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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 30, 1996
Commission file number: 1-11756
PILLOWTEX CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 75-2147728
(State of incorporation) (IRS Employer Identification No.)
4111 Mint Way
Dallas, Texas
75237
(Address of principal executive offices)
(Zip Code)
(214) 333-3225
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS Outstanding at April 25, 1996
Common Stock, $0.01 par value 10,617,722
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PILLOWTEX CORPORATION AND SUBSIDIARIES
INDEX
Part I - Financial Information Page No.
Item 1. Interim Financial Statements:
Consolidated Balance Sheets as of
March 30, 1996 and December 30, 1995 3
Consolidated Statements of Earnings for the three
months ended March 30, 1996 and April 1, 1995 4
Consolidated Statements of Cash Flows for the three
months ended March 30, 1996 and April 1, 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 9
Signature 10
Index to Exhibits 11
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 30, 1996 and December 30, 1995
(Dollars in thousands, except par value)
(Audited, except as noted)
ASSETS 1996 1995
---------- ----------
(Unaudited)
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 207 411
Receivables:
Trade, less allowance for doubtful accounts of $2,141
and $2,195 in 1996 and 1995, respectively . . . . . . 60,128 71,684
Other . . . . . . . . . . . . . . . . . . . . . . . . . 4,836 2,284
Inventories . . . . . . . . . . . . . . . . . . . . . . . 119,821 107,404
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . 1,870 1,644
Deferred income taxes . . . . . . . . . . . . . . . . . . 2,449 2,419
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Total current assets. . . . . . . . . . . . . . . . . . 189,311 185,846
Property, plant, and equipment, less accum. depreciation
of $36,100 and $33,411 in 1996 and 1995, respectively . . 82,037 84,567
Intangible assets, at cost, less accumulated amortization
of $2,822 and $2,500 in 1996 and 1995, respectively . . . 51,298 51,779
Other assets . . . . . . . . . . . . . . . . . . . . . . . 2,509 2,518
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325,155 324,710
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . $ 36,094 42,090
Accrued expenses. . . . . . . . . . . . . . . . . . . . . 20,136 21,137
Current portion of long-term debt . . . . . . . . . . . . 11,564 11,916
Income taxes payable. . . . . . . . . . . . . . . . . . . 372 575
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Total current liabilities . . . . . . . . . . . . . . . 68,166 75,718
Long-term debt, net of current portion . . . . . . . . . . 160,789 153,472
Deferred income taxes. . . . . . . . . . . . . . . . . . . 7,704 7,530
Shareholders' equity:
Preferred stock, $0.01 par value; authorized 20,000,000
shares; none issued and outstanding. . . . . . . . . . . - -
Common stock, $0.01 par value; authorized 30,000,000
shares; 10,617,722 shares issued and outstanding . . . . 106 106
Additional paid-in capital. . . . . . . . . . . . . . . . 58,427 58,427
Retained earnings . . . . . . . . . . . . . . . . . . . . 30,076 29,666
Currency translation adjustment . . . . . . . . . . . . . (113) (209)
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Total shareholders' equity. . . . . . . . . . . . . . . 88,496 87,990
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$ 325,155 324,710
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See accompanying notes to consolidated financial statements.
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended March 30, 1996 and April 1, 1995
(In thousands, except for per share data)
(Unaudited)
1996 1995
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Net sales. . . . . . . . . . . . . . . . . . . . . . . . . $ 100,794 94,740
Cost of goods sold . . . . . . . . . . . . . . . . . . . . 85,226 78,286
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Gross profit . . . . . . . . . . . . . . . . . . . . . . 15,568 16,454
Selling, general and administrative expenses . . . . . . . 10,614 10,571
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Earnings from operations . . . . . . . . . . . . . . . . 4,954 5,883
Interest expense . . . . . . . . . . . . . . . . . . . . . 3,398 3,936
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Earnings before income taxes . . . . . . . . . . . . . . 1,556 1,947
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 615 785
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Net earnings . . . . . . . . . . . . . . . . . . . . . . $ 941 1,162
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Net earnings per common share and common
share equivalent . . . . . . . . . . . . . . . . . . . . $ .09 .11
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Weighted average common shares and common share
equivalents outstanding. . . . . . . . . . . . . . . . . 10,618 10,618
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See accompanying notes to consolidated financial statements.
