-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, SsMzVgo8kvhGMG1QJr5XDU3IUriL4uPeujm6V2sUbX31v4eqqrVauRWwxUIXk2Bo vfbQ47HMAd4Vufki4bff+Q== 0000035469-94-000014.txt : 19941007 0000035469-94-000014.hdr.sgml : 19941007 ACCESSION NUMBER: 0000035469-94-000014 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19941006 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIELDCREST CANNON INC CENTRAL INDEX KEY: 0000035469 STANDARD INDUSTRIAL CLASSIFICATION: 2211 IRS NUMBER: 560586036 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-05137 FILM NUMBER: 94551840 BUSINESS ADDRESS: STREET 1: 326 E STADIUM DRIVE CITY: EDEN STATE: NC ZIP: 27288 BUSINESS PHONE: 9196273000 FORMER COMPANY: FORMER CONFORMED NAME: FIELDCREST MILLS INC DATE OF NAME CHANGE: 19860807 10-K/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K/A x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1993 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to Commission File No. 1-5137 FIELDCREST CANNON, INC. (Exact name of registrant as specified in its charter) DELAWARE 56-0586036 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 326 East Stadium Drive EDEN, NC 27288 (Address of principal (Zip Code) executive offices) Registrant's telephone number (910) 627-3000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Name of each exchange Title of each class on which registered Common Stock, $1 Par Value New York Stock Exchange 6% Convertible Subordinated Debentures Due 2012 New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE 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 and (2) has been subject to such filing requirements for the past 90 days. Yes x . No . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (x) The aggregate market value of voting stock held by non-affiliates of the registrant was $239,582,429 as of March 1, 1994. NUMBER OF SHARES OUTSTANDING AT MARCH 1, 1994 Common Stock 8,579,767 DOCUMENTS INCORPORATED BY REFERENCE Part II incorporates information by reference from the annual report to shareowners for the year ended December 31, 1993. Part III incorporates information by reference from the proxy statement for the annual meeting of shareowners to be held on May 16, 1994. Total pages 39 Page 1 Exhibit Index page 32 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (as amended October 6, 1994) Management's Discussion and Analysis RESULTS OF OPERATIONS The following summary income statement from continuing operations sets forth the percentage relationship that certain costs and expenses and other items in the income statement bear to net sales (dollars in millions).
1993 1992 Amount Percent Amount Percent Net sales $1,000.1 100.0% $981.8 100.0% Cost of sales 834.7 83.5 818.7 83.4 Selling, general and administrative 101.8 10.2 102.2 10.4 Restructuring charges 10.0 1.0 - - Operating income 53.6 5.3 60.9 6.2 Interest expense 27.7 2.7 34.1 3.5 Other (income) expense, net (1.0) (.1) .2 - Income from continuing operations before income taxes, extraordinary charge and accounting changes 26.9 2.7 26.6 2.7 Federal and state income taxes 11.9 1.2 10.9 1.1 Income from continuing operations before extraordinary charge and accounting changes $15.0 1.5% $ 15.7 1.6%
CAPTION 2 1991 Amount Percent Net sales $960.6 100.0% Cost of sales 828.6 86.3 Selling, general and administrative 92.4 9.6 Restructuring charges - - Operating income 39.6 4.1 Interest expense 37.0 3.8 Other (income) expense, net (1.0) (.1) Income from continuing operations before income taxes, extraordinary charge and accounting changes 3.6 .4 Federal and state income taxes 2.2 .3 Income from continuing operations before extraordinary charge and accounting changes $ 1.4 .1%
1993 compared to 1992 Net sales from continuing operations in 1993 increased to $1,000.1 million in 1993, compared to $981.8 million in 1992. The 1.9% increase was due primarily to increased volume. Although there were some improvements in sales mix, average selling prices in 1993 were lower than 1992. Operating income as a percent of sales was 5.3% in 1993 compared to 6.2% in 1992. Operating income was reduced 1.0% in 1993 due to $10 million of restructuring charges and .2% in 1992 by $2 million of nonrecurring items (see Note 4 of the Notes to Consolidated Financial Statements). The restructuring charges for 1993 include $8 million for the cost of a voluntary early retirement program which was accepted by 184 employees and severance for additional staff reductions, and $2 million for direct non-recurring expenses incurred by the Company in evaluating the purchase of the capital stock of Amoskeag Company ("Amoskeag"). These expenses did not contribute to the ultimate consummation of the tender offer to acquire Amoskeag. The acquisition of Amoskeag was accounted for as a purchase of treasury stock and is not expected to affect future operating income. Before these adjustments operating income as a percent of sales was 6.3% in 1993 compared to 6.4% in 1992. Despite the increase in sales volume, operating income has not risen due to continued competitive pressures on selling prices. Selling, general and administrative expenses as a percent of sales decreased from 10.4% in 1992 to 10.2% in 1993. The 1992 expenses include $2 million of costs related to the consolidation of certain sales offices in New York City. Without these costs, selling, general and administrative expenses as a percent of sales during 1992 and 1993 would have been approximately the same. 2 Interest expense decreased $6.4 million in 1993. The redemption of $100 million of 13.5% Debentures in July 1992 with the proceeds from the sale of 1.5 million shares of Common Stock and $85 million of 11.25% Debentures reduced interest expenses by approximately $2.5 million and the remaining $3.9 million reduction of interest expense was primarily due to a reduction of debt with the proceeds from the sale of the carpet and rug division in July 1993. The effective income tax rate was 44.3% in 1993, compared to 41.0% in 1992. The increase in the effective income tax rate is due primarily to the increase in the federal statutory income tax rate from 34% to 35% and a related $1.4 million non-cash expense to adjust existing deferred tax balances arising from differences in the book and tax bases of the Company's assets and liabilities. See Note 14 of the Notes to Consolidated Financial Statements. Income from continuing operations before accounting changes was $15.0 million or $1.24 per share in 1993 compared to $15.7 million or $1.39 per share in 1992. Income from the discontinued carpet and rug division was $3.2 million or $.27 per share in 1993 compared to $4.7 million or $.42 per share in 1992. The carpet and rug division was sold in July 1993 and a $15.1 pre-tax gain on the disposition increased net income $9.2 million or $.78 per share. The Company adopted FAS 106, "Employers' Accounting for Postretirement Benefits other than Pensions" and FAS 109, "Accounting for Income Taxes", effective January 1, 1993. The cumulative effect of these accounting changes reduced 1993 net income by $70.3 million or $5.99 per share. After the effect of accounting changes a net loss of $42.9 million, or $3.70 per share, was incurred in 1993. Significant changes in the Company's capital structure occurred during 1993 as a result of the sale of the carpet and rug division, the issuance of 1.5 million shares of convertible preferred stock and the acquisition of 3.6 million shares of the Company's common stock with the purchase of Amoskeag. Assuming that all of these transactions had occurred as of the beginning of 1993 and excluding the non-recurring restructuring charges and income tax adjustment referred to above, proforma 1993 income from continuing operations was $2.15 per common share. For additional information see Note 11 of the Notes to Consolidated Financial Statements. 3 1992 compared to 1991 Net sales from continuing operations in 1992 increased to $981.8 million, compared to $960.6 million in 1991. This improvement in bed and bath product sales represents a 2.2% increase over 1991 sales. Operating income as a percent of sales increased to 6.2% compared to 4.1% in 1991. Higher operating income in the bed and bath division resulted principally from lower cotton costs, increased sales volume and related higher mill activity levels. Results for 1992 include a $3.5 million pre-tax charge to provide for the cost of closing and disposing of a towel manufacturing facility in York, South Carolina. Production from this facility has been transferred to other Company towel plants without a reduction in overall towel production capacity. The Company also recognized a $1.5 million pre-tax credit in 1992 from the adjustment of reserves established in 1990 for discontinuing the automatic blanket operations which were no longer required. The combined effect of the two non-recurring items reduced operating income by $2.0 million and net income by $1.2 million, or $.11 per share. An increase in wages and other cost increases were partially offset by savings realized from the Company's cost reduction efforts. Selling, general and administrative expenses as a percent of sales increased from 9.6% in 1991 to 10.4% in 1992. The increase was due primarily to higher selling expenses experienced during 1992 including $2 million of costs related to the consolidation of certain sales offices in New York City. Interest expense decreased $2.8 million in 1992 due primarily to the redemption of the 13.5% Debentures on July 10, 1992 with the proceeds from the sale of both 1.5 million shares of Common Stock at $17.75 per share and $85 million of 11.25% Debentures. Interest expense was also reduced by the repayment of other debt with cash flows from operating activities. The effective income tax rate was 41.0% in 1992, compared to 61.0% in 1991. The decrease in the effective income tax rate is due primarily to basis adjustments in acquired companies which did not change with increases or decreases in pre-tax income under APB 11. For additional information see Note 14 of the Notes to Consolidated Financial Statements. Income from continuing operations before extraordinary charge was $15.7 million or $1.39 per share in 1992 compared to $1.4 million or $.13 per share in 1991. Income from the discontinued carpet and rug division was $4.7 million or $.42 per share in 1992 compared to $1.8 million or $.17 per share in 1991. A prepayment premium of $5.4 million on the early retirement of the Company's 13.5% Debentures and the write-off of approximately $3.0 million of deferred financing costs related to the Debentures and the old revolving credit facility resulted in an after-tax extraordinary charge of $5.2 million, or $.46 per share. Net income after discontinued operations and the extraordinary charge was $15.2 million, or $1.35 per share. 