1
Exhibit (c)(7)
SPRINGS INDUSTRIES
REVIEW OF STRATEGIC & FINANCIAL ALTERNATIVES
================================================================================
October 6, 2000
- -----------
GREENWICH
CREDIT
RESEARCH &
TRADING
CONNECTICUT
- -----------
2
SPRINGS INDUSTRIES
TABLE OF CONTENTS
================================================================================
- --------------------------------------------------------------------------------
SECTION 1 PERSPECTIVES ON SECTOR
- --------------------------------------------------------------------------------
SECTION 2 PERSPECTIVES ON SPRINGS BASIC BUSINESS PLAN / STRATEGY
- --------------------------------------------------------------------------------
SECTION 3 REVIEW OF ALTERNATIVE GROWTH STRATEGIES
- Selected Acquisitions in Core Bed & Bath Area
- Development of Significant Foreign Sourcing
- Broad Based Acquisition Strategy
- --------------------------------------------------------------------------------
SECTION 4 REVIEW OF FINANCIAL STRUCTURE ALTERNATIVES
- Base Case Capital Structure Alternatives
- Access to Capital to Support Growth Strategies
- --------------------------------------------------------------------------------
APPENDIX 1 HEARTLAND INDUSTRIAL PARTNERS
- --------------------------------------------------------------------------------
APPENDIX 2 PILLOWTEX RESEARCH
- --------------------------------------------------------------------------------
APPENDIX 3 GLENOIT RESEARCH
- --------------------------------------------------------------------------------
APPENDIX 4 SUPPORTING INFORMATION
- --------------------------------------------------------------------------------
- -----------
GREENWICH
CREDIT
RESEARCH &
TRADING
CONNECTICUT
- -----------
2
3
SPRINGS INDUSTRIES
RANGE OF ALTERNATIVES CONSIDERED
================================================================================
STRATEGIC ALTERNATIVES
- Base Case Business Plan
- Acquisitions in core bed & bath product areas
- Material investment in non-domestic sourcing
- Broad based home textiles acquisition strategy
FINANCIAL ALTERNATIVES
- Base Case Capital Structure
- Capital Structure Considerations
- Share Repurchase
- Leveraged Recapitalization
- Access to Capital to Support Growth Strategies
- Dividend Policy
- Divestitures
- New Equity
- -----------
GREENWICH
CREDIT
RESEARCH &
TRADING
CONNECTICUT
- -----------
3
4
SPRINGS INDUSTRIES
SECTION 1
PERSPECTIVES ON SECTOR
================================================================================
- -----------
GREENWICH
CREDIT
RESEARCH &
TRADING
CONNECTICUT
- -----------
4
5
SPRINGS INDUSTRIES
SECTOR GROWTH
================================================================================
- - OVERALL PRODUCT MIX IS VERY
CONSISTENT OVER THE PERIOD:
17% INSTITUTIONAL
83% RETAIL
46% BEDDING*
26% BATH
14% CURTAINS & DRAPES
5% TABLE LINENS
4% DECORATIVE PILLOWS
6% OTHER
- - NOTABLE EXCEPTION IS DECLINE IN BED SPREADS
SECTOR GROWTH IS EXPECTED TO IMPORTS ARE GAINING MOST OF THE
BE REASONABLE - 5-6% SHARE GROWTH
COMPOUND ANNUAL GROWTH AT RETAIL MARKET SHARE OF IMPORTS (1)
------------------------------------- ---------------------------
1995-1999 2000-2005 1995 1999
--------- --------- ---- ----
Home Textiles 5.0% 5.0%
Sectors
- -------
Sheets 4.7% 4.0% 16.5% 25.1%
BIAB 16.6% 16.6% NA NA
Comforters, 2.7% 2.0% 17.7% 26.3%
Quilts,
Bedspreads
Towels 6.4% 6.0% 28.0% 37.3%
Rugs 6.8% 6.0% 6.3% 9.8%
(1) Source: Hayes
- -----------
GREENWICH
CREDIT
RESEARCH &
TRADING
CONNECTICUT
- -----------
5
6
SPRINGS INDUSTRIES
DOMESTIC VS. IMPORT PRODUCTION MIX
================================================================================
- - IMPORTS ARE GAINING SHARE:
- MOSTLY AT LOWER END-
PROMOTIONAL PROGRAMS VS.
CONTINUAL REPLENISHMENT
- ALSO AT HIGH END WHERE LABOR
CONTENT IS GREATER
SHEETS & PILLOWCASES
[BAR CHART]
1995 1996 1997 1998 1999
- ---- ---- ---- ---- ----
1742 1824 1936 1916 1993
330 336 436 579 641
SPRINGS $535 $550 $575 $560 $620
WESTPOINT $565 $620 $670 $655 $680
COMFORTERS, QUILTS
BEDSPREADS & ACCESSORIES
[BAR CHART]
1995 1996 1997 1998 1999
- ----- ---- ---- ---- ----
1608 1608 1577 1626 1642
333 318 353 444 551
SPRINGS $235 $240 $245 $275 $325
WESTPOINT $220 $210 $225 $250 $360
TOWELS & WASH CLOTHS
[BAR CHART]
1995 1996 1997 1998 1999
- ----- ---- ---- ---- ----
1432 1507 1609 1611 1546
522 544 654 771 858
SPRINGS $200 $190 $200 $195 $190
WESTPOINT $460 $500 $600 $615 $630
PILLOWTEX $595 $625 $675 $605 $590
BATH & AREA RUGS
[BAR CHART]
1995 1996 1997 1998 1999
- ---- ---- ---- ---- ----
794 853 839 905 940
53 41 75 73 102
SPRINGS $147 $159 $152 $137 $137
MOHAWK $224 $251 $257 $270 $325
- -----------
GREENWICH
CREDIT
RESEARCH &
TRADING
CONNECTICUT
- -----------
- ----------
(1) Source: Hayes
6
7
SPRINGS INDUSTRIES
DOMESTIC / IMPORT PRODUCTION MIX
================================================================================
BLANKETS & THROWS
[BAR CHART]
1995 1996 1997 1998 1999
- ---- ---- ---- ---- ----
746 716 705 713 723
96 97 117 159 182
MATTRESS PADS & FEATHER BEDS
[BAR CHART]
1995 1996 1997 1998 1999
- ---- ---- ---- ---- ----
277 287 297 307 309
24 18 26 28 46
PILLOWS & CUSHIONS
[BAR CHART]
1995 1996 1997 1998 1999
- ---- ---- ---- ---- ----
888 952 1016 986 1035
72 70 94 165 174
WINDOW CURTAINS, DRAPERIES &
SHOWER CURTAINS
[BAR CHART]
1995 1996 1997 1998 1999
- ---- ---- ---- ---- ----
1594 1557 1799 1818 1873
165 156 196 242 335
- -----------
GREENWICH
CREDIT
RESEARCH &
TRADING
CONNECTICUT
- -----------
7
8
SPRINGS INDUSTRIES
Customer Trends
Mass merchants and specialty stores are gaining market share of home textiles at
the expense of department stores.
[CUSTOMER TRENDS CHART:
Same Store Sales (%) v. Total Growth (%)
Sears
JCP
Federated
May
K-Mart
Saks
Target
Wal-Mart
Lowes
L & T
Kohls
Home Depot
BBB]
Source HTT - August 14, 2000 8
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- -----------
9
SPRINGS INDUSTRIES
Brand Stratification (Sheets)
- - Long established textile brand names moving to mass channels.
- - Largest merchants have developed store brands and seek to take proprietary
control of selected third party brands.
- - Pressure on major home textile companies to produce across a wide portfolio
of brands, stratified to meet the needs of its largest customers.
- - Designer brands have remained exclusively at department stores.
- --------
BRAND ----------------------------------------------
POSITION BB&B LNT DEPT STORES
- -------- ----------------------------------------------
- Wamsutta - Wamsutta - Ralph Lauren
HIGH END - High - Hillcrest (wps)
Country (c) - Wamsutta
(c) - Royal - Charisma (ptx)
- Hillcrest Sateen - Royal Sateen
(c) (cc) (cc)
---------------------------- - Royal - Limoges - Calvin Klein
SEARS JC PENNEY Sateen (c) (cc)
---------------------------- (cc) - Royal Velvet
- Whole - JCP Home (ptx)
Home Collection - Tommy Hilfiger
(wps/ptx/ (cl/wps/ - Various
smi) smi) ----------------------------------------------
------------------------------------------- - Royal - Wamsutta - Wamsutta - Wamsutta
WAL*MART K-MART TARGET Velvet - Alexander - Alexander - Martex
------------------------------------------- (ptx) Julian (dr) Julian (dr) - Various
- Springmaid - Martha - Serenity - LNT (pl) - Ralph Lauren
Stewart 5 (smi) ---------------------------- (wps)
Star (smi/ - Royal - Fieldcrest - JCP Home ----------------------------------------------
wps) Legacy - Colormate Essentials - Assorted - Assorted - Assorted
(wps) (wps) (wps) Promotions Promotions Promotions
- Indulgence - JCP Home - Springmaid - Springmaid
(wps) Expressions ----------------------------------------------
- Waverly (wps)
(smi)
- Martex (wps)
-------------------------------------------
- Springmaid - Martha - Weekend
- Jubilee Stewart 4 (wps)
(smi/ptx) Star - Cotton
- Favorite (dr/wps) Luxury (smi)
Things (smi) - English ----------------------------
- Vintage Florals - Assorted - Assorted
Home (k) (smi/wps) Promotions Promotions
- Ultra Touch
(wps)
------------------------------------------- ----------------------------
- Basics - Home - Springs
(wps) Essentials Home (smi)
(wps)
LOW END
- -----------------------------------------------------------------------------------------------------------------------------------
Legend: c - Converter
cc - Crown Craft
cl - Croscill
dr - Dan River
k - Keeco
pl - Private Label
ptx - Pillowtex
smi - Springs
wps - WestPoint
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- ----------- 9
10
SPRINGS INDUSTRIES
While Major Customers Consolidate - Home Textiles
Industry Remains Fragmented
- -------------------------------------------------------
Largest Home Textile Companies Have
Remained Narrowly Focused in Core Bed &
Bath Segment
- -------------------------------------------------------
- ------------------------- -------------------------
Bedding Bath
- ------------------------- -------------------------
Sheets/ Bath Towels $2,482
Pillowcases $2,463 Bath Rugs 961
Comforters/ Shower Curtains 589
Bedspreads 1,717
Sleep Pillows 1,113
Blankets 739
Down
Comforters 432
Mattress Pads 341
------ ------
Total $6,825 Total $4,032
====== ======
EXTREMELY FRAGMENTED INDUSTRY
SPRINGS 15% Pillowtex 18%
Westpoint Stevens 14% Westpoint Stevens 16%
Pillowtex 12% SPRINGS 12%
Dan River 6% ------
------ 46%
47%
- -------------------------------------------------------------------------------------------
Little Leverage as Yet by Bed & Bath Industry Leaders into Specialty Segments
- -------------------------------------------------------------------------------------------
- ------------------------ ------------------ ---------------------- ------------------
Ready-Made
Kitchen Area Rugs Window Covers Other
- ------------------------ ------------------ ---------------------- ------------------
Table Linen $1,352 Area Rugs $1,487 Ready-Made Throws $ 350
Kitchen Text. 540 Window Other 866
Covers $1,025 Decorative
Pillows 522
------ ------ ------ ------
Total $1,895 Total $1,487 Total $1,025 Total $1,738
====== ====== ====== ======
Town & Country 5% Mohawk 16% Burlington 18%
Next 4 Companies 10% Beaulieu 8% S. Lichtenberg 10%
------ Maples 8% CHF 9%
15% Burlington 6% Miller 9%
------ SPRINGS 9%
38% Croscill 6%
------
55%
Source: KSA, in wholesale dollars.
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- ----------- 10
11
SPRINGS INDUSTRIES
Strategic Positioning in the Bed & Bath Product Categories
1999 BEDDING CATEGORY VOLUMES
($ MILLIONS)
Westpoint Dan Other
Springs Stevens Pillowtex River Domestic Imports TOTAL
------- --------- --------- ----- -------- ------- -----
Sheets & Pillowcases $620 $680 $260 $220 $ 213 $ 641 $2,634
#2 #1 #3 #4
Comforters, Bedspreads,
Quilts & Acc. 325 300 215 210 592 551 2,193
#1 #2 #3 #4
Blankets & Throws -- 95 151 -- 477 182 905
#1 #3
Mattress Pads &
Feather Beds 70 -- 239 46 345
#2
Bed Pillows 60 46 160 -- 293 NA 559
#4 #5 #1 (incl. below)
Other Pillows & Cushions -- -- -- -- -- -- --
------ ------ ---- ---- ------ ------ ------
$1,005 $1,121 $856 $430 $2,290 $1,594 $7,286
====== ====== ==== ==== ====== ====== ======
Source: E. D. Hayes
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- ----------- 11
12
SPRINGS INDUSTRIES
Strategic Positioning in the Bed & Bath Product Categories
1999 BATH CATEGORY VOLUMES
($ MILLIONS)
Westpoint Other
Springs Stevens Pillowtex Mohawk Domestic Imports TOTAL
------- --------- --------- ------ -------- ------- ------
Towels & Wash Cloths $ 190 $ 630 $ 590 $ 120 $ 858 $2,404
#3 #1 #2
Bath & Area Rugs 137 55 $ 325 423 102 1,042
#2 #5 #1
--------------
Shower Curtains 75 -- -- -- 193 268
#1
----- ----- ------ ------ -------------- ------
$ 402 $ 630 $ 645 $ 325 $1,696 $3,714
===== ===== ====== ====== ====== ======
Source: E. D. Hayes
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- ----------- 12
13
SPRINGS INDUSTRIES
Strategic Positioning in the Bed & Bath Product Categories
1999 SHARE OF DOMESTIC PRODUCTION
($ MILLIONS)
Comforters,
Retail Bedspreads, Total Retail Total
Sheets Quilts, etc. Bed Towels Bath
------ ------------ ----- ------ -----
Westpoint Stevens 35% 20% 20% 41% 23%
Springs 32% 22% 18% 12% 15%
Pillowtex 13% 10% 15% 39% 24%
Dan River 9% 14% 8% -- --
Market Shares for Total Sectors are Misleading:
Pillowtex is a minor player in the core retail sheet business:
- Its bedding volume is derived from secondary products -- pillows,
blankets, mattress pads and institutional sheets
Springs is a minor player in the core retail towel business:
- Its bath volume is derived from secondary products -- bath rugs, shower
curtains, accessories and institutional towels
Westpoint Stevens is not diversified across product categories:
- It is concentrated in the core retail towel and bed segments
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- ----------- 13
14
SPRINGS INDUSTRIES
- - Core Bed & Bath Cap-Ex spending - 1993-2000:
- SPRINGS $715 MILLION
- WESTPOINT $915 MILLION
- - Average EBITDA Margin 1933-2000:
- SPRINGS 9.6%
- WESTPOINT 16.9%
[LINE GRAPHIC]
WestPoint Stevens - Strategic Position
PRIMARY STRENGTH IS RETAIL SHEETS AND TOWELS
- - #1 market position in each category
LOW COST PRODUCER
- - WestPoint has spent approximately $250 million more than Springs in core
sheets and towel capital expenditures
WESTPOINT HAS EFFECTIVELY BECOME A CONTRACT MANUFACTURER
- - Focus of production is licensed products -- Ralph Lauren, Martha Stewart,
Disney -- and strong private label programs
- - Design and merchandise expertise is significantly narrower than Springs
- - Recent strategic initiatives emphasize expansion of brands and marketing
expertise -- example is Martex at Target
ATTRACTIVE MARGINS DRIVEN BY:
- - Narrow product line
- - Simplified account structures
- - Meaningful capital expenditures over narrow base
WESTPOINT STARTING TO BROADEN BASE
- - Expansion of Vellux blanket business
- - 1998 Acquisition of Liebhardt (pillows)
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- ----------- 14
15
SPRINGS INDUSTRIES
Strategic Directions Required to Serve Customer
- - A successful supplier could leverage its expertise, client relationships and
brands across a wider array of home textile products.
