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, 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, 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 July 31, 1997
Common Stock 9,226,084
Total pages 12<PAGE>
Exhibit Index Page 11
PART 1. FINANCIAL INFORMATION
FIELDCREST CANNON, INC.
<TABLE>
Consolidated statement of financial position
<CAPTION>
June 30, December 31,
Dollars in thousands 1997 1996
Assets
<S> <C> <C>
Cash $ 4,637 $ 4,647
Accounts receivable 158,322 154,511
Inventories (note 3) 215,850 216,165
Other prepaid expenses and current assets 2,692 2,489
Total current assets 381,501 377,812
Plant and equipment, net 331,203 323,838
Deferred charges and other assets 67,362 66,843
Total assets $780,066 $768,493
Liabilities and shareowners' equity
Accounts and drafts payable $ 55,047 $ 63,910
Deferred income taxes 20,259 18,212
Accrued liabilities 62,178 61,172
Current portion of long-term debt 6,970 5,508
Total current liabilities 144,454 148,802
Senior long-term debt 119,157 107,746
Subordinated long-term debt 197,500 203,750
Total long-term debt 316,657 311,496
Deferred income taxes 41,521 38,291
Other non-current liabilities 53,511 54,149
Total liabilities 566,143 552,738
Shareowners' equity:
Preferred Stock, $.01 par value,
10,000,000 authorized, 1,500,000 issued
and outstanding June 30, 1997 and
December 31, 1996 (aggregate liquidation
preference of $75,000) 15 15
Common Stock, $1 par value,
25,000,000 authorized, 12,832,484 issued
June 30, 1997 and 12,738,894 issued
December 31, 1996 12,832 12,739
Additional paid in capital 226,077 224,611
Retained earnings 102,224 95,615
Excess purchase price for Common Stock
acquired and held in treasury -
3,606,400 shares (117,225) (117,225)
Total shareowners' equity 223,923 215,755
Total liabilities and shareowners' equity $780,066 $768,493
/TABLE
<PAGE>
See accompanying notes
(2)
FIELDCREST CANNON, INC.
<TABLE>
Consolidated statement of income and retained earnings
<CAPTION>
For the three months For the six months
ended June 30 ended June 30
Dollars in thousands,
except per share data 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $270,760 $277,803 $533,669 $527,774
Cost of sales 225,400 241,802 452,555 456,914
Selling, general and administrative 29,657 25,036 56,168 50,153
Restructuring charges - - - 3,630
Total operating costs and expenses 255,057 266,838 508,723 510,697
Operating income 15,703 10,965 24,946 17,077
Other deductions (income):
Interest expense 6,296 7,281 12,558 14,336
Other, net (1,450) 282 (1,674) 422
Total other deductions 4,846 7,563 10,884 14,758
Income before income taxes 10,857 3,402 14,062 2,319
Federal and state income
taxes 4,016 1,276 5,203 870
Net income 6,841 2,126 8,859 1,449
Preferred dividends (1,125) (1,125) (2,250) (2,250)
Earnings (loss) on common 5,716 1,001 6,609 (801)
Amount added to (subtracted from)
retained earnings 5,716 1,001 6,609 (801)
Retained earnings,
beginning of period 96,508 97,253 95,615 99,055
Retained earnings, end of period $102,224 $ 98,254 $102,224 $ 98,254
Net income (loss) per common share $ .62 $ .11 $ .72 $ (.09)
Fully diluted income (loss)
per common share $ .55 $ .11 $ .72 $ (.09)
Average primary shares outstanding 9,192,108 9,001,981 9,168,698 8,982,100
Average fully diluted shares outstanding 14,441,325 9,001,981 9,169,449 8,983,219
/TABLE
<PAGE>
See accompanying notes
(3)
FIELDCREST CANNON, INC.
