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, 1996
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.)
One Lake Drive
Kannapolis, NC 28081
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code 704-939-2000
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, 1996
Common Stock 9,087,192
Total pages 22
Exhibit Index Page 11<PAGE>
<TABLE> PART 1. FINANCIAL INFORMATION
FIELDCREST CANNON, INC.
Consolidated statement of financial position
<CAPTION>
September 30 December 31,
Dollars in thousands 1996 1995
<S> <C> <C>
Assets
Cash $ 11,800 $ 9,124
Accounts receivable 163,956 168,112
Inventories (note 3) 264,386 228,167
Other prepaid expenses and current assets 1,077 3,446
Total current assets 441,219 408,849
Plant and equipment, net 332,532 342,285
Deferred charges and other assets 59,241 61,812
Total assets $832,992 $812,946
Liabilities and shareowners' equity
Accounts and drafts payable $ 59,053 $ 54,274
Deferred income taxes 16,977 17,593
Accrued liabilities 70,156 67,725
Current portion of long-term debt 6,930 780
Total current liabilities 153,116 140,372
Senior long-term debt 169,998 155,262
Subordinated long-term debt 203,750 210,000
Total long-term debt 373,748 365,262
Deferred income taxes 37,743 40,475
Other non-current liabilities 54,696 51,406
Total liabilities 619,303 597,515
Shareowners' equity:
Preferred Stock, $.01 par value,
10,000,000 authorized, 1,500,000 issued
and outstanding September 30, 1996 and
December 31, 1995 (aggregate liquidation
preference of $75,000) 15 15
Common Stock, $1 par value,
25,000,000 authorized, 12,693,592 issued
September 30, 1996 and 12,560,826
December 31, 1995 12,694 12,561
Additional paid in capital 223,799 221,025
Retained earnings 94,406 99,055
Excess purchase price for Common Stock
acquired and held in treasury -
3,606,400 shares (117,225) (117,225)
Total shareowners' equity 213,689 215,431
Total liabilities and shareowners' equity $832,992 $812,946
</TABLE>
See accompanying notes
(2)<PAGE>
<TABLE>
FIELDCREST CANNON, INC.
Consolidated statement of income and retained earnings
<CAPTION>
For the three months For the nine months
Dollars in thousands, ended September 30 ended September 30
except per share data 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $285,221 $280,524 $812,995 $810,581
Cost of sales 249,568 240,388 706,482 693,075
Selling, general and administrative 28,253 26,342 78,406 78,688
Restructuring charges 4,500 7,082 8,130 15,536
Total operating costs and expenses 282,321 273,812 793,018 787,299
Operating income 2,900 6,712 19,977 23,282
Other deductions (income):
Interest expense 7,160 6,807 21,496 20,290
Other, net 97 29 519 (115)
Total other deductions 7,257 6,836 22,015 20,175
Income (loss) before income taxes (4,357) (124) (2,038) 3,107
Federal and state income
taxes (benefit) (1,634) (109) (764) 1,103
Net income (loss) (2,723) (15) (1,274) 2,004
Preferred dividends (1,125) (1,125) (3,375) (3,375)
Earnings (loss) on common (3,848) (1,140) (4,649) (1,371)
Amount added to (subtracted from)
retained earnings (3,848) (1,140) (4,649) (1,371)
Retained earnings,
beginning of period 98,254 100,195 99,055 100,426
Retained earnings, end of period $ 94,406 $ 99,055 $ 94,406 $ 99,055
Net income (loss) per common share $ (.43) $ (.13) $ (.52) $ (.15)
Fully diluted income (loss)
per common share $ (.43) $ (.13) $ (.52) $ (.15)
Average primary shares outstanding 9,044,250 8,912,817 9,002,815 8,860,070
Average fully diluted shares outstanding 9,044,250 8,912,817 9,003,562 8,860,293
</TABLE>
See accompanying notes
(3)<PAGE>
<TABLE>
FIELDCREST CANNON, INC.
