0000035469-95-000007.txt : 19950809 0000035469-95-000007.hdr.sgml : 19950809 ACCESSION NUMBER: 0000035469-95-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950808 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIELDCREST CANNON INC CENTRAL INDEX KEY: 0000035469 STANDARD INDUSTRIAL CLASSIFICATION: BROADWOVEN FABRIC MILLS, COTTON [2211] IRS NUMBER: 560586036 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05137 FILM NUMBER: 95559546 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-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1995 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File 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, N.C. 27288 (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code (910) 627-3000 Former name, former address and former fiscal year, if changed since last report 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 . Number of shares outstanding July 31, 1995 Common Stock 8,884,436 Total pages 15 Exhibit Index Page 12 PART 1. FINANCIAL INFORMATION FIELDCREST CANNON, INC. Consolidated statement of financial position
June 30, December 31, Dollars in thousands 1995 1994 Assets Cash $ 4,785 $ 5,885 Accounts receivable 171,831 170,001 Inventories (note 3) 258,352 213,994 Net assets held for sale - 24,000 Other prepaid expenses and current assets 3,451 3,793 Total current assets 438,419 417,673 Plant and equipment, net 332,120 314,726 Deferred charges and other assets 62,975 50,266 Total assets $833,514 $782,665 Liabilities and shareowners' equity Accounts and drafts payable $ 53,460 $ 55,533 Federal and state income taxes - 2,268 Deferred income taxes 20,616 21,988 Accrued liabilities 63,007 53,958 Current portion of long-term debt 768 1,465 Total current liabilities 137,851 135,212 Senior long-term debt 152,846 107,744 Subordinated long-term debt 210,000 210,000 Total long-term debt 362,846 317,744 Deferred income taxes 45,330 42,859 Other non-current liabilities 53,909 55,648 Total liabilities 599,936 551,463 Shareowners' equity: Preferred Stock, $.01 par value, 10,000,000 authorized, 1,500,000 issued and outstanding June 30, 1995 and December 31, 1994 (aggregate liquidation preference of $75,000) 15 15 Common Stock, $1 par value, 25,000,000 authorized, 12,490,836 issued June 30, 1995 and 12,360,252 December 31, 1994 12,491 12,360 Additional paid in capital 219,248 216,772 Retained earnings 119,049 119,280 Excess purchase price for Common Stock acquired and held in treasury - 3,606,400 shares (117,225) (117,225) Total shareowners' equity 233,578 231,202 Total liabilities and shareowners' equity $833,514 $782,665
See accompanying notes (2) FIELDCREST CANNON, INC. Consolidated statement of income and retained earnings
For the three months For the six months Dollars in thousands, ended June 30 ended June 30 except per share data 1995 1994 1995 1994 Net sales $273,048 $254,796 $530,057 $487,081 Cost of sales 238,662 214,330 452,687 409,223 Selling, general and administrative 25,644 23,633 52,346 45,977 Restructuring charges 4,530 - 8,454 - Total operating costs and expenses 268,836 237,963 513,487 455,200 Operating income 4,212 16,833 16,570 31,881 Other deductions (income): Interest expense 6,681 5,663 13,483 11,511 Other, net - 288 (144) 403 Total other deductions 6,681 5,951 13,339 11,914 Income (loss) before income taxes (2,469) 10,882 3,231 19,967 Federal and state income taxes (benefit) (925) 4,198 1,212 7,787 Net income (loss) (1,544) 6,684 2,019 12,180 Preferred dividends (1,125) (1,125) (2,250) (2,250) Earnings (loss) on common (2,669) 5,559 (231) 9,930 Amount added to (subtracted from) retained earnings (2,669) 5,559 (231) 9,930 Retained earnings, beginning of period 121,718 97,406 119,280 93,035 Retained earnings, end of period $119,049 $102,965 $119,049 $102,965 Net income (loss) per common share $ (.30) $ .64 $ (.02) $ 1.15 Fully diluted income (loss) per common share $ (.30) $ .56 $ (.02) $ 1.03 Average primary shares outstanding 8,860,341 8,693,930 8,833,658 8,658,828 Average fully diluted shares outstanding 8,860,199 14,082,915 8,834,032 14,049,404
See accompanying notes (3) FIELDCREST CANNON, INC. Consolidated statement of cash flows
Six Months ended June 30 Dollars in thousands 1995 1994 Increase (decrease) in cash Cash flows from operating activities: Net income $ 2,019 $ 12,180 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 15,710 15,119 Deferred income taxes 2,471 (1,997) Other (1,377) 471 Change in current assets and liabilities, excluding effects of acquisition of Sure Fit: Accounts receivable 6,860 11,673 Inventories (27,060) (45,049) Other prepaid expenses and current assets 577 (787) Accounts payable and accrued liabilities (542) (13,760) Federal and state income taxes (2,268) 2,426 Deferred income taxes (1,372) 3,662 Net cash used in operating activities (4,982) (16,062) Cash flows from investing activities: Additions to plant and equipment (32,447) (12,441) Proceeds from disposal of plant and equipment 621 1,084 Proceeds from net assets held for