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 September 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 October 31, 1995
Common Stock 8,912,727
Total pages 12<PAGE>
Exhibit Index Page 11
PART 1. FINANCIAL INFORMATION
FIELDCREST CANNON, INC.
Consolidated statement of financial position
<TABLE>
<CAPTION>
September 30 December 31,
Dollars in thousands 1995 1994
<S> <C> <C>
Assets
Cash $ 5,871 $ 5,885
Accounts receivable 178,573 170,001
Inventories (note 3) 257,993 213,994
Net assets held for sale - 24,000
Other prepaid expenses and current assets 3,170 3,793
Total current assets 445,607 417,673
Plant and equipment, net 341,177 314,726
Deferred charges and other assets 63,075 50,266
Total assets $849,859 $782,665
Liabilities and shareowners' equity
Accounts and drafts payable $ 61,843 $ 55,533
Federal and state income taxes - 2,268
Deferred income taxes 21,936 21,988
Accrued liabilities 70,204 53,958
Current portion of long-term debt 768 1,465
Total current liabilities 154,751 135,212
Senior long-term debt 155,158 107,744
Subordinated long-term debt 210,000 210,000
Total long-term debt 365,158 317,744
Deferred income taxes 43,871 42,859
Other non-current liabilities 52,777 55,648
Total liabilities 616,557 551,463
Shareowners' equity:
Preferred Stock, $.01 par value,
10,000,000 authorized, 1,500,000 issued
and outstanding September 30, 1995 and
December 31, 1994 (aggregate liquidation
preference of $75,000) 15 15
Common Stock, $1 par value,
25,000,000 authorized, 12,519,127 issued
September 30, 1995 and 12,360,252
December 31, 1994 12,519 12,360
Additional paid in capital 220,084 216,772
Retained earnings 117,909 119,280
Excess purchase price for Common Stock
acquired and held in treasury -
3,606,400 shares (117,225) (117,225)
Total shareowners' equity 233,302 231,202
Total liabilities and shareowners' equity $849,859 $782,665
/TABLE
<PAGE>
See accompanying notes
(2)
FIELDCREST CANNON, INC.
Consolidated statement of income and retained earnings
<TABLE>
<CAPTION>
For the three months For the nine months
Dollars in thousands, ended September 30 ended September 30
except per share data 1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $280,524 $279,283 $810,581 $766,364
Cost of sales 240,388 235,025 693,075 644,248
Selling, general and administrative 26,342 24,092 78,688 70,069
Restructuring charges 7,082 - 15,536 -
Total operating costs and expenses 273,812 259,117 787,299 714,317
Operating income 6,712 20,166 23,282 52,047
Other deductions (income):
Interest expense 6,807 5,776 20,290 17,287
Other, net 29 495 (115) 898
Total other deductions 6,836 6,271 20,175 18,185
Income (loss) before income taxes (124) 13,895 3,107 33,862
Federal and state income
taxes (benefit) (109) 5,419 1,103 13,206
Net income (loss) (15) 8,476 2,004 20,656
Preferred dividends (1,125) (1,125) (3,375) (3,375)
Earnings (loss) on common (1,140) 7,351 (1,371) 17,281
Amount added to (subtracted from)
retained earnings (1,140) 7,351 (1,371) 17,281
Retained earnings,
beginning of period 119,049 102,965 119,280 93,035
Retained earnings, end of period $117,909 $110,316 $117,909 $110,316
Net income (loss) per common share $ (.13) $ .84 $ (.15) $ 1.99
Fully diluted income (loss)
per common share $ (.13) $ .68 $ (.15) $ 1.71
Average primary shares outstanding 8,912,817 8,722,222 8,860,070 8,679,958
Average fully diluted shares outstanding 8,912,817 14,111,662 8,860,293 14,070,155
/TABLE
<PAGE>
See accompanying notes
(3)
FIELDCREST CANNON, INC.