- Ability to produce or source across a wide range of products and price
points
- Expertise in supply chain management
- Breadth of design / merchandise expertise to support proprietary brands and
customers' private label brands
- Ownership of broad range of proprietary brands in order to maximize returns
and customer loyalty
- Competitive cost structure
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- ----------- 15
16
SPRINGS INDUSTRIES
Section 2
Perspectives on Springs Basic Business Plan / Strategy
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- -----------
16
17
SPRINGS INDUSTRIES
Perspectives Regarding Springs Strategic Positioning
Strengths Weaknesses
-Strong in sheets -Weak in towels
- Strength in mass market - Distant third in retail market
share
-Strong at Wal*Mart, mass market -Weak in department stores / malls
and specialty stores
-Low EBITDA margin
-Strong financial position
-Diversified product line
-Diversified product line - Complexity
- Breadth
- Branding -IT systems need significant
upgrade to mitigate the complexity
-Core capability in replenishment of business processes and multiple
supply chain management applications
-Generally ahead of other US -Long US based manufacturing
manufacturers in development of assets
foreign sourcing
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- -----------
17
18
SPRINGS INDUSTRIES
Margin Pressures & Opportunities
- - Impact of margin
improvement opportunities:
Springs - 2000 11%
Fix 3 Operations 2%
Foreign Sourcing 2%
----
Springs Pro Forma 15%
====
- - Estimated 2000 EBITDA
margins for selected
competitors:
WestPoint Stevens 19%
Pillowtex 7%
Dan River 16%
Constant Pressure on Margin
Consolidation of customers, acceleration of imports and actions by
competitors seeking to maintain market share all put pressure on
margins - requiring annual initiatives and capital investments just
to maintain basic margins.
Opportunities to Materially Improve Margins
Development of Foreign Sourcing
Reversal of Weaknesses in 3 Key Partners and Investment in Foreign
Business Areas Sourcing Assets
------------------------------- -----------------------------------
-Rugs - Nashville plant High Priority Projects:
-AFI - incremental volume to fill -Investment in Greige sourcing
capacity -Investment in towel capacity
-Towels - efficiencies from
modernization investment Size of Investment -
* million
-2000 EBITDA Margins - Return on Investment -
Pro forma EBITDA margin would A four-year pay back implies
increase 200 basis points assuming savings of * million per
above 3 operations earned 5-7% year or 200-400 EBITDA margin
EBITDA margins basis points
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- -----------
* Omitted and filed separately with the Commission.
18
19
SPRINGS INDUSTRIES
Base Case - Strategic Direction
- - Focus on two core segments
- Bed & Bath
- - Leverage brands
- - Leverage strength with mass
market customers
- - Fix three profit problem areas:
- AFI
- Rugs, Nashville and
- Towel modernization
- - Leadership position in
development of foreign
sourcing channels may
prove to be a differentiating
factor in sector.
Bedding Bath
------- ----
-Leverage strength in sheets to -Develop cost competitive towel capacity
round out bedding portfolio (owned or not) and utilize
customer relationships and brand
strengths to gain market share at
Market Rank expense of Pillowtex (easier said
Sheets #2 than done, key is lower cost sourcing
BIAB #2 channel; even then Pillowtex may
Top of Bed #2 react irrationally)
Basic Bedding #5
-Most of the building blocks are in Market Rank
place to build basic bedding position Towels #3
- brand, relationships, capacity Bath rugs #1
Accessories #1
-Develop sourcing channel for Greige Shower curtains #1
goods
-allocation of resources -Springs is capacity
-attempt to lead industry constrained in towels
and thus dependent on
sourcing for growth
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- -----------
19
20
SPRINGS INDUSTRIES
Section 3
Review of Alternative Growth Strategies
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- -----------
20
21
SPRINGS INDUSTRIES
Section 3
Review of Alternative Strategies
================================================================================
- - Selected Acquisition in Core Bed & Bath Area
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- -----------
21
22
SPRINGS INDUSTRIES
Strategic Positioning - Bedding
================================================================================
- - CORE BEDDING IS A STRENGTH FOR SPRINGS AT MASS MERCHANTS
- - OPPORTUNITY TO LEVERAGE BRAND STRENGTH AND CUSTOMER RELATIONSHIPS TO "BASIC
BEDDING"
- - BIAB IS KEY DIFFERENTIATING FACTOR AND A CORE ELEMENT OF THE SPRINGS PLATFORM
SHEETS & PILLOWCASES - RETAIL
Share
---------------
Company 1999 2003
- ------- ---- ----
WestPoint Stevens 32% 34%
SPRINGS 31% 33%
Pillowtex 16% 10%
Dan River 4% 7%
SHEETS & PILLOWCASES - INSTITUTIONAL
Share
---------------
1999 2003
---- ----
WestPoint Stevens 28% 30%
SPRINGS 25% 32%
Dan River 23% 22%
Thomaston 11% 8%
Pillowtex 6% 3%
BIAB
Share
---------------
Company 1999 2003
- ------- ---- ----
Dan River 41% 37%
SPRINGS 33% 45%
WestPoint Stevens 5% 6%
Pillowtex 6% 0%
Hollander 6% 7%
TOP OF BED
Share
---------------
Company 1999 2003
- ------- ---- ----
SPRINGS 19% 18%
WestPoint Stevens 11% 17%
Croscill 10% 11%
Pillowtex 10% 5%
Dan River 3% 5%
BASIC BEDDING
Share
---------------
Company 1999 2003
- ------- ---- ----
Pillowtex 30% 25%
Pacific Coast Feather 22% 25%
Hollander 11% 9%
Louisville 11% 9%
SPRINGS 8% 15%
WestPoint Stevens 5% 10%
BLANKETS
Share
---------------
Company 1999 2003
- ------- ---- ----
Pillowtex 30% 23%
Sunbeam 26% 26%
WestPoint Stevens 21% 28%
Charles Owens 15% 15%
Chatham 4% 4%
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- -----------
22
23
SPRINGS INDUSTRIES
Strategic Positioning -- Bath
================================================================================
- - RETAIL TOWEL IS THE STARTING POINT IN BUILDING A BATH STRATEGY. SPRINGS
FOLLOWS WESTPOINT AND PILLOWTEX
TOWELS - RETAIL
Share
---------------
Company 1999 2003
- ------- ---- ----
Pillowtex 44% 38%
Westpoint 42% 42%
SPRINGS 8% 11%
Sateens 2% 3%
TOWELS - INSTITUTIONAL
Share
---------------
Company 1999 2003
- ------- ---- ----
Pillowtex 21% 16%
WestPoint Stevens 19% 20%
SPRINGS 21% 24%
Blair 9% 10%
1888 3% 3%
BATH RUGS
Share
---------------
Company 1999 2003
- ------- ---- ----
SPRINGS 36% 39%
Aladdin/Newmark 26% 27%
Maples 8% 8%
Pillowtex 13% 7%
Georgia Tufted 4% 6%
Burlington 5% 5%
SHOWER CURTAINS
Share
---------------
Company 1999 2003
- ------- ---- ----
SPRINGS 28% 27%
Allure 24% 24%
Excell 22% 22%
Creative 11% 11%
Maytex 9% 9%
BATH ACCESSORIES
Share
---------------
Company 1999 2003
- ------- ---- ----
SPRINGS 36% 41%
Allure 24% 27%
Creative Bath 12% 13%
Croscill 14% 16%
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- -----------
23
24
SPRINGS INDUSTRIES
Acquisition Strategy - Build Up of Basic Platform
================================================================================
- - PILLOWTEX FILLS MOST OF SPRINGS' VOIDS:
- PRODUCT AREAS
- UPSTAIR BRANDS
- MALL BASED ACCOUNTS
- JC PENNEY
- SEARS
Bedding
- --------------------------------------------------------------------------------
- - ROUND OUT PORTFOLIO IN BASIC BEDDING:
Market Rank
-----------
PILLOWS
PILLOWTEX (down & synthetic) #1
Pacific Coast Feather (down) #2
Hollander (synthetic & down) #3
MATTRESS PADS
PILLOWTEX #2
Pacific Coast Feather #4
Hollander #5
DOWN COMFORTERS
PILLOWTEX #1
Pacific Coast Feather #2
Hollander #2
Phoenix Down #3
United Feather #4
OTHER BEDDING COMPANIES:
Crown Craft
Croscill
Glenoit
Keeco
Bath
- --------------------------------------------------------------------------------
- - Acquisition of part or all of Pillowtex would significantly change Springs
position, giving Springs a full product portfolio
- - Pillowtex Brands
Royal Velvet (JC Penney)
Charisma (Dept Stores)
Cannon (K-Mart)
Serenity (Target)
- - Broader range of accounts through Pillowtex
- - Only alternative to Pillowtex is development of sourcing strategy to attempt
to gain share
- - Side benefit of Pillowtex is broad range of products in bedding areas where
Springs is under-represented
Pillowtex Market Rank
---------------------
PILLOWS #1
DOWN COMFORTER #1
MATTRESS PADS #2
Blankets (not profitable) #1
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- -----------
24
25
SPRINGS INDUSTRIES
Acquisition Strategy - Pillowtex Fills Most of Springs' Voids
================================================================================
RELATIVE SHARE OF DOMESTIC PRODUCTS
----------------------------------------------------------
Comforters,
Retail Bedspreads, Total Retail Total
Sheets Quilts, etc. Bed Towels Bath
------ ------------ --- ------ ----
Westpoint Stevens 35% 20% 20% 41% 23%
Springs 32% 22% 18% 12% 15%
Springs Pro Forma 45%* 32% 33% 51%* 39%
RELATIVE SHARE OF ALL PRODUCERS, INCLUDING IMPORTS
----------------------------------------------------------
Total Total
Sheets Towels
------ ------
Pro Forma as a % of
Combined Domestic and
Imported Product 33% 25% 22% 32% 28%
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- -----------
25
26
SPRINGS INDUSTRIES
Acquisition Candidates - Build Up of Basic Platform
================================================================================
PACIFIC
COAST CROWN
PILLOWTEX FEATHER HOLLANDER GLENOIT KEECO CRAFT CROSCILL
------------- ------------- ------------- ------------- ------------- ------------- -------------
1999 REVENUES
BEDDING
Sheets/Pillowcases 260 9 34 67
Bedspreads/Comforters 145 46 76 96 110
Pillows 160 106 100
Mattress Pads 70 16 14
Blankets 135
Down Comforters 70 74 40
------------- ------------- ------------- ------------- ------------- ------------- -------------
840 196 200 66 85 130 177
BATH
Terry Towels
Bath Rugs 590 55
Shower Curtains & Access. 55 75
------------- ------------- -------------
645 130 46
OTHER 67 34 46 48 198 60
------------- ------------- ------------- ------------- ------------- ------------- -------------
TOTAL 1552 230 200 242 133 328 283
============= ============= ============= ============= ============= ============= =============
NOTE: 24% annual Basic Mostly All foreign Calvin Klein 22% growth in
growth rate Bedding foreign sourced license top of bed -
sourced strong design
capability
Source: Ed Hayes
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- -----------
26
27
SPRINGS INDUSTRIES
Acquisition Candidates in Core Bed & Bath Sector
================================================================================
5-Year
Rev. Multiple to Multiple to
1999 Growth Value Prior Year Prior Year
Revenues Rate EBITDA(1) Range(1) Revenues EBITDA
-------- ---- --------- -------- -------- ------
Broad Platform: Pillowtex $1,300 (2)% $ 100 $ 550-650 .35x-.42x 5.0x-6.0x
(Distressed Situation)
Basic Bedding: One of:
Pacific Coast Feather $ 230 25% $ 23 * * *
Hollander 200 8 20 * * *
Foreign Sourcing: Glenoit $ 242 5%+ $ 24 * * *
Keeco 135 2% 15 * * *
Top of Bed
Design Strength: Croscill $ 283 15% $ 35 * * *
Calvin Klein License: Crown Craft $ 328 11% $ 15 * * *
(Distressed Situation)
(1) Estimated by CRT
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- -----------
* Omitted and filed separately with the Commission.