Consolidated statement of cash flows
<CAPTION>
Nine Months
ended September 30
Dollars in thousands 1996 1995
<S> <C> <C>
Increase (decrease) in cash
Cash flows from operating activities:
Net income $ (1,274) $ 2,004
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 26,979 23,595
Deferred income taxes (2,732) 1,012
Other 8,625 (2,043)
Change in current assets and liabilities,
excluding effects of acquisition of Sure Fit:
Accounts receivable 4,156 118
Inventories (36,219) (26,701)
Other prepaid expenses and current assets 2,369 858
Accounts payable and accrued liabilities 7,210 15,038
Federal and state income taxes - (2,268)
Deferred income taxes (616) (52)
Net cash provided by operating activities 8,498 11,561
Cash flows from investing activities:
Additions to plant and equipment (21,035) (49,761)
Proceeds from disposal of plant and equipment 3,911 1,206
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 (17,124) (54,970)
Cash flows from financing activities:
Increase in revolving debt 11,826 48,179
Proceeds from issuance of long-term debt 3,610 -
Payments on long-term debt (800) (1,466)
Proceeds from sale of common stock 41 57
Dividends paid on preferred stock (3,375) (3,375)
Net cash provided by financing activities 11,302 43,395
Increase (decrease) in cash 2,676 (14)
Cash at beginning of year 9,124 5,885
Cash at end of period $ 11,800 $ 5,871
</TABLE>
See accompanying notes
(4)<PAGE>
FIELDCREST CANNON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
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, 1996 and the related results of
operations for the three and nine months ended September 30,
1996 and 1995. The unaudited consolidated financial
statements should be read in conjunction with the Company's
Form 10-K for the year ended December 31, 1995.
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) 1996 1995
<S> <C> <C>
Finished goods $128,389 $117,776
Work in process 83,016 72,315
Raw materials and supplies 52,981 38,076
$264,386 $228,167
</TABLE>
At September 30, 1996 approximately 72% of the inventories
were valued on the last-in, first-out method (LIFO).
(5)<PAGE>
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 $14.6 million during the first nine months of
1996. Debt increased primarily because inventories increased
$36.2 million due to normal seasonal inventory build-up. Capital
expenditures totaled $21.0 million for the first nine months of
1996 compared to $49.8 million for the first nine months of 1995.
Included in the 1996 and 1995 capital expenditures are $7.0
million and $27.9 million, respectively, for the new weaving
plant at the Company's Columbus, GA/Phenix City, Ala. towel mill.
Capital expenditures for 1996 are expected to be approximately
$35 million. At September 30, 1996, approximately $28.0 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.
During the third quarter the Company reached an agreement and on
October 3, 1996 signed a definitive agreement to sell certain
Blanket Division inventories and equipment to Pillowtex
Corporation for $30 million in cash. The transaction includes a
long-term trademark license royalty agreement under which
Pillowtex will sell blankets and throws, bed pillows and mattress
pads with Fieldcrest Cannon's brands and other marks. The
Company is liquidating the remaining assets. The purchase price
is subject to changes in inventory levels from June 30, 1996.
The transaction will result in closing the Blanket Division
facilities in Eden, N.C., and a workforce reduction of
approximately 750 employees. The transaction is expected to take
place by the end of 1996. Proceeds from the sale of the Blanket
Division assets will be used to reduce debt and for reinvestment
in the Company's core businesses which have historically earned
higher margins than the blanket business.
The Company's revolving credit facility requires, among other
things, that the Company maintain certain financial ratios. The
Company met all of its financial covenants as of September 30,
1996. The Company currently expects that operating results in
the fourth quarter of 1996 will exceed the financial ratios
required by the covenants for the fourth quarter. If this does
not occur, the Company would 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.<PAGE>
(6)
Changes in Results of Operations
Quarter Ended September 30, 1996 vs. Quarter Ended
September 30, 1995
Net sales for the third quarter of 1996 were $285.2 million
compared to $280.5 million in the third quarter of 1995, an
increase of 2%. The increase in revenues was due primarily to
volume increases.
Gross profit margins decreased from 14.3% in the third quarter of
1995 to 12.5% in the third quarter of 1996. The decrease in
margins reflects lower mill activity, higher cotton costs and
$1.7
million of equipment relocation and employee training costs
related
to the consolidation and closing of two towel facilities.
Selling, general and administrative expenses increased as a
percentage of sales from 9.4% to 9.9% in the third quarter of
1996 compared to the same quarter of 1995. The increase was due
primarily to higher costs related to the outsourcing of the
Company's information technology services and functions to the
Lockheed Martin Corporation in August 1996. The higher level of
information technology expenses is expected to continue.
