- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One) 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 4, 1998
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: 1-11756
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 August 14, 1998
Common Stock, $0.01 par value 14,122,670
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
PILLOWTEX CORPORATION AND SUBSIDIARIES
INDEX
Part I - Financial Information Page No.
Item 1. Unaudited Interim Consolidated Financial Statements:
Consolidated Balance Sheets as of
January 3, 1998 and July 4, 1998 3
Consolidated Statements of Earnings for the three months
ended June 28, 1997 and July 4, 1998 4
Consolidated Statements of Earnings for the six months
ended June 28, 1997 and July 4, 1998 5
Consolidated Statements of Cash Flows for the six months
ended June 28, 1997 and July 4, 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
Index to Exhibits 20
-2-
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 3, 1998 and July 4, 1998
(Dollars in thousands, except for par value)
(Unaudited)
1997 1998
ASSETS ----------- -----------
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . .$ 4,604 $ 5,259
Receivables:
Trade, less allowance for doubtful accounts of
$14,770 and $16,954 in 1997 and 1998, respectively . 221,185 207,618
Other. . . . . . . . . . . . . . . . . . . . . . . . . 16,468 13,369
Inventories. . . . . . . . . . . . . . . . . . . . . . 359,751 407,593
Assets held for sale . . . . . . . . . . . . . . . . . 32,614 6,030
Prepaid expenses . . . . . . . . . . . . . . . . . . . 6,335 3,964
----------- -----------
Total current assets. . . . . . . . . . . . . . . . 640,957 643,833
Property, plant and equipment, less accum. depreciation
of $55,871 and $79,235 in 1997 and 1998, respectively. 488,841 516,656
Intangible assets, at cost less accumulated
amortization of $5,111 and $8,230 in 1997
and 1998, respectively . . . . . . . . . . . . . . . . 258,867 261,959
Other assets . . . . . . . . . . . . . . . . . . . . . . 21,521 26,473
----------- -----------
$1,410,186 $1,448,921
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . .$ 111,202 $ 78,639
Accrued expenses . . . . . . . . . . . . . . . . . . . 113,575 94,558
Deferred income taxes. . . . . . . . . . . . . . . . . 16,068 20,009
Current portion of long-term debt. . . . . . . . . . . 5,616 5,059
----------- -----------
Total current liabilities . . . . . . . . . . . . . 246,461 198,265
Long-term debt, net of current portion . . . . . . . . . 785,383 859,048
Deferred income taxes. . . . . . . . . . . . . . . . . . 66,340 63,137
Noncurrent liabilities . . . . . . . . . . . . . . . . . 52,413 54,691
----------- -----------
Total liabilities . . . . . . . . . . . . . . . . . 1,150,597 1,175,141
Series A redeemable convertible preferred stock, $.01
par value; 65,000 shares issued and outstanding. . . . 62,882 62,949
Shareholders' equity:
Preferred stock, $0.01 par value; authorized
20,000,000 shares; only Series A issued. . . . . . . - -
Common stock, $0.01 par value; authorized 30,000,000
shares; 13,967,715 and 14,121,410 shares issued
and outstanding in 1997 and 1998, respectively . . . 140 141
Additional paid-in capital . . . . . . . . . . . . . . 151,095 155,581
Retained earnings. . . . . . . . . . . . . . . . . . . 46,328 56,287
Currency translation adjustment. . . . . . . . . . . . (856) (1,178)
----------- -----------
Total shareholders' equity . . . . . . . . . . . . 196,707 210,831
----------- -----------
$1,410,186 $1,448,921
=========== ===========
See accompanying notes to consolidated financial statements.
-3-
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended June 28, 1997 and July 4, 1998
(Amounts in thousands, except for per share data)
(Unaudited)
1997 1998
---------- ----------
Net sales. . . . . . . . . . . . . . . . . . . . . . . . $ 104,894 $ 332,046
Cost of goods sold . . . . . . . . . . . . . . . . . . . 85,193 273,463
---------- ----------
Gross profit. . . . . . . . . . . . . . . . . . . . 19,701 58,583
Selling, general and administrative expenses . . . . . . 11,952 30,019
---------- ----------
Earnings from operations. . . . . . . . . . . . . . 7,749 28,564
Interest expense . . . . . . . . . . . . . . . . . . . . 4,692 17,003
---------- ----------
Earnings before income taxes. . . . . . . . . . . . 3,057 11,561
Income taxes . . . . . . . . . . . . . . . . . . . . . . 1,186 4,469
---------- ----------
Net earnings. . . . . . . . . . . . . . . . . . . . 1,871 7,092
Preferred dividends and accretion. . . . . . . . . . . . - 541
---------- ----------
Earnings available for common shareholders. . . . . $ 1,871 $ 6,551
========== ==========
Basic earnings per common share. . . . . . . . . . . . . $ .18 $ .47
========== ==========
Weighted average common shares outstanding - basic . . . 10,646 14,083
========== ==========
Diluted earnings per common share. . . . . . . . . . . . $ .17 $ .42
========== ==========
Weighted average common shares outstanding - diluted . . 10,768 17,088
========== ==========
See accompanying notes to consolidated financial statements.
