-----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, CD6NeTbg1ighM3hzz6SNlaMtbCp+3aLJQ0xlf5Q7SEXWl1iOKkmIUBGu3CpuGo/q 7IzxQ4vt5ecaYZPEAGOqLw== 0000896265-99-000010.txt : 19990519 0000896265-99-000010.hdr.sgml : 19990519 ACCESSION NUMBER: 0000896265-99-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990403 FILED AS OF DATE: 19990518 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PILLOWTEX CORP CENTRAL INDEX KEY: 0000896265 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED TEXTILE PRODUCTS [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: 99629618 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 April 3, 1999 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 May 7, 1999 Common Stock, $0.01 par value 14,186,408 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PILLOWTEX CORPORATION AND SUBSIDIARIES INDEX Part I - Financial Information Page No. Item 1. Unaudited Interim Consolidated Financial Statements: Consolidated Balance Sheets as of January 2, 1999 and April 3, 1999 3 Consolidated Statements of Earnings for the three months ended April 4, 1998 and April 3, 1999 4 Consolidated Statements of Cash Flows for the three months ended April 4, 1998 and April 3, 1999 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K 17 Signature 18 Index to Exhibits 19 PILLOWTEX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS January 2, 1999 and April 3, 1999 (Dollars in thousands, except for par value) (Unaudited)
1998 1999 ASSETS ----------- ----------- Current assets: Cash and cash equivalents. . . . . . . . . . . . . . .$ 5,561 $ 13,773 Receivables: Trade, less allowances of $21,117 and $21,208 in 1998 and 1999, respectively. . . . . . . . . . . . . 246,348 256,570 Other. . . . . . . . . . . . . . . . . . . . . . . . . 13,124 10,992 Inventories. . . . . . . . . . . . . . . . . . . . . . 434,281 481,444 Assets held for sale . . . . . . . . . . . . . . . . . 4,058 4,620 Prepaid expenses . . . . . . . . . . . . . . . . . . . 3,785 8,782 ----------- ----------- Total current assets. . . . . . . . . . . . . . . . 707,157 776,181 Property, plant and equipment, less accum. depreciation of $98,737 and $110,197 in 1998 and 1999, respectively 629,205 630,956 Intangible assets, at cost less accumulated amortization of $11,866 and $13,790 in 1998 and 1999, respectively . . . . . . . . . . . . . . . . 289,829 295,852 Other assets . . . . . . . . . . . . . . . . . . . . . . 27,963 26,136 ----------- ----------- $1,654,154 $1,729,125 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable . . . . . . . . . . . . . . . . . . .$ 127,575 $ 137,873 Accrued expenses . . . . . . . . . . . . . . . . . . . 96,250 93,877 Deferred income taxes. . . . . . . . . . . . . . . . . 22,978 22,980 Current portion of long-term debt. . . . . . . . . . . 12,421 14,496 Income taxes payable . . . . . . . . . . . . . . . . . - 814 ----------- ----------- Total current liabilities . . . . . . . . . . . . . 259,224 270,040 Long-term debt, net of current portion . . . . . . . . . 944,493 1,011,838 Deferred income taxes. . . . . . . . . . . . . . . . . . 96,013 90,302 Noncurrent liabilities . . . . . . . . . . . . . . . . . 53,434 51,348 ----------- ----------- Total liabilities . . . . . . . . . . . . . . . . . 1,353,164 1,423,528 Series A redeemable convertible preferred stock, $.01 par value; 65,000 shares issued and outstanding. . . . 63,057 63,111 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; 14,126,595 and 14,183,852 shares issued and outstanding in 1998 and 1999, respectively . . . 141 142 Additional paid-in capital . . . . . . . . . . . . . . 155,811 157,025 Retained earnings. . . . . . . . . . . . . . . . . . . 83,650 87,517 Currency translation adjustment. . . . . . . . . . . . (1,669) (1,105) Deferred compensation. . . . . . . . . . . . . . . . . - (1,093) ----------- ----------- Total shareholders' equity . . . . . . . . . . . . 237,933 242,486 ----------- ----------- $1,654,154 $1,729,125 =========== ===========
