4111 Mint Way
Dallas, Texas 75237
Telephone: (214) 333-3225
Fax: (214) 330-6016
Sales: $1.35 billion (2000)
Stock Exchanges: New York
Ticker Symbol: PTEXQ
NAIC: 31321 Broadwoven Fabric Mills; 314129 Other Household Textile Product Mills
At Pillowtex, our entire history is dedicated to helping people sleep well. Since 1954, we've been producing the best line of bedding materials. We've grown into the largest manufacturer of bed pillows, mattress pads, down comforters, and blankets; as well as a leading provider of comforter covers. Every night, we help millions of people rest. And every morning, we make sure they get out on the right side of the bed.
1954: The company is founded in Dallas.
1973: Chuck Hansen becomes president.
1987: Sumergrade Corporation is acquired, making Pillowtex the nation's leading producer of down comforters.
1993: Initial public offering.
1997: Massive Fieldcrest Cannon acquisition vaults company to one of top home textile producers in the country.
2000: The company files for Chapter 11 bankruptcy protection.
Pillowtex Corporation is one of the three biggest producers of bedding and bath textiles in the United States. It is the leading manufacturer of what is known in the industry as 'top-of-the-bed' products, including blankets, pillows, mattress pads, and comforters. Through its subsidiary, Fieldcrest Cannon Inc., Pillowtex is also the leading U.S. manufacturer of towels, and it sells many well-known home textile brands, including Royal Velvet, Cannon, and Charisma. Pillowtex's customers include practically every major North American retailer, from department stores and mass merchandisers to catalogs to large institutional organizations such as the U.S. Postal Service. The company offers more than 10,000 products, which are manufactured in plants throughout the United States and Canada. Its Dallas facilities include what is arguably North America's biggest feather and down processing plant. The company grew rapidly through acquisition, culminating in the merger in 1997 with Fieldcrest Cannon, a firm even larger than itself. Heavy debt sent the company into Chapter 11 in 2000.
Pillowtex was founded in 1954 by John H. Silverthorne to manufacture bed pillows in Dallas. The company soon began acquiring manufacturing plants in Atlanta, Chicago, Connecticut, and Los Angeles, forming the basis of what would become a 'hub and spoke' manufacturing and distribution network, one of the most sophisticated systems in the industry. Sales mounted slowly but steadily from 1958 on, reaching $4 million by 1965 and $7.5 million in the early 1970s.
Notwithstanding its relatively modest growth in the early years, Pillowtex developed a reputation as a potent competitor. According to a 1990 article in trade journal HFD-The Weekly Home Furnishings Newspaper, one customer went so far as to nickname it 'the gorilla.' Rivals had no choice but to concede the company's preeminence in pillows. One unidentified competitor told HFD's Sharyn Bernard, 'They're an excellent company. ... Everyone thinks of Pillowtex [when they want bed pillows].' The firm also garnered a reputation for having a creative sales force and for establishing, rather than following, product trends.
John Silverthorne continued to own and operate Pillowtex throughout much of its first four decades in business. In 1973, the founder established a long-range succession scheme by promoting Charles 'Chuck' Hansen, Jr., to president. Hansen had joined the company in 1965 at the age of 25 and quickly advanced from the ranks of sales representatives to the executive offices. Although he had not originally expected to make a lifetime career at Pillowtex, he told the Dallas Business Journal's Sean Wood that he hoped to make it 'the largest and most profitable maker and seller of pillows, comforters and bed pads.'
Hansen and Silverthorne believed that the best way to achieve that goal was to 'buy' market share. The company averaged one acquisition about every four years from 1970 to 1981, adding Perl Pillow, Synthetic Pillows, Inc., and Globe Feather & Down during the period. By 1982, organic growth and acquisitions had boosted the pillow company's sales to about $56 million and made it the leader of the industry.
Diversification into Other 'Top-of-the-Bed' Goods in the 1980s
Having achieved dominance in its core business, Pillowtex sought growth through other avenues in the 1980s. Acquisitions throughout the decade both supplemented Pillowtex's pillow making operations and added mattress pads to the product line. The company purchased two mattress pad companies--Los Angeles-based Bedcovers, Inc. and Acme Quilting Co., Inc., America's oldest mattress pad producer--in 1983 alone. The Acme purchase also gave Pillowtex the capacity to manufacture comforters, throw pillows, moving van pads, and such decorative goods as dust ruffles and pillow shams.
Hansen noted that these additions not only boosted Pillowtex's sales volume, but also helped to shield it from downturns in individual categories. A desire to gain manufacturing and marketing synergies was another motivation behind the acquisition strategy.