-4-
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Six Months Ended June 28, 1997 and July 4, 1998
(Amounts in thousands, except for per share data)
(Unaudited)
1997 1998
---------- ----------
Net sales. . . . . . . . . . . . . . . . . . . . . . . . $ 218,657 $ 698,421
Cost of goods sold . . . . . . . . . . . . . . . . . . . 180,250 575,918
---------- ----------
Gross profit. . . . . . . . . . . . . . . . . . . . 38,407 122,503
Selling, general and administrative expenses . . . . . . 23,616 66,131
Restructuring charge . . . . . . . . . . . . . . . . . . - 1,539
---------- ----------
Earnings from operations. . . . . . . . . . . . . . 14,791 54,833
Interest expense . . . . . . . . . . . . . . . . . . . . 9,036 33,798
---------- ----------
Earnings before income taxes. . . . . . . . . . . . 5,755 21,035
Income taxes . . . . . . . . . . . . . . . . . . . . . . 2,233 8,308
---------- ----------
Net earnings. . . . . . . . . . . . . . . . . . . . 3,522 12,727
Preferred dividends and accretion. . . . . . . . . . . . - 1,027
---------- ----------
Earnings available for common shareholders. . . . . $ 3,522 $ 11,700
========== ==========
Basic earnings per common share. . . . . . . . . . . . . $ .33 $ .83
========== ==========
Weighted average common shares outstanding - basic . . . 10,632 14,041
========== ==========
Diluted earnings per common share. . . . . . . . . . . . $ .33 $ .75
========== ==========
Weighted average common shares outstanding - diluted . . 10,732 17,021
========== ==========
See accompanying notes to consolidated financial statements.
-5-
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 28, 1997 and July 4, 1998
(Dollars in thousands)
(Unaudited)
1997 1998
---------- ----------
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . .$ 3,522 $ 12,727
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization . . . . . . . . . . . . 7,065 28,215
Restructuring charge. . . . . . . . . . . . . . . . . - 1,539
Deferred income taxes . . . . . . . . . . . . . . . . (518) 5,167
Accretion on debt instruments . . . . . . . . . . . . - 643
Provision for doubtful accounts . . . . . . . . . . . 360 826
Loss on disposal of property, plant and equipment . . 4 50
Changes in operating assets and liabilities, net
of businesses acquired:
Trade receivables. . . . . . . . . . . . . . . . . 17,806 8,400
Inventories. . . . . . . . . . . . . . . . . . . . (26,533) (49,154)
Accounts payable . . . . . . . . . . . . . . . . . (10,741) (11,951)
Accrued expenses . . . . . . . . . . . . . . . . . (5,497) (11,272)
Other assets and liabilities . . . . . . . . . . . (1,742) (406)
---------- ----------
Net cash used in operating activities . . . . . (16,274) (15,216)
---------- ----------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment. . . 191 2,685
Proceeds from disposal of assets held for sale . . . . . - 35,595
Purchases of property, plant and equipment . . . . . . . (11,347) (53,022)
Payments for businesses purchased, net of cash acquired. - (21,569)
---------- ----------
Net cash used in investing activities . . . . . (11,156) (36,311)
---------- ----------
Cash flows from financing activities:
Increase (decrease) in checks not yet presented for
payment . . . . . . . . . . . . . . . . . . . . . . . . 6,065 (20,612)
Borrowings on revolving credit loans . . . . . . . . . . 72,650 257,700
Repayments of revolving credit loans . . . . . . . . . . (50,600) (175,500)
Retirement of long-term debt . . . . . . . . . . . . . . (1,110) (8,415)
Payments of debt and equity issuance costs . . . . . . . - (484)
Dividends paid . . . . . . . . . . . . . . . . . . . . . (637) (2,724)
Proceeds from exercise of stock options. . . . . . . . . . 1,075 2,217
---------- ----------
Net cash provided by financing activities . . . 27,443 52,182
---------- ----------
Net change in cash and cash equivalents. . . . . . . . . . 13 655
Cash and cash equivalents at beginning of period . . . . . 20 4,604
---------- ----------
Cash and cash equivalents at end of period . . . . . . . .$ 33 $ 5,259
========== ==========
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . .$ 9,020 $ 33,703
========== ==========
Income taxes . . . . . . . . . . . . . . . . . . . . .$ 5,120 $ (4,821)
========== ==========
See accompanying notes to consolidated financial statements.
