-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LhfBoFAJKLP3/jAEPcEpUtD0tZ5mfsgp/DnstRR091qI3Fgp6Uuco45iRsIopy6i Aeg88rF/BeDuvSMA5txEVA== 0000896265-98-000019.txt : 19990322 0000896265-98-000019.hdr.sgml : 19990322 ACCESSION NUMBER: 0000896265-98-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981003 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PILLOWTEX CORP CENTRAL INDEX KEY: 0000896265 STANDARD INDUSTRIAL CLASSIFICATION: 2390 IRS NUMBER: 752147728 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11756 FILM NUMBER: 98748196 BUSINESS ADDRESS: STREET 1: 4111 MINT WAY CITY: DALLAS STATE: TX ZIP: 75237 BUSINESS PHONE: 2143333225 MAIL ADDRESS: STREET 1: 4111 MINT WAY CITY: DALLAS STATE: TX ZIP: 75237 FORMER COMPANY: FORMER CONFORMED NAME: PILLOWTEX CORP DATE OF NAME CHANGE: 19930125 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 3, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission file number: 1-11756 PILLOWTEX CORPORATION (Exact name of registrant as specified in its charter) TEXAS 75-2147728 (State of incorporation) (IRS Employer Identification No.) 4111 Mint Way Dallas, Texas 75237 (Address of principal executive offices) (Zip Code) (214) 333-3225 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASS Outstanding at November 6, 1998 Common Stock, $0.01 par value 14,122,736 PILLOWTEX CORPORATION AND SUBSIDIARIES INDEX Part I - Financial Information Page No. Item 1. Unaudited Interim Consolidated Financial Statements: Consolidated Balance Sheets as of January 3, 1998 and October 3, 1998 3 Consolidated Statements of Earnings for the three months ended September 27, 1997 and October 3, 1998 4 Consolidated Statements of Earnings for the nine months ended September 27, 1997 and October 3, 1998 5 Consolidated Statements of Cash Flows for the nine months ended September 27, 1997 and October 3, 1998 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K 19 Signature 20 Index to Exhibits 21 -2- PILLOWTEX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS January 3, 1998 and October 3, 1998 (Dollars in thousands, except for par value) (Unaudited)
1997 1998 ASSETS ----------- ----------- Current assets: Cash and cash equivalents. . . . . . . . . . . . . . .$ 4,604 $ 5,095 Receivables: Trade, less allowance for doubtful accounts of $14,770 and $16,782 in 1997 and 1998, respectively . 221,185 274,304 Other. . . . . . . . . . . . . . . . . . . . . . . . . 16,468 28,315 Inventories. . . . . . . . . . . . . . . . . . . . . . 359,751 417,696 Assets held for sale . . . . . . . . . . . . . . . . . 32,614 4,599 Prepaid expenses . . . . . . . . . . . . . . . . . . . 6,335 5,580 ----------- ----------- Total current assets. . . . . . . . . . . . . . . . 640,957 735,589 Property, plant and equipment, less accum. depreciation of $55,871 and $87,153 in 1997 and 1998, respectively. 488,841 597,061 Intangible assets, at cost less accumulated amortization of $5,111 and $9,972 in 1997 and 1998, respectively . . . . . . . . . . . . . . . . 258,867 284,541 Other assets . . . . . . . . . . . . . . . . . . . . . . 21,521 25,716 ----------- ----------- $1,410,186 $1,642,907 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable . . . . . . . . . . . . . . . . . . .$ 111,202 $ 113,171 Accrued expenses . . . . . . . . . . . . . . . . . . . 113,575 101,416 Deferred income taxes. . . . . . . . . . . . . . . . . 16,068 36,835 Current portion of long-term debt. . . . . . . . . . . 5,616 10,982 ----------- ----------- Total current liabilities . . . . . . . . . . . . . 246,461 262,404 Long-term debt, net of current portion . . . . . . . . . 785,383 956,558 Deferred income taxes. . . . . . . . . . . . . . . . . . 66,340 83,041 Noncurrent liabilities . . . . . . . . . . . . . . . . . 52,413 54,074 ----------- ----------- Total liabilities . . . . . . . . . . . . . . . . . 1,150,597 1,356,077 Series A redeemable convertible preferred stock, $.01 par value; 65,000 shares issued and outstanding. . . . 62,882 63,003 Shareholders' equity: Preferred stock, $0.01 par value; authorized 20,000,000 shares; only Series A issued. . . . . . . - - Common stock, $0.01 par value; authorized 30,000,000 shares; 13,967,715 and 14,122,736 shares issued and outstanding in 1997 and 1998, respectively . . . 140 141 Additional paid-in capital . . . . . . . . . . . . . . 151,095 155,613 Retained earnings. . . . . . . . . . . . . . . . . . . 46,328 69,920 Currency translation adjustment. . . . . . . . . . . . (856) (1,847) ----------- ----------- Total shareholders' equity . . . . . . . . . . . . 196,707 223,827 ----------- ----------- $1,410,186 $1,642,907 =========== ===========
See accompanying notes to consolidated financial statements. -3- PILLOWTEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS Three Months Ended September 27, 1997 and October 3, 1998 (Amounts in thousands, except for per share data) (Unaudited)
