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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 3, 1998
_____ 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
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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
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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 March 20, 1998 was $389,930,943.
As of March 20, 1998, Registrant had 14,016,422 shares of Common Stock
outstanding.
__________________
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1997 Annual Report to Shareholders and the
Registrant's Proxy Statement for its 1998 Annual Meeting of Shareholders are
incorporated by reference in Parts II, III, and IV hereof.
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UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES TO THE "COMPANY" INCLUDE
PILLOWTEX CORPORATION AND ITS SUBSIDIARIES.
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This report and other reports and statements, including those incorporated
by reference herein, filed by the Company from time to time with the Securities
and Exchange Commission (collectively, "Company SEC Filings") contain or may
contain certain forward-looking statements. Such statements are based upon the
beliefs and assumptions of, and on information available to, the Company's
management. Any statements preceded by, followed by, or that include the words
"anticipates," "believes"' "expects," "estimates," "intends," or similar
expressions contained in Company SEC Filings, as well as any other statements
contained in Company SEC Filings regarding matters that are not historical
facts, are or may constitute forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995.
Because such forward-looking statements are subject to various risks and
uncertainties, results and values may differ materially from those expressed in
or implied by such statements. Many of the factors that will determine these
results and values are beyond the Company's ability to control or predict. The
Company's shareholders are cautioned not to place undue reliance on such
statements, which speak only as of the date of the document in which they are
contained.
The Company's shareholders should understand that the following important
factors, in addition to those discussed elsewhere in Company SEC Filings, could
affect the Company's future results and could cause results and values to differ
materially from those expressed in or implied by such forward-looking
statements: (i) the Company's significant leverage and debt service
obligations; (ii) the restrictive covenants contained in the instruments
governing the Company's indebtedness; (iii) the Company's ability to achieve
certain cost savings; (iv) the Company's ability to integrate acquired
operations successfully with existing operations; (v) the price and availability
of raw materials used by the Company; (vi) general retail industry conditions;
(vii) the Company's ability to renew key trademark licenses; (viii) the goodwill
associated with the brand names owned by the Company and the Company's ability
to protect its proprietary rights in such brand names; (ix) the Company's
ability to retain key customers; (x) the Company's relationships with both union
and nonunion employees; (xi) the influence of significant shareholders of the
Company; (xii) the Company's dependence on key management personnel; and
(xiii) the seasonality of the Company's business. The foregoing factors are
discussed in greater detail under the caption "Risk Factors" in each of the
Joint Proxy Statement/Prospectus forming a part of the Company's Registration
Statement on Form S-4 (No. 333-36663) and the Prospectus forming a part of the
Company's Registration Statement on Form S-4 (No. 333-46209).
PART I
ITEM 1. BUSINESS
RECENT DEVELOPMENTS
On December 19, 1997, a wholly owned subsidiary of the Company was merged
with and into Fieldcrest Cannon, Inc. ("Fieldcrest"), whereupon Fieldcrest
became a wholly owned subsidiary of the Company. Since the consummation of such
merger (the "Fieldcrest Merger"), the Company has disposed of certain non-core
business assets of Fieldcrest for approximately $38.7 million in cash. The
Company plans to continue to evaluate certain Fieldcrest properties and lines of
business unrelated to its core home textile business of towels, bath rugs,
sheets and fashion bedding and expects to enter into additional agreements for
the disposal of such properties and businesses. See "- Products - Traditional
Fieldcrest Product Lines - Disposition of Certain Non-Core Business Assets."
On January 20, 1998, the Company announced that it was consolidating its
four blanket production locations into two facilities in Swannanoa, North
Carolina and Westminster, South Carolina. In connection with such
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consolidation, the Company intends to close certain facilities operated by its
subsidiaries, Manetta Home Fashions, Inc. and Tennessee Woolen Mills, Inc.
GENERAL
The Company, founded in 1954, is a leading North American designer,
manufacturer, and marketer of home textile products, offering a full line of bed
pillows, sheets, blankets, mattress pads, down comforters, towels, bath rugs,
and other home textile products. The Company markets to major mass merchants,
department stores, and specialty retail stores, providing its customers a
centralized "one-stop" source for their home textile merchandise. The Company
also markets products to wholesale clubs, catalog merchants, and institutional
distributors.
COMPETITIVE STRENGTHS
The Company's management team believes the following competitive strengths
enhance the Company's position in the marketplace:
- INDUSTRY LEADING BRANDS: As a result of the Fieldcrest Merger, the
Company owns some of the most recognizable brand names in the industry,
including Royal Velvet-Registered Trademark-, Cannon-Registered Trademark-,
Fieldcrest-Registered Trademark-, Royal Family-Registered Trademark-,
Caldwell-Registered Trademark-, Charisma-Registered Trademark-, St.
Mary's-Registered Trademark-, and Touch of Class-Registered Trademark-.
Furthermore, through licensing agreements, the Company currently has rights
to manufacture and, in some instances, market certain bedding products
under such well-known brands as Ralph Lauren, Disney's Mickey
UNLIMITED-Registered Trademark-, Mickey's Stuff for Kids-Registered
Trademark-, and Mickey & Co.-Registered Trademark-, Comforel-Registered
Trademark-, Adrienne Vittadini-Registered Trademark-, Ellen
Tracy-Registered Trademark-, and Waverly-Registered Trademark-. This
diverse portfolio of premier brand names allows the Company to
differentiate its products from those of its competitors and provides
distinct brand names for different channels of retail distribution and for
different price points. These brand names also enable the Company to
assist its customers in coordinating their product offerings and
differentiating such offerings from those of their competitors.
- STRONG CUSTOMER RELATIONSHIPS: The Company has established
relationships with the top home textile retailers in North America. The
Fieldcrest Merger has enhanced these relationships, providing the Company's
customers the benefits of a true "one-stop" source for bed and bath
products. These strong relationships create a stable base from which the
Company can pursue future business and new product introductions.
- CREATIVE MERCHANDISING STRATEGIES: Historically, both the Company
and its recently acquired Fieldcrest subsidiary have maintained creative
partnerships with their customers, including extensive merchandising
programs, that have resulted in the creation of successful new products,
product mix strategies, point-of-sale concepts, and advertising campaigns.
Retail customers are increasingly demanding exclusive or specially designed
product lines to differentiate their product offerings from those of other
retailers and to implement price tiering in order to achieve higher
margins. The Company will continue this collaboration with its retail
customers to design products and marketing programs responsive to
individual customer's needs.
- LOW COST OPERATING CAPABILITIES: As a result of its continued
emphasis on cost-containment and capital expenditures to obtain greater
plant efficiencies, the Company is a low cost producer of bed pillows,
blankets, down comforters, and mattress pads in the home textile industry.
The Fieldcrest Merger provides the Company with efficient, low cost towel
and bath rug production capabilities, including a new, state-of-the-art
towel production facility. In addition, the Company has emphasized a low
cost of operations, creating a competitive advantage by operating with one
of the lowest SG&A expenses, as a percentage of sales, in the industry.
The Company believes that significant opportunities exist to improve this
competitive position by lowering Fieldcrest's SG&A costs as a percentage of
sales to the Company's historic levels.
BUSINESS STRATEGY
The Company's strategic objectives are to capitalize on its industry
leading position by leveraging the strength of its brand names, customer
relationships, and operational capabilities across its comprehensive array of
product offerings. The Company's strategic focus will be as follows:
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- CAPITALIZE ON INDUSTRY LEADING POSITION: The Company will focus on
leveraging its market leadership by implementing sales and marketing
programs designed to facilitate a customer-driven "pull" strategy. By
cross-marketing its various products using the Company's strong brand
names, the Company will create enhanced product value and facilitate
greater differentiation of its products from those of its competitors.