-6-
PILLOWTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tables in thousands)
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements of Pillowtex
Corporation (the "Parent") and its subsidiaries (collectively, with Parent,
(the "Company")), include all adjustments, consisting only 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. Results of operations for interim periods may
not be indicative of future results. The unaudited consolidated financial
statements should be read in conjunction with the audited consolidated
financial statements included in the Company's annual report on Form
10-K filed with the Securities and Exchange Commission on April 3, 1998
for the fiscal year ended January 3, 1998. The three and six month
periods ended July 4, 1998 include the results of Fieldcrest Cannon, Inc.
("Fieldcrest Cannon") which was acquired on December 19, 1997.
(2) Inventories
Inventories consisted of the following at January 3, 1998 and July 4, 1998:
1997 1998
-------- --------
Finished goods $163,905 $199,650
Work-in-process 120,063 130,663
Raw materials 54,790 56,882
Supplies 20,993 20,398
-------- --------
$359,751 $407,593
======== ========
(3) Earnings per Share
The following table reconciles the numerators and denominators of basic
and diluted earnings per share for the three and six month periods ended
July 4, 1998. There were no material reconciling items for the three and
Six month periods ended June 28, 1997.
Three Months Ended Six Months Ended
July 4, 1998 July 4, 1998
------------------ -----------------
Earnings Shares Earnings Shares
-------- ------ -------- ------
Basic - earnings available for common shareholders $ 6,551 14,083 $ 11,700 14,041
Effect of dilutive securities:
Stock options - 296 - 271
Convertible preferred stock 541 2,709 1,027 2,709
-------- ------ -------- ------
Diluted - earnings available for common shareholders
Plus assumed conversions $ 7,092 17,088 $ 12,727 17,021
======== ====== ======== ======
-7-
PILLOWTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) New Accounting Standard
During the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME.
Adoption of this statement did not have a material impact on the
Company's reported financial position, results of operations or cash
flows since comprehensive income is essentially the same as net earnings.
(5) 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 the guarantees are full, unconditional
and joint and several.
January 3, 1998
------------------------------------------------------------------------
Non-
Guarantor Guarantor
Financial Position Parent Subsidiaries Subsidiaries Eliminations Consolidated
- - ------------------ ------------ ------------ ------------ ------------ ------------
Assets:
- - ----------------------------------------
Trade receivables $ - $ 216,869 $ 4,316 $ - $ 221,185
Receivable from affiliates 668,588 - - (668,588) -
Inventories - 351,720 8,031 - 359,751
Other current assets - 58,650 1,371 - 60,021
------------ ------------ ------------ ------------ ------------
Total current assets 668,588 627,239 13,718 (668,588) 640,957
Property, plant and equipment, net 657 485,975 2,209 - 488,841
Intangibles, net 24,256 232,112 2,499 - 258,867
Other assets 229,039 19,564 - (227,082) 21,521
------------ ------------ ------------ ------------ ------------
Total assets $ 922,540 $ 1,364,890 $ 18,426 $ (895,670) $ 1,410,186
============ ============ ============ ============ ============
Liabilities and Shareholders' Equity:
- - ----------------------------------------
Accounts payable and accrued liabilities $ 85 $ 218,874 $ 5,818 $ - $ 224,777
Payables to affiliates - 668,000 588 (668,588) -
Other current liabilities - 21,591 93 - 21,684
------------ ------------ ------------ ------------ ------------
Total current liabilities 85 908,465 6,499 (668,588) 246,461
Noncurrent liabilities 675,000 228,550 586 - 904,136
------------ ------------ ------------ ------------ ------------
Total liabilities 675,085 1,137,015 7,085 (668,588) 1,150,597
Redeemable convertible preferred stock 62,882 - - - 62,882
Shareholders' equity 184,573 227,875 11,341 (227,082) 196,707
------------ ------------ ------------ ------------ ------------
Total liabilities and
shareholders' equity $ 922,540 $ 1,364,890 $ 18,426 $ (895,670) $ 1,410,186
============ ============ ============ ============ ============
-8-
PILLOWTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Supplemental Condensed Consolidating Financial Information (Continued)
July 4, 1998
------------------------------------------------------------------------
Non-
Guarantor Guarantor
Financial Position Parent Subsidiaries Subsidiaries Eliminations Consolidated
- - ------------------ ------------ ------------ ------------ ------------ ------------
Assets:
- - ----------------------------------------
Trade receivables $ - $ 203,977 $ 3,641 $ - $ 207,618
Receivable from affiliates 667,433 - 567 (668,000) -
