Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, March 23, 1990 TAG: 9003232741
SECTION: BUSINESSS PAGE: B5 EDITION: EVENING
SOURCE: GEORGE KEGLEY BUSINESS EDITOR
DATELINE: MARTINSVILLE LENGTH: Medium
The sweat-suit manufacturer had a disappointing year because of unusually aggressive price-cutting by "hungry" competitors, dramatic increases in raw-material prices and a fight against a union organizing drive, Tultex executives said.
After hearing about "prolific" cost-cutting plans from H.R. Hunnicutt Jr., chairman, and John Franck, president, two stockholders asked hard questions about increasing the stock price and lowering debt. More than 200 people, including many employees, attended the annual meeting.
Kevin Burns, a New York investor, said the company's stock is worth $15 to $20 a share. Tultex closed at $8.50 a share Thursday; it has traded as high as $14.62 in the past year.
Burns said the company should sell the distribution center - before it is occupied - and lease it back "to get us out of debt." Debt has limited the stock price, he said. Tultex debt rose $45 million to $72.1 million last year.
Howard Knight, a Connecticut shareholder, said two "poison pill" plans approved by stockholders will lower the value of shares. The company said they are needed to encourage a prospective buyer of Tultex to negotiate with the board.
Franck said the organizing campaign of the Amalgamated Clothing and Textile Workers "virtually consumed the efforts of this company from June through September."
The union lost the election by 250 votes but objected. A decision is pending after a National Labor Relations Board hearing in February.
Hunnicutt said the company decided the union "must be defeated to ensure Tultex's competitiveness for the long term, even at the expense of short-term profitability."
The election "told us that we needed to improve our communications with our employees and our involvement with our communities," Hunnicutt said. Tultex has established a community advisory committee in Martinsville and employee relations counselors are available to talk about problems.
The union fight, Franck said, resulted in "missed production quotas, late deliveries, heavy cancellations and high year-end inventories - all of which severely impacted earnings."
"We've always had them [the union] outside our door . . . When you begin to cut costs, you step on toes," said Franck's father, W.F. Franck, chairman emeritus. The union "is always looking for anything derogatory about the company," he added.
Last year was the most difficult in the 52-year history of Tultex management, Hunnicutt said. Net income was $5 million, one-fourth of the 1988 total. Revenues were $334 million, down $5.1 million.
The gleaming white distribution center, the last part of a five-year facilities and systems development plan, will be in operation this summer. Its software development is behind schedule, Hunnicutt said.
Tultex has narrowed its output, eliminating fancy fleeced products and moving into T-shirts, the chairman said. Hunnicutt said Tultex T-shirts are Chevrolets, not Ferraris.
T-shirt production will complement sweat-suits and offer a year-round market, he said. The company now gets most of its earnings seasonally, in the third and fourth quarters, Franck said.
Both executives said the outlook for 1990 is much improved. They said the order base is strong, prices are up and production capacity is at a record high.
John Franck said Tultex expects "to sell more than we produce" this year. "All of the key indicators we watch are heading in the right direction."
The company is operating with unusually high efficiency, Hunnicutt said. A new automated dye house and business systems are in place in the new distribution center but expected returns on these investments "will come about only as we learn to use the tools more effectively," Franck said.
The distribution center has five buildings 90 feet high. Covering 550,000 square feet, it replaces leased distribution space of more than 1 million square feet, Hunnicutt said.
Knight, the Connecticut investor, said a new class of preferred stock, authorized by stockholders, is "a depressant on shareholder value," according to market studies.
Stockholders also approved a change in a pre-emptive rights plan, designed "to facilitate an orderly process" for a prospective buyer to negotiate with the board. The change is not intended to deter a takeover, said Lathan Ewers, a company lawyer.
Hunnicutt said the two changes "are designed to keep someone from stealing the company at too low a price.
However, Knight charged that "these are historically ways of denying shareholders access to the market."
by CNB