-----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, SFXTXG3/U8XnZuy2Z+L+B8h5U8XY2INPiIeyk+bbo2Mbx4BuGQ//RrWKrotUnEFH Cuce7z+AFGE/mBa9KTmlnA== 0000912057-99-006477.txt : 19991117 0000912057-99-006477.hdr.sgml : 19991117 ACCESSION NUMBER: 0000912057-99-006477 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991002 FILED AS OF DATE: 19991116 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: 99759178 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 10-Q 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 2, 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 75237 Dallas, Texas (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (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 12, 1999 ----- -------------------------------- Common Stock, $.01 par value 14,320,378 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 October 2, 1999 3 Consolidated Statements of Operations for the three months ended October 3, 1998 and October 2, 1999 4 Consolidated Statements of Operations for the nine months ended October 3, 1998 and October 2, 1999 5 Consolidated Statements of Cash Flows for the nine months ended October 3, 1998 and October 2, 1999 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 17 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K 23 Signature 24 Index to Exhibits 25 PILLOWTEX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JANUARY 2, 1999 AND OCTOBER 2, 1999 (DOLLARS IN THOUSANDS, EXCEPT FOR PAR VALUE) (Unaudited)
ASSETS 1998 1999 ---- ---- Current assets: Cash and cash equivalents $ 5,561 $ 7,669 Receivables: Trade, less allowances of $21,117 and $27,911 in 1998 and 1999, respectively 246,348 325,033 Other 13,124 15,428 Inventories 434,281 460,824 Assets held for sale 4,058 4,481 Prepaid expenses 3,785 9,043 ------------ ----------- Total current assets 707,157 822,478 Property, plant and equipment, less accumulated depreciation of $98,737 and $134,937 in 1998 and 1999, respectively 629,205 646,643 Intangible assets, at cost, less accumulated amortization of $11,866 and $17,528 in 1998 and 1999, respectively 289,829 291,056 Other assets 27,963 26,602 ------------ ----------- $ 1,654,154 $ 1,786,779 ============ =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable 127,575 183,741 Accrued expenses 96,250 81,311 Deferred income taxes 22,978 25,495 Current portion of long-term debt 12,421 19,512 Notes payable to banks - 12,200 Long-term debt currently being renegotiated (Note 6) - 626,082 ------------ ----------- Total current liabilities 259,224 948,341 Long-term debt, less current portion (Note 6) 944,493 399,582 Deferred income taxes 96,013 90,256 Noncurrent liabilities 53,434 49,789 ------------ ----------- Total liabilities 1,353,164 1,487,968 Series A redeemable convertible preferred stock, $0.01 par value; 65,000 shares issued and outstanding, including accrued dividends (Note 7) 63,057 72,199 Shareholders' equity: Preferred stock, $0.01 par value; authorized 20,000,000 shares; only Series A issued - - Common stock, $0.01 par value; authorized 55,000,000 shares; 14,126,595 and 14,320,378 shares issued and outstanding in 1998 and 1999, respectively 141 142 Additional paid-in capital 155,811 157,067 Retained earnings 83,650 71,443 Currency translation adjustment (1,669) (1,160) Deferred compensation - (880) ------------ ----------- Total shareholders' equity 237,933 226,612 ------------ ----------- $ 1,654,154 $ 1,786,779 ============ =========== See accompanying notes to consolidated financial statements.
PILLOWTEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED OCTOBER 3, 1998 AND OCTOBER 2, 1999 (AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA) (Unaudited)
1998 1999 ---- ---- Net sales $ 419,799 $ 415,806 Cost of goods sold 342,062 371,555 Provision for inventory write-down (Note 4) - 4,900 ------------ ----------- Gross profit 77,737 39,351 Selling, general and administrative expenses 34,171 33,220 Provision for asset impairments (Note 4) - 2,000 ------------ ----------- Earnings from operations 43,566 4,131 Interest expense 19,122 21,263 ------------ ----------- Earnings (loss) before income taxes 24,444 (17,132) Income taxes 9,422 (6,053) ------------ ----------- Net earnings (loss) 15,022 (11,079) Preferred dividends and accretion 540 9,526 ------------ ----------- Earnings (loss) available for common shareholders $ 14,482 $ (20,605) ============ =========== Basic earnings (loss) per common share $ 1.03 $ (1.45) ============ =========== Weighted average common shares outstanding - basic 14,122 14,184 ============ =========== Diluted earnings (loss) per common share $ .87 $ (1.45) ============ =========== Weighted average common shares outstanding - diluted 17,619 14,184 ============ =========== Dividends declared per common share $ .06 $ .06 ============ =========== See accompanying notes to consolidated financial statements.
PILLOWTEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS NINE MONTHS ENDED OCTOBER 3, 1998 AND OCTOBER 2, 1999 (AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA) (Unaudited)
1998 1999 ---- ---- Net sales $ 1,118,220 $ 1,146,781 Cost of goods sold 922,227 984,757 Provision for inventory write-down (Note 4) - 4,900 ------------ ----------- Gross profit 195,993 157,124 Selling, general and administrative expenses 96,055 92,457 Provision for asset impairments (Note 4) - 2,000 Restructuring charge 1,539 - ------------ ----------- Earnings from operations 98,399 62,667 Interest expense 52,920 60,464 ------------ ----------- Earnings before income taxes 45,479 2,203 Income taxes 17,731 1,255 ------------ ----------- Net earnings 27,748 948 Preferred dividends and accretion 1,567 10,602 ------------ ----------- Earnings (loss) available for common shareholders $ 26,181 $ (9,654) ============ =========== Basic earnings (loss) per common share $ 1.86 $ (.68) ============ =========== Weighted average common shares outstanding - basic 14,068 14,172 ============ =========== Diluted earnings (loss) per common share $ 1.63 $ (.68) ============ =========== Weighted average common shares outstanding - diluted 17,672 14,172 ============ =========== Dividends declared per common share $ .18 $ .18 ============ =========== See accompanying notes to consolidated financial statements.
PILLOWTEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED OCTOBER 3, 1998 AND OCTOBER 2, 1999 (Dollars in thousands) (Unaudited)
1998 1999 ---------- ---------- Cash flows from operating activities: Net earnings $ 27,748 $ 948 Adjustments to reconcile net earnings to net cash Used in operating activities: Depreciation and amortization........................................... 40,187 43,184 Deferred income taxes................................................... 23,581 1,825 Accretion on debt instruments........................................... 854 1,552 Provision for asset impairment - 2,000 Provision for doubtful accounts......................................... 1,264 873 Amortization of deferred compensation................................... - 312 Loss on disposal of property, plant and equipment....................... 52 65 Changes in operating assets and liabilities: Trade receivables.................................................... (42,627) (79,605) Other receivables.................................................... (10,082) 4,711 Inventories.......................................................... (37,562) (26,140) Prepaids............................................................. 2,248 (3,797) Other Assets......................................................... (6,950) 2,542 Accounts payable..................................................... 4,692 55,504 Accrued expenses..................................................... (13,500) (20,153) Other assets and liabilities......................................... (1,878) (3,646) ---------- ---------- Net cash used in operating activities........................... (11,973) (19,829) ---------- ---------- Cash flows from investing activities: Proceeds from sale of property, plant and equipment......................... 2,779 472 Purchases of property, plant and equipment.................................. (89,660) (73,622) Proceeds from disposal of assets held for sale.............................. 35,335 - Payments for businesses purchased........................................... (90,029) - ---------- ---------- Net cash used in investing activities........................... (141,575) (73,150) ---------- ---------- Cash flows from financing activities: Increase (decrease) in checks not yet presented for payment................. (6,905) 599 Borrowings on revolving credit loans........................................ 369,100 346,098 Repayments of revolving credit loans........................................ (291,500) (233,928) Proceeds from the issuance of other long-term debt.......................... 100,000 - Retirement of long-term debt................................................ (13,205) (13,657) Payments of debt issuance costs............................................. (1,617) (56) Dividends paid (4,063) (4,011) Proceeds from exercise of stock options..................................... 2,229 43 ---------- ---------- Net cash provided by financing activities....................... 154,039 95,087 ---------- ---------- Net change in cash and cash equivalents......................................... 491 2,108 Cash and cash equivalents at beginning of period................................ 4,604 5,561 ---------- ---------- Cash and cash equivalents at end of period...................................... $ 5,095 $ 7,669 ========== ========== Supplemental disclosures of cash flow information: Cash paid (received) during the period for: Interest.................................................................. $ 47,835 $ 47,718 ========== ========== Income taxes $ (4,597) $ 812 ========== ==========
See accompanying notes to consolidated financial statements. 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 consolidated financial statements include the results of The Leshner Corporation ("Leshner") from its date of acquisition, 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 (loss) and foreign currency translation adjustments and aggregates $14.4 million and $26.8 million for the three and nine month periods ended October 3, 1998, respectively. For the three and nine month periods ended October 2, 1999 comprehensive income (loss) aggregates $(10.7) million and $1.5 million, respectively. (3) INVENTORIES Inventories consisted of the following at January 2, 1999 and October 2, 1999:
January 2 October 2 1998 1999 ------------ ------------ Finished goods $ 218,439 $ 227,878 Work-in-process 134,428 150,714 Raw materials 58,306 55,935 Supplies 23,108 26,297 ------------ ------------ $ 434,281 $ 460,824 ============ ============
(4) PROVISION FOR INVENTORY AND OTHER IMPAIRMENTS During the third quarter of 1999, the Company recorded a $4.9 million pre-tax non-cash charge to reduce certain blanket inventory to net realizable value. The Company also recorded a $2.0 million non-cash charge to adjust the carrying value of the Opelika facility, which was closed in the first quarter of 1999, to an estimated fair market value. PILLOWTEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (TABLES IN THOUSANDS) (UNAUDITED) (5) EARNINGS PER SHARE The following table reconciles the numerators and denominators of basic and diluted earnings (loss) per share for the three and nine month periods ended October 3, 1998 and October 2, 1999. The potentially dilutive effects of stock options, convertible notes and convertible preferred stock were excluded from the computation of diluted earnings per share for the periods ended October 2, 1999 because inclusion would have been antidilutive. Options to purchase 466,000 shares of common stock at prices ranging from $33.50 to $46.50 were outstanding during the three and nine month periods ending October 3, 1998 and were not included in the computation of diluted earnings per share because their inclusion would have been antidilutive.
