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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended September 28, 1996
Commission file number: 1-11756
PILLOWTEX CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 75-2147728
(State of incorporation) (IRS Employer Identification No.)
4111 Mint Way
Dallas, Texas
75237
(Address of principal executive offices)
(Zip Code)
(214) 333-3225
(Registrant's telephone number,
including area code)
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS Outstanding at October 16, 1996
Common Stock, $0.01 par value 10,617,722
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<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
INDEX
Part I - Financial Information Page No.
Item 1. Unaudited Interim Financial Statements:
Consolidated Balance Sheets as of
September 28, 1996 and December 30, 1995 3
Consolidated Statements of Earnings for the three months
ended September 28, 1996 and September 30, 1995 4
Consolidated Statements of Earnings for the nine months
ended September 28, 1996 and September 30, 1995 5
Consolidated Statements of Cash Flows for the nine months
ended September 28, 1996 and September 30, 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 10
Signature 11
Index to Exhibits 12
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 28, 1996 and December 30, 1995
(Dollars in thousands, except par value)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS 1996 1995
----------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 15 411
Receivables:
Trade, less allowance for doubtful accounts of
$2,055 and $2,195 in 1996 and 1995, respectively . . . 93,048 71,684
Other . . . . . . . . . . . . . . . . . . . . . . . . . 5,309 2,284
Inventories . . . . . . . . . . . . . . . . . . . . . . . 135,487 107,404
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . 2,134 1,644
Deferred income taxes . . . . . . . . . . . . . . . . . . 2,831 2,419
---------- ----------
Total current assets. . . . . . . . . . . . . . . . . . 238,824 185,846
Property, plant and equipment, less accum. depreciation
of $41,233 and $33,411 in 1996 and 1995, respectively . . 79,006 84,567
Intangible assets, at cost, less accum. amortization of
$3,478 and $2,500 in 1996 and 1995, respectively. . . . . 50,338 51,779
Other assets . . . . . . . . . . . . . . . . . . . . . . . 2,502 2,518
---------- ----------
$ 370,670 324,710
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . $ 50,476 42,090
Accrued expenses. . . . . . . . . . . . . . . . . . . . . 21,067 21,137
Current portion of long-term debt . . . . . . . . . . . . 11,476 11,916
Income taxes payable. . . . . . . . . . . . . . . . . . . 3,018 575
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . 86,037 75,718
Long-term debt, net of current portion . . . . . . . . . . 180,200 153,472
Deferred income taxes. . . . . . . . . . . . . . . . . . . 9,391 7,530
Shareholders' equity:
Preferred stock, $0.01 par value; authorized 20,000,000
shares; none issued and outstanding. . . . . . . . . . . - -
Common stock, $0.01 par value; authorized 30,000,000
shares; 10,617,722 shares issued and outstanding . . . . 106 106
Additional paid-in capital. . . . . . . . . . . . . . . . 58,427 58,427
Retained earnings . . . . . . . . . . . . . . . . . . . . 36,628 29,666
Currency translation adjustment . . . . . . . . . . . . . (119) (209)
---------- ----------
Total shareholders' equity. . . . . . . . . . . . . . . 95,042 87,990
---------- ----------
$ 370,670 324,710
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended September 28, 1996 and September 30, 1995
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . $ 143,791 146,824
Cost of goods sold . . . . . . . . . . . . . . . . . . . . 119,476 122,459
---------- ----------
Gross profit . . . . . . . . . . . . . . . . . . . . . . 24,315 24,365
Selling, general and administrative expenses . . . . . . . 10,614 11,766
---------- ----------
Earnings from operations . . . . . . . . . . . . . . . . 13,701 12,599
Interest expense . . . . . . . . . . . . . . . . . . . . . 3,664 4,690
---------- ----------
Earnings before income taxes . . . . . . . . . . . . . . 10,037 7,909
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 3,915 3,171
---------- ----------
Net earnings . . . . . . . . . . . . . . . . . . . . . . $ 6,122 4,738
========== ==========
Net earnings per common share and common
share equivalent . . . . . . . . . . . . . . . . . . . . $ .58 .45