In the third quarter of 1996 operating income was reduced by pre-
tax restructuring charges of $4.5 million for employee
termination benefits and facility disposal costs related to the
sale of certain Blanket Division assets to Pillowtex Corporation.
In the third quarter of 1995 operating income was reduced by pre-
tax restructuring charges of $7.1 million related to a voluntary
early retirement program and the reorganization of the Company's
New York operations.
Operating income as a percentage of sales decreased to 1.0% in
the third quarter of 1996 from 2.4% in the third quarter of 1995.
The decrease was due to lower gross profit margins and increased
selling, general and administrative expenses.
Interest expense increased $.4 million in the third quarter of
1996 as compared to the third quarter of 1995 due primarily to
higher rates under the revolver and an increase in average debt
outstanding.
The effective income tax rate was 37.5% for the third quarters of
1996 and 1995.
A net loss, after the effect of the restructuring charges, of
$2.7 million, or $.43 per share after preferred dividends, was
incurred in the third quarter of 1996, compared to a net loss of
$15 thousand, or $.13 per share after preferred dividends, in the
third quarter of 1995.
Nine Months Ended September 30, 1996 vs. Nine Months Ended
September 30, 1995
Net sales for the first nine months of 1996 were $813.0 million<PAGE>
compared to $810.6 million in the first nine months of 1995. The
increase in revenues was due primarily to volume increases.
(7)
Gross profit margins decreased from 14.5% in the first nine
months of 1995 to 13.1% in the first nine months of 1996. The
decrease was due primarily to lower mill activity, higher raw
material prices and $3.3 million of equipment relocation and
employee training costs related to the consolidation and closing
of two towel facilities.
Selling, general and administrative expenses decreased as a
percentage of sales from 9.7% to 9.6% in the first nine months of
1996 compared to the first nine months of 1995. The decrease was
due primarily to lower payroll costs associated with the New York
office reorganization and the early retirement program
implemented during 1995 which were partially offset by higher
information technology expenses in the third quarter of 1996.
Pre-tax restructuring charges of $8.1 million in the first nine
months of 1996 include $3.6 million for closing a towel weaving
plant and a yarn manufacturing plant as a part of the Company's
ongoing consolidation effort to utilize assets more effectively
and $4.5 million for employee termination benefits and disposal
costs related to sale of certain Blanket Division assets. The
restructuring charges of $15.5 million in the first nine months
of 1995 relate to the reorganization of the Company's New York
operations and a voluntary early retirement program.
Operating income as a percentage of sales decreased to 2.5% in
the first nine months of 1996 from 2.9%. The decrease was due to
lower gross margins which were partially offset by a decrease in
selling, general and administrative expenses and a lower level of
restructuring charges.
Interest expense increased $1.2 million the first nine months of
1996 as compared to the first nine months of 1995 due primarily
to an increase in average debt outstanding.
The effective income tax rate was 37.5% for the first nine months
of 1996 and 1995.
A net loss, after the effect of the restructuring charges of $1.3
million, or $.52 per share was incurred for the first nine months
of 1996 compared to net income of $2.0 million, a $.15 loss per
share after preferred dividends, for the first nine months of
1995.
Forward-Looking Statements
Certain statements in management's financial discussion and
analysis above contain forward-looking information, including the
statements under the discussion of changes in financial condition
relating to continued compliance with the financial covenants
under the Company's revolving credit facility. Actual results
and trends could differ materially from those that are reflected
in such statements due to a variety of important factors,
including changes in the Company's product sales mix and market<PAGE>
conditions for bed and bath products.
(8)
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
10.1 Sixth Amendment to Third Amended and Restated
Revolving Credit Agreement dated October 9,
1996.
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, 1996. <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 12, 1996<PAGE>
(10)
EXHIBIT INDEX TO
QUARTERLY REPORT ON FORM 10-Q FOR
FIELDCREST CANNON, INC.
