10-Q 1 e10-q.txt QUARTERLY REPORT 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 1, 2000 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 1-15873 FRUIT OF THE LOOM, LTD. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CAYMAN ISLANDS NONE (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) P.O. BOX 866 GT, 3RD FLOOR ANDERSON SQUARE BUILDING, SHEDDEN ROAD GRAND CAYMAN, CAYMAN ISLANDS, BWI (ADDRESS OF PRINCIPAL REGISTERED OFFICES, INCLUDING ZIP CODE) (345) 945-8210 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Common shares outstanding at July 31, 2000: 66,992,523 Class A Ordinary Shares, $.01 par value, and 4 Class B Redeemable Ordinary Shares, $.01 par value. 2

3 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES (DEBTOR IN POSSESSION) CONDENSED CONSOLIDATED BALANCE SHEET (IN THOUSANDS OF DOLLARS)

See accompanying notes. 2 4 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES (DEBTOR IN POSSESSION) CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)

See accompanying notes. 3 5 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES (DEBTOR IN POSSESSION) CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (IN THOUSANDS OF DOLLARS)

See accompanying notes. 4 6 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES (DEBTOR IN POSSESSION) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. On March 4, 1999 Fruit of the Loom, Ltd. ("FTL, Ltd."), a Cayman Islands company, became the parent holding company of Fruit of the Loom, Inc. ("FTL, Inc.") pursuant to a reorganization (the "Cayman Reorganization") approved by the stockholders of FTL, Inc. on November 12, 1998. Hereinafter the "Company" refers to the operations of FTL, Inc. and subsidiaries through March 3, 1999 and the operations of FTL, Ltd. and subsidiaries from March 4, 1999. Hereinafter FTL, Inc. refers to the domestic subsidiary that owned all of the Company's operations until July 3, 1999. At the beginning of the third quarter of 1999, FTL, Inc. transferred ownership of its Central American subsidiaries that perform essentially all of the Company's sewing and finishing operations for the U.S. market to FTL Caribe Ltd., a Cayman Islands company directly wholly owned by FTL, Ltd. The condensed consolidated financial statements contained herein should be read in conjunction with the consolidated financial statements and related notes contained in the Company's Annual Report on Form 10-K for the year ended January 1, 2000. The information furnished herein reflects all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the results of operations of the interim periods. Operating results for the three and six months ended July 1, 2000 are not necessarily indicative of results that may be expected for the full year. Certain prior year and first quarter amounts have been reclassified to conform with the current year presentation. In connection with the Cayman Reorganization, all outstanding shares of Class A common stock of FTL, Inc. were automatically converted into Class A ordinary shares of FTL, Ltd., and all outstanding shares of Class B common stock of FTL, Inc. were automatically converted into shares of exchangeable participating preferred stock of FTL, Inc. (the "FTL, Inc. Preferred Stock"). The holders of the FTL, Inc. Preferred Stock also received, in the aggregate, four Class B redeemable ordinary shares of FTL, Ltd. Except as provided by law or FTL Ltd.'s Amended and Restated Memorandum of Association, the FTL Ltd. Class B shares, in the aggregate, have voting rights equal to five times the number of shares of FTL, Inc. Preferred Stock held by William F. Farley and his affiliates. Therefore, each FTL Ltd. Class B share has voting rights equivalent to 6,536,776.3 votes. The FTL, Inc. Preferred Stock (5,229,421 shares outstanding) in the aggregate (i) has a liquidation value of $71,700,000, which is equal to the fair market value of the FTL, Inc. Class B common stock based upon the $13.71 average closing price of FTL, Inc. Class A common stock on the New York Stock Exchange for the 20 trading days prior to March 4, 1999, (ii) is entitled to receive cumulative cash dividends of 4.5% per annum of the liquidation value, payable quarterly, (iii) is exchangeable at the option of the holder, in whole or from time to time in part, at any time for 4,981,000 FTL, Ltd. Class A ordinary shares, (iv) is convertible at the option of the holder, in whole or from time to time in part, at any time for 4,981,000 shares of FTL, Inc. common stock, (v) participates with the holders of FTL, Inc. common stock in all dividends and liquidation payments in addition to its preference payments on an as converted basis, (vi) is redeemable by FTL, Inc., at its option, after three years at a redemption price equal to the then fair market value of FTL, Inc. Preferred Stock as determined by a nationally recognized investment banking firm, and (vii) has the right to vote on all matters put to a vote of the holders of FTL, Inc. common stock, voting together with such holders as a single class, and is entitled to the number of votes which such holder would have on an as converted basis. The minority interest in FTL, Inc. was based on the liquidation preference of $71,700,000. 5 7 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES (DEBTOR IN POSSESSION) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) The fixed dividend on the FTL, Inc. Preferred Stock of 4.5% of the liquidation preference of $71,700,000 equals $3,200,000 on an annual basis. In addition, preferred stockholders participate in FTL, Inc.'s earnings after provision for the fixed preferred stock dividend. Participation in earnings is determined as the ratio of preferred shares outstanding to the total of preferred and common shares outstanding (7.2% at July 1, 2000). Preferred stockholder participation in losses is limited to the preferred stockholders' prior participation in earnings. Because FTL, Inc. reported losses throughout 1999 and in the first six months of 2000, the minority interest participation is limited to the fixed preferred dividends. FTL, Inc. ceased recording dividends on the FTL, Inc. Preferred Stock as of the date FTL, Inc.'s bankruptcy case commenced since it is an unsecured obligation. 2. CHAPTER 11 FILING. On December 29, 1999 (the "Petition Date"), FTL, Ltd., FTL, Inc., and 32 of its subsidiaries (collectively, the "Debtors") filed voluntary petitions for relief under chapter 11 ("Chapter 11"), Title 11 of the United States Code, U.S.C. Sections 101-1330 as amended (the "Bankruptcy Code"), with the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The bankruptcy cases of the Debtors are being jointly administered, for procedural purposes only, before the Bankruptcy Court under Case No. 99-4497(PJW). Pursuant to Sections 1107 and 1108 of the Bankruptcy Code, FTL, Ltd. and FTL, Inc., as debtors and debtors-in-possession, have continued to manage and operate their assets and businesses pending the confirmation of a reorganization plan and subject to the supervision and orders of the Bankruptcy Court. Because FTL, Ltd. and FTL, Inc. currently are operating as debtors-in-possession under the Bankruptcy Code, the existing directors and officers of FTL, Ltd. and FTL, Inc. continue to govern and manage the operations of FTL, Ltd. and FTL, Inc., respectively, subject to the supervision and orders of the Bankruptcy Court. In addition, on December 30, 1999 FTL, Ltd. voluntarily presented a petition to wind up FTL, Ltd. and obtained an order from the Grand Court of the Cayman Islands appointing provisional liquidators. FTL, Ltd.'s petition is adjourned at this time. Certain subsidiaries were not included in the Chapter 11 filings. Condensed consolidated financial statements of the entities in reorganization are presented herein. As part of the Chapter 11 cases, the Company routinely files pleadings, documents and reports with the Bankruptcy Court which may contain updated, additional or more detailed information about the Company, its assets, liabilities or financial performance than is contained in this report. Copies of filings in the Company's Chapter 11 cases are available during regular business hours at the office of the Clerk of the Bankruptcy Court, United States Bankruptcy Court for the District of Delaware, 5th Floor, 824 Market Street, Wilmington, Delaware 19801. Certain filings may also be reviewed on the Bankruptcy Court's electronic docket for the Company's Chapter 11 cases, which is posted on the internet www.deb.uscourts.gov. CAYMAN ISLANDS PROVISIONAL LIQUIDATION. On December 30, 1999, FTL, Ltd. voluntarily filed a Petition in the Grand Court of the Cayman Islands for the appointment of Theo Bullmore and Simon Whicker as Joint Provisional Liquidators ("JPL's") (Cause No. 823 of 1999). The JPL's were appointed pursuant to the Companies Law ss.99. Among Orders made by the Court on the presentation of the Petition was an Injunction restraining further proceedings in any action, suit or proceedings against FTL, Ltd. without first obtaining leave of the Court. 6 8 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES (DEBTOR IN POSSESSION) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) Under the Companies Law ss.110 the Court conferred the powers of an Official Liquidator (ss.109) on the JPL's. Those powers include: (a) to bring or defend any action, civil or criminal, on behalf of FTL, Ltd.; (b) to carry on the business of FTL, Ltd. to sell the real and personal property of FTL, Ltd.; and (c) to do all acts and execute all contracts, deeds, receipts and documents on behalf of FTL, Ltd. Although FTL, Ltd. is authorized to operate its business and manage its properties as debtor-in-possession, it may not engage in transactions outside the ordinary course of business without obtaining the approval of the JPL's and complying with the Orders of the Grand Court. It is intended that the Cayman Proceedings will be conducted in tandem with the Chapter 11 Bankruptcy cases. The JPL's issued their first report on 2 June 2000. In their report, the JPL's indicate that the major steps taken by the Company have been to identify and correct operational problems, to reduce product lines to focus on core products and to identify those divisions that can either be sold or discontinued. The report also indicates, based on financial information supplied by the Company, progress is being made in the above noted areas. The JPL's propose to report again on their activities and further developments relating to the Company's financial performance on or about 15 September 2000. REORGANIZATION PLAN PROCEDURES. The Debtors expect to reorganize their affairs under the protection of Chapter 11 and to propose a Chapter 11 plan of reorganization for themselves. Although management expects to file a plan of reorganization which would contemplate emergence in 2001, there can be no assurance at this time that a plan of