THE LESHNER CORPORATION
Consolidated Balance Sheets as of September 27, 1997 and September 28, 1996 and
the Related Consolidated Statements of Operations and Earnings Retained in the
Business and Cash Flows for Each of the Three Years in the Period Ended
September 27, 1997 and Independent Auditors' Report
THE LESHNER CORPORATION AND SUBSIDIARY COMPANY
TABLE OF CONTENTS
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Page
INDEPENDENT AUDITORS' REPORT 1
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 27, 1997 AND
SEPTEMBER 28, 1996 2
CONSOLIDATED STATEMENTS OF OPERATIONS AND EARNINGS RETAINED IN THE
BUSINESS FOR THE THREE YEARS IN THE PERIOD ENDED SEPTEMBER 27, 1997 3
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE YEARS IN
THE PERIOD ENDED SEPTEMBER 27, 1997 4
NOTES TO FINANCIAL STATEMENTS 5
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
of The Pillowtex Corporation
We have audited the accompanying consolidated balance sheets of The Leshner
Corporation and subsidiary company (the "Company") as of September 27, 1997 and
September 28, 1996, and the related consolidated statements of operations and
earnings retained in the business and of cash flows for each of the three years
in the period ended September 27, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of The Leshner Corporation and
subsidiary company at September 27, 1997 and September 28, 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended September 27, 1997 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
January 28, 1998
(July 28, 1998 as to Note 8)
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THE LESHNER CORPORATION AND SUBSIDIARY COMPANY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996
- --------------------------------------------------------------------------------
LIABILITIES AND
ASSETS 1997 1996 STOCKHOLDERS' EQUITY 1997 1996
------------ ------------ ------------ ------------
CURRENT ASSETS: CURRENT LIABILITIES:
Cash $ 41,043 $ 60,108 Current maturities of long-term
Accounts receivable (less obligations $ 4,753,511 $ 4,321,622
allowance for doubtful accounts Accounts payable:
of $844,000 in 1997 and $135,000 Trade 4,776,856 3,727,514
in 1996) 18,995,565 17,090,826 Other 245,137 230,243
Other receivables 302,383 516,768 Accrued liabilities:
Refundable federal income tax 590,265 890,245 Salaries, wages and commissions 1,131,486 1,085,472
Inventories 23,556,965 21,293,021 Taxes other than federal income tax 859,816 1,002,674
Prepaid expenses and other 272,611 565,594 Self insurance 354,419 648,119
Deferred income taxes 892,198 976,769 Interest 126,989 97,048
------------ ------------ Other 368,138 302,700
Total current assets 44,651,030 41,393,331 ------------ ------------
Total current liabilities 12,616,352 11,415,392
PROPERTY, At cost ------------ ------------
Land and land improvements 711,924 650,432
Buildings and bldg. improvements 10,414,175 10,798,045 LONG-TERM OBLIGATIONS (less
Machinery and equipment 35,526,425 27,756,432 current maturities):
Furniture and fixtures 2,225,989 2,151,100 Debt 43,666,652 41,126,632
Construction in progress 127,928 1,742,698 Notes payable to shareholders and
------------ ------------ other related parties 2,724,014 2,752,114
Total 49,006,441 43,098,707 Deferred income taxes 1,472,942 1,837,049
Less accumulated depreciation and ------------ ------------
amortization (20,018,990) (17,134,350) Total long-term obligations 47,863,608 45,715,795
------------ ------------ ------------ ------------
Property, net 28,987,451 25,964,357
------------ ------------
OTHER ASSETS: STOCKHOLDERS' EQUITY
Cash surrender value of life Capital stock:
insurance Preferred, 3% cumulative, $100 par
(less policy loans of $385,424 value; authorized, 1,500 shares;
in 1997 and 1996) 535,122 471,140 outstanding, none
Intangible assets (net of Common, $40 stated value;
accumulated amortization of authorized, 25,000 shares;
$330,358 in 1997 and $275,097 outstanding, 15,000 shares 600,000 600,000
in 1996) 541,956 581,637 Paid-in capital in excess of
Deferred pension expense 689,369 548,635 stated value 104,344 104,344
Unexpended bond proceeds - 4,690,687 Earnings retained in the business 14,220,624 15,814,256
------------ ------------ ------------ ------------
Total other assets 1,766,447 6,292,099 Total stockholders' equity 14,924,968 16,518,600
------------ ------------ ------------ ------------
TOTAL $75,404,928 $73,649,787 TOTAL $75,404,928 $73,649,787
============ ============ ============ ============
See notes to consolidated financial statements.