========== ==========
Weighted average common shares and common share
equivalents outstanding. . . . . . . . . . . . . . . . . 10,618 10,618
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Nine Months Ended September 28, 1996 and September 30, 1995
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . $ 335,770 332,352
Cost of goods sold . . . . . . . . . . . . . . . . . . . . 280,272 275,407
---------- ----------
Gross profit . . . . . . . . . . . . . . . . . . . . . . 55,498 56,945
Selling, general and administrative expenses . . . . . . . 31,170 32,315
---------- ----------
Earnings from operations . . . . . . . . . . . . . . . . 24,328 24,630
Interest expense . . . . . . . . . . . . . . . . . . . . . 10,279 12,964
---------- ----------
Earnings before income taxes . . . . . . . . . . . . . . 14,049 11,666
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 5,495 4,678
---------- ----------
Net earnings . . . . . . . . . . . . . . . . . . . . . . $ 8,554 6,988
========== ==========
Net earnings per common share and common
share equivalent . . . . . . . . . . . . . . . . . . . . $ .81 .66
========== ==========
Weighted average common shares and common share
equivalents outstanding. . . . . . . . . . . . . . . . . 10,618 10,618
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 28, 1996 and September 30, 1995
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings. . . . . . . . . . . . . . . . . . . . . . . $ 8,554 6,988
Adjustments to reconcile net earnings to net cash used in
operating activities:
Depreciation and amortization . . . . . . . . . . . . . 9,440 8,767
Deferred income taxes . . . . . . . . . . . . . . . . . 1,447 1,484
Provision for doubtful accounts . . . . . . . . . . . . (11) 460
Gain on disposal of property, plant and equipment . . . 5 15
Changes in assets and liabilities:
Trade receivables . . . . . . . . . . . . . . . . . . (21,371) (21,000)
Inventories . . . . . . . . . . . . . . . . . . . . . (28,075) (28,390)
Accounts payable. . . . . . . . . . . . . . . . . . . 2,666 2,011
Accrued expenses. . . . . . . . . . . . . . . . . . . 49 4,626
Other assets and liabilities. . . . . . . . . . . . . (1,137) (1,747)
---------- ----------
Net cash used in operating activities. . . . . . . . (28,433) (26,786)
---------- ----------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment . . . 17 48
Purchases of property, plant and equipment. . . . . . . . (2,981) (8,630)
Payments for businesses purchased . . . . . . . . . . . . (112) (1,454)
---------- ----------
Net cash used in investing activities. . . . . . . . (3,076) (10,036)
---------- ----------
Cash flows from financing activities:
Net borrowings on revolving credit loans. . . . . . . . . 45,200 29,150
Increase in checks not yet presented for payment. . . . . 6,068 8,763
Principal payments on long-term debt. . . . . . . . . . . (18,566) (1,514)
Dividends paid. . . . . . . . . . . . . . . . . . . . . . (1,592) -
Proceeds from long-term debt. . . . . . . . . . . . . . . - 645
Debt issuance costs . . . . . . . . . . . . . . . . . . . - (319)
---------- ----------
Net cash provided by financing activities. . . . . . 31,110 36,725
---------- ----------
Effect of exchange rate changes on cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . . . 3 20
---------- ----------
Net change in cash and cash equivalents. . . . . . . . . . (396) (77)
Cash and cash equivalents at beginning of period . . . . . 411 571
---------- ----------
Cash and cash equivalents at end of period . . . . . . . . $ 15 494
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . $ 11,885 12,168
Income taxes . . . . . . . . . . . . . . . . . . . . . . 2,928 2,829
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tables in thousands of dollars)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements include all
adjustments, consisting of normal, recurring adjustments and accruals, which
are, in the opinion of management, necessary for fair presentation of the
results of operations and financial position. Certain reclassifications have
been made to conform prior year consolidated financial statements to the current
period classifications. The consolidated financial statements should be read in
conjunction with the consolidated financial statements included in the Company's
annual report on Form 10-K filed with the Securities and Exchange Commission on
March 29, 1996 for the fiscal year ended December 30, 1995.
