10-K405 1 FIELDCREST CANNON 10-K405 #80466.1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K 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, 1994 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 $3.00 Series A Convertible Preferred Stock, $.01 Par Value The Nasdaq SmallCap Market 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 $184,363,769 as of March 1, 1995. NUMBER OF SHARES OUTSTANDING AT MARCH 1, 1995 Common Stock 8,823,852 DOCUMENTS INCORPORATED BY REFERENCE Part II incorporates information by reference from the annual report to shareowners for the year ended December 31, 1994. Part III incorporates information by reference from the proxy statement for the annual meeting of shareowners to be held on April 24, 1995. Total pages 71 Page 1 Exhibit Index page 13 PART I Item 1. Business General The registrant was incorporated under the laws of Delaware in 1953. The registrant operates a single segment business in the textile industry and is principally involved in the manufacture and sale of home furnishing products. The registrant and its consolidated subsidiaries design, manufacture and market a broad range of household textile products consisting of towels, sheets, blankets, comforters and bath rugs. The registrant is vertically integrated in that it buys the basic raw materials consisting principally of cotton and synthetic fibers and manufactures a finished consumer product. These products are marketed primarily by the Company's own sales and marketing staff and distributed nationally to customers for ultimate retail sale. Customers consist principally of department stores, chain stores, mass merchants, specialty home furnishing stores, catalog warehouse clubs and other retail outlets, and institutional, government and contract accounts. In 1994 nearly all of the registrant's total sales were comprised of home furnishings products. Approximately 90% of the Company's 1994 net sales were from sales of products carrying the registrant's principal brand names of "Fieldcrest," "Royal Velvet," "Charisma," "St. Marys," "Cannon," "Monticello," "Royal Family," and "Caldwell"; the remaining 10% were from sales of private label products. 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 for 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 was assigned a cost of $117.2 million after an allocation of $24.7 million to the net assets of Amoskeag. The operating assets of Amoskeag consist primarily of the Bangor and Aroostook Railroad ("BAR") and certain real estate properties. During 1994 the BAR's operating income of $3 million was excluded from the Company's consolidated income statement and $1.6 million of interest costs of the Company were allocated to the assets held for sale. On March 17, 1995 the Company sold the BAR for approximately $20 million of cash and $8 million of note receivables. Page 2 Raw Materials The registrant's basic raw materials are cotton and synthetic fibers. These materials are generally available from a wide variety of sources, and no significant shortage of such materials is currently anticipated. The registrant uses significant quantities of cotton which is subject to ongoing price fluctuations. The registrant in the ordinary course of business may arrange for purchase commitments with vendors for future cotton requirements. Patents and Licenses The registrant holds various patents and licenses resulting from company-sponsored research and development, and others are obtained that are deemed advantageous to company operations. The registrant is only partially dependent upon such patents and licenses in certain product lines, and the loss of any exclusiveness in these areas would not materially adversely affect overall profitability. Seasonality in the Company's Business Primarily because the Company's retail customers have higher sales in the second half of the calendar year, the Company also experiences greater sales volume in the last three quarters of the calendar year. It is likely that the Company's operating performance in the first quarter of a given calendar year will be less favorable than operating performance in the last three quarters. The registrant carries normal inventory levels to meet delivery requirements of customers, and customer returns of merchandise shipped are not material. Payment terms on customer invoices are generally 30 to 60 days. Customers The registrant's customers consist principally of department stores, chain stores, specialty stores, mass merchants, warehouse clubs, other retail outlets and institutional, government and contract accounts. For the year ended December 31, 1994, the Company's five largest customers accounted for approximately 38% of net sales. Sales to one customer (Wal-Mart Stores and its affiliates) represented 18.3% of total sales of the Company. Although management of the Company believes that the Company's relationship with Wal-Mart is excellent and the loss of this customer is unlikely, the loss of Wal-Mart as a customer would have a material adverse effect on the Company's business. No other single customer accounted for more than 10% of net sales in 1994. Page 3 Order Backlog The registrant had normal unfilled order backlogs as of December 31, 1994 and 1993 amounting to approximately $94 million and $87 million, respectively. The majority of these unfilled orders are shipped during the first quarter of the subsequent fiscal year. The increase in unfilled orders in 1994 compared to 1993 is believed to be primarily due to the timing of new orders. Unfilled orders have become less of an indicator of future sales as customers have trended toward placing orders as stock is required. Many orders are placed using electronic data interchange, and the Company has filled such orders on a quick response basis. Government Contracts No material portion of the business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the Government. Competition The home furnishing textile industry continues to be highly competitive. Among the registrant's competitors are a number of domestic and foreign companies with significant financial resources, experience, manufacturing capabilities and brand name identity. The registrant competes with numerous other domestic manufacturers in each of its principal markets. The domestic towel, sheet, blanket and bath rug markets are each comprised of three to five principal manufacturers (including the registrant) and several smaller domestic manufacturers. The registrant's principal methods of competition are price, design, service and product quality. The Company believes that large, low- cost producers with established brand names, efficient distribution networks and good customer service will profit in this competitive environment. The Company's ability to operate profitably in this environment will depend substantially on continued market acceptance of the Company's products and the Company's efforts to control costs and produce new and innovative products in response to competitive pressures and changes in consumer demand. Environmental Controls The registrant does not anticipate that compliance with federal, state and local provisions that have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, will have a material effect upon the capital expenditures, earnings and competitive position of the registrant and its subsidiaries. Page 4 Employees Total employment of the Company and its subsidiaries was 13,926 as of December 31, 1994. Approximately 29% of the Company's hourly employees are subject to collective bargaining agreements with the Amalgamated Clothing and Textile Workers Union or the United Textile Workers of America. Foreign Sales The registrant is not currently engaged in significant operations in foreign countries. Approximately 6% of the registrant's consolidated net sales were exported to foreign customers in 1994 and 1993. Item 2. Properties The registrant has 19 principal manufacturing plants, all located in the United States; 13 are in North Carolina, 1 in South Carolina, 1 in Georgia, 3 in Alabama and 1 in Virginia. In addition, there are 22 warehousing and distribution centers located in the manufacturing states, plus Texas and California. The manufacturing/warehousing and distribution centers aggregate a floor area of approximately 17,281,000 square feet. All of the facilities are owned except: (1) 2 locations totaling approximately 618,000 square feet, title to which is held by the Development Authorities that issued the Industrial Development Bonds which were issued to finance the facilities; and (2) 5 locations, totaling approximately 415,000 square feet, where the machinery and equipment is owned and the buildings are under a long-term lease. Title to the facilities financed by Industrial Revenue Bonds as described above will be transferred to the registrant upon the retirement of such bonds. Such facilities therefore are accounted for as being owned by the registrant. The registrant owns corporate administrative buildings in Eden, North Carolina, which contain approximately 96,000 square feet. The principal marketing headquarters and certain executive offices (totaling approximately 64,000 square feet) are located in New York City under long-term leases. All other properties owned or controlled by the registrant aggregate approximately 500,000 square feet and are used for miscellaneous support services or for sales and marketing. Plants and equipment of the registrant are considered to be in excellent condition; substantial capital expenditures for new plants, modernization and improvements have been made in recent years. The plants generally operate on either a three shift basis for a five-day week or a four shift basis for a seven-day week during 50 weeks a year except during periods of curtailment. In the opinion of the registrant, all plants and properties are adequately covered by insurance. Page 5 Item 3. Legal Proceedings The registrant is involved in various claims and lawsuits incidental to its business. In the opinion of the registrant based in part on the advice of legal counsel, however, the outcome of these suits will not have a material effect on the registrant's financial position. Page 6 Identification of Executive Officers of the Registrant
Date from Which Officers Age at Have Served in Name 3/31/95 Positions Held Present Capacities James M. Fitzgibbons 60 Chairman of the Board Chairman of the Board and and Chief Executive Chief Executive Officer: 1990 Officer and Director Director: 1985 Chris L. Kametches 59 Senior Vice President Senior Vice President: 1990 Robert E. Dellinger 50 Vice President Vice President: 1989 M. Kenneth Doss 55 Vice President Vice President: 1988 and Secretary General Counsel: 1985 Secretary: 1986 Kevin M. Finlay 45 Vice President Vice President: 1993 Osborne L. Raines 54 Vice President Vice President: 1985 Thomas R. Staab 52 Vice President and Vice President: 1992 Chief Financial Officer Chief Financial Officer: 1994 Clifford D. Paulsen 51 Controller Controller: 1992
None of the executive officers are related by blood, marriage or adoption to any other executive officer of the registrant or any director or executive officer of a parent, subsidiary, or affiliate of the registrant. With the exception of Mr. Fitzgibbons each executive officer has been employed by the registrant for more than five years. Prior to becoming Chief Executive Officer and Chairman of the Board of Directors of the registrant on October 15, 1990, Mr. Fitzgibbons was President of Amoskeag Company and was previously an executive officer of Amoskeag Company for more than five years. Page 7 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters Incorporated by reference from the market and dividend data section of the 1994 Annual Report to Shareowners, page 22. Item 6. Selected Financial Data Selected financial and statistical data for the years 1990 to 1994 appearing in the line items "Net sales", "Income (loss) from continuing operations", "Per share of common stock: Primary income (loss) from continuing operations" and "Fully diluted income (loss)", "Total assets", "Long-term obligations" and "Dividends" are incorporated by reference from the 1994 Annual Report to Shareowners, page 39. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Incorporated by reference from the 1994 Annual Report to Shareowners, pages 19 through 22. Item 8. Consolidated Financial Statements and Supplementary Data Incorporated by reference from the 1994 Annual Report to Shareowners, pages 23 through 38. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures None. Page 8 PART III Item 10. Directors, Executive Officers, Promoters and Control Persons of the Registrant Information regarding the Directors is incorporated herein by reference from the registrant's proxy statement for the annual meeting of shareowners to be held on April 24, 1995, pages 2 and 3. For information regarding the Executive Officers of the registrant, see Part I at page 7. Item 11. Executive Compensation Incorporated herein by reference from sections of the registrant's proxy statement for the annual meeting of shareowners to be held on April 24, 1995 entitled "Compensation of Directors", pages 6 and 7 and "Executive Compensation", pages 7 through 14. Item 12. Security Ownership of Certain Beneficial Owners and Management Incorporated herein by reference from the section of the registrant's proxy statement for the annual meeting of shareowners to be held on April 24, 1995 entitled "Security Ownership", pages 4 through 6. Item 13. Certain Relationships and Related Transactions Incorporated herein by reference from the registrant's proxy statement for the annual meeting of shareowners to be held April 24, 1995, pages 7 and 8, entitled "Executive Compensation". PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (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 17 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. Page 9 FIELDCREST CANNON, INC. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES (Item 14(a) 1 & 2) Page Numbers of the Annual report to Shareowners Consolidated statement of financial position at 25 December 31, 1994 and 1993 Consolidated statement of income and retained earnings 24 for each of the three years in the period ended December 31, 1994 Consolidated statement of cash flows for each of the 26 three years in the period ended December 31, 1994 Notes to consolidated financial statements 27-37 Report of independent auditors 38 No schedules are filed 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. The consolidated financial statements listed in the above index which are included in the Annual Report to Shareowners of Fieldcrest Cannon, Inc. for the year ended December 31, 1994 are hereby incorporated by reference. With exception of the pages listed in the above index and the Items referred to in Part II, Items 5, 6, 7 and 8, the 1994 Annual Report to Shareowners is not to be deemed filed as part of this report. Page 10 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. March 8, 1995 By:/s/ James M. Fitzgibbons James. M. Fitzgibbons, Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report signed below by the following persons on behalf of the registrant and in the capacities on the dates indicated. /s/ James. M. Fitzgibbons March 8, 1995 James M. Fitzgibbons, Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer) /s/ M. Kenneth Doss March 8, 1995 M. Kenneth Doss Vice President and Secretary /s/ Thomas R. Staab March 8, 1995 Thomas R. Staab Vice President and Chief Financial Officer (Principal Financial Officer) /s/ Clifford D. Paulsen March 8, 1995 Clifford D. Paulsen Controller (Principal Accounting Officer) /s/ Tom H. Barrett March 8, 1995 Tom H. Barrett Director Page 11 /s/ William E. Ford March 8, 1995 William E. Ford Director /s/ John C. Harned March 8, 1995 John C. Harned Director /s/ S. Roger Horchow March 8, 1995 S. Roger Horchow Director /s/ Charles G. Horn March 8, 1995 Charles G. Horn Director /s/ W. Duke Kimbrell March 8, 1995 W. Duke Kimbrell Director /s/ C. J. Kjorlien March 8, 1995 C. J. Kjorlien Director Page 12 EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K FOR FIELDCREST CANNON, INC. FOR THE YEAR ENDED DECEMBER 31, 1994