27
28
SPRINGS INDUSTRIES
Corporate Development Approach at Springs
================================================================================
Pursuit of Multiple Targets Requires Allocation of Resources
- - DEDICATED PERSONNEL
- - TEAM APPROACH
- - LEADERSHIP FROM CEO
Requires Flexibility
- --------------------------------------------------------------------------------
Availability of Targets
Different Characteristics of Targets
PILLOWTEX
- - Breadth of product
- Good fits for Springs
- More complicated
- - Problems - unforeseen attendant to troubled situation
- - Good portfolio of brand names
- - No goodwill
- - Distressed value and little competition
- - Fixed assets in US
- - Execution is critical to successful combination
SOURCING COMPANIES:
GLENOIT
KEECO
- - High growth
- - High value to earnings and book value - thus high goodwill
- - Management retention
- - Sourcing skill sets
STRONG SPECIALTY COMPANIES:
PACIFIC COAST FEATHER
CROSCILL
- - Success in core area
- - High growth, high P/E multiples
- - Retention of management Espirit des Corps in Springs environment
- - Motivation of management team
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- -----------
28
29
SPRINGS INDUSTRIES
Capital Required for Selected Acquisition Strategies
================================================================================
MULTI-TARGET PLAN
-----------------
PILLOWTEX HOLLANDER/KEECO/GLENOIT
--------- -----------------------
($s millions)
HOLLANDER KEECO GLENOIT TOTAL
--------- ----- ------- -----
Purchase Price (Mid-point) $ 600 120 * * *
EBITDA 100 20 * * *
Multiples to EBITDA 6.0 6.0x * * *
Book Value $ 600 60 24 20 104
Goodwill -- 251
Annual Amortization -- 16.7
Revenue 1,300 200 135 242 577
Revenue Growth Rate 5% 8% 10%+ 10%+ 9%
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- -----------
* Omitted and filed separately with the Commission.
29
30
SPRINGS INDUSTRIES
Impact on Springs of Selected Acquisition Strategies
================================================================================
PILLOWTEX:
- - $1,300 MILLION OF REVENUES TO BE ACQUIRED POST DIVESTITURES
- - CURRENT RUN RATE EBITDA ASSUMED TO BE $100 MILLION (7.7%)
- - PROJECTIONS ASSUME A 3 POINT IMPROVEMENT IN MARGIN TO 10.7% BY 2002 (VS.
SPRINGS CURRENT EBITDA MARGIN OF 11.1%)
MULTI-TARGET PLAN:
- - HIGHLY INFLUENCED BY GOODWILL
- - CASH RETURNS EXCLUDING GOODWILL ARE 5% ACCRETIVE IN 2001 AND 13% IN 2002
MULTI-TARGET PLAN
PILLOWTEX HOLLANDER/KEECO/GLENOIT
--------------------------------------- ----------------------------------------
2000 2001 2002 2003 2000 2001 2002 2003
------- ------- ------- ------- ------- ------- ------- -------
INCOME STATEMENT DATA:
Springs Revenue $ 2,331 $ 2,422 $ 2,574 $ 2,739 $ 2,331 $ 2,422 $ 2,574 $ 2,739
Acquired Revenue 1,235 1,321 1,414 1,513 570 627 690 759
------- ------- ------- ------- ------- ------- ------- -------
Total Revenue 3,566 3,743 3,988 4,252 2,901 3,049 3,264 3,498
Springs EBITDA 258 301 349 408 258 301 349 408
Acquired EBITDA 76 128 165 177 49 76 91 100
------- ------- ------- ------- ------- ------- ------- -------
Total EBITDA 334 429 514 585 307 377 440 508
Springs Depreciation & Amort. 109 118 132 144 109 118 132 144
Acquired Depreciation & Amort. 50 48 46 44 15 17 19 21
Amort. of Cap. Expenses & Trans. Fees 5 5 5 5 3 3 3 3
------- ------- ------- ------- ------- ------- ------- -------
Total Depreciation & Amort. 164 171 183 193 124 135 151 165
Interest Cost 113 112 108 103 81 80 78 75
EBT 57 147 223 290 102 162 211 268
Tax (37%) 21 54 83 107 38 60 78 99
GOODWILL -- -- -- -- 17 17 17 17
------- ------- ------- ------- ------- ------- ------- -------
Net Income $ 36 $ 92 $ 141 $ 183 $ 47 $ 85 $ 116 $ 152
======= ======= ======= ======= ======= ======= ======= =======
Net Income:
Springs Stand-alone $ 73 $ 97 $ 118 $ 151 $ 73 $ 97 $ 118 $ 151
Springs Pro Forma 36 92 141 183 47 85 116 152
------- ------- ------- ------- ------- ------- ------- -------
ACCRETION/DILUTION $ (37) $ (5) $ 23 $ 32 $ (26) $ (12) $ (2) $ 1
PERCENT (51)% (5)% 19% 21% (36)% (12)% (2)% 1%
Cost of Refinancing Existing Debt $ 6 $ 5 $ 5 $ 4 $ 6 $ 5 $ 5 $ 4
Debt/EBITDA:
Springs 1.59x 1.22x 0.97x 0.63x 1.59x 1.22x 0.97x 0.63x
Pro Forma 3.06x 2.35x 1.89x 1.56x 2.48x 2.00x 1.66x 1.37x
Debt/Total Capital
Springs 0.33x 0.29x 0.25x 0.19x 0.33x 0.29x 0.25x 0.19x
Pro Forma 0.55x 0.52x 0.48x 0.43x 0.47x 0.45x 0.41x 0.37x
Capital Expenditures
Springs $ 125 $ 140 $ 140 $ 130 $ 125 $ 140 $ 140 $ 130
Acquisition 40 40 42 45 16 18 20 22
------- ------- ------- ------- ------- ------- ------- -------
Total Capital Expenditures $ 165 $ 180 $ 182 $ 175 $ 141 $ 155 $ 160 $ 152
======= ======= ======= ======= ======= ======= ======= =======
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- -----------
30
31
SPRINGS INDUSTRIES
Section 3
Review of Alternative Strategies
================================================================================
- - Development of Significant Foreign Sourcing
- --------------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT 31
- --------------
32
SPRINGS INDUSTRIES
$250 MILLION, 3 YEAR PROGRAM TO BUILD FOREIGN SOURCING
================================================================================
- - Assumes 4.5 year pay back on investment
- - Dilutive through 2003
- - May drive higher growth and access to designer brand names/new accounts
2001 2002 2003 2004 2005
---- ---- ---- ---- ----
($millions)
INVESTMENT $ 50.0 $100.0 $100.0 - -
Impact on EBITDA - 6.0 24.0 48.0 60.0
Depreciation - 5.0 15.0 25.0 25.0
Cost of Debt (9.5%) - 4.8 14.0 22.4 20.0
Pre-tax Income Effect - (3.8) (5.0) 0.6 15.0
Net Income Effect - (2.3) (3.1) 0.4 9.3
Cash Flow Effect - 2.7 11.9 24.6 34.3
Year End Debt 50.0 147.3 235.4 210.8 176.5
PRO FORMA IMPACT ON EBITDA MARGINS
[BAR CHART]
11.1% 11.4% 12.1% 13.2% 13.7% 18.8% 15.7%
SPRINGS BASE PRO FORMA PRO FORMA PRO FORMA PRO FORMA WESTPOINT DAN RIVER
CASE 2000 YEAR 1 YEAR 2 YEAR 3 YEAR 4 STEVENS 2000 2000
- --------------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT 32
- --------------
33
SPRINGS INDUSTRIES
IMPACT OF $250 MILLION 3-YEAR PROGRAM TO BUILD FOREIGN SOURCING
================================================================================
2001 2002 2003 2004 2005
---- ---- ---- ---- ----
Cap-Ex
Springs Base Case $144 $168 $139 $106 $ 107
Pro Forma 194 268 239 106 107
Debt
Springs Base Case $367 $340 $258 $ 95 $ (95)
Pro Forma 417 487 493 306 79
Debt/EBITDA
Springs Base Case 1.22x 0.97x 0.63x 0.21x ---
Pro Forma 1.39x 1.37x 1.14x 0.63x 0.15x
EBITDA MARGIN
[BAR CHART]
2000 2001 2002 2003 2004 2005 WestPoint 2000 Dan River 2000
---- ---- ---- ---- ---- ---- -------------- --------------
Springs Base Case* 11.1% 12.4% 13.6% 14.8% 15.2% 15.5% 18.6% 16.0%
Pro Forma** 11.1% 12.4% 13.8% 15.8% 16.8% 17.5%
* Springs Base Case
** Pro Forma assuming
4.5 year pay back
- --------------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT 33
- --------------
34
SPRINGS INDUSTRIES
SECTION 3
REVIEW OF ALTERNATIVE STRATEGIES
================================================================================
- - Broad Based Acquisition Strategy
- --------------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT 34
- --------------
35
SPRINGS INDUSTRIES
SPRINGS IS BETTER POSITIONED THAN ITS PRIMARY COMPETITORS TO LEAD A
CONSOLIDATION WITHIN THE HOME TEXTILE SECTOR
================================================================================
- - WestPoint Stevens is highly leverage
- - Pillowtex is severely distressed
- - Dan River does not have enough scale to lead consolidation
- - Even though stronger financially, Springs has borrowing limitations of
3-3.5x EBITDA
- - Numerous available acquisition targets
(1999 Sales in Millions)
[BAR CHART]
TIER I TIER II
-------------------------------------- -----------------------------------------------------------------
Springs* WestPoint* Pillowtex* Mohawk* Dan River* Crown Craft* Burlington* Croscill**
------- --------- --------- ------ --------- ----------- ---------- --------
$2,220 $1,868 $1,552 $470 $432 $310 $300 $283
TIER II
--------------------------------------------------------------------------------------------
PCF** Glenoit* Hollander** Maples** Louisville* Revman* Sunbeam* Keeco**
--- ------- --------- ------ ---------- ------ ------- ------
$230 $222 $201 $160 $156 $141 $136 $132
* Financially Distressed
** Open to Merger Discussions
- --------------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- --------------
35
36
SPRINGS INDUSTRIES
HOME TEXTILE EXPANSION OPPORTUNITIES BEYOND CORE
BED & BATH
================================================================================
PROFITABILITY
OF THE
CATEGORY
Table
Linens
200M
Kitchen
Towels
200M
Dec
Pillows
450M
Area
Rugs
1500M
Soft
Windows
1200M
Down
Comforters
600M
Blankets
500M
Kitchen
As a
Room
400M
SPRINGS' ABILITY TO IMPACT
- --------------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- --------------
36
37
SPRINGS INDUSTRIES
POTENTIAL DIVERSIFICATION TARGETS
================================================================================
DECORATIVE PILLOWS
1999 %
Company Volume Share
- ------- ------ -----
Brentwood $100 21%
Arlee 50 11%
Glenoit 21 4%
Newport/Layton 21 4%
Fashion Pillows 21 4%
BATH & AREA RUGS
1999 %
Company Volume Share
- ------- ------ -----
Mohawk $325 35%
Maples 156 17%
Burlington 90 10%
Glenoit 55 6%
Pillowtex 55 6%
Georgia Tufters 50 5%
SOFT WINDOWS & DRAPERIES
1999 %
COMPANY VOLUME SHARE
- ------- ------ -----
Burlington $120 7%
S.Lichtenberg 115 7%
CHF 97 6%
Miller Curtain 93 5%
Croscill 67 4%
BLANKETS
1999 %
COMPANY VOLUME SHARE
- ------- ------ -----
Pillowtex $135 30%
Sunbeam 116 26%
Charles D.Owen 66 15%
CMI-Chatham 20 4%
KITCHEN TEXTILES
1999 %
COMPANY VOLUME SHARE
- ------- ------ -----
Barth & Dreyfuss $59 11%
Franco Mfg 45 8%
Cecil Saydah 44 8%
Charles Craft 18 3%
John Ritzenthaler 18 3%
TABLE LINENS
1999 %
COMPANY VOLUME SHARE
- ------- ------ -----
Town & Country $90 7%
Bardwill 50 4%
Avon Home 35 3%
Elrene 35 3%
Source: Ed Hayes
- --------------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- --------------
37
38
SPRINGS INDUSTRIES
DIVERSIFICATION ACQUISITION CANDIDATES
================================================================================
MULTIPLE W/ MULTIPLE TO
1999 VALUE PRIOR YEAR PRIOR YEAR
REVENUES EBITDA RANGE REVENUES EBITDA
Rugs & Windows: Burlington $ 290 $ 25 $ * * *
Selected Divisions
Rugs & Dec. Pillows: Glenoit $ 242 $ 24 $ * * *
Rugs: Maples $ 220 $ 31 $ * * *
Blankets: Sunbeam $ 136 $ 12 $ * * *
Decorative Pillows: Brentwood $ 100 $ 12 $ * * *
Kitchen: Miscellaneous $ 100 $ 10 $ 60 .6x 6.0x
Top of Bed Croscill $ 283 $ 35 $ * * *
- --------------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- --------------
* Omitted and filed separately with the Commission.
38
39
SPRINGS INDUSTRIES
CAPITAL REQUIRED FOR SELECTED DIVERSIFICATION ACQUISITIONS
================================================================================
BURLINGTON MAPLES SUNBEAM BRENTWOOD TOTAL
Purchase Price $ * $ * $ * $ * $ *
EBITDA * * * * *
Multiple EBITDA * * * * *
Book Value 150 110 80 40 380
Goodwill --- 110 --- 40 150
Annual Amortization --- 7 --- 3 10
Revenue 290 220 136 100 $746
- --------------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- --------------
* Omitted and filed separately with the Commission.
