UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
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 No. 1-5137
FIELDCREST CANNON, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 56-0586036
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
326 East Stadium Drive
Eden, N.C. 27288
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (910) 627-3000
Former name, former address and former fiscal year, if changed since
last report N/A
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 and
(2) has been subject to such filing requirements for the past 90
days. Yes x . No .
Number of shares outstanding October 31, 1994
Common Stock 8,727,690
Total Pages 12
Exhibit Index Page 10
PART 1. FINANCIAL INFORMATION
FIELDCREST CANNON, INC.
Consolidated statement of financial position
September 30, December 31,
Dollars in thousands 1994 1993
Assets
Cash $ 3,945 $ 3,865
Accounts receivable net, principally trade 168,938 164,419
Inventories (note 3) 247,468 209,834
Net assets held for sale 31,380 32,536
Other prepaid expenses and current assets 3,288 2,491
Total current assets 455,019 413,145
Plant and equipment, net 296,929 294,277
Deferred charges and other assets 30,691 33,024
Total assets $782,639 $740,446
Liabilities and shareowners' equity
Accounts and drafts payable $ 53,121 $ 61,365
Federal and state income taxes 3,498 262
Deferred income taxes 21,508 14,799
Accrued liabilities 62,845 65,996
Current portion of long-term debt 1,800 8,397
Total current liabilities 142,772 150,819
Senior long-term debt 119,188 84,611
Subordinated long-term debt 210,000 210,000
Total long-term debt 329,188 294,611
Deferred income taxes 33,885 35,182
Other non-current liabilities 62,842 66,504
Total liabilities 568,687 547,116
Shareowners' equity:
Preferred Stock, $.01 par value,
10,000,000 authorized, 1,500,000 issued
and outstanding September 30, 1994 and
December 31, 1993 (aggregate liquidation
preference of $75,000) 15 15
Common Stock, $1 par value,
25,000,000 authorized, 12,334,090 issued
September 30, 1994 and 12,186,167
December 31, 1993 12,334 12,186
Additional paid in capital 215,992 212,799
Minimum pension liability adjustment (7,480) (7,480)
Retained earnings 110,316 93,035
Excess purchase price for Common Stock
acquired and held in treasury -
3,606,400 shares (117,225) (117,225)
Total shareowners' equity 213,952 193,330
Total liabilities and shareowners' equity $782,639 $740,446
/TABLE
See accompanying notes
(2)
FIELDCREST CANNON, INC.
Consolidated statement of income and retained earnings
For the three months For
the nine months
Dollars in thousands, ended September 30 ended September 30
except per share data 1994 1993 1994 1993
Net sales $279,283 $256,710 $766,364 $717,175
Cost of sales 235,025 213,755 644,248 598,052
Selling, general and administrative 24,092 25,484 70,069 75,751
Restructuring charges (note 4) - 10,000 - 10,000
Total operating costs and expenses 259,117 249,239 714,317 683,803
Operating income 20,166 7,471 52,047 33,372
Other deductions (income):
Interest expense 5,776 6,457 17,287 21,624
Other, net 495 (636) 898 (1,046)
Total other deductions 6,271 5,821 18,185 20,578
Income from continuing operations
before income taxes,
and accounting changes 13,895 1,650 33,862 12,794
Federal and state income taxes 5,419 2,157 13,206 6,498
Income (loss) from continuing
operations before accounting changes 8,476 (507) 20,656 6,296
Income (loss) from discontinued
operations - (820) - 3,201
Gain from disposition of discontinued
operations - 9,207 - 9,207
Cumulative effect of accounting
changes - - - (70,305)
Net income (loss) 8,476 7,880 20,656 (51,601)
Preferred dividends (1,125) - (3,375) -
Earnings (loss) on Common 7,351 7,880 17,281 (51,601)
Amount added to (subtracted from)
retained earnings 7,351 7,880 17,281 (51,601)
Retained earnings, beginning
of period 102,965 76,948 93,035 136,429
Retained earnings, end of period $110,316 $84,828 $110,316 $ 84,828
Income (loss) per common share:
Income from continuing operations
before accounting changes $ .84 $ (.04) $ 1.99 $ .52
Income (loss) from discontinued
operations - (.07) - .27
Gain from disposition of
discontinued operations - .76 - .76
Cumulative effect of accounting
changes - - - (5.82)
Net income (loss) per
common share $ .84 $ .65 $ 1.99 $ (4.27)
Fully diluted income (loss)
per common share $ .68 $ .60 $ 1.71 $ -
Average primary shares outstanding 8,722,222 12,136,219 8,679,958 12,081,307
Average fully diluted shares
outstanding 14,111,662 14,961,078 14,070,155 12,082,559
See accompanying notes
(3)
FIELDCREST CANNON, INC.
