1
Exhibit (c)(3)
CREDIT RESEARCH & TRADING LLC
Project Snug
February 15, 2001
[Please note that references to "base" case correspond to the Scenario 2
projections and references to "downside" case correspond to the Scenario 1
projections.]
2
SPRINGS INDUSTRIES INC.
Table of Contents
SECTION 1 HEARTLAND INVESTMENT THESIS
SECTION 2 PERSPECTIVES ON SPRINGS AND THE HOME TEXTILES INDUSTRY
SECTION 3 VALUATION PERSPECTIVES
SECTION 4 REVIEW OF ALTERNATIVES
SECTION 5 ISSUES
APPENDIX A COMPARABLE PUBLIC COMPANY ANALYSIS
APPENDIX B DISCOUNTED CASH FLOW ANALYSIS
APPENDIX C * INVESTMENT COMMITTEE MEMORANDUM
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* Omitted and filed separately with the Commission.
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SPRINGS INDUSTRIES INC.
Background of Strategic Review Process
Summer 2000 Board of Directors authorizes C. Bowles to explore strategic alternatives for Springs.
C. Bowles hires R. Lee to provide strategic advice. R. Lee had worked with Springs while at
Morgan Stanley and in June left Morgan Stanley to build a boutique Investment Bank to work
with mid-cap companies
August 2000 David Stockman approaches C. Bowles on behalf of Heartland and indicates an interest in making
an equity investment in Springs
October 2000 Board of Directors meets to consider review of strategic alternatives presented by C. Bowles
and R. Lee and authorizes management to pursue various investment and acquisition transactions,
including a potential transaction involving Heartland
October 2000 - January 2001 Management and R. Lee meet with various potential investors (see Section 4 for a summary of
these efforts) regarding a potential equity investment in Springs
October 2000 - February 2001 Substantial due diligence of Springs by Heartland and discussions between Heartland and
C. Bowles regarding future strategy and the terms of a potential recapitalization of Springs
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SPRINGS INDUSTRIES INC.
Section 1 -- Heartland Investment Thesis
SECTOR CONSOLIDATION
- - Heartland has identified seven industry sectors where it is interested in
partnering with a leading company in a sector which is ripe for
consolidation.
- - Heartland believes there is considerable consolidation opportunity
currently in the home textile sector and no other company has the scale and
financial wherewithal other than Springs to execute a consolidation
opportunity.
1999 SALES OF U.S. HOME TEXTILES COMPANIES
($ Millions)
[BAR CHART]
Springs $2,220
WestPoint $1,868
Pillowtex $1,552
Mohawk $ 470
Dan River $ 432
Crown Craft $ 310
Burlington $ 300
Croscill $ 283
PCF $ 230
Glenoit $ 222
Hollander $ 201
Maples $ 160
Louisville $ 156
Revman $ 141
Sunbeam $ 136
Keeco $ 132
POTENTIAL CONSOLIDATION
TARGETS
BATH BED
Towel Capacity & Brands Basic Bedding
Pillowtex Hollander
Investment in Davidson Cotton Pacific Coast Feather
Investment in Coteminas Pillowtex
SOURCING Croscill
Glenoit Divisions Calvin Klein
Ex-Cell
American Pacific
Keeco DIVERSIFICATION
Town & Country Blankets
Charles Owen
Sunbeam
Kitchen
Allure
IMPACT OF SCALE ON VALUATION
- - A core valuation creation strategy for Heartland is to grow platform
situations from approximately $2 billion in revenues to approximately $5
billion over a period of 3-5 years and potentially obtain a higher
valuation multiple from the stock market vs. the base $2 billion company,
particularly when the platform company becomes the clear industry leader.
IMPACT OF SCALE ON OPERATIONS
- - Scale of revenues and EBITDA relative to competition allows the largest
companies in a sector to more effectively invest in supply chain expertise
and infrastructure which should become a core competitive advantage.
PARTNERSHIP APPROACH TO VALUE REALIZATION
- - Agreement between Heartland and the Close family to allow (but not require)
each party to participate equally in any value realization transaction.
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SPRINGS INDUSTRIES INC.
Heartland Experience and Resources
REPUTATION
- - Good partner to management - very bright, gets involved enough to
understand the business of the portfolio company and to assist or
support management in decision making and investment in growth
- - Strength in developing and utilizing sophisticated management
information systems
- - Can become enamored of certain investments or strategies
BROAD RANGE OF CAPABILITIES FOR PORTFOLIO COMPANIES
- - Acquisition Expertise
- Core Stockman expertise
- Perry Lewis: former senior Smith Barney banker and successful
private equity investor and merger advisor at Morgan, Lewis,
Githens and Ahn
- - Financing Expertise
- Several senior level former bank financing professionals,
including Gerry McConnell, on the Heartland team
- - Management Expertise
- Tim Leuliette: former CEO of Penske Organization and COO of
ITT Automotive
- Cindy Hess: former VP Quality/Engineering of Chrysler - last
role was leadership position in PT Cruiser Program
- - Information Systems
- Gary Banks - former CIO of Xerox
- - Key element of Heartland approach is to work closely with its portfolio
companies and to provide senior level assistance as requested by the
portfolio companies. Consistent with D. Stockman's reputation, a
primary near term focus of Heartland would be to develop strong
management information systems which can be utilized by the company to
make more effective decisions and to provide in-depth information to
Heartland so that it can effectively participate in assisting senior
management.
PERFORMANCE
- - Raised $1.2 billion fund in mid 2000
- - Historical Performance is broad and generally good, but with some mixed
results
Performance Summary IRR
Recent Heartland Transactions
MascoTech N/A
Simpson Industries N/A
Global Metal Technologies N/A
Collins & Aikman N/A
Prior Realized Blackstone Transactions
Aristech Chemical 22%
DeBartolo Corp. 35%
LaSalle Re Holdings 25%
UCAR International 198%
American Axle and Manufacturing 69%
Collins & Aikman 1%
Prior Unrealized Blackstone Transactions
Clark USA Valued at cost
Haynes International Valued at cost
Republic Technologies Valued at cost
Imperial Home Decor Group Total write off ($85MM)
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SPRINGS INDUSTRIES INC.
Section 2 -- Perspectives on Springs and the Home Textiles Industry
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SPRINGS INDUSTRIES INC.
Home Textiles Industry
- - RECENTLY, THE MAJOR RETAILERS HAVE BEEN DEVELOPING BETTER IN-HOUSE
CAPABILITIES TO PURSUE SOURCING FROM FOREIGN MANUFACTURERS, EVEN
SETTING UP OFFICES IN CERTAIN COUNTRIES
While annual growth in Springs' core bed and bath markets runs a healthy 5%,
there exist a number of negative factors with which each competitor will have to
deal going forward. A few of the major factors include the following:
GROWING IMPORTS
Imports are perhaps the most important competitive issue facing U.S. textile
companies. In 1999, approximately one-quarter of all sheets and pillowcases and
more than one-third of all towels sold in the United States were imported, and
the share of imports is expected to grow. While the vast majority of imports are
for promotional and seasonal products, the concern is that imports will start to
gain market share in core open stock programs, particularly at lower price
points. The import trend will force competitors both to optimize their U.S.
manufacturing of certain products and to develop sourcing relationships and
capabilities for products whose manufacturing is destined to move overseas.
This trend will put particular burden on non-branded entry point products
currently manufactured in the U.S.
EXCESS INVENTORIES
Despite persistent efforts by most U.S. textiles companies to reduce inventories
in 2000, low inventory turnover remains an industry-wide drain on capital and
profitability, both for manufacturers and for retailers. However, supply chain
management expertise, for larger companies like Springs and WestPoint Stevens
that are able to leverage their scale to develop a comparative advantage, should
create the opportunity to improve margins and returns on capital and to develop
stronger, interdependent relationships with their key retail accounts.
CLOSE-OUT LOSSES
The channels through which close-out and off-quality merchandise was
historically disposed have become a significant source of losses for home
textiles manufacturers. Largely due to growth in imports made especially for
those channels, U.S. manufacturers will likely incur significant losses in
disposing of close-out and off-quality merchandise going forward. As a result,
there will be an increasing focus on minimizing manufacturing defects and
shortening the lag between production and retail sale.
CHARGE-BACKS
With few exceptions, home textiles retailers in 2000 became significantly more
aggressive about charging their suppliers for any and all packaging and shipping
errors and manufacturing defects -- often at punitive rates. Certain retailers
(Kmart, for example) have come to view such efforts as a source of margin
improvement. This trend is expected to continue, as competitive pressures in the
retail industry are not expected to abate anytime soon.
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SPRINGS INDUSTRIES INC.
Springs' Competitive Position
- - SPRINGS HAS ACHIEVED CONSIDERABLE SUCCESS AT WAL*MART AND THROUGH ITS
AGGRESSIVENESS IS PUSHING THE BED-IN-A-BAG LINE ACROSS A BROAD RANGE OF
ACCOUNTS
- - SPRINGS' PORTFOLIO WEAKNESS IS IN TOWELS. IT RANKS WELL BEHIND
WESTPOINT STEVENS AND PILLOWTEX AND ITS PROFITABILITY IS SIGNIFICANTLY
BELOW SATISFACTORY LEVELS
SPRINGS
[BAR CHART]
1996 1997 1998 1999 2000
Revenues $2,243 $2,226 $2,181 $2,220 $2,275
EBITDA Margin 9% 10% 9% 11% 11%
BREADTH OF PRODUCTS
Springs has perhaps the broadest product offering in the home textiles industry.
For example, the company ranks second in sheets and pillowcases behind WestPoint
Stevens, first in comforters and bedspreads, fourth in pillows behind Pillowtex,
third in towels (but well behind WestPoint Stevens and Pillowtex), second in
bath and area rugs and first in shower curtains. Generally, WestPoint Stevens
has a more limited product offering, tending to focus primarily on markets in
which it ranks first or second. Most other competitors lack the scale required
to compete against Springs across its product spectrum.
STABLE REVENUES
As the table above indicates, Springs' revenues have been fairly stagnant in
recent history. However, even though revenue growth was low in 2000, "low
growth" was much better than the loss of revenue at WestPoint Stevens and
Pillowtex. Until this year, WestPoint Stevens has had better overall revenue
growth than Springs. Pillowtex tripled its size with the Fieldcrest Cannon
acquisition in 1997 but has suffered considerably over the last 12-18 months.
Dan River is the only major competitor that has experienced substantial growth,
fueled in part by its early entry into the fast-growing Bed-in-a-Bag market and
its acquisition of Bibb.
LOW BUT IMPROVING MARGINS
Owing in part to the complexity of its operations, Springs' operating margins
have lagged those of each of its major competitors . However, Springs has
managed gradual improvement and expects that trend to continue.
LOW FINANCIAL LEVERAGE
Springs has much greater financial strength than any of its major competitors --
Pillowtex is in Chapter XI, and WestPoint Stevens and Dan River are very highly
leveraged. Springs' could take on considerable debt before its leverage
threatened to limit its flexibility or interfere with the implementation of its
business strategy, which is clearly the case with its competitors.
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SPRINGS INDUSTRIES INC.
Each of Springs' Major Competitors Has Been Weakened by Difficult Conditions in
Home Textiles Markets
- - REPORTED MARGINS FOR WESTPOINT STEVENS ARE PROBABLY OVERSTATED, AS THEY
DO NOT REFLECT LARGE WRITE-OFFS AND RESTRUCTURING CHARGES. IF THE 1998
AND 2000 WRITE-OFFS AND CHARGES WERE AMORTIZED OVER FIVE YEARS, THE
MARGINS IN 1998, 1999 AND 2000 WOULD BE 17.9%, 18.2% AND 15.3%,
RESPECTIVELY.
WESTPOINT STEVENS
[BAR CHART]
1996 1997 1998 1999 2000
Revenues $1,724 $1,658 $1,779 $1,883 $1,815
EBITDA Margin 16% 18% 19% 19% 17%
WESTPOINT STEVENS (WXS)
Historically the best operator with the most modern facilities among U.S. home
textiles manufacturers, WestPoint acts largely as a contract manufacturer for
brands such as Ralph Lauren and Martha Stewart. WestPoint Stevens has obtained
some success with Target by moving the Martex brand there in response to Springs
giving the Springmaid label to Wal*Mart. WestPoint has been perhaps hardest hit
by the recent economic slowdown, with fourth quarter 2000 revenues down 14% from
the prior year -- though its margins remain the best in the industry. EBITDA for
2000 was $310 million, 12% lower than in 1999, leaving the company highly
leveraged with a debt-to-EBITDA ratio of approximately 5.3x.
- - FULL 2000 RESULTS FOR DAN RIVER HAVE NOT BEEN MADE AVAILABLE
DAN RIVER
[BAR CHART]
1996 1997 1998 1999 2000 (1)
Revenues $380 $476 $517 $629 $647
EBITDA Margin 12% 15% 15% 15% 15%
DAN RIVER (DRF)
Dan River is the market leader in Bed-in-a-Bag ensembles and is the fourth
largest U.S. producer of sheets and pillowcase. Dan River does not market
towels, however, and generally lacks the breadth of products offered by Springs,
WestPoint and Pillowtex. Revenue growth has been strong, and Dan River's
historical margins are between that of Springs at the low end and WestPoint
Stevens at the high end, though they were likely hit in 2000, especially in the
fourth quarter, by the need to reduce inventory.
- - DATA FOR PILLOWTEX IN 1996 IS NOT AVAILABLE ON A COMPARABLE BASIS TO
INCLUDE THE 1997 ACQUISITION OF FIELDCREST CANNON. 2000 RESULTS FOR
PILLOWTEX HAVE NOT BEEN MADE AVAILABLE
PILLOWTEX
[BAR CHART]
1996 1997 1998 1999 2000 (1)
Revenues $1,785 $1,510 $1,552 $1,450
EBITDA Margin 8% 13% 8% 7%
PILLOWTEX (PTEXQ)
Pillowtex is the second largest manufacturer of towels and the largest producer
of pillows in the United States. Pillowtex has the strongest brands in the home
textiles business -- Royal Velvet, Charisma and Fieldcrest-Cannon. Unable to
integrate successfully the operations of Fieldcrest Cannon, acquired in 1997,
Pillowtex's EBITDA margins fell from 13.0% in 1998 to 7.9% in 1999 on sales of
$1.6 billion and $1.5 billion, respectively -- levels insufficient to support
the acquisition financing. Pillowtex filed for Chapter 11 bankruptcy protection
in December 2000 and is generally expected to take quite some timestabilizing
its operations before it emerges from bankruptcy. Further erosion in the
company's competitive position is expected as it reorganizes, which could
continue to destabilize competitive conditions in the home textiles industry.
(1) LTM through 9/30/00
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SPRINGS INDUSTRIES INC.
Projected Results
KEY MANAGEMENT PRIORITIES:
- - MATERIALLY IMPROVE QUALITY AND DEPTH OF MANAGEMENT IN OPERATIONS AND
MANUFACTURING
- - FIX TOWEL PROFITABILITY
- - INVEST IN SUPPLY CHAIN MANAGEMENT EFFICIENCY
- - EXPAND FOREIGN SOURCING CAPABILITY
SPRINGS MANAGEMENT SEES MEANINGFUL UPSIDE POTENTIAL IN THE BUSINESS BUT HAS HAD
TO CONSISTENTLY SCALE BACK ITS ASSESSMENT OF THAT POTENTIAL SUBSTANTIALLY OWING
TO A MUCH MORE COMPETITIVE ENVIRONMENT
PROFIT FROM OPERATIONS
($ millions)
[BAR CHART]
1998 1999 2000 2001 2002 2003 2004 2005
1998 Plan $120 $183 $245 $305
1999 Plan $106 $134 $180 $224 $290 $330
2000 Plan $149 $177 $210 $257 $275 $297
Revised 2000 Plan $142 $152 $180 $224 $235 $248
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SPRINGS INDUSTRIES INC.
Historical and Projected Revenues and Profit from Operations
- - FOR MODELING PURPOSES, WE HAVE DEVELOPED A DOWNSIDE CASE TO TEST
RETURNS AND LEVERAGE AT LOWER LEVELS OF PERFORMANCE
REVENUES
($ MILLIONS)
[BAR CHART]
1998 1999 2000A 2001P 2002P 2003P 2004P 2005P
Base Case (1) $2,181 $2,220 $2,275 $2,323 $2,477 $2,638 $2,766 $2,902*
Downside Case $2,265 $2,321 $2,388 $2,447 $2,513**
* `00-'05 CAGR = 5.0%
** `00-'05 CAGR = 2.0%
PROFIT FROM OPERATIONS
($ MILLIONS)
[BAR CHART]
1998 1999 2000A 2001P 2002P 2003P 2004P 2005P
Base Case (1) $106 (4.9%) $134 (6.0%) $146 (6.4%) $152 (6.5%) $180 (7.3%) $224 (8.3%) $235 (8.3%) $248 (8.4%)
Downside Case $139 (6.1%) $145 (6.3%) $156 (6.5%) $159 (6.5%) $165 (6.6%)
2000 EBIT MARGINS
[BAR CHART]
Springs 6.4%
Dan River 7.9%
Mohawk 9.7%
WestPoint Stevens 12.6%
DEBT TO EBITDA MULTIPLES
1998 1999 2000A 2001P 2002P 2003P 2004P 2005P
Base Case 1.4x 1.4x 1.3x 0.9x 0.6x 0.3x 0.0x 0.0x
Downside Case 1.4x 1.4x 1.3x 1.0x 0.7x 0.4x 0.2x 0.0x
(1) The Base Case is consistent with the company's Revised 2000 Plan
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SPRINGS INDUSTRIES INC.
Section 3 -- Valuation Perspectives
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SPRINGS INDUSTRIES INC.
Historical Stock Price and Premium Analysis
TWO-YEAR STOCK PRICE HISTORY
[LINE GRAPH]
1-Jan-99 $ 41
8-Jan-99 $ 40
15-Jan-99 $ 41
22-Jan-99 $ 40
29-Jan-99 $ 42
5-Feb-99 $ 38
12-Feb-99 $ 37
19-Feb-99 $ 35
26-Feb-99 $ 33
5-Mar-99 $ 32
12-Mar-99 $ 32
19-Mar-99 $ 32
26-Mar-99 $ 29
2-Apr-99 $ 28
9-Apr-99 $ 29
16-Apr-99 $ 30
23-Apr-99 $ 36
30-Apr-99 $ 37
7-May-99 $ 41
14-May-99 $ 42
21-May-99 $ 44
28-May-99 $ 40
4-Jun-99 $ 42
11-Jun-99 $ 38
18-Jun-99 $ 38
25-Jun-99 $ 40
2-Jul-99 $ 43
9-Jul-99 $ 42
16-Jul-99 $ 41
23-Jul-99 $ 41
30-Jul-99 $ 40
6-Aug-99 $ 40
13-Aug-99 $ 40
20-Aug-99 $ 39
27-Aug-99 $ 38
3-Sep-99 $ 39
10-Sep-99 $ 39
17-Sep-99 $ 36
24-Sep-99 $ 34
1-Oct-99 $ 34
8-Oct-99 $ 34
15-Oct-99 $ 33
22-Oct-99 $ 39
29-Oct-99 $ 40
5-Nov-99 $ 42
12-Nov-99 $ 42
19-Nov-99 $ 41
26-Nov-99 $ 40
3-Dec-99 $ 40
10-Dec-99 $ 39
17-Dec-99 $ 38
24-Dec-99 $ 39
31-Dec-99 $ 40
7-Jan-00 $ 39
14-Jan-00 $ 40
21-Jan-00 $ 38
28-Jan-00 $ 37
4-Feb-00 $ 38
11-Feb-00 $ 39
18-Feb-00 $ 39
25-Feb-00 $ 34
3-Mar-00 $ 37
10-Mar-00 $ 37
17-Mar-00 $ 38
24-Mar-00 $ 38
31-Mar-00 $ 38
7-Apr-00 $ 39
14-Apr-00 $ 38
21-Apr-00 $ 42
28-Apr-00 $ 41
5-May-00 $ 47
12-May-00 $ 48
19-May-00 $ 47
26-May-00 $ 47
2-Jun-00 $ 42
9-Jun-00 $ 40
16-Jun-00 $ 40
23-Jun-00 $ 34
30-Jun-00 $ 32
7-Jul-00 $ 32
14-Jul-00 $ 32
21-Jul-00 $ 34
28-Jul-00 $ 32
4-Aug-00 $ 32
11-Aug-00 $ 32
18-Aug-00 $ 31
25-Aug-00 $ 31
1-Sep-00 $ 30
8-Sep-00 $ 31
15-Sep-00 $ 29
22-Sep-00 $ 28
29-Sep-00 $ 28
6-Oct-00 $ 27
13-Oct-00 $ 25
20-Oct-00 $ 23
27-Oct-00 $ 23
3-Nov-00 $ 24
10-Nov-00 $ 26
17-Nov-00 $ 27
24-Nov-00 $ 28
1-Dec-00 $ 28
8-Dec-00 $ 24
15-Dec-00 $ 28
22-Dec-00 $ 30
29-Dec-00 $ 32
5-Jan-01 $ 31
12-Jan-01 $ 32
19-Jan-01 $ 33
26-Jan-01 $ 34
2-Feb-01 $ 36
2/9/01 36.28
ONE-YEAR STOCK PRICE HISTORY
[LINE GRAPH]
1/7/00 $ 39
1/14/00 $ 40
1/21/00 $ 38
1/28/00 $ 37
2/4/00 $ 38
2/11/00 $ 39
2/18/00 $ 39
2/25/00 $ 34
3/3/00 $ 37
3/10/00 $ 37
3/17/00 $ 38
3/24/00 $ 38
3/31/00 $ 38
4/7/00 $ 39
4/14/00 $ 38
4/21/00 $ 42
4/28/00 $ 41
5/5/00 $ 47
5/12/00 $ 48
5/19/00 $ 47
5/26/00 $ 47
6/2/00 $ 42
6/9/00 $ 40
6/16/00 $ 40
6/23/00 $ 34
6/30/00 $ 32
7/7/00 $ 32
7/14/00 $ 32
7/21/00 $ 34
7/28/00 $ 32
8/4/00 $ 32
8/11/00 $ 32
8/18/00 $ 31
8/25/00 $ 31
9/1/00 $ 30
9/8/00 $ 31
9/15/00 $ 29
9/22/00 $ 28
9/29/00 $ 28
10/6/00 $ 27
10/13/00 $ 25
10/20/00 $ 23
10/27/00 $ 23
11/3/00 $ 24
11/10/00 $ 26
11/17/00 $ 27
11/24/00 $ 28
12/1/00 $ 28
12/8/00 $ 24
12/15/00 $ 28
12/22/00 $ 30
12/29/00 $ 32
1/5/01 $ 31
1/12/01 $ 32
1/19/01 $ 33
1/26/01 $ 34
2/2/01 $ 36
2/9/01 36.28
PREMIA TO AVERAGE STOCK PRICES
- --------------------------------------------------------------------------------
PREMIUM TO AVERAGE STOCK PRICE
AT SELECTED RECAP PRICES
AVERAGE -------------------------------------------
TIME PERIOD PRICE $ 40 $ 42 $ 44 $ 46
- --------------------------------------------------------------------------------
At 2/9/01 $ 36.28 10% 16% 21% 27%
One Month 33.31 20% 26% 32% 38%
Three Months 29.57 35% 42% 49% 56%
Six Months 28.97 38% 45% 52% 59%
One Year 34.06 17% 23% 29% 35%
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SPRINGS INDUSTRIES INC.
