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 March 31, 1997
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 Circle Drive
Kannapolis, N.C. 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 April 30, 1997
Common Stock 9,185,761
Total pages 10<PAGE>
Exhibit Index Page 9
PART 1. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FIELDCREST CANNON, INC.
Consolidated statement of financial position
March 31, December 31,
Dollars in thousands 1997 1996
Assets
<S> <C> <C>
Cash $ 11,131 $ 4,647
Accounts receivable 158,077 154,511
Inventories (note 3) 216,068 216,165
Other prepaid expenses and current assets 2,829 2,489
Total current assets 388,105 377,812
Plant and equipment, net 320,700 323,838
Deferred charges and other assets 67,788 66,843
Total assets $776,593 $768,493
Liabilities and shareowners' equity
Accounts and drafts payable $ 61,742 $ 63,910
Deferred income taxes 17,903 18,212
Accrued liabilities 71,387 61,172
Current portion of long-term debt 6,970 5,508
Total current liabilities 158,002 148,802
Senior long-term debt 111,685 107,746
Subordinated long-term debt 197,500 203,750
Total long-term debt 309,185 311,496
Deferred income taxes 38,436 38,291
Other non-current liabilities 53,624 54,149
Total liabilities 559,247 552,738
Shareowners' equity:
Preferred Stock, $.01 par value,
10,000,000 authorized, 1,500,000 issued
and outstanding March 31, 1997 and
December 31, 1996 (aggregate liquidation
preference of $75,000) 15 15
Common Stock, $1 par value,
25,000,000 authorized, 12,792,161 issued
March 31, 1997 and 12,738,894
December 31, 1996 12,792 12,739
Additional paid in capital 225,256 224,611
Retained earnings 96,508 95,915
Excess purchase price for Common Stock
acquired and held in treasury -
3,606,400 shares (117,225) (117,225)
Total shareowners' equity 217,346 215,755
Total liabilities and shareowners' equity $776,593 $768,493
</TABLE> <PAGE>
See accompanying notes
(2)
FIELDCREST CANNON, INC.
Consolidated statement of operations and retained earnings
<TABLE>
<CAPTION>
Three Months
ended March 31
Dollars in thousands, except per share data 1997 1996
<S> <C> <C>
Net sales $262,909 $249,971
Cost of sales 227,155 215,112
Selling, general and administrative 26,511 25,117
Restructuring charges - 3,630
Total operating costs and expenses 253,666 243,859
Operating income 9,243 6,112
Other deductions (income):
Interest expense 6,262 7,055
Other, net (224) 140
Total other deductions 6,038 7,195
Income (loss) before income taxes 3,205 (1,083)
Federal and state income taxes (benefit) 1,187 (406)
Net income (loss) 2,018 (677)
Preferred dividends (1,125) (1,125)
Earnings (loss) on Common 893 (1,802)
Amount added to (subtracted from) retained earnings 893 (1,802)
Retained earnings, beginning of period 95,615 99,055
Retained earnings, end of period $ 96,508 $ 97,253
Net income (loss) per Common share $ .10 $ (.20)
Fully diluted income (loss) per Common share $ .10 $ (.20)
Average primary shares outstanding 9,145,289 8,962,219
Average fully diluted shares outstanding 9,145,289 8,964,457
</TABLE>
See accompanying notes
(3)<PAGE>
FIELDCREST CANNON, INC.
Consolidated statement of cash flows
<TABLE>
<CAPTION>
Three Months
ended March 31
Dollars in thousands 1997 1996
<S> <C> <C>
Increase (decrease) in cash
Cash flows from operating activities:
Net income (loss) $ 2,018 $ (677)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 8,699 8,959
Deferred income taxes 145 378
Other (2,025) 6,956
Change in current assets and liabilities:
Accounts receivable (3,566) 3,704
Inventories 97 (42,028)
Other prepaid expenses and current assets (340) 1,162
Accounts payable and accrued liabilities 8,047 4,616
Deferred income taxes (309) (2,015)
Net cash provided by (used in)
operating activities 12,766 (18,945)
Cash flows from investing activities:
Additions to plant and equipment (5,370) (7,059)
Proceeds from disposal of plant and equipment 178 1,700
Net cash (used in) investing activities (5,192) (5,359)
Cash flows from financing activities:
Increase in revolving debt 4,294 21,040
Payments on long-term debt (4,259) (415)
Dividends paid on preferred stock (1,125) (1,125)
Net cash provided by (used in)
financing activities (1,090) 19,500
Increase (decrease) in cash 6,484 (4,804)
Cash at beginning of year 4,647 9,124
Cash at end of period $11,131 $ 4,320
</TABLE>
See accompanying notes
(4)<PAGE>
FIELDCREST CANNON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
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 March 31, 1997 and the related results of
operations for the three months ended March 31, 1997 and
1996. The unaudited consolidated financial statements should
be read in conjunction with the Company's Form 10-K for the
year ended December 31, 1996.
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.
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings per Share, which is
required to be adopted on December 31, 1997. At that time,
the Company will be required to change the method currently
used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary
earnings per share, the dilutive effect of stock options will
be excluded. The impact of Statement 128 on the calculation
of earnings per share for these quarters is not expected to
be material.