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 debentures 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 ========== ====== ========== ====== Three Months Ended Nine Months Ended October 2, 1999 October 2, 1999 ----------------------- --------------------- Earnings Shares Earnings Shares -------- ------ -------- ------ Basic - earnings (loss) available for common shareholders $ (20,605) 14,184 $ (9,654) 14,173 Effect of dilutive securities: Stock options - - - - Convertible debentures - - - - Convertible preferred stock - - - - ---------- ------ ---------- ------ Diluted - earnings available for common shareholders $ (20,605) 14,184 $ (9,654) 14,173 ========== ====== ========== ======
PILLOWTEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (6) LONG-TERM DEBT Long-term debt consists of the following (in thousands):
January 2, October 2, 1999 1999 ----------- ----------- Credit Facilities: Revolving credit facility $ 182,800 $ 282,770 Tranche A term loan 125,000 121,250 Tranche B term loan 223,750 222,062 9% Senior subordinated notes 155,000 185,000 10% Senior subordinated notes 155,000 125,000 6% Convertible debentures (net of unamortized discount of $14.5 million). 88,594 85,649 Industrial revenue bonds 17,218 17,949 Other Notes 9,552 5,496 ----------- ----------- 956,914 1,045,176 Less: Long-term debt currently being renegotiated - 626,082 Current portion of long-term debt 12,421 19,512 ----------- ----------- $ 944,493 $ 399,582 =========== ===========
In December 1997, in connection with the Fieldcrest Cannon acquisition, the Company entered into new senior Secured revolving credit and term loan facilities (the "Facilities") with a group of financial and institutional investors (the "Lending Group") for which Bank of America acts as the agent. The Facilities consisted of a $350.0 million revolving credit facility (the "Revolver") and a $250.0 million term loan facility (the "Term Loan"). The Term Loan consisted of a $125.0 million Tranche A Term Loan (the "Tranche A Term Loan") and a $125.0 million Tranche B Term Loan (the "Tranche B Term Loan"). Effective July 28, 1998, the Company amended the Facilities by increasing the Tranche B Term Loan to $225.0 million. The increase occurred in conjunction with the acquisition of Leshner, allowing the Company to fund the transaction and reduce borrowings under the Revolver. The Revolver and the Tranche A Term Loan expire December 31, 2003, and the Tranche B Term Loan expires December 31, 2004. The Revolver includes $55.0 million of availability for letters of credit. At October 2, 1999, $36.7 million of letters of credit were outstanding. Subsequent to the end of the third fiscal period, the Revolver was amended to permit the Company to use for working capital purposes a $30.5 million portion of the Revolver previously held as a contingency reserve, thereby increasing the availability under that facility. Amounts outstanding under the Revolver and the Tranche A Term Loan bear interest at a rate based upon the London Interbank Offered Rate plus 3.00%. The Tranche B Term Loan bears interest on a similar basis to the Tranche A Term Loan, plus an additional margin of 0.50%. These rates are subject to increase or decrease based upon the Company's ratio of funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA"), as measured on a trailing 12 month basis, at the end of each fiscal quarter. The weighted average annual interest rate on outstanding borrowings under the various senior credit facilities during the first three quarters of 1999 was 7.3% and the effective rate at October 2, 1999 was 7.5%. The Facilities contain a number of financial affirmative and negative covenants which, among other things, require maintenance of a funded debt to EBITDA ratio and a fixed charge coverage ratio, and require the Company to maintain a minimum tangible net worth. Other covenants restrict, among other things, the Company's ability to incur additional debt, grant liens, engage in transactions with affiliates, make loans, advances and investments, pay dividends and other distributions to shareholders, dispose of assets, effect mergers, consolidations and dissolutions, and make certain changes in its business. On October 2, 1999, the Company was not in compliance with certain financial covenants under the Facilities, as amended. The Company has obtained a waiver of such non-compliance through December 7, 1999. The Company is currently in discussions with the Lending Group to obtain a permanent waiver of such non-compliance and to amend the financial covenants contained in the Facilities. However, no assurance can be given that the Lending Group will grant a permanent waiver or agree to a further extension of the temporary waiver or that the Company will reach agreement with respect to any such amendment by the expiration of the temporary waiver, or as to the terms of any such waiver or amendment. In the event that the Lending Group does not grant a permanent waiver or further extend the existing waiver, there would exist an event of default under the Facilities, and, as a result, the Lending Group would not be obligated to make additional advances under the Revolver. Additionally, the Lending Group would be entitled to declare all principal of and interest on advances under the Facilities immediately due and payable and would have the right to block payments on substantially all other long-term indebtednes of the Company. Also, cross-defaults may occur under the instruments governing substantially all of the Company's other long-term indebtedness. As a result of the above circumstances, the Company has classified all of the debt affected by the non-compliance and related waiver as current. At October 2, 1999, the long-term debt payable within one year was $19.5 million and the debt which has been classified as current due to the term of the temporary waiver totaled $626.1 million. If the Company obtains suitable amendments of the financial covenants in the Facilities, then that portion of the debt due after one year from the Company's next reported balance sheet date would be reclassified as long-term on the Company's next reported financial statements. As permitted under the terms of the Facilities, in May 1999, the Company entered into a $20.0 million senior unsecured revolving credit facility in order to obtain additional working capital availability. On July 27, 1999, the senior unsecured facility was amended to increase the amount of funds available to $35.0 million and to extend the original maturity date. Availability under this bank line of credit was $22.8 million at October 2, 1999. On November 15, 1999, the senior unsecured facility was again amended to further extend the maturity date to December 7, 1999. The senior 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 at the earliest of: a) any increase in the commitment under the Facilities, the issuance of any capital stock by the Company or its domestic subsidiaries, or other specified events; or b) December 7, 1999. The Company is currently in discussions with the lender under the unsecured revolving credit facility to further extend the maturity date; however, no assurance can be given that the Company and such Lender will reach agreement with respect to any such amendment, or as to the terms of any such amendment. As a result of the Fieldcrest Cannon acquisition, the $104.2 million aggregate principal amount of 6% Convertible Subordinated Debentures due 2012 of Fieldcrest Cannon (the "Fieldcrest Debentures") outstanding at October 2, 1999, are convertible, at the option of the holder, into a combination of cash and the Company's common stock. At October 2, 1999, if all outstanding Fieldcrest Debentures were converted, the resulting cash component to be paid to the debtholders would have been approximately $63.6 million. The Company recently notified the holders of the Fieldcrest Debentures that, given the current status of the Company's discussions with the Lending Group and certain other matters, it is not practicable or prudent for payments to be made in respect of the Fieldcrest Debentures at this time and have advised such holders that they will be offered the opportunity to rescind their surrender for conversion and regain possession of their Fieldcrest Debentures. Based upon current and anticipated levels of operations, and aggressive efforts to reduce inventories and accounts receivable, the Company anticipates that its cash flow from operations, together with amounts available under the Revolver and the unsecured revolving credit facility, will be adequate to meet its anticipated cash requirements in the foreseeable future if it is able to achieve appropriate waivers of amendments of its senior credit facilities. In addition to cash requirements for operations, cash requirements may increase to meet the potential payment obligations under the Fieldcrest Debentures. If a substantial amount of the Fieldcrest Debentures were presented to the Company, the Company may not have adequate funds to meet this payment obligation. In the event that such amounts are not sufficient for future cash requirements, the Company may be required to reduce planned capital expenditures or seek additional financing. The Company can provide no assurances that financing would be available or, if available, offered on terms acceptable to the Company. (7) REDEEMABLE CONVERTIBLE PREFERRED STOCK Under the terms of the Company's Series A Redeemable Convertible Preferred Stock ("Series A Preferred Stock"), beginning January 1, 2000, the rate at which dividends will accrue may increase to 7% or 10% depending on the Company's earnings per share for the 1999 fiscal year. The Company will also be required to pay a one-time cumulative dividend in Series A Preferred Stock, from the issue date through December 31, 1999, equal to the difference between the dividends calculated at the 3% rate and dividends calculated at either the 7% or 10% rate if the fiscal year 1999 earnings per share are less than the pre-determined targets. The Company has determined that it is probable that earnings per share for the 1999 fiscal year will not meet the lowest pre-determined target and that the dividend rate for the Series A Preferred Stock will increase to 10% beginning January 1, 2000. Accordingly, the Company recorded a one-time cumulative stock dividend of 8,980 Series A Preferred Shares (or $9.0 million) for the quarter ended October 2, 1999 to effectively adjust the dividend rate on the Series A Preferred Stock from the date of issuance through the end of the third quarter. The Company expects to record incremental preferred dividends in the fourth quarter of 1999 of 1,145 preferred shares (or $1.1 million) on account of the increase in the preferred dividend rate to 10%. Regularly scheduled quarterly dividends on the Series A Preferred Stock may be paid in cash or in kind at the Company's option through December 19, 2002, and thereafter may be paid only in cash. The Company intends to pay the quarterly dividend due on December 31, 1999 in additional Series A Preferred Stock. PILLOWTEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (8) 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 (in thousands). 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 Intangible, 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 ============= ============= ============ ============ ============
PILLOWTEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (8) SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
October 2, 1999 ----------------------------------------------------------------------------------- Non- Guarantor Guarantor Financial Position Parent Subsidiaries Subsidiaries Eliminations Consolidated ------------------ ------ ------------ ------------ ------------ ------------ Assets: - ------- Trade receivables $ - $ 319,361 $ 5,672 $ - $ 325,033 Receivable from affiliates 751,474 - - (751,474) - Inventories - 445,803 15,021 - 460,824 Other current assets - 36,690 (69) - 36,621 ----------- ----------- ----------- ------------- ----------- Total current assets 751,474 794,860 20,624 (751,474) 822,478 Property, plant and equipment, net 494 644,684 1,465 - 646,643 Intangible, net 16,805 271,968 2,283 - 291,056 Other assets 492,385 18,439 - (484,222) 26,602 ----------- ----------- ----------- ------------- ----------- Total assets $ 1,261,158 $ 1,736,945 $ 24,372 $ (1,235,696) $ 1,786,779 =========== =========== =========== ============= =========== Liabilities and Shareholders' Equity: - ------------------------------------- Accounts payable and accrued liabilities $ 13,895 $ 247,408 $ 3,914 $ - $ 265,052 Payables to affiliates - 744,000 7,474 (751,474) - Other current liabilities 642,348 40,859 82 - 683,289 ----------- ----------- ----------- ------------- ----------- Total current liabilities 656,243 1,032,102 11,470 (751,474) 948,341 Noncurrent liabilities 306,104 232,980 543 - 539,627 ----------- ----------- ----------- ------------- ----------- Total liabilities 962,347 1,265,082 12,013 (751,474) 1,487,968 Redeemable convertible preferred Stock 72,199 - - - 72,199 Shareholders' equity 226,612 471,863 12,359 (484,222) 226,612 ----------- ----------- ----------- ------------- ----------- Total liabilities and shareholders' equity $ 1,261,158 $ 1,736,945 $ 24,372 $ (1,235,696) $ 1,786,779 =========== =========== =========== ============= ===========
PILLOWTEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (8) SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) 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 - 337,189 6,263 (1,390) 342,062 ----------- ----------- ----------- ----------- ----------- Gross profit (loss) - 77,198 539 - 77,737 Selling, general and administrative (1,422) 35,232 361 - 34,171 ----------- ----------- ----------- ----------- ----------- Earnings (loss) from operations 1,422 41,966 178 - 43,566 Equity in earnings of subsidiaries 14,216 - - (14,216) - Interest expense 182 18,945 (5) - 19,122 ----------- ----------- ----------- ----------- ----------- Earnings (loss) before income taxes 15,456 23,021 183 (14,216) 24,444 Income taxes 434 9,000 (12) - 9,422 ----------- ----------- ----------- ----------- ----------- Net earnings (loss) 15,022 14,021 195 (14,216) 15,022 Preferred dividends 540 - - - 540 ----------- ----------- ----------- ----------- ----------- Earnings (loss) available for Common shareholders $ 14,482 $ 14,021 $ 195 $ (14,216) $ 14,482 =========== =========== =========== =========== =========== Three Months Ended October 2, 1999 ----------------------------------------------------------------------------------- Non- Guarantor Guarantor Results of Operations Parent Subsidiaries Subsidiaries Eliminations Consolidated --------------------- ------ ------------ ------------ ------------ ------------ Net sales $ - $ 410,720 $ 7,262 $ (2,176) $ 415,806 Cost of goods sold - 366,497 7,234 (2,176) 371,555 Provision for inventory write-down - 4,900 4,900 ----------- ----------- ------------ ------------ ------------ Gross profit - 39,323 28 - 39,351 Selling, general and administrative (1,817) 34,801 236 - 33,220 Provision for asset impairment - 2,000 - - 2,000 ----------- ----------- ------------ ------------ ------------ Earnings (loss) from operations 1,817 2,522 (208) - 4,131 Equity in earnings of subsidiaries (12,054) - - 12,054 - Interest expense (income) 316 20,950 (3) - 21,263 ----------- ----------- ------------ ------------ ------------ Earnings (loss) before income taxes (10,553) (18,428) (205) 12,054 (17,132) Income taxes 526 (6,537) (42) - (6,053) ----------- ----------- ------------ ------------ ------------ Net earnings (loss) (11,079) (11,891) (163) 12,054 (11,079) Preferred dividends 9,526 - - - 9,526 ----------- ----------- ------------ ------------ ------------ Earnings (loss) available for common shareholders $ (20,605) $ (11,891) $ (163) $ 12,054 $ (20,605) =========== =========== ============ ============ ============
PILLOWTEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (8) SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
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 - 907,542 17,531 (2,846) 922,227 ----------- ------------ ------------ ------------ ------------ Gross profit - 195,437 556 - 195,993 Selling, general and administrative (3,294) 98,230 1,119 - 96,055 Restructuring charges - 1,539 - - 1,539 ----------- ------------ ------------ ------------ ------------ Earnings (loss) from operations 3,294 95,668 (563) - 98,399 Equity in earnings of subsidiaries 25,759 - - (25,759) - Interest expense 234 52,694 (8) - 52,920 ----------- ------------ ------------ ------------ ------------ Earnings (loss) before income taxes 28,819 42,974 (555) (25,759) 45,479 Income taxes 1,071 16,778 (118) - 17,731 ----------- ------------ ------------ ------------ ------------ Net earnings (loss) 27,748 26,196 (437) (25,759) 27,748 Preferred dividends 1,567 - - - 1,567 ----------- ------------ ------------ ------------ ------------ Earnings (loss) available for Common shareholders $ 26,181 $ 26,196 $ (437) $ (25,759) $ 26,181 =========== ============ ============ ============ ============ Nine Months Ended October 2, 1999 ----------------------------------------------------------------------------------- Non- Guarantor Guarantor Results of Operations Parent Subsidiaries Subsidiaries Eliminations Consolidated --------------------- ------ ------------ ------------ ------------ ------------ Net sales $ - $ 1,130,107 $ 20,973 $ (4,299) $ 1,146,781 Cost of goods sold - 969,066 19,990 (4,299) 984,757 Provision for inventory write-down - 4,900 - - 4,900 ----------- ------------ ------------ ------------ ------------ Gross profit - 156,141 983 - 157,124 Selling, general and administrative (3,904) 95,726 636 - 92,457 Provision for asset impairment - 2,000 - - 2,000 ----------- ------------ ------------ ------------ ------------ Earnings from operations 3,904 58,415 347 - 62,667 Equity in earnings (loss) of subsidiaries (1,852) - - 1,852 - Interest expense (income) (403) 60,887 (20) - 60,464 ----------- ------------ ------------ ------------ ------------ Earnings (loss) before income taxes 2,455 (2,472) 367 1,852 2,203 Income taxes 1,508 (262) 9 - 1,255 ----------- ------------ ------------ ------------ ------------ Net earnings (loss) 947 (2,210) 358 1,852 948 Preferred dividends 10,601 - - - 10,601 ----------- ------------ ------------ ------------ ------------ Earnings (loss) available for common shareholders $ (9,654) $ (2,210) $ 358 $ 1,852 $ (9,654) =========== ============ ============ ============ ============
PILLOWTEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (8) SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
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 provided by (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 year - 4,590 14 - 4,604 ----------- ------------ ------------ ------------ ------------ Cash and cash equivalents at End of period $ - $ 5,087 $ 8 $ - $ 5,095 =========== ============ ============ ============ ============ Nine Months Ended October 2, 1999 ------------------------------------------------------------------------------------ Non- Guarantor Guarantor Cash Flows Parent Subsidiaries Subsidiaries Eliminations Consolidated ---------- ------ ------------ ------------ ------------ ------------ Cash provided by (used in) Operating activities $ 10,090 $ (26,038) $ (3,881) $ - $ (19,829) ----------- ------------ ------------ ------------ ------------ Cash provided by (used in) Investing activities 71 (73,149) (72) - (73,150) Cash provided by (used in) Financing activities (10,161) 101,435 3,813 - 95,087 ----------- ------------ ------------ ------------ ------------ Net change in cash and cash Equivalents - 2,248 (140) - 2,108 Cash and cash equivalents at Beginning of year - 5,554 7 - 5,561 ----------- ------------ ------------ ------------ ------------ Cash and cash equivalents at End of period $ - $ 7,802 $ (133) $ - $ 7,669 =========== ============ ============ ============ ============
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 $415.8 million for the three months ended October 2, 1999, representing a decrease of $4.0 million, or 1.0%, as compared to $419.8 million for the three months ended October 3, 1998. Net sales for the nine months ended October 2, 1999 increased by $28.6 million, or 2.6%, to $1,146.8 million from $1,118.2 million for the same period of the prior year. The increase in net sales due to the acquisition of Leshner on July 28, 1998 is approximately $10.0 million and $56.0 million for the three and nine months ended October 2, 1999, respectively. GROSS PROFIT. Gross profit margins decreased to 9.5% for the three months ended October 2, 1999 from 18.5% for the three months ended October 3, 1998. Gross profit margin for the nine months ended October 2, 1999 decreased to 13.7% from 17.5% for the same period in the prior year. The declines in gross profit margin are primarily due to higher costs, unabsorbed overhead expenses related to the installation of new computer systems and equipment and a charge of $4.9 million for inventory write-down. The earnings for the quarter and year-to-date were negatively impacted by higher than planned costs associated with certain marketing initiatives and by lower margin sales due to a combination of higher costs, primarily in unabsorbed overhead, and to a lower average selling price due to a change in sales mix pursuant to the inventory reduction program. The Company is critically reviewing all areas of its operations and taking aggressive action to improve operating results. The Company has imposed tighter control over sales and marketing programs which have adversely affected profit margins in 1999, and will continue to focus on decreasing inventory and accounts receivable and controlling operating costs SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). SG&A expenses decreased $1.0 million to $33.2 million for the three months ended October 2, 1999, compared to $34.2 million for the three months ended October 3, 1998. As a percentage of net sales, SG&A expenses decreased to 8.0% for the three months ended October 2, 1999 from 8.1% for the three months ended October 3, 1998. SG&A expenses decreased by $3.6 million from $96.1 million, or 8.6% of net sales, for the nine months ended October 3, 1998 to $92.5 million, or 8.1% of net sales, for the same period this year. PROVISION FOR ASSET IMPAIRMENTS. During the third quarter of 1999, the Company recorded a pre-tax $2.0 million non-cash charge to adjust the carrying value of the Opelika facility, which was closed in the first quarter of 1999, to an estimated fair market value. INTEREST EXPENSE. Interest expense increased $2.2 million to $21.3 million for the three months ended October 2, 1999, compared to $19.1 million for the three months ended October 3, 1998. Interest expense for the nine month period ended October 2, 1999 increased $7.5 million to $60.5 million from $53.0 million for the nine month period ended October 3, 1998. The increase is primarily due to additional debt incurred in connection with the Leshner acquisition, capital expenditures in connection with the Company's plant upgrades, higher working capital requirements, and the payment of waiver and amendment fees to the Company's senior lenders aggregating $2.0 million. Average interest rates for the three month period ended October 2, 1999 declined to 8.1% from 8.4% for the period ended October 3, 1998. Average interest rates for the nine month period ended October 2, 1999 also declined to 8.0% from 8.4% for the same period last year. LIQUIDITY AND CAPITAL RESOURCES In December 1997, in connection with the Fieldcrest Cannon acquisition, the Company entered into new senior revolving credit and term loan facilities (the "Facilities") with a group of financial and institutional investors (the "Lending Group") for which Bank of America acts as the agent. The Facilities consisted of a $350.0 million revolving credit facility (the "Revolver") and a $250.0 million term loan facility (the "Term Loan"). The Term Loan consisted of a $125.0 million Tranche A Term Loan (the "Tranche A Term Loan") and a $125.0 million Tranche B Term Loan (the "Tranche B Term Loan"). Effective July 28, 1998, the Company amended the Facilities by increasing the Tranche B Term Loan to $225.0 million. The increase occurred in conjunction with the acquisition of Leshner, allowing the Company to fund the transaction and reduce borrowings under the Revolver. The Revolver and the Tranche A Term Loan expire December 31, 2003, and the Tranche B Term Loan expires December 31, 2004. The Revolver includes $55.0 million of availability for letters of credit. At October 2, 1999, $36.7 million of letters of credit were outstanding. Subsequent to the end of the third fiscal period, the Revolver was amended to permit the Company to use for general working capital purposes, a $30.5 million portion of the Revolver previously held as a contingency reserve thereby increasing the availability under that facility. Amounts outstanding under the Revolver and the Tranche A Term Loan bear interest at a rate based upon the London Interbank Offered Rate plus 3.00%. The Tranche B Term Loan bears interest on a similar basis to the Tranche A Term Loan, plus an additional margin of .50%. These rates are subject to increase or decrease based upon the Company's ratios of funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") at the end of each fiscal quarter. The weighted average annual interest rate on outstanding borrowings under the various senior credit facilities during the first three quarters of 1999 was 7.3% and the effective rate at October 2, 1999 was 7.5%. The Facilities contain a number of financial affirmative and negative covenants which, among other things, require maintenance of a funded debt to EBITDA ratio and a fixed charge coverage ratio, and require the Company to maintain a minimum tangible net worth. Other covenants restrict, among other things, the Company's ability to incur additional debt, grant liens, engage in transactions with affiliates, make loans, advances and investments, pay dividends and other distributions to shareholders, dispose of assets, effect mergers, consolidations and dissolutions, and make certain changes in its business. On October 2, 1999, the Company was not in compliance with certain financial covenants under the Facilities, as amended. The Company has obtained a waiver of such non-compliance through December 7, 1999. The Company is currently in discussions with the Lending Group to obtain a permanent waiver of such non-compliance and to amend the financial covenants contained in the Facilities. However, no assurance can be given that the Lending Group will grant a permanent waiver or agree to a further extension of the temporary waiver or that the Company will reach agreement with respect to any such amendment by the expiration of the existing waiver, or as to the terms of any such waiver or amendment. As a result of the above circumstances, the Company has classified all of the debt affected by the non-compliance and related waiver as current. At October 2, 1999, the long-term debt payable within one year was $19.5 million and the debt which has been classified as current due to the term of the temporary waiver totaled $626.1 million. If the Company obtains suitable amendments of the financial covenants in the Facilities, then that portion of the debt due after one year from the Company's next reported balance sheet date would be reclassified as long-term on the Company's next reported financial statements. As permitted under the terms of the Facilities, in May 1999, the Company entered into a $20.0 million senior unsecured revolving credit facility in order to obtain additional working capital availability. On July 27, 1999, the senior unsecured facility was amended to increase the amount of funds available to $35.0 million and to extend the original maturity date. Availability under this bank line of credit was $22.8 million at