Inventories - 401,033 6,560 - 407,593
Other current assets - 27,046 1,576 - 28,622
------------ ------------ ------------ ------------ ------------
Total current assets 667,433 632,056 12,344 (668,000) 643,833
Property, plant and equipment, net 608 514,193 1,855 - 516,656
Intangibles, net 19,511 240,070 2,378 - 261,959
Other assets 325,628 17,641 - (316,796) 26,473
------------ ------------ ------------ ------------ ------------
Total assets $ 1,013,180 $ 1,403,960 $ 16,577 $ (984,796) $ 1,448,921
============ ============ ============ ============ ============
Liabilities and Shareholders' Equity:
- - ----------------------------------------
Accounts payable and accrued liabilities $ 6,142 $ 161,477 $ 5,578 $ - $ 173,197
Payables to affiliates - 668,000 - (668,000) -
Other current liabilities 3,661 21,241 166 - 25,068
------------ ------------ ------------ ------------ ------------
Total current liabilities 9,803 850,718 5,744 (668,000) 198,265
Noncurrent liabilities 752,952 223,358 566 - 976,876
------------ ------------ ------------ ------------ ------------
Total liabilities 762,755 1,074,076 6,310 (668,000) 1,175,141
Redeemable convertible preferred stock 62,949 - - - 62,949
Shareholders' equity 187,476 329,884 10,267 (316,796) 210,831
------------ ------------ ------------ ------------ ------------
Total liabilities and
shareholders' equity $ 1,013,180 $ 1,403,960 $ 16,577 $ (984,796) $ 1,448,921
============ ============ ============ ============ ============
-9-
PILLOWTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Supplemental Condensed Consolidating Financial Information (Continued)
Three Months Ended June 28, 1997
------------------------------------------------------------------------
Non-
Guarantor Guarantor
Results of Operations Parent Subsidiaries Subsidiaries Eliminations Consolidated
- - --------------------- ------------ ------------ ------------ ------------ ------------
Net sales $ - $ 99,950 $ 5,355 $ (411) $ 104,894
Cost of goods sold - 80,880 4,724 (411) 85,193
------------ ------------ ------------ ------------ ------------
Gross profit - 19,070 631 - 19,701
Selling, general and administrative (270) 11,911 311 - 11,952
------------ ------------ ------------ ------------ ------------
Earnings from operations 270 7,159 320 - 7,749
Interest expense (income) (201) 4,892 1 - 4,692
------------ ------------ ------------ ------------ ------------
Earnings before income taxes 471 2,267 319 - 3,057
Income taxes 165 987 34 - 1,186
------------ ------------ ------------ ------------ ------------
Net earnings $ 306 $ 1,280 $ 285 $ - $ 1,871
============ ============ ============ ============ ============
Three Months Ended July 4, 1998
------------------------------------------------------------------------
Non-
Guarantor Guarantor
Results of Operations Parent Subsidiaries Subsidiaries Eliminations Consolidated
- - --------------------- ------------ ------------ ------------ ------------ ------------
Net sales $ - $ 327,750 $ 5,101 $ (805) $ 332,046
Cost of goods sold - 268,582 5,686 (805) 273,463
------------ ------------ ------------ ------------ ------------
Gross profit (loss) - 59,168 (585) - 58,583
Selling, general and administrative (1,671) 31,324 366 - 30,019
------------ ------------ ------------ ------------ ------------
Earnings (loss) from operations 1,671 27,844 (951) - 28,564
Interest expense 1,184 15,818 1 - 17,003
------------ ------------ ------------ ------------ ------------
Earnings (loss) before income taxes 487 12,026 (952) - 11,561
Income taxes 170 4,301 (2) - 4,469
------------ ------------ ------------ ------------ ------------
Net earnings (loss) 317 7,725 (950) - 7,092
Preferred dividends and accretion 541 - - - 541
------------ ------------ ------------ ------------ ------------
Earnings (loss) available for
common shareholders $ (224) $ 7,725 $ (950) $ - $ 6,551
============ ============ ============ ============ ============
-10-
PILLOWTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Supplemental Condensed Consolidating Financial Information (Continued)
Six Months Ended June 28, 1997
------------------------------------------------------------------------
Non-
Guarantor Guarantor
Results of Operations Parent Subsidiaries Subsidiaries Eliminations Consolidated
- - --------------------- ------------ ------------ ------------ ------------ ------------
Net sales $ - $ 208,515 $ 11,320 $ (1,178) $ 218,657
Cost of goods sold - 171,030 10,398 (1,178) 180,250
------------ ------------ ------------ ------------ ------------
Gross profit - 37,485 922 - 38,407
Selling, general and administrative (977) 23,897 696 - 23,616
------------ ------------ ------------ ------------ ------------
Earnings from operations 977 13,588 226 - 14,791
Interest expense (income) (644) 9,683 (3) - 9,036
------------ ------------ ------------ ------------ ------------
Earnings before income taxes 1,621 3,905 229 - 5,755
Income taxes 567 1,665 1 - 2,233