Pillowtex grew so fast in the late 1980s that one competitor filed suit against it, charging that the company had violated antitrust laws and was becoming a monopoly. The lawsuit arose from Pillowtex's 1987 acquisition of Sumergrade Corporation, a North Carolina manufacturer. The $9.3 million purchase of this bankrupt business made Pillowtex the nation's leading producer of down comforters and boosted its capacity in decorative throw pillows, a fast-growing, high-margin segment. (The Texas company would further augment its decorative pillow business with the 1991 acquisition of Nettle Creek Corporation.) Sumergrade also gave its new parent a valuable Ralph Lauren Home Furnishings license and enhanced its presence on the East Coast. The antitrust suit was unsuccessful, and Pillowtex's growth continued unabated.
Some competitors speculated that Pillowtex's rapid expansion would be its downfall, making it a slow-moving giant. The company combated that tendency with a quick response (QR) program that incorporated electronic data interchange (EDI). QR coordinated information shared by the merchandiser and the manufacturer such that when a sales clerk scanned the inventory number of a given product, the network automatically reordered the item from Pillowtex. The system reduced paperwork and lead time, thereby cutting costs for both parties and creating a 'just-in-time-like' operation. By the mid-1990s, all but about 10 percent of the company's customers placed their orders through EDI, leading analysts with Wheat, First Securities to call Pillowtex 'one of the most technologically integrated and advanced' of pillow and blanket manufacturers.
Rapid Growth in the Early 1990s
Chuck Hansen advanced to chief executive officer and chairman when the founder died of cancer in December 1992. The new leader quickly prepared Pillowtex for an initial public offering (IPO) in 1993. The floatation offered about one-third of the company's equity to the public, while Hansen and Silverthorne's widow, Mary R. Silverthorne, split most of the remaining interest. This arrangement permitted the company to raise funds for both the Silverthorne estate and Pillowtex's growth, while maintaining control among corporate insiders.
Pillowtex moved boldly into the blanket segment in the ensuing 30 months, using part of the $53 million proceeds of the IPO to bankroll the acquisition of three blanket companies and two pillow/comforter manufacturers. The growth-hungry firm bought two old-line blanket manufacturers, Tennessee Woolen Mills, Inc. and Manetta Mills, Inc., in 1993 at a total cost of $20.9 million in cash. A year later, Pillowtex shelled out a whopping $112 million ($101 million cash and $11 million debt) for Beacon Manufacturing Company, then the largest player in the blanket segment.
Other acquisitions diversified Pillowtex internationally. Torfeaco Industries Limited, a well-established producer of pillows, mattress pads, and decorative bedding, came on board in 1993. In 1994, the growing firm paid $3.6 million for Imperial Feather Company, a pillow and comforter manufacturer. With overseas sales totaling about 10 percent of total revenues in 1995, Pillowtex laid plans to launch production and distribution operations in Europe and South America.
Pillowtex's pro forma sales nearly doubled in the early 1990s, from $259 million in 1991 to $474.9 million in 1995. Operating income increased from $19.1 million to $36.5 million during the same period, due in part to rising productivity. The company's selling, general, and administrative expenses (already ranked among the industry's lowest) declined from nearly 13 percent of sales in 1991 to 9 percent of sales by 1995. Nevertheless, net income declined from $13.2 million to a low of $7.7 million in 1994. The decreases in bottom-line profitability were attributed to debt service from Pillowtex's mid-decade acquisition spree, rising raw materials costs, and difficulties in reconciling its new affiliates. The decline in net earnings pushed Pillowtex's stock, which had risen from an introductory price of $14 per share in 1993 to a high of more than $21 early in 1994, down to less than $9 by the end of the year.
The company tried to alleviate some of its raw materials problems with the $6 million acquisition of Newton Yarn Mills, a North Carolina cotton yarn spinning factory, from Dixie Yarns Inc. in 1995. In addition, a savvy acquisition in 1996 gave Pillowtex Fieldcrest Cannon's $71 million blanket and throw business at a cost of $30 million.
Pillowtex's revenues rose to $490.7 million in 1996, and its net climbed to more than $14 million. Although in 1995 Hansen had told the Dallas Business Journal's Wayne Carter, 'We don't control the stock price; I just try to run the company,' by the end of 1996 he took a more considered approach to shareholders' concerns, noting in that year's annual report that 'the heart of Pillowtex's mission is the commitment to provide a superior investment return to our shareholders.' Buoyed in part by the late 1995 institution of a dividend, the stock rose from less than $12 to $18 over the course of 1996.
The Mid-1990s and Beyond
A major management shift that started in 1995 reflected Pillowtex's transition from an 'entrepreneurial' firm into a diversified corporation and telegraphed possible management succession scenarios. That year, the company reorganized into two operating segments, the Pillowtex division, in charge of pillows, mattress pads, and comforters, and the Beacon division, manufacturing woven blankets. This transitional phase soon yielded to a second shuffling. In 1997, the company reorganized along functional lines, appointing former Chief Financial Officer and Executive Vice-President Jeffrey Cordes as president and chief operating officer, former Pillowtex division President Christopher Baker as president of the manufacturing division, and hiring Kevin Finlay away from Fieldcrest Cannon Inc. to serve as president of the sales and marketing division.
