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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended June 29, 1996
Commission file number: 1-11756
PILLOWTEX CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 75-2147728
(State of incorporation) (IRS Employer Identification No.)
4111 Mint Way
Dallas, Texas
75237
(Address of principal executive offices)
(Zip Code)
(214) 333-3225
(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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS Outstanding at August 5, 1996
Common Stock, $0.01 par value 10,617,722
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PILLOWTEX CORPORATION AND SUBSIDIARIES
INDEX
Part I - Financial Information Page No.
Item 1. Interim Financial Statements:
Consolidated Balance Sheets as of
June 29, 1996 and December 30, 1995 3
Consolidated Statements of Earnings for the three months
ended June 29, 1996 and July 1, 1995 4
Consolidated Statements of Earnings for the six months
ended June 29, 1996 and July 1, 1995 5
Consolidated Statements of Cash Flows for the six months
ended June 29, 1996 and July 1, 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II - Other Information
Item 4. Submission of Matter to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
Index to Exhibits 13
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 29, 1996 and December 30, 1995
(Dollars in thousands, except par value)
(Audited, except as noted)
ASSETS 1996 1995
---------- ----------
(Unaudited)
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 11 411
Receivables:
Trade, less allowance for doubtful accounts of
$1,926 and $2,195 in 1996 and 1995, respectively. . . 53,275 71,684
Other . . . . . . . . . . . . . . . . . . . . . . . . . 5,275 2,284
Inventories . . . . . . . . . . . . . . . . . . . . . . . 142,505 107,404
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . 2,390 1,644
Deferred income taxes . . . . . . . . . . . . . . . . . . 2,457 2,419
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Total current assets. . . . . . . . . . . . . . . . . . 205,913 185,846
Property, plant and equipment, less accum. depreciation
of $38,576 and $33,411 in 1996 and 1995, respectively . . 80,140 84,567
Intangible assets, at cost, less accum. amortization of
$3,144 and $2,500 in 1996 and 1995, respectively. . . . . 50,714 51,779
Other assets . . . . . . . . . . . . . . . . . . . . . . . 2,365 2,518
---------- ----------
$ 339,132 324,710
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . $ 35,950 42,090
Accrued expenses. . . . . . . . . . . . . . . . . . . . . 17,488 21,137
Current portion of long-term debt . . . . . . . . . . . . 11,467 11,916
Income taxes payable. . . . . . . . . . . . . . . . . . . 467 575
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Total current liabilities . . . . . . . . . . . . . . . 65,372 75,718
Long-term debt, net of current portion . . . . . . . . . . 176,207 153,472
Deferred income taxes. . . . . . . . . . . . . . . . . . . 8,129 7,530
Shareholders' equity:
Preferred stock, $0.01 par value; authorized 20,000,000
shares; none issued and outstanding. . . . . . . . . . . - -
Common stock, $0.01 par value; authorized 30,000,000
shares; 10,617,722 shares issued and outstanding . . . . 106 106
Additional paid-in capital. . . . . . . . . . . . . . . . 58,427 58,427
Retained earnings . . . . . . . . . . . . . . . . . . . . 31,036 29,666
Currency translation adjustment . . . . . . . . . . . . . (145) (209)
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Total shareholders' equity. . . . . . . . . . . . . . . 89,424 87,990
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$ 339,132 324,710
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See accompanying notes to consolidated financial statements.
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended June 29, 1996 and July 1, 1995
(In thousands, except per share data)
(Unaudited)
1996 1995
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Net sales. . . . . . . . . . . . . . . . . . . . . . . . . $ 91,185 90,788
Cost of goods sold . . . . . . . . . . . . . . . . . . . . 75,570 74,662
---------- ----------
Gross profit . . . . . . . . . . . . . . . . . . . . . . 15,615 16,126
Selling, general and administrative expenses . . . . . . . 9,942 9,978
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Earnings from operations . . . . . . . . . . . . . . . . 5,673 6,148
Interest expense . . . . . . . . . . . . . . . . . . . . . 3,217 4,338
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Earnings before income taxes . . . . . . . . . . . . . . 2,456 1,810
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 965 722
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Net earnings . . . . . . . . . . . . . . . . . . . . . . $ 1,491 1,088
========== ==========
Net earnings per common share and common
share equivalent . . . . . . . . . . . . . . . . . . . . $ .14 .10
========== ==========
Weighted average common shares and common share equivalents
outstanding. . . . . . . . . . . . . . . . . . . . . . . 10,618 10,618
========== ==========
See accompanying notes to consolidated financial statements.
