UNITED STATES 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 December 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-5137
FIELDCREST CANNON, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 56-0586036
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Lake Circle Drive
Kannapolis, NC 28081
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number (704) 939-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
Common Stock, $1 Par Value New York Stock Exchange
$3.00 Series A Convertible
Preferred Stock, $.01 Par Value The Nasdaq SmallCap Market
6% Convertible Subordinated
Debentures Due 2012 New York Stock Exchange
Share Purchase Rights 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 and (2) has been subject to such filing requirements for
the past 90 days. Yes x . No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the 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. (x)
The aggregate market value of voting stock held by non-affiliates of the
registrant was $141,308,422 as of March 1, 1997.
NUMBER OF SHARES OUTSTANDING AT MARCH 1, 1997
Common Stock 9,145,032
DOCUMENTS INCORPORATED BY REFERENCE
Part II incorporates information by reference from the annual report to
shareowners for the year ended December 31, 1996. Part III incorporates
information by reference from the proxy statement for the annual meeting of
shareowners to be held on April 22, 1997.
Total pages 151
Page 1
Exhibit Index page 12
PART I
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.
The registrant and its consolidated subsidiaries design, manufacture and
market a broad range of household textile products consisting of towels,
sheets, comforters, bath rugs and furniture coverings. 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 1996 nearly all of the registrant's total sales were comprised of
home furnishings products. Approximately 93% of the Company's 1996 net
sales were from sales of products carrying the registrant's principal
brand names of "Fieldcrest," "Royal Velvet," "Charisma," "St. Marys,"
"Cannon," "Monticello," "Royal Family," "Caldwell" and "Sure Fit"; the
remaining 7% were from sales of private label products.
During 1996 the Company closed two sheeting yarn plants and contracted
to purchase yarn from outside vendors for a portion of its sheeting yarn
requirements. The Company also closed a towel weaving plant and a towel
yarn plant as part of the Company's ongoing consolidation effort to
utilize assets more effectively. In September 1996, the Company sold
certain Blanket Division inventories and equipment to Pillowtex
Corporation which resulted in closing the blanket facilities in Eden,
N.C.
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.
Domestic cotton merchants are the registrant's primary source of cotton,
and domestic fiber producers are the registrant's primary source of
synthetic fibers. 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 resulting from company-sponsored
research and development, and others are obtained that are deemed
advantageous to company operations. The Company has license agreements
with Waverly, Adrienne Vittadini, Ellen Tracy and others.
Page 2
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.
Working Capital Items
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, 1996, the Company's five largest customers
accounted for approximately 43% of net sales. Sales to one customer
(Wal-Mart Stores and its affiliates) represented 21.2% 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 1996.
Order Backlog
The registrant had normal unfilled order backlogs as of December 31,
1996 and 1995 amounting to approximately $81 million and $76 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 1996 compared to 1995 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.
Page 3
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, comforter and
bath rug markets are each comprised of three to five principal
manufacturers (including the registrant) and several smaller domestic
manufacturers.
The principal methods of competition in the registrant's industry 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 11,312 as of
December 31, 1996. Approximately 34% of the Company's hourly employees
are subject to collective bargaining agreements with the Union of Needle
Trades, Industrial and Textile Employees ("UNITE") or the United Textile
Workers of America and United Food and Commercial Workers International
Union.
Foreign Sales
The registrant is not currently engaged in significant operations in
foreign countries. Approximately 8% and 7% of the registrant's
consolidated net sales were exported to foreign customers in 1996 and
1995, respectively.
Item 2. Properties
The registrant has 15 principal manufacturing plants, all located in the
United States; 9 are in North Carolina, 1 in Georgia, 3 in Alabama, 1 in
Pennsylvania and 1 in Virginia. In addition, there are 13 warehousing
and distribution centers located in the manufacturing states. The
manufacturing/ warehousing and distribution centers aggregate a floor
area of approximately 15,041,000 square feet. All of the facilities are
owned except: (1) 2 locations totaling approximately 618,000 square
feet, title to which is held by the Development Authorities that issued
the
Page 4
Industrial Development Bonds which were issued to finance the
facilities; and (2) 4 locations, totaling approximately 604,000 square
feet, where the machinery and equipment is owned and the buildings are
under a long-term lease. Title to the facilities financed by Industrial
Revenue Bonds as described above will be transferred to the registrant
upon the retirement of such bonds. Such facilities therefore are
accounted for as being owned by the registrant.