Page Number Exhibit or Incorporation Number Description by Reference to (3) 1. Restated Certificate of Incorporation, Exhibit 3-1 to the as amended to date. Registrant's Registration Statement on Form S-3 filed on February 18, 1994. 2. Amended and Restated By-Laws of the Registrant Exhibit 3-1 to Report on as amended to November 24, 1993. Form 8-K Filed on December 9, 1993. (4) 1. Rights Agreement, dated as of November 24, 1993, Exhibit 1 to the between the Registrant and The First National Registrant's Registration Bank of Boston, which includes as Exhibit A the Statement on Form 8-A Form of Rights Certificate of Designations, as filed December 3, 1993. 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, 1987, relating to Exhibit 4.9 to the the Registrant's 6% Convertible Subordinated Registrant's Registration Debentures Due 2012 between the Registrant and Statement on Form S-3 Wachovia Bank and Trust Company, N.A., (No. 33-12436) filed on including the form of debenture. March 6, 1987. 3. Indenture dated as of June 1, 1992, relating to Exhibit 4.7 of the Senior Subordinated Debentures Due 2004, Amendment No. 1 to the between the Registrant and First Union National Registrant's Registration Bank, as Trustee, including the form of Statement on Form S-3 debenture. (No. 33-47348) filed on June 3, 1992. 4. Amended and Restated Revolving Credit Exhibit 4-4 to Report Agreement dated as of March 10, 1994 by and on Form 10-K for among the Registrant, The First National Bank fiscal year ending of Boston as agent, Continental Bank N.A., December 31, 1993. Philadelphia National Bank, and First Union National Bank of North Carolina, as lead managers, and certain lenders. 5. First Amendment to the Restated Revolving 17-22 Credit Agreement dated as of March 10, 1994 by and among the Registrant, The First National Bank of Boston as agent, Continental Bank N.A., Philadelphia National Bank, and First Union National Bank of North Carolina, as lead managers, and certain lenders. Page 13 6. Second Amendment to the Restated Revolving 23-33 Credit Agreement dated as of March 10, 1994 by and among the Registrant, The First National Bank of Boston as agent, Continental Bank N.A., Philadelphia National Bank, and First Union National Bank of North Carolina, as lead managers, and certain lenders. 7. Third Amendment to the Restated Revolving 34-45 Credit Agreement dated as of March 10, 1994 by and among the Registrant, The First National Bank of Boston as agent, Continental Bank N.A., Philadelphia National Bank, and First Union National Bank of North Carolina, as lead managers, and certain lenders. 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 14 Page Number Exhibit or Incorporation Number Description by Reference to (10) 1. Amended and Restated Director Stock Option Exhibit A to the Plan of the Registrant approved by the Registrant's proxy stockholders of the Corporation on April 28, statement for the annual 1992. meeting of shareowners held on April 28, 1992. 2. Stock Option Agreement between the Registrant Exhibit 4.1 to the and James M. Fitzgibbons dated as of September Registrant's Registration 11, 1991. Statement on Form S-8 filed on December 23, 1991. 3. Employee Retention Agreement between Registrant Exhibit 10.2 to Report and James M. Fitzgibbons effective as of on Form 10-Q for the July 9, 1993. quarter ended September 30, 1993. 4. Employment Agreement between the Registrant Exhibit 10-2 to Report and Charles G. Horn dated as of January 1, on Form 10-K for fiscal 1988. year ending December 31, 1988. 5. Instrument of Amendment dated October 23, Exhibit 10-3 to Report 1989, between the Registrant and Charles G. on Form 10-K for fiscal Horn, amending Exhibit 10-4 above. year ending December 31, 1989. 6. Instrument of Amendment dated July 23, 1993 by Exhibit 10.1 to Report and between the Registrant and Charles G. Horn, on Form 10-Q for the amending the employment agreement between the quarter ended September Registrant and Charles G. Horn dated as of 30, 1993. January 1, 1988. 7. Employee Retention Agreement between the Exhibit 10.4 to Report Registrant and Chris L. Kametches effective on Form 10-Q for the as of July 9, 1993. quarter ended September 30, 1993. 8. Instrument of Amendment dated July 29, 1993 Exhibit 10.5 to Report between the Registrant and Chris L. Kametches, on Form 10-Q for the amending Exhibit 10.7 above. quarter ended September 30, 1993. 9. Employee Retention Agreement between the Exhibit 10.9 to Report Registrant and Robert E. Dellinger effective on Form 10-K for fiscal as of July 9, 1993. year ending December 31, 1993. 10. Instrument of Amendment dated July 29, 1993 Exhibit 10.10 to Report between the Registrant and Robert E. Dellinger, on Form 10-K for fiscal amending Exhibit 10.9 above. year ending December 31, 1993. Page 15 11. Form of Employee Retention Agreement between Exhibit 10.6 to Report the Registrant and other executive officers of on Form 10-Q for the the Registrant effective as of July 9, 1993. quarter ended September 30, 1993. 12. Form of Instrument of Amendment dated July 29, Exhibit 10.7 to Report 1993 between the Registrant and other executive on Form 10-Q for the officers of the Registrant, amending Exhibit 10.11 quarter ended September above. 30, 1993. (11) Computation of Primary and Fully Diluted Net Income 46 - 48 (Loss) per Share. (13) 1994 Annual Report to Shareowners. 49 - 69 (21) Subsidiaries of the Registrant. 70 (23) Consent of independent auditors. 71 Page 16
EX-4 2 EXHIBIT 4.5 FIRST AMENDMENT to THIRD AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT dated as of March 10, 1994 This FIRST AMENDMENT (the "Amendment"), dated as of May 31, 1994, is by and among FIELDCREST CANNON, INC., a Delaware corporation (the "Company"), the lenders listed on the signature pages hereto (the "Lenders"), CONTINENTAL BANK N. A., PHILADELPHIA NATIONAL BANK and FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as lead managers for the Lenders (collectively, the "Lead Managers"), and THE FIRST NATIONAL BANK OF BOSTON, as agent for the Lenders (the "Agent"). WHEREAS, the Company, the Lenders, the Lead Managers and the Agent are parties to that certain Third Amended and Restated Revolving Credit Agreement, dated as of March 10, 1994 (the "Credit Agreement"); and WHEREAS, the Company, the Lenders, the Lead Managers and the Agent have agreed, subject to the terms and conditions set forth herein, to amend certain provisions of the Credit Agreement as set forth herein; NOW, THEREFORE, the parties hereto hereby agree as follows: (section mark)1. CERTAIN DEFINED TERMS. Capitalized terms which are used herein without definition and which are defined in the Credit Agreement shall have the same meanings herein as in the Credit Agreement. (section mark)2. AMENDMENT TO CREDIT AGREEMENT. (a) Section 1 of the Credit Agreement is hereby amended by adding the following new definition in the appropriate place in the alphabetical sequence thereof: Letter of Credit Bank. With respect to those Letters of Credit outstanding on May 31, 1994, FNBB and, with respect to each Letter of Credit requested thereafter, FNBB or, at the request of the Company and with the consent of the Agent, any other Lender that agrees, in its sole and absolute discretion, to issue such Letter of Credit pursuant to and in accordance with the provisions of this Agreement. (b) Section 1 of the Credit Agreement is hereby further amended by deleting the word "Agent" where it appears in the definition of Uniform Customs and substituting therefor the phrase "Letter of Credit Bank". (c) Section 2.10.1 of the Credit Agreement is hereby, amended by deleting the word "Agent" each place where it appears in such section, and substituting therefor in each such place the phrase "Letter of Credit Bank". 17 (d) Section 2.10.2 of the Credit Agreement is hereby amended by deleting such section in its entirety, and substituting therefor the following: (section mark)2.10.2. Reimbursement Obligation of the Company. In order to induce the Letter of Credit Bank to issue, extend and renew each Letter of Credit and the Lenders to participate therein, the Company hereby agrees to reimburse or pay to the Agent, for the account of the Letter of Credit Bank or (as the case may be) the Lenders, with respect to each Letter of Credit issued, extended or renewed by the Letter of Credit Bank hereunder, (a) except as otherwise expressly provided in (section mark)2.10.2(b) and (c) hereof, on each date that any draft presented under such Letter of Credit is honored by the Letter of Credit Bank, or the Letter of Credit Bank otherwise makes a payment with respect thereto, (i) the amount paid by the Letter of Credit Bank under or with respect to such Letter of Credit, and (ii) the amount of any taxes, fees, charges or other costs and expenses whatsoever incurred by the Letter of Credit Bank or any Lender in connection with any payment made by the Letter of Credit Bank or any Lender under, or with respect to, such Letter of Credit, (b) upon the reduction (but not the termination) of the Revolving Credit Loan Commitment Amount to an amount less than the Maximum Drawing Amount, an amount equal to such difference, which amount shall be held by the Agent for the benefit of the Lenders and the Letter of Credit Bank as cash collateral for all Reimbursement Obligations, and (c) upon the termination of the Revolving Credit Loan Commitment Amount, or the acceleration of the Reimbursement Obligations with respect to all Letters of Credit in accordance with (section mark)11 hereof, an amount equal to the then Maximum Drawing Amount on all Letters of Credit, which amount shall be held by the Agent for the benefit of the Lenders and the Letter of Credit Bank as cash collateral for all Reimbursement Obligations. Each such payment shall be made to the Agent at it's head office referred to in (section mark)4.2 hereof in immediately available funds. Interest on any and all amounts remaining unpaid by the Company under this (section mark)2.10.2 at any time from the date such amounts become due and payable (whether as stated in this (section mark)2.10.2 by acceleration or otherwise) until payment in full (whether before or after judgment) shall be payable to the Letter of Credit Bank or (as the case may be) the Lenders, on demand at the rate specified in (section mark)4.1 hereof for overdue principal on the Loans. (e) Section 2.10.3 of the Credit Agreement as hereby amended by deleting such section in its entirety, and substituting therefor the following: (section mark)2.10.3. Letter of Credit Payments. If any draft shall be presented or other demand for payment shall be made under any Letter of Credit, the Letter of Credit Bank shall notify the Company of the date and amount of the draft 18 presented or demand for payment and of the date and time when it expects to pay such draft or honor such demand for payment. If the Company fails to reimburse the Letter of Credit Bank as provided in (section mark)2.10.2 hereof on or before the date that such draft is paid or other payment is made by the Letter of Credit Bank, the Letter of Credit Bank may at any time thereafter notify the Lenders of the amount of any such Unpaid Reimbursement Obligation. No later than 3:00 p.m. (Boston time) on the Business Day next following the receipt of such notice, each Lender shall make available to the Agent, at its head office referred to in (section mark)4.2 hereof, in immediately available funds and for the benefit of the Letter of Credit Bank, such Lender's Commitment Percentage of such Unpaid Reimbursement Obligation, together with an amount equal to the product of (a) the average, computed for the period referred to in clause (c) below, of the weighted average interest rate paid by the Letter of Credit Bank for federal funds acquired by the Letter of Credit Bank during each day included in such period, times (b) the amount equal to such Lender's Commitment Percentage of such Unpaid Reimbursement Obligation, times (c) a fraction, the numerator of which is the number of days that elapse from and including the date the Letter of Credit Bank paid the draft presented for honor or otherwise made payment to the date on which such Lender's Commitment Percentage of such Unpaid Reimbursement obligation shall become immediately available to the Letter of Credit Bank, and the denominator of which is 360. The responsibility of the Letter of Credit Bank to the Company and the Lenders shall be only to determine that the documents (including each draft) delivered under each Letter of Credit in connection with such presentment shall be in conformity in all material respects with such Letter of Credit. (f) Section 2.10.4 of the Credit Agreement is hereby amended by deleting the word "Agent" each place where it appears in such section, and substituting therefor in each such place the phrase "Letter of Credit Bank". (g) Section 2.10.5 of the Credit Agreement is hereby amended by deleting the word "Agent" each place where it appears in such section, and substituting therefor in each such place the phrase "Letter of Credit Bank". (h) Section 2.10.6 of the Credit Agreement is hereby amended by deleting the second sentence of such section in its entirety, and substituting therefor the following: In addition, the Company shall pay to the Letter of Credit Bank for its own account, at such time or times as such charges are customarily made by the Letter of Credit Bank, its standard processing, negotiating, amendment and administrative fees, including, without limitation, reasonable legal fees and all fees in respect of capital costs incurred by the Letter of Credit Bank in connection with such Letters of Credit (each of the foregoing fees shall be referred to herein, collectively, as the "Letter of Credit Fees"). (i) Section 4.2 of the Credit Agreement is hereby amended by inserting immediately following the phrase "any Letter of Credit Fee" where such phrase appears in 19 the second line thereof the following: (other than any Letter of Credit Fee payable by the Company pursuant to the second sentence of (section mark)2.10.6 hereof, which payment shall be made by the Company directly to the applicable Letter of Credit Bank in immediately available funds) (section mark)3. