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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 28, 2002
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ____________________ to ______________________
Commission File Number 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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).
[X] Yes [ ] No
As of December 17, 2002 there were 11,040,452 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, 2002, was
$62,281,555
DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of the Proxy Statement for the Annual Meeting of Shareholders of Tropical Sportswear Int'l Corporation, to be held
on January 28, 2003 are incorporated by reference in Part III of this Annual Report on Form 10-K.
TROPICAL SPORTSWEAR INT'L CORPORATION
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I Page No.
Item 1 Business 5
Item 2 Properties 17
Item 3 Legal Proceedings 17
Item 4 Submission of Matters to a Vote of Security Holders 18
Item 4A Executive Officers of the Registrant 18
PART II
Item 5 Market for Registrant's Common Equity and Related Shareholder Matters 19
Item 6 Selected Financial Data 20
Item 7 Management's Discussion and Analysis of Financial Condition and Results
of Operations 20
Item 7A Quantitative and Qualitative Disclosures About Market Risk 35
Item 8 Financial Statements and Supplementary Data 35
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 35
PART III
Item 10 Directors and Executive Officers of the Registrant 36
Item 11 Executive Compensation 36
Item 12 Security Ownership of Certain Beneficial Owners and Management 36
Item 13 Certain Relationships and Related Transactions 36
Item 14 Controls and Procedures 36
Item 15 Exhibits, Financial Statement Schedules and Reports on Form 8-K 37
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 our 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. These
statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or
achievements to be materially different from any future results, performances or achievements expressed or implied by the
forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
o Our projected sales and earnings growth;
o Cost savings from our consolidation efforts;
o The success of new products;
o Our product mix;
o Our goal to shorten the production cycle;
o Potential acquisitions by us;
o Our future financing plans;
o Increases in sales of our Farah(R)brand through Wal-Mart;
o The benefits of expanding our distribution of Savane(R)through new core replenishment programs;
o Trends affecting our results of operations and financial condition; and
o Our business' growth, operating and financing strategies.
In some cases, you can identify forward-looking statements by terms such as "may", "will", "should", "could," "would," "expects,"
"plans," "intends," "anticipates," "believes," "estimates," "projects," "predicts," "potential," and similar expressions intended to
identify forward-looking statements. These statements, which reflect our current views with respect to future events, are based on
assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these
forward-looking statements. Among the factors that could cause actual results to differ from the forward-looking statements are:
o General economic conditions, including but not necessarily limited to recession or other cyclical effects impacting customers in
the United States and abroad;
o Disruptions in the business associated with the consolidation of the cutting and administrative functions of our Savane division
from El Paso, Texas to Tampa, Florida;
o Failure to achieve planned cost savings associated with consolidation and reorganization;
o Disruption in the business associated with changes in management;
o Restrictions and limitations placed on us by our debt instruments;
o The financial strength of our customers;
o Regulatory matters affecting us, including quotas and tariffs;
o Removal of trade quotas applicable to countries other than Mexico or the Caribbean Basin beginning in 2005;
o International risks including exchange rate fluctuations, trade disruptions, and political instability of foreign markets that we
produce in or purchase materials from;
o Reduction in the level of consumer spending;
o The availability and price of raw materials and global manufacturing costs and restrictions;
o Continued pricing pressures on our product line;
o The inability to successfully identify, acquire and profitably operate brands, companies and businesses;
o Increases in costs;
o The availability and quality of independent manufacturers;
o Changes in fashion trends and consumer preferences;
o The continued acceptance of our existing and new products by our major customers;
o The continued viability of our major suppliers;
o Delays associated with the timing of shipment and acceptance of the Victorinox(R)apparel line;
o Our ability to continue to use existing and obtain additional licensed trademarks and tradenames, including Bill Blass(R)and Van
Heusen(R);
o Seasonality in our business;
o Business disruptions and costs arising from acts of terrorism or military activities around the globe; and
o Those risks and uncertainties discussed under the heading "Risk Factors".
All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume
no obligation to update any such forward-looking statements. 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.
PART I
Item 1. Business
General
We are a leading innovator, designer, producer and marketer of high-quality branded and retailer private branded apparel
products that we sell to major retailers in all levels and channels of distribution. Over the last decade, we have developed an
operating blueprint that is designed to consistently and profitably deliver apparel products to our customers faster, better and
cheaper than our competition. Our business model emphasizes core, recurring styles to minimize inventory risk and to maximize return
on investment to our customers by combining affordable, high-quality products, on-time and complete customer order fulfillment, and
comprehensive retail inventory management systems. As part of this approach, we have focused on improving our operating efficiency
and product speed to market beyond the traditional benchmarks associated with the apparel industry. We have used other high
inventory-turnover consumer goods industries to set goals for our operating performance. We believe that this approach has not only
transformed us into a fast-moving consumer goods company but has also established us as a leader in the apparel industry.
Our primary product lines feature casual and dress-casual pants, shorts, denim jeans and woven and knit shirts for men,
women, boys and girls. Our products are marketed under widely recognized international and national brands, including:
Our owned brands: Our licensed brands: Retailer national private brands:
o Savane(R) o Victorinox(R), the o Puritan(R)
o Farah(R) makers of the original o Member's Mark(R)
o Duck Head(R) Swiss Army(TM)Knife o George(TM)
o Flyers(TM) o Bill Blass(R) o Sonoma(R)
o The Original Khaki Co.(R) o Van Heusen(R) o Croft & Barrow(R)
o Bay to Bay(R) o St. John's Bay(R)
o Two Pepper(R) o Charter Club(R)
o Royal Palm(R) o Roundtree & Yorke(R)
o Banana Joe(R) o Geoffrey Beene(R)
o Authentic Chino Casuals(R) o G.H. Bass(R)
o Izod(R)
o White Stag(R)
Our brand strategy provides for the distribution of our products across all major apparel retail channels including
department stores, discounters and mass merchants, wholesale clubs, national chains, specialty stores, catalog retailers, our retail
outlets and the Internet. Our major customers include:
o Wal-Mart o Philips-Van Heusen o Saks
o Sam's Club Retail Outlets o BJ's
o Kohl's o Federated o Mervyn's
o J.C. Penney o Belk o Costco
o Dillard's o May Company
Our seasoned management team has driven robust and profitable growth of our business through internal development, licensing
and strategic acquisitions. Since fiscal 1997, the year prior to our initial public offering, we have acquired and successfully
integrated four major brands - Savane(R), Farah(R), Duck Head(R)and Victorinox(R). These acquisitions have enabled us to significantly
expand our reach and presence to all market segments and levels of retail distribution. The integration of these brands combined
with our organic growth has significantly enhanced our overall growth. From fiscal 1997 through fiscal 2002, we have realized:
o Net sales growth from $152 million to $464 million, or a compound annual growth rate of approximately 25%; and
o EBITDA growth, excluding other charges, over the same period from $18 million to $39 million, or a compound annual growth rate of
approximately 17%.
We were founded in 1927. Our primary executive offices are located at 4902 West Waters Avenue, Tampa, Florida 33634-1302,
and our telephone number is 813-249-4900.
Industry
The apparel industry is large and highly fragmented. According to NPD, a retail industry research firm, the U.S. apparel
industry totaled approximately $166 billion in retail sales in 2001. The total retail market for our core products, which include
bottoms and tops for men, women, boys and girls, was approximately $77 billion in 2001.
We believe that the apparel industry is currently characterized by the following trends:
o Increasing consumer demand for brands and retailer's private brands featuring greater innovation, higher quality, new technology,
better fit, increased comfort and value pricing;
o Increasing consumer demand for convenient, easy to shop and competitively priced apparel retailers;
o Consolidation of major apparel retailers;
o Heightened dependence by major apparel retailers on key vendors that can maximize the retailers' return on investment, improve
customer service and provide vendor managed inventory and category management programs;
o Focus by major apparel retailers on national brands that meet evolving consumer needs; and
o Consolidation by major apparel retailers of their suppliers into core retailer-supplier partnerships.
Competitive Strengths
The success of our business has resulted from several key strengths, which we believe distinguish us from others in our
industry, including the following:
Highly Diversified Portfolio of Brands and Distribution Channels. Our product lines currently feature over 75 brands
including our owned and licensed brands as well as retailer private brands. We believe that the breadth of this portfolio of brands
allows us to penetrate all levels of distribution and mitigates the risk that potential negative trends in any one market segment
will significantly impact our company. In addition, the positioning of our brand portfolio and retailer private brands across a
broad range of price points enables us to maximize penetration of our customer base by providing them with differentiated brand
programs to target consumers across all demographics.
Continuous Innovation. Innovation is a key element of our success. We have a proven record of generating customer and
consumer demand with fresh new products featuring differentiated design and fabrication. We continuously work internally and
collaborate with our suppliers to improve our products. We devote significant resources to researching consumer trends and
preferences, developing new fabrics and product finishes and designing products to meet consumer needs. In addition, our Farah(R)
brand was first to market with 100% cotton, wrinkle-free pants. Also, in fiscal 2000, we introduced the "packable short," a short
that packs within itself. The packable short had strong consumer acceptance, with one of our largest customers reporting sales of
over 100,000 units in a single week.
Superior Product Quality. Our superior product quality is critical to our success given increasing consumer demand for
quality apparel products at compelling values. We apply stringent quality standards throughout our operations, from product design
through the sourcing of our raw materials from the mill and the shipment of customer orders. Our quality control personnel are
on-site at our suppliers' mills and inspect raw materials prior to shipment to our cutting facility. Similarly, our quality control
personnel are on-site at the facilities of our independent assembly contractors to supervise quality throughout the assembly
process. Furthermore, our product content and construction specifications require the use of matched thread throughout the garment,
rigorous attention to seam construction, surge seaming of all pockets, color matching of all components, the generous use of fabric
and graduated rise in our pants which produce a fuller, more comfortable fit. The application of these standards results in a
minimal rate of customer returns for defects.
Accelerated Production Process. We have developed and continue to refine an operating blueprint that minimizes the
production cycle and reduces inventory risk. We achieved a 27 day average production cycle for fiscal 2002 for our core
replenishment products, which represents approximately two-thirds of our overall production. We have recently encountered
difficulties in the consolidation of our El Paso operations, particularly related to our cutting operations. This has caused delays
in delivering products to our customers, and negatively impacted our results for our first quarter of fiscal 2003. We anticipate,
however, that these difficulties will be resolved during our second quarter of fiscal 2003.The production cycle begins with the
receipt of raw materials and ends with the receipt of a finished garment into our Fast Track Centers. We achieve greater
efficiencies in the manufacture of our core products by utilizing eight production platforms, or "chassis," each requiring distinct
manufacturing processes that incorporate basic core construction features such as waistbands types. We believe that our "chassis"
production concept, strategic outsourcing of labor-intensive garment assembly and finishing operations to independent manufacturers
in Mexico, the Caribbean Basin and Central America allow us to execute production more efficiently and cost-effectively than our
competitors. This strategy minimizes our personnel and capital investment in the production process and enables us to vary
production levels with changes in customer demand. Our Fast Track Centers are strategically located to reduce the time for product
delivery for us and for our customers. As a result of our effective use of technology and our efficient production process, we
believe that our unit production costs, on-time and complete customer order execution and inventory turns are among the best in the
apparel industry.
Efficient and Low-Cost Operations. We achieve efficient and low-cost operations through utilization of advanced technology,
the integration of our systems and those of our suppliers, consolidation of operational and production processes and the employment
of an experienced, well-trained work force. Our systems include integrated apparel design, materials sourcing, production planning
and logistics, customer order entry, sales demand forecasting and order fulfillment, all of which are integrated with our financial
reporting and human resources systems. Our systems are integrated with our suppliers' production planning processes, enabling us to
adjust the amount and composition of our raw materials. Our use of technology results in higher quality products, lower cost
production and more effective and responsive customer order execution. For example, through our use of advanced computerized
equipment for spreading, marking and cutting fabric, we utilize over 91% of our fabric, which we believe is one of the highest fabric
utilization rates in the apparel industry. To maintain our competitive advantage, we continue to make investments in the latest
technology. In an effort to further streamline our operations, in fiscal 2002, we began consolidating our cutting and administrative
functions in El Paso into our Tampa facilities. We expect to complete the consolidation by March 2003 and to generate annual pre-tax
cost savings of $4.5 million.
Differentiated Customer Service and Support. We maximize customer satisfaction through our customized brand and merchandise
management programs. Our programs help retailers increase their profit margins by outsourcing traditional retailer merchandising
functions and reducing their inventory risk and markdowns. Through these programs, our customers are able to leverage our expertise
in tracking and evaluating consumer trends and preferences and are able to consult with us on all aspects of merchandising including
product design, labeling, sales strategy, point-of-sale advertising and pricing. Additionally, as retailers have increasingly
focused on maximizing their return on investment and inventory turns and partnering with vendors that can assist them achieve those
objectives, we have been able to provide many of our customers with our sophisticated vendor managed inventory program in which we
manage customer inventory levels by stock-keeping unit, or SKU, and replenish inventories automatically based on store level retail
sell-through. As an element of our programs, we monitor product sell-through and assist the customer in managing its floor space and
inventory portfolio by suggesting merchandise mix adjustments based on the point of sale SKU data we collect. We strive to ship
orders over 95% complete within the shipping window specified by the customer. As evidence of our customer service capabilities, we
are the Wal-Mart category manager for all Farah(R)brand men's apparel and accessories. We also provide significant financial support
for several of our brands, including the Savane(R)brand, which include in-store fixtures, co-op and other advertising support. We
believe that these services build brand recognition and customer loyalty as well as support for the brand by the retailer.
Growth Strategies
We are well situated to continue to strengthen our position as a leading innovator, designer, producer and marketer of
high-quality branded and private branded apparel products, both internally and through opportunistic acquisitions, and to further
expand our margins and improve our return on invested capital. The key elements of our growth strategy include the following:
Further Penetrate Existing and New Customers in Current and New Markets. We intend to continue leveraging our diversified
portfolio of brands and merchandising programs to expand our existing customer relationships by introducing new brands, products and
programs, growing existing brands, products and programs and capitalizing on international growth opportunities with existing
customers. Our key customers include many of the top retailers in the world, some of whose apparel businesses are rapidly expanding
in North America and globally. With our established operations in the United Kingdom, Mexico, Canada and the South Pacific, we
believe that we are well-positioned to capitalize on international sales opportunities. Examples of our recent successes include the
important new programs we added under our Savane(R)brand with J.C. Penney, Kohl's and Mervyn's, and our expanding global relationship
with Wal-Mart under the Farah(R)brand. We are actively pursuing additional new customer relationships, including selected mass
merchants, deep discount retailers, vertically integrated private brand retailers, and leading direct marketers.
Continue to Expand Product Categories. We will continue to develop and bring to market innovative products that complement
our existing core product lines. We are currently targeting the introduction of new lines of men's graphic t-shirts and women's,
boys' and girls' sportswear. We have recently introduced a new line of shirts across many of our brands and plan to expand
distribution through all of our retail distribution channels thereby leveraging Duck Head's well-established line of shirts and
merchandising expertise. We also intend to expand the licensing of our owned brands into other categories, such as footwear, hosiery
and other accessories. Additionally, we are focusing on the further development of our denim line and related programs in order to
capitalize on increased consumer demand for denim. We believe that our ability to continue to offer an expanding array of products
will be an important driver of future growth.