- DEVELOP THE PREMIER "ONE-STOP SHOP" FOR HOME TEXTILES: The breadth
of the Company's product lines provides it with a significant competitive
advantage as it can offer its retailer customers a centralized "one-stop"
purchasing source for their home textile merchandise. The Company's
extensive assortment of home textile products includes fashion and utility
bedding, as well as a full line of bath products. The Company will exploit
its position as a "one-stop" purchasing source by continuing its practice
of offering broad product assortments across diverse product lines, thereby
offering retailers a central source from which to efficiently and
effectively purchase their home textile items.
- FURTHER STRENGTHEN CUSTOMER RELATIONSHIPS: The Company has a long
history of strong customer relationships with the top retailers in the
United States and Canada. The Company has developed these relationships by
providing value-added services, such as innovative marketing and cross-
merchandising capabilities. The Company believes that the value of such
services to retailers will be increased significantly by combining the
Company's traditional product lines with the traditional product lines of
Fieldcrest in a centralized purchasing source and utilizing the Fieldcrest
portfolio of brand names across all such product lines. The Company will
also increase the use of marketing and cross-merchandising services in
connection with the traditional Fieldcrest products, creating opportunities
for added sales and providing retailers with more opportunities to
differentiate their product offerings from those of their competitors.
- ENHANCE OPERATIONAL EFFICIENCIES: The Company will continue to
focus on reducing its manufacturing cost structure by rationalizing its
current operations and investing in automation, equipment modernization,
process improvements, and system controls throughout all aspects of its
business. The Company's management believes that significant opportunities
exist to improve production efficiency through capital investment, improved
operational logistics, selective outsourcing, and increased utilization of
information systems. The Company intends to make capital expenditures in
excess of $240.0 million over the next several years, principally to
modernize the acquired Fieldcrest sheet and certain towel manufacturing
facilities through the addition of new machinery and equipment. The
Company anticipates that approximately $100.0 million in capital
expenditures will be made in fiscal 1998.
- REALIZE SIGNIFICANT COST SAVINGS: The Company estimates that it
will realize approximately $21.6 million of annual cost savings as a result
of the Fieldcrest Merger. These cost savings are comprised of
approximately $20.3 million of savings from the elimination of duplicate
staff salaries and approximately $1.3 million of savings from the
elimination of duplicative corporate expenses. In addition, the Company
expects to realize significant ongoing cost savings, including at least
$8.4 million to be realized during fiscal 1998, as follows: (i) $0.9
million by eliminating other redundant cost functions; (ii) $2.0 million by
improving procurement efficiencies by exploiting the combined company's
purchasing power; (iii) $3.0 million by reducing trade advertising; (iv)
$1.0 million by rationalizing and streamlining operations; and (v) $1.5
million by reducing the use of outside consultants.
PRODUCTS
TRADITIONAL PILLOWTEX PRODUCT LINES
GENERAL. The Company originally expanded its historic pillow operations to
include blankets through the acquisition of Manetta Mills, Inc. in August 1993
and Tennessee Woolen Mills, Inc. 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. In 1996, the
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Company acquired certain assets from Fieldcrest's blanket operations,
including a large number of newer, more efficient looms that have been
installed at the Company's other blanket facilities. For a brief description
of the Company's recently announced consolidation of its blanket operations,
see "- Recent Developments."
The combination of its historic pillow operations with the acquired
top-of-the-bed product lines enabled the Company to build its traditional
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's
traditional product lines also include other bedroom textile furnishings,
such as comforter covers, featherbeds, pillow protectors, decorative pillows,
bedspreads, synthetic comforters, pillow shams, dust ruffles, and window
treatments.
BED PILLOWS. The Company believes that it is a leading manufacturer and
marketer of bed pillows in North America. Pillowtex produces and markets a
broad line of traditional bed pillows, as well as specially designed bed pillows
such as the BedMate-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 North America.
BLANKETS. The Company believes that it is a leading producer of blankets
in North America, manufacturing 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 Ralph Lauren. 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 the Company believes that it is a leading manufacturer
and marketer of down comforters in North America. Down comforters have become
increasingly popular for both their insulation and fashion qualities, selling
well in both warm and cool climates. 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
feature more appealing "surface interest," such as damask dots, stripes, and
checks.
MATTRESS PADS. The Company believes that it is a leading manufacturer and
marketer of mattress pads in North America, producing and marketing 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 multidirectional stretch material produced by
E.I. DuPont de Nemours & Co. ("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.
TRADITIONAL FIELDCREST PRODUCT LINES
GENERAL. With its recent acquisition of Fieldcrest, the Company expanded
its operations to include the traditional Fieldcrest product lines. These
product lines include towels, bath rugs, sheets and fashion bedding.
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Fieldcrest's products are sold under such brand names as Royal Velvet-Registered
Trademark-, Cannon-Registered Trademark-, Fieldcrest-Registered Trademark-,
Royal Family-Registered Trademark-, Charisma-Registered Trademark-, and St.
Mary's-Registered Trademark-.
TOWELS. Fieldcrest's bathroom textile products include bath, hand, and
fingertip towels, washcloths, and bath mats. Royal Velvet-Registered
Trademark-, Fieldcrest-Registered Trademark-, Cannon-Registered Trademark-,
Charisma-Registered Trademark-, and St. Mary's-Registered Trademark- are
well-known, high quality towel brand names, providing Fieldcrest with a
strong market position in key sectors of the North American market.
Fieldcrest is also recognized as the color leader in the towel industry as it
markets 40 colors in its Royal Velvet-Registered Trademark- franchise. In
the marketplace, Fieldcrest differentiates its towels by using fine ring spun
cotton yarns to produce Royal Velvet-Registered Trademark- towels and pima
cotton yarns for Charisma-Registered Trademark- towels. The towel line
includes solid color cam and dobby towels, woven stripes, and fancy
jacquards, as well as printed towels. Retail prices of Fieldcrest's towels
range from $1.84 for a 25-inch by 42-inch solid color towel to approximately
$25.00 for a 30-inch by 52-inch Charisma-Registered Trademark- towel made of
Supima-Registered Trademark-cotton.
BATH RUGS. Fieldcrest markets a variety of bath and accent rugs in
conjunction with its towel offering. Sizes range from 18-inches by 30-inches
to 50-inches by 30-inches. These products are marketed under the Royal
Velvet-Registered Trademark-, Cannon-Registered Trademark-,
Fieldcrest-Registered Trademark-, Royal Family-Registered Trademark-, and
Charisma-Registered Trademark- brands, as well as private labels. Retail
prices for bath rugs range from $4.99 to approximately $35.00.
SHEETS AND FASHION BEDDING. Fieldcrest produces a wide variety of
sheets, ranging from a 128-thread count sheet of blended cotton and polyester
to top-of-the-line 310-thread count 100% pima cotton sheets. Its principal
brand names for this product line include Royal Velvet-Registered Trademark-,
Cannon-Registered Trademark-, Fieldcrest-Registered Trademark-, and
Charisma-Registered Trademark-. Among Fieldcrest's sheeting strengths are
solid color sheets with coordinating decorative bedding accessories. In
addition to sheets, Fieldcrest's fashion bedding products consist of matching
comforters, duvet covers, and pillow shams along with coordinated ruffled or
pleated bed skirts. Retail prices of Fieldcrest's sheets start at
approximately $6.99 for a twin size, 128-thread count sheet set and extend to
approximately $150.00 for a king size, 310-thread count Charisma-Registered
Trademark- sheet. Comforters are sold at retail prices as low as $19.99 for
a solid color twin size to approximately $450.00 for a king size
Charisma-Registered Trademark- comforter.
