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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 March 29, 1997
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 / /
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 April 30, 1997
Common Stock, $0.01 par value 10,627,722
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PILLOWTEX CORPORATION AND SUBSIDIARIES
INDEX
Part I - Financial Information Page No.
Item 1. Unaudited Interim Financial Statements:
Consolidated Balance Sheets as of
December 28, 1996 and March 29, 1997 3
Consolidated Statements of Earnings for the three months
ended March 30, 1996 and March 29, 1997 4
Consolidated Statements of Cash Flows for the three months
ended March 30, 1996 and March 29, 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
Index to Exhibits 14
2
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 28, 1996 and March 29, 1997
(Dollars in thousands, except for par value)
(Unaudited)
ASSETS 1996 1997
---------- ----------
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . $ 20 40
Receivables:
Trade, less allowance for doubtful accounts of
$2,346 in 1996 and $2,151 in 1997. . . . . . . . . . 78,482 70,823
Other . . . . . . . . . . . . . . . . . . . . . . . 4,480 4,825
Inventories . . . . . . . . . . . . . . . . . . . . . . 133,495 147,647
Prepaid expenses. . . . . . . . . . . . . . . . . . . . 2,613 3,468
Deferred income taxes . . . . . . . . . . . . . . . . . 2,567 2,655
---------- ----------
Total current assets. . . . . . . . . . . . . . . . 221,657 229,458
Property, plant and equipment, less accum. depreciation
of $43,720 and $46,433 in 1996 and 1997, respectively . 94,267 96,792
Intangible assets, at cost less accum. amortization of
$3,843 in 1996 and $4,224 in 1997 . . . . . . . . . . . 57,113 56,585
Other assets . . . . . . . . . . . . . . . . . . . . . . 2,677 2,636
---------- ----------
$ 375,714 385,471
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . $ 45,481 43,064
Accrued expenses. . . . . . . . . . . . . . . . . . . . 22,156 23,988
Current portion of long-term debt . . . . . . . . . . . 1,868 1,495
Income taxes payable. . . . . . . . . . . . . . . . . . 1,646 655
---------- ----------
Total current liabilities . . . . . . . . . . . . . 71,151 69,202
Long-term debt, net of current portion . . . . . . . . . 194,851 206,000
Deferred income taxes. . . . . . . . . . . . . . . . . . 9,708 9,478
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 . . . . . . . . . . . . . . . . . . . 41,665 42,681
Currency translation adjustment . . . . . . . . . . . . (194) (423)
---------- ----------
Total shareholders' equity . . . . . . . . . . . . 100,004 100,791
---------- ----------
$ 375,714 385,471
========== ==========
See accompanying notes to consolidated financial statements.
3
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended March 30, 1996 and March 29, 1997
(In thousands, except for per share data)
(Unaudited)
1996 1997
---------- ----------
Net sales . . . . . . . . . . . . . . . . . . . . . . . $ 100,794 113,763
Cost of goods sold . . . . . . . . . . . . . . . . . . . 85,226 95,057
---------- ----------
Gross profit. . . . . . . . . . . . . . . . . . . . 15,568 18,706
Selling, general and administrative expenses . . . . . . 10,614 11,664
---------- ----------
Earnings from operations. . . . . . . . . . . . . . 4,954 7,042
Interest expense . . . . . . . . . . . . . . . . . . . . 3,398 4,344
---------- ----------
Earnings before income taxes. . . . . . . . . . . . 1,556 2,698
Income taxes . . . . . . . . . . . . . . . . . . . . . . 615 1,047
---------- ----------
Net earnings. . . . . . . . . . . . . . . . . . . . $ 941 1,651
========== ==========
Net earnings per common share and common
share equivalents . . . . . . . . . . . . . . . . . $ .09 .16
========== ==========
Weighted average common shares and common
share equivalents outstanding. . . . . . . . . 10,618 10,618
========== ==========
See accompanying notes to consolidated financial statements.
