Item 1. Business
General The registrant was incorporated under the laws of Delaware in 1953. The registrant operates a single segment business in the textile industry and is principally involved in the manufacture and sale of home furnishing products.
On July 30, 1993 the registrant completed the sale of its carpet and rug division to Mohawk Industries, Inc. for approximately $148 million. The sale resulted in an after-tax net income of $9.2 million. On November 24, 1993 a newly formed and wholly owned subsidiary of the registrant completed a tender offer for all of the outstanding shares of Amoskeag Company ("Amoskeag") for a cash price of $40 per share, or an aggregate of approximately $141.9 million including certain costs. The acquisition has been accounted for as a purchase by the Company of the net assets of Amoskeag held for sale at their net realizable values and as the purchase of treasury stock. Amoskeag owned 3,606,400 shares of the registrant's common stock which has been assigned a cost of $117.2 million after a preliminary allocation of $24.7 million to the net assets of Amoskeag. The registrant is in the process of selling all of the operating assets of Amoskeag, and the valuation includes anticipated costs during a one year disposal period. These assets are primarily the Bangor and Aroostook Railroad and certain real estate properties.
The registrant and its consolidated subsidiaries design, manufacture and market a broad range of household textile products consisting of towels, sheets, blankets, comforters and bath rugs. The registrant is vertically integrated in that it buys the basic raw materials consisting principally of cotton and synthetic fibers and manufactures a finished consumer product. These products are marketed primarily by the Company's own sales and marketing staff and distributed nationally to customers for ultimate retail sale. Customers consist principally of department stores, chain stores, mass merchants, specialty home furnishing stores, catalog warehouse clubs and other retail outlets, and institutional, government and contract accounts.
In 1993 nearly all of the registrant's total sales were comprised of home furnishings products. Approximately 90% of the Company's 1993 net sales were from sales of products carrying the registrant's principal brand names of "Fieldcrest," "Royal Velvet," "Charisma," "St. Marys," "Cannon," "Monticello," and "Royal Family,"; the remaining 10% were from sales of private label products.
Raw Materials
The registrant's basic raw materials 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. The registrant uses significant quantities of cotton which is subject to ongoing price fluctuations. The registrant in the ordinary course of business may arrange for purchase commitments with vendors for future cotton requirements.
Patents and Licenses
The registrant holds various patents and licenses resulting from company-sponsored research and development, and others are obtained that are deemed advantageous to company operations. The registrant is only partially dependent upon such patents and licenses in certain product lines, and the loss of any exclusiveness in these areas would not materially adversely affect overall profitability.
Seasonality in the Company's Business
Primarily because the Company's retail customers have higher sales in the second half of the calendar year, the Company also experiences greater sales volume in the last three quarters of the calendar year. It is likely that the Company's operating performance in the first quarter of a given calendar year will be less favorable than operating performance in the last three quarters.
The registrant carries normal inventory levels to meet delivery requirements of customers, and customer returns of merchandise shipped are not material. Payment terms on customer invoices are generally 30 to 60 days.
Customers
The registrant's customers consist principally of department stores, chain stores, specialty stores, mass merchants, warehouse clubs, other retail outlets and institutional, government and contract accounts. For the year ended December 31, 1993, the Company's five largest customers accounted for approximately 35% of net sales. Sales to one customer (Wal-Mart Stores and its affiliates) represented 17.4% of total sales of the Company. Although management of the Company believes that the Company's relationship with Wal-Mart is excellent and the loss of this customer is unlikely, the loss of Wal-Mart as a customer would have a material adverse effect on the Company's business. No other single customer accounted for more than 10% of net sales in 1993.
Order Backlog
The registrant had normal unfilled order backlogs as of December 31, 1993 and 1992 amounting to approximately $87 million and $73 million, respectively. The majority of these unfilled orders are shipped during the first quarter of the subsequent fiscal year.
The increase in unfilled orders in 1993 compared to 1992 is believed to be primarily due to the timing of new orders. Unfilled orders have become less of an indicator of future sales as customers have trended toward placing orders as stock is required. Many orders are placed using electronic data interchange, and the Company has filled such orders on a quick response basis.
Government Contracts
No material portion of the business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the Government.