4 LIQUIDITY AND CAPITAL RESOURCES The Company's primary capital requirements are for working capital, principally inventory and accounts receivable, and capital expenditures. The Company historically has financed these requirements, including its working capital requirements which follow a seasonal pattern, with funds generated from its operations and through borrowings under its revolving credit agreements. The table below summarizes for the continuing business of the Company cash provided by operating and financing activities and cash used for additions to plant and equipment. (CAPTION> (Dollars in thousands) 1993 1992 Cash provided by: Net income (loss) $(42,931) $ 15,250 Cumulative effect of accounting changes 70,305 - Extraordinary charge from early retirement of debt - 5,179 Premium paid on early retirement of debt - (5,400) (Income) from discontinued operations (12,408) (4,739) Depreciation and amortization 31,539 31,370 Deferred income taxes 2,329 4,826 Working capital, excluding effects of disposition of discontinued operations (20,764) (6,306) Other 1,726 (2,348) Financing activities (89,513) (50,507) Total cash provided (used) (89,513) (63) Cash used for: Additions to plant and equipment 21,594 20,687 Acquisition of net assets held for sale 32,536 - Other, including sale of plant and equipmnt (12,621) (3,955) Total cash used 41,509 16,732 Increase (decrease) in cash from continuing operations (131,022) (16,795) Cash provided by discontinued operations 130,222 12,122 Increase (Decrease) in cash $ (800) $ (4,673)
Working capital requirements increased in 1993 primarily because accounts receivables increased by $13.1 million and inventories increased by $10.6 million after excluding the effects of disposition of discontinued operations. Cash provided by working capital increased in 1992 primarily because accounts receivables decreased $10.8 million and accounts payable and accrued liabilities increased by $1.0 million. 5 On November 24, 1993 the Company completed a tender offer for all of the outstanding shares of Amoskeag for an aggregate of approximately $141.7 million. The purchase was financed with $72.4 million of net proceeds from the issuance of 1.5 million shares of $3.00 Convertible Preferred Stock and the balance with borrowings under the Company's revolving credit facility. The preferred stock has an annual dividend requirement of $4.5 million. Amoskeag owned 3,606,400 shares of the Company's common stock which has been assigned a cost of $117.2 million and treated as the purchase of treasury stock. The remaining assets of Amoskeag have been valued at their net realizable value. At December 31, 1993, such assets held for sale totalled $32.5 million and are expected to be a source of cash during 1994. Total debt as a percent of total capitalization (long-term debt, short-term debt and shareowners' equity) was 61% at December 31, 1993, compared to 57% at the end of 1992. Capital expenditures totalled $21.6 million in 1993 compared to $20.7 million spent in 1992. The Company also entered into operating lease agreements with a financial institution for certain new manufacturing and warehouse equipment having a fair market value of approximately $8 million in 1993 and $9 million in 1992. Capital expenditures for 1994 are expected to be approximately $50 million. Included in the 1994 expenditures is the start of a three-year $90 million capital project for a new weaving plant at the Company's Columbus, Ga./Phoenix City, Ala. towel mill. It is anticipated that financing of future capital expenditures will be provided by cash flows from operations, borrowings under the Company's revolving credit facility, and, possibly, the sale of long-term debt or equity securities. The Company's revolving credit facility allows the Company to borrow up to $150 million. The Company elected to reduce the facility to $150 million from $235 million in November 1993 because of reduced borrowing requirements. The Company uses its revolving credit facility for long-term debt purposes and its seasonal borrowing requirements during the year. Short-term borrowings are required during the year to finance seasonal increases in inventories and receivables. The Company has an interest rate cap covering a total notional principal amount of $50 million to hedge a portion of its exposure to changes in the cost of its variable rate revolving credit debt. The $.5 million cost of the interest rate cap is being amortized over the three year life of the agreement ending in the first quarter of 1996. The cap agreement provides for a quarterly payment to the Company when the reference 3-month Euromarket-based rate exceeds the 6% cap rate. No payments were received during 1993. At December 31, 1993, the revolving credit facility was secured by a first lien on substantially all of the Company's assets and bore interest, at the Company's option, at the prime rate fixed by The First National Bank of Boston plus 1%, or at a Euromarket-based rate plus 2.5%. In March 1994 the revolving credit facility was amended to reduce the interest rate on borrowings, at the Company's option, to the prime rate fixed by The First National Bank of Boston, or at a Euromarket-based rate plus 1%. The amendment also extended the facility through January 6, 1998 and removed the lien on the Company's plant and equipment. 6 The revolving credit facility requires, among other things, that the Company maintain certain financial ratios with regard to working capital, interest coverage, funded debt and net worth. It also limits the amount of dividends that may be paid by the Company during any twelve-month period to the lesser of 40% of the Company's net income during the immediately preceding twelve months or $15 million and contains additional financial covenants which may further restrict the ability of the Company to pay dividends. The agreement places restrictions on the Company's ability to incur debt or liens, to make certain investments and to effect certain mergers, consolidations or sales of assets or changes in control. At December 31, 1993, borrowings under the $150 million revolving term debt agreement totalled $76.4 million and $73.6 million of the facility was available and unused. As of December 31, 1993 the Company lowered its discount rate from 8.25% to 7.25% for valuing its accumulated pension benefit obligations under FAS 87, "Employers' Accounting for Pensions" and its accumulated postretirement health care and life insurance benefit obligations under FAS 106, "Employers' Accounting for Postretirement Benefits other than Pensions". The lower discount rate of 7.25% results in a higher value for the calculated obligations and will result in higher expenses in 1994 than would have been provided with the previous 8.25% discount rate. The increase in expense is not expected to materially affect the Company's future operating results or financial condition. Item 8. Consolidated Financial Statements and Supplementary Data (as amended October 8, 1994 to revise the Consolidated Statement of Cash Flows and notes 4 and 8 of Notes to the Consolidated Financial Statements). QUARTERLY DATA (Unaudited) Data in millions, except per share information
1993 quarter ended March 31 June 30 Sept. 30 Dec. 31 Net sales $203.9 $256.5 $256.7 $282.9 Gross profit 36.9 39.3 43.0 46.3 Operating income 11.9 14.0 7.5 20.2 Income (loss) from continuing operations before accounting changes 2.7 4.1 (.5) 8.7 Income and gain on sale from discontinued operations 1.0 3.0 8.4 - Cumulative effect of accounting changes (70.3) - - - Net income (loss) (66.6) 7.1 7.9 8.7 Primary earnings (loss) per share from continuing operations before accounting changes .22 .34 (.04) .77 Primary earnings per share from discontinued operations .09 .25 .69 - Primary earnings (loss) per share from cumulative effect of accounting changes (5.86) - - - Primary earnings per share (5.55) .59 .65 .77 Fully diluted earnings per share - .55 .60 .67
7
1992 quarter ended March 31 June 30 Sept. 30 Dec. 31 Net sales 212.4 $255.3 $243.2 $270.9 Gross profit 33.9 40.0 43.8 45.3 Operating income 8.8 16.3 18.3 17.5 Income (loss) from continuing operations before extraordinary charge (.1) 4.2 5.8 5.8 Income from discontinued operations .7 1.2 .8 2.0 Extraordinary charge-early retirement of debt - (5.2) - - Net income .6 .2 6.6 7.8 Primary earnings per share from continuing operations before extraordinary charge - .39 .48 .48 Primary earnings per share from discontinued operations .06 .12 .07 .17 Primary earnings per share from extraordinary charge-early retirement of debt - (.49) - - Primary earnings per share .06 .02 .55 .65 Fully diluted earnings per share .06 - .52 .61
Quarterly earnings per share amounts presented do not equal the annual earnings per share amount due to the purchase of treasury shares during 1993 and the issuance of shares during 1992. The first quarter of 1993 includes the cumulative effect of the changes in accounting principles related to the Company's accounting for income taxes and post-retirement benefits other than pensions, effective January 1, 1993, which reduced net income by $70.3 million or $5.86 per share. Fully diluted earnings per share are not presented for the quarter as the effects are anti-dilutive. The third quarter of 1993 includes restructuring charges of $10 million which reduced after-tax income from continuing operations by $6.1 million and $1.4 million of additional income taxes due to the increase in the statutory federal income tax rate. These items reduced income from continuing operations and net income by $7.5 million, or $.62 per share. Discontinued operations for the third quarter of 1993 includes a gain from disposition of the carpet and rug division which increased income by $9.2 million, or $.76 per primary share. The second quarter of 1992 included an extraordinary charge for early retirement of debt which reduced net income for the quarter by $5.2 million, or $.49 per primary share. Fully diluted earnings per share for the quarter are not presented as the effects are anti- dilutive. The fourth quarter of 1992 included a $3.5 million pre-tax charge for closing and disposing of a towel manufacturing facility and a $1.5 million pre-tax credit from adjustment of reserves established in 1990 for discontinuing the automatic blanket operations which were no longer required. The combined effect of the two non-recurring items reduced net income for the quarter by $1.2 million, or $.10 per share. 8 Consolidated Statement of Income and Retained Earnings
