Back to GetFilings.com
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 28, 1996
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition period from to
Commission File Number 1-11756
PILLOWTEX CORPORATION
(Exact name of registrant as specified in its charter)
Texas 75-2147728
(State of Incorporation) (I.R.S. Employer Identification No.)
4111 Mint Way, Dallas, Texas 75237
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 333-3225
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -----------------------
Common Stock, $0.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 28, 1997 was $74,567,049.
As of February 28, 1997, Registrant had 10,617,722 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Registrant's Annual Meeting of Shareholders
for the year ended December 28, 1996 are incorporated by reference in Part III
hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART I
ITEM 1. BUSINESS
GENERAL
Pillowtex Corporation (the 'Company' or 'Pillowtex'), founded in 1954, is
a leading North American designer, manufacturer and marketer of bed pillows,
blankets, mattress pads and down comforters. Other complementary bedroom
textile furnishings offered by the Company include comforter covers,
featherbeds, pillow protectors, decorative pillows, bedspreads, synthetic
comforters, pillow shams, dust ruffles and window treatments. Pillowtex has
positioned itself as a single-source supplier to retailers for top-of-the-bed
home textile furnishings (other than sheets), offering a broad assortment of
products across multiple price points.
The Company markets its products primarily to department stores, mass
merchants, wholesale clubs, specialty retail stores, catalogs and institutional
distributors. The Company believes that it is one of the principal suppliers of
bedroom textile furnishings to virtually all of the largest department stores in
the United States.
BUSINESS STRATEGY
Pillowtex's business strategy is to capitalize on the strengths that have
distinguished the Company as a preferred supplier of high quality bedroom
textile products in North America.
OFFER EXTENSIVE PRODUCT LINES EMPHASIZING HIGHER MARGIN GOODS. The
Company offers more top-of-the-bed product lines than any of its major North
American competitors. With the exception of sheets, the Company's strategy is
to provide a 'one-stop shop' for top-of-the-bed products, customized to each
retailer's specific consumer profile. Therefore, the Company offers broad
product assortments of high quality products at multiple price points. The
Company emphasizes higher end, premium lines to encourage the consumer to trade
up to better products with generally higher margins for the retailer and the
Company.
MAINTAIN STRONG CUSTOMER RELATIONSHIPS THROUGH COMPREHENSIVE MERCHANDISING
PROGRAMS. The Company offers extensive merchandising programs to retailers in
order to maximize product line sales and profitability. Merchandising programs,
developed in meetings between the Company and the retailer, address product line
assortments, branding strategies and point-of-sale displays, as well as
promotional and advertising plans and layouts. In many cases, the Company
oversees the creation of promotional and advertising supplements for its
customers. Merchandising programs focus on motivating the retail consumer to
'trade up' to better goods that offer higher margins.
Pillowtex manufactures and markets goods utilizing established and well
recognized licensed trademarks, Company-owned trademarks and trade names,
customer-owned private labels and manufacturers' brand names including the Ralph
Lauren Home Collection, Mickey & Co. -Registered Trademark-, Royal Velvet
- -Registered Trademark-, Touch of Class -Registered Trademark-, Cannon
- -Registered Trademark-, Nettle Creek -Registered Trademark-, Martex -Registered
Trademark-, Regency by Globe -Registered Trademark-, Blue Heaven -TM-, Comforel
- -Registered Trademark-, and Dacron -Registered Trademark-. These trademarks and
names provide the Company with the ability to differentiate its product
offerings from its competitors for different channels of retail distribution and
between different price points. The Company also provides extensive private
label production for major retailers such as JCPenney Company, Inc., May
Merchandising Corporation and Sears Roebuck and Co.
CAPITALIZE ON NATIONWIDE PRODUCTION AND DISTRIBUTION CAPABILITIES.
Capitalizing on its initial reputation as a key supplier to department stores,
the Company has become a nationwide supplier for virtually all channels of
retail and institutional distribution. The Company is a supplier to 47 of the
top 50 retailers in the United States and the top five retailers in Canada. In
order to most cost effectively ship bed pillows, mattress pads and down
comforters and minimize delivery times, the Company developed regional
production facilities and can now produce and ship from coast to coast. The
Company was one of the industry pioneers in the development of extensive 'quick
response' capability, including an Electronic Data Interchange ('EDI') system
for nationwide, 24-hour acceptance of electronically transmitted customer
orders. Through a single transmission, customers may place orders for multiple
product lines for distribution from the Company's production facilities. These
systems, in combination with the Company's manufacturing capabilities, enable
the Company to produce and ship products to retailers with lead times as short
as three to five days from receipt of order.
ENHANCE THE COMPANY'S POSITION AS A LOW COST PRODUCER. The Company
focuses on increasing automation, process improvements and system controls
within its plants and throughout the business that are intended to result in
improved operational efficiencies. These efforts have enabled the Company to
achieve what it believes are the highest sales per employee of any major textile
manufacturer in the United States. The Company also believes that significant
opportunities still exist to improve production efficiency, especially within
the Company's blanket facilities. In late 1995, the Company added a new cotton
yarn spinning plant which enabled it to consolidate two smaller facilities and
resulted in the elimination of significant outside yarn purchases. The Company
pursues worldwide procurement of both finished products and raw materials to
reduce costs and locate new sources of production. The Company further
emphasizes continual cost monitoring and the ongoing containment of selling,
general and administrative ('SG&A') expenses through consolidation of these
functions at acquired companies, implementation of better systems, and the
retention and training of a well qualified staff. As a result, during 1996 the
Company was able to achieve what it believes is one of the lowest levels of SG&A
expenses, measured as a percent of sales, in the industry.
MAKE SELECTIVE STRATEGIC ACQUISITIONS. Pillowtex continues to selectively
make acquisitions of companies that offer products it believes will complement
its existing lines and will provide product, marketing, channel of distribution
or operational synergies. Since the early 1980's, Pillowtex has made a number
of acquisitions in order to enter new product lines and markets. The Company
follows a strategy of consolidating plant and SG&A functions and leveraging its
strong retail relationships to expand sales and profitability. Through this
strategy, Pillowtex has achieved a compounded annual growth rate for net sales
of 13.6% and for earnings before interest, taxes, depreciation and amortization
('EBITDA') of 18.7% over the past five years.
PRODUCTS
The Company has built its core business around four utility bedding
product lines that have a low risk of obsolescence. These include bed pillows
(including natural fill, synthetic fiber fill and latex), blankets (including
cotton, wool blends, acrylic and polyester blankets and throws), down comforters
and mattress pads (including thread quilt, sonic quilt and convoluted foam).
The Company also sells other bedroom textile furnishings, including comforter
covers, featherbeds, pillow protectors, decorative pillows, bedspreads,
synthetic comforters, pillow shams, dust ruffles and window treatments.
BED PILLOWS. Management believes that the Company is currently a leading
manufacturer and marketer of bed pillows in the United States and Canada. The
Company produces and markets a broad line of traditional bed pillows, as well as
specially designed bed pillows such as the BodyMate -Registered Trademark- body
pillow and Great Shapes -Registered Trademark- pillows, including Euro Square,
U-Neck and Neck Roll. The Company offers products at various levels of quality
and price, from synthetic pillows sold at retail prices as low as $4 to fine
white goose down pillows sold at a retail price of up to approximately $185.
The Company believes that it is a leading feather and down pillow
manufacturer in North America, offering products filled with quality goose and
duck down, or blends of feather and down, in a range of grades. These
materials, known as 'natural fill,' are noted for their loft and resiliency.
The Company also manufactures and markets a full line of bed pillows
featuring staple (cut and crimped), tow (continuous filament) and cluster
(individual ball) synthetic fiber fills. The Company believes that it is a
leading supplier of premium synthetic and latex bed pillows in the United States
and Canada.
BLANKETS. Management believes that the Company is a leading producer of
blankets in the United States, as well as a leading marketer of blankets in
Canada. The Company manufactures woven and nonwoven conventional and thermal
weave blankets and throws in a wide assortment of fibers, including cotton, wool
blend, acrylic and polyester. The Company is the exclusive supplier in North
America of blankets for the Ralph Lauren Home Collection. The Company has a
strong presence in the infant blanket market with products ranging from nonwoven
receiving blankets, to jacquard throws, to the finest Supima -Registered
Trademark- cotton crib blanket. The Company also designs and manufactures a
full line of decorative cotton and acrylic jacquard throws.
DOWN COMFORTERS. The Company was a pioneer in marketing down comforters
in the United States, and management believes that the Company is a leading
manufacturer and marketer of down comforters in the United States and Canada.
Down comforters became increasingly popular for both their insulation and
fashion qualities, selling well in both warm and cool climates, and they sell at
department stores at prices ranging from $70 to approximately $400. Increasingly
popular higher-end comforters typically offer more down fill, sport higher
thread count shells and/or feature more appealing 'surface interest,'
such as damask dots, stripes and checks.
MATTRESS PADS. Management believes that the Company is a leading manufacturer
and marketer of mattress pads in the United States and Canada. The Company
produces and markets a complete line of mattress pads, including sizes
for adults and children, natural and synthetic filled, flat and fitted, as well
as its skirted Adjust-A-Fit -Registered Trademark- mattress pad, an adjustable
fit mattress pad made with Lycra -Registered Trademark- a multi-directional
stretch material produced by E.I. DuPont de Nemours & Company ('DuPont'). The
Adjust-A-Fit -Registered Trademark- mattress pad correctly fits a broad range of
mattress thicknesses, including pillow top mattresses.
OTHER BEDROOM TEXTILES. The Company offers a variety of other complementary
bedroom textile products including comforter covers, featherbeds, pillow
protectors, synthetic fill comforters, decorative pillows, pillow shams,
dust ruffles and window treatments. These products represent a source of
additional profitability as 'add-on' sales for retailers.
MARKETING, SALES AND DISTRIBUTION
The Company markets its products to virtually all major retailers through
channels of distribution that include department and specialty stores, mass
merchants, discounters and catalogs, as well as institutional suppliers. The
Company believes that it is one of the principal suppliers of bedroom textile
products to several of the largest retailers in the United States. The
Company's top ten customers accounted for approximately 65% of total net sales
in 1996. Wal-Mart and Dayton Hudson accounted for 14.0% and 13.0% of the
Company's total net sales in 1996, respectively. No other customer accounted
for more than 10% of total net sales in 1996. Consistent with industry
practice, the Company does not generally operate under long-term written supply
contracts with its customers.
The Company's current international business is concentrated in Canada,
although it also sells in Mexico, Latin America and overseas. The Company's
acquisition of Torfeaco Industries, Ltd. ('Torfeaco') in 1993, and of Imperial
Feather Company ('Imperial') and Beacon Manufacturing Company ('Beacon') in
1994, greatly enhanced the Company's market position in Canada and its
relationships with important Canadian retailers.
The Company markets its products under numerous Company-owned trademarks
and trade names and customer-owned private labels, as well as certain licensed
trademarks and trade names. The Company uses trademarks, trade names and
private labels as merchandising tools to assist its customers in coordinating
their product offerings and differentiating their products from those of their
competitors.
The Company's relationship with Ralph Lauren began in 1987, and the Ralph
Lauren Home Collection is among its most important licensed trademarks. The
Company holds an exclusive license for pillows, down comforters, mattress pads
and blankets, and a non-exclusive license for fashion bedding to manufacture,
and in certain cases to sell, a variety of home textile products sold in North
America. The Ralph Lauren Home Collection products are sold worldwide to fine
department and specialty stores.
In an effort to maximize the Company's product exposure and increase
sales, Pillowtex works closely with its major customers to assist them in
merchandising and promoting the Company's products to the consumer. In addition
to frequent personal consultation with the employees of these customers, the
Company meets with its customers' senior management periodically to jointly
develop merchandise assortments and plan promotional events specifically
tailored for its customers. The Company provides merchandising assistance with
store layouts, fixture designs, advertising and point-of-sale displays. The
Company also provides customers with preprinted, customized advertising
materials designed to increase sales.
The Company's EDI system allows customers to place, and allows the Company
to fill, track and bill, orders by computer. This system enables the Company to
ship products on a 'quick response' basis.
The Company generally employs salespeople who have many years of industry
experience. Most salespeople are compensated with a combination of salary and
discretionary bonus. Certain Ralph Lauren Home Collection products are sold by
the Ralph Lauren sales force.
