<PAGE>
- - --------------------------------------------------------------------------------
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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 March 30, 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 April 25, 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. Interim Financial Statements:
Consolidated Balance Sheets as of
March 30, 1996 and December 30, 1995 3
Consolidated Statements of Earnings for the three
months ended March 30, 1996 and April 1, 1995 4
Consolidated Statements of Cash Flows for the three
months ended March 30, 1996 and April 1, 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 9
Signature 10
Index to Exhibits 11
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 30, 1996 and December 30, 1995
(Dollars in thousands, except par value)
(Audited, except as noted)
<TABLE>
<CAPTION>
ASSETS 1996 1995
---------- ----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 207 411
Receivables:
Trade, less allowance for doubtful accounts of $2,141
and $2,195 in 1996 and 1995, respectively . . . . . . 60,128 71,684
Other . . . . . . . . . . . . . . . . . . . . . . . . . 4,836 2,284
Inventories . . . . . . . . . . . . . . . . . . . . . . . 119,821 107,404
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . 1,870 1,644
Deferred income taxes . . . . . . . . . . . . . . . . . . 2,449 2,419
---------- ----------
Total current assets. . . . . . . . . . . . . . . . . . 189,311 185,846
Property, plant, and equipment, less accum. depreciation
of $36,100 and $33,411 in 1996 and 1995, respectively . . 82,037 84,567
Intangible assets, at cost, less accumulated amortization
of $2,822 and $2,500 in 1996 and 1995, respectively . . . 51,298 51,779
Other assets . . . . . . . . . . . . . . . . . . . . . . . 2,509 2,518
---------- ----------
325,155 324,710
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . $ 36,094 42,090
Accrued expenses. . . . . . . . . . . . . . . . . . . . . 20,136 21,137
Current portion of long-term debt . . . . . . . . . . . . 11,564 11,916
Income taxes payable. . . . . . . . . . . . . . . . . . . 372 575
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . 68,166 75,718
Long-term debt, net of current portion . . . . . . . . . . 160,789 153,472
Deferred income taxes. . . . . . . . . . . . . . . . . . . 7,704 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 . . . . . . . . . . . . . . . . . . . . 30,076 29,666
Currency translation adjustment . . . . . . . . . . . . . (113) (209)
---------- ----------
Total shareholders' equity. . . . . . . . . . . . . . . 88,496 87,990
---------- ----------
$ 325,155 324,710
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended March 30, 1996 and April 1, 1995
(In thousands, except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . $ 100,794 94,740
Cost of goods sold . . . . . . . . . . . . . . . . . . . . 85,226 78,286
---------- ----------
Gross profit . . . . . . . . . . . . . . . . . . . . . . 15,568 16,454
Selling, general and administrative expenses . . . . . . . 10,614 10,571
---------- ----------
Earnings from operations . . . . . . . . . . . . . . . . 4,954 5,883
Interest expense . . . . . . . . . . . . . . . . . . . . . 3,398 3,936
---------- ----------
Earnings before income taxes . . . . . . . . . . . . . . 1,556 1,947
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 615 785
---------- ----------
Net earnings . . . . . . . . . . . . . . . . . . . . . . $ 941 1,162
---------- ----------
---------- ----------
Net earnings per common share and common
share equivalent . . . . . . . . . . . . . . . . . . . . $ .09 .11
---------- ----------
---------- ----------
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
Three Months Ended March 30, 1996 and April 1, 1995
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings. . . . . . . . . . . . . . . . . . . . . . . $ 941 1,162
Adjustments to reconcile net earnings to net cash used
in operating activities:
Depreciation and amortization . . . . . . . . . . . . . 3,242 2,875
Deferred income taxes . . . . . . . . . . . . . . . . . 142 (467)
Provision for doubtful accounts . . . . . . . . . . . . 31 172
Loss on disposal of property, plant, and equipment. . . 5 1
Changes in assets and liabilities:
Trade receivables . . . . . . . . . . . . . . . . . . 11,534 20,256
Inventories . . . . . . . . . . . . . . . . . . . . . (12,386) (23,914)
Accounts payable. . . . . . . . . . . . . . . . . . . (1,647) 7,159
Accrued expenses. . . . . . . . . . . . . . . . . . . (946) (3,541)
Other assets and liabilities. . . . . . . . . . . . . (2,925) (727)
---------- ---------
Net cash provided by (used in) operating activities. (2,009) 2,976
---------- ---------
Cash flows from investing activities:
Proceeds from sale of property, plant, and equipment. . . 15 10
Purchases of property, plant, and equipment . . . . . . . (773) (2,546)
Payments for businesses purchased . . . . . . . . . . . . (59) (1,773)
---------- ---------
Net cash used in investing activities. . . . . . . . (817) (4,309)
---------- ----------
Cash flows from financing activities:
Net borrowings (payments) on revolving credit loans . . . 19,600 (2,050)
Increase (decrease) in checks not yet presented for