Year Ended December 31 1993 1992 Dollars in thousands, except per share data Net sales $1,000,107 $981,773 Cost of sales (notes 4, 5) 834,701 818,729 Selling, general and administrative 101,843 102,189 Restructuring charges (note 4) 10,000 - Total operating costs and expenses 946,544 920,918 Operating income 53,563 60,855 Other deductions (income): Interest expense 27,659 34,149 Other, net (975) 130 Total other deductions 26,684 34,279 Income before income taxes 26,879 26,576 Federal and state income taxes (note 14) 11,913 10,886 Income from continuing operations before extraordinary charge and accounting changes 14,966 15,690 Income from discontinued operations 3,201 4,739 Gain from disposition of discontinued operations 9,207 - Extraordinary charge - early retirement of debt - (5,179) Cumulative effect of accounting changes (70,305) - Net income (loss) (42,931) 15,250 Preferred dividends (463) - Earnings (loss) on common $(43,394) $ 15,250 Amount added to (subtracted from) retained earnings (43,394) 15,250 Retained earnings, January 1 136,429 121,179 Retained earnings, December 31 $ 93,035 $136,429
Income (loss) per common share: Primary from continuing operations before extraordinary charge and accounting changes $ 1.24 $ 1.39 Income from discontinued operations .27 .42 Gain from disposition of discontinued operations .78 - Extraordinary charge - (.46) Cumulative effect of accounting changes (5.99) - Primary earnings per common share $ (3.70) $ 1.35 Fully diluted before extraordinary charge (note 1) $ - $ 1.78 Fully diluted after extraordinary charge and accounting changes (note 1) $ - $ - Average primary shares outstanding 11,732,505 11,256,461 Average fully diluted shares outstanding 11,733,276 14,082,678
The Notes to consolidated financial statements are an integral part of the Consolidated financial statements. 9 Consolidated Statement of Income and Retained Earnings
Year Ended December 31 1991 Dollars in thousands, except per share data Net sales $960,663 Cost of sales (notes 4, 5) 828,634 Selling, general and administrative 92,416 Restructuring charges (note 4) - Total operating costs and expenses 921,050 Operating income 39,613 Other deductions (income): Interest expense 36,998 Other, net (959) Total other deductions 36,039 Income before income taxes 3,574 Federal and state income taxes (note 14) 2,179 Income from continuing operations before extraordinary charge and accounting changes 1,395 Income from discontinued operations 1,770 Gain from disposition of discontinued operations - Extraordinary charge - early retirement of debt - Cumulative effect of accounting changes - Net income (loss) 3,165 Preferred dividends - Earnings (loss) on common $ 3,165 Amount added to (subtracted from) retained earnings 3,165 Retained earnings, January 1 118,014 Retained earnings, December 31 $121,179
Income (loss) per common share: Primary from continuing operations before extraordinary charge and accounting changes $ .13 Income from discontinued operations .17 Gain from disposition of discontinued operations - Extraordinary charge - Cumulative effect of accounting changes - Primary earnings per common share $ .30 Fully diluted before extraordinary charge (note 1) $ .30 Fully diluted after extraordinary charge and accounting changes (note 1) $ .30 Average primary shares outstanding 10,422,810 Average fully diluted shares outstanding 10,423,490
The Notes to consolidated financial statements are an integral part of the Consolidated financial statements. 9 Consolidated Statement of Financial Position
At December 31, 1993 1992 Dollars in thousands ASSETS Cash $ 3,865 $ 4,665 Accounts receivable less allowances of $12,161 in 1993 and $15,942 in 1992, principally trade 164,419 181,056 Inventories (note 5) 209,834 244,321 Deferred tax assets - 23,202 Net assets held for sale 32,536 - Other prepaid expenses and current assets 2,491 7,303 Total current assets 413,145 460,547 Plant and equipment, net (notes 6, 9) 294,277 372,432 Deferred charges and other assets 33,024 31,012 Total assets $740,446 $863,991 LIABILITIES AND SHAREOWNERS' EQUITY Accounts and drafts payable $ 61,365 $ 69,399 Federal and state income taxes 262 3,627 Deferred income taxes 14,799 - Accrued liabilities (note 7) 65,996 66,592 Short-term debt (note 8) - 14,056 Current portion of long-term debt 8,397 10,293 Total current liabilities 150,819 163,967 Senior long-term debt (note 8) 84,611 143,419 Subordinated long-term debt (note 8) 210,000 210,000 Total long-term debt 294,611 353,419 Deferred income taxes 35,182 41,484 Other non-current liabilities 66,504 20,643 Total non-current liabilities 396,297 415,546 Total liabilities 547,116 579,513 Commitments (notes 9, 12, 13) Preferred Stock, $.01 par value (note 10) Shares authorized: 10,000,000 Shares issued, 1993: 1,500,000 (aggregate liquidation preference of $75,000) 15 - Common Stock, $1 par value (note 10) Shares authorized: 25,000,000 Shares issued, 1993: 12,186,167 12,186 8,339 Shares issued, 1992: 8,338,941 Class B Common Stock, $1 par value (note 10) Shares authorized: 15,000,000 Shares issued, 1992: 3,635,114 - 3,635 Additional paid in capital 212,799 136,075 Minimum pension liability adjustment (7,480) - Retained earnings 93,035 136,429 Excess purchase price for Common Stock acquired and held in treasury - 3,606,400 shares (117,225) - Total shareowners' equity 193,330 284,478 Total liabilities and shareowners' equity $ 740,446 $863,991
The Notes to Consolidated financial statements are an integral part of the Consolidated financial statements. 10 Consolidated Statement of Cash Flows
For the years ended December 31, 1993 1992 1991 Dollars in thousands Increase (decrease) in cash Cash flows from operating activities: Net income (loss) $(42,931)$ 15,250 $ 3,165 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of accounting changes for FAS 106 and 109 70,305 - - Extraordinary charge for early retirement of debt - 5,179 - Premium paid on early retirement of debt - (5,400) - Income and gain on sale from discontinued operations (12,408) (4,739) (1,770) Depreciation and amortization 31,539 31,370 29,982 Deferred income taxes 2,329 4,826 3,156 Other 1,726 (2,348) (1,977) Change in current assets and liabilities, excluding effects of disposition of discontinued operations: Accounts receivable (13,132) 10,821 (3,697) Inventory (10,637) (8,614) (31,902) Current deferred income taxes (3,971) (1,699) (895) Other prepaid expenses and current assets 1,638 1,737 (5,647) Accounts payable and accrued liabilities 8,700 984 (4,853) Federal and state income taxes (3,362) 3,077 550 Net cash provided by (used in) continuing operating activities 29,796 50,444 (13,888) Cash provided by (used in) discontinued operations (17,405) 12,122 13,700 Net cash provided by (used in) operating activities 12,391 62,566 (756) Cash flows from investing activities: Additions to plant and equipment (21,594) (20,687) (32,541) Acquisition of net assets held for sale (32,536) - - Proceeds from disposals of plant and equipment 12,621 3,955 3,554 Proceeds from disposition of discontinued operations 147,627 - - Net cash provided by (used in) investing activities 106,118 (16,732) (28,987) Cash flows from financing activities: Increase (decrease) in revolving debt and other short-term debt (59,899) (46,684) 35,727 Proceeds from issuance of other long-term debt - 82,450 - Payments on long-term debt (14,811)(111,497) (10,346) Proceeds from issuance of common stock 339 25,224 - Purchase of treasury stock (117,225) - - Proceeds from issuance of preferred stock 72,375 - - Dividends paid (88) - - Net cash provided by (used in) financing activities (119,309) (50,507) 25,381 Net decrease in cash (800) (4,673) (3,794) Cash at beginning of year 4,665 9,338 13,132 Cash at end of year $ 3,865 $ 4,665 $ 9,338 Supplemental disclosures of cash flow information Cash paid during the year for: Interest expense $30,163 $44,266 $44,225 Income tax payments 23,239 5,559 1,431 Noncash investing and financing activities: Vendor financing for equipment purchases - - 8,459