1997 1998 ---------- ---------- Net sales. . . . . . . . . . . . . . . . . . . . . . . . $ 151,977 $ 419,799 Cost of goods sold . . . . . . . . . . . . . . . . . . . 125,425 339,933 ---------- ---------- Gross profit. . . . . . . . . . . . . . . . . . . . 26,552 79,866 Selling, general and administrative expenses . . . . . . 10,112 36,300 ---------- ---------- Earnings from operations. . . . . . . . . . . . . . 16,440 43,566 Interest expense . . . . . . . . . . . . . . . . . . . . 4,921 19,122 ---------- ---------- Earnings before income taxes. . . . . . . . . . . . 11,519 24,444 Income taxes . . . . . . . . . . . . . . . . . . . . . . 4,469 9,422 ---------- ---------- Net earnings. . . . . . . . . . . . . . . . . . . . 7,050 15,022 Preferred dividends and accretion. . . . . . . . . . . . - 540 ---------- ---------- Earnings available for common shareholders. . . . . $ 7,050 $ 14,482 ========== ========== Basic earnings per common share. . . . . . . . . . . . . $ .66 $ 1.03 ========== ========== Weighted average common shares outstanding - basic . . . 10,744 14,122 ========== ========== Diluted earnings per common share. . . . . . . . . . . . $ .65 $ .87 ========== ========== Weighted average common shares outstanding - diluted . . 10,895 17,619 ========== ========== Dividends declared per common share. . . . . . . . . . . $ .06 $ .06 ========== ==========
See accompanying notes to consolidated financial statements. -4- PILLOWTEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS Nine Months Ended September 27, 1997 and October 3, 1998 (Amounts in thousands, except for per share data) (Unaudited)
1997 1998 ---------- ----------- Net sales. . . . . . . . . . . . . . . . . . . . . . . . $ 370,633 $1,118,220 Cost of goods sold . . . . . . . . . . . . . . . . . . . 305,674 915,852 ---------- ----------- Gross profit. . . . . . . . . . . . . . . . . . . . 64,959 202,368 Selling, general and administrative expenses . . . . . . 33,728 102,430 Restructuring charge . . . . . . . . . . . . . . . . . . - 1,539 ---------- ----------- Earnings from operations. . . . . . . . . . . . . . 31,231 98,399 Interest expense . . . . . . . . . . . . . . . . . . . . 13,957 52,920 ---------- ----------- Earnings before income taxes. . . . . . . . . . . . 17,274 45,479 Income taxes . . . . . . . . . . . . . . . . . . . . . . 6,702 17,731 ---------- ----------- Net earnings. . . . . . . . . . . . . . . . . . . . 10,572 27,748 Preferred dividends and accretion. . . . . . . . . . . . - 1,567 ---------- ----------- Earnings available for common shareholders. . . . . $ 10,572 $ 26,181 ========== =========== Basic earnings per common share. . . . . . . . . . . . . $ .99 $ 1.86 ========== =========== Weighted average common shares outstanding - basic . . . 10,669 14,068 ========== =========== Diluted earnings per common share. . . . . . . . . . . . $ .98 $ 1.63 ========== =========== Weighted average common shares outstanding - diluted . . 10,786 17,672 ========== =========== Dividends declared per common share. . . . . . . . . . . $ .18 $ .18 ========== ===========
See accompanying notes to consolidated financial statements. -5- PILLOWTEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended September 27, 1997 and October 3, 1998 (Dollars in thousands) (Unaudited)
1997 1998 ---------- ---------- Cash flows from operating activities: Net earnings . . . . . . . . . . . . . . . . . . . . . .$ 10,572 $ 27,748 Adjustments to reconcile net earnings to net cash used in operating activities: Depreciation and amortization . . . . . . . . . . . . 10,642 40,187 Deferred income taxes . . . . . . . . . . . . . . . . (341) 23,581 Accretion on debt instruments . . . . . . . . . . . . - 854 Provision for doubtful accounts . . . . . . . . . . . 585 1,264 Loss (gain)on disposal of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . (1,153) 52 Changes in operating assets and liabilities, net of businesses acquired: Trade receivables. . . . . . . . . . . . . . . . . (22,535) (42,627) Inventories. . . . . . . . . . . . . . . . . . . . (17,659) (37,562) Accounts payable . . . . . . . . . . . . . . . . . (258) 4,692 Accrued expenses . . . . . . . . . . . . . . . . . 3,244 (13,500) Other assets and liabilities . . . . . . . . . . . (1,297) (16,662) ---------- ---------- Net cash used in operating activities . . . . . (18,200) (11,973) ---------- ---------- Cash flows from investing activities: Proceeds from sale of property, plant and equipment. . . 1,723 2,779 Proceeds from disposal of assets held for sale . . . . . - 35,335 Purchases of property, plant and equipment . . . . . . . (13,891) (89,660) Payments for businesses purchased, net of cash acquired. - (90,029) ---------- ---------- Net cash used in investing activities . . . . . (12,168) (141,575) ---------- ---------- Cash flows from financing activities: Increase (decrease) in checks not yet presented for payment . . . . . . . . . . . . . . . . . . . . . . . . 5,617 (6,905) Borrowings on revolving credit loans . . . . . . . . . . 