See accompanying notes to consolidated financial statements. -3- PILLOWTEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS Three Months Ended April 4, 1998 and April 3, 1999 (Amounts in thousands, except for per share data) (Unaudited)
1998 1999 ---------- ---------- Net sales. . . . . . . . . . . . . . . . . . . . . . . . $ 366,293 $ 368,508 Cost of goods sold . . . . . . . . . . . . . . . . . . . 304,751 312,294 ---------- ---------- Gross profit. . . . . . . . . . . . . . . . . . . . 61,542 56,214 Selling, general and administrative expenses . . . . . . 33,731 28,136 Restructuring charge . . . . . . . . . . . . . . . . . . 1,539 - ---------- ---------- Earnings from operations. . . . . . . . . . . . . . 26,272 28,078 Interest expense . . . . . . . . . . . . . . . . . . . . 16,795 19,466 ---------- ---------- Earnings before income taxes. . . . . . . . . . . . 9,477 8,612 Income taxes . . . . . . . . . . . . . . . . . . . . . . 3,839 3,359 ---------- ---------- Net earnings. . . . . . . . . . . . . . . . . . . . 5,638 5,253 Preferred dividends and accretion. . . . . . . . . . . . 486 535 ---------- ---------- Earnings available for common shareholders. . . . . $ 5,152 $ 4,718 ========== ========== Basic earnings per common share. . . . . . . . . . . . . $ .37 $ .33 ========== ========== Weighted average common shares outstanding - basic . . . 13,999 14,148 ========== ========== Diluted earnings per common share. . . . . . . . . . . . $ .33 $ .31 ========== ========== Weighted average common shares outstanding - diluted . . 16,974 16,937 ========== ========== Dividends declared per common share. . . . . . . . . . . $ .06 $ .06 ========== ==========
See accompanying notes to consolidated financial statements. -4- PILLOWTEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended April 4, 1998 and April 3, 1999 (Dollars in thousands) (Unaudited)
1998 1999 ---------- ---------- Cash flows from operating activities: Net earnings . . . . . . . . . . . . . . . . . . . . . .$ 5,638 $ 5,253 Adjustments to reconcile net earnings to net cash used in operating activities: Depreciation and amortization . . . . . . . . . . . . 13,970 13,627 Deferred income taxes . . . . . . . . . . . . . . . . 8,193 (195) Accretion on debt instruments . . . . . . . . . . . . 438 317 Provision for doubtful accounts . . . . . . . . . . . 414 140 Amortization of deferred compensation . . . . . . . . - 99 Gain on disposal of property, plant and equipment . . (12) - Changes in operating assets and liabilities: Trade receivables. . . . . . . . . . . . . . . . . (15,324) (10,499) Inventories. . . . . . . . . . . . . . . . . . . . (25,290) (46,901) Accounts payable . . . . . . . . . . . . . . . . . 248 40,424 Accrued expenses . . . . . . . . . . . . . . . . . 8,383 (2,229) Other assets and liabilities . . . . . . . . . . . (6,716) (330) ---------- ---------- Net cash used in operating activities . . . . . (10,058) (294) ---------- ---------- Cash flows from investing activities: Proceeds from sale of property, plant and equipment. . . 11,715 77 Purchases of property, plant and equipment . . . . . . . (22,591) (27,996) Proceeds from disposal of assets held for sale . . . . . 24,627 - Payments for businesses purchased. . . . . . . . . . . . (19,747) (59) ---------- ---------- Net cash used in investing activities . . . . . (5,996) (27,978) ---------- ---------- Cash flows from financing activities: Decrease in checks not yet presented for payment . . . . (14,749) (30,167) Borrowings on revolving credit loans . . . . . . . . . . 125,600 142,800 Repayments of revolving credit loans . . . . . . . . . . (95,000) (70,600) Retirement of long-term debt . . . . . . . . . . . . . . (1,985) (4,189) Payments of debt issuance costs. . . . . . . . . . . . . - (38) Dividends paid . . . . . . . . . . . . . . . . . . . . . (910) (1,332) Proceeds from exercise of stock options. . . . . . . . . 