Enhanced Productivity and Profitability. We continually explore initiatives to improve productivity and profitability
through continued shortening of the production cycle, consolidating operations, leveraging our infrastructure, utilizing advanced
technology and other cost-savings measures. For example, our continuing focus on shortening the production cycle has resulted in a
reduction from a 39 day production cycle in 1997 to a 27 day average for fiscal 2002. By modeling our business after other
fast-moving consumer goods companies, we work to eliminate as many minutes in the production cycle as possible to enable us to
quickly adjust production to meet changing customer demand and minimize excess inventory and costly closeouts. Additionally, we are
in the process of consolidating our cutting and administrative functions in El Paso into our Tampa facilities. We expect to complete
the consolidation by March 2003 and to generate annual pre-tax cost savings of approximately $4.5 million.
Develop New and Innovative Products. Our focus on innovative design and fabrication features is driven by consumer demand
for freshness and innovation in styling, performance and value. This focus on innovation is an important reason we continue to be a
key vendor to our customers and positions us well to realize continued growth with our customers and attract new customers. While
maintaining our focus on basic recurring styles, we base our designs on a careful and thorough assessment of prevailing consumer
fashion and lifestyle trends to incorporate features into our products that enhanced styling and performance, such as innovative new
cuts, fabrics and finishes. We also work with our customers to offer innovative packaging and displays as a complement to their
point-of-sale advertising.
Pursue Opportunistic Acquisitions of Businesses and Brands. We believe that there is significant opportunity for future
growth through acquisition given the high degree of industry fragmentation and the increasing trend by apparel retailers to focus on
fewer key vendors. The ability to acquire existing brands with established revenues and customer base represents an opportunity to
broaden our brand portfolio with immediate scale, expand product categories, further diversify and penetrate our distribution
channels and leverage our operating platform through increased economies of scale. We also intend to explore additional strategic
licensing opportunities to further enhance our brand portfolio. As a result of our prior successes in acquiring and integrating
acquisitions, we believe that we are well-positioned to capitalize on potential future acquisition opportunities.
Products
Product Overview. We produce core lines of high quality casual and dress-casual pants, shorts, denim jeans and woven and
knit shirts for men, women, boys and girls. The following table sets forth our product sales mix expressed as a percentage of our
net sales for fiscal 2002:
Casual Pants 51%
Dress-Casual Pants 19
Shorts 13
Denim 9
Shirts 4
Women's, Boys', Girls' and Other 4
---------
100%
=========
Our product line focuses on basic, recurring apparel styles with innovative design and fabrication features that address
consumer preferences for styling, performance and value. We base our designs on a careful assessment of prevailing consumer fashion
and lifestyle trends to incorporate features into our products that enhance styling and performance, such as innovative new cuts,
fabrics and finishes. We believe that our focus on core apparel products makes our business less susceptible to fashion obsolescence
and less seasonal in nature than other companies that are dependent on fashion styles. Over 80% of our men's pant products are
derived from eight 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. We modify our basic chassis to produce
separate and distinct styles through variations in cut, fabric and finish. This process enables us to achieve production consistency
and efficiencies, while also producing a wide variety of products through distinctions in color and style. In order to continue to
bring newness to the market, we also introduce fashion-oriented products on a limited basis. The key fabrics that we use 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. In addition, we have a core line of woven and knit shirts that are sourced entirely as full packaged
imports from the Far East and the Pacific Rim.
Design and Development. Our marketing team analyzes domestic and international trends in the apparel industry as well as
industries outside of apparel, including the technology, automobile, grocery and home furnishings industries, to determine trends in
styling, color, consumer preferences and lifestyle. Virtually all of our products are designed by our in-house staff utilizing a
computer-aided-design, or CAD system, which enables us to produce computer simulated samples that display how a particular style will
look in a given color and fabric. We can quickly generate samples and alter the simulated samples in response to consumer input.
The use of CAD technology reduces the time and costs associated with producing actual sewn samples prior to customer approval and
allows us to create custom designed products meeting the specific needs of a customer. Our 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 and a graduated rise in our pants which produce a
fuller, more comfortable fit and reduce costly customer returns.
Brands
Our product lines currently feature over 75 brands. Our products are marketed under our owned brands, including Savane(R),
Farah(R), Duck Head(R), Flyers(TM), The Original Khaki Co.(R), Bay to Bay(R), Two Pepper(R), Royal Palm(R), Banana Joe(R)and Authentic
Chino Casuals(R), and our licensed national brands, including Victorinox(R), Bill Blass(R), Van Heusen(R)and John Henry(R), and
numerous private brands owned by our key customers.
The following table sets forth net sales by brand category for fiscal 2002:
Retailer Private Brands 35%
Savane(R) 27
Farah(R) 15
Other Owned Brands 11
Licensed Brands 7
Duck Head(R) 5
---------
100%
=========
The diversity of our brand portfolio, which covers price points from our high-end Victorinox(R)products to our customers'
private brands, enables us to maximize penetration of our customers by providing them with differentiated brand programs to target
consumers across all demographics.
The following chart illustrates the distribution channels through which we sell our primary brands:
Brand Product Categories Distribution Channels
Victorinox(R), the makers of A collection of high-tech High-end department stores
the original Swiss Army(TM) outerwear, shirts, casual and specialty stores
Knife and dress-casual pants,
shorts and jeans
Savane(R) Men's, women's, misses, Finer to moderate department
boys' and girls' casual and stores and specialty stores
dress-casual pants, shorts,
jeans and shirts
Duck Head(R) Men's, women's, misses, Moderate department stores
boys' and girls' casual and and specialty stores
dress-casual pants, shorts
jeans and shirts
Farah(R) Men's, women's, boys' and Exclusively available to
girls' casual and Wal-Mart with minimal
dress-casual pants, jeans distribution in other
and shorts international distribution
channels
Private Brands Men's, women's, boys' and Finer department stores, mass
girls' casual and merchants, discounters and
dress-casual pants, jeans specialty stores
and shorts
The following are brief descriptions of certain of our primary brands:
Victorinox(R), the makers of the original Swiss Army(TM)Knife. We acquired the global license to the Victorinox(R)brand in
October 2000 and introduced our Victorinox(R)product line in fiscal 2001. These innovatively designed products are sold to our
upscale department store customers such as Bloomingdale's, Macy's, Nordstrom and Saks Fifth Avenue and are designed to appeal to the
consumer with an active lifestyle. We are currently evaluating our long-term strategy with this brand.
Savane(R). We acquired the Savane(R)brand as part of our acquisition of Farah in June 1998. Savane(R)historically has been
positioned as a leading brand at better department stores, including Federated, May Company and Dillard's. In April 2002, we
announced important new national programs under the Savane(R)brand with J.C. Penney, Kohl's and Mervyn's. Our Savane(R)branded
clothing is targeted to consumers between 30 and 50 years old who value innovation and quality.
Duck Head(R). We acquired the Duck Head(R)brand in August 2001. Established in 1865, the widely-recognized Duck Head(R)
brand provides us with opportunities to penetrate new distribution channels and to expand our licensing opportunities. Prior to our
acquisition of Duck Head in 2001, the brand was distributed primarily to nine southeastern states. This brand of men's and boys'
casual sportswear is also sold in our retail outlet stores. The brand is designed to appeal to the younger attitude consumer.
Farah(R). We also acquired the Farah(R)brand as part of our acquisition of Farah. This internationally recognized brand is
exclusively distributed to Wal-Mart in the United States and is an important part of Wal-Mart's branded global expansion. We
currently produce casual and dress-casual pants and shorts under this brand and anticipate expanding into women's products and tops
and shirts. This line of clothing is designed to appeal to the value shopper who is between 30 and 50 years old.
Retail Private Brands. In addition to the owned and licensed brands in our product line, we produce products marketed under
retailer private brands to customers including Wal-Mart, Sam's Club, Kohl's, J.C. Penney, Dillard's, Phillips-Van Heusen, Federated,
May Company, Saks, BJ's, Goody's, Bass Pro Shops, Fred Meyer and Galyan's. Some of the better known retailer private brands for
which we produce apparel are Puritan(R), Member's Mark(R), George(TM), Sonoma(R), Croft & Barrow(R), St. John's Bay(R), Charter
Club(R), Roundtree & Yorke(R), Geoffrey Beene(R), G.H. Bass(R), Izod(R) and White Stag(R). Our products sold under retailer private
brands generally produce lower gross margins than branded products, but also require lower selling, general and administrative
expenses. Sales of retailer private brands accounted for approximately 25%, 29% and 35% of net sales during fiscal 2000, 2001 and
2002, respectively.
Other Licensed Brands. An important component of the branded position of our product line feature brands that we license
from third parties. Our other principal licensed brands include Bill Blass(R)and Van Heusen(R). Licensed brands are an important part
of the breadth of our portfolio of brands and our penetration of all retail distribution channels. Sales of products bearing
licensed brands represented approximately 13%, 9% and 7% of net sales for fiscal 2000, 2001 and 2002, respectively.
Customers and Value-Added Services
General. We market our products across all major apparel retail channels including department stores, discounters and mass
merchants, wholesale clubs, national chains, specialty stores, catalog retailers, our retail outlet stores and the Internet. Sales
to our five largest customers represented approximately 51.8%, 58.2% and 55.3% of net sales during fiscal 2000, 2001 and 2002,
respectively. Sales to Wal-Mart accounted for approximately 13.4%, 15.3% and 14.7% during fiscal 2000, 2001 and 2002, respectively.
Sales to Sam's Club, the national's largest chain of wholesale clubs, accounted for approximately 12.6%, 17.6% and 13.4% during
fiscal 2000, 2001 and 2002, respectively. We also sell our products to other major retailers including Kohl's, Dillard's, J.C.
Penney, Phillips-Van Heusen Retail Outlets, Federated, Belk, May Company, Saks, BJ's, Mervyns' and Costco and with our acquisition of
Duck Head, we operate a chain of 16 retail outlet stores.
The following table sets forth net sales trends by distribution channel:
Fiscal 2000 Fiscal 2001 Fiscal 2002
Department Stores 38% 33% 27%
Discounters and Mass Merchants 23 23 23
Wholesale Clubs 18 21 17
National Chains 9 9 14
Outlet & Other 8 8 7
Specialty Stores 4 6 10
Our Retail Outlet Stores -- -- 2
-------------- --------------- --------------
100% 100% 100%
============== =============== ==============
Customer Service and Support. We offer our customers comprehensive brand management programs, which provide:
o Product design, merchandise planning and support;
o Value-added services, such as sales and pricing strategy, point-of-sale advertising, custom labeling and packaging design, just-in-
time electronic order execution, and retail profitability analysis; and
o Access to advanced sales forecasting and inventory management systems and Internet order fulfillment.
We believe that close collaboration with our customers provides our 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, we provide the customer the opportunity to benefit from our substantial expertise in designing,
packaging and labeling high quality products, our consumer purchasing data and experience, our merchandise, brand and category
management capabilities and expertise in tracking and evaluating consumer trends and preferences. In addition, we offer each of our
existing and prospective customers a marketing plan tailored to the customer's market niche. Using our marketing data and industry
experience, we are able to create for each customer and each product, a plan that outlines optimum volume and pricing strategies, as
well as sell-through, expected markdowns and profit margins.
Stock Replenishment Program. Accurate and timely order execution is achieved through an electronic data interchange order
entry or EDI, and quick replenishment of core SKUs. Substantially all orders are placed via EDI and orders are executed utilizing
fully integrated inventory management and order fulfillment technology. We strive to ship orders over 95% complete within the
shipping window specified by the customer. Our systems also enable us to track point-of-sale activity by SKU and forecast consumer
demand and seasonal inventory requirements on a real-time continuous basis. We believe that our advanced technology and systems
enhance the value of our products and customer service and provide the platform to support our expanding category management and
vendor-managed inventory programs.
Product Labeling and Packaging. We differentiate our products through customized labeling, point-of-sale packaging and
other brand identification techniques. For most of our customers, we manage 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. We primarily ship products directly to our
customers' retail stores in floor-ready form and offer innovative packaging and displays.
Under our national brand programs, including Savane(R), Farah(R) and Duck Head(R), products are labeled at garment assembly
factories. Under our private brand programs, most products are delivered to our Fast Track Centers without customer-specific
labeling and packaging, which is then added to the product only after we receive a customer's confirmed purchase order. This common
finished goods strategy enables us to minimize inventory risk by selling the same product under customer-specific marketing packages
to different retailers in every distribution channel and offers quick-response execution of customer orders without the associated
risk of carrying customer-specific inventories. Under certain circumstances and on a limited basis, we will apply a
customer-specific label to the product during the production process.
Salesforce. Our products are principally sold by our experienced in-house sales and marketing associates located across the
United States and internationally. We also maintain customer focused sales and marketing support teams dedicated to analyzing sales
and marketing data.
Our Retail Outlet Stores. We operate 16 retail outlet stores located in nine states, all of which are leased properties.
These stores, which are located primarily in outlet malls in suburban locations, sell principally Duck Head(R)branded products. We
are in the process of closing certain unprofitable retail outlet stores. We will not expand our retail outlet stores and we are
currently evaluating our long-term strategy with respect to existing stores.
Products and Sourcing
General. We purchase our raw materials, including fabrics, principally from sources in the United States. We currently cut
our fabric at our Tampa facility before offshore assembly and finishing in Mexico and the Caribbean Basin. We believe that the use
of independent assembly contractors to assemble components cut at our facility enables us to provide customers with high quality
goods at significantly lower prices than if we operated our own assembly facilities. We also source approximately one-third of our
products through the use of full-package imports from independent manufacturers located in the Pacific Rim, the Middle East and
Mexico.
Purchasing. We principally purchase raw materials, including fabrics, thread, trim and labeling and packaging materials,
from domestic sources based on quality, pricing and availability. Although we have no long-term agreements with any of our
suppliers, we believe that generally we have the flexibility, if needed, to replace a supplier with minimal disruption to our
business. We generally undertake a quality audit at our major suppliers prior to shipment to assure that quality standards are met
and to avoid unnecessary delays. An additional quality audit is performed upon receipt of all raw materials. We project 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. We utilize advanced computerized equipment for spreading, marking and cutting fabric. Our 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 us to utilize approximately 91% 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 assembly contractors, principally in Mexico, the
Caribbean Basin and Central America, for assembly and finishing. There are no formal arrangements regarding the production of
garments between us and any of our independent assembly contractors, but we believe that our relationships with our contractors are
generally good. Using independent assembly contractors allows us to shift our 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. We arrange for the assembly or production of our products primarily based on orders
received. We inspect 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. We currently have a team of full-time production and
quality control personnel on-site in Mexico and the Caribbean Basin.
Finished Goods Sourcing. We utilize over 50 factories in various countries and conduct human rights audits in each of the
factories we use. All garments are produced according to our specifications and product quality is monitored at the factories. With
the acquisition of Duck Head in August 2001, we have expanded our sourcing of complete garment packages for selected product styles.