104,450 369,100 Repayments of revolving credit loans . . . . . . . . . . (79,100) (291,500) Proceeds from the issuance of other long-term debt . . . - 100,000 Retirement of long-term debt . . . . . . . . . . . . . . (1,709) (13,205) Payments of debt and equity issuance costs . . . . . . . - (1,617) Dividends paid . . . . . . . . . . . . . . . . . . . . . (1,276) (4,063) Proceeds from exercise of stock options. . . . . . . . . 2,400 2,229 ---------- ---------- Net cash provided by financing activities . . . 30,382 154,039 ---------- ---------- Net change in cash and cash equivalents. . . . . . . . . . 14 491 Cash and cash equivalents at beginning of period . . . . . 20 4,604 ---------- ---------- Cash and cash equivalents at end of period . . . . . . . .$ 34 $ 5,095 ========== ========== Supplemental disclosures of cash flow information: Cash paid (received) during the period for: Interest . . . . . . . . . . . . . . . . . . . . . . .$ 10,721 $ 47,835 ========== ========== Income taxes . . . . . . . . . . . . . . . . . . . . .$ 6,871 $ (4,597) ========== ==========
See accompanying notes to consolidated financial statements. -6- PILLOWTEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Tables in thousands) (Unaudited) (1) Basis of Presentation The accompanying unaudited consolidated financial statements of Pillowtex Corporation (the "Parent") and its subsidiaries (collectively, with Parent, (the "Company")), include all adjustments, consisting only of normal, recurring adjustments and accruals, which are, in the opinion of management, necessary for fair presentation of the results of operations and financial position. Results of operations for interim periods may not be indicative of future results. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's annual report on Form 10-K, as filed with the Securities and Exchange Commission on April 3, 1998 for the fiscal year ended January 3, 1998. The three and nine month periods ended October 3, 1998 include the results of Fieldcrest Cannon, Inc. ("Fieldcrest Cannon") which was acquired on December 19, 1997 and the results of The Leshner Corporation ("Leshner") from its acquisition date of July 28, 1998. (2) Acquisitions On July 28, 1998, the Company acquired Leshner, a 91-year-old manufacturer of towels and terry related products. The acquisition was accounted for using the purchase method of accounting for business combinations. The pro forma effects of such transaction, as if it occurred at the beginning of fiscal 1997, are not significant. (3) Inventories Inventories consisted of the following at January 3, 1998 and October 3, 1998:
1997 1998 -------- -------- Finished goods $163,905 $196,834 Work-in-process 120,063 125,422 Raw materials 54,790 60,064 Supplies 20,993 35,376 -------- -------- $359,751 $417,696 ======== ========
-7- PILLOWTEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Tables in thousands) (Unaudited) (4) Earnings Per Share The following table reconciles the numerators and denominators of basic and diluted earnings per share for the three and nine month periods ended October 3, 1998. Options to purchase 466,000 shares of common stock at prices ranging from $33.50 to $46.50 per share were outstanding during the three and nine month periods ended October 3, 1998, respectively, but were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common shares. There were no material reconciling items for the three and nine month periods ended September 27, 1997.
Three Months Ended Nine Months Ended October 3, 1998 October 3, 1998 ------------------ ----------------- Earnings Shares Earnings Shares -------- ------ -------- ------ Basic - earnings available for common shareholders $ 14,482 14,122 $ 26,181 14,068 Effect of dilutive securities: Stock options - 155 - 232 Convertible notes 256 633 1,106 663 Convertible preferred stock 540 2,709 1,567 2,709 -------- ------ -------- ------ Diluted - earnings available for common shareholders $ 15,278 17,619 $ 28,854 17,672 ======== ====== ======== ======
(5) New Accounting Standards During the first quarter of 1998, the Company adopted Statement of Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME. Total comprehensive income for the three months ended October 3, 1998 and September 27, 1997 was $14,355,000 and $7,004,000 respectively. Total comprehensive income for the nine months ended October 3, 1998 and September 27, 1997 was $26,757,000 and $10,294,000 respectively. During 1998, the Company adopted Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. Adoption of this statement did not have a material impact on the Company's reported financial position, results of operations or cash flows. -8- PILLOWTEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (6) Supplemental Condensed Consolidating Financial Information The following is summarized condensed consolidating financial information for the Company, segregating the Parent and subsidiaries which are guarantors of the Company's obligations under its senior subordinated notes, from non-guarantor subsidiaries. The guarantor subsidiaries are wholly owned subsidiaries of the Company and the guarantees are full, unconditional and joint and several.