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and warrants to the Lenders as follows: (a) Representations and Warranties. The representations and warranties contained in (section mark)6 of the Credit Agreement were true and correct in all material respects when made. The representations and warranties contained in (section mark)6 of the Credit Agreement, as amended hereby, are true and correct on the date hereof. (b) Enforceability. The execution and delivery by the Company of this Amendment, and the performance by the Company of this Amendment and the Credit Agreement, as amended hereby, are within the corporate powers of the Company and have been duly authorized by all necessary corporate action on the part of the Company. This Amendment and the Credit Agreement, as amended hereby, are valid and legally binding obligations of the Company, enforceable in accordance with their terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditors' rights in general. (c) No Default. No Default or Event of Default has occurred and is continuing and no Default or Event of Default will exist after the execution and delivery of this Amendment or after the consummation of the transactions contemplated hereby. (section mark)4. EFFECTIVENESS. This Amendment shall become effective as of the date hereof upon satisfaction of each of the conditions precedent set forth in this (section mark)4: (a) Delivery. The Company and Lenders constituting the Majority A Lenders shall have executed and delivered this Amendment. (b) Proceedings and Documents. All proceedings in connection with the transactions contemplated by this Amendment and all documents incident hereto shall be satisfactory in form and substance to the Agent, and the Agent shall have received all information and such counterpart originals or certified or other copies of such documents as the Agent may reasonably request. (section mark)5. MISCELLANEOUS PROVISIONS. (a) Except as otherwise expressly provided by this Amendment, all of the terms, conditions and provisions of the Credit Agreement shall remain the same. It is declared and agreed by each of the parties hereto that the Credit Agreement, as amended hereby, shall continue in full force and effect, and that this Amendment and such Credit Agreement shall be read and construed as one instrument. (b) This Amendment is intended to take effect as an agreement under seal and shall be construed according to and governed by the laws of the Commonwealth of 20 Massachusetts. (c) This Amendment may be executed in any number of counterparts, but all such counterparts shall together constitute but one instrument. In making proof of this Amendment it shall not be necessary to produce or account for more than one counterpart signed by each party hereto by and against which enforcement hereof is sought. (d) The Company hereby agrees to pay to the Agent, on demand by the Agent, all reasonable out-of-pocket costs and expenses incurred or sustained by the Agent in connection with the preparation of this Amendment and the documents referred to herein (including reasonable legal fees). IN WITNESS WHEREOF, the parties have executed this First Amendment as of the date first above written. FIELDCREST CANNON, INC. By:/s/ T. R. Staab Title: Vice President and Chief Financial Officer THE FIRST NATIONAL BANK OF BOSTON, as Agent By:/s/ Mitchell B. Feldman Title: Director THE FIRST NATIONAL BANK OF BOSTON By:/s/ Mitchell B. Feldman Title: Director CONTINENTAL BANK N. A., individually and as Lead Manager By:/s/ Wayne H. Riess Title: Vice President 21 PHILADELPHIA NATIONAL BANK, individually and as Lead Manager (incorporated as CoreStates Bank, N. A.) By:/s/ James P. Richards Title: Vice President FIRST UNION NATIONAL BANK OF NORTH CAROLINA, individually and as Lead Manager By:/s/ Richard J. Rizzo, Jr. Title: Vice President BANK OF MONTREAL By:/s/ Michael J. Love Title: Director MELLON BANK, N. A. By:/s/ Frederick W. Okie, Jr. Title: Vice President 22 EX-4 3 EXHIBIT 4.6 SECOND AMENDMENT AND CONSENT to THIRD AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT dated as of March 10, 1994 This SECOND AMENDMENT AND CONSENT (the "Amendment"), dated as of December 30, 1994, is by and among FIELDCREST CANNON, INC., a Delaware corporation (the "Company"), the lenders listed on the signature pages hereto (the "Lenders"), BANK OF AMERICA ILLINOIS (formerly known as Continental Bank N.A.), CORESTATES BANK, N.A. (formerly known as Philadelphia National Bank) and FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as lead managers for the Lenders (collectively, the "Lead Managers"), and THE FIRST NATIONAL BANK OF BOSTON, as agent for the Lenders (the "Agent"). WHEREAS, the Company, the Lenders, the Lead Managers and the Agent are parties to that certain Third Amended and Restated Revolving Credit Agreement, dated as of March 10, 1994, as amended (as so amended, the "Credit Agreement"); and WHEREAS, the Company, the Lenders, the Lead Managers and the Agent have agreed, subject to the terms and conditions set forth herein, to amend certain provisions of the Credit Agreement as set forth herein; NOW, THEREFORE, the parties hereto hereby agree as follows: (section mark)1. CERTAIN DEFINED TERMS. Capitalized terms which are used herein without definition and which are defined in the Credit Agreement shall have the same meanings herein as in the Credit Agreement. (section mark)2. AMENDMENT TO CREDIT AGREEMENT. (a) Section 1 of the Credit Agreement is hereby amended by adding the following new definitions in the appropriate places in the alphabetical sequence thereof: Encee Security Agreement. The Security Agreement, dated as of December 30, 1994, between Encee and the Agent, for the benefit of the Lenders and the Agent, and satisfactory to the Lenders and the Agent in all respects, as the same may be amended and in effect from time to time. Fieldcrest Financing. Fieldcrest Cannon Financing, Inc., a Delaware corporation and wholly-owned Subsidiary of the Company. Fieldcrest Licensing. Fieldcrest Cannon Licensing, Inc., a Delaware corporation and wholly-owned Subsidiary of Fieldcrest Financing. 23 Fieldcrest Transportation. Fieldcrest Cannon Transportation, Inc., a Delaware corporation and a wholly-owned Subsidiary of the Company. Fieldcrest Financing Guaranty. The Guaranty, dated as of December 30, 1994, from Fieldcrest Financing to the Lenders and the Agent and satisfactory to the Lenders and the Agent in all respects, as the same may be amended and in effect from time to time. Fieldcrest Licensing Guaranty. The Guaranty, dated as of December 30, 1994, from Fieldcrest Licensing to the Lenders and the Agent and satisfactory to the Lenders and the Agent in all respects, as the same may be amended and in effect from time to time. Fieldcrest Transportation Guaranty. The Guaranty, dated as of December 30, 1994, from Fieldcrest Transportation to the Lenders and the Agent and satisfactory to the Lenders and the Agent in all respects, as the same may be amended and in effect from time to time. Fieldcrest Financing Security Agreement. The Security Agreement, dated as of December 30, 1994, between Fieldcrest Financing and the Agent, for the benefit of the Lenders and the Agent, and satisfactory to the Lenders and the Agent in all respects, as the same may be amended and in effect from time to time. Fieldcrest Licensing Security Agreement. The Security Agreement, dated as of December 30, 1994, between Fieldcrest Licensing and the Agent, for the benefit of the Lenders and the Agent, and satisfactory to the Lenders and the Agent in all respects, as the same may be amended and in effect from time to time. Fieldcrest Licensing Trademark Assignment. The Trademark Collateral Security and Pledge Agreement, dated as of December 30, 1994, between Fieldcrest Licensing and the Agent, for the benefit of the Lenders and the Agent, as the same may be amended and in effect from time to time. Fieldcrest Transportation Security Agreement. The Security Agreement, dated as of December 30, 1994 between Fieldcrest Transportation and the Agent, for the benefit of the Lenders and the Agent, and satisfactory to the Lenders and the Agent in all respects, as the same may be amended and in effect from time to time. (b) Section 1 of the Credit Agreement is hereby further amended by deleting the definitions of Collateral, Revolving Credit Commitment Amount, and Security Documents in their entirety, and substituting therefore the following: Collateral. All of the property, rights and interests of the Company, FCC Canada, Crestfield Cotton, Encee, Fieldcrest Financing, Fieldcrest Licensing and Fieldcrest Transportation that are or are intended to be subject to the security interests created by the Security Documents. Revolving Credit Commitment Amount. $160,000,000, less the aggregate 24 amount, if any, by which the same has been reduced pursuant to (section mark)2.4 hereof. Security Documents. The Security Agreement, the Crestfield Cotton Guaranty, the FCC Canada Guaranty, the Subsidiary Guaranty, the Fieldcrest Financing Guaranty, the Fieldcrest Licensing Guaranty, the Fieldcrest Transportation Guaranty, the Crestfield Cotton Security Agreement, the Subsidiary Security Agreement, the Encee Security Agreement, the Fieldcrest Financing Security Agreement, the Fieldcrest Licensing Security Agreement, the Fieldcrest Transportation Security Agreement, the Trademark Assignment, the Fieldcrest Licensing Trademark Assignment and the Agency Agreements, and any and all instruments and documents required to be delivered pursuant thereto, in each case as originally executed, or if amended, restated, modified or supplemented, as so amended, restated, modified or supplemented. (c) Section 1 of the Credit Agreement is hereby further amended by deleting "(section mark)5(e)" where it appears in clause (iii) of the definition of Accounts Receivable, and substituting therefor "(section mark)5(h)". (d) Section 1 of the Credit Agreement is hereby further amended by deleting "(section mark)5(e)" where it appears in clause (ii) of the definition of Net Security Value of Inventory, and substituting therefor "(section mark)5(h)". (e) Section 5 of the Credit Agreement is hereby amended by deleting clause (d) in it entirety, and substituting therefor the following: (d) The Lender Obligations shall also be guarantied by each of Encee, Fieldcrest International and St. Mary's pursuant to the Subsidiary Guaranty. The obligations of Encee under the Subsidiary Guaranty shall be secured by a blanket first lien on certain assets of Encee, whether now owned or hereafter acquired by Encee, pursuant to the terms of the Encee Security Agreement. (f) Section 5 of the Credit Agreement is hereby further amended by designating clause (e) thereof as clause (h) and inserting after clause (d) thereof the following new clauses: (e) The Lender Obligations shall also be guaranteed by Fieldcrest Financing pursuant to the Fieldcrest Financing Guaranty. The obligations of Fieldcrest Financing under the Fieldcrest Financing Guaranty shall be secured by a blanket first lien on all assets of Fieldcrest Financing, whether now owned or hereafter acquired by Fieldcrest Financing, pursuant to the terms of the Fieldcrest Financing Security Agreement. (f) The Lender Obligations shall also be guaranteed by Fieldcrest Licensing pursuant to the Fieldcrest Licensing Guaranty. The obligations of Fieldcrest Licensing under the Fieldcrest Licensing Guaranty shall be secured by a blanket first lien on all assets of Fieldcrest Licensing, whether now owned or hereafter acquired by Fieldcrest Licensing pursuant to the terms of the Fieldcrest Licensing Security Agreement. 25 (g) The Lender Obligations shall also be guaranteed by the Fieldcrest Transportation pursuant to the Fieldcrest Transportation Guaranty. The obligations of Fieldcrest Transportation under the Fieldcrest Transportation Guaranty shall be secured by a blanket first lien on all assets (other than motor vehicles) of Fieldcrest Transportation, whether now owned or hereafter acquired by Fieldcrest Transportation, pursuant to the terms of the Fieldcrest Transportation Security Agreement. (g) Section 8.3(d) of the Credit Agreement is hereby amended by inserting on line six thereof after the amount "$20,000,000" the phrase ", except that loans to any of Crestfield Cotton, FCC Canada, Encee, Fieldcrest Financing, Fieldcrest Licensing and Fieldcrest Transportation shall not be subject to such dollar limitation,". (h) Section 8.6 of the Credit Agreement is hereby amended by deleting the last sentence thereof in its entirety, and substituting therefor the following: The Company will not sell, lease or otherwise dispose of assets except for (i) sales of inventory in the ordinary course of business, (ii) sales of assets (other than Collateral) in arms- length transactions for cash and for fair and reasonable value, and (iii) transfers of assets to Subsidiaries of the Company, provided that (A) such Subsidiary is a guarantor of the Lender Obligations, (B) all such assets which constitute Collateral are transferred to such Subsidiary subject to the Agent's lien thereon and (C) such Subsidiary grants to the Agent, for the benefit of the Agent and the Lenders, a first perfected lien on all of such transferred assets. (i) Section 8.8 of the Credit Agreement is hereby amended by deleting "(p)" where it appears therein, and substituting therefor "(q)". (j) Schedule 1.1 to the Credit Agreement is hereby amended by deleting such schedule in its entirety, and substituting therefor the Schedule 1.1 attached hereto. (k) Schedule 6.1 to the Credit Agreement is hereby amended by deleting such schedule its entirety, and substituting therefor the Schedule 6.1 attached hereto. (section mark)3. CONSENT. The Lenders hereby consent to the transfer by the Company on or prior to the date hereof of certain assets of the Company, including without limitation, Collateral, to each of Encee, Fieldcrest Transportation, Fieldcrest Financing and Fieldcrest Licensing, provided that all assets constituting Collateral which are transferred to such entities are and shall remain subject to the first priority security interest of the Agent, for the benefit of the Lenders and the Agent, granted pursuant to the Security Documents. (section mark)4. AFFIRMATION BY THE COMPANY AND THE GUARANTORS. (a) The Company hereby ratifies and confirms all of the Lender Obligations, including, without limitation, the Loans, and the Company hereby affirms its absolute and unconditional promise to pay to the Lenders the Loans and all other amounts due under the Credit Agreement as amended hereby. The Company hereby confirms that the Lender 26 Obligations are and remain secured pursuant to the Security Documents to which the Company is a party. (b) Each of Crestfield Cotton, FCC Canada, Encee, Fieldcrest International and St. Mary's hereby acknowledges the provisions of this Amendment and hereby reaffirms its absolute and unconditional guaranty of the Company's payment and performance of the Lender Obligations to the Banks as more fully described in the Guaranty to which such Person is a party. Each of Crestfield Cotton and FCC Canada hereby confirms that its obligations under the Guaranty to which it is a party are and remain secured pursuant to the Security Documents to which it is a party. (section mark)5. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and warrants to the Lenders as follows: (a) Representations and Warranties. The representations and warranties contained in (section mark)6 of the Credit Agreement were true and correct in all material respects when made. The representations and warranties contained in (section mark)6 of the Credit Agreement, as amended hereby, are true and correct on the date hereof. (b) Enforceability. The execution and delivery by the Company of this Amendment and all other instruments and agreements required to be executed and delivered by the Company in connection with the transactions contemplated hereby or referred to herein (collectively, the "Amendment Documents"), and the performance by the Company of the Amendment Documents and the Credit Agreement, as amended hereby, are within the corporate powers of the Company and have been duly authorized by all necessary corporate action on the part of the Company. Each of the Amendment Documents and the Credit Agreement, as amended hereby, are valid and legally binding obligations of the Company, enforceable in accordance with their terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditors' rights in general. (c) No Default. No Default or Event of Default has occurred and is continuing and no Default or Event of Default will exist after the execution and delivery of this Amendment or after the consummation of the transactions contemplated hereby. (section mark)6. EFFECTIVENESS. This Amendment shall become effective as of the date hereof upon satisfaction of each of the conditions precedent set forth in this (section mark)6: (a) Delivery. The Company, the Lenders and the guarantors referred to in (section mark)3(b) hereof shall have executed and delivered this Amendment. (b) Restated A Notes. The Company shall have duly authorized, executed and delivered to each of the Lenders a restated A Note in substantially the form of Exhibit A attached hereto (collectively, the "Restated A Notes"), with appropriate insertions, one Restated A Note being payable to the order of each Lender in a principal amount equal to such Lender's Commitment as amended hereby. (c) Subsidiary Documents. Fieldcrest Financing shall have duly authorized, 27 executed and delivered to the Lenders and the Agent, as applicable, the Fieldcrest Financing Guaranty and the Fieldcrest Financing Security Agreement. Fieldcrest Licensing shall have duly authorized, executed and delivered to the Lenders and the Agent, as applicable, the Fieldcrest Licensing Guaranty, the Fieldcrest Licensing Security Agreement and the Fieldcrest Licensing Trademark Assignment. Fieldcrest Transportation shall have duly authorized, executed and delivered to the Lender and the Agent, the Fieldcrest Transportation Guaranty and the Fieldcrest Transportation Security Agreement. Encee shall have duly authorized, executed and delivered to the Lender and the Agent, the Encee Security Agreement. (d) Pledged Stock and Intercompany Notes. The Company shall have delivered to the Agent in pledge, for the benefit of the Agent and the Lenders, (i) certificates for all shares of the capital stock of Fieldcrest Financing and Fieldcrest Transportation, together with stock powers duly executed by the Company in blank and (ii) all promissory notes executed and delivered by any of Fieldcrest Financing, Fieldcrest Licensing and Fieldcrest Transportation (collectively, the "New Subsidiaries") on or prior to the date hereof in favor of the Company, endorsed in favor of the Agent. Fieldcrest Financing shall have delivered to the Agent in pledge, for the benefit of the Agent and the Lenders, (i) certificates for all shares of the capital stock of Fieldcrest Licensing, together with stock powers duly executed by Fieldcrest Financing in blank, and (ii) all promissory notes executed and delivered by Fieldcrest Licensing and the Company on or prior to the date hereof in favor of Fieldcrest Financing, endorsed in favor of the Agent. (e) Validity of Liens. The Security Documents to which each of the New Subsidiaries and Encee is a party shall be effective to create in favor of the Agent a legal, valid and enforceable first security interest in and lien upon the Collateral described therein. All filings, recordings, deliveries of instruments and other actions necessary or desirable in the opinion of the Agent to protect and preserve such security interests shall have been duly effected. The Agent shall have received evidence thereof in form and substance satisfactory to the Agent. (f) Perfection Certificates and UCC Search Results. The Agent shall have received from each of the New Subsidiaries and Encee a completed and fully executed Perfection Certificate and the results of UCC searches with respect to the Collateral, indicating no liens other than Permitted Liens and otherwise in form and substance satisfactory to the Agent. (g) Certified Copies of Corporate Documents. Each of the Lenders shall have received from each of New Subsidiaries and Encee a copy, certified by a duly authorized officer of such Person to be true and complete on the date hereof, of each of (i) its charter or other incorporation documents as in effect on such date of certification, and (ii) its by-laws as in effect on such date. (h) Corporate, Action. All corporate action necessary for the valid execution, delivery and performance by each of the New Subsidiaries and Encee of the Loan Documents to which it is or is to become a party shall have been duly and effectively taken, and evidence thereof satisfactory to the Lenders shall have been provided to each of the Lenders. 28 (i) Incumbency Certificates. Each of the Lenders shall have received from each of the New Subsidiaries and Encee an incumbency certificate, dated as of the date hereof, signed by a duly authorized officer of such Subsidiary, and giving the name and bearing a specimen signature of each individual who shall be authorized: (i) to sign, in the name and on behalf of each of such Subsidiary, each of the Loan Documents to which such Subsidiary is or is to become a party; and (ii) to give notices and to take other action on its behalf under the Loan Documents to which it is a party. (j) Certificates of Insurance. The Agent shall have received (i) a certificate of insurance from an independent insurance broker dated as of the date hereof, identifying insurers, types of insurance, insurance limits, and policy terms, and otherwise describing the insurance obtained in accordance with the provisions of the Security Documents to which the New Subsidiaries and Encee are parties and (ii) certified copies of all policies evidencing such insurance (or certificates therefore signed by the insurer or an agent authorized to bind the insurer). (k) Opinion of Counsel. Each of the Lenders and the Agent shall have received a favorable legal opinion addressed to the Lenders and the Agent, dated as of the date hereof, in form and substance satisfactory to the Lenders and the Agent, from M.K. Doss, general counsel to the Company and its Subsidiaries. (l) Payment of Fees. The Company shall have paid to each of the Lenders an amendment fee equal to $5,000 per Lender. (m) Proceedings and Documents. All proceedings in connection with the transactions contemplated by this Amendment and all documents incident hereto shall be satisfactory in form and substance to the Agent, and the Agent shall have received all information and such counterpart originals or certified or other copies of such documents as the Agent may reasonably request. (section mark)7. CONCERNING THE RESTATED A NOTES. The parties hereto hereby agree that from and after the delivery by the Company of the Restated A Notes to the Lenders, such Restated A Notes shall constitute the A Notes referred to in the Loan Documents. Promptly upon the delivery to the Lenders of the Restated A Notes, the Lenders shall return the superseded A Notes to the Company. (section mark)8. MISCELLANEOUS PROVISIONS. (a) Except as otherwise expressly provided by this Amendment, all of the terms, conditions and provisions of the Credit Agreement shall remain the same. It is declared and agreed by each of the parties hereto that the Credit Agreement, as amended hereby, shall continue in full force and effect, and that this Amendment and such Credit Agreement shall be read and construed as one instrument. The consent granted hereunder is limited to the specific matters referred to herein and the Lenders shall not have any obligation to issue any further consent with respect to the subject matter of this consent or any other matter. (b) This Amendment is intended to take effect as an agreement under seal and shall be construed according to and governed by the laws of the Commonwealth of 29 Massachusetts. (c) This Amendment may be executed in any number of counterparts, but all such counterparts shall together constitute but one instrument. In making proof of this Amendment it shall not be necessary to produce or account for more than one counterpart signed by each party hereto by and against which enforcement hereof is sought. (d) The Company hereby agrees to pay to the Agent, on demand by the Agent, all reasonable out-of-pocket costs and expenses incurred or sustained by the Agent in connection with the preparation of this Amendment and the documents referred to herein (including reasonable legal fees). 30 IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written. FIELDCREST CANNON, INC. By:/s/ T. R. Staab Title: Vice President and Chief Financial Officer THE FIRST NATIONAL BANK OF BOSTON, as Agent By:/s/ Mitchell B. Feldman Title: Director THE FIRST NATIONAL BANK OF BOSTON By:/s/ Mitchell B. Feldman Title: Director BANK OF AMERICA ILLINOIS, individually and as Lead Manager By:/s/ Wayne H. Riess Title: Vice President CORESTATES BANK, N.A., individually and as Lead Manager By:/s/ James P. Richards Title: Vice President 31 FIRST UNION NATIONAL BANK OF NORTH CAROLINA, individually and as Lead Manager By:/s/ Richard J. Rizzo, Jr. Title: Vice President BANK OF MONTREAL By:/s/ Michael J. Love Title: Director MELLON BANK, N. A. By:/s/ Frederick W. Okie, Jr. Title: Vice President Each of the undersigned joins in this Amendment for purposes of (section mark)3(b) hereof. CRESTFIELD COTTON COMPANY By:/s/ T. R. Staab Title: Vice President FCC CANADA, INC. By:/s/ T. R. Staab Title: Vice President ENCEE, INC. By:/s/ T. R. Staab Title: Vice President and Treasurer 32 FIELDCREST CANNON INTERNATIONAL, INC. By:/s/ T. R. Staab Title: Vice President and Treasurer ST. MARY'S, INC. By:/s/ T. R. Staab Title: Vice President and Treasurer 33 EX-4 4 EXHIBIT 4.7 THIRD AMENDMENT to THIRD AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT dated as of March 10, 1994 This THIRD AMENDMENT (the "Amendment"), dated as of January 27, 1995, is by and among FIELDCREST CANNON, INC., a Delaware corporation (the "Company"), the lenders listed on the signature pages hereto (the "Lenders"), BANK OF AMERICA ILLINOIS (formerly known as Continental Bank N.A.), CORESTATES BANK, N.A. (formerly known as Philadelphia National Bank) and FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as lead managers for the Lenders (collectively, the "Lead Managers"), and THE FIRST NATIONAL BANK OF BOSTON, as agent for the Lenders (the "Agent"). WHEREAS, the Company, the Lenders, the Lead Managers and the Agent are parties to that certain Third Amended and Restated Revolving Credit Agreement, dated as of March 10, 1994, as amended (as so amended, the "Credit Agreement"); and WHEREAS, the Company, the Lenders, the Lead Managers and the Agent have agreed, subject to the terms and conditions set forth herein, to amend certain provisions of the Credit Agreement as set forth herein; NOW, THEREFORE, the parties hereto hereby agree as follows: (section mark)1. CERTAIN DEFINED TERMS. Capitalized terms which are used herein without definition and which are defined in the Credit Agreement shall have the same meanings herein as in the Credit Agreement. (section mark)2. AMENDMENT TO CREDIT AGREEMENT. (a) Section 1 of the Credit Agreement is hereby amended by adding the following new definitions in the appropriate places in the alphabetical sequence thereof: Assignment of Acquisition Documents. The collateral assignment of all of the Company's and Fieldcrest Sure Fit's right, title and interest to and under the Sure Fit Acquisition Documents, in form and substance satisfactory to the Lenders. Fieldcrest Sure Fit. Fieldcrest Cannon Sure Fit, Inc., a Delaware corporation and wholly-owned Subsidiary of the Company. Fieldcrest Sure Fit Guaranty. The Guaranty, dated as of January 27, 1995, from Fieldcrest Sure Fit to the Lenders and the Agent and satisfactory to the Lenders and the Agent in all respects, as the same may be amended and in effect from time to time. 34 Fieldcrest Sure Fit Security Agreement. The Security Agreement, dated as of January 27, 1995, between Fieldcrest Sure Fit and the Agent, for the benefit of the Lenders and the Agent, and satisfactory to the Lenders and the Agent in all respects, as the same may be amended and in effect from time to time. Purchase Agreement. The Asset Purchase Agreement dated as of January 20, 1995 by and among the Company, UTC Holdings, Inc. and Bank of America Illinois, including all exhibits and schedules thereto and any amendments thereto delivered to the Agent prior to January 27, 1995, and assigned by the Company to Fieldcrest Sure Fit pursuant to the Assignment and Assumption of Purchase Agreement dated as of January 20, 1995 by and between the Company and Fieldcrest Sure Fit. Secured Guarantors. FCC Canada, Crestfield Cotton, Encee, Fieldcrest Financing, Fieldcrest Licensing, Fieldcrest Transportation and Fieldcrest Sure Fit. Sure Fit Acquisition. The acquisition by Fieldcrest Sure Fit, pursuant to the Sure Fit Acquisition Documents of certain of the properties and assets used by UTC Holdings, Inc. to conduct its business of manufacturing home furniture covers. Sure Fit Acquisition Documents. The Purchase Agreement and all other agreements and documents required to be entered into or delivered pursuant to the Purchase Agreement or in connection with the Sure Fit Acquisition. (b) Section 1 of the Credit Agreement is hereby further amended by deleting the definitions of Collateral, Revolving Credit Commitment Amount, and Security Documents in their entirety, and substituting therefor the following: Accounts Receivable. All rights (provided, however, that "bill and hold" items as reflected on the Company's and each of the Secured Guarantors' books and records would be included only to the extent of 87.5% thereof and "price load" items as reflected on the Company's and each of the Secured Guarantors' books and records would be eliminated in their entirety) to payment for goods sold or for services rendered, in each case in the ordinary course of business by or owing to the Company or any of the Secured Guarantors which in accordance with Generally Accepted Accounting Principles are properly classified as accounts receivable; provided, however, that such rights would be included only if: (i) they are good and collectible and not subject to setoff, claims by the account debtor or other offset of any kind all as determined by the Company or such Secured Guarantor, as applicable, in accordance with established practices consistently applied; 35 (ii) they are payable and outstanding not more than thirty (30) days after the