-----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, L3DUVwalid73mEJYCjMOkFBFuguhWa4yTc866rjuVPWM8zmtixhTSYaIjRki9Mfp 6Gp7sNBYe4DRerJkLVq6wA== 0000930661-00-001354.txt : 20000517 0000930661-00-001354.hdr.sgml : 20000517 ACCESSION NUMBER: 0000930661-00-001354 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000401 FILED AS OF DATE: 20000516 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: 638048 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 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark FORM 10-Q One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 1, 2000 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 May 5, 2000 ----- -------------------------- Common Stock, $.01 par value 14,231,708 PILLOWTEX CORPORATION AND SUBSIDIARIES INDEX Part I - Financial Information Page No. Item 1. Unaudited Consolidated Financial Statements: Consolidated Balance Sheets as of January 1, 2000 and April 1, 2000 3 Consolidated Statements of Operations for the three months ended April 3, 1999 and April 1, 2000 4 Consolidated Statements of Cash Flows for the three months ended April 3, 1999 and April 1, 2000 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K 20 Signature 21 Index to Exhibits 22 2 PILLOWTEX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS January 1, 2000 and April 1, 2000 (Dollars in thousands, except for par value) (Unaudited)
ASSETS 1999 2000 ---- ---- Current assets: Cash and cash equivalents................................................... $ 4,854 $ 19,332 Receivables: Trade, less allowances of $33,351 and $32,471 in 1999 and 2000, respectively................................................ 268,499 249,047 Other.................................................................... 17,923 11,176 Inventories................................................................. 423,052 442,205 Assets held for sale........................................................ 1,595 1,599 Prepaid expenses............................................................ 5,502 9,806 ------------ ---------- Total current assets............................................ 721,425 733,165 Property, plant and equipment, less accumulated depreciation of $150,384 and $162,367 in 1999 and 2000, respectively........................ 644,821 644,785 Intangible assets, at cost, less accumulated amortization of $26,355 and $27,989 in 1999 and 2000, respectively...................................... 288,856 285,779 Other assets.................................................................... 28,287 28,930 ------------ ---------- $ 1,683,389 1,692,659 ============ ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable............................................................ $ 119,848 113,370 Accrued expenses............................................................ 73,238 88,050 Deferred income taxes....................................................... 37,848 37,219 Current portion of long-term debt........................................... 85,759 91,508 ------------ ---------- Total current liabilities....................................... 316,693 330,147 Long-term debt, less current portion (Note 5)................................... 965,323 977,045 Deferred income taxes........................................................... 67,720 62,388 Noncurrent liabilities.......................................................... 52,366 52,305 ------------ ---------- Total liabilities............................................... 1,402,102 1,421,885 Series A redeemable convertible preferred stock, $0.01 par value; 77,517 shares issued and outstanding, including accrued dividends (Note 6)............. 73,898 75,844 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; 14,261,856 and 14,232,269 shares issued and outstanding in 1999 and 2000, respectively............................................ 142 142 Additional paid-in capital.................................................. 160,515 159,654 Retained earnings........................................................... 49,269 37,599 Currency translation adjustment............................................. (1,730) (1,754) Deferred compensation....................................................... (807) (711) ------------ ---------- Total shareholders' equity ..................................... 207,389 194,930 ------------ ---------- $ 1,683,389 $1,692,659 ============ ==========
See accompanying notes to consolidated financial statements. 3 PILLOWTEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended April 3, 1999 and April 1, 2000 (Amounts in thousands, except for per share data) (Unaudited)
1999 2000 ---- ---- Net sales....................................................................... $ 368,508 $ 345,160 Cost of goods sold.............................................................. 312,294 306,065 ----------- ---------- Gross profit.............................................................. 56,214 39,095 Selling, general and administrative expenses.................................... 28,136 26,939 ----------- ---------- Earnings from operations.................................................. 28,078 12,156 Interest expense................................................................ 19,466 27,844 ----------- ---------- Earnings (loss) before income taxes....................................... 8,612 (15,688) Income taxes.................................................................... 3,359 (5,961) ----------- ---------- Net earnings (loss)....................................................... 5,253 (9,727) Preferred dividends and accretion............................................... 535 1,943 ----------- ---------- Earnings (loss) available for common shareholders......................... $ 4,718 $ (11,670) =========== ========== Basic earnings (loss) per common share.......................................... $ .33 $ (.82) =========== ========== Weighted average common shares outstanding - basic.............................. 14,148 14,228 =========== ========== Diluted earnings (loss) per common share........................................ $ .31 $ (.82) =========== ========== Weighted average common shares outstanding - diluted............................ 16,937 14,228 =========== ========== Dividends declared per common share............................................. $ .06 $ - =========== ==========
See accompanying notes to consolidated financial statements. 4 PILLOWTEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended April 3, 1999 and April 1, 2000 (Dollars in thousands) (Unaudited)
1999 2000 ---- ---- Cash flows from operating activities: Net earnings (loss) ........................................................ $ 5,253 $ (9,727) Adjustments to reconcile net earnings (loss) to net cash Used in operating activities: Depreciation and amortization........................................... 13,627 15,886 Deferred income taxes................................................... (195) (5,961) Accretion on debt instruments........................................... 317 366 Provision for doubtful accounts......................................... 140 416 Amortization of deferred compensation................................... 99 96 Changes in operating assets and liabilities: Trade receivables.................................................... (10,499) 19,036 Inventories.......................................................... (46,901) (19,153) Accounts payable..................................................... 40,424 (13,751) Accrued expenses..................................................... (2,229) 14,812 Other assets and liabilities......................................... (330) 2,405 --------- ----------- Net cash provided by (used in) operating activities............ (294) 4,425 Cash flows from investing activities: Proceeds from sale of property, plant and equipment......................... 77 1,326 Purchases of property, plant and equipment.................................. (27,996) (14,790) Payments for businesses purchased........................................... (59) - --------- ----------- Net cash used in investing activities........................... (27,978) (13,464) Cash flows from financing activities: Increase (decrease) in checks not yet presented for payment................. (30,167) 7,273 Borrowings on revolving credit loans........................................ 142,800 107,300 Repayments of revolving credit loans........................................ (70,600) (81,100) Retirement of long-term debt................................................ (4,189) (9,956) Payments of debt issuance costs............................................. (38) - Dividends paid.............................................................. (1,332) - Proceeds from exercise of stock options..................................... 10 - --------- ----------- Net cash provided by financing activities....................... 36,484 23,517 Net change in cash and cash equivalents......................................... 8,212 14,478 Cash and cash equivalents at beginning of period................................ 5,561 4,854 --------- ----------- Cash and cash equivalents at end of period...................................... $ 13,773 19,332 ========= =========== Supplemental disclosures of cash flow information: Cash paid (received) during the period for: Interest.................................................................. $ 13,540 18,149 ========= =========== Income taxes.............................................................. $ (2,160) (3,302) ========= ===========
See accompanying notes to consolidated financial statements. 5 PILLOWTEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Tables in thousands) (Unaudited) (1) Basis of Presentation The accompanying unaudited consolidated financial statements of Pillowtex Corporation, which is referred to in this report as "Parent," and its subsidiaries, which are collectively with Parent, referred to in this report as the "Company," include all adjustments, consisting only of normal, recurring adjustments and accruals, which are, in the opinion of management, necessary for fair presentation of the results of operations and financial position. Results of operations for interim periods may not be indicative of future results. The unaudited consolidated financial statement 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 for the fiscal year ended January 1, 2000. 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 $5.8 million and $(9.7) million for the three month periods ended April 3, 1999 and April 1, 2000, respectively. (3) Inventories Inventories consisted of the following at January 1, 2000 and April 1, 2000: January 1 April 1 2000 2000 ------------ ------------ Finished goods $ 218,381 $ 234,198 Work-in-process 136,924 137,436 Raw materials 44,424 46,254 Supplies 23,323 24,317 ------------ ------------ $ 423,052 $ 442,205 ============ ============ 6 PILLOWTEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Tables in thousands) (Unaudited) (4) Earnings Per Share The following table reconciles the numerators and denominators of basic and diluted earnings (loss) per share for the three month periods ended April 3, 1999 and April 1, 2000. Preferred stock convertible into 3,229,875 common shares, debentures convertible into 607,861 common shares and options to purchase 958,049 common shares at an exercise price ranging from $4.31 to $44.38 were excluded from the computation of diluted earnings per share for the three months ended April 1, 2000 because inclusion would have been anti-dilutive. Debentures convertible into 633,000 common shares and options to purchase 697,000 common shares at an exercise price from $22.00 to $44.38 were excluded from the computation of diluted earnings per share because inclusion would have been anti-dilutive for the three months ended April 3, 1999.