reorganization proposed by the Debtors will be approved or confirmed by the Bankruptcy Court, or if confirmed, that such plan will be consummated. FTL, Inc. had the exclusive right to file a plan of reorganization through April 27, 2000. The Bankruptcy Court granted an extension of the exclusivity period through October 31, 2000 due to the magnitude of the Company's operations and the complexity of the plan formulation process. After the expiration of the exclusivity period (unless such period is further extended by order of the Bankruptcy Court), creditors will have the right to propose reorganization plans. The consummation of a plan of reorganization is the principal objective of the Company's Chapter 11 cases. A plan of reorganization sets forth the means for satisfying claims against and interests in the Company and its debtor subsidiaries, including the liabilities subject to compromise. The consummation of a plan of reorganization for the Company and its debtor subsidiaries will require the requisite vote of impaired creditors and stockholders under the Bankruptcy Code and confirmation of the plan by the Bankruptcy Court. At this time it is not possible to predict the outcome of the Debtors' Chapter 11 cases or their effect on the Debtors' business. Management believes that it is highly unlikely that current equity security holders will receive any distribution under any reorganization plan as a result of the issuance of new equity to existing creditors. FINANCIAL STATEMENT PRESENTATION. The consolidated financial statements have been presented in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" (SOP 90-7) and have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which principles, except as otherwise disclosed, assume that assets will be realized and liabilities will be discharged in the ordinary course of business. As a result of the Chapter 11 cases and circumstances relating to this event, including FTL, Ltd.'s debt structure, default on all pre-petition debt, negative cash flows, its recurring losses, and current economic conditions, such realization of assets and liquidation of liabilities are subject to significant uncertainty. While under the protection of Chapter 11, the Company may sell or otherwise dispose of assets, and liquidate or settle liabilities, for amounts other than those reflected in the financial statements. Additionally, the amounts reported on the consolidated balance sheet could materially change because of changes in business strategies and the effects of any proposed plan of reorganization. 7 9 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES (DEBTOR IN POSSESSION) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) The appropriateness of using the going concern basis is dependent upon, among other things, confirmation of a plan of reorganization, future profitable operations, the ability to comply with the terms of the debtor-in-possession financing facility and the ability to generate sufficient cash from operations and financing arrangements to meet obligations. LIABILITIES SUBJECT TO COMPROMISE. In the Chapter 11 cases, substantially all unsecured liabilities as of the Petition Date are subject to compromise or other treatment under a plan of reorganization which must be confirmed by the Bankruptcy Court after submission to any required vote by affected parties. For financial reporting purposes, those liabilities and obligations whose treatment and satisfaction are dependent on the outcome of the Chapter 11 cases have been segregated and classified in the consolidated balance sheets as liabilities subject to compromise under reorganization proceedings. Generally, all actions to enforce or otherwise effect repayment of pre-Chapter 11 liabilities as well as all pending litigation against the Debtors are stayed while the Debtors continue their business operations as debtors-in-possession. Unaudited schedules have been filed by the Debtors with the Bankruptcy Court setting forth the assets and liabilities of the Debtors as of the Petition Date as reflected in the Debtor's accounting records. The ultimate amount of and settlement terms for such liabilities are subject to an approved plan of reorganization and accordingly are not presently determinable. Under the Bankruptcy Code, the Debtors may elect to assume or reject real estate leases, employment contracts, personal property leases, service contracts and other prepetition executory contracts, subject to Bankruptcy Court approval. Claims for damages resulting from the rejection of real estate leases and other executory contracts will be subject to separate bar dates. The Debtors have not reviewed all leases for assumption or rejection but will analyze their leases and executory contracts and may assume or reject leases and contracts. Such rejections could result in additional liabilities subject to compromise. The principal categories of obligations classified as liabilities subject to compromise under reorganization cases are identified below. The amounts below in total may vary significantly from the stated amount of proofs of claim that will be filed with the Bankruptcy Court and may be subject to future adjustment depending on Bankruptcy Court action, further developments with respect to potential disputed claims, determination as to the value of any collateral securing claims, or other events. Additional claims may arise from the rejection of additional real estate leases and executory contracts by the Debtors. JULY 1, JANUARY 1, 2000 2000 -------- -------- (IN THOUSANDS OF DOLLARS) 8.875% Unsecured Senior Notes ..... $248,500 $248,500 Trade accounts payable ............ 105,600 113,100 Environmental and product liability 34,500 35,400 Accrued severance ................. 27,400 27,400 Deferred compensation accrual ..... 14,100 16,400 Other ............................. 232,600 230,400 -------- -------- $662,700 $671,200 ======== ======== As a result of the Chapter 11 filing, no principal or interest payments will be made on unsecured prepetition debt without Bankruptcy Court approval or until a plan of reorganization providing for the repayment terms has been confirmed by the Bankruptcy Court and becomes effective. Therefore, interest on prepetition unsecured obligations has not been accrued after the Petition Date. 8 10 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES (DEBTOR IN POSSESSION) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) REORGANIZATION ITEMS AND OTHER EXPENSES. Pursuant to SOP 90-7, revenues and expenses, realized gains and losses, and provisions for losses resulting from the reorganization of the business are reported in the Condensed Consolidated Statement of Operations separately as reorganization items. Professional fees are expensed as incurred. Interest expense is reported only to the extent that it will be paid during the cases or that it is probable that it will be an allowed claim. On April 26, 2000 the Company's Class A Ordinary Shares were delisted by the New York Stock Exchange ("NYSE"). The Company's Class A Ordinary Shares continue to be traded as an over-the-counter equity security under the symbol "FTLAQ". The Company's 7% Debentures due March 15, 2011 were delisted as of June 14, 2000 upon notice from the NASDAQ-AMEX Market Group (the "Exchange") that the Company has fallen below certain of the Exchange's continued listing guidelines. 3. No dividends were declared on the Company's ordinary shares for the six-month periods ended July 1, 2000 and July 3, 1999. Management of the Company believes that no dividends will be declared on the Company's ordinary shares while the Company's Chapter 11 cases are pending. 4. There is no income tax in the Cayman Islands. Income taxes do apply to results attributable to operations in the U.S. and certain other countries. The Company's income tax provision for the second quarter and first six months of 2000 consists of a provision for European income taxes. The Company recorded no U.S. tax benefit at the U.S. statutory rate of 35% on the pretax loss in the second quarter and first six months of 2000 primarily because the Company is unable to realize any current benefit from the operating loss through carrybacks to prior years, is unable under the Chapter 11 cases to implement certain income tax planning strategies and expects an operating loss for 2000. As a result of the Chapter 11 cases, the utilization of net operating loss carryforwards and tax credit carryforwards of the Company may be limited under the Internal Revenue Code. The Company is unable at the present time to quantify what, if any, limitation may apply to the tax carryforward items. The Company's effective income tax benefit for the first six months of 1999 reflected a provision projected for the full year for interest on prior years' U.S. Federal income taxes and goodwill amortization, a portion of which is not deductible for U.S. Federal income taxes. 5. On February 23, 2000 the Bankruptcy Court approved the Company's plan to discontinue the operations of the Company's Pro Player Sports and Licensing Division ("Pro Player"). In accordance with generally accepted accounting principles, Pro Player has been treated as a discontinued operation in the accompanying condensed consolidated financial statements. The assets of Pro Player to be sold consist primarily of accounts receivable, inventories, property, plant and equipment and intangibles. In connection with the Company's decision to discontinue the operations of Pro Player, $47,500,000 was accrued in the year ended January 1, 2000 for the loss on disposal of the assets of Pro Player including a provision of $10,400,000 for expected operating losses during the estimated phase-out period from February 24, 2000 through August 24, 2000. The Company currently estimates the phase-out period will continue until the end of the third quarter. 9 11 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES (DEBTOR IN POSSESSION) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) Operating results for Pro Player are classified as Discontinued Operations in the accompanying condensed consolidated statement of operations. A portion of the Company's interest expense (in the amount of interest expense in each period presented below) has been allocated to discontinued operations based on the debt balance attributable to those operations. Income taxes have been provided on a separate company basis. The Company's estimated loss on disposal of Sports & Licensing operations recorded in the fourth quarter of 1999 included a provision for Pro Player's anticipated operating losses from the February 23, 2000 measurement date until disposal. Accordingly, the portion of Pro Player's net loss attributable to periods after February 23, 2000 has been charged to the Company's reserve for loss on disposal. Results of Pro Player's operations were as follows (in thousands of dollars):