1,026 10 Other. . . . . . . . . . . . . . . . . . . . . . . . . . (133) - ---------- ---------- Net cash provided by financing activities . . . 13,849 36,484 ---------- ---------- Net change in cash and cash equivalents. . . . . . . . . . (2,205) 8,212 Cash and cash equivalents at beginning of period . . . . . 4,604 5,561 ---------- ---------- Cash and cash equivalents at end of period . . . . . . . .$ 2,399 $ 13,773 ========== ========== Supplemental disclosures of cash flow information: Cash paid (received) during the period for: Interest . . . . . . . . . . . . . . . . . . . . . . .$ 10,765 $ 13,540 ========== ========== Income taxes . . . . . . . . . . . . . . . . . . . . .$ (7,245) $ (2,160) ========== ==========
See accompanying notes to consolidated financial statements. -5- 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, which is referred to in this report as "Parent," and its subsidiaries, which are collectively with Parent, referred to in this report as 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 March 30, 1999 for the fiscal year ended January 2, 1999. The three month period ended April 3, 1999 includes the results of The Leshner Corporation ("Leshner") which was acquired on July 28, 1998. Certain reclassifications have been made to conform prior year financial statements to the current period classifications. The Company is organized by functional responsibilities and operates as a single segment. (2) Comprehensive Income Comprehensive income consists of net earnings and foreign currency translation adjustments and aggregates $5.6 million and $5.8 million for the three month periods ended April 4, 1998 and April 3, 1999, respectively. (3) Inventories Inventories consisted of the following at January 2, 1999 and April 3, 1999:
1998 1999 -------- -------- Finished goods $218,439 $226,724 Work-in-process 134,428 151,522 Raw materials 58,306 71,009 Supplies 23,108 32,189 -------- -------- $434,281 $481,444 ======== ========
-6- 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 month periods ended April 4, 1998 and April 3, 1999. Options to purchase 697,000 shares of common stock at prices ranging from $22.00 to $44.38 per share were outstanding during the three month period ended April 3, 1999, but were not included in the computation of diluted earnings per share because inclusion would have been antidilutive for the period. Additionally, 683,000 and 633,000 potentially dilutive shares relating to the 6% convertible debentures as of April 4, 1998 and April 3, 1999, respectively, were also not included because inclusion would have been antidilutive for each period.
Three Months Ended Three Months Ended April 4, 1998 April 3, 1999 ------------------ ------------------ Earnings Shares Earnings Shares -------- ------ -------- ------ Basic - earnings available for common shareholders $ 5,152 13,999 $ 4,718 14,148 Effect of dilutive securities: Stock options - 246 - 81 Convertible preferred stock 486 2,729 535 2,708 -------- ------ -------- ------ Diluted - earnings available for common shareholders $ 5,638 16,974 $ 5,253 16,937 ======== ====== ======== ======
-7- PILLOWTEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (5) Supplemental Condensed Consolidating Financial Information The following table presents condensed consolidating financial information for the Company, segregating the Parent and guarantor subsidiaries from non-guarantor subsidiaries. The guarantor subsidiaries are wholly owned subsidiaries of the Parent and the guarantees are full, unconditional and joint and several. Separate financial statements of the guarantor subsidiaries are not presented because management believes that these financial statements would not provide relevant material additional information.