Historical Stock Performance
- - WHILE UNDER-PERFORMING THE S&P 500 IN THE MOST RECENT ONE- AND TWO-YEAR
PERIODS, SPRINGS' STOCK HAS OUTPERFORMED THOSE OF DAN RIVER AND
WESTPOINT STEVENS DURING ALL PERIODS PRESENTED
- - SPRINGS HAS OUTPERFORMED THE S&P 500 DURING THE LAST THREE- AND
SIX-MONTH PERIODS
THREE-MONTH RELATIVE STOCK PRICE GRAPH
[LINE GRAPH]
SPX SMI DRF WXS MHK
11/1/00
11/2/00 100.4995708 101.0638298 105 101.7391304 100.2898551
11/3/00 100.3848806 101.0638298 105 100.8695652 100.5797101
11/6/00 100.7718721 105.5851064 107.5 100.8695652 100.8695652
11/7/00 100.7493562 107.9787234 110 102.6086957 99.13043478
11/8/00 99.15987673 113.2978723 105 100.8695652 98.26086957
11/9/00 98.51676728 110.106383 105 100 95.94202899
11/10/00 96.11319852 108.7765957 100 101.7391304 95.07246377
11/13/00 95.07746865 111.9680851 100 98.26086957 97.10144928
11/14/00 97.30724307 112.5 90 105.2173913 99.13043478
11/15/00 97.78992696 111.4361702 87.5 102.6086957 98.55072464
11/16/00 96.55929413 109.5744681 85 102.6086957 100.2898551
11/17/00 96.23562854 114.0957447 77.5 99.13043478 101.7391304
11/20/00 94.46954025 114.6276596 87.5 93.04347826 103.7681159
11/21/00 94.80235291 116.7553191 82.5 89.56521739 103.4782609
11/22/00 93.04400445 115.4255319 87.5 86.08695652 102.3188406
11/24/00 94.40973248 118.6170213 87.5 87.82608696 103.1884058
11/27/00 94.91633948 119.4148936 85 95.65217391 107.5362319
11/28/00 94.01007585 118.3510638 85 92.17391304 106.3768116
11/29/00 94.41958318 118.3510638 82.5 90.43478261 110.4347826
11/30/00 92.52262141 115.9574468 85 88.69565217 109.8550725
12/1/00 92.54232279 118.3510638 87.5 87.82608696 114.4927536
12/4/00 93.22764948 118.6170213 86 83.47826087 111.884058
12/5/00 96.85622212 120.212766 89.6 85.9826087 116.8115942
12/6/00 95.09154107 110.6382979 87.6 92.10434783 115.942029
12/7/00 94.53497699 101.8617021 92 90.15652174 116.8115942
12/8/00 96.38831427 103.4574468 90 90.99130435 119.1304348
12/11/00 97.11374734 114.893617 91.6 88.20869565 120.8695652
12/12/00 96.47908135 122.3404255 90 90.57391304 117.3913043
12/13/00 95.69172964 124.2021277 93.2 91.82608696 113.6231884
12/14/00 94.35062833 119.1489362 90.4 92.66086957 114.2028986
12/15/00 92.32560758 117.287234 92 90.57391304 115.6521739
12/18/00 93.07074204 119.6808511 90 86.8173913 115.6521739
12/19/00 91.86473593 122.3404255 87.2 87.93043478 114.4927536
12/20/00 88.98974121 120.7446809 86 87.51304348 111.3043478
12/21/00 89.70180549 119.6808511 86 83.47826087 112.4637681
12/22/00 91.8907699 128.4574468 86 85.70434783 117.3913043
12/26/00 92.53950831 127.9255319 84.4 90.85217391 116.8115942
12/27/00 93.50557971 132.4468085 88 99.47826087 128.4057971
12/28/00 93.87849875 134.5744681 92.4 104.2086957 134.4927536
12/29/00 92.89765131 138.0319149 88.8 104.2086957 126.9565217
1/2/01 90.29355061 131.6489362 93.6 110.4695652 126.3768116
1/3/01 94.81712895 135.3723404 96 125.2173913 132.173913
1/4/01 93.81658012 135.9042553 99.6 123.826087 137.1014493
1/5/01 91.35461083 130.3191489 100 120.9043478 137.1014493
1/8/01 91.17940924 135.9042553 99.6 117.9826087 142.6086957
1/9/01 91.52699793 134.3085106 99.2 114.7826087 141.4492754
1/10/01 92.40441311 135.6382979 100 114.9217391 139.1304348
1/11/01 93.35781934 136.4361702 98.8 116.173913 139.1304348
1/12/01 92.75974163 135.9042553 99.2 116.5913043 143.1884058
1/16/01 93.34585778 137.5 100 118.4 146.3768116
1/17/01 93.54427886 140.9574468 100 126.0521739 143.7681159
1/18/01 94.8459774 141.7553191 100 135.6521739 143.7681159
1/19/01 94.46461491 141.2234043 100 134.2608696 139.1304348
1/22/01 94.48924164 136.9680851 104 126.0521739 141.1594203
1/23/01 95.72057809 146.8085106 119.6 128 144.057971
1/24/01 95.99499022 142.8191489 125.6 127.3043478 140
1/25/01 95.51723167 145.4787234 128.4 127.3043478 143.1884058
1/26/01 95.33710474 144.1489362 128 125.3565217 140
1/29/01 95.98584315 145.2765957 129.2 128.6956522 143.0724638
1/30/01 96.65850467 145.3191489 128 121.6 142.2376812
1/31/01 96.11530938 150.5531915 120.4 125.773913 146.0869565
2/1/01 96.64021052 149.7021277 124.8 127.3043478 149.3333333
2/2/01 94.95152052 153.1914894 124 123.6869565 148.1275362
2/5/01 95.29207301 154.6808511 112 122.573913 147.8956522
2/6/01 95.14783074 156.1276596 111.2 124.9391304 148.2666667
2/7/01 94.34781385 158.4255319 114 122.0173913 145.9478261
SIX-MONTH RELATIVE STOCK PRICE GRAPH
[LINE GRAPH]
SPX SMI DRF WXS MHK
8/1/00
8/2/00 100.0417217 101.1811024 101.4492754 101.0416667 99.30555556
8/3/00 101.0054934 100.3937008 98.55072464 101.0416667 97.68518519
8/4/00 101.7265837 99.40944882 98.55072464 102.0833333 99.30555556
8/7/00 102.8662819 101.3779528 97.10144928 102.0833333 100.9259259
8/8/00 103.1082679 100.5905512 98.55072464 100.5208333 101.3888889
8/9/00 102.4177735 99.80314961 98.55072464 104.1666667 100
8/10/00 101.5402267 100 95.65217391 102.0833333 96.99074074
8/11/00 102.3461512 100.1968504 95.65217391 106.7708333 99.53703704
8/14/00 103.7174049 101.1811024 98.55072464 110.4166667 99.53703704
8/15/00 103.2216118 98.62204724 100 112.5 98.61111111
8/16/00 102.9031361 98.03149606 105.7971014 117.1875 98.37962963
8/17/00 104.0310131 99.40944882 105.7971014 117.1875 96.2962963
8/18/00 103.7285307 99.01574803 111.5942029 116.1458333 95.60185185
8/21/00 104.2681316 97.63779528 113.0434783 111.9791667 95.60185185
8/22/00 104.1742577 100 110.1449275 112.5 97.4537037
8/23/00 104.7194215 98.81889764 108.6956522 112.5 93.75
8/24/00 104.8821362 99.40944882 108.6956522 113.0208333 94.21296296
8/25/00 104.7527988 98.62204724 108.6956522 113.0208333 92.36111111
8/28/00 105.2840554 96.8503937 104.3478261 111.4583333 88.88888889
8/29/00 104.9885265 94.48818898 107.2463768 112.5 90.74074074
8/30/00 104.4843891 94.68503937 104.3478261 113.0208333 88.42592593
8/31/00 105.5336903 94.15622047 102.8985507 117.1875 87.96296296
9/1/00 105.7485571 93.8976378 102.8985507 115.625 89.81481481
9/5/00 104.7966066 93.50393701 102.8985507 114.5833333 86.80555556
9/6/00 103.7653849 98.42519685 101.4492754 117.1875 98.14814815
9/7/00 104.4788262 98.42519685 102.8985507 118.75 100.2314815
9/8/00 103.9218413 98.03149606 101.4492754 117.7083333 95.83333333
9/11/00 103.5574717 94.68503937 101.4492754 116.6666667 94.21296296
9/12/00 103.0519435 93.30708661 101.4492754 116.6666667 95.13888889
9/13/00 103.2549892 91.92913386 100 118.2291667 90.97222222
9/14/00 102.974063 92.71653543 100 118.75 88.65740741
9/15/00 101.9268479 90.94488189 102.8985507 116.6666667 86.34259259
9/18/00 100.445727 90.15748031 100 112.5 82.87037037
9/19/00 101.515889 91.14173228 102.8985507 111.4583333 81.94444444
9/20/00 100.9206592 88.77952756 101.4492754 114.0625 80.09259259
9/21/00 100.7614213 87.79527559 101.4492754 111.9791667 78.7037037
9/22/00 100.7384744 86.61417323 98.55072464 110.9375 81.48148148
9/25/00 100.0646687 86.22047244 98.55072464 109.375 83.10185185
9/26/00 99.24275085 85.43307087 100 100.5208333 81.48148148
9/27/00 99.19824769 85.62992126 100 100 81.01851852
9/28/00 101.4039357 86.61417323 95.65217391 97.39583333 84.25925926
9/29/00 99.88943745 88.77952756 100 102.0833333 80.78703704
10/2/00 99.86996732 87.79527559 95.65217391 95.3125 79.62962963
10/3/00 99.19059871 89.37007874 97.10144928 93.22916667 78.93518519
10/4/00 99.73715319 90.7480315 95.65217391 96.875 79.62962963
10/5/00 99.87344413 91.14173228 97.10144928 95.3125 81.71296296
10/6/00 97.9758014 85.43307087 94.20289855 92.70833333 81.94444444
10/9/00 97.4918295 85.23622047 94.20289855 88.54166667 80.32407407
10/10/00 96.44809123 84.84251969 94.20289855 73.95833333 78.47222222
10/11/00 94.88839441 82.08661417 91.30434783 72.39583333 73.14814815
10/12/00 92.46783951 80.70866142 69.56521739 71.875 71.52777778
10/13/00 95.55455114 80.11811024 69.56521739 71.35416667 72.22222222
10/16/00 95.58584243 79.92125984 63.76811594 68.75 73.14814815
10/17/00 93.87177526 77.36220472 60.86956522 63.54166667 71.06481481
10/18/00 93.3266115 75.78740157 59.42028986 63.54166667 71.52777778
10/19/00 96.56908421 75.39370079 60.86956522 64.0625 74.53703704
10/20/00 97.13719491 72.44094488 63.76811594 62.5 74.53703704
10/23/00 97.05722829 71.25984252 63.76811594 58.85416667 72.4537037
10/24/00 97.22063834 71.65354331 60.86956522 59.89583333 72.4537037
10/25/00 94.90995063 72.04724409 57.97101449 58.85416667 71.99074074
10/26/00 94.87796398 71.65354331 62.31884058 59.375 75
10/27/00 95.93074195 72.44094488 57.97101449 61.45833333 74.76851852
10/30/00 97.25749252 73.81889764 55.07246377 61.45833333 78.47222222
10/31/00 99.39503512 74.21259843 56.52173913 59.89583333 80.78703704
11/1/00 98.82622905 74.01574803 57.97101449 59.89583333 79.86111111
11/2/00 99.31993603 74.80314961 60.86956522 60.9375 80.09259259
11/3/00 99.20659203 74.80314961 60.86956522 60.41666667 80.32407407
11/6/00 99.5890411 78.1496063 62.31884058 60.41666667 80.55555556
11/7/00 99.56678951 79.92125984 63.76811594 61.45833333 79.16666667
11/8/00 97.9959669 83.85826772 60.86956522 60.41666667 78.47222222
11/9/00 97.36040609 81.49606299 60.86956522 59.89583333 76.62037037
11/10/00 94.98504972 80.51181102 57.97101449 60.9375 75.92592593
11/13/00 93.96147695 82.87401575 57.97101449 58.85416667 77.5462963
11/14/00 96.16507892 83.26771654 52.17391304 63.02083333 79.16666667
11/15/00 96.64209721 82.48031496 50.72463768 61.45833333 78.7037037
11/16/00 95.42590919 81.1023622 49.27536232 61.45833333 80.09259259
11/17/00 95.1060427 84.4488189 44.92753623 59.375 81.25
11/20/00 93.36068424 84.84251969 50.72463768 55.72916667 82.87037037
11/21/00 93.68959043 86.41732283 47.82608696 53.64583333 82.63888889
11/22/00 91.95188095 85.43307087 50.72463768 51.5625 81.71296296
11/24/00 93.30157847 87.79527559 50.72463768 52.60416667 82.40740741
11/27/00 93.80223907 88.38582677 49.27536232 57.29166667 85.87962963
11/28/00 92.90661289 87.5984252 49.27536232 55.20833333 84.9537037
11/29/00 93.31131354 87.5984252 47.82608696 54.16666667 88.19444444
11/30/00 91.43661776 85.82677165 49.27536232 53.125 87.73148148
12/1/00 91.45608789 87.5984252 50.72463768 52.60416667 91.43518519
12/4/00 92.13337042 87.79527559 49.85507246 50 89.35185185
12/5/00 95.71935192 88.97637795 51.94202899 51.5 93.28703704
12/6/00 93.97538419 81.88976378 50.7826087 55.16666667 92.59259259
12/7/00 93.4253529 75.39370079 53.33333333 54 93.28703704
12/8/00 95.25693624 76.57480315 52.17391304 54.5 95.13888889
12/11/00 95.97385439 85.03937008 53.10144928 52.83333333 96.52777778
12/12/00 95.34663793 90.5511811 52.17391304 54.25 93.75
12/13/00 94.56852792 91.92913386 54.02898551 55 90.74074074
12/14/00 93.24316807 88.18897638 52.4057971 55.5 91.2037037
12/15/00 91.24191642 86.81102362 53.33333333 54.25 92.36111111
12/18/00 91.97830471 88.58267717 52.17391304 52 92.36111111
12/19/00 90.78645435 90.5511811 50.55072464 52.66666667 91.43518519
12/20/00 87.94520548 89.37007874 49.85507246 52.41666667 88.88888889
12/21/00 88.64891176 88.58267717 49.85507246 50 89.81481481
12/22/00 90.81218274 95.07874016 49.85507246 51.33333333 93.75
12/26/00 91.45330645 94.68503937 48.92753623 54.41666667 93.28703704
12/27/00 92.40803838 98.03149606 51.01449275 59.58333333 102.5462963
12/28/00 92.77658021 99.60629921 53.56521739 62.41666667 107.4074074
12/29/00 91.80724567 102.1653543 51.47826087 62.41666667 101.3888889
1/2/01 89.23371115 97.44094488 54.26086957 66.16666667 100.9259259
1/3/01 93.70419303 100.1968504 55.65217391 75 105.5555556
1/4/01 92.71538836 100.5905512 57.73913043 74.16666667 109.4907407
1/5/01 90.28231695 96.45669291 57.97101449 72.41666667 109.4907407
1/8/01 90.10917182 100.5905512 57.73913043 70.66666667 113.8888889
1/9/01 90.45268062 99.40944882 57.50724638 68.75 112.962963
1/10/01 91.31979695 100.3937008 57.97101449 68.83333333 111.1111111
1/11/01 92.26201238 100.984252 57.27536232 69.58333333 111.1111111
1/12/01 91.67095473 100.5905512 57.50724638 69.83333333 114.3518519
1/16/01 92.25019122 101.7716535 57.97101449 70.91666667 116.8981481
1/17/01 92.44628329 104.3307087 57.97101449 75.5 114.8148148
1/18/01 93.73270287 104.9212598 57.97101449 81.25 114.8148148
1/19/01 93.3558167 104.5275591 57.97101449 80.41666667 111.1111111
1/22/01 93.38015437 101.3779528 60.28985507 75.5 112.7314815
1/23/01 94.59703776 108.6614173 69.33333333 76.66666667 115.0462963
1/24/01 94.86822891 105.7086614 72.8115942 76.25 111.8055556
1/25/01 94.39607816 107.6771654 74.43478261 76.25 114.3518519
1/26/01 94.2180655 106.6929134 74.20289855 75.08333333 111.8055556
1/29/01 94.85918921 107.5275591 74.89855072 77.08333333 114.2592593
1/30/01 95.52395522 107.5590551 74.20289855 72.83333333 113.5925926
1/31/01 94.9871358 111.4330709 69.79710145 75.33333333 116.6666667
2/1/01 95.50587581 110.8031496 72.34782609 76.25 119.2592593
2/2/01 93.83700716 113.3858268 71.88405797 74.08333333 118.2962963
2/5/01 94.17356234 114.488189 64.92753623 73.41666667 118.1111111
2/6/01 94.03101314 115.5590551 64.46376812 74.83333333 118.4074074
2/7/01 93.24038662 117.2598425 66.08695652 73.08333333 116.5555556
ONE-YEAR RELATIVE STOCK PRICE GRAPH
[LINE GRAPH]
SPX SMI DRF WXS MHK
1/7/00
1/14/00 101.6 102.6 100 99.3 101.5
1/21/00 100 97.4 97.5 92.4 96.2
1/28/00 94.4 95.5 92.5 94.9 93.7
2/4/00 98.8 97.9 100 100.4 94.7
2/11/00 96.2 101.6 107.5 80.9 88.6
2/18/00 93.4 100.2 113.8 95.3 92.6
2/25/00 92.5 88.7 115 96 87.8
3/3/00 97.8 96.6 106.3 97.8 87.1
3/10/00 96.8 95.2 110 93.9 80.5
3/17/00 101.6 98.1 106.3 94.9 84.3
3/24/00 106 98.5 107.5 98.9 83.5
3/31/00 104 98.2 128.8 109.7 90.9
4/7/00 105.2 101.3 117.5 104.3 90.4
4/14/00 94.1 98.7 108.8 94.2 89.6
4/21/00 99.5 107.9 113.8 100.4 95.2
4/28/00 100.8 106.1 113.8 108.3 100.8
5/5/00 99.4 122.5 112.5 112.6 101.3
5/12/00 98.6 124.6 106.3 107.6 99.2
5/19/00 97.6 120.2 105 104 93.9
5/26/00 95.6 122.1 100 65.3 92.1
6/2/00 102.5 109.5 98.8 63.2 98
6/9/00 101.1 103.1 95 67.1 90.1
6/16/00 101.6 102.3 97.5 58.1 87.1
6/23/00 100 87.9 100 51.6 85
6/30/00 100.9 82.7 95 64.3 88.3
7/7/00 102.6 82.1 95 68.6 98.2
7/14/00 104.8 82.9 92.5 68.2 101.3
7/21/00 102.7 88 96.3 65.7 99.7
7/28/00 98.5 83.8 93.8 65.7 105.1
8/4/00 101.5 81.6 85 70.8 108.9
8/11/00 102.1 82.2 82.5 74 109.1
8/18/00 103.5 81.3 96.3 80.5 104.8
8/25/00 104.5 80.9 93.8 78.3 101.3
9/1/00 105.5 77.1 88.8 80.1 98.5
9/8/00 103.7 80.5 87.5 81.6 105.1
9/15/00 101.7 74.6 88.8 80.9 94.7
9/22/00 100.5 71.1 85 76.9 89.3