39
40
SPRINGS INDUSTRIES
IMPACT OF DIVERSIFICATION ACQUISITION STRATEGY
================================================================================
IMPACT OF DIVERSIFICATION ACQUISITIONS ON EXPANDED BED & BATH PLATFORMS
MULTI-TARGET PLAN
PILLOWTEX HOLLANDER/KEECO/GLENOIT
--------- -------------------------------
Income Statement Data: 2000 2001 2002 2003 2000 2001 2002 2003
----- ----- ----- ----- ----- ----- ----- -----
Sales:
Springs $ 2,331 $2,422 $2,574 $2,739 $ 2,331 $ 2,422 $2,574 $2,739
Acquired Bed & Bath 1,235 1,321 1,414 1,513 570 627 690 759
Acquired Diversification 746 798 854 914 746 798 854 914
------- ------ ------ ------ ------- ------- ------ ------
Total Revenue 4,312 4,541 4,842 5,166 3,647 3,847 4,118 4,412
Springs EBITDA 258 301 349 408 258 301 349 408
Acquired Bed & Bath EBITDA 76 128 151 162 49 76 91 100
Acquired Diversification EBITDA 80 101 117 125 80 101 117 125
------- ------ ------ ------ ------- ------- ------ ------
Total EBITDA 414 530 617 695 387 478 557 633
Depreciation & Amort. 109 118 132 144 109 118 132 144
Acquired B&B Depreciation & Amort. 60 63 67 71 15 17 19 21
Acquired Divers. Deprec. & Amort. 30 32 34 37 30 32 34 37
Amort. of Cap. Expenses & Trans. Fees 8 8 8 8 7 7 7 7
------- ------ ------ ------ ------- ------- ------ ------
Total Depreciation & Amort 207 221 242 260 161 174 192 208
Interest Cost 132 130 126 118 124 123 121 116
EBT 74 179 249 317 102 182 244 308
Tax (37%) 27 66 92 117 38 67 90 114
Goodwill 10 10 10 10 27 27 27 27
------- ------ ------ ------ ------- ------- ------ ------
Net Income $ 37 $ 103 $ 147 $ 190 $ 38 $ 88 $ 127 $ 168
======= ====== ====== ====== ======= ======= ====== ======
Net Income:
Springs Stand-alone $ 73 $ 97 $ 118 $ 151 $ 73 $ 97 $ 118 $ 151
Springs Pro Forma 37 103 147 190 38 88 127 168
------- ------ ------ ------ ------- ------- ------ ------
ACCRETION/DILUTION $ (36) $ 6 $ 29 $ 39 $ (35) $ (9) $ 9 $ 17
PERCENT (49)% 6% 25% 26% (48)% (9)% 8% 11%
Debt/EBITDA:
Base 1.59x 1.22x 0.97x 0.63x 1.59x 1.22x 0.97x 0.63x
Pro Forma 3.78x 2.90x 2.43x 2.04x 3.42x 2.74x 2.32x 1.96x
Debt/Total Capital:
Base 0.33x 0.29x 0.25x 0.19x 1.59x 1.22x 0.97x 0.63x
Pro Forma 0.60x 0.57x 0.53x 0.48x 0.49x 0.56x 0.52x 0.48x
Capital Expenditures:
Springs $ 125 $ 140 $ 140 $ 130 $ 125 $ 140 $ 140 $ 130
Acquisitions B&B 25 25 25 25 20 20 20 20
Acquisition Diversification 40 40 40 40 16 18 20 22
------- ------ ------ ------ ------- ------- ------ ------
Total Capital Expenditures $ 190 $ 205 $ 207 $ 200 $ 161 $ 178 $ 180 $ 172
======= ====== ====== ====== ======= ======= ====== ======
- --------------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- --------------
40
41
SPRINGS INDUSTRIES
SECTION 4
REVIEW OF FINANCIAL STRUCTURE ALTERNATIVES
================================================================================
- --------------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- --------------
41
42
SPRINGS INDUSTRIES
SECTION 4
REVIEW OF FINANCIAL STRUCTURE ALTERNATIVES
================================================================================
- - Share Repurchase / Optimization of Capital Structure
- --------------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- --------------
42
43
SPRINGS INDUSTRIES
Base Capital Structure Considerations
================================================================================
- - Springs is less than optimally leveraged and will become more so as it
executes on its business plan
- - This has the impact of driving its cost of capital higher and instilling
more pressure on its ability to achieve attractive equity returns
- - SHARE REPURCHASE AT $35/SHARE IS EQUAL TO AN ACQUISITION YIELDING 21% ROIC
PRE TAX
- --------------------------------------------------------------------------------
Debt / Total Capital
- --------------------------------------------------------------------------------
<Table>
<Caption>
SPRINGS
1998 28%
1999 33%
2000 32%
2001 29%
2002 25%
2003 19%
2004 7%
COMPARATIVE DATA
"A" Credit 39%
"BBB" Credit 46%
"BB" Credit 59%
"B" 71%
</Table>
- --------------------------------------------------------------------------------
Weighted Average Cost of Capital
- --------------------------------------------------------------------------------
[WEIGHTED AVERAGE COST OF CAPITAL LINE GRAPH]
WEIGHTED AVERAGE COST OF CAPITAL
DEBT/TOTAL CAPITAL
30 35 40 45 50 55 60
COST OF CAPITAL 9.23 9.12 9.035 8.945 8.89 9.15 9.22
30.6 38.6 34.6 31.6
45.9 46.9 45 43.9
- ---------------
GREENWICH
CREDIT RESEARCH
& TRADING
CONNECTICUT
- ---------------
43
44
SPRINGS INDUSTRIES
Share Buyback Economics - Highly Accretive
================================================================================
- --------------------------------------------------------------------------------
One Time Share Buyback
- --------------------------------------------------------------------------------
REPURCHASE 20% OF FLOAT OUTSTANDING AT EXISTING SHARE PRICE
NPV
2000 2001 2002 2003 2004 2005 TOTAL @ 12%
----------------------------------------------------------------------------------
Base EPS(1) $ 4.02 $ 5.29 $ 6.42 $ 8.07 $ 9.01 $ 9.91 --
Base Stock Price(2) 37.03 44.94 56.49 63.01 69.37 -- --
# of Shares Repurchased (000s) 2,097.0 -- -- -- -- -- --
Price Per Share 37.03 -- -- -- -- -- --
Total Cost of Shares Repurchased(3) 77.6 -- -- -- -- -- 77.6 77.6
Pro Forma EPS(4) 4.17 5.69 7.03 9.13 10.27 11.48 --
Accretion 0.15 0.40 0.61 1.06 1.26 1.57 --
% Accretion 3.6% 7.0% 8.7% 11.6% 12.3% 13.7% --
Pro Forma Share Price(2) 39.83 49.21 63.91 71.92 80.38 -- --
Debt / Total Capital
- - Base 44.9% 35.7% 29.8% 20.4% 7.8% -- --
- - Pro Forma 51.5% 41.5% 35.1% 25.1% 13.3% -- --
- --------------------------------------------------------------------------------
Consistent Share Buyback
- --------------------------------------------------------------------------------
REPURCHASE 4% OF FLOAT EACH YEAR AT THEN EXISTING SHARE PRICE
NPV
2000 2001 2002 2003 2004 2005 TOTAL @ 12%
----------------------------------------------------------------------------------
Base EPS(1) $ 4.02 $ 5.29 $ 6.42 $ 8.07 $ 9.01 $ 9.91 --
Base Stock Price(2) 37.03 44.94 56.49 63.01 69.37 -- --
# of Shares Repurchased (000s) 419.4 419.4 419.4 419.4 419.4 -- --
Price Per Share 28.14 47.53 61.85 70.10 78.56 -- --
Total Cost of Shares Repurchased(3) 11.8 19.9 25.9 29.4 32.9 -- 120.0 82.3
Pro Forma EPS(4) 4.13 5.53 6.79 8.84 10.01 11.22
Accretion 0.11 0.24 0.37 0.77 1.00 1.31
% Accretion 2.7% 4.3% 5.5% 8.7% 10.09% 11.7%
Pro Forma Share Price(2) 38.71 47.53 61.88 70.07 78.40 -- --
Debt / Total Capital
- - Base 44.9% 35.7% 29.8% 20.4% 7.8% --
- - Pro Forma 45.6% 37.5% 32.3% 24.8% 15.2% --
(1) Company projections with modest growth.
(2) Assumes stock trades at 7x forward earnings.
(3) In millions.
(4) Share repurchase with incremental debt at LIBOR +300.
- ---------------
GREENWICH
CREDIT RESEARCH
& TRADING
CONNECTICUT
- ---------------
44
45
SPRINGS INDUSTRIES
Impact On Share Price of Share Repurchase Program
================================================================================
[POTENTIAL SHARE PRICES AT 7X FORWARD EPS LINE GRAPH]
POTENTIAL SHARE PRICES AT 7X FORWARD EPS
2000 2001 2002 2003 2004
LBO $19.40 $38.15 $64.77 $72.70 $80.55
Share Repurchase $38.71 $47.53 $61.88 $70.07 $78.59
Base $37.03 $44.99 $56.49 $63.01 $69.37
- - Share repurchase assume 4% of float repurchased each year at price of 7x
forward EPS & financed at 7.2%
- - LBO assumes all debt refinanced at 9.5% for senior and 13% for
subordinated
- ---------------
GREENWICH
CREDIT RESEARCH
& TRADING
CONNECTICUT
- --------------
45
46
SPRINGS INDUSTRIES
Share Buyback Economics
================================================================================
Repurchase 20% of Float Over 5 Year Period - 4%/Year
[EPS BAR CHART]
EPS
2000 2001 2002 2003 2004 2005
BASE 4.02 5.29 6.42 8.07 9.01 9.91
PRO FORMA 4.17 5.69 7.03 9.13 10.27 11.48
NORTH 45.9 46.9 45 43.9
[DEBT / TOTAL CAPITAL BAR CHART]
DEBT / TOTAL CAPITAL
2000 2001 2002 2003 2004
BASE 0.45 0.36 0.3 0.2 0.08
PRO FORMA 0.46 0.38 0.32 0.25 0.15
NORTH 45.9 46.9 45 43.9
- ---------------
GREENWICH
CREDIT RESEARCH
& TRADING
CONNECTICUT
- ---------------
46
47
SPRINGS INDUSTRIES
Section 4
Review of Financial Structure Alternatives
================================================================================
- - Potential Leveraged Recapitalization
- ---------------
GREENWICH
CREDIT RESEARCH
& TRADING
CONNECTICUT
- ---------------
47
48
SPRINGS INDUSTRIES
Current Stock Market Trading Environment is at an All Time Low
================================================================================
REFLECTIVE OF MARKET CONCERNS:
- - POTENTIAL IMPACT OF IMPORTS ON DOMESTIC PRODUCERS
- - PRECEDENT IN APPAREL INDUSTRY
- - HIGH LEVERAGE IN INDUSTRY
- - COMPETITIVE FACTORS ASSOCIATED WITH CONSOLIDATION OF CORE CUSTOMERS
- --------------------------------------------------------------------------------
5 Years Stock Price Range
- --------------------------------------------------------------------------------
Springs Industries, Inc.
