% of sales in the United States. In
Fiscal 2000, two customers accounted for approximately 15% and 13% of sales in the United States. In Fiscal
1999, two customers accounted for approximately 14% and 12% of sales in the United States.
15. SUPPLEMENTAL COMBINED CONDENSED FINANCIAL INFORMATION
The Notes (see Note 5) are jointly and severally guaranteed by the Company's domestic subsidiaries. The
wholly-owned foreign subsidiaries are not guarantors with respect to the Notes and do not have any credit
arrangements senior to the Notes except for their local overdraft facility and capital lease obligations.
The following is the supplemental combined condensed statement of operations and cash flows for the
three years ended September 29, 2001, and the supplemental combined condensed balance sheets as of September 29,
2001 and September 30, 2000. The only intercompany eliminations are the normal intercompany sales, borrowing and
investments in wholly-owned subsidiaries. Separate complete financial statements of the guarantor subsidiaries
are not presented because management believes that they are not material to investors.
Year Ended September 29, 2001
----------------------------------------------------------------------------
Non-
Statements of Operations Parent Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------- ------------ ------------- --------------
Net sales $188,956 $208,359 $41,837 $(2,716) $436,436
Gross profit 44,977 65,418 14,161 -- 124,556
Operating income 12,740 19,243 1,290 -- 33,273
Interest, income taxes and other, net 6,185 14,510 404 944 22,043
Net income 6,555 4,733 886 (944) 11,230
Year Ended September 30, 2000
-----------------------------------------------------------------------------
Non-
Statements of Operations Parent Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------- ------------ ------------- --------------
Net sales $195,424 $240,760 $40,997 $(4,196) $472,985
Gross profit 49,518 75,226 12,778 -- 137,522
Operating income 18,252 29,191 354 -- 47,797
Interest, income taxes and other, net 11,726 17,953 56 559 30,294
Net income 6,526 11,238 298 (559) 17,503
Year Ended October 2, 1999
-----------------------------------------------------------------------------
Non-
Statements of Operations Parent Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------- ------------ -------------- -------------
Net sales $167,443 $218,532 $40,807 ($6,091) $420,691
Gross profit 40,491 65,126 12,305 -- 117,922
Operating income 10,081 22,333 998 -- 33,412
Interest, income taxes and other, net 6,464 19,483 (1,280) 494 25,161
Net income 3,617 2,850 2,278 (494) 8,251
September 29, 2001
-------------------------------------------------------------------------------
Non-
Balance Sheets Parent Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------- ------------- ----------------
ASSETS
Cash $ 190 $ 249 $ 1,275 $ -- $ 1,714
Accounts receivable 33,955 45,958 6,995 -- 86,908
Inventories 27,358 36,896 8,829 -- 73,083
Other current assets 18,047 13,995 1,673 -- 33,715
---------- ------------ ------------- ------------- ----------------
Total current assets 79,550 97,098 18,772 -- 195,420
Property and equipment, net 30,695 11,115 5,631 -- 47,441
Other assets 152,586 55,686 1,908 (143,811) 66,369
---------- ------------ ------------- ------------- ----------------
Total asset $262,831 $163,899 $26,311 $(143,811) $309,230
========== ============ ============= ============= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $27,832 $28,578 $5,563 $ -- $61,973
Current portion of long-term debt and capital
lease obligations 1,051 1,223 268 -- 2,542
---------- ------------ ------------- ------------- ----------------
Total current liabilities 28,883 29,801 5,831 -- 64,515
Long-term debt and noncurrent portion of
capital lease obligations 145,964 2,702 106 -- 148,772
Other noncurrent liabilities 722 8,986 (32) -- 9,676
Shareholders' equity 87,262 122,410 20,406 (143,811) 86,267
---------- ------------ ------------- ------------- ----------------
Total liabilities and shareholders' $262,831 $163,899 $26,311 $(143,811) $309,230
equity ========== ============ ============= ============= ================
September 30, 2000
-------------------------------------------------------------------------------
Non-
Balance Sheets Parent Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------- ------------- ----------------
ASSETS
Cash $ 171 $ 22 $ 1,574 $ -- $ 1,767
Accounts receivable 35,196 51,248 6,848 -- 93,292
Inventories 26,604 32,571 7,579 -- 66,754
Other current assets 2,202 14,572 377 -- 17,151
---------- ------------ ------------- ------------- ----------------
