UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
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 No. 1-5137
FIELDCREST CANNON, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 56-0586036
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
326 East Stadium Drive
Eden, N.C. 27288
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (910) 627-3000
Former name, former address and former fiscal year, if changed since
last report
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90
days. Yes x . No .
Number of shares outstanding July 31, 1995
Common Stock 8,884,436
Total pages 15<PAGE>
Exhibit Index Page 12
PART 1. FINANCIAL INFORMATION
FIELDCREST CANNON, INC.
Consolidated statement of financial position
<TABLE>
<CAPTION>
June 30, December 31,
Dollars in thousands 1995 1994
<S> <C> <C>
Assets
Cash $ 4,785 $ 5,885
Accounts receivable 171,831 170,001
Inventories (note 3) 258,352 213,994
Net assets held for sale - 24,000
Other prepaid expenses and current assets 3,451 3,793
Total current assets 438,419 417,673
Plant and equipment, net 332,120 314,726
Deferred charges and other assets 62,975 50,266
Total assets $833,514 $782,665
Liabilities and shareowners' equity
Accounts and drafts payable $ 53,460 $ 55,533
Federal and state income taxes - 2,268
Deferred income taxes 20,616 21,988
Accrued liabilities 63,007 53,958
Current portion of long-term debt 768 1,465
Total current liabilities 137,851 135,212
Senior long-term debt 152,846 107,744
Subordinated long-term debt 210,000 210,000
Total long-term debt 362,846 317,744
Deferred income taxes 45,330 42,859
Other non-current liabilities 53,909 55,648
Total liabilities 599,936 551,463
Shareowners' equity:
Preferred Stock, $.01 par value,
10,000,000 authorized, 1,500,000 issued
and outstanding June 30, 1995 and
December 31, 1994 (aggregate liquidation
preference of $75,000) 15 15
Common Stock, $1 par value,
25,000,000 authorized, 12,490,836 issued
June 30, 1995 and 12,360,252
December 31, 1994 12,491 12,360
Additional paid in capital 219,248 216,772
Retained earnings 119,049 119,280
Excess purchase price for Common Stock
acquired and held in treasury -
3,606,400 shares (117,225) (117,225)
Total shareowners' equity 233,578 231,202
Total liabilities and shareowners' equity $833,514 $782,665
</TABLE>
See accompanying notes<PAGE>
(2)
FIELDCREST CANNON, INC.
Consolidated statement of income and retained earnings
<TABLE>
<CAPTION>
For the three months For the six months
Dollars in thousands, ended June 30 ended June 30
except per share data 1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $273,048 $254,796 $530,057 $487,081
Cost of sales 238,662 214,330 452,687 409,223
Selling, general and administrative 25,644 23,633 52,346 45,977
Restructuring charges 4,530 - 8,454 -
Total operating costs and expenses 268,836 237,963 513,487 455,200
Operating income 4,212 16,833 16,570 31,881
Other deductions (income):
Interest expense 6,681 5,663 13,483 11,511
Other, net - 288 (144) 403
Total other deductions 6,681 5,951 13,339 11,914
Income (loss) before income taxes (2,469) 10,882 3,231 19,967
Federal and state income
taxes (benefit) (925) 4,198 1,212 7,787
Net income (loss) (1,544) 6,684 2,019 12,180
Preferred dividends (1,125) (1,125) (2,250) (2,250)
Earnings (loss) on common (2,669) 5,559 (231) 9,930
Amount added to (subtracted from)
retained earnings (2,669) 5,559 (231) 9,930
Retained earnings,
beginning of period 121,718 97,406 119,280 93,035
Retained earnings, end of period $119,049 $102,965 $119,049 $102,965
Net income (loss) per common share $ (.30) $ .64 $ (.02) $ 1.15
Fully diluted income (loss)
per common share $ (.30) $ .56 $ (.02) $ 1.03
Average primary shares outstanding 8,860,341 8,693,930 8,833,658 8,658,828
Average fully diluted shares outstanding 8,860,199 14,082,915 8,834,032 14,049,404
</TABLE>
See accompanying notes
(3)
FIELDCREST CANNON, INC.