Daily Price Volume
[5 Years Stock Price Range Line Graph]
OCTOBER 2, 1995 - OCTOBER 3, 2000
Trading Range
$45-$50
COMPANY TICKER SYMBOL: SMI
Currency: Local (U.S. Dollar)
Currency: Local (U.S. Dollar)
SHARE PRICE
Date Price Close Volume
10/2/95 39.75 20.70
10/3/95 39.63 16.40
10/4/95 39.50 11.60
10/5/95 40.88 41.60
10/6/95 41.63 14.90
10/9/95 41.25 32.80
10/10/95 41.38 17.70
10/11/95 41.63 15.40
10/12/95 41.38 9.00
10/13/95 42.25 15.30
10/16/95 42.50 51.80
10/17/95 41.88 10.00
10/18/95 41.75 7.70
10/19/95 41.75 30.20
10/20/95 42.63 23.30
10/23/95 42.88 12.20
10/24/95 42.50 85.90
10/25/95 42.25 19.30
10/26/95 41.38 26.80
10/27/95 41.88 22.40
10/30/95 42.50 9.00
10/31/95 42.88 33.30
11/1/95 42.50 5.50
11/2/95 42.75 35.10
11/3/95 42.13 13.90
11/6/95 41.75 61.20
11/7/95 42.25 19.30
11/8/95 41.75 14.10
11/9/95 42.13 42.80
11/10/95 41.88 10.00
11/13/95 41.75 5.90
11/14/95 41.38 12.20
11/15/95 41.50 5.30
11/16/95 41.25 24.30
11/17/95 41.00 21.40
11/20/95 41.00 15.60
11/21/95 42.38 13.20
11/22/95 43.00 45.40
11/24/95 43.00 0.90
11/27/95 42.75 7.00
11/28/95 42.50 13.00
11/29/95 42.50 11.10
11/30/95 42.00 56.50
12/1/95 41.88 17.20
12/4/95 41.88 8.40
12/5/95 42.63 32.20
12/6/95 43.13 25.50
12/7/95 43.25 24.60
12/8/95 43.38 26.00
12/11/95 43.38 11.50
12/12/95 43.75 5.70
12/13/95 43.75 9.90
12/14/95 43.63 31.40
12/15/95 43.75 43.00
12/18/95 42.50 29.90
12/19/95 42.38 46.60
12/20/95 41.50 31.90
12/21/95 42.00 33.60
12/22/95 42.00 15.40
12/26/95 42.25 20.80
12/27/95 41.63 15.10
12/28/95 41.63 17.10
12/29/95 41.38 33.80
1/2/96 42.00 39.00
1/3/96 41.63 26.40
1/4/96 42.00 21.50
1/5/96 41.25 19.70
1/8/96 41.38 2.20
1/9/96 40.50 10.80
1/10/96 39.75 33.50
1/11/96 39.75 26.60
1/12/96 39.50 19.60
1/15/96 39.88 34.80
1/16/96 40.50 25.70
1/17/96 40.13 11.30
1/18/96 40.13 55.90
1/19/96 40.50 45.30
1/22/96 40.50 16.00
1/23/96 40.63 28.40
1/24/96 41.13 43.00
1/25/96 41.13 15.50
1/26/96 41.00 25.50
1/29/96 41.25 13.90
1/30/96 41.00 11.20
1/31/96 40.00 55.50
2/1/96 39.88 84.30
2/2/96 40.13 35.50
2/5/96 39.75 13.80
2/6/96 41.25 52.00
2/7/96 41.00 22.50
2/8/96 41.00 22.40
2/9/96 41.50 39.30
2/12/96 41.88 23.20
2/13/96 42.25 32.10
2/14/96 42.88 29.80
2/15/96 43.63 51.00
2/16/96 43.13 64.50
2/20/96 43.00 20.80
2/21/96 44.00 58.30
2/22/96 44.63 32.20
2/23/96 43.88 11.50
2/26/96 44.13 27.70
2/27/96 43.75 15.80
2/28/96 43.00 30.90
2/29/96 43.25 47.20
3/1/96 43.75 28.00
3/4/96 44.88 32.10
3/5/96 44.75 27.00
3/6/96 44.63 21.60
3/7/96 44.50 76.10
3/8/96 43.88 49.70
3/11/96 43.88 15.70
3/12/96 43.75 19.40
3/13/96 44.00 15.40
3/14/96 44.63 25.00
3/15/96 44.50 31.10
3/18/96 44.50 47.40
3/19/96 45.63 51.10
3/20/96 45.88 32.00
3/21/96 46.13 35.10
3/22/96 46.25 19.10
3/25/96 46.25 22.00
3/26/96 46.38 31.10
3/27/96 46.88 62.60
3/28/96 46.00 36.70
3/29/96 46.00 22.30
4/1/96 46.25 27.50
4/2/96 45.63 14.50
4/3/96 45.38 21.00
4/4/96 45.25 36.90
4/8/96 43.88 15.10
4/9/96 45.25 37.80
4/10/96 43.63 16.70
4/11/96 43.63 21.50
4/12/96 43.38 13.50
4/15/96 43.63 16.10
4/16/96 44.13 28.00
4/17/96 44.75 40.40
4/18/96 45.00 18.50
4/19/96 45.00 35.30
4/22/96 45.63 15.80
4/23/96 45.88 34.90
4/24/96 46.50 23.80
4/25/96 46.25 165.60
4/26/96 45.63 17.40
4/29/96 45.50 11.60
4/30/96 46.00 16.80
5/1/96 46.75 7.70
5/2/96 46.00 31.40
5/3/96 45.50 103.50
5/6/96 45.13 33.10
5/7/96 44.88 45.40
5/8/96 44.13 48.50
5/9/96 44.13 32.70
5/10/96 45.38 21.70
5/13/96 45.63 13.80
5/14/96 46.13 27.50
5/15/96 45.50 96.60
5/16/96 45.00 35.60
5/17/96 45.63 92.70
5/20/96 46.00 15.10
5/21/96 46.13 10.70
5/22/96 46.88 18.20
5/23/96 47.63 33.90
5/24/96 47.88 29.40
5/28/96 46.63 35.80
5/29/96 46.38 23.20
5/30/96 46.50 13.80
5/31/96 46.38 12.50
6/3/96 46.88 19.40
6/4/96 47.63 22.60
6/5/96 48.75 13.90
6/6/96 49.00 83.10
6/7/96 48.25 24.50
6/10/96 48.13 6.90
6/11/96 48.25 27.20
6/12/96 47.25 10.00
6/13/96 47.63 15.20
6/14/96 46.75 18.40
6/17/96 47.00 20.80
6/18/96 47.25 46.40
6/19/96 47.25 45.70
6/20/96 47.00 25.30
6/21/96 46.50 46.00
6/24/96 46.38 23.20
6/25/96 47.25 25.30
6/26/96 46.38 37.10
6/27/96 47.25 31.40
6/28/96 50.25 89.40
7/1/96 49.25 83.20
7/2/96 48.13 23.70
7/3/96 47.88 35.60
7/5/96 46.38 6.10
7/8/96 44.88 48.40
7/9/96 45.38 89.00
7/10/96 45.00 57.90
7/11/96 45.38 45.00
7/12/96 45.13 13.00
7/15/96 42.50 28.80
7/16/96 42.38 38.40
7/17/96 42.63 26.70
7/18/96 43.25 29.10
7/19/96 43.50 122.40
7/22/96 42.88 17.20
7/23/96 43.38 23.50
7/24/96 43.50 46.20
7/25/96 43.75 47.90
7/26/96 43.88 17.90
7/29/96 44.00 19.20
7/30/96 44.88 17.60
7/31/96 45.63 31.60
8/1/96 45.50 18.10
8/2/96 46.00 29.00
8/5/96 46.00 22.90
8/6/96 45.63 20.50
8/7/96 45.50 28.70
8/8/96 45.50 15.60
8/9/96 45.63 5.10
8/12/96 46.00 11.80
8/13/96 45.38 6.80
8/14/96 44.50 19.10
8/15/96 45.75 17.10
8/16/96 45.50 8.30
8/19/96 45.75 4.20
8/20/96 46.00 16.90
8/21/96 45.63 16.80
8/22/96 45.50 26.70
8/23/96 45.75 14.70
8/26/96 45.75 10.30
8/27/96 45.25 7.20
8/28/96 45.75 17.10
8/29/96 45.13 33.30
8/30/96 45.13 18.90
9/3/96 45.00 30.80
9/4/96 45.13 13.90
9/5/96 45.50 4.70
9/6/96 46.00 30.20
9/9/96 45.75 7.00
9/10/96 45.88 20.20
9/11/96 45.75 11.50
9/12/96 45.88 18.30
9/13/96 45.50 33.10
9/16/96 45.38 22.30
9/17/96 46.13 11.00
9/18/96 45.75 6.90
9/19/96 45.75 20.20
9/20/96 45.88 37.90
9/23/96 45.38 18.10
9/24/96 45.50 14.80
9/25/96 44.38 36.20
9/26/96 42.63 50.30
9/27/96 44.38 35.10
9/30/96 44.50 31.50
10/1/96 44.13 24.90
10/2/96 43.50 18.30
10/3/96 43.00 36.00
10/4/96 43.63 27.80
10/7/96 43.63 9.60
10/8/96 43.63 9.30
10/9/96 43.38 12.90
10/10/96 43.00 7.80
10/11/96 43.50 10.20
10/14/96 43.38 25.50
10/15/96 43.13 19.10
10/16/96 43.25 94.10
10/17/96 43.88 12.90
10/18/96 43.75 11.00
10/21/96 44.13 11.80
10/22/96 44.13 96.30
10/23/96 45.38 44.30
10/24/96 44.38 25.40
10/25/96 45.25 28.50
10/28/96 45.88 50.70
10/29/96 45.88 30.40
10/30/96 45.63 10.00
10/31/96 45.13 23.00
11/1/96 44.75 15.40
11/4/96 45.50 10.20
11/5/96 45.63 9.50
11/6/96 46.13 17.50
11/7/96 46.50 16.00
11/8/96 46.25 6.30
11/11/96 46.00 9.30
11/12/96 46.00 6.50
11/13/96 45.63 9.50
11/14/96 45.63 12.00
11/15/96 45.50 15.80
11/18/96 46.00 46.50
11/19/96 45.88 6.80
11/20/96 45.63 14.20
11/21/96 45.25 27.90
11/22/96 45.75 26.70
11/25/96 46.75 11.10
11/26/96 46.25 27.20
11/27/96 46.13 10.60
11/29/96 46.50 3.10
12/2/96 47.63 36.60
12/3/96 47.50 34.50
12/4/96 47.13 26.20
12/5/96 47.13 12.50
12/6/96 46.50 16.10
12/9/96 47.25 11.60
12/10/96 46.75 24.30
12/11/96 43.63 303.90
12/12/96 43.88 36.10
12/13/96 43.63 51.20
12/16/96 41.75 14.70
12/17/96 42.63 40.20
12/18/96 42.88 31.80
12/19/96 43.13 37.00
12/20/96 43.63 71.70
12/23/96 42.13 22.80
12/24/96 42.50 11.40
12/26/96 44.38 57.40
12/27/96 43.75 11.20
12/30/96 43.38 16.30
12/31/96 43.00 11.70
1/2/97 42.25 35.90
1/3/97 42.88 30.40
1/6/97 42.38 26.40
1/7/97 42.63 17.00
1/8/97 41.13 18.00
1/9/97 42.00 29.10
1/10/97 42.25 50.90
1/13/97 42.50 21.40
1/14/97 42.25 22.50
1/15/97 42.13 22.80
1/16/97 42.50 26.00
1/17/97 42.63 28.20
1/20/97 42.50 7.30
1/21/97 42.50 41.20
1/22/97 42.88 11.40
1/23/97 43.25 38.10
1/24/97 42.50 24.90
1/27/97 42.00 24.60
1/28/97 42.13 19.70
1/29/97 42.25 26.80
1/30/97 43.25 15.70
1/31/97 42.25 38.80
2/3/97 42.25 45.40
2/4/97 42.00 19.70
2/5/97 41.75 45.60
2/6/97 41.88 46.30
2/7/97 42.63 33.10
2/10/97 43.25 28.30
2/11/97 42.38 22.50
2/12/97 43.00 16.20
2/13/97 43.75 22.70
2/14/97 43.13 17.10
2/18/97 43.75 19.80
2/19/97 44.13 29.40
2/20/97 44.13 10.60
2/21/97 44.88 18.50
2/24/97 43.75 38.40
2/25/97 43.63 14.20
2/26/97 44.00 66.60
2/27/97 44.63 21.70
2/28/97 44.13 36.70
3/3/97 45.00 26.80
3/4/97 44.88 38.00
3/5/97 45.75 39.40
3/6/97 45.88 17.60
3/7/97 47.50 47.60
3/10/97 47.25 37.90
3/11/97 46.88 63.10
3/12/97 47.25 39.00
3/13/97 47.13 17.50
3/14/97 47.00 50.20
3/17/97 46.63 47.30
3/18/97 46.88 67.70
3/19/97 47.00 66.10
3/20/97 46.88 27.70
3/21/97 46.63 96.20
3/24/97 46.63 52.10
3/25/97 46.13 24.50
3/26/97 45.88 37.70
3/27/97 44.88 20.10
3/31/97 44.75 49.80
4/1/97 44.25 19.60
4/2/97 43.13 39.90
4/3/97 44.13 39.70
4/4/97 45.25 84.20
4/7/97 44.75 37.90
4/8/97 44.88 34.30
4/9/97 45.00 22.00
4/10/97 44.63 16.60
4/11/97 43.50 36.20
4/14/97 44.00 16.50
4/15/97 44.50 69.50
4/16/97 45.50 52.50
4/17/97 44.50 31.60
4/18/97 45.00 32.40
4/21/97 45.25 24.60
4/22/97 46.13 50.40
4/23/97 45.38 33.50
4/24/97 45.00 23.80
4/25/97 45.75 31.40
4/28/97 45.75 24.30
4/29/97 46.00 44.80
4/30/97 46.75 34.60
5/1/97 47.13 34.20
5/2/97 46.50 66.90
5/5/97 47.38 60.70
5/6/97 47.00 40.20
5/7/97 47.50 63.40
5/8/97 47.25 58.90
5/9/97 47.63 39.50
5/12/97 48.13 44.70
5/13/97 47.75 34.00
5/14/97 47.63 88.50
5/15/97 48.25 36.40
5/16/97 48.25 35.10
5/19/97 48.38 5.90
5/20/97 49.13 8.20
5/21/97 48.00 22.10
5/22/97 49.00 22.40
5/23/97 49.38 18.40
5/27/97 49.38 27.20
5/28/97 49.88 17.00