sale 20,800 1,345 Purchase of Sure Fit, net of cash acquired (27,300) - Net cash used in investing activities (38,326) (10,012) Cash flows from financing activities: Increase in revolving debt 45,502 39,612 Payments on long-term debt (1,101) (10,532) Proceeds from sale of common stock 57 80 Dividends paid on preferred stock (2,250) (2,250) Net cash provided by financing activities 42,208 26,910 Increase (decrease) in cash (1,100) 836 Cash at beginning of year 5,885 3,865 Cash at end of period $ 4,785 $ 4,701 /TABLE See accompanying notes (4) FIELDCREST CANNON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1995 1. Basis of Presentation The consolidated financial statements are unaudited. In the opinion of management all adjustments, consisting only of normal recurring items, have been made which are necessary to show a fair presentation of the financial position of the Company at June 30, 1995 and the related results of operations for the three months ended June 30, 1995 and 1994. The unaudited consolidated financial statements should be read in conjunction with the Company's Form 10-K for the year ended December 31, 1994. 2. Income Per Common Share Reference is made to Exhibit 11 to this Form 10-Q for a computation of primary and fully-diluted net income per Common share. 3. Inventories Inventories are classified as follows:
June 30, December 31, (In thousands) 1995 1994 Finished goods $135,819 $109,423 Work in process 68,608 65,375 Raw materials and supplies 53,925 39,196 $258,352 $213,994
At June 30, 1995 approximately 68% of the inventories were valued on the last-in, first-out method (LIFO). (5) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Changes in Financial Condition The Company's debt (including the current portion of long-term debt) increased $44.4 million during the first six months of 1995. Debt was reduced by $21.4 million from cash proceeds from the sale of the Bangor and Aroostook Railroad and other assets and increased by $27.3 million from the acquisition of the Sure Fit furniture coverings business of UTC Holdings. After excluding the effects of the acquisition of Sure Fit, inventories increased $27.1 million due to normal seasonal inventory build- up. Capital expenditures totaled $32.4 million for the first six months of 1995 compared to $12.4 million for the first six months of 1994. Included in the 1995 capital expenditures is $17.8 million for the $90 million capital project for the new weaving plant at the Company's Columbus, GA/Phenix City, Ala. towel mill. Capital expenditures for 1995 are expected to be in the $55-$60 million range. At June 30, 1995, approximately $45.3 million of the Company's $195 million revolving credit facility was available and unused. 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. Changes in Results of Operations Quarter Ended June 30, 1995 vs. Quarter Ended June 30, 1994 Net sales for the second quarter of 1995 were $273.0 million compared to $254.8 million in the second quarter of 1994, an increase of 7%. The $18.2 million increase includes $12.1 million of furniture coverings from the Sure Fit business acquired in January 1995. The 2% increase in revenues, after adjusting for the Sure Fit acquisition, was due to price increases implemented during the last half of 1994 and early 1995 which more than offset a small decline in volume. Gross profit margins decreased from 15.9% in the second quarter of 1994 to 12.6% in the second quarter of 1995. The decrease was due primarily to lower mill activity and higher raw material prices. Selling, general and administrative expenses increased as a percentage of sales from 9.3% to 9.4% in the second quarter of 1995 compared to the same quarter of 1994. The increase was due primarily to increased advertising and other selling expenses. (6) In the first quarter of 1995 the Company announced a reorganization of its New York operations and the relocation of sales, marketing and design personnel to Kannapolis, N.C. In conjunction with the reorganization, the Company offered a voluntary early retirement program to approximately 300 of its salaried employees who had until August 1, 1995 to decide whether to participate. The Company expects to incur pre-tax costs in the range of $10 to $12 million, or $.71 to $.85 per share after tax, as a result of these actions. Annual pre-tax savings of $6 to $8 million, or $.42 to $.57 per share after tax, are anticipated. A pre-tax charge of $4.5 million, or $.32 per share after tax, was accrued in the second quarter of 1995 for employee severance, termination benefits, relocation costs and early retirement termination benefits on those employees who accepted the offer by June 30, 1995. Restructuring charges for the first six months of 1995 related to the reorganization and early retirement program totaled $8.5 million, or $.60 per share after tax. The remaining costs for relocation and the voluntary early retirement program will be incurred later in the year. Operating income as a percentage of sales