January 2, 1999 ------------------------------------------------------------------------ Non- Guarantor Guarantor Financial Position Parent Subsidiaries Subsidiaries Eliminations Consolidated - ------------------ ------------ ------------ ------------ ------------ ------------ Assets: - ------- Trade receivables $ - $ 240,909 $ 5,439 $ - $ 246,348 Receivable from affiliates 746,839 - - (746,839) - Inventories - 424,563 9,718 - 434,281 Other current assets - 25,946 582 - 26,528 ------------ ------------ ------------ ------------ ------------ Total current assets 746,839 691,418 15,739 (746,839) 707,157 Property, plant and equipment, net 565 627,114 1,526 - 629,205 Intangibles, net 19,102 268,478 2,249 - 289,829 Other assets 382,558 17,898 - (372,493) 27,963 ------------ ------------ ------------ ------------ ------------ Total assets $ 1,149,064 $ 1,604,908 $ 19,514 $(1,119,332) $ 1,654,154 ============ ============ ============ ============ ============ Liabilities and Shareholders' Equity: - ------------------------------------- Accounts payable and accrued liabilities $ 6,425 $ 212,823 $ 4,577 $ - $ 223,825 Payables to affiliates - 744,000 2,839 (746,839) - Other current liabilities 8,318 27,002 79 - 35,399 ------------ ------------ ------------ ------------ ------------ Total current liabilities 14,743 983,825 7,495 (746,839) 259,224 Noncurrent liabilities 833,331 260,082 527 - 1,093,940 ------------ ------------ ------------ ------------ ------------ Total liabilities 848,074 1,243,907 8,022 (746,839) 1,353,164 Redeemable convertible preferred stock 63,057 - - - 63,057 Shareholders' equity 237,933 361,001 11,492 (372,493) 237,933 ------------ ------------ ------------ ------------ ------------ Total liabilities and shareholders' equity $ 1,149,064 $ 1,604,908 $ 19,514 $(1,119,332) $ 1,654,154 ============ ============ ============ ============ ============
-8- PILLOWTEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (5) Supplemental Condensed Consolidating Financial Information (Continued)
April 3, 1999 ------------------------------------------------------------------------ Non- Guarantor Guarantor Financial Position Parent Subsidiaries Subsidiaries Eliminations Consolidated - ------------------ ------------ ------------ ------------ ------------ ------------ Assets: - ------- Trade receivables $ - $ 252,255 $ 4,315 $ - $ 256,570 Receivable from affiliates 750,612 - - (750,612) - Inventories - 466,845 14,599 - 481,444 Other current assets - 36,738 1,429 - 38,167 ------------ ------------ ------------ ------------ ------------ Total current assets 750,612 755,838 20,343 (750,612) 776,181 Property, plant and equipment, net 548 628,925 1,483 - 630,956 Intangibles, net 18,394 275,174 2,284 - 295,852 Other assets 462,261 16,311 - (452,436) 26,136 ------------ ------------ ------------ ------------ ------------ Total assets $ 1,231,815 $ 1,676,248 $ 24,110 $(1,203,048) $ 1,729,125 ============ ============ ============ ============ ============ Liabilities and Shareholders' Equity: - ------------------------------------- Accounts payable and accrued liabilities $ 14,155 $ 213,282 $ 4,313 $ - $ 231,750 Payables to affiliates - 744,000 6,612 (750,612) - Other current liabilities 11,171 27,038 81 - 38,290 ------------ ------------ ------------ ------------ ------------ Total current liabilities 25,326 984,320 11,006 (750,612) 270,040 Noncurrent liabilities 900,892 252,071 525 - 1,153,488 ------------ ------------ ------------ ------------ ------------ Total liabilities 926,218 1,236,391 11,531 (750,612) 1,423,528 Redeemable convertible preferred stock 63,111 - - - 63,111 Shareholders' equity 242,486 439,857 12,579 (452,436) 242,486 ------------ ------------ ------------ ------------ ------------ Total liabilities and shareholders' equity $ 1,231,815 $ 1,676,248 $ 24,110 $(1,203,048) $ 1,729,125 ============ ============ ============ ============ ============
-9- PILLOWTEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (5) Supplemental Condensed Consolidating Financial Information (Continued)
Three Months Ended April 4, 1998 ------------------------------------------------------------------------ Non- Guarantor Guarantor Results of Operations Parent Subsidiaries Subsidiaries Eliminations Consolidated - --------------------- ------------ ------------ ------------ ------------ ------------ Net sales $ - $ 360,760 $ 6,184 $ (651) $ 366,293 Cost of goods sold - 299,820 5,582 (651) 304,751 ------------ ------------ ------------ ------------ ------------ Gross profit - 60,940 602 - 61,542 Selling, general and administrative (201) 33,542 390 - 33,731 Restructuring charges - 1,539 - - 1,539 ------------ ------------ ------------ ------------ ------------ Earnings from operations 201 25,859 212 - 26,272 Equity in earnings of subsidiaries 4,772 - - (4,772) - Interest expense (income) (1,132) 17,928 (1) - 16,795 ------------ ------------ ------------ ------------ ------------ Earnings before income taxes 6,105 7,931 213 (4,772) 9,477 Income taxes 467 3,357 15 - 3,839 ------------ ------------ ------------ ------------ ------------ Net earnings 5,638 4,574 198 (4,772) 5,638 