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Six Months Ended June 29, 1996 and July 1, 1995
(In thousands, except per share data)
(Unaudited)
1996 1995
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Net sales. . . . . . . . . . . . . . . . . . . . . . . . . $ 191,979 185,528
Cost of goods sold . . . . . . . . . . . . . . . . . . . . 160,796 152,948
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Gross profit . . . . . . . . . . . . . . . . . . . . . . 31,183 32,580
Selling, general and administrative expenses . . . . . . . 20,556 20,549
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Earnings from operations . . . . . . . . . . . . . . . . 10,627 12,031
Interest expense . . . . . . . . . . . . . . . . . . . . . 6,615 8,274
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Earnings before income taxes . . . . . . . . . . . . . . 4,012 3,757
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 1,580 1,507
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Net earnings . . . . . . . . . . . . . . . . . . . . . . $ 2,432 2,250
========== ==========
Net earnings per common share and common
share equivalent . . . . . . . . . . . . . . . . . . . . $ .23 .21
========== ==========
Weighted average common shares and common share equivalents
outstanding. . . . . . . . . . . . . . . . . . . . . . . 10,618 10,618
========== ==========
See accompanying notes to consolidated financial statements.
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 29, 1996 and July 1, 1995
(Dollars in thousands)
(Unaudited)
1996 1995
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Cash flows from operating activities:
Net earnings. . . . . . . . . . . . . . . . . . . . . . . $ 2,432 2,250
Adjustments to reconcile net earnings to net cash used in
operating activities:
Depreciation and amortization . . . . . . . . . . . . . 6,253 5,798
Deferred income taxes . . . . . . . . . . . . . . . . . 560 409
Provision for doubtful accounts . . . . . . . . . . . . (212) 208
Loss on disposal of property, plant and equipment . . . 5 2
Changes in assets and liabilities:
Trade receivables . . . . . . . . . . . . . . . . . . 18,592 19,237
Inventories . . . . . . . . . . . . . . . . . . . . . (35,102) (40,786)
Accounts payable. . . . . . . . . . . . . . . . . . . (1,788) (7,933)
Accrued expenses. . . . . . . . . . . . . . . . . . . (3,528) (266)
Other assets and liabilities. . . . . . . . . . . . . (3,712) (2,101)
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Net cash used in operating activities. . . . . . . . (16,500) (23,182)
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Cash flows from investing activities:
Proceeds from sale of property, plant and equipment . . . 16 33
Purchases of property, plant and equipment. . . . . . . . (1,368) (6,124)
Payments for businesses purchased . . . . . . . . . . . . (112) (1,670)
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Net cash used in investing activities. . . . . . . . (1,464) (7,761)
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Cash flows from financing activities:
Net borrowings on revolving credit loans. . . . . . . . . 38,100 20,550
Increase (decrease) in checks not yet presented for
payment. . . . . . . . . . . . . . . . . . . . . . . . . (4,006) 11,855
Principal payments on long-term debt. . . . . . . . . . . (15,469) (925)
Dividends paid. . . . . . . . . . . . . . . . . . . . . . (1,062) -
Debt issuance costs . . . . . . . . . . . . . . . . . . . - (317)
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Net cash provided by financing activities. . . . . . 17,563 31,163
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Effect of exchange rate changes on cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . . . 1 4
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Net change in cash and cash equivalents. . . . . . . . . . (400) 224
Cash and cash equivalents at beginning of period . . . . . 411 571
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Cash and cash equivalents at end of period . . . . . . . . $ 11 795
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . $ 7,961 7,446
Income taxes . . . . . . . . . . . . . . . . . . . . . . 2,124 2,621
See accompanying notes to consolidated financial statements
PILLOWTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tables in thousands of dollars)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include all
adjustments, consisting of normal, recurring adjustments and accruals, which
are, in the opinion of management, necessary for fair presentation of the
results of operations and financial position. Certain reclassifications have
been made to conform prior year financial statements to the current period
classifications. The consolidated financial statements should be read in
conjunction with the financial statements included in the Company's annual
report on Form 10-K filed with the Securities and Exchange Commission on March
29, 1996 for the fiscal year ended December 30, 1995.