Consolidated statement of cash flows
Nine Months
ended September 30
Dollars in thousands 1994 1993
Increase (decrease) in cash
Cash flows from operating activities:
Net income (loss) $ 20,656 $(51,601)
Adjustments to reconcile net income to
net cash provided by operating activities:
Cumulative effect of accounting changes - 70,305
Income and gain on sale
from discontinued operations - (12,408)
Depreciation and amortization 22,473 23,899
Deferred income taxes (1,297) (6,404)
Other 1,932 11,829
Change in current assets and liabilities,
excluding effects of disposition
of discontinued operations:
Accounts receivable (4,519) (8,856)
Inventories (37,634) (30,872)
Other prepaid expenses and current assets (797) (580)
Accounts payable and accrued liabilities (11,395) (1,591)
Federal and state income taxes 3,236 10,771
Deferred income taxes 6,709 1,772
Net assets of discontinued operations - (10,705)
Net cash (used in) continuing
operating activities (636) (4,441)
Cash (used in) discontinued operations - (17,405)
Net cash (used in) operating activities (636) (21,846)
Cash flows from investing activities:
Additions to plant and equipment (26,672) (7,328)
Proceeds from disposal of plant and equipment 1,547 10,565
Proceeds from net assets held for sale 1,156 -
Proceeds from disposition of
discontinued operations - 139,167
Net cash provided by (used in)
investing activities (23,969) 142,404
Cash flows from financing activities:
Increase (decrease) in revolving debt
and other short-term debt 29,062 (112,674)
Proceeds from issuance of common stock 80 39
Proceeds from issuance of long-term debt 10,000 -
Payments on long-term debt (11,082) (8,240)
Dividends paid (3,375) -
Net cash provided by (used in)
financing activities 24,685 (120,875)
Net increase (decrease) in cash 80 (317)
Cash at beginning of year 3,865 4,665
Cash at end of period $ 3,945 $ 4,348
See accompanying notes
(4)
FIELDCREST CANNON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
1. Basis of Presentation
The consolidated financial statements are unaudited. In the opinion of
management all adjustments, consisting only of normal recurring items,
have been made which are necessary to show a fair presentation of the
financial position of the Company at September 30, 1994 and the related
results of operations for the three and nine months ended September 30,
1994 and 1993. The unaudited consolidated financial statements should
be read in conjunction with Form 10-K for the year ended December 31,
1993.
2. Income Per Common Share
Reference is made to Exhibit 11 to this Form 10-Q for a computation of
primary and fully-diluted net income per share.
3. Inventories
Inventories are classified as follows:
September 30, December 31,
(In thousands) 1994 1993
Finished goods $134,691 $110,223
Work in process 76,997 65,025
Raw materials and supplies 35,780 34,586
$247,468 $209,834
At September 30, 1994 approximately 77% of the inventories were valued
on the last-in, first-out method (LIFO).
4. Concurrent with the purchase of the capital stock of Amoskeag Company
the Company implemented a number of programs in 1993 to reduce overhead
and cut costs. As a result of this process, restructuring charges were
incurred in 1993 which reduced pre-tax operating income by $10 million.
The restructuring charges include $8 million for the cost of a
voluntary early retirement program which was accepted by 184 employees
and severance for additional staff reductions, and $2 million for
direct non-recurring expenses incurred by the Company in evaluating the
purchase of the capital stock of Amoskeag Company. These expenses did
not contribute to the ultimate consummation of the tender offer to
acquire Amoskeag Company. These charges reduced net income by $6.1
million, or $.50 per primary share, in the third quarter of 1993.
(5)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Changes in Financial Condition
The Company's debt increased $28.0 million during the first nine
months of 1994. Inventories increased $37.6 million due to
normal seasonal inventory build-up and to meet anticipated higher
customer orders for the last quarter of the year. Cash flows
from other operating activities provided the cash necessary to
fund the inventory build-up. Capital expenditures totaled $26.7
million for the first nine months of 1994 compared to $7.3
million for the first nine months of 1993. Capital expenditures
for 1994 are expected to be approximately $50 million compared to
$21.6 million in 1993. Included in the 1994 expenditures is the
start of a $90 million capital project for a new weaving plant at
the Company's Columbus, Ga./ Phoenix City, Ala. towel mill. At
September 30, 1994, approximately $34 million of the Company's
$150 million revolving credit facility was available and unused.
It is anticipated that financing of future capital expenditures
will be provided by cash flows from operations, borrowings under
the Company's revolving credit facility, and, possibly, the sale
of long-term debt or equity securities.