payment. . . . . . . . . . . . . . . . . . . . . . . . . (4,016) 3,780
Principal payments on long-term debt. . . . . . . . . . . (12,432) (262)
Dividends paid. . . . . . . . . . . . . . . . . . . . . . (531) -
Debt issuance costs . . . . . . . . . . . . . . . . . . . - (281)
---------- ----------
Net cash provided by financing activities. . . . . . 2,621 1,187
---------- ----------
Effect of exchange rate changes on cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . . . 1 3
---------- ----------
Net change in cash and cash equivalents. . . . . . . . . . (204) (143)
Cash and cash equivalents at beginning of period . . . . . 411 571
---------- ----------
Cash and cash equivalents at end of period . . . . . . . . $ 207 428
---------- ----------
---------- ----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . $ 4,853 4,610
Income taxes . . . . . . . . . . . . . . . . . . . . . . 1,138 1,370
</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 financial statements to the current period
classifications. The consolidated financial statements should be read in
conjunction with the 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 March 30, 1996 and December 30,
1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Finished goods . . . . . . . . . . . . . . . . . . . $ 50,132 37,670
Work-in-process. . . . . . . . . . . . . . . . . . . 34,142 35,980
Raw materials. . . . . . . . . . . . . . . . . . . . 33,548 31,851
Supplies . . . . . . . . . . . . . . . . . . . . . . 1,999 1,903
---------- ----------
$ 119,821 107,404
---------- ----------
---------- ----------
</TABLE>
(3) Earnings per Common Share
Earnings per common 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 March 30, 1996 and April 1, 1995, there
were stock options outstanding for 554,616 and 363,941 common shares,
respectively. Stock options are excluded from the calculations since they have
no material dilutive effect on per share data.
(4) Acquisitions
In the first quarter of 1996 and fiscal year ended December 30, 1995, the
Company made payments and capitalized certain costs related to acquisitions
completed in 1994.
<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 financial statements and notes thereto for the fiscal year ended
December 30, 1995.
RESULTS OF OPERATIONS
NET SALES. Net sales for the three months ended March 30, 1996 increased
$6,054,000 (6.4%) to $100,794,000 compared to $94,740,000 for the same period in
1995, due to additional sales of core products in the Pillowtex Division.
GROSS PROFIT. The gross profit percentage for the first quarter ended March
30, 1996 decreased to 15.4% compared to 17.4% for the first quarter of 1995.
This decline was due to a number of factors, including higher raw materials
costs, several days of manufacturing disruption caused by bad weather,
promotional pricing and a slower than expected phase-in of the Company's new
cotton yarn spinning facility in Newton, North Carolina.
SG&A. Selling, general and administrative ("SG&A") expenses for the three
months ended March 30, 1996 increased slightly, by $43,000 (.4%) to $10,614,000
from $10,571,000 for the same period in 1995. SG&A expenses decreased as a
percentage of sales to 10.5% in the first quarter of 1996 as compared to 11.2%
for the same period in 1995. This percentage decrease reflects the Company's
continuing efforts to contain SG&A expenses.
INTEREST. Interest expense for the first quarter of 1996 decreased $538,000
(13.7%) to $3,398,000 from $3,936,000 for the same period in 1995, due
principally to lower debt levels, reduced carrying costs on lower inventory and
decreased average interest rates.
NET EARNINGS. Net earnings for the three months ended March 30, 1996
decreased $221,000 (19.0%) to $941,000, or $.09 per share, compared to net
earnings of $1,162,000, or $.11 per share, for the same period in 1995. Net
earnings for the three months ended March 30, 1996 decreased as a percentage of
sales to .9% from 1.2% for the same period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of March 30, 1996, the outstanding principal balance under the Company's
$150,000,000 secured revolving credit facility was $85,200,000, with $11,212,000
committed to outstanding letters of credit and unused availability was
$53,588,000. 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 $75,400,000. The Company believes that cash flow generated from operations
and funds available under the credit facilities will be sufficient to satisfy
working capital and financing needs for the foreseeable future.
GOVERNMENT REGULATIONS
In past years, the Company has dealt with a variety of import issues,
including the early China quota closing for imports of finished down comforters,
comforter shells and comforter covers. The Company lessened its reliance on
China imports by manufacturing more product in the United States and Canada and
<PAGE>
by sourcing goods in other countries. In addition, in 1995 a change was made
in the import regulations regarding down comforter shells which are not
generally manufactured in the United States. The Company believes that no
import quota restrictions for shells will remain after July 1, 1996, which
would enable the Company to import shells as needed and thereby reduce
inventory carrying costs.