Import Regulations
Products imported from our source countries are subject to U.S. Customs duties at applicable Normal Trade Relations or
Column 1 duty rates. These tariffs generally range between 10% and 30%, depending upon the nature of the garment (e.g., shirt,
pant), its construction and its chief weight by fiber. A typical duty rate applicable to our imported men's cotton pants is
approximately 17%. In accordance with the Agreement on Textiles and Clothing of the World Trade Organization, the U.S. has entered
into bilateral trade agreements with certain apparel producing countries to limit the quantity of garments that may be imported
annually from each such country. These limits, or quotas, apply to a broad range of garments and are often competitive, particularly
as applied to Asian countries, thus affecting annual sourcing patterns and prices for garments internationally. Effective January 1,
2005, the U.S., with few exceptions, is obligated to remove quotas applicable to garments from all World Trade Organization member
countries, including China and certain other Asian countries. See "Risk Factors - The integration on January 1, 2005, of all textile
and apparel quotas under the World Trade Organization Agreement on Textiles and Clothing could reduce the competitiveness of apparel
assembled in Mexico and the Caribbean Basin under our current business model."
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 United
States fabric and U.S. yarn. The CBTPA legislation will be effective through September 30, 2008. Prior to this legislation, most
of the merchandise we sourced from these Caribbean Basin countries was admitted in the U.S. with a substantial tariff reduction under
the so-called "807" program. 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. As a result of this legislation, American apparel
companies have increasingly utilized production facilities located in the Caribbean Basin, including the Dominican Republic. We
believe 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.
We also import 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.
Human Rights Policy
We have 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.
Our policy focuses on working conditions at the independent assembly contractors utilized by us 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) our associates or our agents routinely visit each independent contractor plant, (2) our management 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 us. We will promptly discontinue production with any independent contractor that does
not comply with the policy.
Management Information Systems
We believe that advanced information processing is critical to our business. Our philosophy is to utilize modern technology
where it will enhance our competitive position. Consequently, we continue to upgrade our management information systems in order to
maintain better control of our inventory and to provide management with information that is current and accurate. Our management
information systems provide, among other things, comprehensive order processing, production, accounting and management information
for our marketing, manufacturing, importing and distribution functions. To support our flexible inventory replenishment program, we
have an EDI system through which customer inventories can be tracked and orders automatically placed with us by the retailer. In
addition, our systems were designed to continually add new brand programs and customer information quickly and reliably without
disruption to our existing operations.
Competition
The apparel industry is highly competitive and we compete 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 we compete are the United States, Europe, Canada, Mexico, Australia and New Zealand.
Many of our competitors and potential competitors have greater financial, manufacturing and distribution resources than we do. We
believe that we compete favorably on the basis of the quality and value of our programs and products and the long-term customer
relationships we have 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 our business and results of operations.
Personnel
At November 30, 2002, we had 1,450 associates, including 1,232 in the United States, 25 in the Dominican Republic, 64 in
Mexico, 91 in the United Kingdom, 30 in Australia, and eight in New Zealand. Approximately 8% of our employees are members of the
Union of Needletrades Industrial and Textile Employees. The collective bargaining agreement with these employees expires in February
2003. We consider our relations with our employees to be generally good.
We are committed to developing and maintaining a well-trained workforce. We provide or pay for thousands of hours of
continuing education annually for our employees on subjects ranging from computers to foreign languages. We are equally committed to
the well-being of our employees. We offer our 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. We also offer tuition
reimbursement. We maintain a recreation area, health club facilities and a hair salon in Tampa for the use and enjoyment of our
employees and their families. We also enjoy long-standing relationships with certain of our independent assembly contractors in the
Dominican Republic and Mexico and have contributed financial resources to improving conditions for their employees.
Trademarks and Licenses
We hold or have applied for over 750 United States and worldwide trademark registrations covering our various brand names
including Savane(R), Farah(R), Duck Head(R), Flyers(TM), The 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, we have the exclusive rights to use, (i) the Bill Blass(R)trademark with respect
to men's casual pants, shorts and jeans in the United States and Canada, (ii) the John Henry(R)trademark with respect to men's
bottoms and coats in the United States and Canada, and (iii) the Van Heusen(R) trademark with respect to men's pants, jeans and
shorts in the United States and Canada. 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 expired in December 2002, and we have chosen not to renew it. The license agreement with respect to the Van
Heusen(R) trademark expires in 2004 and is subject to renewal options to be negotiated between the parties. In October 2000, we
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, we have the exclusive worldwide license to design, manufacture and market men's and women's apparel products
under the Victorinox(R) brand. We are currently evaluating our long-term strategy with this brand.
Seasonality
Historically, our business has been seasonal, with higher sales and income in the second and third fiscal quarters. In
addition, certain of our products, such as shorts and corduroy pants, tend to be seasonal in nature. In the event such products
represent a greater percentage of our sales in the future, the seasonality of our sales may be increased.
Backlog
In advance of the month in which units are to ship, we receive "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 we currently have may not be indicative of future sales. This increases the difficulty in forecasting the demands of our
customers.
Item 2. Properties
Our corporate headquarters are located in Tampa, Florida and are owned by us. We consider both our domestic and
international facilities to be suitable and adequate to meet our 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 our
Business and Prospects."). The following table reflects the general location, use and approximate size of our 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 (2)
El Paso, Texas Fabric cutting facility 205,000 Leased (2)
Santa Teresa, New Mexico Distribution center 250,000 Leased
New York, New York Two offices/Showrooms 8,000 Leased
Chihuahua, Mexico Office/Warehouse 73,800 Owned (3)
Auckland, New Zealand Office/Warehouse 9,000 Owned
Sydney, Australia Office/Warehouse 29,000 Leased
Witham, United Kingdom Office/Distribution center 57,000 Leased
_________________________
Our 16 Duck Head retail outlet stores consist of approximately 46,000 square feet of leased property in nine states. These leases
expire at various dates through 2007. We are currently constructing a new 118,000 square foot administration building in Tampa,
Florida which is expected to be completed by March 2003.
(1) See Note 6 of Notes to Consolidated Financial Statements for a discussion of lease terms.
(2) Currently unoccupied and available for sublease.
(3) Currently unoccupied and for sale.
Item 3. Legal Proceedings
We are not a party to any legal proceedings other than various claims and lawsuits arising in the normal course of
business. Our management does not believe that any such claims or lawsuits will have a material adverse effect on our financial
condition.
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 our executive officers, and the positions and offices currently held by
each of them:
Name Age Position(s)
Christopher B. Munday 38 Chief Executive Officer, President and Director
N. Larry McPherson 39 Executive Vice President, Chief Financial Officer and Treasurer
Richard J. Domino 54 Executive Vice President, President, Private Brand Division
Michael R. Mitchell 49 Executive Vice President, President, Branded Division
Gregory L. Williams 49 Executive Vice President, General Counsel and Director
Christopher B. Munday was appointed President of our company in July 2001 and Chief Executive Officer in November 2002, and
has served as a Director since November 2001. He joined our company as Managing Director of our European Division in June of 1999.
Prior to joining our 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 diploma in marketing, a B.A. Honors degree in
business and an M.B.A. Mr. Munday has served as a member of a school board, a member of the Institute of Sales and Marketing and is
currently a member of the Institute of Directors.
N. Larry McPherson has served as our Executive Vice President and our Treasurer since December 1997. He has also served as
our Chief Financial Officer since May 2002. Previously, Mr. McPherson was an audit Senior Manager at Ernst & Young LLP. He has a
Masters of Business Administration from the University of South Florida and is a CPA in the State of Florida.
Richard J. Domino joined our company in 1988 and has served as our Executive Vice President and President of our Branded
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 our Executive Vice President and President of our Branded 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 from 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 serves as Executive Vice President, General Counsel and Corporate Secretary. He joined our company in
July 1999 as Executive Vice President and General Counsel. In July 2002, Mr. Williams was appointed by the Board of Directors to
replace Mr. Michael Kagan as a director and also replaced Mr. Kagan as Secretary of our company. Prior to joining our company, Mr.
Williams practiced commercial law in Tampa, Florida for 18 years. Mr. Williams served as local counsel to our company for three
years prior to joining our company as an employee. Mr. Williams has been a member of the Florida Bar since 1981 and is admitted to
the practice before the Supreme Court of the United States, various lower federal courts, the Supreme Court of Florida and the lower
state courts.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
Our common stock began trading on the Nasdaq National Market under the symbol "TSIC" on October 28, 1997. The initial
public offering price of our common stock was $12.00 per share. At December 17, 2002, there were approximately 80 record holders of
our common stock, and we estimate that there were approximately 1,500 beneficial holders on the same date. The following table sets
forth the quarterly high and low sale prices per share of our common stock as reported by the Nasdaq National Market for the last two
fiscal years.
Fiscal Year Ended
September 29, 2001 High Low
First Quarter $19.50 $12.50
Second Quarter $19.50 $13.75
Third Quarter $21.10 $16.80
Fourth Quarter $21.60 $14.00
Fiscal Year Ended
September 28, 2002 High Low
First Quarter $19.66 $15.50
Second Quarter $24.47 $18.55
Third Quarter $29.55 $21.00
Fourth Quarter $24.25 $14.25
The transfer agent and registrar for our Common Stock is Computershare Investor Services, LLC, Dallas, Texas.
We have not declared or paid any cash dividends on our common stock since 1989. We currently anticipate that all of our
earnings will be retained for the continued development and expansion of our business and do not anticipate declaring or paying any
cash dividends in the foreseeable future. Moreover, our various existing debt facilities 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 our audited
consolidated financial statements for each of the five fiscal years in the period ended September 28, 2002. You should read the
following consolidated financial information together with our consolidated financial statements and the related notes in Item 15 of
this report, and the information under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in
Item 7 of this report.
Fiscal Year Ended
----------------- --------------- ---------------- ------------ -------------
September 28, September 29, September 30, October 2, October 3,
Statements of Income Data: 2002 2001 2000 1999 1998
------------------------------------------ ----------------- --------------- ---------------- ------------ -------------
Net sales................................. $463,877 $436,436 $472,985 $420,691 $263,976
Gross profit.............................. 128,407 124,556 137,522 117,922 68,889
Selling, general and administrative
expenses............................. 97,157 88,509 88,719 80,511 43,204
Other charges............................. 16,130 2,774 1,006 3,999 -
Operating income.......................... 15,120 33,273 47,797 33,412 25,685
Interest expense, net..................... 12,955 15,261 17,351 18,586 6,866
Other, net................................ (1,002) 989 1,251 973 1,036
Income before income taxes................ 3,167 17,023 29,195 13,853 17,283
Income before extraordinary item 1,909 10,430 17,503 8,251 10,802
............
Extraordinary item........................ 412 800 - - -
Net income................................ 2,321 11,230 17,503 8,251 10,802
Income per common share before
extraordinary item-diluted................ $ 0.22 $ 1.34 $ 2.27 $ 1.05 $ 1.43
Extraordinary item........................ 0.04 0.11 - - -
Net income per common share-diluted...... $ 0.26 $ 1.45 $ 2.27 $ 1.05 $ 1.43
Weighted average number of shares
used in the calculation - diluted (1) 8,857,000 7,771,000 7,725,000 7,838,000 7,550,000
As of Fiscal Year Ended
----------------- --------------- ---------------- ------------ -------------
September 28, September 29, September 30, October 2, October 3,
Balance Sheet Data: 2002 2001 2000 1999 1998
------------------------------------------ ----------------- --------------- ---------------- ------------ -------------
Working capital........................... $166,214 $130,905 $111,627 $120,041 $107,397
Total assets.............................. 336,208 309,230 294,528 289,322 297,476
Long-term debt and obligations
under capital leases................. 110,173 151,314 145,541 170,894 171,494
Shareholders' equity...................... 156,372 86,267 75,834 59,823 50,964
_______________
(1) Computed on the basis described in Notes to Consolidated Financial Statements. Rounded to the nearest thousand.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
We manage the production of a majority of our products utilizing our facility in Tampa, Florida and through independent
assembly contractors located primarily in Mexico, the Caribbean Basin and Central America. We also source finished goods from
independent suppliers. For goods assembled by independent manufacturers, we purchase and inventory all of our raw materials and cut
our fabric in our Tampa cutting facility based on expected customer orders. We ship 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. We have no material contractual
arrangements with our independent manufacturers and pay them based on a specified unit price for actual first-quality units
produced. Accordingly, a substantial portion of our production labor and overhead is variable. We ship assembled goods from Mexico,
the Caribbean Basin and Central America to our Tampa, Florida and Santa Teresa, New Mexico distribution centers via common carrier.
Upon receipt of a customer order confirmation, we ship the product directly to customers or, in the case of private brand products,
attach designated labels and point-of-sale packaging and then ship the product to our customers.
Our results of operations for fiscal 2001 and 2002 were adversely impacted by negative economic trends including increasing
unemployment, declines in the U.S. equity markets and decreased consumer confidence. During these periods, apparel retailers sought
to increase consumer demand and reduce inventories with aggressive price discounting, particularly in the department store channel.
In addition, certain producers made brands available to mass merchants and discounters that normally were distributed through
department and specialty stores. Although our margins did decline during this period, we maintained our strategy not to sacrifice
product quality, customer service and profitable results.
Additionally, sales of our Savane(R)brand have declined significantly since the beginning of fiscal 2000 due to declines in
the department store channel where the Savane(R)product is generally sold. We have expanded our distribution of the Savane(R)brand
through major new core replenishment programs with J.C. Penney, Kohl's and Mervyn's. These programs, which began shipping in fiscal
2002, are expected to reverse the pattern of Savane's recent declines.
Savane Consolidation
On April 17, 2002, we announced a plan to consolidate the administrative, cutting and related functions of our Savane
division in El Paso, Texas into our Tampa, Florida facility. We intend to complete all aspects of this consolidation by March 2003.
As part of the consolidation, we have vacated our El Paso, Texas administration building and cutting facility. We are currently
constructing additional administrative offices in Tampa, Florida, and the current Tampa, Florida cutting facility has sufficient
capacity to accommodate the consolidated cutting operation. We will continue to operate our distribution center in the El Paso,
Texas area. We have recently encountered difficulties in the consolidation of our El Paso operations, particularly related to our
cutting operations. This has caused delays in delivering products to our customers, and negatively impacted our results for our
first quarter of fiscal 2003. We anticipate, however, that these difficulties will be resolved during our second quarter of fiscal
2003.
We also announced the reorganization of our South Pacific division, including discontinuing production in factories in Fiji
that are partially owned by us. Production for our South Pacific division will be sourced globally through lower cost, full packaged
imports.
As a result of these initiatives (internally referred to as "Project Synergy"), we recorded a pre-tax charge totaling
approximately $16.1 million in fiscal 2002 for severance ($3.1 million), relocation ($2.5 million), lease terminations ($2.8
million), asset write-downs ($5.7 million) and other related costs ($2.0 million). We expect an additional $2.0 million of costs
associated with Project Synergy to be incurred in fiscal 2003. As of September 28, 2002, we have approximately $4.3 million of
expenses accrued, related to exit costs, which primarily consist of lease terminations, severance and related expenses. Except for
the lease termination costs, these costs are expected to be paid during fiscal 2003. Once completed, the impact of these initiatives
is expected to generate annual pre-tax cost savings of approximately $4.5 million beginning in fiscal 2003. We believe that Project
Synergy will improve our ability to service our customers through one centralized location.