4
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 30, 1996 and March 29, 1997
(Dollars in thousands)
(Unaudited)
1996 1997
---------- ----------
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . $ 941 1,651
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization . . . . . . . . . . . 3,242 3,495
Deferred income taxes . . . . . . . . . . . . . . . 142 (318)
Provision for doubtful accounts . . . . . . . . . . 31 180
Loss on disposal of property, plant and equipment . 5 4
Changes in operating assets and liabilities, net
of businesses acquired:
Trade receivables. . . . . . . . . . . . . . . . 11,534 7,440
Inventories. . . . . . . . . . . . . . . . . . . (12,386) (14,219)
Accounts payable . . . . . . . . . . . . . . . . (1,647) (5,839)
Accrued expenses . . . . . . . . . . . . . . . . (946) 1,847
Other assets and liabilities . . . . . . . . . . (2,924) (2,384)
---------- ----------
Net cash used in operating activities . . . (2,008) (8,143)
---------- ----------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment. . 15 190
Purchases of property, plant and equipment . . . . . . (773) (5,600)
Payments for businesses purchased, net of cash acquired (59) -
---------- ----------
Net cash used in investing activities . . . (817) (5,410)
---------- ----------
Cash flows from financing activities:
Increase (decrease) in checks not yet presented for
payment . . . . . . . . . . . . . . . . . . . . . . . (4,016) 3,433
Retirement of long-term debt . . . . . . . . . . . . . (12,432) (523)
Borrowings on revolving credit loans . . . . . . . . . 20,400 11,300
Repayments of revolving credit loans . . . . . . . . . (800) -
Dividends paid . . . . . . . . . . . . . . . . . . . . (531) (637)
---------- ----------
Net cash provided by financing activities . 2,621 13,573
---------- ----------
Net change in cash and cash equivalents. . . . . . . . . (204) 20
Cash and cash equivalents at beginning of period . . . . 411 20
---------- ----------
Cash and cash equivalents at end of period . . . . . . . $ 207 40
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . $ 4,853 1,266
========== ==========
Income taxes . . . . . . . . . . . . . . . . . . . . 1,138 2,603
========== ==========
See accompanying notes to consolidated financial statements.
5
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. The unaudited
consolidated financial statements should be read in conjunction with the
consolidated financial statements included in the Company's annual report
on Form 10-K filed with the Securities and Exchange Commission on March 17,
1997 for the fiscal year ended December 28, 1996.
(2) Inventories
Inventories consisted of the following at December 28, 1996 and March 29,
1997:
1996 1997
-------- --------
Finished goods $ 56,085 65,885
Work-in-process 33,436 33,742
Raw materials 41,955 45,980
Supplies 2,019 2,040
-------- --------
$133,495 147,647
======== ========
(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 March 30, 1996 and March 29, 1997,
there were stock options outstanding for 554,616 and 816,365 common shares,
respectively. Stock options are excluded from the calculations since they
have no material dilutive effect on per share data.
6
PILLOWTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tables in thousands of dollars)
(4) Supplemental Condensed Consolidating Financial Information
The following is summarized condensed consolidating financial information
for the Company, segregating the Parent and guarantor subsidiaries from
non-guarantor subsidiaries. The guarantor subsidiaries are wholly owned
subsidiaries of the Company and guarantees are full, unconditional and
joint and several. Separate financial statements of the guarantor
subsidiaries are not presented because management believes that these
financial statements would not be material to investors.