date on which payment is required to be made in accordance with established practices consistently applied; and (iii) they are rights in which the Agent has a valid and perfected first priority security interest (unless such security interest has been released by the Agent pursuant to (section mark)5(i) hereof). In no event shall there be included in Accounts Receivable any rights to payment arising from any source or under any circumstances other than those specified above in this definition. The Company and each of the Secured Guarantors specifically acknowledges that the receivables carried on its books as the following do not constitute Accounts Receivable: (A) "other receivables consisting of product liability and property tax amounts", (B) "master notes", representing amounts due from finance companies, (C) "trade note receivables", representing monies due from delinquent accounts set up on extended payment term notes, and (D) "other receivables" or "miscellaneous receivables", representing, but not limited to, unbilled storage, vendor receivables and miscellaneous non-trade sales. Collateral. All of the property, rights and interests of the Company, FCC Canada, Crestfield Cotton, Encee, Fieldcrest Financing, Fieldcrest Licensing, Fieldcrest Transportation and Fieldcrest Sure Fit that are or are intended to be subject to the security interests created by the Security Documents. Net Security Value of Inventory. The net value of inventory of the Company and the Secured Guarantors (but excluding (i) inventory of the Company or any of the Secured Guarantors which is not located within the United States of America, (ii) inventory as to which appropriate Uniform Commercial Code financing statements showing the Company or a Secured Guarantor as debtor and the Agent as secured party have not been filed in the proper filing office or offices in order to perfect the Agent's security interest therein (unless such security interests have been released by the Agent pursuant to (section mark)5(i) hereof), (iii) inventory of the Company or any of the Secured Guarantors which is held by the Company or such Secured Guarantor on property (other than retail stores) leased by the Company or such Secured Guarantor unless the Agent has received (A) a waiver from the lessor of such leased property and, if any, any sublessor thereof, in form and substance satisfactory to the Agent or (B) evidence satisfactory to the Agent that no such waiver is required to assure the priority of the Agent's lien on such inventory over any interest of such lessor or sublessor in such inventory, and (iv) inventory which has been shipped to a customer of the Company or such Secured Guarantor on a consignment basis) at standard cost as determined utilizing the "First-in First-out" method of accounting as reflected on the Company's or such Secured Guarantor's books and records in accordance with established practices consistently applied, less 50% of "work-in-process" as reflected in the Company's or such Secured Guarantor's books and records, and less 100% of each of (x) the amount included therein classified as "expense supplies", (y) "markdown reserve inventory" and (z) "manufacturing supplies", in each case as reflected on the Company's or such Secured Guarantor's books and records, but in no event an amount greater than $225,000,000. 36 Revolving Credit Commitment Amount. $195,000,000, less the aggregate amount, if any, by which the same has been reduced pursuant to (section mark)2.4 hereof. Security Documents. The Security Agreement, the Crestfield Cotton Guaranty, the FCC Canada Guaranty, the Subsidiary Guaranty, the Fieldcrest Financing Guaranty, the Fieldcrest Licensing Guaranty, the Fieldcrest Transportation Guaranty, the Fieldcrest Sure Fit Guaranty, the Crestfield Cotton Security Agreement, the Subsidiary Security Agreement, the Encee Security Agreement, the Fieldcrest Financing Security Agreement, the Fieldcrest Licensing Security Agreement, the Fieldcrest Transportation Security Agreement, the Fieldcrest Sure Fit Security Agreement, the Assignment of Acquisition Documents, the Trademark Assignment, the Fieldcrest Licensing Trademark Assignment and the Agency Agreements, and any and all instruments and documents required to be delivered pursuant thereto, in each case as originally executed, or if amended, restated, modified or supplemented, as so amended, restated, modified or supplemented. (c) Section 5 of the Credit Agreement is hereby amended by designating clause (h) thereof as clause (i) and inserting after clause (g) thereof the following new clause: (h) The Lender Obligations shall also be guaranteed by Fieldcrest Sure Fit pursuant to the Fieldcrest Sure Fit Guaranty. The obligations of Fieldcrest Sure Fit under the Fieldcrest Sure Fit Guaranty shall be secured by a first lien on certain assets of Fieldcrest Sure Fit, whether now owned or hereafter acquired by Fieldcrest Sure Fit, pursuant to the terms of the Security Documents to which Fieldcrest Sure Fit is a party. (d) Section 6.7 of the Credit Agreement is hereby amended by deleting the first sentence thereof in its entirety, and substituting therefor the following: Except for the assets of the Company and its Subsidiaries which are held for sale on the Effective Date (as disclosed to the Lenders prior to the Effective Date), the Company and its Subsidiaries are engaged exclusively in the design, manufacture and marketing of blankets, throws, bedspreads, sheets, comforters, towels, bath rugs, shower curtains, bed accessories, bath accessories, furniture throws, casual slipcovers, traditional slipcovers and coordinated accessories, kitchen textile products, sales yarn, greige goods, finished goods, promotional textile products and material handling and storage products and commission finishing of textile goods and in the operation of retail stores with respect to the foregoing and other businesses directly related thereto. (e) Section 6 of the Credit Agreement is further amended by inserting the following new subsection: (section mark)6.25. Sure Fit Acquisition Documents. The Company has heretofore furnished to the Agent true, complete and correct copies of the Sure Fit Acquisition Documents (including schedules, exhibits and annexes thereto). None of the Sure Fit Acquisition Documents has subsequently been amended, supplemented, or modified (other than the amendments to the Purchase Agreement delivered to the 37 Agent on or prior to January 27, 1995) and constitute the complete understanding among the parties thereto in respect to the matters and transactions covered thereby. The representations and warranties of the Seller (as defined in the Purchase Agreement), the Company and Fieldcrest Sure Fit contained in each of the Sure Fit Acquisition Documents were true and correct in all material respects when made and the Agent may rely on such representations and warranties as if they were incorporated herein. (f) Section 7.3 of the Credit Agreement is hereby amended by deleting the text of such section in its entirety, and substituting therefor the following: The Company shall use the proceeds of the Loans and obtain Letters of Credit solely for general corporate purposes and to finance the Sure Fit Acquisition, provided that the portion of such proceeds used to finance the Sure Fit Acquisition shall not exceed $30,000,000 in the aggregate. (g) Section 8.3(d) of the Credit Agreement is hereby amended by deleting the text of such section in its entirety, and substituting therefor the following: (d) Investments existing on the Effective Date in any Person which is a Subsidiary of the Company or future Investments in any such Person, provided that any such future Investments shall be limited to loans to a Subsidiary evidenced by a promissory note of such Subsidiary, that the aggregate of such future Investments at any one time shall not exceed $20,000,000, except that loans to any of the Secured Guarantors shall not be subject to such dollar limitation, and that such promissory note shall be pledged to the Agent on behalf of the Lenders and, provided, further, that the sum of the aggregate principal amount of Indebtedness of Amoskeag to the Company under (section mark)8.1(g) hereof plus, without duplication, the aggregate amount of Investments made by the Company in Amoskeag pursuant to (section mark)(section mark)8.3(d) and (h) hereof shall not exceed $5,000,000 at any time; (h) Section 8.6 of the Credit Agreement is hereby amended by inserting in the fourth line thereof after the words "(other than the acquisition of assets in the ordinary course of business) except" the clause "(A) the Sure Fit Acquisition and (B)". (i) Schedule 1.1 to the Credit Agreement is hereby amended by deleting such schedule in its entirety, and substituting therefor the Schedule 1.1 attached hereto. (j) Schedule 6.1 to the Credit Agreement is hereby amended by deleting such schedule in its entirety, and substituting therefor the Schedule 6.1 attached hereto. (section mark)3. CONSENT. The Lenders hereby consent to the assignment by the Company, on or prior to the date hereof, of the Purchase Agreement and each of the other Sure Fit Acquisition Documents to Fieldcrest Sure Fit, pursuant to the terms of the Credit Agreement, as amended hereby, including without limitation the condition that all assets constituting Collateral which are transferred to Fieldcrest Sure Fit are and shall remain subject to the first priority security interest of the Agent, for the benefit of the Lenders and the Agent, granted pursuant to the Security Documents. The Lenders further consent to the assignment by 38 Fieldcrest Sure Fit, on or prior to the date hereof, of the trademarks and trademark applications transferred to Fieldcrest Sure Fit pursuant to the Sure Fit Acquisition Documents to Fieldcrest Licensing, pursuant to the terms of the Assignment of Trademarks dated as of January 20, 1995 by and between Fieldcrest Sure Fit and Fieldcrest Licensing and the terms of the Credit Agreement, as amended hereby, including without limitation the condition that all assets constituting Collateral which are transferred to Fieldcrest Licensing are and shall remain subject to the first priority security interest of the Agent, for the benefit of the Lenders and the Agent, granted pursuant to the Security Documents. (section mark)4. AFFIRMATION BY THE COMPANY AND THE GUARANTORS. (a) The Company hereby ratifies and confirms all of the Lender Obligations, including, without limitation, the Loans, and the Company hereby affirms its absolute and unconditional promise to pay to the Lenders the Loans and all other amounts due under the Credit Agreement as amended hereby. The Company hereby confirms that the Lender Obligations are and remain secured pursuant to the Security Documents to which the Company is a party. (b) Each of Crestfield Cotton, FCC Canada, Encee, Fieldcrest International, St. Mary's, Fieldcrest Transportation, Fieldcrest Financing and Fieldcrest Licensing hereby acknowledges the provisions of this Amendment and hereby reaffirms its absolute and unconditional guaranty of the Company's payment and performance of the Lender Obligations to the Banks as more fully described in the Guaranty to which such Person is a party. Each of Crestfield Cotton, FCC Canada, Encee, Fieldcrest Transportation, Fieldcrest Financing and Fieldcrest Licensing hereby confirms that its obligations under the Guaranty to which it is a party are and remain secured pursuant to the Security Documents to which it is a party. (section mark)5. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and warrants to the Lenders as follows: (a) Representations and Warranties. The representations and warranties contained in (section mark)6 of the Credit Agreement were true and correct in all material respects when made. The representations and warranties contained in (section mark)6 of the Credit Agreement, as amended hereby, are true and correct on the date hereof. (b) Enforceability. The execution and delivery by the Company of this Amendment and all other instruments and agreements required to be executed and delivered by the Company in connection with the transactions contemplated hereby or referred to herein (collectively, the "Amendment Documents"), and the performance by the Company of the Amendment Documents and the Credit Agreement, as amended hereby, are within the corporate powers of the Company and have been duly authorized by all necessary corporate action on the part of the Company. Each of the Amendment Documents and the Credit Agreement, as amended hereby, are valid and legally binding obligations of the Company, enforceable in accordance with their terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditors' rights in general. 39 (c) No Default. No Default or Event of Default has occurred and is continuing and no Default or Event of Default will exist after the execution and delivery of this Amendment or after the consummation of the transactions contemplated hereby. (section mark)6. EFFECTIVENESS. This Amendment shall become effective as of the date hereof upon satisfaction of each of the conditions precedent set forth in this (section mark)6: (a) Delivery. The Company, the Lenders and the guarantors referred to in (section mark)3(b) hereof shall have executed and delivered this Amendment. (b) Restated A Notes. The Company shall have duly authorized, executed and delivered to each of the Lenders a restated A Note in substantially the form of Exhibit A attached hereto (collectively, the "Restated A Notes"), with appropriate insertions, one Restated A Note being payable to the order of each Lender in a principal amount equal to such Lender's Commitment as amended hereby. (c) Fieldcrest Sure Fit Documents. (i) Fieldcrest Sure Fit shall have duly authorized, executed and delivered to the Lenders and the Agent, as applicable, the Fieldcrest Sure Fit Guaranty and the Fieldcrest Sure Fit Security Agreement. (ii) Each of Fieldcrest Sure Fit and the Company shall have executed and delivered the Assignment of Acquisition Documents and the Seller (as defined in the Purchase Agreement) shall have consented thereto. (d) Pledged Stock and Intercompany Notes. The Company shall have delivered to the Agent in pledge, for the benefit of the Agent and the Lenders, (i) certificates for all shares of the capital stock of Fieldcrest Sure Fit, together with stock powers duly executed by the Company in blank and (ii) all promissory notes executed and delivered by Fieldcrest Sure Fit on or prior to the date hereof in favor of the Company, endorsed in favor of the Agent. (e) Consummation of Sure Fit Acquisition; Sure Fit Acquisition Documents. The Sure Fit Acquisition shall have been duly consummated on the Closing Date in all materials respects in accordance with the Sure Fit Acquisition Documents, and after giving effect thereto, Fieldcrest Sure Fit shall own the assets conveyed to it therein free and clear of all liens, security interests and encumbrances (other than as permitted under the Credit Agreement). The purchase price of the assets acquired pursuant to the Sure Fit Acquisition shall not exceed $30,000,000 in the aggregate. The Company shall have furnished to the Agent true, correct and complete copies of the Sure Fit Acquisition Documents. (f) Consents, Etc. The