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 30, 1996 and April 1, 1995
(Dollars in thousands)
(Unaudited)
1996 1995
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Cash flows from operating activities:
Net earnings. . . . . . . . . . . . . . . . . . . . . . . $ 941 1,162
Adjustments to reconcile net earnings to net cash used
in operating activities:
Depreciation and amortization . . . . . . . . . . . . . 3,242 2,875
Deferred income taxes . . . . . . . . . . . . . . . . . 142 (467)
Provision for doubtful accounts . . . . . . . . . . . . 31 172
Loss on disposal of property, plant, and equipment. . . 5 1
Changes in assets and liabilities:
Trade receivables . . . . . . . . . . . . . . . . . . 11,534 20,256
Inventories . . . . . . . . . . . . . . . . . . . . . (12,386) (23,914)
Accounts payable. . . . . . . . . . . . . . . . . . . (1,647) 7,159
Accrued expenses. . . . . . . . . . . . . . . . . . . (946) (3,541)
Other assets and liabilities. . . . . . . . . . . . . (2,925) (727)
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Net cash provided by (used in) operating activities. (2,009) 2,976
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Cash flows from investing activities:
Proceeds from sale of property, plant, and equipment. . . 15 10
Purchases of property, plant, and equipment . . . . . . . (773) (2,546)
Payments for businesses purchased . . . . . . . . . . . . (59) (1,773)
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Net cash used in investing activities. . . . . . . . (817) (4,309)
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Cash flows from financing activities:
Net borrowings (payments) on revolving credit loans . . . 19,600 (2,050)
Increase (decrease) in checks not yet presented for
payment. . . . . . . . . . . . . . . . . . . . . . . . . (4,016) 3,780
Principal payments on long-term debt. . . . . . . . . . . (12,432) (262)
Dividends paid. . . . . . . . . . . . . . . . . . . . . . (531) -
Debt issuance costs . . . . . . . . . . . . . . . . . . . - (281)
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Net cash provided by financing activities. . . . . . 2,621 1,187
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Effect of exchange rate changes on cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . . . 1 3
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Net change in cash and cash equivalents. . . . . . . . . . (204) (143)
Cash and cash equivalents at beginning of period . . . . . 411 571
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Cash and cash equivalents at end of period . . . . . . . . $ 207 428
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . $ 4,853 4,610
Income taxes . . . . . . . . . . . . . . . . . . . . . . 1,138 1,370
See accompanying notes to consolidated financial statements
PILLOWTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tables in thousands of dollars)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements include all
adjustments, consisting of normal, recurring adjustments and accruals, which
are, in the opinion of management, necessary for fair presentation of the
results of operations and financial position. Certain reclassifications have
been made to conform prior year financial statements to the current period
classifications. The consolidated financial statements should be read in
conjunction with the financial statements included in the Company's annual
report on Form 10-K filed with the Securities and Exchange Commission on March
29, 1996 for the fiscal year ended December 30, 1995.
(2) Inventories
Inventories consisted of the following at March 30, 1996 and December 30,
1995:
1996 1995
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Finished goods . . . . . . . . . . . . . . . . . . . $ 50,132 37,670
Work-in-process. . . . . . . . . . . . . . . . . . . 34,142 35,980
Raw materials. . . . . . . . . . . . . . . . . . . . 33,548 31,851
Supplies . . . . . . . . . . . . . . . . . . . . . . 1,999 1,903
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$ 119,821 107,404
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(3) Earnings per Common Share
Earnings per common 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 April 1, 1995, there
were stock options outstanding for 554,616 and 363,941 common shares,
respectively. Stock options are excluded from the calculations since they have
no material dilutive effect on per share data.
(4) Acquisitions
In the first quarter of 1996 and fiscal year ended December 30, 1995, the
Company made payments and capitalized certain costs related to acquisitions
completed in 1994.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the attached
consolidated financial statements and notes thereto, and with the Company's
audited financial statements and notes thereto for the fiscal year ended
December 30, 1995.