On June 24, 1994, the Company entered into a letter of intent to
sell the Bangor and Aroostock Railroad Company. At this time no
definitive agreement has been signed and no assurances can be
given that such an agreement will be reached. If such sale is
consummated, proceeds will be used to reduce borrowings under the
revolving credit facility.
Changes in Results of Operations
Quarter Ended September 30, 1994 vs. Quarter Ended
September 30, 1993
Net sales from continuing operations in the third quarter of 1994
were $279.3 million compared to $256.7 million in the third
quarter of 1993, an increase of 8.8%. The increase was due
primarily to higher unit shipments to all major distribution
channels and to a lesser extent to price increases implemented
during the third quarter.
Selling, general and administrative expenses decreased as a
percentage of sales from 9.9% to 8.6% in the third quarter of
1994 compared to the same quarter of 1993. The decrease was due
primarily to reduced costs resulting from the voluntary early
retirement program implemented in late 1993, lower bad debt
expense and a decrease in other selling expenses. See Note 4 to
Notes to Consolidated Financial Statements.
(6)
Operating income as a percentage of sales increased to 7.2% in
the third quarter of 1994 from 6.8% in the third quarter of 1993
before the $10 million of restructuring charges. The improvement
resulted primarily from the increase in net sales and lower
selling, general and administrative expenses.
Interest expense was $.7 million less in the third quarter of
1994 primarily due to the reduction of debt with the proceeds
from sale of the carpet and rug division in July 1993.
Income taxes for the third quarter of 1993 include $1.4 million
of expense resulting from the increase in the federal statutory
income tax rate from 34% to 35%.
Income from continuing operations was $8.5 million, or $.84 per
common share after preferred dividends, in the third quarter of
1994 compared to a loss of $.5 million, or $.04 per common share,
in the third quarter of 1993. Without the adjustment for the
non-recurring $10 million restructuring charge ($6.1 million
after-tax), and the $1.4 million increase in income taxes, income
from continuing operations for 1993 would have been $7.0 million,
or $.58 per share.
Nine Months Ended September 30, 1994 vs. Nine Months Ended
September 30, 1993
Net sales from continuing operations for the first nine months of
1994 were $766.4 million compared to $717.2 million for the
corresponding period last year, an increase of 7%. The increase
was due primarily to increased volume and to a lesser extent to
price increases implemented during the third quarter of 1994.
The price increases reflect recent increases in cotton and
polyester market prices and other cost increases.
Selling, general and administrative expenses decreased as a
percentage of sales from 10.6% to 9.1% in the first nine months
of 1994 compared to the same period of 1993. The decrease was
due primarily to reduced costs resulting from the voluntary early
retirement program implemented in late 1993, lower bad debt
expense and a decrease in other selling expenses. See Note 4 to
Notes to Consolidated Financial Statements.
Operating income as a percentage of sales increased to 6.8% in
the first nine months of 1994 from 6.0% in the first nine months
of 1993 before the $10 million of restructuring charges. The
improvement resulted primarily from the lower selling, general
and administrative expenses and higher mill activity levels.
Interest expense was $4.3 million less in the first nine months
of 1994 primarily due to the reduction of debt with the proceeds
from sale of the carpet and rug division in July 1993 and lower
borrowing rates.
Income taxes for 1993 include $1.4 million of expense resulting
from the increase in the federal statutory income tax rate from
34% to 35%.
(7)
Income from continuing operations before accounting changes was
$20.7 million, or $1.99 per common share after preferred
dividends, in the first nine months of 1994 compared to $6.3
million, or $.52 per common share, in the first nine months of
1993. Without the adjustment for the non-recurring $10 million
restructuring charge ($6.1 million after-tax) and the $1.4
million increase in income taxes, income from continuing
operations for 1993 would have been $13.8 million, or $1.14 per
share.
Effective January 1, 1993, the Company adopted FAS 106,
"Employers' Accounting for Postretirement Benefits other than
Pensions" and FAS 109, "Accounting for Income Taxes". The
cumulative effect of the accounting changes reduced net income
for the first nine months of 1993 by $70.3 million, or $5.82 per
common share, but had no cash impact.
Net income for the first nine months of 1994 was $20.7 million,
or $1.99 per common share after preferred dividends, compared to
a loss of $51.6 million, or $4.27 per common share, in the first
nine months of 1993.
PART II. OTHER INFORMATION
FIELDCREST CANNON, INC.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11. Computation of Primary and Fully Diluted Net
Income (Loss) Per Share.