Products that the Company imports from China currently receive preferential
tariff treatment accorded goods from countries granted "most favored nation"
status. Under the Trade Act of 1974, the President of the United States is
authorized, upon making specified findings, to waive certain restrictions that
would otherwise render China ineligible for most favored nation treatment. The
President has waived these provisions each year since 1979. However, in
response to recent trade and military activities by China, Congress may
encourage the President to reconsider the renewal of most favored nation status
for China in June of 1996 and no assurance can be given that China will continue
to enjoy this status in the future. Raw materials and finished products
entering the United States from China without the benefit of most favored nation
treatment would be subject to significantly higher duty rates. However, the
Company believes that the loss of China's most favored nation status is not
likely to have a material adverse effect on the Company's business, financial
condition or results of operations.
FORWARD-LOOKING INFORMATION
Statements contained in this Form 10-Q for the quarter ended March 30, 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 involve a number of
risks and uncertainties. The actual results of the future events described in
such forward-looking statements in this Form 10-Q could differ materially from
those stated in such forward-looking statements. 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, and 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
10 Second Amendment to Credit Agreement, dated as of March 30, 1996,
between Pillowtex Corporation and NationsBank of Texas, N.A.
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any report on Form 8-K during the period covered
by this report.
<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
(DATE) May 10, 1996
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Method of Filing
- - ------- ------------------------------
<S> <C> <C>
10 Second Amendment to Credit Agreement,
dated as of March 30, 1996, between
Pillowtex Corporation and NationsBank
of Texas, N.A. . . . . . . . . . . . . . Filed herewith electronically
27 Financial Data Schedule. . . . . . . . . Filed herewith electronically
</TABLE>
<PAGE>
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS AMENDMENT is entered into as of March 30, 1996, between PILLOWTEX
CORPORATION, a Texas corporation ("Borrower"), the Lenders that have executed
this amendment, and NATIONSBANK OF TEXAS, N.A., as Agent for Lenders.
Borrower, the Lenders named on the signature pages below, and Agent are party
to the Credit Agreement (as renewed, extended, and amended and subject to
applicable consents and waivers, the "Credit Agreement") dated as of December 1,
1994, providing for a $90,000,000 Term Loan and a $150,000,000 Revolving
Facility. Upon and subject to the terms of this amendment, Borrower, Agent, and
Lenders have agreed, among other things, to change the calculation of the
Borrowing Base for March through August in 1996, to amend certain financial
covenants in the Credit Agreement, to add and amend certain provisions in the
Credit Agreement in response to a change in Borrower s accounting periods, and
to permit Borrower to create certain new Subsidiaries and transfer assets to
them subject to Lenders Liens that have been limited as described in this
amendment. Accordingly, for adequate and sufficient consideration, Borrower,
Lenders, and Agent agree as follows:
1. TERMS AND REFERENCES. Unless otherwise stated in this amendment (a)
terms defined in the Credit Agreement have the same meanings when used in this
amendment and (b) references to "Sections," "Schedules," and "Exhibits" are to
the Credit Agreement's sections, schedules, and exhibits.
2. AMENDMENTS. The Credit Agreement is amended as follows effective as of
the date of this amendment.
(a) Section 1.1 is amended to entirely amend and replace the following
defined terms:
Borrowing Base means, at any time, the sum of (a) 80% of Eligible
Accounts plus (b) an amount equal to (i) 60% of Eligible Inventory for
fiscal months of March through August during 1996, or (ii) 50% of
Eligible Inventory for all other times.
Excess-Cash Flow means -- for any Person, for any period, and
without duplication -- the remainder of EBITDA minus (a) Taxes actually
paid in cash, minus (b) all Permitted-Capital Expenditures, minus (c)
cash dividends if permitted under Section 9.9, minus (d) the scheduled
current portion of principal (including, without limitation, the
principal component of Capital Leases) paid or due during that period on
the Companies' Funded Debt, minus (e) interest expense during that
period on the Companies' Debt (including, without limitation, the
interest component under Capital Leases), minus (f) increases (or plus
decreases) in Working Capital during that period, minus (g) net cash
proceeds of asset sales included in the calculation of EBITDA to the
extent those proceeds have been applied as mandatory prepayments of the
Term Loan under Section 3.2(f)(i), minus (h) voluntary prepayments of
the Term Loan under Section 3.2(e).
Loan Papers means (a) this agreement, certificates and reports
delivered under this agreement, and exhibits and schedules to this
agreement, (b) all agreements, documents, and instruments in favor of
Agent or Lenders (or Agent on behalf of Lenders) ever delivered under
<PAGE>
this agreement or otherwise delivered in connection with all or any part
of the Obligations other than Assignment and Assumption Agreements, (c)
any contract entered into between Borrower and any Lender or Affiliate
of any Lender under (whether or not in excess of the minimum dollar
requirements of) Section 8.12, (d) all LCs and LC Agreements, (e) the
letter agreement described in Section 4.2, and (f) all renewals,
extensions, and restatements of, and amendments and supplements to, any
of the foregoing.
