CONTACT INFORMATION
- --------------------------------------------------------------------------------
UBS Warburg LLC
299 Park Avenue
New York, NY 10171-0026
Tel: 212-821-3000
www.ubswarburg.com
UBS Warburg LLC is a subsidiary of UBS AG
UBS Warburg is a business group of UBS AG
STRICTLY PRIVATE AND CONFIDENTIAL
PROJECT MILL
PRESENTATION TO THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS
APRIL 24, 2001
April 2001
- --------------------------------------------------------------------------------
The accompanying material was compiled on a confidential basis for use solely by
the Special Committee of the Board of Directors of Springs Industries, Inc. (the
"Company") in evaluating the proposed transaction described herein. This
material was prepared for a specific use by specific persons and was not
prepared to conform with any disclosure standards under applicable federal
securities laws or otherwise. Neither the Company nor UBS Warburg
("UBS Warburg") nor any of their respective officers, directors, employees,
affiliates, advisors, agents or representatives warrants the accuracy or
completeness of any of the material set forth herein. Nothing contained in the
accompanying material is, or shall be relied upon as, a promise or
representation as to the past or the future.
It should be understood that any estimates, valuations and/or projections
contained in the accompanying material were prepared or derived from information
supplied by the Company without any independent verification thereof by UBS
Warburg. Accordingly, no representation or warranty can be or is made by
UBS Warburg as to the accuracy or achievability of any such valuations,
estimates and/or projections.
CONTENTS
- --------------------------------------------------------------------------------
Section 1 Transaction Overview----------------------------------1
SECTION 2 Financial Overview-----------------------------------11
SECTION 3 Valuation Analyses-----------------------------------35
APPENDICES A Comparable Company Descriptions
B Comparable Transaction Descriptions
TRANSACTION OVERVIEW
- --------------------------------------------------------------------------------
SECTION 1
TRANSACTION OVERVIEW
- --------------------------------------------------------------------------------
o Heartland Industrial Partners, L.P. ("Heartland") will acquire a significant
interest in Springs Industries, Inc. ("Springs" or the "Company"), and
Springs' shareholders (other than certain members of the Close family (the
"Close Family") and certain management shareholders (collectively, the
"Continuing Shareholders") and Dissenting Shareholders (as defined in the
Agreement (as defined below)) will receive US$46.00 per share in cash for
each outstanding share of common stock of the Company
o Pursuant to the draft Recapitalization Agreement (the "Agreement") dated
April 23, 2001 to be entered into by Springs and Heartland Springs Investment
Company ("Merger Subsidiary"), an entity controlled by Heartland, Springs
will undertake a recapitalization whereby:
- Merger Subsidiary will merge with and into the Company (the "Merger");
- Shares of the Company (other than the shares held by the Continuing
Shareholders and Dissenting Shareholders) will be converted into the right
to receive US$46.00 per share in cash (the "Cash Merger Consideration"),
subject to the terms and conditions as set forth in the Agreement;
o For the purposes of our analyses, UBS Warburg has assumed the transaction
will close on June 30, 2001
Section 1: Transaction Overview 2
HEARTLAND OVERVIEW
- --------------------------------------------------------------------------------
o Heartland is a private equity investment fund formed in 1999 with equity
commitments in excess of US$1.1 billion (US$2 billion targeted by the final
close of the fund) with offices in Greenwich, CT, New York, NY and Detroit,
MI
o Primary investment focus is on mid- to large-cap, industrial companies with a
"buy, build and grow" platform scale-up investment strategy to be
concentrated among five industrial sectors
o Targeted industries include those that are poised for consolidation and have
long-term growth potential: automotive, aerospace material/components, metal
forming/fabrication, specialty chemicals, home textiles/furnishings, machine
tools, and heavy equipment
o Heartland was founded by David Stockman, a former partner at The Blackstone
Group and a former Reagan Administration cabinet officer; Timothy Leuliette,
the former president and COO of Penske Corporation; and Daniel Tredwell, a
former managing director of Chase Securities. Heartland currently has 7
partners and 20 professionals
o Transactions completed to date have focused on the automotive supply sector.
Three of these transactions resulted in the creation of Metaldyne Corporation
in January 2001
-MascoTech, Inc.-November 2000 (Metaldyne)
-Simpson Industries, Inc.-December 2000 (Metaldyne)
-Global Metal Technologies, Inc.-January 2001 (Metaldyne)
-Collins & Aikman Corporation-March 2001 (60% ownership)
Section 1: Transaction Overview 3
PRINCIPAL TERMS & CONDITIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Form of Transaction: o Leveraged recapitalization via reverse merger
Merger Consideration: o US$46.00 per share in cash
Tax Structure: o Fully taxable to selling shareholders
Accounting o Recapitalization accounting under GAAP (no push-down of
Treatment: goodwill)
Significant Conditions o Special Committee approval of the proposed amendment to
and Other Terms: the Company's Articles of Incorporation (the
"Amendment") and the Agreement and recommendation of
same to the Board of Directors
o Approval by Springs' Board of Directors and
recommendation to the Company's shareholders (other
than the Continuing Shareholders)
o Affirmative vote by 2/3 of the votes by the Company's
shareholders in favor of the Amendment, with the Class
A and Class B shareholders voting together as a single
class (with the holders of Class B shares entitled to
four votes per share) (Close Family shares represent
approximately 73% of the vote)
o Affirmative vote by 2/3 of the votes by the Company's
shareholders in favor of the Merger, with the Class A
and Class B shareholders voting together as a single
class (with the holders of Class B shares entitled to
one vote per share) (Close Family shares represent
approximately 41% of the vote)
o Customary conditions relating to regulatory approvals
and no material adverse effect
o Compliance by the Close Family with respect to the
Shareholders Agreement, including voting their shares
in favor of the Agreement and the Amendment
o Financing out is subject to (i) the terms and
conditions of the bank commitment letter; (ii) bank
financing shall have been completed on substantially
the terms and conditions in the bank commitment letter
(or on terms and conditions which are not materially
more onerous); (iii) compliance with respect to the
Shareholders Agreement; and (iv) the terms and
conditions of the equity commitment letter
o No shop provision subject to fiduciary out
Section 1: Transaction Overview 4
- --------------------------------------------------------------------------------
Termination o Customary termination conditions and provisions
Conditions: including:
- termination by mutual consent
- termination by either Springs or Heartland, if
(i) the Merger is not consummated on or before
October 15, 2001; (ii) failure to receive the
requisite vote in favor of the Amendment; and
(iii) failure to receive the requisite vote in favor
of the Merger;
- termination by Heartland, if the Special Committee
or Board of Directors shall have failed to make,
withdrawn or modified in a manner adverse to
Heartland its approval or recommendation of the
Merger
- termination by the Company, if the Company receives
from any third party an Acquisition Proposal (as
defined in the Agreement) which the Special
Committee or the Board of Directors determines is
more favorable to the Company's shareholders and
determines in good faith that adopting or
recommending such offer is reasonably likely to be
required in the exercise of its respective fiduciary
duties;
- no termination fee (except for expense reimbursement
in the case of a termination under certain
circumstances)
- --------------------------------------------------------------------------------
Section 1: Transaction Overview 5
PURCHASER FINANCING
- --------------------------------------------------------------------------------
o Heartland intends to finance the Merger through the use of: (i) US$700
million senior secured credit facilities provided by JP Morgan Chase ("Morgan
Chase"); (ii) a US$200 million receivables purchase facility; and
(iii) US$225 million of equity capital provided by Heartland in addition to
the equity rolled over by Continuing Shareholders
o The Morgan Chase credit facilities are comprised of a term loan facility, a
revolving credit facility and a receivables purchase facility
- term loan facility is comprised of two tranches: (i) a 5.5-year,
amortizing, term loan facility (the "Tranche A Term Loan Facility") in the
amount of US$200 million and (ii) a 7-year, amortizing, term loan facility
(the "Tranche B Term Loan Facility") in the amount of US$300 million
- secured revolving credit facility is available in the amount of up to
US$200 million for a period of 5.5 years
- receivables purchase facility in the amount of up to US$200 million through
which the Company will securitize its trade receivables through the
issuance of commercial paper (backed by the cash flows from the eligible
trade receivables sold to a special purpose subsidiary or trust). This