Preferred dividends 486 - - - 486 ------------ ------------ ------------ ------------ ------------ Earnings available for common shareholders $ 5,152 $ 4,574 $ 198 $ (4,772) $ 5,152 ============ ============ ============ ============ ============ Three Months Ended April 3, 1999 ------------------------------------------------------------------------ Non- Guarantor Guarantor Results of Operations Parent Subsidiaries Subsidiaries Eliminations Consolidated - --------------------- ------------ ------------ ------------ ------------ ------------ Net sales $ - $ 362,664 $ 6,825 $ (981) $ 368,508 Cost of goods sold - 307,228 6,047 (981) 312,294 ------------ ------------ ------------ ------------ ------------ Gross profit - 55,436 778 - 56,214 Selling, general and administrative (1,042) 28,980 198 - 28,136 ------------ ------------ ------------ ------------ ------------ Earnings from operations 1,042 26,456 580 - 28,078 Equity in earnings of subsidiaries 4,039 - - (4,039) - Interest expense (income) (826) 20,303 (11) - 19,466 ------------ ------------ ------------ ------------ ------------ Earnings before income taxes 5,907 6,153 591 (4,039) 8,612 Income taxes 654 2,637 68 - 3,359 ------------ ------------ ------------ ------------ ------------ Net earnings 5,253 3,516 523 (4,039) 5,253 Preferred dividends 535 - - - 535 ------------ ------------ ------------ ------------ ------------ Earnings available for common shareholders $ 4,718 $ 3,516 $ 523 $ (4,039) $ 4,718 ============ ============ ============ ============ ============
-10- PILLOWTEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (5) Supplemental Condensed Consolidating Financial Information (Continued)
Three Months Ended April 4, 1998 ------------------------------------------------------------------------ Non- Guarantor Guarantor Cash Flows Parent Subsidiaries Subsidiaries Eliminations Consolidated - ---------- ------------ ------------ ------------ ------------ ------------ Cash provided by (used in) operating activities $ 20,455 $ (31,235) $ 722 $ - $ (10,058) Cash provided by (used in) investing activities (19,747) 13,785 (34) - (5,996) Cash provided by (used in) financing activities (708) 15,245 (688) - 13,849 ------------ ------------ ------------ ------------ ------------ Net change in cash and cash equivalents - (2,205) - - (2,205) Cash and cash equivalents at beginning of period - 4,590 14 - 4,604 ------------ ------------ ------------ ------------ ------------ Cash and cash equivalents at end of period $ - $ 2,385 $ 14 $ - $ 2,399 ============ ============ ============ ============ ============ Three Months Ended April 3, 1999 ------------------------------------------------------------------------ Non- Guarantor Guarantor Cash Flows Parent Subsidiaries Subsidiaries Eliminations Consolidated - ---------- ------------ ------------ ------------ ------------ ------------ Cash provided by (used in) operating activities $ 16,304 $ (13,573) $ (3,025) $ - $ (294) Cash provided by (used in) investing activities 18 (27,967) (29) - (27,978) Cash provided by (used in) financing activities (16,322) 48,871 3,935 - 36,484 ------------ ------------ ------------ ------------ ------------ Net change in cash and cash equivalents - 7,331 881 - 8,212 Cash and cash equivalents at beginning of period - 5,554 7 - 5,561 ------------ ------------ ------------ ------------ ------------ Cash and cash equivalents at end of period $ - $ 12,885 $ 888 $ - $ 13,773 ============ ============ ============ ============ ============ -11- 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 2, 1999. RESULTS OF OPERATIONS NET SALES. Net sales were $368.5 million for the three months ended April 3, 1999, representing an increase of $2.2 million, as compared to $366.3 million for the three months ended April 4, 1998. Net sales of blankets and sheets for the first quarter of 1999 were negatively affected by inefficiencies experienced in connection with the installation of new production and warehousing computer systems at some of the Company's sheet and blanket plants during the quarter. As a result of these inefficiencies, the Company experienced reduced sales through unshipped orders. The declines in net sales resulting from these inefficiencies were offset by the addition of Leshner's net sales. Leshner was acquired in July 1998 and accordingly, its net sales were not included in the first quarter of 1998. GROSS PROFIT. Gross profit margins decreased to 15.3% for the three months ended April 3, 1999 from 16.8% for the three months ended April 4, 1998. The decline in gross profit margin is primarily due to higher costs and unabsorbed overhead expenses associated with the system installations and new product rollouts during the quarter, and the closure of our facility in Opelika, Alabama completed in March 1999. SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). SG&A expenses decreased $5.6 million to $28.1 million for the three months ended April 3, 1999, compared to $33.7 million for the three months ended April 4, 1998. As a percentage of net sales, SG&A expenses declined to 7.6% for the three months ended April 3, 1999 from 9.2% for