Realmac means Realmac, Inc., a North Carolina corporation that was
merged into Buyer Beacon after the Closing Date.
(b) Section 1.1 is amended to add the following new defined terms:
fiscal month means (a) for any period before December 31, 1994, a
calendar month, and (b) thereafter, a period of four, five, or six weeks
having seven days in each week ending on a Saturday and that otherwise
approximates a calendar-monthly period. The fiscal-month ends for 1996
through 2001 are described on Schedule 1.1(c). Reference to a fiscal
month by the name of a calendar month means the fiscal month that
encompasses the most of that calendar month (e.g., the fiscal month of
January 1996 ends on February 3, 1996).
fiscal quarter means (a) for any period before December 31, 1994, a
calendar quarter, and (b) thereafter, any quarter of a fiscal year
ending on the last day of a fiscal month (e.g., the third fiscal quarter
in 1996 ends on September 26, 1996). The fiscal-quarter ends for 1996
through 2001 are indicated on Schedule 1.1(c) by asterisks.
fiscal year means (a) for any period before December 31, 1994, a
calendar year, and (b) thereafter, Borrower's fiscal year for accounting
and Tax purposes, which consists of 52- or 53-week period beginning on
the first day after the end of the immediately preceding fiscal year and
ending on the Saturday nearest to the December 31 following that first
day. References to a fiscal year with a number corresponding to any
calendar year means the fiscal year ending on the Saturday nearest to
December 31 during that calendar year (e.g., fiscal year 1999 ends on
January 1, 2000).
Holdco means Ptex Holding Company, a Delaware corporation and a
direct Subsidiary of Borrower.
Newco means Pillowtex, Inc., a Delaware corporation and a direct
Subsidiary of Borrower.
Operating Lease means a lease or sublease that is not a Capital
Lease.
Trustco means Pillowtex Management Services Company, a Delaware
business trust, a direct Subsidiary of Holdco, and an indirect
Subsidiary of Borrower.
(c) Section 3.2(d) is entirely amended as follows:
(d) Term Loan Principal. The Principal Debt under the Term Loan
is due and payable in installments on the last Business Day of each of
the fiscal months of March, June, September, and December -- commencing
September 30, 1995, and ending December 28, 2001 -- in accordance with
the following amortization table:
<PAGE>
<TABLE>
<CAPTION>
Fiscal Quarterly Annual
Year(s) Installment Amount
--------- ----------- -----------
<S> <C> <C>
1995 $2,500,000 $ 5,000,000
1996-1997 $2,500,000 $10,000,000
1998-2000 $3,750,000 $15,000,000
2001 $5,000,000 $20,000,000
</TABLE>
(d) Section 4.4 is entirely amended as follows:
4.4 Commitment Fee. From and after the Closing Date, Borrower
shall pay to Agent a commitment fee for Lenders according to each
Lender's Commitment Percentage. The fee is payable as it accrues on the
last Business Day of each of the fiscal months of March, June,
September, and December -- commencing on the first of those dates that
follows the date of this agreement -- and on the
Revolving-Facility-Termination Date. Each payment of the fee is equal
to the following, determined for the fiscal quarter (or portion of a
fiscal quarter commencing on the date of this agreement or ending on the
Revolving-Facility-Termination Date) preceding and including the date it
is due: From the Closing Date until the Revolving-Facility-Termination
Date, the product of the Applicable Percentage multiplied by the amount
by which (i) the total Commitments for only the Revolving Facility
exceed (ii) the sum of the average-daily Principal Debt under only the
Revolving Notes plus the average-daily LC Exposure for standby LCs.
(e) Section 5.2(d) is entirely amended as follows:
(d) All of the other owned real property and plants and all of the
other equipment and fixtures of each other present and future (whether
under Sections 9.8 or 9.11 or otherwise) Company other than (i) in
respect of any foreign Company the granting of Lender Liens by which
would create a material Tax obligation for the Companies that would not
otherwise exist (ii) the assets currently encumbered by Permitted Liens
described as Items 7, 10, 11, and (to the extent the related documents
prohibit the Lender Liens) 12 on Schedule 9.5, and (iii) equipment and
fixtures in which that Company's interest arises solely under an
Operating Lease; and
(f) A new Section 5.5 is added as follows:
5.5 New Companies and Transfers of Assets. Contemporaneous with
entering into the second amendment of this agreement, Borrower has
formed Newco, Holdco, and Trustco for the purpose of, among other
things, the transfer of certain assets and operations.