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
<S> <C> <C>
(10.1) Sixth Amendment to Third Amended
and Restated Revolving Credit
Agreement dated October 9, 1996 12 - 21
(11) Computation of Primary and Fully
Diluted Net Income Per Share 22
/TABLE
<PAGE>
(11)
-1-
SIXTH AMENDMENT
to
THIRD AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
This SIXTH AMENDMENT (the "Amendment"), dated as of October
9, 1996, is by and among FIELDCREST CANNON, INC., a Delaware
corporation (the "Company"), the lenders listed on the signature
pages hereto (the "Lenders"), BANK OF AMERICA ILLINOIS (formerly
known as Continental Bank N.A.), CORESTATES BANK, N.A. (formerly
known as Philadelphia National Bank) and FIRST UNION NATIONAL
BANK OF NORTH CAROLINA, as lead managers for the Lenders
(collectively, the "Lead Managers"), and THE FIRST NATIONAL BANK
OF BOSTON, as agent for the Lenders (the "Agent").
WHEREAS, the Company, the Lenders, the Lead Managers and the
Agent are parties to that certain Third Amended and Restated
Revolving Credit Agreement, dated as of March 10, 1994, as
amended (as so amended, the "Credit Agreement"); and
WHEREAS, the Company, the Lenders, the Lead Managers and the
Agent have agreed, subject to the terms and conditions set forth
herein, to amend certain provisions of the Credit Agreement as
set forth herein;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. CERTAIN DEFINED TERMS. Capitalized terms which are
used herein without definition and which are defined in the
Credit Agreement shall have the same meanings herein as in the
Credit Agreement.
2. AMENDMENT OF CREDIT AGREEMENT.
(a) Section 1 of the Credit Agreement is hereby amended by
adding the following new definitions in the appropriate places in
the alphabetical sequence thereof:
Blanket Sale. The sale by the Company to Pillowtex
Corporation of certain inventory and equipment related to
the Company's manufacture and sale of blankets by its
Blanket Division.
Blanket Sale Expense Amount. For any fiscal quarter of
the Company, the aggregate amount of idle plant costs
incurred by the Company as normal operating expenses during
such fiscal quarter as a result of the Blanket Sale and the
closing of all or a portion of the Company's blanket<PAGE>
manufacturing facilities in Eden, North Carolina, as such
amount is identified by the Company to the Agent in a manner
satisfactory to the Agent in all respects.
-12-
-2-
Blanket Sale Restructuring Charge. An amount equal to
the one-time charge against Consolidated Net Income of the
Company and its Subsidiaries for the fiscal quarter of the
Company ending September 30, 1996 incurred as a result of
the Blanket Sale and the closing of all or a portion of the
Company's blanket manufacturing facilities located in Eden,
North Carolina, as such amount is reflected in the
consolidated financial statements of the Company and its
Subsidiaries for such fiscal period; provided that in no
event shall the Blanket Sale Restructuring Charge include
the Blanket Sale Expense Amount.
(b) The definition of "Applicable Margin" set forth in 1 of
the Credit Agreement is hereby amended by deleting such
definition in its entirety, and substituting therefor the
following:
Applicable Margin. For each period commencing on an
Adjustment Date through the date immediately preceding the
next Adjustment Date (each a "Rate Adjustment Period"), the
Applicable Margin shall be the applicable percentage set
forth below with respect to the Company's Interest Coverage
Ratio (calculated as described below), as determined at the
end of the fiscal period of the Company and its Subsidiaries
ending immediately prior to the applicable Rate Adjustment
Period:
<TABLE>
Interest
Coverage Commitment EuroRate C/D Rate Letter of
Ratio Fee Amounts Amounts Credit Fees
<CAPTION>
<S> <C> <C> <C> <C>
Less than or equal 0.500% 2.250% 2.375% 2.250%
to 0.50 to 1.00
Greater than 0.50 to 0.500% 2.000% 2.125% 2.000%
1.00 and less than or
equal to 1.00 to 1.00
Greater than 1.00 to 0.500% 1.750% 1.875% 1.750%
1.00 and less than or
equal to 1.50 to 1.00
Greater than 1.50 0.375% 1.500% 1.625% 1.500%
to 1.00
</TABLE>
Notwithstanding the foregoing, (a) for the period
commencing on January 15, 1996 through the date immediately<PAGE>
preceding the first Adjustment Date to occur after December
29, 1995, the Applicable Margin shall be deemed to be the
highest Applicable Margin set forth above and (b) if the
Company fails to deliver any Compliance Certificate pursuant
to 7.5(d) hereof then, for the period commencing on the next
Adjustment Date to occur subsequent to such failure through
the date immediately preceding the Adjustment Date which
occurs immediately following the date on which such
Compliance Certificate is delivered, the Applicable Margin
shall be deemed to be the highest Applicable Margin set
forth above. For purposes of calculating the Interest
Coverage Ratio in order to determine the Applicable Margin,
the Blanket Sale
-13-
-3-
Expense Amount shall not be added to Consolidated Net Income
as provided in clause (h) of the definition of Consolidated
Net Income.