the three months ended April 4, 1998. The decline in SG&A expenses, both in dollars and as a percent of net sales, is primarily attributable to lower costs of operating the legacy systems and lower professional fees in 1999 as compared to 1998, which was negatively impacted due to the settlement of a lawsuit. RESTRUCTURING CHARGE. The $1.5 million restructuring charge for the three month period ended April 4, 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 $2.7 million to $19.5 million for the three months ended April 3, 1999, compared to $16.8 million for the three months ended April 4, 1998. The increase is primarily due to the additional debt incurred as a result of the Leshner acquisition and higher working capital requirements. Average interest rates for the three month period ended April 3, 1999 declined to 8.0% from 8.5% for the period ended April 4, 1998. 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 facilities. As of April 3, 1999, the outstanding principal balance under the Company's $350.0 million secured revolving credit facility was $255.0 million, with $41.6 million committed to outstanding letters of credit and $31.8 million committed for future potential payments on the 6% convertible debentures (which amount is equal to 50% of the cash that would have been payable if all of those debentures were converted on that date). As of April 3, 1999, the Company had $21.6 million of availability under its revolving credit facility. The debt outstanding under the revolving credit facility as of April 3, 1999 was $72.2 million higher than at January 2, 1999. This increase was due primarily to short term buildups in inventory to assure product supply during the production and warehousing system implementations at several plants, to ensure adequate stock for new product rollouts scheduled for the second quarter, and to accelerate certain capital projects. The Company expects to reduce borrowings for working capital for the rest of 1999 primarily by reducing inventory; however, the Company can give no assurance that it will be able to reduce inventory as planned. The Company expects a reduction in the manufacturing inefficiencies and shipping problems experienced with the system installations; however, no assurance can be given that the Company will not experience additional difficulties in connection with the installation of these computer systems. -12- As permitted under the terms of the Company's secured revolving credit facility, in May 1999, the Company entered into a $20.0 million senior unsecured revolving credit facility in order to assure adequate working capital availability and continue the current capital expenditure initiatives. The unsecured facility is guaranteed on a senior basis by the Company's domestic subsidiaries. The Company is required to pay interest on any amounts borrowed under the senior unsecured facility at a rate which is based upon the London Interbank Offered Rate plus 4.0% or the prime rate plus 2.5% at the Company's option. The senior unsecured facility matures upon termination by the Company at any time or otherwise generally at the earliest to occur of: a) any increase in the commitment under the secured facility or the Company's existing term loans, the issuance of any capital stock by the Company or its domestic subsidiaries, or other specified events; or b) August 2, 1999. 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 facilities, will be adequate to meet its anticipated cash requirements in the foreseeable future. As of May 14, 1999, the Company's total long-term debt (including the current portion) was $1,042.3 million. As of that date, no borrowings were outstanding under the senior unsecured revolving credit facility. Instruments governing the Company's debt, including its secured revolving credit facility, require it to maintain specified financial ratios and satisfy financial condition tests. Among other things, the senior secured credit facilities establish a maximum leverage ratio - the ratio of total debt to EBITDA (as defined) for four consecutive fiscal quarters - that the Company may have as of the end of any fiscal quarter. The maximum leverage ratio under this facility is currently 5.25-to-one and declines first to 4.75-to-one commencing with the last fiscal quarter of the 1999 fiscal year and thereafter to 4.25-to-one commencing with the last fiscal quarter of fiscal year 2000. At April 3, 1999, the Company's leverage ratio was 5.12-to-one, based on total debt of $1,026.3 million and EBITDA for the four consecutive fiscal quarters ending April 3, 1999 of $200.4 million (which amount includes $2.4 million of Leshner's pre-acquisition EBITDA as permitted under the secured revolving credit facility). As of April 3, 1999, the Company was in compliance with the specified financial ratios and financial condition tests, including the maximum leverage ratio, imposed on it under its debt instruments; however, the Company can make no assurance that it will be able to maintain that compliance. The Company periodically enters into interest rate swap agreements to minimize the risk of fluctuations in interest