(a) Transfers. As more particularly described in the documents
described on Annex A to the second amendment to this agreement, Borrower
has:
(i) Transferred to Buyer Beacon (A) Borrower s interest in
the plant and equipment at the Newton, North Carolina, yarn-
production facility that is subject to the lease from Sanwa General
Equipment Leasing, along with certain related receivables and
general intangibles, and (B) Borrower's ownership of the real
estate on which that facility is located;
<PAGE>
(ii) Transferred to Newco Borrower's other non-Texas
manufacturing and sales assets and operations, along with certain
related receivables and general intangibles, and all of the capital
stock of Buyer Beacon, Manetta Home Fashions, Inc., and Tennessee
Woolen Mills, Inc., in each case subject to the pre-existing Lender
Liens (to the extent of those Lender Liens) already encumbering
those assets and capital stock;
(iii) Transferred to Trustco Borrower's Texas manufacturing
and sales assets and operations, along with certain related
receivables and general intangibles, in each case subject to the
pre-existing Lender Liens (to the extent of those Lender Liens)
already encumbering those assets; and
(iv) Retained ownership of its other assets.
(b) Additional Guaranties and Lender Liens. As required by
Section 5.1, 5.2, 8.11, and 9.8 and possible other provisions in the
Loan Papers (i) Newco, Holdco, and Trustco have all unconditionally
guaranteed the full payment and performance of the Obligations, (ii)
Borrower has created Lender Liens upon all of the issued and outstanding
capital stock of Newco and Holdco, (iii) Holdco has created Lender Liens
on all of the beneficial ownership of Trustco (which Agent and Lenders
agree was not subject to Lender Liens at any time when owned by
Borrower), and (iv) Buyer Beacon, Tennessee Woolen Mills, Inc., Newco,
Holdco, and Trustco have (A) acknowledged in writing that all assets --
limited, in the case of Trustco, as provided in Section 5.5(c) below --
and capital stock transferred to them as described in Section 5.5(a)
continue to be subject to pre-existing Lender Liens (to the extent of
those Lender Liens) already encumbering those assets and stock and (B)
have created Lender Liens upon all of their respective present and
future accounts receivable, inventory, equipment, fixtures, real
property, and plants.
(c) Lien Limitation. Schedule 5.5 is a list of assets transferred
by Borrower to Trustco. Notwithstanding any contrary provision in any
Loan Paper other than Section 5.5(d), the Lender Liens on each asset or
group of assets listed on Schedule 5.5 are limited -- effective as of
March 30, 1996, immediately before those transfers to Trustco by
Borrower -- so that they only secure an amount of the Obligations equal
to the amount corresponding to Borrower's tax basis in each asset being
transferred to Trustco, which tax basis is reflected on Schedule 5.5 by
asset or groups of assets. The limitation in this Section 5.5(c)
applies only to those assets and groups of assets and not to any other
present or future assets now or in the future created or owned by
Trustco.
(d) No Lien Limitation. Notwithstanding Section 5.5(c) or any
amounts described on Schedule 5.5, if at any time the second amendment
to this agreement fails to become effective or the ratio of the
Companies consolidated Funded Debt to EBITDA ever exceeds 4.50 to 1.00
or if a Default exists that has resulted in a termination of the
commitments of Lenders to extend credit under this agreement, then -- in
any of those three events and automatically without further action by
any Person -- the limitation of the Lender Liens in Section 5.5(c) no
longer is effective and the Lender Liens on the assets and groups of
assets described on Schedule 5.5 secure the full payment and performance
of the full Obligations.
<PAGE>
(g) All references in Sections 7, 8, and 9 to each Company's corporate
existence, qualification, good standing, corporate charter, and bylaws
are modified in respect of Trustco to apply (to the extent applicable)
to its trust existence, certificate of trust, and declaration of trust.
(h) Section 7.2(a) is entirely amended as follows:
(a) is (and after the Beacon Acquisition will be) duly qualified to
transact business and is in good standing as a foreign corporation in
each jurisdiction where the nature and extent of its business and
properties require due qualification and good standing (each of which
jurisdictions is identified on Schedule 6 as modified by Schedule 7.1).
(i) Section 9.13 is entirely amended as follows:
9.13 Fiscal Year and Accounting Methods. No Company may change its
fiscal year for accounting purposes or any material aspect of its method
of accounting except (a) the Companies change, effective December 31,
1994, from having their fiscal months, quarters, and years as
corresponding calendar periods to become instead fiscal months, fiscal
quarters, and fiscal years, respectively, as defined in this agreement,
and (b) to conform any new Subsidiary's accounting methods to Borrower's
accounting methods.