The registrant owns office buildings in Kannapolis and Eden, North
Carolina, which contain approximately 209,000 square feet.
All other properties owned or controlled by the registrant aggregate
approximately 511,000 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. 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 or results
of operations.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Page 5
Identification of Executive Officers of the Registrant
Date from
Which Officers
Age at Have Served in
Name 3/31/97 Positions Held Present Capacities
James M. Fitzgibbons 62 Chairman of the Board Chairman of the Board and
and Chief Executive Chief Executive Officer: 1990
Officer and Director Director: 1985
John M. Nevin 62 Executive Vice President Executive Vice President: 1995
Robert E. Dellinger 52 Vice President Vice President: 1989
M. Kenneth Doss 57 Vice President Vice President: 1988
and Secretary General Counsel: 1985
Secretary: 1986
Richard E. Reece 52 Vice President Vice President: 1996
Thomas R. Staab 54 Vice President and Vice President: 1992
Chief Financial Officer Chief Financial Officer: 1994
Gary R. Langford 35 Treasurer Treasurer: 1995
Clifford D. Paulsen 53 Controller Controller: 1992
The registrant's executive officers serve at the will of the Board of Directors.
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
Messrs. Nevin and Langford, each executive officer has been employed by the
registrant for more than five years. Prior to becoming Executive Vice President
of the registrant on October 16, 1995, Mr. Nevin had been Senior Vice President
of Strategic Services at James River Corporation during the last five years.
Prior to joining the registrant in May, 1995, Mr. Langford had been Assistant
Treasurer of AGCO Corporation since October 1990.
Page 6
PART II
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 1996
Annual Report to Shareowners, page 16.
Item 6. Selected Financial Data
Selected financial and statistical data for the years 1992 to 1996 appearing in
the line items "Net sales", "Income (loss) from continuing operations", "Per
share of common stock: Primary income (loss) from continuing operations" and
"Fully diluted income (loss)", "Total assets" and "Long-term debt" are
incorporated by reference from the 1996 Annual Report to Shareowners, page 34.
No cash dividends were declared on Common Stock for the five years in the period
ended December 31, 1996.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Incorporated by reference from the 1996 Annual Report to Shareowners, pages 13
through 16.
Item 8. Consolidated Financial Statements and Supplementary Data
Incorporated by reference from the 1996 Annual Report to Shareowners, pages 16
through 33.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None.
Page 7
PART III
Item 10. Directors and Executive Officers 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
April 22, 1997, pages 2 and 3.
For information regarding the Executive Officers of the registrant, see Part I
at page 6.
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 April 22, 1997
entitled "Compensation of Directors", pages 6 and 7 and "Executive
Compensation", pages 7 through 10.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference from the section of the registrant's proxy
statement for the annual meeting of shareowners to be held on April 22, 1997
entitled "Security Ownership", pages 4 through 6.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference from the section of the registrant's proxy
statement for the annual meeting of shareowners to be held April 22, 1997,
entitled "Executive Compensation", pages 7 and 8.
PART IV
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 12 are filed as part of this annual report. Exhibit numbers
10.1 through 10.16 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.
Page 8
FIELDCREST CANNON, INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(Item 14(a) 1 & 2)
Page Numbers of the
Annual report to
Shareowners
Consolidated statement of financial position at 19
December 31, 1996 and 1995
Consolidated statement of operations and retained 18
earnings for each of the three years in the period
ended December 31, 1996
Consolidated statement of cash flows for each of the 20
three years in the period ended December 31, 1996
Notes to consolidated financial statements 21-32
Report of independent auditors 33
No schedules are filed 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, 1996 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 1996 Annual Report to Shareowners is not to be
deemed filed as part of this report.