January 3, 1998 ------------------------------------------------------------------------ Non- Guarantor Guarantor Financial Position Parent Subsidiaries Subsidiaries Eliminations Consolidated - - ------------------ ------------ ------------ ------------ ------------ ------------ Assets: - - ------- Trade receivables $ - $ 216,869 $ 4,316 $ - $ 221,185 Receivable from affiliates 668,588 - - (668,588) - Inventories - 351,720 8,031 - 359,751 Other current assets - 58,650 1,371 - 60,021 ------------ ------------ ------------ ------------ ------------ Total current assets 668,588 627,239 13,718 (668,588) 640,957 Property, plant and equipment, net 657 485,975 2,209 - 488,841 Intangibles, net 24,256 232,112 2,499 - 258,867 Other assets 229,039 19,564 - (227,082) 21,521 ------------ ------------ ------------ ------------ ------------ Total assets $ 922,540 $ 1,364,890 $ 18,426 $ (895,670) $ 1,410,186 ============ ============ ============ ============ ============ Liabilities and Shareholders' Equity: - - ------------------------------------- Accounts payable and accrued liabilities $ 85 $ 218,874 $ 5,818 $ - $ 224,777 Payables to affiliates - 668,000 588 (668,588) - Other current liabilities - 21,591 93 - 21,684 ------------ ------------ ------------ ------------ ------------ Total current liabilities 85 908,465 6,499 (668,588) 246,461 Noncurrent liabilities 675,000 228,550 586 - 904,136 ------------ ------------ ------------ ------------ ------------ Total liabilities 675,085 1,137,015 7,085 (668,588) 1,150,597 Redeemable convertible preferred stock 62,882 - - - 62,882 Shareholders' equity 184,573 227,875 11,341 (227,082) 196,707 ------------ ------------ ------------ ------------ ------------ Total liabilities and shareholders' equity $ 922,540 $ 1,364,890 $ 18,426 $ (895,670) $ 1,410,186 ============ ============ ============ ============ ============
-9- PILLOWTEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (6) Supplemental Condensed Consolidating Financial Information (Continued)
October 3, 1998 ------------------------------------------------------------------------ Non- Guarantor Guarantor Financial Position Parent Subsidiaries Subsidiaries Eliminations Consolidated - - ------------------ ------------ ------------ ------------ ------------ ------------ Assets: - - ------- Trade receivables $ - $ 270,279 $ 4,025 $ - $ 274,304 Receivable from affiliates 744,929 - - (744,929) - Inventories - 410,666 7,030 - 417,696 Other current assets - 42,867 722 - 43,589 ------------ ------------ ------------ ------------ ------------ Total current assets 744,929 723,812 11,777 (744,929) 735,589 Property, plant and equipment, net 602 594,852 1,607 - 597,061 Intangibles, net 19,728 262,569 2,244 - 284,541 Other assets 350,259 15,306 - (339,849) 25,716 ------------ ------------ ------------ ------------ ------------ Total assets $ 1,115,518 $ 1,596,539 $ 15,628 $(1,084,778) $ 1,642,907 ============ ============ ============ ============ ============ Liabilities and Shareholders' Equity: - - ------------------------------------- Accounts payable and accrued liabilities $ 13,856 $ 196,465 $ 4,266 $ - $ 214,587 Payables to affiliates - 744,000 929 (744,929) - Other current liabilities 6,864 40,875 78 - 47,817 ------------ ------------ ------------ ------------ ------------ Total current liabilities 20,720 981,340 5,273 (744,929) 262,404 Noncurrent liabilities 844,869 248,241 563 - 1,093,673 ------------ ------------ ------------ ------------ ------------ Total liabilities 865,589 1,229,581 5,836 (744,929) 1,356,077 Redeemable convertible preferred stock 63,003 - - - 63,003 Shareholders' equity 186,926 366,958 9,792 (339,849) 223,827 ------------ ------------ ------------ ------------ ------------ Total liabilities and shareholders' equity $ 1,115,518 $ 1,596,539 $ 15,628 $(1,084,778) $ 1,642,907 ============ ============ ============ ============ ============
-10- PILLOWTEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (6) Supplemental Condensed Consolidating Financial Information (Continued)
Three Months Ended September 27, 1997 ------------------------------------------------------------------------ Non- Guarantor Guarantor Results of Operations Parent Subsidiaries Subsidiaries Eliminations Consolidated - - --------------------- ------------ ------------ ------------ ------------ ------------ Net sales $ - $ 145,839 $ 8,141 $ (2,003) $ 151,977 Cost of goods sold - 120,339 7,089 (2,003) 125,425 ------------ ------------ ------------ ------------ ------------ Gross profit - 25,500 1,052 - 26,552 Selling, general and administrative (1,378) 11,122 368 - 10,112 ------------ ------------ ------------ ------------ ------------ Earnings from operations 1,378 14,378 684 - 16,440 Interest expense (income) (34) 4,957 (2) - 4,921 ------------ ------------ ------------ ------------ ------------ Earnings before income taxes 1,412 9,421 686 - 11,519 Income taxes 494 3,883 92 - 4,469 ------------ ------------ ------------ ------------ ------------ Net earnings $ 918 $ 5,538 $ 594 $ - $ 7,050 ============ ============ ============ ============ ============ Three Months Ended October 3, 1998 ------------------------------------------------------------------------ Non- Guarantor Guarantor Results of Operations Parent Subsidiaries Subsidiaries Eliminations Consolidated - - --------------------- ------------ ------------ ------------ ------------ ------------ Net sales $ - $ 414,387 $ 6,802 $ (1,390) $ 419,799 Cost of goods sold - 335,060 6,263 (1,390) 339,933 ------------ ------------ ------------ ------------ ------------ Gross profit - 79,327 539 - 79,866 Selling, general and administrative (1,422) 37,361 361 - 36,300 ------------ ------------ ------------ ------------ ------------ Earnings from operations 1,422 41,966 178 - 43,566 Interest expense (income) 182 18,945 (5) - 19,122 ------------ ------------ ------------ ------------ ------------ Earnings before income taxes 1,240 23,021 183 - 24,444 Income taxes 434 9,000 (12) - 9,422 ------------ ------------ ------------ ------------ ------------ Net earnings 806 14,021 195 - 15,022 Preferred dividends and accretion 540 - - - 540 ------------ ------------ ------------ ------------ ------------ Earnings available for common shareholders $ 266 $ 14,021 $ 195 $ - $ 14,482 ============ ============ ============ ============ ============