(j) Section 9.16 is entirely amended as follows:
9.16 Contingent Liabilities. No Company may endorse, guarantee,
or otherwise become surety for, or contingently liable upon, the
obligations of any Person except (a) endorsements of negotiable
instruments in the ordinary course of business, (b) with respect to any
LCs, (c) guaranties of any Company of Debt or Operating Leases of any
Obligated Company, (d) contingent liabilities that exist on the Closing
Date and are fully described on Schedule 9.2, and (e) contingent
liabilities permitted in connection with a Permitted Acquisition.
(k) Section 9.17 is entirely amended as follows:
9.17 Operating Leases. No Company may become obligated under any
Operating Lease that would cause the total-Operating-Lease-payment
obligations of all of the Companies -- without duplication for
guaranties by any Company of another Company's Operating-Lease-payment
obligations -- to exceed $12,000,000 during any fiscal year.
(l) Section 10.3 is entirely amended as follows:
10.3 Funded Debt/EBITDA. The ratio of (a) the Companies'
consolidated Funded Debt on the last day of any fiscal quarter to (b)
their consolidated EBITDA for the 12-fiscal month period ending on that
last day to ever exceed the lesser of either 3.00 to 1.00 if the Release
Ratios are achieved or:
<TABLE>
<CAPTION>
Period(s) Ratio
-------------------------------------- ------------
<S> <C>
Fiscal quarter ending 3/31/95 5.10 to 1.00
Each fiscal quarter ending 6/30/95 5.25 to 1.00
or 09/30/95
Fiscal quarter ending 12/30/95 3.50 to 1.00
Fiscal quarter ending 3/30/96 4.00 to 1.00
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Fiscal quarter ending 6/29/96 4.25 to 1.00
Fiscal quarter ending 9/28/96 4.00 to 1.00
Each fiscal quarter ending 12/28/96, 2.75 to 1.00
3/29/97, 6/28/97, or 9/27/97
Each subsequent fiscal quarter 2.50 to 1.00
</TABLE>
(m) The table in Section 10.4 is entirely amended as follows:
<TABLE>
<CAPTION>
Period(s) Ratio
-------------------------------------- ------------
<S> <C>
Fiscal quarter ending 3/31/95 1.10 to 1.00
Two fiscal quarters ending 6/30/95 1.10 to 1.00
Three fiscal quarters ending 9/30/95 1.10 to 1.00
Four fiscal quarters ending 12/30/95 1.20 to 1.00
Four fiscal quarters ending each fiscal 1.10 to 1.00
quarter from 3/30/96 through 9/28/96
Four fiscal quarters ending each fiscal 1.20 to 1.00
quarter from 12/28/96 through 9/27/97
Four fiscal quarters ending each thereafter 1.25 to 1.00
</TABLE>
(n) Item 6 on Schedule 9.8 is entirely amended as follows:
6. Loans or advances to, and investments in, another Obligated
Company.
(o) New Schedules 1.1(c), 5.5 , and 7.1 are added in the respective
forms of the attached Schedules 1.1(c), 5.5, and 7.1.
(p) Schedule 7.3 and Exhibits A-1 and D-3 are entirely amended in the
respective forms of -- and all references in the Credit Agreement to
Schedule 7.3 and Exhibits A-1 and D-3 are respectively changed to -- the
attached Amended Schedule 7.3 and Amended Exhibits A-1 and D-3.
3. CONDITIONS PRECEDENT. Paragraph 2 above is not effective unless Agent
receives (a) counterparts of this amendment executed by each Company listed
below and by Agent and by all Lenders, and (b) each document and other item
listed on the attached Annex A and indicated on that annex as being required
to be delivered by the Amendment-Closing Date (as defined on that annex), in
each case in form, substance, and number of counterparts as is reasonably
acceptable to Agent and its special counsel.
4. CONDITIONS SUBSEQUENT. Borrower covenants with Agent and Lenders to
deliver or cause to be delivered to Agent all documents and other items
listed on the attached Annex A and indicated on that annex as being required
to be delivered by the Post-Closing Date (as defined on that annex), in each
case by no later than that Post-Closing Date.
5. PRO FORMA AND FINAL TAX BASIS. The tax-basis amounts reflected on the
attached Schedule 5.5 are pro forma based upon Borrower s calculations as of
March 27, 1996. As soon as practicable after the date of this amendment but
by no later than April 15, 1996, Borrower shall recalculate all of the
applicable tax-basis amounts as of March 30, 1996, and prepare, initial, and
send to Agent to furnish to each Lender a replacement Schedule 5.5 that is
final for purposes of the Loan Papers. However, that final Schedule 5.5 may
not (a) include any assets other than the assets now reflected on the
attached pro forma Schedule 5.5 except that receivables and inventory may
<PAGE>
vary upward by no more than 15% from the levels reflected on the attached pro
forma Schedule 5.5 and (b) reflect total tax-basis amounts that vary downward
by more than 15% from the total tax-basis amounts reflected on the attached
pro forma Schedule 5.5.