Wheat, First Securities' late 1996 analysis of Pillowtex forecast earnings growth of 22 percent in 1997, as efficiencies from its earlier acquisitions began to take effect and the company paid down substantial amounts of debt. In 1995, CEO Hansen told Dallas Business Journal's Wayne Carter, 'We're not obsessed with the need to grow. We're obsessed with being the most profitable.' Nonetheless, he affirmed that the company would continue to pursue growth through acquisition in the waning years of the 20th century, noting in Pillowtex's 1996 annual report the firm's 'next major milestone: $1 billion in annual sales.' Pillowtex intended to achieve that goal through internal development as well as its ongoing acquisition strategy. Organic growth strategies included a plan to leverage brand equity, especially among its own labels like Health Horizons antibacterial pillows and mattress pads, to boost sales in the late 1990s. The company also boldly mounted a challenge to Sunbeam's utter domination of the electric blanket category in early 1997, hoping to capture 20 percent of this $150 million market.
Doubling Size, Going Bankrupt in the Late 1990s
In 1996, Pillowtex had snapped up the blanket and throw manufacturing business of giant towel-maker Fieldcrest Cannon Inc. In September 1997, Pillowtex announced that it had agreed to acquire the whole of Fieldcrest Cannon, a Kannapolis, North Carolina-based company that was the first name in bed and bath products. Fieldcrest was to be run as a subsidiary of Pillowtex, keeping its North Carolina base. The combined company would have sales of $1.6 billion, and 15,000 employees, making it either the second or third largest home textile manufacturer in the United States. Pillowtex paid $410 million to buy Fieldcrest and assumed $315 million of Fieldcrest's debt. The deal accomplished several of Pillowtex's stated goals: it easily pushed it into the billion-dollar-company category, and it gave the firm a complete array of home textiles, including Fieldcrest's top brands Royal Velvet, Cannon, and Charisma. Pillowtex announced that it would work to upgrade Fieldcrest's technology, budgeting $80 million in 1998 for capital improvements at the new subsidiary. Although this was the biggest acquisition the company had made yet, it was not the last. In under a year, Pillowtex again made the news with its announcement that it had acquired The Leshner Corp., a maker of terrycloth kitchen and bath products. Leshner had sales of $105 million, and its inclusion in the Pillowtex stable bumped total company revenue up to $1.7 billion.
Integrating the parts of the new, mammoth Pillowtex did not go smoothly. When it acquired Fieldcrest Cannon, Pillowtex also took on a long-running labor dispute at the towel-maker's North Carolina factories. After a struggle dating back to the 1970s, the Union of Needletrades, Textile and Industrial Employees finally won the right to organize Fieldcrest's six plants in Kannapolis in 1999. The Kannapolis workers had been paid about $2 an hour less than workers at Pillowtex's other unionized plants, and other issues in the union elections were sick pay, overtime, and pensions. Pillowtex also had poured millions of dollars into updating Fieldcrest's computer system, but did not come up with a satisfactory result. Problems with the computer system depressed sales at the division. Starting with the second quarter of 1999, Pillowtex began to lose money. Over the next 15 months, the company lost more than $67 million. Sales continued to shrink, and the company was oppressed with the debt it had taken on. Key players began to leave the company, including the president of sales and marketing, vice-president of international sales and marketing, and, eventually, the chief financial officer and the president/chief operating officer. By the second quarter of 2000, the company had to own up to a quarterly loss of more than $8 million, while interest rates rose, and total debt was more than $1 billion. CEO Hansen continued in an optimistic vein, announcing that although business in some categories fell, sales were up 5 percent with Pillowtex's top ten customers. When asked about the possibility of a bankruptcy filing, Hansen told industry journal Home Textiles Today (July 31, 2000), 'No way in hell. That's sure as hell not on my agenda.' One day after again posting dismal losses for the third quarter, Hansen resigned. Within weeks, the company filed for Chapter 11, which allowed it protection from its creditors while it reorganized its business.
Pillowtex pinned its hopes on its new president and chief operating officer, Tony Williams. Williams announced that he would simplify the company, trimming its product lines, reorganizing its manufacturing processes, and shortening cycle times to eliminate excess inventory. He also hired brand management consultants to help market Pillowtex's many leading brands. Williams predicted that Pillowtex would recover quickly and emerge from bankruptcy in 2002.
Principal Subsidiaries: Fieldcrest Cannon Inc.
Principal Competitors: WestPoint Stevens Inc.; Dan River Inc.; Springs Industries, Inc.
'Bedding Manufacturer Files for Bankruptcy Protection,' Wall Street Journal, November 15, 2000, p. B17.
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Source: International Directory of Company Histories, Vol. 41. St. James Press, 2001.