DISPOSITION OF CERTAIN NON-CORE BUSINESS ASSETS. Prior to January 1998,
Fieldcrest marketed shower curtains and ceramic bath accessories as
complementary bath products for its towel and bath rug product lines. In
January 1998, the Company entered into a license agreement with Ex-Cell Home
Fashions, Inc. ("Ex-Cell"), pursuant to which the Company granted Ex-Cell an
exclusive, world-wide license to manufacture, sell, and distribute shower
curtains and bath accessories under the Fieldcrest family of brands, including
Royal Velvet-Registered Trademark-, Cannon-Registered Trademark-,
Fieldcrest-Registered Trademark-, Charisma-Registered Trademark-, and Touch of
Class-Registered Trademark-. The license agreement requires royalty payments to
the Company based upon product sales, including payments of minimum annual
royalties, and is for an initial term of five years with up to two optional
renewal terms of five years each.
Prior to March 1998, Fieldcrest also manufactured and marketed a full line
of ready-made furniture coverings through its SureFit-Registered Trademark-
operations. In March 1998, the Company sold Fieldcrest's SureFit-Registered
Trademark- operations.
For additional information regarding the Company's disposition of certain
non-core business assets of Fieldcrest, see "- Recent Developments."
MARKETING, SALES, AND DISTRIBUTION
The Company markets its products to major mass merchants, department
stores, and specialty retail stores, as well as to wholesale clubs, catalog
merchants, and institutional distributors.
The Company's top ten customers accounted for approximately 66% of its
total sales in fiscal 1997. The top ten customers of Fieldcrest, which was
acquired by the Company in December 1997, accounted for approximately 55% of
Fieldcrest's total sales for its 1997 fiscal year. Wal-Mart Stores, Inc.
(including Wal-Mart and Sam's Club stores) ("Wal-Mart") and Dayton Hudson
Corporation (including Mervyn's, Marshall Field's, and Target Stores) accounted
for 14% and 13%, respectively, of the Company's total sales in fiscal 1997; no
other customer accounted for more than 10% of the Company's total sales in
fiscal 1997. Wal-Mart was Fieldcrest's largest customer in 1997, representing
approximately 25% of Fieldcrest's total sales for its 1997 fiscal year; no other
customer accounted for more than 10%
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of Fieldcrest's total sales in 1997. Consistent with industry practice, the
Company (including its Fieldcrest subsidiary) generally does not operate
under long-term written supply contracts with its customers.
As a supplement to its primary distribution channels, the Company's
Fieldcrest subsidiary operates retail outlet stores which sell Fieldcrest's
products directly to customers. These stores sell both first quality
merchandise and seconds or "off-goods" at competitive retail prices and are
typically located in regions which are not served by Fieldcrest's primary
customers. The Company believes that Fieldcrest's retail outlet stores provide
an effective channel for the distribution of second quality merchandise and
enhances its distribution of first quality products in regions where consumers
would not otherwise have access to Fieldcrest's products. Total sales at
Fieldcrest's retail outlet stores were $42.0 million or 4% of Fieldcrest's total
sales for its 1997 fiscal year.
The use of the Fieldcrest brand names is segmented by distribution channel
in order to solidify the perceived value of such brands and maintain their
integrity. Royal Velvet-Registered Trademark-, Fieldcrest-Registered
Trademark-, and Royal Family-Registered Trademark- brand name bed and bath
products are distributed primarily to leading department stores, specialty home
furnishing stores, and catalog merchants. St. Mary's-Registered Trademark- and
Cannon-Registered Trademark- brand name bed and bath products are distributed
through mass merchants. The Fieldcrest brand names are supported with national
consumer advertising. Fieldcrest also utilizes private brands through large
chain stores and also sells a smaller amount of unbranded products to
institutional and government customers. Approximately 95% of Fieldcrest's total
sales for its 1997 fiscal year were derived from products carrying Fieldcrest
brand names.
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 in 1993 and of Imperial and Beacon in 1994, greatly
enhanced the Company's market position in Canada and its relationships with
important Canadian retailers.
The Company's relationship with the Polo Ralph Lauren Corporation began
in 1987 and the Ralph Lauren brand name is among the Company's most important
licensed trademarks. The Company holds an exclusive license for pillows,
blankets, down comforters, and mattress pads in North America, and a
non-exclusive license to manufacture, and in certain cases to sell, a variety
of fashion bedding products in such territory. Ralph Lauren products are
sold worldwide to fine department and specialty stores.
In order to maximize product exposure and increase sales, the Company 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 such customers, the Company meets
periodically with the senior management of such customers to develop jointly
merchandising programs, new products, product mix strategies, point-of-sale
concepts, and advertising campaigns specifically tailored to that customer's
needs. The Company also provides its customers merchandising assistance with
store layouts, fixture designs, point-of-sale displays, and advertising
materials.
The Company's electronic data interchange 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 sales people are compensated with a combination of salary and
discretionary or performance-oriented bonus. Certain Ralph Lauren products are
sold by the Ralph Lauren sales force.
TRADEMARKS AND LICENSE AGREEMENTS
The Company markets its products under its own proprietary trademarks,
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 owns various trademarks and trade names, such as
Beacon-Registered Trademark-, Nettle Creek-Registered Trademark-,
Softie-Registered Trademark-, Globe-Registered Trademark-, and
BedMate-Registered Trademark-, as well as the recently acquired Fieldcrest
portfolio of names. The Fieldcrest names include Royal
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Velvet-Registered Trademark-, Cannon-Registered Trademark-,
Fieldcrest-Registered Trademark-, Royal Family-Registered Trademark-,
Caldwell-Registered Trademark-, Charisma-Registered Trademark-, St.
Mary's-Registered Trademark-, and Touch of Class-Registered Trademark-. The
Company regards its trademarks and trade names as valuable assets and
vigorously protects them against infringement.
The Company holds the exclusive license for the highly regarded Ralph
Lauren trademark for pillows, blankets, down comforters, and mattress pads in
the United States and Canada. In addition, the Company holds a non-exclusive
license to manufacture, and in certain cases sell, a variety of fashion bedding
products under the Ralph Lauren trademark in the United States, Canada, and
Mexico. The Company's licenses with Polo Ralph Lauren Corporation expire on
June 30, 1998. The Company has a long-standing relationship with Polo Ralph
Lauren Corporation and has no reason to believe that such licenses will not be
renewed. However, there can be no assurance that, upon their expiration, the
Company will be able to renew such licenses on acceptable terms.
The Company also manufactures and sells various goods, including pillows,
blankets, and throws under non-exclusive license agreements with The Walt Disney
Company for the standard Disney characters, including Mickey Mouse, Minnie
Mouse, and Donald Duck, as well as other characters and film properties such as
Winnie the Pooh and the Lion King.
In addition, the Company's Fieldcrest subsidiary utilizes license
agreements with Waverly-Registered Trademark-, Adrienne Vittadini-Registered
Trademark-, Court of Versailles-Registered Trademark-, Ellen Tracy-Registered
Trademark-, and others.