Total current assets 64,173 98,413 16,378 -- 178,964
Property and equipment, net 30,503 10,011 6,374 -- 46,888
Other assets 136,704 69,916 4,229 (142,173) 68,676
---------- ----------------
------------ ------------- -------------
Total asset $231,380 $178,340 $26,981 $(142,173) $294,528
========== ============ ============= ============= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $26,980 $34,570 $3,796 $ -- $65,346
Current portion of long-term debt and capital
lease obligations 904 1,087 -- -- 1,991
---------- ------------ ------------- ------------- ----------------
Total current liabilities 27,884 35,657 3,796 -- 67,337
Long-term debt and noncurrent portion of
capital lease obligations 139,741 3,809 -- -- 143,550
Other noncurrent liabilities 257 7,455 95 -- 7,807
Shareholders' equity 63,498 131,419 23,090 (142,173) 75,834
---------- ------------ ------------- ------------- ----------------
Total liabilities and shareholders' $231,380 $178,340 $26,981 $(142,173) $294,528
equity
========== ============ ============= ============= ================
Year Ended September 29, 2001
------------------------------------------------------------------------------
Non-
Statements of Cash Flows Parent Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------- ------------- -------------- --------------
Net cash provided by operating activities $ 14,624 $ 4,131 $ 715 $-- $19,470
Net cash used in investing activities (16,192) (2,933) (457) -- (19,582)
Net cash provided (used) by financing activities 1,587 (149) (557) -- 881
Other -- (822) -- -- (822)
Net increase (decrease) in cash 19 227 (299) -- (53)
Cash, beginning of year 171 22 1,574 -- 1,767
Cash, end of year 190 249 1,275 -- 1,714
Year Ended September 30, 2000
------------------------------------------------------------------------------
Non-
Statements of Cash Flows Parent Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------- ------------- -------------- --------------
Net cash provided by operating activities $ 34,026 $ 2,175 $ 2,024 $-- $38,225
Net cash used in investing activities (10,176) (554) (483) -- (11,213)
Net cash used in financing activities (23,769) (180) (1,456) -- (25,405)
Other -- (1,447) -- -- (1,447)
Net increase (decrease) in cash 81 (6) 85 -- 160
Cash, beginning of year 90 28 1,489 -- 1,607
Cash, end of year 171 22 1,574 -- 1,767
Year Ended October 2, 1999
------------------------------------------------------------------------------
Non-
Statements of Cash Flows Parent Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------- -------------
Net cash provided (used) by operating activities $ 13,115 $8,692 $(40) $ (3,607) $ 18,160
Net cash used in investing activities (12,108) (3,415) (554) 1,277 (14,800)
Net cash provided (used) by financing activities (1,037) (6,223) 737 2,330 (4,193)
Other -- 343 -- -- 343
Net increase (decrease) in cash (30) (603) 143 -- (490)
Cash, beginning of year 120 631 1,346 -- 2,097
Cash, end of year 90 28 1,489 -- 1,607
TROPICAL SPORTSWEAR INT'L CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
Reserve for returns and allowances:
Additions
----------------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
of Period Expenses Accounts Deductions of Period
------------- ------------ ------------ ------------- ------------
Year Ended:
October 2, 1999 $639 $1,286 $--- $--- $1,925
==== ====== ==== ==== ======
September 30, 2000 $1,925 $73 $--- $--- $1,998
====== === ==== ==== ======
September 29, 2001 $1,998 $1,596 $540 (1) $13 $4,121
====== ====== ==== === ======
Reserve for excess and slow-moving inventory:
Additions
----------------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
of Period Expenses Accounts Deductions of Period
------------- ------------ ------------ ------------- ------------
Year Ended:
October 2, 1999 $8,144 $623 $--- $3,958 $4,809
====== ==== ==== ====== ======
September 30, 2000 $4,809 $1,759 $--- $2,101 $4,467
====== ====== ==== ======= ======
September 29, 2001 $4,467 $1,250 $2,904 (1) $1,621 $7,000
====== ====== ====== ======= ======
Deferred tax asset valuation allowance:
Additions
----------------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
of Period Expenses Accounts Deductions of Period
------------- ------------ ------------ ------------- ------------
Year Ended:
October 2, 1999 $2,591 $--- $--- $--- $2,591
====== ==== ==== ==== ======
September 30, 2000 $2,591 $--- $--- $391 $2,200
====== ==== ==== ==== ======
September 29, 2001 $2,200 $--- $1,763 (1) $123 $3,840
====== ==== ====== ==== ======
(1) Represents balance acquired as a result of the acquisition of Duck Head Apparel Company, Inc. in
August 2001.