(c) The definition of "Consolidated Net Income" set forth
in 1 of the Credit Agreement is hereby amended by deleting such
definition in its entirety, and substituting therefor the
following:
Consolidated Net Income. The consolidated net income
(or net deficit) of the Company and its Subsidiaries for any
period, after deduction of all expenses, taxes, and other
proper charges, all as determined in accordance with
Generally Accepted Accounting Principles. In addition,
there shall be added to Consolidated Net Income for each
fiscal period an amount equal to the Cotton Writedown
Charge, if any, for such fiscal period, as determined on an
after-tax basis, and there shall be subtracted from
Consolidated Net Income for such period an amount equal to
the aggregate amount of reversals of Cotton Writedown
Charges from prior fiscal periods, as determined on an
after-tax basis, made in accordance with Generally Accepted
Accounting Principles reflecting the consumption of the
cotton to which the Cotton Writedown Charges from the prior
fiscal periods relate, all as determined in accordance with
Generally Accepted Accounting Principles; provided that for
purposes of determining Consolidated Net Income in order to
determine Consolidated EBIT and Consolidated EBITDA:
(a) the foregoing calculations in this sentence
pertaining to Cotton Writedown Charges and reversals of
Cotton Writedown Charges from prior periods shall be made
using Cotton Writedown Charges and reversals of Cotton
Writedown Charges from prior periods determined on a pre-tax
basis;
(b) there shall be added to Consolidated Net Income,
for the fiscal period in which the Company adopted the
accounting standards set forth in Financial Accounting
Standard Board's Statement Nos. 106 and 109, an aggregate<PAGE>
amount equal to the one-time non-cash accounting charges
against Consolidated Net Income taken as a result of the
adoption by the Company of the accounting standards set
forth therein;
(c) there shall be added to Consolidated Net Income for
the fiscal quarters ending March 31, 1995, June 30, 1995 and
September 30, 1995 an amount equal to the Restructuring
Charge, as determined on a pre-tax basis, provided, that in
no event shall the aggregate amount added to Consolidated
Net Income pursuant to this clause (c) exceed $15,536,000;
(d) there shall be added to Consolidated Net Income for
the fiscal quarter ending December 31, 1995 an amount equal
to the Yarn Spinning Charge, as determined on a pre-tax
basis,
-14-
-4-
provided that in no event shall the aggregate amount added
to Consolidated Net Income pursuant to this clause (d)
exceed $5,000,000;
(e) there shall be added to Consolidated Net Income for
the fiscal quarter ending March 31, 1996, an amount equal to
the Mill Closing Restructuring Charge, as determined on a
pre-tax basis, provided that in no event shall the aggregate
amount added to Consolidated Net Income pursuant to this
clause (e) exceed $5,000,000;
(f) there shall be added to Consolidated Net Income for
the fiscal quarters ending March 31, 1996, June 30, 1996,
September 30, 1996 and December 31, 1996 an amount equal to
the Mill Closing Expenses Amount for such fiscal quarter, as
determined on a pre-tax basis, provided that in no event
shall the aggregate amount added to Consolidated Net Income
for the combined four quarter fiscal period pursuant to this
clause (f) exceed $3,200,000;
(g) there shall be added to Consolidated Net Income for
the fiscal quarter ended September 30, 1996, an amount equal
to the Blanket Sale Restructuring Charge, as determined on a
pre-tax basis, provided that in no event shall the aggregate
amount added to Consolidated Net Income pursuant to this
clause (g) exceed $4,500,000; and
(h) there shall be added to Consolidated Net Income for
each of the fiscal quarters of the Company ended during the
period commencing on January 1, 1997 and ending on December
31, 1998 an amount equal to the Blanket Sale Expense Amount
for such fiscal quarter, as determined on a pre-tax basis,
provided that in no event shall the aggregate amount added
to Consolidated Net Income for the combined four quarter
fiscal period ended December 31, 1997 exceed $1,000,000 and
in no event shall the aggregate amount added to Consolidated<PAGE>
Net Income for the combined four quarter fiscal period ended
December 31, 1998 exceed $1,000,000; all as determined in
accordance with Generally Accepted Accounting Principles.