9/29/00 99.7 72.9 86.3 70.8 88.6
10/6/00 97.7 70.1 81.3 64.3 89.8
10/13/00 95.3 65.8 60 49.5 79.2
10/20/00 96.9 59.5 55 43.3 81.7
10/27/00 95.7 59.5 50 42.6 82
11/3/00 99 61.4 52.5 41.9 88.1
11/10/00 94.8 66.1 50 42.2 83.2
11/17/00 94.9 69.3 38.8 41.2 89.1
11/24/00 93.1 72.1 43.8 36.5 90.4
12/1/00 91.2 71.9 43.8 36.5 100.3
12/8/00 95 62.8 45 37.8 104.3
12/15/00 91 71.2 46 37.6 101.3
12/22/00 90.6 78 43 35.6 102.8
12/29/00 91.6 83.8 44.4 43.3 111.2
1/5/01 90.1 79.2 50 50.2 120.1
1/12/01 91.5 82.6 49.6 48.4 125.4
1/19/01 93.1 85.8 50 55.7 121.8
1/26/01 94 87.6 64 52 122.6
2/2/01 93.6 93.1 62 51.4 129.7
TWO-YEAR RELATIVE STOCK PRICE GRAPH
[LINE GRAPH]
SPX SMI WXS DRF MHK
1/1/99
1/8/99 103.7307908 96.68174962 89.5049505 85.63829787 93.61069837
1/15/99 101.1413649 99.39668175 85.34653465 92.55319149 89.7473997
1/22/99 99.67133897 96.53092006 86.93069307 92.55319149 88.55869242
1/29/99 104.1009412 100.7541478 84.25758416 84.04255319 91.53046062
2/5/99 100.8273472 92.60935143 84.85164356 79.78723404 87.07280832
2/12/99 100.0732166 88.53695324 86.73267327 79.25531915 84.69539376
2/19/99 100.8102633 84.76621418 78.21782178 67.55319149 83.50668648
2/26/99 100.7403008 80.2413273 80.79207921 55.85106383 77.26597325
3/5/99 103.7617045 78.28054299 81.58415842 58.5106383 75.0371471
3/12/99 105.3171498 76.6214178 77.22772277 63.29787234 72.51114413
3/19/99 105.6995029 76.77224736 88.71287129 61.70212766 67.31054978
3/26/99 104.3580127 70.13574661 91.68316832 61.17021277 61.8127786
4/2/99 105.2463737 66.36500754 91.18827723 69.68085106 67.75631501
4/9/99 109.6906193 70.58823529 98.41584158 68.08510638 72.95690936
4/16/99 107.3029457 73.45399698 109.7029703 72.87234043 74.14561664
4/23/99 110.3821091 87.93363499 110.0990099 78.19148936 74.59138187
4/30/99 108.6192169 90.19607843 108.5148515 82.9787234 76.67161961
5/7/99 109.418091 99.24585219 114.0594059 85.63829787 89.59881129
5/14/99 108.8323585 100.1508296 114.0594059 84.04255319 81.57503715
5/21/99 108.2214069 104.9773756 109.7029703 87.23404255 73.69985141
5/28/99 105.9069499 95.62594268 100.1980198 78.19148936 69.24219911
6/4/99 108.0147735 101.3574661 96.23762376 82.44680851 76.07726597
6/11/99 105.2398656 92.760181 95.34669307 82.44680851 73.69985141
6/18/99 109.2423712 92.15686275 91.48514851 79.78723404 75.48291233
6/25/99 107.0027578 97.13423831 91.08910891 63.82978723 72.36255572
7/2/99 113.1781684 103.3182504 93.06930693 67.0212766 71.91679049
7/9/99 114.1592704 101.6591252 93.46534653 61.70212766 69.83655275
7/16/99 115.4202224 99.84917044 102.970297 57.44680851 62.85289747
7/23/99 110.3894308 99.24585219 99.8019802 61.17021277 66.56760773
7/30/99 108.0936847 95.92760181 86.33663366 57.44680851 66.41901932
8/6/99 105.7808547 96.83257919 85.34653465 55.31914894 56.90936107
8/13/99 108.0090789 97.13423831 89.7029703 60.63829787 55.8692422
8/20/99 108.7355499 95.173454 84.55445545 63.82978723 56.61218425
8/27/99 109.6841112 92.760181 79.00990099 61.70212766 54.08618128
9/3/99 110.4138363 93.81598793 72.87128713 60.63829787 54.23476969
9/10/99 109.9598936 92.91101056 86.33663366 57.9787234 52.45170877
9/17/99 108.6387413 86.2745098 83.96039604 57.44680851 50.07429421
9/24/99 103.9154593 81.29713424 79.20792079 54.25531915 47.84546805
10/1/99 104.3588263 81.74962293 73.26732673 54.78723404 47.25111441
10/8/99 108.6875524 81.74962293 73.26732673 51.59574468 49.92570579
10/15/99 101.4789746 80.69381599 63.36633663 50 52.74888559
10/22/99 105.891493 93.06184012 61.78217822 48.93617021 53.64041605
10/29/99 110.8767277 96.07843137 60 45.21276596 54.53194651
11/5/99 111.4705954 102.413273 66.73267327 47.87234043 58.69242199
11/12/99 113.5719109 100.7541478 61.78217822 42.55319149 57.20653789
11/19/99 115.682175 98.19004525 59.6039604 42.55319149 55.27488856
11/26/99 115.2445027 96.22926094 69.30693069 43.61702128 61.66419019
12/3/99 116.6014497 95.62594268 63.16831683 42.55319149 61.8127786
12/10/99 115.2786704 92.91101056 59.00990099 42.0212766 60.62407132
12/17/99 115.6048909 91.40271493 50.0990099 40.95744681 61.06983655
12/24/99 118.6384973 94.57013575 52.27722772 42.0212766 59.28677563
12/31/99 119.5260448 96.3800905 55.44554455 43.61702128 62.70430906
1/7/00 117.2660934 93.36349925 54.85148515 42.55319149 58.54383358
1/14/00 119.1925026 95.77677225 54.45544554 42.55319149 59.43536404
1/21/00 117.2571447 90.95022624 50.69306931 41.4893617 56.31500743
1/28/00 110.6513834 89.14027149 52.07920792 39.36170213 54.82912333
2/4/00 115.8749786 91.40271493 55.04950495 42.55319149 55.42347697
2/11/00 112.8446263 94.87179487 44.35643564 45.74468085 51.85735513
2/18/00 109.5067644 93.51432881 52.27722772 48.40425532 54.23476969
2/25/00 108.4711567 82.80542986 52.67326733 48.93617021 51.4115899
3/3/00 114.6384322 90.19607843 53.66336634 45.21276596 50.96582467
3/10/00 113.4913726 88.83861237 51.48514851 46.80851064 47.102526
3/17/00 119.1371834 91.55354449 52.07920792 45.21276596 49.33135215
3/24/00 124.2615296 92.00603318 54.25742574 45.74468085 48.88558692
3/31/00 121.9120913 91.70437406 60.1980198 54.78723404 53.19465082
4/7/00 123.3577117 94.57013575 57.22772277 50 52.897474
4/14/00 110.3585171 92.15686275 51.68316832 46.27659574 52.45170877
4/21/00 116.7023258 100.7541478 55.04950495 48.40425532 55.72065379
4/28/00 118.1577085 99.09502262 59.40594059 48.40425532 58.98959881
5/5/00 116.546944 114.3288084 61.78217822 47.87234043 59.28677563
5/12/00 115.5975692 116.2895928 59.00990099 45.21276596 58.09806835
5/19/00 114.4578313 112.2171946 57.02970297 44.68085106 54.97771174
5/26/00 112.1043255 114.0271493 35.84158416 42.55319149 53.93759287
6/2/00 120.1776722 102.2624434 34.65346535 42.0212766 57.3551263
6/9/00 118.5254184 96.22926094 36.83168317 40.42553191 52.74888559
6/16/00 119.1363699 95.5412368 31.88118812 41.4893617 50.96582467
6/23/00 117.2669069 82.05128205 28.31683168 42.55319149 49.77711738
6/30/00 118.3342418 77.22473605 35.24752475 40.42553191 51.67167905
7/7/00 120.3110891 76.6214178 37.62376238 40.42553191 57.50371471
7/14/00 122.8395012 77.37556561 37.42574257 39.36170213 59.28677563
7/21/00 120.4160328 82.20211161 36.03960396 40.95744681 58.39524517
7/28/00 115.5105228 78.28054299 36.03960396 39.89361702 61.51560178
8/4/00 119.0119018 76.16892911 38.81188119 36.17021277 63.74442793
8/11/00 119.7367458 76.77224736 40.59405941 35.10638298 63.89301634
8/18/00 121.3540184 75.86726998 44.15841584 40.95744681 61.36701337
8/25/00 122.5523295 75.56561086 42.97029703 39.89361702 59.28677563
9/1/00 123.7172864 71.94570136 43.96039604 37.76595745 57.65230312
9/8/00 121.5801762 75.11312217 44.75247525 37.23404255 61.51560178
9/15/00 119.2461948 69.68325792 44.35643564 37.76595745 55.42347697
9/22/00 117.8558935 66.36500754 42.17821782 36.17021277 52.30312036
9/29/00 116.8625888 68.02413273 38.81188119 36.70212766 51.85735513
10/6/00 114.6237889 65.46003017 35.24752475 34.57446809 52.60029718
10/13/00 111.7911213 61.38763198 27.12871287 25.53191489 46.35958395
10/20/00 113.6426869 55.50527903 23.76237624 23.40425532 47.84546805
10/27/00 112.2312342 55.50527903 23.36633663 21.27659574 47.99405646
11/3/00 116.0637147 57.31523379 22.97029703 22.34042553 51.56017831
11/10/00 111.1248505 61.6892911 23.16831683 21.27659574 48.73699851
11/17/00 111.2664025 64.70588235 22.57425743 16.4893617 52.15453195
11/24/00 109.1553249 67.26998492 20 18.61702128 52.897474
12/1/00 106.9962497 67.11915535 20 18.61702128 58.69242199
12/8/00 111.4429358 58.67269985 20.72079208 19.14893617 61.06983655
12/15/00 106.7456863 66.5158371 20.62574257 19.57446809 59.28677563
12/22/00 106.2429326 72.85067873 19.51683168 18.29787234 60.17830609
12/29/00 107.407076 78.28054299 23.73069307 18.89361702 65.08172363
1/5/01 105.6230323 73.90648567 27.53267327 21.27659574 70.28231798
1/12/01 107.2476266 77.07390649 26.55049505 21.10638298 73.40267459
1/19/01 109.2187792 80.09049774 30.57425743 21.27659574 71.32243685
1/26/01 110.2275408 81.74962293 28.54653465 27.23404255 71.76820208
2/2/01 109.7817333 86.87782805 28.16633663 26.38297872 75.9346211
GREENWICH
CREDIT
RESEARCH [SPRINGS LOGO]
& TRADING
CONNECTICUT
15
SPRINGS INDUSTRIES INC.
Recent Trading Volume Analysis (through 02/09/01)
- - THERE HAS BEEN RELATIVELY LITTLE TRADING OF SPRINGS' STOCK ABOVE THE
$34 TO $35 DOLLAR RANGE IN THE LAST SIX MONTHS
THREE MONTH TRADING VOLUME PER STOCK PRICE RANGE
[BAR CHART]
<Caption>
Stock Price Range % of Trading Volume
----------------- -------------------
22-23 7%
24-25 12%
26-27 39%
28-29 12%
30-31 14%
32-33 8%
34-35 3%
36-37 3%
38-39 0%
40-41 0%
42-43 0%
44-45 0%
46-47 0%
SIX MONTH TRADING VOLUME PER STOCK PRICE RANGE
[BAR CHART]
<Caption>
Stock Price Range % of Trading Volume
----------------- -------------------
22-23 13%
24-25 11%
26-27 33%
28-29 14%
30-31 19%
32-33 6%
34-35 2%
36-37 2%
38-39 0%
40-41 0%
42-43 0%
44-45 0%
46-47 0%
PERIODIC TRADING VOLUME AT OR
ABOVE VARIOUS STOCK PRICES
-----------------------------------
$ 40 $ 42 $ 44
------- ------- -------
One Year 17.9% 13.5% 11.1%
Two Year 23.3% 13.5% 7.6%
ONE YEAR TRADING VOLUME PER STOCK PRICE RANGE
[BAR CHART]
<Caption>
Stock Price Range % of Trading Volume
----------------- -------------------
22-23 6%
24-25 5%
26-27 16%
28-29 7%
30-31 14%
32-33 12%
34-35 8%
36-37 10%
38-39 5%
40-41 4%
42-43 2%
44-45 9%
46-47 2%
TWO YEAR TRADING VOLUME PER STOCK PRICE RANGE
[BAR CHART]
<Caption>
Stock Price Range % of Trading Volume
----------------- -------------------
22-23 4%
24-25 2%
26-27 11%
28-29 7%
30-31 9%
32-33 11%
34-35 9%
36-37 8%
38-39 16%
40-41 10%
42-43 6%
44-45 1%
46-47 6%
48-49 1%
GREENWICH
CREDIT
RESEARCH [SPRINGS LOGO]
& TRADING
CONNECTICUT
16
SPRINGS INDUSTRIES INC.
Valuation Synopsis
Public Market
Trading Parameters Discounted Cash
Relative to (1): Flow Valuation
- ------------------------------------------- ------------------------------
Revenues EBIT P/E Base Case Downside Case
- ------------- ------------- ------------- ------------- -------------
$32.33-$44.50 $33.89-$41.62 $35.24-$39.00 $53.31-$71.72 $40.45-$55.00
0.4x - 0.5x 6.5x - 7.5x 9.0x - 10.0x
(1) Does not include premium for change of control
GREENWICH
CREDIT
RESEARCH [SPRINGS LOGO]
& TRADING
CONNECTICUT
17
SPRINGS INDUSTRIES INC.
EBITDA Multiples and Margins
EBITDA MULTIPLES AT VARIOUS STOCK PRICES
----------------------------------------------------------
$ 36 $ 38 $ 40 $ 42 $ 44 $ 46
---- ---- ---- ---- ---- ----
2000 EBITDA 3.9 4.0 4.2 4.3 4.5 4.6
2001E EBITDA 3.8 3.9 4.0 4.2 4.3 4.5
- - EBITDA MULTIPLES ARE THE MOST COMMONLY REFERENCED VALUATION PARAMETERS
ACROSS MANY INDUSTRIES. HOWEVER, THIS INDICATOR IGNORES THE RELATIVE
LEVEL OF CAPITAL SPENDING REQUIRED TO SUPPORT THE EBITDA GENERATION.
THE NEXT PAGE LOOKS AT EBIT MULTIPLES, WHICH INCLUDE DEPRECIATION AS
ONE PROXY OF RELATIVE CAPITAL SPENDING
QUARTERLY LTM EBITDA MULTIPLES
[BAR CHART]
SMI WXS
1Q98 6.44 10.08
2Q98 6.22 10.63
3Q98 5.14 9.86
4Q98 5.82 9.81
1Q99 4.25 8.84
2Q99 5.38 9.16
3Q99 4.37 7.99
4Q99 4.45 6.97
1Q00 4.51 7.07
2Q00 3.70 6.34
3Q00 3.29 6.50
4Q00 3.57 6.44
COMPARATIVE ENTERPRISE VALUE TO EBITDA
[BAR CHART]
1999A 2000E 2001P
Springs 4.2 3.9 3.7
Dan River 4.8 4.8 4.6
Mohawk 5.8 5.8 5.9
WestPoint Stevens 5.8 6.6 6.2
COMPARATIVE COMPOUND ANNUAL GROWTH RATES (1999-2001)
[BAR CHART]
Springs Dan River Mohawk WestPoint Stevens
Revenues 1.70% 4.20% 0.03% 1.80%
EBITDA 5.30% 1.80% -0.03% -3.50%
COMPARATIVE EBITDA MARGIN
[BAR CHART]
Springs Dan River Mohawk WestPoint Stevens
1999 10.60% 14.70% 1.3% 18.70%
2000E 11.10% 14.00% 12.3% 17.10%
2001P 11.40% 14.00% 11.2% 16.80%
GREENWICH
CREDIT
RESEARCH [SPRINGS LOGO]
& TRADING
CONNECTICUT
18
SPRINGS INDUSTRIES INC.
EBIT Multiples and Margins
EBIT MULTIPLES AT VARIOUS STOCK PRICES
- --------------------------------------------------------------------------------
$ 36 $ 38 $ 40 $ 42 $ 44 $ 46
----- ----- ----- ----- ----- -----
2000 EBIT 6.8 7.0 7.3 7.6 7.8 8.1
2001E EBIT 6.5 6.7 7.0 7.2 7.5 7.7
QUARTERLY LTM EBIT MULTIPLES
[BAR CHART]
SMI WXS
1Q98 10.79 13.69
2Q98 10.91 14.31
3Q98 9.81 13.15
4Q98 11.01 12.99
1Q99 7.93 11.74
2Q99 9.74 12.14
3Q99 7.80 10.48
4Q99 7.73 9.15
1Q00 7.64 9.21
2Q00 6.07 8.15
3Q00 5.44 8.42
4Q00 6.26 8.71
COMPARATIVE ENTERPRISE VALUE TO EBIT MULTIPLES
[BAR CHART]
<Table>
<Caption>
1999A 2000E 2001P
Springs Industries 7.4 6.8 6.5
Dan River 8.8 8.5 8.3
Mohawk 7.9 7.3 8.0
WestPoint Stevens 7.7 8.9 8.2
</Table>
COMPARATIVE COMPOUND ANNUAL GROWTH RATES (1999-2001)
[BAR CHART]
Revenues EBIT
Springs 1.70% 6.20%
Dan River 4.20% 3.30%
Mohawk 3.7% -3.5%
WestPoint Stevens 1.80% -3.50%
COMPARATIVE EBIT MARGIN
[BAR CHART]
1999A 2000A 2001P
Springs 6.00% 6.40% 6.60%
Dan River 8.10% 7.90% 7.90%
Mohawk 9.6% 9.7% 8.3%
WestPoint Stevens 14.20% 12.60% 12.80%
GREENWICH
CREDIT
RESEARCH [SPRINGS LOGO]
& TRADING
CONNECTICUT
19
SPRINGS INDUSTRIES INC.
Valuation Relative to Revenues and EPS
P/E RATIO AT VARIOUS STOCK PRICES
-------------------------------------------------------------
$ 36 $ 38 $ 40 $ 42 $ 44 $ 46
----- ----- ------ ------ ------ ------
2000 EPS 9.2 9.7 10.3 10.8 11.3 11.9
2001E EPS 9.2 9.8 10.3 10.8 11.4 11.9
COMPARATIVE EBIT MARGIN
[BAR CHART]
1999A 2000A 2001P
Springs 6.00% 6.40% 6.60%
Dan River 8.10% 7.90% 7.90%
Mohawk 9.6% 9.7% 8.3%
WestPoint Stevens 14.20% 12.60% 12.80%
EPS GROWTH AND NET INCOME MARGINS
[BAR CHART]
EPS CAGR 1999-2001 Ave. Net Margins 1999-2000
Springs Industries 0.30% 3.10%
Dan River -10.00% 1.90%
Mohawk 2.7% 4.9%
WestPoint Stevens -10.30% 4.30%
ENTERPRISE VALUE TO REVENUES
[BAR CHART]
1999 2000A 2001P
Springs 0.4 0.4 0.4
Dan River 0.7 0.6 0.6
Mohawk 0.7 0.7 0.6
WestPoint Stevens 1.1 1.1 1.0
PRICE TO EARNINGS RATIO
[BAR CHART]
1999 2000E 2001P
Springs 9.5 9.4 9.3
Dan River 4.1 5.6 5.7
Mohawk 10.8 10.2 11.1
WestPoint Stevens 4.2 5.8 5.9
GREENWICH
CREDIT
RESEARCH [SPRINGS LOGO]
& TRADING
CONNECTICUT
20
SPRINGS INDUSTRIES INC.
Section 4 -- Review of Alternatives
GREENWICH
CREDIT
RESEARCH [SPRINGS LOGO]
& TRADING
CONNECTICUT
-20-
21
SPRINGS INDUSTRIES INC.
Summary of Alternatives
STATUS QUO Implementation of the company's existing strategic plan absent a
leveraged buyout, material share repurchase, sale of the company or active
acquisition program. Both the family and the public shareholders would retain
their existing ownership of the company, which would remain public.