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THE LESHNER CORPORATION AND SUBSIDIARY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS AND
EARNINGS RETAINED IN THE BUSINESS
FOR THE YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 28, 1996,
AND SEPTEMBER 30, 1995
- -------------------------------------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
NET SALES $ 104,924,961 $ 96,438,442 $ 101,187,233
COST OF PRODUCTS SOLD 93,023,688 85,456,398 86,538,165
--------------- --------------- ---------------
GROSS PROFIT 11,901,273 10,982,044 14,649,068
SELLING AND GENERAL EXPENSES 10,880,943 9,841,102 10,244,954
--------------- --------------- ---------------
INCOME FROM OPERATIONS 1,020,330 1,140,942 4,404,114
--------------- --------------- ---------------
OTHER CHARGES (CREDITS):
Interest expense 3,765,456 3,364,934 3,310,873
Interest income (116,886) (2,375) (5,026)
Miscellaneous, net (194,637) (765,768) (928,748)
--------------- --------------- ---------------
Total other charges, net 3,453,933 2,596,791 2,377,099
INCOME (LOSS) BEFORE PROVISION (CREDIT)
FOR INCOME TAXES (2,433,603) (1,455,849) 2,027,015
PROVISION (CREDIT) FOR INCOME TAXES (839,971) (435,442) 721,352
--------------- --------------- ---------------
NET INCOME (LOSS) (1,593,632) (1,020,407) 1,305,663
EARNINGS RETAINED IN THE BUSINESS, Beginning
of year 15,814,256 16,954,663 15,769,000
LESS DIVIDENDS - (120,000) (120,000)
--------------- --------------- ---------------
EARNINGS RETAINED IN THE BUSINESS, End of year $ 14,220,624 $ 15,814,256 $ 16,954,663
=============== =============== ===============
See notes to consolidated financial statements.
-3-
THE LESHNER CORPORATION AND SUBSIDIARY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 28, 1996, AND SEPTEMBER 30, 1995
1997 1996 1995
--------------- --------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,593,632) $ (1,020,407) $ 1,305,663
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 3,350,587 2,541,123 2,373,873
Deferred income taxes (279,536) 131,504 351,728
Loss on disposition of property 167,947 36,565 1,169
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (1,904,739) 2,895,907 (2,900,161)
Decrease (increase) in other receivables 214,385 (431,336) 197,289
Decrease (increase) in refundable federal income tax 299,980 (544,770) (64,913)
Decrease (increase) in inventories (2,263,944) 617,300 432,564
Decrease (increase) in prepaid expenses and other 292,983 1,636 (86,617)
Decrease (increase) in other assets (204,716) 38,244 (93,480)
Increase (decrease) in accounts payable 1,064,236 1,179,487 (268,675)
Increase (decrease) in accrued liabilities (295,165) (794,291) 151,239
--------------- --------------- ---------------
Net cash provided by (used in) operating activities (1,151,614) 4,650,962 1,399,679
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,982,015) (7,175,859) (927,782)
Proceeds from sale of property 40,632 - 13,001
Unexpended proceeds from IRB issuances 4,690,687 (4,690,687) -
--------------- --------------- ---------------
Net cash used in investing activities (250,696) (11,866,546) (914,781)
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt - 17,178,896 1,656,790
Net proceeds (payments) under revolving line of credit agreements 5,715,573 (1,084,450) 2,347,776
Principal payments on long-term debt (4,305,673) (8,588,715) (4,453,592)
Principal payments on notes payable to shareholders
and other related parties (220,155) (250,211) (149,250)
Proceeds from issuance of notes payable to
shareholders and other related parties 206,000 93,000 264,500
Dividends paid - (120,000) (120,000)
Payments for bond issuance costs (12,500) (85,373) -
--------------- --------------- ---------------
Net cash provided by (used in) financing activities 1,383,245 7,143,147 (453,776)
--------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH (19,065) (72,437) 31,122
CASH:
Beginning of year 60,108 132,545 101,423
--------------- --------------- ---------------
End of year $ 41,043 $ 60,108 $ 132,545
=============== =============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Income taxes $ 20,724 $ 49,661 $ 523,137
Interest 3,735,515 3,716,741 3,132,721
Property acquired through issuance of debt 761,582 - 52,760
New capital leases 786,482 232,784 925,944
See notes to consolidated financial statements.