Three Months Ended Three Months Ended April 3, 1999 April 1, 2000 ---------------------------- ------------------------- Earnings Shares Earnings Shares -------- ------ -------- ------ Basic - earnings (loss) available for common shareholders $ 4,718 14,148 $ (11,670) 14,228 Effect of dilutive securities: Stock options - 81 - - Convertible preferred stock 535 2,708 - - --------- --------- --------- --------- Diluted - earnings (loss) available for common shareholders $ 5,253 16,937 $ (11,670) 14,228 ========= ========= ========= =========
7 PILLOWTEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Long-Term Debt Long-term debt consists of the following (in thousands): January 1, April 1, 2000 2000 --------------- --------------- Revolver $ 259,800 $ 285,661 Overline Credit Facility 35,000 35,000 Term Loans 341,500 334,403 9% Senior subordinated notes 185,000 185,000 10% Senior subordinated notes 125,000 125,000 6% convertible subordinated sinking fund debentures due in 2012 (effective rate of 8.72%, net of $14.3 million and $14.0 million in unamortized discount at January 1, 2000 and April 1, 2000, respectively) 82,205 83,770 Industrial revenue bonds with interest rates from 3.60% to 7.85% and maturities through July 1, 2021; generally collateralized by land and buildings 16,814 16,437 Other debt 5,763 3,282 --------------- -------------- 1,051,082 1,068,553 Less: Current portion 85,759 91,508 --------------- -------------- Total long-term debt $ 965,323 $ 977,045 =============== ==============
In December 1997, in connection with the Fieldcrest Cannon acquisition, Pillowtex entered into new senior secured revolving credit and term loan facilities with a group of financial and institutional investors for which Bank of America acts as the agent. These facilities consisted of a $350.0 million revolving credit facility and a $250.0 million term loan facility. The term loan facility consisted of a $125.0 million Tranche A Term Loan and a $125.0 million Tranche B Term Loan. Effective July 28, 1998, Pillowtex amended these facilities by increasing the Tranche B Term Loan to $225.0 million. The increase occurred in conjunction with the acquisition of The Leshner Corporation, allowing Pillowtex to fund the transaction and reduce borrowings under the revolving credit facility. Effective March 12, 1999, the revolving credit facility was amended to permit Pillowtex to use for working capital one-half of a $61.0 million portion of the facility held as contingency reserve for cash payments required upon conversion of the Fieldcrest Cannon 6% Convertible Subordinated Debentures due 2012, thereby increasing availability under that facility. Effective October 1, 1999, the revolving credit facility was further amended to permit Pillowtex to use the other half of the contingency reserve for working capital, thereby increasing availability under that facility. At the end of the third and fourth quarters of its 1999 fiscal year, Pillowtex was not in compliance with certain financial covenants under its senior debt facilities. The Company obtained a series of temporary waivers of this non-compliance. Effective as of December 7, 1999, the Company agreed to certain amendments to the senior debt facilities, principally related to cash management, adjustments to restrictive covenants, and borrowings under, and uses of proceeds from, the revolving credit facility. Effective as of March 31, 2000, the Company obtained a permanent waiver of its prior non-compliance with financial covenants and the senior debt facilities were further 8 amended to shorten their terms to maturity and accelerate the related amortization schedule for repayment of principal, to eliminate the contingency reserve requirement referred to above, to increase the applicable interest rate margins (subject to reduction if the Company's earnings before interest, taxes, depreciation and amortization (EBITDA) exceeds a specified level for the 2000 fiscal year), to add a covenant requiring that EBITDA must exceed specified levels for future fiscal periods and to eliminate all other financial covenants, to modify certain restrictive covenants, to limit borrowings under the revolving credit facility based on a formula tied to 45% of eligible inventory plus 80% of eligible accounts receivable, and to provide for a series of reductions in the commitment under the revolving credit facility. The Company is in compliance with the amended financial covenants as of April 1, 2000 and believes that it will be able to comply with the amended financial covenants in the future; however, there can be no assurance of such compliance. The revolving credit facility includes $55.0 million of availability for letters of credit. At May 5, 2000, $36.2 million of letters of credit were outstanding. At May 5, 2000, $ 28.9 million was available under the revolving credit facility. As amended, amounts outstanding under the revolving credit facility and the Tranche A Term Loan currently bear interest at a rate based upon the London Interbank Offered Rate plus 3.50%. The Tranche B Term Loan bears interest on a similar basis to the Tranche A Term Loan, plus an additional margin of 0.50%. The weighted average annual interest rate on outstanding borrowings under the various senior credit facilities for the first quarter of 2000 was 9.67%. The senior debt facilities expire on January 31, 2002. The senior debt facilities are guaranteed by each of the domestic subsidiaries of Pillowtex, and are secured by first priority liens on all of the capital stock of each domestic subsidiary of Pillowtex and by 65% of the capital stock of Pillowtex's foreign subsidiaries. Pillowtex has also granted a first priority security interest in all of its presently unencumbered and future domestic assets and properties, and all presently unencumbered and future domestic assets and properties of each of its subsidiaries. The term loan facility is subject to mandatory prepayment from all net cash proceeds of asset sales and debt issuances of Pillowtex (except as specifically provided), 50% of the net cash proceeds of equity issuances by Pillowtex or any of its subsidiaries, and 75% of Excess Cash Flow (as defined). All mandatory prepayments will be applied pro rata between the Tranche A Term Loan and the Tranche B Term Loan to reduce the remaining installments of principal. The senior debt facilities contain a number of negative covenants, which restrict, among other things, Pillowtex's ability to incur additional debt, pay dividends or make other restricted payments, sell stock of subsidiaries, grant liens, make capital expenditures, engage in transactions with affiliates, make loans, advances and investments, dispose of assets, effect mergers, consolidations and dissolutions, and make certain changes in its business. A breach of any of the covenants contained in the senior debt facilities could result in a default under the terms of the facilities. Upon the occurrence of an event of default: the senior lenders would not be obligated to make additional advances under the revolving credit facility; the senior lenders would be entitled to declare all amounts outstanding under the senior debt facilities, including accrued interest or other obligations, to be immediately due and payable; the senior lenders would have the rights to block payment on substantially all of Pillowtex's other long-term debt; and the senior lenders would be entitled to proceed against the collateral granted to them to secure the senior debt. In these circumstances, cross defaults could occur making substantially all of Pillowtex's other long-term debt due. If any senior debt were to be accelerated, the Company cannot be certain that its assets would be sufficient to repay in full that debt and its other debt. As a result of the covenants described above, Pillowtex's ability to respond to changing business and economic conditions and to secure additional financing, if needed, is significantly restricted. In May 1999, Pillowtex entered into a $20.0 million senior unsecured revolving credit facility (overline facility) in order to obtain additional working capital availability. On July 27, 1999, this facility was amended to increase the amount of funds available to $35.0 million. At the end of the third and fourth quarters of its 1999 fiscal year, Pillowtex was not in compliance with certain financial covenants under this facility, the covenants of which are established by reference to the senior debt facilities described above. The Company obtained a series of temporary waivers of this non-compliance and extensions of the maturity date. Effective as of December 7, 1999, the Company agreed to certain amendments to this facility, resulting in the facility being secured by the assets securing the senior debt facilities described above. Effective as of March 31, 2000, the Company obtained a permanent waiver of its prior non-compliance and the facility was amended to lengthen its term to maturity, to impose an amortization schedule for the repayment of principal, and to increase the applicable interest rate margins (subject to reduction if the Company's EBITDA exceeds a specified level for the 2000 fiscal year). 