PATENTS, TRADEMARKS AND LICENSE AGREEMENTS
The Company owns various trademarks and trade names, including Blue Heaven
- -TM-, Softie -Registered Trademark-, Regency by Globe -Registered Trademark- and
BodyMate -Registered Trademark-. The Company regards its trademarks and trade
names as valuable assets and vigorously protects them against infringement.
Pillowtex holds the exclusive license for the highly regarded Ralph Lauren
Home Collection for pillows, down comforters, mattress pads and blankets, and a
non-exclusive license for fashion bedding to manufacture, and in certain cases
sell, a variety of home textile products in North America. The Company also has
entered into an exclusive 25-year license agreement with Fieldcrest Cannon, Inc.
('Fieldcrest') for the manufacture and sale of various goods, including bed
pillows, mattress pads, down comforters and blankets under certain of its
various trademarks, including Cannon -Registered Trademark-, Royal Velvet
- -Registered Trademark-, Charisma -Registered Trademark- and Touch of Class
- -Registered Trademark-. In addition, the Company manufactures and sells various
goods, including pillows, blankets and throws under non-exclusive license
agreements with Disney for the standard characters including Mickey Mouse,
Minnie Mouse and Donald Duck, as well as other characters and film properties
such as Winnie the Pooh and Lion King. The Company also markets products under
trademark license agreements with various other organizations including DuPont,
WestPoint Stevens, Inc. and the U.S. Postal Service. These license agreements
generally require royalty payments based upon product sales, including payments
of minimum annual royalties, and expire at various future dates from 1997 to
1998. Fieldcrest license agreements expire in 2021.
PRODUCT DEVELOPMENT
The Company's product development staff seeks to create and develop
products with new or superior performance characteristics in cooperation with
various outside sources, including the Company's suppliers and customers. The
Company believes that this ability is an important competitive advantage. As a
result, the Company commits time and resources to identifying new materials,
designs and products from a variety of domestic and international vendors.
In addition to internal product development, the Company's acquisitions
have expanded its product lines and enhanced its manufacturing and other
resources available for developing existing and new product lines.
MANUFACTURING, RAW MATERIALS AND IMPORTS
Pillowtex operates an extensive network of manufacturing and distribution
facilities in Texas, California, Illinois, Mississippi, North Carolina,
Pennsylvania, South Carolina, Tennessee and Toronto, Canada. The Company's
North American manufacturing and distribution network enables Pillowtex to ship
pillows, mattress pads and comforters cost effectively to all major cities in
the United States and Canada. The hub of the network for pillows and comforters
is located in Dallas, Texas, where the Company operates what it believes to be
the largest feather and down processing facility in North America, which yields
significant economies of scale. Feather and down are processed by state-of-
the-art computerized washing and sorting equipment and are sorted into a
variety of mixtures and grades used in manufacturing natural fill pillows and
comforters. The raw materials are shipped along with imported products to
the Company's regional facilities for final assembly and distribution to
customers. The Company also operates an automated sewing facility in Dallas,
Texas, where high speed, computerized machines cut and sew fabric into pillow
shells.
Many of the Company's regional manufacturing facilities produce natural
fill and synthetic fill pillows. Natural fill pillows are assembled by blowing
processed feather and down into the pillow shell and sewing the open seam
closed. Synthetic fill pillows are produced on machines known as garnets that
open, comb and expand compressed polyester fibers. Once expanded, the fibers
are inserted into a pillow shell and the open seam is sewn shut.
Mattress pads are manufactured at the California, Mississippi,
Pennsylvania and Toronto, Canada facilities by two automated methods. The
traditional quilt sewing method uses high-speed equipment that sews the top,
bottom and fill material together. The sonic method fuses the top, bottom and
fill material together.
The Company's line of natural fill comforters are manufactured by the
Company at its California, Illinois, Mississippi, Pennsylvania and Toronto,
Canada locations using processed down from the Dallas facility. The Company
imports the majority of its comforter shells from China, Hong Kong and India.
The Company produces blankets and spins yarn at manufacturing facilities
in North Carolina, South Carolina and Tennessee. These plants provide full
vertical production capability, including spinning, weaving, dyeing and
finishing. During 1996, the Company acquired a 746,600 square foot warehouse in
Mauldin, South Carolina ('Mauldin') to consolidate the operations of four
smaller warehouses in a more central distribution facility.
In November 1996, Pillowtex acquired certain assets from Fieldcrest's blanket
operations, including newer and faster equipment which is being installed at
our existing blanket facilities during the first half of 1997. As with its other
lines of business, the Company plans the continuation of equipment and plant
upgrades over the next several years in order to increase production efficiency
and add capacity.
The Company's quality control program is designed to ensure that its
products meet predetermined quality standards established both internally and by
its customers. The Company has devoted significant resources to support its
quality improvement efforts. Each manufacturing facility is staffed with a
quality control team that identifies and resolves quality issues. The Company
attempts to maintain close contact with customer quality control or other
appropriate personnel to ascertain that the customer's requirements are
consistently satisfied.
The Company analyzes feather and down and other raw materials, as well as
finished products of both the Company and its competitors, at its facilities in
Dallas, Texas. The Company maintains a computerized tracking system to monitor
feather and down processing from the receipt of raw materials through the
delivery of finished products. At the blanket production plants, numerous
distinct quality check points are monitored throughout the manufacturing
process. The Company also has a program with its major suppliers to assure the
consistency of purchased raw materials by imposing strict standards and
materials inspection, and requiring rapid response to the Company's complaints.
The principal raw materials that the Company uses in manufacturing its
products are: feather and down; synthetic (polyester and acrylic), cotton and
wool fibers; and cotton and poly/cotton blend fabrics. The Company imports
feather and down from several sources outside the United States. A majority of
such purchases are from China, where feather and down are by-products of ducks
and geese raised for food. The Company believes that it is currently the
largest United States importer of feather and down from China, the world's
largest producing country. The Company is generally able to purchase feather
and down from its suppliers in China on open credit terms without letters of
credit.
In 1994, certain goods imported from China, including down-filled
comforters, comforter shells and comforter covers, were assigned to a new import
group. The 1994 quota for that group closed in July and, in 1995, the quota
closed in March. As a consequence, the Company made the strategic decision to
markedly accelerate its import schedule in both years in order to purchase the
required goods prior to the closing of the quota. In 1995, the Company
diminished its reliance on imported finished goods from China by manufacturing
more of these products in the United States and Canada and by continuing to
develop relationships with suppliers in other countries, including India. The
Company also opened an office in Hong Kong to facilitate more direct purchases
in China and to develop alternative sources of supply. In 1996, virtually all
down comforters sold by the Company were manufactured in the United States and
Canada. A majority of the comforter shells and comforter covers was purchased
directly by the Company, as was a significant percentage of raw feather and
down, some of which was also obtained through an independent supplier in the
United States. In addition, in 1995 the Company was successful in achieving a
change in the import regulations regarding down comforter shells, which are not
generally manufactured in the United States. Since July 1, 1996, no import
quota restrictions for shells remain, which has allowed the Company to import
shells as needed and thereby reduce inventory carrying costs.
The Company purchases its Adjust-A-Fit -Registered Trademark- mattress pad
Lycra -Registered Trademark- skirting from DuPont. Because of DuPont's patent
on Lycra -Registered Trademark-, it is the exclusive supplier for this material.
The Company believes that the risk that DuPont will cease to manufacture Lycra -
Registered Trademark- and sell skirting to the Company is minimal. The Company
purchases synthetic fiber from, among others, DuPont, Wellman, Inc., Monsanto
Company, Cytec Industries, Inc., Hoechst Celanese Corporation and Kanematsu
U.S.A. Inc. To reduce the effect of potential price fluctuations, the Company
makes commitments from time to time for future purchases of synthetic and
natural fibers. In 1996, the Company experienced some decreases in cotton and
synthetic raw materials prices.
The Company uses fabric purchased from third parties in the production of
pillow shells, comforter covers and various other products. Although the
Company believes that fabric is a commodity-type product that is available from
numerous sources, the Company currently purchases large quantities of pillow
ticking fabric from a single supplier to control costs and quality.
Management of the Company believes relationships with its suppliers are good.
COMPETITION
The Company participates in a highly competitive industry. The Company
competes with a number of established manufacturers, importers and distributors
of home textile furnishings, some of which have greater financial, distribution
and marketing resources. The Company's current competitors consist primarily of
domestic suppliers of bed pillows, blankets, mattress pads, down comforters and
other bedroom textile furnishings. The home fashion products industry also
includes companies that produce bed sheets, towels and other commodity-type
items. A number of these companies do not currently offer the Company's
principal products. There can be no assurance, however, that these companies
will not compete with Pillowtex in the future.
The Company competes on the basis of price, quality, brand names and
service. The Company believes that the principal competitive factors affecting
its business include its sales and marketing expertise, its ability to create
and develop products offering superior performance characteristics, its
relationships with customers and its manufacturing and distribution
capabilities.
GOVERNMENT REGULATION
The Company is subject to various federal, state and local environmental
laws and regulations governing the discharge, storage, handling and disposal of
various substances, including provisions of the California Health and Safety
Code pertaining to air quality management. The Company is also subject to
federal and state laws and regulations that require products such as bed pillows
and comforters to bear product content labels containing specified information,
including their place of origin and fiber content. In addition, the Company's
operations are governed by a variety of federal, state, local and foreign laws
and regulations relating to worker safety and health, advertising, importing and
exporting, and other matters applicable to businesses in general. In 1995, the
Company achieved a change in the import regulations regarding down comforter
shells which are not generally manufactured in the United States. As a result
of this regulatory change, the Company has been able to import comforter shells
on an unlimited and as-needed basis since July 1, 1996. All laws and
regulations are subject to change, and the Company cannot predict what effect,
if any, changes in laws and regulations might have on its business.
BACKLOG
The amount of the Company's backlog orders at any particular time is
affected by a number of factors, including seasonality and scheduling of the
manufacturing and shipment of products. In general, the Company's EDI and
'quick response' capabilities have resulted in shortened lead times between
submission of purchase orders and delivery and lowered the level of backlog
orders. Consequently, the Company believes that the amount of its backlog is
not an appropriate indicator of levels of future production.
EMPLOYEES
As of February 28, 1997, the Company had approximately 3,900 employees.
The Company is subject to the following collective bargaining agreements.
Number of
Union Location Covered Expiration Employees
- --------------------------------- -------------------- ----------- ----------
United Auto Workers Tunica, Mississippi 08/01/99 240
Warehouse, Mail Order, Office,
Technical and Professional
Employees (Teamsters) Chicago, Illinois 02/01/00 140
Union of Needletrades, Industrial
and Textile Employees Lebanon, Tennessee 03/28/97 200
Union of Needletrades, Industrial
and Textile Workers Toronto, Canada 02/28/97 225
Union of Needletrades, Industrial
and Textile Workers Eden, North Carolina 03/01/00 20
To date, none of these unions have engaged in strikes or work stoppages
against the Company. The Company believes that its relationships with both its
union and nonunion employees are good.
ITEM 2. FACILITIES
The following table summarizes selected information concerning certain of the
Company's facilities:
Square Owned/
Location Principal Use Feet Leased (1)
- ------------------ ------------------------------------- -------- -----------
Dallas, TX Headquarters and feather and
down processing 104,000 Owned
Dallas, TX General administration, manufacturing
and distribution 150,000 Owned
Dallas, TX Warehouse 163,000 Leased
Los Angeles, CA Manufacturing and distribution 320,000 Leased
Tunica, MS Manufacturing and distribution 288,000 Owned
Hanover, PA Manufacturing and distribution 291,000 Owned
Rocky Mount, NC Manufacturing and distribution 139,000 Owned
Rocky Mount, NC Manufacturing and distribution 78,000 Leased
Chicago, IL Manufacturing and distribution 121,000 Owned
New York, NY Principal sales office & showroom 12,500 Leased
Monroe, NC Manufacturing and distribution 288,000 Leased
Goodlettsville, TN Warehouse and distribution 158,000 Leased
Lebanon, TN Warehouse and distribution 53,000 Leased
Lebanon, TN Manufacturing 175,000 Owned
Toronto, Ontario Manufacturing and distribution 99,000 Leased
Toronto, Ontario Manufacturing and distribution 60,000 Leased
Swannanoa, NC Manufacturing and distribution 822,000 Owned
Swannanoa, NC Office 30,000 Owned
Swannanoa, NC Outlet Store 5,000 Owned
Swannanoa, NC Warehouse and distribution 573,000 Owned
Asheville, NC Warehouse 177,000 Leased
Asheville, NC Warehouse 254,000 Leased
Asheville, NC Warehouse 185,000 Leased
Westminster, SC Manufacturing and distribution 308,000 Owned
Westminster, SC Office 6,000 Owned
Westminster, SC Warehouse and distribution 284,000 Owned
Westminster, SC Warehouse 29,000 Leased
Westminster, SC Warehouse 54,000 Owned
Newton, NC Manufacturing and distribution 297,000 Leased
Mauldin, SC Warehouse and distribution 747,000 Owned
(1) For additional information concerning the Company's leases, see note 12 of
Notes to Consolidated Financial Statements.