3. WAIVER. (a) Section 8.6 of the Credit Agreement
provides that the Company will not sell, lease or otherwise
dispose of its assets except for (i) sales of inventory in the
ordinary course of business, and (ii) sales of assets (other than
Collateral) in arm's-length transactions for cash and for fair
and reasonable value. The Company has requested that the Lenders
waive the above-described provision of 8.6 of the Credit
Agreement solely to the extent necessary to permit the Blanket
Sale to the extent that the assets sold in such sale constitute
Collateral. In response to the Company's request, the Lenders
hereby waive the above-described provisions of 8.6 of the Credit
Agreement solely to the extent necessary to permit the Blanket
Sale, provided that the foregoing waiver shall be effective only
if (i) the Blanket Sale is
-15-
-5-
consummated in accordance with the terms and conditions set forth
in a purchase and sale agreement which has been delivered to the
Agent and which is satisfactory to the Agent in all respects (the
"Purchase Agreement"), (ii) only the inventory and equipment of
the Company which are used by its Blanket Division in connection
with the manufacture and sale of blankets in the ordinary course
of its business (the "Purchased Assets") are sold by the Company
pursuant to the Purchase Agreement, (iii) the Company receives,
upon the consummation of the Blanket Sale in accordance with the
terms of the Purchase Agreement (the "Closing Date"), cash in an
amount not less than $30,000,000 plus or minus any change in the
value of inventory of the Blanket Division, as valued on the
basis of standard cost, from June 30, 1996 to the Closing Date,
and (iv) no Default or Event of Default exists on the Closing
Date or shall exist after giving effect to the sale of the
Purchased Assets and the waiver set forth herein. The Company
shall deliver to the Agent on the Closing Date a certificate as
to the matters set forth in clauses (i) through (iv) above.
(b) Except as expressly set forth herein, all of the terms
and conditions of the Credit Agreement remain in full force and
effect. The waiver contained in clause (a) of this 3 shall
operate solely with respect to the matters described herein and
shall not impair any right or power accruing to any Lender,
including, without limitation, upon the occurrence or continuance
of any Default or Event of Default under the Credit Agreement.
4. RELEASE OF COLLATERAL. Each of the Lenders hereby
authorizes and directs the Agent to take all such actions as are
necessary to release as of record its security interest, for the
benefit of the Lenders, in the Purchased Assets which are sold by
the Company pursuant to and in accordance with the Purchase
Agreement, provided that the Agent may only release its security<PAGE>
interest in the Purchased Assets after or concurrently with the
sale of such assets by the Company on the Closing Date and
provided further that the Agent shall have received prior to any
release of its security interest as provided herein a certificate
of the Company in accordance with 3(a) hereof.
5. AFFIRMATION BY THE COMPANY AND THE GUARANTORS.
(a) The Company hereby ratifies and confirms all of the
Lender Obligations, including, without limitation, the Loans, and
the Company hereby affirms its absolute and unconditional promise
to pay to the Lenders the Loans and all other amounts due under
the Credit Agreement as amended hereby. The Company hereby
confirms that the Lender Obligations are and remain secured
pursuant to the Security Documents to which the Company is a
party.
(b) Each of Crestfield Cotton, FCC Canada, Encee,
Fieldcrest International, St. Mary's, Fieldcrest Transportation,
Fieldcrest Financing, Fieldcrest Licensing and Fieldcrest Sure
Fit hereby acknowledges the provisions of this Amendment and
hereby reaffirms
-16-
-6-
its absolute and unconditional guaranty of the Company's payment
and performance of the Lender Obligations to the Banks as more
fully described in the Guaranty to which such Person is a party.