Consolidated statement of cash flows
<TABLE>
<CAPTION>
Six Months
ended June 30
Dollars in thousands 1995 1994
<S> <C> <C>
Increase (decrease) in cash
Cash flows from operating activities:
Net income $ 2,019 $ 12,180
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 15,710 15,119
Deferred income taxes 2,471 (1,997)
Other (1,377) 471
Change in current assets and liabilities,
excluding effects of acquisition of Sure Fit:
Accounts receivable 6,860 11,673
Inventories (27,060) (45,049)
Other prepaid expenses and current assets 577 (787)
Accounts payable and accrued liabilities (542) (13,760)
Federal and state income taxes (2,268) 2,426
Deferred income taxes (1,372) 3,662
Net cash used in operating activities (4,982) (16,062)
Cash flows from investing activities:
Additions to plant and equipment (32,447) (12,441)
Proceeds from disposal of plant and equipment 621 1,084
Proceeds from net assets held for sale 20,800 1,345
Purchase of Sure Fit, net of cash acquired (27,300) -
Net cash used in investing activities (38,326) (10,012)
Cash flows from financing activities:
Increase in revolving debt 45,502 39,612
Payments on long-term debt (1,101) (10,532)
Proceeds from sale of common stock 57 80
Dividends paid on preferred stock (2,250) (2,250)
Net cash provided by financing activities 42,208 26,910
Increase (decrease) in cash (1,100) 836
Cash at beginning of year 5,885 3,865
Cash at end of period $ 4,785 $ 4,701
/TABLE
<PAGE>
See accompanying notes
(4)
FIELDCREST CANNON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995
1. Basis of Presentation
The consolidated financial statements are unaudited. In the
opinion of management all adjustments, consisting only of
normal recurring items, have been made which are necessary to
show a fair presentation of the financial position of the
Company at June 30, 1995 and the related results of
operations for the three months ended June 30, 1995 and 1994.
The unaudited consolidated financial statements should be
read in conjunction with the Company's Form 10-K for the year
ended December 31, 1994.
2. Income Per Common Share
Reference is made to Exhibit 11 to this Form 10-Q for a
computation of primary and fully-diluted net income per
Common share.
3. Inventories
Inventories are classified as follows:
<TABLE>
<CAPTION>
June 30, December 31,
(In thousands) 1995 1994
<S> <C> <C>
Finished goods $135,819 $109,423
Work in process 68,608 65,375
Raw materials and supplies 53,925 39,196
$258,352 $213,994
</TABLE>
At June 30, 1995 approximately 68% of the inventories were
valued on the last-in, first-out method (LIFO).<PAGE>
(5)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Changes in Financial Condition
The Company's debt (including the current portion of long-term
debt) increased $44.4 million during the first six months of
1995. Debt was reduced by $21.4 million from cash proceeds from
the sale of the Bangor and Aroostook Railroad and other assets
and increased by $27.3 million from the acquisition of the Sure
Fit furniture coverings business of UTC Holdings. After
excluding the effects of the acquisition of Sure Fit, inventories
increased $27.1 million due to normal seasonal inventory build-
up. Capital expenditures totaled $32.4 million for the first six
months of 1995 compared to $12.4 million for the first six months
of 1994. Included in the 1995 capital expenditures is $17.8
million for the $90 million capital project for the new weaving
plant at the Company's Columbus, GA/Phenix City, Ala. towel mill.
Capital expenditures for 1995 are expected to be in the $55-$60
million range. At June 30, 1995, approximately $45.3 million of
the Company's $195 million revolving credit facility was
available and unused. It is anticipated that financing of future
capital expenditures will be provided by cash flows from
operations, borrowings under the Company's revolving credit
facility, and, possibly, the sale of long-term debt or equity
securities.
Changes in Results of Operations
Quarter Ended June 30, 1995 vs. Quarter Ended June 30, 1994
Net sales for the second quarter of 1995 were $273.0 million
compared to $254.8 million in the second quarter of 1994, an
increase of 7%. The $18.2 million increase includes $12.1
million of furniture coverings from the Sure Fit business
acquired in January 1995. The 2% increase in revenues, after
adjusting for the Sure Fit acquisition, was due to price
increases implemented during the last half of 1994 and early 1995
which more than offset a small decline in volume.