Pillowtex also maintains small sales offices for its sales staff in
Arkansas, California, Massachusetts, Minnesota and North Carolina as well as a
purchasing office in Hong Kong.
On November 19, 1996, the Company purchased a 746,600 square foot warehouse
facility in Mauldin, South Carolina for approximately $8.4 million, to replace
certain leased warehouse facilities and consolidate Beacon's distribution
operations.
The Company believes that its facilities are generally well maintained, in
good operating condition and adequate for its current needs. In 1996, the
Company acquired newer and faster equipment from Fieldcrest for use at its
blanket facilities in North Carolina, South Carolina and Tennessee. The
Company will continue to emphasize improvements at these plants, upgrading the
physical plant and purchasing additional and newer machinery and equipment.
ITEM 3. LEGAL PROCEEDINGS
Louisville Bedding Company ('Louisville') filed a complaint for patent
infringement against the Company in the United States District Court in the
Western District of Kentucky, Louisville Division, on December 21, 1994.
Louisville alleges in its complaint that Pillowtex is manufacturing and selling
mattress pads that infringe patents owned by Louisville. Louisville is seeking
a preliminary and permanent injunction enjoining Pillowtex from continued
infringement on the Louisville patents, an accounting of profits and an
unspecified amount of general damages against Pillowtex for alleged
infringement. In addition, Louisville requests that such unspecified damages be
trebled and seeks costs, interest and reasonable attorneys' fees. The Company
has denied the allegations and is vigorously defending the suit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock, $0.01 par value ('Common Stock'), is listed
for trading on the New York Stock Exchange under the symbol PTX. As of February
28, 1997, the Company had approximately 340 common shareholders of record.
On December 27, 1996, the closing market price of the Common Stock was
$18. The following table reflects the range of high and low selling prices of
the Common Stock for the periods indicated. This information is based on
closing prices as reported by the New York Stock Exchange.
1996 1996 1995 1995
HIGH LOW HIGH LOW
------- ------- ------- -------
First Quarter $12 1/2 $10 1/2 $10 1/8 $8
Second Quarter $13 3/4 $12 $11 1/2 $8 3/4
Third Quarter $14 3/8 $10 5/8 $13 $9 5/8
Fourth Quarter $18 1/4 $12 7/8 $13 $11
Pillowtex paid four quarterly dividends to shareholders of its Common Stock
of $0.05 per share during 1996. The amount of dividends which the Company may
pay is limited under a covenant in the Company's Revolver. See Note 8 of Notes
to Consolidated Financial Statements and 'Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources.'
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
(In thousands, except per share data)
The selected financial data presented below are derived from the Company's
consolidated financial statements for the five years ended December 28, 1996.
The data should be read in conjunction with 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' and the consolidated
financial statements and related notes included elsewhere in this document.
Year Ended
12/31/92 12/31/93(1) 12/31/94(2) 12/30/95 12/28/96
-------- ----------- ----------- -------- --------
STATEMENTS OF EARNINGS DATA:
Net sales . . . . . . . . . .$273,462 291,624 349,520 474,899 490,655
Cost of goods sold. . . . . . 222,611 238,155 294,714 395,922 411,048
-------- ----------- ----------- -------- --------
Gross profit. . . . . . . . . 50,851 53,469 54,806 78,977 79,607
S,G & A expenses. . . . . . . 33,376 29,227 36,399 42,508 41,445
-------- ----------- ----------- -------- --------
Earnings from operations. . . 17,475 24,242 18,407 36,469 38,162
Interest expense. . . . . . . 4,997 3,042 6,361 17,491 13,971
Other expense (income), net . 1,049 - (379) - -
Earnings before income taxes.-------- ----------- ----------- -------- --------
and extraordinary loss . . . 11,429 21,200 12,425 18,978 24,191
Income taxes. . . . . . . . . 529 8,420 4,736 7,509 9,459
-------- ----------- ----------- -------- --------
Earnings before extra-. . . .
ordinary loss. . . . . . . . 10,900 12,780 7,689 11,469 14,732
Extraordinary loss, net . . . - - - - (609)
-------- ----------- ----------- -------- --------
Net earnings. . . . . . . . . 10,900 12,780 7,689 11,469 14,123
Accretion to repurchase price
of common stock subject. . .
to repurchase . . . . . . . 2,500 - - - -
-------- ----------- ----------- -------- --------
Net earnings available to
common stock shareholders. .$ 8,400 12,780 7,689 11,469 14,123
======== =========== =========== ======== ========
Earnings per share before
extraordinary loss . . . . .$ .73 1.08 1.39
Extraordinary loss. . . . . . - - (.06)
----------- -------- --------
Net earnings per share. . . .$ .73 1.08 1.33
=========== ======== ========
PRO FORMA EARNINGS DATA:
Net earnings as reported. . .$ 10,900 12,780
Pro forma adjustment to
provision for income taxes . 3,208 (97)
-------- -----------
Pro forma net earnings. . . .$ 7,692 12,877
======== ===========
Pro forma net earnings
available to common stock
shareholders . . . . . . . .$ 5,192 12,877
======== ===========
Pro forma net earnings per
share. . . . . . . . . . . .$ .80 1.32
======== ===========
Weighted average common
shares outstanding. . . . . 6,505 9,751 10,604 10,618 10,618
OPERATING DATA:
Depreciation and amortization$ 3,104 3,868 6,365 11,994 12,775
Capital expenditures . . . . 5,869 7,135 10,538 12,448 21,040
Cash dividends. . . . . . . . 4,025 2,506 244 531 2,124
BALANCE SHEET DATA:
Working capital . . . . . . .$ 65,567 78,141 122,738 110,128 150,506
P, P & E, net . . . . . . . . 28,301 39,110 81,187 84,567 94,267
Total assets. . . . . . . . . 131,542 180,967 319,544 324,710 375,714
Long-term debt, net of
current portion. . . . . . . 63,599 63,735 177,149 153,472 194,851
Common stock subject to
repurchase . . . . . . . . . 27,500 - - - -
Shareholders' equity . . . . 7,072 69,329 76,478 87,990 100,004
(1) Amounts set forth in 1993 reflect the inclusion of Manetta Home Fashions,
Inc. from August 30, 1993, Tennessee Woolen Mills, Inc. from September 7, 1993
and Torfeaco Industries Limited from December 1, 1993.
(2) Amounts set forth in 1994 reflect the inclusion of Imperial Feather
Company from August 19, 1994 and Beacon Manufacturing Company from December 1,
1994.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company, originally founded in 1954 as a pillow manufacturer,
expanded its product lines through acquisitions into other categories of top-of-
the-bed home textiles including mattress pads, comforters and blankets. The
Company has been successful in integrating these acquisitions into its existing
operations, resulting in increased sales, more efficient distribution and a
broader product line.
The Company originally expanded its product line to include blankets
through the acquisition of Manetta Mills, Inc. ('Manetta') in August 1993 and
Tennessee Woolen Mills, Inc. ('TWM') in September 1993. In addition, in
December 1994, the Company acquired substantially all of the assets of Beacon
Manufacturing Company ('Beacon'), a manufacturer of cotton and synthetic
blankets and throws. The Company expanded its manufacturing operations into
Canada through the acquisition of Torfeaco Industries, Ltd. ('Torfeaco'), a
manufacturer of fashion and synthetic bedding products, in December 1993, and
Imperial Feather Company ('Imperial'), a manufacturer of bedding products,
including natural fill and synthetic bed pillows, down comforters and comforter
covers, in August 1994.
Each of these acquisitions was accounted for under the purchase method
of accounting, and, accordingly, the results of operations of each acquired
company have been included in the Consolidated Statements of Earnings since its
respective acquisition date. Due to the number, magnitude and timing of the
Company's acquisitions, the Company's operating results, as reflected in the
Consolidated Financial Statements, are not directly comparable on a year-to-year
or quarter-to-quarter basis.
In November 1996, the Company purchased certain assets of Fieldcrest
Cannon, Inc.'s ('Fieldcrest') blanket operations, including selected equipment,
inventory and an exclusive long-term license for the use of certain trademarks
and trade names.
On March 17, 1993, the Company completed an initial public offering of
its Common Stock with the issuance of 4,085,000 shares at $14.00 per share. The
Company received net proceeds of $52.1 million after deducting offering costs.
On November 12, 1996, the Company completed a private offering for an aggregate
principal amount of $125 million of 10% Senior Subordinated Notes (the 'Notes')
due November 15, 2006. After deducting offering costs, the Company received net
proceeds of approximately $121.7 million.
INCOME TAXES
From March 1, 1987 until March 23, 1993, the Company elected to be
taxed as an S Corporation under Subchapter S of the Internal Revenue Code and
comparable provisions of certain state tax laws, and, therefore, paid no federal
income taxes and no state taxes in certain states during this period. The
Company paid cash dividends in 1993 and 1994 to fund the payment of the federal
and state income tax liabilities of the Company's shareholders attributable to
its Subchapter S earnings.
RESULTS OF OPERATIONS
The following table presents certain statements of earnings data as a
percentage of sales for the periods indicated and should be read in conjunction
with the Selected Financial Data in Item 6 of this report.
Year Ended 12/31/94 12/30/95 12/28/96
-------- -------- --------
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 84.3 83.4 83.8
Gross profit 15.7 16.6 16.2
Selling, general and
administrative expenses 10.4 9.0 8.4
Earnings from operations 5.3 7.7 7.8
Interest expense 1.8 3.7 2.8
Other income 0.1 - -
Earnings before income taxes and
extraordinary loss 3.6 3.9 4.9
Extraordinary loss - - 0.1
Net earnings 2.2 2.4 2.9
1996 vs. 1995
NET SALES. Net sales were $490.7 million in 1996, representing an increase
of $15.8 million or 3.3% as compared to $474.9 million in 1995. This increase
reflected strong bed pillow, mattress pad and fashion bedding sales, partially
offset by lower sales in the Beacon Division due to a weak retail climate for
blankets.
GROSS PROFIT. Gross profit margins decreased to 16.2% in 1996 from 16.6%
in 1995 due primarily to a highly competitive pricing environment in blankets,
lower blanket sales and start-up operational issues at our Newton cotton yarn
spinning facility, which negatively impacted margins throughout the first half
of 1996. However, margins began to show improvement on a year-over-year basis
during the second half of 1996.
SG&A. Selling, general and administrative ('SG&A') expenses fell by $1.1
million to $41.4 million in 1996, from $42.5 million in 1995, and, as a
percentage of sales, SG&A expenses decreased to 8.4% from 9.0% in the respective
periods. These decreases reflected the Company's continuing success at reducing
these costs.
INTEREST. Interest expense decreased to $14.0 million in 1996, from $17.5
million in 1995. Interest expense fell due to lower borrowings and decreased
average interest rates.
TAXES. The effective tax rate for 1996 decreased to 39.1% compared to
39.6% for 1995, primarily due to lower state taxes.
EXTRAORDINARY LOSS. An extraordinary loss of $0.6 million was recorded in
1996 related to the write-off of deferred finance costs for the Company's term
loan, which was retired with a portion of the proceeds from the private offering
of the Notes.
NET EARNINGS. Net earnings increased to $14.1 million in 1996, from $11.5
million in 1995. As a percentage of sales, net earnings increased to 2.9% in
1996, from 2.4% in 1995.
1995 vs. 1994
NET SALES. Net sales were $474.9 million in 1995, representing an increase
of $125.4 million or 35.9% as compared to sales of $349.5 million in 1994. This
increase resulted primarily from the inclusion of 12 months of sales from Beacon
during 1995. Due to generally weak retail buying conditions, sales of the
Company's core product lines were largely flat.