-4-
THE LESHNER CORPORATION AND SUBSIDIARY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The consolidated financial statements include the
accounts of The Leshner Corporation ("Leshner") and its wholly-owned
subsidiary (the "Company"), Opelika Industries, Inc. ("Opelika"). All
material intercompany transactions and balances have been eliminated.
FISCAL YEAR - The Company's fiscal year end is the Saturday closest to
September 30.
DESCRIPTION OF BUSINESS - The Company is a manufacturer, converter and
distributor of textile products. Sales to the ten most significant
customers represented approximately 45%, 60% and 57% of the Company's total
sales in 1997, 1996 and 1995, respectively. A substantial portion of the
Company's accounts receivable relates to sales to mass merchandisers, other
retailers and institutional distributors.
INVENTORIES - Inventories consist principally of manufactured textile
materials and are valued at the lower of either standard or estimated cost
(which approximate cost on a FIFO basis) or market.
INTANGIBLE ASSETS - Intangible assets are being amortized over the
estimated periods to be benefited, which range from 2 to 40 years. The
carrying value of intangible assets is evaluated periodically as events and
circumstances indicate a possible inability to recover its carrying amount.
UNEXPENDED BOND PROCEEDS - Unexpended bond proceeds represent funds
received from industrial development bond issuances in 1996 which had not
yet been expended for their intended purpose. Such funds consist of money
market accounts carried at cost which approximates market value and were
expended in 1997.
DEPRECIATION AND AMORTIZATION - Buildings and building improvements are
depreciated over estimated useful lives of 20 to 32 years using principally
the straight-line method. Machinery and equipment and furniture and
fixtures are depreciated over estimated useful lives of 5 to 15 years using
the straight-line and accelerated depreciation methods. Amortization of
capital lease balances is included with depreciation expense. The
capitalized cost of property under capital leases was $3,298,000 and
$3,096,000 at September 27, 1997 and September 28, 1996, respectively.
SELF-INSURANCE PLANS - The Company is self-insured for Alabama and Georgia
workers' compensation claims and has purchased commercial insurance for
individual claims in excess of $300,000 and $250,000, respectively over
the life of the claim. Amounts are accrued for estimated future payments
applicable to such claims.
INCOME TAXES - Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Income tax
expense is the tax payable or refundable for the current period plus or
minus the change during the current period in deferred tax assets and
liabilities.
-5-
MISCELLANEOUS INCOME - Miscellaneous income primarily represents commission
income related to sales of products of other manufacturers and insurance
proceeds from various insurance claims.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements. Estimates also affect the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
OTHER RECEIVABLES - At September 27, 1997 and at September 28, 1996, the
Company had receivables of approximately $200,000 and $500,000,
respectively, for insurance claims recorded as other receivables.