decreased to 1.5% in the second quarter of 1995 from 6.6% in the second quarter of 1994. The decrease was due to the $4.5 million of restructuring charges described above, reduced mill activity and higher raw material costs. Interest expense increased $1.0 million in the second quarter of 1995 as compared to the second quarter of 1994 due to higher rates under the revolver and an increase in average debt outstanding. The effective income tax rate was 37.5% for the second quarter of 1995 compared to 38.6% for the second quarter of 1994. The annual effective income tax rate for 1994 was 37.3% before favorable prior years tax settlements which reduced the 1994 annual rate to 33.6%. A net loss, after the effect of the restructuring charges, of $1.5 million, or $.30 per share was incurred in the second quarter of 1995, compared to net income of $6.7 million, or $.64 per share, in the second quarter of 1994. Six Months Ended June 30, 1995 vs. Six Months Ended June 30, 1994 Net sales for the first six months of 1995 were $530.1 million compared to $487.1 million in the first six months of 1994, an increase of 9%. The $43.0 million increase includes $25.5 million of furniture coverings from the Sure Fit business acquired in January 1995. The 4% increase in revenues, after adjusting for the Sure Fit acquisition, was due primarily to price increases implemented during the last half of 1994 and early 1995. Gross profit margins decreased from 16.0% in the first six months of 1994 to 14.6% in the first six months of 1995. The decrease was due primarily to lower mill activity and higher raw material prices. (7) Selling, general and administrative expenses increased as a percentage of sales from 9.4% to 9.9% in the first six months of 1995 compared to the first six months of 1994. The increase was due primarily to increased advertising and other selling expenses. Operating income as a percentage of sales decreased to 3.1% in the first six months of 1995 from 6.5%. The decrease was due to the $8.5 million of restructuring charges related to the New York reorganization and early retirement program, reduced mill activity and higher raw material costs. Interest expense increased $2.0 million the first six months of 1995 as compared to the first six months of 1994 due to higher rates under the revolver and an increase in average debt outstanding. The effective income tax rate was 37.5% for the first six months of 1995 compared to 39.0% for the first six months of 1994. The annual effective income tax rate for 1994 was 37.3% before favorable prior years tax settlements which reduced the 1994 annual rate to 33.6%. Net income, after the effect of the restructuring charges, was $2.0 million, a $.02 loss per share after preferred dividends, for the first six months of 1995 compared to net income of $12.2 million, or $1.15 per share, for the first six months of 1994. (8) PART II. OTHER INFORMATION FIELDCREST CANNON, INC. Item 4. Submission of Matters to a Vote of Security Holders (a). The Company held its Annual Meeting of Stockholders on April 24, 1995. (b). Not applicable. (c). Holders of Common Stock (one vote per share) voted at this meeting on the following matters, which were set forth in full in the Registrant's Proxy statement dated March 22, 1995. I. Election of Directors: Votes Nominee: For Withheld Tom H. Barrett 7,371,835 11,649 James M. Fitzgibbons 7,379,962 3,522 William E. Ford 7,380,633 2,851 John C. Harned 7,380,992 2,492 Noah T. Herndon 7,377,652 5,832 S. Roger Horchow 7,380,763 2,721 W. Duke Kimbrell 7,380,726 2,758 C. J. Kjorlien 7,369,607 13,877 II. Adopt the 1995 Employee Stock Option Plan: Votes For 7,111,614 Against 370,151 Abstain 33,300 III. Amend the Director Stock Option plan to increase the number of shares subject to annual option grant from 1,000 to 2,000 shares: Votes For 6,720,572 Against 751,786 Abstain 42,707 (9) IV. Amend Director Stock Option Plan to extend the option exercise period: Votes For 6,894,343 Against 580,669 Abstain 40,053 V. Selection of Independent Auditors: Votes For 7,464,817 Against 32,303 Abstain 17,945 (d). Not applicable Item 6. Exhibits and Reports on Form 8-K (a). Exhibits 10-1. 1995 Declaration of Amendment to Director Stock Option Plan of Fieldcrest Cannon, Inc. 10-2. 1995 Employee Stock Option Plan of Fieldcrest Cannon, Inc., which is incorporated by reference to Exhibit 4.1 of Registrant's Registration Statement of Form S-8 filed on May 8, 1995. 11. Computation of Primary and Fully Diluted Net Income Per Share. (b). Reports on Form 8-K The Registrant did not file any reports to the Commission on Form 8-K for the quarter ended June 30, 1995. (10) S I G N A T U R E S 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. FIELDCREST CANNON, INC. (Registrant) BY: /s/ T. R. Staab T. R. Staab Vice President and Chief Financial Officer Date: August 8, 1995 (11) EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR FIELDCREST CANNON, INC. FOR THE QUARTER ENDED JUNE 30, 1995 Exhibit Page Number Description Number