GROSS PROFIT. Gross profit margins increased to 16.6% in 1995, from 15.7%
in 1994. Margins were supported by product price increases implemented in 1995
and increased operating productivity at the Company's manufacturing facilities,
the latter of which resulted from efficiencies achieved through the further
successful integration of the blanket plants acquired in 1993 and 1994. Margin
increases were offset in part by a sales mix change that included a greater
percentage of blanket sales in 1995, which generally carry lower margins than
the Company's other products, increases in raw material prices and by a higher
percentage of closeout goods in the sales mix.
SG&A. SG&A expenses grew by $6.1 million to $42.5 million in 1995, from
$36.4 million in 1994, due primarily to the acquisition in December 1994 of
Beacon. As a percentage of sales, however, SG&A expenses fell significantly, to
9.0% in 1995, from 10.4% in 1994. This decrease was the result of comprehensive
cost cutting throughout the Company, including expenses related to the
integration of the blanket plants acquired in 1993 and 1994, as well as
reductions in salaries, travel, advertising, professional fees and other general
administrative expenses.
INTEREST. Interest expense increased to $17.5 million in 1995, from $6.4
million in 1994, due to increased debt levels and interest rates. Higher
borrowings related to the acquisition of Beacon in 1994 and the inventory
carrying costs resulting from earlier purchases of certain imported products in
expectation of closure of quota categories applicable to certain goods imported
from China.
TAXES. The effective tax rate in 1995 grew to 39.6%, compared to 38.1% in
1994, due to the expiration of certain tax credits and to a reduction in
tax-exempt earnings.
NET EARNINGS. Net earnings increased to $11.5 million in 1995, from $7.7
million in 1994, as a result of improved gross margins and marked decreases in
SG&A expenses, partially offset by increased interest expense.
LIQUIDITY AND CAPITAL RESOURCES
The primary uses of cash by the Company have historically been to provide
funds for operations, make expenditures for capital improvements, equipment and
facilities, repay indebtedness, pay cash dividends to shareholders, repurchase
shares of common stock and make acquisitions. In 1997, the Company's most
significant capital commitments include the payment of interest, royalty
payments under license agreements, capital improvement expenditures and
operating lease payments.
The Company's principle capital resources included cash flow generated by
operations and borrowings under the Company's $175 million revolving bank credit
facilities (the 'Credit Agreement').
The Company consummated the private offering of the Notes in November 1996,
resulting in proceeds to the Company, net of $3.3 million in financing costs,
of approximately $121.7 million. The Company used these net proceeds (i) to
retire the indebtedness outstanding under the Company's previously existing term
loan of $70.4 million, (ii) to finance the acquisition of certain assets of
Fieldcrest's blanket operations for approximately $28.3 million, (iii) to
temporarily reduce indebtedness under the revolving credit facility (the
'Revolver') by approximately $14.6 million and (iv) to acquire a warehouse
facility in Mauldin, S.C. for approximately $8.4 million.
Concurrently with the private offering of the Notes, the Company amended
and restated the Revolver under its Credit Agreement. The Credit Agreement
provides for borrowings in an aggregate principal amount of up to $175.0
million. Indebtedness under the Credit Agreement is guaranteed by each domestic
subsidiary of the Company and is secured by the Company's accounts receivable
and inventory and by (i) 100% of the capital stock of the Company's domestic
subsidiaries and (ii) 65% of the capital stock of the Company's foreign
subsidiaries. Loans made pursuant to the Credit Agreement may be borrowed,
repaid and reborrowed from time to time until the fifth anniversary of the
establishment of the Credit Agreement, subject to satisfaction of certain
conditions on the date of any such borrowing. As of December 28, 1996, the
outstanding principal balance of the Revolver was $61.0 million. Letters of
credit were outstanding under the Revolver with an aggregate undrawn face amount
of $11.6 million, and unused availability under the Revolver was $102.4 million.
Amounts outstanding under the Credit Agreement bear interest at a rate
based, at the Company's option, upon (i) either NationsBank of Texas, N.A.'s
('NationsBank') base rate or LIBOR (the London Interbank Offered Rate) plus
0.875% or (ii) NationsBank's reserve-adjusted CD rate plus 1.000%. These rates
are subject to decrease based upon the Company's achievement of (i) certain
senior unsecured debt ratings or (ii) certain ratios of funded debt to earnings
before interest, taxes, depreciation and amortization ('EBITDA'). The weighted
average annual interest rate on outstanding borrowings under the Credit
Agreement during 1996 was 7.02%, and the effective rate at December 28, 1996 was
6.39%.
The Company from time to time enters into interest rate swap agreements in
order to minimize the risk of fluctuations in interest rates. Pillowtex
currently has interest rate swap agreements in place covering approximately
$215.0 million of indebtedness which expire at various dates, with some
extending through November 2000, with an average interest rate of 6.24%.
The Credit Agreement contains a number of financial, affirmative and
negative covenants that regulate the Company's operations. Financial covenants
require maintenance of certain ratios of current assets to current liabilities,
funded debt to EBITDA, and minimum cash flow coverages, and require the Company
to maintain a minimum tangible net worth. Negative covenants restrict, among
other things, the incurrence of debt, the existence of liens, transactions with
affiliates, loans, advances and investments by the Company, payment of dividends
and other distributions to shareholders, dispositions of assets, mergers,
consolidations and dissolutions, contingent liabilities, changes in business and
acquisitions. As of December 28, 1996, the Company was in compliance with all
covenants under the Credit Agreement.
In 1995, the Company's capital expenditures were $12.4 million, including a
total of $8.7 million for improvements and equipment purchases related to the
blanket production facilities and approximately $0.3 million related to
Torfeaco. For 1996, the Company's capital expenditures were $21.0 million, most
of which were used to upgrade the physical plants and purchase machinery and
equipment for the blanket facilities, including $6.3 million for equipment
purchased from Fieldcrest. In addition, the Company purchased a warehouse in
Mauldin, South Carolina, for approximately $8.4 million, to replace certain
warehouse facilities leased by Beacon. The Company expects to spend
approximately $12.9 million in 1997, including approximately $10.9 million at
the blanket facilities in North Carolina, South Carolina and Tennessee. The
balance of the capital expenditures for 1997 will be used for regular
maintenance and improvements at the Company's other manufacturing facilities and
to continue the upgrade of the Company's computer system.
On each of March 27, 1996, June 26, 1996, September 26, 1996 and December
16, 1996, the Company paid a cash dividend to shareholders of record on March
13, 1996, June 12, 1996, September 11, 1996 and December 2, 1996, respectively,
of $.05 per share.
Historically, a significant portion of the Company's net sales has been
generated during the second half of the year. During each of the past three
years, sales and earnings from operations during the second half of the year
averaged 60.9% and 72.2%, respectively, of the Company's total sales and
earnings from operations. Consequently, working capital requirements and,
therefore, total debt levels, reach their highest levels as net sales peak in
the third and fourth quarters of the year.
The Company believes that cash flow generated from operations and funds
provided by the Notes and available under the Revolver will be adequate to meet
its working capital and related financing needs for the foreseeable future.
In June 1996, the Financial Accounting Standards Board issued Statement No.
125, 'Accounting for Transfers and Servicing of Financial Assets and
Extinquishments of Liabilities,' which provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishment of
liabilities occurring after December 31, 1996. Statement No. 125 has been
amended by Statement No. 127, which amends the effective date of certain
provisions for these transactions occurring after December 31, 1997. The
management of the Company does not believe that the impact from adopting the
provisions of Statement No. 125 in fiscal year 1998 will be material.
FORWARD-LOOKING INFORMATION
This report and other reports and statements filed by the Company from
time to time with the Securities and Exchange Commission (collectively, 'SEC
Filings') contain or may contain certain forward-looking statements and infor-
mation that are based upon beliefs of, and information currently available to,
the Company's management. When used in SEC Filings, the words 'anticipate,'
'believe,' 'estimate,' 'future,' 'intend,' 'plan,' and similar expressions with
prospective connotations as they relate to the Company and its business identify
forward-looking statements. All forward-looking statements reflect the current
views of the Company with respect to future events and are subject to various
risks, uncertainties and assumptions relating to the Company and its operating
environment which may cause the actual results to vary significantly from those
anticipated. Specific factors that may cause the Company's actual results to
differ from those anticipated in forward-looking statements include the
following:
- generally adverse industry conditions, including further consolidation,
customer bankruptcies and inconsistent consumer demand for some or all
bedroom textile products,
- changes in the competitive environment, including the entry of new
competitors in the manufacture of our primary product lines and greater
foreign import competition,
- the seasonality of the Company's business, which makes it more sensitive
to economic and industry influences during the second half of the year,
- disruption of key supply sources such as China, including changes in
import regulations,
- the loss of key management personnel,
- the loss of key licenses under which the Company markets a significant
percentage of its products, and
- the loss of material customers, such as Wal-Mart and Dayton Hudson, that
each account for over 10% of the Company's revenues, and other important
retailers.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are set forth herein commencing on page F-1.
Schedule II to the financial statements is set forth herein on page S-1.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to the
Company's 1997 Proxy Statement under the captions 'Election of Directors' and
'Executive Officers.'
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's 1997 Proxy Statement under the caption 'Executive Compensation,'
except that the information under the subcaptions 'Compensation Committee Report
on Executive Compensation' and 'Stock Price Performance Graph' is not
incorporated herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's 1997 Proxy Statement under the caption 'Security Ownership of Certain
Beneficial Owners and Management.'
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Company's 1997 Proxy Statement under the captions 'Employment Agreements' and
'Compensation Committee Interlocks and Insider Participation.'
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. CONSOLIDATED FINANCIAL STATEMENTS: PAGE
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 30, 1995 and
December 28, 1996 F-3
Consolidated Statements of Earnings for the years ended
December 31, 1994, December 30, 1995 and December 28, 1996 F-4
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1994, December 30, 1995 and December 28, 1996 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, December 30, 1995 and December 28, 1996 F-6
Notes to Consolidated Financial Statements F-7
2. FINANCIAL STATEMENT SCHEDULE. The following financial statement
schedule of the Company for the fiscal years ended December 31,
1994, December 30, 1995 and December 28, 1996 is filed as part
of this Report and should be read in conjunction with the
Consolidated Financial Statements of the Company.
Schedule II Valuation and Qualifying Accounts Page S-1
3. INDEX TO EXHIBITS
Exhibit
Number Exhibit
- ------- ---------
3.1 Restated Articles of Incorporation of Pillowtex, as amended
3.2 Amendment to Bylaws and Amended and Restated Bylaws as currently in
effect for Pillowtex
4.1 Specimen of Certificate evidencing Common Stock
4.2 Indenture, dated November 12, 1996
10.1 Registration Rights Agreement, dated as of November 12, 1996, by and
among Pillowtex, each domestic subsidiary of Pillowtex and NationsBanc
Capital Markets, Inc., and Merrill Lynch, Pierce, Fenner & Smith,
Incorporated
10.2 Restated Credit Agreement, dated as of November 12, 1996, by and among
Pillowtex and NationsBank of Texas, N.A., as Agent for the Lenders
specified therein (excludes Schedules)
10.3 Form of Swing-Line Note, dated as of November 12, 1996, by and among
Pillowtex and NationsBank of Texas, N.A. (see Exhibit A-1 to Exhibit
10.61)
10.4 Form of Revolving Note, by and among Pillowtex and NationsBank of
Texas, N.A. (see Exhibit A-2 to Exhibit 10.61)
Exhibit
Number Exhibit
- ------- ---------
10.5 Form of Restated Guaranty, by and among Beacon Manufacturing Company,
Manetta Home Fashions, Inc., Tennessee Woolen Mills, Inc., Pillowtex,
Inc., PTEX Holding Company, and Pillowtex Management Services Company
as guarantors, NationsBank of Texas, N.A. as Agent and Pillowtex as
Borrower (see Exhibit B to Exhibit 10.61)
10.6 Form of Restated Security Agreement, by and among Pillowtex as
Debtor/Borrower, NationsBank of Texas, N.A. as Secured Party and
Beacon Manufacturing Company, Manetta Home Fashions, Inc.,Tennessee
Woolen Mills, Inc., Pillowtex, Inc., PTEX Holding Company, and
Pillowtex Management Services Company as Subsidiary Debtors (see
Exhibit C-1 to Exhibit 10.61)
10.7 Asset Purchase Agreement, dated as of October 3, 1996, by and among
Pillowtex and Fieldcrest Cannon, Inc.