The Notes to Consolidated financial statements are an integral part of the Consolidated financial statements. 11 Notes to Consolidated Financial Statements Tabular Amounts in thousands except per share (1) Significant Accounting Policies Basis of presentation - The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain prior year items have been reclassified to conform to the 1993 presentation. The Company operates in the textile industry and is principally involved in the manufacture and sale of home furnishings products. These sales are primarily to department stores, mass retailers, specialty stores and large chain stores. Sales to one customer (Wal-Mart Stores and its affiliates) represented 17.4%, 16.0% and 15.5% of total sales of the Company in 1993, 1992 and 1991, respectively. Inventories - Inventories are valued at the lower of cost, determined principally on a last-in, first-out basis, or market. Depreciation - Buildings, machinery and equipment are depreciated for financial reporting purposes on the straight line method over the estimated useful lives of these assets. Depreciation for tax purposes is provided on an accelerated basis. Deferred financing fees - Debt financing fees are amortized over the term of the related debt. Interest rate caps - The Company has a program to reduce its exposure to changes in the cost of its variable rate borrowings by the use of interest rate cap agreements. The cost of the interest rate cap agreement is deferred and amortized as interest expense over the periods covered by the agreement. Income taxes - The Company adopted Financial Accounting Standards Board Statement No. 109, "Accounting for Income Taxes" (FAS 109), effective January 1, 1993. Under FAS 109, deferred income taxes are recognized, at enacted tax rates, to reflect the future income tax effect of reported differences between the book and tax bases of the Company's assets and liabilities, assuming they will be realized and settled, respectively, at the amount reported in the Company's financial statements. See Note 14 for additional information. Income per common share - Primary earnings per common share is based on net income after preferred dividend requirements and the weighted average number of shares of Common Stock and Class B Common Stock outstanding during the year and common stock equivalents attributable to outstanding stock options. Fully diluted earnings per common share are calculated assuming conversion, when dilutive, of the 6% convertible subordinated sinking fund debentures and the $3 Series A Convertible Preferred Stock. Fully diluted income from continuing operations and net income per common share for 1993 and 1992 are not presented as effects are anti-dilutive. 12 (2) Discontinued Operations On July 30, 1993 the Company completed the sale of its carpet and rug operations to Mohawk Industries, Inc. Accordingly, the carpet and rug results have been classified as discontinued operations in the Statement of Income for all periods presented. Results of operations for the carpet and rug operations include an allocation of corporate interest based on net assets. The sale resulted in a $15.1 million pre-tax gain which increased after-tax net income by $9.2 million, or $.78 per share, in 1993. Summary financial results for the discontinued operations are as follows:
1993 1992 1991 Net sales $144,301 $235,506 $251,773 Operating income 9,957 16,214 12,692 Interest expense 3,688 7,184 8,479 Income before income taxes 5,964 9,031 4,231 Income from discontinued operations 3,201 4,739 1,770
(3) Acquisition and Merger with Amoskeag Company On November 24, 1993 a newly formed and wholly owned subsidiary of the Company completed a tender offer for all of the outstanding shares of Amoskeag Company ("Amoskeag") for a cash price of $40 per share, or an aggregate of approximately $141.9 million including certain costs. The acquisition has been accounted for as a purchase by the Company of the net assets of Amoskeag held for sale at their net realizable values and as the purchase of treasury stock. Amoskeag owned 3,606,400 shares of the Company's common stock which has been assigned a cost of $117.2 million after a preliminary allocation of $24.7 million to the net assets of Amoskeag. The Company is in the process of selling all of the operating assets of Amoskeag and the valuation includes anticipated costs during a one year disposal period. These assets are primarily the Bangor and Aroostook Railroad and certain real estate properties. (4) Restructuring Charges Concurrent with the purchase of the capital stock of Amoskeag Company the Company implemented a number of programs to reduce overhead and cut costs in 1993. As a result of this process, restructuring charges were incurred in 1993 which reduced pre-tax operating income by $10 million. The restructuring charges include $8 million for the cost of a voluntary early retirement program which was accepted by 184 employees and severance for additional staff reductions, and $2 million for direct non- recurring expenses incurred by the Company in evaluating the purchase of the capital stock of Amoskeag Company. These expenses did not contribute to the ultimate consummation of the tender offer to acquire Amoskeag Company. These charges reduced net income by $6.1 million, or $.52 per share. Results for 1992 include a $3.5 million pre-tax charge to provide for the cost of closing and disposing of a towel manufacturing facility in York, South Carolina. Production from this facility has been transferred to other Company towel plants without a reduction in overall towel production capacity. The Company also reduced the reserves it established in 1990 to provide for discontinuing its automatic blanket facility by recognizing a pre-tax credit of $1.5 million in 1992. The combined effect of the non-recurring items reduced net income for the year by $1.2 million, or $.11 per share. 13 (5) Inventories Inventories are valued at the lower of cost or market and consisted of the following at December 31:
1993 1992 Finished goods $110,223 $120,274 Work in progress 65,025 82,509 Raw materials and supplies 34,586 41,538 Total $209,834 $244,321
Approximately 76% of the inventories at year-end 1993 and 79% at year-end 1992 were valued on the last-in, first-out method (LIFO). If the first-in, first-out method of accounting had been used, inventories would have been greater by approximately $33 million and $39 million at December 31, 1993 and 1992, respectively. The LIFO reserve for continuing operations increased $2.8 million in 1993 and decreased $9.6 million in 1992. (6) Plant and equipment Plant and equipment is stated at cost and consisted of the following at December 31:
1993 1992 Land $ 5,978 $ 8,408 Buildings 181,409 230,491 Equipment 366,333 447,274 Plant additions in progress 18,707 11,931 Total 572,427 698,104 Accumulated depreciation (278,150) (325,672) Net plant and equipment $294,277 $372,432
(7) Accrued Liabilities Accrued liabilities were as follows at December 31: TABLE 1993 1992 Salaries and other compensation $14,177 $16,241 Pension, medical and other employee benefit plans 22,058 16,256 Advertising expense 1,987 3,071 Interest expense 3,375 3,954 Other 24,399 27,070 Total $65,996 $66,592 14 (8) Debt Short-term debt at December 31, 1992, of $14.1 million was borrowed under a $25 million bank credit facility for the purpose of financing the purchase of raw cotton and wool. The facility was repaid and cancelled during 1993. Long-term debt at December 31 was as follows:
1993 1992 Senior long-term debt: Revolving term debt $ 76,426 $122,269 Industrial revenue bonds, due in installments through 2002 11,085 14,485 10.5% promissory note, due in installments and repaid in January 1994 5,497 10,962 9.65% vendor financing - 5,996 Total senior long-term debt 93,008 153,712 Less current portion 8,397 10,293 Net Senior long-term debt 84,611 143,419 Subordinated long-term debt: 6% convertible subordinated sinking fund debentures due 1997 to 2012 125,000 125,000 11.25% senior subordinated debentures due 2002 to 2004 85,000 85,000 Total subordinated long-term debt 210,000 210,000 Total long-term debt $294,611 $353,419
The Company's revolving credit facility allows the Company to borrow up to $150 million through January 3, 1996. Accordingly, borrowings under the revolving credit facility are classified as long-term debt. The Company elected to reduce the facility to $150 million from $235 million in November 1993 because of reduced borrowing requirements. Interest rates on the revolving term debt are, at the Company's option, at the prime rate fixed by The First National Bank of Boston plus 1%, or at a Euromarket- based rate plus 2.5%. The average interest rate on the revolving term debt was 6.3% on December 31, 1993. The Company has a program to reduce its exposure to changes in the cost of its variable rate revolving credit borrowings by the use of interest rate cap agreements. At December 31, 1993 the Company has an interest rate cap covering a total notional principal amount of $50 million. The $.5 million cost of the interest rate cap is being amortized over the three year life of the agreement ending in the first quarter of 1996. The cap agreement provides for a quarterly payment to the Company when the reference 3-month Euromarket based rate exceeds the 6% cap rate. The revolving credit facility is secured by a first lien on substantially all of the Company's assets and requires, among other things, that the Company maintain certain financial ratios with regard to working capital, interest coverage, funded debt and net worth. It also limits the amount of dividends that may be paid by the Company to the lesser of 40% of the Company's net income during the immediately preceding twelve months or $15 million and contains additional financial covenants which may further restrict the ability of the Company to pay dividends. The revolving term debt agreement also places restrictions on the Company's ability to incur debt or liens, to make certain investments and to effect certain mergers, consolidations or sales of assets or changes in control. 15 On June 25, 1992, the Company sold $85 million of 11.25% Senior Subordinated Debentures due 2004. The proceeds of this offering plus additional amounts from a Common Stock offering were used to redeem the $100 million 13.5% Senior Subordinated Debentures due 2001. A prepayment premium of $5.4 million on the early retirement of the 13.5% debentures and the write-off of approximately $3.0 million of deferred financing costs related to the debentures and the old revolving credit facility resulted in an after-tax extraordinary charge of $5.2 million, or $.46 per share. The Company's 6% Convertible Subordinated Sinking Fund Debentures are convertible into shares of Common Stock of the Company at a conversion price of $44.25 per share. At December 31, 1993, the fair value of the Company's 6% Convertible Subordinated Debentures was $103.4 million compared to a carrying value of $125 million and the fair value of the 11.25% Subordinated Debentures was $94.4 million compared to a carrying value of $85 million. The fair value of the debentures is based on quoted market prices. Differences between fair value and carrying value of the Company's other debt were not significant. The aggregate principal and sinking fund payments required to be made on long-term debt during each of the five years subsequent to December 31, 1993 are: 1994, $8.4 million; 1995, $2.3 million; 1996, $78.0 million; 1997, $7.8 million and 1998, $7.8 million. (9) Lease Obligations The Company leases certain real estate and equipment under various operating leases. Listed below are the future minimum rental payments required under these operating leases with noncancelable terms in excess of one year at December 31, 1993.