Consolidated statement of cash flows
<TABLE>
<CAPTION>
Nine Months
ended September 30
Dollars in thousands 1995 1994
<S> <C> <C>
Increase (decrease) in cash
Cash flows from operating activities:
Net income $ 2,004 $ 20,656
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 23,595 22,473
Deferred income taxes 1,012 (1,297)
Other (2,043) 3,088
Change in current assets and liabilities,
excluding effects of acquisition of Sure Fit:
Accounts receivable 118 (4,519)
Inventories (26,701) (37,634)
Other prepaid expenses and current assets 858 (797)
Accounts payable and accrued liabilities 15,038 (11,395)
Federal and state income taxes (2,268) 3,236
Deferred income taxes (52) 6,709
Net cash provided by operating activities 11,561 520
Cash flows from investing activities:
Additions to plant and equipment (49,761) (26,672)
Proceeds from disposal of plant and equipment 1,206 1,547
Proceeds from net assets held for sale 20,885 -
Purchase of Sure Fit, net of cash acquired (27,300) -
Net cash (used in) investing activities (54,970) (25,125)
Cash flows from financing activities:
Increase in revolving debt 48,179 29,062
Proceeds from issuance of long-term debt - 10,000
Payments on long-term debt (1,466) (11,082)
Proceeds from sale of common stock 57 80
Dividends paid on preferred stock (3,375) (3,375)
Net cash provided by financing activities 43,395 24,685
Increase (decrease) in cash (14) 80
Cash at beginning of year 5,885 3,865
Cash at end of period $ 5,871 $ 3,945
</TABLE>
See accompanying notes
(4)
FIELDCREST CANNON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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 September 30, 1995 and the related results of
operations for the three and nine months ended September 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>
September 30, December 31,
(In thousands) 1995 1994
<S> <C> <C>
Finished goods $133,068 $109,423
Work in process 85,798 65,375
Raw materials and supplies 39,127 39,196
$257,993 $213,994
</TABLE>
At September 30, 1995 approximately 75% 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 $46.7 million during the first nine months of
1995. Debt was reduced by $22.1 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 $26.7 million due to normal seasonal inventory build-
up. Capital expenditures totaled $49.8 million for the first
nine months of 1995 compared to $26.7 million for the first nine
months of 1994. Included in the 1995 capital expenditures is
$27.9 million for the $86 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 $60-$65 million range. At September 30, 1995, approximately
$42.6 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 existing
and new credit facilities, and, possibly, the sale of long-term
debt or equity securities.
The Company's revolving credit facility requires, among other
things, that the Company maintain certain financial ratios and
also limits the amount of dividends that may be paid. The
Company met all of its financial covenants as of September 30,
1995. As more fully discussed in the "Changes in Results of
Operations" section, the Company currently expects that operating
results in the fourth quarter of 1995 may be significantly lower
than the fourth quarter of 1994. If this should occur, the
Company will be in violation at the end of the fourth quarter of
certain of the above covenants but believes it can modify the
covenants for future periods through an amendment of the
facility. The Company expects to incur increased interest rates
on the amended facility; however, the Company does not believe
the resulting incremental interest expense would materially
increase the Company's overall cost of borrowed funds.
Changes in Results of Operations
Quarter Ended September 30, 1995 vs. Quarter Ended
September 30, 1994
Net sales for the third quarter of 1995 were $280.5 million
compared to $279.3 million in the third quarter of 1994, an
increase of .4%. The increase includes $12.6 million of
furniture coverings from the Sure Fit business acquired in
January 1995. After adjusting for the Sure Fit acquisition,
sales in the third quarter of 1995 were 4% less than the same<PAGE>
period of 1994. The decline was due to a decline in volume which
more than offset the price increases implemented during the last
twelve months.
(6)
Gross profit margins decreased from 15.8% in the third quarter of
1994 to 14.3% in the third quarter of 1995. The decrease was due
primarily to higher raw material costs, reduced sales volumes and
lower mill activity.
Selling, general and administrative expenses increased as a
percentage of sales from 8.6% to 9.4% in the third quarter of
1995 compared to the same quarter of 1994. The increase was due
primarily to increased advertising and other selling expenses.
Pre-tax restructuring charges of $7.1 million, or $.53 per share
after tax, were accrued in the third quarter of 1995. The
charges were primarily for a voluntary early retirement program
offered to salaried employees and estimated costs of subleasing
the Company's New York office space. This completes the
restructuring begun during the first half of 1995 when the
Company reorganized its New York operations and relocated sales,
marketing and design personnel to Kannapolis, N.C. Total cost of
the restructuring was $15.5 million, or $1.13 per share after
tax, for the first nine months of 1995. Annual pre-tax savings
of $8 million, or $.58 per share after tax, are anticipated from
the restructuring.
Operating income as a percentage of sales decreased to 2.4% in
the third quarter of 1995 from 7.2% in the third quarter of 1994.
The decrease was due to the $7.1 million of restructuring charges
described above, reduced mill activity and higher raw material
costs which were not fully recovered by price increases. While
the Company expects to generate positive earnings in the fourth
quarter of 1995, operating results are expected to be
significantly lower compared to the fourth quarter of 1994.
Results are expected to be impacted by a continuation in the
softness in retail sales, higher raw material costs (which will
not be fully recovered by price increases implemented in the
second and third quarters), a recent wage settlement which gave
one additional holiday in the fourth quarter and higher
promotional inventories in the Bed Division.
Interest expense increased $1.0 million in the third quarter of
1995 as compared to the third quarter of 1994 due to higher rates
under the revolver and an increase in average debt outstanding.