10.8 Mississippi Business Finance Corporation Industrial Development
Variable Rate Demand Notes (Pillowtex Corporation Project) Series
1992 Loan Agreement, Indenture of Trust, Promissory Note, Remarketing
and Interest Services Agreement, Placement Agreement, Deed of Trust
and Security Agreement, Bond Fund Trustee Agreement, Reimbursement
Agreement, and Lease Agreement (including First Amendment)
10.9 Second through Fourth Amendment to Mississippi Business Finance
Corporation Industrial Development Variable Rate Demand Notes
(Pillowtex Corporation Project) Loan Agreement
10.10 Deed of Trust (with Security Agreement and Assignment of Rents and
Leases), dated as of July 15, 1988, between Pillowtex and Principal
Mutual Life Insurance Company, as amended, Deed of Trust Note, and
Loan Modification and Amendment Agreement
10.11 Second Loan Agreement Modification and Amendment Agreement dated as
of January 19, 1993, between Pillowtex and Principal Mutual Life
Insurance Company
10.12 Deed of Trust Note dated as of July 15, 1988, from Pillowtex to
Principal Mutual Life Insurance Company
10.13 Loan and Security Agreement dated April 6, 1992, between MetLife
Capital Corporation and Pillowtex, as amended, and including Term
Note dated June 5, 1992
10.14 Pennsylvania Economic Development Financing Authority ('PEDFA')
Economic Development Revenue Bonds 1990 Series C (Silversen-Hanover
Corporation Project), dated April 1, 1990, Indenture of Trust between
PEDFA and First Pennsylvania Bank; Financing Agreement between PEDFA
and Silversen-Hanover Corporation; Bond Placement Agreement among
PEDFA, NCNB National Bank of North Carolina and Silversen-Hanover
Corporation; Reimbursement Agreement between Silversen-Hanover
Corporation and NCNB National Bank of North Carolina; and Form of Bond
10.15 Distribution Agreement, dated February 1, 1995 by and among Beacon
Manufacturing Company, Manetta Home Fashions, Inc.,Tennessee Woolen
Mills, Inc., NEMCOR, Inc., Norm McIntyre, Tim McIntyre and Don
McIntyre
10.16 The Priorities Agreement, dated February 27, 1995, between Toronto
Dominion Bank, Manetta Home Fashions, Inc., Tennessee Woolen Mills,
Inc. and Beacon Manufacturing Company and NEMCOR, Inc.
Exhibit
Number Exhibit
- ------- ---------
10.17 A Guarantee, dated February 27, 1995, between Beacon Manufacturing
Company, Manetta Home Fashions, Inc., Tennessee Woolen Mills, Inc.
and NEMCOR, Inc.
10.18 Security Agreement, dated February 16, 1995, between NEMCOR, Inc. and
Manetta Home Fashions, Inc.
10.19 Security Agreement, dated February 16, 1995, between NEMCOR, Inc. and
Tennessee Woolen Mills, Inc.
10.20 Security Agreement, dated February 16, 1995, between NEMCOR, Inc. and
Beacon Manufacturing Company.
10.21 Amended and Restated Acquisition Agreement dated as of November
30, 1994, by and among David H. Murdock, Beacon Manufacturing Company,
Wiscassett Mills Company, Pillowtex, Be-Ac,Inc., Realmac, Inc., and
Wiscat, Inc.
10.22 Purchase agreement between Coopers & Lybrand and Torfeaco Industries
Limited for certain assets, dated August 19, 1994
10.23 Indenture dated as of February 1, 1994, by and among Torfeaco
Industries Limited and Lodestone Investments Limited, Lese Holdings
Limited, Golden Elms Limited, M. Swadron Limited, and Helsinor
Investments Limited
10.24 Sublicense Agreement, dated as of July 1, 1995, between Pillowtex
and the Ralph Lauren Home Collection
10.25 Lease Agreement dated as of September 18, 1995, between Pillowtex
and Sanwa Business Credit Corp.
10.26 Agreement of Lease dated May 23, 1995, between Ten Seventy One Joint
Venture and Pillowtex
10.27 Lease dated as of March 1, 1977, by and among Torfeaco Industries
Limited and Standa Investment Limited, and Sharon Construction Limited
10.28 Industrial Lease dated as of November 23, 1992, between Angel and
Jean Echevarria and Pillowtex
10.29 Form of Lease dated as of October 12, 1988, between Jimmie D. Smith,
Jr. and Pillowtex
10.30 Form of Equipment Leasing Agreement between BTM Financial & Leasing
Corporation B-4 and Beacon Manufacturing Company, Manetta Home
Fashions, Inc. and Tennessee Woolen Mills, Inc., dated as of June 14,
1996 (without exhibits)
10.31 Employment Agreement dated as of January 1, 1993, between Pillowtex
and Charles M. Hansen, Jr. ('Hansen')
10.32 Amendment to Employment Agreement dated as of July 26, 1993, between
Pillowtex and Hansen
10.33 Form of Employment Agreement dated as of September 1, 1995, between
Pillowtex and each of Christopher N. Baker, Jeffrey D. Cordes and
Scott E. Shimizu
Exhibit
Number Exhibit
- ------- ---------
10.34 Form of Change of Control Agreement dated as of September 1, 1995,
between Pillowtex and each of Christopher N. Baker, Jeffrey D. Cordes
and Scott E. Shimizu
10.35 Form of Confidentiality and Noncompetition Agreement
10.36 Form of Director Indemnification Agreement
10.37 Split Dollar Life Insurance Agreement between Pillowtex and Charles
M. Hansen, Jr. dated July 26, 1993
10.38 Pillowtex Corporation 1993 Stock Option Plan
21.2 List of Principal Operating Subsidiaries
23.1 Consent of Independent Auditors
Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form S-1 (33-57314) filed January 22, 1993 and
amended on February 19, 1993, March 4, 1993, March 15, 1993, and March 17,
1993, which Registration Statement became effective March 17, 1993.
Incorporated by reference to the exhibits filed with Registrant's Form 10-K
filed on March 31, 1994.
Incorporated by reference to the exhibits filed with Registrant's Form 8-K
filed December 14, 1994.
Incorporated by reference to the exhibits filed with Registrant's Form 10-K
filed on March 31, 1995.
Incorporated by reference to the exhibits filed with Registrant's Form 10-Q
filed on August 14, 1995.
Incorporated by reference to the exhibits filed with Registrant's Form
10-Q/A filed on November 14, 1995.
Incorporated by reference to the exhibits filed with Registrant's Form 10-K
filed on March 30, 1996.
Incorporated by reference to the exhibits filed with Registrant's Form 10-Q
filed on May 10, 1996.
Incorporated by reference to the exhibits filed with Registrant's Form 10-Q
filed on August 9, 1996.
Incorporated by reference to the exhibits filed with Registrant's Form S-4
filed on December 12, 1996.
Filed herewith.
(b) Report on Form 8-K.
During the quarter ended December 28, 1996, the Company filed reports
on Form 8-K dated October 23, 1996, announcing the Company's offering of Senior
Subordinated Notes and dated November 18, 1996, reporting the Company's
acquisition of certain assets of Fieldcrest's blanket operations.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/Charles M. Hansen, Jr.
(NAME AND TITLE) Chairman of the Board and Chief Executive Officer
(DATE) March 10, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By (SIGNATURE) /s/Charles M. Hansen, Jr.
(NAME AND TITLE) Chairman of the Board, Chief Executive Officer and Director
(Principal Executive Officer)
(DATE) March 10, 1997
By (SIGNATURE) /s/Jeffrey D. Cordes
(NAME AND TITLE) President, Chief Operating Officer and Director
(Principal Financial and Accounting Officer)
(DATE) March 10, 1997
By (SIGNATURE) /s/Christopher N. Baker
(NAME AND TITLE) Director
(DATE) March 10, 1997
By (SIGNATURE) /s/Scott E. Shimizu
(NAME AND TITLE) Director
(DATE) March 10, 1997
By (SIGNATURE) /s/Mary R. Silverthorne
(NAME AND TITLE) Director
(DATE) March 10, 1997
By (SIGNATURE) /s/William B. Madden
(NAME AND TITLE) Director
(DATE) March 10, 1997
By (SIGNATURE) /s/M. Joseph McHugh
(NAME AND TITLE) Director
(DATE) March 10, 1997
By (SIGNATURE) /s/Paul G. Gillease
(NAME AND TITLE) Director
(DATE) March 10, 1997
PILLOWTEX CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements and Financial Statement Schedule
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . . . .F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 30, 1995 and
December 28, 1996. . . . . . . . . . . . . . . . . . . . . . . . . . . .F-3
Consolidated Statements of Earnings for the years ended
December 31, 1994, December 30, 1995 and December 28, 1996 . . . . . . .F-4
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1994, December 30, 1995 and December 28, 1996 . . . . . . .F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, December 30, 1995 and December 28, 1996 . . . . . . .F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . .F-7
Financial Statement Schedule as of and for the years ended December 31, 1994,
December 30, 1995 and December 28, 1996:
Schedule II - Valuation and Qualifying Accounts . . . . . . . . . . . .S-1
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Pillowtex Corporation:
We have audited the consolidated financial statements of Pillowtex Corporation
and subsidiaries as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pillowtex
Corporation and subsidiaries as of December 30, 1995 and December 28, 1996, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 28, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
Dallas, Texas
February 6, 1997
F-2
PILLOWTEX CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 30, 1995 and December 28, 1996
(Dollars in thousands, except for par value)
ASSETS 1995 1996
--------- ---------
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . $ 411 20
Receivables (note 8):
Trade, less allowance for doubtful accounts of
$2,195 in 1995 and $2,346 in 1996. . . . . . . . . 71,684 78,482
Other . . . . . . . . . . . . . . . . . . . . . . 2,284 4,480
Inventories (notes 4 and 8). . . . . . . . . . . . . 107,404 133,495
Deferred income taxes (note 9) . . . . . . . . . . . 2,419 2,567
Prepaid expenses . . . . . . . . . . . . . . . . . . 1,644 2,613
--------- ---------
Total current assets . . . . . . . . . . . . 185,846 221,657
Property, plant and equipment, net (notes 5 and 8) . . 84,567 94,267
Intangible assets, at cost less accumulated
amortization of $2,500 in 1995 and $3,843 in 1996 . . 51,779 57,113
Other assets . . . . . . . . . . . . . . . . . . . . . 2,518 2,677
--------- ---------
$ 324,710 375,714
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable (note 6). . . . . . . . . . . . . . $ 42,090 45,481
Accrued expenses (note 6). . . . . . . . . . . . . . 21,137 22,156
Current portion of long-term debt (note 8) . . . . . 11,916 1,868
Income taxes payable . . . . . . . . . . . . . . . . 575 1,646
--------- ---------
Total current liabilities. . . . . . . . . . 75,718 71,151
Long-term debt, net of current portion (note 8). . . . 153,472 194,851
Deferred income taxes (note 9) . . . . . . . . . . . . 7,530 9,708
Shareholders' equity (notes 8 and 10):
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. . . . . . . . . . . . . . . . . . 29,666 41,665
Currency translation adjustment. . . . . . . . . . . (209) (194)
--------- ---------
Total shareholders' equity . . . . . . . . . 87,990 100,004
Commitments and contingencies (notes 7 and 12)
--------- ---------
$ 324,710 375,714
========= =========
See accompanying notes to consolidated financial statements.
F-3
PILLOWTEX CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended December 31, 1994, December 30, 1995 and December 28, 1996
(Dollars in thousands, except for per share data)
1994 1995 1996
--------- --------- ---------
Net sales . . . . . . . . . . . . . . . . . . $ 349,520 474,899 490,655
Cost of goods sold . . . . . . . . . . . . . . 294,714 395,922 411,048
--------- --------- ---------
Gross profit . . . . . . . . . . . . . . . . 54,806 78,977 79,607
Selling, general and administrative expenses . 36,399 42,508 41,445
--------- --------- ---------
Earnings from operations . . . . . . . . 18,407 36,469 38,162
Interest expense . . . . . . . . . . . . . . . 6,361 17,491 13,971
Other income, net. . . . . . . . . . . . . . . (379) - -
--------- --------- ---------
5,982 17,491 13,971
--------- --------- ---------
Earnings before income taxes and
extraordinary loss . . . . . . . . . . 12,425 18,978 24,191
Income taxes (note 9). . . . . . . . . . . . . 4,736 7,509 9,459
--------- --------- ---------
Earnings before extraordinary loss . . . 7,689 11,469 14,732
Extraordinary loss, net of income tax benefit
of $391 (note 8) . . . . . . . . . . . . . . - - (609)
--------- --------- ---------
Net earnings . . . . . . . . . . . . . . $ 7,689 11,469 14,123
========= ========= =========
Earnings per common share before extraordinary
loss . . . . . . . . . . . . . . . . . . $ .73 1.08 1.39
Extraordinary loss . . . . . . . . . . . . . . - - (.06)
--------- --------- ---------
Earnings per common share. . . . . . . . . . . $ .73 1.08 1.33
========= ========= =========
See accompanying notes to consolidated financial statements.