Assets and liabilities of discontinued operations consisted of the following (in thousands of dollars): JULY 1, JANUARY 1, 2000 2000 -------- -------- Accounts receivable ................................... $ 3,600 $ 19,100 Inventories ........................................... 6,500 22,400 Other current assets .................................. -- 700 Other accounts payable and accrued expenses ........... (6,300) (12,900) -------- -------- Net current assets ................................ 3,800 29,300 -------- -------- Property, plant and equipment ......................... 7,300 7,500 Liabilities subject to compromise ..................... (14,200) (16,900) -------- -------- Net noncurrent liabilities ........................ (6,900) (9,400) -------- -------- Net assets (liabilities) of discontinued operations $ (3,100) $ 19,900 ======== ======== Assets are shown at their expected net realizable values. 6. In the third and fourth quarters of 1999, the Company recorded charges for provisions and losses on the sale of close-out and irregular inventory, costs related to impairment of certain European manufacturing facilities, severance, a debt guarantee and other asset write-downs and reserves. These charges totaled $345,800,000 ($126,600,000 in the third quarter and $219,200,000 in the fourth quarter). 10 12 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES (DEBTOR IN POSSESSION) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) A rollforward of the 1999 special charges from January 1, 2000 through July 1, 2000 is presented below (in thousands of dollars):

Other activity in the first six months of 2000 consists of inventory reserves which were relieved as the inventory was sold. Other activity does not include amounts provided in the first six months of 2000 for additional ongoing normal lower of cost or market reserves. 11 13 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES (DEBTOR IN POSSESSION) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) In the fourth quarter of 1997, the Company recorded charges for costs related to the closing and disposal of a number of domestic manufacturing and distribution facilities, impairment of manufacturing equipment and other assets and certain European manufacturing and distribution facilities, and other costs associated with the Company's world-wide restructuring of manufacturing and distribution facilities. These and other special charges totalled $441,700,000 ($372,200,000 after tax). A rollforward of the 1997 special charges from January 1, 2000 through July 1, 2000 is presented below (in thousands of dollars):

In 1995, management announced plans to close certain manufacturing operations and to take other actions to reduce costs and improve operations. As a result, the Company recorded charges of approximately $372,900,000 ($287,400,000 after tax) related to impairment write-downs of goodwill, costs associated with the closing or realignment of certain domestic manufacturing facilities and attendant personnel reductions and charges related to inventory write-downs and valuations, foreign operations and other corporate issues. 12 14 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES (DEBTOR IN POSSESSION) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) A rollforward of the 1995 special charges from January 1, 2000 through July 1, 2000 is presented below (in thousands of dollars):