Gross profit margins decreased from 15.9% in the second quarter
of 1994 to 12.6% in the second quarter of 1995. The decrease was
due primarily to lower mill activity and higher raw material
prices.
Selling, general and administrative expenses increased as a
percentage of sales from 9.3% to 9.4% in the second quarter of
1995 compared to the same quarter of 1994. The increase was due
primarily to increased advertising and other selling expenses.<PAGE>
(6)
In the first quarter of 1995 the Company announced a
reorganization of its New York operations and the relocation of
sales, marketing and design personnel to Kannapolis, N.C. In
conjunction with the reorganization, the Company offered a
voluntary early retirement
program to approximately 300 of its salaried employees who had
until August 1, 1995 to decide whether to participate. The
Company expects to incur pre-tax costs in the range of $10 to $12
million, or $.71 to $.85 per share after tax, as a result of
these actions. Annual pre-tax savings of $6 to $8 million, or
$.42 to $.57 per share after tax, are anticipated. A pre-tax
charge of $4.5 million, or $.32 per share after tax, was accrued
in the second quarter of 1995 for employee severance, termination
benefits, relocation costs and early retirement termination
benefits on those employees who accepted the offer by June 30,
1995. Restructuring charges for the first six months of 1995
related to the reorganization and early retirement program
totaled $8.5 million, or $.60 per share after tax. The remaining
costs for relocation and the voluntary early retirement program
will be incurred later in the year.
Operating income as a percentage of sales decreased to 1.5% in
the second quarter of 1995 from 6.6% in the second quarter of
1994. The decrease was due to the $4.5 million of restructuring
charges described above, reduced mill activity and higher raw
material costs.
Interest expense increased $1.0 million in the second quarter of
1995 as compared to the second quarter of 1994 due to higher
rates under the revolver and an increase in average debt
outstanding.
The effective income tax rate was 37.5% for the second quarter of
1995 compared to 38.6% for the second quarter of 1994. The
annual effective income tax rate for 1994 was 37.3% before
favorable prior years tax settlements which reduced the 1994
annual rate to 33.6%.
A net loss, after the effect of the restructuring charges, of
$1.5 million, or $.30 per share was incurred in the second
quarter of 1995, compared to net income of $6.7 million, or $.64
per share, in the second quarter of 1994.
Six Months Ended June 30, 1995 vs. Six Months Ended June 30,
1994
Net sales for the first six months of 1995 were $530.1 million
compared to $487.1 million in the first six months of 1994, an
increase of 9%. The $43.0 million increase includes $25.5
million of furniture coverings from the Sure Fit business
acquired in January 1995. The 4% increase in revenues, after
adjusting for the Sure Fit acquisition, was due primarily to
price increases implemented during the last half of 1994 and<PAGE>
early 1995.
Gross profit margins decreased from 16.0% in the first six months
of 1994 to 14.6% in the first six months of 1995. The decrease
was due primarily to lower mill activity and higher raw material
prices.
(7)
Selling, general and administrative expenses increased as a
percentage of sales from 9.4% to 9.9% in the first six months of
1995 compared to the first six months of 1994. The increase was
due primarily to increased advertising and other selling
expenses.
Operating income as a percentage of sales decreased to 3.1% in
the first six months of 1995 from 6.5%. The decrease was due to
the $8.5 million of restructuring charges related to the New York
reorganization and early retirement program, reduced mill
activity and higher raw material costs.
Interest expense increased $2.0 million the first six months of
1995 as compared to the first six months of 1994 due to higher
rates under the revolver and an increase in average debt
outstanding.
The effective income tax rate was 37.5% for the first six months
of 1995 compared to 39.0% for the first six months of 1994. The
annual effective income tax rate for 1994 was 37.3% before
favorable prior years tax settlements which reduced the 1994
annual rate to 33.6%.
Net income, after the effect of the restructuring charges, was
$2.0 million, a $.02 loss per share after preferred dividends,
for the first six months of 1995 compared to net income of $12.2
million, or $1.15 per share, for the first six months of 1994.<PAGE>
(8)
PART II. OTHER INFORMATION
FIELDCREST CANNON, INC.
Item 4. Submission of Matters to a Vote of Security Holders
(a). The Company held its Annual Meeting of Stockholders on
April 24, 1995.