SHARE REPURCHASE Share repurchases of various sizes are open to the company to
effect from its own balance sheet without new investors. Unlike the
recapitalization alternative, the family would neither confront the governance
complexities nor enjoy the qualitative capabilities that a new investor would
bring. A repurchase program in the $75 million range could likely be effected
without any refinancing of the company's existing debt, saving the company the
associated fees and expenses of refinancing its entire existing bank facility.
Alternatively, a larger repurchase program, in the neighborhood of $150 million,
would require the company to refinance its lending agreements.
LEVERAGED RECAP The family takes the company private, either alone or with a new
investor, and operates it privately for a period of time (five years on average)
prior to an eventual exit through the public markets, through a sale to third
party or through some other exit transaction such as another leveraged recap.
Financial leverage would increase in either case (with the increase materially
greater in the go-it-alone scenario), though the company's low leverage
presently would allow it to incur a substantial amount of transaction-related
debt and still be underlevered relative to its major competitors. Qualitative
considerations dictate whether a go-it-alone strategy is more attractive than
bringing in a new equity investor. With a partner, governance complexity
increases, but so does the company's market profile and ability to attract and
retain key senior executives. The partner would participate actively with senior
management in the decision-making framework at the company, bringing its
experience and other management capabilities to bear in helping management
implement its business strategy.
SALE OF COMPANY The family could put the company up for auction, intending to
exit its investment. This method of exit is unlikely to be viable from an
economic perspective, however, as there are believed to be no U.S. or foreign
buyers willing or reasonably capable of acquiring the company for a total
enterprise value in the range currently being considered by Heartland. Moreover,
no financial buyers other than Heartland have expressed interest in acquiring
even a minority position in Springs at those values. Additionally, this
alternative would involve the family ceding total control over the company and
its operations as well as the potential upside in value to a third party.
GROWTH THROUGH ACQUISITION There exist a number of acquisition opportunities the
company could pursue in lieu of, or in addition to, the alternatives presented
above, and the company's low financial leverage make it perhaps the only
competitor in the home textiles industry that could implement a sizable
acquisition strategy. In terms of acquisition targets, Pillowtex is an obvious
candidate whose business complements that of Springs well, but its recent
bankruptcy filing and pending reorganization are expected to make any sizeable
transaction unlikely in the near-term. Even then a transaction could be
complicated and risky given the volatility and weakness in Pillowtex's
operations. WestPoint Stevens is also unlikely for antitrust reasons. More
likely is a roll-up strategy in which the company acquires smaller, niche
players (of which there are many in the industry) to enhance its product
offerings or acquire relationships and experience, such as in foreign sourcing.
GREENWICH
CREDIT
RESEARCH [SPRINGS LOGO]
& TRADING
CONNECTICUT
-21-
22
SPRINGS INDUSTRIES INC.
COMPARATIVE SHARE OWNERSHIP
$46 RECAP
Family Shares 6.24MM
Heartland Shares 5.44MM
Shares Repurchased 6.60MM
Family Ownership 53.4%
Heartland Ownership 46.6%
Family Value $311.9MM
Heartland Value $250.0MM
- - NUMBERS IN WHITE DENOTE THE PERCENTAGE OF OUTSTANDING SHARES OWNED BY THE
FAMILY AS OF THE CLOSING
SHARES OUTSTANDING UNDER VARIOUS ALTERNATIVES
[BAR GRAPH]
Rolled Publicly Purchased Repurchased % Owned by Family
Over by Family Held by Heartland from Public As of Closing
Status Quo (1) 7.3 10.6
$75MM Repurchase at $38 (1) 7.3 8.6 2 40.9%
$150MM Repurchase at $40 (1) 7.3 6.8 3.8 45.9%
Heartland Recap at $46 6.2 5.4 6.6 51.7%
Family LBO at $46 7.3 0 10.9 53.4%
100%
GREENWICH
CREDIT
RESEARCH [SPRINGS LOGO]
& TRADING
CONNECTICUT
-22-
23
SPRINGS INDUSTRIES INC.
COMPARATIVE LEVERAGE
- - THE LEVEL OF DEBT TO EBITDA (CASH FLOW) IS THE MOST COMMONLY USED INDICATOR
OF FINANCIAL LEVERAGE. INVESTMENT GRADE CREDITS (BBB) WOULD GENERALLY BE
LOW -- APPROXIMATELY 2.75X DEBT TO TRAILING EBITDA
- - CURRENT LENDING CONDITIONS MAY PRECLUDE A FAMILY-LED LBO AT DEBT LEVELS AT
OR ABOVE 3.0X EBITDA
- - GENERALLY, HIGHER LEVERAGE LEVELS ARE AVAILABLE WHEN A WELL-KNOWN FINANCIAL
INVESTOR ACTS AS A "SPONSOR" OF A TRANSACTION
- - EVEN THOUGH THE LEVERAGE LEVELS CONTEMPLATED ARE SIGNIFICANTLY BELOW THOSE
OF ITS THREE PRIMARY COMPETITORS, CUSTOMERS MAY REACT NEGATIVELY TO A
HIGHLY-LEVERAGED PLATFORM FOR SPRINGS
DEBT TO 2000 EBITDA -- PRO FORMA AS OF 12/31/00
[BAR GRAPH]
Family
Dan River 4
WestPoint Stevens 5.3
Status Quo 1.3
$75MM Repurchase at $38 1.6
$150MM Repurchase at $40 2
HIP Recap at $46 2.7
HIP Recap at $46 (w/ Growth) (1) 2.7
Family LBO at $46 3.4
DEBT TO EBITDA
(Heartland Recap at $46)
[BAR GRAPH]
Base Downside
Case Case
2000PF 2.7 2.7
2001P 2.3 2.4
2002P 1.8 2.1
2003P 1.3 1.7
2004P 1 1.5
2005P 0.6 1.1
(1) Assumes HIP acquisition strategy is pursued
GREENWICH
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RESEARCH [SPRINGS LOGO]
& TRADING
CONNECTICUT
-23-
24
SPRINGS INDUSTRIES INC.
COMPARATIVE EXPENSES
- - Heartland fees are at the high end of the range for investment firms
- A 1% transaction fee is common, but normally this is for an investment
for approximately 80% of the equity versus half that amount
- A $4 million management fee is high; normal fee would be $1-2 million
- - To offset these amounts, an annual fee of $3.0 million was negotiated for
the benefit of the family.
ONE-TIME TRANSACTION EXPENSES
$150MM SHARE $75MM SHARE
Heartland Family Repurchase Repurchase Status
Recap at $46 LBO at $46 at $40 at $38 Quo
--------------- --------------- --------------- --------------- ---------------
Heartland (1%) $ 11.7 $ -- $ -- $ -- $ --
Chase / Banks (2.5%) 16.9 22.3 12.4 -- --
CRT (0.5%) 5.9 5.9 0.8 0.4 --
Special Committee Banker 2.0 2.0 -- -- --
Legal 5.0 5.0 0.5 0.3 --
--------------- --------------- --------------- --------------- ---------------
TOTAL $ 41.5 $ 35.2 $ 13.6 $ 0.6 $ --
=============== =============== =============== =============== ===============
ANNUAL MONITORING FEES (Heartland Recap Only)
Heartland $ 4.0
Family $ 3.0
---------------
Total $ 7.0
===============
GREENWICH
CREDIT
RESEARCH [SPRINGS LOGO]
& TRADING
CONNECTICUT
-24-
25
SPRINGS INDUSTRIES INC.
Comparative Returns
- - THE HIGH POINT OF THE RANGE IN EACH COLUMN TO THE RIGHT REPRESENTS AN
ASSUMED EXIT MULTIPLE OF 5.0X EBITDA; THE LOWER END OF THE RANGE REPRESENTS
AN ASSUMED EBITDA MULTIPLE OF 4.0X
- - THE PERIOD UNTIL EXIT IS ASSUMED TO BE FIVE YEARS
- - THE TOP TWO RETURN CHARTS SHOW RELATIVE RETURN LEVELS WHICH ARE GENERALLY
EMPLOYED IN DECIDING TO INVEST OR NOT INVEST IN A SITUATION. IN THE CASE OF
THE CLOSE FAMILY, THE RETURN LEVELS WOULD INFLUENCE THE DECISION TO KEEP
MONEY IN THE COMPANY OR TO TAKE MONEY OUT AT THE PRICE INDICATED.
- - THE TWO CHARTS AT THE BOTTOM SHOW THE COMPARATIVE RETURNS ASSUMING THE
INVESTOR CHOOSES TO KEEP MONEY IN THE COMPANY AND IS EVALUATING ALTERNATIVE
STRATEGIES TO ENHANCE SHAREHOLDER VALUE
BASE CASE RETURNS
(Five-Year)
[BAR GRAPH]
Status Quo 23% - 28%
$75MM Repurchase at $38 23% - 28%
$150MM Repurchase at $40 23% - 28%
HIP Recap at $46 21% - 28%
HIP Recap at $46 (w/ Growth) (1) 29% - 36%
Family LBO at $46 26% - 36%
DEBT TO EBITDA MULTIPLE
Status Quo 1.3x
$75MM Repurchase at $38 1.6x
$150MM Repurchase at $40 2.0x
HIP Recap at $46 2.7x
HIP Recap at $46 (w/ Growth) (1) 2.7x
Family LBO at $46 3.4x
BASE CASE RETURNS
(Five-Year -- Assuming $36 Starting Investment Value)
[BAR GRAPH]
Status Quo 23% - 28%
$75MM Repurchase at $38 25% - 30%
$150MM Repurchase at $40 26% - 31%
HIP Recap at $46 27% - 33%
HIP Recap at $46 (w/ Growth) (1) 35% - 43%
Family LBO at $46 32% - 40%
DOWNSIDE CASE RETURNS
(Five-Year)
[BAR GRAPH]
Status Quo 17% - 22%
$75MM Repurchase at $38 16% - 21%
$150MM Repurchase at $40 16% - 21%
HIP Recap at $46 12% - 18%
HIP Recap at $46 (w/ Growth) (1) 21% - 29%
Family LBO at $46 15% - 8%
DEBT TO EBITDA MULTIPLE
Status Quo 1.3x
$75MM Repurchase at $38 1.6x
$150MM Repurchase at $40 2.0x
HIP Recap at $46 2.7x
HIP Recap at $46 (w/ Growth) (1) 2.7x
Family LBO at $46 3.4x
DOWNSIDE CASE RETURNS
(Five-Year -- Assuming $36 Starting Investment Value)
[BAR GRAPH]
Status Quo 17% - 22%
$75MM Repurchase at $38 18% - 23%
$150MM Repurchase at $40 18% - 23%
HP Recap at $46 18% - 25%
HP Recap at $46 (w/ Growth) (1) 28% - 36%
Family LBO at $46 20% - 29%
(1) Assumes HIP acquisition strategy is pursued
GREENWICH
CREDIT
RESEARCH [SPRINGS LOGO]
& TRADING
CONNECTICUT
-25-
26
SPRINGS INDUSTRIES INC.
Net Present Value Per Share
APPROXIMATE MARKET RATES OF RETURN RELATIVE TO FINANCIAL LEVERAGE
[BAR GRAPH]
Debt to EBITDA Expected IRR
1 12% - 15%
1.5 14% - 16%
2 16% - 18%
2.5 19% - 21%
3 24% - 26%
3.5 29% - 31%
NET PRESENT VALUE PER SHARE AT 4.5X EBITDA
----------------------------------------------------------------------------
NPV PER SHARE
(adjusted for
relative
NPV AT 15% RETURN @ RETURN financial risk)
--------------------- PARAMETER ---------------------
ALTERNATIVE LEVERAGE BASE DOWNSIDE REQUIRED BASE DOWNSIDE
- ----------- -------- ---- -------- -------- ---- --------
Status Quo 1.31x $54.61 $42.38 13.0% $59.44 $46.08
$75MM Repurchase at $38 1.61x $58.34 $44.56 15.0% $58.34 $44.56
$150MM Repurchase at $40 1.95x $61.82 $46.32 17.0% $56.87 $42.65
Recap at $46 2.67x $65.99 $47.17 21.0% $51.73 $37.13
Recap at $46 (w/ Growth) 2.67x $90.41 $69.27 25.0% $60.40 $41.46
Family LBO at $46 3.43x $84.82 $54.82 30.0% $45.95 $29.70
NPV PER SHARE AT 4.5X EBITDA -- CAPITAL ASSET PRICING MODEL DISCOUNT RATES
----------------------------------------------------------------------------
Status Quo 10.4% $66.69 $51.67
$75MM Repurchase at $38 10.8% $69.91 $53.30
$150MM Repurchase at $40 13.2% $66.75 $49.97
Recap at $46 14.4% $67.55 $48.26
Recap at $46 (w/ Growth) 14.4% $92.56 $70.90
Family LBO at $46 18.7% $72.39 $46.79
GREENWICH
CREDIT
RESEARCH [SPRINGS LOGO]
& TRADING
CONNECTICUT
-26-
27
SPRINGS INDUSTRIES INC.
Impact of Alternative Strategies on Acquisition Borrowing Capacity
- - HEARTLAND HAS TENTATIVELY AGREED TO INVEST APPROXIMATELY $50 MILLION IN
ADDITIONAL EQUITY TO SUPPORT ACQUISITIONS
- - THE BORROWING CAPACITY WITH THE SPONSORSHIP OF A RECOGNIZED FINANCIAL
INVESTOR MAY BE GREATER THAN FOR THE COMPANY ON ITS OWN
ACQUISITION BORROWING CAPACITY AT DECEMBER 2000 (1)
[BAR GRAPH]
Incremental
Base Borrowing Additional Borrowing
Capacity HIP Equity at 3.5x EBITDA
Status Quo 856.9
$75MM Repurchase at $38 706.9
$150MM Repurchase at $40 532.1
HIP Recap at $46 210.4 50 338
ACQUISITION BORROWING CAPACITY AT DECEMBER 2002 (1)
[BAR GRAPH]
Marginal
Base Borrowing Additional Borrowing
Capacity HIP Equity to 3.5x EBITDA
Status Quo 1,420.40
$75MM Repurchase at $38 1,263.00
$150MM Repurchase at $40 1,079.50
HIP Recap at $46 498.3 50 499.2
TOTAL DEBT
(Recap at $46 With and Without Growth)
[BAR GRAPH]
Heartland
Heartland Recap
Recap at $46 w/
at $46 Growth
2000PF 678.2 678.2
2001P 594.6 646
2002P 551.3 751.9
2003P 459.1 792.1
2004P 355.8 858.7
2005P 215.3 645.4
DEBT TO EBITDA
(Recap at $46 With and Without Growth)
[BAR GRAPH]
Heartland
Heartland Recap
Recap at $46 w/
at $46 Growth
2000PF 2.67 2.67
2001P 2.26 2.39
2002P 1.84 2.05
2003P 1.31 1.62
2004P 0.96 1.49
2005P 0.55 1.03
(1) The amount of debt that could be incurred in connection with acquisitions
while leaving the pro forma ratio of debt to EBITDA at or below 3.0x. The
red portion in the Heartland case shows the additional borrowing capacity
that might be obtained by extending the borrowing level to 3.5x EBITDA,
while the yellow portion represents $50 million of additional equity from
Heartland.
GREENWICH
CREDIT
RESEARCH [SPRINGS LOGO]
& TRADING
CONNECTICUT
-30-
28
SPRINGS INDUSTRIES INC.
EFFORTS TO ATTRACT ALTERNATE PRIVATE EQUITY INVESTORS HAVE BEEN UNSUCCESSFUL
- - Each of these private equity firms was approached regarding the opportunity
to invest in Springs on terms similar to Heartland's, but each declined for
the reasons mentioned
- - * reviewed the opportunity with CRT, but declined the opportunity to meet
with management
- - * was conflicted in looking at Springs as it was still actively considering
an investment in WestPoint Stevens
- - * was the only firm that expressed interest in Springs, but it did so at
price levels significantly below that offered by Heartland
- - * Investment Committee Memorandum, summarizing its opinion of the Springs
opportunity, is attached as Appendix C
- - * declined to consider investing in Springs unless it could acquire at
least 80% of the equity
*
- - M&A advisory and private equity firm founded in 19* and led by *
- - * million private equity fund
- - Close advisory relationships with *
- - Conducted intensive due diligence over short time frame in January. *
continues to express interest in the company and the sector, but believes
that the appropriate value is in the * range (see * Investment
Committee memorandum attached as Appendix C). Further, in order to achieve
mid-30% returns, * would propose levering the company to the 3.0x EBITDA
level
* PARTNERS
- - Presently has * billion in capital under management, including $2.5 billion
in * IV.L.P., has made * investments totalling approximately * billion
since 1988
- - * has invested in such companies as *
- - After meetings with management and R. Lee, declined to invest based on an
unfavorable view of the home textiles industry
*
- - Founded in 19* has * billion in committed capital from *
- - Previously investments include *
- - After meetings with management and Credit Research & Trading, declined to
invest based on the breadth of initiatives required to deliver the
projected performance
*
- - Invested more than * billion in * companies since 1980; presently investing
* IV.L.P., a * billion private equity fund
- - Previously investments include such companies as *
- - After meetings with management and Credit Research & Trading, declined to
invest based on an unfavorable view of the home textiles industry
GREENWICH
CREDIT
RESEARCH [SPRINGS LOGO]
& TRADING
CONNECTICUT
* Omitted and filed separately with the Commission.
-31-
29
SPRINGS INDUSTRIES INC.
NO STRATEGIC BUYERS ARE POSITIONED TO EFFECT A MAJOR ACQUISITION IN THE HOME
TEXTILES INDUSTRY
- - None of Springs' U.S. competitors have both the size and financial
flexibility necessary to acquire Springs
- - WestPoint Stevens and Pillowtex are of sufficient revenue scale to
contemplate such a transaction with Springs, but each lacks the financial
strength required to do so
- - All other home textiles competitors are essentially niche players
- - There are believed to be no foreign or non-industry acquirors looking to
enter the U.S. home textiles industry
- - Management of Newell, the largest company focused on supplying big box
retailers, has categorically stated they are not interested in the home
textiles sector
- - Mohawk has been rumored to be interested in expanding into this sector, but
has yet to surface in any acquisition situation in the sector other than
rugs. Mohawk is primarily focused on a well-publicized, strategic move into
hard flooring
1999 Sales of U.S. Home Textiles Companies
($ Millions)
[BAR CHART]
Sales
-----
Springs $2,220
WestPoint $1,868
Pillowtex $1,552
Mohawk $ 470
Dan River $ 432
Crown Craft $ 310
Burlington $ 300
Croscill $ 283
PCF $ 230
Glenoit $ 222
Hollander $ 201
Maples $ 160
Louisville $ 156
Revman $ 141
Sunbeam $ 136
Keeco $ 132
Equity P/E Debt/
Revenues Value Ratio EBITDA
-------- ----- ----- ------
WestPoint Stevens $1,815.9 $ 433.8 5.9x 5.3x
Mohawk 3,255.8 1,595.6 11.1x 1.5x
Newell 6,413.3 7,501.2 12.6x 1.9x
Springs 2,275.1 650.5 9.3x 1.3x
GREENWICH
CREDIT
RESEARCH [SPRINGS LOGO]
& TRADING
CONNECTICUT
-32-
30
SPRINGS INDUSTRIES INC.
EXIT STRATEGIES
- - One advantage of being private is the ability to execute acquisitions which
tend to be dilutive to earnings in the first year or two. The strategy for
consolidation "plays" is to build a base while private and slow the
acquisition pace just before going to the market to realize value
EXIT MECHANISMS
- - IPO
This is the primary exit alternative for Heartland; Heartland's primary
thesis is that it can obtain multiple expansion by building scale in a
platform company through the combination of acquisitions and internal
growth. That said, the market for consumer-based IPOs has been weak for
several years, being crowded out by higher-growth or much larger
capitalization situations.
- - SALE
There does not appear to be any logical industry candidates at this time.
This may change over the course of five years, but should not be counted on.
(Sale to another financial buyer falls into the category of leveraged
recapitalization)
- - LEVERAGED RECAPITALIZATION
This is a very logical and often-used mechanism to extract value --
borrowing against a strong company and using the proceeds to repurchase
shares. This can be done without changing the ownership level. Sometimes
this strategy can be pursued with a new equity source, particularly when the
amount of funds desired is large relative to the capital structure or when
one party seeks to exit.
EXIT TIMING
- - FIRST THREE YEARS
Both parties have agreed tentatively not to pursue exit alternatives for the
first three years
- - IPO
Can be pursued at the instigation of either party after three years
- - RECAPITALIZATION OR SALE
Can be pursued at the instigation of either party after the fifth year if
the company has not sold at least 20% of the stock into the public market
GREENWICH
CREDIT
RESEARCH [SPRINGS LOGO]
& TRADING
CONNECTICUT
-33-
31
SPRINGS INDUSTRIES INC.
SECTION 5 -- ISSUES
RELATED TO HEARTLAND
- - David Stockman's level of involvement
D. Stockman appears very competent, very enthusiastic and has worn well on the
management team to date, even through an extensive due diligence process.