October 2, 1999. On November 15, 1999, the senior unsecured facility was again amended to further extend the maturity date. The senior 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 at the earliest of: a) any increase in the commitment under the Facilities, the issuance of any capital stock by the Company or its domestic subsidiaries, or other specified events; or b) December 7, 1999. The Company is currently in discussions with the lender under the unsecured revolving credit facility to further extend the maturity date; however, no assurance can be given that the Company and such Lender will reach agreement with respect to any such amendment, or as to the terms of any such amendment. In the event that the Lending Group does not grant a permanent waiver or further extend the existing waiver, there would exist an event of default under the Facilities, and, as a result, the Lending Group would not be obligated to make additional advances under the Revolver, and would be entitled to declare all principal of and interest on advances under the Facilities immediately due and payable and would have the right to block payments on substantially all other long-term indebtednes of the Company. In addition, there might also occur cross-defaults under the instruments governing substantially all of the Company's other long-term indebtedness. The debt outstanding under the Revolver as of October 2, 1999 was $23.2 million higher than at July 3, 1999. This increase was due primarily to the net loss for the period of $11.1 million, and an increase in accounts receivable of $58.4 million during the third fiscal quarter. The earnings for the quarter were negatively impacted by higher than planned costs associated with certain marketing initiatives and by lower margin sales due to a combination of higher costs, primarily in unabsorbed overhead, and to a lower average selling price due to a change in sales mix pursuant to the inventory reduction program. Consolidated inventory was reduced by $43.5 million before a charge of $4.9 million in the third fiscal quarter. The increase in accounts receivable was due, in part, to a seasonal increase in sales, but also due to a substantial increase in the number of day's sales in accounts receivable, which is attributable to slower collections. As of October 2, 1999, the Company's total debt had increased approximately $89.7 million from the period ending October 3, 1998 due primarily to higher inventory levels in order to assure product supply during the production and warehousing system implementations and to accelerated capital expenditure.projects. The Company expects to reduce borrowings for working capital for the remainder of 1999 primarily by reducing inventory and accounts receivable; however, the Company can give no assurance that it will be able to reduce inventory or receivables as planned. As a result of the Fieldcrest Cannon acquisition, the $100.0 million aggregate principal amount of 6% Convertible Subordinated Debentures due 2012 of Fieldcrest Cannon (the "Fieldcrest Debentures") outstanding at October 2, 1999, are convertible, at the option of the holder, into a combination of cash and the Company's common stock. At October 2, 1999, if all outstanding Fieldcrest Debentures were converted, the resulting cash component to be paid to the debtholders would have been approximately $61.0 million. The Company recently notified the holders of the Fieldcrest Debentures that, given the current status of the Company's discussions with the Lending Group and certain other matters, it is not practicable or prudent for payments to be made in respect of the Fieldcrest Debentures at this time and have advised such holders that they will be offered the opportunity to rescind their surrender for conversion and regain possession of their Fieldcrest Debentures. Based upon current and anticipated levels of operations, and aggressive efforts to reduce inventories and accounts receivable, the Company anticipates that its cash flow from operations, together with amounts available under the Revolver and the unsecured revolving credit facility, will be adequate to meet its anticipated cash requirements in the foreseeable future if it is able to achieve appropriate waivers of amendments of its senior credit facilities. In addition to cash requirements for operations, cash requirements may increase to meet the potential payment obligations under the Fieldcrest Debentures. If a substantial amount of the Fieldcrest Debentures were presented to the Company, the Company may not have adequate funds to meet this payment obligation. In the event that such amounts are not sufficient for future cash requirements, the Company may be required to reduce planned capital expenditures or seek additional financing. The Company can provide no assurances that financing would be available or, if available, offered on terms acceptable to the Company. On October 2, 1999, the Company's working capital position was adversely affected by the reclassification of long-term debt required under EITF 86-30 (See Note 6). This reclassification resulted in the Company reporting a working capital deficit of $125.9 million and a working capital ratio of 0.87 to 1 compared to working capital of $447.9 million and a working capital ratio of 2.73 to 1 on July 3, 1999. This decrease in working capital is mainly attributable to the previously mentioned re-classification of all its debt as current (See Note 6). Net cash provided by operating activities has decreased $7.8 million from a use of $12.0 million during the first nine months of Fiscal 1998 to a use of ($19.8) million during the first nine months of Fiscal 1999. Under the terms of the Company's Series A Redeemable Convertible Preferred Stock ("Series A Preferred Stock"), beginning January 1, 2000, the rate at which dividends will accrue may increase to 7% or 10% depending on the Company's earnings per share for the 1999 fiscal year. The Company will also be required to pay a one-time cumulative dividend in Series A Preferred Stock, from the issue date through December 31, 1999, equal to the difference between the dividends calculated at the 3% rate and dividends calculated at either the 7% or 10% rate if the fiscal year 1999 earnings per share are less than the pre-determined targets. The Company has determined that it is probable that earnings per share for the 1999 fiscal year will not meet the lowest pre-determined target and that the dividend rate for the Series A Preferred Stock will increase to 10% beginning January 1, 2000. Accordingly, the Company recorded a one-time cumulative stock dividend of 8,980 Series A Preferred Shares (or $9.0 million) for the quarter ended October 2, 1999 to effectively adjust the dividend rate on the Series A Preferred Stock from the date of issuance through the end of the third quarter. The Company expects to record incremental preferred dividends in the fourth quarter of 1999 of 1,145 preferred shares (or $1.1 million) on account of the increase in the preferred dividend rate to 10%. Regularly scheduled quarterly dividends on the Series A Preferred Stock may be paid in cash or in kind at the Company's option through December 19, 2002, and thereafter may be paid only in cash. The Company intends to pay the quarterly dividend due on December 31, 1999 in additional Series A Preferred Stock. 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. As amended by SFAS No. 137, the provisions of SFAS No. 133 are effective for financial statements for fiscal years beginning after June 15, 2000, 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 systems replacement project is expected to be completed toward the end of 1999. 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. This process has been completed at a substantial number of the Company's facilities and is continuing at the remaining facilities into the fourth 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. 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 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. Recommendations communicated to the Company in the second quarter of 1999 have been implemented where appropriate. The inventory and priority assessment phases were completed with respect to each component of the Year 2000 plan in May 1998. As further described below, the remainder of the Year 2000 plan with respect to each component was substantially 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. Except for the Company's pillow and pad operations, the conversion phase of Information Technology Systems was completed during the third quarter of 1999. The conversion phase of information technology Systems for the Company's pillow and pad operations is expected to be completed during the fourth quarter of 1999. The testing of converted software is ongoing and will continue through the end of 1999. Vendor software replacements and upgrades were completed during the second and third quarters of 1999 for the majority of the plant conversions. 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 was completed during the second quarter of 1999. Detailed refinement of these plans will continue into the fourth quarter, 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. Substantially all of the changes to Information Technology Infrastructure are complete, and the Company is now in the testing phase which will continue through the end of the year. 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. A significant portion of the Process Control and Instrumentation vendors have responded to questionnaires indicating their equipment is Year 2000 compliant. Less than 5% of those vendors who have responded have reported non-compliance. The non-compliant systems are prioritized and have been, or will be, remediated. The Company is following up with those vendors who have not responded to the questionnaires. A significant portion of the contingency planning with respect to this component was completed during 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 are substantially completed. 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. COSTS TO ADDRESS THE BUSINESS SYSTEM REPLACEMENTS AND YEAR 2000 As of October 2, 1999, the Company's cumulative direct expenditures on the systems replacement project were approximately $86.1 million. A portion of these costs relate to expenditures made prior to the acquisition of Fieldcrest Cannon. The Company estimates that direct expenditures will approximate an additional $7.1 million to complete the systems replacement in the fourth fiscal quarter of 1999. The installation of various manufacturing components of the new Information Technology Systems required certain plant shut-downs and generated substantial manufacturing inefficiencies resulting in increased manufacturing costs, unabsorbed overhead costs and delayed, missed, product shipments. These costs are difficult to quantify precisely and are not included in the direct expenditures cited above. 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 materially 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 be certain 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. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Third Amendement to Term Credit Agreement dated as of May 5, 1999 10.2 Fourth Amendment to Term Credit Agreement dated as of October 8, 1999 10.3 Fourth Amendment to Amended and Restated Credit Agreement dated as of October 8, 1999 27.1 Financial Data Schedule (b) Reports on Form 8-K None 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. DATE: November 16, 1999 PILLOWTEX CORPORATION (Registrant) /s/ John C. Macaulay ---------------------------------- John C. Macaulay Senior Vice President - Finance (Principal Financial Officer) INDEX TO EXHIBITS TO BE REVISED
Exhibit Method of Filing ------- ----------------------------------- 10.1 Third Amendment to Term Credit Agreement dated as of May 5, 1999 Filed herewith electronically 10.2 Fourth Amendment to Term Credit Agreement dated as of October 8, 1999 Filed herewith electronically 10.3 Fourth Amendment to Amended and Restated Credit Agreement dated as of October 8, 1999 Filed herewith electronically 27.1 Financial Data Schedule Filed herewith electronically