9 This facility is guaranteed on a senior basis by Pillowtex's domestic subsidiaries. Pillowtex is currently required to pay interest on any amounts borrowed under the facility at a rate which is based upon the London Interbank Offered Rate plus 4.5% or the base rate plus 3.0%, at Pillowtex's option. This facility matures upon termination by Pillowtex at any time or otherwise at the earliest of: a) any increase in the commitment under the senior debt facilities described above, the issuance of any capital stock by Pillowtex or its domestic subsidiaries, or other specified events; or b) January 31, 2002. In connection with the Fieldcrest Cannon merger, Pillowtex issued $185.0 million of 9% Senior Subordinated Notes due December 15, 2007, with interest payable semiannually commencing June 15, 1998. Pillowtex may at its option redeem the 9% Notes, in whole or in part, on or after December 15, 2002 at a redemption price of 104.5%, which declines 1.5% annually through December 15, 2005 to 100%. The 9% Notes are general unsecured obligations of Pillowtex, are subordinated in right of payment to all existing and future senior indebtedness, and rank pari passu to the 10% Notes described below. On November 12, 1996, Pillowtex issued the 10% Senior Subordinated Notes due November 15, 2006, with interest payable semiannually commencing May 15, 1997. Pillowtex may, at its option, redeem the 10% Notes, in whole or in part, on or after November 15, 2001 at a redemption price of 105.0%, which declines 1.667% annually through November 15, 2004 to 100%. The 10% Notes are general unsecured obligations of Pillowtex, and are subordinated in right of payment to all existing and future senior indebtedness. The 9% Notes and the 10% Notes are unconditionally guaranteed on a senior subordinated basis by each of the existing and future domestic subsidiaries of Pillowtex and each other subsidiary of Pillowtex that guarantees Pillowtex's obligations under the senior debt facilities described above. The guarantees are subordinated in right of payment to all existing and future senior indebtedness of the relevant guarantor. Upon a change in control, Pillowtex will be required to make an offer to repurchase all outstanding 9% Notes and 10% Notes at 101% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the date of repurchase. As a result of Pillowtex's acquisition of Fieldcrest Cannon, the outstanding 6% Convertible Subordinated Debentures due 2012 of Fieldcrest Cannon are convertible, at the option of the holders, into a combination of cash and Pillowtex's Common Stock. During the fourth quarter of 1999, Pillowtex notified the holders of 6% Convertible Debentures that it was not practicable or prudent for payments to be made in respect of the conversion of 6% Convertible Debentures and advised holders that had surrendered 6% Convertible Debentures that, with limited exceptions, they could rescind their notice of conversion, return to Pillowtex any Pillowtex Common Stock that had been issued to them and regain possession of their 6% Convertible Debentures. As of April 1, 2000, the cash component due in respect of 6% Convertible Debentures that had been surrendered without subsequent rescission of that surrender was $9.1 million. In addition, as of April 1, 2000, $96.5 million aggregate principal amount of 6% Convertible Debentures remained outstanding. If all such outstanding 6% Convertible Debentures were converted, including those surrendered without subsequent rescission, at such date, the resulting cash component to be paid to the holders of 6% Convertible Debentures would have been approximately $61.0 million (classified as current portion of long-term debt at April 1, 2000). Pillowtex is currently prohibited under the terms of its senior subordinated debt from making payments in respect of the 6% Convertible Debentures except for interest and at maturity or pursuant to sinking fund obligations. Pillowtex has initiated discussions with certain holders of its 6% Convertible Debentures regarding a potential restructuring of the 6% Convertible Debentures. Currently, it is anticipated that any comprehensive restructuring of the 6% Convertible Debentures involving cash payments (other than pursuant to sinking fund obligations) would likely require the consent of the holders of Pillowtex's senior subordinated debt. As of January 1, 2000, Pillowtex had approximately $345.0 million of notional amounts covered under interest rate swap agreements whereby Pillowtex exchanged floating rates for fixed rates. The weighted average fixed and floating rates were 4.70% and 6.05%, respectively. As of April 1, 2000, Pillowtex had approximately $230.0 million of notional amounts covered under interest rate swap agreements whereby Pillowtex exchanged floating rates for fixed rates. The weighted average fixed and floating rates were 4.70% and 6.04%, respectively. The fair values of the swaps at January 1, 2000 and April 1, 2000 were $4.0 million and $3.0 million, respectively, in favor of Pillowtex. Under the terms of its senior secured credit agreements and senior subordinated debt and its Series A Redeemable Convertible Preferred Stock, Pillowtex currently is prohibited from paying cash dividends to or making other distributions to holders of its Common Stock. Based upon current and anticipated levels of operations, and aggressive efforts to reduce inventories and accounts receivable, Pillowtex anticipates that its cash flow from operations, together with amounts available under its revolving credit facility, will be adequate to meet its anticipated cash requirements in the foreseeable future (assuming no significant cash payments are required to be made in respect of the 6% Convertible Debentures other than scheduled interest payments and payments related to satisfaction of the 10 sinking fund obligations). In the event that cash flows and available borrowings under the revolving credit facility are not sufficient to meet future cash requirements, Pillowtex may be required to reduce planned capital expenditures or seek additional financing. Pillowtex can provide no assurances that reductions in planned capital expenditures would be sufficient to cover shortfalls in available cash or that additional financing would be available or, if available, offered on terms acceptable to the Company. (6) Redeemable Convertible Preferred Stock On December 19, 1997, the Company issued 65,000 shares of Series A Redeemable Convertible Preferred Stock ("Series A Preferred Stock") for $65.0 million less $2.1 million of issue costs. Accretion is being recognized to increase the recorded amount to the redemption amount over the period to the redemption date. Dividends accrued from the issue date through December 31, 1999 at a 3% annual rate. Beginning January 1, 2000, the rate increased to 10% as a result of the Company's earnings per share for 1999 falling below predetermined targets. During the third and fourth quarters of Fiscal 1999, the Company paid in kind a one-time cumulative dividend on the 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 the 10% rate, or 10,135 shares of Series A Preferred Stock. Dividends can be paid in cash or additional shares of preferred stock until December 2002, at which time they must be paid in cash. The Company's ability to pay dividends on the common stock and preferred stock is restricted under the terms of its senior credit facilities and senior subordinated debt. Total preferred shares outstanding as of April 1, 2000 was 77,517. The Series A Preferred Stock is convertible, at any time at the option of the holder, into common stock at a rate calculated by dividing $1,000 plus unpaid dividends per share by $24.00 per share. Each share of Series A Preferred Stock is subject to mandatory redemption in ten and one-half years after the issue date at a redemption price of $1,000 plus accrued and unpaid dividends. The Company has the right after the fourth anniversary of the issue date to call all or a portion of the Series A Preferred Stock at $1,000 per share plus accrued and unpaid dividends times a premium equal to the dividend rate after the fourth anniversary date and declining ratably to the mandatory redemption date. Holders of the Series A Preferred Stock are entitled to limited voting rights only under certain conditions. 