------------ ------------ ------------ ------------ ------------
Net earnings $ 1,054 $ 2,240 $ 228 $ - $ 3,522
============ ============ ============ ============ ============
Six Months Ended July 4, 1997
------------------------------------------------------------------------
Non-
Guarantor Guarantor
Results of Operations Parent Subsidiaries Subsidiaries Eliminations Consolidated
- - --------------------- ------------ ------------ ------------ ------------ ------------
Net sales $ - $ 688,592 $ 11,285 $ (1,456) $ 698,421
Cost of goods sold - 566,106 11,268 (1,456) 575,918
------------ ------------ ------------ ------------ ------------
Gross profit - 122,486 17 - 122,503
Selling, general and administrative (1,872) 67,247 756 - 66,131
Restructuring charge - 1,539 - - 1,539
------------ ------------ ------------ ------------ ------------
Earnings (loss) from operations 1,872 53,700 (739) - 54,833
Interest expense 52 33,746 - - 33,798
------------ ------------ ------------ ------------ ------------
Earnings (loss) before income taxes 1,820 19,954 (739) - 21,035
Income taxes 637 7,658 13 - 8,308
------------ ------------ ------------ ------------ ------------
Net earnings (loss) 1,183 12,296 (752) - 12,727
Preferred dividends and accretion 1,027 - - - 1,027
------------ ------------ ------------ ------------ ------------
Earnings (loss) available for
common shareholders $ 156 $ 12,296 $ (752) $ - $ 11,700
============ ============ ============ ============ ============
-11-
PILLOWTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Supplemental Condensed Consolidating Financial Information (Continued)
Six Months Ended June 28, 1997
------------------------------------------------------------------------
Non-
Guarantor Guarantor
Cash Flows Parent Subsidiaries Subsidiaries Eliminations Consolidated
- - ---------- ------------ ------------ ------------ ------------ ------------
Cash provided by (used in) operating activities $ 691 $ (20,168) $ 3,203 $ - $ (16,274)
Cash provided by (used in) investing activities (19,058) 7,957 (55) - (11,156)
Cash provided by (used in) financing activities 18,367 12,224 (3,148) - 27,443
------------ ------------ ------------ ------------ ------------
Net change in cash and cash equivalents - 13 - - 13
Cash and cash equivalents at beginning of year - 12 8 - 20
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at end of period $ - $ 25 $ 8 $ - $ 33
============ ============ ============ ============ ============
Six Months Ended July 4, 1998
------------------------------------------------------------------------
Non-
Guarantor Guarantor
Cash Flows Parent Subsidiaries Subsidiaries Eliminations Consolidated
- - ---------- ------------ ------------ ------------ ------------ ------------
Cash provided by (used in) operating activities $ 9,304 $ (25,775) $ 1,255 $ - $ (15,216)
Cash provided by (used in) investing activities (89,714) 53,445 (42) - (36,311)
Cash provided by (used in) financing activities 80,410 (27,009) (1,219) - 52,182
------------ ------------ ------------ ------------ ------------
Net change in cash and cash equivalents - 661 (6) - 655
Cash and cash equivalents at beginning of year - 4,590 14 - 4,604
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at end of period $ - $ 5,251 $ 8 $ - $ 5,259
============ ============ ============ ============ ============
-12-
PILLOWTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Supplemental Condensed Consolidating Financial Information (Continued)
Fieldcrest Cannon is also a guarantor subsidiary and is not included in
the consolidated financial statements for the three and six months ended
June 28, 1997. Accordingly, the Fieldcrest Cannon consolidated financial
information for the three and six months ended June 30, 1997 is included
below:
Three Months Ended Six Months Ended
Results of Operations June 30, 1997 June 30, 1997
--------------------- ------------------ ------------------
Net sales $ 270,760 $ 533,669
Cost of goods sold 225,400 452,555
---------- ----------
Gross profit 45,360 81,114
Selling, general and administrative 29,657 56,168
---------- ----------
Earnings from operations 15,703 24,946
Interest expense 6,296 12,558
Other, net (1,450) (1,674)
---------- ----------
Earnings before income taxes 10,857 14,062
Income taxes 4,016 5,203
---------- ----------
Net earnings 6,841 8,859
Preferred dividends 1,125 2,250
---------- ----------
Earnings available for common shareholders $ 5,716 $ 6,609
========== ==========
Six Months Ended
Cash Flows June 30, 1997
---------- ------------------
Cash provided by operating activities $ 18,299
Cash used in investing activities (23,566)
Cash provided by financing activities 5,257
----------
Net change in cash and cash equivalents (10)
Cash and cash equivalents at beginning of year 4,647
----------
Cash and cash equivalents at end of period $ 4,637
==========
-13-
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 January 3, 1998.