(2) INVENTORIES
Inventories consisted of the following at June 29, 1996 and December 30,
1995:
1996 1995
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Finished goods . . . . . . . . . . . . . . . . . . . $ 67,797 37,670
Work-in-process. . . . . . . . . . . . . . . . . . . 37,083 35,980
Raw materials. . . . . . . . . . . . . . . . . . . . 35,608 31,851
Supplies . . . . . . . . . . . . . . . . . . . . . . 2,017 1,903
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$ 142,505 107,404
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(3) EARNINGS PER COMMON SHARE
Earnings per share and common share equivalent are based on the weighted
average number of common shares outstanding and equivalent shares from dilutive
stock options, if any. As of June 29, 1996 and July 1, 1995, there were stock
options outstanding for 539,615 and 363,941 common shares, respectively. Stock
options are excluded from the calculations since they have no material dilutive
effect on per share data.
(4) ACQUISITIONS
In the first and second quarters of 1996 and fiscal year ended December 30,
1995, the Company made payments related to acquisitions completed in 1994.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the attached
consolidated financial statements and notes thereto, and with the Company's
audited financial statements and notes thereto for the fiscal year ended
December 30, 1995.
RESULTS OF OPERATIONS
NET SALES. Net sales for the three months ended June 29, 1996 increased
$397,000 to $91,185,000 compared to $90,788,000 for the three months ended July
1, 1995. Net sales for the six months ended June 29, 1996 increased $6,451,000
or 3.5% to $191,979,000 compared to $185,528,000 for the same period in 1995.
These increases reflect strong bed pillow, mattress pad and fashion bedding
sales. Blanket sales lagged behind the first half of 1995. Management believes
this shortfall was due primarily to the timing of orders.
GROSS PROFIT. The gross profit percentage for the second quarter ended June
29, 1996 decreased to 17.1% from 17.8% for the second quarter of 1995. For the
six months ended June 29, 1996, the gross profit percentage fell to 16.2% from
17.6% in 1995. The decline was due to several factors including a shift in
blanket sales mix towards lower average margin products and reduced productivity
being experienced at the Company's Newton, N.C. cotton yarn spinning facility.
SG&A. Selling, general and administrative ("SG&A") expenses for the three
months ended June 29, 1996 decreased slightly both in dollars, to $9,942,000
from $9,978,000 for the same period in 1995, and as a percentage of sales, to
10.9% in the second quarter of 1996 from 11.0% for the same period in 1995. For
the six months ended June 29, 1996, SG&A expenses remain virtually flat at
$20,556,000 as compared to $20,549,000 for the six months ended July 1, 1995,
while as a percentage of sales SG&A expenses decreased to 10.7% from 11.1% in
the respective periods. This percentage decrease reflects the continuing focus
of the Company on containing these expenses.
INTEREST. Interest expense for the second quarter of 1996 fell by $1,121,000
or 25.8% to $3,217,000 from $4,338,000 for the same period in 1995. Interest
expense for the six months ended June 29, 1996 decreased by $1,659,000 or 20.1%
to $6,615,000 from $8,274,000 for the six months ended July 1, 1995. Interest
expense fell due to lower borrowings and decreased average interest rates.
NET EARNINGS. Net earnings for the three months ended June 29, 1996
increased $403,000 or 37.0% to $1,491,000 or $.14 per share, compared to net
earnings of $1,088,000, or $.10 per share in 1995. As a percentage of sales,
net earnings for the three months ended June 29, 1996 increased to 1.6% from
1.2% for the same period in 1995. Net earnings for the six months ended June
29, 1996 increased $182,000 or 8.1% to $2,432,000 or $.23 per share, from
$2,250,000 or $.21 per share in 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of June 29, 1996, the outstanding principle balance under the Company's
$150,000,000 secured revolving credit facility was $103,700,000, with
$12,272,000 committed to outstanding letters of credit, and $34,028,000
available for other needs. Availability under the revolving credit facility is
regulated by a borrowing base determined by reference to the Company's accounts
receivable and inventory. The outstanding balance under the Company's
$90,000,000 term loan was $72,900,000. The Company believes that cash flow
generated from operations and funds available under the credit facilities will
be sufficient to satisfy working capital and financing needs, as well as
dividend payments, for the foreseeable future.