The following discussion and analysis of our results of operations is based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our
consolidated financial statements in conformity with generally accepted accounting principles requires that we make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. These estimates and assumptions are based on historical and other factors believed to be reasonable under
the circumstances, the results of which form the basis for making judgments about the carrying values of asset and liabilities that
are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions
or conditions. We have chosen accounting policies that we believe are appropriate to accurately and fairly report our operating
results and financial position, and we apply those accounting policies in a consistent manner.
Critical Accounting Policies
Contingencies - We accrue for contingent obligations, including estimated legal costs, when the obligations are probable and
the amount is reasonably estimable. As facts concerning contingencies become known, we reassess our estimates and make appropriate
adjustments to the financial statements. Estimates that are particularly sensitive to future changes include tax, legal and other
regulatory matters such as import and export tariffs, which are subject to change as events evolve and as additional information
becomes available during the administrative and litigation process.
Inventories - Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out
method. We evaluate our inventory by style, color and size to determine excess or slow moving product based on projected sales. We
record provisions for markdowns and losses on excess and slow-moving inventory to the extent the cost of inventory exceeds estimated
net realizable value. If actual market conditions or competitive pressures change, the level of inventory reserves would change.
Reserve for Allowances and Doubtful Accounts - Accounts receivable consists of amounts due from our customers from our
normal business activities. We maintain a reserve for allowances and doubtful accounts, which is based on historical collection and
deduction write-off experience, and an estimate of potential sales returns. Estimates for sales returns include provision for order
shortages, purchase order variances and other customer discrepancies. For fiscal 2002, we have not provided a reserve for credit
losses as substantially all of our receivables were assigned under factoring agreements, without recourse, except for credit losses
on the first 0.10% of amounts factored. During fiscal 2003, we intend to discontinue factoring of our receivables, but expect to
maintain credit insurance for those accounts which we deem necessary. We will continue to assess the adequacy of our reserves based
on qualitative and quantitative measures.
Long-Lived Assets - We estimate the depreciable lives of our property, plant and equipment and review them for impairment
when events or circumstances indicate that their carrying amounts may be impaired. Most of our property, plant and equipment are
used in our cutting and distribution processes. We periodically evaluate the carrying value of assets which are held for sale to
determine if, based on market conditions, the values of these assets should be adjusted. Although we believe we have appropriately
recorded our assets held for sale at their estimated fair value, net of estimated disposal costs, the actual sale of these assets
could result in gains or losses which could differ from our estimated amounts. To assess the recoverability of goodwill and other
intangible assets, we make assumptions regarding estimated future cash flows and other factors to determine whether the carrying
values are recoverable from operations. If these assumptions or estimates change, we may be required to record impairment charges to
reduce the value of these assets.
As discussed in the Notes to the Financial Statements, we adopted Financial Accounting Standard No. 142, "Goodwill and Other
Intangible Assets" ("Statement No. 142") on September 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
are tested for impairment. The provisions of Statement No. 142 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. Also,
Statement No. 142 requires an annual impairment test. In accordance with the provision of Statement No. 142, we performed the
transitional and annual impairment tests during fiscal 2002. The results of these tests indicate that goodwill and other indefinite
lived intangible assets are not impaired, as the fair value of these assets exceed their carrying value.
Valuation Allowances for Deferred Tax Assets - Valuation allowances are recorded to reduce deferred tax assets if, based on
the weight of the evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The evidence
considered in making that determination includes, offsetting deferred tax liabilities, future taxable income, as well as prudent tax
planning strategies. We have recorded deferred income tax assets related to state net operating loss carryforwards, foreign net
operating loss carryforwards, foreign tax credit carryforwards and certain other accruals. We have recorded valuation allowances to
reduce the deferred tax assets relating to these operating loss carryforwards and accruals based on an evaluation of the benefits
expected to be realized. If we determine that we would be able to realize more of our net deferred tax assets than we currently
expect, we would reduce the valuation allowance, which would have the effect of increasing income in the period that we make the
determination. Conversely, if we determine that we will not be able to realize all or part of our net deferred tax assets in the
future, we will increase the valuation allowance, which would have the effect of reducing income in the period that we make the
determination.
The following discussion of our results of operations and financial condition should be read in conjunction with our
consolidated financial statements and notes thereto contained in Item 14 of this report.
Results of Operations
The following table sets forth, for the periods indicated, selected items in our consolidated statements of operations
expressed as a percentage of net sales:
Fiscal Year Ended
---------------------------------------------------------
September 28, September 29, September 30,
2002 2001 2000
Net sales.............................. 100.0% 100.0% 100.0%
Cost of goods sold..................... 72.3 71.5 70.9
----- ----- -----
Gross profit........................... 27.7 28.5 29.1
Selling, general and
administrative expenses............ 20.9 20.3 18.8
Other charges.......................... 3.5 0.6 0.2
----- ----- -----
Operating income....................... 3.3 7.6 10.1
Interest expense, net.................. 2.8 3.5 3.7
Other expense, net..................... (0.2) 0.2 0.2
----- ----- -----
Income before income taxes............. 0.7 3.9 6.2
Provision for income taxes............. 0.3 1.5 2.5
Income before extraordinary item....... 0.4 2.4 3.7
----- ----- -----
Extraordinary item..................... 0.1 0.2
----- ----- -----
Net income............................. 0.5% 2.6% 3.7%
===== ===== =====
Fiscal 2002 Compared to Fiscal 2001
Net Sales. Net sales for fiscal 2002 increased to $463.9 million from $436.4 million for fiscal 2001. This increase was
primarily due to an 18% increase in units sold, a small portion of which related to sales of Duck Head(R)branded product, which was
acquired in August 2001. This increase was offset by a decrease in average selling prices. The decrease in average selling prices
was due to our experiencing pricing pressure due to the weak retail conditions. Additionally, the average selling price was impacted
by a change in mix of product sales as the higher average selling priced Savane(R)products experienced declines in unit volume as the
department store channel that Savane was positioned in suffered declines in sales. We have expanded our distribution of the Savane(R)
brand through major new core replenishment programs with retailers. The new expanded distribution is expected to offset some of
Savane's recent adverse trends in the declining moderate department store retail sector where Savane has traditionally been
positioned. These programs, which began shipping in fiscal, are expected to reverse the pattern of Savane's recent declines. We also
anticipate that fiscal 2003 first quarter net sales will be negatively impacted by difficulties encountered in the consolidation of
our El Paso operations, particularly related to our cutting operations.
Gross Profit. Gross profit increased to $128.4 million, or 27.7% of net sales, for fiscal 2002, from $124.6 million, or
28.5% of net sales, for fiscal 2001. The decrease in gross margin was primarily due to continued competitive pricing pressure and a
higher mix of lower margin styles.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $97.2 million, or
20.9% of net sales, for fiscal 2002, from $88.5 million, or 20.3% of net sales, for fiscal 2001. The increase in operating expense
as a percentage of net sales was primarily due to the higher relative operating expenses associated with the Duck Head(R)and
Victorinox(R)branded components of the business. We are currently evaluating our long-term strategy with the Victorinox(R) brand and
with our retail outlet stores.
Other Charges. Other charges of $16.1 million in fiscal 2002 relate to Project Synergy and include reserves for severance,
lease terminations, asset write-downs and other related costs. Other charges of $2.8 million in fiscal 2001 relate to severance,
in-process research and development acquired in connection with the Victorinox(R)license, costs related to closure of a sewing plant
in Chihuahua, Mexico, and costs related to the unsuccessful pursuit of an acquisition.
Interest Expense, net. Interest expense decreased to $13.0 million for fiscal 2002 from $15.3 million for fiscal 2001. The
decrease was primarily due to lower average interest rates and to a reduction of outstanding borrowings under our revolving credit
line during our fourth quarter.
Other, net. During fiscal 2002, we recorded other income of $1.0 million as compared with other expense of $989,000 for
fiscal 2001. The change consisted primarily of lower amortization expense and higher royalty income offset in part by higher factor
fees. In accordance with Statement No. 142, we discontinued the amortization of our intangible assets effective September 30, 2001.
Income Taxes. Our effective income tax rate for fiscal 2002 was 39.7% compared with 38.7% for fiscal 2001. The overall
increase was due to changes in permanent items related to deferred tax asset valuation allowances and to other transactions related
to certain of our foreign entities. This increase was offset in part by the elimination of non-deductible goodwill amortization.
Extraordinary Item. We recorded an extraordinary gain in fiscal 2002 of $412,000 related to the final purchase accounting
adjustments associated with our acquisition of Duck Head in August 2001.
Net Income. As a result of the above factors, including the charges related to Project Synergy, we had net income of $2.3
million for fiscal 2002, or 0.5% of net sales, compared with $11.2 million, or 2.6% of net sales for fiscal 2001.
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, we recorded pre-tax charges of approximately $596,000 for severance related to a 160
associate 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 our sewing plant in Chihuahua, Mexico. We also incurred pre-tax costs of
approximately $430,000 related to the pursuit of certain assets of Bugle Boy Industries, Inc. During fiscal 2000, we recorded a
pre-tax charge of $1.0 million related to severance for the former Chief Executive Officer of Savane.
Interest Expense, net. 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 our credit facility, and to a lesser extent, to lower
interest rates.
Income Taxes. Our 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 that we implemented, which serve to reduce taxable income in
various states within which we operate.
Extraordinary Item. We 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 we paid. The preliminary fair value estimates were subject to change, and subsequent
changes were reflected as additional extraordinary gain in fiscal 2002.
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.
Liquidity and Capital Resources
Our primary capital requirements are funding our growth in operations and capital expenditures. We have historically
financed our growth in sales and the resulting increase in inventory and receivables through a combination of operating cash flow and
borrowings under our revolving credit line. Consistent with industry practice, we are often required to post letters of credit when
placing an order with certain international manufacturers.
In June 2002, we completed a public offering of 3.0 million shares of common stock. We received net proceeds of
approximately $63.2 million, of which approximately $32.0 million was used to repay all outstanding borrowings under our revolving
credit line (the "Facility"), to pay down a portion of our real estate loan, and to repay certain capital lease obligations. The
remaining $31.2 million is being used for the payment of the cash portion of the Project Synergy charges, the construction of a new
administration facility in Tampa, Florida and for working capital and general corporate purposes, including acquisitions.
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 and are secured by substantially all of our domestic assets. As of September 28, 2002,
there were no outstanding balances on the Facility. The Facility matures in June 2003. We cannot be assured that we will be able to
obtain replacement financing at that time or that any available replacement financing will be on terms acceptable to us.
On May 28, 1999, we entered into a real estate loan ("Real Estate Loan") agreement secured by our distribution center,
cutting facility, and administrative offices in Tampa, Florida. The Real Estate Loan was used to refinance $9.5 million outstanding
on our previous real estate loan and to finance up to $6.0 million of the costs related to an expansion of our Tampa, Florida
distribution facility. In March 2000, the Real Estate Loan was converted to a secured term loan. Principal and interest payments
were paid monthly on the refinanced amount through June 2002. On June 26, 2002, the terms of the Real Estate Loan were amended and
the loan now requires the payment of monthly interest only, with the remaining outstanding principal of $7.0 million 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 (4.0% at September
28, 2002). 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 (8.6% at September 28, 2002). As
of September 28, 2002, the combined effective interest rate on the Real Estate Loan was approximately 7.9%.
We have $100 million of senior subordinated notes (the "Notes") outstanding that were issued through a private placement.
Under the terms of the indenture governing the Notes, we are 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.
Our credit agreements contain significant financial and operating covenants, including prohibitions on our ability to incur
certain additional indebtedness or to pay dividends, and restrictions on our ability to make capital expenditures. Our Facility and
Real Estate Loan also require that we maintain certain financial ratios, including a consolidated fixed charge ratio of at least
1.25x, a ratio of consolidated senior indebtedness to consolidated EBITDA of not more than 2.5x and a ratio of consolidated funded
debt to consolidated EBITDA of not more than 5.5x. We are currently in compliance with all covenants under our credit agreements.
Our credit agreements also contain customary events of default, including nonpayment of principal or interest, violation of
covenants, inaccuracy of representations and warranties, cross-defaults to other indebtedness, bankruptcy and other insolvency
events, material judgments, certain ERISA events and certain changes of control at our company. The occurrence of a default, an
event of default or a material adverse effect on our company could result in our inability to obtain further borrowings under our
Facility and could also result in the acceleration of our obligations under any or all of our credit agreements, each of which could
materially and adversely affect our business.
During fiscal 2002, pursuant to two separate factoring agreements, we factored substantially all our accounts receivable.
The factoring agreements provided that the factor pay us an amount equal to the gross amount of our accounts receivable from
customers, reduced by certain offsets, including, among other things, discounts, returns and a commission payable by us to the
factor. In fiscal 2002, the commission averaged 0.23% of the gross amount factored. The factor subjected all sales to its credit
review process and assumed 99.9% of the credit risk for amounts factored pursuant to the factoring agreements. Funds were
transferred to reduce outstanding borrowings under the Facility once payment was received from the factor. The factor paid us the
receivable amount upon the earlier of (1) receipt by the factor of payment from our customer or (ii) 120 days past the due date for
such payments. During fiscal 2003, we intend to discontinue factoring of our receivables, but expect to maintain credit insurance for
those accounts which we deem necessary. We will continue to assess the adequacy of our reserves based on qualitative and quantitative
measures.
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 our capital resources. Specifically, we have chosen to exit certain leased facilities. The
payment of lease termination costs will use cash. As of September 28, 2002, we had exit related accruals of $213,000. We plan to
complete our exit plans by December 2002.
We have historically financed our capital expenditures through a combination of operating cash flow and long-term
borrowings. Capital expenditures were $11.0 million for fiscal 2002 and primarily related to the construction of an administration
building in Tampa, Florida, which is expected to be completed during the second quarter ended March 2003, and the upgrade or
replacement of various other equipment and computer systems including hardware and software.
During fiscal 2003, we anticipate capital expenditures will be approximately $20 million. Significant capital projects
include the completion of the administration building in Tampa, Florida, and the upgrade or replacement of various other equipment
and computer systems including hardware and software.
During fiscal 2002, we generated $17.8 million of cash from operations. This was primarily the result of net income of $2.3
million (which included non-cash expenses of $8.0 million), a decrease in inventories of $1.9 million, a decrease in prepaid expenses
and other current assets of $6.5 million (which included net cash proceeds of approximately $6.7 million from the sale of the former
Duck Head headquarters and distribution center), and an increase in accounts payable of $4.9 million, offset in part by an increase
in accounts receivable of $5.2 million, and a decrease in accrued expenses and other of $0.6 million.
In connection with Project Synergy, we expect to utilize a total of approximately $14.0 million in cash, related to payments
for employee separations, employee relocation, moving costs and costs to terminate certain operating leases. Except for the lease
termination costs, these costs are expected to be paid during fiscal 2003.