Real Estate Equipment Total S> 1994 $ 4,334 $8,535 $12,869 1995 4,588 7,546 12,134 1996 4,132 5,942 10,074 1997 3,655 5,387 9,042 1998 3,194 4,920 8,114 Subsequent years 25,936 7,588 33,524 Net minimum lease payments $45,839 $39,918 $85,757
Total continuing operations rental expense for all operating leases was $18.9 million, $17.5 million, and $16.0 million for 1993, 1992 and 1991, respectively. 16 (10) Shareowners' Equity In November 1993 the Company's shareowners authorized 10 million shares of undesignated preferred stock and the issuance of up to 1.8 million shares of preferred stock. On November 24, 1993, the Company sold 1.5 million shares of $3.00 Series A Convertible Preferred Stock ("$3.00 Preferred Stock") in a private offering and received net proceeds of $72.4 million. Each $3.00 Preferred Stock share is convertible into 1.7094 shares of Common Stock, equivalent to a conversion price of $29.25 on the $50 offering price. Annual dividends are $3.00 per share and are cumulative. The $3.00 Preferred Stock may be redeemed at the Company's option on or after September 1, 2004, in whole or in part, at $50 per share plus accrued and unpaid dividends. In the event the Company's 11.25% Senior Subordinated Debentures are not outstanding or have been defeased the $3.00 Preferred Stock may be redeemed, in whole or in part, at the option of the Company, at a redemption price of $51.50 per share beginning as of September 10, 1998 and at premiums declining to the $50 liquidation preference by September 2004. 16 On November 24, 1993, the Board of Directors adopted a Stockholder Rights Plan and declared a dividend of one preferred stock purchase right ("right") for each outstanding share of the Company's Common Stock. Similar rights have been, and generally will be, issued in respect of Common Stock subsequently issued. Each right becomes exercisable, upon the occurrence of certain events, for one one-hundredth of a share of Series B Junior Participating Preferred Stock, $.01 par value, at a purchase price of $80 or, in certain circumstances, Common Stock or other securities, cash or other assets having a then current market price (as defined and subject to adjustment) equal to twice such purchase price. Under the Stockholder Rights Plan, 500,000 shares of Series B Junior Participating Preferred Stock have been reserved. The rights currently are not exercisable and will be exercisable only if a person or group acquires beneficial ownership of 15% or more of the Company's outstanding shares of Common Stock. The rights, which expire on December 6, 2003, are redeemable in whole, but not in part, at the Company's option at any time for a price of $.02 per right. Following the acquisition of Amoskeag the Company converted all shares of Class B Common Stock held by Amoskeag into an equivalent number of shares of Common Stock. Under the Company's Certificate of Incorporation, all remaining shares of Class B Common Stock were automatically converted into an equivalent number of shares of Common Stock, and no additional shares of Class B Common Stock may be issued in the future without the prior approval of the holders of Common Stock. The Company has a Director Stock Option Plan which was adopted by the Board of Directors and approved by the shareowners. Under the option plan, an annual grant of an option for 1,000 shares of Common Stock is awarded to each person who is a Director on the fifth business day after the annual meeting of shareowners. Options to Directors who are also employees of the Company are incentive stock options and to all others are nonqualified options. The price per share is the fair market value on the date each option is granted. Options may be exercised up to seven years from the date of grant, but no option may be exercised during the six-month period following its grant except in the case of death or disability. Prior to an amendment and restatement of the plan in 1992, options were granted with a one- year life and for 3,000 shares. The amendment also extended the life of the options granted in 1991 to an expiration date of 1998. Under the option plan, 500,000 shares of Common Stock have been reserved for awards. The following is an analysis of options under the Director Stock Option Plan:
Number of Option Shares Price Outstanding, January 1, 1991 36,000 $19.00 Awarded 36,000 13.00 Cancelled (39,000) $19.00- 13.00 Outstanding, January 1, 1992 33,000 13.00 Awarded 12,000 17.625 Exercised (3,000) 13.00 Outstanding, January 1, 1993 42,000 17.625-13.00 Awarded 12,000 23.625 Exercised (21,000) 23.625-13.00 Cancelled (6,000) 23.625-13.00 Outstanding and exercisable at December 31, 1993 27,000 $23.625-13.00 Available for grant at December 31, 1993 449,000
17 On September 11, 1991, the Board of Directors approved the grant of a nonqualified stock option to purchase 20,000 shares of Common Stock to the Company's chief executive officer. The per share price is $14.875, the fair market value on that date. This option became exercisable on January 1, 1992, and expires on September 10, 1998. 17 The Company has a Long-Term Incentive Plan (the Plan) which was adopted by the Board of Directors and approved by the shareowners in 1988. Under the Plan, employees who are senior executives of the Company may be awarded shares of Common Stock without cost to the employee. The fair market value of the shares at the date of award is accounted for as deferred compensation and is amortized over the restricted period. At December 31, 1993, unamortized deferred compensation of $.6 million is included in shareowners' equity as a reduction of additional paid in capital. Awards under the Plan are vested after the employee completes four years of continuous employment beginning with the year for which the award is made. Vesting occurs prior to completion of four years of employment if the employee dies while employed, reaches normal retirement or becomes disabled. Under the Plan, 650,000 shares of Common Stock have been reserved for awards. The following is an analysis of shares of restricted stock under the Long-term Incentive Plan:
1993 1992 1991 Number of Shares: Outstanding at beginning of year 156,526 145,877 165,600 Awarded 75,000 50,000 35,000 Cancelled (4,450) (2,430) (7,583) Issued (115,402) (36,921) (47,140) Outstanding at end of year 111,674 156,526 145,877 Available for grant at end of year 324,548 45,098 92,668 Market value on date of grant for shares granted during year $18.75 $15.375 $6.00
Awards under the Plan will be 70,000 shares in 1994. Transactions with respect to common stock and additional paid in capital during the three years ended December 31, 1993, were as follows:
Common Stock Shares Amount Balance 12/31/90 6,753,486 $6,753 Restricted shares awarded 35,000 35 Restricted shares cancelled (7,583) (8) Earned compensation, restricted stock - - Exchange of shares 7,184 8 Balance 12/31/91 6,788,087 6,788 Restricted shares awarded 50,000 50 Restricted shares cancelled (2,430) (2) Earned compensation, restricted stock - - Director stock option exercised 3,000 3 Sale of stock 1,500,000 1,500 Exchange of shares 284 - Balance 12/31/92 8,338,941 8,339
18
Additional Class B Paid in Common Stock Capital Shares Amount Amount Balance 12/31/90 3,642,582 $3,643 $110,830 Restricted shares awarded - - (35) Restricted shares cancelled - - 8 Earned compensation, restricted stock - - 768 Exchange of shares (7,184) (8) - Balance 12/31/91 3,635,398 3,635 111,571 Restricted shares awarded - - (50) Restricted shares cancelled - - 2 Earned compensation, restricted stock - - 831 Director stock option exercised - - 36 Sale of stock - - 23,685 Exchange of shares (284) - - Balance 12/31/92 3,635,114 3,635 136,075
18
Common Stock Shares Amount Shares issued to employee savings plans 120,562 120 Restricted shares awarded 75,000 75 Restricted shares cancelled (4,450) (4) Earned compensation, restricted stock - - Director Stock options exercised 21,000 21 Net proceeds from sale of preferred stock in excess of par value - - Exchange or conversion of shares 3,635,114 3,635 Balance 12/31/93 12,186,167 $12,186
Additional Class B Paid in Common Stock Capital Shares Amount Amount Shares issued to employee savings plans - - 2,883 Restricted shares awarded - - (75) Restricted shares cancelled - - 4 Earned compensation, restricted stock - - 1,126 Director Stock options exercised - - 426 Net proceeds from sale of preferred stock in excess of par value - - 72,360 Exchange or conversion of shares (3,635,114) (3,635) - Balance 12/31/93 $ - $ - $212,799
19 Total shares of Common Stock outstanding as of December 31, 1993 are reduced to 8,579,767 shares by 3,606,400 shares of treasury stock acquired with the acquisition of Amoskeag. The $117.2 million cost of the treasury stock reduces total shareowners' equity. (11) Pro Forma Earnings Information (unaudited) On November 24, 1993 the Company acquired 3,606,400 shares of common stock as treasury shares with the acquisition of Amoskeag and sold 1.5 million shares of $3 Series A Convertible Preferred Stock in a private offering for $72.4 million. On July 30, 1993 the Company sold its carpet and rug operations for approximately $120 million after income taxes and expenses. Income from continuing operations was reduced $6.1 million in 1993 by a $10 million pre-tax restructuring charge and $1.4 million by an income tax adjustment for the increase in federal income tax rates. Set forth below are unaudited proforma earnings per share assuming the transactions had occurred as of the beginning of 1993 and excluding the non-recurring items incurred during 1993:
Primary Fully Diluted Income from continuing operations before accounting changes $2.15 $1.97 Average common shares outstanding (thousands) 8,477 13,866
The computation of proforma income per share includes dividends on the 1.5 million shares of preferred stock, reduced interest expense from reducing the revolving credit facility by $120 million from the net proceeds from the sale of the carpet and rug operations, and increased interest from additional borrowings under the revolving credit facility of $68 million for the acquisition of Amoskeag. Historical income from continuing operations before the non-recurring items was $22.5 million, or $1.88 per primary share and $1.82 on a fully diluted basis. (12) Employee Pension and Savings Plans The Company has trusteed pension plans covering essentially all employees. The plans provide pension benefits that are based on the employees' compensation and service. The Company's policy is to fund amounts required by applicable regulations. Pension expense amounted to $13.2 million in 1993, $6.1 million in 1992 and $7.6 million in 1991. Net pension expense for 1993, 1992 and 1991 consisted of the following components: 19
1993 1992 1991 Service cost (benefits earned during the period) $ 8,802 $ 8,631 $ 8,781 Interest cost on projected benefit obligation 15,124 13,938 12,674 Actual return on assets (20,985) (5,161) (32,091) Net amortization and deferral 4,023 (11,293) 18,194 Curtailment and special termination benefits 6,263 - - Net pension cost $13,227 $ 6,115 $ 7,558
During 1993 the Company recognized a curtailment loss with the sale of its carpet and rug division and special termination benefits from a voluntary early retirement program. The table below sets forth the plans' funded status at December 31:
1993 1992 Assets Exceed Accumulated Assets Exceed Accumulated Benefits Accumulated Benefits Exceed Assets Benefits Projected benefit obligation: Vested benefits $64,460 $148,022 $167,235 Non-vested benefits 2,559 6,255 7,599 Accumulated benefit obligation 67,019 154,277 174,834 Additional amounts related to projected compensation levels - 6,801 11,352 Total projected benefit obligation 67,019 161,078 186,186 Plan assets at fair value, primarily publicly traded stocks and bonds 69,266 144,164 184,057 Plan assets over (under) projected benefit obligation 2,247 (16,914) (2,129) Unrecognized net (gain) loss 13,293 19,917 15,346 Unrecognized net transition assets (2,747) (854) (4,624) Unrecognized prior service cost 158 3,552 5,198 Adjustment required to recognize minimum liability - (15,814) - Net pension asset (liability) recognized in the Consolidated Statement of Financial Position $12,951 $(10,113) $ 13,791
Assumptions used in determining the funded status of the pension plans were as follows:
1993 1992 1991 Discount rate 7.25% 8.25% 8.5% Increase in compensation levels 4.5% 5.5% 5.5% Expected long-term rate of return on assets 9% 9% 9%
20 For the pension plan with accumulated benefits in excess of assets at December 31, 1993, the Consolidated Statement of Financial Position reflects an additional pension liability of $15.8 million, a long-term intangible asset of $3.6 million and a reduction of shareowners' equity of $7.5 million, net of deferred tax benefits. The Company also sponsors employee savings plans which cover substantially all employees. The Company amended the plans for 1993 to provide a Company match of 70% of employee contributions up to two percent of compensation and a match of 20% of employee contributions for the next two percent of compensation. The matching formula may be changed yearly at the discretion of the Company. The match is contributed quarterly in Common Stock of the Company. Expense of the Company match was $3.0 million in 1993. (13) Postretirement Health Care and Life Insurance Benefits The Company adopted FAS 106, "Employers' Accounting for Postretirement Benefits other than Pensions", effective January 1, 1993. The cumulative effect on prior years of the accounting change was charged to income in 1993 which resulted in a pre-tax charge of $35.1 million and reduced net income by $21.8 million, or $1.86 per share. The Company provides medical insurance premium assistance and life insurance benefits to retired employees. The medical premium assistance payments are at a fixed dollar amount based on the retiree's years of service. Essentially all of the Company's employees become eligible for these benefits when they reach retirement age while working for the Company. The Company's policy is to fund the plans as benefits are paid. The table below sets forth the plans' combined status at December 31:
1993 1992 Accumulated postretirement benefit obligation - Retirees $24,224 $23,452 Fully eligible active participants 9,897 10,273 Other active participants 6,298 6,477 Total 40,419 40,202 Plan assets - - Accumulated postretirement benefit obligations in excess of plan assets at December 31 40,419 40,202 Unrecognized net gain (loss) (2,163) - Transition obligation recognized January 1, 1993 as a cumulative effect of an accounting change - (35,123) Accrued postretirement benefit cost recognized in the Consolidated Statement of Financial Position at December 31 $38,256 $ 5,079
The discount rate used in determining the accumulated postretirement benefit obligation was 7.25% as of December 31, 1993 and 8.25% as of December 31, 1992. Medical premium assistance payments are at a fixed dollar amount based on the retiree's years of service and, therefore, the plan is not affected by a health care cost trend rate assumption. 21 Net periodic postretirement benefit cost for 1993 included the following components:
Service Cost (benefits earned during the period) $ 974 Interest cost on projected benefit obligation 3,033 Net amortization and deferral (93) Curtailment gain (1,850) Net periodic postretirement benefit cost $ 2,064
During 1993 the Company recognized a curtailment gain with the sale of its carpet and rug division. Prior to 1993, the expense associated with these benefits was recognized on a cash basis when the benefits were paid. The payments amounted to $6.2 million in 1992 and $5.0 million in 1991. (14) Income taxes The Company adopted FAS 109, "Accounting for Income Taxes", effective January 1, 1993. The cumulative effect on prior years of the accounting change was charged to net income in 1993 which reduced net income by $48.5 million, or $4.13 per share. The adoption of FAS 109 changes the Company's method of accounting for income taxes from the deferred method (APB 11) to an asset and liability approach. Previously, the Company deferred the past income tax effects of timing differences between financial reporting and taxable income. The asset and liability approach requires the recognition of deferred income tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Under FAS 109, assets and liabilities acquired in purchase business combinations are assigned their fair values, and deferred taxes are provided for the lower or higher tax bases. Under APB 11, values were assigned net-of-tax. In adopting FAS 109, the Company adjusted the carrying amounts of assets and liabilities acquired in the Cannon and Bigelow acquisitions in 1986 and reduced deferred income tax liabilities to reflect the then current federal tax rate of 34% as opposed to the higher federal tax rates that were in effect when the deferred taxes originated. The carrying amounts have subsequently been adjusted to reflect the increase in the federal tax rate to 35%. At December 31, 1993, the Company had $51.3 million of deferred tax assets and $101.3 million of deferred income tax liabilities which have been netted for presentation purposes. The significant components of these amounts as shown on the balance sheet are as follows:
12/31/93 Current Noncurrent Liability Liability Depreciation $ - $51,805 Inventory Valuation 35,961 Deferred compensation 95 (1,659) Accruals and allowances (16,952) (12,294) Operating loss and tax credit carryover (4,305) - Other - (2,670) Total deferred tax liabilities $14,799 $35,182
22 The provision for income taxes for continuing operations included in the Consolidated Statement of Income and Retained Earnings consisted of the following:
1993 1992 1991 Current Federal $ 5,483 $ 7,408 $1,000 State 1,130 952 - Deferred Federal 4,605 1,741 818 State 695 785 361 Total income taxes on income from continuing operations before extraordinary charge and accounting charges $11,913 $10,886 $2,179
A tax benefit of $3.2 million was recognized on the $8.4 million pre-tax charge for early retirement of debt occurring in 1992. The income tax effect of items which altered the Company's effective income tax rate from the statutory federal rate were as follows:
1993 1992 Amount Percent Amount Percent Tax at statutory rate $ 9,408 35.0% $ 9,035 34.0% State taxes, net 1,186 4.4 1,147 4.3 Basis adjustments in acquired companies - - 612 2.3 Effect of tax rate change 1,400 5.2 - - Other (81) (.3) 92 .4 Net taxes $11,913 44.3% $10,886 41.0%
1991 Amount Percent Tax at statutory rate $1,215 34.0% State taxes, net 82 2.3 Basis adjustments in acquired companies 612 17.1 Effect of tax rate change - - Other 270 7.6 Net taxes $2,179 61.0%
23 Prior to the adoption of FAS 109, the tax effects of timing differences were as follows:
1992 1991 Depreciation $ 2,515 $ 2,808 Deferred compensation (129) 327 Accruals and allowances (1,339) 2,132 Accruals related to acquisitions - 1,227 Increase (reduction) in deferred taxes due to net operating loss and tax credit carryovers 586 (867) Alternative minimum tax - (4,526) Other 893 78 Total deferred tax provision $2,526 $ 1,179
The Company has an alternative minimum tax credit carryforward of $4.3 million which may be carried forward indefinitely. 23 REPORT OF INDEPENDENT AUDITORS The Shareowners and Board of Directors of Fieldcrest Cannon, Inc. We have audited the accompanying consolidated statement of financial position of Fieldcrest Cannon, Inc. as of December 31, 1993 and 1992, and the related consolidated statements of income and retained earnings, and cash flows for each of the three years in the period ended December 31, 1993. 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, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Fieldcrest Cannon, Inc. at December 31, 1993 and 1992, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. As explained in Notes 13 and 14 to the consolidated financial statements, effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," and Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." ERNST & YOUNG Greensboro, North Carolina January 28, 1994 24 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (as amended October 6, 1994) (a) 1. and 2. Financial statements and financial statement schedules The financial statements and schedules listed in the accompanying index to financial statements are filed as part of this annual report. 3. Exhibits The exhibits listed as applicable on the accompanying Exhibit Index at page 32 are filed as part of this annual report. Exhibit numbers (10)1. through (10)12. represent management contracts or compensatory plans or arrangements required to be filed as an exhibit by Item 601 of Regulation S-K. (b) Reports on Form 8-K None. 25 FIELDCREST CANNON, INC. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES (Item 14(a) 1 & 2) Page Numbers to this Amended Form 10-K Consolidated statement of financial position at 10 December 31, 1993 and 1992 Consolidated statement of income and retained 9 earnings for each of the three years in the period ended December 31, 1993 Consolidated statement of cash flows for each 11 of the three years in the period ended December 31, 1993 Notes to consolidated financial statements 12-23 Report of independent auditors 24 Schedules for each of the three years in the period ended December 31, 1993: V - Consolidated plant and equipment 27 VI - Consolidated accumulated depreciation of 28 plant and equipment IX - Short-term borrowings 29 X - Supplementary income statement information 30 All other schedules are omitted because the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements and notes thereto. 26 FIELDCREST CANNON, INC. SCHEDULE V - CONSOLIDATED PLANT AND EQUIPMENT (In Thousands)
Balance at Balance at Beginning of Additions Retirements Close of Classification Year at Cost or Sales Year Year Ended December 31, 1993: Land $ 8,408 $ 76 $ (2,506) $ 5,978 Buildings 230,491 3,299 (52,381) 181,409 Equipment 447,274 11,558 (92,499) 366,333 Plant Additions in Process 11,931 9,882 (3,106) 18,707 Total $698,104 $24,815 $(150,492)(1) $572,427 Year Ended December 31, 1992: Land $ 8,408 $ 24 $ (24) $ 8,408 Buildings 225,861 8,779 (4,149) 230,491 Equipment 434,723 23,547 (10,996) 447,274 Plant Additions in Process 19,199 (7,268) - 11,931 Total $688,191 $25,082 $(15,169) $698,104 Year Ended December 31, 1991: Land $ 8,555 $ 54 $ (201) $ 8,408 Buildings 224,923 6,031 (5,093) 225,861 Equipment 402,670 38,140 (6,087) 434,723 Plant Additions in Process 19,429 (230) - 19,199 Total $655,577 $43,995 $(11,381) $688,191
(1) In 1993 the Company sold its carpet and rug operations. Depreciation is provided on a straight-line basis on estimated useful lives; buildings - 15 to 33 years; equipment - 5 to 15 years. 27 FIELDCREST CANNON, INC. SCHEDULE VI - CONSOLIDATED ACCUMULATED DEPRECIATION OF PLANT AND EQUIPMENT (In Thousands)
Balance at Additions Balance at Beginning of Charged Retirements Close of Classification Year to Income or Sales Year Year Ended December 31, 1993: Buildings $ 95,170 $ 8,945 $(20,183) $ 83,932 Equipment 230,502 25,093 (61,377) 194,218 Total $325,672 $34,038 $(81,560)(1) $278,150 Year Ended December 31, 1992: Buildings $ 88,206 $ 9,115 $ (2,151) $ 95,170 Equipment 211,799 27,901 (9,198) 230,502 Total $300,005 $37,016 $(11,349) $325,672 Year Ended December 31, 1991: Buildings $ 81,871 $ 9,015 $(2,680) $ 88,206 Equipment 190,104 27,136 (5,441) 211,799 Total $271,975 $36,151 $(8,121) $300,005
(1) In 1993 the Company sold its carpet and rug operations. 28 FIELDCREST CANNON, INC. SCHEDULE IX - SHORT-TERM BORROWINGS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (In Thousands)
Maximum amount outstanding at Balance at any month-end end of during the period period (1) Notes payable to lenders : 1993 $ -0- $174,550 1992 $ 14,056 $175,638 1991 $165,564 $165,564
Average Weighted amount average outstanding interest during the rate during period (2) the period (2) (1) Notes payable to lenders : 1993 $32,804 6.12% 1992 $57,312 6.46% 1991 $36,654 8.54%
(1) Notes payable represent seasonal borrowing requirements during the year under the Company's revolving credit facility and during 1993 and 1992 bank borrowings to finance the purchase of raw cotton and wool. The revolving credit facility is also utilized for long-term financing. Effective May 6, 1992, the Company obtained a new revolving credit facility which allowed the Company to borrow up to $235 million through January 3, 1996. The Company elected to reduce the facility to $150 million from $235 million in November 1993 because of reduced borrowing requirements. The new facility replaced a $235 million bank term debt agreement that would have matured December 31, 1992. Accordingly, borrowings under the revolving credit facility were classified as long-term debt in 1993 and 1992 and as short-term debt in 1991. Interest rates on the revolving term debt were, at the Company's option, at the prime rate fixed by The First National Bank of Boston plus 1%, or at a Euromarket-based rate plus 2.5%. The average interest rate on the revolving term debt was 6.3% on December 31, 1993. (2) The average amount outstanding during the period was computed by averaging the month-end balances during the year. The weighted average interest rate was computed by dividing the interest expense by the average daily amount outstanding. 29 FIELDCREST CANNON, INC. SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION YEARS ENDED DECEMBER 31, 1993, 1992 and 1991 (In Thousands)
Charged to Costs and Expenses 1993 1992 1991 Advertising Costs $16,547 $17,652 $17,625 Maintenance and repairs $20,892 $19,555 $16,890 Depreciation and amortization of intangible assets, preoperating costs and similar deferrals (1) (1) (1) Taxes, other than payroll and income taxes (1) (1) (1) Royalties (1) (1) (1)
(1) Less than 1% of total sales 30 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. FIELDCREST CANNON, INC. By: /s/ Thomas R. Staab Thomas R. Staab Vice President and Chief Financial Officer October 5, 1994 31 EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K FOR FIELDCREST CANNON, INC. FOR THE YEAR ENDED DECEMBER 31, 1993 Page Number Exhibit or Incorporation Number Description by Reference to (3) 1. Restated Certificate of Exhibit 3-1 to Incorporation, as amended the Registrant's to date. Registration Statement on Form S-3 filed on February 18, 1994. 2. Amended and Restated By-Laws Exhibit 3-1 to of the Registrant as amended Report on to November 24, 1993. Form 8-K Filed on December 9, 1993. (4) 1. Rights Agreement, dated as of Exhibit 1 to the November 24, 1993, between the Registrant's Registrant and The First Registration National Bank of Boston, Statement on Form which includes as Exhibit A filed December the Form of Rights Certificate 3, 1993. of Designations, as Exhibit B the Form of Rights Certificate, and as Exhibit C the Summary of Rights to Purchase Preferred Stock. 2. Indenture dated as of March 15, Exhibit 4.9 to the 1987, relating to the Registrant's Registrant's 6% Convertible Registration Subordinated Debentures due Statement on Form 2012 between the Registrant S-3 and Wachovia Bank and Trust (No. 33-12436) Company, N.A., including filed on the form of debenture. March 6, 1987. 3. Indenture dated as of June 1, Exhibit 4.7 of 1992 relating to the Senior Amendment No. 1 Subordinated Debentures Due to the Registrant's 2004, between the Registrant Registration and First Union National Statement on Form S- Bank, as Trustee, including 3 (No. 33-47348) the form of debenture. filed on June 3, 1992. 