On June 26, 1996, the Company paid a dividend of $.05 per share to
shareholders of record on June 12, 1996.
The increase in borrowings in the second quarter of 1996 over the first
quarter was due to seasonal expansion of blanket inventories and to changes in
the timing of blanket orders by retailers for the fall selling season.
Inventories of core Pillowtex products, including pillows, mattress pads, down
comforters, comforter covers and other bedding, declined significantly during
the first six months of 1996 as a result of beneficial changes in quota
regulations and better inventory management.
GOVERNMENT REGULATIONS
As of July 1, 1996, quota restrictions on down comforter shells imported from
China were eliminated, allowing the Company to import shells on an unlimited and
as needed basis. The Company also believes that "rules of origin" marking
regulations currently under final consideration by the Treasury Department
relating to natural fill products will not have a significant impact on the
manufacture or marketing of these products.
FORWARD-LOOKING INFORMATION
Statements contained in this Form 10-Q for the quarter ended June 29, 1996
that are not historical facts, including, but not limited to, statements found
in this Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, are forward-looking statements and involve a number or
risks and uncertainties. The actual results of the future events described in
such forward-looking statements in this Form 10-Q could differ materially from
those stated in such forward-looking statements. Among the factors that could
cause actual results to differ materially are: adverse retail industry
conditions, industry competition and other competitive factors, government
regulation and possible future litigation, loss of material customers,
seasonality of business, the termination of key license agreements, as well as
the risks and uncertainties discussed in this Form 10-Q.
PART II - OTHER INFORMATION
Item 4. Submission of Matter to a Vote of Security Holders
The Annual Meeting of Shareholders of the Company was held on May 29, 1996.
The following proposals were voted upon and approved at the Annual Meeting:
(1) Election of Directors
For Three-Year Terms Expiring in 1999:
Votes Votes
Cast For Withheld
Paul G. Gillease 7,961,378 302,557
Scott E. Shimizu 7,961,238 302,697
There were no abstentions or broker non-votes with respect to this proposal.
Charles M. Hansen, Jr., Jeffrey D. Cordes, Christopher N. Baker, Mary R.
Silverthorne, William B. Madden and M. Joseph McHugh continue as directors of
the Company.
(2) Amendments to the Company's 1993 Stock Option Plan to permit the issuance
of stock appreciation rights and to include employees of all subsidiaries
subject to federal taxation as corporations.
Votes Votes Votes
Cast For Against Abstaining
7,922,598 331,935 9,401
There were broker non-votes with respect to this proposal.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 Form of Equipment Leasing Agreement between BTM Financial &
Leasing Corporation B-4 and Beacon Manufacturing Company, Manetta
Home Fashions, Inc. and Tennessee Woolen Mills, Inc. dated as of
June 14, 1996 (without exhibits).
27 Financial Data Schedule
(b) Reports on Form 8-K
None
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.
(REGISTRANT) PILLOWTEX CORPORATION
BY (SIGNATURE) /s/ Jeffrey D. Cordes
(NAME AND TITLE) Jeffrey D. Cordes, Executive Vice
President and Chief Financial Officer
(Principal Financial Officer)
(DATE) August 9, 1996
INDEX TO EXHIBITS
Exhibit Method of Filing
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10 Form of Equipment Leasing Agreement
between BTM Financial & Leasing
Corporation B-4 and Beacon Manufacturing
Company, Manetta Home Fashions, Inc. and
Tennessee Woolen Mills, Inc. dated as of
June 14, 1996 (without exhibits). . . . . Filed herewith electronically
27 Financial Data Schedule . . . . . . . . Filed herewith electronically