David's personal involvement is a core attraction of Heartland as a partner.
Possibly his involvement could wane as he spreads himself across more
investments.
- - Heartland will push C. Bowles to aggressively improve the quality of
management. L. Close is generally in agreement and the assumption is that
involvement by an outside investor should enhance the prospects of attracting
stronger candidates.
- - There exists some concern about the balance between D. Stockman's ardor for
growth through acquisitions and the reasonable pace for digestion by the
company. On its own, Springs would need to materially expand the scope of its
management team to pursue acquisitions. Heartland immediately bridges part of
this gap through its own expertise. Springs' current acquisition capacity is
approximately one every two years. However, Heartland may be interested in one
to two transactions per year. Even though Heartland has the capacity, Springs
may be strained to integrate acquisitions at that rate.
- - D. Stockman has a reputation of relying very heavily on the information
presented (often generated at his direction) and can thus drive toward poor
decisions if the information is not correct or not pertinent. Effective
utilization of D. Stockman's strengths requires strong input from management
to make sure the critical information is at hand and requires strong input
from the Close family board members to push back against D. Stockman's
approach in selected situations. He has demonstrated the capacity to modify
his approach very efficiently when presented with better information.
RELATED TO PRICING AND STRUCTURE
- - The risk return trade off leads investor to desire less equity in order to
obtain better returns. The contra to this is enough equity to support
acquisitions. Heartland has offered to invest to the same level as the Close
family. We have asked them to invest less in order to improve returns. The
expectation is that leverage of 2.5x EBITDA going in at the start should be
sufficient to support a reasonable acquisition program (1-2 deals per year in
the $100-$200 million range). A Pillowtex transaction would be beyond the
initial resources and require additional equity. Heartland has requested an
option to invest additional equity if the Company (Close family agreement
needed here) needs it. We have recently turned this around to request a "call"
on that equity and expect Heartland to agree.
- - The high price required to take the company private versus buying a block of
shares at a lower price, together with the low level of leverage, dampens
returns to both sides. This puts a burden on the partnership to assume that
Heartland brings qualitative factors which would enhance the returns versus a
stand alone approach. This might come from the following:
-- Hands-on active involvement by the Heartland Board members vs. hands-off
involvement by Springs' current Board members may lead to more dynamic
change and accountability throughout the organization
-- Significant expansion of management information system and tools
-- Assistance in pursuing and executing acquisition-based growth strategy
-- Value accretion that comes from successful execution of a growth strategy
-- Expertise and assistance in the value realization process
GREENWICH
CREDIT
RESEARCH [SPRINGS LOGO]
& TRADING
CONNECTICUT
32
SPRINGS INDUSTRIES INC.
SUMMARY ASSESSMENT OF TRANSACTION WITH HEARTLAND
BENEFITS
- - Partnership with Heartland would represent a major change in the management
and direction of Springs
-- Heartland will bring an intense set of resources and expectations to the
table, directed to help the company achieve a clear leadership position
in its industry
- - Heartland brings the experience and resources to help the company take
advantage of the potential to lead a consolidation of the home textiles
sector
- - Taking the company private will allow the company to pursue strategic
directions which would be difficult as a public company
- - Taking the company private, together with successful execution of a growth
strategy, will allow the family and Heartland to take advantage of any
improvement in valuation parameters (multiple expansion)
-- We have modeled exit values at 4.0x to 5.0x EBITDA. Heartland expects
exit multiples to be in the 5.5x to 6.5x range
- - Heartland's involvement should enhance the company's ability to:
-- Attract senior-level management
-- Access capital more aggressively
ISSUES
- - Any financial investor will push management to achieve the company's
potential. This may place considerably more pressure on the entire senior
management team, including C. Bowles.
- - The premium required to take the company private versus a share buyback,
together with a conservative capital structure, affects the returns. In
order to achieve materially better returns, either the capital structure
needs to be levered up or the company needs to realize a qualitative benefit
from partnering with Heartland -- either through effecting a growth strategy
or through assisting management in effecting an improvement in the company's
competitive position and economics.
GREENWICH
CREDIT
RESEARCH [SPRINGS LOGO]
& TRADING
CONNECTICUT
33
SPRINGS INDUSTRIES INC.
APPENDIX A -- COMPARABLE PUBLIC COMPANY ANALYSIS
GREENWICH
CREDIT
RESEARCH [SPRINGS LOGO]
& TRADING
CONNECTICUT
34
COMPARABLE PUBLIC COMPANY ANALYSIS
Textile and Apparel Companies
(figures in millions, except per share numbers and where noted)
SPRINGS INDUSTRIES WESTPOINT STEVENS DAN RIVER MOHAWK INDUSTRIES
------------------ ----------------- --------- -----------------
Ticker Symbol SMI WXS DRF MHK
LTM Period Ended: 12/31/00 12/31/00 09/30/00 12/31/00
Stock Price as of 2/9/01 $36.28 $8.75 $2.93 $29.41
Primary Shares Outstanding 17.931 49.577 21.766 54.255
MARKET CAPITALIZATION $650.5 $433.8 $63.8 $1,595.6
In the Money Options Outstanding 0.763 0.000 0.000 1.752
Weighted Average Exercise Price $32.40 $0.00 $0.00 $16.62
Option Shares (Treasury Method) 0.1 0.0 0.0 0.8
Other Common Share Equivalents 0.0 0.0 0.0 0.0
FD Shares Outstanding (1) 18.0 49.6 21.8 55.0
EQUITY VALUE $653.5 $433.8 $63.8 $1,618.0
- -----------------------------------------------------------------------------------------------------------------------------
(-) Cash & equivalents $2.9 $0.2 $3.2 $0.0
(-) Equity in Unconsolid. Affil. 0.0 0.0 0.0 0.0
(+) Total Debt (2) 333.2 1,627.8 389.5 589.8
(+) Preferred Stock (3) 0.0 0.0 0.0 0.0
(+) Minority Interest 0.0 0.0 0.0 0.0
AGGREGATE VALUE (4) $983.8 $2,061.5 $450.1 $2,207.9
- -----------------------------------------------------------------------------------------------------------------------------
AGGREGATE VALUATIONS:
--------------------
Revenues: 1999A 0.44x 1999A 1.09x 1999A 0.72x 1999A 0.72x
LTM 0.43 LTM 1.14 LTM 0.70 LTM 0.68
2000A 0.43 2000A 1.14 2000A 0.68 2000A 0.68
2001P 0.43 2001P 1.06 2001P 0.66 2001P 0.67
- ----------------------------------------------------------------------------------------------------------------------------------
EBITDA: 1999A 4.18x 1999A 5.85x 1999A 4.86x 1999A 5.52x
LTM 3.88 LTM 6.64 LTM 4.62 LTM 5.53
2000A 3.88 2000A 6.64 2000A 4.84 2000A 5.53
2001P 3.77 2001P 6.29 2001P 4.69 2001P 5.97
- ----------------------------------------------------------------------------------------------------------------------------------
EBIT: 1999A 7.34x 1999A 7.69x 1999A 8.86x 1999A 7.49x
LTM 6.81 LTM 8.98 LTM 7.92 LTM 6.96
2000A 6.81 2000A 8.98 2000A 8.56 2000A 6.96
2001P 6.51 2001P 8.25 2001P 8.31 2001P 8.04
EQUITY VALUATION:
----------------
Net Income (EPS): 1999A 9.39x 1999A 4.17x 1999A 4.34x 1999A 10.29x
LTM 9.28 LTM 6.50 LTM 4.25 LTM 9.69
2000A 9.28 2000A 6.50 2000A 5.92 2000A 9.69
2001P 9.32 2001P 5.92 2001P 5.75 2001P 11.11
- ----------------------------------------------------------------------------------------------------------------------------------
Book Equity: MRQ 0.80x MRQ -0.61x MRQ 0.23x MRQ 2.14x
- ----------------------------------------------------------------------------------------------------------------------------------
(1) FD shares outstanding includes in-the-money options and convertibles
calculated based on weighted average exercise price
(2) Includes ST and LT debt, out-of-the-money convertibles, capitalized leases
(3) Includes out-of-the-money convertibles
(4) Aggregate value includes equity value plus LT debt, ST debt, capitalized
leases, preferred stock, out-of-the-money convertibles, and minority
interest, less equity investments in unconsolidated affiliates and cash &
equivalents
================================================================================
CREDIT RESEARCH & TRADING LLC
35
COMPARABLE PUBLIC COMPANY ANALYSIS
Textile and Apparel Companies
(figures in millions, except per share numbers and where noted)
- --------------------------------------------------------------------------------
SPRINGS INDUSTRIES WESTPOINT STEVENS
-------------------------------------------------- --------------------------------------------------
Margins: 3yr CAGR: Margins: 3yr CAGR:
-------- --------- -------- ---------
REVENUES: 1998A $2,180.5 1998A $1,779.0
1999A 2,220.4 1999A 1,883.3
LTM 2,275.1 LTM 1,815.9
2000A 2,275.1 2000A 1,815.9
2001P 2,298.0 1.8% 2001P 1,953.2 3.2%
- --------------------------------------------------------------------------------------------------------------------------------
EBITDA: 1998A $ 191.5 8.8% 1998A $ 328.9 18.5%
1999A 235.3 10.6% 1999A 352.2 18.7%
LTM 253.5 11.1% LTM 310.3 17.1%
2000A 253.5 11.1% 2000A 310.3 17.1%
2001P 261.1 11.4% 10.9% 2001P 327.9 16.8% -0.1%
- --------------------------------------------------------------------------------------------------------------------------------
EBIT: 1998A $ 104.5 4.8% 1998A $ 248.3 14.0%
1999A 134.0 6.0% 1999A 268.1 14.2%
LTM 144.5 6.4% LTM 229.5 12.6%
2000A 144.5 6.4% 2000A 229.5 12.6%
2001P 151.1 6.6% 13.1% 2001P 249.9 12.8% 0.2%
- --------------------------------------------------------------------------------------------------------------------------------
CAPEX: 1998A $ 115.0 5.3% 1998A $ 147.5 8.3%
1999A 166.8 7.5% 1999A 148.6 7.9%
LTM 93.0 4.1% LTM 76.7 4.2%
2000A 93.0 4.1% 2000A 76.7 4.2%
2001P 110.0 4.8% -1.5% 2001P 70.0 3.6% -22.0%
- --------------------------------------------------------------------------------------------------------------------------------
NET INCOME: 1998A $ 54.1 2.5% 1998A $ 90.6 5.1%
1999A 69.6 3.1% 1999A 104.1 5.5%
LTM 70.4 3.1% LTM 66.7 3.7%
2000A 70.4 3.1% 2000A 66.7 3.7%
2001P 70.1 3.1% 9.0% 2001P 73.3 3.8% -6.8%
- --------------------------------------------------------------------------------------------------------------------------------
EPS: 1998A $ 2.86 1998A $ 1.51
1999A 3.83 1999A 1.84
LTM 3.88 LTM 1.34
2000A 3.88 2000A 1.34
2001P 3.85 10.4% 2001P 1.48 -0.7%
- --------------------------------------------------------------------------------------------------------------------------------
BOOK EQUITY: MRQ $ 819.8 MRQ ($712.8)
- --------------------------------------------------------------------------------------------------------------------------------
DEBT/LTM EBITDA: 1.31 x 5.25 x
DEBT/BOOK EQUITY 0.41 x -2.28 x
- --------------------------------------------------------------------------------------------------------------------------------
FY ENDS: December December
LTM ENDED: 12/31/00 12/31/00
EPS/PROJECTIONS AS OF: 02/01/01 (First Union) 02/09/01 (First Union)
DAN RIVER MOHAWK INDUSTRIES
---------------------------------------------------- ------------------------------------------------
Margins: 3yr CAGR: Margins: 3yr CAGR:
-------- --------- -------- ---------
REVENUES: 1998A $517.4 1998A $2,744.6
1999A 628.9 1999A 3,083.3
LTM 647.1 LTM 3,255.8
2000A 663.0 2000A 3,255.8
2001P 682.9 9.7% 2001P 3,315.0 6.5%
- ---------------------------------------------------------------------------- ------------------------------------------------
EBITDA: 1998A $ 77.3 14.9% 1998A $ 321.7 11.7%
1999A 92.6 14.7% 1999A 400.1 13.0%
LTM 97.3 15.0% LTM 399.5 12.3%
2000A 93.1 14.0% 2000A 399.5 12.3%
2001P 95.9 14.0% 7.4% 2001P 369.7 11.2% 4.7%
- ---------------------------------------------------------------------------- ------------------------------------------------
EBIT: 1998A $ 46.5 9.0% 1998A $ 249.1 9.1%
1999A 50.8 8.1% 1999A 294.8 9.6%
LTM 56.8 8.8% LTM 317.1 9.7%
2000A 52.6 7.9% 2000A 317.1 9.7%
2001P 54.1 7.9% 5.2% 2001P 274.7 8.3% 3.3%
- ---------------------------------------------------------------------------- ------------------------------------------------
CAPEX: 1998A $ 39.5 7.6% 1998A $ 83.2 3.0%
1999A 36.7 5.8% 1999A 145.6 4.7%
LTM 38.4 5.9% LTM 73.5 2.3%
2000A 40.0 6.0% 2000A 73.5 2.3%
2001P 30.0 4.4% -8.7% 2001P 95.0 2.9% 4.5%
- ---------------------------------------------------------------------------- ------------------------------------------------
NET INCOME: 1998A $ 17.1 3.3% 1998A $ 128.0 4.7%
1999A 14.7 2.3% 1999A 157.2 5.1%
LTM 15.0 2.3% LTM 166.9 5.1%
2000A 10.8 1.6% 2000A 166.9 5.1%
2001P 11.1 1.6% -13.4% 2001P 145.6 4.4% 4.4%
- ---------------------------------------------------------------------------- ------------------------------------------------
EPS: 1998A $ 0.85 1998A $ 2.09
1999A 0.63 1999A 2.61
LTM 0.68 LTM 3.08
2000A 0.50 2000A 3.08
2001P 0.51 -15.7% 2001P 2.75 9.5%
- ---------------------------------------------------------------------------- ------------------------------------------------
BOOK EQUITY: MRQ $279.4 MRQ $ 754.4
- ---------------------------------------------------------------------------- ------------------------------------------------
DEBT/LTM EBITDA: 4.00 x 1.48 x
DEBT/BOOK EQUITY 1.39 x 0.78 x
- ---------------------------------------------------------------------------- ------------------------------------------------
FY ENDS: December December
LTM ENDED: 09/30/00 12/31/00
EPS/PROJECTIONS AS OF: 10/27/00 (First Union)(1) 02/09/01 (CSFB) (2)
(1) DRF preannounced on 2/5/01 and provided 2000E Sales and EPS. New research
not out yet - some data has been estimated by CRT.
(2) MHK Capex per SunTrust Equitable 1-29-01.
================================================================================
CREDIT RESEARCH & TRADING LLC
36
SPRINGS INDUSTRIES INC.
APPENDIX B -- DISCOUNTED CASH FLOW ANALYSIS
GREENWICH
CREDIT
RESEARCH [SPRINGS LOGO]
& TRADING
CONNECTICUT
37
SPRINGS INDUSTRIES INC.
DISCOUNTED CASH FLOW ANALYSIS
COMPARATIVE UNLEVERED BETAS
Springs 0.44
Dan River 0.62
Mohawk 0.53
WestPoint Stevens 0.70
Average (excluding Springs) 0.61
2001 2002 2003 2004 2005
------ ------ ------ ------ ------
EBITDA
Base Case $261.5 $298.6 $350.3 $369.6 $391.0
Downside Case 248.6 263.4 282.0 293.6 308.0
UNLEVERED AFTER-TAX FREE CASH FLOW
Base Case 129.7 78.1 123.8 131.5 161.9
Downside Case 134.6 77.8 99.5 100.2 126.1
Net Present Value Per Share
--------------------------------------------------------
Base Case Downside Case
------------------------- --------------------------
Discount Rates Terminal EBITDA Multiple Terminal EBITDA Multiple
------------------------- --------------------------
3.5x 4.0x 4.5x 3.5x 4.0x 4.5x
------ ------ ------ ------ ------ ------
9.0% $57.63 $64.68 $71.72 $43.89 $49.45 $55.00
9.5% $56.15 $63.04 $69.92 $42.72 $48.14 $53.57
10.0% $54.71 $61.44 $68.17 $41.57 $46.87 $52.18
10.5% $53.31 $59.89 $66.47 $40.45 $45.63 $50.82
Weighted Average Cost of Capital Calculation
- ---------------------------------------------------------------------------------------
Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5
---------- ---------- ---------- ---------- ----------
Debt 40.0% 50.0% 60.0% 70.0% 80.0%
Common Equity 60.0% 50.0% 40.0% 30.0% 20.0%
---------- ---------- ---------- ---------- ----------
Total Capitalization 100.0% 100.0% 100.0% 100.0% 100.0%
Relevered Beta 0.87 1.00 1.19 1.50 2.14
Pre-tax Cost of Debt 7.0% 8.0% 9.0% 10.0% 11.0%
After-tax Cost of Debt 4.3% 5.0% 5.6% 6.2% 6.8%
Cost of Equity 12.6% 13.7% 15.3% 18.0% 23.4%
COST OF CAPITAL 9.3% 9.3% 9.5% 9.7% 10.1%
GREENWICH
CREDIT
RESEARCH [SPRINGS LOGO]
& TRADING
CONNECTICUT
38
SPRINGS INDUSTRIES INC.
APPENDIX C -- * INVESTMENT COMMITTEE MEMORANDUM
Please see Appendix D to the Close Family Meeting Materials for the *
Memorandum
GREENWICH
CREDIT
RESEARCH [SPRINGS LOGO]
& TRADING
CONNECTICUT
* Omitted and filed separately with the Commission.
39
MEMORANDUM
TO: Investment Committee
FROM: *
DATE: January 21, 2001
RE: Project Snug
================================================================================
Over the past few days we have worked to develop greater insight on key
investment issues, and further refine our perspective on this transaction. This
memo covers:
I. Investment summary
- Positives
- Risks
- Investment Thesis
II. Review of company financial performance
III. Anticipated governance terms
IV. Transaction structure
V. Preliminary financial models
VI. Timing and next steps
We would like to review the transaction with the Committee on Monday, with the
objective of reaching consensus on the appropriate message for the CEO as to
our interest level in making an investment.
A gating issue is that the Company has not finalized their 2001 budget and its
implications for their longer term forecast, although they have given us fairly
specific direction on both revenue and EBITDA projections. Thus at this point
we do not have a detailed analysis of the sources of profit improvement for the
forecast period.
I. INVESTMENT SUMMARY
INVESTMENT POSITIVES
This investment opportunity has a number of positive features in terms of the
company's competitive position and the opportunities for value creation. The
key positive features of this opportunity include:
- Strong player with good competitive position
* Omitted and filed separately with the Commission. *
40
- One of the top two manufacturers in most of its market segments, with
market shares ranging from 10%-30%
- Limited number of scale competitors: Westpoint Stevens, Pillowtex
(recently filed for bankruptcy), and Dan River
- Other smaller players are less well positioned to meet needs of a
consolidating retailer base
- - Strong retailer relationships
- The company sells to the right retailers, and is well positioned within
these retailers given its meaningful share of their home textile sales
- The company is gaining share in its most attractive accounts due to its
strategy of focusing on core accounts and pruning less profitable
customers
- - Relatively stable end-user demand
- Consumer demand does not vary significantly, with most of its core
products growing at 4%-5% annually over the past five years
- Long term fundamentals indicate continued growth in demand in line with
historical levels
- Continuing mix shift, as consumers trade up to higher quality
products
- Favorable demographic trends, with increase in number of people in
prime home textile purchasing age groups
- Increasing per capita demand due to higher average number of bedrooms
and bathrooms in homes, and increase in average bed size
- - Significant, identifiable potential upside in operating cost performance
- The company has historically produced relatively stable but low EBIT
margins in the mid to high single digit range. This performance is
meaningfully behind that of Westpoint Stevens and Dan River. (See
Exhibit 1)
- McKinsey's analysis indicates that the bulk of the performance
differential is not driven by structural disadvantages, but rather by
suboptimal plant utilization and efficiency (primarily in the production
of grey fabrics) and inefficient purchasing practices. The company
believes that the structural cost gap with Westpoint Stevens is
approximately 2%.
- Near term, these profit improvement opportunities are tactical in nature
*
* Omitted and filed separately with the Commission.
2
41
- Purchasing cost reductions through centralized purchasing
management and supplier negotiations
- Manufacturing cost reductions through many "blocking and
tackling" opportunities
- Some overhead and IT reductions
- Longer term, there is the potential to create significant additional
economic value through substantially reconfiguring the asset base
and moving to outsource production, primarily in the grey fabric
product area
- Long, term, there is a clear opportunity to create value through
acquisition
- The company needs additional brands to increase penetration within
its core accounts, and could roll out acquired brands and product
lines to selected customers
- The industry has a number of smaller niche players who are
increasingly unable to meet the needs of mass merchandisers, and
would be more valuable to a strategic acquiror than as independent
companies
- Relatively low purchase price -- we think that a transaction could be
done at 4.5x LTM EBITDA, which is close to the low end of the historical
trading range of 4-6x.