facility has a term of one year which may be extended for additional
one-year terms
- pricing, subject to a leverage performance grid, will initially be set at a
spread to adjusted LIBOR ("LIBOR") or to the commercial paper rate, as
follows:
- Tranche A Term Loan Facility: LIBOR + 1.75%
- Tranche B Term Loan Facility: LIBOR + 2.25%
- Secured Revolving Credit Facility: LIBOR + 1.75%
- Receivables Purchase Facility: CP Rate (at market)
Section 1: Transaction Overview 6
PURCHASER FINANCING (continued)
- --------------------------------------------------------------------------------
o Significant financing conditions include:
- Morgan Chase (Bank Financing) (i) customary conditions relating to fees,
documentation, compliance with law, etc.; (ii) no material adverse change in
the Company or in the financial, banking or capital markets as they relate
to hindering Morgan Chase's ability to syndicate the facilities;
(iii) knowledge that no other competing financing for a Heartland affiliate
occurs during the syndication without the consent of Morgan Chase;
(iv) Morgan Chase's completion of ongoing legal, environmental, tax and
accounting due diligence; and (v) satisfied as to the nature of the
environmental and employee health/safety exposures and receipt of
environmental assessments (including Phase I and II reports, as applicable)
satisfactory to Morgan Chase
- Heartland (Equity Financing) (i) satisfaction of the conditions to Merger
Subsidiary's obligations under the Agreement; and (ii) termination of
commitment congruent with the termination provisions in the Agreement
o An estimated sources and uses of funds for the transaction is illustrated
below:
Section 1: Transaction Overview 7
- --------------------------------------------------------------------------------
ESTIMATED SOURCES 1
AMOUNT
(US$mm)
- -------------------------------------------------------
Sr. Bank Term Revolver 49.6
Receivables Purchase Facility 165.0
Sr. Bank Term Loan-A 200.0
Sr. Bank Term Loan-B 300.0
Assumed Debt 28.1
- -------------------------------------------------------
Total Debt 742.7
- -------------------------------------------------------
Heartland Equity 225.0
Shareholder Rollover 283.6
- -------------------------------------------------------
Total Equity 508.6
- -------------------------------------------------------
Total Sources 1,251.3
- -------------------------------------------------------
Estimated Uses 1
Amount
(US$mm)
- -------------------------------------------------------
Purchase of Springs Equity (including 841.7
rollover equity)
Repay Indebtedness 327.2
Assumed Debt 28.1
Excess Cash (working capital) 14.3
Fees & Expenses 40.0
- -------------------------------------------------------
Total USES 1,251.3
- -------------------------------------------------------
NOTE:
1 Assumes a June 30, 2001 closing and purchase price of US$46.00 per share
Section 1: Transaction Overview 8
VALUATION ANALYSIS AT VARIOUS SHARE PRICES
- --------------------------------------------------------------------------------
Springs Transactions Value at Proposed Offer Price 1
(US$mm, except per share)
- -------------------------------------------------------
Proposed Transaction Price Per Share 46.00
Total Diluted Shares Outstanding 19.88
- -------------------------------------------------------
914.4
- -------------------------------------------------------
Less: Option Proceeds (72.7)
- -------------------------------------------------------
TRANSACTION EQUITY MARKET VALUE 841.7
- -------------------------------------------------------
Plus: Springs Debt (incl. make whole pmts.) 395.0
Plus: Unfunded Pension Liability 20.8
Plus: Interest Bearing Deferred Comp. 36.1
Liability
Less: Cash and Equivalents (8.4)
- -------------------------------------------------------
TRANSACTION ENTERPRISE VALUE 1,285.2
- -------------------------------------------------------
Springs Shares Sold vs Rolled
Shares Amount 1
Shares Sold (mm) ($mm)
- -------------------------------------------------------
Public 10.69 491.7
Close Family 1.09 50.0
Incremental Shares (Treas. 0.36 16.4
Method)2
- -------------------------------------------------------
Total Shares Sold 12.13 558.1
- -------------------------------------------------------
Close Family Shares Rolled 6.17 283.6
- -------------------------------------------------------
TOTAL SHARES OUTSTANDING 18.30 841.7
- -------------------------------------------------------
NOTES:
1 Assumes US$46.00 per share and 55.8% pro forma Close Family ownership
2 Incremental share effect from the exercise of options calculated using the
treasury method
Implied Valuation Multiples at Various Share Prices 2
- --------------------------------------------------------------------------------------------------------
Per Share Value (US$) 44.00 45.00 46.00 47.00 48.00 49.00
- --------------------------------------------------------------------------------------------------------
TEV/LTM Revenue (x) 0.55 0.56 0.57 0.58 0.59 0.60
TEV/LTM EBITDA (x) 5.0 5.1 5.2 5.3 5.3 5.4
TEV/LTM Free Cash Flow 3 (x) 7.6 7.7 7.9 8.0 8.1 8.2
TEV/LTM EBIT (x) 9.1 9.2 9.4 9.5 9.7 9.8
EMV/LTM Net Income (x) 12.2 12.5 12.8 13.1 13.4 13.7
- --------------------------------------------------------------------------------------------------------
SOURCE: Company reports and SEC filings
NOTES:
1 Based on the Company's March 31, 2001 balance sheet
2 Implied multiples based on the Company's adjusted LTM ended March 31, 2001
results
Section 1: Transaction Overview 9
- --------------------------------------------------------------------------------
3 Free cash flow is defined as EBITDA less capital expenditures
Section 1: Transaction Overview 10
FINANCIAL OVERVIEW
- --------------------------------------------------------------------------------
SECTION 2
COMPANY OVERVIEW
- --------------------------------------------------------------------------------
+ Springs is a leader in the home textile furnishings market
Bedding Products
- - Leader in double digit growth Bed-In-A-Bag category-in both mid-market and
high-end
- - Strength in core color programs, account management and replenishment
capabilities
- - Heavy focus and strong competitive advantage in printed ensembles and "fashion
products" (coordinated sheets, comforters, bedding accessories and curtains)
which face limited competition from imports
- - Have made investments in distribution and system applications to improve
customer service and achieve one of the best service records in the industry.
Direct importers lack the infrastructure to effectively compete in this area
Springs Major Product Segments
[PIE CHART DEPICTING THE FOLLOWING INFORMATION:
2000 Net Sales: US$2.3 billion
Other (Windows, Baby, Other):36%
Bedding:43%
Bath:21%]
Bath Products
- - Springs has a balanced portfolio of towels, bath rugs, showers curtains and
accessories
- - Springs has been traditionally #3 in towels but now has the opportunity to
make significant gains
- - Through acquisitions and internal growth, Springs has developed a #1 market
share position in shower curtains and accessories
2000 Reported EBITDA By Segment
[PIE CHART DEPICTING THE FOLLOWING INFORMATION:
2000 EBITDA: US$254 million
Other (Windows, Baby, Other):29%
Bedding:55%
Bath:16%]
Windows and Other Home Furnishings
Source: Company reports
Section 2: Financial Overview 12
- --------------------------------------------------------------------------------
Section 2: Financial Overview 13
HISTORICAL 5-YEAR FINANCIAL SUMMARY
- --------------------------------------------------------------------------------
CAGR
1995-2000 LTM Ended
(US$mm) 1996 1997 1998 1999 2000 (%) 3/31/2001
- -------------------------------------------------------------------------------------------------------
Operating Data:
Net Sales 2,221.0 2,226.1 2,180.5 2,220.4 2,275.1 0.5 2,252.2
% Growth (0.5)% 0.2% (2.0)% 1.8% 2.5% NA
EBITDA 1 203.2 213.6 204.4 235.3 257.0 2.1 248.3
% Margin 9.1% 9.6% 9.4% 10.6% 11.3% 11.0%
EBIT 1 113.8 129.0 117.4 134.0 147.6 2.0 136.8
% Margin 5.1% 5.8% 5.4% 6.0% 6.5% 6.1%
Net Income 1 109.6 78.0 59.3 67.9 72.3 0.2 65.9
% Margin 4.8% 3.5% 2.7% 3.1% 3.2% 2.9%
Diluted EPS 1 5.32 3.79 3.13 3.73 3.98 1.5 3.62
% Growth 43.8% (27.0)% (17.4)% 19.2% 6.7% NA
Diluted Shares 20.6 20.7 18.9 18.2 18.2 18.2
Outstanding
Balance Sheet Data:
Cash and Equivalents 30.7 0.4 48.1 4.2 2.9 8.4
Net PP&E 534.6 541.2 549.7 625.6 617.9 620.7
Total Assets 1,398.5 1,409.3 1,425.5 1,575.0 1,584.1 1,630.9
Total Debt 2 184.6 186.2 289.3 340.2 333.2 388.0
Shareholders' Equity 780.8 804.6 724.1 774.9 819.8 820.7
Cash Flow Data:
Depreciation and 89.4 84.6 87.0 101.3 109.4 111.5
Section 2: Financial Overview 14
- -------------------------------------------------------------------------------------------------------
Amortization
Capital Expenditures 75.1 99.3 115.0 166.8 93.3 84.7
- -------------------------------------------------------------------------------------------------------
SOURCE: Company reports
NOTES:
1 Excludes non-recurring items
2 Includes short-term and long-term debt
Section 2: Financial Overview 15
QUALITY OF EARNINGS ANALYSIS
- --------------------------------------------------------------------------------
Analytical Adjustments to Earnings
LTM
Ended
(US$mm, except per share data) FY 1999 FY 2000 3/31/01
- -------------------------------------------------------
EBITDA Adjustments:
EBITDA-Reported 235.3 253.9 246.5
"Above the Line" Non-Recurring
Items-Expense (Income) 0.0 3.1 1.8
- -------------------------------------------------------
EBITDA-Adjusted 235.3 257.0 248.3
- -------------------------------------------------------
EBITDA-Reported-Margin % 10.6 11.2 10.9