rates. As of January 2, 1999 and April 3, 1999, the Company had swap agreements covering approximately $345.0 million of notional amounts exchanging floating rates for fixed rates. The weighted average fixed and floating rates were 4.7% and 5.3%, respectively, at January 2, 1999 and 4.7% and 5.0%, respectively, at April 3, 1999. The fair value of the swaps at January 2, 1999 and April 3, 1999 was $2.1 million and $2.4 million, respectively. The fair values were in favor of the Company. On March 31, 1999, the Company paid a cash dividend of $.06 per share to its common shareholders of record as of March 12, 1999. Additionally, the Company paid preferred dividends in cash in the amount of $481,000 during the first quarter of 1999. Dividends currently accrue on the preferred stock at a rate of 3% per annum and are currently payable in cash or in-kind at the Company's option. To date, the Company has elected to pay such dividends in cash on a quarterly basis. Beginning January 1, 2000, the preferred stock dividend rate may increase depending on the Company's diluted earnings per share, calculated on a pro forma basis as provided in the preferred stock terms, for the fiscal year ending January 1, 2000. The following table indicates the dividend rate that will result at January 1, 2000 based on 1999 pro forma earnings per share:
Applicable Dividend Rate at 1999 Pro Forma Earnings Per Share January 1, 2000 --------------------------------- ------------------- $2.70 or greater 3.0% per annum $2.35 to$2.69 7.0% per annum $2.34 or less 10.0% per annum
-13- In addition, if the Company's 1999 pro forma earnings per share are below $2.70, the Company will be obligated to pay a one-time cumulative dividend in shares of the preferred stock in an amount equal to approximately 2,669 shares. This one-time dividend increases to approximately 10,135 shares if the Company's 1999 pro forma earnings per share are below $2.35. The Company's diluted earnings per share were $0.31 for the first quarter of 1999. The Company cannot assure you that the 1999 pro forma earnings per share will be $2.70 or greater. NEW ACCOUNTING STANDARDS In June 1998, SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, was issued. This statement establishes accounting and reporting standards for derivative 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, 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 incorrect results by or at the Year 2000. This could disrupt the Company's operations and those of its suppliers and customers. This "Year 2000" issue is believed to affect virtually all companies and organizations, including the Company. PILLOWTEX'S READINESS SYSTEMS REPLACEMENT PROJECT. In 1995, the Company began a project to improve its access to business information through common integrated computing and reporting systems. In 1996, before the Company acquired Fieldcrest Cannon, Fieldcrest Cannon had begun a similar project. Each of the Company and Fieldcrest Cannon had decided to use systems using software applications primarily developed by Oracle Corporation. These applications replace many of the accounting, reporting, and manufacturing systems that are, or previously had been, used at the Company and Fieldcrest Cannon. Also, the Company and Fieldcrest Cannon have 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 for these projects are Year 2000 compliant. The Company's system replacement project is expected to be completed toward the end of 1999. The Company previously estimated that it would complete its project in June 1999. This date has been extended due to recent acquisitions and software customizations which have broadened the original scope of the project. Over 95% of the Oracle software development is complete. The financial application was substantially completed in October 1998. The Company's payroll conversion was completed during early 1999. The development and implementation of the manufacturing and warehousing applications requires unique customization to meet the specific needs of each plant and is expected to continue into the third quarter of 1999. YEAR 2000 PLAN. The Company has developed a specific plan to help ensure that the Company is not negatively affected by Year 2000 problems. The plan is divided into the following components: (1) Information Technology Systems; (2) Information Technology Infrastructure; (3) Process Control and Instrumentation; and (4) third party suppliers and customers. -14- Each component includes the following six general phases: (1) inventory Year 2000 items; (2) assign priorities to identified items; (3) assess the impact 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. The Company hired a consultant in 1999 to review the Company's Year 2000 plan and suggest improvements. The Company will receive feedback during the second quarter of 1999. The Company has identified the most important issues as the safety of individuals, safety of property and the environment, and the Company's ability to manufacture and ship its products. The inventory and priority assessment phases were completed with respect to each component of the Year 2000 plan