The third quarter income tax benefit reflects an adjustment to a
year-to-date effective tax rate of 35.5% compared to 39.0% in the
third quarter of 1994. The lower effective tax rate for 1995 was
due primarily to the decrease in pre-tax income. 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 $15
thousand, or $.13 per share after preferred dividends, was
incurred in the third quarter of 1995, compared to net income of
$8.5 million, or $.84 per share, in the third quarter of 1994.<PAGE>
(7)
Nine Months Ended September 30, 1995 vs. Nine Months Ended
September 30, 1994
Net sales for the first nine months of 1995 were $810.6 million
compared to $766.4 million in the first nine months of 1994, an
increase of 6%. The $44.2 million increase includes $38.1
million of furniture coverings from the Sure Fit business
acquired in January 1995. The .8% increase in revenues, after
adjusting for the Sure Fit acquisition, was due primarily to
price increases implemented during the last twelve months, offset
by volume declines during the third quarter of 1995.
Gross profit margins decreased from 15.9% in the first nine
months of 1994 to 14.5% in the first nine months 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 9.1% to 9.7% in the first nine months of
1995 compared to the first nine months of 1994. The increase was
due primarily to increased advertising and other selling
expenses.
Operating income as a percentage of sales decreased to 2.9% in
the first nine months of 1995 from 6.8%. The decrease was due to
the $15.5 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 $3.0 million the first nine months of
1995 as compared to the first nine months of 1994 due to higher
rates under the revolver and an increase in average debt
outstanding.
The effective income tax rate was 35.5% for the first nine months
of 1995 compared to 39.0% for the first nine months of 1994. The
lower effective tax rate for 1995 was due primarily to the
decrease in pre-tax income. 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 $.15 loss per share after preferred dividends,
for the first nine months of 1995 compared to net income of $20.7
million, or $1.99 per share, for the first nine months of 1994.<PAGE>
(8)
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
11. Computation of Primary and Fully Diluted Net
Income Per Share.
(b). Reports on Form 8-K
The Registrant did not file any reports to the
Commission on Form 8-K for the quarter ended September
30, 1995. <PAGE>
(9)
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: November 2, 1995<PAGE>
(10)
EXHIBIT INDEX TO
QUARTERLY REPORT ON FORM 10-Q FOR
FIELDCREST CANNON, INC.
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
Exhibit Page
Number Description Number
<TABLE>
<CAPTION>
<S> <C> <C>
(11) Computation of Primary and Fully
Diluted Net Income Per Share 12
/TABLE
<PAGE>
(11)
<TABLE>
<CAPTION>
Exhibit 11
Computation of Primary and Fully Diluted Net Income Per Share
For the three months For the nine months
ended September ended September 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Average shares outstanding 8,884,750 8,705,138 8,842,362 8,661,091
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 28,067 17,084 17,708 18,867
Average shares and equivalents
outstanding, primary 8,912,817 8,722,222 8,860,070 8,679,958
Average shares outstanding 8,884,750 8,705,138 8,842,362 8,661,091
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 28,067 17,565 17,931 20,105
Average shares and equivalents
outstanding, assuming full
dilution 8,912,817 14,111,662 8,860,293 14,070,155
Primary Earnings
Net income (loss) $ (15,000) $ 8,476,000 $ 2,004,000 $20,656,000
Preferred dividends (1,125,000) (1,125,000) (3,375,000) (3,375,000)
Earnings (loss) on Common $(1,140,000) $ 7,351,000 $(1,371,000) $17,281,000
Primary earnings (loss)
per common share $ (.13) $ .84 $ (.15) $ 1.99<PAGE>
Fully Diluted Earnings
Earnings (loss) on Common $(1,140,000) $ 7,351,000 $(1,371,000) $17,281,000
Add convertible subordinated
debenture interest, net of taxes (1) 1,144,000 (1) 3,431,000
Add convertible preferred dividends (1) 1,125,000 (1) 3,375,000
Net income (loss) $(1,140,000) $ 9,620,000 $(1,371,000) $24,087,000
Fully diluted earnings (loss)
per Common share $ (.13) $ .68 $ (.15) $ 1.71
(1) The assumed conversion of the Registrant's Convertible Subordinated Debentures and
Convertible Preferred Stock for the three months and six months ended September 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>
(12)<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 5,871
<SECURITIES> 0
<RECEIVABLES> 178,573
<ALLOWANCES> 0
<INVENTORY> 257,993
<CURRENT-ASSETS> 445,607
<PP&E> 341,177
<DEPRECIATION> 0
<TOTAL-ASSETS> 849,859
<CURRENT-LIABILITIES> 154,751
<BONDS> 365,158
<COMMON> 12,519
0
15
<OTHER-SE> 220,768
<TOTAL-LIABILITY-AND-EQUITY> 849,859
<SALES> 810,581
<TOTAL-REVENUES> 810,581
<CGS> 693,075
<TOTAL-COSTS> 693,075
<OTHER-EXPENSES> 94,224
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,290
<INCOME-PRETAX> 3,107
<INCOME-TAX> 1,103
<INCOME-CONTINUING> 2,004
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,004
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