(10.1) 1995 Declaration of Amendment to Director Stock Option Plan of Fieldcrest Cannon, Inc. 13-14 (11) Computation of Primary and Fully Diluted Net Income Per Share 15 /TABLE (12) Exhibit 10.1 1995 DECLARATION OF AMENDMENT TO DIRECTOR STOCK OPTION PLAN OF FIELDCREST CANNON, INC. THIS DECLARATION OF AMENDMENT, effective as of the 8th day of March, 1995, by Fieldcrest Cannon, Inc. (the "Company"), as sponsor of the Director Stock Option Plan of Fieldcrest Cannon, Inc. (the "plan"). R E C I T A L S: It is deemed advisable to amend the plan to increase the number of shares to be subject to annual options granted to eligible directors under the terms of the plan from 1,000 shares to 2,000 shares, and to extend the period during which options may be exercised upon termination of service to a period of up to ninety days following termination from service as a director. 1. NOW, THEREFORE, it is declared that Section 6(a) of the plan shall be and hereby is amended, effective March 8, 1995, by replacing the number 1,000 in the first sentence of Section 6(a) for the number 2,000, so that the first sentence of Section 6(a) reads as follows: "Subject to the limitations of this Section 6, on the fifth business day following the annual meeting of the stockholders of the Company each year during the term of the Plan, the Committee shall grant to each person who is then a Director an Option to purchase 2,000 shares of Common Stock." 2. NOW, THEREFORE, it is declared that Section 6(c)(iii) of the plan is hereby amended effective March 8, 1995, as to Options granted after such date only, by deleting the sentence comprising Section 6(c)(iii) in its entirety and inserting the following in lieu thereof: "No Option shall be exercised unless the Director either (A) is, at the time of exercise, a Director as described in Section 5 and has been a director continuously since the date the Option was granted, or (B) was, within ninety days prior to the time of exercise, a Director as described in Section 5, and, prior to such termination from service as a Director, had been a director continuously since the date the Option was granted; provided, that if the Director's membership on the Board is terminated because of death, the Option shall be exercisable by such person or persons who shall have acquired the right to exercise the Option by will or the laws of intestate succession, and such Option shall be exercisable at any time prior to the earlier of (X) the close of the Option Period, or (Y) the close of the period ending thirty-six months after the death of the Director." (13) IN WITNESS WHEREOF, the Company has caused this Declaration of Amendment to be executed by its proper officers as of the 8th day of March, 1995. FIELDCREST CANNON, INC. By: /s/ James M. Fitzgibbons Title: Chairman & Chief Executive Officer Attest: /s/ M. Kenneth Doss Secretary [Corporate Seal] (14)
Exhibit 11 Computation of Primary and Fully Diluted Net Income Per Share For the three months For the six months ended June 30 ended June 30 1995 1994 1995 1994 Average shares outstanding 8,848,175 8,674,805 8,821,167 8,639,068 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 12,166 19,125 12,491 19,760 Average shares and equivalents outstanding, primary 8,860,341 8,693,930 8,833,658 8,658,828 Average shares outstanding 8,848,175 8,674,805 8,821,167 8,639,068 Add shares giving effect to the conversion of the convertible subordinated debentures (1) 2,824,859 (1) 2,824,859 Add shares giving effect to the conversion of the convertible preferred stock (1) 2,564,100 (1) 2,564,100 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 12,024 19,151 12,865 21,377 Average shares and equivalents outstanding, assuming full dilution 8,860,199 14,082,915 8,834,032 14,049,404 Primary Earnings Net income (loss) $(1,544,000) $ 6,684,000 $2,019,000 $12,180,000 Preferred dividends (1,125,000) (1,125,000) (2,250,000) (2,250,000) Earnings (loss) on Common $(2,669,000) $ 5,559,000 $ (231,000) $ 9,930,000 Primary earnings (loss) per common share $ (.30) $ .64 $ (.02) $ 1.15 Fully Diluted Earnings Earnings (loss) on Common $(2,669,000) $ 5,559,000 $ (231,000) $ 9,930,000 Add convertible subordinated debenture interest, net of taxes (1) 1,144,000 (1) 2,288,000 Add convertible preferred dividends (1) 1,125,000 (1) 2,250,000 Net income (loss) $(2,669,000) $ 7,828,000 $ (231,000) $14,468,000 Fully diluted earnings (loss) per Common share $ (.30) $ .56 $ (.02) $ 1.03 (1) The assumed conversion of the Registrant's Convertible Subordinated Debentures and Convertible Preferred Stock for the three months and six months ended June 30, 1995 would have an anti-dilutive effect for the computation of earnings per share; therefore, conversion has not been assumed for these periods.
(15) EX-27 2
5 1,000 6-MOS DEC-31-1995 JAN-01-1995 JUN-30-1995 4,785 0 171,831 0 258,352 438,419 332,120 0 833,514 137,851 362,846 12,491 0 15 221,072 833,514 530,057 530,057 452,687 452,687 60,800 0 13,483 3,231 1,212 2,019 0 0 0 2,019 (.02) (.02)