(2) Inventories
Inventories consisted of the following at September 28, 1996 and December 30,
1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Finished goods . . . . . . . . . . . . . . . . . . . $ 60,397 37,670
Work-in-process. . . . . . . . . . . . . . . . . . . 33,879 35,980
Raw materials. . . . . . . . . . . . . . . . . . . . 39,218 31,851
Supplies . . . . . . . . . . . . . . . . . . . . . . 1,993 1,903
---------- ----------
$ 135,487 107,404
========== ==========
</TABLE>
(3) Earnings per Common Share
Earnings per share and common share equivalent are based on the weighted
average number of common shares outstanding and equivalent shares from dilutive
stock options, if any. As of September 28, 1996 and September 30, 1995, there
were stock options outstanding for 510,865 and 472,083 common shares,
respectively. Stock options are excluded from the calculations since they have
no material dilutive effect on per share data.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the attached
consolidated financial statements and notes thereto, and with the Company's
audited consolidated financial statements and notes thereto for the fiscal year
ended December 30, 1995.
RESULTS OF OPERATIONS
NET SALES. Net sales were $143,791,000 for the three months ended September
28, 1996 representing a decrease of $3,033,000 or 2.1% as compared to
$146,824,000 for the three months ended September 30, 1995. Net sales were
$335,770,000 for the nine months ended September 28, 1996 representing an
increase of $3,418,000 or 1.0% as compared to $332,352,000 for the same
period in 1995. The year to date increase reflected strong bed pillow,
mattress pad and fashion bedding sales, partially offset by lower blanket
sales, in both the third quarter and first half of 1996. Management
believes the shortfall in blanket sales was due primarily to retailers'
decisions to place orders for blankets closer to the normal late fall selling
season.
GROSS PROFIT. The gross profit percentage for the third quarter ended
September 28, 1996 increased to 16.9% from 16.6% for the third quarter of 1995,
reflecting the positive trends in operating efficiencies and product mix.
Gross profit margins decreased to 16.5% in the nine months ended September 28,
1996, from 17.1% in the nine months ended, September 30, 1995. The decline was
due to several factors including (i) a shift in blanket sales mix towards
lower average margin products, which management believes occurred primarily
due to the decision of retailers of higher margin products to defer orders as
described above, as well as an increase in sales of lower margin products and
(ii) one-time costs incurred on the start-up of the Company's new cotton
spinning facility, most of which occurred in the first six months of 1996.
Management believes that the process of upgrading the yarn spinning facility
is largely complete.
SG&A. Selling, general and administrative ("SG&A") expenses for the three
months ended September 28, 1996 decreased both in dollars, to $10,614,000 from
$11,766,000 for the same period in 1995, and as a percentage of sales, to 7.4%
in the third quarter of 1996 from 8.0% for the same period in 1995. SG&A
expenses fell to $31,170,000 in the nine months ended September 28, 1996, from
$32,315,000 in the nine months ended September 30, 1995, while as a percentage
of sales, SG&A expenses decreased to 9.3% from 9.7% in the respective periods.
These decreases reflected the continuing focus of the Company on containing
these expenses.
INTEREST. Interest expense for the third quarter of 1996 fell by $1,026,000
or 21.9% to $3,664,000 from $4,690,000 for the same period in 1995. Interest
expense decreased to $10,279,000 in the nine months ended September 28, 1996,
from $12,964,000 in the nine months ended September 30, 1995. Interest expense
fell due to lower borrowings and decreased average interest rates.
TAXES. The effective tax rate for the third quarter of 1996 fell to 39.0%
from 40.1% in 1995. The effective tax rate for the nine months ended September
28, 1996 decreased to 39.1% compared to 40.1% for the nine months ended
September 30, 1995. These decreases were primarily due to lower state taxes.