13 15 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES (DEBTOR IN POSSESSION) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) 7. The Company and its subsidiaries are involved in certain legal proceedings and have retained liabilities, including certain environmental liabilities, such as those under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), its regulations and similar state statutes ("Superfund Legislation"), in connection with the sale of certain discontinued operations, some of which were significant generators of hazardous waste. The Company and its subsidiaries have also retained certain liabilities related to the sale of products in connection with the sale of certain discontinued operations. The Company's retained liability reserves at July 1, 2000 related to discontinued operations consist primarily of certain environmental reserves of approximately $32,500,000 and product liability reserves of approximately $2,000,000. The Company has purchased insurance coverage for potential cleanup cost expenditures from the level of current environmental reserves up to $100,000,000 for certain sites with on-going remediation, pollution liability coverage for claims arising out of pollution conditions at owned locations including continuing operations, sold facilities and non-owned sites and product liability coverage for claims arising out of products manufactured by the sold operations. Management believes that adequate reserves have been established to cover potential claims based on facts currently available and current Superfund and CERCLA Legislation. Generators of hazardous wastes which were disposed of at offsite locations which are now superfund sites are subject to claims brought by state and Federal regulatory agencies under Superfund Legislation and by private citizens under Superfund Legislation and common law theories. Since 1982, the United States Environmental Protection Agency (the "EPA") has actively sought compensation for response costs and remedial action at offsite disposal locations from waste generators under the Superfund Legislation, which authorizes such action by the EPA regardless of fault, legality of original disposal or ownership of a disposal site. The EPA's activities under the Superfund Legislation can be expected to continue during the remainder of 2000 and future years. On February 24, 1999, the Board of Directors, excluding Mr. Farley, authorized the Company to guarantee a bank loan of $65,000,000 to Mr. Farley in connection with Mr. Farley's refinancing and retirement of his $26,000,000 and $12,000,000 loans previously guaranteed by the Company and other indebtedness of Mr. Farley. The Company's obligations under the guarantee are collateralized by 2,507,512 shares of FTL, Inc. Preferred Stock and all of Mr. Farley's assets, including Mr. Farley's personal guarantee. In consideration of the guarantee, which is scheduled to expire in September 2000, Mr. Farley is obligated to pay an annual guarantee fee equal to 2% of the outstanding principal balance of the loan. The Board of Directors received an opinion from an independent financial advisor that the terms of the transaction are commercially reasonable. The total amount guaranteed is $59,300,000 as of August 3, 2000. Based on management's assessment of existing facts and circumstances of Mr. Farley's financial condition, the Company recorded a $10,000,000 charge in the third quarter of 1999 and $20,000,000 in the fourth quarter of 1999 related to the Company's exposure under the guarantee. The Company continues to evaluate its exposure under the guarantee. Mr. Farley has not paid the Company the guarantee fee due in 2000 and is in default under the loans and the reimbursement agreement with the Company. The Company began paying interest on the loan in the first quarter of 2000 including interest that was outstanding from the fourth quarter of 1999. Through August 3, 2000, total payments made by the Company on behalf of Mr. Farley's loan aggregated $3,300,000. In addition, unpaid guarantee fees owed the Company by Mr. Farley through July 29, 2000 aggregated $1,000,000. William F. Farley, former Chairman of the Company's Board of Directors, relinquished the additional duties of chief executive officer and chief operating officer in August of 1999 at the direction of the Board. The Company recorded a provision of $27,400,000 in the third quarter of 1999 for estimated future severance and retirement obligations under Mr. Farley's employment agreement. The Company terminated Mr. Farley's employment agreement in 1999. Thereafter, the Company received approval from the Bankruptcy Court to reject the agreement. 14 16 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES (DEBTOR IN POSSESSION) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) The Company has negotiated grants from the governments of the Republic of Ireland, Northern Ireland and Germany. The grants are being used for employee training, the acquisition of property and equipment and other governmental business incentives such as general employment. At July 1, 2000, the Company had a contingent liability to repay, in whole or in part, grants received of approximately $21,700,000 in the event that the Company does not meet defined average employment levels or terminates operations in the Republic of Ireland, Northern Ireland and Germany. On July 1, 1998, the New England Health Care Employees Pension Fund filed a purported class action on behalf of all those who purchased FTL, Inc. Class A Common Stock and publicly traded options between July 24, 1996 and September 5, 1997 (the "Class Period") against the Company and William F. Farley, Bernhard Hansen, Richard C. Lappin, G. William Newton, Burgess D. Ridge, Larry K. Switzer and John D. Wigodsky, each of whom is a current or former officer of the Company, in the United States District Court for the Western District of Kentucky (the "New England Action"). The plaintiff claims that the defendants engaged in conduct violating Section 10(b) of the Securities Exchange Act of 1934, as amended (the "Act"), and that the Company and Mr. Farley are also liable under Section 20(a) of the Act. According to the plaintiff, the Company, with the knowledge and assistance of the individual defendants, made certain material misrepresentations and failed to disclose certain material facts about the Company's condition and prospects during the Class Period, causing the plaintiff and the class to buy Company stock or options at artificially inflated prices. The plaintiff also alleges that during the Class Period, the individual defendants sold stock of the Company while possessing material non-public information. The plaintiff asks for unspecified amounts as damages, interest and costs and ancillary relief. The defendants filed a motion to dismiss the action, which was denied. The defendants filed a motion to change venue from Bowling Green, Kentucky, to Chicago, Illinois. That motion has been denied. All defendants have filed an answer to the complaint. Discovery has been initiated against the individual defendants and against certain third-parties. The Company filed a motion in the Bankruptcy Court seeking to enjoin further prosecution of the New England Action pending the consummation of a plan of reorganization. The Company and counsel for the plaintiff have reached agreement, subject to documentation and approval of the Bankruptcy Court, to stay the New England Action at least until January 15, 2001, subject to certain limited document discovery against non-parties (other than any current or former officers and directors) being permitted to proceed. Also, the plaintiffs may amend the complaint to add additional parties. The action is not proceeding against the Company at this time due to the automatic stay in the bankruptcy cases. Management believes that the suit is without merit, and management and the Company intend to defend it vigorously. Management believes, based on information currently available, that the ultimate resolution of this litigation will not have a material adverse effect on the financial condition or results of the operations of the Company. 15 17 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES (DEBTOR IN POSSESSION) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) In March and April 2000, eight putative class actions were filed on behalf of all those who purchased Fruit of the Loom, Inc. Class A common stock between September 28, 1998 and November 4, 1999 against William F. Farley and G. William Newton, each of whom is a current or former officer of the Company, in the United States District Court for the Western District of Kentucky. The lawsuits contain virtually identical allegations and assert the same causes of action under the Securities Exchange Act of 1934, as amended (the "Act"). The plaintiffs claim that the defendants engaged in conduct violating Section 10(b) of the Act, and that Mr. Farley is also liable under Section 20(a) of the Act. According to the plaintiffs in each action, the defendants made certain material misrepresentations and failed to disclose certain material facts about the Company's condition and prospects during the alleged class period, causing the plaintiffs and the class to purchase Company stock at artificially inflated prices. The plaintiffs ask for unspecified amounts as to damages, interest and costs and ancillary relief. The eight putative class action lawsuits are: i) Bernard Fidel v. William Farley, et al., Civil Action No. 1:00 CV-48M (W.D. Ky.), filed on March 22, 2000; ii) Tom Maiden v. William Farley, et al., Civil Action No. 1:00 CV-49M (W.D. Ky.), filed on March 27, 2000; iii) Adele Brody v. William Farley, et al., Civil Action No. 1:00 CV-50M (W.D. Ky.), filed on March 27, 2000; iv) Gregory Nespole v. William Farley, et al., Civil Action No. 1:00 CV-53M (W.D. Ky.), filed on March 29, 2000; v) Deborah Dyckman v. William Farley, et al., Civil Action No. 1:00 CV-55M (W.D. Ky.), filed on March 30, 2000; vi) The Ezra Charitable Trust v. William Farley, et al., Civil Action No. 1:00 CV-56M (W.D. Ky.), filed on March 30, 2000; vii) Steven Clinton v. William Farley, et al., Civil Action No. 1:00 CV-59M (W.D. Ky.), filed on March 31, 2000; viii) Francis Olearczyk v. William Farley, et al., Civil Action No. 1:00 CV-79M (W.D. Ky.), filed on April 27, 2000. The Company filed a motion in the Bankruptcy Court to stay these putative class actions pending consummation of a plan of reorganization. The Company and counsel for the plaintiffs in the putative class actions have reached agreement, subject to documentation and approval of the Bankruptcy Court, to stay the putative class actions at least until January 15, 2001, with the following exceptions: (a) the plaintiffs shall be permitted to file amended complaints; (b) the parties may pursue the selection of a lead plaintiff, class certification and consolidation of any of the actions; (c) the time for defendants to answer or move with respect to any complaint shall be extended to October 31, 2000; and (d) the parties may pursue document discovery, subject to limitations, of certain non-parties other than the Company or current or former officers or directors. 8. Comprehensive loss was as follows (in thousands of dollars):