<TABLE>
Consolidated statement of cash flows
<CAPTION>
Six Months
ended June 30
Dollars in thousands 1997 1996
Increase (decrease) in cash
Cash flows from operating activities:
<S> <C> <C>
Net income $ 8,859 $ 1,449
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 17,499 17,853
Deferred income taxes 3,230 2,255
Other (1,780) 6,989
Change in current assets and liabilities,
excluding effects of acquisition of Sure Fit:
Accounts receivable (3,811) (13,795)
Inventories 315 (26,220)
Other prepaid expenses and current assets (203) 1,415
Accounts payable and accrued liabilities (7,857) 18,307
Deferred income taxes 2,047 954
Net cash provided by
operating activities 18,299 9,207
Cash flows from investing activities:
Additions to plant and equipment (26,635) (15,362)
Proceeds from disposal of plant and equipment 3,069 2,637
Net cash (used in) investing activities (23,566) (12,725)
Cash flows from financing activities:
Increase in revolving debt 11,766 7,478
Payments on long-term debt (4,259) (415)
Proceeds from sale of common stock - 41
Dividends paid on preferred stock (2,250) (2,250)
Net cash provided by financing activities 5,257 4,854
Increase (decrease) in cash (10) 1,336
Cash at beginning of year 4,647 9,124
Cash at end of period $ 4,637 $ 10,460
</TABLE> <PAGE>
See accompanying notes
(4)
FIELDCREST CANNON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 June 30, 1997 and the related results of
operations for the three and six months ended June 30, 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
<TABLE>
Inventories are classified as follows:
<CAPTION>
June 30, December 31,
(In thousands) 1997 1996
<S> <C> <C>
Finished goods $107,731 $104,092
Work in process 63,364 68,668
Raw materials and supplies 44,755 43,405
$215,850 $216,165
At June 30, 1997 approximately 66% of the inventories were
valued on the last-in, first-out method (LIFO).
/TABLE
<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 $6.6 million during the first six months of 1997.
Capital expenditures totaled $26.6 million for the first six
months of 1997 compared to $15.4 million for the first six months
of 1996. Capital expenditures for 1997 are expected to be
approximately $70 million. At June 30, 1997, approximately $80.0
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 June 30, 1997 vs. Quarter Ended June 30, 1996
Net sales for the second quarter of 1997 were $270.8 million
compared to $277.8 million in the second quarter of 1996, a
decrease of 2%. Excluding the effects of the sales during 1996
of the Company's Blanket Division, sales in the second quarter of
1997 increased 2%. The increase in revenues was due primarily to
volume increases.
Gross profit margins increased from 13.0% in the second quarter
of 1996 to 16.8% in the second quarter of 1997. The increase
reflects lower raw material costs, the benefits of recently
completed capital projects, and continued emphasis on cost
reduction programs. Operating income for the second quarter of
1996 was reduced $1.6 million by 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 9.0% to 11.0% in the second 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 and
higher advertising expenses.
Other income for the second quarter of 1997 included a pretax
gain of $1.5 million, or $.10 per share, related to the sale of
real estate no longer used by the Company.<PAGE>
(6)
Interest expense decreased $1.0 million in the second quarter of
1997 as compared to the second quarter of 1996 due primarily to a
decrease in average debt outstanding. Total debt declined $49.5
million from June 30, 1996 to June 30, 1997, a result of the sale
of the Blanket Division and lower inventory levels. Inventories
at June 30, 1997 were $12.7 million lower than June 30, 1996,
after excluding blanket inventories.
The effective income tax rate was 37.0% for the second quarter of
1997 compared to 37.5% for the second quarter of 1996.
Net income was $6.8 million, or $.62 per share after preferred
dividends, in the second quarter of 1997, compared to net income
of $2.1 million, or $.11 per share after preferred dividends, in
the second quarter of 1996.
Six Months Ended June 30, 1997 vs. Six Months Ended June 30, 1996
Net sales for the first six months of 1997 were $533.7 million
compared to $527.8 million in the first six months of 1996.
Excluding the effects of the sales during 1996 of the Company's
Blanket Division, sales in 1997 increased 6%. The increase in
revenues was due primarily to volume increases.
Gross profit margins increased from 13.4% in the first six months
of 1996 to 15.2% in the first six months of 1997. The increase
reflects lower raw material costs, the benefits of recently
completed capital projects, and continued emphasis on cost
reduction programs. Operating income for the six months ended
June 30, 1996 was reduced $1.6 million by 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 9.5% to 10.5% in the first six months of
1997 compared to the first six months of 1996. The increase was
due primarily to higher information technology expenses
associated with implementation of new enterprise information
systems and higher advertising expenses.
Pre-tax restructuring charges of $3.6 million in the first six
months of 1996 relate to 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.
Interest expense decreased $1.8 million the first six months of
1997 as compared to the first six months of 1996 due primarily to
a decrease in average debt outstanding. The decreased debt
resulted from the sale of the Blanket Division in 1996 and lower
inventory levels.<PAGE>
The effective income tax rate was 37.0% for the first six months
of 1997 compared to 37.5% for the first six months of 1996.