Key Investment Risks and Considerations
We believe that this investment has a relatively high risk profile due to
company specific issues, the structural challenges inherent in this industry,
the difficult near-term operating environment, and some significant longer-term
strategic risks.
A.) Company specific issues
- The Company faces significant execution risk in the near and medium term
- The identified profit improvement opportunities will require the
company to move aggressively on cost reduction in the manufacturing
area. To date, the company has captured some significant cost
reduction in the area, but has also run into some meaningful
problems in achieving forecasts, primarily in the towel
manufacturing area. (See discussion below in "Financial Performance"
section.) The company acknowledges that the key gap in the
management team is leadership on the manufacturing and operations
side of the business. Note: We do not at this point have a detailed
understanding of all of the sources of profit improvement in 2001,
due to the company's delay in revising their budget. Thus we are
unable at this time to more accurately gauge the achievability of
projected profit improvement initiatives.
*
* Omitted and filed separately with the Commission.
3
42
- The company requires a major near-term IT upgrade. The current systems
are antiquated, high cost, and do not provide management with the full
information needed to run the business. Management has not yet made a
decision on the new IT platform, and is considering both an ERP
implementation and a major overhaul of legacy systems. Management expects
this upgrade to cost $70 - $90 million and take place over the next 2 1/2
years.
- - The company has significant customer concentration risk
- As a result of its core account strategy, the percentages of sales and
operating profits generated by its top 8 customers have grown to 60% and
77% respectively. Importantly, Wal-Mart is by far the largest single
customer, accounting for 28% and * of sales and *.
- - The company appears to have some lack of visibility into near term financial
performance, which makes it difficult for us to have confidence in the
projections and which raises the issue of potential quarter-to-quarter
volatility. (See "Financial Review" for a more in-depth discussion of this
issue.)
- The company's shortfall in Q3 and Q4 of 2000 illustrate the potential
vulnerability of margins in the short term to factors outside the
company's control
- The delay in preparing the 2001 budget further illustrates the difficulty
of getting a strong handle on near term performance
- This lack of visibility implies that a conservative capital structure is
required for the transaction
B.) Industry structure issues
- - The US textiles industry is structurally challenging
- This is a mature industry with excess manufacturing capacity
- An increasingly concentrated retailer base wields significant power over
the manufacturers, and captures much if not most of the consistent
improvements in productivity
- Unit prices decline on a fairly consistent basis, with effective annual
unit price reductions in the 2% - 3% range.
- Two of Snug's key competitors have significantly higher profit margins,
and thus are positioned to win in pricing wars
*
* Omitted and filed separately with the Commission.
4
43
- - There is a clear trend of increased competition from low cost imports,
although this is both a threat and an opportunity for the company, in that
they will increasingly outsource their own production to lower cost
countries
- Historically, Snug's product segments have been somewhat protected
from import competition as they have relatively low labor content.
However, imports have nonetheless grown consistently and now have
penetration rates in the 20%-40% range across Snug's key product
segments and are growing at approximately 10%-20% per year. Several
countries -- particularly Pakistan -- have targeted the home textiles
segment as a key source of economic growth, and have invested heavily
in both basic grey fabric manufacturing capacity, as well as in higher
value added finishing and fabrication capacity.
- The regulatory environment is changing as quotas are phased out by the
2005 timeframe and will replaced by GATT regulation. This creates the
threat of a significant increase in import penetration as trade
barriers fall. There appears to be pent-up capacity waiting to enter
the US market as quotas fall, given that quotas in Snug's primary
product lines for the key home textile exporting countries are
typically fully utilized.
- Increasing access to low cost imports encourages retailers to go
direct on product sourcing, and to by-pass the US producers.
- - Longer term, success in this industry will require the company to
fundamentally shift its production model to increase outsourcing of
product, shut domestic manufacturing capacity, and focus increasingly on
developing "close to the customer" competencies, including customer account
management, product design & development, distribution, and supply chain
management.
C. Difficult near term environment
- - The US home textiles industry faces a very difficult near-term environment
- Soft revenue due to slowdown in consumer demand has hurt the top line
and margins, and is expected to continue through at least the first
half of 2000
- Retailers have become increasingly aggressive at squeezing profits out
of the manufacturers, primarily by aggressively pursuing claims and
returns
- The sector faces a huge inventory build-up across the supply chain,
with average inventory levels at 15 weeks at manufacturers and 11
weeks at retailers (all products), for an estimated total of 26 weeks
across the industry. (This total is likely understated due to LIFO
accounting and the slower moving nature of home textile products
compared to other products at retailers.) An inventory correction
could put significant near term pressure on margins due to plant
stand-downs and price reductions.
*
* Omitted and filed separately with the Commission.
5
44
INVESTMENT THESIS
Given the investment positives and risks, our decision to invest would be based
on the following points:
- The company can achieve significant improvement in near-term operating
performance and returns on capital
- Attractive returns on the transaction appear to be attainable, as
they only require the company to perform at profit levels approaching
those achieved by competitors
- However, these required margins would be significantly in excess of
what the company has done historically
- These margins would need to be achieved in the face of continuing
price reductions and cost pressures
- The company can significantly reconfigure the manufacturing strategy and
asset base over next three to five years. We believe that long term
success in this business will require a combination of outsourced and
owned manufacturing, due to the increasing penetration of low cost
imports.
- The company will need to outsource production of products in which
they are not competitive (most importantly, grey fabric.) The company
already sources approximately 20-25% of its total requirements in
grey, and is focused on developing outsourcing relationships.
- The existing manufacturing base will need to be rationalized, and in
particular the company will need to close some high-cost grey fabric
plants.
- Fundamentally, the company needs to move from a manufacturing-focused
firm to one which has as its core competencies product design,
development & sourcing; customer relationship management; supply chain
management and distribution.
- This is the strategy set by the company as a result of McKinsey work
over past two years, and the company is moving in this direction
- Some companies in comparable industries have successfully made this
shift, and have achieved strong financial performance as a result.
(See the Sara Lee case study in Exhibit 2 as an example of a
successful transformation.)
- The company is appropriately capitalized to manage through potential near
term volatility in financial performance
*
* Omitted and filed separately with the Commission.
6
45
- The capital structure and bank arrangements need to contemplate the
potential near term volatility in financial results -- "Don't blow
the bank covenants two quarters out of the box"
- The company can manage through the anticipated difficult near term
environment
Management Team
Crandall Bowles has significantly upgraded Snug's management team since taking
helm as CEO in 1998. Key hires include a CFO, CIO, head of purchasing, and human
resources. We have generally been impressed with management's knowledge of their
business and their understanding of the operating and strategic issues facing
their business. Our general sense is that they are headed in the right direction
and have a realistic assessment of the challenges facing the company.
Clearly, one major challenge for the new management team has been in
implementing new management techniques and reports. For example, the budgeting
and reporting system has been substantially revamped and is moving in the right
direction, but still has a number of kinks which need to be worked out. As
another example, the strategic planning process has been meaningfully upgraded,
but still is not sufficiently linked to the budgeting process.
There are still some critical management gaps and cultural challenges in
driving improved performance.
- The most important gap is on operations and manufacturing side. The
company does not have the leadership in place to drive improved
performance in the manufacturing operations, and more broadly in the
supply chain management strategy of the company. The company is fully
aware of this gap and intends to hire an outsider to join, possibly as
COO.
- Culturally, the company has historically been relatively unaggressive and
slow moving (resulting in its relative operating profit performance
versus competitors).
- Snug has had relatively underleveraged balance sheet when compared
to its competitors, and thus has not faced as much pressure to take
costs out and improve the cash performance of the operations
- Our sense is that management is relatively cautious in implementing
change, although the team has made a number of hard decisions, e.g.
plant closings
II. REVIEW OF COMPANY FINANCIAL PERFORMANCE
Review of 2000 Budget
Snug developed its 2000 budget using a bottoms-up approach. For each of its
products and cost centers, Snug was relatively aggressive in setting profit
improvement goals.
* Omitted and filed separately with the Commission. *
7
46
Due to the aggressive nature of the individual business forecasts, Snug
included a $40 million contingency in its budget, which was not allocated to
any specific products or cost centers.
As shown in Exhibit 3, management used Snug's 1999 profit from operations (PFO)
of $134 million as a baseline for its budget. In 2000, management expected
profitability improvements equaling $28.8 million from revenue growth and
improved account mix, $32.3 million from its manufacturing cost reduction
initiatives and $26.5 million from its purchasing initiatives. This implied a
budget of approximately $220 million prior to the $40 million contingency, and
a $180 million including the contingency.
2000 Actual Performance vs. Budget
Snug's actual PFO in 2000 was $145 million, or $35 million (19.4%) below the
budgeted $180 million. As summarized in Exhibit 4, Snug was on-track to achieve
its budgeted performance after the first two quarters, but was affected
significantly during the retail slow-down in the second half. Snug's purchasing
initiatives and some manufacturing initiatives were successful in 2000, but
offsetting factors in other areas of the business prevented Snug from achieving
its budget (see Exhibit 5).
- - Purchasing Initiatives: Snug achieved approximately $31.3 million of cost
savings in 2000 due to purchasing initiatives, slightly more than what was
budgeted. Excluding cotton, greige and natural gas costs, purchasing cost
savings totaled $20.6 million in 2000 (versus $14.8 million budgeted).
Most of this savings was the result of consolidated buying and leveraging
information / buying power across the organization.
As shown in Exhibit 6, the largest source of purchasing cost savings in
2000 was in Fabrication/Packaging/Other (threads, cartons, tape, etc.),
where Snug consolidated suppliers from 35 to 3 and took advantaged of the
depressed apparel industry and the Pillowtex situation to reduce purchase
prices. Management expects these savings to hold going forward.
Cotton and greige costs (which were at historic lows) contributed $15.3
million of total purchasing cost savings, and natural gas (which
unexpectedly rose in price) offset $4.6 million of these savings.
- - Manufacturing Initiatives: Although management believes it was successful
on approximately two-thirds of its manufacturing improvement projects
during 2000, this resulted in only approximately $7.5 million of
manufacturing cost savings due to three primary offsetting expenses:
- Towels: Snug recently spent $65 million on modernizing its towel
facilities, and management had budgeted an $11 million cost savings in
2000 as a result of this modernization. Snug believes it did not
account for these projected savings accurately. Specifically, the
modernizations increased Snug's towel capacity, but will not result in
cost savings until this capacity is filled in 2001. As a result, the
improved efficiency did not impact the 2000 results, and the towel
operations remained at breakeven. However, Snug does not expect the
towel operations to
* Omitted and filed separately with the Commission. *
8
47
achieve desired profitability in 2001, either, and has not yet
identified what needs to be done to allow efficiency improvements to
flow through to the bottom line.
-- Window Fashions: Snug lost an unanticipated $6 million in its window
fashions segment, primarily due to contributions of blindmakers to
retailers (machines that allow sales representatives to custom-cut
blinds for customers) as well as recognition of sales tax on
previously-contributed blindmakers (which the company is currently
disputing with the IRS).
-- Plant Standings: In an effort to reduce inventory levels in the
second half of 2000, Snug stood down plants for approximately five
weeks, for a total cost of approximately $4.0 million.
- - Sales Volume / Account Mix: Snug budgeted $28.8 million of improved
profitability as the result of increased sales volume and improved account
mix in 2000. However, due to the soft industry environment in the second
half of the year, these profit improvements were not realized. Instead,
three factors contributed to a combined $17.9 million deterioration of the
core business profitability:
-- Volume: As retailers focused on reducing inventory levels in the
second half of 2000, the resulting impact on Snug's sales volume had a
$10 million impact on its PFO.
-- Claims: Retailers were also much more aggressive on claims in 2000
than had been expected. As shown in Exhibit 7, claims as a percentage
of sales increased from *% in the third quarter of 1999 (when the
2000 budget was developed) to *% in 2000. Most of the increase in
claims was due to operational claims (e.g., refunds because the UPC
was on the wrong corner of a box), which increased by approximately
$10 million for the core bed and bath segment and another $10 million
for the hard windows segment compared to 1999. For all of 2000, claims
were approximately $23 million over budget.
-- Loss on Closeouts: Snug liquidates its closeout inventory (primarily
leftover inventory from canceled programs) and off-quality inventory
through the wholesale channel (both through its own outlets and
through discount retailers such as T.J. Maxx). Prior to 1998, Snug was
able to realize close to 80% of its cost on the sale of this closeout
inventory. However, in 1999, the percentage realization declined to
the high sixties (see Exhibit 8). As a result, Snug held back its
closeout inventory in the fourth quarter of 1999, hoping wholesale
pricing would improve. Pricing through the wholesale channel declined
even further to 54% realization in 2000, and Snug lost $13.6 million
more than anticipated.
Management believes the softness in wholesale pricing is driven by the
impact of low-cost imports in the channel, and that this low level of
realization will continue. However, as Snug's manufacturing is
realigned to optimize the levels of closeout and off-quality
inventory, these expenses should be reduced somewhat.
Financial Projections
* Omitted and filed separately with the Commission. *
9
48
Snug is currently in the process of revising its 2001 budget to account for the
recent industry downturn. We have not yet seen from management a detailed
build-up to expected 2001 operating performance or revised projections beyond
2001. However, management has provided us with its most recent high-level
estimates for 2001 performance. Based on its most recent estimates, management
expects to generate profits from operations of $153 million in 2001 on gross
sales of $2.5 billion.
The impact of the revised 2001 projections on results going forward is unclear,
and we have not been given guidance by Snug as to this impact, although they
have initially indicated a target of $175 million in profit from operations for
2002. Management expects to complete its 2001 budget later this week and
complete its detailed product and customer account forecasts by next week.
As shown in the table below, the 2001 outlook has been revised on three
different occasions since October:
Actual 2001E
-------------- ---------------------------------------------
Strategic October December January
(In millions) 1999 2000 Plan Estimates Estimates Estimates
---- ---- --------- --------- --------- ---------
Gross Sales * * * * * *
Growth 3.2% 4.5% 4.0% 2.5% 1.5%
PFO $ 136 $ 145 $ 177 $ 147 $ 151 $ 153
PFO as % of Gross Sales 5.7% 5.9% 6.7% 5.6% 5.9% 6.1%
The October estimates represent what was a high level first cut at estimating
the impact of the slowing industry environment on revenue and PFO. In December,
Snug reevaluated its 2001 projections and reduced revenue to * million from *
million. This new figure assumed revenue growth of (3.5%), (1.5%), 10% and 12%
in Q1, Q2, Q3 and Q4, respectively. Based on the revised December revenue
projection, PFO would have been $132 million. However, Snug identified $19
million of additional cost savings to offset this decline, and estimated PFO of
$151 million.
In January, Snug again revised its 2001 estimates by slowing the growth
assumptions in the second two quarters of the year. This new revenue figure, *
million, implied an additional PFO shortfall of $16 million. However, Snug
identified cost savings opportunities of $18 million to offset this shortfall. A
large component of the total $37 million of newly discovered cost savings ($19
million in December plus $18 million in January) results from Snug's desire to
reduce fixed costs by 2-3%.
III. ANTICIPATED GOVERNANCE TERMS
We have had an initial conversation on governance with the CEO and her outside
advisor, and have a general sense of the arrangements although few specifics.
The contemplated governance arrangements between the CEO and Heartland has an
initial board composed of an equal number of family members and Heartland
representatives,
*
* Omitted and filed separately with the Commission
10
49
with 3 seats each. Crandall would have the ability to break ties. If and when
Crandall is replaced as CEO, the CEO would get a seat and effectively would be
the tie-breaking vote.
- Board approval is required for "standard operating items,
including a budget"
- Consensus is required for "major decisions, i.e.
acquisitions/divestitures, changes in financial structure,
etc." We do not know what sort of deadlock mechanism is
currently contemplated.
We anticipate we could get 1 of the 3 Heartland seats, but no specific negative
control rights unique to *. Our read on the situation is that in the event of a
dispute, we would be more likely to be aligned with management than with
Heartland, due to our similar perspectives on the business priorities.
IV. TRANSACTION STRUCTURE
- -------------------------
As contemplated, the proposed transaction would be done at an equity purchase
price of $40 per Snug share. However, given that Snug's stock has recently risen
and is currently trading at $33.19, we believe it would be difficult to complete
a deal at this price and have therefore assumed a purchase price of $42 per
share. (See historical share price graph in Exhibit 9 and stock price histogram
in Exhibit 10.) The Close family (Crandall Close Bowles' family) owns
approximately 40% of the economic interest in Snug and 75% of the voting stock.
A $42 purchase price implies approximately a $460 million purchase price for the
outstanding public stake (excluding rolled-over Close family shares). Heartland
and * would invest approximately a combined $300 million in the transaction, and
the remainder of the non-family public equity would be repurchased with new bank
debt. A detailed sources and uses table is outlined below:
Sources Uses
- ----------------------------- ---------------------------------------
Roll-Over Equity $302 Equity Purchase Price $762
Heartland/* Equity 302 Refinance Existing Debt 370
Bank Debt 558 Transaction Expenses 30
--- --
$1,162 $1,162
The proposed structure would imply the following enterprise value and debt
multiples:
Enterprise Value $1,133 Net Debt $558
EV/LTM EBITDA 4.5x Net Debt/LTM EBITDA 2.2x
V. PRELIMINARY FINANCIAL MODELS
- -------------------------------
Although we have not yet received management's revised projections, we have
developed three financial cases to help provide a directional indication of
returns. We
*
* Omitted and filed separately with the Commission.
11
50
have run our cases at a $42 share price, which we believe is more realistic
than the $40 in management's models.
+ Management Base Case (Exhibit 11): Assumes management's prior revenue growth
and annual margin improvement forecasts in 2003-2005, starting from the
reduced 2001 base and using initial guidance of $175 million for 2002.
Assuming no multiple expansion, this case indicates returns in the low- to
mid-twenties. We believe that management's projections may be optimistic.
+ Management "Downside" Case (Exhibit 12): Assumes revenue growth and annual
margin improvement forecasts in 2002-2005 based on the downside estimates
provided by Snug's advisor, starting from the reduced 2001 base. Assuming no
multiple expansion, this case indicates returns in the high teens.
+ Flat Margins Case (Exhibit 13): Provided for illustrative purposes only, this
case assumes flat margins and 3% annual revenue growth, starting from the
reduced 2001 base. Assuming no multiple expansion, this case indicates returns
in the high single digits.
VI. TIMING AND NEXT STEPS
We have committed to Crandall that we will give her a response as to our
interest level in pursuing this transaction early this week. We have explained
that it is difficult for us to reach a conclusion on the transaction before
they have finalized their view about the projected financial performance of the
business and the sources of profit improvement. Thus we anticipate that we
could gain some additional time before giving her our definitive response.
However, we will still need to be very specific as to the open due diligence
items and what level of proof is required to address these issues.
ATTACHMENTS
Exhibit 1: Summary Comparative Operating Statistics
Exhibit 2: Sara Lee Case Study
Exhibit 3: Snug 2000 Budgeted Profit from Operations
Exhibit 4: Quarterly Performance vs. Budget
Exhibit 5: Snug 2000 Actual Profit from Operations
Exhibit 6: 2000 Purchasing Initiatives
Exhibit 7: Consolidated Claims Experience
Exhibit 8: Wholesale Trends
Exhibit 9: 3-Year Stock Price History
Exhibit 10: 3-Year Stock Price Histogram
Exhibit 11: Preliminary LBO Model: Management Base Case
Exhibit 12: Preliminary LBO Model: Management Downside Case
Exhibit 13: Preliminary LBO Model: Flat Margins Case
*
12
* Omitted and filed separately with the Commission.