EX-10.1 2 EXHIBIT 10.1 EXHIBIT 10.1 THIRD AMENDMENT TO TERM CREDIT AGREEMENT THIS THIRD AMENDMENT TO TERM CREDIT AGREEMENT (this "Third Amendment"), dated as of May 5, 1999, is entered into among PILLOWTEX CORPORATION, a Texas corporation (the "Borrower"), the institutions listed on the signature pages hereof (collectively, the "Lenders"), and NATIONSBANK, N.A. (successor by merger to NationsBank of Texas, N.A.), as Administrative Agent (in said capacity, the "Administrative Agent"). BACKGROUND A. The Borrower, the Lenders and the Administrative Agent are parties to that certain Term Credit Agreement, dated as of December 19, 1997, as amended by that certain First Amendment to Term Credit Agreement, dated as of June 19, 1998, and that certain Second Amendment to Term Credit Agreement, dated as of July 28, 1998 (the "Credit Agreement"; the terms defined in the Credit Agreement and not otherwise defined herein shall be used herein as defined in the Credit Agreement). B. Borrower, the Lenders and the Administrative Agent desire to make certain amendments to the Credit Agreement. NOW, THEREFORE, in consideration of the covenants, conditions and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are all hereby acknowledged, the Borrower, the Lenders and the Administrative Agent covenant and agree as follows: 1. AMENDMENTS TO CREDIT AGREEMENT. (a) Section 1.1 of the Credit Agreement is hereby amended by adding the defined term "1999 Senior Subordinated Notes" thereto in proper alphabetical order to read as follows: "1999 Senior Subordinated Notes" means those certain Senior Subordinated Notes due 2009 in an aggregate principal amount not to exceed $125,000,000, the terms of which shall have been approved in writing by the Determining Lenders under this Agreement and the Determining Lenders as defined in and under the Amended and Restated Credit Agreement." (b) 2.5(e) of the Credit Agreement is hereby amended to read as follows: "(e) Prepayment from Issuance of Institutional Debt. Concurrently with the receipt of Net Cash Proceeds from the issuance of Institutional Debt by the Borrower after the Agreement Date (other than (i) the Net Cash Proceeds from the issuance of any Subordinated Debt which are used to repay the Bridge Notes and (ii) up to $100,000,000 in aggregate amount of Net Cash Proceeds from the issuance of the 1999 Senior Subordinated Notes), the Borrower shall prepay the Facility A Term Loan Advances and the Facility B Term Loan Advances in an amount equal to the lesser of (a) 100% of such Net Cash Proceeds (which with respect to the 1999 Senior Subordinated Notes shall be 100% of Net Cash Proceeds in excess of $100,000,000) or (b) an amount, if any, which would result in the Leverage Ratio being less than 4.00 to 1 after such prepayment. Each such prepayment shall be applied pro rata to all of the unpaid scheduled installment payments of the Facility A Term Loan Advances and the Facility B Term Loan Advances, in each case pro rata based upon the respective principal amounts of such installment payments then unpaid." 2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its execution and delivery hereof, the Borrower represents and warrants that, as of the date hereof and after giving effect to the amendments contemplated by the foregoing Section 1: (a) the representations and warranties contained in the Credit Agreement and the other Loan Documents are true and correct on and as of the date hereof as made on and as of such date; (b) no event has occurred and is continuing which constitutes a Default or an Event of Default; (c) the Borrower has full power and authority to execute and deliver this Third Amendment, and this Third Amendment constitutes the legal, valid and binding obligations of the Borrower, enforceable in accordance with their respective terms, except as enforceability may be limited by applicable Debtor Relief Laws and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and except as rights to indemnity may be limited by federal or state securities laws; (d) neither the execution, delivery and performance of this Third Amendment nor the consummation of any transactions contemplated herein will conflict with any Law, the articles of incorporation, bylaws or other governance document of the Borrower or any of its Subsidiaries, or any indenture, agreement or other instrument to which the Borrower or any of its Subsidiaries or any of their respective property is subject; and (e) no authorization, approval, consent, or other action by, notice to, or filing with, any governmental authority or other Person (including the Board of Directors of the Borrower), is required for the execution, delivery or performance by the Borrower of this Third Amendment or the acknowledgment of this Third Amendment by any Guarantor. 3. CONDITIONS OF EFFECTIVENESS. This Third Amendment shall be effective as of May 5, 1999, subject to the following: (a) the Administrative Agent shall receive counterparts of this Third Amendment executed by all of the Lenders; (b) the Administrative Agent shall receive counterparts of this Third Amendment executed by the Borrower and acknowledged by each Guarantor; (c) the Administrative Agent shall have received an opinion of counsel to the Borrower covering the matters set forth in Sections 2.4(c), (d) and (e) of this Third Amendment; (d) the Administrative Agent shall have received from the Borrower, for the account of each Lender, an amount equal to the product of (i) 0.10% multiplied by (ii) by the sum of (A) the Facility A Term Loan Advances and Facility B Term Loan Advances owed to each Lender and (B) the product of each Lender's Specified Percentage multiplied by the Commitment (as defined in the Amended and Restated Credit Agreement); and (e) the Administrative Agent shall receive, in form and substance satisfactory to the Administrative Agent and its counsel, such other documents, certificates and instruments as the Administrative Agent shall reasonably require. 4. GUARANTOR ACKNOWLEDGMENT. By signing below, each of the Guarantors (a) acknowledges, consents and agrees to the execution and delivery of this Third Amendment, (b) acknowledges and agrees that its obligations in respect of its Subsidiary Guaranty are not released, diminished, waived, modified, impaired or affected in any manner by this Third Amendment or any of the provisions contemplated herein and (c) ratifies and confirms its obligations under its Subsidiary Guaranty, and (d) acknowledges and agrees that it has no claims or offsets against, or defenses or counterclaims to, its Subsidiary Guaranty as a result of this Third Amendment. 5. REFERENCE TO THE CREDIT AGREEMENT. (a) Upon the effectiveness of this Third Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", or words of like import shall mean and be a reference to the Credit Agreement, as amended by this Third Amendment. (b) The Credit Agreement, as amended by this Third Amendment, and all other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. 6. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all reasonable costs and expenses of the Administrative Agent in connection with the preparation, reproduction, execution and delivery of this Third Amendment and the other instruments and documents to be delivered hereunder (including the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent with respect thereto and with respect to advising the Administrative Agent as to its rights and responsibilities under the Credit Agreement, as amended by this Third Amendment). 7. EXECUTION IN COUNTERPARTS. This Third Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. 8. GOVERNING LAW: BINDING EFFECT. This Third Amendment shall be governed by and construed in accordance with the laws of the State of Texas (without regard to the principles of conflicts of laws) and the United States of America, and shall be binding upon the Borrower and each Lender and their respective successors and assigns. 9. HEADINGS. Section headings in this Third Amendment are included herein for convenience of reference only and shall not constitute a part of this Third Amendment for any other purpose. 10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS THIRD AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. REMAINDER OF PAGE LEFT INTENTIONALLY BLANK IN WITNESS WHEREOF, the parties hereto have executed this Third Amendment as the date first above written. PILLOWTEX CORPORATION By: s/ Ronald M. Wehtje Name: Ronald M. Wehtje Title: Senior Vice President and Chief Financial Officer NATIONSBANK, N.A. (successor by merger to NationsBank of Texas, N.A.), as Administrative Agent and as a Lender By: Suzanne B. Smith Vice President BANK OF AMERICA NT&SA By: Name: Title: THE BANK OF NOVA SCOTIA ATLANTA AGENCY By: Name: Title: THE FIRST NATIONAL BANK OF CHICAGO By: Name: Title: COMERICA BANK By: Name: Title: CREDIT LYONNAIS NEW YORK BRANCH By: Name: Title: WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION By: Name: Title: THE BANK OF TOKYO-MITSUBISHI, LTD. By: Name: Title: BANK ONE, TEXAS, N.A. By: Name: Title: BANKBOSTON, N.A. By: Name: Title: BHF-BANK AKTIENGESELLSCHAFT By: Name: Title: By: Name: Title: FIRST UNION NATIONAL BANK By: Name: Title: GENERAL ELECTRIC CAPITAL CORPORATION By: Name: Title: COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH By: Name: Title: By: Name: Title: SOCIETE GENERALE, SOUTHWEST AGENCY By: Name: Title: By: Name: Title: THE BANK OF NEW YORK By: Name: Title: COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENE By: Name: Title: By: Name: Title: BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC. By: Name: Title: By: Name: Title: FLEET BANK, N.A. By: Stephen M. Leavenworth Name: Title: Vice President THE FUJI BANK, LIMITED By: Name: Title: NATIONAL BANK OF CANADA By: Name: Title: By: Name: Title: NATIONAL CITY BANK OF KENTUCKY By: Don R. Pullen Name: Title: Vice President THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: Name: Title: BANK POLSKA KASA OPIEKI, S.A. - PEKAO S.A. GROUP, NEW YORK BRANCH By: Name: Title: GUARANTY FEDERAL BANK, F.S.B. By: Name: Title: BANKERS TRUST COMPANY By: Name: Title: MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST By: Name: Title: SENIOR DEBT PORTFOLIO By: Name: Title: AERIES FINANCE LTD. By: Name: Title: CRESCENT/MACH I PARTNERS, L.P. By: TCW ASSET MANAGEMENT COMPANY, its Investment Manager By: Name: Title: DEEP ROCK & COMPANY By: Name: Title: KZH CRESCENT LLC By: Name: Title: CYPRESSTREE INVESTMENT PARTNERS I, LTD. By: CypressTree Investment Management Company, Inc., as Portfolio Manager By: Name: Title: VAN KAMPEN CLO I, LIMITED By: VAN KAMPEN MANAGEMENT, INC., as Collateral Manager By: Name: Title: BALANCED HIGH-YIELD FUND I LTD. By: BHF-BANK AKTIENGESELLSCHAFT, acting through its New York Branch as attorney-in-fact By: Name: Title: By: Name: Title: INDOSUEZ CAPITAL FUNDING IV, L.P. By: INDOSUEZ CAPITAL, as Portfolio Advisor By: Name: Title: VAN KAMPEN SENIOR INCOME TRUST By: Name: Title: INDOSUEZ CAPITAL FUNDING IIA, LIMITED By: INDOSUEZ CAPITAL, as Portfolio Advisor By: Name: Title: CYPRESSTREE INSTITUTIONAL FUND, LLC By: CypressTree Investment Management Company, Inc., its Managing Member By: Name: Title: CYPRESSTREE INVESTMENT FUND, LLC By: CypressTree Investment Management Company, Inc., its Managing Member By: Name: Title: KZH CYPRESSTREE-1 LLC By: Name: Title: OXFORD STRATEGIC INCOME FUND By: Eaton Vance Management, as Investment Advisor By: Name: Title: VAN KAMPEN CLO II, LIMITED By: Van Kampen Management, Inc., as Collateral Manager By: Name: Title: CAPTIVA FINANCE, LTD. By: Name: Title: CAPTIVA II FINANCE, LTD. By: Name: Title: MOUNTAIN CAPITAL CLO I LTD. By: Name: Title: CANADIAN IMPERIAL BANK OF COMMERCE By: Name: Title: BALANCED HIGH-YIELD FUND II LTD. By: BHF-Bank Aktiengesellschaft, acting through its New York Branch, as attorney-in-fact By: Name: Title: By: Name: Title: KZH CRESCENT-3 LLC By: Name: Title: FREMONT FINANCIAL CORPORATION By: Name: Title: THE DAI-ICHI KANGYO BANK LIMITED, NEW YORK BRANCH By: Name: Title: TCW LEVERAGED INCOME TRUST, L.P. By: TCW ADVISERS (BERMUDA), LTD., as General Partner By: Name: Title: By: TCW INVESTMENT MANAGEMENT COMPANY, as Investment Adviser By: Name: Title: PROVIDENT CBO I, LIMITED By: Provident Investment Management, LLC By: Name: Title: ACKNOWLEDGED AND AGREED: PILLOWTEX, INC. PTEX HOLDING COMPANY PILLOWTEX MANAGEMENT SERVICES COMPANY BEACON MANUFACTURING COMPANY MANETTA HOME FASHIONS, INC. TENNESSEE WOOLEN MILLS FIELDCREST CANNON, INC. CRESTFIELD COTTON COMPANY ENCEE, INC. FCC CANADA, INC. FIELDCREST CANNON FINANCING, INC. FIELDCREST CANNON LICENSING, INC. FIELDCREST CANNON INTERNATIONAL, INC. FIELDCREST CANNON SURE FIT, INC. FIELDCREST CANNON TRANSPORTATION, INC. ST. MARYS, INC. AMOSKEAG COMPANY AMOSKEAG MANAGEMENT CORPORATION DOWNEAST SECURITIES CORPORATION BANGOR INVESTMENT COMPANY MOORE'S FALLS CORPORATION THE LESHNER CORPORATION LESHNER OF CALIFORNIA, INC. OPELIKA INDUSTRIES, INC. By: Ronald M. Wehtje Title: Senior Vice Presidnet and Chief Financial Officer EX-10.2 3 EXHIBIT 10.2 EXHIBIT 10.2 FOURTH AMENDMENT TO TERM CREDIT AGREEMENT THIS FOURTH AMENDMENT TO TERM CREDIT AGREEMENT (this "Fourth Amendment"), dated as of October 8, 1999, to be effective as of October 1, 1999, is entered into among PILLOWTEX CORPORATION, a Texas corporation (the "Borrower"), the institutions listed on the signature pages hereof that are parties to the Credit Agreement defined below (collectively, the "Lenders"), and BANK OF AMERICA, N.A. (formerly known as NationsBank, N.A., successor by merger to NationsBank of Texas, N.A.), as Administrative Agent (in said capacity, the "Administrative Agent"). BACKGROUND A. The Borrower, the Lenders and the Administrative Agent are parties to that certain Term Credit Agreement, dated as of December 19, 1997, amended by a First Amendment to Term Credit Agreement, dated as of June 19, 1998, a Second Amendment to Term Credit Agreement, dated as of July 28, 1998, and a Third Amendment to Term Credit Agreement dated as of May 5, 1999 (the "Credit Agreement"; the terms defined in the Credit Agreement and not otherwise defined herein shall be used herein as defined in the Credit Agreement). B. The Borrower, the Lenders and the Administrative Agent desire to make certain amendments to the Credit Agreement. NOW, THEREFORE, in consideration of the covenants, conditions and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are all hereby acknowledged, the Borrower, the Lenders and the Administrative Agent covenant and agree as follows: 1. AMENDMENTS TO CREDIT AGREEMENT. (a) SECTION 1.1 of the Credit Agreement is hereby amended by deleting the definition of Applicable Base Rate Margin in its entirety and substituting the following in lieu thereof: "APPLICABLE BASE RATE MARGIN" means the following per annum percentages, applicable in the following situations:
Facility A Facility B Term Loan Term Loan Applicability Advances Advances ------------- ---------- ---------- (a) The Leverage Ratio is greater than or 1.500% 2.000% equal to 6.00 to 1 (b) The Leverage Ratio is less than 6.00 to 1 1.250% 1.750% but greater than or equal to 5.50 to 1 (c) The Leverage Ratio is less than 5.50 to 1 1.000% 1.500% but greater than or equal to 5.00 to 1 (d) The Leverage Ratio is less than 5.00 to 1 0.750% 1.250% but greater than or equal to 4.50 to 1 (e) The Leverage Ratio is less than 4.50 to 1 0.500% 1.000% but greater than or equal to 4.00 to 1 -1- (f) The Leverage Ratio is less than 4.00 to 1 0.250% 1.000% but greater than or equal to 3.50 to 1 (g) The Leverage Ratio is less than 3.50 to 1 0.000% 1.000%