5/29/97 49.38 24.10
5/30/97 50.63 31.80
6/2/97 50.50 13.30
6/3/97 51.00 17.00
6/4/97 50.63 14.60
6/5/97 51.50 15.70
6/6/97 52.25 34.50
6/9/97 52.00 26.50
6/10/97 52.63 21.60
6/11/97 52.88 13.60
6/12/97 53.38 16.70
6/13/97 53.38 35.10
6/16/97 53.00 23.40
6/17/97 52.63 15.60
6/18/97 53.25 52.70
6/19/97 53.63 16.70
6/20/97 53.63 60.40
6/23/97 53.38 43.10
6/24/97 53.81 26.90
6/25/97 53.19 47.20
6/26/97 52.00 33.10
6/27/97 53.31 55.10
6/30/97 52.75 33.50
7/1/97 52.88 38.20
7/2/97 52.94 30.10
7/3/97 53.31 36.90
7/7/97 51.63 53.30
7/8/97 53.56 50.70
7/9/97 50.94 141.30
7/10/97 51.94 52.70
7/11/97 51.44 23.70
7/14/97 50.75 22.00
7/15/97 51.00 58.10
7/16/97 51.19 25.00
7/17/97 50.13 52.60
7/18/97 50.88 33.80
7/21/97 50.00 68.40
7/22/97 50.00 116.30
7/23/97 49.75 69.50
7/24/97 48.94 37.30
7/25/97 48.63 80.60
7/28/97 48.88 32.10
7/29/97 48.94 92.00
7/30/97 48.44 86.30
7/31/97 48.38 36.40
8/1/97 48.06 36.20
8/4/97 47.19 48.70
8/5/97 47.63 30.80
8/6/97 48.13 23.90
8/7/97 47.63 25.40
8/8/97 46.50 56.10
8/11/97 46.75 55.80
8/12/97 46.06 51.10
8/13/97 45.63 56.80
8/14/97 45.38 42.80
8/15/97 43.75 89.10
8/18/97 45.00 95.40
8/19/97 45.69 117.00
8/20/97 47.00 102.20
8/21/97 45.81 69.30
8/22/97 45.44 59.50
8/25/97 46.38 44.70
8/26/97 45.75 266.40
8/27/97 46.44 261.10
8/28/97 46.81 106.20
8/29/97 47.00 35.90
9/2/97 47.13 39.50
9/3/97 48.31 54.00
9/4/97 47.63 43.60
9/5/97 48.13 26.00
9/8/97 48.69 51.60
9/9/97 48.50 35.30
9/10/97 48.81 47.50
9/11/97 49.25 137.20
9/12/97 49.88 16.80
9/15/97 50.25 56.20
9/16/97 51.13 19.40
9/17/97 51.69 25.60
9/18/97 51.75 41.20
9/19/97 53.25 42.80
9/22/97 52.38 50.80
9/23/97 52.88 29.80
9/24/97 52.88 20.90
9/25/97 52.25 35.30
9/26/97 52.44 48.50
9/29/97 53.25 19.70
9/30/97 52.50 53.10
10/1/97 52.31 95.90
10/2/97 52.31 18.90
10/3/97 52.31 53.20
10/6/97 52.44 15.30
10/7/97 52.44 19.10
10/8/97 50.19 62.80
10/9/97 51.25 29.50
10/10/97 51.25 48.90
10/13/97 51.31 23.60
10/14/97 48.19 127.50
10/15/97 49.38 66.90
10/16/97 47.75 82.40
10/17/97 47.00 55.30
10/20/97 46.50 64.20
10/21/97 47.44 47.50
10/22/97 47.69 36.20
10/23/97 47.06 44.50
10/24/97 47.50 45.60
10/27/97 45.00 83.70
10/28/97 45.13 86.90
10/29/97 46.06 24.40
10/30/97 45.44 38.40
10/31/97 46.38 32.10
11/3/97 46.63 35.00
11/4/97 46.44 36.80
11/5/97 46.44 45.20
11/6/97 46.56 24.70
11/7/97 46.25 45.20
11/10/97 46.13 18.40
11/11/97 45.56 20.50
11/12/97 45.25 23.20
11/13/97 46.25 24.00
11/14/97 46.63 52.10
11/17/97 47.50 32.40
11/18/97 48.38 63.80
11/19/97 49.06 73.70
11/20/97 49.38 95.60
11/21/97 49.88 44.50
11/24/97 48.88 55.30
11/25/97 49.31 46.00
11/26/97 49.25 18.60
11/28/97 50.44 19.60
12/1/97 50.94 54.00
12/2/97 51.06 50.00
12/3/97 50.94 52.60
12/4/97 50.75 26.90
12/5/97 51.00 28.70
12/8/97 50.50 29.70
12/9/97 50.63 63.30
12/10/97 51.13 59.60
12/11/97 50.00 38.00
12/12/97 50.75 44.30
12/15/97 51.75 55.70
12/16/97 50.44 39.10
12/17/97 50.75 37.60
12/18/97 51.31 15.40
12/19/97 49.81 81.60
12/22/97 50.63 38.70
12/23/97 50.63 32.70
12/24/97 50.38 22.00
12/26/97 50.13 9.80
12/29/97 51.31 38.60
12/30/97 52.13 29.80
12/31/97 52.00 45.00
1/2/98 52.56 31.40
1/5/98 52.19 38.30
1/6/98 51.94 41.00
1/7/98 52.00 119.50
1/8/98 51.63 23.50
1/9/98 50.50 24.50
1/12/98 51.00 109.20
1/13/98 51.38 46.40
1/14/98 52.06 15.10
1/15/98 52.81 29.50
1/16/98 53.56 64.60
1/20/98 53.63 30.30
1/21/98 53.13 24.50
1/22/98 52.44 50.30
1/23/98 52.50 31.60
1/26/98 52.44 11.10
1/27/98 52.69 55.60
1/28/98 52.88 39.20
1/29/98 52.75 58.80
1/30/98 52.63 26.70
2/2/98 53.44 36.50
2/3/98 53.31 39.60
2/4/98 53.13 38.20
2/5/98 53.63 29.70
2/6/98 54.50 57.10
2/9/98 54.81 32.80
2/10/98 55.94 30.20
2/11/98 55.69 34.40
2/12/98 56.81 28.00
2/13/98 56.63 33.80
2/17/98 56.81 26.40
2/18/98 57.19 67.70
2/19/98 56.25 59.80
2/20/98 56.25 74.40
2/23/98 55.94 26.40
2/24/98 55.13 48.90
2/25/98 56.00 45.10
2/26/98 55.75 29.90
2/27/98 55.94 13.10
3/2/98 55.88 38.00
3/3/98 56.50 89.30
3/4/98 56.38 30.00
3/5/98 56.06 37.70
3/6/98 56.31 34.50
3/9/98 56.25 29.30
3/10/98 56.88 37.50
3/11/98 56.88 37.30
3/12/98 56.50 16.40
3/13/98 55.63 59.10
3/16/98 56.13 40.10
3/17/98 56.63 42.20
3/18/98 56.13 50.00
3/19/98 57.00 61.90
3/20/98 57.13 68.80
3/23/98 56.38 63.70
3/24/98 56.69 21.90
3/25/98 55.06 77.30
3/26/98 55.81 53.70
3/27/98 55.88 19.20
3/30/98 55.50 45.30
3/31/98 55.13 75.80
4/1/98 55.19 27.20
4/2/98 55.81 37.50
4/3/98 54.94 35.90
4/6/98 54.69 26.60
4/7/98 54.06 33.80
4/8/98 54.31 27.80
4/9/98 55.19 34.10
4/13/98 55.31 47.50
4/14/98 55.75 31.20
4/15/98 56.19 33.50
4/16/98 56.00 36.40
4/17/98 55.94 34.30
4/20/98 55.81 43.90
4/21/98 54.44 71.60
4/22/98 54.38 20.70
4/23/98 54.06 37.20
4/24/98 53.50 36.20
4/27/98 54.13 21.10
4/28/98 54.81 67.60
4/29/98 54.63 33.00
4/30/98 55.06 64.20
5/1/98 55.13 24.60
5/4/98 55.00 29.60
5/5/98 54.88 52.40
5/6/98 54.81 59.70
5/7/98 55.25 32.00
5/8/98 55.88 37.00
5/11/98 55.94 44.60
5/12/98 56.56 41.40
5/13/98 56.50 31.10
5/14/98 55.81 16.20
5/15/98 55.75 24.80
5/18/98 55.75 43.90
5/19/98 56.25 45.80
5/20/98 56.38 46.10
5/21/98 56.50 35.30
5/22/98 56.00 14.90
5/26/98 55.56 54.80
5/27/98 55.31 39.90
5/28/98 56.25 13.10
5/29/98 56.13 34.40
6/1/98 55.75 45.50
6/2/98 55.56 42.30
6/3/98 56.06 27.20
6/4/98 56.88 34.80
6/5/98 57.56 71.40
6/8/98 57.38 33.20
6/9/98 60.75 108.10
6/10/98 58.88 79.60
6/11/98 58.06 40.10
6/12/98 57.44 49.60
6/15/98 56.25 24.50
6/16/98 48.75 219.10
6/17/98 49.00 142.50
6/18/98 48.13 61.50
6/19/98 48.06 78.00
6/22/98 47.75 81.20
6/23/98 47.56 106.40
6/24/98 46.31 64.50
6/25/98 46.50 64.60
6/26/98 46.75 52.20
6/29/98 45.31 71.40
6/30/98 46.13 71.20
7/1/98 47.06 59.30
7/2/98 46.44 48.70
7/6/98 45.94 56.40
7/7/98 44.63 72.00
7/8/98 43.50 99.90
7/9/98 42.94 75.50
7/10/98 42.88 61.80
7/13/98 42.81 23.00
7/14/98 42.88 20.10
7/15/98 42.00 104.80
7/16/98 41.94 85.80
7/17/98 42.19 15.80
7/20/98 42.25 52.00
7/21/98 41.94 49.20
7/22/98 41.44 57.20
7/23/98 40.69 59.10
7/24/98 40.13 66.50
7/27/98 39.69 57.10
7/28/98 39.44 56.30
7/29/98 40.25 75.20
7/30/98 40.00 48.60
7/31/98 38.31 47.30
8/3/98 38.38 47.90
8/4/98 37.25 42.50
8/5/98 36.75 58.90
8/6/98 36.25 66.10
8/7/98 37.50 83.70
8/10/98 37.13 51.60
8/11/98 36.06 42.90
8/12/98 36.56 63.40
8/13/98 35.56 95.40
8/14/98 36.81 104.30
8/17/98 36.38 55.90
8/18/98 36.69 56.30
8/19/98 36.63 29.70
8/20/98 36.75 47.90
8/21/98 36.38 58.60
8/24/98 36.69 54.40
8/25/98 35.94 29.00
8/26/98 34.75 32.60
8/27/98 33.88 29.60
8/28/98 33.75 46.00
8/31/98 33.06 80.10
9/1/98 34.75 114.40
9/2/98 34.63 97.10
9/3/98 33.69 89.80
9/4/98 32.56 72.30
9/8/98 36.88 158.10
9/9/98 33.50 101.80
9/10/98 32.94 73.10
9/11/98 33.13 73.60
9/14/98 33.56 63.40
9/15/98 33.06 76.20
9/16/98 34.50 44.50
9/17/98 33.44 58.70
9/18/98 34.88 65.30
9/21/98 35.19 51.30
9/22/98 33.88 84.90
9/23/98 35.50 56.30
9/24/98 35.63 50.50
9/25/98 35.75 94.40
9/28/98 37.31 80.20
9/29/98 36.13 87.50
9/30/98 34.75 88.20
10/1/98 32.69 115.50
10/2/98 33.50 89.40
10/5/98 33.94 118.70
10/6/98 32.75 54.30
10/7/98 33.44 49.00
10/8/98 32.69 42.30
10/9/98 32.00 71.00
10/12/98 32.56 17.90
10/13/98 33.25 41.80
10/14/98 32.69 16.60
10/15/98 33.31 24.90
10/16/98 33.00 31.20
10/19/98 34.38 24.90
10/20/98 34.50 95.50
10/21/98 35.44 20.10
10/22/98 34.75 39.30
10/23/98 34.63 28.30
10/26/98 35.31 48.80
10/27/98 35.94 37.80
10/28/98 35.50 25.10
10/29/98 35.13 26.70
10/30/98 35.38 26.90
11/2/98 37.56 49.40
11/3/98 37.75 24.00
11/4/98 38.19 31.70
11/5/98 38.31 19.80
11/6/98 39.44 22.90
11/9/98 39.75 43.70
11/10/98 39.44 18.60
11/11/98 39.94 30.50
11/12/98 40.13 14.70
11/13/98 41.56 49.60
11/16/98 40.50 36.60
11/17/98 40.38 28.50
11/18/98 38.56 36.20
11/19/98 38.75 21.00
11/20/98 38.75 23.60
11/23/98 38.50 49.10
11/24/98 37.31 64.50
11/25/98 39.69 47.00
11/27/98 38.63 20.10
11/30/98 38.94 26.00
12/1/98 39.56 24.90
12/2/98 42.00 85.40
12/3/98 40.94 62.70
12/4/98 38.88 52.90
12/7/98 39.00 53.00
12/8/98 38.00 57.20
12/9/98 39.25 26.50
12/10/98 37.88 13.00
12/11/98 37.88 12.00
12/14/98 36.81 38.10
12/15/98 38.63 82.50
12/16/98 39.38 52.40
12/17/98 40.88 70.90
12/18/98 39.63 79.90
12/21/98 39.81 26.50
12/22/98 39.13 41.90
12/23/98 39.00 31.80
12/24/98 39.75 13.90
12/28/98 40.06 28.60
12/29/98 41.88 40.40
12/30/98 41.00 22.20
12/31/98 41.44 56.70
1/4/99 42.19 35.90
1/5/99 41.31 34.40
1/6/99 40.56 56.20
1/7/99 40.50 74.70
1/8/99 40.06 88.00
1/11/99 41.00 26.20
1/12/99 40.13 17.10
1/13/99 39.94 33.60
1/14/99 40.00 46.80
1/15/99 41.19 72.70
1/19/99 41.38 57.20
1/20/99 42.50 72.20
1/21/99 40.63 56.00
1/22/99 40.00 100.60
1/25/99 40.19 55.20
1/26/99 39.88 38.50
1/27/99 39.06 16.70
1/28/99 41.50 49.60
1/29/99 41.75 67.00
2/1/99 39.63 41.30
2/2/99 39.44 144.10
2/3/99 41.75 82.30
2/4/99 39.00 105.60
2/5/99 38.38 66.20
2/8/99 37.75 89.50