(b). Not applicable.
(c). Holders of Common Stock (one vote per share) voted at
this meeting on the following matters, which were set
forth in full in the Registrant's Proxy statement dated
March 22, 1995.
I. Election of Directors:
Votes
Nominee: For Withheld
Tom H. Barrett 7,371,835 11,649
James M. Fitzgibbons 7,379,962 3,522
William E. Ford 7,380,633 2,851
John C. Harned 7,380,992 2,492
Noah T. Herndon 7,377,652 5,832
S. Roger Horchow 7,380,763 2,721
W. Duke Kimbrell 7,380,726 2,758
C. J. Kjorlien 7,369,607 13,877
II. Adopt the 1995 Employee Stock Option Plan:
Votes
For 7,111,614
Against 370,151
Abstain 33,300
III. Amend the Director Stock Option plan to increase
the number of shares subject to annual option grant
from 1,000 to 2,000 shares:
Votes <PAGE>
For 6,720,572
Against 751,786
Abstain 42,707
(9)
IV. Amend Director Stock Option Plan to extend the
option exercise period:
Votes
For 6,894,343
Against 580,669
Abstain 40,053
V. Selection of Independent Auditors:
Votes
For 7,464,817
Against 32,303
Abstain 17,945
(d). Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
10-1. 1995 Declaration of Amendment to Director Stock
Option Plan of Fieldcrest Cannon, Inc.
10-2. 1995 Employee Stock Option Plan of Fieldcrest
Cannon, Inc., which is incorporated by reference
to Exhibit 4.1 of Registrant's Registration
Statement of Form S-8 filed on May 8, 1995.
11. Computation of Primary and Fully Diluted Net
Income Per Share.
(b). Reports on Form 8-K<PAGE>
The Registrant did not file any reports to the
Commission on Form 8-K for the quarter ended June 30,
1995.
(10)
S I G N A T U R E S
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.
FIELDCREST CANNON, INC.
(Registrant)
BY: /s/ T. R. Staab
T. R. Staab
Vice President and
Chief Financial Officer
Date: August 8, 1995<PAGE>
(11)
EXHIBIT INDEX TO
QUARTERLY REPORT ON FORM 10-Q FOR
FIELDCREST CANNON, INC.
FOR THE QUARTER ENDED JUNE 30, 1995
Exhibit Page
Number Description Number
<TABLE>
<CAPTION>
<S> <C> <C>
(10.1) 1995 Declaration of Amendment to
Director Stock Option Plan of
Fieldcrest Cannon, Inc. 13-14
(11) Computation of Primary and Fully
Diluted Net Income Per Share 15
/TABLE
<PAGE>
(12)
Exhibit 10.1
1995 DECLARATION OF AMENDMENT
TO
DIRECTOR STOCK OPTION PLAN
OF
FIELDCREST CANNON, INC.
THIS DECLARATION OF AMENDMENT, effective as of the 8th day
of March, 1995, by Fieldcrest Cannon, Inc. (the "Company"), as
sponsor of the Director Stock Option Plan of Fieldcrest Cannon,
Inc. (the "plan").
R E C I T A L S:
It is deemed advisable to amend the plan to increase the
number of shares to be subject to annual options granted to
eligible directors under the terms of the plan from 1,000 shares
to 2,000 shares, and to extend the period during which options
may be exercised upon termination of service to a period of up to
ninety days following termination from service as a director.
1. NOW, THEREFORE, it is declared that Section 6(a) of
the plan shall be and hereby is amended, effective March 8, 1995,
by replacing the number 1,000 in the first sentence of Section
6(a) for the number 2,000, so that the first sentence of Section
6(a) reads as follows:
"Subject to the limitations of this Section 6, on the
fifth business day following the annual meeting of the
stockholders of the Company each year during the term of
the Plan, the Committee shall grant to each person who is
then a Director an Option to purchase 2,000 shares of
Common Stock."