December 28, 1996 March 29, 1997
-------------------------------------- --------------------------------------
Parent and Non- Parent and Non-
Guarantor Guarantor Guarantor Guarantor
Financial Position Subsidiaries Subsidiaries Consolidated Subsidiaries Subsidiaries Consolidated
------------------ ------------ ------------ ------------ ------------ ------------ ------------
ASSETS
------------------------------
Receivables:
Trade $ 73,439 5,043 78,482 67,115 3,708 70,823
Affiliates 4,283 - - 2,374 - -
Inventories 125,803 7,692 133,495 140,624 7,023 147,647
Other current assets 8,944 736 9,680 10,499 489 10,988
------------ ------------ ------------ ------------ ------------ ------------
Total current assets 212,469 13,471 221,657 220,612 11,220 229,458
Property, plant and equipment,
net 91,381 2,886 94,267 94,036 2,756 96,792
Intangible assets 54,454 2,659 57,113 53,970 2,615 56,585
Other assets 2,677 - 2,677 2,636 - 2,636
------------ ------------ ------------ ------------ ------------ ------------
Total assets $ 360,981 19,016 375,714 371,254 16,591 385,471
============ ============ ============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS'
EQUITY
------------------------------
Accounts payable and accrued
liabilities $ 64,534 3,103 67,637 63,945 3,107 67,052
Accounts payable - affiliates - 4,283 - - 2,374 -
Other current liabilities 3,347 167 3,514 2,149 1 2,150
------------ ------------ ------------ ------------ ------------ ------------
Total current liabilities 67,881 7,553 71,151 66,094 5,482 69,202
Noncurrent liabilities 203,928 631 204,559 215,041 437 215,478
Shareholders' equity 89,172 10,832 100,004 90,119 10,672 100,791
------------ ------------ ------------ ------------ ------------ ------------
Total liabilities and
shareholders' equity $ 360,981 19,016 375,714 371,254 16,591 385,471
============ ============ ============ ============ ============ ============
7
PILLOWTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tables in thousands of dollars)
(4) Supplemental Condensed Consolidating Financial Information (Continued)
For Quarter Ended March 30, 1996 For Quarter Ended March 29, 1997
-------------------------------------- --------------------------------------
Parent and Non- Parent and Non-
Guarantor Guarantor Guarantor Guarantor
Results of Operations Subsidiaries Subsidiaries Consolidated Subsidiaries Subsidiaries Consolidated
--------------------- ------------ ------------ ------------ ------------ ------------ ------------
Net sales $ 92,362 8,432 100,794 107,792 5,971 113,763
Cost of goods sold 77,051 8,175 85,226 89,377 5,680 95,057
------------ ------------ ------------ ------------ ------------ ------------
Gross profit 15,311 257 15,568 18,415 291 18,706
Selling, general and administrative 10,222 392 10,614 11,280 384 11,664
------------ ------------ ------------ ------------ ------------ ------------
Earnings (loss) from operations 5,089 (135) 4,954 7,135 (93) 7,042
Interest expense 3,407 (9) 3,398 4,347 (3) 4,344
------------ ------------ ------------ ------------ ------------ ------------
Earnings (loss) before
income taxes 1,682 (126) 1,556 2,788 (90) 2,698
Income taxes 724 (109) 615 1,081 (34) 1,047
------------ ------------ ------------ ------------ ------------ ------------
Net earnings (loss) $ 958 (17) 941 1,707 (56) 1,651
============ ============ ============ ============ ============ ============
8
PILLOWTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tables in thousands of dollars)
(4) Supplemental Condensed Consolidating Financial Information (Continued)
For Quarter Ended March 30, 1996 For Quarter Ended March 29, 1997
-------------------------------------- --------------------------------------
Parent and Non- Parent and Non-
Guarantor Guarantor Guarantor Guarantor
Cash Flows Subsidiaries Subsidiaries Consolidated Subsidiaries Subsidiaries Consolidated
- ---------- ------------ ------------ ------------ ------------ ------------ ------------
Cash provided by (used in) operating activities $ (4,743) 2,735 (2,008) (9,926) 1,783 (8,143)
Cash used in investing activities (796) (21) (817) (5,366) (44) (5,410)
Cash provided by (used in) financing activities 5,331 (2,710) 2,621 15,312 (1,739) 13,573
------------ ------------ ------------ ------------ ------------ ------------
Net change in cash and cash equivalents (208) 4 (204) 20 - 20
Cash and cash equivalents at beginning of year 406 5 411 12 8 20
------------ ------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at end of year $ 198 9 207 32 8 40
============ ============ ============ ============ ============ ============
9
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
unaudited consolidated financial statements and notes thereto, and with the
Company's audited consolidated financial statements and notes thereto for the
fiscal year ended December 28, 1996.