16 18 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES (DEBTOR IN POSSESSION) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) 9. The following table sets forth the computation of basic and diluted earnings (loss) per common share (in thousands, except per share data):

In all periods that the Company reported losses from continuing operations, the effect of the minority exchangeable preferred stock (5,000,000 shares on an assumed conversion basis) is antidilutive and has been ignored in the computation of diluted EPS. Because the exercise prices of the Company's outstanding employee stock options exceeded the average market price of the Company's ordinary shares in each period presented, employee stock options had no impact on the calculation of weighted average shares outstanding and assumed conversions. 10. DEBTOR FINANCIAL STATEMENTS. The following represents the consolidation of the Company and its Debtor subsidiaries as of July 1, 2000 and January 1, 2000 and for the three and six months ended July 1, 2000. Investments in nondebtor subsidiaries are presented using the equity method. 17 19 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES (DEBTOR IN POSSESSION) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) FRUIT OF THE LOOM, LTD. AND DEBTOR SUBSIDIARIES (DEBTOR IN POSSESSION) SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEET (IN THOUSANDS OF DOLLARS)

18 20 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES (DEBTOR IN POSSESSION) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) FRUIT OF THE LOOM, LTD. AND DEBTOR SUBSIDIARIES (DEBTOR IN POSSESSION) SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) THREE AND SIX MONTHS ENDED JULY 1, 2000 (IN THOUSANDS OF DOLLARS)

19 21 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES (DEBTOR IN POSSESSION) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) FRUIT OF THE LOOM, LTD. AND DEBTOR SUBSIDIARIES (DEBTOR IN POSSESSION) SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JULY 1, 2000 (IN THOUSANDS OF DOLLARS)

20 22 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING INFORMATION The Company desires to provide investors with meaningful and useful information. Therefore, this Quarterly Report on Form 10-Q contains certain statements that describe the Company's beliefs concerning future business conditions and the outlook for the Company based on currently available information. Wherever possible, the Company has identified these "forward looking" statements (as defined in Section 21E of the Securities Exchange Act of 1934) by words such as "anticipates," "believes," "estimates," "expects," and similar expressions. These forward looking statements are subject to risks, uncertainties and other factors that could cause the Company's actual results, performance or achievements to differ materially from those expressed in, or implied by, these statements. These risks, uncertainties and other factors include, but are not limited to, the following: the ability of the Company to continue operating as a going concern and successfully emerge from bankruptcy pursuant to a reorganization plan that provides for the Company to remain substantially intact, the Company's ability to successfully execute its corporate strategy in a competitive marketplace, the financial strength of the retail industry, particularly the mass merchant channel, the level of consumer spending for apparel, the amount of sales of the Company's activewear screenprint products, the competitive pricing environment within the basic apparel segment of the apparel industry, the Company's ability to develop, market and sell new products, the Company's successful planning and execution of production necessary to maintain inventories at levels sufficient to meet customer demand, the Company's effective income tax rate, the success of planned advertising, marketing and promotional campaigns, international activities and the resolution of legal proceedings and other contingent liabilities, and weather conditions in the locations in which the Company manufactures and sells its products. The Company assumes no obligation to update publicly any forward looking statements, whether as a result of new information, future events or otherwise. CHAPTER 11 FILING The Company believes that its vertically-integrated organization historically made it one of the lowest-cost producers in its industry. To maintain its low cost position, the Company relocated substantially all of its domestic assembly operations offshore. In 1999, approximately 99% of the Company's garments for sale in the United States were assembled offshore compared to approximately 12% at the beginning of 1995. A number of difficulties attended this transition. Prior operating management of the Company made the decision in early 1998 to reduce inventories, close two distribution facilities and one of the Company's knitting operations. The decision to reduce inventory levels was accompanied by the temporary shutdown in the fourth quarter of 1998 of a number of the Company's textile plants. Upon resuming production in the first quarter of 1999, the level of irregular inventory increased as a result of hiring inexperienced workers. The deficiency in output from these plants and the unexpectedly strong demand for key retail and activewear products resulted in shortages of available products, which negatively impacted sales and required the Company to incur additional costs (including freight) in an attempt to maintain service levels with its major customers. The decision to close one of the Company's knitting operations extended the time required to produce necessary inventory and exacerbated the problem. In order to maintain customer service at acceptable levels, the Company increased its usage of external contractors, overtime labor, and time-sensitive and expensive methods of transporting materials and products, all of which resulted in significant unfavorable manufacturing variances. Accordingly, the Company's financial performance and cash flow in 1999 reflect these difficulties. On February 23, 2000 the Bankruptcy Court approved the Company's plan to discontinue the operations of Pro Player which had historically been unprofitable. In accordance with generally accepted accounting principles, Pro Player has been treated as a discontinued operation in the accompanying condensed consolidated financial statements. In connection with the Company's decision to discontinue the operations of Pro Player, $47,500,000 was accrued for the loss on disposal of the assets of Pro Player including a provision of $10,400,000 for expected operating losses during the phase-out period from February 24, 2000 through August 24, 2000. The Company currently estimates the phase-out period will continue until the end of the third quarter. 21 23 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION - (CONTINUED) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) In June 2000, the Company entered into an agreement to sell substantially all of the assets of its Gitano Fashions Ltd. subsidiary to VF Corp. for $17,500,000 which approximated book value. The transaction was consummated on July 7, 2000. On the closing date VF Corp. acquired the Gitano trademark and all of the Company's Gitano jeanswear inventory. In connection with the sale of inventory, the Company has agreed to provide distribution services to VF Corp. through December 2000. The Company continues to review the divestiture of certain non-core assets. A gain or loss may be recorded on the divestitures but the amount cannot be determined at this time. In addition, restructuring costs may be incurred which the Company is unable to quantify at this time. On December 29, 1999, the Debtors filed voluntary petitions for relief under Chapter 11 and are presently operating their business as debtors-in-possession subject to the jurisdiction of the Bankruptcy Court. For further discussion of the Chapter 11 cases, see Notes to Condensed Consolidated Financial Statements. Currently, there is no Company or creditor sponsored plan of reorganization. There can be no assurance that any plan of reorganization will be confirmed under the Bankruptcy Code. If the Company is unable to obtain confirmation of a plan of reorganization, its creditors or equity security holders may seek other alternatives for the Company, which include soliciting bids for the Company or parts thereof through an auction process or possible liquidation. There can be no assurance that upon consummation of a plan of reorganization there will be improvement in the Company's financial condition or results of operations. The Company has, and will continue to incur professional fees and other cash demands typically incurred in bankruptcy. The Company's consolidated financial statements have been prepared on a going concern basis which contemplates continuity of operations, realization of assets and liquidation of liabilities and commitments in the normal course of business. The Chapter 11 filing, related circumstances, and the losses from operations, raise substantial doubt about the Company's ability to continue as a going concern. The appropriateness of reporting on the going concern basis is dependent upon, among other things, confirmation of a plan of reorganization, future profitable operations, and the ability to generate sufficient cash from operations and financing sources to meet obligations (see LIQUIDITY AND CAPITAL RESOURCES and Notes to Condensed Consolidated Financial Statements). As a result of the filing and related circumstances, however, such realization of assets and liquidation of liabilities are subject to significant uncertainty. While under the protection of Chapter 11, the Debtors may sell or otherwise dispose of assets and liquidate or settle liabilities for amounts other than those reflected in the accompanying condensed consolidated financial statements. Further, a plan of reorganization could materially change the amounts reported in the accompanying condensed consolidated financial statements. The condensed consolidated financial statements do not include any adjustments relating to the recoverability of the value of recorded asset amounts or the amounts and classifications of liabilities that might be necessary as a consequence of a plan of reorganization. RESULTS OF OPERATIONS The following discussion should be read in conjunction with the accompanying condensed consolidated financial statements and related notes for the period ended July 1, 2000 and the Company's consolidated financial statements and related notes contained in the Company's Annual Report on Form 10-K for the year ended January 1, 2000. 22 24 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION - (CONTINUED) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) SPECIAL CHARGES. During the five years in the period ended January 1, 2000, the Company moved substantially all of its sewing and finishing operations to locations in the Caribbean, Mexico and Central America as part of its strategy to reduce its cost structure and remain a low cost producer in the U.S. markets it serves. In the third and fourth quarters of 1999, the Company recorded charges for provisions and losses on the sale of close-out and irregular inventory to reflect the reduced market prices for these categories of inventory, costs related to impairment of certain European manufacturing facilities, severance, a debt guarantee and other asset write-downs and reserves. In the fourth quarter of 1997, the Company recorded charges for costs related to the closing and disposal of a number of domestic manufacturing and distribution facilities, impairment of manufacturing equipment and other assets and certain European manufacturing and distribution facilities, and other costs associated with the Company's world-wide restructuring of manufacturing and distribution facilities. During 1995, the Company took several actions in an effort to substantially reduce the Company's cost structure, streamline operations and further improve customer service. These actions included the closing of certain domestic manufacturing operations, further consolidation of the Company's Gitano and licensed sportswear operations and the accelerated migration of some sewing operations to lower cost, offshore locations. No amounts were charged to results of operations during the first six months of 2000 or the first six months of 1999 related to the above noted special charges. SECOND QUARTER AND FIRST SIX MONTHS OF 2000 COMPARED WITH 1999 The table below sets forth selected operating data (in millions of dollars and as percentages of net sales).