-11- PILLOWTEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (6) Supplemental Condensed Consolidating Financial Information (Continued)
Nine Months Ended September 27, 1997 ------------------------------------------------------------------------ Non- Guarantor Guarantor Results of Operations Parent Subsidiaries Subsidiaries Eliminations Consolidated - - --------------------- ------------ ------------ ------------ ------------ ------------ Net sales $ - $ 354,728 $ 19,087 $ (3,182) $ 370,633 Cost of goods sold - 291,743 17,113 (3,182) 305,674 ------------ ------------ ------------ ------------ ------------ Gross profit - 62,985 1,974 - 64,959 Selling, general and administrative (2,306) 34,953 1,081 - 33,728 ------------ ------------ ------------ ------------ ------------ Earnings from operations 2,306 28,032 893 - 31,231 Interest expense (income) (679) 14,641 (5) - 13,957 ------------ ------------ ------------ ------------ ------------ Earnings before income taxes 2,985 13,391 898 - 17,274 Income taxes 1,045 5,565 92 - 6,702 ------------ ------------ ------------ ------------ ------------ Net earnings $ 1,940 $ 7,826 $ 806 $ - $ 10,572 ============ ============ ============ ============ ============ Nine Months Ended October 3, 1998 ------------------------------------------------------------------------ Non- Guarantor Guarantor Results of Operations Parent Subsidiaries Subsidiaries Eliminations Consolidated - - --------------------- ------------ ------------ ------------ ------------ ------------ Net sales $ - $ 1,102,979 $ 18,087 $ (2,846) $ 1,118,220 Cost of goods sold - 901,167 17,531 (2,846) 915,852 ------------ ------------ ------------ ------------ ------------ Gross profit - 201,812 556 - 202,368 Selling, general and administrative (3,294) 104,605 1,119 - 102,430 Restructuring charge - 1,539 - - 1,539 ------------ ------------ ------------ ------------ ------------ Earnings (loss) from operations 3,294 95,668 (563) - 98,399 Interest expense (income) 234 52,694 (8) - 52,920 ------------ ------------ ------------ ------------ ------------ Earnings (loss) before income taxes 3,060 42,974 (555) - 45,479 Income taxes 1,071 16,778 (118) - 17,731 ------------ ------------ ------------ ------------ ------------ Net earnings (loss) 1,989 26,196 (437) - 27,748 Preferred dividends and accretion 1,567 - - - 1,567 ------------ ------------ ------------ ------------ ------------ Earnings (loss) available for common shareholders $ 422 $ 26,196 $ (437) $ - $ 26,181 ============ ============ ============ ============ ============
-12- PILLOWTEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (6) Supplemental Condensed Consolidating Financial Information (Continued)
Nine Months Ended September 27, 1997 ------------------------------------------------------------------------ Non- Guarantor Guarantor Cash Flows Parent Subsidiaries Subsidiaries Eliminations Consolidated - - ---------- ------------ ------------ ------------ ------------ ------------ Cash provided by (used in) operating activities $ (2,720) $ (18,841) $ 3,361 $ - $ (18,200) Cash provided by (used in) investing activities (31,811) 19,714 (71) - (12,168) Cash provided by (used in) financing activities 34,531 (859) (3,290) - 30,382 ------------ ------------ ------------ ------------ ------------ Net change in cash and cash equivalents - 14 - - 14 Cash and cash equivalents at beginning of period - 12 8 - 20 ------------ ------------ ------------ ------------ ------------ Cash and cash equivalents at end of period $ - $ 26 $ 8 $ - $ 34 ============ ============ ============ ============ ============ Nine Months Ended October 3, 1998 ------------------------------------------------------------------------ Non- Guarantor Guarantor Cash Flows Parent Subsidiaries Subsidiaries Eliminations Consolidated - - ---------- ------------ ------------ ------------ ------------ ------------ Cash provided by (used in) operating activities $ 20,371 $ (33,730) $ 1,386 $ - $ (11,973) Cash used in investing activities (112,767) (28,766) (42) - (141,575) Cash provided by (used in) financing activities 92,396 62,993 (1,350) - 154,039 ------------ ------------ ------------ ------------ ------------ Net change in cash and cash equivalents - 497 (6) - 491 Cash and cash equivalents at beginning of period - 4,590 14 - 4,604 ------------ ------------ ------------ ------------ ------------ Cash and cash equivalents at end of period $ - $ 5,087 $ 8 $ - $ 5,095 ============ ============ ============ ============ ============
-13- PILLOWTEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (6) Supplemental Condensed Consolidating Financial Information (Continued) Fieldcrest Cannon is also a guarantor subsidiary and is not included in the consolidated financial statements for the three and nine months ended September 27, 1997. Accordingly, the Fieldcrest Cannon consolidated financial information for the three and nine months ended September 30, 1997 is included below:
Three Months Ended Nine Months Ended Results of Operations September 30, 1997 September 30, 1997 --------------------- ------------------ ------------------ Net sales $ 286,966 $ 820,635 Cost of goods sold 243,060 695,615 ---------- ---------- Gross profit 43,906 125,020 Selling, general and administrative 29,395 85,563 ---------- ---------- Earnings from operations 14,511 39,457 Interest expense 6,150 18,708 Other, net (347) (2,021) ---------- ---------- Earnings before income taxes 8,708 22,770 Income taxes 2,884 8,087 ---------- ---------- Net earnings 5,824 14,683 Preferred dividends 1,125 3,375 ---------- ---------- Earnings available for common shareholders $ 4,699 $ 11,308 ========== ========== Nine Months Ended Cash Flows September 30, 1997 ---------- ------------------ Cash provided by operating activities $ 49,511 Cash used in investing activities (42,937) Cash used in financing activities (5,746) ---------- Net change in cash and cash equivalents 828 Cash and cash equivalents at beginning of period 4,647 ---------- Cash and cash equivalents at end of period $ 5,475 ==========