Page 9
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 19, 1997 By:/s/ James M. Fitzgibbons
------------------------
James M. Fitzgibbons, Chairman of
the Board of Directors and Chief
Executive Officer (Principal
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 and
in the capacities on the dates indicated.
/s/ James M. Fitzgibbons March 19, 1997
- --------------------------------------------
James M. Fitzgibbons, Chairman of the Board
of Directors and Chief Executive Officer
(Principal Executive Officer)
/s/ M. Kenneth Doss March 19, 1997
- ---------------------------------------------
M. Kenneth Doss
Vice President and Secretary
/s/ Thomas R. Staab March 19, 1997
- ----------------------------------------------
Thomas R. Staab
Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Clifford D. Paulsen March 19, 1997
- ----------------------------------------------
Clifford D. Paulsen
Controller (Principal Accounting Officer)
/s/ William E. Ford March 19, 1997
- ----------------------------------------------
William E. Ford
Director
Page 10
/s/ John C. Harned March 19, 1997
- ----------------------------------------------
John C. Harned
Director
/s/ Noah T. Herndon March 19, 1997
- ----------------------------------------------
Noah T. Herndon
Director
/s/ S. Roger Horchow March 19, 1997
- ----------------------------------------------
S. Roger Horchow
Director
/s/ W. Duke Kimbrell March 19, 1997
- ----------------------------------------------
W. Duke Kimbrell
Director
/s/ C. J. Kjorlien March 19, 1997
- ----------------------------------------------
C. J. Kjorlien
Director
/s/ Alexandra Stoddard March 19, 1997
Alexandra Stoddard
Director
Page 11
EXHIBIT INDEX TO
ANNUAL REPORT ON FORM 10-K FOR
FIELDCREST CANNON, INC.
FOR THE YEAR ENDED DECEMBER 31, 1996
Page Number
Exhibit or Incorporation
Number Description by Reference to
(3) 1. Restated Certificate of Incorporation, Exhibit 3-1 to the
as amended to date. Registrant's Registration
Statement on
Form S-3 filed on
February 18, 1994.
2. Amended and Restated By-Laws of the Registrant Exhibit 3-1 to Report on
as amended to November 24, 1993. Form 8-K filed on
December 9, 1993.
(4) 1. Rights Agreement, dated as of November 24, 1993, Exhibit 1 to the
between the Registrant and The First National Registrant's Registration
Bank of Boston, which includes as Exhibit A the Statement on Form 8-A
Form of Rights Certificate of Designations, as filed December 3, 1993.
Exhibit B the Form of Rights Certificate, and as Exhibit C
the Summary of Rights to Purchase Preferred Stock.
2. First Amendment, dated February 6, 1997, to Exhibit 4.1 to
Report on Rights Agreement dated as of November 24, 1993
Form 8-K filed on between Fieldcrest Cannon, Inc., and The
First February 14, 1997.
National Bank of Boston, as Rights Agent.
3. Indenture dated as of March 15, 1987, relating to Exhibit 4.9 to the
the Registrant's 6% Convertible Subordinated Registrant's Registration
Debentures Due 2012 between the Registrant and Statement on Form S-3
Wachovia Bank and Trust Company, N.A., (No. 33-12436) filed on
including the form of debenture. March 6, 1987.
4. Indenture dated as of June 1, 1992, relating to Exhibit 4.7 of
the Senior Subordinated Debentures Due 2004, Amendment No. 1 to the
between the Registrant and First Union National Registrant's Registration
Bank, as Trustee, including the form of Statement on Form S-3
debenture. (No. 33-47348) filed on
June 3, 1992.
5. Credit Agreement dated as of January 30, 1997 15 - 106
by and among the Registrant, First Union
Commercial Corporation as agent, and certain
lenders.