PRODUCT DEVELOPMENT
The Company's product development staff creates and develops products with
new or superior performance characteristics in cooperation with various outside
sources, including its 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,
such as the acquisition of Fieldcrest, 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
TRADITIONAL PILLOWTEX PRODUCT LINES
MANUFACTURING AND DISTRIBUTION
GENERAL. The Company operates an extensive network of facilities in Texas,
California, Illinois, Mississippi, North Carolina, Pennsylvania, South Carolina,
Tennessee, and Toronto, Canada in connection with the manufacture and
distribution of the Company's traditional bed pillow, blanket, down comforter,
and mattress pad product lines. This nationwide manufacturing and distribution
network enables the Company to ship bed pillows, blankets, comforters, and
mattress pads cost effectively to all major cities in North America.
BED PILLOWS. The hub of the network for bed pillows (as well as
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, producing 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
pull, comb, and expand compressed polyester fibers. Once expanded, the fibers
are inserted into a pillow shell and the open seam is sewn shut.
-8-
BLANKETS. 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. For a brief description of the Company's recently
announced consolidation of its blanket operations, see "- Recent Developments."
DOWN COMFORTERS. 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.
MATTRESS PADS. 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.
RAW MATERIALS AND IMPORTS
The principal raw materials that the Company uses in manufacturing its
traditional bed pillow, blanket, down comforter, and mattress pad product lines
are: feather and down; synthetic (polyester and acrylic), cotton and wool
fibers; and cotton and polyester-cotton blend fabrics.
The Company imports feather and down from several sources outside the
United States. A majority of such purchases are from the People's Republic of
China ("China"), where feather and down are by-products of ducks and geese
raised for food. The Company is generally able to purchase feather and down
from its suppliers in China on open credit terms without letters of credit.
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 and
sell Lycra-Registered Trademark- to the Company is minimal.
The Company purchases synthetic fiber from, among others, DuPont, Wellman,
Inc., Monsanto Company, Cytec Industries Inc., Hoechst Celanese Textile Fibers,
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.
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, Santee Print Works, to control costs and
quality. Consistent with industry practice, the Company and Santee Print Works
have not entered into a long-term supply contract. However, to reduce the
effect of potential price fluctuations the Company makes commitments from time
to time for future purchases from Santee Print Works.
The Company imports the majority of its comforter shells from China, Hong
Kong, and India. As of July 1, 1996, quota restrictions on comforter shells
from China were eliminated, allowing the Company to import shells on an
unlimited and as-needed basis.
TRADITIONAL FIELDCREST PRODUCT LINES
MANUFACTURING AND DISTRIBUTION
GENERAL. The Company's recently acquired Fieldcrest subsidiary operates 14
principal facilities in the United States: nine in North Carolina, two in
Alabama, one in Georgia, one in New York, and one in Virginia. Generally, each
of these facilities produces finished products and ships them directly to the
customer.
TOWELS. Fieldcrest produces bath towels at its facilities in Alabama,
Georgia, North Carolina, and Virginia. Cotton and synthetic fibers are spun
into yarn utilizing Fieldcrest's spinning capacity and, then, woven into fabric
or greige cloth. The greige cloth is finished, dyed, cut, and sewn into
finished towel products. Fieldcrest's Fieldale, Virginia facility generally
produces the higher quality, department and specialty stores' products. The
Columbus, Georgia and Phenix City, Alabama facilities generally support
Fieldcrest's mass merchant business segment. The
-9-
Kannapolis, North Carolina facility is capable of producing both types of
products and, as a result, is used to support both segments.
BATH RUGS. Bath rugs are produced in Fieldcrest's Scottsboro, Alabama
facility. Tufted yarn is punched into fabric and cut into a uniform height. A
latex coating is applied to the underside of the fabric to hold the fibers. The
product is dyed, cut, and finished.
SHEETS AND FASHION BEDDING. Bed sheet products are produced in
Fieldcrest's facilities in the Kannapolis, North Carolina area. As with
Fieldcrest's towel operations, these facilities provide the full range of
Fieldcrest's sheet products for substantially all channels of distribution.
Cotton and synthetic fibers are spun into yarn and woven into greige cloth for
finishing, dyeing, cutting, and sewing. In late 1995, however, Fieldcrest
outsourced certain yarn production and closed two operations to take advantage
of certain cost savings made available by a supplier of yarn. In an effort to
maximize cost savings, the Company intends to review Fieldcrest's trend toward
outsourcing certain manufacturing and corporate functions on a case by case
basis. The Company presently intends to continue Fieldcrest's outsourcing
practices in areas that appear to result in reduced operating costs, such as in
sheeting yarn spinning, and may increase or curtail the use of outsourcing in
spinning and other areas based on future cost and other considerations, although
the potential impact of any future outsourcing decisions on the Company's
operating results cannot be determined at this time.
Fieldcrest produces comforters and other decorative bedding products such
as pillow shams and decorative pillows at its Eden and Laurel Hill, North
Carolina facilities. Finished cloth generally is supplied by Fieldcrest's bed
sheet operations. The cloth is cut, polyester fiber-fill is inserted, and the
product is sewn and packaged for shipment to retail customers.
RAW MATERIALS AND IMPORTS
The basic raw materials used in manufacturing the traditional Fieldcrest
product lines are cotton and synthetic fibers. These materials are generally
available from a wide variety of sources, and no significant shortage of such
materials is currently anticipated. Domestic cotton merchants are Fieldcrest's
primary source of cotton, and domestic fiber producers are Fieldcrest's primary
source of synthetic fibers. Fieldcrest uses significant quantities of cotton
which is subject to ongoing price fluctuations. Fieldcrest in the ordinary
course of business may arrange for purchase commitments with vendors for future
cotton requirements.
MISCELLANEOUS
The Company (including Fieldcrest) has established quality control programs
that are designed to assure that its products meet predetermined quality
standards established both internally and by its customers. The Company devotes
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 assure that the
Company understands the customer's requirements. The Company also has programs
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.
Management of the Company believes that its relationships with its
suppliers are generally good.
SEASONALITY
The Company's business is subject to a pattern of seasonal fluctuation.
Historically, the Company's sales and earnings from operations are greater
during the second half of the year and the Company's needs for working capital
increase in the second half of the year, causing the Company's total debt levels
to peak in the third and fourth quarters and fall off again in the first quarter
of the following year. The amount of the Company's sales generated during the
second half of the year generally has depended upon a number of factors,
including the level of retail sales for home textile furnishings during the fall
and winter, weather conditions affecting the level of sales of down comforters
and
-10-
blankets (which are sold in greater quantities in cold weather), general
economic conditions, and other factors beyond the Company's control.
Similarly, the Company's recently acquired Fieldcrest subsidiary
historically has had greater sales volume in the last three quarters of the
calendar year than in the first calendar quarter and, accordingly, its operating
performance in the first quarter has been less favorable than operating
performance in the last three quarters.
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 competes on the basis of price, quality,
brand names, and service. See "-Competitive Strengths" and "-Business
Strategy."
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 requires certain of its products 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. 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 electronic
data interchange 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, 1998, the Company had approximately 14,150 employees,
including approximately 10,400 employees of Fieldcrest.