-14- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the attached unaudited consolidated financial statements and notes thereto, and with the Company's audited consolidated financial statements and notes thereto for the fiscal year ended January 3, 1998. RESULTS OF OPERATIONS NET SALES. Net sales were $419.8 million for the three months ended October 3, 1998, representing an increase of $267.8 million, as compared to $152.0 million for the three months ended September 27, 1997. Net sales for the nine months ended October 3, 1998 increased to $1.1 billion from $370.6 million in the comparable prior year period, an increase of $747.6 million. These increases were primarily due to the addition of sales from the Fieldcrest Cannon merger (the "Merger") in December 1997 and the acquisition of Leshner in July 1998. GROSS PROFIT. Gross profit margins increased to 19.0% for the three months ended October 3, 1998 from 17.5% for the three months ended September 27, 1997. Gross profit margins for the nine months ended October 3, 1998 increased to 18.1% from 17.5% for the nine months ended September 27, 1997. The increase is primarily due to lower raw material costs and significant operating improvements including returns from capital investment programs. SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). SG&A expenses increased $26.2 million to $36.3 million for the three months ended October 3, 1998, compared to $10.1 million for the three months ended September 27, 1997. For the nine months ended October 3, 1998, SG&A expenses increased $68.7 million to $102.4 million from $33.7 million for the period ended September 27, 1997. Increases in total SG&A expenses over the prior three and nine month periods are primarily due to the Merger and the additional SG&A costs assumed with the Leshner acquisition. As a percentage of sales, SG&A expenses increased to 8.6% from 6.7% for the three months ended October 3, 1998 and September 27, 1997, respectively. SG&A as a percent of sales for this period increased from the year-ago period due to the incurrence of costs related to the consolidation of Leshner's administration into Pillowtex's operations, as well as increased travel and personnel related costs. SG&A as a percent of sales for the nine months ended October 3, 1998 was relatively flat at 9.2% compared to 9.1% for the nine months ended September 27, 1997. RESTRUCTURING CHARGE. The $1.5 million restructuring charge for the nine month period ended October 3, 1998 was related to severance and other employee-related costs associated with the consolidation of blanket production into facilities in Swannanoa, North Carolina and Westminster, South Carolina. INTEREST EXPENSE. Interest expense increased $14.2 million to $19.1 million for the three months ended October 3, 1998, compared to $4.9 million for the three months ended September 27, 1997. Interest expense for the nine month period ended October 3, 1998 increased $38.9 million to $52.9 million from $14.0 million for the nine month period ended September 27, 1997. These increases were due to the additional debt incurred as a result of the Merger and the purchase of Leshner. Average interest rates for the three and nine month periods remained relatively flat from the prior year periods. -15- LIQUIDITY AND CAPITAL RESOURCES The Company anticipates that its principal sources of liquidity will be funds from its operations and funds available under its revolving credit facility. As of October 3, 1998, the outstanding principal balance under the Company's $350.0 million revolving credit facility was $192.6 million, with $38.5 million committed to outstanding letters of credit and $118.9 million available for other needs. The debt outstanding under the revolving credit facility reflects an increase of $77.6 million since January 3, 1998, due primarily to normal working capital increases during the first three quarters of the year, capital expenditures, and expenditures relating to the Merger. Based upon current and anticipated levels of operations, the Company believes that its cash flow from operations, together with amounts available under the revolving credit facility, will be adequate to meet its anticipated cash requirements in the foreseeable future. Effective July 28, 1998, the Company amended its senior revolving credit and term loan facilities with NationsBank, N.A. to increase the Tranche B portion of the term loan by $100.0 million. The proceeds received under this amendment were used to fund the July 28, 1998 acquisition of Leshner and to pay down the Company's revolving credit facility. The amendment did not change the December 31, 2004 maturity date of the Tranche B term loan. The Company periodically enters into interest rate swap agreements to minimize the risk of fluctuations in interest rates. As of January 3, 1998 and October 3, 1998, the Company had approximately $125.0 million and $250.0 million, respectively, of notional amounts covered under fixed for floating rate swap agreements at average interest rates of 9.54% and 5.56%, respectively. On September 29, 1998, the Company paid a dividend of $.06 per share to its common shareholders of record as of September 18, 1998. Additionally, the Company paid preferred dividends in the amount of $492,000 during the third quarter of 1998. NEW ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, effective for periods beginning after December 15, 1997. The purpose of this standard is to disclose disaggregated information which provides information about the operating segments an enterprise engages in, consistent with the way management reviews financial information to make decisions about the enterprise's operating matters. The Company will comply with the requirements of this standard for fiscal year 1998. In February 1998, SFAS No. 132, EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS, was issued, which revises employers' disclosures about pension and other postretirement benefit plans. This statement standardizes the disclosure requirements for pensions and other postretirement