Competition
The home furnishing textile industry continues to be highly competitive. Among the registrant's competitors are a number of domestic and foreign companies with significant financial resources, experience, manufacturing capabilities and brand name identity.
The registrant competes with numerous other domestic manufacturers in each of its principal markets. The domestic towel, sheet, blanket and bath rug markets are each comprised of three to five principal manufacturers (including the registrant) and several smaller domestic manufacturers.
The registrant's principal methods of competition are price, design, service and product quality. The Company believes that large, low-cost producers with established brand names, efficient distribution networks and good customer service will profit in this competitive environment. The Company's ability to operate profitably in this environment will depend substantially on continued market acceptance of the Company's products and the Company's efforts to control costs and produce new and innovative products in response to competitive pressures and changes in consumer demand.
Environmental Controls The registrant does not anticipate that compliance with federal, state and local provisions that have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, will have a material effect upon the capital expenditures, earnings and competitive position of the registrant and its subsidiaries.
Employees
Total employment of the Company and its subsidiaries was 14,090 as of December 31, 1993. Approximately 29% of the Company's hourly employees are subject to collective bargaining agreements with the Amalgamated Clothing and Textile Workers Union or the United Textile Workers of America.
Foreign Sales
The registrant is not currently engaged in significant operations in foreign countries. Approximately 5% of the registrant's consolidated net sales were exported to foreign customers in 1993 compared to 6% in 1992.
Item 2.
Item 2. Properties
The registrant has 18 principal manufacturing plants, all located in the United States; 13 are in North Carolina, 1 in South Carolina, 1 in Georgia, 2 in Alabama and 1 in Virginia. In addition, there are 18 warehousing and distribution centers located in the manufacturing states, plus Texas and California. The manufacturing/warehousing and distribution centers aggregate a floor area of approximately 16,659,000 square feet. All of the facilities are owned except: (1) 2 locations totaling approximately 618,000 square feet, which are financed with Industrial Revenue Bonds; the properties are accounted for as "owned" but Development Authority holds title to property which will pass to the registrant upon retirement of Bonds; and (2) 1 location, totaling approximately 124,000 square feet, where the machinery and equipment is owned and the building is under a long-term lease.
The registrant owns corporate administrative buildings in Eden, North Carolina, which contain approximately 96,000 square feet. The Company also owns one vacant office building in Eden which contains approximately 48,000 square feet and is currently for sale. The principal marketing headquarters for the bed and bath division and certain executive offices (totaling approximately 64,000 square feet) are located in New York City under long-term leases.
All other properties owned or controlled by the registrant aggregate approximately 537,000 square feet and are used for miscellaneous support services or for sales and marketing.
Plants and equipment of the registrant are considered to be in excellent condition; substantial capital expenditures for new plants, modernization and improvements have been made in recent years. The plants generally operate on either a three shift basis for a five-day week or a four shift basis for a seven-day week during 50 weeks a year except during periods of curtailment. In the opinion of the registrant, all plants and properties are adequately covered by insurance.
Item 3.
Item 3. Legal Proceedings
The registrant is involved in various claims and lawsuits incidental to its business. In the opinion of the registrant based in part on the advice of legal counsel, however, the outcome of these suits will not have a material effect on the registrant's financial position.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders (a). The Company solicitated written consents of stockholders in lieu of a special meeting on November 4, 1993.
(b). Not applicable.
(c). Holders of Common Stock (one vote per share) and Class B Common Stock (ten votes per share) voted through written consent on the following matters, each as described in detail in the Registrant's consent statement dated November 4, 1993.
I. Amend the Registrant's Certificate of Incorporation to authorize 10,000,000 shares of undesignated preferred stock:
Votes (thousands)
Common Stock Class B Common Stock
For 1,313 36,116
Against 1,436 12
Abstain 18 1
II. Authorize the issuance of up to 1,800,000 shares of preferred stock of the Registrant:
Votes (thousands)
Common Stock Class B Common Stock
For 2,018 36,116
Against 732 12
Abstain 18 1
Identification of Executive Officers of the Registrant
None of the executive officers are related by blood, marriage or adoption to any other executive officer of the registrant or any director or executive officer of a parent, subsidiary, or affiliate of the registrant. With the exception of Mr. Fitzgibbons each executive officer has been employed by the registrant for more than five years. Prior to becoming Chief Executive Officer and Chairman of the Board of Directors of the registrant on October 15, 1990, Mr. Fitzgibbons was President of Amoskeag Company and was previously an executive officer of Amoskeag Company for more than five years.