RESULTS OF OPERATIONS
NET SALES. Net sales for the three months ended March 30, 1996 increased
$6,054,000 (6.4%) to $100,794,000 compared to $94,740,000 for the same period in
1995, due to additional sales of core products in the Pillowtex Division.
GROSS PROFIT. The gross profit percentage for the first quarter ended March
30, 1996 decreased to 15.4% compared to 17.4% for the first quarter of 1995.
This decline was due to a number of factors, including higher raw materials
costs, several days of manufacturing disruption caused by bad weather,
promotional pricing and a slower than expected phase-in of the Company's new
cotton yarn spinning facility in Newton, North Carolina.
SG&A. Selling, general and administrative ("SG&A") expenses for the three
months ended March 30, 1996 increased slightly, by $43,000 (.4%) to $10,614,000
from $10,571,000 for the same period in 1995. SG&A expenses decreased as a
percentage of sales to 10.5% in the first quarter of 1996 as compared to 11.2%
for the same period in 1995. This percentage decrease reflects the Company's
continuing efforts to contain SG&A expenses.
INTEREST. Interest expense for the first quarter of 1996 decreased $538,000
(13.7%) to $3,398,000 from $3,936,000 for the same period in 1995, due
principally to lower debt levels, reduced carrying costs on lower inventory and
decreased average interest rates.
NET EARNINGS. Net earnings for the three months ended March 30, 1996
decreased $221,000 (19.0%) to $941,000, or $.09 per share, compared to net
earnings of $1,162,000, or $.11 per share, for the same period in 1995. Net
earnings for the three months ended March 30, 1996 decreased as a percentage of
sales to .9% from 1.2% for the same period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of March 30, 1996, the outstanding principal balance under the Company's
$150,000,000 secured revolving credit facility was $85,200,000, with $11,212,000
committed to outstanding letters of credit and unused availability was
$53,588,000. Availability under the revolving credit facility is regulated by a
borrowing base determined by reference to the Company's accounts receivable and
inventory. The outstanding balance under the Company's $90,000,000 term loan
was $75,400,000. The Company believes that cash flow generated from operations
and funds available under the credit facilities will be sufficient to satisfy
working capital and financing needs for the foreseeable future.
GOVERNMENT REGULATIONS
In past years, the Company has dealt with a variety of import issues,
including the early China quota closing for imports of finished down comforters,
comforter shells and comforter covers. The Company lessened its reliance on
China imports by manufacturing more product in the United States and Canada and
by sourcing goods in other countries. In addition, in 1995 a change was made
in the import regulations regarding down comforter shells which are not
generally manufactured in the United States. The Company believes that no
import quota restrictions for shells will remain after July 1, 1996, which
would enable the Company to import shells as needed and thereby reduce
inventory carrying costs.
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 1996 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
Statements contained in this Form 10-Q for the quarter ended March 30, 1996
that are not historical facts, including, but not limited to, statements found
in this Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, are forward-looking statements and involve a number of
risks and uncertainties. The actual results of the future events described in
such forward-looking statements in this Form 10-Q could differ materially from
those stated in such forward-looking statements. Among the factors that could
cause actual results to differ materially are: adverse retail industry
conditions, industry competition and other competitive factors, government
regulation and possible future litigation, loss of material customers,
seasonality of business, and the termination of key license agreements, as
well as the risks and uncertainties discussed in this Form 10-Q.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 Second Amendment to Credit Agreement, dated as of March 30, 1996,
between Pillowtex Corporation and NationsBank of Texas, N.A.
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any report on Form 8-K during the period covered
by this report.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
(REGISTRANT) PILLOWTEX CORPORATION
BY (SIGNATURE) /s/ Jeffrey D. Cordes
(NAME AND TITLE) Jeffrey D. Cordes, Executive Vice President and
Chief Financial Officer
(DATE) May 10, 1996
INDEX TO EXHIBITS
Exhibit Method of Filing
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10 Second Amendment to Credit Agreement,
dated as of March 30, 1996, between
Pillowtex Corporation and NationsBank
of Texas, N.A. . . . . . . . . . . . . . Filed herewith electronically
27 Financial Data Schedule. . . . . . . . . Filed herewith electronically