25 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION - (CONTINUED) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) Net sales decreased $71,700,000 or 13.8% in the second quarter and $67,400,000 or 7.6% in the first six months of 2000 compared to 1999. Retail product sales decreased $27,400,000 and $16,900,000 in the second quarter and first six months of 2000 compared to 1999. Of the total, men's and boys' underwear sales decreased by $17,000,000 or 9.9% in the second quarter and $8,200,000 or 2.9% in the first six months of 2000 compared to corresponding periods of 1999. Shortfalls in men's and boys' underwear sales related to Fruit of the Loom branded basic men's and boys' cotton products, private label, BVD and Munsingwear. Intimate apparel sales increased $900,000 or 4.0% in the second quarter but decreased $6,400,000 or 14.7% in the first six months of 2000 compared to corresponding periods of 1999. The decrease in the six month period related to reduced sales of Nylon and Close Comfort product styles. Casualwear sales decreased $6,000,000 or 17.1% in the second quarter and $200,000 or 0.3% in the first six months of 2000 compared to corresponding periods of 1999. These decreases reflect a reduction in point of sale at a major customer for Tees and deferral of Fleece shipments until the 3rd quarter by a major customer. A portion of the decrease in retail is in products that the Company will no longer offer in the future. Activewear sales decreased $17,800,000 or 10.3% in the second quarter and $3,500,000 or 1.2% in the first six months of 2000 compared to corresponding periods of 1999. Activewear Tees and Fleece accounted for $13,200,000 and $2,500,000 of the second quarter decrease. Lower shipments of Activewear Tees occurred due to the impact of poor 1999 service along with increased competitive activity. Also, the Company reduced its product offerings of Activewear products. In addition, the reduction in sales resulted in part from a decrease in selling prices in the second quarter and first six months of 2000 as compared to the corresponding periods of 1999; however, activewear prices increased in the first six months of 2000 compared to the fourth quarter of 1999. The Activewear Fleece decrease in the second quarter resulted from a temporary lack of availability of certain products. European sales declined $12,400,000 or 20.7% in the second quarter and $23,000,000 or 18.4% in the first six months of 2000 compared to corresponding periods of 1999. These decreases were due primarily to unfavorable foreign currency impacts resulting from the devaluation of the Euro in relation to the U.S. dollar, price decreases on retail and activewear products and lower volume of retail products. The reduction in retail volume reflected the continuing impact of the Company's decision to pursue the up-market retail channel in 1999. The European sales decline in the six month period was partially offset by additional sales of closeouts. Closeouts accounted for approximately 59% of European retail sales in the first quarter of 2000. Sales of other products represent yarn and denim sales which the Company effectively discontinued selling subsequent to 1999. 26 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION - (CONTINUED) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) Segment net sales were as follows (in millions of dollars).

Gross earnings decreased $63,700,000 or 53.8% in the second quarter of 2000 and $126,300,000 or 62.3% in the first six months of 2000 compared to corresponding periods of 1999. Gross margin declined 10.6 percentage points to 12.3% of sales for the second quarter and 13.5 percentage points to 9.3% of sales for the first six months of 2000. Amounts charged to cost of sales in the first six months of 2000 represent costs incurred in the second half of 1999 (fourth quarter of 1999 for the second quarter of 2000) when the inventory that was sold in the first six months of 2000 was manufactured. In the second quarter of 2000, higher 1999 production costs accounted for $21,700,000 of the decline in gross earnings and price decreases (principally domestic activewear and Europe) aggregated $7,800,000. In the first six months of 2000, higher 1999 production costs accounted for $72,800,000 of the decline in gross earnings and price decreases (principally domestic activewear and Europe) aggregated $14,400,000. Management believes production costs in the first six months of 2000 were significantly less than the manufacturing costs incurred in the second half of 1999. Accordingly, the Company expects an improvement in gross margin in the third and fourths quarters of 2000. The Company provided an additional $6,000,000 for physical inventory losses in the first six months of 2000 as compared to the first six months of 1999. For both the second quarter and first six months of 2000, lower volume and unfavorable mix decreased gross earnings by $13,000,000 in the second quarter and $8,900,000 in the first six months of 2000 compared with corresponding periods of 1999. The Company experienced an operating loss in the second quarter of 2000 of $11,400,000 compared to operating earnings of $26,600,000 in the second quarter of 1999. For the first six months of 2000, the Company experienced an operating loss of $59,400,000 compared to operating earnings of $36,600,000 in the first six months of 1999. Offsetting the decrease in gross earnings were lower selling, general, and administrative expenses of $25,600,000 in the second quarter and $30,300,000 in the first six months of 2000 compared to the corresponding periods of 1999. These reductions were principally due to expenditures for Y2K remediation in 1999 and lower advertising and promotion, legal and professional and office expenses in 2000. In addition, the consolidation of the Company's sales and marketing organization resulted in lower selling, general and administrative expenses in the second quarter and first six months of 2000. Selling, general and administrative expenses as a percent of net sales decreased 3.0 percentage points to 13.5% in the second quarter and 2.2 percentage points to 15.1% in the first six months of 2000. 25 27 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION - (CONTINUED) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) Segment operating earnings (loss) were as follows (in millions of dollars).