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 Tampa, and State of Florida, on this 20th day of December, 2001.
TROPICAL SPORTSWEAR INT'L CORPORATION
By: /s/ William W. Compton
-------------------------------------------------------
William W. Compton
Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Each
person whose signature appears below constitutes and appoints William W. Compton and Michael Kagan and each of
them individually, his true and lawful attorney-in-fact and agent, with full power of substitution and
revocation, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments
to this report and to file the same, with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full
power and authority to do and perform each and every act and this requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or either of them, may lawfully do or cause to be done
by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ William W. Compton Chairman of the Board December 20, 2001
- ------------------------------------
William W. Compton Chief Executive Officer
(Principal Executive Officer)
/s/ Michael Kagan Vice Chairman of the Board, December 20, 2001
- ------------------------------------
Michael Kagan Executive Vice President,
Chief Financial Officer and Secretary
(Principal Financial Officer)
/s/ Christopher B. Munday President and Director December 20, 2001
- ------------------------------------
Christopher B. Munday
/s/ N. Larry McPherson Executive Vice President, December 20, 2001
- ------------------------------------
N. Larry McPherson Finance and Treasurer (Principal
Accounting Officer)
/s/ Eloy S. Vallina-Laguera Director December 20, 2001
- ------------------------------------
Eloy S. Vallina-Laguera
/s/ Leslie J. Gillock Director December 20, 2001
- ------------------------------------
Leslie J. Gillock
/s/ Martin W. Pitts Director December 20, 2001
- ------------------------------------
Martin W. Pitts
/s/ Charles J. Smith Director December 20, 2001
- ------------------------------------
Charles J. Smith
/s/ Eloy Vallina Garza Director December 20, 2001
- ------------------------------------
Eloy Vallina Garza
Index to Exhibits
Exhibit
Number Description
- ------ -----------
*2.1 Agreement and Plan of Merger dated May 1, 1998 among Tropical Sportswear Int'l Corporation,
Foxfire Acquisition Corp. and Farah Incorporated (filed as Exhibit (c)(1) to Tropical
Sportswear Int'l Corporation's Schedule 14D-1 filed May 8, 1998).
*3.1 Amended and Restated Articles of Incorporation of Tropical Sportswear Int'l Corporation (filed
as Exhibit 3.1 to Tropical Sportswear Int'l Corporation's Annual Report on Form 10-K filed
January 4, 1999).
*3.2 Amended and Restated By-Laws of Tropical Sportswear Int'l Corporation (filed as Exhibit 3.2 to
Tropical Sportswear Int'l Corporation's Registration Statement on Form S-1 filed August 15,
1997).
*4.1 Specimen Certificate for the Common Stock of Tropical Sportswear Int'l Corporation (filed as
Exhibit 4.1 to Amendment No. 1 to Tropical Sportswear Int'l Corporation's Registration
Statement on Form S-1 filed October 2, 1997).
*4.2 Shareholders' Agreement dated as of September 29, 1997 among Tropical Sportswear Int'l
Corporation, William W. Compton, the Compton Family Limited Partnership, Michael Kagan, the
Kagan Family Limited Partnership, Shakale Internacional, S.A. and Accel, S.A. de C.V. (filed as
Exhibit 4.2 to Amendment No. 1 to Tropical Sportswear Int'l Corporation's Registration
Statement on Form S-1 filed October 2, 1997).
*4.3 Indenture dated as of June 24, 1998 among Tropical Sportswear Int'l Corporation, the Subsidiary
Guarantors named therein, and SunTrust Bank, Atlanta, as trustee (filed as Exhibit 4.4 to
Tropical Sportswear Int'l Corporation's Form S-4 filed August 20, 1998).
*4.4 Shareholder Protection Rights Agreement, dated as of November 13, 1998, between Tropical
Sportswear Int'l Corporation and Firstar Bank Milwaukee, N.A. (which includes as Exhibit B
thereto the Form of Right Certificate) (filed as Exhibit 99.1 of Tropical Sportswear Int'l
Corporation's Form 8-K dated November 13, 1998).