(7)
Net income for the first six months of 1997 was $8.9 million, or
$.72 per share after preferred dividends, compared to net income
after the effect of the restructuring charges of $1.4 million, or
a loss of $.09 per share after preferred dividends, for the first
six months 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 4. Submission of Matters to a Vote of Security Holders
(a). The Company held its Annual Meeting of Stockholders on
April 22, 1997.
(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 28, 1997.
I. Election of Directors:
<TABLE>
<CAPTION>
Votes
Nominee: For Withheld
<S> <C> <C>
James M. Fitzgibbons 7,742,269 9,436
William E. Ford 7,735,603 16,102
John C. Harned 7,739,138 12,567
Noah T. Herndon 7,750,000 1,705
S. Roger Horchow 7,739,015 12,690
W. Duke Kimbrell 7,742,905 8,800
C. J. Kjorlien 7,735,348 16,357<PAGE>
Alexandra Stoddard 7,734,542 17,163
</TABLE>
(8)
II. Selection of Independent Auditors:
<TABLE>
<CAPTION>
Votes
<S> <C>
For 7,810,134
Against 62,039
Abstain 14,502
</TABLE>
(d). Not applicable
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 June 30,
1997. <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<PAGE>
Date: August 14, 1997
(10)
EXHIBIT INDEX TO
QUARTERLY REPORT ON FORM 10-Q FOR
FIELDCREST CANNON, INC.
FOR THE QUARTER ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
<S> <C> <C>
(11) Computation of Primary and Fully 12
Diluted Net Income Per Share
/TABLE
<PAGE>
(11)
Exhibit 11
<TABLE>
Computation of Primary and Fully Diluted Net Income Per Share
<CAPTION>
For the three months For the six months
ended June 30 ended June 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Average shares outstanding 9,186,209 8,992,496 9,164,151 8,973,663
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 5,899 9,485 4,547 8,437
Average shares and equivalents
outstanding, primary 9,192,108 9,001,981 9,168,698 8,982,100
Average shares outstanding 9,186,209 8,992,496 9,164,151 8,973,663
Add shares giving effect to the
conversion of the convertible
subordinated debentures 2,683,615 (1) (1) (1)
Add shares giving effect to the
conversion of the convertible
preferred stock 2,564,100 (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 7,401 9,485 5,298 9,556
Average shares and equivalents
outstanding, assuming full
dilution 14,441,325 9,001,981 9,169,449 8,983,219
Primary Earnings
Net income $ 6,841,000 $ 2,126,000 $ 8,859,000 $ 1,449,000
Preferred dividends (1,125,000) (1,125,000) (2,250,000) (2,250,000)
Earnings (loss) on Common $ 5,716,000 $ 1,001,000 $ 6,609,000 $ (801,000)
Primary earnings (loss)
per common share $ .62 $ .11 $ .72 $ (.09)
Fully Diluted Earnings <PAGE>
Earnings (loss) on Common $ 5,716,000 $ 1,001,000 $ 6,609,000 $ (801,000)
Add convertible subordinated
debenture interest, net of taxes 1,087,000 (1) (1) (1)
Add convertible preferred dividends 1,125,000 (1) (1) (1)
Net income (loss) $ 7,928,000 $ 1,001,000 $ 6,609,000 $ (801,000)
Fully diluted earnings (loss)
per Common share $ .55 $ .11 $ .72 $ (.09)
(1) The assumed conversion of the Registrant's Convertible Subordinated Debentures
and Convertible Preferred Stock for the three months ended June 30, 1996 and
six months ended June 30, 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.
</TABLE>
(12)<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,637
<SECURITIES> 0
<RECEIVABLES> 158,322
<ALLOWANCES> 0
<INVENTORY> 215,850
<CURRENT-ASSETS> 381,501
<PP&E> 331,203
<DEPRECIATION> 0
<TOTAL-ASSETS> 780,066
<CURRENT-LIABILITIES> 144,454
<BONDS> 316,657
0
15
<COMMON> 12,832
<OTHER-SE> 211,076
<TOTAL-LIABILITY-AND-EQUITY> 780,066
<SALES> 533,669
<TOTAL-REVENUES> 533,669
<CGS> 452,555
<TOTAL-COSTS> 452,555
<OTHER-EXPENSES> 56,168
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,558
<INCOME-PRETAX> 14,062
<INCOME-TAX> 5,203
<INCOME-CONTINUING> 8,859
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,859
<EPS-PRIMARY> .72
<EPS-DILUTED> .72
</TABLE>