RESULTS OF OPERATIONS
NET SALES. Net sales were $332.0 million for the three months ended July 4,
1998, representing an increase of $227.1 million or 216.5%, as compared to
$104.9 million for the three months ended June 28, 1997. Net sales for the six
months ended July 4, 1998 increased to $698.4 million from $218.7 million in the
comparable prior year period, an increase of $479.7 million or 219.3%. These
increases were primarily due to the addition of sales from the Fieldcrest Cannon
merger (the "Merger").
GROSS PROFIT. Gross profit margins decreased to 17.6% for the three months
ended July 4, 1998 from 18.8% for the three months ended June 28, 1997. Gross
profit margins for the six months ended July 4, 1998 decreased to 17.5% from
17.6% for the six months ended June 28, 1997. The decrease for the quarter is
primarily due to lower margins in the basic bedding division.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). SG&A expenses increased $18.0
million to $30.0 million for the three months ended July 4, 1998, compared to
$12.0 million for the three months ended June 28, 1997. For the six months
ended July 4, 1998, SG&A expenses increased $42.5 million to $66.1 million from
$23.6 million for the period ended June 28, 1997. As a percentage of sales,
SG&A expenses decreased to 9.0% and 9.5%, respectively, for the three and six
month periods ended July 4, 1998 as compared to 11.4% and 10.8%, respectively,
for the three and six month periods ended June 28, 1997. While SG&A expenses in
total have increased as a result of the Merger, SG&A expenses as a percentage of
sales have decreased due to the success of cost-saving initiatives implemented
in conjunction with the Merger.
RESTRUCTURING CHARGE. The $1.5 million restructuring charge for the six month
period ended July 4, 1998 was related to severance and other employee-related
costs associated with the consolidation of blanket production into facilities in
Swannanoa, North Carolina and Westminster, South Carolina.
INTEREST EXPENSE. Interest expense increased $12.3 million to $17.0 million for
the three months ended July 4, 1998, compared to $4.7 million for the three
months ended June 28, 1997. Interest expense for the six month period ended July
4, 1998 increased $24.8 million to $33.8 million from $9.0 million for the six
month period ended June 28, 1997. These increases were due to the additional
debt incurred as a result of the Merger.
TAXES. The effective tax rate for the three months ended July 4, 1998
decreased to 38.7% from 38.8% for the three months ended June 28, 1997 due to
the determination that certain transaction fees related to the Merger will be
deductible. The effective tax rate for the six months ended July 4, 1998
increased to 39.5% from 38.8% for the six months ended June 28, 1997 due to
nondeductible goodwill amortization connected with the Merger.
LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates that its principal sources of liquidity will be cash
from its operations and funds available under the revolving credit facility. As
of July 4, 1998, the outstanding principal balance under the Company's $350.0
million revolving credit facility was $197.2 million, with $36.5 million
committed to outstanding letters of credit and $116.3 million available for
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other needs. The debt outstanding under the revolving credit facility reflects
an increase of $82.2 million since January 3, 1998, due primarily to normal
working capital increases during the first half of the year, capital
expenditures, and expenditures relating to the Merger. Based upon current and
anticipated levels of operations, the Company believes that its cash flow from
operations, together with amounts available under the revolving credit facility,
will be adequate to meet its anticipated cash requirements in the forseeable
future.