51
Project Snug
- --------------------------------------------------------------------------------
Exhibit 1: Summary Comparative Operating Statistics ($ in millions unless noted)
<Table>
<Caption>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 LTM
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---
Revenue Growth
Springs Industries NA 10% 5% (2%) 1% 5% 2% 2% 8% (1%) 0% (2%) 2% NA
Westpoint Stevens NA NA NA NA NA NA 0% 6% 3% (9%) 10% 7% 6% NA
Dan River NA NA NA NA NA NA NA 17% 4% (1%) 26% 9% 22% NA
EBITDA Growth
Springs Industries NA 4% 5% (10%) (5%) 21% 4% 8% 3% (12%) 5% (10%) 23% NA
Westpoint Stevens NA NA NA NA NA NA 7% 7% 4% 3% 12% 15% 8% NA
Dan River NA NA NA NA NA NA NA 164% 37% (4%) 106% 14% 15% NA
Gross Profit Margin
Springs Industries 20% 19% 20% 19% 19% 20% 20% 20% 18% 18% 18% 18% 19% 20%
Westpoint Stevens NA NA NA NA NA 18% 7% 7% 11% 24% 25% 26% 27% 27%
Dan River NA NA NA NA NA NA 10% 14% 15% 15% 20% 20% 18% 19%
EBITDA Margin
Springs Industries 11% 10% 10% 9% 9% 10% 10% 11% 10% 9% 10% 9% 11% 12%
Westpoint Stevens NA NA NA NA NA 14% 15% 15% 15% 17% 17% 18% 19% 18%
Dan River NA NA NA NA NA NA 3% 7% 9% 9% 14% 15% 14% 15%
EBIT Margin
Springs Industries 7% 7% 6% 5% 4% 6% 6% 7% 6% 5% 6% 5% 6% 7%
Westpoint Stevens NA NA NA NA NA 4% (6%) (6%) (1%) 12% 12% 14% 14% 14%
Dan River NA NA NA NA NA NA (2%) 2% 4% 3% 8% 9% 7% 9%
ROE
Springs Industries NA 10% 12% (1%) 5% 8% 8% 11% 11% 12% 9% 5% 9% NA
Westpoint Stevens NA NA NA NA NA NA (702%) 85% 31% (12%) (16%) (20%) (21%) NA
Dan River NA NA NA NA NA NA NA 10% 0% 8% 11% 8% 6% NA
Pre-Tax EBIT ROA
Springs Industries NA 11% 11% 8% 6% 9% 10% 11% 9% 8% 9% 7% 9% NA
Westpoint Stevens NA NA NA NA NA NA (5%) (6%) (1%) 15% 17% 18% 18% NA
Dan River NA NA NA NA NA NA NA 2% 4% 4% 11% 8% 6% NA
Pre-Tax EBIT ROIC
Springs Industries NA 18% 15% 11% 9% 12% 13% 15% 14% 11% 13% 11% 13% NA
Westpoint Stevens NA NA NA NA NA NA (7%) (10%) (2%) 27% 30% 30% 29% NA
Dan River NA NA NA NA NA NA NA 3% 6% 5% 14% 10% 8% NA
</Table>
- 1 -
52
PROJECT SNUG PRELIMINARY DRAFT -- CONFIDENTIAL
- --------------------------------------------------------------------------------
EXHIBIT 2: SARA LEE CASE STUDY
OVERVIEW OF SARA LEE'S OUTSOURCING STRATEGY
- - In September 1997, Sara Lee announced plans for a "fundamental reshaping" of
its operations that would "deverticalize" its structure by shedding
manufacturing assets, outsourcing its production and focus on building its
brand name.
- - Using Nike Inc. as a model, Sara Lee noted that the value added would be in
the design and branding of the product.
- In announcing the plan, Sara Lee stated that it was "imperative" for
companies to focus on new products, managing brands and building market
share, an area where it had been lacking.
- Management noted that Pillsbury, for example, spent $88 million on its
brand, more than 25 times what Sara Lee spent.
- - The actions sought to mollify investor dissatisfaction. Sara Lee's shares
were selling at a 20% discount to the overall market. In addition, its
multiples were lagging behind its peers and its sales growth had slowed.
- - The plan focused on a four-part restructuring:
1) Management planned to deverticalized operations by selling manufacturing
operations and outsource its work to these firms. Sara Lee aimed to
achieve $3 billion in surplus cash from this strategy
2) Sara Lee also sought to divest businesses that failed to meet its
standards for returns on capital. These divestitures were expected to
increase returns on invested capital (ROIC) from 16% to 20%.
3) Management targeted cost-cutting measures in an attempt to reduce SG&A
expenses, which accounted for 29% of the sales base.
4) With $4 billion in proceeds from asset sales and outsourcing, management
sought to repurchase outstanding shares.
- - With these initiatives, management targeted an EPS growth rate of 13% to 15%,
compared to its historical growth of 6% for the five years prior.
53
PROJECT SNUG PRELIMINARY DRAFT -- CONFIDENTIAL
- -------------------------------------------------------------------------------
EXHIBIT 2: SARA LEE CASE STUDY (CONT'D.)
IMPLEMENTATION
- - Within the first month, Sara Lee sold 9 yarn and textile facilities for
$600 million and outlined plans to sell four more facilities for a total of
$1.4 billion. By the following month, Sara Lee stock had gained over ten
points for a 26% gain in its stock price to $52 per share, its 52-week
high.
- - Within the following year, Sara Lee had shut 34% of its facilities
earmarked for closure. It sold its Household and Body Care production units
for $125 million and a meat products facility for $500 million. The Company
announced its plan to sell its turkey meat facilities, sold three factories
in Europe for $200 million and cut its tobacco unit for $1.08 billion.
- - By 1999, the company had closed or consolidated 78 facilities and signed
30 outsourcing arrangements.
RESULTS
- - As a result, capital expenditures as a percent of sales dropped from 4.9%
in 1993 to 2.4% in 1998, and 1.9% of sales in 1999. Furthermore, Sara Lee
achieved almost $200 million in working capital savings.
- - Sara Lee also grew its EPS to $2.50 by 1998, on target with 13% earnings
growth, despite foreign currency translation problems that plagued the
company throughout the year. At the same time, the Company's EPS multiple
expanded to over 25x forward estimates.
- - Sara Lee was also able to increase its dividend to $1.45 per share from
$0.84 per share over three years, mainly as a result of over $3.0 billion
in share repurchases.
- - The Company also witnessed a 60-basis point rise in EBIT margin to 9.7%,
driven by operating leverage, a favorable product mix shift and higher
hedging gains.
- - Furthermore, ROIC climbed from 16% to 17.5% in 1998, and 21.3% in 2000.
- - For the year following the announcement, Sara Lee's stock price rose as
much as 47% to $64.00 per share. However, Sara Lee's stock had slumped in
1999, due in part to worries about listeria outbreaks. It has taken some
time to recover, and has only recently reached levels seen in 1998.
54
PROJECT SNUG
- --------------------------------------------------------------------------------
EXHIBIT 3: SNUG 2000 BUDGETED PROFIT FROM OPERATIONS (PFO)
[BAR GRAPH:
PFO Contribution (mm)
1999 PFO $134.0
Growth & Acct. Mix $28.8
Manufacturing Efficiencies $32.3
Purchasing $26.5
General & Administrative -$3.0
2000 Budgeted PFO $218.6
(Pre-contingency)
Contingency $38.6
2000 Budget $180.0]
55
PROJECT SNUG
- --------------------------------------------------------------------------------
EXHIBIT 4: QUARTERLY PERFORMANCE VS. BUDGET
<Table>
<Caption>
Full
Q1 Q2 Q3 Q4 Year
--------------------------------------------------------------------
Budgeted PFO $37.0 $42.0 $48.1 $53.1 $180.2
Changes:
Volume $ 4.4 ($0.9) ($4.3) ($9.2) ($10.0)
Claims (8.3) (4.3) (6.3) (4.2) (23.1)
Loss on Close-Outs/Seconds (1.5) (0.6) (2.7) (8.8) (13.6)
Window Fashions
Blindmaker 0.0 0.0 (1.7) (2.1) (3.6)
Sales Tax 0.0 (2.2) 0.0 0.0 (2.2)
USDA Cotton Rebate 2.2 1.5 1.3 1.2 6.2
AIP, Profit Sharing 0.0 4.7 3.0 6.8 14.5
Plant Standings 0.0 0.0 (0.8) (3.2) (4.0)
All Other 6.2 1.7 (1.4) (6.7) 0.3
----- ----- ------ ------ ------
Total Changes $ 3.0 ($0.1) ($12.9) ($25.7) ($35.7)
Current Projections $40.0 $41.9 $35.2 $27.4 $144.5
</Table>
56
PROJECT SNUG
- --------------------------------------------------------------------------------
EXHIBIT 5: SNUG 2000 ACTUAL PROFIT FROM OPERATIONS (PFO)
[BAR GRAPH:
2000 PFO Contribution (mm)
<Table>
1999 PFO $134.0
Expected Growth
& Acct. Mix:
Budget $ 28.8
Less: Volume -$ 10.0
Less: Claims -$ 23.1
Less: Loss of Closeouts -$ 13.6
------
Actual -$ 17.9
Manufacturing
Efficiencies:
Budget $ 32.3
Less: Towels -$ 11.0
Less: Window Fashions -$ 6.0
Less: Plant Standings -$ 4.0
Less: Other -$ 3.8
------
Actual $ 7.5
Purchasing:
Budget $ 26.5
Additional Savings $ 3.8
------
Actual $ 31.3
2000 Actual $145.0
2000 Budget (excl. Contingency) $180.0]
</Table>
57
PROJECT SNUG
- --------------------------------------------------------------------------------
EXHIBIT 6: 2000 PURCHASING INITIATIVES
<Table>
<Caption>
VARIANCE VS. BUDGET
-------------------
COMMODITY ACTUAL BUDGET $ %
- -------------------------------------------------- ------------ --------- --------- ---------
Fab/Packaging/Other $6,658 $2,980 $3,678 123.4%
Utilities 4,731 4,000 731 18.3%
Polyester (3,468) (3,869) 401 10.4%
MRO/Supplies 3,227 2,827 400 14.1%
Chemicals 2,265 2,875 (610) (21.2%)
Yarn 1,754 1,999 (245) (12.3%)
Backing/Coatings 1,455 360 1,095 304.2%
Contract Labor 1,136 759 377 49.7%
Dyes 997 600 397 66.2%
Travel 954 1,200 (246) (20.5%)
Cap/Constr/Other 938 1,063 (125) (11.8%)
------- ------- ------- ------
Subtotal (excl. Cotton, Greige & Natural Gas) $20,647 $14,794 $5,853 39.6%
Cotton $11,710 $12,742 ($1,032) (8.1%)
Greige 3,566 535 3,031 566.5%
Natural Gas (4,592) 0 (4,592) NM
------- ------- ------- ------
Subtotal (Cotton, Greige & Natural Gas Only) $10,684 $13,277 (2,593) (19.5%)
Total $31,331 $28,071 3,260 11.6%
</Table>
58
EXHIBIT 7
<Table>
<Caption>
CONSOLIDATED CLAIMS EXPERIENCE
1999 2000
--------------------------------------------- -----------------------------------------------
Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year
--- --- --- --- ---- --- --- --- --- ----
Core B+B Net Sales 354 301 308 284 1247 345 315 326 316 1303
Windows/Other Net Sales 230 244 255 246 975 248 258 248 265 1018
Consolidated Net Sales 584 545 583 529 2221 593 573 574 581 2321
Returns * * * * * * * * * *
% CB+B Net Sales * * * * * * * * * *
Promotional * * * * * * * * * *
% CB+B Net Sales * * * * * * * * * *
Operational 5.3 4.3 6.5 3.0 19.1 7.3 9.3 6.5 6.5 29.6
% CB+B Net Sales 1.5% 1.4% 2.1% 1.1% 1.5% 2.1% 3.0% 2.0% 2.1% 2.3%
Other 0.0 0.0 0.0 3.3 3.3 2.4 -2.5 0.0 0.0 -0.1
% CB+B Net Sales 0.0% 0.0% 0.0% 1.2% 0.3% 0.7% -0.8% 0.0% 0.0% 0.0%
Total Core Bed + Bath Claims * * * * * * * * * *
% CB+B Net Sales * * * * * * * * * *
Budget 2000 * * * * *
* * * * *
Windows/Other Total Claims * * * * * * * * * *
% Windows?Other N.S. * * * * * * * * * *
Consolidated Claims * * * * * * * * * *
% Total Net Sales * * * * * * * * * *
</Table>
* Omitted and filed separately with the Commission.
59
Exhibit 8
---------
WHOLESALE TRENDS
<Table>
<Caption>
Inventory Realization
1999 Sold Revenue Loss %
- ---- --------- ------- ------ ---------
Quarter 1 * 12.5 * *
Quarter 2 * 13.3 * *
Quarter 3 * 13.1 * *
Quarter 4 * (0.3) * *
-------- ------- ------ ------
Total Year 1999 * 38.9 * *
- --------------- ======== ======= ====== ======
2000
- ----
Quarter 1 * 9.6 * *
Quarter 2 * 13.0 * *
Quarter 3 * 12.3 * *
Quarter 4 * 12.6 * *
-------- ------- ------ ------
Total Year 2000 * 47.6 * *
=============== ======== ======= ====== ======
</Table>
* Omitted and filed separately with the Commission.
60
PROJECT SNUG
- --------------------------------------------------------------------------------
EXHIBIT 9: 3-YEAR STOCK PRICE HISTORY
[STOCK PRICE HISTORY LINE GRAPH:
S&P 500 Composite (Indexed)
Westpoint Stevens (Indexed)
Snug
Dan River (Indexed)
Dates: 1/20/98 -- 11/20/00]
61
PROJECT SNUG
- --------------------------------------------------------------------------------
EXHIBIT 10: 3-YEAR STOCK PRICE HISTOGRAM
[BAR GRAPH:
Days Closing Price in Range
Stock Price Range (Last 3 Years)
< $25 17
$25 - $30 74
$30 - $35 154
$35 - $40 252
$40 - $45 124
$45 - $50 35
$50 - $55 28
> $55 74]
62
EXHIBIT 11
Project Snug Case Mgmt Base
OVERVIEW Cap Struct: Base
(Amounts in Millions) No Acquisitions
<Table>
<Caption>
EQUITY PURCHASE PRICE
Current Share Price (1/19/01) $33.19
Premium Paid 26.6%
-------
Purchase Price Per Share $42.00
Share Outstanding 18.1
-------
Equity Purchase Price $762.2
</Table>
<Table>
<Caption>
PRO FORMA SHARE OWNERSHIP Shares Value
-------- -------
Rolled-Over Close Family Shares 7.2 $301.7
* Shares 1.8 $75.4
Heartland Shares 5.4 226.2
---- ------
Total Outside Investors 7.2 $301.7
Shares Repurchased with Debt 3.8 $158.9
Total Equity Purchase Price 18.1 $762.2
</Table>
<Table>
<Caption>
SOURCES Rate $ %
-------- --------- ---------
Revolver 9.0% 50.0 0.0%
Senior Debt 9.0% 558.7 48.1%
Subordinated Debt 12.0% 0.0 0.0%
Roll-Over Equity 301.7 26.0%
Investors' Equity 301.7 26.0%
----- ----
Total Sources $1,162.0 100.0%
-------- -----
USES
Equity Purchase Price $762.2
Refinance Existing Debt 373.0
Transaction Expenses 29.5
Prepayment Penalties 0.0
Existing Cash (2.7)
---------
Total Uses $1,162.0
---------
</Table>
<Table>
<Caption>
ACQUISITION MULTIPLES Multiples Amount Enterprise Transaction
--------- ------ ---------- -----------
Purchase Price Revenue
- --------------
Equity Purchase Price $762.2 FYE 12/30/00 $2,278.1 0.5% 0.5%
Plus: Net Debt 370.3 FYE 12/31/01 2,313.2 0.5 0.5
-----
Enterprise Value $1,132.5 EBITDA
Plus: Fees & Expenses 29.5 FYE 12/30/00 $254.0 4.5% 4.6%
Transaction Value $1,162.0 FYE 12/31/01 255.8 4.4 4.5
--------
EBIT
FYE 12/30/00 $145.0 7.8% 8.0%
FYE 12/31/01 133.0 7.4 7.6
</Table>
<Table>
<Caption>
FINANCIAL SUMMARY Historical Fiscal Year Ending December 31,
-------------------------------- -------------------------------------------------
1998 PF 1999 PF 2000E PF 2001 2002 2003 2004 2005
------- ------- -------- ------ ------ ------ ------ ------
Revenue $2,180.5 $2,220.5 $2,278.1 $2,313.2 $2,453.9 $2,610.2 $2,756.8 $2,915.9
Gross Profit 384.7 419.6 437.4 449.9 490.0 552.2 587.2 626.2
EBITDA 191.5 239.1 254.0 255.8 290.7 354.2 373.9 404.2
PFO 104.5 134.1 145.0 153.0 175.0 217.2 233.4 251.9
EBIT 104.5 137.8 145.0 139.5 158.8 198.0 213.5 231.3
Net Income 55.5 69.7 96.5 112.0 130.8
Cap Ex 120.5 166.8 100.0 144.0 168.0 139.0 125.0 125.0
Interest Expense $50.3 $47.0 $42.7 $37.2 $26.8 $13.3
Revenue Growth 1.8% 2.6% 1.5% 6.1% 6.4% 5.6% 5.8%
Gross Margin 17.6% 18.9% 19.2% 19.4% 20.0% 21.2% 21.3% 21.5%
EBITDA Margin 8.8% 10.8% 11.1% 11.1% 11.8% 13.2% 13.6% 13.9%
PFO Margin 4.8% 6.0% 6.4% 6.6% 7.1% 8.3% 8.5% 8.6%
EBIT Margin 4.8% 6.2% 6.4% 6.0% 6.5% 7.6% 7.7% 7.9%
CREDIT RATIOS
EBITDA/Interest 4.8% 5.1% 5.4% 6.8% 9.1% 14.0% 30.5%
(EBITDA-CapEx)/Int. 1.4 3.1 2.4 2.9 5.5 9.3 21.1
Net Debt/EBITDA 2.3 2.2 1.9 1.6 1.1 0.6 0.2
Total Debt/EBITDA 2.3 2.2 1.9 1.6 1.1 0.6 0.2
% of Debt Remaining 100.0% 87.0% 82.7% 65.3% 41.2% 11.6%
FINANCIAL MEASURES
Asset Turns 1.40% 1.46% 1.51% 1.58% 1.68%
Days Sales in Inventory (COGS) 90.6 88.5 86.3 84.9 83.7
PRE-TAX EDIT ROIC 11.6% 13.0% 15.9% 17.4% 19.3%
</Table>
<Table>
<Caption>
FINANCIAL RETURNS Trailing EBITDA Exit Multiple
-------------------------------------------------------------------
PRIVATE SALE IN 2005 3.5% 4.0% 4.5% 5.0% 5.5%
------ ------ ------ ------ ------
* 16.8% 20.1% 23.0% 25.6% 28.1%
Gain to Management $37.3 $47.4 $57.5 $67.6 $77.7
PRIVATE SALE IN 2003
* 11.3% 18.2% 24.3% 29.9% 35.1%
Gain to Management $12.0 $20.6 $29.3 $37.9 $46.5
</Table>
<Table>
<Caption>
% OWNERSHIP Capital
Primary F.D. Amount
------- ------ -------
* 12.5% 11.9% $75.4
Heartland 37.5% 35.6% 226.2
Close Family 50.0% 47.5% 301.7
Management 0.0% 5.0% 0.0
----- ----- ------
Total 100.0% 100.0% $603.3
</Table>
* Omitted and filed separately with the Commission.
63
EXHIBIT 12 Case: Mgmt Downside
Project Snug Cap Struct: Base
Overview No Acquisitions
(Amounts in millions)
<Table>
Equity Purchase Price
Current Share Price (1/19/01) $33.19
Premium Paid 26.6%
Purchase Price Per Share $42.00
Shares Outstanding 18.1
Equity Purchase Price $762.2
</Table>
<Table>
<Caption>
Pro Forma Share Ownership Shares Value
------ -----
Rolled Over Close Family Shares 7.2 $301.7
* Shares 1.8 575.4
Heartland Shares 5.4 226.2
------ -----
Total Outside Investors 7.2 $301.7
Shares Repurchased with Debt 3.8 $158.9
Total Equity Purchase Price 18.1 $762.2
</Table>
<Table>
<Caption>
Sources Rate $ %
----- -------- ------
Revolves 9.0% 50.0 0.0%
Senior Debt 9.0% 558.7 48.1%
Subordinated Debt 12.0% 0.0 0.0%
Roll-Over Equity 301.7 26.0%
Investors' Equity 301.7 26.0%
-------- ------
Total Sources $1,162.0 100.0%
-------- ------
Uses
Equity Purchase Price 762.2
Refinance Existing Debt 373.0
Transaction Expenses 29.5
Prepayment Penalties 0.0
Existing Cash (2.7)
--------
Total Uses $1,162.0
</Table>
<Table>
<Caption>
Acquisition Multiples Multiples Amount Enterprise Transaction
------------ -------- ---------- -----------
Purchase Price Revenue
Equity Purchase Price $ 762.2 FYE 12/30/00 $2,276.1 0.5x 0.5x
Plus: Net Debt 370.3 FYE 12/31/01 2,313.2 0.5 0.5
Enterprise Value $1,832.5 EBITDA
Plus: Fees & Expenses 29.5 FYE 12/30/01 $ 254.0 4.5x 4.6x
--------
Transaction Value $1,162.0 FYE 12/31/01 259.2 4.4 4.5
--------
EBIT
FYE 12/30/00 $ 145.0 7.8x 8.0x
FYE 12/31/01 153.0 7.4 7.0
</Table>
<Table>
Financial Summary Historical Fiscal Year Ending December 31,
---------------------------- ------------------------------------------------
1998 PF 1999PF 2000E PF 2001 2002 2003 2004 2005
-------- -------- -------- -------- -------- -------- -------- --------
Revenue $2,180.5 $2,220.5 $2,278.1 $2,313.2 $2,398.0 $2,496.7 $2,565.6 $2,641.4
Gross Profit 384.7 419.6 0.0 449.9 474.1 505.4 521.4 $39.9
EBITDA 191.5 239.1 254.0 259.2 284.6 314.6 334.7 355.6
PPO 104.5 134.1 145.0 153.0 166.3 184.9 192.2 200.9
EBIT 104.5 137.8 145.0 143.0 152.8 167.4 374.3 182.7
Net Income 55.9 62.6 73.9 83.2 95.0
Cap Ex 120.5 166.8 100.0 144.0 168.0 139.0 125.0 125.0
Interest Expense $50.3 $49.8 $48.5 $44.2 $35.7 $24.3
Revenue Growth 1.8% 2.6% 1.5% 3.7% 4.1% 2.8% 3.0%
Gross Margin 17.6% 18.9% 0.0% 19.4% 19.8% 20.2% 20.3% 20.4%
EBITDA Margin 8.8% 10.8% 11.1% 11.2% 15.9% 12.6% 13.0% 13.5%
PFO Margin 4.8% 6.0% 6.4% 6.6% 6.9% 7.4% 7.5% 7.6%
EBIT Margin 4.8% 6.2% 6.4% 6.2% 6.4% 6.7% 6.8% 6.9%
Credit Ratios:
EBITDA/Interest 4.8x 5.1x 5.2x 5.9x 7.1x 9.4x 14.6x
(EBITDA-CapEx) mgmt 1.4 3.1 2.3 2.4 4.0 5.9 9.5
Net Debt/EBITDA 2.3 2.2 2.1 1.9 1.4 1.0 0.6
Total Debt/EBITDA 2.3 2.2 2.1 1.9 1.4 1.0 0.6
&% of Debt Remaining 100.0% 98.2% 94.6% 81.2% 60.7% 36.8%
Financial Resources
Asset Turns 1.40x 1.43x 1.46x 1.50x 1.57x
Days Sales in
Inventory (COOS) 91.2 89.7 88.1 86.9 85.6
Pre-Tax EBIT ROIC 11.5% 11.5% 12.9% 13.6% 14.6%
</Table>
<Table>
<Caption>
Financial Returns Trailing EBITDA Exit Multiple
----------------------------------------------
Private Sale in 2005 3.5x 4.0x 4.5x 5.0x 5.5x
----- ----- ----- ----- -----
* 11.1% 14.5% 17.6% 20.4% 23.0%
Gain to Management $22.0 $30.9 $39.8 $48.0 $57.5
Private Sale in 2001
* 2.3% 9.6% 16.1% 21.9% 27.2%
Gain to Management $2.2 $10.1 $17.9 $25.8 $33.7
</Table>
<Table>
<Caption>
% Ownership Capital
Primary P.D. Amount
------ ------ ------
* 12.5% 11.9% $25.4
Heartland 37.5% 35.6% 226.2
Close Family 50.0% 47.5% 301.7
Management 0.0% 5.0% 0.0
------ ------ ------
Total 100.0% 100.0% $603.7
</Table>
* Omitted and filed separately with the Commission.