4. Amended and Restated Revolving Exhibit 4-4 to Credit Agreement dated as of Report on Form March 10, 1994, by and among 10-K for the fiscal the Registrant, The First year ending National Bank of Boston as December 31, 1993 agent, Continental Bank N.A., filed on March 30, Philadelphia National Bank, 1994. and First Union National Bank of North Carolina, as lead managers, and certain lenders. 32 The registrant, by signing this Report, agrees to furnish the Securities and Exchange Commission upon its request a copy of any instrument which defines the rights of holders of long-term debt of the Registrant and all of its subsidiaries for which consolidated or unconsolidated financial statements are required to be filed, and which authorizes a total amount of securities not in excess of 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis. Page Number Exhibit or Incorporation Number Description by Reference to (10) 1. Amended and Restated Director Exhibit A to the Stock Option Plan of the Registrant's proxy Registrant approved by the statement for the stockholders of the Corporation annual meeting of on April 28, 1992. shareowners held on April 28, 1992. 2. Stock Option Agreement between Exhibit 4.1 to the the Registrant and James M. Registrant's Fitzgibbons dated as of Registration September 11, 1991. Statement on Form S-8 filed on December 23, 1991. 3. Employee Retention Agreement Exhibit 10.2 to between the Registrant and Report on Form 10- James M. Fitzgibbons effective Q for the quarter as of July 9, 1993. ended September 30, 1993. 4. Employment Agreement between Exhibit 10-2 to the Registrant and Charles G. Report on Form 10- Horn dated as of January 1, K for fiscal year 1988. ending December 31, 1988. 5. Instrument of Amendment dated Exhibit 10-3 to October 23, 1989, between the Report on Form 10- Registrant and Charles G. Horn, K for fiscal year amending Exhibit 10-4 above. ending December 31, 1989. 6. Instrument of Amendment dated Exhibit 10.1 to July 23, 1993 by and between Report on Form 10- the Registrant and Charles G. Q for the quarter Horn, amending the employment ended September agreement between the 30, 1993. Registrant and Charles G. Horn as of January 1, 1988. 7. Employee Retention Agreement Exhibit 10.4 to between the Registrant and Report on Form Chris L. Kametches effective 10-Q for the quarter as of July 9, 1993. ended September 30, 1993. 33 Page Number Exhibit or Incorporation Number Description by Reference to 8. Instrument of Amendment dated Exhibit 10.5 to July 29, 1993 between the Report on Form 10- Registrant and Chris L. Q for the quarter Kametches, amending Exhibit ended September 10.7 above. 30, 1993. 9. Employee Retention Agreement Exhibit 10-9 to between the Registrant and Report on Form Robert E. Dellinger effective 10-K for fiscal as of July 9, 1993. year ending December 31, 1993 filed on March 30, 1994. 10. Instrument of Amendment dated Exhibit 10-10 to July 29, 1993 between the Report on Form 10- Registrant and Robert E. K for fiscal year Dellinger, amending Exhibit ending December 10.9 above. 31, 1993 filed on March 30, 1994. 11. Form of Employee Retention Exhibit 10.6 to Agreement between the Report on Form 10- Registrant and other executive Q for the quarter officers of the Registrant ended September effective as of July 9, 1993. 30, 1993. 12. Form of Instrument of Exhibit 10.7 to Amendment dated July 29, 1993 Report on Form 10- between the Registrant and Q for the quarter other executive officers ended September of the Registrant, amending 30, 1993. Exhibit 10.11 above. (11) Computation of Primary and 35 - 37 Fully Diluted Net Income (Loss) per Share. (13) 1993 Annual Report to Shareowners. Exhibit 13 to Report on Form 10-K for the fiscal year ending December 31, 1993 filed on March 30, 1994. (21) Subsidiaries of the Registrant. 38 (23) Consent of independent auditors. 39 34
Exhibit 11 Computation of Primary and Fully Diluted Net Income (Loss) Per Share For the three months For the twelve months ended December 31 ended December 31 1993 1992 1993 1992 Average shares outstanding 10,665,320 11,974,055 11,709,355 11,233,615 Add shares assuming exercise of options reduced by the number of shares which could have been purchased with the proceeds from exercise of such options 20,779 11,823 23,150 11,846 Average shares and equivalents outstanding, primary 10,686,099 11,985,878 11,732,505 11,256,461 Average shares outstanding 10,665,320 11,974,055 11,709,355 11,244,615 Add shares giving effect to the conversion of the convertible subordinated debentures 2,824,859 2,824,859 (1) 2,824,859 Add shares giving effect to the conversion of the convertible preferred stock 1,054,131 - (1) - Add shares assuming exercise of options reduced by the number of shares which could have been purchased with the proceeds from exercise of such options 20,111 12,741 23,921 13,204 Average shares and equivalents outstanding, assuming full dilution 14,564,421 14,811,655 11,733,276 14,082,678 Primary Earnings Income from continuing operations before extraordinary charge and accounting changes $ 8,670,000 $ 5,801,000 $ 14,966,000 $15,690,000 Income from discontinued operations - 2,026,000 3,201,000 4,739,000 Gain from disposition of discontinued operations - - 9,207,000 - Extraordinary charge - - - (5,179,000) Cumulative effect of accounting changes - - (70,305,000 - 35 Net income (loss) $ 8,670,000 $ 7,827,000 $(42,931,000 $15,250,000 Preferred dividends (463,000) - (463,000) - Earnings (loss) on Common $ 8,207,000 $ 7,827,000 $(43,394,000) $15,250,000
35
Exhibit 11 Computation of Primary and Fully Diluted Net Income (Loss) Per Share (continued) For the three months For the twelve months ended December 31 ended December 31 1993 1992 1993 1992 Primary earnings (loss) per share Income from continuing operations before extraordinary charge and accounting changes $ .77 $ .48 $ 1.24 $ 1.39 Income from discontinued operations - .17 .27 .42 Gain from disposition of discontinued operations - - .78 - Extraordinary charge - - - (.46) Cumulative effect of accounting changes - - (5.99) - Net income (loss) $ .77 $ .65 $ (3.70) $ 1.35 Fully Diluted Earnings Income from continuing operations before extraordinary charge and accounting change $ 8,207,000 $ 7,827,000 $ 14,503,000 $15,690,000 Add convertible subordinated debenture interest, net of taxes 1,144,000 1,163,000 (1) 4,650,000 Add convertible preferred dividends 463,000 - (1) - Income from continuing operations before extraordinary charge and accounting changes as adjusted 9,814,000 6,964,000 14,503,000 20,340,000 Income from discontinued operations - 2,026,000 3,201,000 4,739,000 Gain from disposition of discontinued operations - - 9,207,000 - Income before extraordinary charge and accounting changes 9,814,000 8,990,000 26,911,000 25,079,000 Extraordinary charge - - - (5,179,000) Cumulative effect of accounting changes - - (70,305,000 - Net income (loss) $ 9,814,000 $ 8,990,000 $(43,394,000) $19,900,000
36
Exhibit 11 Computation of Primary and Fully Diluted Net Income (Loss) Per Share (continued) For the three months For the twelve months ended December 31 ended December 31 1993 1992 1993 1992 Fully diluted earnings (loss) per share Income before extraordinary charge and accounting change $ .67 $ .61 (2) $ 1.78 Extraordinary charge - - - (2) Cumulative effect of accounting change - - (2) - Net income (loss) $ .67 $ .61 (2) $ (2)
(1) The assumed conversion of the Registrant's Convertible Subordinated Debentures and Convertible Preferred Stock for the twelve months ended December 31, 1993 would have an anti-dilutive effect for the computation of earnings per share; therefore conversion has not been assumed for these periods. (2) Fully diluted net income per share for the twelve months ended December 31, 1993 and 1992 are not presented as effects are anti-dilutive. 37 Exhibit 21 Subsidiaries of the Registrant All of the subsidiaries of the Registrant, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of the end of the year covered by this report. 38 Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the use of our report dated January 28, 1994, incorporated by reference in the Annual Report on Form 10-K of Fieldcrest Cannon, Inc. for the year ended December 31, 1993 with respect to the consolidated financial statements, as amended, included in this Form 10-K/A. Our audits also included the financial statement schedules of Fieldcrest Cannon, Inc. listed in the accompanying index to financial statements. These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statements (Form S-8, Nos. 33-44703 and 33-44705 and Form S-3, No. 33-52325) pertaining to the Director Stock Option Plan of Fieldcrest Cannon, Inc., and James M. Fitzgibbons and the $3.00 Series A Convertible Preferred Stock, respectively, and in the related Prospectuses of our report dated January 28, 1994, with respect to the consolidated financial statements and schedules of Fieldcrest Cannon, Inc. included in this Form 10-K/A for the year ended December 31, 1993. ERNST & YOUNG Greensboro, North Carolina September 30, 1994 39 -----END PRIVACY-ENHANCED MESSAGE-----