EBITDA-Adjusted-Margin % 10.6 11.3 11.0
EBIT Adjustments:
EBIT-Reported 134.0 144.5 135.0
- ----------------------------------
"Above the Line" Non-Recurring
Items-Expense (Income) 0.0 3.1 1.8
- -------------------------------------------------------
EBIT-Adjusted 134.0 147.6 136.8
- -------------------------------------------------------
EBIT-Reported-Margin % 6.0 6.4 6.0
EBIT-Adjusted-Margin % 6.0 6.5 6.1
Net Income Adjustments:
Net Income to Common-Reported 69.0 67.1 60.2
After-Tax Total Non-Recurring
Items-Expense (Income) (1.1) 5.2 5.8
- -------------------------------------------------------
Net Income to Common-Adjusted 67.9 72.3 65.9
- -------------------------------------------------------
Net Income-Reported-Margin % 3.1 3.0 2.7
Net Income-Adjusted-Margin % 3.1 3.2 2.9
Wtd. Avg. Diluted Shares
(Class A & Class B) 18.168 18.160 18.205
EPS-Reported 3.80 3.70 3.30
- -------------------------------------------------------
EPS-Adjusted 3.73 3.98 3.62
- -------------------------------------------------------
SOURCE: Company 10K, internal reports, and Q1 2001 press release
Detail of Adjustments-Non-Recurring Items
LTM
Ended
(US$mm, except per share data) FY 1999 FY 2000 3/31/01
- -------------------------------------------------------
Reported Restructuring & Realignment
Expenses (Income):
Katherine/Elliott Plants Shutdown - 2.4 2.4
Griffin/Jackson Plants Shutdown - 2.9 2.9
- -------------------------------------------------------
Total Restructuring & Realignment
Expense (Income) ($) 0.0 5.3 5.3
- -------------------------------------------------------
Effective Tax Rate (%) 38.0 37.0 37.0
- -------------------------------------------------------
After-Tax Restructuring &
Realignment Expense (Income) ($) 0.0 3.3 3.3
- -------------------------------------------------------
Other Non-Recurring/One-Time
Expenses (Income):
"Above the EBIT Line" Items
Acctg.Change-Supplies Inventory
(Gain) - (1.5) (1.5)
Wisconsin Sales Tax Assessment - 2.5 1.2
Blindmaker Receivable Charge-Off - 2.1 2.1
- -------------------------------------------------------
Total "Above the EBIT Line"
Non-Recurring Items ($) 0.0 3.1 1.8
- -------------------------------------------------------
"Below the EBIT Line" Items
Gain on Sale/Leaseback of NYC
Building (1.5) (1.8) (1.8)
Gain on Sale of Closed Mfg.
Facilities (4.3) - -
Impairment Charge-Property for
Sale/Disposal 3.0 1.6 1.6
Year 2000 Expenses 1.0 - -
- -------------------------------------------------------
Total "Below the EBIT Line"
Non-Recurring Items (1.8) (0.2) 2.1
- -------------------------------------------------------
Total Other Non-Recurring
Items ($) (1.8) 2.9 3.9
Grand Total Non-Recurring
Items ($) (1.8) 8.2 9.2
Effective Tax Rate (%) 38.0 37.0 37.0
- -------------------------------------------------------
After-Tax Grand Total
Non-Recurring Items ($) (1.1) 5.2 5.8
- -------------------------------------------------------
Section 2: Financial Overview 16
FYE 2000 AND Q1 2001 BALANCE SHEETS
- --------------------------------------------------------------------------------
Q1 Ended
Assets FYE 2000 3/31/01
- -------------------------------------------------------
Current Assets:
Cash and Cash Equivalents 2.9 8.4
Accounts Receivable, net 291.1 336.9
Inventories, net 508.1 499.7
Other 34.4 36.2
- -------------------------------------------------------
Total Current Assets 836.4 881.2
- -------------------------------------------------------
Property, Plant & Equipment, net 617.9 620.7
Goodwill and Other Assets 129.9 129.0
- -------------------------------------------------------
TOTAL ASSETS 1,584.1 1,630.9
- -------------------------------------------------------
SOURCE: Company SEC filings, internal reports and press releases
Q1 Ended
Liabilities & Shareholders' Equity FYE 2000 3/31/01
- -------------------------------------------------------
Current Liabilities:
Short-Term Borrowings 24.7 53.3
Current Maturities of Long-Term Debt 25.2 29.7
Accounts Payable 106.7 103.0
Other Accrued Liabilities 114.4 112.6
- -------------------------------------------------------
Total Current Liabilities 271.0 298.5
- -------------------------------------------------------
Noncurrent Liabilities:
Long-Term Debt 283.3 305.1
Accrued Benefits and Deferred 176.1 168.3
Compensation
Other 34.0 38.3
- -------------------------------------------------------
Total Noncurrent Liabilities 493.4 511.7
- -------------------------------------------------------
Total Shareholders' Equity 819.8 820.7
- -------------------------------------------------------
TOTAL LIABILITIES & SHAREHOLDERS' 1,584.1 1,630.9
EQUITY
- -------------------------------------------------------
Section 2: Financial Overview 17
SPRINGS STOCK PRICE HISTORY-ANNOTATED-LAST TWELVE
- --------------------------------------------------------------------------------
[LINE GRAPH DEPICTING THE FOLLOWING INFORMATION:
Stock price information in US dollars and volume for the period of
April 20, 2000 to April 23, 2001 with annotations A-K]
SOURCE: FactSet
Annotations
- --------------------------------------------------------------------
A WestPoint announces proposed recapitalization plan
B WestPoint announces termination of recapitalization plan
C Springs cut to 'Hold' from 'Buy' at First Union and CSFB
D Springs reports record second quarter sales & net income
E CSFB raises estimates after Springs beats second quarter
estimates
F Springs announces third quarter results of $1.00 vs. the
Company's $1.02 estimate
G Springs issues 8-K: Eliminates some production in two
plants affecting 320 people
H Springs acquires Maybank's yarn mill in Georgia
I Springs announces fourth quarter earnings of $0.61 vs. the
Company's $0.65 estimate
J Springs announces proposal from Heartland
K Springs cut to 'Neutral' from 'Buy' at Wachovia Securities
- --------------------------------------------------------------------
Selected Statistics 1,2 (US$)
- -------------------------------------------
Pre-announcement Price (2/16/01) 36.10
30 Day Average 35.05
90 Day Average 31.21
52 Week Average 33.70
52 Week High 48.81
52 Week Low 22.63
- -------------------------------------------
NOTES:
1 Statistics at or prior to February 16, 2001
2 Closing prices
Section 2: Financial Overview 18
SPRINGS STOCK PRICE PERFORMANCE-LAST THREE YEARS
- --------------------------------------------------------------------------------
[LINE GRAPH DEPICTING THE FOLLOWING:
Relative Share Price Performance of Springs and S&P500 for the period of
April 23, 1998 and April 23, 2001]
SOURCE: FactSet
Selected Statistics 1,2 (US$) Selected Statistics 1 (US$)
- -------------------------------- ---------------------------
Pre-announcement: Pre-announcement:
Pre-announcement Price 36.10 3 Year Average 38.53
(2/16/01)
30 Day Average 35.05 3 Year High 60.75
90 Day Average 31.21 3 Year Low 22.63
- -------------------------------- ---------------------------
NOTES:
Section 2: Financial Overview 19
- --------------------------------------------------------------------------------
1 Statistics at or prior to February 16, 2001
2 Closing prices
Section 2: Financial Overview 20
SPRINGS INDUSTRIES-THREE YEAR HISTORICAL PRICE
- --------------------------------------------------------------------------------
[LINE GRAPH DEPICTING THE FOLLOWING:
Relative Share Price Performance of Springs, Burlington, Crown Crafts,
Dan River, Galey & Lord, Mohawk Ind., West Point and Peer Group for the period
of April 23, 1998 to April 23, 2001]
SOURCE: FactSet
Section 2: Financial Overview 21
SPRINGS INDUSTRIES-ONE YEAR HISTORICAL PRICE PERFORMANCE
- --------------------------------------------------------------------------------
[LINE GRAPH DEPICTING THE FOLLOWING:
Relative Share Price Performance of Springs, Burlington, Crown Crafts,
Dan River, Galey & Lord, Mohawk Ind., West Point and Peer Group for the period
of April 20, 2000 to April 23, 2001]
SOURCE: FactSet
Section 2: Financial Overview 22
SHARES TRADED AT SPECIFIC PRICES-LATEST TWELVE MONTHS1
- --------------------------------------------------------------------------------
[BAR GRAPH DEPICTING THE FOLLOWING:
Total Volume: 25,560,700 (approximately 2.4x the total Class A shares
outstanding)
Price Range 1 (US$) %of Total Volume Traded
22.00-24.99 7.6
25.00-27.99 17.7
28.00-30.99 10.6
31.00-33.99 18.2
34.00-36.99 14.8
37.00-39.99 11.1
40.00-42.99 5.5
43.00-45.99 3.7
46.00-48.99 10.8]
SOURCE: FactSet
NOTE:
1 Based on closing prices for the latest twelve months ending February 16, 2001
Section 2: Financial Overview 23
- --------------------------------------------------------------------------------
o Approximately 89% of Springs shares traded over the last twelve months were
at prices less than US$46.00 per share
Section 2: Financial Overview 24
RESEARCH COMMENTARY
- --------------------------------------------------------------------------------
12 Month
Firm Recommendation Price Target Comment
- --------------------------------------------------------------------------------
CSFB Not Rated na "We reduced our 2001 earnings per
(2/20/01) share estimate to US$3.80 from
US$4.15. We project sales and
earnings to fall in the first
half, owing to continued weakness
at retail and further initiatives
to reduce inventory. We expect at
least a small sales recovery in
the second half against easy
comparisons. We estimate that
full-year sales will be
essentially flat at US$2.27
billion. We project that the gross
margin will remain unchanged at
18.7%. Reduced profitability from
planned production curtailments
and higher sales of closeout and
off-price products in the first
half should be offset by improved
profitability in the second half.