3. Inventories
Inventories are classified as follows:
<TABLE>
<CAPTION>
March 31, December 31,
(In thousands) 1997 1996
<S> <C> <C>
Finished goods $103,705 $104,092
Work in process 65,825 68,668
Raw materials and supplies 46,538 43,405
$216,068 $216,165
</TABLE>
At March 31, 1997 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) decreased $.8 million during the first quarter of 1997 and
cash increased $6.5 million. Capital expenditures totaled $5.4
million for the quarter compared to $7.1 million for the first
quarter of 1996. Capital expenditures for 1997 are expected to
be approximately $70 million. At March 31, 1997, approximately
$87.4 million of the Company's $200 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 March 31, 1997 vs. Quarter Ended March 31, 1996
Net sales for the first quarter of 1997 were $262.9 million
compared to $250.0 million in the first quarter of 1996, an
increase of 5.2%. Excluding the effects of the sales during 1996
of the Company's Blanket Division, sales in the first quarter of
1997 increased 10%. The increase in revenues was due primarily
to volume increases.
Gross profit margins decreased from 13.9% to 13.6% in the first
quarter 1997. The decrease was due to increased promotional
product sales during the 1997 first quarter.
Selling, general and administrative expenses increased as a
percentage of sales from 10.0% to 10.1% in the first quarter of
1997 compared to the same quarter of 1996. The increase was due
primarily to higher information technology expenses associated
with implementation of new enterprise information systems.
The first quarter of 1996 includes a $3.6 million pre-tax
restructuring charge for closing a towel weaving plant and a yarn
manufacturing plant.
Interest expense decreased $.8 million in the first quarter of
1997 as compared to the first quarter of 1996 due primarily to a
decrease in average debt outstanding. Total debt declined $70.5
million from March 31, 1996 to March 31, 1997. The decreased
debt resulted from the sale of the Blanket Division in 1996 and
lower inventory levels. Inventories were $31.1 million lower at
March 31, 1997, than at march 31, 1996, after excluding blanket
inventories.<PAGE>
(6)
The effective income tax rate was 37.0% for the first quarter of
1997 compared to 37.5% for the first quarter of 1996.
Net income totaled $2.0 million, or $.10 per share after
preferred dividends, in the first quarter of 1997 compared to a
net loss, including the effect of the restructuring charges, of
$.7 million, or $.20 per share after preferred dividends, in the
first quarter of 1996.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be
adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings
per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. The impact of
Statement 128 on the calculation of earnings per share for these
quarters is not expected to be material.
PART II. OTHER INFORMATION
FIELDCREST CANNON, INC.
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
On February 14, 1997, the Registrant filed a Form 8-K
to report, under Item 5 (Other Events), that effective
on February 6, 1997, the Registrant amended its Rights
Agreement dated as of November 24, 1993, between the
Registrant and The First National Bank of Boston. <PAGE>
(7)
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: (signed) T. R. Staab
T. R. Staab
Vice President and
Chief Financial Officer
Date: May 1, 1997
(8)<PAGE>
EXHIBIT INDEX TO
QUARTERLY REPORT ON FORM 10-Q FOR
FIELDCREST CANNON, INC.
FOR THE QUARTER ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
<S> <C> <C>
(11) Computation of Primary and Fully
Diluted Net Income Per Share 10
/TABLE
<PAGE>
(9)
<TABLE> Exhibit 11
<CAPTION>
Computation of Primary and Fully Diluted Net Income Per Share
For the three months
ended March 31
1997 1996
<S> <C> <C>
Average shares outstanding 9,142,094 8,954,830
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 3,195 7,389
Average shares and equivalents
outstanding, primary 9,145,289 8,962,219
Average shares outstanding 9,142,094 8,954,830
Add shares giving effect to the
conversion of the convertible
subordinated debentures (1) (1)
Add shares giving effect to the
conversion of the convertible
preferred stock (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 3,195 9,627
Average shares and equivalents
outstanding, assuming full
dilution 9,145,289 8,964,457
Primary Earnings
Net income (loss) $ 2,018,000 $ (677,000)
Preferred dividends (1,125,000) (1,125,000)
Earnings (loss) on Common $ 893,000 $(1,802,000)
Primary earnings (loss) per share $ .10 $ (.20)
Fully Diluted Earnings
Earnings (loss) on Common $ 893,000 $(1,802,000)
Add convertible subordinated
debenture interest, net of taxes (1) (1)
Add convertible preferred dividends (1) (1)
Net income (loss) $ 893,000 $(1,802,000)<PAGE>
Fully diluted earnings (loss) per share $ .10 $ (.20)
</TABLE>
(1) The assumed conversion of the Registrant's Convertible
Subordinated Debentures and Convertible Preferred Stock
for the three month periods ended March 31,
1997 and 1996 would have an anti-dilutive effect
for the computation of earnings per share;
therefore, conversion has not been assumed for these
periods.
(10)<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 11,131
<SECURITIES> 0
<RECEIVABLES> 158,077
<ALLOWANCES> 0
<INVENTORY> 216,068
<CURRENT-ASSETS> 388,105
<PP&E> 320,700
<DEPRECIATION> 0
<TOTAL-ASSETS> 776,593
<CURRENT-LIABILITIES> 158,002
<BONDS> 309,185
0
15
<COMMON> 12,792
<OTHER-SE> 204,539
<TOTAL-LIABILITY-AND-EQUITY> 776,593
<SALES> 262,909
<TOTAL-REVENUES> 262,909
<CGS> 227,155
<TOTAL-COSTS> 227,155
<OTHER-EXPENSES> 26,511
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,262
<INCOME-PRETAX> 3,205
<INCOME-TAX> 1,187
<INCOME-CONTINUING> 2,018
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,018
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