2. INVENTORIES
Inventories consisted of the following:
September 27, September 28,
1997 1996
------------- -------------
Raw materials $ 5,467,725 $ 6,430,163
Work in process 3,751,481 4,051,607
Finished goods 14,337,759 10,811,251
------------- -------------
Total $ 23,556,965 $ 21,293,021
============= =============
3. LONG-TERM DEBT
Long-term debt at September 27, 1997 and September 28, 1996 consisted of
the following:
1997 1996
----------- -----------
Industrial Revenue Bonds:
City of Opelika, interest rates varying from 4.25% to 6.5% annually
(6.3% and 6.125% at September 27, 1997 and September 28, 1996,
respectively), payable in annual instalments of $600,000 plus
interest through January 1998 with a final payment of $605,000
plus interest in January 1999 $ 1,205,000 $ 1,805,000
Macon-Bibb County, variable interest rate, (5.06% and 6.93% at
September 27, 1997 and September 28, 1996, respectively) payable
in annual instalments of $173,333 plus interest through March 2001 693,333 866,666
Phenix City, interest rates varying from 4.8% to 6.4% annually (6.2%
and 6.0% at September 27, 1997 and September 28, 1996,
respectively), payable in annual instalments of $170,000 plus
interest through March 1999 340,000 510,000
City of Hamilton, approximately 8% per annum, monthly sinking
fund payments of $9,877 (interest and principal) through August
1998, net of accumulated sinking fund of $9,131 and $9,180 for
1997 and 1996, respectively 65,869 140,820
-6-
City of Opelika, 6.16% per annum, payable in monthly instalments of
$67,793, including interest, through August 2002 3,443,333 3,800,000
Pulaski County-Hawkinsville Development Authority, 6.16% per
annum, payable in monthly instalments of $80,556, including
interest, through August 2002 4,091,561 4,500,000
Notes payable:
Bank, floating prime rate plus .35% per annum (8.85% and 8.60% at
September 27, 1997 and September 28, 1996, respectively) or
2.35% over the Eurodollar rate per annum (8.07% and 8.05% at
September 27, 1997 and September 28, 1996, respectively), loan
balance outstanding under the terms of a revolving credit agreement
due October 1998 28,827,450 23,111,877
Bank, 7.5% per annum; collateralized by machinery and equipment
and payable in monthly instalments of $52,890 including interest,
through August 1997 - 560,551
Promissory Note, 8.653% per annum, collateralized by machinery
and equipment and payable in monthly instalments of $125,132,
including interest, through May 2002 5,748,457 6,707,107
Promissory Note, 8.26% per annum, collateralized by machinery and
equipment and payable in monthly instalments of $24,991,
including interest, through November 2000 833,124 1,054,190
Promissory Note, 8.26% per annum, collateralized by machinery and
equipment and payable in monthly instalments of $8,831, including
interest, through December 2002 455,876 515,987
Promissory Note, 8.49% per annum, collateralized by machinery and
equipment and payable in monthly instalments of $3,241, including
interest, through March 2003 170,461 193,799
Promissory Note, 8.20% rate per annum, collateralized by machinery
and equipment and payable in monthly instalments of $8,733,
including interest, through December 2001 374,445 -
Promissory Note, 9.9% per annum, collateralized by machinery and
equipment and payable in monthly instalments of $10,633 through
July 2000 314,445 -
Promissory Note, variable interest rate (9.02% and 8.90% at
September 27, 1997 and September 28, 1996, respectively),
collateralized by machinery and equipment and payable in monthly
instalments of $1,080, including interest, through November 1999 26,485 35,923
Obligations under capital leases, interest imputed between 7.5% and
10.0% per annum, payable in monthly instalments with maturities
ranging through 2001 1,667,724 1,497,679
----------- -----------
Total 48,257,563 45,299,599
Less current maturities 4,590,911 4,172,967
----------- -----------
Remainder $43,666,652 $41,126,632
=========== ===========
In January 1992 and March 1992, the Company issued industrial development
bonds for $4,205,000 (City of Opelika, Alabama) and for $1,200,000 (City
of Phenix City, Alabama), respectively, to finance the continuing
modernization of the Opelika yarn making and weaving operations and to
expand storage and production facilities at the Phenix City location.
-7-
Both issues are secured by separate letter of credit facilities provided
by a bank. In July 1996, the Company issued additional industrial
development bonds for $4,500,000 (The Pulaski County - Hawkinsville
Development Authority, Georgia) and $3,800,000 (City of Opelika, Alabama)
to finance the acquisition and installation of additional weaving equipment
at the Opelika location and acquire terry cloth finishing machines and
accessories at the Hawkinsville location.
In June 1993, the Company entered into an agreement whereby the Company
effectively assumed the outstanding principal balance of $1,386,666 of
previously issued Macon-Bibb County Industrial Authority Revenue Bonds,
Series 1986 to finance the purchase of a distribution facility in Macon,
Georgia.