2/9/99 37.44 37.20
2/10/99 36.50 60.40
2/11/99 36.75 77.30
2/12/99 36.69 30.60
2/16/99 36.13 38.20
2/17/99 35.50 47.80
2/18/99 35.75 57.20
2/19/99 35.13 75.30
2/22/99 34.06 74.40
2/23/99 33.13 104.20
2/24/99 31.81 101.40
2/25/99 33.19 52.30
2/26/99 33.25 22.70
3/1/99 31.94 34.20
3/2/99 32.00 54.10
3/3/99 32.25 47.50
3/4/99 32.63 42.40
3/5/99 32.44 18.90
3/8/99 32.50 64.90
3/9/99 32.06 82.90
3/10/99 32.00 75.80
3/11/99 31.81 75.90
3/12/99 31.75 36.50
3/15/99 30.75 57.60
3/16/99 31.69 45.20
3/17/99 32.06 84.00
3/18/99 33.44 93.50
3/19/99 31.81 53.40
3/22/99 31.44 70.70
3/23/99 29.94 77.10
3/24/99 29.88 74.40
3/25/99 30.19 118.80
3/26/99 29.06 112.50
3/29/99 29.25 93.20
3/30/99 29.19 58.70
3/31/99 27.06 115.90
4/1/99 27.50 74.20
4/5/99 27.81 47.30
4/6/99 28.19 24.90
4/7/99 28.50 84.50
4/8/99 27.81 42.20
4/9/99 29.25 77.70
4/12/99 29.25 59.60
4/13/99 29.00 39.80
4/14/99 29.25 71.30
4/15/99 29.63 42.80
4/16/99 30.44 54.90
4/19/99 32.06 173.70
4/20/99 34.56 109.50
4/21/99 37.00 194.30
4/22/99 35.94 56.30
4/23/99 36.44 32.40
4/26/99 36.19 33.00
4/27/99 35.81 29.30
4/28/99 36.56 54.00
4/29/99 38.00 57.80
4/30/99 37.38 63.70
5/3/99 40.19 76.40
5/4/99 40.06 84.50
5/5/99 40.63 70.70
5/6/99 40.50 77.60
5/7/99 41.13 46.10
5/10/99 42.44 61.10
5/11/99 41.94 52.80
5/12/99 41.75 42.60
5/13/99 42.94 24.20
5/14/99 41.50 49.80
5/17/99 41.13 33.70
5/18/99 40.19 23.50
5/19/99 39.81 37.90
5/20/99 41.31 67.60
5/21/99 43.50 76.90
5/24/99 41.44 70.80
5/25/99 40.50 22.80
5/26/99 40.44 34.90
5/27/99 39.44 42.50
5/28/99 39.63 30.20
6/1/99 38.94 54.50
6/2/99 41.56 104.80
6/3/99 42.00 75.70
6/4/99 42.00 44.60
6/7/99 42.00 12.10
6/8/99 41.00 11.70
6/9/99 39.94 40.10
6/10/99 39.63 49.50
6/11/99 38.44 45.30
6/14/99 38.75 46.10
6/15/99 38.56 25.30
6/16/99 37.81 32.20
6/17/99 38.69 60.30
6/18/99 38.19 65.50
6/21/99 38.63 21.30
6/22/99 39.13 49.20
6/23/99 39.50 32.20
6/24/99 39.69 60.70
6/25/99 40.25 47.70
6/28/99 40.75 50.90
6/29/99 42.44 73.00
6/30/99 43.63 112.20
7/1/99 42.88 115.40
7/2/99 42.81 34.90
7/6/99 43.31 36.00
7/7/99 43.25 24.90
7/8/99 42.38 62.90
7/9/99 42.13 11.80
7/12/99 41.38 39.70
7/13/99 41.81 20.30
7/14/99 40.75 50.30
7/15/99 41.75 28.60
7/16/99 41.38 48.20
7/19/99 40.63 26.30
7/20/99 41.50 48.80
7/21/99 41.50 41.70
7/22/99 41.44 23.30
7/23/99 41.13 6.30
7/26/99 41.19 14.60
7/27/99 40.94 42.00
7/28/99 40.63 14.40
7/29/99 40.13 10.50
7/30/99 39.75 14.50
8/2/99 39.56 13.70
8/3/99 39.00 24.50
8/4/99 39.13 16.20
8/5/99 39.75 30.40
8/6/99 40.13 31.00
8/9/99 40.00 12.70
8/10/99 39.94 50.30
8/11/99 39.75 44.00
8/12/99 39.38 13.10
8/13/99 40.25 17.40
8/16/99 40.13 10.20
8/17/99 39.50 89.70
8/18/99 39.38 45.10
8/19/99 39.50 22.10
8/20/99 39.44 21.00
8/23/99 39.44 9.80
8/24/99 39.31 73.20
8/25/99 39.56 18.70
8/26/99 39.06 6.00
8/27/99 38.44 63.10
8/30/99 37.69 19.20
8/31/99 37.56 20.80
9/1/99 38.38 19.20
9/2/99 37.75 21.10
9/3/99 38.88 45.90
9/7/99 38.88 23.10
9/8/99 38.63 18.60
9/9/99 38.63 23.10
9/10/99 38.50 12.90
9/13/99 37.38 61.40
9/14/99 37.06 70.30
9/15/99 37.19 17.50
9/16/99 35.94 28.30
9/17/99 35.75 24.00
9/20/99 36.06 12.40
9/21/99 35.44 10.00
9/22/99 35.25 7.60
9/23/99 33.88 45.50
9/24/99 33.69 23.10
9/27/99 33.88 47.70
9/28/99 33.94 15.00
9/29/99 33.69 30.60
9/30/99 33.94 18.70
10/1/99 33.88 9.80
10/4/99 33.75 27.00
10/5/99 33.75 82.80
10/6/99 33.94 20.60
10/7/99 34.00 40.40
10/8/99 33.88 21.30
10/11/99 33.88 11.60
10/12/99 33.56 17.60
10/13/99 33.88 74.60
10/14/99 33.81 84.50
10/15/99 33.44 28.20
10/18/99 33.19 16.80
10/19/99 33.00 184.00
10/20/99 32.94 250.30
10/21/99 35.69 102.60
10/22/99 38.56 116.50
10/25/99 39.63 208.30
10/26/99 39.38 92.20
10/27/99 39.44 89.20
10/28/99 39.31 61.00
10/29/99 39.81 61.20
11/1/99 39.81 50.90
11/2/99 40.06 97.00
11/3/99 40.75 127.90
11/4/99 42.06 70.90
11/5/99 42.44 70.70
11/8/99 43.44 91.70
11/9/99 42.56 40.70
11/10/99 41.63 24.90
11/11/99 41.19 50.00
11/12/99 41.75 46.00
11/15/99 39.38 83.90
11/16/99 40.81 59.30
11/17/99 40.13 40.60
11/18/99 41.25 59.30
11/19/99 40.69 62.60
11/22/99 39.81 47.90
11/23/99 39.56 63.70
11/24/99 38.63 76.90
11/26/99 39.88 19.50
11/29/99 39.75 45.70
11/30/99 40.00 55.70
12/1/99 39.13 51.00
12/2/99 39.38 21.10
12/3/99 39.63 32.80
12/6/99 38.25 43.60
12/7/99 38.25 54.60
12/8/99 37.81 28.30
12/9/99 37.94 113.70
12/10/99 38.50 42.50
12/13/99 38.50 26.40
12/14/99 38.31 15.90
12/15/99 38.38 27.50
12/16/99 37.31 7.70
12/17/99 37.88 66.20
12/20/99 38.75 38.40
12/21/99 37.94 43.40
12/22/99 39.44 35.10
12/23/99 39.19 27.40
12/27/99 40.69 46.70
12/28/99 39.25 22.50
12/29/99 39.50 5.90
12/30/99 39.81 29.80
12/31/99 39.94 12.80
1/3/00 39.88 65.90
1/4/00 38.13 38.30
1/5/00 39.31 38.00
1/6/00 38.75 35.60
1/7/00 38.69 24.80
1/10/00 38.69 33.90
1/11/00 39.19 17.60
1/12/00 39.94 18.70
1/13/00 39.50 30.30
1/14/00 39.69 23.10
1/18/00 39.63 34.20
1/19/00 39.25 22.40
1/20/00 38.25 40.10
1/21/00 37.69 32.10
1/24/00 37.44 48.30
1/25/00 37.94 41.90
1/26/00 36.88 52.60
1/27/00 37.06 32.00
1/28/00 36.94 35.50
1/31/00 36.38 50.50
2/1/00 36.81 57.50
2/2/00 37.19 80.60
2/3/00 38.81 64.90
2/4/00 37.88 77.20
2/7/00 38.38 71.20
2/8/00 38.13 36.20
2/9/00 39.69 100.30
2/10/00 39.50 77.20
2/11/00 39.31 47.30
2/14/00 39.38 46.10
2/15/00 39.38 39.30
2/16/00 39.81 47.50
2/17/00 39.31 98.10
2/18/00 38.75 47.50
2/22/00 38.56 54.90
2/23/00 38.50 30.90
2/24/00 35.44 124.20
2/25/00 34.31 178.10
2/28/00 34.00 140.20
2/29/00 35.44 79.70
3/1/00 35.25 37.80
3/2/00 37.19 123.70
3/3/00 37.38 70.00
3/6/00 36.38 78.50
3/7/00 35.81 56.40
3/8/00 36.19 54.70
3/9/00 37.50 133.20
3/10/00 36.81 88.40
3/13/00 35.63 71.00
3/14/00 34.69 80.20
3/15/00 35.38 65.00
3/16/00 37.56 93.30
3/17/00 37.94 85.00
3/20/00 37.25 62.20
3/21/00 38.06 85.10
3/22/00 38.13 75.40
3/23/00 38.13 45.00
3/24/00 38.13 40.90
3/27/00 37.63 176.30
3/28/00 37.88 54.00
3/29/00 38.00 27.70
3/30/00 38.38 39.70
3/31/00 38.00 64.70
4/3/00 38.50 33.60
4/4/00 38.31 61.80
4/5/00 38.44 53.20
4/6/00 39.19 37.70
4/7/00 39.19 62.80
4/10/00 38.75 33.50
4/11/00 40.06 66.90
4/12/00 40.06 70.10
4/13/00 38.94 39.60
4/14/00 38.19 72.10
4/17/00 38.69 68.20
4/18/00 39.00 60.00
4/19/00 40.38 88.10
4/20/00 41.75 96.20
4/24/00 42.06 101.90
4/25/00 43.19 98.40
4/26/00 43.19 40.70
4/27/00 42.06 59.50
4/28/00 41.06 141.20
5/1/00 43.50 154.80
5/2/00 45.63 174.90
5/3/00 47.06 214.60
5/4/00 48.56 161.50
5/5/00 47.38 166.20
5/8/00 47.38 142.00
5/9/00 46.94 273.40
5/10/00 47.44 232.40
5/11/00 48.81 119.50
5/12/00 48.19 113.20
5/15/00 47.06 108.20
5/16/00 47.25 161.40
5/17/00 47.00 50.90
5/18/00 46.81 93.60
5/19/00 46.50 101.30
5/22/00 46.31 105.00
5/23/00 45.19 84.90
5/24/00 46.56 191.80
5/25/00 46.31 179.90
5/26/00 47.25 105.80
5/30/00 47.44 61.00
5/31/00 47.50 167.70
6/1/00 43.88 390.70
6/2/00 42.38 208.80
6/5/00 42.94 158.20
6/6/00 41.88 299.50
6/7/00 41.63 110.40
6/8/00 39.94 147.00
6/9/00 39.88 57.60
6/12/00 39.94 76.10
6/13/00 38.75 138.10
6/14/00 39.25 127.60
6/15/00 39.50 74.90
6/16/00 39.56 150.60
6/19/00 35.88 243.00
6/20/00 35.81 231.30
6/21/00 34.69 224.50
6/22/00 34.31 121.20
6/23/00 34.00 94.00
6/26/00 34.25 161.50
6/27/00 33.44 214.30
6/28/00 34.06 397.70
6/29/00 34.38 76.90
6/30/00 32.00 213.80
7/3/00 32.63 48.70
7/5/00 32.75 87.50
7/6/00 31.56 221.50
7/7/00 31.75 72.20
7/10/00 31.75 143.60
7/11/00 32.31 102.60
7/12/00 32.13 91.60
7/13/00 31.88 78.80
7/14/00 32.06 62.30
7/17/00 32.31 60.80
7/18/00 31.50 74.60
7/19/00 31.38 36.70
7/20/00 32.88 153.40
7/21/00 34.06 194.20
7/24/00 33.63 80.60
7/25/00 33.31 80.60
7/26/00 33.06 88.80
7/27/00 32.88 75.60
7/28/00 32.44 48.60
7/31/00 32.25 44.70
8/1/00 31.75 66.50
8/2/00 32.13 29.40
8/3/00 31.88 61.90
8/4/00 31.56 83.40
8/7/00 32.19 51.40
8/8/00 31.94 122.40
8/9/00 31.69 95.20
8/10/00 31.75 37.00
8/11/00 31.81 29.10
8/14/00 32.13 20.10
8/15/00 31.31 48.60
8/16/00 31.13 27.90
8/17/00 31.56 24.70
8/18/00 31.44 27.60
8/21/00 31.00 30.80
8/22/00 31.75 69.50
8/23/00 31.38 40.30
8/24/00 31.56 31.20
8/25/00 31.31 34.80
8/28/00 30.75 43.70
8/29/00 30.00 46.70
8/30/00 30.06 41.10
8/31/00 29.88 33.60
9/1/00 29.81 33.50
9/5/00 29.69 77.80
9/6/00 31.25 66.90
9/7/00 31.25 31.40
9/8/00 31.13 34.70
9/11/00 30.06 30.20
9/12/00 29.63 42.50
9/13/00 29.19 39.00
9/14/00 29.44 30.40
9/15/00 28.88 53.90
9/18/00 28.63 40.70
9/19/00 28.94 36.20
9/20/00 28.19 109.70
9/21/00 27.88 72.60
9/22/00 27.50 97.30
9/25/00 27.38 48.30
9/26/00 27.13 48.10
9/27/00 27.19 33.50
9/28/00 27.50 76.10
9/29/00 28.19 52.60
10/2/00 27.88 33.20
10/3/00 28.38 70.50
- --------------------------------------------------------------------------------
One Year Stock Price Range
- --------------------------------------------------------------------------------
Springs Industries, Inc.