During fiscal 2002, we generated $27.6 million of cash from financing activities, principally related to net proceeds of
$63.2 million from the public offering of 3.0 million shares of common stock in June 2002. Net proceeds from the offering were
utilized to repay certain borrowings noted above.
On September 28, 2002 and September 29, 2001, we had working capital of $166.2 million and $130.9 million, respectively.
The increase in working capital was primarily due to a $37.7 million increase in cash and marketable securities, a $1.7 million net
increase in inventory, a $4.1 million net increase in accounts receivable, and a $1.4 million net decrease in accounts payable and
accrued expenses, offset by a $10.8 million net decrease in prepaid expenses and other current assets. The decrease in prepaid
expenses and other current assets was primarily related to sale of the former Duck Head headquarters and distribution center. We
expect that our working capital needs will continue to fluctuate based on seasonal changes in sales, accounts receivable and trade
accounts payable.
On November 19, 2002, we announced that William W. Compton had agreed to resign as Chief Executive Officer, Chairman and a
member of the Board of Directors. In connection with Mr. Compton's resignation, we entered into a Separation Agreement, General
Release of All Claims and Covenant Not to Sue with Mr. Compton. Pursuant to this Separation Agreement, we paid Mr. Compton severance
of approximately $4.6 million in cash and property in November 2002. We also accrued other related expenses of approximately $1.1
million in connection with Mr. Compton's resignation.
We believe that our existing working capital, borrowings available under our Facility and internally generated funds provide
sufficient resources to support current business activities. To the extent that we seek to accelerate our growth plans, we may need
to raise additional capital either through the issuance of equity or debt securities or additional credit facilities. In addition,
the factors discussed under "Risk Factors Affecting Our Business and Prospects" could significantly impact our liquidity.
Impact of Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB"), issued Statement of Financial Accounting Standard No. 141,
"Business Combinations" (Statement No. 141). 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. The
acquisition of Duck Head in August 2001 was accounted for in accordance with Statement No. 141. On September 30, 2001, we adopted
Statement of Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets" (Statement No. 142). 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 are tested for impairment. The provisions of Statement No. 142 required the completion of a
transitional impairment test within six months of adoption, with any impairment identified as a cumulative effect of a change in
accounting principle. Also, Statement No. 142 requires an annual impairment test. In accordance with the provision of Statement No.
142, we performed these transitional and annual impairment tests during fiscal 2002. The results of these tests indicate that our
goodwill and other indefinite lived intangible assets are not impaired, as the fair value of these assets exceed their carrying
value. Any impairment related to test performed after the transitional impairment test would be recorded as a component of operating
income.
In October 2001, the FASB issued Statement of Financial Accounting Standard No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (Statement No. 144), which is effective for financial statements issued for fiscal years beginning
after December 15, 2001 and interim periods within those fiscal years. Statement No. 144 supersedes Statement of Financial
Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and
provides a single accounting model for long-lived assets to be disposed of. We do not expect the adoption of Statement No. 144 to
have a material impact on our financial position and results of operations.
In April 2002, the FASB issued Statement of Financial Accounting Standard No. 145, "Rescission of FASB Statements No. 4, 44
and 64, Amendment of FASB Statement No. 13, and Technical Corrections" (Statement No. 145), which is effective for fiscal years
beginning after May 15, 2002. This Statement rescinds FASB Statement No. 4, "Reporting Gains and Losses from Extinguishment of
Debt," as well as an amendment of that Statement, FASB Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements," as debt extinguishments are no longer classified as extraordinary items unless they meet the requirements in
Accounting Principles Board Opinion No. 30 of being unusual and infrequently occurring. This Statement also amends other existing
authoritative pronouncements to make various technical corrections. We do not expect the adoption of Statement No. 145 to have a
material impact our financial position and results of operations.
In June 2002, the FASB issued Statement of Financial Accounting Standard No. 146, "Accounting for Costs Associated with Exit
or Disposal Activities" (Statement No. 146), which is effective for exit or disposal activities that are initiated after December 31,
2002. Statement No. 146 nullifies Emerging Issues Task Force No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" (EITF 94-3). Statement No. 146
requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred and
eliminates the definition and requirements of recognition of exit costs in EITF 94-3. The adoption of Statement No. 146 will affect
the timing of recognition of costs associated with any future restructuring activities.
Inflation
The impact of inflation on our operating results has been moderate in recent years, reflecting generally lower rates of
inflation in the economy and relative stability in our cost of sales. While inflation has not had, and we do not expect that it will
have, a material impact upon operating results, there is no assurance that our business will not be materially adversely affected by
inflation in the future.
Risk Factors Affecting Our Business and Prospects
Our financial success is linked to the success of 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 our five largest customers represented approximately 51.8%,
58.2% and 55.3% of net sales during fiscal 2000, 2001 and 2002, respectively. Sales to Wal-Mart accounted for approximately 13.4%,
15.3% and 14.7% of net sales during fiscal 2000, 2001, and 2002, respectively. Sales to Sam's Club accounted for approximately
12.6%, 17.6% and 13.4% of net sales during fiscal 2000, 2001 and 2002, 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 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. Many of our customers are affiliates
of other customers and therefore any impact to our relationship with one customer may impact our relationship with other customers.
The apparel industry is heavily influenced by general economic cycles.
Apparel is a cyclical industry that is heavily dependent upon the overall level of consumer spending. Purchases of apparel
and related goods tend to be highly correlated with cycles in the disposable income of consumers. As a result, any substantial
deterioration in general economic conditions, increase in interest rates or any other events or uncertainties that discourage
consumers from spending could have a significant effect on our sales and profitability. Overall market sales declined in 2000 and
2001 and this trend continued in 2002. This decline has been due in part to declining prices. The calendar year 2001 witnessed a
significant reduction in consumer spending in the retail sector due in part to the recession in the United States and the terrorist
attacks on September 11, 2001. Such conditions may continue or may reoccur. In addition, moderate department stores have
experienced declining sales recently, as consumers' buying habits have changed. This has negatively affected, and may continue to
negatively affect, our sales, particularly our Savane(R)branded programs.
Our business could suffer as a result of consolidations, restructuring and other ownership changes in the retail industry.
Various apparel retailers, including department stores, 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 accounts receivable. 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 domestic and international apparel manufacturers, including brand name and private brand producers and
retailers (including our own customers and vertically integrated specialty stores) who have, or may have, the internal capability to
develop their products and source their products from independent manufacturers. Our products are also in competition with many
designer and non-designer product lines. Our products compete primarily on the basis of price, quality, brand recognition 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. Intense competition in the apparel industry has over the past several years resulted in and
may in the future result in significant discounting and lower gross margins. The price deflation is attributable to increased
competition, increased product sourcing to lower cost countries, growth of the mass merchant channel of distribution and increased
value-consciousness on the part of consumers. This downward pressure on prices may limit our ability to maintain or improve gross
margins. Because of our high debt level, we may also be less able to respond effectively to these developments than our competitors
who have less financial leverage. 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.
The integration, on January 1, 2005, of all textile and apparel quota under the World Trade Organization Agreement on Textiles and
Clothing could reduce the competitiveness of apparel assembled in Mexico and the Caribbean Basin under our current business model.
In accordance with the Agreement on Textiles and Clothing of the World Trade Organization, or WTO, the United States has
entered into bilateral trade agreements with a number of other countries, including China. These agreements limit the amount and
type of goods that may be imported annually from these countries. As a result of trade preference programs with Mexico and the
Caribbean Basin, where we produce and source a majority of our goods, we currently enjoy a competitive advantage over those companies
who import goods from countries that are subject to these quotas. Effective January 1, 2005, the United States, with few exceptions,
is obligated to remove quotas applicable to goods from all WTO member countries, including China. The removal of these quotas will
result in an increase in the amount of goods imported annually from these countries, including China, thereby increasing our
competition and potentially having a material adverse effect on our business, results of operations and financial condition.
We have experienced and may continue to experience delays or other difficulties in consolidating our El Paso, Texas cutting and
administration functions into our Tampa, Florida facilities.
We have experienced delays and difficulties in consolidating our El Paso, Texas cutting and administrative functions into
our Tampa, Florida facilities that have resulted in delays in delivering products to our customers and lost sales in our first
quarter of fiscal 2003. We may continue to experience unanticipated conditions, contingencies, delays and expenses in connection
with the consolidation that would negatively affect our business and results of operations. As a result, we may not achieve our
projected cost savings as soon as anticipated or in the amount anticipated or our costs may be more than anticipated. Additionally,
any problems that we may have delivering products to our customers could damage our relationship with these customers and result in
further lost sales or require us to discount our products to these customers to protect our business relationships.
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 which could result in lost sales. 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 have not entered into
transactions to mitigate or hedge risk relating to fluctuation in price. 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.
We depend upon independent manufacturers in the production of our apparel.
We use independent manufacturers to assemble or produce our products, including the sourcing of full-package imports. 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. In addition, we do not have long-term contracts with any of these independent manufacturers and any
of these manufacturers may unilaterally terminate their relationship with us at any time or seek to increase the prices they charge
us. As a result, we cannot be assured of an uninterrupted supply of acceptable quality products 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.
We require our independent manufacturers to meet our standards for working conditions, environmental protection and other
matters before we are willing to place business with them. As such, we may not be able to obtain the lowest cost production. In
addition, any failure by our independent manufacturers to adhere to labor or other laws, or any divergence of any independent
manufacturer's labor practices from those generally considered ethical in the United States and the potential negative publicity
relating to any of these events could materially harm our business and reputation.
Our ability to successfully conduct assembly and production operations in facilities in foreign countries depends on many factors
beyond our control.
Currently, more than 75% of our products are assembled or produced by independent manufacturers in the Dominican Republic,
Mexico and Central America. The remainder of our products are produced or assembled in other foreign countries. 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. 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 U.S. dollars. If the value of the U.S. 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.
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. In November 2002, William W. Compton, one of our founders and our Chief Executive Officer and Chairman of the Board
resigned. There can be no assurance that current management can continue to manage our business successfully without Mr. Compton or
that Mr. Compton's departure will not cause disruptions in or otherwise negatively affect our business, customer or supplier
relationships or results of operations.
We have a substantial amount of debt and interest payment requirements that will require successful future operating performance and
financial results and that impose important limitations on us.
We have substantial outstanding indebtedness and are highly leveraged. 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 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 payments, there can be no assurance that we will generate cash flow in the future sufficient to cover our fixed charges and
principal payments. If we are unable to generate cash flow in the future sufficient to cover our fixed charges and principal
payments 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 cash flow 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.
Our existing debt facilities 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, make capital expenditures, 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, including acquisitions. 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 our debt and the acceleration of all or a portion of such debt, or result in
bankruptcy.
Our revolving credit facility matures in June 2003 and we cannot be assured that we will be able to obtain replacement
financing at that time or that any available replacement financing will be on terms acceptable to us.
We are subject to changes in the apparel industry, including changing fashion trends and consumer preferences.
The apparel industry has historically been subject to changing fashion trends and consumer preferences. 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 could have a material adverse effect on our business, results of operations and
financial condition.
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 any
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 or
at levels that justify the cost of the acquisition. 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. In addition, we may incur
significant start-up costs in connection with new licenses. Furthermore, we may not meet our minimum sales targets which would
require us to still pay the minimum license fee as well as risk termination of the license agreement.
We compete with other companies who have greater resources than we do for the opportunities to license brands or buy other
brands, 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 or license without success. Future acquisitions could involve the incurrence of significant debt or the
issuance of equity securities which potentially could be dilutive to our earnings.
Our use of our trademarks and trade dress may subject us to claims of infringement by other parties; our trademarks and other
intellectual property may not be adequately protected.
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, we may violate the proprietary rights of others. If we were found to violate the
proprietary rights of others, or any of our trademarks or trade dress were subjected to some other challenge, we cannot assure you
that we would be permitted to continue using these trademarks or trade dress. 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 settle the claim on unfavorable terms or 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 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.
We believe that our trademarks and other proprietary rights are important to our success and our competitive position. We
devote substantial resources to the establishment and protection of our trademarks on a worldwide basis. Nevertheless, we cannot
assure you that the actions we have taken to establish and protect our trademarks and other proprietary rights will be adequate to
prevent limitation of our products by others or to prevent others from seeking to block sales of our products as a violation of the
trademarks and proprietary rights of others. In addition, the laws of certain foreign countries may not protect proprietary rights
to the same extent as do the laws of the United States.
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 the Caribbean Basin Trade Partnership Act, or CPTPA, and the North America Free Trade Agreement, or
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 that are 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, forced indentured
servants or child 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.
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.
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
Our market risk is limited to fluctuations in interest rates as it pertains to our borrowings under the Facility and the
Real Estate Loan. As of September 28, 2002, interest rates on borrowings under our Real Estate Loan were 7.9%. If the interest
rates on our borrowings under our Facility average 100 basis points more in fiscal 2003 than they did in fiscal 2002, our interest
expense would increase and income before income taxes would decrease. Currently, there are no outstanding borrowings under our
Facility. If there were outstanding borrowings under our Facility, the amount of increased interest expense would be determined
solely by considering the impact of the hypothetical change in the interest rate on our borrowing cost without consideration for
other factors such as actions management might take to mitigate its exposure to interest rate changes.
We have 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 Item 15 of this report and is incorporated herein by reference.
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 our Proxy Statement for its Annual Meeting of Shareholders to be held on January 28, 2003 (the "2002 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 our 2002 Proxy Statement is incorporated herein by reference. In no event shall the information contained
in the 2002 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 our 2002 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 our 2002 Proxy Statement is incorporated herein by reference.
Item 14. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and
procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended)
as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"). Based on such
evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of the Evaluation Date, our
disclosure controls and procedures provide reasonable assurance that they are alerted on a timely basis to material
information relating to Tropical Sportswear Int'l Corporation (including its consolidated subsidiaries) required to be
included in our reports filed or submitted under the Securities Exchange Act of 1934, as amended.
(b) Changes in Internal Controls
Since the Evaluation Date, there have not been any changes in our internal controls or other factors that could
significantly affect such controls.
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Index to Financial Statements
Page
Report of Independent Certified Public Accountants 38
Consolidated Balance Sheets 39
Consolidated Statements of Income 40
Consolidated Statements of Shareholders' Equity 41
Consolidated Statements of Cash Flows 42
Notes to Consolidated Financial Statements 43
(a) 2. Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts 67
(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 2002.
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 28, 2002 and September 29, 2001, and the related consolidated statements of income, shareholders' equity, and cash flows for
each of the three fiscal years in the period ended September 28, 2002. Our audits also included the financial statement schedule
listed in the index at Item 15 (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 28, 2002 and September 29, 2001, and the consolidated
results of its operations and its cash flows for each of the three fiscal years in the period ended September 28, 2002, 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.
As noted in Note 1 to the financial statements, during fiscal 2001, the Company adopted certain provisions of Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities and No. 141, Business
Combinations. As noted in Note 1 to the financial statements, during fiscal 2002, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.