The title to the property financed by the bonds is held by the respective
cities/counties until the bonds are fully paid. For accounting purposes,
the property is capitalized and depreciated.
The Company has a Loan and Security Agreement (the "Agreement") with a bank
which expires in April 1998. The Agreement provides the Company with a
revolving line of credit, including loans, bankers acceptances and letters
of credit, up to maximum of $31,000,000, secured by and not to exceed 85%
of qualified accounts receivable and 60% of qualified inventory (as defined
in the Agreement). The Agreement bears interest at the floating prime rate
plus .35% per annum or, at the option of the Company, 2.35% over the
Eurodollar rate per annum. Conversion between the two rates can be made by
the Company on specified dates for certain amounts. At September 27, 1997
and September 28, 1996, approximately $22,000,000 and $19,000,000,
respectively was at the Eurodollar rate per annum, respectively. The
Company must pay a commitment fee of .25% on the unused portion of the
credit line and the Agreement contains certain loan covenants. At
September 27, 1997 and September 28, 1996, total advances under the
Agreement were $28,827,450 and $23,111,877, respectively. In December
1997, the Agreement was extended to October 1, 1998.
The industrial development bonds, the Agreement and other notes payable
certain covenants restricting certain corporate acts, requiring minimum
financial ratios and prohibiting the payment of dividends. As of
September 27, 1997, the Company was in violation of several of the
required minimum financial ratios. The lenders waived the requirements
of the agreements as of September 27, 1997 and for the period through
October 1, 1998, as applicable and therefore all debt is classified as
current and non-current according to the original repayment terms.
Because the majority of the Company's long-term debt has variable interest
rates, the fair value of long-term debt approximates carrying value at
September 27, 1997 and September 28, 1996.
The approximate aggregate amounts of maturities, excluding maturities on
notes payable to shareholders and other related parties (see Note 4) are:
1998, $4,591,000; 1999, $33,530,000; 2000, $3,909,000; 2001, $3,480,000;
2002, $2,697,000; and beyond $51,000.
4. NOTES PAYABLE TO SHAREHOLDERS
The Company has a 9% note payable to one shareholder through April 2002.
The note is payable in monthly instalments of $19,608, including interest.
The balance of this note was $881,002 and $1,029,657 at September 27, 1997
and September 28, 1996, respectively. Principal maturities of this note
are as follows: 1998, $162,600; 1999, $177,853; 2000, $194,537; 2001,
$212,786; and 2002, $133,226.
-8-
The remaining notes payable to shareholders and other related parties at
September 27, 1997 and September 28, 1996 bear interest at 1% over the
prime rate (not to exceed 16%) and mature February 1999. Such notes are
generally renewed, but are payable immediately upon death.
5. OPERATING LEASES
Total rental expense for operating leases was approximately $2,505,000,
$3,232,000 and $4,286,000 for 1997, 1996 and 1995, respectively. Most of
the Company's operating leases are for weaving and other production
equipment and retail stores and contain renewal options. At September 27,
1997 the minimum rental commitments for noncancellable leases which have
remaining terms greater than one year totaled approximately $3,531,000.
Such commitments are payable as follows: 1998, $1,605,000; 1999, $892,000;
2000, $586,000; 2001, $271,000; 2002, $143,000 and beyond, $34,000.
6. RETIREMENT PLANS
The Company has a noncontributory defined benefit plan that covers all
salaried and office employees. Benefits are based on years of credited
service and compensation levels. Contributions to the plan are based on
the frozen entry age actuarial cost method.