11 PILLOWTEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (7) 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 1, 2000 ----------------------------------------------------------------------------------- Non- Guarantor Guarantor Financial Position Parent Subsidiaries Subsidiaries Eliminations Consolidated ------------------ ------ ------------ ------------ ------------ ------------ Assets: - ------ Trade receivables $ - $ 260,870 $ 7,629 $ - $ 268,499 Receivable from affiliates 747,324 - - (747,324) - Inventories - 406,801 16,251 - 423,052 Other current assets - 29,769 105 - 29,874 ------------ ------------- ------------- ------------ ------------- Total current assets 747,324 697,440 23,985 (747,324) 721,425 Property, plant and equipment, net 467 642,833 1,521 - 644,821 Intangible, net 16,831 269,710 2,315 - 288,856 Other assets 493,579 18,930 - (484,222) 28,287 ------------ ------------- ------------- ------------ ------------- Total assets $ 1,258,201 $ 1,628,913 $ 27,821 $ (1,231,546) $ 1,683,389 ============ ============= ============= ============ ============= Liabilities and Shareholders' Equity: - ------------------------------------ Accounts payable and accrued liabilities $ 6,482 $ 182,218 $ 4,386 $ - $ 193,086 Payables to affiliates - 736,720 10,604 (747,324) - Other current liabilities 85,579 37,951 77 - 123,607 ------------ ------------- ------------- ------------ ------------- Total current liabilities 92,061 956,889 15,067 (747,324) 316,693 Noncurrent liabilities 884,853 200,446 110 - 1,085,409 ------------ ------------- ------------- ------------ ------------- Total liabilities 976,914 1,157,335 15,177 (747,324) 1,402,102 Redeemable convertible preferred Stock 73,898 - - - 73,898 Shareholders' equity 207,389 471,578 12,644 (484,222) 207,389 ------------ ------------- ------------- ------------ ------------- Total liabilities and shareholders' equity $ 1,258,201 $ 1,628,913 $ 27,821 $ (1,231,546) $ 1,683,389 ============ ============= ============= ============ =============
12 PILLOWTEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (7) Supplemental Condensed Consolidating Financial Information (Continued)
April 1, 2000 ------------------------------------------------------------------------------------- Non- Guarantor Guarantor Financial Position Parent Subsidiaries Subsidiaries Eliminations Consolidated ------------------ ------ ------------ ------------ ------------ ------------ Assets: - ------ Trade receivables $ - $ 241,631 $ 7,416 $ - $ 249,047 Receivable from affiliates 742,184 - - (742,184) - Inventories - 424,552 17,653 - 442,205 Other current assets - 41,913 - - 41,913 ------------ ------------- ------------- ------------ --------------- Total current assets 742,184 708,096 25,069 (742,184) 733,165 Property, plant and equipment, net 488 643,385 912 - 644,785 Intangible, net 15,570 267,917 2,292 - 285,779 Other assets 493,325 10,622 - (475,017) 28,930 ------------ ------------- ------------- ------------ --------------- Total assets $ 1,251,567 $ 1,630,020 $ 28,273 $ (1,217,201) $ 1,692,659 ============ ============= ============= ============ =============== Liabilities and Shareholders' Equity: - ------------------------------------ Accounts payable and accrued liabilities $ 15,194 $ 182,045 $ 4,181 $ - $ 201,420 Payables to affiliates - 732,000 10,184 (742,184) - Other current liabilities 82,226 45,943 558 - 128,727 ------------ ------------- ------------- ------------ --------------- Total current liabilities 97,420 959,988 14,923 (742,184) 330,147 Noncurrent liabilities 883,373 208,255 110 - 1,091,738 ------------ ------------- ------------- ------------ --------------- Total liabilities 980,793 1,168,243 15,033 (742,184) 1,421,885 Redeemable convertible preferred Stock 75,844 - - - 75,844 Shareholders' equity 194,930 461,777 13,240 (475,017) 194,930 ------------ ------------- ------------- ------------ --------------- Total liabilities and shareholders' equity $ 1,251,567 $ 1,630,020 $ 28,273 $ (1,217,201) $ 1,692,659 ============ ============= ============= ============ ===============
13 PILLOWTEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (7) Supplemental Condensed Consolidating Financial Information (Continued)
Three Months Ended April 3, 1999 ------------------------------------------------------------------------------------ Non- Guarantor Guarantor Results of Operations Parent Subsidiaries Subsidiaries Eliminations Consolidated --------------------- ------ ------------ ------------ ------------ ------------ Net sales $ - $ 362,664 $ 6,825 $ (981) $ 368,508 Cost of goods sold - 307,228 6,047 (981) 312,294 ------------ -------------- ------------ ------------ ------------ Gross profit - 55,436 778 - 56,214 Selling, general and administrative (1,042) 28,980 198 - 28,136 ------------ -------------- ------------ ------------ ------------ Earnings (loss) from operations 1,042 26,456 580 - 28,078 Equity in earnings of subsidiaries 4,039 - - (4,039) - Interest expense (826) 20,303 (11) - 19,466 ------------ -------------- ------------ ------------ ------------ Earnings before income taxes 5,907 6,153 591 (4,039) 8,612 Income taxes 654 2,637 68 - 3,359 ------------ -------------- ------------ ------------ ------------ Net earnings 5,253 3,516 523 (4,039) 5,253 Preferred dividends 535 - - - 535 ------------ -------------- ------------ ------------ ------------ Earnings (loss) available for common shareholders $ 4,718 $ 3,516 $ 523 $ (4,039) $ 4,718 ============ ============== ============ ============ ============ Three Months Ended April 1, 2000 ------------------------------------------------------------------------------------ Non- Guarantor Guarantor Results of Operations Parent Subsidiaries Subsidiaries Eliminations Consolidated --------------------- ------ ------------- -------------- ------------ ------------ Net sales $ - $ 337,707 $ 7,453 $ - $ 345,160 Cost of goods sold - 299,593 6,472 - 306,065 ------------- ------------- -------------- -------------- -------------- Gross profit - 38,114 981 - 39,095 Selling, general and administrative (1,099) 27,862 176 - 26,939 ------------- ------------- -------------- -------------- -------------- Earnings from operations 1,099 10,252 805 - 12,156 Equity in loss of subsidiaries (9,205) - - 9,205 - Interest expense 1,902 25,733 209 - 27,844 ------------- ------------- -------------- -------------- -------------- Earnings (loss) before income taxes (10,008) (15,481) 596 9,205 (15,688) Income taxes (281) (5,680) - - (5,961) ------------- ------------- -------------- -------------- -------------- Net earnings (loss) (9,727) (9,801) 596 9,205 (9,727) Preferred dividends 1,943 - - - 1,943 ------------- ------------- -------------- -------------- -------------- Earnings (loss) available for common shareholders $ (11,670) $ (9,801) $ 596 $ 9,205 $ (11,670) ============= ============= ============== ============== ==============
14 PILLOWTEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (7) Supplemental Condensed Consolidating Financial Information (Continued)
Three Months Ended April 3, 1999 ------------------------------------------------------------------------------------ Non- Guarantor Guarantor Cash Flows Parent Subsidiaries Subsidiaries Eliminations Consolidated ---------- ------ ------------ ------------ ------------ ------------ Cash provided by (used in) Operating activities $ 16,304 $ (13,573) $ (3,025) $ - $ (294) Cash provided by (used in) Investing activities 18 (27,967) (29) - (27,978) Cash provided by (used in) Financing activities (16,322) 48,871 3,935 36,484 ----------- ------------- -------------- --------------- --------------- Net change in cash and cash Equivalents - 7,331 881 - 8,212 Cash and cash equivalents at Beginning of year - 5,554 7 - 5,561 ----------- ------------- -------------- --------------- --------------- Cash and cash equivalents at End of period $ - $ 12,885 $ 888 $ - $ 13,773 =========== ============= ============== =============== =============== Three Months Ended Apri1, 2000 ------------------------------------------------------------------------------------- Non- Guarantor Guarantor Cash Flows Parent Subsidiaries Subsidiaries Eliminations Consolidated ---------- ------ ------------ ------------ ------------ ------------ Cash provided by (used in) Operating activities $ 9,684 $ (5,113) $ (146) $ - $ 4,425 Cash provided by (used in) Investing activities - (13,434) (30) - (13,464) Cash provided by (used in) Financing activities (9,684) 33,025 176 - 23,517 -------------- ------------- -------------- --------------- --------------- Net change in cash and cash Equivalents - 14,478 - - 14,478 Cash and cash equivalents at Beginning of year - 4,854 - - 4,854 -------------- ------------- -------------- --------------- --------------- Cash and cash equivalents at End of period $ - $ 19,332 $ - $ - $ 19,332 ============== ============= ============== =============== ===============