Effective July 28, 1998, the Company amended its senior revolving credit and
term loan facilities with NationsBank, N.A. to increase the Tranche B portion
of the term loan by $100.0 million. The proceeds received under this amendment
were used to fund the July 28, 1998 acquisition of The Leshner Corporation and
to pay down the Company's revolving credit facility. The amendment did not
change the December 31, 2004 maturity date of the Tranche B term loan.
The Company periodically enters into interest rate swap agreements to minimize
the risk of fluctuations in interest rates. As of January 3, 1998 and July 4,
1998, the Company had approximately $125.0 million and $250.0 million,
respectively, of notional amounts covered under fixed for floating rate swap
agreements at average interest rates of 9.54% and 5.56%, respectively.
On June 30, 1998, the Company paid a dividend of $.06 per share to its common
shareholders of record as of June 19, 1998. Additionally, the Company paid
preferred dividends in the amount of $967,000 during the second quarter of
1998.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION, effective for periods beginning after
December 15, 1997. The purpose of this standard is to disclose disaggregated
information which provides information about the operating segments an
enterprise engages in, consistent with the way management reviews financial
information to make decisions about the enterprise's operating matters. The
Company will comply with the requirements of this standard for fiscal year 1998.
In February 1998, SFAS No. 132, EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER
POSTRETIREMENT BENEFITS, was issued, which revises employers' disclosures about
pension and other postretirement benefit plans. This statement standardizes the
disclosure requirements for pensions and other postretirement benefits, requires
additional information on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis, and eliminates certain
disclosures previously required under SFAS Nos. 87, 88 and 106. The provisions
of SFAS No. 132 are effective for fiscal years beginning after December 15,
1997, although early adoption is allowed. The Company's adoption of these
disclosure requirements is not expected to materially impact the consolidated
financial statements.
In March 1998, Statement of Position ("SOP") 98-1, ACCOUNTING FOR THE COSTS OF
COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE, was issued. This SOP
requires that certain costs related to the development or purchase of
internal-use software be capitalized and amortized over the estimated useful
life of the software. The SOP also requires that costs related to the
preliminary project stage and post-implementation operations stage of an
internal-use software development be expensed as incurred. The provisions of
SOP 98-1 are effective for financial statements issued for fiscal years
beginning after December 15, 1998, although early adoption is allowed. Initial
application of SOP 98-1 is not expected to have a material impact on the
Company's financial statements.
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In June 1998, SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES, was issued. This statement establishes accounting and reporting
standards for derivatives instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The provisions of
SFAS No. 133 are effective for financial statements beginning after June 15,
1999, although early adoption is allowed. The Company has not determined the
financial impact of adopting this SFAS and has not determined if it will adopt
its provisions prior to its effective date.
YEAR 2000 CONSIDERATIONS
Many existing computer programs use only two digits to identify a year in the
date field. These programs, if not corrected, could fail or create erroneous
results by or at the Year 2000. This "Year 2000" issue is believed to affect
virtually all companies and organizations, including the Company. Previously,
the Company developed, and is in the process of implementing, a strategy to
modernize and improve its information systems in an effort to provide management
with fully integrated systems. This transformation will deliver information to
management and the Company's employees in a more efficient and timely manner.
In conjunction with this effort, the Company is addressing its Year 2000 issues.
The Company believes its new information systems will be fully Year 2000
compliant. The Company has been, and will continue to assess its business
partners' efforts to become Year 2000 compliant. The Company does not believe
the Year 2000 issues (including the costs of the Company's compliance program)
will have a material adverse effect on the Company's financial position or
results of operations, though no assurance can be given in this regard.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This filing contains certain forward-looking statements. Such statements are
based upon the beliefs and assumptions of, and on information available to, the
Company's management. Because such forward-looking statements are subject to
various risks and uncertainties, results may differ materially from those
expressed in or implied by such statements. Many of the factors that will
determine these results are beyond the Company's ability to control or predict.
Factors which could affect the Company's future results and could cause results
to differ materially from those expressed in or implied by such forward-looking
statements are discussed under the caption "Cautionary Statement Regarding
Forward-Looking Statements" in the Company's Annual Report on Form 10-K for its
fiscal year ended January 3, 1998, and under the caption "Risk Factors" in each
of the Joint Proxy Statement/Prospectus forming a part of the Company's
Registration Statement on Form S-4 (No. 333-36663) and the Prospectus forming a
part of the Company's Registration Statement on Form S-4 (No. 333-46209).