We expect SG&A to increase
modestly to 12.5% from 12.4%."
Merrill Lynch Accumulate na "We think it likely that margin
(2/2/01) pressure will continue to be
driven by claims, low cost sourced
goods, weakness particularly at
starting price points, and
commodity and energy inflation.
Cost savings initiatives as well
as recent downsized capacity
should enable Springs to run
plants at fuller levels thus
improving overhead absorption
rates. Lower outsourced production
(and thus inventory) should also
reduce working capital
requirements. Springs' goal is to
reduce inventory by US$30 million
in 2001. The Company has downsized
its capital expenditure plans
significantly (to US$110 million)
delaying non-essential projects.
In our view, the conservative
approach toward capital projects
will further strengthen the
balance sheet, which should
position Springs to weather the
storms presented by the current
difficult economic environment."
Wachovia Buy 37 "Over the last seven years, dollar
Securities volume in the bed and bath
(11/27/00) respectively. Demographics remain
favorable for continued growth
over the next five years, in our
opinion. These
Section 2: Financial Overview 25
- --------------------------------------------------------------------------------
trends are expected to persist
till 2006. Although Springs has
been profitable throughout its
history, the level of profit
margins has been uninspiring. A
new management team and
well-defined strategy appear to
have energized the company and we
believe the longer term result
will be a higher operating
margin."
- --------------------------------------------------------------------------------
SOURCE: Brokerage research reports
Section 2: Financial Overview 26
ECONOMIC VS VOTING OWNERSHIP
- --------------------------------------------------------------------------------
Class A Ownership
Class Total
Amount (%) (%)
- -------------------------------------------------------
13F Institutions 8,013,346 74.3 44.7
Close Family 103,088 1.0 0.6
Other Insiders 150,437 1.4 0.8
Other/Retail 2,523,603 23.3 14.0
- -------------------------------------------------------
TOTAL CLASS A SHARES 10,790,474 100.0 60.1
- -------------------------------------------------------
[PIE CHART DEPICTING THE FOLLOWING:
Economic Ownership
13 F Institutions 44.7%
Close Family 40.5%
Other/Retail 14.0%
Other Insiders 0.8%]
Class B Ownership
Class Total
Amount (%) (%)
- -------------------------------------------------------
Close Family 7,149,291 99.97 39.9
Other/Retail 2,272 0.03 nm
- -------------------------------------------------------
TOTAL CLASS B SHARES 7,151,563 100.0 39.9
- -------------------------------------------------------
TOTAL SHARES OUTSTANDING 17,942,037 100.0
- -------------------------------------------------------
[PIE CHART DEPICTING THE FOLLOWING:
Voting Ownership
13 F Institutions 20.3%
Close Family 72.9%
Other/Retail 6.4%
Other Insiders 0.4%]
SOURCE: CDA Spectrum, Company reports and SEC filings
Section 2: Financial Overview 27
OVERVIEW OF MANAGEMENT'S PROJECTIONS
- --------------------------------------------------------------------------------
Management projections
o All Company projections set forth herein, or used in the financial and
comparative analyses described herein, were derived from the Company's
"Scenario 1 (Lower Risk)" projections furnished by the Company's management
o Net sales grow at a compound annual growth rate of 2.0% through the projection
period (2000-2005)
- In line with the Company's historical experience of 2.0% over the last ten
years and 0.5% over the last five years
o EBITDA margins are projected to improve over historical results, increasing
from 11.2% in 2000 to 11.7% by 2005P
o Capital expenditures for 2001E and beyond are expected to remain in the range
of US$110 million-US$125 million and reflect the Company's planned IT
investments as well as normal maintenance and operating expenditures
o For the projected period (2000-2005), accounts receivable days on hand is
expected to remain relatively flat at 47 to 48 days, inventory days on hand is
expected to decrease from 104 to 101 days, and accounts payable days is
expected to increase from 22 to 23 days
Section 2: Financial Overview 28
BUSINESS MIX
- --------------------------------------------------------------------------------
Management Projections
2000A Net Revenues 2005P Net Revenues CAGR
------------------------- ----------------------- ----------------------------
Operating Business Segments (US$mm) % Total (US$mm) % Total 1995-2000 (%) 2000-2005 (%)
- --------------------------------------------------------------------------------------------------------------------
Core Bedding 742.2 32.6 789.5 31.4 na 1.2
Other Bedding 231.9 10.2 287.6 11.4 na 4.4
- --------------------------------------------------------------------------------------------------------------------
Total Bedding 974.1 42.8 1,077.1 42.9 na 2.0
- --------------------------------------------------------------------------------------------------------------------
Bath 482.5 21.2 589.4 23.5 na 4.1
- --------------------------------------------------------------------------------------------------------------------
Total Bedding and Bath 1,456.6 64.0 1,666.5 66.3 na 2.7
- --------------------------------------------------------------------------------------------------------------------
Windows 371.9 16.3 420.8 16.7 na 2.5
Baby 71.4 3.1 80.3 3.2 na 2.4
Other 375.1 16.5 345.0 13.7 na (1.7)
- --------------------------------------------------------------------------------------------------------------------
Total 2,275.1 100.0 2,512.6 100.0 0.5 2.0
- --------------------------------------------------------------------------------------------------------------------
Section 2: Financial Overview 29
MANAGEMENT PROJECTIONS
- --------------------------------------------------------------------------------
(US$mm) For the Fiscal Years Ended For the Projected Fiscal Years Ending
------------------------------ -------------------------------------------------------
1999 2000 2001 2002 2003 2004 2005
- -----------------------------------------------------------------------------------------------------------------
Operating Data:
Net Sales 2,220.4 2,275.1 2,265.0 2,320.5 2,387.7 2,446.5 2,512.6
% Growth 1.8 2.5 (0.4) 2.4 2.9 2.5 2.7
EBITDA-Adjusted 1 235.3 257.0 256.3 264.5 281.3 287.7 295.1
% Margin 10.6 11.3 11.3 11.4 11.8 11.8 11.7
EBIT-Adjusted 1 134.0 147.6 145.2 145.5 155.8 156.0 156.6
% Margin 6.0 6.5 6.4 6.3 6.5 6.4 6.2
Net Income-Adjusted 1 67.9 72.3 71.9 71.8 79.3 81.0 83.4
% Margin 3.1 3.2 3.2 3.1 3.3 3.3 3.3
Diluted EPS-Adjusted 1 3.73 3.98 3.95 3.92 4.31 4.40 4.48
% Growth 19.2 6.7 (0.8) (0.8) 9.9 2.1 1.8
Diluted Shares 18.2 18.2 18.2 18.3 18.4 18.4 18.6
Outstanding
Balance Sheet Data:
Cash & Equivalents 4.2 2.9 - - - - -
Net PP&E 625.6 617.9 626.2 640.2 640.2 645.4 629.2
Total Assets 1,575.0 1,584.1 1,597.9 1,616.6 1,635.7 1,656.8 1,659.3
Total Debt 340.2 333.2 316.1 294.5 263.7 221.8 167.9
Shareholders' Equity 774.9 819.8 868.7 917.4 973.7 1,031.7 1,092.0
Cash Flow Data:
Depreciation & 101.3 109.4 111.2 119.0 125.5 131.7 138.5
Section 2: Financial Overview 30
- -----------------------------------------------------------------------------------------------------------------
Amortization