The registrant, by signing this Report, agrees to furnish the
Securities and Exchange Commission upon its request a copy of
any instrument which defines the rights of holders of
long-term debt of the Registrant and all of its subsidiaries
for which consolidated or unconsolidated financial statements
are required to be filed, and which authorizes a total amount
of securities not in excess of 10% of the total assets of the
Registrant and its subsidiaries on a consolidated basis.
Page 12
Page Number
Exhibit or Incorporation
Number Description by Reference to
(10) * 1. Amended and Restated Director Stock Option Exhibit A to the
Plan of the Registrant approved by the Registrant's proxy
stockholders of the Corporation on April 28, statement for the annual
1992. meeting of shareowners
held on April 28, 1992.
* 2. Stock Option Agreement between the Registrant Exhibit 4.1 to the
and James M. Fitzgibbons dated as of September Registrant's Registration
11, 1991. Statement on Form S-8
filed on December 23,
1991.
* 3. Employee Retention Agreement between Registrant Exhibit 10.2 to Report
and James M. Fitzgibbons effective as of on Form 10-Q for the
July 9, 1993. quarter ended September
30, 1993.
* 4. Instrument of Amendment dated July 15, 1996 107 - 108
between the Registrant and James M. Fitzgibbons
amending Exhibit 10.3 above.
* 5. Employee Retention Agreement between the Exhibit 10.9 to Report
Registrant and Robert E. Dellinger effective on Form 10-K for fiscal
as of July 9, 1993. year ending December 31,
1993.
* 6. Instrument of Amendment dated July 29, 1993 Exhibit 10.10 to Report
between the Registrant and Robert E. Dellinger, on Form 10-K for fiscal
amending Exhibit 10.5 above. year ending December 31,
1993.
* 7. Instrument of Amendment dated July 15, 1996 109 - 110
between the Registrant and Robert E. Dellinger,
amending Exhibit 10.5 above.
*8. Employee Retention Agreement between the Exhibit 10.8 to Report
Registrant and Thomas R. Staab effective on Form 10-K for fiscal
as of July 9, 1993. year ending December 31,
1995.
*9. Instrument of Amendment dated July 29, 1993 Exhibit 10.9 to report
between the Registrant and Thomas R. Staab on Form 10-K for fiscal
amending Exhibit 10.8 above. year ending December 31,
1995.
*10. Instrument of Amendment dated July 15, 1996 111 - 112
between the Registrant and Thomas R. Staab
amending Exhibit 10.8 above.
- -----------
*Represents a management contract or compensatory plan or arrangement required
to be filed as an exhibit pursuant to Item 14(c) of this report.
Page 13
*11. Employee Retention Agreement between the 113 - 123
Registrant and John Nevin effective
as of October 3, 1996.
*12. Form of Employee Retention Agreement between Exhibit 10.6 to Report
the Registrant and other executive officers of on Form 10-Q for the
the Registrant effective as of July 9, 1993. quarter ended September
30, 1993.
*13. Form of Instrument of Amendment dated July 29, Exhibit 10.7 to Report
1993 between the Registrant and other executive on Form 10-Q for the
officers of the Registrant, amending Exhibit quarter ended September
10.12 above. 30, 1993.
*14. Form of Instrument of Amendment dated July 15, 124 - 125
1996 between the Registrant and other executive
officers of the Registrant, amending Exhibit 10.12
above.
*15. 1995 Employee Stock Option Plan of Fieldcrest Exhibit 4.1 of
Cannon, Inc. Registrant's Registration
Statement of Form S-8 filed on
May 8, 1995.
*16. Yarn Purchase Agreement between Parkdale Mills, Exhibit 10 to Report on
Incorporated and the Registrant (CONFIDENTIAL Form 10-Q for the quarter
TREATMENT). ended March 31, 1996.
(11) Computation of Primary and Fully Diluted Net Income 126 - 127
(Loss) per Share.
(13) 1996 Annual Report to Shareowners. 128 - 149
(21) Subsidiaries of the Registrant. 150
(23) Consent of independent auditors. 151
- -----------
*Represents a management contract or compensatory plan or arrangement required
to be filed as an exhibit pursuant to Item 14(c) of this report.
Page 14