/s/ Ernst & Young LLP
Tampa, Florida
November 19, 2002
TROPICAL SPORTSWEAR INT'L CORPORATION
CONSOLIDATED BALANCE SHEETS
September 28, 2002 and September 29, 2001
(In thousands, except share data)
2002 2001
------------------- -------------------
ASSETS
Current assets:
Cash and cash equivalents $ 28,284 $ 1,714
Marketable securities 11,100 --
Accounts receivable, net 91,009 86,908
Inventories, net 74,797 73,083
Deferred income taxes 9,414 15,040
Prepaid expenses and other 13,460 10,829
Assets held for sale - 7,846
------------------- -------------------
Total current assets 228,064 195,420
Property and equipment 83,380 76,305
Less accumulated depreciation and amortization (34,907) (28,864)
------------------- -------------------
48,473 47,441
Other assets 12,345 16,914
Trademarks, net 12,991 12,866
Excess of cost over fair value of net assets of acquired
subsidiary, net 34,335 36,589
------------------- -------------------
Total assets $336,208 $309,230
=================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $40,342 $35,417
Accrued expenses and other 20,257 26,556
Current portion of long-term debt - 1,128
Current portion of obligations under capital leases 1,251 1,414
------------------- -------------------
Total current liabilities 61,850 64,515
Long-term debt 107,000 145,962
Obligations under capital leases 1,922 2,810
Deferred income taxes 2,881 6,402
Other 6,183 3,274
------------------- -------------------
Total liabilities 179,836 222,963
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;
11,040,452 and 7,697,332 shares issued and outstanding in
2002 and 2001, respectively 110 77
Additional paid in capital 88,549 18,851
Retained earnings 72,835 70,514
Accumulated other comprehensive loss (5,122) (3,175)
------------------- -------------------
Total shareholders' equity 156,372 86,267
------------------- -------------------
Total liabilities and shareholders' equity $336,208 $309,230
=================== ===================
See accompanying notes.
TROPICAL SPORTSWEAR INT'L CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Fiscal Year Ended
-----------------------------------------------------------
September 28, September 29, September 30,
2002 2001 2000
----------------- ----------------- -----------------
Net sales $463,877 $436,436 $472,985
Cost of goods sold 335,470 311,880 335,463
----------------- ----------------- -----------------
Gross profit 128,407 124,556 137,522
Selling, general and administrative expenses 97,157 88,509 88,719
Other charges 16,130 2,774 1,006
----------------- ----------------- -----------------
Operating income 15,120 33,273 47,797
Other expenses:
Interest expense 13,349 15,519 17,604
Interest income (394) (258) (253)
Other, net (1,002) 989 1,251
----------------- ----------------- -----------------
11,953 16,250 18,602
----------------- ----------------- -----------------
Income before income taxes and extraordinary item 3,167 17,023 29,195
Provision for income taxes 1,258 6,593 11,692
----------------- ----------------- -----------------
Income before extraordinary item 1,909 10,430 17,503
Extraordinary item-gain on negative goodwill 412 800 --
----------------- ----------------- -----------------
Net income $2,321 $11,230 $17,503
================= ================= =================
Basic net income per share:
Income before extraordinary item $0.22 $1.36 $2.29
Extraordinary item 0.05 0.11 --
----------------- ----------------- -----------------
Net income per share $0.27 $1.47 $2.29
================= ================= =================
Diluted net income per share:
Income before extraordinary item $0.22 $1.34 $2.27
Extraordinary item 0.04 0.11 --
----------------- ----------------- -----------------
Net income per share $0.26 $1.45 $2.27
================= ================= =================
See accompanying notes.
TROPICAL SPORTSWEAR INT'L CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
Accumulated
Other
Additional Compre-
Common Stock Paid In Retained hensive
Shares Amount Capital Earnings Income (Loss) Total
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, 2000 7,638 76 17,830 59,284 (1,356) 75,834
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
Net income -- -- -- 2,321 -- 2,321
Foreign currency
translation adjustment
and other -- -- -- -- (1,947) (1,947)
---------
Total comprehensive income -- -- -- -- -- 374
Common stock issuance, net 3,000 30 63,190 -- -- 63,220
Stock option exercises 343 3 6,508 -- -- 6,511
----------- ---------- ----------- ----------- ------------- ----------
Balance at September 28, 2002 11,040 $110 $88,549 $72,835 ($5,122) $156,372
=========== ========== =========== =========== ============= ==========
See accompanying notes.
TROPICAL SPORTSWEAR INT'L CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Fiscal Year Ended
--------------------------------------------------------
September 28, September 29, September 30,
2002 2001 2000
---------------- --------------- ---------------
Operating activities
Net income $ 2,321 $ 11,230 $ 17,503
Adjustments to reconcile net income to net
cash provided by operating activities:
(Gain) loss on disposal of property and
equipment (504) (142) 19
Depreciation and amortization 7,318 10,149 8,858
Provision for allowances and doubtful accounts 1,129 1,583 73
Change in excess and slow moving inventory
reserve (3,593) (371) (342)
Deferred income taxes 3,079 2,417 2,325
Income tax benefit from exercise of stock options 987 85 66
Extraordinary item-gain on negative goodwill (412) (800) --
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (5,230) 9,767 (16,994)
Inventories 1,879 424 5,769
Prepaid expenses and other assets 6,468 (1,450) 8,530
Increase (decrease) in liabilities:
Accounts payable 4,925 (9,245) 12,600
Accrued expenses and other (617) (4,092) (116)
---------------- --------------- ---------------
Net cash provided by operating activities 17,750 19,555 38,291
Investing activities
Capital expenditure (11,008) (7,882) (11,366)
Acquisition of subsidiary, net of cash acquired -- (12,440) --
Proceeds from sale of property and equipment 570 740 153
Purchase of marketable securities (11,100) -- --
---------------- --------------- ---------------
Net cash used in investing activities (21,538) (19,582) (11,213)
Financing activities
Proceeds from issuance of long-term debt 88 236 5,014
Proceeds from exercise of stock options 5,524 937 229
Proceeds from sale of common stock 63,220 -- --
Principal payments of long-term debt (7,302) (5,470) (1,335)
Principal payments of capital leases (1,821) (1,352) (1,558)
Net proceeds from (repayment of) long-term
revolving credit line borrowings (32,130) 6,445 (27,821)
---------------- --------------- ---------------
Net cash provided by (used in) financing activities 27,579 796 (25,471)
Effect of change in currency translation on cash
and cash equivalents 2,779 (822) (1,447)
---------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents 26,570 (53) 160
Cash and cash equivalents at beginning of year 1,714 1,767 1,607
---------------- --------------- ---------------
Cash and cash equivalents at end of year $ 28,284 $ 1,714 $ 1,767
================ =============== ===============
See accompanying notes.
TROPICAL SPORTSWEAR INT'L CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 28, 2002, September 29, 2001, and September 30, 2000
(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 28, 2002, September 29, 2001, and September 30, 2000 each contain 52 weeks.
Net Income Per Share
Basic and diluted net income per share are computed as follows:
Fiscal Year Ended
----------------------------------------------------------
September 28, September 29, September 30,
2002 2001 2000
---------------- ----------------- ----------------
Numerator for basic and diluted net
income per share:
Net income $ 2,321 $11,230 $ 17,503
Denominator for basic net income per
share:
Weighted average shares of common
stock outstanding 8,665,155 7,656,642 7,627,141
Effect of dilutive stock options
using the treasury stock method 192,344 113,948 97,599
---------------- ----------------- ----------------
Denominator for diluted net income per
share 8,857,499 7,770,590 7,724,740
================ ================= ================
Net income per share:
Basic $0.27 $1.47 $2.29
================ ================= ================
Diluted $0.26 $1.45 $2.27
================ ================= ================
At September 28, 2002, September 29, 2001 and September 30, 2000 there were 1.0 million, 1.4 million and 1.3 million 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 2002, composed primarily of foreign currency translations of $0.8 million and the change
in the Company's minimum pension liability of $2.7 million, totaled $1.9 million, (net of income tax benefit of $1.2 million). 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, totaling $1.8 million, (net of income tax benefit of $1.1 million). For fiscal 2000, other comprehensive loss was
composed exclusively of foreign currency translations of $1.8 million (net of income tax benefit of $1.1 million). Total
comprehensive income amounted to $0.4 million, $9.4 million and $15.7 million, for fiscal 2002, 2001 and 2000, 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. The Company records sales in accordance with SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements." Under these guidelines, revenue is recognized when all of the following exist: persuasive evidence of an arrangement
exists, delivery of the product has occurred, the price is fixed or determinable and payment is reasonably assured.
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 when the advertising occurs. Advertising and promotion expense was $7.7 million,
$9.7 million, and $15.7 million, in fiscal 2002, 2001, and 2000, respectively.
Shipping and Handling Costs
The Company does not typically incur shipping costs to its customers. Inventory handling costs incurred by the Company are
included in selling, general and administrative expenses in the accompanying consolidated statements of income, and were less than 1%
of net sales in each of the fiscal years presented.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and investments with original maturities of three months or less.
Marketable Securities
Marketable securities are classified as trading securities and are carried at fair value, with the unrealized holding gains and
losses reflected as interest income in the accompanying consolidated statement of income. For the purposes of computing realized and
unrealized gains and losses, cost is determined on a specific identification basis.
Marketable securities classified as trading consist of the following:
September 28, 2002
----------------------
Bonds, cost $11,100
Bonds, fair value $11,100
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.
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. Effective September 30, 2001, the Company adopted Statement of Financial Accounting
Standard No. 142 "Goodwill and Other Intangible Assets" ("Statement No. 142"), and no longer amortizes the remaining value of its
trademarks, but tests them for impairment on a periodic basis. Accumulated amortization totaled $1,645,000, $1,645,000 and
$1,146,000 at September 28, 2002, September 29, 2001 and September 30, 2000, respectively. 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 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.
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
and has been amortized through September 29, 2001, on the straight-line basis over a period of 30 years. Effective September 30,
2001, the Company adopted Statement No. 142, and no longer amortizes the remaining goodwill from the acquisition of Savane, but tests
for impairment on a periodic basis. Accumulated amortization totaled $4,318,000, $4,318,000 and $3,045,000 at September 28, 2002,
September 29, 2001 and September 30, 2000, respectively. In connection with the Company's acquisition of Duck Head, the 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.
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 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.
Impairment of Trademarks and the Excess of Cost over Fair Value of Net Assets of Acquired Subsidiary
Impairment on intangibles not subject to amortization is tested annually, or more frequently if events or changes in
circumstances indicate that the asset might be impaired. The impairment test consists of a comparison of the fair value of an
intangible asset, determined through a discounted cash flow valuation method, with its carrying amount. If the carrying amount of an
intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
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 real estate loan. 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 accompanying consolidated balance
sheets.
Financial Instruments
The Company's financial instruments include cash, accounts receivable, accounts payable and accrued expenses, long-term debt
and obligations under capital leases and an interest rate swap agreement. The following methods and assumptions were used by the
Company in estimating its fair value disclosures for financial instruments:
Cash, accounts receivable, accounts payable and accrued expenses: 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's 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 is 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 28, 2002 September 29, 2001
---------------------------- ----------------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------ ------------ ------------ ------------
Long-term debt and obligations
under capital leases $110,173 $111,701 $151,314 $146,206
Interest-rate swap agreement
liability $(1,161) $(1,161) $(720) $(720)
Reclassifications
Certain amounts in the fiscal 2001 and 2000 financial statements have been reclassified to conform to the fiscal 2002
presentation.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB)", issued Statement of Financial Accounting Standard No. 141,
"Business Combinations" (Statement No. 141). 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. The
acquisition of Duck Head in August 2001 was accounted for in accordance with Statements No. 141. On September 30, 2001, the Company
adopted Statement of Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets" (Statement No. 142). 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 are tested for impairment. The provisions of Statement No. 142 required the
completion of a transitional impairment test within six months of adoption, with any impairment identified as a cumulative effect of
a change in accounting principle. Also, Statement No. 142 requires an annual impairment test. In accordance with the provision of
Statement No. 142, the Company performed the transitional and annual impairment tests during fiscal 2002. The results of these tests
indicate that the Company's goodwill and other indefinite lived intangible assets are not impaired, as the fair value of these assets
exceed their carrying value. Any impairment related to tests performed after the transitional impairment test would be recorded as a
component of operating income.
In accordance with Statement No. 142, the Company discontinued the amortization of goodwill and other indefinite lived
intangible assets effective September 30, 2001. Amortization expense is included in other expenses in the accompanying statements of
income. A reconciliation of previously reported net income and earnings per share for fiscal 2002, 2001 and 2000, to the amounts
adjusted for the exclusion of amortization net of the related income tax effect follows:
Fiscal Year Ended
--------------------------------------------------------
September 28, September 29, September 30,
2002 2001 2000
---------------- --------------- ----------------
Reported net income $2,321 $11,230 $17,503
Add: Amortization, net of tax -- 1,160 1,217
---------------- --------------- ----------------
Adjusted net income $2,321 $12,390 $18,720
================ =============== ================
Basic earnings per share:
Reported net income $0.27 $1.47 $2.29
Amortization, net of tax -- 0.15 0.16
---------------- --------------- ----------------
Adjusted net income per share-basic $0.27 $1.62 $2.45
================ =============== ================
Diluted earnings per share:
Reported net income $0.26 $1.45 $2.27
Amortization, net of tax -- 0.15 0.16
---------------- --------------- ----------------
Adjusted net income per
share-diluted $0.26 $1.60 $2.43
================ =============== ================
In October 2001, the FASB issued Statement of Financial Accounting Standard No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (Statement No. 144), which is effective for financial statements issued for fiscal years beginning
after December 15, 2001 and interim periods within those fiscal years. Statement No. 144 supersedes Statement of Financial
Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and
provides a single accounting model for long-lived assets to be disposed of. The Company does not expect the adoption of Statement
No. 144 to have a material impact on its financial position and results of operations.
In April 2002, the FASB issued Statement of Financial Accounting Standard No. 145, "Rescission of FASB Statements No. 4, 44
and 64, Amendment of FASB Statement No. 13, and Technical Corrections" (Statement No. 145), which is effective for fiscal years
beginning after May 15, 2002. This Statement rescinds FASB Statement No. 4, "Reporting Gains and Losses from Extinguishment of
Debt," as well as an amendment of that Statement, FASB Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements," as debt extinguishments are no longer classified as extraordinary items unless they meet the requirements in
Accounting Principles Board Opinion No. 30 of being unusual and infrequently occurring. This Statement also amends other existing
authoritative pronouncements to make various technical corrections. The Company does not expect the adoption of Statement No. 145 to
have a material impact on its financial position and results of operations.
In June 2002, the FASB issued Statement of Financial Accounting Standard No. 146, "Accounting for Costs Associated with Exit
or Disposal Activities" (Statement No. 146), which is effective for exit or disposal activities that are initiated after December 31,
2002. Statement No. 146 nullifies Emerging Issues Task Force No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" (EITF 94-3). Statement No. 146
requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred and
eliminates the definition and requirements of recognition of exit costs in EITF 94-3. The adoption of Statement No. 146 will affect
the timing of recognition of costs associated with any future restructuring activities.
Statement of Cash Flows
Supplemental cash flow information:
Fiscal Year Ended
------------------------------------------------------------
September 28, September 29, September 30,
2002 2001 2000
----------------- ----------------- ------------------
Cash paid for:
Interest $13,320 $14,943 $16,988
Income taxes 2,766 4,635 10,155
Capital lease obligations of $750,000, $1,151,000, and $216,700 were incurred when the Company entered into leases for new
equipment in the years ended September 28, 2002, September 29, 2001, and September 30, 2000, respectively.