Capital Expenditures 166.8 93.3 110.0 123.0 114.0 125.0 110.0
- -----------------------------------------------------------------------------------------------------------------
NOTE:
1 Excludes non-recurring items for fiscal years 1999 and 2000
Section 2: Financial Overview 31
CONTRIBUTION ANALYSIS-SALES
- --------------------------------------------------------------------------------
Management Projections-Contribution Analysis-Sales Growth (%)
Projected
----------------------------------------------
2000A 2001 2002 2003 2004 2005
- -------------------------------------------------------------------------------------------------------------------
Core Bedding (BIAB, Top of Bed & Retail Sheets) (2.3) (1.6) 1.0 2.1 2.0 2.8
Other Bedding (Inst. Sheets, AFI, Freestanding Window, Custom 24.3 4.3 5.4 5.0 3.7 3.7
Design)
- -------------------------------------------------------------------------------------------------------------------
Total Bedding 3.0 (0.2) 2.1 2.8 2.5 3.0
- -------------------------------------------------------------------------------------------------------------------
Bath (Retail Towels, Inst. Towels, Rugs, Regal Rugs, Shower 0.8 4.2 5.1 3.8 3.6 3.6
Curtains, Accessories)
- -------------------------------------------------------------------------------------------------------------------
Total Bedding & Bath 2.3 1.3 3.1 3.2 2.9 3.2
- -------------------------------------------------------------------------------------------------------------------
Windows 4.0 4.3 2.7 2.5 1.5 1.5
Baby (5.4) 2.8 2.5 2.5 2.0 2.0
Other (Retail & Specialty, Springs Direct, Springs Canada, Int'l & (0.3) (12.5) (0.8) 2.1 1.8 1.8
Other)
- -------------------------------------------------------------------------------------------------------------------
TOTAL SALES 2.5 (0.4) 2.4 2.9 2.5 2.7
- -------------------------------------------------------------------------------------------------------------------
Section 2: Financial Overview 32
CONTRIBUTION ANALYSIS-EBITDA AND EBIT MARGIN
- --------------------------------------------------------------------------------
Management Projections-Contribution Analysis-EBITDA and EBIT Margin (%)
Actual Projected
-------------- -----------------------------------
EBITDA Margin 1999 1 2000 1 2001 2002 2003 2004 2005
- -------------------------------------------------------------------------------------------------------------------
Core Bedding (BIAB, Top of Bed & Retail Sheets) 15.4 15.3 14.0 14.1 15.1 15.0 15.0
Other Bedding (Inst. Sheets, AFI, Freestanding Window, Custom 12.8 11.8 9.8 10.4 11.5 12.0 12.6
Design)
- -------------------------------------------------------------------------------------------------------------------
Total Bedding 14.9 14.5 12.9 13.2 14.1 14.2 14.4
- -------------------------------------------------------------------------------------------------------------------
Bath (Retail Towels, Inst. Towels, Rugs, Regal Rugs, Shower 8.0 8.4 10.9 11.5 12.2 11.9 11.9
Curtains, Accessories)
Windows 11.3 10.5 11.6 11.3 10.7 10.7 10.4
Baby 3.3 (0.6) 7.0 5.9 5.3 5.4 5.2
Other (Retail & Specialty, Springs Direct, Springs Canada, 3.5 9.1 7.8 7.3 6.7 6.7 6.4
Int'l & Other)
- -------------------------------------------------------------------------------------------------------------------
TOTAL EBITDA MARGIN 10.5 11.2 11.3 11.4 11.8 11.8 11.7
- -------------------------------------------------------------------------------------------------------------------
EBIT Margin
- -------------------------------------------------------------------------------------------------------------------
Core Bedding (BIAB, Top of Bed & Retail Sheets) 9.1 8.6 7.3 7.0 7.7 7.5 7.2
Other Bedding (Institutional Sheets, AFI, Freestanding Window, 7.9 7.5 5.5 6.1 7.2 7.7 8.1
Custom Design)
- -------------------------------------------------------------------------------------------------------------------
Total Bedding 8.9 8.4 6.9 6.8 7.6 7.5 7.4
- -------------------------------------------------------------------------------------------------------------------
Bath (Retail Towels, Inst. Towels, Rugs, Regal Rugs, Shower 3.9 3.7 6.1 6.4 7.0 6.5 6.3
Curtain, Accessories)
Section 2: Financial Overview 33
- --------------------------------------------------------------------------------
Windows (Hard) 6.8 5.5 7.0 6.6 6.0 5.9 5.7
Baby 1.5 (2.8) 4.9 3.7 3.0 3.0 2.7
Other (Retail & Specialty, Springs Direct, Springs Canada, 1.6 7.0 5.2 4.6 4.0 4.0 3.8
Int'l & Other)
- -------------------------------------------------------------------------------------------------------------------
TOTAL EBIT MARGIN 6.0 6.3 6.4 6.3 6.5 6.4 6.2
- -------------------------------------------------------------------------------------------------------------------
NOTE:
1 Before adjustments for non-recurring items
Section 2: Financial Overview 34
VALUATION ANALYSES
- --------------------------------------------------------------------------------
Section 3
VALUATION FRAMEWORK
- --------------------------------------------------------------------------------
o Springs' valuation involves a balancing of various valuation methodologies,
market benchmarks, perspectives and structures
Valuation Methodologies
- -------------------------------------------------------------------------------------------------------
Comparable Public Company o To determine the current public market value and
Analysis trading multiples of companies similar to Springs, in
order to impute a "public market" valuation range
Premiums Paid Analysis o To determine the historical stock price premiums paid
for public companies over the last few years, in order
to compare such premiums to the premium being paid in
the Merger
Comparable Transaction Analysis o To determine the historical private market value and
transaction multiples of companies similar to Springs,
in order to impute a "private market" valuation range
for Springs
Discounted Cash Flow Analysis o To determine the present value of the projected
after-tax, free cash flows of Springs utilizing a range
of discount rates and terminal value methodologies
Leveraged Recapitalization o To determine the range of implied purchase prices
Analysis given a financial buyer's return criteria and an assumed
capital structure
Present Value of Hypothetical o To determine the present value of hypothetical future
Future Stock Prices Analysis stock prices implied by a range of P/E multiples and an
appropriate discount rate
- -------------------------------------------------------------------------------------------------------
Section 3: Valuation Analysis 36
VALUATION ANALYSIS AT VARIOUS SHARE PRICES
- --------------------------------------------------------------------------------
Springs Transaction Value at Proposed Offer Price 1
(US$mm, except per share)
- -------------------------------------------------------
Proposed Transaction Price Per Share 46.00
Total Diluted Shares Outstanding 19.88
- -------------------------------------------------------
- -------------------------------------------------------
914.4
- -------------------------------------------------------
Less: Option Proceeds (72.7)
- -------------------------------------------------------
TRANSACTION EQUITY MARKET VALUE 841.7
- -------------------------------------------------------
Plus: Springs Debt (incl. make 395.0
whole pmts.)