PART II
Item 5.
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
Incorporated by reference from the market and dividend data section of the 1993 Annual Report to Shareowners, page 14.
Item 6.
Item 6. Selected Financial Data
Selected financial and statistical data for the years 1989 to 1993 appearing under the captions "Net sales", "Income (loss) from continuing operations", "Per share of common stock", "Total assets" and "Long-term obligations" are incorporated by reference from the 1993 Annual Report to Shareowners, page 32.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Incorporated by reference from the 1993 Annual Report to Shareowners, pages 11 through 14.
Item 8.
Item 8. Consolidated Financial Statements and Supplementary Data
Consolidated financial statements and supplementary data of the registrant are incorporated by reference from the 1993 Annual Report to Shareowners, pages 15 through 31.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
None.
PART III
Item 10.
Item 10. Directors, Executive Officers, Promoters and Control Persons of the Registrant
Information regarding the Directors is incorporated herein by reference from the registrant's proxy statement for the annual meeting of shareowners to be held on May 16, 1994, pages 2 and 3.
For information regarding the Executive Officers of the registrant, see Part I at page 7.
Item 11.
Item 11. Executive Compensation
Incorporated herein by reference from sections of the registrant's proxy statement for the annual meeting of shareowners to be held on May 16, 1994 entitled Compensation of Directors at page 7 and Executive Compensation, pages 7 through 10.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference from the Security Ownership section of the registrant's proxy statement for the annual meeting of shareowners to be held on May 16, 1994, pages 4 through 6.
Item 13.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference from the registrant's proxy statement for the annual meeting of shareowners to be held May 16, 1994, pages 7 and 8, Executive Compensation.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. and 2. Financial statements and financial statement schedules
The financial statements and schedules listed in the accompanying index to financial statements are filed as part of this annual report.
3. Exhibits
The exhibits listed as applicable on the accompanying Exhibit Index at page 17 are filed as part of this annual report. Exhibit numbers (10)1. through (10)12. represent management contracts or compensatory plans or arrangements required to be filed as an exhibit by Item 601 of Regulation S-K.
(b) Reports on Form 8-K
None.
FIELDCREST CANNON, INC.
AND FINANCIAL STATEMENT SCHEDULES
(Item 14(a) 1 & 2)
Page Numbers of the Annual report to Shareowners
Consolidated statement of financial position at 18 December 31, 1993 and 1992
Consolidated statement of income and retained earnings 17 for each of the three years in the period ended December 31, 1993
Consolidated statement of cash flows for each of the 19 three years in the period ended December 31, 1993
Notes to consolidated financial statements 20-30
Report of independent auditors 31
Page Numbers to this Form 10-K
Schedules for each of the three years in the period ended December 31, 1993:
V - Consolidated plant and equipment 11
VI - Consolidated accumulated depreciation of 12 plant and equipment
IX - Short-term borrowings 13
X - Supplementary income statement information 14
All other schedules are omitted because the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements and notes thereto.
The consolidated financial statements listed in the above index which are included in the Annual Report to Shareowners of Fieldcrest Cannon, Inc. for the year ended December 31, 1993 are hereby incorporated by reference. With exception of the pages listed in the above index and the Items referred to in Part II, Items 5, 6, 7 and 8, the 1993 Annual Report to Shareowners is not to be deemed filed as part of this report.
FIELDCREST CANNON, INC.
SCHEDULE V - CONSOLIDATED PLANT AND EQUIPMENT (In Thousands)
(1) In 1993 the Company sold its carpet and rug operations.
Depreciation is provided on a straight-line basis on estimated useful lives; buildings - 15 to 33 years; equipment - 5 to 15 years.
FIELDCREST CANNON, INC.
SCHEDULE VI - CONSOLIDATED ACCUMULATED DEPRECIATION OF PLANT AND EQUIPMENT
(In Thousands)
(1) In 1993 the Company sold its carpet and rug operations.
FIELDCREST CANNON, INC.