F-4
PILLOWTEX CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1994, December 30, 1995 and December 28, 1996
(Dollars in thousands, except for per share data)
Common stock Common stock Additional Currency Total
Number of Par paid-in Retained translation shareholders'
shares value capital earnings adjustment equity
------------- ------------- ------------- ------------- ------------- -------------
Balances at December 31, 1993 10,590,224 $ 106 58,044 11,179 - 69,329
Exercise of stock options 27,498 - 352 - - 352
Dividends declared (note 11) - - - (140) - (140)
Currency translation changes - - - - (752) (752)
Net earnings - - - 7,689 - 7,689
------------- ------------- ------------- ------------- ------------- -------------
Balances at December 31, 1994 10,617,722 106 58,396 18,728 (752) 76,478
Other - - 31 - - 31
Dividends declared ($.05 per share) - - - (531) - (531)
Currency translation changes - - - - 543 543
Net earnings - - - 11,469 - 11,469
------------- ------------- ------------- ------------- ------------- -------------
Balances at December 30, 1995 10,617,722 106 58,427 29,666 (209) 87,990
Dividends declared ($.20 per share) - - - (2,124) - (2,124)
Currency translation changes - - - - 15 15
Net earnings - - - 14,123 - 14,123
------------- ------------- ------------- ------------- ------------- -------------
Balances at December 28, 1996 10,617,722 $ 106 58,427 41,665 (194) 100,004
============= ============= ============= ============= ============= =============
See accompanying notes to consolidated financial statements.
F-5
PILLOWTEX CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1994, December 30, 1995 and December 28, 1996
(Dollars in thousands)
1994 1995 1996
---------- --------- ---------
Cash flows from operating activities:
Net earnings. . . . . . . . . . . . . . . . . . .$ 7,689 11,469 14,123
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . 6,365 11,994 12,775
Deferred income taxes . . . . . . . . . . . . . (174) 3,635 2,030
Loss (gain) on disposal of property,
plant and equipment . . . . . . . . . . . . . (39) 74 40
Changes in operating assets and
liabilities, net of businesses acquired:
Trade receivables. . . . . . . . . . . . . . 11,362 714 (7,040)
Inventories. . . . . . . . . . . . . . . . . (13,526) (172) (26,107)
Accounts payable . . . . . . . . . . . . . . 4,585 (3,698) 6,267
Other assets and liabilities . . . . . . . . (198) 1,869 (1,374)
---------- --------- ---------
Net cash provided by operating activities . 16,064 25,885 714
---------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of property, plant and
equipment. . . . . . . . . . . . . . . . . . . . 156 119 19
Purchases of property, plant and equipment. . . . (10,538) (12,448) (21,040)
Purchase of other assets. . . . . . . . . . . . . (951) - -
Payments for businesses purchased, net of cash
acquired . . . . . . . . . . . . . . . . . . . . (116,253) - -
Other . . . . . . . . . . . . . . . . . . . . . (42) (2,235) (4,112)
---------- --------- ---------
Net cash used in investing activities . . . (127,628) (14,564) (25,133)
---------- --------- ---------
Cash flows from financing activities:
Increase (decrease) in checks not yet
presented for payment. . . . . . . . . . . . . . 853 8,155 (2,526)
Proceeds from issuance of bonds . . . . . . . . . - - 125,000
Retirement of long-term debt. . . . . . . . . . . (6,884) (5,056) (89,357)
Borrowings on revolving credit loans. . . . . . . 103,350 47,150 62,000
Repayments of revolving credit loans. . . . . . . (49,510) (61,500) (66,600)
Proceeds from long-term debt. . . . . . . . . . . 64,750 645 635
Debt issuance costs . . . . . . . . . . . . . . . (3,107) (350) (3,000)
Proceeds from exercise of stock options . . . . . 352 - -
Dividends paid. . . . . . . . . . . . . . . . . . (244) (531) (2,124)
---------- --------- ---------
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . 109,560 (11,487) 24,028
---------- --------- ---------
Effect of exchange rate changes on cash and
cash equivalents. . . . . . . . . . . . . . . . . (11) 6 -
---------- --------- ---------
Net change in cash and cash equivalents. . . . . . (2,015) (160) (391)
Cash and cash equivalents at beginning of year . . 2,586 571 411
---------- --------- ---------
Cash and cash equivalents at end of year . . . . .$ 571 411 20
========== ========= =========
See accompanying notes to consolidated financial statements.
F-6
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands of dollars, except for per share data)
(1) GENERAL
Pillowtex Corporation and subsidiaries ('the Company') operate primarily
in one industry segment which includes the design, manufacture and
marketing of bed pillows, mattress pads, down comforters, blankets, throws
and other bedroom textile furnishings. Virtually all of the Company's
assets are located in North America. The Company supplies its products
primarily to customers in the retail sector, including department stores,
mass merchants, wholesale clubs, specialty retail stores, catalogs and
institutions.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements
of Pillowtex Corporation and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been
eliminated in consolidation.
(b) FISCAL YEAR
Beginning in 1995, the Company's fiscal year ends on the Saturday
closest to December 31. The fiscal year-ends for the consolidated
financial statements presented are December 31, 1994, December 30,
1995 and December 28, 1996.
(c) STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, the Company considers all short-
term investments with original maturities of three months or less to
be cash equivalents.
Supplemental disclosures of cash flow information for the years ended
December 31, 1994, December 30, 1995 and December 28, 1996 follow:
1994 1995 1996
------- ------- -------
Interest paid $ 5,134 15,632 15,234
======= ======= =======
Income taxes paid $ 5,451 3,793 6,483
======= ======= =======
(d) INVENTORIES
Inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
F-7
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands of dollars, except for per share data)
(e) PROPERTY, PLANT AND EQUIPMENT
Depreciation is provided generally using the straight-line method in
amounts sufficient to amortize the cost of the assets over their
estimated useful lives as follows:
Estimated useful life
---------------------
Buildings and improvements 10-30 years
Machinery and equipment 5-12 years
Data processing equipment 5 years
Furniture and fixtures 5 years
Leasehold improvements are amortized over the lesser of the estimated
useful lives of the assets or the remaining term of the lease using
the straight-line method. Interest costs of $273,000 incurred during
the year ended December 28, 1996, for the purchase and construction
of long-term assets were capitalized and are being amortized over the
related assets' estimated useful lives. Renewals and betterments are
capitalized and depreciated over the remaining life of the specific
property unit.
(f) INTANGIBLES
Intangible assets consist primarily of goodwill ($48,079,000 and
$46,667,000 as of December 30, 1995 and December 28, 1996,
respectively) recorded in connection with the Company's acquisitions
(see note 3). Goodwill represents the excess of purchase price over
net identifiable tangible and intangible assets acquired. Additions
to goodwill during 1995 were primarily related to the finalization of
purchase price allocations for previous acquisitions. Amortization
is provided using the straight-line method, the majority of which is
over the estimated useful life of 40 years.
Other intangible assets consist principally of deferred loan costs,
trademarks and noncompete agreements amortized over periods ranging
from 2 to 20 years.
The Company assesses the recoverability of goodwill by determining
whether the amortization of the asset balance over its remaining life
can be recovered through undiscounted future operating cash flows of
the acquired operation. The amount of impairment, if any, is
measured based on projected discounted future operating cash flows.
F-8
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands of dollars, except for per share data)
(g) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED
Of
The Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 121, 'Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,' on
December 31, 1995, the first day of fiscal year 1996. This statement
requires that long-lived assets and certain identifiable intangible
assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs
to sell. Adoption of this statement did not have a material impact
on the Company's consolidated financial statements.
(h) INCOME TAXES
Deferred income taxes are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
(i) STOCK OPTION PLAN
Prior to fiscal year 1996, the Company accounted for its stock option
plan in accordance with the provisions of Accounting Principles Board
('APB') Opinion No. 25, 'Accounting for Stock Issued to Employees,'
and related interpretations. Accordingly, compensation expense was
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. At the beginning of
fiscal year 1996, the Company adopted SFAS No. 123, 'Accounting for
Stock-Based Compensation,' which permits entities to recognize as
expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of APB Opinion No. 25
and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future
years as if the fair-value based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
(j) REVENUE RECOGNITION
Revenue is recognized upon shipment of products. Reserves for sales
returns and allowances are recorded in the same accounting period as
the related revenues.
F-9
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands of dollars, except for per share data)
(k) ADVERTISING EXPENSES
The Company expenses advertising costs as incurred. Advertising
expense was approximately $3,899,000, $3,004,000 and $3,223,000
during the years ended December 31, 1994, December 30, 1995 and
December 28, 1996, respectively.
(l) EARNINGS PER SHARE
Earnings per share for 1994, 1995 and 1996 are based on 10,603,660
weighted average shares of common stock outstanding in 1994 and
10,617,722 weighted average shares of common stock outstanding in
1995 and 1996. Common share equivalents in the form of stock options
are excluded from the earnings per share calculations since they have
no material dilutive effect.
(m) FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The Company's foreign subsidiaries use the local currency as the
functional currency. The assets and liabilities of the Company's
foreign subsidiaries are translated into U.S. dollars using current
exchange rates and revenues and expenses are translated at average
monthly exchange rates. The resulting translation adjustments are
recorded in a separate component of shareholders' equity. Foreign
currency transaction gains and losses are included in the
consolidated statements of earnings and were not material in any of
the years presented.
(n) USE OF ESTIMATES
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(3) ACQUISITIONS
BUSINESSES ACQUIRED
On August 19, 1994, the Company, through its subsidiary, Torfeaco
Industries, Ltd. ('Torfeaco'), purchased certain business assets including
receivables, inventory and fixed assets of Imperial Feather Company of
Canada ('Imperial') for approximately $3,600,000. Imperial was a family-
owned and long-established producer of high quality bedding products,
including natural fill and synthetic bed pillows, down comforters and
comforter covers. The funds for the acquisition were provided by the
Company's revolving credit facility.
F-10
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands of dollars, except for per share data)
On December 1, 1994, the Company purchased substantially all of the net
assets of Beacon Manufacturing Company ('Beacon'), for a purchase price of
$100,823,000 in cash, plus the assumption of approximately $11,028,000 in
liabilities, which were repaid at the time of acquisition. Beacon is a
manufacturer of cotton and synthetic blankets and throws headquartered in
Swannanoa, North Carolina. The funds for this acquisition were provided
primarily from borrowings under a $240,000,000 Credit Facility with
NationsBank of Texas, N.A., which was modified in conjunction with the
acquisition.
These acquisitions have been accounted for as purchases and, accordingly,
results of operations of the acquired companies have been included in the
consolidated statements of earnings since the acquisition dates.
A summary of the assets acquired and liabilities assumed for the year
ended December 31, 1994 follows:
Current assets $ 60,746
Property, plant and equipment 36,566
Intangible assets 32,372
Other assets 28
Current liabilities (13,459)
----------
Cash paid, net of cash acquired $ 116,253
==========
ASSETS ACQUIRED
On November 18, 1996, the Company purchased certain assets of Fieldcrest
Cannon's blanket operations for a purchase price of $28,304,000 in cash.
The acquisition included selected equipment ($6,300,000), inventory
($18,004,000) and an exclusive long-term license for the use of certain
trademarks and tradenames ($4,000,000). The funds for the acquisition
were provided by the Company's private offering of Senior Subordinated
Notes (see note 8).
(4) INVENTORIES
Inventories consist of the following at December 30, 1995 and December 28,
1996:
1995 1996
--------- ---------
Finished goods $ 37,670 56,085
Work-in-process 35,980 33,436
Raw materials 31,851 41,955
Supplies 1,903 2,019
--------- ---------
$ 107,404 133,495
========= =========
Inventory balances are net of inventory reserves of approximately
$2,525,000 and $3,285,000 at December 30, 1995 and December 28, 1996,
respectively.