Plus: Unfunded Pension Liability 20.8
Plus: Interest Bearing Deferred 36.1
Comp. Liability
Less: Cash and Equivalents (8.4)
- -------------------------------------------------------
TRANSACTION ENTERPRISE VALUE 1,285.2
- -------------------------------------------------------
Implied Valuation Multiples at Various Share Prices2
- --------------------------------------------------------------------------------------------------------
Per Share Value (US$) 44.00 45.00 46.00 47.00 48.00 49.00
- --------------------------------------------------------------------------------------------------------
TEV/LTM Revenue (x) 0.55 0.56 0.57 0.58 0.59 0.60
TEV/LTM EBITDA (x) 5.0 5.1 5.2 5.3 5.3 5.4
TEV/LTM Free Cash Flow 3 (x) 7.6 7.7 7.9 8.0 8.1 8.2
TEV/LTM EBIT (x) 9.1 9.2 9.4 9.5 9.7 9.8
EMV/LTM Net Income (x) 12.2 12.5 12.8 13.1 13.4 13.7
- --------------------------------------------------------------------------------------------------------
Section 3: Valuation Analysis 37
- --------------------------------------------------------------------------------
SOURCE: Company reports and SEC filings
NOTES:
1 Based on the Company's March 31, 2001 balance sheet
2 Implied multiples based on the Company's adjusted LTM ended March 31, 2001
results
3 Free cash flow is defined as EBITDA less capital expenditures
Section 3: Valuation Analysis 38
RECENT PEER TRADING HISTORY
- --------------------------------------------------------------------------------
% Change Since
-----------------------------------
(US$) 01/02/2001 02/16/2001 04/23/2001 01/02/2001 02/16/2001
- -------------------------------------------------------------------------------------------------------------------
Actual Price
S&P 500 Index 1,283.3 1,301.5 1,224.4 (4.6) (5.9)
Dow Jones Index 10,646.2 10,799.8 10,532.2 (1.1) (2.5)
WestPoint 7.94 8.37 7.72 (2.8) (7.8)
Mohawk Industries 27.25 30.77 31.06 14.0 0.9
Galey & Lord 2.50 3.10 1.82 (27.2) (41.3)
Dan River 2.34 2.94 2.08 (11.1) (29.3)
Crown Crafts, Inc. 0.28 0.48 0.20 2 (28.9) (58.3)
Burlington Industries 1.56 2.19 1.98 26.7 (9.6)
Implied Springs Price 1
S&P 500 Index 30.94 31.38 29.52 (4.6) (5.9)
Dow Jones Index 30.94 31.38 30.61 (1.1) (2.5)
WestPoint 30.94 32.61 30.08 (2.8) (7.8)
Mohawk Industries 30.94 34.93 35.26 14.0 0.9
Galey & Lord 30.94 38.36 22.52 (27.2) (41.3)
Dan River 30.94 38.87 27.50 (11.1) (29.3)
Crown Crafts, Inc. 30.94 52.80 22.00 (28.9) (58.3)
Burlington Industries 30.94 43.36 39.20 26.7 (9.6)
- -------------------------------------------------------------------------------------------------------------------
Average Springs Price 30.94 37.96 29.59 (4.4) (22.1)
- -------------------------------------------------------------------------------------------------------------------
SOURCE: Factset
NOTES:
Section 3: Valuation Analysis 39
- --------------------------------------------------------------------------------
1 Assumes Springs share performance mirrors its peers or indices
2 Latest available price information as of April 9, 2001
Section 3: Valuation Analysis 40
COMPARABLE COMPANY ANALYSIS
- --------------------------------------------------------------------------------
LTM 1998- 5-year
Margins 2000 EPS Enterprise Value to 2000 3 P/E
----------- Revenue Growth -------------------------- -------------
Current 1 Equity Net 2 Enterprise EBITDA EBIT CAGR Rate 4 Sales EBITDA EBIT FCF 5 2000 2001E 4
Company Ticker Price Value Debt Value (%) (%) (%) (%) (x) (x) (x) (x) (x) (x)
- ------------------------------------------------------------------------------------------------------------------------------------
Burlington BUR 1.98 106.4 658.4 764.7 6.0 0.9 (10.2) (30.3) 0.47 7.9 nm nm nm 16.9
Industries
Crown Crafts, CRW 0.20 1.7 90.6 92.3 nm nm 0.1 (10.9) 0.32 nm nm nm nm nm
Inc 6
Dan River DRF 2.08 45.3 353.0 398.3 13.9 7.8 13.2 (2.4) 0.60 4.3 7.7 6.8 4.2 16.3
Galey & Lord GNL 1.82 21.8 500.2 521.9 10.7 6.5 3.0 (22.6) 0.54 5.1 8.4 6.7 9.7 2.3
Mohawk MHK 31.06 1,627.4 581.9 2,209.3 12.0 9.4 8.9 40.6 0.68 5.7 7.2 6.9 10.1 11.0
Industries
Westpoint WXS 7.72 381.9 1,444.8 1,826.7 17.1 12.6 1.0 14.8 1.01 5.9 8.0 7.8 5.8 5.4
- ------------------------------------------------------------------------------------------------------------------------------------
Mean 364.1 604.8 968.9 11.9 7.5 2.7 (1.8) 0.60 5.8 7.8 7.1 7.4
Median 75.8 541.1 643.3 12.0 7.8 2.0 (6.7) 0.57 5.7 7.8 6.9 7.7
Harmonic Mean 9.1 303.0 341.5 10.6 3.2 na na 0.54 5.5 7.8 7.0 6.5
High 1,627.4 1,444.8 2,209.3 17.1 12.6 13.2 40.6 1.01 7.9 8.4 7.8 10.1
Low 1.7 90.6 92.3 6.0 0.9 (10.2) (30.3) 0.32 4.3 7.2 6.7 4.2
- ------------------------------------------------------------------------------------------------------------------------------------
Springs SMI 29.29(7) 525.6 436.5 962.1 11.0 6.1 2.1 2.5 0.43 3.9 7.0 5.9 8.0 7.5
Industries
Springs SMI 36.10(8) 648.7 436.5 1,085.2 11.0 6.1 2.1 2.5 0.48 4.4 7.9 6.6 9.8 9.2
Industries
- -------------------------------------------------------------------------------------------------------------------------------
Springs SMI 46.00 841.7 443.5 1,285.2 11.0 6.1 2.1 2.5 0.57 5.2 9.4 7.9 12.8 11.7
Industries
- ------------------------------------------------------------------------------------------------------------------------------------
NOTES:
1 Closing stock prices as of April 23, 2001
2 Debt adjusted for current market value and includes any unfunded pension
liability
Section 3: Valuation Analysis 41
- --------------------------------------------------------------------------------
3 Latest twelve months ending March 31, 2001 (as available), otherwise,
latest twelve months ended December 31, 2000
4 Source: I/B/E/S for 5 year EPS growth estimates and 2001E EPS estimates
5 Free cash flow (FCF) is defined as EBITDA less capital expenditures
6 Price as of April 9, 2001 (latest available price information prior to
delisting)
7 Average SMI stock price, latest six months prior to announcement
8 Pre-announcement stock price as of February 16, 2001
Section 3: Valuation Analysis 42
HISTORICAL EBITDA TRADING MULTIPLES
- --------------------------------------------------------------------------------
Three Years Quarterly
[LINE GRAPH DEPICTING THE FOLLOWING INFORMATION:
The Enterprise Value/EBITDA (x) for Q1, Q2, Q3 and Q4 1998, 1999 and 2000 for
Westpoint, Dan River Mohawk, Springs]
SOURCE: SEC filings and FactSet
Section 3: Valuation Analysis 43
PREMIUMS PAID ANALYSES-TWO YEAR HISTORICAL
- --------------------------------------------------------------------------------
o The following analysis shows the premiums paid in selected precedent
transactions 1
Premium to Stock Price (%)
------------------------------------------------
Number of One Day One Week One Month
Deals Prior to Annc. Prior to Annc. Prior to Annc.
- ---------------------------------------------------------------------------------------------
Deals Announced in LTM 2001
Control 32
Mean/Median 35.7 / 30.6 43.3 / 41.5 51.8 / 50.0
High/Low 92.7 / 2.7 96.3 / 4.0 111.1 / (0.3)
Minority Close-out 13
Mean/Median 39.0 / 42.5 48.8 / 44.3 37.4 / 41.1
High/Low 85.5 / 3.9 108.2 / 3.9 75.4 / 5.3
Deals Announced in 2000
Control 39
Mean/Median 34.7 / 30.2 43.5 / 40.7 53.0 / 50.6
High/Low 116.8 / (5.3) 121.0 / 4.0 130.3 / (0.3)
Minority Close-out 19
Mean/Median 29.4 / 22.4 37.0 / 37.6 36.4 / 31.9
High/Low 85.5 / (4.5) 108.2 / 0.0 98.8 / 1.2
Deals Announced in 1999
Control 65
Mean/Median 30.1 / 27.3 37.0 / 34.8 44.5 / 41.9
High/Low 95.3 / (7.9) 115.4 /(11.4) 120.3 / (2.1)
Minority Close-out 18
Mean/Median 34.7 / 30.5 35.9 / 43.4 48.6 / 48.6
High/Low 83.6 / 5.5 63.3 / (1.5) 107.4 / 7.3
- ---------------------------------------------------------------------------------------------
Section 3: Valuation Analysis 44
- ---------------------------------------------------------------------------------------------
Implied Premium of Proposed Offer @ US$46.00 2 27.4 26.8 42.4
- ---------------------------------------------------------------------------------------------
SOURCE: SDC
NOTES:
1 Premiums based on selected US transactions from 1/1/99 to 4/23/01 for
which premium information is available; US$500mm-US$2,000mm deal size
range, except for minority close-out transactions; 100% cash
consideration; excludes transactions involving financial institutions and
certain outlier transactions
2 Premiums calculated based on Springs' closing stock prices one day, one
week, and one month prior to announcement (US$36.10, US$36.28, and
US$32.31, respectively)
Section 3: Valuation Analysis 45
COMPARABLE TRANSACTION ANALYSIS
- -------------------------------------------------------------------------------
One
Day One One 3-Year
Prior Week Month Total Equity Revenue
Date Premium Premium Premium Enterprise Market LTM Growth
Acquiror/Target Announce (%) (%) (%) Value Value Revenue (%)
- ----------------------------------------------------------------------------------------------------------
Berkshire 9/6/00 18.8 23.8 26.7 3,277.1 2,393.9 4,095.7 7.2
Hathaway/
Shaw
Industries
Investor 10/6/99 77.9 75.4 58.2 106.4 66.1 117.6 27.6
Group/Conso
International
CW Southeast 8/30/99 65.5 84.6 50.0 155.5 32.5 267.6 (6.1)
Partners/
Johnston
Industries
Dan River/ 6/29/98 19.5 22.2 38.9 267.3 172.9 242.9 (20.1)
Bibb Company
Pillowtex 9/11/97 1.5 8.6 30.5 912.5 406.9 1,100.1 1.3
Corp/Fieldcrest
Cannon, Inc
Springs 2/6/95 na na na 143.5 118.0 272.1 3.8
Industries/
Dundee Mills, Inc
- ----------------------------------------------------------------------------------------------------------
Mean 36.6 42.9 40.8 810.4 531.7 1,016.0 2.3
Median 19.5 23.8 38.9 211.4 145.5 269.8 2.6
Min 1.5 8.6 26.7 106.4 32.5 117.6 (20.1)
Max 77.9 84.6 58.2 3,277.1 2,393.9 4,095.7 27.6
Harmonic Mean 6.2 21.9 37.5 214.7 95.2 283.2 na
- ----------------------------------------------------------------------------------------------------------
Springs 2/20/01 27.4 26.8 42.4 1,285.2 841.7 2,252.2 2.5
Industries
@$46.00
Westpoint 4/24/00 27.5 30.4 28.5 2,113.8 649.2 1,883.3 6.7
Stevens 1
- ----------------------------------------------------------------------------------------------------------
Total Enterprise Value
LTM Multiples
LTM LTM LTM Net -------------------------------
EBITDA FCF EBIT Income Equity
Margin Margin Margin Margin LTM LTM LTM LTM Mkt. Value/
Acquiror/Target (%) (%) (%) (%) Revenue EBITDA FCF EBIT LTM Net Inc.