The Company is currently subject to the following collective bargaining
agreements:
Number of Number of
Eligible Covered
Union Location Covered Expiration Employees Employees
- ---------------------------------------------- ------------------------ -------------- ------------- -------------
Union of Needletrades, Industrial and Textile Columbus, Georgia 01/06/00 1,214 707
Workers
Union of Needletrades, Industrial and Textile Eden, North Carolina 01/06/00 484 241
Workers
Union of Needletrades, Industrial and Textile Fieldale, Virginia 01/06/00 968 375
Workers
Union of Needletrades, Industrial and Textile Toronto, Ontario, Canada 02/28/00 227 187
Workers
United Auto Workers Tunica, Mississippi 08/01/99 301 113
-11-
Warehouse, Mail Order, Office, Technical Chicago, Illinois 02/01/00 156 127
and Professional Employees (Teamsters)
Since 1991, the Union of Needletrades, Industrial and Textile Workers
("UNITE") has campaigned to organize approximately 5,500 additional hourly
workers at five Fieldcrest plants, including Fieldcrest's main manufacturing
facility in Kannapolis, North Carolina. Fieldcrest has opposed UNITE's
organizing efforts. Although a majority of employees at these plants has
previously voted not to select UNITE as a bargaining representative, the results
are subject to legal challenge. There can be no assurances as to whether or
when the results of such election will be certified or a new election will be
scheduled. It is impossible to predict the effect, if any, a lengthy
continuation of another organizing campaign will have on the productivity of the
Fieldcrest workforce.
The Company believes that its relationships with both its union and
non-union employees are generally good.
YEAR 2000 COMPLIANCE
Many existing computer programs use only two digits to identify a year in
the date field. These programs, if not corrected, could fail or create
erroneous results by or at the Year 2000. This "Year 2000" issue is believed to
affect virtually all companies and organizations, including the Company.
The Company is reliant on computer-based technology and utilizes a variety
of proprietary and third party applications in connection with its electronic
data interchange system as well as for various administrative functions.
Beginning in April, 1995, the Company undertook an assessment of the effect of
the Year 2000 issue on the Company's operations. Shortly thereafter, a team
consisting of personnel from various departments within the Company (the "Year
2000 Compliance Team") was established and charged with identifying and
evaluating Year 2000-related compliance issues, proposing solutions, estimating
the cost of the implementation thereof, and communicating its determinations to
the Company's senior management and Board of Directors.
The Year 2000 Compliance Team has developed a compliance program. The Year
2000 Compliance Team is responsible for overseeing the implementation of such
compliance program, including ensuring the compliance of software and other date
sensitive products purchased for use by the Company.
Pursuant to the Company's Year 2000 compliance program, the Company has
examined or will examine its proprietary software applications. All such
applications that relate to a critical function and are not Year 2000 compliant
are expected to be converted or replaced. In addition, a strategy has been
instituted to identify and address Year 2000 issues affecting third-party
software applications. That process includes contacting all third-party
providers to secure appropriate representations to the effect that Year 2000
issues associated with the software provided by them to the Company have been or
will be timely addressed. The Company continues to develop contingency plans as
to material third-party software applications used by the Company in respect of
which the Company does not receive adequate compliance assurances within a
reasonable time period prior to December 31, 1999.
Barring unforeseen events, the Company anticipates completing corrective
measures as to most of its proprietary software applications and completing a
comprehensive, integrated test of a substantial amount of its main-frame and
mid-range computer systems (hardware, software, network components, interfaces,
and third-party software applications) no later than mid-1999. The Company
anticipates that a subsequent test would be instituted to deal with third-party
software applications, if any, that are expected to first achieve compliance
after such time.
To date, the Company's Year 2000 compliance program is on schedule and on
budget. The Company does not believe that Year 2000 issues (including costs of
the Company's compliance program) will have a material adverse effect on the
Company's financial position or results of operations, though no assurance can
be given in this regard.
Notwithstanding that the Company has been proceeding diligently with the
implementation of its own compliance program, including aspects thereof directed
to ascertaining Year 2000 compliance by third parties, with which the Company
has commercial relationships (including software, data processing, and other
vendors), there can be no assurance that the Company's operations will not
experience disruptions due to the failure of such third parties to become fully
Year 2000 compliant in a timely manner.
-12-
ITEM 2. PROPERTIES
The following table summarizes certain information concerning certain of
the facilities used by the Company in connection with the manufacture and
distribution of the traditional Pillowtex product lines:
Approx. Owned/
Location Principal Use Square Feet Leased
-------------------------- -------------------------------------------------------- ----------- ------
Dallas, Texas Headquarters and feather and down processing 104,000 Owned
Dallas, Texas General administration, manufacturing, and distribution 150,000 Owned
Los Angeles, California Manufacturing and distribution 320,000 Leased
Chicago, Illinois Manufacturing and distribution 121,000 Owned
Tunica, Mississippi Manufacturing and distribution 288,000 Owned
New York, New York Principal sales office and showroom 12,500 Leased
Asheville, North Carolina Warehouse 117,000 Leased
Asheville, North Carolina Warehouse 254,000 Leased
Monroe, North Carolina* Manufacturing and distribution 288,000 Leased
Newton, North Carolina Manufacturing and distribution 297,000 Leased
Rocky Mount, North Carolina Manufacturing and distribution 139,000 Owned
Rocky Mount, North Carolina Manufacturing and distribution 78,000 Leased
Swannanoa, North Carolina Manufacturing, distribution, warehouse and office 1,425,000 Owned
Swannanoa, North Carolina Outlet Store 5,000 Owned
Hanover, Pennsylvania Manufacturing and distribution 291,000 Owned
Mauldin, South Carolina Warehouse and distribution 746,600 Owned
Westminster, South Carolina Manufacturing, distribution, warehouse and office 652,000 Owned
Westminster, South Carolina Warehouse 29,000 Leased
Goodlettsville, Tennessee* Warehouse and distribution 158,000 Leased
Lebanon, Tennessee* Warehouse and distribution 53,000 Leased
Lebanon, Tennessee* Manufacturing 175,000 Owned
Toronto, Ontario, Canada Manufacturing and distribution 99,000 Leased
Toronto, Ontario, Canada Manufacturing and distribution 60,000 Leased
___________________
* To be closed in connection with the Company's recently announced
consolidation of its blanket operations. See "Item 1. Business --Recent
Developments."
The Company also maintains small sales offices for its sales staff in Arkansas,
California, Massachusetts, Minnesota, North Carolina, and Washington.
The following table summarizes certain information concerning certain of
the facilities used by the Company's recently acquired Fieldcrest subsidiary in
connection with the manufacture and distribution of the traditional Fieldcrest
product lines:
Approx. Owned/
Location Principal Use Square Feet Leased
-------------------------- ------------------------------------- ----------- ------
Kannapolis, North Carolina Offices, manufacturing, and warehouse 5,863,041 Owned
Phenix City, Alabama Manufacturing and warehouse 678,681 Owned
Scottsboro, Alabama Manufacturing and warehouse 272,800 Owned
Columbus, Georgia Manufacturing and warehouse 727,246 Owned
New York, New York Sales office and showroom 64,490 Leased
Concord, North Carolina Manufacturing 696,963 Owned
Eden, North Carolina Manufacturing and warehouse 529,273 Owned
Eden, North Carolina Warehouse 185,214 Owned
Kannapolis, North Carolina Manufacturing 760,939 Owned
Laurel Hill, North Carolina Manufacturing and warehouse 238,072 Owned
Rockwell, North Carolina Manufacturing 98,240 Owned
Salisbury, North Carolina Manufacturing 229,361 Owned
Salisbury, North Carolina Manufacturing and warehouse 567,000 Owned
Fieldale, Virginia Manufacturing and warehouse 973,253 Owned
In addition to the foregoing, Fieldcrest maintains certain warehousing and
distribution centers in the states where its manufacturing facilities are
located and maintains small sales and marketing offices in seven additional
states. Fieldcrest also owns various other properties, both developed and
undeveloped, which are unrelated to its manufacturing
-13-
operations. Certain of these properties were acquired throughout the years
for investment or ancillary to specific acquisitions. Some of such
properties are currently held for investment by Fieldcrest, some are listed
for sale, and some are leased by Fieldcrest to third parties.