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
September 28, September 29,
2002 2001
------------------ -----------------
Receivable from factor $86,063 $79,899
Receivable from trade accounts 10,196 11,130
Reserve for allowances and doubtful accounts (5,250) (4,121)
------------------ -----------------
$91,009 $86,908
================== =================
The Company has two separate factoring agreements. Under these 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 ranging from 0.18% to 0.25%. During fiscal 2003, the Company
intends to discontinue factoring of its receivables, but expects to maintain credit insurance for those accounts which it deems
necessary.
3. INVENTORIES
Inventories consist of the following:
September 28, September 29,
2002 2001
-------------------- ------------------
Raw materials $ 7,772 $ 6,898
Work in process 18,696 14,327
Finished goods 51,736 58,858
Reserve for excess and slow moving inventory (3,407) (7,000)
-------------------- ------------------
$ 74,797 $ 73,083
==================== ==================
4. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consist of the following:
September 28, September 29, Life
2002 2001 (Years)
----------------- ---------------- -----------
Land $ 7,484 $ 7,442 --
Land improvements 2,035 2,041 15
Buildings and improvements 15,748 15,245 3 - 50
Machinery and equipment 49,445 48,901 3 - 12
Leasehold improvement 2,496 2,484 5 - 25
Construction in progress 6,172 192 --
----------------- ----------------
$83,380 $76,305
================= ================
During fiscal 2002, 2001 and 2000, the Company capitalized interest cost of $0, $107,000, and $215,000, respectively, for
buildings and improvements, and machinery and equipment in the process of construction. Total depreciation expense was $7.3 million,
$8.2 million, and $6.8 million, for the years ended September 28, 2002, September 29, 2001, and September 30, 2000, respectively.
5. DEBT
Long-term debt consists of the following:
September 28, September 29,
2002 2001
------------------ -----------------
Revolving credit line $ - $32,131
Real estate loan 7,000 13,968
Senior subordinated notes 100,000 100,000
Other -- 991
------------------ -----------------
107,000 147,090
Less current maturities -- 1,128
------------------ -----------------
$107,000 $145,962
================== =================
In June 2002, the Company completed a public offering of 3.0 million shares of common stock. The Company received net
proceeds of approximately $63.2 million, of which approximately $32.0 million was used to repay all outstanding borrowings under the
Company's revolving credit line (the "Facility"), to pay down a portion of its real estate loan ("Real Estate Loan"), and to repay
certain capital lease obligations. The remaining $31.2 million is being used for the payment of the cash portion of the Project
Synergy charges (see Note 9), the construction of a new administration facility in Tampa, Florida and for working and general
corporate purposes, including acquisitions.
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 of interest based on LIBOR plus an applicable margin, and are secured by substantially
all of the Company's domestic assets. As of September 28, 2002, there were no balances outstanding on the Facility. 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 ($273,000 net, at September 28, 2002). These costs are being amortized to interest expense over the life of the Facility
using the effective interest method.
On May 28, 1999, the Company entered into 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
payments were paid monthly on the refinanced amount through June 2002. On June 26, 2002, the terms of the Real Estate Loan were
amended and the loan now requires the payment of monthly interest only, with the remaining outstanding principal of $7.0 million 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 (4.0% at September
28, 2002). 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 (8.6% at September 28, 2002). As
of September 28, 2002, the combined effective interest rate on the Real Estate Loan was approximately 7.9%.
The Company has $100 million of senior subordinated notes (the "Notes") outstanding that were issued through a private
placement. Under the terms of the indenture governing 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. Debt issue costs of $4.1
million were incurred and are included in other assets ($3.0 million net, at September 28, 2002). These costs are being amortized to
interest expense over the life of the Notes using the effective interest method. The estimated amortization expense related to debt
issue costs of the Notes for the five succeeding fiscal years is approximately $397,500, $445,200, $499,000, $559,300, and $626,900,
respectively.
The Company's credit agreements contain significant financial and operating covenants, including prohibitions on its ability
to incur certain additional indebtedness or to pay dividends, and restrictions on its ability to make capital expenditures. The
Facility and Real Estate Loan also require that the Company maintain certain financial ratios, including a consolidated fixed charge
ratio of at least 1.25x, a ratio of consolidated senior indebtedness to consolidated earnings before interest, taxes, depreciation
and amortization (EBITDA) of not more than 2.5x and a ratio of consolidated funded debt to consolidated EBITDA of not more than
5.5x. The Company is currently in compliance with all covenants under its credit agreements.
The Company's credit agreements also contain customary events of default, including nonpayment of principal or interest,
violation of covenants, inaccuracy of representations and warranties, cross-defaults to other indebtedness, bankruptcy and other
insolvency events, material judgments, certain ERISA events and certain changes of control of the Company. The occurrence of a
default, an event of default or a material adverse effect on the Company could result in its inability to obtain further borrowings
under the Facility and could also result in the acceleration of its obligations under any or all of our credit agreements, each of
which could materially and adversely affect its business.
The scheduled maturities of long-term debt are as follows:
Fiscal Year Amount
- ------------------- ----------------
2003 $ --
2004 --
2005 --
2006 --
2007 --
Thereafter 107,000
Total accrued interest related to debt as of September 29, 2002 and September 29, 2001 was $3.4 million and $3.8 million,
respectively.
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 28, 2002 are as follows:
Operating Capital
Fiscal Year Leases Leases
- ------------------------------------------------------ ----------------- -----------------
2002 $5,838 $ 1,446
2003 5,114 1,412
2004 4,052 475
2005 3,667 176
2006 3,189 18
Thereafter 9,552 --
----------------- -----------------
Total minimum lease payments $31,412 3,527
================= 354
Less amount representing interest -----------------
Present value of minimum capital lease payments 3,173
Less current installments 1,251
-----------------
$1,922
=================
The following summarizes the Company's assets under capital leases:
September 28, September 29,
2002 2001
-------------------- ----------------
Machinery and equipment $9,332 $9,170
Accumulated amortization 4,012 3,352
Amortization of assets under capital leases has been included in depreciation. Total rental expense for operating leases
for fiscal 2002, 2001, and 2000, was $6.2 million, $4.4 million, and $5.0 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 28, September 29, September 30,
2002 2001 2000
----------------- ---------------- -----------------
Domestic $2,664 $15,808 $28,811
Costa Rica 198 7 5
Australia (1,499) (321) (626)
United Kingdom 2,258 1,397 884
Mexico 173 (60) 11
Hong Kong (716) 23 61
Other 89 169 49
----------------- ---------------- -----------------
$3,167 $17,023 $29,195
================= ================ =================
The components of the income tax provision (benefit) are as follows:
Year Ended
----------------------------------------------------------
September 28, September 29, September 30,
2002 2001 2000
----------------- ---------------- -----------------
Current:
Federal $(2,283) $3,627 $8,280
State (267) 409 1,039
Australia (449) - -
Other foreign 250 141 48
----------------- ---------------- -----------------
(2,749) 4,177 9,367
Deferred:
Federal 3,974 2,798 2,240
State 129 (273) 310
Australia - (109) (225)
Other foreign (96) - -
----------------- ---------------- -----------------
4,007 2,416 2,325
----------------- ---------------- -----------------
$1,258 $6,593 $11,692
================= ================ =================
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 28, September 29, September 30,
2002 2001 2000
----------------- ---------------- -----------------
Income tax expense at Federal
statutory rate (35% in 2002,
2001 and 2000) $1,108 $5,957 $10,218
State taxes, net of Federal tax benefit (299) 160 877
Income of foreign subsidiaries 55 7 3
Amortization of goodwill - 399 428
Meals and entertainment 121 105 71
Subpart F income 204 38 160
Other 69 (73) (65)
----------------- ---------------- -----------------
$1,258 $6,593 $11,692
================= ================ =================
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 $19.9 million, as adjusted for U.S. tax purposes at September 28, 2002. 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 $4.3 million at September 28, 2002. If earnings are repatriated, foreign tax
credits can offset a portion of the U.S. tax on such earnings. The amount of $4.3 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
28, 2002 and September 29, 2001 are presented below:
Year Ended
----------------------------------------
September 28, September 29,
2002 2001
------------------ -------------------
Deferred tax assets:
Accounts receivable $ 1,021 $ 1,553
Inventory 3,810 4,023
U.S. Federal NOL carryforwards 7,440 6,526
U.S. State NOL carryforwards 2,045 1,732
Foreign NOL carryforwards 887 1,765
Tax credits 298 298
Accrued exit costs - U.S. 3,190 5,178
Accrued exit costs - foreign 648 1,632
Other accrued expenses and reserves- U.S. 6,737 6,110
Other accrued expenses and reserves-foreign 220 206
------------------ -------------------
Total deferred tax assets 26,296 29,023
------------------ -------------------
Deferred tax liabilities:
Depreciation (5,172) (2,992)
Trademarks (5,003) (5,003)
Other items (3,065) (3,843)
------------------ -------------------
Total deferred tax liabilities (13,240) (11,838)
------------------ -------------------
Net deferred tax asset 13,056 17,185
Valuation allowance (2,790) (3,840)
------------------ -------------------
Deferred tax asset, net of valuation allowance $10,266 $13,345
================== ===================
Classified as follows:
Current asset $ 9,414 $15,040
Non-current asset 3,733 4,707
Non-current liability (2,881) (6,402)
------------------ -------------------
$10,266 $13,345
================== ===================
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 2002 and 2001, management
determined that respective valuation allowances of $2.8 million and $3.8 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.
For domestic purposes, the Company has Federal net operating loss carryforwards for tax purposes of approximately $21.5
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 in fiscal 2001.
Subsequent to the acquisition, the Company performed 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 and subsequent sale of Duck Head's administrative offices and distribution center in Georgia,
the closure of certain retail outlet stores, and the closure of Duck Head's garment assembly plant in Costa Rica. Personnel
termination costs of approximately $3.8 million related to the termination of 415 of the 500 Duck Head employees were accrued in
connection with the acquisition. As of September 28, 2002, all accrued termination costs had been paid. As of September 28, 2002,
the Company had remaining accruals of approximately $213,000 related to estimated closing costs for certain of Duck Head's retail
outlet stores and other exit related activities. Additional exit activity related to Duck Head's retail outlet stores is currently
being performed. The Company expects to complete these exit activities by the end of December 2002.
Final adjustments to the purchase price of Duck Head in the fourth quarter of fiscal 2002 resulted in an additional
extraordinary gain of approximately $412,000.
9. RESTRUCTURING OF SAVANE INTERNATIONAL CORP.
The Company has remaining accrued liabilities related to the 1998 acquisition of Savane International Corp. of approximately
$2.2 million related to exit costs which primarily consist of estimated lease termination costs and related expenses. The activity
in the exit accruals related to this acquisition during fiscal 2002, 2001 and 2000 were as follows:
Year Ended
----------------------------------------------------
September 28, September 29, September 30,
2002 2001 2000
----------------- ----------------- ----------------
Beginning balance $ 5,150 $ 5,592 $ 6,030
Cash payments (484) (132) (385)
Non cash reductions (2,450) (310) (53)
----------------- ----------------- ----------------
Ending balance $2,216 $5,150 $5,592
================= ================= ================
On April 18, 2002, the Company announced a plan to consolidate the administrative, cutting and related functions of the
Savane division in El Paso, Texas into the Tampa, Florida facility. The Company intends to complete all aspects of this
consolidation by March 2003. As part of the consolidation, the Company has vacated its El Paso, Texas administration building and
cutting facility. The Company is constructing additional administrative offices in Tampa, Florida, and the current Tampa, Florida
cutting facility has sufficient capacity to accommodate the consolidated cutting operation. The Company continues to operate its
distribution center in the El Paso, Texas area and has therefore, reduced the reserves related to the closure of this facility which
were set up as part of the Savane acquisition by $2.5 million. The Company also announced the reorganization of its South Pacific
division, including discontinuing production in factories in Fiji that are partially owned by the Company.
As a result of these initiatives (internally referred to as "Project Synergy"), the Company recorded a pre-tax charge
totaling approximately $16.1 million in fiscal 2002 for severance ($3.1 million), relocation ($2.5 million), lease terminations ($2.8
million), asset write-downs ($5.7 million) and other related costs ($2.0 million) included in other charges in the accompanying
statement of income. Relocation costs were expensed as incurred. We expect an additional $2.0 million of costs associated with
Project Synergy to be incurred in fiscal 2003. As of September 28, 2002, the Company has approximately $4.3 million accrued, related
to exit costs, which primarily consist of lease terminations, severance and related expenses. The activity in the exit accruals
related to Project Synergy during fiscal 2002 was as follows:
Year ended
September 28, 2002
-----------------------
Beginning balance $ -
Additions 6,016
Cash payments (1,721)
-----------------------
Ending balance $ 4,295
=======================
10. COMMITMENTS AND CONTINGENCIES
As of September 28, 2002, the Company had approximately $11.0 million of outstanding trade letters of credit with various
expiration dates through May 2003.
The Company is not involved in any legal proceedings, other than various claims and lawsuits arising in the normal course of
the Company's business, 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 2002, 2001, and 2000, the Company recorded expenses of $681,000, $584,000, and $533,000,
respectively, related to the plan.
Certain non-U.S. employees participate in defined contribution plans with varying vesting and contribution provisions. For
fiscal 2002, 2001 and 2000, the Company recorded expenses of $229,000, $263,000 and $309,000, respectively, related to these plans.
Defined Benefit Plan
Under the defined benefit plan, which covers certain Savane 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 28, 2002 and September 29, 2001, included the following components:
September 28, September 29,
2002 2001
----------------- ------------------
Service cost-benefits earned during the period $ 37 $ 33
Interest cost on projected benefit obligation 588 576
Estimated return on plan assets (690) (731)
Net amortization and deferral 206 155
----------------- ------------------
Net periodic pension cost $ 141 $ 33
================= ==================
The following table sets forth the funded status of the defined benefit plan:
September 28, September 29,
2002 2001
----------------- ----------------
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATION:
Accumulated benefit obligation $8,868 $8,201
Projected benefit obligation 8,868 8,201
Plan assets at market value 6,358 7,580
----------------- ----------------
Funded status (2,510) (621)
Amounts recognized in the consolidated balance sheets consist of:
Accrued benefit liability $(2,510) $ (621)
Intangible asset 8 74
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions -- 2,572
Accumulated other comprehensive expense 4,385 --
----------------- ----------------
Net amount recognized $1,883 $2,025
================= ================
The following table provides a reconciliation of beginning and ending balances of the benefit obligation of the defined
benefit plan:
September 28, September 29,
2002 2001
----------------- ----------------
CHANGE IN BENEFIT OBLIGATION:
Projected benefit obligation, beginning of year $8,201 $8,027
Service cost 37 33
Interest cost 588 577
Benefits paid (763) (732)
Actuarial (gain) loss 805 296
----------------- ----------------
Projected benefit obligation, end of year $8,868 $8,201
================= ================
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 28, September 29,
2002 2001
----------------- ----------------
CHANGE IN PLAN ASSETS:
Plan assets at fair value, beginning of year $7,580 $8,037
Actual return on plan assets (459) 275
Benefits paid (763) (732)
----------------- ----------------
Plan assets at fair value, end of year $6,358 $7,580
================= ================
In determining the benefit obligations and service cost of the Company's defined benefit plan, a weighted average discount
rate of 6.75% and 7.50% respectively, were used for fiscal 2002 and fiscal 2001, and an expected long-term rate of return on plan
assets of 9.50% was used for fiscal 2002 and fiscal 2001.