6. RATIFICATIONS. Borrower (a) ratifies and confirms all provisions of the
Loan Papers as amended by this amendment, (b) ratifies and confirms that all
guaranties, assurances, and Liens granted, conveyed, or assigned to Agent or
any Lender under the Loan Papers -- as they may have been renewed, extended,
and amended -- are not released, reduced, or otherwise adversely affected by
this amendment and continue to guarantee, assure, and secure full payment and
performance of the present and future Obligations, and (c) agrees to perform
those acts and duly authorize, execute, acknowledge, deliver, file, and
record those additional documents, and certificates as Agent or Determining
Lenders may request in order to create, perfect, preserve, and protect those
guaranties, assurances, and Liens.
7. REPRESENTATIONS. Borrower represents and warrants to Agent and Lenders
that as of the date of this amendment (a) all representations and warranties
in the Loan Papers are true and correct in all material respects except to
the extent that (i) any of them speak to a different specific date, (ii) the
facts on which any of them were based have been changed by transactions
contemplated or permitted by the Credit Agreement, or (iii) a change is
reflected on the attached Schedule 7.1, and (b) no Material Adverse Event,
Default, or Potential Default exists.
8. MISCELLANEOUS. All references in the Loan Papers to the "Credit
Agreement" refer to the Credit Agreement as amended by this amendment. This
amendment is a "Loan Paper" referred to in the Credit Agreement, and the
provisions relating to Loan Papers in Sections 1 and 14 are incorporated in
this amendment by reference. Except as specifically amended and modified in
this amendment, the Loan Papers are unchanged and continue in full force and
effect. This amendment may be executed in any number of counterparts with
the same effect as if all signatories had signed the same document. All
counterparts must be construed together to constitute one and the same
instrument. This amendment binds and inures to each of the undersigned and
their respective successors and permitted assigns, subject to Section 14.10
of the Credit Agreement. This amendment and the other Loan Papers represent
the final agreement between the parties and may not be contradicted by
evidence of prior, contemporaneous, or subsequent oral agreements by the
parties. There are no unwritten oral agreements between the parties.
Remainder of page intentionally blank.
<PAGE>
EXECUTED as of the date first stated above.
PILLOWTEX CORPORATION, as Borrower
By (Signature) /s/ Jeffrey D. Cordes
(Name and Title) Jeffrey D. Cordes, Executive Vice President
NATIONSBANK OF TEXAS, N.A., as Agent and Lender
By (Signature) /s/ Lynn H. Mullin
(Name and Title) Lynn H. Mullin, Senior Vice President
BANK OF AMERICA ILLINOIS, as a Lender
By (Signature) /s/ Claire Lui
(Name and Title) Claire Liu, Vice President
COMERICA BANK - TEXAS, as a Lender
By (Signature) /s/ Melinda A. Chausse
(Name and Title) Melinda A. Chausse, Vice President
THE FIRST NATIONAL BANK OF BOSTON, as a Lender
By (Signature) /s/ William C. Purinton
(Name and Title) William C. Purinton , Vice President
WELLS FARGO BANK, N.A., as a Lender
By (Signature) /s/ Mary Jo Hoch
(Name and Title) Mary Jo Hoch, Vice President
THE BANK OF TOKYO, LTD., DALLAS AGENCY, as a Lender
By (Signature) /s/ John M. Mearns
(Name and Title) John M. Mearns, VP and Manager
FIRST INTERSTATE BANK OF TEXAS, N.A., as a Lender
By (Signature) /s/ Susan L. Coulter
(Name and Title) Susan L. Coulter, Vice President
BANK ONE, TEXAS, N.A., as a Lender
By (Signature) /s/ Scott Rhea
(Name and Title) Scott Rhea, Assistant Vice President
THE BANK OF NOVA SCOTIA, as a Lender
By (Signature) /s/ F.C.H. Ashby
(Name and Title) F.C.H. Ashby, Senior Manager Loan Operations
NBD BANK, as a Lender
By (Signature) /s/ Larry E. Schuster
(Name and Title) Larry E. Schuster, Authorized Agent
<PAGE>
To induce Agent and Lenders to enter into this amendment, the undersigned
jointly and severally (a) consent and agree to this amendment's execution and
delivery, (b) ratify and confirm that all guaranties, assurances, and Liens
granted, conveyed, or assigned to Agent or any Lender under the Loan Papers --
as they may have been renewed, extended, and amended -- are not released,
diminished, impaired, reduced, or otherwise adversely affected by this amendment
and continue to guarantee, assure, and secure the full payment and performance
of all present and future Obligations, (c) agree to perform such acts and duly
authorize, execute, acknowledge, deliver, file, and record such additional
guaranties, assignments, security agreements, deeds of trust, mortgages, and
other agreements, documents, instruments, and certificates as Agent or
Determining Lenders may reasonably deem necessary or appropriate in order to
create, perfect, preserve, and protect those guaranties, assurances, and Liens,
(d) represent and warrant to Agent and Lenders that (i) the value of the
consideration received and to be received by the undersigned in respect of those
guaranties, assurances, and Liens are reasonably worth at least as much as the
liability and obligation the undersigned under them, (ii) that liability and
obligation may reasonably be expected to directly or indirectly benefit the
undersigned, and (iii) each undersigned is -- and after giving effect to those
guaranties, assurances, Liens, and the Loan Papers, in light of all existing
facts and circumstances (including, without limitation, collateral for and other
obligors in respect of the Obligations and various components of it and various
rights of subrogation and contribution), each undersigned will be -- Solvent,
and (e) waive notice of acceptance of this consent and agreement, which consent
and agreement binds the undersigned and their successors and permitted assigns
and inures to Agent, Lenders, and their respective successors and permitted
assigns.