F-11
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands of dollars, except for per share data)
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and consist of the
following at December 30, 1995 and December 28, 1996:
1995 1996
--------- ---------
Land $ 1,504 2,847
Buildings and improvements 35,676 44,713
Machinery and equipment 69,364 74,580
Data processing equipment 4,342 6,714
Furniture and fixtures 3,006 2,070
Leasehold improvements 1,205 1,403
Projects in progress 2,881 5,660
--------- ---------
117,978 137,987
Less accumulated depreciation
and amortization (33,411) (43,720)
--------- ---------
$ 84,567 94,267
========= =========
(6) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable includes $11,757,000 at December 30, 1995 and $9,231,000
at December 28, 1996 of checks not yet presented for payment on zero
balance disbursement accounts.
Accrued expenses consist of the following at December 30, 1995 and December
28, 1996:
1995 1996
--------- ---------
Accrued customer rebates $ 3,477 5,220
Employee-related compensation
and benefits 5,166 4,159
Accrued advertising 2,875 927
Accrued royalties and commissions 3,560 4,831
Accrued insurance and worker's
compensation reserves 1,095 2,117
Accrued interest and commitment
fees 3,085 1,831
Other accrued expenses 1,879 3,071
--------- ---------
$ 21,137 22,156
========= =========
F-12
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands of dollars, except for per share data)
(7) PENSION PLAN
The Company has a defined benefit pension plan covering substantially all
of its non-union employees. The Company's funding policy provides for
annual contributions of an amount between the minimum required and maximum
amount that can be deducted for federal income tax purposes. Pension plan
assets consist primarily of investments in publicly traded corporate
common stocks and bonds, as well as U.S. government obligations.
Net pension expense includes the following components for the years ended
December 31, 1994, December 30, 1995 and December 28, 1996:
1994 1995 1996
-------- -------- --------
Service cost $ 339 585 766
Interest cost on projected
benefit obligation 381 402 523
Actual (return) loss on plan assets 163 (1,041) (564)
Net amortization and deferral (518) 684 133
-------- -------- --------
Net pension expense $ 365 630 858
======== ======== ========
A reconciliation of the funded status of the pension plan at December 30,
1995 and December 28, 1996 follows:
1995 1996
--------- ---------
Actuarial present value of accumulated benefit
obligations:
Vested benefit obligation $ 5,032 5,492
Nonvested benefit obligation 226 421
--------- ---------
Accumulated benefit obligation $ 5,258 5,913
========= =========
Projected benefit obligation for services
rendered to date (6,441) (7,286)
Pension plan assets at fair value 5,338 6,275
--------- ---------
Pension plan assets less than
projected benefit obligation (1,103) (1,011)
Unrecognized net asset at March 1, 1987 being
recognized over 17 years (68) (60)
Unrecognized prior service costs 278 243
Amortization and deferral of net (gains)
and losses 293 (88)
--------- ---------
Net pension liability included in
accrued expenses $ (600) (916)
========= =========
F-13
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands of dollars, except for per share data)
The following assumptions were used in determining the actuarial present
value of the projected benefit obligation and net pension expense:
1994 1995 1996
------ ------ ------
Discount rate 8.75% 7.25 7.75
Rate of increase in future
compensation 5.0 4.0 4.0
Expected long-term rate of
return on assets 8.5 8.5 8.5
(8) LONG-TERM DEBT
Long-term debt consists of the following at December 30, 1995 and December
28, 1996:
1995 1996
--------- ---------
10% Senior Subordinated Notes due 2006 $ - 125,000
Revolver 65,600 61,000
Term loan 87,500 -
Deed of trust note, collateralized by land
and buildings, with interest at 10.5%
per annum, payable in monthly
installments of approximately $49,
maturing on July 1, 1998 3,039 2,762
Industrial revenue bonds - Pennsylvania
Economic Development Financing Authority
(PEDFA), collateralized by land and
building, with variable rate interest
(7.35% to 7.85% per annum) maturing
serially in annual amounts ranging from
$355 to $640 through April 1, 2002 3,645 3,235
Industrial revenue bonds - Mississippi
Business Finance Corporation,
collateralized by land, building and
equipment, with variable rate interest
(2.75% to 4.5% per annum) payable
monthly and annual principal payments
of $460 beginning July 1, 1995 and
maturing on July 1, 2004 4,140 3,680
Other 1,464 1,042
--------- ---------
165,388 196,719
Less current portion (11,916) (1,868)
--------- ---------
$ 153,472 194,851
========= =========
F-14
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands of dollars, except for per share data)
On November 12, 1996, the Company completed a private offering of
$125,000,000 of 10% Senior Subordinated Notes (the 'Notes') due November
15, 2006 with interest payable semiannually, commencing May 15, 1997. The
Company used the proceeds to retire the outstanding indebtedness under the
Company's previously existing term loan, to finance the acquisition of
certain assets of Fieldcrest Cannon's blanket operations (see note 3), to
temporarily reduce indebtedness under the Revolver and to acquire a
warehouse facility. In connection with the retirement of the term loan,
the Company charged the related unamortized deferred loan costs to expense
resulting in an extraordinary loss on debt extinguishment of $609,000, net
of related income taxes of $391,000.
The Notes do not have a mandatory redemption; however, the Company may
redeem the Notes on or after November 15, 2001 in whole or in part. The
Notes are general unsecured obligations of the Company, subordinated in
right of payment to all existing and future senior indebtedness, including
borrowings under the credit facility described below. Upon a change in
control, the Company will be required to make an offer to repurchase all
outstanding Notes at 101% of the principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the date of repurchase.
The Notes are unconditionally guaranteed on a senior subordinated basis by
each of the existing and future domestic subsidiaries of the Company and
each other subsidiary of the Company that guarantees the Company's
obligations under the credit facility described below (see note 15). The
guarantees are subordinated in right of payment to all existing and future
senior indebtedness of the relevant guarantor.
The Notes are subject to certain covenants which restrict, among other
things, the Company's ability to incur additional indebtedness and issue
preferred stock, incur liens to secure subordinated indebtedness, pay
dividends or make certain other restricted payments, apply net proceeds
from certain asset sales, enter into certain transactions with affiliates,
incur indebtedness that is subordinate in right of payment to any senior
indebtedness and senior in right of payment to the Notes, merge or
consolidate with any other person, sell stock of subsidiaries or sell,
assign, transfer, lease, convey or otherwise dispose of substantially all
of the assets of the Company. As of December 28, 1996, the Company was in
compliance with all covenants under the Notes.
Concurrently with the private offering of the Notes, the Company entered
into an Amended and Restated Credit Facility (the 'Facility') with a group
of banks for which NationsBank of Texas, N.A. ('NationsBank') acts as
Agent. The Facility replaced a prior credit agreement with NationsBank
and a syndicate of banks, and provides for a $175,000,000 revolving credit
line (the 'Revolver') with a term of five years expiring November 11,
2001. As of December 28, 1996, letters of credit were outstanding under
the Revolver with an aggregate undrawn face amount of $11,645,000 and
unused availability under the Revolver was $102,355,000.
Amounts outstanding under the Facility bear interest at a rate based, at
the Company's option, upon (i) either NationsBank's base rate or LIBOR
(the London Interbank Offered Rate) plus 0.875% or (ii) NationsBank's
reserve-adjusted CD rate plus 1.000%. These rates are subject to decrease
based upon the Company's achievement of (i) certain senior unsecured debt
ratings or (ii) certain ratios of funded debt to earnings before interest,
taxes, depreciation and amortization ('EBITDA'). The weighted average
annual interest rate on outstanding borrowings under the Credit Agreements
during 1996 was 7.02% and the effective rate at December 28, 1996 was
6.39%.
F-15
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands of dollars, except for per share data)
The Company enters into interest rate swap agreements to minimize the risk
of fluctuations in interest rates. The Company currently has interest
rate swap agreements in place covering approximately $215,000,000 of
indebtedness which expire at various dates with some extending through
November 2000, with an average interest rate of 6.24%.
The Facility is secured by a pledge of the receivables and inventory of
the Company and its domestic subsidiaries, 100% of the present and future
capital stock of all of the Company's present and future direct and
indirect domestic subsidiaries, and approximately 65% of the present and
future capital stock of all of the Company's present and future foreign
subsidiaries.
The Facility contains a number of financial, affirmative and negative
covenants which, among other things, require maintenance of certain ratios
of current assets to current liabilities, funded debt to EBITDA, and cash
flow coverages, and require the Company to maintain a minimum tangible net
worth. Negative covenants restrict, among other things, the incurrence of
debt, the existence of liens, transactions with affiliates, loans,
advances and investments by the Company, payment of dividends and other
distributions to shareholders, dispositions of assets, mergers,
consolidations and dissolutions, contingent liabilities, changes in
business and acquisitions. As of December 28, 1996, the Company was in
compliance with all covenants under the Facility.
The interest rates on the deed of trust note and industrial revenue bonds
differ from current market rates. The fair value of these financial
instruments, estimated by discounting the future cash flows using rates
currently available, is approximately $9,654,000 and $9,492,000 at
December 30, 1995 and December 28, 1996, respectively. Other debt is at
current market rates; therefore, the fair value approximates carrying
value.
Aggregate maturities of long-term debt for each of the five years
following December 28, 1996 and thereafter, assuming the unpaid principal
balance at December 28, 1996 under the Revolver remains unchanged, are as
follows:
Year ending Amount
-------------- ----------
1997 $ 1,868
1998 3,672
1999 1,084
2000 1,015
2001 62,060
Thereafter 127,020
F-16
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands of dollars, except for per share data)
(9) INCOME TAXES
The components of income tax expense are as follows:
1994 1995 1996
------- ------- -------
U.S. federal - current $ 4,159 2,632 6,604
U.S. federal - deferred (40) 3,412 1,793
State and foreign taxes - current 751 1,242 825
State and foreign taxes - deferred (134) 223 237
------- ------- -------
$ 4,736 7,509 9,459
======= ======= =======
A reconciliation of income tax expense computed using the U.S. federal
statutory income tax rate of 35% of earnings before income taxes and
extraordinary loss to the actual provision for income taxes follows:
1994 1995 1996
------- ------- -------
Expected tax at U.S. statutory rate $ 4,349 6,642 8,467
State and foreign taxes, net of
federal benefit 414 652 555
Nondeductible meals and
entertainment expenses 170 162 166
Other (197) 53 271
------- ------- -------
$ 4,736 7,509 9,459
======= ======= =======
F-17
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands of dollars, except for per share data)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 30,
1995 and December 28, 1996 are presented below:
1995 1996
-------- --------
Net deferred tax assets:
Inventory costs and reserves $ 760 1,113
Accrued employee benefits 287 422
Allowance for doubtful accounts 266 544
State deferred taxes 1,106 488
-------- --------
Current deferred tax asset 2,419 2,567
-------- --------
Net deferred tax liabilities:
Package design costs 141 336
Depreciable assets (5,830) (9,057)
State deferred income taxes (1,008) (562)
Goodwill (633) (565)
Other (200) 140
-------- --------
Noncurrent deferred tax liability (7,530) (9,708)
-------- --------
Net deferred tax liability $(5,111) (7,141)
======== ========
(10) STOCK OPTIONS
Effective February 17, 1993, the Company established a stock option plan,
under which options may be granted to eligible employees and nonemployee
directors of the Company. Under the stock option plan, the Board of
Directors may grant either nonqualified stock options or incentive stock
options. Additionally, the plan provides for the reservation and issuance
of up to 1,200,000 shares of the Company's common stock.
At December 28, 1996, there were 689,135 additional shares available for
grant under the stock option plan. The per share weighted-average fair
value of stock options granted during 1995 and 1996 was $2.75 and $4.65,
respectively, on the date of grant using the Black Scholes option-pricing
model with the following weighted-average assumptions:
1995 1996
------- -------
Expected dividend yield 1.14% 1.14
Stock price volatility 38.82% 38.82
Risk-free interest rate 6.66% 6.16
Expected option term 5 years 5 years
F-18
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands of dollars, except for per share data)
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option plan and, accordingly, no compensation
cost has been recognized for its stock options in the consolidated
financial statements. Had the Company determined compensation cost based
on the fair value at the grant date for its stock options under SFAS No.
123, the Company's net earnings and earnings per share would have been
reduced to the pro forma amounts indicated below:
1995 1996
-------- --------
Net earnings:
As reported $ 11,469 14,123
Pro forma 11,443 13,986
Earnings per share:
As reported 1.08 1.33
Pro forma 1.08 1.32
Pro forma net earnings reflects only options granted in 1995 and 1996.
Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net earnings
amounts presented above because compensation cost is reflected over the
options' vesting period of four years and compensation cost for options
granted prior to January 1, 1995 is not considered.