The Applicable Base Rate Margin payable by the Borrower on the Base Rate Advances outstanding hereunder shall be subject to reduction or increase, as applicable and as set forth in the table above, according to the performance of the Borrower as tested by using the Leverage Ratio calculated (i) if not in respect of an Acquisition, as of the end of each fiscal quarter or (ii) if in respect of an Acquisition, upon receipt of a Compliance Certificate as required under SECTION 7.6(iii) hereof; PROVIDED, that each adjustment in the Base Rate Basis as a result of a change in the Applicable Base Rate Margin shall be effective (A) if not in respect of an Acquisition, on the date which is two Business Days following receipt by the Administrative Agent of the financial statements required to be delivered pursuant to SECTION 6.1 or 6.2 hereof, as applicable, and the corresponding Compliance Certificate required pursuant to SECTION 6.3 hereof, and (B) if in respect of an Acquisition, on the closing date of such Acquisition. If such financial statements and Compliance Certificate are not received by the Administrative Agent by the date required, the Applicable Base Rate Margin shall be increased to the Applicable Base Rate Margin next higher than the Applicable Base Rate Margin currently in effect until such time as such financial statements and Compliance Certificate are received. Notwithstanding anything herein to the contrary, the Applicable Base Rate Margin from and including October 1, 1999 until the date which is two Business Days following receipt by the Administrative Agent of the financial statements and Compliance Certificate for the 1999 Fiscal Year shall be calculated as if the Leverage Ratio is greater than or equal to 6.00 to 1." (b) SECTION 1.1 of the Credit Agreement is hereby amended by deleting the definition of Applicable LIBOR Rate Margin in its entirety and substituting the following in lieu thereof: "APPLICABLE LIBOR RATE MARGIN" means the following per annum percentages, applicable in the following situations:
Facility A Facility B Term Loan Term Loan Applicability Advances Advances ------------- ---------- ---------- (a) The Leverage Ratio is greater than or equal 3.000% 3.500% to 6.00 to 1 (b) The Leverage Ratio is less than 6.00 to 1 2.750% 3.250% but greater than or equal to 5.50 to 1 (c) The Leverage Ratio is less than 5.50 to 1 2.500% 3.000% but greater than or equal to 5.00 to 1 (d) The Leverage Ratio is less than 5.00 to 1 2.250% 2.750% but greater than or equal to 4.50 to 1 -2- (e) The Leverage Ratio is less than 4.50 to 1 2.000% 2.500% but greater than or equal to 4.00 to 1 (f) The Leverage Ratio is less than 4.00 to 1 1.750% 2.500% but greater than or equal to 3.50 to 1 (g) The Leverage Ratio is less than 3.50 to 1 1.500% 2.500% but greater than or equal to 3.00 to 1 (h) The Leverage Ratio is less than 3.00 to 1 1.250% 2.500%
The Applicable LIBOR Rate Margin payable by the Borrower on the LIBOR Advances outstanding hereunder shall be subject to reduction or increase, as applicable and as set forth in the table above, according to the performance of the Borrower as tested by using the Leverage Ratio calculated (i) if not in respect of an Acquisition, as of the end of each fiscal quarter or (ii) if in respect of an Acquisition, upon receipt of a Compliance Certificate as required under SECTION 7.6(iii) hereof; PROVIDED, that each adjustment in the LIBOR Basis as a result of a change in the Applicable LIBOR Rate Margin shall be effective (A) if not in respect of an Acquisition, on the date which is two Business Days following receipt by the Administrative Agent of the financial statements required to be delivered pursuant to SECTION 6.1 or 6.2 hereof, as applicable, and the corresponding Compliance Certificate required pursuant to SECTION 6.3 hereof, and (B) if in respect of an Acquisition, on the closing date of such Acquisition. If such financial statements and Compliance Certificate are not received by the Administrative Agent by the date required, the Applicable LIBOR Rate Margin shall be increased to the Applicable LIBOR Rate Margin next higher than the Applicable LIBOR Rate Margin currently in effect until such time as such financial statements and Compliance Certificate are received. Notwithstanding anything herein to the contrary, the Applicable LIBOR Rate Margin from and including October 1, 1999 until the date which is two Business Days following receipt by the Administrative Agent of the financial statements and Compliance Certificate for the 1999 Fiscal Year shall be calculated as if the Leverage Ratio is greater than or equal to 6.00 to 1." (c) SECTION 7.11 of the Credit Agreement is hereby amended to read as follows: "Section 7.11 MAXIMUM LEVERAGE RATIO. At the end of each Fiscal Quarter occurring below or occurring during the periods indicated below, the Borrower shall not permit the Leverage Ratio to be greater than the ratio set forth below opposite such Fiscal Quarter or the period in which such Fiscal Quarter occurs:
Fiscal Quarter or Period Ratio ------------------------ ----- Third Fiscal Quarter of Fiscal Year 1999 6.10 to 1 Fourth Fiscal Quarter of Fiscal Year 1999 6.35 to 1 First Fiscal Quarter of Fiscal Year 2000 6.00 to 1 Second Fiscal Quarter of Fiscal Year 2000 5.75 to 1 Third Fiscal Quarter of Fiscal Year 2000 5.25 to 1 -3- Fourth Fiscal Quarter of Fiscal Year 2000 4.75 to 1 From and including the First Fiscal Quarter of 4.25 to 1 Fiscal Year 2001 and thereafter
(d) SECTION 7.12 of the Credit Agreement is hereby amended to read as follows: "SECTION 7.12 Minimum Fixed Charge Coverage Ratio. At the end of each Fiscal Quarter occurring below or occurring during the periods indicated below, the Borrower shall not permit the Fixed Charge Coverage Ratio to be less than the ratio set forth below opposite such Fiscal Quarter or the period in which such Fiscal Quarter occurs:
Fiscal Quarter or Period Ratio ------------------------ ----- Third Fiscal Quarter of Fiscal Year 1999 1.10 to 1 From and including the Fourth Quarter of 1.00 to 1 Fiscal Year 1999 through and including the Second Fiscal Quarter of Fiscal Year 2000 From and including the Third Fiscal Quarter 1.10 to 1" of Fiscal Year 2000 and thereafter
(e) Section 11.6(d) of the Credit Agreement is hereby amended by amending clause (ii) thereof set forth in the first provision of said Section as follows: "(ii) no such assignment (including any simultaneous assignment pursuant to the Amended and Restated Credit Agreement), other than to an Affiliate of a Lender or to an existing Lender hereunder, shall be in an amount less than $5,000,000, unless the portion of the Advances (and the Commitment under and as defined in the Amended and Restated Credit Agreement) of a Lender is less than $5,000,000, in which case such assignment may be in the aggregate amount of the Advances owed to such Lender under this Agreement and the amount of such Lender's Specified Percentage of the Commitment (as defined in and determined pursuant to the Amended and Restated Credit Agreement) (provided, however, notwithstanding anything herein to the contrary, in no event shall the portion of the Advances owed to any Lender and retained by such Lender under this Agreement and/or the portion of the Commitment (as defined in the Amended and Restated Credit Agreement) retained by such Lender be less than $1,000,000)," (f) The Compliance Certificate is hereby amended to be in the form of Exhibit D attached to this Fourth Amendment. 2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its execution and delivery hereof, the Borrower represents and warrants that, as of the date hereof and after giving effect to the amendments contemplated by the foregoing Section 1: (a) the representations and warranties contained in the Credit Agreement and the other Loan Documents are true and correct on and as of the date hereof as made on and as of such date; (b) no event has occurred and is continuing which constitutes a Default or an Event of Default; (c) the Borrower has full power and authority to execute and deliver this Fourth Amendment, and this Fourth Amendment constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, except as enforceability may be limited by -4- applicable Debtor Relief Laws and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and except as rights to indemnity may be limited byfederal or state securities laws; (d) neither the execution, delivery and performance of this Fourth Amendment nor the consummation of any transactions contemplated herein will conflict with any Law, the articles of incorporation, bylaws or other governance document of the Borrower or any of its Subsidiaries, or any indenture, agreement or other instrument to which the Borrower or any of its Subsidiaries or any of their respective property is subject; and (e) no authorization, approval, consent, or other action by, notice to, or filing with, any governmental authority or other Person (including the Board of Directors of the Borrower or any Guarantor), is required for the execution, delivery or performance by the Borrower of this Fourth Amendment or the acknowledgment of this Fourth Amendment by any Guarantor. 3. CONDITIONS OF EFFECTIVENESS. This Fourth Amendment shall be effective as of October 1, 1999, subject to the following: (a) the Administrative Agent shall receive counterparts of this Fourth Amendment executed and/or consented to by the Required Lenders (as defined in the Intercreditor Agreement); (b) the representations and warranties set forth in Section 2 of this Fourth Amendment shall be true and correct; (c) the Administrative Agent shall receive counterparts of this Fourth Amendment executed by the Borrower and acknowledged by each Guarantor; and (d) the Administrative Agent shall receive, in form and substance satisfactory to the Administrative Agent and its counsel, such other documents, certificates and instruments as the Administrative Agent shall reasonably require. 4. GUARANTOR ACKNOWLEDGMENT. By signing below, each of the Guarantors (i) acknowledges, consents and agrees to the execution and delivery of this Fourth Amendment, (ii) acknowledges and agrees that its obligations in respect of its Subsidiary Guaranty are not released, diminished, waived, modified, impaired or affected in any manner by this Fourth Amendment or any of the provisions contemplated herein, (iii) ratifies and confirms its obligations under its Subsidiary Guaranty, and (iv) acknowledges and agrees that it has no claims or offsets against, or defenses or counterclaims to, its Subsidiary Guaranty as a result of this Fourth Amendment. 5. AMENDMENT FEE. So long as this Fourth Amendment becomes effective, the Borrower covenants and agrees to pay an amendment fee to the Lenders which execute and deliver this Fourth Amendment to the Administrative Agent (or its counsel) not later than 5:00 p.m., Dallas time, October 8, 1999 in an amount equal to the product of (a) 0.15% multiplied by (b) with respect to each Lender which is owed Facility A Term Loan Advances or Facility B Term Loan Advances, the aggregate amount of Facility A Term Loan Advances and Facility B Term Loan Advances owed to such Lender. Such amendment fee shall be paid in immediately available funds and shall be due and payable to each Lender eligible for payment pursuant to the preceding sentence no later than two Business Days after the date the conditions set forth in Section 3 of this Fourth Amendment have been satisfied. The Borrower agrees that the failure to pay the amendment fee provided in this Section 5 shall be an Event of Default under Section 8.1(b)(ii) of the Credit Agreement. -5- 6. REFERENCE TO THE CREDIT AGREEMENT. (a) Upon the effectiveness of this Fourth Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", or words of like import shall mean and be a reference to the Credit Agreement, as amended by this Fourth Amendment. (b) The Credit Agreement, as amended by this Fourth Amendment, and all other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. 7. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all reasonable costs and expenses of the Administrative Agent in connection with the preparation, reproduction, execution and delivery of this Fourth Amendment and the other instruments and documents to be delivered hereunder (including the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent with respect thereto and with respect to advising the Administrative Agent as to its rights and responsibilities under the Credit Agreement, as amended by this Fourth Amendment). 8. EXECUTION IN COUNTERPARTS. This Fourth Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. 9. GOVERNING LAW: BINDING EFFECT. This Fourth Amendment shall be governed by and construed in accordance with the laws of the State of Texas and shall be binding upon the Borrower and each Lender and their respective successors and assigns. 10. HEADINGS. Section headings in this Fourth Amendment are included herein for convenience of reference only and shall not constitute a part of this Fourth Amendment for any other purpose. 11. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS FOURTH AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. =============================================================================== REMAINDER OF PAGE LEFT INTENTIONALLY BLANK =============================================================================== IN WITNESS WHEREOF, the parties hereto have executed this Fourth Amendment as the date first above written. PILLOWTEX CORPORATION By: Jaime Vasquez Name: Title: VP/Treasurer BANK OF AMERICA, N.A. (formerly known as NationsBank, N.A., successor by merger to NationsBank -6- of Texas, N.A.), as Administrative Agent and as a Lender By: Deirdre B. Doyle Principal THE BANK OF NOVA SCOTIA ATLANTA AGENCY By: (not signed) Name: Title: THE FIRST NATIONAL BANK OF CHICAGO By: (signature illegible) Name: Title: Vice President COMERICA BANK By: Mark B. Grover Name: Title: Vice President CREDIT LYONNAIS NEW YORK BRANCH By: Robert Ivosevich Name: Title: Senior Vice President WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION By: Carol Polasky Name: Title: Vice President THE BANK OF TOKYO-MITSUBISHI, LTD. By: J. Mearns Name: Title: VP & Manager BANK ONE, TEXAS, N.A. By: (signature illegible) Name: Title: Vice President BANKBOSTON, N.A. By: Stephen Y. McGehee -7- Name: Title: Managing Director BHF (USA) CAPITAL CORPORATION By: Michael Pellerito Name: Title: Assistant Vice President By: Perry Forman Name: Title: Vice President FIRST UNION NATIONAL BANK By: Roger Pelz Name: Title: Senior Vice President GENERAL ELECTRIC CAPITAL CORPORATION By: William S. Richardson Name: Title: Duly Authorized Signatory COPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH By: Theodore W. Cox Name: Title: Vice President By: (signature illegible) Name: Title: Vice President SOCIETE GENERALE, SOUTHWEST AGENCY By: Robert Petersen Name: Title: Vice President By: Name: Title: THE BANK OF NEW YORK -8- By: (not signed) Name: Title: COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE By: Anthony Rock Name: Title: Vice President By: Marcus Edward Name: Title: Vice President BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC. By: John G. Taylor Name: Title: Vice President By: Stephen W. Hipp Name: Title: Senior Associate FLEET BANK, N.A. By: Alfred Bonfantini Name: Title: Senior Vice President THE FUJI BANK, LIMITED By: Teiji Teramoto Name: Title: Vice President & Manager NATIONAL BANK OF CANADA By: Bill Handley Name: Title: Vice President By: Larry Sears Name: Title: Vice President & Manager -9- NATIONAL CITY BANK OF KENTUCKY By: Tom Gurbach Name: Title: Vice President THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: B. Ross Smead Name: Title: Vice President BANK POLSKA KASA OPIEKI, S.A. - PEKAO S.A. GROUP, NEW YORK BRANCH By: Hussein B. El-Tawil Name: Title: Vice President GUARANTY FEDERAL BANK, F.S.B. By: Robert S. Hays Name: Title: Senior Vice President KZH WATERSIDE LLC By: Virginia Conway Name: Title: Authorized Agent SENIOR DEBT PORTFOLIO By: Boston Management and Research as Investment Advisor By: Payson F. Swaffield Name: Title: Vice President AERIES FINANCE LTD. By: INVESCO Senior Secured Management, Inc., as Sub-Managing Agent By: Gregory Stoeckle Name: Title: Authorized Signatory CRESCENT/MACH I PARTNERS, L.P. By: TCW ASSET MANAGEMENT COMPANY, its -10- Investment Manager By: J. Insull Name: Title: Vice President Eaton Vance Institutional Senior Loan Fund By: Eaton Vance Management as Investment Advisor By: Payson F. Swaffield Name: Title: Vice President CYPRESSTREE INVESTMENT PARTNERS I, LTD., By: CypressTree Investment Management Company, Inc., as Portfolio Manager By: Timothy M. Barns Name: Title: Managing Director VAN KAMPEN CLO I, LIMITED By: VAN KAMPEN MANAGEMENT, INC., as Collateral Manager By: Darvin D. Pierce Name: Title: Vice President BALANCED HIGH-YIELD FUND I LTD. By: BHF (USA) CAPITAL CORPORATION, acting as attorney-in-fact By: Michael Pellerito Name: Title: Assistant Vice President By: Perry Forman Name: Title: Vice President INDOSUEZ CAPITAL FUNDING IV, L.P. By: INDOSUEZ CAPITAL, as Portfolio Advisor By: (not signed) Name: Title: -11- VAN KAMPEN SENIOR INCOME TRUST By: Darvin D. Pierce Name: Title: Vice President INDOSUEZ CAPITAL FUNDING IIA, LIMITED By: INDOSUEZ CAPITAL, as Portfolio Advisor By: (not signed) Name: Title: CYPRESSTREE INSTITUTIONAL FUND, LLC By: CypressTree Investment Management Company, Inc., its Managing Member By: (not signed) Name: Title: CYPRESSTREE INVESTMENT FUND, LLC By: CypressTree Investment Management Company, Inc., its Managing Member By: (not signed) Name: Title: KZH CYPRESSTREE-1 LLC By: Virginia Conway Name: Title: Authorized Agent OXFORD STRATEGIC INCOME FUND By: Eaton Vance Management, as Investment Advisor By: Payson F. Swaffield Name: Title: Vice President VAN KAMPEN CLO II, LIMITED By: Van Kampen Management, Inc., as Collateral Manager By: Darvin D. Pierce Name: Title: Vice President -12- CAPTIVA FINANCE, LTD. By: John Cullinane Name: Title: Director CAPTIVA II FINANCE, LTD. By: John Cullinane Name: Title: Director MOUNTAIN CAPITAL CLO I LTD. By: Darren P. Riley Name: Title: Director CANADIAN IMPERIAL BANK OF COMMERCE By: (not signed) Name: Title: BALANCED HIGH-YIELD FUND II LTD. By: BHF (USA) CAPITAL CORPORATION, acting as attorney-in-fact By: Michael Pellerito Name: Title: Assistant Vice President By: Perry Forman Name: Title: Vice President KZH CRESCENT-3 LLC By: Virginia Conway Name: Title: Authorized Agent FREMONT FINANCIAL CORPORATION By: Randolph M. Ross Name: Title: Vice President - Senior Portfolio Manager -13- THE DAI-ICHI KANGYO BANK LIMITED, NEW YORK BRANCH By: Christopher Fahey Name: Title: Vice President TCW LEVERAGED INCOME TRUST, L.P. By: TCW ADVISERS (BERMUDA), LTD., as General Partner By: (signature illegible) Name: Title: By: TCW INVESTMENT MANAGEMENT COMPANY, as Investment Adviser By: J. Insull Name: Title: VP ACKNOWLEDGED AND AGREED: PILLOWTEX, INC. PTEX HOLDING COMPANY PILLOWTEX MANAGEMENT SERVICES COMPANY BEACON MANUFACTURING COMPANY MANETTA HOME FASHIONS, INC. TENNESSEE WOOLEN MILLS FIELDCREST CANNON, INC. CRESTFIELD COTTON COMPANY ENCEE, INC. FCC CANADA, INC. FIELDCREST CANNON FINANCING, INC. FIELDCREST CANNON LICENSING, INC. FIELDCREST CANNON INTERNATIONAL, INC. FIELDCREST CANNON SF, INC. (formerly known as Fieldcrest Cannon Sure Fit, Inc.) FIELDCREST CANNON TRANSPORTATION, INC. ST. MARYS, INC. AMOSKEAG COMPANY AMOSKEAG MANAGEMENT CORPORATION DOWNEAST SECURITIES CORPORATION BANGOR INVESTMENT COMPANY MOORE'S FALLS CORPORATION THE LESHNER CORPORATION -14- LESHNER OF CALIFORNIA, INC. OPELIKA INDUSTRIES, INC. By: Jaime Vasquez Name: Title: VP/Treasurer -15- EX-10.3 4 EXHIBIT 10.3 EXHIBIT 10.3 FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT THIS FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this "Fourth Amendment"), dated as of October 8, 1999, to be effective as of October 1, 1999, is entered into among PILLOWTEX CORPORATION, a Texas corporation (the "Borrower"), the institutions listed on the signature pages hereof that are parties to the Credit Agreement defined below (collectively, the "Lenders"), and BANK OF AMERICA, N.A. (formerly known as NationsBank, N.A., successor by merger to NationsBank of Texas, N.A.), as Administrative Agent (in said capacity, the "Administrative Agent"). BACKGROUND A. The Borrower, the Lenders and the Administrative Agent are parties to that certain Amended and Restated Credit Agreement, dated as of December 19, 1997, amended by a First Amendment to Amended and Restated Credit Agreement, dated as of June 19, 1998, a Second Amendment to Amended and Restated Credit Agreement, dated as of July 28, 1998, and a Third Amendment to Amended and Restated Credit Agreement dated as of March 12, 1999 (the "Credit Agreement"; the terms defined in the Credit Agreement and not otherwise defined herein shall be used herein as defined in the Credit Agreement). B. The Borrower, the Lenders and the Administrative Agent desire to make certain amendments to the Credit Agreement. NOW, THEREFORE, in consideration of the covenants, conditions and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are all hereby acknowledged, the Borrower, the Lenders and the Administrative Agent covenant and agree as follows: 1. AMENDMENTS TO CREDIT AGREEMENT. (a.) SECTION 1.1 of the Credit Agreement is hereby amended by deleting the definition of Applicable Base Rate Margin in its entirety and substituting the following in lieu thereof: "'APPLICABLE BASE RATE MARGIN' means the following per annum percentages, applicable in the following situations: Applicability Percentage ------------- ---------- (a) The Leverage Ratio is greater than or equal to 6.00 to 1 1.500% (b) The Leverage Ratio is less than 6.00 to 1 but greater 1.250% than or equal to 5.50 to 1 (c) The Leverage Ratio is less than 5.50 to 1 but greater 1.000% than or equal to 5.00 to 1 (d) The Leverage Ratio is less than 5.00 to 1 but greater 0.750% than or equal to 4.50 to 1 (e) The Leverage Ratio is less than 4.50 to 1 but greater 0.500% than or equal to 4.00 to 1 -1- (f) The Leverage Ratio is less than 4.00 to 1 but greater 0.250% than or equal to 3.50 to 1 (g) The Leverage Ratio is less than 3.50 to 1 0.000% The Applicable Base Rate Margin payable by the Borrower on the Base Rate Advances outstanding hereunder shall be subject to reduction or increase, as applicable and as set forth in the table above, according to the performance of the Borrower as tested by using the Leverage Ratio calculated (i) if not in respect of an Acquisition, as of the end of each fiscal quarter or (ii) if in respect of an Acquisition, upon receipt of a Compliance Certificate as required under SECTION 7.6(iii) hereof; PROVIDED, that each adjustment in the Base Rate Basis as a result of a change in the Applicable Base Rate Margin shall be effective (A) if not in respect of an Acquisition, on the date which is two Business Days following receipt by the Administrative Agent of the financial statements required to be delivered pursuant to SECTION 6.1 or 6.2 hereof, as applicable, and the corresponding Compliance Certificate required pursuant to SECTION 6.3 hereof, and (B) if in respect of an Acquisition, on the closing date of such Acquisition. If such financial statements and Compliance Certificate are not received by the Administrative Agent by the date required, the Applicable Base Rate Margin shall be increased to the Applicable Base Rate Margin next higher than the Applicable Base Rate Margin currently in effect until such time as such financial statements and Compliance Certificate are received. Notwithstanding anything herein to the contrary, the Applicable Base Rate Margin from and including October 1, 1999 until the date which is two Business Days following receipt by the Administrative Agent of the financial statements and Compliance Certificate for the 1999 Fiscal Year shall be calculated as if the Leverage Ratio is greater than or equal to 6.00 to 1." (b.) SECTION 1.1 of the Credit Agreement is hereby amended by deleting the definition of Applicable LIBOR Rate Margin in its entirety and substituting the following in lieu thereof: "'APPLICABLE LIBOR RATE MARGIN' means the following per annum percentages, applicable in the following situations: Applicability Percentage ------------- ---------- (a) The Leverage Ratio is greater than or equal to 6.00 to 1 3.000% (b) The Leverage Ratio is less than 6.00 to 1 but 2.750% greater than or equal to 5.50 to 1 (c) The Leverage Ratio is less than 5.50 to 1 but 2.500% greater than or equal to 5.00 to 1 (d) The Leverage Ratio is less than 5.00 to 1 but 2.250% greater than or equal to 4.50 to 1 (e) The Leverage Ratio is less than 4.50 to 1 but 2.000% greater than or equal to 4.00 to 1 (f) The Leverage Ratio is less than 4.00 to 1 but 1.750% greater than or equal to 3.50 to 1 (g) The Leverage Ratio is less than 3.50 to 1 but 1.500% greater than or equal to 3.00 to 1 -2- (h) The Leverage Ratio is less than 3.00 to 1 1.250% The Applicable LIBOR Rate Margin payable by the Borrower on the LIBOR Advances outstanding hereunder shall be subject to reduction or increase, as applicable and as set forth in the table above, according to the performance of the Borrower as tested by using the Leverage Ratio calculated (i) if not in respect of an Acquisition, as of the end of each fiscal quarter or (ii) if in respect of an Acquisition, upon receipt of a Compliance Certificate as required under SECTION 7.6(iii) hereof; PROVIDED, that each adjustment in the LIBOR Basis as a result of a change in the Applicable LIBOR Rate Margin shall be effective (A) if not in respect of an Acquisition, on the date which is two Business Days following receipt by the Administrative Agent of the financial statements required to be delivered pursuant to SECTION 6.1 or 6.2 hereof, as applicable, and the corresponding Compliance Certificate required pursuant to SECTION 6.3 hereof, and (B) if in respect of an Acquisition, on the closing date of such Acquisition. If such financial statements and Compliance Certificate are not received by the Administrative Agent by the date required, the Applicable LIBOR Rate Margin shall be increased to the Applicable LIBOR Rate Margin next higher than the Applicable LIBOR Rate Margin currently in effect until such time as such financial statements and Compliance Certificate are received. Notwithstanding anything herein to the contrary, the Applicable LIBOR Rate Margin from and including October 1, 1999 until the date which is two Business Days following receipt by the Administrative Agent of the financial statements and Compliance Certificate for the 1999 Fiscal Year shall be calculated as if the Leverage Ratio is greater than or equal to 6.00 to 1." (c) The definition of "Fieldcrest Cannon Subordinated Debenture Reserve" is hereby amended to read as follows: "'FIELDCREST CANNON SUBORDINATED DEBENTURE RESERVE' means (a) for the period from and including October 8, 1999 through and including February 28, 2000, zero, and (b) for the period from and including February 29, 2000 and thereafter, an amount equal to 50% of the aggregate amount of cash consideration that may be requested, at any time of determination, by the holders of Fieldcrest Cannon Subordinated Debentures in respect of a conversion thereof." (d) SECTION 7.11 of the Credit Agreement is hereby amended to read as follows: "Section 7.11 MAXIMUM LEVERAGE RATIO. At the end of each Fiscal Quarter occurring below or occurring during the periods indicated below, the Borrower shall not permit the Leverage Ratio to be greater than the ratio set forth below opposite such Fiscal Quarter or the period in which such Fiscal Quarter occurs: Fiscal Quarter or Period Ratio ------------------------ ----- Third Fiscal Quarter of Fiscal Year 1999 6.10 to 1 Fourth Fiscal Quarter of Fiscal Year 1999 6.35 to 1 First Fiscal Quarter of Fiscal Year 2000 6.00 to 1 Second Fiscal Quarter of Fiscal Year 2000 5.75 to 1 Third Fiscal Quarter of Fiscal Year 2000 5.25 to 1 Fourth Fiscal Quarter of Fiscal Year 2000 4.75 to 1 -3- From and including the First Fiscal Quarter 4.25 to 1" of Fiscal Year 2001 and thereafter (e) SECTION 7.12 of the Credit Agreement is hereby amended to read as follows: "Section 7.12 MINIMUM FIXED CHARGE COVERAGE RATIO. At the end of each Fiscal Quarter occurring below or occurring during the periods indicated below, the Borrower shall not permit the Fixed Charge Coverage Ratio to be less than the ratio set forth below opposite such Fiscal Quarter or the period in which such Fiscal Quarter occurs: Fiscal Quarter or Period Ratio ------------------------ ----- Third Fiscal Quarter of Fiscal Year 1.10 to 1 1999 From and including the Fourth Quarter 1.00 to 1 of Fiscal Year 1999 through and including the Second Fiscal Quarter of Fiscal Year 2000 From and including the Third Fiscal 1.10 to 1" Quarter of Fiscal Year 2000 and thereafter (f) SECTION 11.6(d) of the Credit Agreement is hereby amended by amending clause (ii) thereof set forth in the first PROVISO of said Section as follows: "(ii) no such assignment (including any simultaneous assignment pursuant to the Term Credit Agreement), other than to an Affiliate of a Lender or to an existing Lender hereunder, shall be in an amount less than $5,000,000, unless the portion of the Commitment (and Advances under and as defined in the Term Credit Agreement) of a Lender is less than $5,000,000, in which case such assignment may be in the aggregate amount of such Lender's Specified Percentage of the Commitment and the aggregate amount of Advances (as defined in the Term Credit Agreement) owed to such Lender under the Term Credit Agreement (provided, however, notwithstanding anything herein to the contrary, in no event shall the portion of the Commitment retained by any Lender under this Agreement and/or the portion of the Advances (as defined in this Agreement and the Term Credit Agreement) retained by such Lender be less than $1,000,000)," (g) The Compliance Certificate is hereby amended to be in the form of EXHIBIT D attached to this Fourth Amendment. 