Agent shall have received from the Company and Fieldcrest Sure Fit evidence satisfactory to the Agent that all necessary third party consents, approvals, authorizations, declarations or filings including, to the extent needed, filings under the Hart-Scott- Rodino Antitrust Improvements Act, and consents and approvals of any creditors of the Company shall have been obtained or made. (g) Validity of Liens. The Security Documents to which Fieldcrest Sure Fit is a party shall be effective to create in favor of the Agent, for the benefit of itself and the 40 Lenders, a legal, valid and enforceable first security interest in and lien upon the Collateral described therein. All filings, recordings, deliveries of instruments and other actions necessary or desirable in the opinion of the Agent to protect and preserve such security interests shall have been duly effected The Agent shall have received evidence thereof in form and substance satisfactory to the Agent. (h) Perfection Certificates and UCC Search Results. The Agent shall have received from Fieldcrest Sure Fit a completed and fully executed Perfection Certificate and the results of UCC searches with respect to the Collateral, indicating no liens other than Permitted Liens and otherwise in form and substance satisfactory to the Agent. (i) Certified Copies of Corporate Documents. Each of the Lenders shall have received from Fieldcrest Sure Fit a copy, certified by a duly authorized officer of such Person to be true and complete on the date hereof, of each of (i) its charter or other incorporation documents as in effect on such date of certification, and (ii) its by-laws as in effect on such date. (j) Corporate Action. All corporate action necessary for the valid execution, delivery and performance by each of the Company and Fieldcrest Sure Fit of the Loan Documents and the Sure Fit Acquisition Documents to which it is or is to become a party shall have been duly and effectively taken, and evidence thereof satisfactory to the Lenders shall have been provided to each of the Lenders. (k) Incumbency Certificate. Each of the Lenders shall have received from Fieldcrest Sure Fit an incumbency certificate, dated as of the date hereof, signed by a duly authorized officer of Fieldcrest Sure Fit, and giving the name and bearing a specimen signature of each individual who shall be authorized: (i) to sign, in the name and on behalf of each of Fieldcrest Sure Fit, each of the Loan Documents and the Sure Fit Acquisition Documents to which Fieldcrest Sure Fit is or is to become a party; and (ii) to give notices and to take other action on its behalf under the Loan Documents to which it is a party. (l) Certificates of Insurance. The Agent shall have received (i) a certificate of insurance from an independent insurance broker dated as of the date hereof, identifying insurers, types of insurance, insurance limits, and policy terms, and otherwise describing the insurance obtained in accordance with the provisions of the Security Documents to which Fieldcrest Sure Fit is a party and (ii) certified copies of all policies evidencing such insurance (or certificates therefore signed by the insurer or an agent authorized to bind the insurer). (m) Opinions of Counsel. Each of the Lenders and the Agent shall have received a favorable legal opinion addressed to the Lenders and the Agent, dated as of the date hereof, in form and substance satisfactory to the Lenders and the Agent, from M.K. Doss, general counsel to the Company and its Subsidiaries. Each of the Lenders and the Agent shall have received copies of the legal opinions delivered pursuant to the Sure Fit Acquisition Documents, each providing that the Lenders and the Agent may rely on such opinion. 41 (n) Proceedings and Documents. All proceedings in connection with the transactions contemplated by this Amendment and all documents incident hereto shall be satisfactory in form and substance to the Agent, and the Agent shall have received all information and such counterpart originals or certified or other copies of such documents as the Agent may reasonably request. (section mark)7. CONCERNING THE RESTATED A NOTES. The parties hereto hereby agree that from and after the delivery by the Company of the Restated A Notes to the Lenders, such Restated A Notes shall constitute the A Notes referred to in the Loan Documents. Promptly upon the delivery to the Lenders of the Restated A Notes, the Lenders shall return the superseded Restated A Notes to the Company. (section mark)8. MISCELLANEOUS PROVISIONS. (a) Except as otherwise expressly provided by this Amendment, all of the terms, conditions and provisions of the Credit Agreement shall remain the same. It is declared and agreed by each of the parties hereto that the Credit Agreement, as amended hereby, shall continue in full force and effect, and that this Amendment and such Credit Agreement shall be read and construed as one instrument. The consent granted hereunder is limited to the specific matters referred to herein and the Lenders shall not have any obligation to issue any further consent with respect to the subject matter of this consent or any other matter. (b) This Amendment is intended to take effect as an agreement under seal and shall be construed according to and governed by the laws of the Commonwealth of Massachusetts. (c) This Amendment may be executed in any number of counterparts, but all such counterparts shall together constitute but one instrument. In making proof of this Amendment it shall not be necessary to produce or account for more than one counterpart signed by each party hereto by and against which enforcement hereof is sought. (d) The Company hereby agrees to pay to the Agent, on demand by the Agent, all reasonable out-of-pocket costs and expenses incurred or sustained by the Agent in connection with the preparation of this Amendment and the documents referred to herein (including reasonable legal fees). 42 IN WITNESS WHEREOF, the parties have executed this Third Amendment as of the date first above written. FIELDCREST CANNON, INC. By:/s/ T. R. Staab Title: Vice President and Chief Financial Officer THE FIRST NATIONAL BANK OF BOSTON, as Agent By:/s/ Mitchell B. Feldman Title: Director THE FIRST NATIONAL BANK OF BOSTON By:/s/ Mitchell B. Feldman Title: Director BANK OF AMERICA ILLINOIS, individually and as Lead Manager By:/s/ Wayne H. Riess Title: Vice President CORESTATES BANK, N. A., individually and as Lead Manager By: /s/ James P. Richard Title: Vice President 43 FIRST UNION NATIONAL BANK OF NORTH CAROLINA, individually and as Lead Manager By:/s/ Richard J. Rizzo, Jr. Title: Vice President BANK OF MONTREAL By:/s/ Michael J. Love Title: MELLON BANK, N. A. By:/s/ Frederick W. Okie, Jr. Title: Vice President Each of the undersigned joins in this Third Amendment for purposes of (section mark)3(b) hereof. CRESTFIELD COTTON COMPANY By:/s/ T. R. Staab Title: Vice President FCC CANADA, INC. By:/s/ T. R. Staab Title: Vice President 44 ENCEE, INC. By:/s/ T. R. Staab Title: Vice President and Treasurer FIELDCREST CANNON INTERNATIONAL, INC. By:/s/ T. R. Staab Title: Vice President and Treasurer ST. MARY'S, INC. By:/s/ T. R. Staab Title: Vice President and Treasurer FIELDCREST CANNON TRANSPORTATION, INC. By:/s/ T. R. Staab Title: President FIELDCREST CANNON LICENSING, INC. By:/s/ John E. Setliff, Jr. Title: Vice President FIELDCREST CANNON FINANCING, INC. By:/s/ John E. Setliff, Jr. Title: Vice President 45 EX-11 5 EXHIBIT 11 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 1994 1993 1994 1993 Average shares outstanding 8,727,971 10,665,320 8,677,811 11,709,355 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 16,212 20,779 18,204 23,150 Average shares and equivalents outstanding, primary 8,744,183 10,686,099 8,696,015 11,732,505 Average shares outstanding 8,727,971 10,665,320 8,677,811 11,709,355 Add shares giving effect to the conversion of the convertible subordinated debentures 2,824,859 2,824,859 2,824,859 (1) Add shares giving effect to the conversion of the convertible preferred stock 2,564,103 1,054,131 2,564,103 (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 16,212 20,111 19,132 23,921 Average shares and equivalents outstanding, assuming full dilution 14,133,145 14,564,421 14,085,905 11,733,276 Primary Earnings Income from continuing operations before extraordinary charge and accounting changes $10,089,000 $ 8,670,000 $30,745,000 $14,966,000 Income from discontinued operations - - - 3,201,000 Gain from disposition of discontinued operations - - - 9,207,000 Cumulative effect of accounting changes - - - (70,305,000) Net income (loss) $10,089,000 $ 8,670,000 $30,745,000 $(42,931,000) Preferred dividends (1,125,000) (463,000) (4,500,000) (463,000) Earnings (loss) on Common $ 8,964,000 $ 8,207,000 $26,245,000 $(43,394,000) Page 46 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 1994 1993 1994 1993 Primary earnings (loss) per share Income from continuing operations before extraordinary charge and accounting changes $ 1.03 $ .77 $ 3.02 $ 1.24 Income from discontinued operations - - - .27 Gain from disposition of discontinued operations - - - .78 Cumulative effect of accounting changes - - - (5.99) Net income (loss) $ 1.03 $ .77 $ 3.02 $ (3.70) Fully Diluted Earnings Income from continuing operations before extraordinary charge and accounting change $ 8,964,000 $8,207,000 $26,245,000 $ 14,503,000 Add convertible subordinated debenture interest, net of taxes 1,144,000 1,144,000 4,575,000 (1) Add convertible preferred dividends 1,125,000 463,000 4,500,000 (1) Income from continuing operations before and accounting changes as adjusted 11,233,000 9,814,000 35,320,000 14,503,000 Income from discontinued operations - - - 3,201,000 Gain from disposition of discontinued operations - - - 9,207,000 Cumulative effect of accounting changes - - - (70,305,000) Net income (loss) $11,233,000 $9,814,000 $35,320,000 $(43,394,000) Page 47 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 1994 1993 1994 1993 Fully diluted earnings (loss) per share Income before accounting change $ .80 $ .67 2.51 $ (2) Cumulative effect of accounting change - - - (2) Net income (loss) $ .80 $ .67 2.51 $ (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 is not presented as effects are anti-dilutive. Page 48 EX-13 6 EXHIBIT 13 Results of operations Fieldcrest Cannon, Inc. Management's discussion and analysis 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). [CAPTION]
1994 1993 1992 Amount Percent Amount Percent Amount Percent Net Sales $1,063.7 100.0 % $1,000.1 100.0 % $981.8 100.0 % Cost of sales 898.4 84.5 834.7 83.5 818.7 83.4 Selling, general and administrative 94.8 8.9 101.8 10.2 102.2 10.4 Restructuring charges -- -- 10.0 1.0 -- -- Operating income 70.5 6.6 53.6 5.3 60.9 6.2 Interest expense 23.3 2.2 27.7 2.7 34.1 3.5 Other (income) expense, net .9 .1 (1.0) (.1) .2 -- Income from continuing operations before income taxes, extraordinary charge and accounting changes 46.3 4.3 26.9 2.7 26.6 2.7 Federal and state income taxes 15.6 1.4 11.9 1.2 10.9 1.1 Income from continuing operations before extraordinary charge and accounting changes $ 30.7 2.9 % $ 15.0 1.5 % $15.7 1.6 %
1994 compared to 1993 Net sales from continuing operations in 1994 increased to $1.063.7 million compared to $1,000.1 million in 1993. The 6.4% increase was due primarily to increased volume and to a lesser extent to price increases implemented during the third quarter of 1994. Increases in raw material and labor costs were not fully recovered by the selling price increases and gross margins declined to 15.5% in 1994 compared to 16.5% in 1993. Additional selling price increases have been announced for 1995 to offset these higher costs and the recent further increases in the cost of cotton, the Company's primary raw material. Selling, general and administrative expenses as a percent of sales decreased from 10.2% in 1993 to 8.9% in 1994. The decrease was due primarily to reduced costs resulting from the voluntary early retirement program implemented in late 1993, lower bad debt expense and a decrease in other selling expenses. Operating income as a percent of sales was 6.6% in 1994 compared to 5.3% in 1993. Operating income was reduced 1.0% in 1993 due to $10 million of restructuring charges (see Note 4 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS). Before the restructuring charges operating income as a percent of sales was 6.3% in 1993. Interest expense decreased $4.4 million in 1994. The reduction of interest expense was primarily due to lower average debt resulting from the reduction of debt with the proceeds from the sale of the carpet and rug division in July 1993. In 1994 the Company allocated $1.6 million of interest costs to the Amoskeag assets held for sale (see Note 3 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS). The effective income tax rate was 33.6% in 1994 compared to 44.3% in 1993. The decrease in the effective income tax rate is due primarily to a $1.7 million favorable settlement of prior years income taxes in 1994 and the unfavorable $1.4 million effect of the federal tax rate increase in 1993. See Note 13 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 19 49 Fieldcrest Cannon, Inc. Management's discussion and analysis Income from continuing operations before accounting changes was $30.7 million or $3.02 per share in 1994 compared to $15.0 million or $1.24 per share in 1993. Income before non-recurring items was $29.0 millon, or $2.82 per share, in 1994 compared to $22.5, or $1.88 per share, in 1993 after excluding the favorable settlements of prior years income taxes of $1.7 million from 1994, and the pre-tax restructuring charge of $10 million and a $1.4 million tax adjustment from 1993. On February 27, 1995 the Company announced a reorganization of its New York operations and the planned relocation during 1995 of the Bed, Bath and Blanket Divisions' administrative, marketing and operations personnel to Kannapolis, N.C. In conjunction with the move, it expects to offer a voluntary early retirement program for all of the Company's eligible salaried employees. The Company expects pre-tax costs in the range of $10 to $12 million, or $.71 to $.85 per share, as a result of these actions. Annual pre-tax savings of $6 to $8 million, or $.47 to $.57 per share, are anticipated. Pre-tax costs of approximately $3 to $4 million, or $.21 to $.28 per share, are expected to be accrued in the first quarter of 1995 and the remaining costs for relocation and the voluntary early retirement program will be incurred later in the year. 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. These expenses did not contribute to the ultimate consummation of the tender offer to acquire Amoskeag Company. The acquisition of Amoskeag Company was accounted for as a purchase of treasury stock and is not expected to effect 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 did not increase 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. 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 13 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. 20 50 Fieldcrest Cannon, Inc. Management's discussion and analysis 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 Company. 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. 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.