15 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 1, 2000. Results of Operations - --------------------- Net Sales. Net sales were $345.2 million for the three months ended April 1, - ---------- 2000, representing a decrease of $23.3 million, or 6.3%, as compared to $368.5 million for the three months ended April 3, 1999. The decrease in net sales was due to high inventories held by certain customers and to a lesser extent to the systems conversion for the Company's Pillow and Pad products combined with no major product roll-outs during the first quarter. The biggest drop in sales occurred in bath products, where sales dropped $17.2 million (10.0%) from last year's first quarter. Gross Profit. Gross profit margins decreased to 11.3% for the three months ended - ------------- April 1, 2000 from 15.3% for the three months ended April 3, 1999. The decline in gross profit margin is primarily due to higher unabsorbed overhead expenses, lower volume and price realization. The Company continues to focus on decreasing inventory, accounts receivable and operating costs and is closely monitoring sales and marketing programs to improve operating results. Selling, General and Administrative ("SG&A"). SG&A expenses decreased $1.2 - --------------------------------------------- million to $26.9 million for the three months ended April 1, 2000, compared to $28.1 million for the three months ended April 3, 1999. Higher professional fees associated with the revisions to the Company's debt arrangements with the lending group during the first quarter of 2000 were more than offset by the inclusion in manufacturing overhead of certain production related technology costs previously included in SG&A. Interest Expense. Interest expense increased $8.3 million to $27.8 million for - ----------------- the three months ended April 1, 2000, compared to $19.5 million for the three months ended April 3, 1999. Contributing to the increase in interest expense in the first quarter of fiscal 2000 were bank fees related to the restructuring of debt, an increase in the level of borrowings, and higher average interest rates of 9.3% compared to 8.0% in the first quarter of fiscal 1999. Liquidity and Capital Resources - ------------------------------- Senior Debt Facilities. In December 1997, in connection with the Fieldcrest Cannon acquisition, Pillowtex entered into new senior secured revolving credit and term loan facilities with a group of financial and institutional investors for which Bank of America acts as the agent. These facilities consisted of a $350.0 million revolving credit facility and a $250.0 million term loan facility. The term loan facility consisted of a $125.0 million Tranche A Term Loan and a $125.0 million Tranche B Term Loan. Effective July 28, 1998, Pillowtex amended these facilities by increasing the Tranche B Term Loan to $225.0 million. The increase occurred in conjunction with the acquisition of Leshner, allowing Pillowtex to fund the transaction and reduce borrowings under the revolving credit facility. Effective March 12, 1999, the revolving credit facility was amended to permit Pillowtex to use for working capital one-half of a $61.0 million portion of the facility held as contingency reserve for cash payments required upon conversion of the Fieldcrest Cannon 6% Convertible Subordinated Debentures due 2012, thereby increasing availability under that facility. Effective October 1, 1999, the revolving credit facility was further amended to permit Pillowtex to use the other half of the contingency reserve for working capital, thereby increasing availability under that facility. At the end of the third and fourth quarters of its 1999 fiscal year, Pillowtex was not in compliance with certain financial covenants under its senior debt facilities. The Company obtained a series of temporary waivers of this non-compliance. Effective as of December 7, 1999, the Company agreed to certain amendments to the senior debt facilities, principally related to cash management, adjustments to restrictive covenants, and borrowings under, and uses of proceeds from, the revolving credit facility. Effective as of March 31, 2000, the Company obtained a permanent waiver of its prior non-compliance with financial covenants and the senior debt facilities were further amended to shorten their terms to maturity and accelerate the related amortization schedule for repayment of principal, to eliminate the contingency reserve requirement referred to above, to increase the applicable interest rate margins (subject to reduction if the Company's earnings before interest, taxes, depreciation and amortization (EBITDA) exceeds a specified level for the 2000 fiscal year), to add a covenant requiring that EBITDA must exceed specified levels for future fiscal periods and to eliminate all other financial covenants, to modify certain restrictive covenants, to limit borrowings under the revolving credit facility based on a formula tied to 45% of eligible inventory plus 80% of eligible accounts receivable, and to provide for a series of reductions in the commitment under the revolving credit facility. As of April 1, 2000 the Company had $285.7 million outstanding under its revolving credit facility. 16 The revolving credit facility includes $55.0 million of availability for letters of credit. At April 1, 2000, $34.6 million of letters of credit were outstanding. At May 5, 2000, $ 28.9 million was available under the revolving credit faciliity. As amended, amounts outstanding under the revolving credit facility and the Tranche A Term Loan currently bear interest at a rate based upon the London Interbank Offered Rate plus 3.50%. The Tranche B Term Loan bears interest on a similar basis to the Tranche A Term Loan, plus an additional margin of 0.50%. The weighted average annual interest rate on outstanding borrowings under the various senior credit facilities for the first quarter of 2000 was 9.67%. The senior debt facilities expire on January 31, 2002. The senior debt facilities are guaranteed by each of the domestic subsidiaries of Pillowtex, and are secured by first priority liens on all of the capital stock of each domestic subsidiary of Pillowtex and by 65% of the capital stock of Pillowtex's foreign subsidiaries. Pillowtex has also granted a first priority security interest in all of its presently unencumbered and future domestic assets and properties, and all presently unencumbered and future domestic assets and properties of each of its subsidiaries. The term loan facility is subject to mandatory prepayment from all net cash proceeds of asset sales and debt issuances of Pillowtex (except as specifically provided), 50% of the net cash proceeds of equity issuances by Pillowtex or any of its subsidiaries, and 75% of Excess Cash Flow (as defined). All mandatory prepayments will be applied pro rata between the Tranche A Term Loan and the Tranche B Term Loan to reduce the remaining installments of principal. The senior debt facilities contain a number of negative covenants, which restrict, among other things, Pillowtex's ability to incur additional debt, pay dividends or make other restricted payments, sell stock of subsidiaries, grant liens, make capital expenditures, engage in transactions with affiliates, make loans, advances and investments, dispose of assets, effect mergers, consolidations and dissolutions, and make certain changes in its business. A breach of any of the covenants contained in the senior debt facilities could result in a default under the terms of the facilities. Upon the occurrence of an event of default: the senior lenders would not be obligated to make additional advances under the revolving credit facility; the senior lenders would be entitled to declare all amounts outstanding under the senior debt facilities, including accrued interest or other obligations, to be immediately due and payable; the senior lenders would have the rights to block payment on substantially all of Pillowtex's other long-term debt; and the senior lenders would be entitled to proceed against the collateral granted to them to secure the senior debt. In these circumstances, cross defaults could occur making substantially all of Pillowtex's other long-term debt due. If any senior debt were to be accelerated, the Company cannot be certain that its assets would be sufficient to repay in full that debt and its other debt. As a result of the covenants described above, Pillowtex's ability to respond to changing business and economic conditions and to secure additional financing, if needed, is significantly restricted. Overline Facility. In May 1999, Pillowtex entered into a $20.0 million senior unsecured revolving credit facility (overline facility) in order to obtain additional working capital availability. On July 27, 1999, this facility was amended to increase the amount of funds available to $35.0 million. At the end of the third and fourth quarters of its 1999 fiscal year, Pillowtex was not in compliance with certain financial covenants under this facility, the covenants of which are established by reference to the senior debt facilities described above. The Company obtained a series of temporary waivers of this non-compliance and extensions of the maturity date. Effective as of December 7, 1999, the Company agreed to certain amendments to this facility, resulting in the facility being secured by the assets securing the senior debt facilities described above. Effective as of March 31, 2000, the Company obtained a permanent waiver of its prior non-compliance and the facility was amended to lengthen its term to maturity, to impose an amortization schedule for the repayment of principal, and to increase the applicable interest rate margins (subject to reduction if the Company's EBITDA exceeds a specified level for the 2000 fiscal year). This facility is guaranteed on a senior basis by Pillowtex's domestic subsidiaries. Pillowtex is currently required to pay interest on any amounts borrowed under the facility at a rate which is based upon the London Interbank Offered Rate plus 4.5% or the base rate plus 3.0%, at Pillowtex's option. This facility matures upon termination by Pillowtex at any time or otherwise at the earliest of: a) any increase in the commitment under the senior debt facilities described above, the issuance of any capital stock by Pillowtex or its domestic subsidiaries, or other specified events; or b) January 31, 2002. Senior Subordinated Debt. In connection with the Fieldcrest Cannon merger, Pillowtex issued $185.0 million of 9% Senior Subordinated Notes due December 15, 2007, with interest payable semiannually commencing June 15, 1998. Pillowtex may at its option redeem the 9% Notes, in whole or in part, on or after December 15, 2002 at a redemption price of 104.5%, which declines 1.5% annually through December 15, 2005 to 100%. The 9% Notes are general unsecured obligations of Pillowtex, are subordinated in right of payment to all existing and future senior indebtedness, and rank pari passu to the 10% Notes described below. 17 On November 12, 1996, Pillowtex issued the 10% Senior Subordinated Notes due November 15, 2006, with interest payable semiannually commencing May 15, 1997. Pillowtex may, at its option, redeem the 10% Notes, in whole or in part, on or after November 15, 2001 at a redemption price of 105.0%, which declines 1.667% annually through November 15, 2004 to 100%. The 10% Notes are general unsecured obligations of Pillowtex, and are subordinated in right of payment to all existing and future senior indebtedness. The 9% Notes and the 10% Notes are unconditionally guaranteed on a senior subordinated basis by each of the existing and future domestic subsidiaries of Pillowtex and each other subsidiary of Pillowtex that guarantees Pillowtex's obligations under the senior debt facilities described above. The guarantees are subordinated in right of payment to all existing and future senior indebtedness of the relevant guarantor. Upon a change in control, Pillowtex will be required to make an offer to repurchase all outstanding 9% Notes and 10% Notes at 101% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the date of repurchase. Fieldcrest Cannon Convertible Debentures. As a result of Pillowtex's acquisition of Fieldcrest Cannon, the outstanding 6% Convertible Subordinated Debentures due 2012 of Fieldcrest Cannon are convertible, at the option of the holders, into a combination of cash and Pillowtex's Common Stock. During the fourth quarter of 1999, Pillowtex notified the holders of the 6% Convertible Debentures that it was not practicable or prudent for payments to be made in respect of the conversion of the 6% Convertible Debentures and advised holders that had given notice of conversion and surrendered their 6% Convertible Debentures that they could rescind their notice of conversion, return to Pillowtex any Pillowtex Common Stock that had been issued to them and have their 6% Convertible Debentures reinstated. As of April 1, 2000, the cash component due in respect of the 6% Convertible Debentures that had been surrendered without subsequent rescission was $9.1 million. In addition, as of April 1, 2000, $96.5 million aggregate principal amount of the 6% Convertible Debentures remained outstanding. If all such outstanding 6% Convertible Debentures were converted at such date, including those surrendered without subsequent rescission, the resulting cash component to be paid to the holders of the 6% Convertible Debentures would have been approximately $61.0 million (classified as a current liability at April 1, 2000). Pillowtex is currently prohibited under the terms of its senior subordinated debt from making payments in respect of the 6% Convertible Debentures except for interest and at maturity or pursuant to sinking fund obligations. Pillowtex has initiated discussions with certain holders of its 6% Convertible Debentures regarding a potential restructuring of the 6% Convertible Debentures. Currently any comprehensive restructuring of the 6% Convertible Debentures involving cash payments (other than pursuant to sinking fund obligations) would likely require the consent of the holders of Pillowtex's senior subordinated debt. The Company cannot guarantee that it will be able to restructure the 6% Convertible Debentures nor can it predict the terms of any potential restructuring of that debt. Swap Agreements. Pillowtex enters into interest rate swap agreements to modify the interest characteristics of portions of its outstanding debt. These agreements entitle the Company to receive or pay to the counterparty (a major bank), on a quarterly basis, the amounts, if any, by which the Company's interest payments covered by swap agreements differ from those of the counterparty. These amounts are recorded as adjustments to interest expense. The fair value of the swap agreements and changes in fair value as a result of changes in market interest rates are not recognized in the consolidated financial statements. As of January 1, 2000, Pillowtex had approximately $345.0 million of notional amounts covered under interest rate swap agreements whereby Pillowtex exchanged floating rates for fixed rates. The weighted average fixed and floating rates were 4.70% and 6.05%, respectively. As of April 1, 2000, Pillowtex had approximately $230.0 million of notional amounts covered under interest rate swap agreements whereby Pillowtex exchanged floating rates for fixed rates. The weighted average fixed and floating rates were 4.70% and 6.04%, respectively. The fair values of the swaps at January 1, 2000 and April 1, 2000 were $4.0 million and $3.0 million, respectively, in favor of Pillowtex. Adequacy of Capital Resources. As of April 1, 2000, Pillowtex was in compliance with all its debt covenants. Cash flow from operations increased by $4.7 million as compared to the period ended April 3, 1999, and based upon current and anticipated levels of operations, and aggressive efforts to reduce inventories and accounts receivable, Pillowtex anticipates that its cash flow from operations, together with amounts available under its revolving credit facility, will be adequate to meet its anticipated cash requirements in the foreseeable future (assuming no significant cash payments are required to be made in respect of the 6% Convertible Debentures other than scheduled interest payments and payments related to satisfaction of the sinking fund obligations). In the event that cash flows and available borrowings under the revolving credit facility are not sufficient to meet future cash requirements, Pillowtex may be required to reduce planned capital expenditures or seek additional financing. Pillowtex can provide no assurances that reductions in planned capital expenditures would be sufficient to cover shortfalls in available cash or that additional financing would be available or, if available, offered on terms acceptable to the Company. Recent Accounting Matters - ------------------------- The Company is assessing the reporting and disclosures requirements of SFAS No. 133, "Accounting For Derivative Instruments and Hedging Activities". This statement establishes accounting and reporting standards for derivative instruments and hedging activities 18 and will require the Company to recognize all derivatives on its balance sheet at fair value. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivatives will either be offset against the change in fair value of the hedged item through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The Company expects to adopt SFAS No. 133 in the first quarter of fiscal 2001 and is evaluating the impact adoption will have on the Company's results of operations or financial position. In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation: An Interpretation of APB Opinion No. 25". Among other issues, Interpretation No. 44 clarifies the application of Accounting Principles Board Opinion No. 25 (APB No. 25) regarding (a) the definition of employee for purposes of applying APB No. 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequences of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. The provisions of Interpretation No. 44 affecting the Company are to be applied on a prospective basis effective July 1, 2000. 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 captions "Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors" in the Company's Annual Report on Form 10-K for its fiscal year ended January 1, 2000. 19 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 4.1 Resignation, Appointment and Acceptance Agreement, dated April 14, 2000, by and among Pillowtex Corporation, as Issuer, Norwest Bank Minnesota, as Resigning Trustee, and U.S. Bank National Association, as Successor Trustee. 27.1 Financial Data Schedule (b) Reports on Form 8-K None 20 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: May 16, 2000 PILLOWTEX CORPORATION (Registrant) /s/ John C. Macaulay --------------------------------------- John C. Macaulay Senior Vice President - Finance 21 INDEX TO EXHIBITS
Exhibit Method of Filing - ------- ---------------------------------- 4.1 Resignation, Appointment and Acceptance Agreement, dated April 14, 2000, by and among Pillowtex Corporation, as Issuer, Norwest Bank Minnesota, as Resigning Trustee, and U.S. Bank National Association, as Successor Trustee..................................................................... Filed herewith electronically 27.1 Financial Data Schedule..................................................... Filed herewith electronically
22 EX-4.1 2 RESIGNATION, APPOINTMENT & ACCEPTANCE EXHIBIT 4.1 THIS INSTRUMENT OF RESIGNATION, APPOINTMENT AND ACCEPTANCE, ("Instrument"), dated to be effective as of April 14, 2000 (the "Effective Date"), is by and among Pillowtex Corporation, a Texas corporation (the "Company"), Norwest Bank Minnesota, National Association, a national banking association organized and existing under the laws of the United States having its principal corporate trust office in Minneapolis, Minnesota (the "Resigning Trustee") and U.S. Bank National Association, a national banking association organized and existing under the laws of the United States having its principal corporate trust office in St. Paul, Minnesota (the "Successor Trustee"). Capitalized terms not otherwise defined herein shall have the same meaning ascribed to such terms in the Indenture (as defined below). RECITALS -------- WHEREAS, pursuant to an Indenture dated as of December 18, 1997 (as amended or supplemented, the "Indenture") between the Company and the Resigning Trustee, the Company issued its 9% Senior Subordinated Notes Due 2007 (Series A and B)(the "Notes"); WHEREAS, the Company appointed the Resigning Trustee as the paying agent (the "Paying Agent") and registrar (the "Registrar") under the Indenture; WHEREAS, there is presently issued and outstanding $185,000,000 in aggregate principal amount of the Notes; WHEREAS, the Indenture provides that the Trustee may resign at any time and be discharged from the trusts created by the Indenture by notifying the Company in writing; WHEREAS, the Indenture further provides that if the Trustee resigns, the Company shall promptly appoint a successor Trustee; WHEREAS, the Resigning Trustee desires to resign, and the Company desires to appoint the Successor Trustee as Trustee, Paying Agent and Registrar to succeed the Resigning Trustee in such capacities under the Indenture and the documents executed in connection with or related to the Indenture (collectively, as amended or supplemented, the "Documents"); and WHEREAS, the Successor Trustee is willing to accept the appointment as Trustee, Paying Agent and Registrar under the Indenture and the Documents. NOW, THEREFORE, in consideration of the covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Acceptance of Resignation of Resigning Trustee and Appointment of ----------------------------------------------------------------- Successor Trustee. The Company hereby accepts the resignation of the Resigning - ----------------- Trustee as Trustee, Paying Agent and Registrar under the Indenture and the Documents. Pursuant to Section 7.08 of the Indenture, the Company hereby appoints the Successor Trustee as Trustee, Paying Agent and Registrar under the Indenture and the Documents, and vests and confirms to the Successor Trustee all rights, powers, trusts, privileges, duties and obligations of the Trustee, Paying Agent and Registrar under the Indenture and the Documents. The Company and the Resigning Trustee shall execute and deliver such further instruments and shall do such other things as the Successor Trustee may reasonably request to as to more fully and certainly vest and confirm in the Successor Trustee all the rights, powers, privileges, duties and obligations assigned, transferred, delivered and confirmed hereunder. 2. Company Representations and Warranties. The Company hereby represents -------------------------------------- and warrants to the Successor Trustee that: a. It is duly organized and validly existing; b. The Indenture and the Documents have been amended or supplemented pursuant to a Supplemental Indenture dated as of December 19, 1997 and a Second Supplemental Indenture dated as of July 28, 1998; c. No Event of Default and no default exists under the Indenture or any of the Documents; d. No covenant or condition contained in the Indenture or the Documents has been waived by the Holders of a percentage in aggregate principal amount of the Notes required by the Indenture to effect any such waiver; e. The Notes are validly issued securities of the Company; and f. The Company's execution and delivery of this Instrument do not and will not conflict with, or result in a breach of, any of the terms or provisions of, or constitute a default under, any (i) contract, agreement, indenture or other instrument (including, without limitation, the Company's certificate of incorporation and by-laws) to which the Company is a party or by which the Company or its property is bound, or (ii) any judgment, decree or order of any court or governmental agency or regulatory body or law, rule or regulation applicable to the Company or its property. 3. Resigning Trustee Representations and Warranties. The Resigning ------------------------------------------------ Trustee hereby represents and warrants to the Successor Trustee that: a. It has not entered into any amendment or supplement to the Indenture or any of the Documents except as noted herein, and the Indenture and the Documents are in full force and effect; b. No covenant or condition contained in the Indenture or the Documents has been waived by the Resigning Trustee or, to the best of the knowledge of the Resigning Trustee, by the holders of a percentage in aggregate principal amount of the Notes required by the Indenture to effect any such waiver; c. There is no action, suit or proceeding pending or, to the best of the knowledge of the Resigning Trustee threatened, against the Resigning Trustee before any court or 2 governmental authority arising out of any action or omission by the Resigning Trustee as Trustee, Paying Agent or Registrar under the Indenture or the Documents; d. It has made, or promptly will make, available to the Successor Trustee originals, if available, or copies in its possession, of all Documents relating to the trusts created by the Indenture (the "Trusts") and all information in the possession of its corporate trust administration department relating to the administration and status of the Trusts and shall do such other things as the Successor Trustee may reasonably request to more fully vest and confirm in the Successor Trustee all the rights, powers, trusts, privileges, duties and obligations assigned and transferred hereby to the Successor Trustee; e. To the best of its knowledge, it has lawfully discharged its duties as Trustee, Paying Agent and Registrar under the Indenture and the Documents; and f. There is presently issued and outstanding $185,000,000 in aggregate principal amount of the Notes and interest has been paid through December 15, 1999. 