- ----------------------------------------------------------------------------------------------------------
Berkshire 13.1 9.6 7.5 4.4 0.80 6.1 8.3 10.7 13.3
Hathaway/
Shaw
Industries
Investor 15.1 12.5 11.5 4.9 0.90 6.0 7.2 7.9 11.5
Group/Conso
International
CW Southeast 9.9 7.4 2.6 (1.0) 0.58 5.9 7.8 22.3 nm
Partners/
Johnston
Industries
Dan River/ 6.0 (7.5) 3.2 (0.4) 1.10 18.4 nm 33.9 nm
Bibb Company
Pillowtex 7.1 1.8 3.8 1.5 0.83 11.7 47.3 21.8 23.9
Corp/Fieldcrest
Cannon, Inc
Springs 5.4 2.1 1.3 (0.5) 0.53 9.8 25.4 40.7 nm
Industries/
Dundee Mills, Inc
- ----------------------------------------------------------------------------------------------------------
Mean 9.4 4.3 5.0 1.5 0.79 9.6 19.2 22.9
Median 8.5 4.8 3.5 0.6 0.81 8.0 8.3 22.0
Min 5.4 (7.5) 1.3 (1.0) 0.53 5.9 7.2 7.9
Max 15.1 12.5 11.5 4.9 1.10 18.4 47.3 40.7
Harmonic Mean 8.1 na 3.1 na 0.74 8.1 11.2 16.4
- ----------------------------------------------------------------------------------------------------------
Springs 11.0 7.3 6.1 2.9 0.57 5.2 7.9 9.4 12.8
Industries
@$46.00
Westpoint 18.7 10.8 14.2 5.5 1.12 6.0 10.4 7.9 6.2
Stevens(1)
- ----------------------------------------------------------------------------------------------------------
SOURCE: SDC, company reports and SEC filings
NOTE:
Section 3: Valuation Analysis 46
- --------------------------------------------------------------------------------
1 WestPoint transaction was terminated on 5/19/00
Section 3: Valuation Analysis 47
DISCOUNTED CASH FLOW ANALYSIS
- --------------------------------------------------------------------------------
o KEY ASSUMPTIONS
o Discounted cash flow analyses incorporate the Company's projected
operating performance for the period 2001-2005. Projections are based on the
Company's management projections
o Projections do not include acquisitions or plant closings
o Tax rate assumed at 38%
o Discount rates (weighted average cost of capital) assumed at 8.75% to 11.75%
o Exit multiples are consistent with the comparable public company analysis
with the results summarized below:
Implied Valuation at Various Exit Multiples
(US$ per share) Relevant Range Implied Share Value
- --------------------------------------------------------------------------------
Management Projections
EBITDA 4.5x-5.5x 38.61-56.12
EBIT 6.5x-7.5x 28.13-39.80
FCF 6.5x-7.5x 34.39-47.58
Perpetuity Growth 0.5%-2.5% 23.92-56.75
- --------------------------------------------------------------------------------
Section 3: Valuation Analysis 48
TYPICAL FINANCIAL SPONSOR INVESTMENT CRITERIA
- --------------------------------------------------------------------------------
o A leveraged recapitalization is a transaction structure designed to
avoid a step-up in the accounting basis of an acquired company (as
reflected in the Company's books), thereby avoiding the incurrence of
incremental goodwill amortization and asset depreciation
o In a leveraged recapitalization transaction, a substantial shareholder
group partners with a financial sponsor to repurchase the remaining public
shares of the Company
o Following the recapitalization, the Company is taken private by the newly
formed shareholder group, i.e., shareholders "rolling over" their equity
and the financial sponsor investing new equity
o Financial buyers and their debt sources typically require the following
parameters (depending upon market conditions and target industry):
- ----------------------------------------------------------
Internal Rate of Return: Greater than 25%
Total Debt/EBITDA: No more than 3.0x-4.5x
in Year 1
EBITDA/Interest Expense: No less than 2.0x in
Year 1
Cumulative Senior Debt Paydown: No less than 50% by
Year 5
- ----------------------------------------------------------
Section 3: Valuation Analysis 49
LEVERAGED RECAPITALIZATION ANALYSIS
- --------------------------------------------------------------------------------
o KEY ASSUMPTIONS
Leveraged recapitalization analyses were generated using management
projections. In addition to the assumptions inherent in the projections, the
following additional assumptions were made:
o A purchase price per share range from US$38.00 to US$50.00, implying an
equity value range from US$686.1 to US$921.3 and a total enterprise value
range from US$1,086.8 to US$1,322.1
o The following financial structure was assumed in the US$46.00 per share
analysis:
ESTIMATED SOURCE
Amount
(US$mm) (US$)
- -------------------------------------------------------
Sr. Bank Term Revolver 214.6
Receivables Purchase Facility -
Sr. Bank Term Loan - A 200.0
Sr. Bank Term Loan - B 300.0
Assumed Debt 28.1
- -------------------------------------------------------
Total Debt 742.7
- -------------------------------------------------------
Heartland Equity 225.0
Shareholder Rollover 283.6
- -------------------------------------------------------
Total Equity 508.6
- -------------------------------------------------------
Total Sources 1,251.3
- -------------------------------------------------------
ESTIMATED USES
Amount
(US$mm) (US$)
- -------------------------------------------------------
Purchase of Springs Equity 841.7
(including rollover equity)
Repay Indebtedness 327.2
Assumed Debt 28.1
Excess Cash (working capital) 14.3
Fees & Expenses 40.0
- -------------------------------------------------------
TOTAL USES 1,251.3
- -------------------------------------------------------
o Recapitalization accounting was assumed (no push-down of goodwill)
o Assumed closing date of June 30, 2001
o Management options for 10% of the equity of the Company upon exit
o Financing from a term revolver was used instead of the receivables purchase
facility
Section 3: Valuation Analysis 50
- --------------------------------------------------------------------------------
o Investors are assumed to exit in 4.5 years (2005) at an EBITDA multiple
of 5.0x
Section 3: Valuation Analysis 51
LEVERAGED RECAPITALIZATION ANALYSIS SUMMARY
- --------------------------------------------------------------------------------
IRRs at Various Purchase Prices
Assuming Approximately 41% Equity Investment (including rollover equity) and an
EBITDA Exit Multiple of 5.0x
[LINE GRAPH DEPICTING THE FOLLOWING POINTS:
Purchase Price Per Share (US$) Internal Rate of Return (%)
- ------------------------------ ---------------------------
38.00 20.5
42.00 17.5
46.00 14.6
50.00 11.8]
Leverage and Coverage Statistics-Management Projections
Purchase Price Per Share (US$)
----------------------------------------------------
38.00 42.00 46.00 50.00
- --------------------------------------------------------------------------------
2000 Pro Forma (x):
Total Debt/EBITDA 2.5 2.7 2.9 3.1
EBITDA/Interest Expense 5.2 4.9 4.7 4.4
- --------------------------------------------------------------------------------
Section 3: Valuation Analysis 52
- --------------------------------------------------------------------------------
(EBITDA-CAPEX)/ Interest 3.3 3.2 3.0 2.8
Expense
% Debt Paydown by 2005 39.6 35.7 32.3 29.2
- --------------------------------------------------------------------------------
Section 3: Valuation Analysis 53
PRESENT VALUE ANALYSIS OF HYPOTHETICAL FUTURE STOCK PRICE
- --------------------------------------------------------------------------------
Management Projections
2000-2005
(US$ per share) 2001P 2002P 2003P 2004P 2005P CAGR
- --------------------------------------------------------------------------------------------------------------------
Projected Springs EPS 3.95 3.92 4.31 4.40 4.48 3.2%
Hypothetical Future Stock Price
P/E Multiple:
7.0x 27.65 27.44 30.17 30.80 31.36
8.0x 31.60 31.36 34.48 35.20 35.84
9.0x 35.55 35.28 38.79 39.60 40.32
Dividends Per Share 1 1.27 1.27 1.27 1.27 1.27
Present Value of Hypothetical
Stock Price 2
P/E Multiple:
7.0x 26.76 24.91 25.50 24.38 23.30
8.0x 30.49 28.22 28.76 27.36 26.02
9.0x 34.23 31.54 32.03 30.35 28.73
- -------------------------------------------------------------------------------------------------------------------
NOTES:
1 Assumes constant blended per share dividend policy as per the management
projections
2 Hypothetical future stock prices and dividend stream discounted at 11.75%
(levered cost of equity)
Section 3: Valuation Analysis 54
COMPARABLE COMPANY DESCRIPTIONS
- --------------------------------------------------------------------------------
Appendix A
COMPARABLE COMPANY DESCRIPTIONS
- --------------------------------------------------------------------------------
Comparable Company Descriptions
- -------------------------------------------------------------------------------------------------------------------
Burlington Burlington Industries is a diversified manufacturer of soft goods for apparel and
Industries, Inc. interior furnishings. It is a developer, marketer and manufacturer of fabrics and other
textile products used in a variety of apparel and interior furnishings end uses.
