88
He explained his thinking to Berkshire shareholders: “John
Holland was responsible for Fruit’s operations in its most boun-
tiful years.... [After the bankruptcy] John was rehired, and he
undertook a major reworking of operations. Before John’s re-
turn, deliveries were chaotic, costs soared, and relations with key
customers deteriorated....He’s been restoring the old Fruit of
the Loom, albeit in a much more competitive environment. [In
our purchase offer] we insisted on a very unusual proviso: John
had to be available to continue serving as CEO after we took
over. To us, John and the brand are Fruit’s key assets.”^7
Since Holland took the reins, Fruit of the Loom has under-
gone a massive restructuring to lower its costs. It slashed its
freight costs, reduced overtime, and trimmed inventory levels. It
disposed of sideline businesses, eliminated unprof itable product
lines, found new eff iciencies in manufacturing process, and
worked to restore customer satisfaction by f illing orders on time.
Almost immediately, improvement was apparent. Earnings
increased, operating expenses decreased. In 2000, gross earnings
rose by $160.3 million—a 222 percent increase—compared to
1999, and gross margin increased 11 percentage points. The
company reported an operating loss in 2000 of $44.2 million,
compared to the 1999 loss of $292.3 million. Even more reveal-
ing of improvement are the fourth-quarter results—an operating
loss of $13.5 million (which included one-time consolidation
costs related to the closure of four U.S. plants) in 2000, com-
pared to $218.6 million—more than sixteen times greater—just
one year earlier.
In 2001, the positive trend continued. Gross earnings grew
another $72.5 million, a 31 percent increase over 2000, and gross
margin increased 7.7 percentage points to 22.7 percent for the
year. That means the company ended 2001 with operating earn-
ings of $70.1 million, compared to 2000’s $44.2 million loss.
Of course monumental problems such as the company faced
are not fully corrected overnight, and Fruit of the Loom must
still operate in a ferociously competitive industry environment,
but so far Buffett is pleased with the company’s performance.