All options are granted at an exercise price not less than the fair market
value of the common stock at the date of grant. The option period may not
be more than ten years from the date the option is granted and generally
the options may be exercised ratably over a four-year period or as
otherwise specified by the Board of Directors.
A summary of option activity during 1994, 1995 and 1996 follows:
Shares Exercise price ($)
--------- ------------------
Outstanding at December 31, 1993
(no shares exercisable) 447,871 14.00 - 14.88
Granted 86,431 15.13 - 19.00
Canceled (142,863) 14.00 - 14.88
Exercised (27,498) 14.00
---------
Outstanding at December 31, 1994
(69,378 shares exercisable) 363,941 14.00 - 19.00
Granted 187,000 8.88 - 14.00
Canceled (114,002) 8.88 - 19.00
---------
Outstanding at December 30, 1995
(130,719 shares exercisable) 436,939 8.88 - 19.00
Granted 225,500 12.00 - 15.75
Canceled (151,574) 8.88 - 19.00
---------
Outstanding at December 28, 1996
(176,345 shares exercisable) 510,865 8.88 - 19.00
=========
F-19
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands of dollars, except for per share data)
(11) RELATED PARTY TRANSACTIONS
Dividends payable to the former Subchapter S shareholders were declared
and paid in 1994 to satisfy certain federal and state tax liabilities
attributable to their share of earnings during the period that the Company
was a Subchapter S corporation for tax purposes.
(12) COMMITMENTS AND CONTINGENT LIABILITIES
Manufacturing facilities at certain locations, a showroom and warehouse
space are leased under noncancelable operating lease agreements. These
leases generally require the Company to pay all executory costs such as
maintenance and taxes. Rental expense for operating leases was
approximately $1,928,000, $3,061,000 and $5,285,000 during 1994, 1995 and
1996, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) which expire at
various dates through 2005 are as follows:
Year ending Amount
----------- --------
1997 $ 5,381
1998 4,510
1999 3,660
2000 2,904
2001 2,391
Thereafter 5,606
From time to time, the Company is a party to various legal proceedings
arising in the ordinary course of business. While any proceeding or
litigation has an element of uncertainty, management believes that the
final outcome of all matters currently pending will not have a materially
adverse effect on the Company's financial position or results of
operations.
(13) SEGMENT DATA AND CONCENTRATION OF CREDIT RISK
The Company's customers are located primarily throughout the United States
and Canada and concentration of credit risks with respect to the Company's
unsecured trade receivables is considered to be limited. Although the
Company closely monitors the creditworthiness of its customers, adjusting
credit policies and limits as needed, a customers' ability to pay is
largely dependent upon the retail industry's economic environment.
The Company establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific customers, historical
trends, and other information. The Company has trade receivables which
are due from certain customers who are experiencing financial
difficulties. However, in the opinion of management of the Company, the
allowance for doubtful accounts is adequate and trade receivables are
presented at net realizable value.
Sales to the Company's two individual major customers, including their
affiliated entities, accounted for approximately 13% each of net sales in
1994, 14% and 13% in 1995 and 14% and 13% in 1996. Sales to foreign
customers were approximately 9% of net sales in 1994, 8% in 1995 and 7% in
1996.
F-20
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands of dollars, except for per share data)
(14) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables present unaudited financial data of the Company for
each quarter of 1995 and 1996:
1995 quarter ended
---------------------------------------------------
April 1 July 1 September 30 December 30
------------ ------------ ------------ ------------
Net sales $ 94,740 90,788 146,824 142,547
Gross profit 16,454 16,126 24,365 22,032
Net earnings 1,162 1,088 4,738 4,481
Earnings per common
share .11 .10 .45 .42
1996 quarter ended
---------------------------------------------------
March 30 June 29 September 28 December 28
------------ ------------ ------------ ------------
Net sales $ 100,794 91,185 143,791 154,885
Gross profit 15,568 15,615 24,315 24,109
Earnings before
extraordinary loss 941 1,491 6,122 6,178
Net earnings 941 1,491 6,122 5,569
Earnings per common
share .09 .14 .58 .52
F-21
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands of dollars, except for per share data)
(15) SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following is summarized condensed consolidating financial information
for the Company, segregating the Parent and guarantor subsidiaries from
nonguarantor subsidiaries. The guarantor subsidiaries are wholly owned
subsidiaries of the Company and guarantees are full, unconditional and
joint and several. Separate financial statements of the guarantor
subsidiaries are not presented because management believes that these
financial statements would not be material to investors.
December 30, 1995 December 28, 1996
-------------------------------------- --------------------------------------
Parent and Non- Parent and Non-
Guarantor Guarantor Guarantor Guarantor
Financial Position Subsidiaries Subsidiaries Consolidated Subsidiaries Subsidiaries Consolidated
------------------ ------------ ------------ ------------ ------------ ------------ ------------
Assets
Receivables:
Trade $ 66,854 4,830 71,684 73,439 5,043 78,482
Affiliates 8,795 - - 4,283 - -
Inventories 95,710 11,694 107,404 125,803 7,692 133,495
Other current assets 5,699 1,059 6,758 8,944 736 9,680
------------ ------------ ------------ ------------ ------------ ------------
Total current assets 177,058 17,583 185,846 212,469 13,471 221,657
Property, plant and equipment,
net 81,574 2,993 84,567 91,381 2,886 94,267
Intangible assets 49,042 2,737 51,779 54,454 2,659 57,113
Other assets 2,518 - 2,518 2,677 - 2,677
------------ ------------ ------------ ------------ ------------ ------------
Total assets $ 310,192 23,313 324,710 360,981 19,016 375,714
============ ============ ============ ============ ============ ============
December 30, 1995 December 28, 1996
-------------------------------------- --------------------------------------
Parent and Non- Parent and Non-
Guarantor Guarantor Guarantor Guarantor
Financial Position Subsidiaries Subsidiaries Consolidated Subsidiaries Subsidiaries Consolidated
------------------ ------------ ------------ ------------ ------------ ------------ ------------
Liabilities and Shareholders'
Equity
Accounts payable and accrued
liabilities $ 59,305 3,922 63,227 64,534 3,103 67,637
Accounts payable - affiliates - 8,795 - - 4,283 -
Other current liabilities 12,452 39 12,491 3,347 167 3,514
------------ ------------ ------------ ------------ ------------ ------------
Total current liabilities 71,757 12,756 75,718 67,881 7,553 71,151
Noncurrent liabilities 160,370 632 161,002 203,928 631 204,559
Shareholders' equity 78,065 9,925 87,990 89,172 10,832 100,004
------------ ------------ ------------ ------------ ------------ ------------
Total liabilities and
shareholders' equity $ 310,192 23,313 324,710 360,981 19,016 375,714
============ ============ ============ ============ ============ ============
F-22
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands of dollars, except for per share data)
Year Ended December 31, 1994 Year Ended December 30, 1995
-------------------------------------- --------------------------------------
Parent and Non- Parent and Non-
Guarantor Guarantor Guarantor Guarantor
Results of Operations Subsidiaries Subsidiaries Consolidated Subsidiaries Subsidiaries Consolidated
--------------------- ------------ ------------ ------------ ------------ ------------ ------------
Net sales $ 322,124 27,396 349,520 437,658 37,241 474,899
Cost of goods sold 269,008 25,706 294,714 361,749 34,173 395,922
------------ ------------ ------------ ------------ ------------ ------------
Gross profit 53,116 1,690 54,806 75,909 3,068 78,977
Selling, general and administrative 35,128 1,271 36,399 40,771 1,737 42,508
------------ ------------ ------------ ------------ ------------ ------------
Earnings from operations 17,988 419 18,407 35,138 1,331 36,469
Interest expense and other, net 6,369 (387) 5,982 17,482 9 17,491
------------ ------------ ------------ ------------ ------------ ------------
Earnings before income taxes
and extraordinary loss 11,619 806 12,425 17,656 1,322 18,978
Income taxes 4,694 42 4,736 7,101 408 7,509
------------ ------------ ------------ ------------ ------------ ------------
Earnings before extraordinary
loss 6,925 764 7,689 10,555 914 11,469
Extraordinary loss - - - - - -
------------ ------------ ------------ ------------ ------------ ------------
Net earnings $ 6,925 764 7,689 10,555 914 11,469
============ ============ ============ ============ ============ ============
Year Ended December 28, 1996
--------------------------------------
Parent and Non-
Guarantor Guarantor
Results of Operations Subsidiaries Subsidiaries Consolidated
--------------------- ------------ ------------ ------------
Net sales $ 459,175 31,480 490,655
Cost of goods sold 382,314 28,734 411,048
------------ ------------ ------------
Gross profit 76,861 2,746 79,607
Selling, general and administrative 39,827 1,618 41,445
------------ ------------ ------------
Earnings from operations 37,034 1,128 38,162
Interest expense and other, net 13,991 (20) 13,971
------------ ------------ ------------
Earnings before income taxes
and extraordinary loss 23,043 1,148 24,191
Income taxes 9,250 209 9,459
------------ ------------ ------------
Earnings before extraordinary
loss 13,793 939 14,732
Extraordinary loss (609) - (609)
------------ ------------ ------------
Net earnings $ 13,184 939 14,123
============ ============ ============
F-23
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands of dollars, except for per share data)
Year Ended December 31, 1994 Year Ended December 30, 1995
-------------------------------------- --------------------------------------
Parent and Non- Parent and Non-
Guarantor Guarantor Guarantor Guarantor
Cash Flows Subsidiaries Subsidiaries Consolidated Subsidiaries Subsidiaries Consolidated
---------- ------------ ------------ ------------ ------------ ------------ ------------
Cash provided by (used in)
operating activities $ 24,400 (8,336) 16,064 23,852 2,033 25,885
Cash used in investing activities (125,414) (2,214) (127,628) (13,883) (681) (14,564)
Cash provided by (used in)
financing activities 99,590 9,970 109,560 (10,132) (1,355) (11,487)
Effect of exchange rate changes on
cash and cash equivalents - (11) (11) - 6 6
------------ ------------ ------------ ------------ ------------ ------------
Net change in cash and cash
equivalents (1,424) (591) (2,015) (163) 3 (160)
Cash and cash equivalents at
beginning of year 1,993 593 2,586 569 2 571
------------ ------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at
end of year $ 569 2 571 406 5 411
============ ============ ============ ============ ============ ============
Year Ended December 28, 1996
--------------------------------------
Parent and Non-
Guarantor Guarantor
Cash Flows Subsidiaries Subsidiaries Consolidated
---------- ------------ ------------ ------------
Cash provided by (used in)
operating activities $ (9,525) 6,239 (3,286)
Cash used in investing activities (20,561) (572) (21,133)
Cash provided by (used in)
financing activities 29,692 (5,664) 24,028
Effect of exchange rate changes on
cash and cash equivalents - - -
------------ ------------ ------------
Net change in cash and cash
equivalents (394) 3 (391)
Cash and cash equivalents at
beginning of year 406 5 411
------------ ------------ ------------
Cash and cash equivalents at
end of year $ 12 8 20
============ ============ ============
F-24
SCHEDULE II
PILLOWTEX CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1994, December 30, 1995 and December 28, 1996
(Dollars in thousands)
Additions Deductions
----------------------------- ------------
Balance at Charged to Charged Balance
beginning costs and to other Write-offs/ at end of
Description of period expenses Accounts (recoveries) period
- ----------- ------------ ------------ ------------ ------------ ------------
Allowance for doubtful accounts:
Year ended December 31, 1994 $ 1,773 390 962(2) 192(1) 2,933
============ ============ ============ ============ ============
Year ended December 30, 1995 $ 2,933 685 176(3) 1,599(1) 2,195
============ ============ ============ ============ ============
Year ended December 28, 1996 $ 2,195 210 (89) (30)(1) 2,346
============ ============ ============ ============ ============
Inventory reserves:
Year ended December 31, 1994 $ 2,711 1,335 1,916(2) 40 5,922
============ ============ ============ ============ ============
Year ended December 30, 1995 $ 5,922 1,416 (3,186) 1,627 2,525
============ ============ ============ ============ ============
Year ended December 28, 1996 $ 2,525 2,130 - 1,370 3,285
============ ============ ============ ============ ============
(1) Accounts written off, less recoveries.
(2) Reserves for acquired companies as of the date of acquisition.
(3) Adjustments to the reserves for acquired companies after the date of
acquisition.
S-1