The Company believes that its facilities, including those of Fieldcrest,
are generally well maintained, in good operating condition, and adequate for its
current needs. 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
MATTRESS PAD LITIGATION
Louisville Bedding Company ("Louisville") filed a complaint for patent
infringement against the Company in the United States District Court for the
Western District of Kentucky, Louisville Division, in 1994. Louisville's
complaint alleges that certain of the Company's Adjust-A-Fit-Registered
Trademark- mattress pad product lines infringe on certain of Louisville's
patents. Louisville's allegations relate both to the Company's current mattress
pad product line and to certain discontinued product lines sold from 1991
through 1995. Louisville's complaint seeks an injunction against the Company's
sale of its current stretch-to-fit mattress pad line, as well as an accounting
of profits and unspecified damages relating to both the Company's current and
discontinued product lines. In addition, Louisville's complaint seeks trebled
damages, interest, costs, and attorneys' fees.
During April 1997, Louisville voluntarily dismissed its infringement claims
against the Company's current opening price point mattress pad line and, during
October 1997, the district court granted summary judgment for the Company on the
issue of infringement with respect to the Company's current premium product. On
January 30, 1998, the district court entered an additional order confirming that
the Company's current premium price point product did not infringe Louisville's
patents as alleged.
Notwithstanding the foregoing, Louisville continued to pursue various
infringement claims against the Company. On March 4, 1998, representatives of
the Company met with representatives of Louisville to discuss the possible
settlement of such claims and, subsequent thereto, all such claims were
resolved.
OTHER
The Company is involved in various other claims and lawsuits incidental to
its business; however, the outcome of such suits is not expected to have a
material adverse effect on the Company's financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 19, 1997, the Company held a special meeting of its
shareholders to consider and vote upon a proposal to approve the issuance (the
"Share Issuance") of up to 5,600,000 shares of Common Stock, par value $0.01 per
share, of the Company ("Common Stock") and of 65,000 shares of Series A
Redeemable Convertible Preferred Stock, par value $0.01 per share, of the
Company ("Series A Preferred Stock") in connection with the Fieldcrest Merger
and related financing transactions. The number of votes cast for and against,
and the number of abstentions and broker non-votes as to, the approval of the
Share Issuance were as follows:
Votes Cast Vote Cast Broker
For Against Abstentions Non-Votes
---------- --------- ----------- ---------
8,645,837 387,448 3,355 0
PART II
-14-
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common stock, par value $0.01 per share ("Common Stock") is
traded on the New York Stock Exchange under the symbol "PTX." The information
required by this Item 5 with respect to the high and low sales prices for the
Common Stock for each full quarterly period within the Company's two most recent
fiscal years is set forth in the table appearing in the forepart of the
Company's 1997 Annual Report to Shareholders (the "1997 Annual Report") and
incorporated herein by reference.
At March 6, 1998, the Company had approximately 324 holders of record of
Common Stock.
The Company paid for quarterly dividends of $0.05 per share in 1996 and
four quarterly dividends in 1997, consisting of four dividends of $0.05 per
share and four dividends of $0.06 per share. The Company currently intends to
continue to pay quarterly dividends of $0.06 per share on the Common Stock.
Certain instruments governing the indebtedness of the Company and the terms of
the Series A Preferred Stock restrict the Company's ability to pay dividends or
make other distributions to holders of Common Stock. Accordingly, there can be
no assurance that the Company will pay any such dividends in the future or, if
such dividends are paid, as to the amount thereof.
As part of the Company's financing for the Fieldcrest Merger, on
December 19, 1997 the Company issued and sold to Apollo Investment Fund III,
L.P., Apollo Overseas Partners III, L.P., and Apollo (UK) Partners III, L.P. an
aggregate of 65,000 shares of Series A Preferred Stock for $65.0 million,
resulting in net proceeds to the Company of approximately $62.9 million. The
Series A Preferred Stock was issued and sold by the Company without registration
under the Securities Act of 1933, as amended, in reliance on the exemption from
registration provided by Section 4(2) of such Act. At the option of the holder
thereof, at any time and from time to time each share of Series A Preferred
Stock may be converted into a number of shares of Common Stock determined by
dividing (i) the sum of (a) $1,000 and (b) any unpaid dividends on such share by
(ii) $24.00 (subject to adjustment in certain circumstances to prevent
dilution).
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item 6 is set forth at page 2 of the 1997
Annual Report under the caption "Selected Financial Data" and incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item 7 is set forth at pages 3 through 7
of the 1997 Annual Report under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and incorporated
herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item 8 is set forth in the Company's
consolidated financial statements and supplementary data contained in the 1997
Annual Report and incorporated herein by reference. Specific financial
statements and supplementary data can be found in the 1997 Annual Report at the
pages listed in the following index:
Index Page
----- Number
------
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . 8
Consolidated Financial Statements:
-15-
Consolidated Balance Sheets as of December 28, 1996 and
January 3, 1998 . . . . . . . . . . . . . . . . . . . . . . . . 9
Consolidated Statements of Earnings for the years ended
December 30, 1995, December 28, 1996, and January 3, 1998 . . . 10
Consolidated Statements of Shareholders' Equity for the years
ended December 30, 1995, December 28, 1996, and
January 3, 1998 . . . . . . . . . . . . . . . . . . . . . . . . 11
Consolidated Statements of Cash Flows for the years ended
December 30, 1995, December 28, 1996, and January 3,
1998. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Notes to Consolidated Financial Statements. . . . . . . . . . . . 13
The information set forth in Exhibit 99.1 hereto is also incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information required by this Item 10 is set forth at pages 4 through 7
of the Company's Proxy Statement for its 1998 Annual Meeting of Shareholders
(the "1998 Proxy Statement") under the captions "Election of Directors,"
"Information Concerning the Board of Directors --Section 16(a) Beneficial
Ownership Reporting Compliance" and "Executive Officers," and incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is set forth at page 6 and pages 8
through 19 of the 1998 Proxy Statement under the captions "Information
Concerning the Board of Directors --Compensation of Directors" and "Executive
Compensation" (excluding the information set forth at pages 8 through 11 and
page 19 under the captions "Executive Compensation --Report of the Compensation
Committee on Executive Compensation" and "--Stock Price Performance Graph") and
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is set forth at pages 2 through 4
of the 1998 Proxy Statement under the caption "Security Ownership of Certain
Beneficial Owners and Management" and incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is set forth at pages 17 through
18 of the 1998 Proxy Statement under the captions "Executive Compensation
- --Employment Agreements" and "-Certain Transactions" and incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
-16-
1. FINANCIAL STATEMENTS. The list of financial statements required by
this Item 14 is set forth in "Item 8. Consolidated Financial Statements and
Supplementary Data" and incorporated herein by reference. The list of financial
statements set forth in Exhibit 99.1 hereto under the caption "Index to
Consolidated Financial Statements" is also incorporated herein by reference.
2. FINANCIAL STATEMENT SCHEDULES. The following financial statement
schedule of the Company for the fiscal years ended December 30, 1995,
December 28, 1996, and January 3, 1998 is included herein at page S-1 and should
be read in conjunction with the consolidated financial statements of the Company
incorporated by reference in "Item 8. Consolidated Financial Statements and
Supplementary Data":
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are inapplicable, not
required, or the information is included in the consolidated financial
statements of the Company or the notes thereto incorporated herein by reference.