RESULTS OF OPERATIONS
NET SALES. Net sales were $113,763,000 for the three months ended March
29, 1997 representing an increase of $12,969,000 or 12.9% as compared to
$100,794,000 for the three months ended March 30, 1996. The year-to-date
increase reflected strong bed pillow, mattress pad, fashion bedding and blanket
sales.
GROSS PROFIT. The gross profit percentage for the first quarter ended
March 29, 1997 increased to 16.4% from 15.4% for the first quarter of 1996,
reflecting positive trends in operating efficiencies and decreased raw materials
prices. These improvements were partially offset by costs associated with the
consolidation of blanket inventory into the new Mauldin, South Carolina
warehouse.
SG&A. Selling, general and administrative expenses for the three months
ended March 29, 1997 increased in dollars to $11,664,000 from $10,614,000 for
the same period in 1996, but decreased as a percentage of sales to 10.3% in the
first quarter of 1997 from 10.5% for the same period in 1996.
INTEREST. Interest expense for the first quarter of 1997 increased by
$946,000 or 27.8% to $4,344,000 from $3,398,000 for the same period in 1996.
Interest expense increased due to higher borrowings and increased average
interest rates.
NET EARNINGS. Net earnings for the three months ended March 29, 1997
increased $710,000 or 75.5% to $1,651,000 or $.16 per share, compared to net
earnings of $941,000 or $.09 per share for the same period in 1996. As a
percentage of sales, net earnings for the three months ended March 29, 1997
increased to 1.5% from .9% for the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of March 29, 1997, the outstanding principal balance under the Company's
$175,000,000 secured revolving credit facility was $72,300,000 with $10,572,000
committed to outstanding letters of credit, and $92,128,000 available for other
needs.
On March 28, 1997, the Company paid a dividend of $.06 per share to
shareholders of record on March 14, 1997.
The increase in borrowings in the first quarter of 1997 was due to the late
1996 acquisitions of the Fieldcrest blanket business and a new warehouse in
Mauldin, South Carolina, and the seasonal expansion of inventories.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, 'Earnings Per Share', which specifies the computation, presentation and
disclosure requirements for earnings per share for entities with publicly held
common stock for both interim and annual periods ending after December 15, 1997.
Management of the Company does not expect the impact from adopting the
provisions of Statement No. 128 in fiscal year 1997 to be material.
10
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.
Products that the Company imports from China currently receive preferential
tariff treatment accorded goods from countries granted 'most favored nation'
status. Under the Trade Act of 1974, the President of the United States is
authorized, upon making specified findings, to waive certain restrictions that
would otherwise render China ineligible for most favored nation treatment. The
President has waived these provisions each year since 1979. However, in
response to recent trade and military activities by China, Congress may
encourage the President to reconsider the renewal of most favored nation status
for China in June of 1997 and no assurance can be given that China will continue
to enjoy this status in the future. Raw materials and finished products
entering the United States from China without the benefit of most favored nation
treatment would be subject to significantly higher duty rates. However, the
Company believes that the loss of China's most favored nation status is not
likely to have a material adverse effect on the Company's business, financial
condition or results of operations.
FORWARD-LOOKING INFORMATION
This report and other reports and statements filed by the Company from time
to time with the Securities and Exchange Commission (collectively, 'SEC
Filings') contain or may contain certain forward-looking statements and
information that are based upon beliefs of, and information currently available
to, the Company's management. When used in SEC Filings, the words 'anticipate,'
'believe,' 'estimate,' 'future,' 'intend,' 'plan,' and similar expressions with
prospective connotations as they relate to the Company and its business identify
forward-looking statements. All forward-looking statements reflect the current
views of the Company with respect to future events and are subject to various
risks, uncertainties and assumptions relating to the Company and its operating
environment which may cause the actual results to vary significantly from those
anticipated. Specific factors that may cause the Company's actual results to
differ from those anticipated in forward-looking statements are discussed in the
Company's most recently filed Form 10-K.
11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None
12
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
President, Chief Operating Officer and Director
(Principal Financial and Accounting Officer)
(DATE) May 5, 1997
13
INDEX TO EXHIBITS
Exhibit Method of Filing
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27 Financial Data Schedule . . . . . . . . Filed herewith electronically
14