SCHEDULE IX - SHORT-TERM BORROWINGS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (In Thousands)
(1) Notes payable represent seasonal borrowing requirements during the year under the Company's revolving credit facility and during 1993 and 1992 bank borrowings to finance the purchase of raw cotton and wool. The revolving credit facility is also utilized for long-term financing. Effective May 6, 1992, the Company obtained a new revolving credit facility which allowed the Company to borrow up to $235 million through January 3, 1996. The Company elected to reduce the facility to $150 million from $235 million in November 1993 because of reduced borrowing requirements. The new facility replaced a $235 million bank term debt agreement that would have matured December 31, 1992. Accordingly, borrowings under the revolving credit facility were classified as long- term debt in 1993 and 1992 and as short-term debt in 1991. Interest rates on the revolving term debt were, at the Company's option, at the prime rate fixed by The First National Bank of Boston plus 1%, or at a Euromarket-based rate plus 2.5%. The average interest rate on the revolving term debt was 6.3% on December 31, 1993.
(2) The average amount outstanding during the period was computed by averaging the month-end balances during the year. The weighted average interest rate was computed by dividing the interest expense by the average daily amount outstanding.
FIELDCREST CANNON, INC.
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION YEARS ENDED DECEMBER 31, 1993, 1992 and 1991
(In Thousands)
Charged to Costs and Expenses
1993 1992 1991
Advertising Costs $16,547 $17,652 $17,625
Maintenance and repairs $20,892 $19,555 $16,890
Depreciation and amortization of intangible assets, preoperating costs and similar deferrals (1) (1) (1)
Taxes, other than payroll and income taxes (1) (1) (1)
Royalties (1) (1) (1)
(1) Less than 1% of total sales
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.
FIELDCREST CANNON, INC.
March 2, 1994 By: Charles G. Horn, President and Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report signed below by the following persons on behalf of the registrant and in the capacities on the dates indicated.
March 2, 1994 James M. Fitzgibbons Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer)
March 2, 1994 Charles G. Horn, President and Chief Operating Officer and Director
March 2, 1994 M. Kenneth Doss Vice President and Secretary
March 2, 1994 Thomas R. Staab Vice President and Chief Financial Officer (Principal Financial Officer)
March 2, 1994 Clifford D. Paulsen Controller (Principal Accounting Officer)
March 2, 1994 Tom H. Barrett Director
March 2, 1994 C. R. Charbonnier Director
March 2, 1994 William E. Ford Director
March 2, 1994 John C. Harned Director
March 2, 1994 S. Roger Horchow Director
March 2, 1994 W. Duke Kimbrell Director
March 2, 1994 C. J. Kjorlien Director
EXHIBIT INDEX TO
ANNUAL REPORT ON FORM 10-K FOR FIELDCREST CANNON, INC.
FOR THE YEAR ENDED DECEMBER 31, 1993
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.
FIELDCREST CANNON, INC.
March 3, 1993 By: /s/ Charles G. Horn Charles G. Horn, President and Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report signed below by the following persons on behalf of the registrant and in the capacities on the dates indicated.
/s/ James M. Fitzgibbons March 2, 1994 James M. Fitzgibbons Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer)
/s/ Charles G. Horn March 2, 1994 Charles G. Horn, President and Chief Operating Officer and Director
/s/ M. Kenneth Doss March 2, 1994 M. Kenneth Doss Vice President and Secretary
/s/ Thomas R. Staab March 2, 1994 Thomas R. Staab Vice President and Chief Financial Officer (Principal Financial Officer)
/s/ Clifford D. Paulsen March 2, 1994 Clifford D. Paulsen Controller (Principal Accounting Officer)
/s/ Tom H. Barrett March 2, 1994 Tom H. Barrett Director
/s/ C. R. Charbonnier March 2, 1994 C. R. Charbonnier Director
/s/ William E. Ford March 2, 1994 William E. Ford Director
/s/ John C. Harned March 2, 1994 John C. Harned Director
/s/ S. Roger Horchow March 2, 1994 S. Roger Horchow Director
/s/ W. Duke Kimbrell March 2, 1994 W. Duke Kimbrell Director
/s/ C. J. Kjorlien March 2, 1994 C. J. Kjorlien Director