3. EXHIBITS. The exhibits filed herewith or incorporated by reference are
listed in the Index to Exhibits accompanying this report.
(b) REPORTS ON FORM 8-K. During the quarter ended January 3, 1998,
the Company filed a Current Report on Form 8-K, dated November 21, 1997 and
filed on November 26, 1997, reporting information under "Item 5. Other Events"
regarding certain modifications to the agreement providing for the issuance of
the Series A Preferred Stock in connection with the Fieldcrest Merger.
-17-
SCHEDULE II
PILLOWTEX CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 30, 1995, December 28, 1996 and January 3, 1998
(Dollars in thousands)
Additions Deductions
----------------------- ----------
Balance at Charged to Charged to Balance
beginning costs and other Write-offs/ at end of
Description of period expenses accounts (recoveries) period
----------- ---------- --------- --------- ----------- ----------
Receivable Reserves:
Year ended December 30, 1995 $3,341 8,170 176 (3) 8,919 (1) 2,768
====== ====== ====== ====== ======
Year ended December 28, 1996 $2,768 11,092 (89) 11,296 (1) 2,475
====== ====== ====== ====== ======
Year ended January 3, 1998 $2,475 13,789 11,268 (2) 12,762 (1) 14,770
====== ====== ====== ====== ======
Inventory reserves:
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
====== ====== ====== ====== ======
Year ended January 3, 1998 $3,285 4,337 3,168 (2) 1,378 9,412
====== ====== ====== ====== ======
(1) Accounts written off, less recoveries.
(2) Includes 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
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, on April 3, 1998.
PILLOWTEX CORPORATION
By /s/ Charles M. Hansen, Jr.
---------------------------------
Charles M. Hansen, Jr.
Chairman of the Board and
Chief Executive Officer
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 in the capacities indicated on April 3, 1998.
Signatures Title
---------- -----
/s/ Charles M. Hansen, Jr. Chairman of the Board and Chief Executive
- ----------------------------- Officer; Director
Charles M. Hansen, Jr. (Principal Executive Officer)
/s/ Jeffrey D. Cordes President and Chief Operating Officer; Director
- ----------------------------- (Principal Financial and Accounting Officer)
Jeffrey D. Cordes
/s/ Christopher N. Baker
- ----------------------------- Director
Christopher N. Baker
/s/ Kevin M. Finlay
- ----------------------------- Director
Kevin M. Finlay
/s/ Scott E. Shimizu
- ----------------------------- Director
Scott E. Shimizu
/s/ Mary R. Silverthorne
- ----------------------------- Director
Mary R. Silverthorne
/s/ William B. Madden
- ----------------------------- Director
William B. Madden
/s/ M. Joseph McHugh
- ----------------------------- Director
M. Joseph McHugh
/s/ Paul G. Gillease
- ----------------------------- Director
Paul G. Gillease
/s/ Ralph W. La Rovere
- ----------------------------- Director
Ralph W. La Rovere
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
2.1 -- Agreement and Plan of Merger, dated as of September 10,
1997, by and among Pillowtex Corporation, Pegasus Merger
Sub, Inc., and Fieldcrest Cannon, Inc. (incorporated by
reference to Appendix A to the Joint Proxy
Statement/Prospectus forming a part of Pillowtex
Corporation's Registration Statement on Form S-4 (No. 333-36663))
2.2 -- Amendment to Agreement and Plan of Merger, dated as of
September 23, 1997, by and among Pillowtex Corporation,
Pegasus Merger Sub, Inc., and Fieldcrest Cannon, Inc.
(incorporated by reference to Appendix A to the Joint Proxy
Statement/Prospectus forming a part of Pillowtex
Corporation's Registration Statement on Form S-4 (No. 333-36663))
3.1 -- Restated Articles of Incorporation of Pillowtex Corporation,
as amended (incorporated by reference to Exhibit 3.1 to
Pillowtex Corporation's Current Report on Form 8-K dated
December 19, 1997, as amended by a Form 8-K/A (Amendment
No. 1) dated December 19, 1997)
3.2 -- Amended and Restated Bylaws of Pillowtex Corporation, as
amended (incorporated by reference to Exhibit 3.2 to
Pillowtex Corporation's Annual Report on Form 10-K for the
fiscal year ended December 30, 1994)
4.1 -- Specimen of Certificate evidencing Common Stock
(incorporated by reference to Exhibit 4.2 to Pillowtex
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996)
4.2* -- Specimen of Certificate evidencing Series A Redeemable
Convertible Preferred Stock
4.3 -- Indenture, dated November 12, 1996 (incorporated by
reference to Exhibit 4.1 to Pillowtex Corporation's
Registration Statement on Form S-4 (No. 333-17731))
4.4 -- Indenture, dated as of December 18, 1997, among Pillowtex
Corporation, the guarantors listed on the signature page
thereto, and Norwest Bank Minnesota, National Association,
as Trustee (incorporated by reference to Exhibit 4.1 to
Pillowtex Corporation's Current Report on Form 8-K dated
December 19, 1997, as amended by a Form 8-K/A (Amendment
No. 1) dated December 19, 1997)
4.5 -- Supplemental Indenture, dated as of December 19, 1997, among
Pillowtex Corporation, the guarantors listed on the
signature page thereto, and Norwest Bank Minnesota, National
Association, as Trustee (incorporated by reference to
Exhibit 4.2 to Pillowtex Corporation's Current Report on
Form 8-K dated December 19, 1997, as amended by a Form 8-K/A
(Amendment No. 1) dated December 19, 1997)
10.1 -- Amended and Restated Credit Agreement, dated as of December 19,
1997, among Pillowtex Corporation, certain Lenders named therein,
and NationsBank of Texas, N.A., as Administrative Agent
(incorporated by reference to Exhibit 10.1 to Pillowtex
Corporation's Current Report on Form 8-K dated December 19, 1997)
10.2 -- Term Credit Agreement, dated as of December 19, 1997, among
Pillowtex Corporation, certain Lenders named herein, and
NationsBank of Texas, N.A., as Administrative Agent (incorporated
by reference to Exhibit 10.2 to Pillowtex Corporation's Current
Report on Form 8-K dated December 19, 1997)
10.3 -- Preferred Stock Purchase Agreement, dated as of September 10,
1997, by and among Pillowtex Corporation, Apollo Investment Fund
III, L.P., Apollo Overseas Partners III, L.P., and Apollo (UK)
Partners III, L.P. (incorporated by reference to Exhibit 10.2 to
Pillowtex Corporation's Current Report on Form 8-K dated
September 10, 1997, as amended by a Form 8-K/A (Amendment No. 1)
dated September 10, 1997)
10.4 -- Amendment No. 1 to the Preferred Stock Purchase Agreement, dated
as of November 21, 1997, by and among Pillowtex Corporation,
Apollo Investment Fund III, L.P., Apollo Overseas Partners III,
L.P., and Apollo (UK) Partners III, L.P. (incorporated by
reference to Exhibit 10.1 to Pillowtex Corporation's Current
Report on Form 8-K dated November 21, 1997)
10.5 -- Purchase Agreement, dated December 15, 1997, among Pillowtex
Corporation, the guarantors listed on the signature page thereto,
and NationsBanc Montgomery Securities, Inc. and Bear, Stearns &
Co. Inc. (incorporated by reference to Exhibit 10.5 to Pillowtex