in May 1998. The remainder of the Year 2000 plan is ongoing, the majority of which will be completed during the third quarter of 1999. However, the Company will continue to monitor, review, and perform testing in each phase through the end of 1999. INFORMATION TECHNOLOGY SYSTEMS. Information Technology Systems include mostly applications software. The Company is remediating its applications software mostly through its systems replacement project. Other non-compliant applications software is being converted internally through custom programming or will be replaced by the software supplier. The conversion phase of Information Technology Systems will be completed during the third quarter of 1999. The testing of converted software is ongoing and will continue through the end of 1999. Vendor software replacements and upgrades are scheduled to be completed by June 1999 for the majority of the plant conversions. However, certain vendor software upgrades will not be complete until the third quarter of 1999. The testing of converted software will be conducted as the software is replaced and will continue through the end of the year. Contingency planning with respect to Information Technology Systems is ongoing, but the high level planning is expected to be completed during the second quarter of 1999. Detailed refinement of these plans will continue into the third and fourth quarters, as other system conversions are completed. INFORMATION TECHNOLOGY INFRASTRUCTURE. Information Technology Infrastructure includes hardware and systems software other than applications software. The Year 2000 plan for Information Technology Infrastructure is on schedule. Approximately 90% of the changes to Information Technology infrastructure were complete by April 3, 1999. This component is expected to be significantly complete during the third quarter of 1999. The testing phase will continue as the Information Technology Infrastructure is remediated, upgraded, or replaced. Contingency planning with respect to Information Technology Infrastructure is ongoing. Development and enhancement will continue through the end of the year. PROCESS CONTROL AND INSTRUMENTATION. The Process Control and Instrumentation component involves the hardware, software, and associated embedded computer chips that are used in the operation of the Company's facilities. The Year 2000 plan with respect to this component is in place. Approximately 80% of the Process Control and Instrumentation vendors have responded to questionnaires indicating their equipment is Year 2000 compliant, and 20% have reported non-compliance. The non-compliant systems have been or will be remediated. However, the Company is still assessing the needs of its newly acquired facilities and expects to complete this assessment during the third quarter of 1999. Contingency planning with respect to this component is ongoing and will be based on the results of tests expected to be completed by the end of the third quarter of 1999. THIRD PARTY SUPPLIERS AND CUSTOMERS. The third party 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 important third parties have been started. The Company is developing contingency plans based upon these evaluations. Contingency planning will continue with the Company's business partners throughout 1999. The Company believes the development and implementation of this component of the Year 2000 plan is on schedule as of April 3, 1999. -15- COSTS TO ADDRESS THE BUSINESS SYSTEM REPLACEMENTS AND YEAR 2000 As of April 3, 1999, the Company had spent $65.0 million on the systems replacement project. A portion of these costs relate to expenditures made prior to the acquisition of Fieldcrest Cannon. The Company estimates that it will need to spend $16.0 million in 1999 to complete the systems replacement project. Expenses to complete remediation are not expected to significantly impact the Company's results of operations or financial position. The Company believes that it will have sufficient operating cash flows for any remaining costs related to the systems replacement project and the Year 2000 plan. The Company does not expect that these costs will affect its liquidity or financial condition; however, the Company can make no assurance that the actual costs will not exceed those estimated above or that it will have available liquidity to fund any such additional costs. 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. Therefore, the Company cannot assure you 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 2, 1999. -16- 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 -17- 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) May 18, 1999 -18- INDEX TO EXHIBITS
Exhibit Method of Filing - ------- ----------------------------- 27.1 Financial Data Schedule. . . . . . . . . . Filed herewith electronically
-19- EX-27.1 2
5 1,000 3-MOS JAN-01-2000 JAN-03-1999 APR-03-1999 13,773 0 277,778 21,208 481,444 776,181 741,153 110,197 1,729,125 270,040 1,011,838 63,111 0 142 242,344 1,729,125 368,508 368,508 312,294 312,294 28,136 140 19,466 8,612 3,359 5,253 0 0 0 5,253 .33 .31
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