Burlington is organized in three industry segments: Performance Wear, Casual Wear and
Interior Furnishings.
- -------------------------------------------------------------------------------------------------------------------
Crown Crafts, Inc. Crown Crafts, Inc. operates directly and indirectly through its subsidiaries, in two
principal business segments within the textile industry: Adult Home Furnishing and
Juvenile Products, and Infant Products. Adult Home Furnishing and Juvenile Products
consists of Bedroom Products (adult comforters and accessories), Throws and Decorative
Home Accessories (primarily jacquard-woven throws in cotton, acrylic, rayon or
chenille), and similar products targeted to the juvenile segment. The Infant Products
segment consists of four main business segments: infant bedding, bibs, infant soft goods
and accessories.
Sales are generally made directly to retailers, department and specialty stores, mass
merchants, large chain stores and gift stores. These products are marketed under a
variety of company-owned trademarks, as unbranded merchandise and with customers'
private labels in three product groups: bedroom products, throws and decorative home
accessories, and infant and juvenile products.
- -------------------------------------------------------------------------------------------------------------------
Dan River, Inc. Dan River, Inc. is a designer, manufacturer and marketer of products for the home
fashions and apparel fabrics markets. Dan River designs, manufactures and markets a line
of value-added home fashion products consisting of bedroom furnishings such as
comforters, sheets, pillowcases, shams, bed skirts, decorative pillows and draperies.
The company also designs, manufactures and markets a range of high quality woven cotton
and cotton-blend apparel fabrics. Dan River also manufactures and sells specialty
engineered yarns and woven fabrics for use in making high-pressure hoses and other
industrial products.
- -------------------------------------------------------------------------------------------------------------------
Appendix A: Comparable Company Descriptions 56
COMPARABLE COMPANY DESCRIPTIONS (CONTINUED)
- --------------------------------------------------------------------------------
Comparable Company Descriptions
- -------------------------------------------------------------------------------------------------------------------
Galey & Lord, Inc. Galey & Lord, Inc. was incorporated in Delaware in 1987 for the purpose of acquiring
substantially all of the assets of the Blends Apparel and Prints divisions of Burlington
Industries, Inc. in February 1988. The company is a global manufacturer of textiles for
sportswear, including cotton casuals, denim and corduroy, and is an international
manufacturer of work wear fabrics. The company also is a manufacturer of dyed and
printed fabrics for use in home fashions.
- -------------------------------------------------------------------------------------------------------------------
WestPoint Stevens WestPoint Stevens Inc. is the successor corporation to West Point-Pepperell, Inc.
Inc. through a series of mergers occurring in December 1993. The company is engaged in the
manufacture, marketing and distribution of bed and bath home fashions products.
The company manufactures and markets home fashions consumer products for distribution to
chain and department stores, mass merchants and specialty stores. Home fashions products
are manufactured and distributed under its owned trademarks and pursuant to various
licensing agreements. WestPoint Stevens manufactures and markets a broad range of bed
and bath products, including: decorative sheets, designer sheets, sheets, accessories
and towels for the hospitality industry; blankets; private label sheets, accessories and
towels.
- -------------------------------------------------------------------------------------------------------------------
Appendix A: Comparable Company Descriptions 57
COMPARABLE TRANSACTION DESCRIPTIONS
- --------------------------------------------------------------------------------
APPENDIX B
COMPARABLE TRANSACTION DESCRIPTIONS
- --------------------------------------------------------------------------------
Target Company Descriptions
- -------------------------------------------------------------------------------------------------------------------
Shaw Industries, Shaw Industries, Inc. is a global carpet manufacturer. Shaw designs and manufactures
Inc. approximately 1,600 styles of tufted and woven carpet for residential and commercial use
under the PHILADELPHIA, TRUSTMARK, CABIN CRAFTS, SHAW COMMERCIAL CARPETS, STRATTON,
NETWORX, SHAWMARK, EVANS BLACK, SALEM, SUTTON, KOSSET, CROSSLEY, ABINGDON, REDBOOK,
MINSTER, INVICTA and TERZA trade names and under certain private labels. The company's
manufacturing operations are fully integrated from the processing of yarns through the
finishing of carpet. The company's carpet is sold in a range of prices, patterns, colors
and textures with the majority of its sales in the medium to high retail price range.
Shaw sells its products to retailers, distributors and commercial users throughout the
United States, Canada, Mexico, Australia and the United Kingdom and, to a lesser degree,
exports to additional overseas markets.
- -------------------------------------------------------------------------------------------------------------------
Conso International Conso International Corporation is the world's largest manufacturer of decorative
Corporation trimmings for the home furnishings industry and, through its subsidiary, Simplicity
Pattern Co., Inc. ("Simplicity"), is a producer of patterns and other instructional
material for home sewing of apparel, home decorating, and crafts. The company, including
its British Trimmings ("BT") subsidiary, produces and sells a range of knitted and woven
fringes, decorative cords, tasseled accessories, jacquard and other woven braids, and
apparel trims, as well as sewing tapes and supplies. Conso also distributes window
accoutrements and other home furnishings accessories. Through its salesforce, the
Company's products are marketed to manufacturers, distributors and retailers.
Manufacturing facilities are located in the United States, the United Kingdom, Mexico,
and India.
- -------------------------------------------------------------------------------------------------------------------
Johnston Industries The company is a designer, manufacturer and marketer of finished and unfinished (greige)
cotton, synthetic and blended fabrics used in a broad range of industrial and consumer
applications. The company's products are sold to a number of "niche" markets, including
segments of the home furnishings, hospitality, industrial, automotive and specialty
markets. In addition, the company reprocesses and markets waste textile fiber and
off-quality fabrics for sale to a range of specialty markets. The company also
manufactures fabrics used in engineered composite materials serving mainly the
recreation and construction markets. The company conducts its operations through four
business units: (i) the Greige Fabrics Division, (ii) the Finished Fabrics
- -------------------------------------------------------------------------------------------------------------------
Appendix B: Comparable Transaction Descriptions 59
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Division, (iii) the Fiber Products Division, and (iv) JICR.
- -------------------------------------------------------------------------------------------------------------------
Appendix B: Comparable Transaction Descriptions 60
COMPARABLE TRANSACTION DESCRIPTIONS (CONTINUED)
- --------------------------------------------------------------------------------
Target Company Descriptions
- -------------------------------------------------------------------------------------------------------------------
Bibb Company The Bibb Company, is a domestic manufacturer and marketer of textile products,
principally sheets, pillowcases and other bedding accessories for use in the home,
hotels, hospitals, and others serving the hospitality market. The company also
manufactures specially treated and engineered textile products used primarily in
producing high-pressure automobile hoses and conveyor belts.
- -------------------------------------------------------------------------------------------------------------------
Fieldcrest Cannon, Fieldcrest operates a single segment business in the textile industry and is principally
Inc. involved in the manufacture and sale of home furnishing products. Fieldcrest designs,
manufactures and markets a broad range of household textile products consisting of
towels, sheets, comforters, bath rugs and furniture coverings. 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 mainly of department
stores, chain stores, mass merchants, specialty home furnishing stores, catalog
warehouse clubs and other retail outlets, and institutional, government and contract
accounts.
- -------------------------------------------------------------------------------------------------------------------
Dundee Mills, Dundee Mills, Incorporated, is a manufacturer of towels, infant and toddler bedding,
Incorporated knitted infant apparel, and baby and healthcare products. The business of Dundee is
divided into three primary divisions: terry towel products, baby and healthcare
products, and broadcloth fabric.
- -------------------------------------------------------------------------------------------------------------------
Appendix B: Comparable Transaction Descriptions 61