Interest expense increased $7,100,000 to $31,300,000 in the second quarter and $15,400,000 in the first six months of 2000 to $60,600,000 compared to the corresponding periods of 1999. The increase reflected a higher average interest rate. The Company also had a higher average borrowing level reflecting the elimination of the Company's accounts receivable securitization in the fourth quarter of 1999. Although the average borrowing level was higher, the Company did not record interest on $248,500,000 of unsecured 8 7/8% senior notes (the "Unsecured Notes") in the first six months of 2000 in accordance with SOP 90-7. The Unsecured Notes are included in Liabilities Subject to Compromise in the accompanying Condensed Consolidated Balance Sheet. Other income (expense)-net in the second quarter of 2000 decreased $5,900,000 in the second quarter and $3,500,000 in the first six months of 2000 compared to the corresponding periods of 1999. Principal components of net other expense in the second quarter of 2000 included adequate protection payments (interest payments) in the amount of $1,600,000 related to the guarantee of personal indebtedness of the Company's former Chairman, bank fees of $900,000 and unfavorable currency translation of $700,000. These unfavorable impacts were partially offset by a $3,000,000 gain on marketable equity securities. Principal components of net other income in the second quarter of 1999 included an $8,000,000 gain on the sale of a facility and a $400,000 gain on marketable equity securities. These favorable impacts were partially offset by asset securitization expense of $2,100,000, a write off of debt premium fees of $2,000,000 and bank fees of $1,000,000. Principal components of net other income in the first six months of 2000 included a $15,300,000 gain on the sale of marketable equity securities partially offset by adequate protection payments (interest payments) in the amount of $2,900,000 related to the guarantee of personal indebtedness of the Company's former Chairman, bank fees of $1,600,000 and unfavorable currency translation of $2,800,000. Principal components of net other income in the first six months of 1999 included an $10,200,000 gain on the sale of two facilities, a $3,900,000 gain on previously settled litigation and a $3,900,000 gain on marketable equity securities. These favorable impacts were partially offset by asset securitization expense of $4,600,000, a write off of debt premium fees of $2,000,000 and bank fees of $2,300,000. 28 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION - (CONTINUED) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) Reorganization items represent costs incurred by the Company during the Chapter 11 cases. The reorganization items in the second quarter and first six months of 2000 aggregated $9,500,000 and $19,000,000, respectively, and consisted of professional fees, including legal, accounting and other services provided to the Company during the Chapter 11 cases. At July 1, 2000, $9,900,000 of the $19,000,000 incurred in the first six months of 2000 is accrued and included in Other accounts payable and accrued expenses in the accompanying condensed consolidated balance sheet. There is no income tax in the Cayman Islands. Income taxes do apply to results attributable to operations in the U.S. and certain other countries. The Company's income tax provision for the second quarter and first six months of 2000 consists of a provision for European income taxes. The Company recorded no U.S. tax benefit at the U.S. statutory rate of 35% on the pretax loss in the second quarter and first six months of 2000 primarily because the Company is unable to realize any current benefit from the operating loss through carrybacks to prior years, is unable under the Chapter 11 cases to implement certain income tax planning strategies and expects an operating loss for 2000. As a result of the Chapter 11 cases, the utilization of net operating loss carryforwards and tax credit carryforwards of the Company may be limited under the Internal Revenue Code. The Company is unable at the present time to quantify what, if any, limitation may apply to the tax carryforward items. The Company's effective income tax benefit for the first six months of 1999 reflected a provision projected for the full year for interest on prior years' U.S. Federal income taxes and goodwill amortization, a portion of which is not deductible for U.S. Federal income taxes. Loss per common share from continuing operations, basic and diluted, consisted of a loss of $(.83) and ($2.02), respectively, in the second quarter and first six months of 2000 compared to a earnings per common share from continuing operations, basic and diluted, of $.07 in the second quarter of 1999. The Company had no earnings or loss per common share in first six months of 1999. Average common shares were lower in the first six months of 2000 due to the exchange of common shares for FTL, Inc. Preferred Stock in the Cayman Reorganization. 27 29 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION - (CONTINUED) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES FTL, Inc. and substantially all of its subsidiaries, as debtors-in-possession, are parties to a Postpetition Credit Agreement dated as of December 29, 1999 (the "DIP Facility") with Bank of America as agent. The DIP Facility has been approved by the Bankruptcy Court and includes a total commitment of $625,000,000 which is comprised of revolving notes of $475,000,000 and a term note of $150,000,000. Letter of Credit obligations under the revolver portion of the DIP Facility are limited to $175,000,000. The DIP Facility is intended to provide the Company with the cash and liquidity to conduct its operations and pay for merchandise shipments at normal levels during the course of the Chapter 11 cases. The maximum borrowings, excluding the term commitments, under the DIP Facility are limited to the sum of 85% of eligible accounts receivable, 50%-65% of eligible inventory and the assets existing as of the Petition Date. Various percentages of the proceeds from the sales of assets (as defined in the DIP Facility) will permanently reduce the commitments under the DIP Facility. Qualification of accounts receivable and inventory items as "eligible" is subject to unilateral change at the discretion of the lenders. Availability, based on eligible accounts receivable and inventory, under the DIP Facility at July 28, 2000 was $302,800,000. The lenders under the DIP Facility have a super-priority administrative expense claim against the estates of the Debtors. The DIP Facility expires on June 30, 2001. The DIP Facility is secured by substantially all of the assets of FTL, Ltd. and its subsidiaries and a perfected pledge of stock of substantially all FTL, Ltd.'s subsidiaries, including those subsidiaries that did not file Chapter 11. The DIP Facility contains restrictive covenants including, among other things, the maintenance of minimum earnings before interest, taxes, depreciation and amortization and restructuring expenses as defined, limitations on the incurrence of additional indebtedness, liens, contingent obligations, sale of assets, capital expenditures and a prohibition on paying dividends. The DIP loan limits annual capital expenditures to a maximum of $46,000,000. The Company expects to submit a reorganization plan prior to the expiration of the DIP Facility. A component of that plan will be a financing agreement to succeed the DIP Facility. Cash used for operating activities totaled $25,700,000 in the first six months of 2000 compared with $93,900,000 used in the first six months of 1999. The current year period benefited from a reduction in inventory and from $20,300,000 in net proceeds from the liquidation of the Pro Player business. Inventory increased in the first six months of 1999, and discontinued operations used $35,100,000. In the first six months of 2000, the primary factors in reconciling from the loss from continuing operations of $135,100,000 to cash used for operating activities of $25,700,000 were a decrease in working capital of $66,000,000, depreciation and amortization of $60,700,000, and cash flows of $20,300,000 from discontinued operations, partially offset by a gain on marketable equity securities of $15,800,000 and $9,100,000 of reorganization payments. In the first six months of 1999, the primary factors in reconciling from the loss from continuing operations of $400,000 to cash used for operating activities totaling $93,900,000 were an increase in working capital of $68,900,000, cash flows of $35,100,000 used by discontinued operations, and currency translation of $12,700,000, partially offset by depreciation and amortization of $59,900,000. 