(b) Reports on Form 8-K
The Registrant did not file any reports to the
Commission
on Form 8-K for the quarter ended September 30, 1994.
(8)
S I G N A T U R E S
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.
FIELDCREST CANNON, INC.
(Registrant)
BY: (signed) T. R. Staab
T. R. Staab
Vice President
and Chief Financial Officer
Date: November 10, 1994
(9)
EXHIBIT INDEX TO
QUARTERLY REPORT ON FORM 10-Q FOR
FIELDCREST CANNON, INC.
FOR THE QUARTER ENDED SEPTEMBER 30, 1994
Exhibit Page
Number Description Number
(11) Computation of Primary and Fully
Diluted Net Income (Loss) Per Share 11-12
(10)
Exhibit 11
Computation of Primary and Fully Diluted Net Income (Loss) Per Share
For the three months For the nine months
ended September 30 ended September 30
1994 1993 1994 1993
Average shares outstanding 8,705,138 12,113,115 8,661,091 12,057,367
Add shares assuming exercise of
options reduced by the number
of shares which could have been
purchased with the proceeds from
exercise of such options 17,084 23,104 18,867 23,940
Average shares and equivalents
outstanding, primary 8,722,222 12,136,219 8,679,958 12,081,307
Average shares outstanding 8,705,138 12,113,115 8,661,091 12,057,367
Add shares giving effect to the
conversion of the convertible
subordinated debentures 2,824,859 2,824,859 2,824,859 (1)
Add shares giving effect to the
conversion of the convertible
preferred stock 2,564,100 - 2,564,100 -
Add shares assuming exercise of
options reduced by the number
of shares which could have been
purchased with the proceeds from
exercise of such options 17,565 23,104 20,105 25,192
Average shares and equivalents
outstanding, assuming full
dilution 14,111,662 14,961,078 14,070,155 12,082,559
Primary Earnings
Income (loss) from continuing operations
before accounting changes $ 8,476,000 $ (507,000) $20,656,000 $ 6,296,000
Income (loss) from discontinued
operations - (820,000) - 3,201,000
Gain from disposition of
discontinued operations - 9,207,000 - 9,207,000
Cumulative effect of accounting
changes - - -
(70,305,000)
Net income (loss) $ 8,476,000 $ 7,880,000 $ 2 0 , 6 5 6 , 0 0 0
$(51,601,000)
Preferred dividends (1,125,000) - (3,375,000) -
Earnings (loss) on Common $ 7,351,000 $ 7,880,000 $ 1 7 , 2 8 1 , 0 0 0
$(51,601,000)
(11)
Exhibit 11
Computation of Primary and Fully Diluted Net Income (Loss) Per Share (continued)
For the nine months For the nine months
ended September 30 ended September 30
1994 1993 1994 1993
Primary earnings (loss) per share
Income (loss) from continuing
operations before charge
and accounting changes $ .84 $ (.04) $ 1.99 $ .52
Income (loss) from discontinued
operations - (.07) - .27
Gain from disposition of
discontinued operations - .76 - .76
Cumulative effect of
accounting changes - - - (5.82)
Net income (loss) $ .84 $ .65 $ 1.99 $ (4.27)
Fully Diluted Earnings
Income (loss) from continuing
operations before
accounting change $7,351,000 $ (507,000) $17,281,000 $ 6,296,000
Add convertible subordinated
debenture interest, net of taxes 1,144,000 1,144,000 3,431,000 (1)
Add convertible preferred dividends 1,125,000 - 3,375,000 -
Income from continuing operations
before accounting changes
as adjusted 9,620,000 637,000 24,087,000 6,296,000
Income (loss) from discontinued
operations - (820,000) - 3,201,000
Gain from disposition of
discontinued operations - 9,207,000 - 9,207,000
Cumulative effect of accounting
changes - - - (70,305,000)
Net income (loss) $9,620,000 $9,024,000 $24,087,000 $(51,601,000)
Fully diluted earnings (loss)
per common share
Income before accounting changes $ .68 $ .60 $ 1.71 $ 1.55
Cumulative effect of accounting
changes - - - (3)
Net Income (loss) $ .68 $ .60(2) $ 1.71 $ (3)
(1) The assumed conversion of the Registrant's Convertible
Subordinated Debentures for the nine months ended September
30, 1993 would have an anti-dilutive effect for the
computation of earnings per share; therefore exercise has
not been assumed for this period.
(2) Fully diluted income per share from continuing operations
for the three months ended September 30, 1993 is not
presented as effects are anti-dilutive.
(3) Fully diluted net income per share for the nine months ended
September 30, 1993 is not presented as effect is anti-
dilutive.
(12)