4. Successor Trustee Representation and Warranty. The Successor Trustee --------------------------------------------- represents and warrants to the Resigning Trustee and the Company that: a. it is qualified and eligible to serve as Trustee, Paying Agent and Registrar under the Indenture, the Documents and the Trust Indenture Act of 1939, as amended (the "Act"). 5. Acceptance by Successor Trustee. The Successor Trustee hereby accepts ------------------------------- its appointment, as of the Effective Date, as Successor Trustee, Paying Agent and Registrar under the Indenture and the Documents, and assumes, as of the Effective Date, all rights, powers, trusts, privileges, duties and obligations of the Trustee, Paying Agent and Registrar thereunder, subject to the terms and conditions therein. Promptly after the execution and delivery of this Instrument, the Successor Trustee shall cause a notice, substantially in the form of Exhibit A hereto, to be sent to each holder of the Notes in accordance with Section 7.08 of the Indenture. 6. Assignment by Resigning Trustee. The Resigning Trustee hereby ------------------------------- confirms, assigns, transfers, delivers and conveys, as of the Effective Date, to the Successor Trustee, as successor Trustee, Paying Agent and Registrar under the Indenture and the Documents, upon the Trusts expressed in the Indenture, all rights, powers, trusts, privileges, duties and obligations, which the Resigning Trustee, as Trustee, Paying Agent and Registrar now holds under and by virtue of the Indenture and the Documents, and shall pay over to the Successor Trustee, any and all property and moneys held by the Resigning Trustee under and by virtue of the Indenture and the Documents, subject to the lien provided by Section 7.07 of the Indenture, which lien the Resigning Trustee expressly reserves to the fullest extent necessary to secure the Company's obligations under said Section to the Resigning Trustee, which lien shall also secure the Company's obligations under said Section to the Successor Trustee. 3 7. Indemnification by Resigning Trustee. The Resigning Trustee agrees to ------------------------------------ pay or indemnify, as applicable, the Successor Trustee and save the Successor Trustee harmless from and against any and all costs, claims, liabilities, losses or damages whatsoever (including the reasonable fees, expenses and disbursements of the Successor Trustee's legal counsel and other advisors) arising out of the actual, alleged or adjudicated actions or omissions of the Resigning Trustee that the Successor Trustee may suffer or incur as a result of the Successor Trustee accepting this appointment and acting as successor Trustee, Paying Agent and Registrar under the Indenture and the Documents. The Successor Trustee will furnish to the Resigning Trustee, promptly upon receipt, all documents with respect to any action the outcome of which would make the indemnity provided for in this paragraph operative. The Successor Trustee shall promptly notify the Resigning Trustee in writing (an, in any event, within no later than 10 days) of any claim for which it may seek indemnity. The Resigning Trustee shall have the right to elect to provide its own defense to any such claim and the Successor Trustee shall cooperate fully in any such defense. In the event the Resigning Trustee elects to provide its own defense, the Resigning Trustee shall not pay for separate counsel to the Successor Trustee. The Resigning Trustee shall not be obligated to pay for any settlement absent its consent. 8. Resigning Trustee's Lien and Payment of Fees, Expenses and ---------------------------------------------------------- Indemnification. The Resigning Trustee hereby appoints the Successor Trustee and - --------------- the Successor Trustee hereby acknowledges its appointment, as the Resigning Trustee's agent with respect to the assertion, perfection and enforcement of the Resigning Trustee's lien provided for in Section 7.07 of the Indenture to secure the satisfaction of the Company's indemnification obligations to the Resigning Trustee and its payment of the Resigning Trustee's past, current and future fees and expenses as provided for in said Section 7.07 (said indemnification obligations, fees and expenses, collectively, the "Resigning Trustee's Claims"). The Successor Trustee further acknowledges that the Resigning Trustee's Claims are and will be due under Section 7.07 of the Indenture and thus, are included within the "First" priority of payment provided for under Section 6.10 of the Indenture. 9. Additional Documentation. The Company and the Resigning Trustee, for ------------------------ the purposes of more fully and certainly vesting in and confirming to the Successor Trustee, as successor Trustee, Paying Agent, and Registrar under the Indenture and the Documents, said rights, powers, trusts, privileges, duties and obligations agrees, upon reasonable request of the Successor Trustee, to execute, acknowledge and deliver such further instruments of conveyance and further assurance and to do such other things as may reasonably be required for more fully and certainly vesting and confirming to the Successor Trustee all rights, powers, trusts, privileges, duties and obligations which the Resigning Trustee now holds under and by virtue of the Indenture and the Documents. 10. Effective Date. This Instrument and the resignation, appointment and -------------- acceptance effected hereunder shall be effective as of the close of business on the Effective Date. 11. Governing Law. This Instrument shall be governed by and construed in ------------- accordance with the laws of the State of New York. 4 12. Counterparts. This Instrument may be executed in any number of ------------ counterparts, each of which shall be an original, but such counterparts shall together constitute one and the same instrument. 13. Survival of Certain Obligations of the Company. Notwithstanding the ---------------------------------------------- the resignation of the Resigning Trustee, as Trustee under the Indenture, the Company shall remain obligated under the Indenture to compensate, reimburse and indemnify the Resigning Trustee in connection with its trusteeship under the Indenture, and nothing contained in this Instrument shall in any way abrogate the obligations of the Company to the Resigning Trustee under the Indenture and the Documents or any lien created thereunder in favor of the Resigning Trustee. 14. Notices. All notices, whether faxed or mailed will be deemed received ------- when sent pursuant to the following instructions: TO THE RESIGNING TRUSTEE: Julie J. Becker, Vice President Norwest Bank Minnesota, National Association Corporate Trust Services Sixth Street and Marquette Avenue Mac No. N9303-120 Minneapolis, Minnesota 55479 TELEPHONE: (612) 316-4772 TELECOPIER: (612) 667-9825 TO THE SUCCESSOR TRUSTEE: Jeffrey C. Tupper, Vice President U.S. Bank National Association M.S. SPFT0210 180 East Fifth Street St. Paul, Minnesota 55101 TELEPHONE: (651) 244-0743 TELECOPIER: (651) 244-0089 TO THE COMPANY: Jamie Vasquez, Treasurer Pillowtex Corporation 4111 Mint Way Dallas, Texas 75237 TELEPHONE: (214) 333-3325 TELECOPIER: (214) 467-0823 5 IN WITNESS WHEREOF, the parties have executed this Instrument to be effective as of the day and year first above written. Dated: April 13, 2000 PILLOWTEX CORPORATION By: John F. Sterling Its: Vice President Dated: April 14, 2000 NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION By: Julie J. Becker Its: Vice President Dated: April 12, 2000 U.S. BANK NATIONAL ASSOCIATION By: Lori-Anne Rosenburg Its: Assistant Vice President 6 EXHIBIT A --------- NOTICE TO HOLDERS OF PILLOWTEX CORPORATION 9% SENIOR SUBORDINATED NOTES DUE 2007 (SERIES A AND B) We hereby notify you of the resignation of Norwest Bank Minnesota, National Association, as Trustee under the Indenture dated as of December 18, 1997 (as amended or supplemented, the "Indenture"), pursuant to which the above-described notes were issued and are outstanding. Pillowtex Corporation has appointed US Bank National Association, whose corporate Trust Office is located at 180 East Fifth Street, M.S. SPFT0210, St. Paul, Minnesota 55101, as Successor Trustee under the Indenture, which appointment has been accepted and has become effective. 7 EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS 3-MOS JAN-02-1999 JAN-01-2000 JAN-03-1999 JAN-02-2000 APR-03-1999 APR-01-2000 4,854 19,332 0 0 301,850 281,518 33,351 32,471 423,052 442,205 721,425 733,165 795,205 807,152 150,384 162,367 1,683,389 1,692,659 316,693 330,147 1,051,082 1,068,553 0 0 73,898 75,894 142 142 241,574 217,973 1,683,389 1,692,659 368,508 345,160 368,508 345,160 312,294 306,065 312,294 306,065 28,136 26,939 0 0 19,466 27,844 8,612 (15,688) 3,359 (5,961) 5,253 (9,727) 0 0 0 0 0 0 5,253 (9,727) $0.33 $(0.82) $0.31 $(0.82)
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