28 30 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION - (CONTINUED) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) Net cash provided by investing activities in the first six months of 2000 was $9,600,000 compared with cash used for investing activities totaling $17,700,000 in the first six months of 1999. Capital expenditures were lower ($5,500,000 in the first six months of 2000 compared with $21,700,000 in the first six months of 1999). In addition, proceeds from the sale of marketable equity securities aggregated $14,100,000 in the first six months of 2000. Net cash used for investing activities in the first six months of 1999 included payments of $8,400,000 under the minimum value guarantee provision of the Company's synthetic lease agreement and a repayment of $6,800,000 of employment grants under agreement with the Republic of Ireland. Capital spending, primarily to support offshore assembly operations, is anticipated to approximate $40,000,000 in 2000. Net cash provided by financing activities was $22,300,000 in the first six months of 2000 (consisting of net proceeds from DIP financing), compared with net cash provided by financing activities of $129,800,000 in the first six months of 1999 due to the unfavorable operating and investing cash flows. In December 1996, the Company entered into a three-year receivables purchase agreement that enabled it to sell to a third party up to a $250,000,000 undivided interest in a defined pool of its trade accounts receivable. The maximum amount outstanding as defined under the agreement varied based upon the level of eligible receivables. The agreement was refinanced in the fourth quarter of 1999 and increased to $275,000,000 and subsequently terminated with the Company's bankruptcy filing. Consequently, none of the Company's trade receivables were securitized at July 1, 2000. Under the agreement, approximately $283,300,000 of eligible net receivables at July 1, 1999 were sold to the Company's unconsolidated receivable financing subsidiary, reducing consolidated notes and accounts receivable. Proceeds of approximately $246,300,000 from the ultimate purchaser outstanding at July 1, 1999 were used to reduce borrowings under the Company's revolving lines of credit. The Company believes that cash on hand, amounts available under the DIP Facility and funds from operations will enable the Company to meet its current liquidity and capital expenditure requirements during the Bankruptcy cases, although no assurances can be given in this regard. Until a plan of reorganization is approved, the Company's long-term liquidity and the adequacy of its capital resources cannot be determined. Inherent in a successful plan of reorganization is a capital structure which permits the Company to generate sufficient cash flow after reorganization to meet its restructured obligations and fund the current obligations of the Company. Under the Bankruptcy Code, the rights and treatment of pre-petition creditors and stockholders may be substantially altered. At this time, it is not possible to predict the outcome of the Chapter 11 cases, in general, or the effects of such cases on the business of the Company or on the interests of creditors and stockholders. Management believes that it is highly unlikely that current equity security holders will receive any distribution under any reorganization plan as a result of the issuance of new equity to existing creditors. The Company's debt instruments, principally its bank agreements, contain covenants restricting its ability to sell assets, incur debt, pay dividends and make investments and requiring the Company to maintain certain financial ratios. The Company is in default under the debt instruments. 29 31 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. EXHIBITS 3(a)* Amended and Restated Memorandum of Association of Fruit of the Loom, Ltd. (incorporated herein by reference to Exhibit 3(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended April 3, 1999). 3(b)* Amended and Restated Articles of Association of Fruit of the Loom, Ltd. (incorporated herein by reference to Exhibit 3(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended April 3, 1999). 4(a)* $900,000,000 Credit Agreement dated as of September 19, 1997 (the "Credit Agreement"), among the several banks and other financial institutions from time to time parties thereto (the "Lenders"), NationsBank, N.A., as administrative agent for the Lenders thereunder, Chase Manhattan Bank, Bankers Trust Company, The Bank of New York and the Bank of Nova Scotia, as co-agents (incorporated herein by reference to Exhibit 4(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). 4(b)* Rights Agreement, dated as of March 8, 1996 between Fruit the Loom, Inc. and Chemical Mellon Shareholder Services, L.L.C., Rights Agent (incorporated herein by reference to Exhibit 4(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 4(c)* First Amendment to Credit Agreement dated March 26, 1998; Second Amendment to Credit Agreement dated July 2, 1998; Third Amendment to Credit Agreement dated December 31, 1998; Fourth Amendment to Credit Agreement dated March 10, 1999; Second Amended and Restated Pledge Agreement dated March 10, 1999 related to the Credit Agreement; and Bond Pledge Agreement dated March 10, 1999 related to the Credit Agreement (incorporated herein by reference to Exhibit 4(c) to Fruit of the Loom, Inc.'s Annual Report on Form 10-K for the year ended January 2, 1999). 4(d)* Indenture dated as of March 25, 1999, among Fruit of the Loom, Inc., as issuer, Fruit of the Loom, Ltd., as guarantor, certain subsidiaries of Fruit of the Loom, Inc., as guarantors, and The Bank of New York, as trustee of the 87/8% senior Notes due 2006 (incorporated herein by reference to Exhibit 4(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended April 3, 1999). 4(e)* Fifth Amendment to Credit Agreement dated July 20, 1999 (incorporated herein by reference to exhibit 4(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999). 4(f)* Security Agreement dated March 10, 1999 (incorporated herein by reference to Exhibit 4(e) to the Company's Quarterly Report on Form 10-Q for the quarter ended October 2, 1999). 4(g)* First Amendment to Security Agreement dated July 20, 1999 (incorporated herein by reference to Exhibit 4(f) to the Company's Quarterly Report on Form 10-Q for the quarter ended October 2, 1999). 4(h)* Sixth Amendment to Credit Agreement and Limited Waiver dated October 13, 1999 (incorporated herein by reference to Exhibit 4(g) to the Company's Quarterly Report on Form 10-Q for the quarter ended October 2, 1999). 4(i)* Loan and Security Agreement dated as of October 29, 1999, among the financial institutions from time to time parties thereto (the "Bank Lenders"), Bank of America, National Association as administrative "Agent" for the Bank Lenders, Banc of America Securities LLC, as "Syndication Agent", and FTL Receivables Company, as "Borrower" (incorporated herein by reference to Exhibit 4(h) to the Company's Quarterly Report on Form 10-Q for the quarter ended October 2, 1999). 30 32 FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES PART II. OTHER INFORMATION - (CONTINUED) ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED) A. EXHIBITS (CONTINUED) 4(j)* $625,000,000 Debtor-in-Possession Credit Facility dated as of December 29, 1999, with Bank of America, N.A. (incorporated by reference to the Company's Current Report on Form 8-K dated December 29, 1999). 27 Financial Data Schedule. * Previously filed. The Registrant has not listed nor filed as an Exhibit to this Quarterly Report certain instruments with respect to long-term debt representing indebtedness of the Registrant and its subsidiaries which do not individually exceed 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis. Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the Registrant agrees to furnish such instruments to the Securities and Exchange Commission upon request. B. REPORTS ON FORM 8-K No reports on Form 8-K were filed by the Registrant during the quarter ended July 1, 2000. 31 33 SIGNATURE Pursuant to the requirements 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. FRUIT OF THE LOOM, LTD. (REGISTRANT) /s/ G. WILLIAM NEWTON ---------------------------------------------------- G. William Newton Vice President Finance and Acting Chief Financial Officer (Principal Financial Officer and duly authorized to sign on behalf of Registrant) Date: August 15, 2000 32

FRUIT OF THE LOOM LTD 10-Q