Each of the Secured Guarantors hereby confirms that its
obligations
under the Guaranty to which it is a party are and remain secured
pursuant to the Security Documents to which it is a party.
6. REPRESENTATIONS AND WARRANTIES. The Company hereby
represents and warrants to the Lenders as follows:
(a) Representations and Warranties. The representations
and warranties contained in 6 of the Credit Agreement were true
and correct in all material respects when made. The
representations and warranties contained in 6 of the Credit
Agreement, as amended hereby, are true and correct on the date
hereof.
(b) Enforceability. The execution and delivery by the
Company and the Secured Guarantors of this Amendment and all
other instruments and agreements required to be executed and
delivered by the Company and the Secured Guarantors, as the case
may be, in connection with the transactions contemplated hereby
or referred to herein (collectively, the "Amendment Documents"),
and the performance by the Company and the Secured Guarantors of
the Amendment Documents and the Credit Agreement, as amended
hereby, are within the corporate powers of the Company and the
Secured Guarantors, as the case may be, and have been duly
authorized by all necessary corporate action on the part of the
Company and the Secured Guarantors, as the case may be. Each of<PAGE>
the Amendment Documents and the Credit Agreement, as amended
hereby, are valid and legally binding obligations of the Company
and the Secured Guarantors, as the case may be, enforceable in
accordance with their terms, except as limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating
to or affecting the enforcement of creditors' rights in general.
(c) No Default. No Default or Event of Default has
occurred and is continuing and no Default or Event of Default
will exist after the execution and delivery of this Amendment or
after the consummation of the transactions contemplated hereby.
7. EFFECTIVENESS. This Amendment shall become effective
upon satisfaction of each of the following conditions precedent
on or prior to December 31, 1996:
(a) Delivery. The Company, the Lenders, the Agent and the
guarantors referred to in 5(b) hereof shall have executed and
delivered this Amendment.
(b) Proceedings and Documents. All proceedings in
connection with the transactions contemplated by this Amendment
and all documents incident hereto shall be satisfactory in form
and substance to the Agent, and the Agent shall have received all
-17-
-7-
information and such counterpart originals or certified or other
copies of such documents as the Agent may reasonably request.
8. MISCELLANEOUS PROVISIONS. (a) Except as otherwise
expressly provided by this Amendment, all of the terms,
conditions and provisions of the Credit Agreement shall remain
the same. It
is declared and agreed by each of the parties hereto that the
Credit Agreement, as amended hereby, shall continue in full force
and effect, and that this Amendment and such Credit Agreement
shall be read and construed as one instrument. The consent
granted hereunder is limited to the specific matters referred to
herein and the Lenders shall not have any obligation to issue any
further consent with respect to the subject matter of this
consent or any other matter.
(b) This Amendment is intended to take effect as an
agreement under seal and shall be construed according to and
governed by the laws of the Commonwealth of Massachusetts.
(c) This Amendment may be executed in any number of
counterparts, but all such counterparts shall together constitute
but one instrument. In making proof of this Amendment it shall
not be necessary to produce or account for more than one
counterpart signed by each party hereto by and against which
enforcement hereof is sought.<PAGE>
(d) The Company hereby agrees to pay to the Agent, on
demand by the Agent, all reasonable out-of-pocket costs and
expenses incurred or sustained by the Agent in connection with
the preparation of this Amendment and the documents referred to
herein (including reasonable legal fees).
-18-<PAGE>
-8-
IN WITNESS WHEREOF, the parties have executed this Amendment
as of the date first above written.
FIELDCREST CANNON, INC.
By: \s\ T. R. Staab
Title: Vice President and
Chief Financial Officer
THE FIRST NATIONAL BANK
OF BOSTON, as Agent
By: \s\ Thomas R. Sommerfield
Title: Division Executive
THE FIRST NATIONAL BANK
OF BOSTON
By: \s\ Thomas R. Sommerfield
Title: Division Executive
BANK OF AMERICA ILLINOIS,
individually and as Lead Manager
By: \s\ Deidre B. Doyle
Title: Vice President
CORESTATES BANK, N. A.,
individually and as Lead Manager
By: \s\ James P. Richards
Title: Vice President
-19-<PAGE>
-9-
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA, individually
and as Lead Manager
By: \s\ Kent Phillips
Title: Vice President
BANK OF MONTREAL
By: \s\ Thomas H. Calder
Title: Director
MELLON BANK, N. A.