2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its execution and delivery hereof, the Borrower represents and warrants that, as of the date hereof and after giving effect to the amendments contemplated by the foregoing Section 1: (a) the representations and warranties contained in the Credit Agreement and the other Loan Documents are true and correct on and as of the date hereof as made on and as of such date; (b) no event has occurred and is continuing which constitutes a Default or an Event of Default; (c) the Borrower has full power and authority to execute and deliver this Fourth Amendment, and this Fourth Amendment constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, except as enforceability may be limited by applicable Debtor Relief Laws and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and except as rights to indemnity may be limited by federal or state securities laws; -4- (d) neither the execution, delivery and performance of this Fourth Amendment nor the consummation of any transactions contemplated herein will conflict with any Law, the articles of incorporation, bylaws or other governance document of the Borrower or any of its Subsidiaries, or any indenture, agreement or other instrument to which the Borrower or any of its Subsidiaries or any of their respective property is subject; and (e) no authorization, approval, consent, or other action by, notice to, or filing with, any governmental authority or other Person (including the Board of Directors of the Borrower or any Guarantor), is required for the execution, delivery or performance by the Borrower of this Fourth Amendment or the acknowledgment of this Fourth Amendment by any Guarantor. 3. CONDITIONS OF EFFECTIVENESS. This Fourth Amendment shall be effective as of October 1, 1999, subject to the following: (a) the Administrative Agent shall receive counterparts of this Fourth Amendment executed and/or consented to by the Required Lenders (as defined in the Intercreditor Agreement); (b) the representations and warranties set forth in Section 2 of this Fourth Amendment shall be true and correct; (c) the Administrative Agent shall receive counterparts of this Fourth Amendment executed by the Borrower and acknowledged by each Guarantor; and (d) the Administrative Agent shall receive, in form and substance satisfactory to the Administrative Agent and its counsel, such other documents, certificates and instruments as the Administrative Agent shall reasonably require. 4. GUARANTOR ACKNOWLEDGMENT. By signing below, each of the Guarantors (i) acknowledges, consents and agrees to the execution and delivery of this Fourth Amendment, (ii) acknowledges and agrees that its obligations in respect of its Subsidiary Guaranty are not released, diminished, waived, modified, impaired or affected in any manner by this Fourth Amendment or any of the provisions contemplated herein, (iii) ratifies and confirms its obligations under its Subsidiary Guaranty, and (iv) acknowledges and agrees that it has no claims or offsets against, or defenses or counterclaims to, its Subsidiary Guaranty as a result of this Fourth Amendment. 5. AMENDMENT FEE. So long as this Fourth Amendment becomes effective, the Borrower covenants and agrees to pay an amendment fee to the Lenders which execute and deliver this Fourth Amendment to the Administrative Agent (or its counsel) not later than 5:00 p.m., Dallas time, October 8, 1999 in an amount equal to the product of (a) 0.15% multiplied by (b) an amount equal to such Lender's portion of the Revolving Credit Commitment. Such amendment fee shall be paid in immediately available funds and shall be due and payable to each Lender eligible for payment pursuant to the preceding sentence no later than two Business Days after the conditions set forth in Section 3 of this Fourth Amendment have been satisfied. The Borrower agrees that the failure to pay the amendment fee provided in this Section 5 shall be an Event of Default under SECTION 8.1(b)(ii) of the Credit Agreement. 6. REFERENCE TO THE CREDIT AGREEMENT. (a) Upon the effectiveness of this Fourth Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", or words of like import shall mean and be a reference to the Credit Areement, as amended by this Fourth Amendment. -5- (b) The Credit Agreement, as amended by this Fourth Amendment, and all other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. 7. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all reasonable costs and expenses of the Administrative Agent in connection with the preparation, reproduction, execution and delivery of this Fourth Amendment and the other instruments and documents to be delivered hereunder (including the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent with respect thereto and with respect to advising the Administrative Agent as to its rights and responsibilities under the Credit Agreement, as amended by this Fourth Amendment). 8. EXECUTION IN COUNTERPARTS. This Fourth Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. 9. GOVERNING LAW: BINDING EFFECT. This Fourth Amendment shall be governed by and construed in accordance with the laws of the State of Texas and shall be binding upon the Borrower and each Lender and their respective successors and assigns. 10. HEADINGS. Section headings in this Fourth Amendment are included herein for convenience of reference only and shall not constitute a part of this Fourth Amendment for any other purpose. 11. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS FOURTH AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. - ------------------------------------------------------------------------------- REMAINDER OF PAGE LEFT INTENTIONALLY BLANK - ------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have executed this Fourth Amendment as the date first above written. PILLOWTEX CORPORATION By: Jaime Vasquez Title: VP/Treasurer BANK OF AMERICA, N.A. (formerly known as NationsBank, N.A., successor by merger to NationsBank of Texas, N.A.), as Administrative Agent and as a Lender, Swing Line Bank and Issuing Bank By: Deirdre B. Doyle Principal THE BANK OF NOVA SCOTIA ATLANTA AGENCY By: (signature illegible) Name: -6- Title: THE FIRST NATIONAL BANK OF CHICAGO By: (signature illegible) Name: Title: Vice President COMERICA BANK By: Mark B. Grover Name: Title: Vice President CREDIT LYONNAIS, NEW YORK BRANCH By: Robert Ivosevich Name: Title: Senior Vice President WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION By: Carol Polasky Name: Title: Vice President THE BANK OF TOKYO-MITSUBISHI, LTD. By: J. Mearns Name: Title: VP & Manager BANK ONE, TEXAS, N.A. By: (signature illegible) Name: Title: Vice President BANKBOSTON, N.A. By: Stephen Y. McGehee Name: Title: Managing Director BHF (USA) CAPITAL CORPORATION By: Michael Pelleritto Name: Title: Assistant Vice President By: Perry Forman -7- Name: Vice President Title: FIRST UNION NATIONAL BANK By: Roger Pelz Name: Title: Senior Vice President GENERAL ELECTRIC CAPITAL CORPORATION By: William S. Richardson Name: Title: Duly Authorized Signatory CO0PERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH By: Theodore W. Cox Name: Title: Vice President By: Edward Peyser Name: Title: Vice President SOCIETE GENERALE, SOUTHWEST AGENCY By: Robert Petersen Name: Title: Vice President By: Name: Title: THE BANK OF NEW YORK By: (not signed) Name: Title: COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE By: Anthony Rock Name: -8- Title: Vice President By: Marcus Edward Name: Title: Vice President BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC. By: John G. Taylor Name: Title: Vice President By: Stephen W. Hipp Name: Title: Senior Associate FLEET BANK, N.A. By: Alfred Bonfantini Name: Title: Senior Vice President THE FUJI BANK, LTD. - HOUSTON AGENCY By: (not signed) Name: Title: NATIONAL BANK OF CANADA By: Bill Handley Name: Title: Vice President By: Larry Sears Name: Title: Vice President & Manager NATIONAL CITY BANK OF KENTUCKY By: Tom Gurbach Name: Title: Vice President THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: B. Ross Smead -9- Name: Title: Vice President BANK POLSKA KASA OPIEKI, S.A. - PEKAO S.A. GROUP, NEW YORK BRANCH By: Hussein B. El-Tawil Name: Title: Vice President GUARANTY FEDERAL BANK, F.S.B. By: Robert S. Hays Name: Title: Vice President CONSENTED TO BY: KZH WATERSIDE LLC By: Virginia Conway Name: Title: Authorized Agent SENIOR DEBT PORTFOLIO By: Payson F. Swaffied Name: Title: Vice President AERIES FINANCE LTD. By: Gregory Stoeckle Name: Title: Authorized Signatory CRESCENT/MACH I PARTNERS, L.P. By: (not signed) Name: Title: EATON VANCE INSTITUTIONAL SENIOR LON FUND By: Payson Swaffield Name: Title: Vice President CYPRESSTREE INVESTMENT PARTNERS I, LTD., By: CypressTree Investment Management Company, -10- Inc., as Portfolio Manager By: (not signed) Name: Title: VAN KAMPEN CLO I, LIMITED By: VAN KAMPEN MANAGEMENT, INC., as Collateral Manager By: Darvin D. Pierce Name: Title: Vice President BALANCED HIGH-YIELD FUND I LTD. By: BHF (USA) CAPITAL CORPORATION, acting as attorney-in-fact By: Michael Pellerito Name: Title: Assistant Vice President By: Perry Forman Name: Title: Vice President INDOSUEZ CAPITAL FUNDING IV, L.P. By: INDOSUEZ CAPITAL LUXEMBOURG, as Collateral Manager By: (not signed) Name: Title: VAN KAMPEN SENIOR INCOME TRUST By: Darvin D. Pierce Name: Title: Vice President INDOSUEZ CAPITAL FUNDING IIA, LIMITED By: Indosuez Capital Luxembourg, as Collateral Manager By: (not signed) Name: Title: -11- CYPRESSTREE INSTITUTIONAL FUND, LLC By: CypressTree Investment Management Company, Inc., its Managing Member By: Timothy M. Barns Name: Title: Managing Director CYPRESSTREE INVESTMENT FUND, LLC By: CypressTree Investment Management Company, Inc., its Managing Member By: Timothy M. Barns Name: Title: Managing Director KZH CYPRESSTREE-1 LLC By: (signature illegible) Name: Title: Authorized Agent OXFORD STRATEGIC INCOME FUND By: Eaton Vance Management, as Investment Advisor By: Payson F. Swaffield Name: Title: Vice President VAN KAMPEN CLO II, LIMITED By: Van Kampen Management, Inc., as Collateral Manager By: Darwin D. Pierce Name: Title: Vice President CAPTIVA FINANCE, LTD. By: (not signed) Name: Title: CAPTIVA II FINANCE, LTD. By: (not signed) Name: Title: -12- MOUNTAIN CLO TRUST By: (not signed) Name: Title: CIBC, INC. By: (not signed) Name: Title: BALANCED HIGH-YIELD FUND II LTD. By: BHF (USA) CAPITAL CORPORATION, acting as attorney-in-fact By: Michael Pellerito Name: Title: Assistant Vice President By: Perry Forman Name: Title: Vice President KZH CRESCENT-3 LLC By: (signature illegible) Name: Title: Authorized Agent FREMONT FINANCIAL CORPORATION By: Randolph M. Ross Name: Title: Vice President - Senior Portfolio Manager THE DAI-ICHI KANGYO BANK LIMITED, NEW YORK BRANCH By: Christopher Fahey Name: Title: Vice President TCW LEVERAGED INCOME TRUST, L.P. By: TCW ADVISERS (BERMUDA), LTD., By: (not signed) Name: Title: By: TCW INVESTMENT MANAGEMENT -13- COMPANY, as Investment Manager By: (not signed) Name: Title: ACKNOWLEDGED AND AGREED: PILLOWTEX, INC. PTEX HOLDING COMPANY PILLOWTEX MANAGEMENT SERVICES COMPANY BEACON MANUFACTURING COMPANY MANETTA HOME FASHIONS, INC. TENNESSEE WOOLEN MILLS FIELDCREST CANNON, INC. CRESTFIELD COTTON COMPANY ENCEE, INC. FCC CANADA, INC. FIELDCREST CANNON FINANCING, INC. FIELDCREST CANNON LICENSING, INC. FIELDCREST CANNON INTERNATIONAL, INC. FIELDCREST CANNON SURE FIT, INC. FIELDCREST CANNON TRANSPORTATION, INC. ST. MARYS, INC. AMOSKEAG COMPANY AMOSKEAG MANAGEMENT CORPORATION DOWNEAST SECURITIES CORPORATION BANGOR INVESTMENT COMPANY MOORE'S FALLS CORPORATION THE LESHNER CORPORATION LESHNER OF CALIFORNIA, INC. OPELIKA INDUSTRIES, INC. By: Jaime Vasquez Title: VP/Treasurer -14- EX-27.1 5 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR PILLOWTEX CORPORATION AND ITS SUBSIDIARIES FOR THE NINE MONTHS ENDED OCTOBER 2, 1999 AND IS QUALIFIED IN ITS ENTIRETY TO SUCH UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 1,000 9-MOS JAN-01-2000 JAN-03-1999 OCT-02-1999 7,669 0 368,372 27,911 460,824 822,478 781,580 134,937 1,786,779 948,341 399,582 72,199 0 142 228,790 1,786,779 1,146,781 1,146,781 984,757 1,084,114 0 0 60,464 2,203 1,255 948 0 0 0 948 (0.68) (0.68)
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