(Dollars in thousands) 1994 1993 Cash provided by: Net income (loss) $ 30,745 $ (42,931) Cumulative effect of accounting changes -- 70,305 (Income) from discontinued operations -- (12,408) Depreciation and amortization 29,828 31,539 Deferred income taxes 7,677 2,329 Working capital, excluding effects of disposition of discontinued operations (19,719) (20,764) Other (8,178) 1,726 Financing activities 11,781 (119,309) Total cash provided (used) 52,134 (89,513) Cash used for: Additions to plant and equipment (51,929) (21,594) Acquisition of net assets held for sale -- (32,536) Sale of plant and equipment 1,815 12,621 Total cash (used) (50,114) (41,509) Increase (decrease) in cash from continuing operations 2,020 (131,022) Cash provided by discontinued operations -- 130,222 Increase (decrease) in cash $ 2,020 $ (800)
Working capital requirements increased in 1994 primarily because of a $17.9 million decrease in accounts payable and accrued liabilities, a $5.6 million increase in accounts receivable and a $4.2 million increase in inventories. Working capital requirements increased in 1993 primarily because accounts receivables increased $13.1 million and inventories increased by $10.6 million after excluding the effects of disposition of discontinued operations. On November 24, 1993 the Company completed a tender offer for all of the outstanding shares of Amoskeag Company ("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 were valued at their estimated net realizable value. Total debt as a percent of total capitalization (long-term debt, short-term debt and shareowners' equity) was 58% at December 31, 1994, compared to 61% at the end of 1993. Capital expenditures totalled $51.9 million in 1994 compared to $21.6 million spent in 1993. 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 $3 million in 1994 and $8 million in 1993. Capital expenditures for 1995 are expected to be approximately $50 million. Included in the 1994 expenditures and the 1995 plans are costs of a three-year $90 million capital project for a new weaving plant at the Company's Columbus, Ga./Phenix 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. 21 51 Fieldcrest Cannon, Inc. Management's discussion and analysis Liquidity and capital resources continued On January 27, 1995 the Company purchased the Sure Fit furniture covering business of UTC Holdings, Inc. The purchase price was $26.7 million subject to adjustment for the change in Sure Fit's net assets from November 5, 1994 to December 31, 1994. Sure Fit's 1994 sales are projected to be approximately $55 million and this transaction is expected to increase the Company's earnings per share in 1995. With the acquisition, the Company amended its revolving credit facility to permit the transaction and increased the line from $160 million to $195 million. On December 13, 1994 the Company signed a definitive stock purchase agreement to sell the Bangor and Aroostook Railroad for approximately $24 million of cash and a $4 million note receivable. Proceeds from the anticipated first quarter of 1995 sale will be used to reduce borrowings under the revolving credit facility. The Company's revolving credit facility allows the Company to borrow up to $195 million through January 3, 1998. 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 life of the agreement ending 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 or 1994. At December 31, 1994 the fair market value of the interest rate cap was $.9 million compared to a carrying value of $.3 million. The revolving credit facility is secured by a first lien on substantially all of the Company's accounts receivables and inventories and bears interest, at the Company's option, at the prime rate fixed by The First National Bank of Boston, or at a Euromarket-based rate plus 1%. In March 1994 the revolving credit facility was amended and the previous lien on the Company's plant and equipment was removed. 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, 1994, borrowings under the $160 million revolving term debt agreement totalled $94.2 million and $55.8 million of the facility was available and unused. A letter of credit to secure $10 million of industrial development bonds of the Company reduces the availability under the revolving credit facility by $10 million. Market and dividend data The Company's Common Stock is listed on the New York Stock Exchange (trading symbol: FLD). At December 31, 1994, there were 2,191 shareholders of record of Common Stock. See Note 8 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS regarding restrictions on the payment of dividends. No dividends were paid during the last two years. The high and low sale prices on the New York Stock Exchange composite tape for the last two years were as shown below:
Market price Common Stock Quarter, 1994 High Low 1st $34 3/8 $ 24 1/4 2nd 33 22 1/2 3rd 29 1/8 23 3/4 4th 27 3/4 23 3/8 Quarter, 1993 1st $27 $ 18 1/8 2nd 29 1/8 22 3rd 27 5/8 19 1/2 4th 27 1/2 23 3/4
22 52 Fieldcrest Cannon, Inc. Management's discussion and analysis Quarterly data (Unaudited) Data in millions, except per share information
1994 quarter ended March 31 June 30 Sept. 30 Dec. 31 Net sales $232.3 $254.8 $279.3 $297.3 Gross profit 37.4 40.5 44.2 43.2 Operating income 15.0 16.9 20.1 18.5 Net income 5.5 6.7 8.5 10.0 Primary earnings per share .51 .64 .84 1.03 Fully diluted earnings per share .47 .56 .68 .80 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
The fourth quarter of 1994 includes favorable settlements of prior years income taxes of $1.7 million which increased net income by $1.7 million, or $.19 per common share on a primary basis and $.12 per share on a fully diluted basis. Quarterly earnings per share amounts presented do not equal the annual earnings per share amount for 1993 due to the purchase of treasury shares during 1993. 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. 23 53 Fieldcrest Cannon, Inc. Consolidated statement of income and retained earnings Year ended December 31 Dollars in thousands, except per share data
1994 1993 1992 Net sales $ 1,063,731 $ 1,000,107 $ 981,773 Cost of sales (notes 4, 5) 898,437 834,701 818,729 Selling, general and administrative 94,756 101,843 102,189 Restructuring charges (note 4) -- 10,000 -- Total operating costs and expenses 993,193 946,544 920,918 Operating income 70,538 53,563 60,855 Other deductions Interest expense 23,268 27,659 34,149 (income) Other, net 987 (975) 130 Total other deductions 24,255 26,684 34,279 Income before income taxes 46,283 26,879 26,576 Federal and state income taxes (note 13) 15,538 11,913 10,886 Net income (loss) Income from continuing operations before extraordinary and retained charge and accounting changes 30,745 14,966 15,690 earnings 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) 30,745 (42,931) 15,250 Preferred dividends (4,500) (463) -- Earnings (loss) on common $ 26,245 $ (43,394) $ 15,250 Amount added to (subtracted from) retained earnings 26,245 (43,394) 15,250 Retained earnings, January 1 93,035 136,429 121,179 Retained earnings, December 31 $ 119,280 $ 93,035 $ 136,429 Income (loss) per common Primary from continuing operations before extraordinary share charge and accounting changes $ 3.02 $ 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 $ 3.02 $ (3.70) $ 1.35 Fully diluted before extraordinary charge (note 1) $ 2.51 $ -- $ 1.78 Fully diluted after extraordinary charge and accounting changes (note 1) $ 2.51 $ -- $ -- Average primary shares outstanding 8,696,015 11,732,505 11,256,461 Average fully diluted shares outstanding 14,085,905 11,733,276 14,082,678
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 24 54 Fieldcrest Cannon, Inc. Consolidated statement of financial position At December 31, Dollars in thousands, except per share data
1994 1993 Assets Current assets Cash $ 5,885 $ 3,865 Accounts receivable less allowances of $9,506 in 1994 and $12,161 in 1993, principally trade 170,001 164,419 Inventories (note 5) 213,994 209,834 Net assets held for sale 24,000 32,536 Other prepaid expenses and current assets 3,793 2,491 Total current assets 417,673 413,145 Other assets Plant and equipment, net (notes 6, 9) 314,726 294,277 Deferred charges and other assets 50,266 33,024 Total assets $ 782,665 $ 740,446 Liabilities and shareowners' equity Current liabilities Accounts and drafts payable $ 55,533 $ 61,365 Federal and state income taxes 2,268 262 Deferred income taxes 21,988 14,799 Accrued liabilities (note 7) 53,958 65,996 Current portion of long-term debt 1,465 8,397 Total current liabilities 135,212 150,819 Non-current Senior long-term debt (note 8) 107,744 84,611 liabilities Subordinated long-term debt (note 8) 210,000 210,000 Total long-term debt 317,744 294,611 Deferred income taxes 42,859 35,182 Other non-current liabilities 55,648 66,504 Total non-current liabilities 416,251 396,297 Total liabilities 551,463 547,116 Commitments (notes 9, 11, 12) Shareowners' equity 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 15 Common Stock, $1 par value (note 10) Shares authorized: 25,000,000 Shares issued, 1994: 12,360,252 12,360 12,186 Shares issued, 1993: 12,186,167 Additional paid in capital 216,772 212,799 Minimum pension liability adjustment (note 11) -- (7,480) Retained earnings 119,280 93,035 Excess purchase price for Common Stock acquired and held in treasury -- 3,606,400 shares (117,225) (117,225) Total shareowners' equity 231,202 193,330 Total liabilities and shareowners' equity $ 782,665 $ 740,446
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 25 55 Fieldcrest Cannon, Inc. Consolidated statement of cash flows For the years ended December 31, Dollars in thousands
1994 1993 Cash flows from Increase (decrease) in cash operating activities Net income (loss) $ 30,745 $ (42,931) 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 -- -- Premium paid on early retirement of debt -- -- Income and gain on sale from discontinued operations -- (12,408) Depreciation and amortization 29,828 31,539 Deferred income taxes 7,677 2,329 Other (8,178) 1,726 Change in current assets and liabilities, excluding effects of disposition of discontinued operations: Accounts receivable (5,582) (13,132) Inventories (4,160) (10,637) Current deferred income taxes 7,189 (3,971) Other prepaid expenses and current assets (1,302) 1,638 Accounts payable and accrued liabilities (17,870) 8,700 Federal and state income taxes 2,006 (3,362) Net cash provided by continuing operating activities 40,353 29,796 Cash provided by (used in) discontinued operations -- (17,405) Net cash provided by operating activities 40,353 12,391 Cash flows from Additions to plant and equipment (51,929) (21,594) investing activities Acquisition of net assets held for sale -- (32,536) Proceeds from disposals of plant and equipment 1,815 12,621 Proceeds from disposition of discontinued operations -- 147,627 Net cash provided by (used in) investing activities (50,114) 106,118 Cash flows from Increase (decrease) in revolving debt and other financing activities short-term debt 17,798 (59,899) Proceeds from issuance of other long-term debt 10,000 -- Payments on long-term debt (11,597) (14,811) Proceeds from issuance of common stock 80 339 Purchase of treasury stock -- (117,225) Proceeds from issuance of preferred stock -- 72,375 Dividends paid on preferred stock (4,500) (88) Net cash provided by (used in) financing activities 11,781 (119,309) Net increase Net increase (decrease) in cash 2,020 (800) (decrease) in cash Cash at beginning of year 3,865 4,665 Cash at end of year $ 5,885 $ 3,865 Supplemental disclosures of cash flow information Cash paid during Interest expense $ 23,871 $ 30,163 the year for Income tax payments 5,381 23,239 1992 Cash flows from $ 15,250 operating activities -- 5,179 (5,400) (4,739) 31,370 4,826 (2,348) 10,821 (8,614) (1,699) 1,737 984 3,077 50,444 12,122 62,566 Cash flows from (20,687) investing activities -- 3,955 -- (16,732) Cash flows from (46,684) financing activities 82,450 (111,497) 25,224 -- -- -- (50,507) Net increase (4,673) (decrease) in cash 9,338 $ 4,665 Cash paid during $ 44,266 the year for 5,559
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 26 56 Fieldcrest Cannon, Inc. Notes to consolidated financial statements Tabular amounts in thousands except per share Note 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 1994 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 18.3%, 17.4% and 16.0% of total sales of the Company in 1994, 1993 and 1992, 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 13 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. Note 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. Note 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 was assigned a cost of $117.2 million after an 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. These assets are primarily the Bangor and Aroostook Railroad ("BAR") and certain real estate properties. During 1994 the BAR's operating income of $3 million was excluded from the Company's consolidated income statement and $1.6 million of interest costs of the Company were allocated to the assets held for sale. On December 13, 1994 the Company signed a definitive stock purchase agreement to sell the BAR for approximately $24 million of cash and a $4 million note receivable. 27 57 Fieldcrest Cannon, Inc. Notes to consolidated financial statements Tabular amounts in thousands except per share Note 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 Note 5: Inventories Inventories are valued at the lower of cost or market and consisted of the following at December 31:
1994 1993 Finished goods $ 109,423 $ 110,223 Work in progress 65,375 65,025 Raw materials and supplies 39,196 34,586 Total $ 213,994 $ 209,834
Approximately 74% of the inventories at year-end 1994 and 76% at year-end 1993 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 $40 million and $33 million at December 31, 1994 and 1993, respectively. The LIFO reserve for continuing operations increased $6.8 million and $2.8 million in 1994 and 1993, respectively. Note 6: Plant and equipment Plant and equipment is stated at cost and consisted of the following at December 31:
1994 1993 Land $ 5,796 $ 5,978 Buildings 184,902 181,409 Equipment 378,374 366,333 Plant additions in progress 40,509 18,707 Total 609,581 572,427 Accumulated depreciation (294,855) (278,150) Net plant and equipment $ 314,726 $ 294,277
28 58 Fieldcrest Cannon, Inc. Notes to consolidated financial statements Tabular amounts in thousands except per share Note 7: Accrued liabilities Accrued liabilities were as follows at December 31:
1994 1993 Salaries and other compensation $11,291 $14,177 Pension, medical and other employee benefit plans 18,359 22,058 Advertising expense 1,436 1,987 Interest expense 3,240 3,375 Other 19,632 24,399 Total $53,958 $65,996
Note 8: Debt Long-term debt at December 31 was as follows:
1994 1993 Senior long-term debt: Revolving term debt $ 94,224 $ 76,426 Industrial development bonds, due 2021 10,000 -- Industrial revenue bonds, due in installments through 2002 4,985 11,085 10.5% promissory note, due in installments and repaid in January 1994 -- 5,497 Total senior long-term debt 109,209 93,008 Less current portion 1,465 8,397 Net senior long-term debt 107,744 84,611 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 $ 317,744 $ 294,611
The Company's revolving credit facility allows the Company to borrow up to $160 million through January 3, 1998. Accordingly, borrowings under the revolving credit facility are classified as long-term debt. 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, or at a Euromarket-based rate plus 1%. The average interest rate on the revolving term debt was 7.1% on December 31, 1994. 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, 1994 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 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. At December 31, 1994 the interest rate cap fair market value was $.9 million compared to a carrying value of $.3 million. The fair value was provided by the financial institution that sold the interest rate cap to the Company. The revolving credit facility is secured by a first lien on substantially all of the Company's accounts receivables and inventories 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. 29 59 Fieldcrest Cannon, Inc. Notes to consolidated financial statements Tabular amounts in thousands except per share Note 8: Debt continued 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, 1994, the fair value of the Company's 6% Convertible Subordinated Debentures was $93.8 million compared to a carrying value of $125 million and the fair value of the 11.25% Subordinated Debentures was $85 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, 1994 are: 1995, $1.5 million; 1996, $.8 million; 1997, $7.0 million; 1998, $101.2 million and 1999, $6.6 million. Note 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, 1994.