By: \s\ Charles M. Staub
Title: First Vice President
Each of the undersigned joins in this Amendment for purposes
of 5(b) hereof.
CRESTFIELD COTTON COMPANY
By: \s\ T. R. Staab
Title: Vice President and
Treasurer
FCC CANADA, INC.
By: \s\ T. R. Staab
Title: Vice President and
Treasurer
ENCEE, INC.
By: \s\ T. R. Staab
Title: Vice President and
Treasurer
-20-<PAGE>
-10-
FIELDCREST CANNON
INTERNATIONAL, INC.
By: \s\ T. R. Staab
Title: Vice President and
Treasurer
ST. MARY'S, INC.
By: \s\ T. R. Staab
Title: Vice President and
Treasurer
FIELDCREST CANNON
TRANSPORTATION, INC.
By: \s\ T. R. Staab
Title: President
FIELDCREST CANNON LICENSING, INC.
By: \s\ John E. Setliff, Jr.
Title: Vice President
FIELDCREST CANNON FINANCING, INC.
By: \s\ John E. Setliff, Jr.
Title: Vice President
FIELDCREST CANNON SURE FIT, INC.
By: \s\ T. R. Staab
Title: Vice President and
Chief Financial Officer
-21-<PAGE>
<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
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Average shares outstanding 9,038,795 8,884,750 8,995,373 8,842,362
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 5,455 28,067 7,442 17,708
Average shares and equivalents
outstanding, primary 9,044,250 8,912,817 9,002,815 8,860,070
Average shares outstanding 9,038,795 8,884,750 8,995,373 8,842,362
Add shares giving effect to the
conversion of the convertible
subordinated debentures (1) (1) (1) (1)
Add shares giving effect to the
conversion of the convertible
preferred stock (1) (1) (1) (1)
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 5,455 28,067 8,189 17,931
Average shares and equivalents
outstanding, assuming full
dilution 9,044,250 8,912,817 9,003,562 8,860,293
Primary Earnings
Net income (loss) $(2,723,000) $ (15,000) $(1,274,000) $ 2,004,000
Preferred dividends (1,125,000) (1,125,000) (3,375,000) (3,375,000)
Earnings (loss) on Common $(3,848,000) $(1,140,000) $(4,649,000) $(1,371,000)
Primary earnings (loss)
per common share $ (.43) $ (.13) $ (.52) $ (.15)
Fully Diluted Earnings
Earnings (loss) on Common $(3,848,000) $(1,140,000) $(4,649,000) $(1,371,000)
Add convertible subordinated
debenture interest, net of taxes (1) (1) (1) (1)
Add convertible preferred dividends (1) (1) (1) (1) <PAGE>
Net income (loss) $(3,848,000) $(1,140,000) $(4,649,000) $(1,371,000)
Fully diluted earnings (loss)
per Common share $ (.43) $ (.13) $ (.52) $ (.15)
(1) The assumed conversion of the Registrant's Convertible Subordinated Debentures and
Convertible Preferred Stock for the three months and nine months ended September 30,
1996 and 1995 would have an anti-dilutive effect for the computation of earnings per
share; therefore, conversion has not been assumed for these periods.
</TABLE> (22)<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 11,800
<SECURITIES> 0
<RECEIVABLES> 163,956
<ALLOWANCES> 0
<INVENTORY> 264,386
<CURRENT-ASSETS> 441,219
<PP&E> 332,532
<DEPRECIATION> 0
<TOTAL-ASSETS> 832,992
<CURRENT-LIABILITIES> 153,116
<BONDS> 373,748
0
15
<COMMON> 12,694
<OTHER-SE> 200,980
<TOTAL-LIABILITY-AND-EQUITY> 832,992
<SALES> 812,995
<TOTAL-REVENUES> 812,995
<CGS> 706,482
<TOTAL-COSTS> 706,482
<OTHER-EXPENSES> 85,536
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,496
<INCOME-PRETAX> (2,038)
<INCOME-TAX> (764)
<INCOME-CONTINUING> (1,274)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,274)
<EPS-PRIMARY> (.52)
<EPS-DILUTED> (.52)
</TABLE>