*4.5 Supplemental Indenture No. 1 dated as of August 23, 2000 among Tropical Sportswear Int'l
Corporation, each of the New Subsidiary Guarantors named therein, and SunTrust Bank, Atlanta,
as trustee (filed as Exhibit 4.5 of Tropical Sportswear Int'l Corporation's Annual Report on
Form 10-K filed December 19, 2000).
*10.1 Loan Agreement dated as of May 28, 1999 between Tropical Sportswear Int'l Corporation and
NationsBank N.A. (filed as Exhibit 10.1 to Tropical Sportswear Int'l Corporation's Quarterly
Report on Form 10-Q filed August 12, 1999).
*10.2 Retail - Domestic Collection Factoring Agreement dated October 1, 1995, between Heller
Financial, Inc. and Tropical Sportswear Int'l Corporation (filed as Exhibit 10.3 of Tropical
Sportswear Int'l Corporation's Registration Statement on Form S-1 filed August 15, 1997).
*10.3 Factoring Agreement dated as of June 9, 1998 between NationsBanc Commercial Corporation and
Farah Incorporated (filed as Exhibit 10.3 to Tropical Sportswear Int'l Corporation's
Registration Statement on Form S-4 filed August 20, 1998).
Index to Exhibits (continued)
Exhibit
Number Description
------ -----------
*10.4 Loan and Security Agreement dated June 10, 1998 (the "Loan and Security Agreement") among
Tropical Sportswear Int'l Corporation, Tropical Sportswear Company, Inc., Savane International
Corp. and Apparel Network Corporation, as borrowers, the Lenders named therein and Fleet
Capital Corporation, as agent (filed as Exhibit 10.4 to Tropical Sportswear Int'l Corporation's
Registration Statement on Form S-4 filed August 20, 1998).
*10.5 First Amendment to the Loan and Security Agreement dated July 9, 1998 (filed as Exhibit 10.5 to
Tropical Sportswear Int'l Corporation's Registration Statement on Form S-4 filed August 20,
1998).
*10.6 Employment Agreement effective November 3, 1997 between William W. Compton and Tropical
Sportswear Int'l Corporation (filed as Exhibit 10.4 to Tropical Sportswear Int'l Corporation's
Annual Report on Form 10-K filed December 23, 1997).
*10.7 Employment Agreement effective November 3, 1997 between Michael Kagan and Tropical Sportswear
Int'l Corporation (filed as Exhibit 10.5 to Tropical Sportswear Int'l Corporation's Annual
Report on Form 10-K filed December 27, 1997).
*10.8 Employment Agreement effective November 3, 1997 between Richard J. Domino and Tropical
Sportswear Int'l Corporation (filed as Exhibit 10.6 to Tropical Sportswear Int'l Corporation's
Annual Report on Form 10-K filed December 27, 1997).
*10.13 Employment Agreement dated June 9, 1998 between Michael R. Mitchell and Farah Incorporated
(filed as Exhibit 10.14 to Tropical Sportswear Int'l Corporation's Form S-4 filed August 20,
1998).
*10.14 Employment Agreement dated July 1, 1999 between Gregory L. Williams and Tropical Sportswear
Int'l Corporation (filed as Exhibit 10.14 of Tropical Sportswear Int'l Corporation's Annual
Report on Form 10-K filed December 19, 2000).
10.15 Employment Agreement dated October 1, 2001 between Christopher B. Munday and Tropical
Sportswear Int'l Corporation (filed herewith).
*10.16 Employee Stock Option Plan of Tropical Sportswear Int'l Corporation as amended (filed as
Exhibit 99.1 to Tropical Sportswear Int'l Corporation's Registration Statement on Form S-8
filed October 28, 1999).
*10.17 Non-Employee Director Stock Option Plan of Tropical Sportswear Int'l Corporation (filed as
Exhibit 10.8 to Tropical Sportswear Int'l Corporation's Registration Statement on Form S-1
filed August 15, 1997).
*10.18 Amended and Restated Farah Savings and Retirement Plan as of January 1, 1991 (filed as Exhibit
10.125 to Farah Incorporated's Annual Report on Form 10-K filed November 6, 1992).
*10.19 Addendum to Amended and Restated Farah Savings and Retirement Plan dated August 22, 1997 (filed
as Exhibit 10.20 to Tropical Sportswear Int'l Corporation's Form S-4 filed August 20, 1998).