2. NOW, THEREFORE, it is declared that Section 6(c)(iii)
of the plan is hereby amended effective March 8, 1995, as to
Options granted after such date only, by deleting the sentence
comprising Section 6(c)(iii) in its entirety and inserting the
following in lieu thereof:
"No Option shall be exercised unless the Director either
(A) is, at the time of exercise, a Director as described
in Section 5 and has been a director continuously since
the date the Option was granted, or (B) was, within ninety<PAGE>
days prior to the time of exercise, a Director as
described in Section 5, and, prior to such termination
from service as a Director, had been a director
continuously since the date the Option was granted;
provided, that if the Director's membership on the Board
is terminated because of death, the Option shall be
exercisable by such person or persons who shall have
acquired the right to exercise the Option by will or the
laws of intestate succession, and such Option shall be
exercisable at any time prior to the earlier of (X) the
close of the Option Period, or (Y) the close of the period
ending thirty-six months after the death of the Director."
(13)
IN WITNESS WHEREOF, the Company has caused this
Declaration of Amendment to be executed by its proper officers as
of the 8th day of March, 1995.
FIELDCREST CANNON, INC.
By: /s/ James M. Fitzgibbons
Title: Chairman & Chief
Executive Officer
Attest:
/s/ M. Kenneth Doss
Secretary
[Corporate Seal]<PAGE>
(14)<PAGE>
<TABLE>
<CAPTION> Exhibit 11
Computation of Primary and Fully Diluted Net Income Per Share
For the three months For the six months
ended June 30 ended June 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Average shares outstanding 8,848,175 8,674,805 8,821,167 8,639,068
Add shares assuming exercise of
options reduced by the number
of shares which could have been
purchased with the proceeds from
exercise of such options 12,166 19,125 12,491 19,760
Average shares and equivalents
outstanding, primary 8,860,341 8,693,930 8,833,658 8,658,828
Average shares outstanding 8,848,175 8,674,805 8,821,167 8,639,068
Add shares giving effect to the
conversion of the convertible
subordinated debentures (1) 2,824,859 (1) 2,824,859
Add shares giving effect to the
conversion of the convertible
preferred stock (1) 2,564,100 (1) 2,564,100
Add shares assuming exercise of
options reduced by the number
of shares which could have been
purchased with the proceeds from
exercise of such options 12,024 19,151 12,865 21,377
Average shares and equivalents
outstanding, assuming full
dilution 8,860,199 14,082,915 8,834,032 14,049,404
Primary Earnings
Net income (loss) $(1,544,000) $ 6,684,000 $2,019,000 $12,180,000
Preferred dividends (1,125,000) (1,125,000) (2,250,000) (2,250,000)
Earnings (loss) on Common $(2,669,000) $ 5,559,000 $ (231,000) $ 9,930,000
Primary earnings (loss)
per common share $ (.30) $ .64 $ (.02) $ 1.15
Fully Diluted Earnings
Earnings (loss) on Common $(2,669,000) $ 5,559,000 $ (231,000) $ 9,930,000
Add convertible subordinated
debenture interest, net of taxes (1) 1,144,000 (1) 2,288,000
Add convertible preferred dividends (1) 1,125,000 (1) 2,250,000
Net income (loss) $(2,669,000) $ 7,828,000 $ (231,000) $14,468,000
Fully diluted earnings (loss)<PAGE>
per Common share $ (.30) $ .56 $ (.02) $ 1.03
(1) The assumed conversion of the Registrant's Convertible Subordinated Debentures
and Convertible Preferred Stock for the three months and six months ended June
30, 1995 would have an anti-dilutive effect for the computation of earnings
per share; therefore, conversion has not been assumed for these periods.
</TABLE>
(15)<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 4,785
<SECURITIES> 0
<RECEIVABLES> 171,831
<ALLOWANCES> 0
<INVENTORY> 258,352
<CURRENT-ASSETS> 438,419
<PP&E> 332,120
<DEPRECIATION> 0
<TOTAL-ASSETS> 833,514
<CURRENT-LIABILITIES> 137,851
<BONDS> 362,846
<COMMON> 12,491
0
15
<OTHER-SE> 221,072
<TOTAL-LIABILITY-AND-EQUITY> 833,514
<SALES> 530,057
<TOTAL-REVENUES> 530,057
<CGS> 452,687
<TOTAL-COSTS> 452,687
<OTHER-EXPENSES> 60,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,483
<INCOME-PRETAX> 3,231
<INCOME-TAX> 1,212
<INCOME-CONTINUING> 2,019
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,019
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