Corporation's Current Report on Form 8-K dated December 19, 1997)
10.6 -- Purchase Agreement Supplement, dated December 19, 1997, among
Pillowtex Corporation, the guarantors listed on the signature
page thereto, and NationsBank Montgomery Securities, Inc. and
Bear, Stearns & Co. Inc. (incorporated by reference to
Exhibit 10.6 to Pillowtex Corporation's Current Report on
Form 8-K dated December 19, 1997)
10.7 -- Registration Rights Agreement, dated as of December 18, 1997,
among Pillowtex Corporation, the guarantors listed on the
signature page thereto, and NationsBanc Montgomery Securities,
Inc. and Bear, Stearns & Co. Inc. (incorporated by reference to
Exhibit 10.7 to Pillowtex Corporation's Current Report on Form
8-K dated December 18, 1997, as amended by a Form 8-K/A
(Amendment No. 1) dated December 19, 1997)
10.8 -- Registration Rights Agreement Supplement, dated as of
December 19, 1997, among Pillowtex Corporation, the guarantors
listed on the signature page thereto, and NationsBank Montgomery
Securities, Inc. and Bear, Stearns & Co. Inc. (incorporated by
reference to Exhibit 10.8 to Pillowtex Corporation's Current
Report on Form 8-K dated December 18, 1997, as amended by a
Form 8-K/A (Amendment No. 1) dated December 19, 1997)
10.9 -- Registration Rights Agreement, dated as of November 12, 1996, by
and among Pillowtex Corporation, each domestic subsidiary of
Pillowtex Corporation, and NationsBanc Capital Markets, Inc. and
Merrill Lynch, Pierce, Fenner & Smith, Incorporated (incorporated
by reference to Exhibit 10.59 to Pillowtex Corporation's
Registration Statement on Form S-4 (No. 333-17731))
10.10 -- Sublicense Agreement, dated as of July 1, 1995, between
Pillowtex Corporation and the Ralph Lauren Home Collection
(incorporated by reference to Exhibit 10 to Pillowtex
Corporation's Quarterly on Form 10-Q for the quarter ended
July 1, 1995)
10.11* -- Amendment to Sublicense Agreement, dated as of October 31,
1997, between Pillowtex Corporation and the Ralph Lauren
Home Collection
10.12 -- Lease Agreement, dated as of September 18, 1995, between
Pillowtex Corporation and Sanwa Business Credit Corp.
(incorporated by reference to Exhibit 10.4 to Pillowtex
Corporation's Quarterly Report on Form 10-Q, as amended, for
the quarter ended September 30, 1995)
10.13 -- Agreement of Lease, dated May 23, 1995, between Ten Seventy
One Joint Venture and Pillowtex Corporation (incorporated by
reference to Exhibit 10.66 to Pillowtex Corporation's Annual
Report on Form 10-K for the fiscal year ended December 30,
1995)
10.14* -- Lease, dated as of November 26, 1996, by and among Torfeaco
Industries Limited and Standa Investment Limited
10.15* -- Indemnity Agreement, dated as of November 26, 1996, between
Torfeaco Industries Limited and Standa Investment Limited
10.16 -- Industrial Lease, dated as of November 23, 1992, between
Angel and Jean Echevarria and Pillowtex Corporation
(incorporated by reference to Exhibit 10.21 to Pillowtex
Corporation's Registration Statement on Form S-1
(No. 33-57314))
10.17* -- Second Amendment to Lease entered into in September 1997
between Angel and Jean Echevarria and Pillowtex Corporation
10.18 -- Form of Lease, dated as of October 12, 1988, between Jimmie D.
Smith, Jr. and Pillowtex Corporation (incorporated by reference
to Exhibit 10.23 to Pillowtex Corporation's Registration Statement
on Form S-1 (No. 33-57314))
10.19* -- Agreement for Modification and Extension of Lease between
Jimmie D. Smith, Jr. and Pillowtex Corporation
10.20 -- 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 (incorporated by reference
to Exhibit 10 to Pillowtex Corporation's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996)
10.21 -- Employment Agreement dated as of January 1, 1993, between
Pillowtex Corporation and Charles M. Hansen, Jr.
(incorporated by reference to Exhibit 10.2 to Pillowtex
Corporation's Registration Statement on Form S-1
(No. 33-57314))
10.22 -- Amendment to Employment Agreement, dated as of July 26,
1993, between Pillowtex Corporation and Charles M. Hansen,
Jr. (incorporated by reference to Exhibit 10.26 to Pillowtex
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993)
10.23* -- Amendment to Employment Agreement, dated as of January 20,
1998, between Pillowtex Corporation and Charles M. Hansen,
Jr.
10.24 -- Form of Confidentiality and Noncompetition Agreement
(incorporated by reference to Exhibit 10.27 to Pillowtex
Corporation's Registration Statement on Form-S-1
(No. 33-57314))
10.25 -- Form of Director Indemnification Agreement (incorporated by
reference to Exhibit 10.36 to Pillowtex Corporation's
Registration Statement on Form S-1 (No. 33-57314))
10.26 -- Split Dollar Life Insurance Agreement between Pillowtex
Corporation and Charles M. Hansen, Jr. dated July 26, 1993
(incorporated by reference to Exhibit 10.32 to Pillowtex
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993)
10.27 -- Pillowtex Corporation 1993 Stock Option Plan (incorporated
by reference to Appendix A to Pillowtex Corporation's Proxy
Statement for its Annual Meeting of Shareholders held on
May 8, 1997)
10.28* -- Form of Employment Agreement entered into between Pillowtex
Management Services Company and each of Christopher N.
Baker, Jeffrey D. Cordes, and Scott E. Shimizu
10.29* -- Form of Employment Agreement dated as of January 1, 1998,
between Pillowtex Management Services Company and Kevin M.
Finlay
10.30 -- Pillowtex Corporation Supplemental Executive Retirement
Plan, effective as of January 1, 1997 (incorporated by
reference to Exhibit 10.1.44 to Pillowtex Corporation's
Registration Statement on Form S-4 (No. 33-36663) filed on
September 29, 1997)
10.31 -- Pillowtex Corporation Management Incentive Plan
(incorporated by reference to Appendix B to Pillowtex
Corporation's Proxy Statement for its Annual Meeting of
Shareholders held on May 8, 1997)
10.32* -- Pillowtex Corporation Deferred Compensation Plan, effective
as of February 9, 1998
10.33 -- Indenture, dated as of March 15, 1987, relating to the 6%
Convertible Subordinated Debentures Due 2012 (incorporated
by reference to Exhibit 4.9 to Fieldcrest Cannon, Inc.'s
Registration Statement on Form S-3 (No. 33-12436))
10.34 -- Yarn Purchase Agreement between Parkdale Mills, Incorporated
and Fieldcrest Cannon, Inc. (incorporated by reference to
Exhibit 10 to Fieldcrest Cannon, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996)
13.1* -- Portions of Pillowtex Corporation's 1997 Annual Report to
Shareholders that are incorporated herein by reference
21.1* -- List of Pillowtex Corporation's Principal Operating
Subsidiaries
23.1* -- Consent of KPMG Peat Marwick LLP
23.2* -- Consent of KPMG Peat Marwick LLP
23.3* -- Consent of Ernst & Young LLP
27* -- Financial Data Schedule
99.1* -- Consolidated Financial Statements of Fieldcrest Cannon, Inc.
as of and for the fiscal years ended January 3, 1998,
December 31, 1996, and December 31, 1995
_______________
* Filed herewith