NET EARNINGS. Net earnings for the three months ended September 28, 1996
increased $1,384,000 or 29.2% to $6,122,000 or $.58 per share, compared to net
earnings of $4,738,000 or $.45 per share in 1995. As a percentage of sales, net
earnings for the three months ended September 28, 1996 increased to 4.3% from
3.2% for the same period in 1995. Net earnings increased by $1,566,000 or 22.4%
to $8,554,000 in the nine months ended September 28, 1996 or $.81 per share from
$6,988,000 or $.66 per share in 1995. As a percentage of sales, net earnings
increased to 2.5% in the nine months ended September 28, 1996 from 2.1% in 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of September 28, 1996, the outstanding principle balance under the
Company's $150,000,000 secured revolving credit facility was $110,800,000 with
$12,669,000 committed to outstanding letters of credit, and $26,531,000
available for other needs. Availability under the revolving credit facility is
regulated by a borrowing base determined by reference to the Company's accounts
receivable and inventory. The outstanding balance under the Company's
$90,000,000 term loan was $70,400,000. The Company is currently negotiating an
amendment to its revolving credit facility to increase the borrowing capacity
thereunder. The Company believes that cash flow generated from operations,
funds available under the credit facility and contemplated financing
alternatives will be sufficient to satisfy working capital and financing
needs, as well as dividend payments, for the foreseeable future.
On September 26, 1996, the Company paid a dividend of $.05 per share to
shareholders of record on September 11, 1996.
The increase in borrowings in the third quarter of 1996 over the second
quarter was due to seasonal expansion of blanket inventories and changes in the
timing of blanket orders by retailers for the fall selling season. Inventory
levels of core Pillowtex products, including pillows, mattress pads, down
comforters, comforter covers and other bedding, declined significantly during
the first nine months of 1996 as a result of beneficial changes in quota
regulations and better inventory management.
GOVERNMENT REGULATIONS
As of July 1, 1996, quota restrictions on down comforter shells imported from
China were eliminated, allowing the Company to import shells on an unlimited and
as needed basis.
FORWARD-LOOKING INFORMATION
Statements contained in this Form 10-Q for the quarter ended September 28,
1996 that are not historical facts, including, but not limited to, statements
found in this Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, are forward-looking statements and could
differ materially from actual results. Among the factors that could cause
actual results to differ materially are: adverse retail industry conditions,
industry competition and other competitive factors, government regulation and
possible future litigation, loss of material customers, seasonality of business,
the termination of key license agreements, as well as the risks and
uncertainties discussed in this Form 10-Q.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURE
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.
(REGISTRANT) PILLOWTEX CORPORATION
BY (SIGNATURE) /s/ Jeffrey D. Cordes
(NAME AND TITLE) Jeffrey D. Cordes
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
(DATE) October 22, 1996
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Method of Filing
- ------- -----------------------------
<S> <C> <C>
27 Financial Data Schedule . . . . . . . . . . . Filed herewith electronically
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets, consolidated statements of operations and
consolidated statements of cash flows found on pages 3, 5 and 6 of the
Company's Form 10-Q for the nine months ended September 28, 1996, and is
qualified in its entirety by reference to such consolidated financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> SEP-28-1996
<CASH> 15
<SECURITIES> 0
<RECEIVABLES> 95,103
<ALLOWANCES> 2,055
<INVENTORY> 135,487
<CURRENT-ASSETS> 238,824
<PP&E> 120,239
<DEPRECIATION> 41,233
<TOTAL-ASSETS> 370,670
<CURRENT-LIABILITIES> 86,037
<BONDS> 191,676
0
0
<COMMON> 106
<OTHER-SE> 94,936
<TOTAL-LIABILITY-AND-EQUITY> 370,670
<SALES> 335,770
<TOTAL-REVENUES> 335,770
<CGS> 280,272
<TOTAL-COSTS> 280,272
<OTHER-EXPENSES> 31,170
<LOSS-PROVISION> (11)
<INTEREST-EXPENSE> 10,279
<INCOME-PRETAX> 14,049
<INCOME-TAX> 5,495
<INCOME-CONTINUING> 8,554
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,554
<EPS-PRIMARY> .81
<EPS-DILUTED> .81
</TABLE>