Pension expense consists of several components that reflect various aspects
of the Company's financial arrangements as well as the cost of benefits
earned by employees. These components are determined using the projected
unit credit actuarial cost method and are based on certain actuarial
assumptions. Net pension expense includes the following components for the
years ended September 27, 1997, September 28, 1996 and September 30, 1995:
1997 1996 1995
------------ ------------ ------------
Service cost for current year $ 281,900 $ 273,700 $ 277,000
Interest cost 412,000 382,000 349,000
Actual return on plan assets (1,428,000) (944,000) (1,017,000)
Net amortization and deferral 724,000 433,900 588,000
------------ ------------ ------------
Net pension expense (income) $ (10,100) $ 145,600 $ 197,000
============ ============ ============
-9-
The following table sets forth the plan's funded status and the amount
recognized in the Company's balance sheets as of September 27, 1997
September 28, 1996:
1997 1996
------------ ------------
Actuarial present value of accumulated benefit
obligation, including vested benefits of
$5,112,741 and $4,785,600 at September 27,
1997 and September 28, 1996, respectively $ 5,328,688 $ 5,005,134
============ ============
Plan assets at fair market value $ 8,961,240 $ 7,658,332
Actuarial present value of projected benefit
obligation for service rendered to date 6,446,755 5,996,475
------------ ------------
Plan assets in excess of projected benefit
obligation 2,514,485 1,661,857
Unrecognized net transition asset at
October 1, 1987 ($34,200 being amortized
over approximately 16 years) (13,200) (15,300)
Unrecognized prior service cost 118,035 129,907
Unrecognized net loss (gain) (1,929,951) (1,227,829)
------------ ------------
Net prepaid pension cost included in the
accompanying balance sheets $ 689,369 $ 548,635
============ ============
At September 27, 1997, September 28, 1996 and September 30, 1995, the
discount rate was 7% and the rate of increase in future compensation levels
used in determining the actuarial present value of the projected benefit
obligation was 4%. The expected long-term rate of return on retirement
plan assets, consisting principally of U.S. Government and Agency
Obligations, common stock and pooled investment funds, was 9.0% in 1997
and 7.5% in 1996 and 1995, respectively.
The Company also contributes to Company sponsored and multi-employer
defined contribution plans that cover salaried and office employees at
Leshner and hourly employees at Opelika. The Company's contributions to
these plans were approximately $372,000, $369,000 and $362,000 for the
years ended September 27, 1997, September 28, 1996 and September 30, 1995,
respectively.
-10-
7. INCOME TAXES
The provision (credit) for income taxes consists of the following:
1997 1996 1995
---------- ---------- ----------
Federal:
Current $(587,352) $(544,770) $ 360,087
Deferred (249,228) 106,128 322,185
---------- ---------- ----------
Total (836,580) (438,642) 682,272
---------- ---------- ----------
State and local:
Current 26,917 (22,176) 9,537
Deferred (30,308) 25,376 29,543
---------- ---------- ----------
Total (3,391) 3,200 39,080
---------- ---------- ----------
Provision (credit) for
income taxes $(839,971) $(435,442) $ 721,352
========== ========== ==========
The reconciliation of reported income tax expense to the amount of income
tax expense that would result from applying domestic federal statutory tax
rates to pretax income is as follows (in millions):
September 27, September 28, September 30,
1997 1996 1995
------------- ------------- -------------
Statutory federal income tax $ (827,425) $ (494,989) $ 689,185
State income tax (3,391) 10,738 32,547
Other, net (9,155) 48,809 (380)
------------- ------------- -------------
Total $ (839,971) $ (435,442) $ 721,352
============= ============= =============
The components of deferred tax assets and liabilities were as follows:
September 27, September 28,
1997 1996
------------- -------------
Deferred tax assets:
Net operating loss $ 605,000 $ -
Alternative minimum tax credit - 333,615
Asset reserves 413,667 59,600
Accrued liabilities and self insurance
reserves 460,625 531,064
Other 343,131 193,107
------------- -------------
Total deferred tax assets $ 1,822,423 $ 1,117,386
============= =============
Deferred tax liabilities:
Depreciation and fixed assets $ 1,700,453 $ 1,376,543
Capital leases 417,051 350,149
Pension accrual 268,854 228,557
Other 16,809 22,417
------------- -------------
Total deferred tax liabilities $ 2,403,167 $ 1,977,666
============= =============
-11-
The Company has a federal net operating loss carryover of approximately
$1,727,000 generated in the year ended September 27, 1997. This loss will
expire in the year 2012 unless used by then.
8. SUBSEQUENT EVENT
Effective July 28, 1998, the Company completed a plan of merger with
Pillowtex Corporation whereby all of the Company's outstanding shares of
common stock were acquired by a subsidiary of Pillowtex Corporation for
approximately $33,500,000.
* * * * * *
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