*10.20 Amended and Restated Farah U.S.A. Bargaining Unit Pension Plan dated December 31, 1994,
effective as of January 1, 1990 (filed as Exhibit 10.21 to Tropical Sportswear Int'l
Corporation's Form S-4 filed August 20, 1998).
*10.21 Amendment to the Amended and Restated Farah U.S.A. Bargaining Unit Pension Plan dated December
13, 1995 (filed as Exhibit 10.22 to Tropical Sportswear Int'l Corporation's Form S-4 filed
August 20, 1998).
Index to Exhibits (continued)
Exhibit
Number Description
------ -----------
*10.22 Apparel International Group, Inc. 1996 Stock Option Plan (filed as Exhibit 10.9 to Tropical
Sportswear Int'l Corporation's Registration Statement on Form S-1 filed August 15, 1997).
*10.23 Second Amendment dated August 27, 1998 to Loan and Security Agreement (filed as Exhibit 10.23
to Tropical Sportswear Int'l Corporation's Quarterly Report on Form 10-Q filed February 16,
1999).
*10.24 Third Amendment dated December 31, 1998 to Loan and Security Agreement (filed as Exhibit 10.24
to Tropical Sportswear Int'l Corporation's Quarterly Report on Form 10-Q filed February 16,
1999).
*10.25 Fourth Amendment dated May 21, 1999 to Loan and Security Agreement (filed as Exhibit 10.25 to
Tropical Sportswear Int'l Corporation's Form 10-K filed December 30, 1999).
*10.26 Fifth Amendment dated July 16, 1999 to Loan and Security Agreement (filed as Exhibit 10.2 to
Tropical Sportswear Int'l Corporation's Quarterly Report on Form 10-Q filed August 12, 1999).
*10.27 First Amendment dated July 19, 1999 to Loan Agreement with NationsBank N.A. (filed as Exhibit
10.3 to Tropical Sportswear Int'l Corporation's Quarterly Report on Form 10-Q filed August 12,
1999).
*10.28 Sixth Amendment dated October 28, 1999 to Loan and Security Agreement with Fleet Capital
Corporation (filed as Exhibit 10.28 to Tropical Sportswear Int'l Corporation's Form 10-K filed
December 30, 1999).
*10.29 Seventh Amendment dated November 12, 1999 to Loan and Security Agreement with Fleet Capital
Corporation (filed as Exhibit 10.29 to Tropical Sportswear Int'l Corporation's Form 10-K filed
December 30, 1999).
*10.30 Second Amendment dated November 12, 1999 to Loan Agreement with NationsBank N.A. (filed as
Exhibit 10.30 to Tropical Sportswear Int'l Corporation's Form 10-K filed December 30, 1999).
*10.31 Third Amendment dated August 24, 1998 to Retail-Domestic Collection Factoring Agreement between
Heller Financial, Inc. and Tropical Sportswear Int'l Corporation (filed as Exhibit 10.31 to
Tropical Sportswear Int'l Corporation's Form 10-K filed December 30, 1999).
*10.32 Third Amendment dated January 18, 2000 to Loan Agreement with NationsBank N.A. (filed as Exhibit
10.1 to Tropical Sportswear Int'l Corporation's Form 10-Q filed May 10, 2000).
*10.33 Eighth Amendment dated January 19, 2000 to Loan and Security Agreement with Fleet Capital
Corporation (filed as Exhibit 10.2 to Tropical Sportswear Int'l Corporation's Form 10-Q filed May
10, 2000).
*10.34 Tropical Sportswear Int'l Corporation 2000 Long-Term Incentive Plan (filed as Exhibit 99.1 to
Tropical Sportswear Int'l Corporation's Registration Statement on Form S-8, dated July 28, 2000).
*10.35 Joinder Agreement dated August 23, 2000 and Supplement to Loan and Security Agreement with
Fleet Capital Corporation (filed as Exhibit 10.35 of Tropical Sportswear Int'l Corporation's
Annual Report on Form 10-K filed December 19, 2000).
10.36 Joinder Agreement dated August 9, 2001 and Supplement to Loan and Security Agreement with Fleet
Capital Corporation (filed herewith).
10.37 Consent Agreement dated June 25, 2001 with Fleet Capital Corporation, as Agent (filed herewith).
21.1 Subsidiaries of the Registrant (filed herewith).
23.1 Consent of Ernst & Young LLP (filed herewith).
24.1 Power of Attorney (included in Part IV of the Form 10-K).
* Indicates document incorporated herein by reference.