BEACON MANUFACTURING COMPANY
(formerly Be-Ac, Inc., and the successor by
merger with Realmac, Inc.),
MANETTA HOME FASHIONS, INC., and
TENNESSEE WOOLEN MILLS, INC.
By (Signature) /s/ Jeffrey D. Cordes
(Name and Title) Jeffrey D. Cordes, Executive Vice President or Vice
President of each of above Company
<PAGE>
To induce Agent and Lenders to enter into this amendment, the undersigned
jointly and severally (a) consent and agree to this amendment's execution and
delivery, (b) ratify and confirm that the assignments, conveyances, and
transfers to them by Borrower as contemplated in this amendment are in each case
subject to the pre-existing Lender Liens (to the extent of those Lender Liens)
already encumbering the assets assigned, conveyed, or transferred, which Lender
Liens (except to the extent specifically limited in this amendment) continue to
secure the full payment and performance of all present and future Obligations,
(c) agree to perform such acts and duly authorize, execute, acknowledge,
deliver, file, and record such additional guaranties, assignments, security
agreements, deeds of trust, mortgages, and other agreements, documents,
instruments, and certificates as Agent or Determining Lenders may reasonably
deem necessary or appropriate in order to create, perfect, preserve, and protect
those Lender Liens, (d) represent and warrant to Agent and Lenders that (i) the
value of the consideration received and to be received by the undersigned in
respect of those Lender Liens are reasonably worth at least as much as the
liability and obligation the undersigned under them, (ii) that liability and
obligation may reasonably be expected to directly or indirectly benefit the
undersigned, and (iii) each undersigned is -- and after giving effect to those
Lender Liens and the Loan Papers, in light of all existing facts and
circumstances (including, without limitation, collateral for and other obligors
in respect of the Obligations and various components of it and various rights of
subrogation and contribution), each undersigned will be -- Solvent, and (e)
waive notice of acceptance of this consent and agreement, which consent and
agreement binds the undersigned and their successors and permitted assigns and
inures to Agent, Lenders, and their respective successors and permitted assigns.
PILLOWTEX, INC.
By (Signature) /s/ Norman J. Shuman
(Name and Title) Norman J. Shuman, Secretary
PTEX HOLDING COMPANY
By (Signature) /s/ Norman J. Shuman
(Name and Title) Norman J. Shuman, Secretary
BEACON MANUFACTURING COMPANY,
TENNESSEE WOOLEN MILLS, INC., and
PILLOWTEX MANAGEMENT SERVICES COMPANY
By (Signature) /s/ Jeffrey D. Cordes
(Name and Title) Jeffrey D. Cordes, Executive Vice President or Vice
President of each of above Company
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATION FOUND
ON PAGE 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE THREE MONTHS ENDED
MARCH 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> MAR-30-1996
<CASH> 207
<SECURITIES> 0
<RECEIVABLES> 62,269
<ALLOWANCES> 2,141
<INVENTORY> 119,821
<CURRENT-ASSETS> 189,311
<PP&E> 118,137
<DEPRECIATION> 36,100
<TOTAL-ASSETS> 325,155
<CURRENT-LIABILITIES> 68,166
<BONDS> 172,353
0
0
<COMMON> 106
<OTHER-SE> 88,390
<TOTAL-LIABILITY-AND-EQUITY> 325,155
<SALES> 100,794
<TOTAL-REVENUES> 100,794
<CGS> 85,226
<TOTAL-COSTS> 85,266
<OTHER-EXPENSES> 10,614
<LOSS-PROVISION> 31
<INTEREST-EXPENSE> 3,398
<INCOME-PRETAX> 1,556
<INCOME-TAX> 615
<INCOME-CONTINUING> 941
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 941
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