benefits, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures previously required under SFAS Nos. 87, 88 and 106. The provisions of SFAS No. 132 are effective for fiscal years beginning after December 15, 1997. The Company's adoption of these disclosure requirements is not expected to materially impact the consolidated financial statements. In June 1998, SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, was issued. This statement establishes accounting and reporting standards for derivatives instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The provisions of SFAS No. 133 are effective for financial statements beginning after June 15, 1999, -16- although early adoption is allowed. The Company has not determined the financial impact of adopting this SFAS and has not determined if it will adopt its provisions prior to its effective date. YEAR 2000 CONSIDERATIONS GENERAL Many existing computer programs use only two digits to identify a year in the date field. These programs, if not corrected, could fail or create erroneous results by or at the Year 2000, thereby causing disruptions in the operations of the Company and its suppliers and customers. This "Year 2000" issue is believed to affect virtually all companies and organizations, including the Company. STATE OF READINESS SYSTEMS REPLACEMENT PROJECT In 1995, the Company began a project aimed at improving its access to business information through common, integrated computing and reporting systems. In 1996, prior to the acquisition of Fieldcrest Cannon, Inc. ("Fieldcrest Cannon") by the Company in December 1997, Fieldcrest Cannon began a similar systems replacement project. Each of the Company and Fieldcrest Cannon, in connection with its systems replacement project, elected to implement systems using software applications developed by Oracle Corporation ("Oracle") to fulfill its business systems replacement needs. Such software applications replace many of the accounting, reporting and manufacturing systems that are or previously had been in place at the Company and Fieldcrest Cannon. Additionally, each of the Company and Fieldcrest Cannon, in connection with its systems replacement project, identified certain other payroll, manufacturing and warehousing systems to be replaced with software applications from other vendors. The Company believes that the software applications purchased in connection with these business replacement projects is Year 2000 compliant. Following the acquisition of Fieldcrest Cannon, the independent systems replacement projects of the Company and Fieldcrest Cannon were combined, and the combined project (the "Systems Replacement Project") is proceeding on schedule with an estimated completion date of June 1999. It is estimated that approximately 95% of the development of the Oracle software applications are complete, with the implementation of the financial application having been substantially completed as of October 1998. Certain other applications (including payroll, manufacturing and warehousing) are expected to be phased in over the next eight months. The development and implementation of these other applications are approximately 50% and 20% complete, respectively. YEAR 2000 PLAN In addition to the Systems Replacement Project, the Company, as part of its Year 2000 compliance program, has developed a specific plan (the "Year 2000 Plan") to help ensure that the Company is not adversely affected by the Year 2000 issue. The Year 2000 Plan is divided into the following four major components (each, a "Component"): (1) Information Technology Systems ("IT Systems"); (2) Information Technology Infrastructure ("IT Infrastructure"); (3) Process Control and Instrumentation ("PC&I"); and (4) third party suppliers and customers ("External Agents"). The Year 2000 Plan will be implemented with respect to each Component in the following six general phases: (1) inventory Year 2000 items; (2) assign priorities to identified items; (3) assess the compliance of items determined not to be Year 2000 compliant; (4) convert or replace material items that are determined not to be Year 2000 compliant; (5) test material items; and (6) design and implement contingency and business continuation plans for each location. Additionally, the Company is assessing -17- the feasibility and utility of retaining an independent third party to review the Company's Year 2000 readiness and make recommendations as needed during the first or second quarter of 1999. For purposes of the Year 2000 Plan, "material items" are those believed by the Company to have a risk involving the safety of individuals or that may cause damage to property or the environment or affect revenues. The inventory and priority assessment phases were completed with respect to each Component of the Year 2000 Plan in May 1998. The Year 2000 Plan is scheduled to be fully implemented by June 1999. IT SYSTEMS. IT Systems are comprised primarily of applications software. The Company's applications software is being remediated primarily through the Systems Replacement Project. Applications software that is not remediated through the Systems Replacement Project and is not Year 2000 compliant is being converted internally through the use of custom programming or replaced by the supplier of such software. The Company estimates that the conversion phase with respect to IT Systems was approximately 90% complete as of October 1998 and the remaining conversions will be completed by June 1999. The testing phase with respect to converted software is ongoing. Vendor software replacements and upgrades are on schedule for completion by June 1999. The testing phase with respect to replacement software is conducted as the software is replaced and is also scheduled to be completed by June 1999. Contingency planning with respect to IT Systems is underway and is scheduled to be completed in the first quarter of 1999. IT INFRASTRUCTURE. IT Infrastructure consists of hardware and systems software other than applications software. The implementation of the Year 2000 Plan with respect to IT Infrastructure is on schedule, and the Company estimates that approximately 