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the Company was held on
May 4, 1998. The following proposals were voted upon and approved at the
Annual Meeting:
(1) Election of Directors
For Three-Year Terms Expiring in 2001:
Votes Votes Broker
Cast For Withheld Non-Votes
---------- -------- ---------
Mary R. Silverthorne 12,082,230 393,946 0
Jeffrey D. Cordes 12,080,257 395,919 0
Christopher N. Baker 12,081,414 394,762 0
Kevin M. Finlay 12,078,369 397,807 0
There were no abstentions with respect to the election of directors.
Charles M. Hansen, Jr., William B. Madden, M. Joseph McHugh,
Ralph W. La Rovere, Paul G. Gillease and Scott E. Shimizu continued as
directors of the Company.
(2) Approval of the amendment to the Pillowtex Corporation 1993 Stock Option
Plan to increase the number of shares of Common Stock available for
issuance thereunder from 1,500,000 shares to 2,000,000 shares:
Votes Votes Votes
Cast For Against Abstaining
---------- ---------- ----------
10,143,218 2,304,814 28,144
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Second Supplemental Indenture, dated as of July 28, 1998, among
Pillowtex Corporation, the guarantors listed on the signature page
thereto, and Norwest Bank Minnesota, National Association, as Trustee
10.1 Sublicense Agreement, dated as of July 1, 1998, between Pillowtex
Corporation, Ralph Lauren Home Collection, Inc. and Polo Ralph Lauren
Corporation (confidential portions of this exhibit have been omitted
and filed separately with the Commission)
10.2 Pillowtex Corporation Executive Medical Expense Reimbursement Plan,
effective as of January 1, 1998
10.3 First Amendment to Amended and Restated Credit Agreement, dated as of
June 19, 1998, among Pillowtex Corporation, certain lenders named
therein and NationsBank, N.A., as Administrative Agent
10.4 Second Amendment to Amended and Restated Credit Agreement, dated as
of July 28, 1998, among Pillowtex Corporation, certain lenders named
therein and NationsBank, N.A., as Administrative Agent
10.5 First Amendment to Term Credit Agreement, dated as of June 19, 1998,
among Pillowtex Corporation, certain lenders named therein and
NationsBank, N.A., as Administrative Agent
10.6 Second Amendment to Term Credit Agreement, dated as of July 28, 1998,
among Pillowtex Corporation, certain lenders named therein and
NationsBank, N.A., as Administrative Agent
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The following report on Form 8-K was filed during the quarter for which
this report is filed:
1. Current report on Form 8-K dated April 9, 1998 and filed on April 10,
1998 reporting under Item 5 and Item 7 of Form 8-K information concerning the
resolution of the litigation brought against the Company by Louisville
Bedding Company.
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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) AUGUST 17, 1998
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INDEX TO EXHIBITS
Exhibit Method of Filing
- - ------- -----------------------------
4.1 Second Supplemental Indenture, dated as of July 28, 1998, among Pillowtex
Corporation, the guarantors listed on the signature page thereto, and
Norwest Bank Minnesota, National Association, as Trustee. . . . . . . . . . . Filed herewith electronically
10.1 Sublicense Agreement, dated as of July 1, 1998, between Pillowtex
Corporation, Ralph Lauren Home Collection, Inc. and Polo Ralph Lauren
Corporation (confidential portions of this exhibit have been omitted and
filed separately with the Commission) . . . . . . . . . . . . . . . . . . . . Filed herewith electronically
10.2 Pillowtex Corporation Executive Medical Expense Reimbursement Plan,
effective as of January 1, 1998 . . . . . . . . . . . . . . . . . . . . . . . Filed herewith electronically
10.3 First Amendment to Amended and Restated Credit Agreement, dated as of
June 19, 1998, among Pillowtex Corporation, certain lenders named therein
and NationsBank, N.A., as Administrative Agent. . . . . . . . . . . . . . . . Filed herewith electronically
10.4 Second Amendment to Amended and Restated Credit Agreement, dated as of
July 28, 1998, among Pillowtex Corporation, certain lenders named therein
and NationsBank, N.A., as Administrative Agent. . . . . . . . . . . . . . . . Filed herewith electronically
10.5 First Amendment to Term Credit Agreement, dated as of June 19, 1998,
among Pillowtex Corporation, certain lenders named therein and NationsBank,
N.A., as Administrative Agent . . . . . . . . . . . . . . . . . . . . . . . . Filed herewith electronically
10.6 Second Amendment to Term Credit Agreement, dated as of July 28, 1998,
among Pillowtex Corporation, certain lenders named therein and NationsBank,
N.A., as Administrative Agent . . . . . . . . . . . . . . . . . . . . . . . . Filed herewith electronically
27.1 Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . Filed herewith electronically
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