Real Equip- Estate ment Total 1995 $ 5,524 $ 9,155 $ 14,679 1996 5,129 7,689 12,818 1997 4,470 6,362 10,832 1998 3,941 4,714 8,655 1999 3,324 4,113 7,437 Subsequent years 23,389 2,762 26,151 Net minimum lease payments $ 45,777 $ 34,795 $ 80,572
Total continuing operations rental expense for all operating leases was $20.2 million, $18.9 million, and $17.5 million for 1994, 1993 and 1992, respectively. Note 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. 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 30 60 Fieldcrest Cannon, Inc. Notes to consolidated financial statements Tabular amounts in thousands except per share Note 10: Shareowners' equity continued 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, 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, January 1, 1994 27,000 23.625-13.00 Awarded 8,000 25.625 Exercised (5,000) 17.625-13.00 Outstanding and exercisable at December 31, 1994 30,000 $25.625-13.00 Available for grant at December 31, 1994 441,000
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. 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, 1994, unamortized deferred compensation of $1.2 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 31 61 Fieldcrest Cannon, Inc. Notes to consolidated financial statements Tabular amounts in thousands except per share Note 10: Shareowners' equity continued have been reserved for awards. The following is an analysis of shares of restricted stock under the Long-term Incentive Plan:
1994 1993 1992 Number of Shares: Outstanding at beginning of year 111,674 156,526 145,877 Awarded 70,000 75,000 50,000 Cancelled -- (4,450) (2,430) Issued (30,563) (115,402) (36,921) Outstanding at end of year 151,111 111,674 156,526 Available for grant at end of year 254,548 324,548 45,098 Market value on date of grant for shares granted during year $28.625 $18.75 $15.375
Awards under the Plan will be 70,000 shares in 1995. Transactions with respect to common stock and additional paid in capital during the three years ended December 31, 1994, were as follows:
Additional Class B Paid in Common Stock Common Stock Capital Shares Amount Shares Amount Amount Balance 12/31/91 6,788,087 $ 6,788 3,635,398 $3,635 $111,571 Restricted shares awarded 50,000 50 -- -- (50) Restricted shares cancelled (2,430) (2) -- -- 2 Earned compensation, restricted stock -- -- -- -- 831 Director stock option exercised 3,000 3 -- -- 36 Sale of stock 1,500,000 1,500 -- -- 23,685 Exchange of shares 284 -- (284) -- -- Balance 12/31/92 8,338,941 8,339 3,635,114 3,635 136,075 Shares issued to employee savings plans 120,562 120 -- -- 2,883 Restricted shares awarded 75,000 75 -- -- (75) Restricted shares cancelled (4,450) (4) -- -- 4 Earned compensation, restricted stock -- -- -- -- 1,126 Director stock options exercised 21,000 21 -- -- 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 (3,635,114) (3,635) -- Balance 12/31/93 12,186,167 12,186 -- -- 212,799 Shares issued to employee savings plans 99,085 99 -- -- 2,571 Restricted shares awarded 70,000 70 -- -- (70) Earned compensation, restricted stock -- -- -- -- 1,431 Preferred stock issuance expense -- -- -- -- (73) Director stock options exercised 5,000 5 -- -- 114 Balance 12/31/94 12,360,252 $12,360 -- $ -- $216,772
32 62 Fieldcrest Cannon, Inc. Notes to consolidated financial statements Tabular amounts in thousands except per share Note 10: Shareowners' equity continued Total shares of Common Stock outstanding as of December 31, 1994 are reduced to 8,753,852 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. Note 11: 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 $6.9 million in 1994, $13.2 million in 1993 and $6.1 million in 1992. Net pension expense for 1994, 1993 and 1992 consisted of the following components:
1994 1993 1992 Service cost (benefits earned during the period) $ 8,076 $ 8,802 $ 8,631 Interest cost on projected benefit obligation 16,668 15,124 13,938 Actual return on assets 4,845 (20,985) (5,161) Net amortization and deferral (22,703) 4,023 (11,293) Curtailment and special termination benefits -- 6,263 -- Net pension cost $ 6,886 $ 13,227 $ 6,115
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. 33 63 Fieldcrest Cannon, Inc. Notes to consolidated financial statements Tabular amounts in thousands except per share Note 11: Employee pension and savings plans continued The table below sets forth the plans' funded status at December 31:
1994 1993 Assets Exceed Assets Exceed Accumulated Accumulated Accumulated Benefits Benefits Benefits Exceed Assets Projected benefit obligation: Vested benefits $199,034 $64,460 $148,022 Non-vested benefits 6,058 2,559 6,255 Accumulated benefit obligation 205,092 67,019 154,277 Additional amounts related to projected compensation levels 6,332 -- 6,801 Total projected benefit obligation 211,424 67,019 161,078 Plan assets at fair value, primarily publicly traded stocks and bonds 208,170 69,266 144,164 Plan assets over (under) projected benefit obligation (3,254) 2,247 (16,914) Unrecognized net (gain) loss 29,911 13,293 19,917 Unrecognized net transition assets (2,579) (2,747) (854) Unrecognized prior service cost 2,798 158 3,552 Adjustment required to recognize minimum liability -- -- (15,814) Net pension asset (liability) recognized in the Consolidated Statement of Financial Position $26,876 $12,951 $(10,113)
Assumptions used in determining the funded status of the pension plans were as follows:
1994 1993 1992 Discount rate 8.6% 7.25% 8.25% Increase in compensation levels 4.5% 4.5% 5.5% Expected long-term rate of return on assets 9% 9% 9%
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 of $4.8 million. At December 31, 1994, the assets in this plan exceeded the accumulated benefits and the 1993 adjustment required to recognize minimum liability was reversed. The Company also sponsors employee savings plans which cover substantially all employees. The Company amended the plans 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 in 1994 and 1993. 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 $2.7 million in 1994 and $3.0 million in 1993. 34 64 Fieldcrest Cannon, Inc. Notes to consolidated financial statements Tabular amounts in thousands except per share Note 12: 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:
1994 1993 Accumulated postretirement benefit obligation -- Retirees $ 23,592 $24,224 Fully eligible active participants 8,020 9,897 Other active participants 4,728 6,298 Total 36,340 40,419 Plan assets -- -- Accumulated postretirement benefit obligations in excess of plan assets at December 31 36,340 40,419 Unrecognized net gain (loss) 2,114 (2,163) Accrued postretirement benefit cost recognized in the Consolidated Statement of Financial Position at December 31 $ 38,454 $38,256
The discount rate used in determining the accumulated postretirement benefit obligation was 8.6% as of December 31, 1994 and 7.25% as of December 31, 1993. 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. Net periodic postretirement benefit cost for 1994 and 1993 included the following components:
1994 1993 Service Cost (benefits earned during the period) $ 979 $ 974 Interest cost on projected benefit obligation 2,820 3,033 Net amortization and deferral 206 (93) Curtailment gain -- (1,850) Net periodic postretirement benefit cost $ 4,005 $ 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. Note 13: 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 changed 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 35 65 Fieldcrest Cannon, Inc. Notes to consolidated financial statements Tabular amounts in thousands except per share Note 13: Income taxes continued 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 1993 federal tax rate to 35%. At December 31, 1994, the Company had $43.3 million of deferred tax assets and $108.1 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:
12/31/94 12/31/93 Current Noncurrent Current Noncurrent Liability Liability Liability Liability Depreciation $ -- $ 51,176 $ -- $ 51,805 Inventory Valuation 36,472 -- 35,961 -- Deferred compensation (392) (2,045) 95 (1,659) Accruals and allowances (14,686) (6,439) (16,952) (7,513) Operating loss and tax credit carryover -- -- (4,305) -- Adjustment from recognizing additional pension liability -- -- -- (4,781) Other 594 (167) -- (2,670) Total deferred tax liabilities $ 21,988 $ 42,859 $ 14,799 $ 35,182
The provision for income taxes for continuing operations included in the Consolidated Statement of Income and Retained Earnings for continuing operations consisted of the following:
1994 1993 1992 Current Federal $ 5,397 $ 5,483 $ 7,408 State 56 1,130 952 Deferred Federal 8,327 4,605 1,741 State 1,758 695 785 Total income taxes on income from continuing operations before extraordinary charge and accounting changes $15,538 $11,913 $10,886
36 66 Fieldcrest Cannon, Inc. Notes to consolidated financial statements Tabular amounts in thousands except per share Note 13: Income taxes continued 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:
1994 1993 1992 Amount Percent Amount Percent Amount Percent Tax at statutory rate $16,199 35.0% $ 9,408 35.0% $ 9,035 34.0% State taxes, net 2,037 4.4 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 -- -- Tax credits (567) (1.2) -- -- -- -- Prior years tax settlements (1,714) (3.7) -- -- -- -- Other (417) (.9) (81) (.3) 92 .4 Net taxes $15,538 33.6% $11,913 44.3% $10,886 41.0%
Prior to the adoption of FAS 109, the tax effects of timing differences were as follows:
1992 Depreciation $ 2,515 Deferred compensation (129) Accruals and allowances (1,339) Increase in deferred taxes due to net operating loss and tax credit carryovers 586 Other 893 Total deferred tax provision $ 2,526
37 67 Fieldcrest Cannon, Inc. Report of Management The integrity and objectivity of the information presented in this Annual Report are the responsibility of Fieldcrest Cannon, Inc. management. The financial statements contained in this report were audited by Ernst & Young LLP independent auditors, whose report appears on this page. The Company maintains a system of internal controls which is independently assessed on an ongoing basis through a program of internal audits. These controls include the selection and training of the Company's employees, organizational arrangements that provide a division of responsibilities and communication programs explaining the Company's policies and standards. We believe this system provides reasonable assurance that transactions are executed in accordance with management's authorization; that transactions are appropriately recorded to permit preparation of financial statements that, in all material respects, are presented in conformity with generally accepted accounting principles; and that assets are properly accounted for and safeguarded against loss from unauthorized use. The Board of Directors pursues its responsibilities for the financial statements through its Audit Committee, which consists solely of directors who are neither officers nor employees of the Company. The Audit Committee meets periodically with the independent public accountants, the internal auditors and representatives of management to discuss internal accounting control, auditing and financial reporting matters. (Signature of Thomas R. Staab appears here) Thomas R. Staab VICE PRESIDENT AND CHIEF FINANCIAL OFFICER 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, 1994 and 1993, 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, 1994. 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, 1994 and 1993, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. As explained in Notes 12 and 13 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." (Signature of Ernst & Young LLP appears here) Greensboro, North Carolina February 1, 1995 38 68 Fieldcrest Cannon, Inc. Selected financial and statistical data In thousands of dollars, except per share data
1994 1993 1992 1991 1990 Summary of Net sales $1,063,731 $1,000,107 $981,773 $960,663 $927,034 continuing Depreciation $ 28,779 $ 29,524 $ 29,480 $ 28,473 $ 26,118 operations (a) Operating income (loss) 70,538 53,563 60,855 39,613 (13,385) Income (loss) from continuing operations 30,745-b 14,966-c 15,690-d 1,395 (30,818)-e Dividends on common stock -- -- -- -- 4,980 Per share of common stock: Primary income (loss) from continuing operation $ 3.02-b $ 1.24-c $ 1.39-d $ 0.13 $ (2.97)-e Fully diluted income (loss) 2.51-b ---c ---d 0.13 (2.97)-e Dividends -- -- -- -- 0.50 Shareowners' equity 17.84 13.79 23.76 23.33 23.01 Number of employees 13,926 14,090 14,636 14,935 15,873 Number of shareowners 2,191 2,401 2,735 2,980 3,099 Summary of financial Capital expenditures $ 51,929 $ 21,594 $ 20,687 $ 41,000 $ 80,706 position Working capital 282,461 262,326 296,580 138,227 286,707 Total assets 782,665 740,446 863,991 882,662 855,576 Long-term obligations 317,744 294,611 353,419 253,493 403,627 Shareowners' equity 232,202 193,330 284,478 243,173 239,240 Financial ratios Return on net sales 2.9% 1.5% 1.6% 0.1% (3.3)% Return on average shareowners' equity 14.5 6.8 6.0 0.6 (11.9) Return on average total assets 4.0 1.9 1.8 0.2 (3.6)
a On July 30, 1993 the Company completed the sale of its carpet and rug operations. Accordingly, the summary of continuing operations excludes the discontinued carpet and rug operations for all periods presented. b 1994 income was increased $1.7 million, or $.20 per common share on a primary basis and $.12 per share on a fully diluted basis, as a result of favorable settlements of prior years income taxes. c Reflects pre-tax restructuring charges of $10 million and income tax adjustments of $1.4 million which reduced 1993 income from continuing operations before accounting changes by $7.5 million, or $.64 per common 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 common share. Fully diluted income per share is not presented as effects are anti-dilutive. Financial ratios for 1993 are based on income from continuing operations before accounting changes. d Before extraordinary charge for early retirement of debt which reduced 1992 net income by $5.2 million ($.46 per common share). Fully diluted income per share is not presented as effects are anti-dilutive. Financial ratios for 1992 are based on income from continuing operations before the extraordinary charge. e Reflects pre-tax charge of $31.5 million for discontinuing the automatic blanket business which reduced 1990 net income by $19.5 million or $1.88 per common share. 39 69 EX-21 7 EXHIBIT 21 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. Page 70 EX-23 8 EXHIBIT 23 Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Fieldcrest Cannon, Inc. of our report dated February 1, 1995, included in the 1994 Annual Report to Shareholders of Fieldcrest Cannon, Inc. 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., the Stock Option Agreement between 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 February 1, 1995, with respect to the consolidated financial statements incorporated herein by reference in this Annual Report (Form 10-K) for the year ended December 31, 1994. ERNST & YOUNG LLP Greensboro, North Carolina March 29, 1995 Page 71 EX-27 9 EXHIBIT 27
5 1,000 YEAR DEC-31-1994 JAN-01-1994 DEC-31-1994 5,885 0 170,001 0 213,994 417,673 314,726 0 782,665 135,212 317,744 12,360 0 15 218,827 782,665 1,063,731 1,063,731 898,437 898,437 94,756 0 23,268 46,283 15,538 30,745 0 0 0 30,745 3.02 2.51