12. STOCK OPTION PLANS
The Company has adopted various stock option plans, 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
the 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 2002, 2001 and 2000, respectively:
risk-free interest rate of 3.4%, 4.4%, and 5.9%; a dividend yield of 0%, 0% and 0%; volatility factor of the expected market price of
the Company's common stock of .49, .48 and .67; and a weighted-average expected life of the option of seven years, eight years, and
nine years.
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 2002, 2001 and 2000 is (in thousands except for net income
per share information):
Year Ended
---------------- -- ----------------- - -----------------
September 28, September 29, September 30,
2002 2001 2000
---------------- ----------------- -----------------
Pro forma net income (loss) $(407) $9,584 $13,440
Pro forma net income (loss) per share-basic $(0.05) $1.25 $1.76
Pro forma net income (loss) per share-diluted $(0.05) $1.23 $1.74
A summary of the Company's stock option activity, and related information follows:
Fiscal 2002 Fiscal 2001 Fiscal 2000
-------------------------- --------------------------- -------------------------
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 1,471,996 $16.52 1,421,881 $16.58 808,633 $16.24
Granted 279,580 22.89 233,680 17.56 765,655 17.32
Exercised (343,120) 16.07 (59,605) 15.85 (18,692) 12.16
Canceled/expired (168,899) 17.23 (123,960) 18.18 (133,715) 19.31
------------ ----------- ------------ ----------- ---------- -----------
Outstanding-end of year 1,239,557 $16.64 1,471,996 $16.64 1,421,881 $16.58
============ =========== ============ =========== ========== ===========
Weighted-average fair value
of options granted during the
year $17.96 $14.66 $12.04
The exercise price range of outstanding and exercisable options as of September 28, 2002 follows:
Options Outstanding Options Exercisable
------------------------------------------- -----------------------------
Weighted
Average Weighted Weighted
Outstanding Remaining Average Average
Range of Exercise Options Contractual Exercise Price Exercisable Exercise
Prices Life Options Price
-------------------- ------------- ------------- --------------- -------------- --------------
$10.25 - $13.88 310,702 5.18 $12.29 281,655 $12.16
$14.00 - $18.50 321,219 7.61 $17.07 287,051 $17.03
$18.56 - $19.75 323,143 7.47 $19.32 189,343 $19.39
$20.13 - $27.75 284,493 8.69 $23.69 192,563 $23.54
------------- ------------- --------------- -------------- --------------
$10.25 - $27.75 1,239,557 7.21 $17.98 950,612 $17.37
============= ============= =============== ============== ==============
The weighted-average remaining contractual life of the outstanding options is seven years. The initial term for options is
generally ten years. The vesting period is three years for 888,357 options and 351,200 options were immediately vested.
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations:
Net Income
(Loss) Per
Income Before Net Share -
Net Gross Extraordinary Income Diluted
Sales Profit Item (Loss)
------------- ------------ ---------------- ---------- ------------
Year Ended September 28, 2002
First Quarter $110,011 $31,633 $ 2,958 $ 2,958 $0.38
Second Quarter 120,610 33,917 3,669 3,669 0.46
Third Quarter (a) 116,262 31,407 (5,631) (5,631) (0.69)
Fourth Quarter (a) 116,994 31,450 913 1,325 0.12
Year Ended September 29, 2001
First Quarter $ 98,552 $28,808 $ 2,710 $ 2,710 $0.35
Second Quarter 123,523 35,810 4,939 4,939 0.64
Third Quarter 107,328 28,537 1,420 1,420 0.18
Fourth Quarter 107,033 31,401 1,361 2,161 0.27
(a) Includes the effect of the pre-tax Project Synergy charges of $12.3 million and $3.8 million,
respectively, in the third and fourth quarters of fiscal 2002.
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 10.5%, 9.1%, and 7.8% of net sales for fiscal 2002, 2001 and 2000, respectively. No individual
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%, 2.3% and 2.6% of the Company's long-term assets at September 28, 2002,
September 29, 2001 and September 30, 2000, respectively.
In fiscal 2002, Wal-Mart, Sam's and Kohl's accounted for approximately 16%, 15% and 11%, respectively, of sales in the
United States. In fiscal 2001, Wal-Mart and Sam's accounted for approximately 19% and 17%, respectively, of sales in the United
States. In fiscal 2000, Wal-Mart and Sam's accounted for approximately 15% and 13%, respectively, 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 28, 2002, and the supplemental combined condensed balance sheets as of September 28, 2002 and September 29, 2001. 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 28, 2002
----------------------------------------------------------------------------
Non-
Statements of Operations Parent Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------- ------------ ------------- --------------
Net sales $204,653 $211,519 $48,689 $(984) $463,877
Gross profit 50,525 61,414 16,468 -- 128,407
Operating income (loss) 18,899 (3,989) 210 -- 15,120
Interest, income taxes and other, net 8,065 4,889 (276) 121 12,799
Net income (loss) 10,834 (8,878) 486 (121) 2,321
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
September 28, 2002
------------------------------------------------------------------------------
Balance Sheets Parent Guarantor Non-Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------- ------------ ---------------
ASSETS
Cash and cash equivalents $24,274 $ 167 $ 3,843 $ -- $28,284
Marketable securities 11,100 -- -- -- 11,100
Accounts receivable 44,317 36,045 10,647 -- 91,009
Inventories 34,867 31,050 8,880 -- 74,797
Other current assets 10,494 9,234 3,146 -- 22,874
----------- ------------ ------------- ------------ ---------------
Total current assets 125,052 76,496 26,516 -- 228,064
Property and equipment, net 37,152 8,759 2,562 -- 48,473
Other assets 135,189 68,557 (6,638) (137,437) 59,671
----------- ------------ ------------- ------------ --------------
Total assets $297,393 $153,812 $22,440 $(137,437) $336,208
=========== ============ ============= ============ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 43,265 $ 12,394 $ 5,161 $ (221) $60,599
Current portion of long-term debt and capital
lease obligations 274 948 29 -- 1,251
----------- ------------ ------------- ------------ --------------
Total current liabilities 43,539 13,342 5,190 (221) 61,850
Long-term debt and noncurrent portion of
capital lease obligations 107,643 1,178 101 -- 108,922
Other noncurrent liabilities 1,170 7,864 30 -- 9,064
Shareholders' equity 145,041 131,428 17,119 (137,216) 156,372
----------- ------------ ------------- ------------ --------------
Total liabilities and shareholders'
equity $297,393 $153,812 $22,440 $(137,437) $336,208
=========== ============ ============= ============ ==============
September 29, 2001
-------------------------------------------------------------------------------
Balance Sheets Parent Guarantor Non-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 assets $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'
equity $262,831 $163,899 $26,311 $(143,811) $309,230
========== ============ ============= ============= ================
Year Ended September 28, 2002
------------------------------------------------------------------------------
Non-
Statements of Cash Flows Parent Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------- ------------- -------------- --------------
Net cash provided by operating activities $15,424 $ 282 $ 2,044 $-- $17,750
Net cash used in investing activities (20,238) (1,088) (212) -- (21,538)
Net cash provided (used) by financing
activities 29,294 (1,418) (297) -- 27,579
Other (396) 2,142 1,033 -- 2,779
Net increase (decrease) in cash 24,084 (82) 2,568 -- 26,570
Cash, beginning of year 190 249 1,275 -- 1,714
Cash and cash equivalents, end of year 24,274 167 3,843 -- 28,284
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
16. SUBSEQUENT EVENT
On November 19, 2002, the Company announced that William W. Compton had agreed to resign as Chief Executive Officer, Chairman and
member of the Board following a review by a Committee of the Board of Directors. The Board of Directors has reached an agreement
with Mr. Compton in return for several restrictive covenants and a general release contained in a Separation Agreement. As a result
of the Separation Agreement and related expenses, the Company will record a pre-tax charge of approximately $5.7 million during its
first quarter of fiscal 2003.
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:
September 30, 2000 $1,925 $73 $--- $--- $1,998
September 29, 2001 $1,998 $1,596 $540 (1) $13 $4,121
September 28, 2002 $4,121 $1,493 ($364) (2) $--- $5,250
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:
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
September 28, 2002 $7,000 $ 1,234 ($2,330) (2) $2,497 $3,407
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:
September 30, 2000 $2,591 $--- $--- $391 $2,200
September 29, 2001 $2,200 $--- $1,763 (1) $123 $3,840
September 28, 2002 $3,840 $509 $--- $1,559 $2,790
(1) Represents balance acquired as a result of the acquisition of Duck Head Apparel Company, Inc. in August 2001.
(2) Represents reduction of reserves related to the acquisition of Duck Head Apparel Company, Inc.
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, 2002.
TROPICAL SPORTSWEAR INT'L CORPORATION
By: /s/ Christopher B. Munday
Christopher B. Munday
Chief Executive Officer and President
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 Christopher B. Munday and N. Larry McPherson 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/ Christopher B. Munday Chief Executive Officer, President December 20, 2002
Chistopher B. Munday and Director
(Principal Executive Officer)
/s/ N. Larry McPherson Executive Vice President, December 20, 2002
N. Larry McPherson Chief Financial Officer and Treasurer
(Principal Accounting Officer)
/s/ Gregory L. Williams Executive Vice President, December 20, 2002
Gregory L. Williams General Counsel and Secretary,
and Director
/s/ Michael Kagan Chairman of the Board December 20, 2002
Michael Kagan
/s/ Eloy S. Vallina-Laguera Director December 20, 2002
Eloy S. Vallina-Laguera
/s/ Leslie J. Gillock Director December 20, 2002
Leslie J. Gillock
/s/ Martin W. Pitts Director December 20, 2002
Martin W. Pitts
/s/ Charles J. Smith Director December 20, 2002
Charles J. Smith
/s/ Eloy Vallina Garza Director December 20, 2002
Eloy Vallina Garza
/s/ Benito F. Bucay Director December 20, 2002
Benito F. Bucay
Certification of Chief Executive Officer Pursuant to
Securities Exchange Act Rules 13a-14 and 15d-14
as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Christopher B. Munday, Chief Executive Officer of Tropical Sportswear Int'l Corporation, certify that:
1. I have reviewed this annual report on Form 10-K of Tropical Sportswear Int'l Corporation;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statement made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly
present in all material respects the financial condition, results of operations and cash flows of registrant as of, and for,
the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this annual report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of the date within 90 days
prior to the filing date of this annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's
auditors and that the audit committee of the registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant
changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 20, 2002 By: /s/ Christopher B. Munday
Christopher B. Munday
President and Chief Executive Officer
Certification of Chief Financial Officer Pursuant to
Securities Exchange Act Rules 13a-14 and 15d-14
as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, N. Larry McPherson, Chief Financial Officer of Tropical Sportswear Int'l Corporation, certify that:
1. I have reviewed this annual report on Form 10-K of Tropical Sportswear Int'l Corporation;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statement made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly
present in all material respects the financial condition, results of operations and cash flows of registrant as of, and for,
the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this annual report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of the date within 90 days
prior to the filing date of this annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's
auditors and that the audit committee of the registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant
changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 20, 2002 By: /s/ N. Larry McPherson
N. Larry McPherson
Chief Financial Officer
Index to Exhibits
Exhibit
Number Description
*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 Form 10-Q filed May 14, 2002).
*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 to Tropical Sportswear Int'l Corporation's Form 8-K dated November 13, 1998).
4.5 Amendment No. 1 to Shareholder Protection Rights Agreement, dated as of September 3, 2002 between Tropical
Sportswear Int'l Corporation and Computershare Investor Services, LLC (filed herewith)
*4.6 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 to 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 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).
*10.3 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).
*10.4 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).
*10.5 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).
Index to Exhibits (continued)
Exhibit
Number Description
*10.6 Employment Agreement dated April 15, 2002 between Gregory L. Williams and Tropical Sportswear Int'l Corporation
(filed as Exhibit 4.10 to Tropical Sportswear Int'l Corporation's Form 10-Q filed May 14, 2002).
*10.7 Employment Agreement dated April 15, 2002 between Christopher B. Munday and Tropical Sportswear Int'l Corporation
(filed as Exhibit 4.8 to Tropical Sportswear Int'l Corporation's Form 10-Q filed May 14, 2002).
*10.8 Employment Agreement dated April 15, 2002 between N. Larry McPherson and Tropical Sportswear Int'l Corporation
(filed as Exhibit 4.9 to Tropical Sportswear Int'l Corporation's Form 10-Q filed May 14, 2002)
*10.9 Separation Agreement by and among Tropical Sportswear Int'l Corporation, Savane International Corp. and William W.
Compton dated November 18, 2002 (filed as Exhibit 99.1 to Tropical Sportswear Int'l Corporation's Form 8-K filed
November 18, 2002)
*10.10 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).
*10.11 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).
*10.12 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).
*10.13 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).
*10.14 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).
*10.15 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).
*10.16 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).
*10.17 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).
*10.18 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).
*10.19 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).
*10.20 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).
*10.21 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).
*10.22 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).
Index to Exhibits (continued)
Exhibit
Number Description
*10.23 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).
*10.24 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).
*10.25 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).
*10.26 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).
*10.27 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).
*10.28 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).
*10.29 Joinder Agreement dated August 23, 2000 and Supplement to Loan and Security Agreement with Fleet Capital Corporation
(filed as Exhibit 10.35 to Tropical Sportswear Int'l Corporation's Annual Report on Form 10-K filed December 19,
2000).
*10.30 Joinder Agreement dated August 9, 2001 and Supplement to Loan and Security Agreement with Fleet Capital Corporation
(filed as Exhibit 10.36 to Tropical Sportswear Int'l Corporation's Annual Report on Form 10-K filed December 27,
2001).
*10.31 Consent Agreement dated June 25, 2001 with Fleet Capital Corporation, as Agent (filed as Exhibit 10.37 to Tropical
Sportswear Int'l Corporation's Annual Report on Form 10-K filed December 27, 2001).
*10.32 Eleventh Amendment to Loan and Security Agreement with Fleet Capital Corporation dated May 22, 2002 (filed as
Exhibit 10.1 to Tropical Sportswear Int'l Corporation's Form 10-Q filed August 12, 2002).
*10.33 Note Amendment Agreement to Renewal and Replacement Promissory Note with Bank of America, N.A. dated June 26, 2002
(filed as Exhibit 10.2 of Tropical Sportswear Int'l Corporation's Form 10-Q filed August 12, 2002).
*10.34 Amendment to Loan Agreement with Bank of America, N.A. dated March 31, 2002 (filed as Exhibit 10.3 to
Tropical Sportswear Int'l Corporation's Form 10-Q filed August 12, 2002).
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.