64
PROJECT SNUG EXHIBIT 13 Case: Flat Margins
OVERVIEW Cap Street: Base
(AMOUNTS IN MILLIONS) No Acquisitions
<Table>
<Caption>
EQUITY PURCHASE PRICE
Current Share Price (1/19/01) $33.19
Premium Paid 26.6%
------
Purchase Price Per Share $42.00
Shares Outstanding 18.1
------
Equity Purchase Price $762.2
</Table>
<Table>
<Caption>
PRO FORMA SHARE OWNERSHIP
SHARES VALUE
------ ------
Rolled-Over Close Family Shares 7.2 $301.7
* Shares 1.8 $75.4
Heartland Shares 5.4 226.2
------ ------
Total Outside Investors 7.2 $301.7
Shares Repurchased with Debt 3.8 $158.9
Total Equity Purchase Price 18.1 $762.2
</Table>
<Table>
<Caption>
SOURCES Rate $ %
----- ------- ----
Revolver 9.0% $0.0 0.0%
Senior Debt 9.0% 558.7 48.1%
Subordinated Debt 12.0% 0.0 0.0%
Roll-Over Equity 301.7 26.0%
Investors' Equity 301.7 26.0%
-------- -----
Total Sources $1,162.0 100.0%
======== =====
USES
Equity Purchase Price $762.2
Refinance Existing Debt 373.0
Transaction Expenses 29.5
Prepaying Penalties 0.0
Existing Cash (2.7)
--------
Total Uses $1,162.0
========
</Table>
<Table>
<Caption>
ACQUISITION MULTIPLES
MULTIPLES AMOUNT ENTERPRISE TRANSACTION
--------- -------- ---------- -----------
PURCHASE PRICE REVENUE
Equity Purchase Price $762.2 FYE 12/30/00 $2,264.3 0.5x 0.5x
Plus: Net Debt 370.3 FYE 12/31/01 2,299.2 0.5 0.5
-------- EBITDA
Enterprise Value $1,132.5 FYE 12/30/00 $254.0 4.5x 4.6x
Plus: Fees & Expenses 29.5 FYE 12/31/01 263.6 4.3 4.4
Transaction Value $1,162.0 EBIT
-------- FYE 12/30/00 $145.0 7.8x 8.0x
FYE 12/31/01 153.0 7.4 7.6
</Table>
<Table>
<Caption>
FINANCIAL SUMMARY
HISTORICAL FISCAL YEAR ENDING DECEMBER 31,
---------------------------- ------------------------------------------------
1998 PF 1999 PF 2000E PF 2001 2002 2003 2004 2005
Revenue $2,180.5 $2,220.5 $2,264.3 $2,299.2 $2,368.1 $2,439.2 $2,512.4 $2,587.7
Gross Profit 384.7 419.6 434.7 441.4 454.7 468.3 482.4 496.8
EBITDA 191.5 239.1 254.0 263.6 271.4 279.4 287.7 296.2
PFO 104.5 134.1 145.0 153.0 157.6 162.3 167.2 172.2
EBIT 104.5 137.8 145.0 153.0 157.6 162.3 167.2 172.2
Net Income 62.2 65.6 69.4 74.8 83.2
Cap Ex 120.5 166.8 100.0 144.0 168.0 139.0 125.0 125.0
Interest Expense $50.3 $49.3 $48.3 $46.7 $42.5 $36.9
Revenue Growth 1.8% 2.0% 1.5% 3.0% 3.0% 3.0% 3.0%
Gross Margin 17.6% 18.9% 19.2% 19.2% 19.2% 19.2% 19.2% 19.2%
EBITDA Margin 8.8% 10.8% 11.2% 11.5% 11.5% 11.5% 11.5% 11.4%
PFO Margin 4.8% 6.0% 6.4% 6.7% 6.7% 6.7% 6.7% 6.1%
EBIT Margin 4.8% 6.2% 6.4% 6.7% 6.7% 6.7% 6.7% 6.1%
CREDIT RATIOS
EBITDA/Interest 4.8x 5.1x 5.4x 3.6x 6.0x 6.8x 8.0x
(EBITDA-CapEx)/int. 1.4 3.1 2.4 2.1 3.0 3.8 4.6
Net Debt/EBITDA 2.3 2.2 2.0 2.0 1.8 1.5 1.3
Total Debt/EBITDA 2.3 2.2 2.0 2.0 1.8 1.5 1.3
% of Debt Remaining 100.0% 95.9% 96.0% 89.7% 79.4% 67.4%
FINANCIAL MEASURES
Asset Turns 1.37x 1.36x 1.35x 1.36x 1.38x
Days Sales in Inventory (COGS) 101.0 101.0 101.0 101.0 101.0
Pre-Tax EBIT ROIC 12.4% 12.3% 12.1% 12.3% 12.5%
</Table>
<Table>
<Caption>
FINANCIAL RETURNS
Trailing EBITDA Exit Multiple
------------------------------------------------
PRIVATE SALE IN 2005 3.5x 4.0x 4.5x 5.0x 5.5x
--------- -------- --------- --------- ---------
* 1.7% 5.7% 9.2% 12.3% 15.1%
Gain to Management $2.8 $10.2 $17.6 $25.0 $32.4
PRIVATE SALE IN 2001
* (7.6%) 0.7% 7.4% 13.5% 18.9%
Gain to Management $0.0 $0.6 $7.6 $14.6 $21.6
</Table>
<Table>
<Caption>
% OWNERSHIP
CAPITAL
PRIMARY F.D. AMOUNT
------- ----- -------
* 12.5% 12.9% 573.4
Heartland 37.5% 35.6% 226.2
Close Family 50.0% 47.5% 301.7
Management 0.0% 5.0% 0.0
----- ----- -----
Total 100.0% 100.0% $601.3
</Table>
* Omitted and filed separately with the Commission.
65
PROJECT SNUG
SHARE PRICE AND LEVERAGE SENSITIVITY ANALYSIS
RETURNS IN 2005 (ASSUMING EXIT MULTIPLE OF 4.5x 2005 EBITDA)
<Table>
ACQUISITION PRICE PER SHARE
FINANCIAL CAPITAL -------------------------------------------------------
CASE STRUCTURE * * * * * *
- ----------------------------------------------------------------------------------------------------
Base Capital Structure
Mgmt Base Base 28.9% 27.3% 25.8% 24.3% 23.0% 21.7%
Mgmt Mid Base 26.9% 25.3% 23.9% 22.4% 21.1% 19.8%
Mgmt Downside Base 24.8% 23.2% 21.7% 20.3% 19.0% 17.7%
2.75x Leverage Capital Structure
Mgmt Base 2.75x Leverage 36.7% 33.7% 31.0% 28.6% 26.4% 24.4%
Mgmt Mid 2.75x Leverage 34.3% 31.3% 28.7% 26.3% 24.2% 22.2%
Mgmt Downside 2.75x Leverage 31.6% 28.7% 26.1% 23.8% 21.7% 19.8%
3x Leverage Capital Structure
Mgmt Base 3x Leverage 41.4% 37.6% 34.2% 31.3% 28.7% 26.4%
Mgmt Mid 3x Leverage 38.8% 35.0% 31.8% 28.9% 26.4% 24.0%
Mgmt Downside 3x Leverage 35.8% 32.1% 28.9% 26.1% 23.7% 21.4%
</Table>
* Omitted and filed separately with the Commission.
66
<Table>
<Caption>
Project Snug Care: Mgmt Mid
Overview Cap Stock: 2.75x Leverage
- -------- No Acquisitions
(Amounts in millions)
EQUITY PURCHASE PRICE
Current Share Price (1/19/01) $33.19
Premium Paid 8.5%
Purchase Price Per Share $36.00
Shares Outstanding 18.0
Equity Purchase Price $648.3
</Table>
- -------------------------------------------------------------------------------
<Table>
<Caption>
PRO FORMA SHARE OWNERSHIP Shares Value
---------- ----------
Rolled-Over Close Family Shares 7.2 $258.6
Outside Investors Shares 2.5 591.0
Other Equity Shares 0.0 0.0
--- ---
Total Outside Investors 2.5 591.0
Shares Repurchased with Debt 8.3 $298.7
Total Equity Purchase Price 10.0 $648.3
</Table>
- -------------------------------------------------------------------------------
<Table>
<Caption>
SOURCES Rate $ %
---------- ---------- ---------
Revolver 9.0% $0.0 0.0%
Senior Debt 9.0% $71.5 54.5%
Subordinated Debt 13.0% 127.0 12.1%
Roll-Over Equity 258.6 24.7%
Investors' Equity 91.0 8.7%
---- -----
Total Sources $1,048.1 100.0%
-------- ------
USES
Equity Purchase Price $648.3
Refinance Existing Debt 373.0
Transaction Expenses 29.5
Prepayment Penalties 0.0
Existing Cash (2.7)
--------
Total Uses $1,068.1
</Table>
<Table>
<Caption>
- -------------------------------------------------------------------------------
ACQUISITION MULTIPLES Multiples Amount Enterprise Transaction
--------- ------ ---------- -----------
Purchase Price Revenue
- --------------
Equity Purchase Price $643.3 FYE 12/30/00 $2,278.2 0.4x 0.5x
Plus: Net Debt 370.3 FYE 12/31/01 2,313.2 0.4 0.5
-----
Enterprise Value $1,018.5 EBITDA
Plus: Fees & Expenses 29.5 FYE 12/30/00 $254.0 4.0x 4.0x
----
Transaction Value $1,048.1 FYE 12/31/01 257.5 4.0 4.1
--------
EBIT
FYE 12/30/00 $145.0 7.0x 7.2x
FYE 12/31/01 $153.0 6.7 6.9
</Table>
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------------------------------------
Financial Summary Historical Fiscal Year Ending December 31,
-------------------------------------------------- -----------------------------------------------
1998 PF 1999PF 2000EPF 2001 2002 2003 2004 2005
--------- --------- ---------- --------- -------- -------- -------- --------
Revenue $2,180.5 $2,220.5 $2,278.1 $2,313.2 $2,426.0 $2,553.1 $2,660.0 $2,776.1
Gross Profit 384.7 419.6 437.4 444.1 477.0 523.2 548.1 576.0
EBITDA 191.5 239.1 254.0 257.5 288.6 330.6 354.8 380.1
-------- -------- -------- -------- -------- -------- -------- --------
PPO 104.5 134.1 145.0 153.0 171.0 201.8 213.3 226.6
EBIT 104.5 137.8 145.0 141.2 150.8 183.5 194.4 207.3
Net Income 45.3 36.6 73.1 86.8 101.4
Cap Ex 120.5 166.8 100.0 144.0 168.0 139.0 125.0 125.0
567.9 365.8 362.5 538.4 549.8 538.3
Revenue Growth 1.6% 2.6% 1.5% 4.9% 5.2% 4.2% 4.0%
Gross Margin 17.6% 18.9% 19.2% 19.2% 19.7% 20.5% 20.6% 20.7%
EBITDA Margin 8.8% 10.8% 11.1% 11.1% 13.9% 13.0% 13.3% 13.7%
PPO Margin 4.8% 6.0% 6.4% 6.6% 7.1% 7.9% 8.0% 8.2%
EBIT Margin 4.8% 6.2% 6.4% 6.3% 6.5% 7.2% 7.3% 7.5%
Credit Ratios
- -------------
EBITDA/Interest 3.5x 3.7x 3.9x 4.6x 5.7x 7.1x 9.9x
(EBITDA-CapEx) Mgmt 1.1 2.3 1.7 1.9 3.3 4.6 6.7
Net Debt/EBITDA 2.9 2.8 2.5 2.2 1.7 1.2 0.8
Total Debt/EBITDA 2.9 2.8 2.5 2.2 1.7 1.2 0.8
% of Debt Remaining 100.0% 91.4% 89.4% 78.4% 62.0% 41.8%
Financial Measures
- ------------------
Asset Terms 1.40x 1.45x 1.49x 8.54x 1.62x
Days Sales in Inventory (COGS) 90.9 89.1 87.2 85.9 84.6
Pre-Tax EBIT RONC 11.7% 12.8% 14.8% 15.9% 17.4%
</Table>
- -------------------------------------------------------------------------------
<Table>
<Caption>
Financial Returns Trailing EBITDA Exit Multiple
-----------------------------------------------
Private Sale in 2005 3.5x 4.0x 4.5x 3.0x 3.5x
- -------------------- -----------------------------------------------
Outside Investors 23.5% 27.6% 31.3% 34.6% 37.6%
Gain to Management $34.4 $43.9 $53.4 $62.9 $72.4
Private Sale in 2003
- --------------------
Outside Investors 19.5% 29.2% 37.6% 45.0% 51.9%
Gain to Management $13.0 $21.3 $29.5 $37.8 $46.1
</Table>
- -------------------------------------------------------------------------------
<Table>
<Caption>
% Ownership Capital
Primary F.D. Amount
--------------- ------- ----------
Outside Investors 26.0% 24.7% $91.0
Other Equity 0.0% 0.0% 0.0
Close Family 74.0% 70.3% 258.6
Management 0.0% 5.0% 0.0
----- ----- ---
Total 100.0% 100.0% $349.6
</Table>
- -------------------------------------------------------------------------------
67
Project Snug Case: Mgmt Mid
Overview Cap Struck: 3x Leverage
(Amounts in millions) No Acquisitions
<Table>
<Caption>
Equity Purchase Price
Current Share Price (1/19/01) $33.19
Premium Paid 8.5%
------
Purchase Price Per Share $36.00
Shares Outstanding 18.0
------
Equity Purchase Price $648.3
</Table>
<Table>
<Caption>
Pro Forma Share Ownership Shares Value
------ -----
Rolled-Over Close Family Shares 7.2 $258.6
Outside Investors Shares 0.8 527.5
Other Equity Shares 0.0 0.0
------ ------
Total Outside Investors 0.8 527.5
Shares Repurchased with Debt 10.1 $362.2
Total Equity Purchase Price 18.0 $648.3
</Table>
<Table>
<Caption>
Sources Rate $ %
---- ------- -------
Revolves 9.0% $0.0 0.0%
Senior Debt 9.0% 635.0 60.6%
Subordinated Debt 13.0% 127.0 12.1%
Roll-Over Equity 258.6 24.7%
Investors' Equity 27.5 2.6%
-------- ------
Total Sources $1,048.1 100.0%
-------- ------
Uses
Equity Purchase Price $ 648.3
Refinance Existing Debt 373.0
Transaction Expenses 29.5
Prepayment Penalties 0.0
Existing Cash (2.7)
--------
Total Uses $1,048.1
--------
</Table>
<Table>
<Caption>
Acquisition Multiples Multiples Amount Enterprise Transaction
--------- ------ ---------- -----------
Purchase Price Revenue
Equity Purchase Price $ 648.3 FYE 12/30/00 $2,278.1 0.4x 0.5x
Plus: Net Debt 370.3 FYE 12/31/01 2,313.2 0.4 0.5
--------
Enterprise Value $1,018.5 EBITDA
Plus: Fees & Expenses 29.5 FYE 12/30/00 $ 254.0 4.0x 4.1x
--------
Transaction Value $1,048.1 FYE 12/31/01 257.5 4.0 4.1
-------- EBIT
FYE 12/30/00 $ 145.0 7.0x 7.2x
FYE 12/31/01 153.0 6.7 6.9
</Table>
<Table>
<Caption>
Financial Summary Historical Fiscal Year Ending December 31,
---------------------------------- ----------------------------------------------------
1998 PF 1999 PF 2000E PF 2001 2002 2003 2004 2005
------- ------- -------- -------- -------- -------- -------- --------
Revenue $2,180.5 $2,220.5 $2,278.1 $2,313.2 $2,426.0 $2,553.1 $2,660.0 $2,776.1
Gross Profit 384.7 419.6 437.4 444.1 477.0 523.2 548.1 576.0
EBITDA 191.5 239.1 254.0 257.5 288.6 330.6 354.8 380.1
PFO 104.5 134.1 145.0 153.0 171.6 201.8 213.3 226.6
EBIT 104.5 137.8 145.0 141.2 156.8 183.5 194.4 207.3
Net Income 41.8 52.9 71.1 82.7 97.0
Cap Ex 120.5 166.8 100.0 144.0 168.0 139.0 125.0 125.0
Interest Expense $73.7 $71.6 $68.7 $64.9 $56.7 $45.6
Revenue Growth 1.8% 2.6% 1.5% 4.9% 5.2% 4.2% 4.4%
Gross Margin 17.6% 18.9% 19.2% 19.2% 19.7% 20.5% 20.6% 20.7%
EBITDA Margin 8.8% 10.8% 11.1% 11.1% 11.9% 13.0% 13.3% 13.7%
PFO Margin 4.8% 6.0% 6.4% 6.6% 7.1% 7.9% 8.0% 8.2%
EBIT Margin 4.8% 6.2% 6.4% 6.1% 6.5% 7.2% 7.3% 7.5%
Credit Ratios
- -------------
EBITDA/Interest 3.2x 3.4x 3.6x 4.2x 5.1x 6.3x 8.3x
(EBITDA-CapEx)/Int. 1.0 2.1 1.6 1.8 3.0 4.1 5.6
Net Debt/EBITDA 3.2 3.0 2.7 2.4 1.9 1.4 1.0
Total Debt/EBITDA 3.2 3.0 2.7 2.4 1.9 1.4 1.0
% of Debt Remaining 100.0% 92.6% 91.3% 81.7% 67.2% 49.3%
Financial Measures
- ------------------
Asset Turns 1.40x 1.45x 1.49x 1.54x 1.62x
Days Sales in Inventory (COGS) 90.9 89.1 87.2 85.9 84.6
Pre-Tax EDIT ROIC 11.7% 12.8% 14.8% 15.9% 17.4%
</Table>
<Table>
<Caption>
Financial Returns Trailing EBITDA Exit Multiple
-------------------------------------------------
Private Sale in 2005 3.5x 4.0x 4.5x 5.0x 5.5x
-------- -------- -------- -------- --------
Outside Investors 26.4% 31.0% 35.0% 38.6% 41.9%
Gain to Management $33.4 $43.0 $52.5 $62.0 $71.5
Private Sale in 2003
Outside Investors 22.2% 33.4% 43.0% 51.4% 39.0%
Gain to Management $12.4 $20.7 $29.0 $37.2 $45.5
</Table>
<Table>
<Caption>
% Ownership Capital
Primary F.D. Amount
------- -------- -------
Outside Investors 9.6% 9.1% $ 27.5
Other Equity 0.0% 0.0% 0.0
Close Family 90.4% 85.9% 258.6
Management 0.0% 5.0% 0.0
------ ------ ------
Total 100.0% 100.0% $286.1
</Table>