90% of the scheduled activities with respect to IT Infrastructure had been completed as of October 1998. The testing phase is ongoing as the IT Infrastructure is remediated, upgraded or replaced. Contingency planning with respect to IT Infrastructure is scheduled to commence in the fourth quarter of 1998. The implementation of all phases of the Year 2000 Plan with respect to IT Infrastructure is expected to be completed by June 1999. PC&I. PC&I involves the hardware, software and associated embedded computer chips that are used in the operation of the Company's facilities. Plans detailing the tasks and resources required to implement the Year 2000 Plan with respect to PC&I are in place. The Company estimates that 80% of the PC&I vendors have responded to questionnaires indicating their equipment is Year 2000 compliant, and 20% have reported non-compliance. The non-compliant systems have been remediated, are undergoing remediation or are expected to have recommendations for remediation in place by November 1998. The implementation of the Year 2000 Plan with respect to PC&I is on schedule, and the Company believes that the conversion and testing of PC&I will be completed by June 1999. Contingency plans with respect to PC&I will be based upon tests expected to be run during the first quarter of 1999. EXTERNAL AGENTS. The External Agents Component of the Year 2000 Plan involves identifying and prioritizing critical business partners at the direct interface level and communicating with them about their plans and progress in addressing the Year 2000 issue. Detailed evaluations of the most critical third parties have been initiated. These evaluations will be followed by the development of contingency plans, which are scheduled to be completed in the first quarter of 1999. The Company believes the implementation of this Component of the Year 2000 Plan is on schedule as of October 1998. -18- COSTS TO ADDRESS THE BUSINESS SYSTEM REPLACEMENTS AND YEAR 2000 To date, the Company estimates it has spent $48.0 million of capital on the Systems Replacement Project of which a portion relates to expenditures made prior to the Merger. It is estimated that an additional $16.0 million of capital spending will be incurred in 1999 to complete the Systems Replacement Project. Expenses incurred to complete remediation of the Year 2000 Plan are not expected to have a material impact on the Company's results of operations or financial position. The Company believes operating cash flows will be adequate to fund any remaining expenditures related to the Systems Replacement Project and the Year 2000 Plan and does not anticipate these needs having a material effect on its liquidity or financial condition. RISKS ASSOCIATED WITH THE COMPANY'S YEAR 2000 ISSUES The Company's failure to resolve Year 2000 issues on or before December 31, 1999 could result in system failures or miscalculations causing disruption in operations, including, among other things, a temporary inability to process transactions, send invoices, send and/or receive e-mail and voice mail, or engage in similar normal business activities. Additionally, failure of third parties, upon whom the Company's business relies, to timely remediate their Year 2000 issues could result in disruption of the Company's supply of materials and parts, late, missed or unapplied payments, temporary disruptions in order processing and other general problems related to the Company's daily operations. While the Company believes the Year 2000 Plan will adequately address the Company's internal Year 2000 issues, until the Company receives responses from all significant business partners, the overall risks associated with the Year 2000 issue remain difficult to accurately assess and quantify, and there can be no assurances that the Year 2000 issue will not have a material adverse effect on the Company and its operations. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This filing contains certain forward-looking statements. Such statements are based upon the beliefs and assumptions of, and on information available to, the Company's management. Because such forward-looking statements are subject to various risks and uncertainties, results may differ materially from those expressed in or implied by such statements. Many of the factors that will determine these results are beyond the Company's ability to control or predict. Factors which could affect the Company's future results and could cause results to differ materially from those expressed in or implied by such forward-looking statements are discussed under the caption "Cautionary Statement Regarding Forward-Looking Statements" in the Company's Annual Report on Form 10-K for its fiscal year ended January 3, 1998, and under the caption "Risk Factors" in each of the Joint Proxy Statement/Prospectus forming a part of the Company's Registration Statement on Form S-4 (No. 333-36663) and the Prospectus forming a part of the Company's Registration Statement on Form S-4 (No. 333-46209). PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27.1 Financial Data Schedule (b) Reports on Form 8-K None -19- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. (REGISTRANT) PILLOWTEX CORPORATION BY (SIGNATURE) /s/ Ronald M. Wehtje (NAME AND TITLE) Ronald M. Wehtje Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) (DATE) November 13, 1998 -20- INDEX TO EXHIBITS
Exhibit Method of Filing - - ------- ----------------------------- 27.1 Financial Data Schedule. . . . . . . . . . Filed herewith electronically
-21- EX-27.1 2
5 This schedule contains summary financial information extracted from the consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows found on pages 3, 4, 5 and 6 of the Company's Form 10-Q for the nine months ended October 3, 1998, and is qualified in its entirety by reference to such financial statements. 1000 9-MOS JAN-02-1999 JAN-04-1998 OCT-03-1998 5,095 0 291,086 16,782 417,696 735,589 684,214 87,153 1,642,907 262,404 956,558 0 0 141 223,686 1,642,907 1,118,220 1,118,220 915,852 915,852 103,969 1,264 52,920 45,479 17,731 27,748 0 0 0 27,748 1.86 1.63
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