Daily Price Volume
[One Year Stock Price Range Line Graph]
OCTOBER 1, 1999 - OCTOBER 3, 2000
Trading Range
$45-$50
LTM
Average
$37.11
LSM
Average
$36.16
COMPANY TICKER SYMBOL: SMI
Currency: Local (U.S. Dollar)
Currency: Local (U.S. Dollar)
SHARE PRICE
Date Price Close Volume
10/1/99 33.88 9.80
10/4/99 33.75 27.00
10/5/99 33.75 82.80
10/6/99 33.94 20.60
10/7/99 34.00 40.40
10/8/99 33.88 21.30
10/11/99 33.88 11.60
10/12/99 33.56 17.60
10/13/99 33.88 74.60
10/14/99 33.81 84.50
10/15/99 33.44 28.20
10/18/99 33.19 16.80
10/19/99 33.00 184.00
10/20/99 32.94 250.30
10/21/99 35.69 102.60
10/22/99 38.56 116.50
10/25/99 39.63 208.30
10/26/99 39.38 92.20
10/27/99 39.44 89.20
10/28/99 39.31 61.00
10/29/99 39.81 61.20
11/1/99 39.81 50.90
11/2/99 40.06 97.00
11/3/99 40.75 127.90
11/4/99 42.06 70.90
11/5/99 42.44 70.70
11/8/99 43.44 91.70
11/9/99 42.56 40.70
11/10/99 41.63 24.90
11/11/99 41.19 50.00
11/12/99 41.75 46.00
11/15/99 39.38 83.90
11/16/99 40.81 59.30
11/17/99 40.13 40.60
11/18/99 41.25 59.30
11/19/99 40.69 62.60
11/22/99 39.81 47.90
11/23/99 39.56 63.70
11/24/99 38.63 76.90
11/26/99 39.88 19.50
11/29/99 39.75 45.70
11/30/99 40.00 55.70
12/1/99 39.13 51.00
12/2/99 39.38 21.10
12/3/99 39.63 32.80
12/6/99 38.25 43.60
12/7/99 38.25 54.60
12/8/99 37.81 28.30
12/9/99 37.94 113.70
12/10/99 38.50 42.50
12/13/99 38.50 26.40
12/14/99 38.31 15.90
12/15/99 38.38 27.50
12/16/99 37.31 7.70
12/17/99 37.88 66.20
12/20/99 38.75 38.40
12/21/99 37.94 43.40
12/22/99 39.44 35.10
12/23/99 39.19 27.40
12/27/99 40.69 46.70
12/28/99 39.25 22.50
12/29/99 39.50 5.90
12/30/99 39.81 29.80
12/31/99 39.94 12.80
1/3/00 39.88 65.90
1/4/00 38.13 38.30
1/5/00 39.31 38.00
1/6/00 38.75 35.60
1/7/00 38.69 24.80
1/10/00 38.69 33.90
1/11/00 39.19 17.60
1/12/00 39.94 18.70
1/13/00 39.50 30.30
1/14/00 39.69 23.10
1/18/00 39.63 34.20
1/19/00 39.25 22.40
1/20/00 38.25 40.10
1/21/00 37.69 32.10
1/24/00 37.44 48.30
1/25/00 37.94 41.90
1/26/00 36.88 52.60
1/27/00 37.06 32.00
1/28/00 36.94 35.50
1/31/00 36.38 50.50
2/1/00 36.81 57.50
2/2/00 37.19 80.60
2/3/00 38.81 64.90
2/4/00 37.88 77.20
2/7/00 38.38 71.20
2/8/00 38.13 36.20
2/9/00 39.69 100.30
2/10/00 39.50 77.20
2/11/00 39.31 47.30
2/14/00 39.38 46.10
2/15/00 39.38 39.30
2/16/00 39.81 47.50
2/17/00 39.31 98.10
2/18/00 38.75 47.50
2/22/00 38.56 54.90
2/23/00 38.50 30.90
2/24/00 35.44 124.20
2/25/00 34.31 178.10
2/28/00 34.00 140.20
2/29/00 35.44 79.70
3/1/00 35.25 37.80
3/2/00 37.19 123.70
3/3/00 37.38 70.00
3/6/00 36.38 78.50
3/7/00 35.81 56.40
3/8/00 36.19 54.70
3/9/00 37.50 133.20
3/10/00 36.81 88.40
3/13/00 35.63 71.00
3/14/00 34.69 80.20
3/15/00 35.38 65.00
3/16/00 37.56 93.30
3/17/00 37.94 85.00
3/20/00 37.25 62.20
3/21/00 38.06 85.10
3/22/00 38.13 75.40
3/23/00 38.13 45.00
3/24/00 38.13 40.90
3/27/00 37.63 176.30
3/28/00 37.88 54.00
3/29/00 38.00 27.70
3/30/00 38.38 39.70
3/31/00 38.00 64.70
4/3/00 38.50 33.60
4/4/00 38.31 61.80
4/5/00 38.44 53.20
4/6/00 39.19 37.70
4/7/00 39.19 62.80
4/10/00 38.75 33.50
4/11/00 40.06 66.90
4/12/00 40.06 70.10
4/13/00 38.94 39.60
4/14/00 38.19 72.10
4/17/00 38.69 68.20
4/18/00 39.00 60.00
4/19/00 40.38 88.10
4/20/00 41.75 96.20
4/24/00 42.06 101.90
4/25/00 43.19 98.40
4/26/00 43.19 40.70
4/27/00 42.06 59.50
4/28/00 41.06 141.20
5/1/00 43.50 154.80
5/2/00 45.63 174.90
5/3/00 47.06 214.60
5/4/00 48.56 161.50
5/5/00 47.38 166.20
5/8/00 47.38 142.00
5/9/00 46.94 273.40
5/10/00 47.44 232.40
5/11/00 48.81 119.50
5/12/00 48.19 113.20
5/15/00 47.06 108.20
5/16/00 47.25 161.40
5/17/00 47.00 50.90
5/18/00 46.81 93.60
5/19/00 46.50 101.30
5/22/00 46.31 105.00
5/23/00 45.19 84.90
5/24/00 46.56 191.80
5/25/00 46.31 179.90
5/26/00 47.25 105.80
5/30/00 47.44 61.00
5/31/00 47.50 167.70
6/1/00 43.88 390.70
6/2/00 42.38 208.80
6/5/00 42.94 158.20
6/6/00 41.88 299.50
6/7/00 41.63 110.40
6/8/00 39.94 147.00
6/9/00 39.88 57.60
6/12/00 39.94 76.10
6/13/00 38.75 138.10
6/14/00 39.25 127.60
6/15/00 39.50 74.90
6/16/00 39.56 150.60
6/19/00 35.88 243.00
6/20/00 35.81 231.30
6/21/00 34.69 224.50
6/22/00 34.31 121.20
6/23/00 34.00 94.00
6/26/00 34.25 161.50
6/27/00 33.44 214.30
6/28/00 34.06 397.70
6/29/00 34.38 76.90
6/30/00 32.00 213.80
7/3/00 32.63 48.70
7/5/00 32.75 87.50
7/6/00 31.56 221.50
7/7/00 31.75 72.20
7/10/00 31.75 143.60
7/11/00 32.31 102.60
7/12/00 32.13 91.60
7/13/00 31.88 78.80
7/14/00 32.06 62.30
7/17/00 32.31 60.80
7/18/00 31.50 74.60
7/19/00 31.38 36.70
7/20/00 32.88 153.40
7/21/00 34.06 194.20
7/24/00 33.63 80.60
7/25/00 33.31 80.60
7/26/00 33.06 88.80
7/27/00 32.88 75.60
7/28/00 32.44 48.60
7/31/00 32.25 44.70
8/1/00 31.75 66.50
8/2/00 32.13 29.40
8/3/00 31.88 61.90
8/4/00 31.56 83.40
8/7/00 32.19 51.40
8/8/00 31.94 122.40
8/9/00 31.69 95.20
8/10/00 31.75 37.00
8/11/00 31.81 29.10
8/14/00 32.13 20.10
8/15/00 31.31 48.60
8/16/00 31.13 27.90
8/17/00 31.56 24.70
8/18/00 31.44 27.60
8/21/00 31.00 30.80
8/22/00 31.75 69.50
8/23/00 31.38 40.30
8/24/00 31.56 31.20
8/25/00 31.31 34.80
8/28/00 30.75 43.70
8/29/00 30.00 46.70
8/30/00 30.06 41.10
8/31/00 29.88 33.60
9/1/00 29.81 33.50
9/5/00 29.69 77.80
9/6/00 31.25 66.90
9/7/00 31.25 31.40
9/8/00 31.13 34.70
9/11/00 30.06 30.20
9/12/00 29.63 42.50
9/13/00 29.19 39.00
9/14/00 29.44 30.40
9/15/00 28.88 53.90
9/18/00 28.63 40.70
9/19/00 28.94 36.20
9/20/00 28.19 109.70
9/21/00 27.88 72.60
9/22/00 27.50 97.30
9/25/00 27.38 48.30
9/26/00 27.13 48.10
9/27/00 27.19 33.50
9/28/00 27.50 76.10
9/29/00 28.19 52.60
10/2/00 27.88 33.20
10/3/00 28.38 70.50
- ---------------
GREENWICH
CREDIT RESEARCH
& TRADING
CONNECTICUT
- ---------------
48
49
SPRINGS INDUSTRIES
Financial Parameters of a Leveraged Recapitalization
================================================================================
LBO at
------
Current(1) $40 $45 $50 WXS(2) DR (2)
---------- --- --- --- ------ ------
Premium to 12 mo. Avg. ($37.11) (23.5)% 7.8% 21.3% 34.7% -- --
Premium to 6 mo. Avg. ($36.16) (21.5) 10.6 24.5 38.3 -- --
P/2000 EPS 6.70x 9.76x 10.96x 12.19x 6.49x 4.10x
EV/2000 EBITDA 3.48 4.39 4.74 5.10 6.18 3.72
Pro Forma Debt/2000 EBITDA 1.53 3.37 3.59 3.82 4.28 2.89
Pro Forma 2000 EBITDA - CapEx/Int.(3) 4.09 1.55 1.43 1.33 2.36 2.22
Total Debt $391.0 $859.0 $917.0 $976.0 $1,539.8 $319.8
Value of Public Shares $310.1 $452.0 $508.5 $565.0 $ 667.4 $ 95.2
Value of Family Shares 192.1 280.0 315.0 350.0 -- --
(1) $28.38 per share at October 3, 2000.
(2) Based on First Union Research dated July 28,2000 (WXS) and July 27, 2000
(DR).
(3) Assumes interest expense of LIBOR + 300 on senior debt up to $500 million,
and 13% on Sub. Debt amounts hereafter.
5 YEAR RETURN ON EQUITY INVESTMENT
EBITDA
VALUATION ROI
MULTIPLE TO RECAP
AT YEARS INVESTORS
-------- ---------
4.0x 33.5%
4.5x 37.6%
5.0x 41.3%
- ---------------
GREENWICH
CREDIT RESEARCH
& TRADING
CONNECTICUT
- ---------------
49
50
SPRINGS INDUSTRIES
LBO Model
================================================================================
($ MILLIONS)
2000 2001 2002 2003 2004
--------------------------------------------------------
Revenues $2321 $2422 $2574 $ 2739 $ 2876
EBITDA 258 301 349 408 436
Net Income
Base Case $ 73 $ 97 $ 118 $ 151 $ 169
LBO 32 52 73 105 122
EPS
Base Case $4.02 $5.29 $6.42 $ 8.07 $ 9.01
LBO 4.37 7.09 9.96 14.32 16.64
Debt / EBITDA
Base Case 1.6x 1.2x 1.0x 0.6x 0.2x
LBO 3.5x 3.0x 2.5x 1.9x 1.5x
Debt/Total Capital
Base Case 33% 29% 25% 19% 7%
LBO 58% 56% 53% 47% 35%
- ---------------
GREENWICH
CREDIT RESEARCH
& TRADING
CONNECTICUT
- ---------------
Source: Base Case - Springs
LBO - Morgan Stanley Dean Witter
50
51
SPRINGS INDUSTRIES
Potential Share Value vs. Current LBO Values
================================================================================
COMPARATIVE PRICE TO FORWARD
EPS
Springs Current 5.4x
Springs Year End:
1999 9.1x
1998 9.6x
1997 25.3x
1996 12.5x
1995 9.5x
WestPoint Current 5.1x
Dan River Current 3.4x
Premium of $45 LBO price to:
Current ($28.38) 58.6%
60 Day Average ($30.07) 49.7%
120 Day Average ($32.37) 39.5%
360 Day Average ($37.10) 21.3%
[Values for the Years Ending December 31 Line Graph]
POTENTIAL SHARE VALUES AT 6 TO 8X FUTURE EARNINGS
2000 2001 2002 2003 2004
$45.0 $50.4 $56.4 $63.2 $70.8
$42.32 $51.36 $64.56 $72.08 $79.78
$31.74 $38.52 $48.42 $54.06 $59.46
Values for the Years Ending December 31
- ---------------
GREENWICH
CREDIT RESEARCH
& TRADING
CONNECTICUT
- ---------------
51
52
SPRINGS INDUSTRIES
SECTION 4
REVIEW OF FINANCIAL STRUCTURE ALTERNATIVES
================================================================================
- - ACCESS TO FINANCIAL RESOURCES
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- -----------
52
53
SPRINGS INDUSTRIES
SPRINGS CURRENT BORROWING FACILITY IS ATTRACTIVE BUT LIMITED
IN AMOUNT
================================================================================
ADDITIONAL BORROWING CAPACITY UNDER EXISTING LINE
($ MILLIONS)
- - CURRENT BORROWING RATE IS
LIBOR PLUS 30 BASIS POINTS
- - MARKET RATE FOR MORE
LEVERAGED PLATFORM IS @
LIBOR PLUS 300 BASIS POINTS
- - SAVINGS ON EXISTING DEBT AS
LEVERAGED BASIS IS @ $9.8
MILLION PRE-TAX
- - LIMITING TEST IS RATIO OF DEBT
TO TOTAL TANGIBLE CAPITAL
- - SPRINGS PROBABLY FALLS TO BB DEBT RATING IF IT BORROWS TO MAXIMUM LEVEL UNDER
FACILITY.
[BAR GRAPH]
2000 2001
---- ----
For Share Repurchase or Acquisition Having All Goodwill $110 $170
For Cap-Ex or Acquisition Having No Goodwill $231 $348
- - FOR SHARE REPURCHASE OR ACQUISITION HAVING ALL GOODWILL
- - FOR CAP-EX OR ACQUISITION HAVING NO GOODWILL
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- -----------
53
54
SPRINGS INDUSTRIES
SPRINGS MAY REQUIRE NEW CAPITAL TO SUPPORT SELECTIVE
GROWTH STRATEGIES
================================================================================
- - SPRINGS IS CONSTRAINED BY
CURRENT LENDING ENVIRONMENT
- - DIVIDEND WOULD BE AT RISK IN
A GROWTH STRATEGY
- - ASSUMPTIONS
- SENIOR DEBT CONSERVATIVELY LIMITED TO 2X EBITDA
- SUB DEBT CONSERVATIVELY LIMITED TO 1X EBITDA
- REMAINDER IS SOURCED FROM NEW EQUITY
DEBT LEVELS & DEBT/EBITDA
[BAR GRAPH]
BASE PLUS MULTIPLE BASE PLUS PILLOWTEX PLUS
WESTPOINT SPRINGS BASE PLUS ACQUISITION STRATEGY IN AGGRESSIVE SOURCING
STEVENS BASE 2000 PILLOWTEX CORE BED & Bath Investment
------- --------- --------- --------------- ----------
New Equity $250
Subordinated Debt $359 $153 $359
Senior Debt $1,540 $409 $668 $608 $661
BASE PLUS MULTIPLE
ACQUISITION STRATEGY IN
CORE BED & BATH PLUS
AGGRESSIVE SOURCING
INVESTMENT
----------
New Equity $ 99
Subordinated Debt $304
Senior Debt $608
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- -----------
54
55
SPRINGS INDUSTRIES
PURSUIT OF GROWTH / ACQUISITION INITIATIVES WOULD PUT CONSIDERABLE PRESSURE ON
SPRINGS DEBT RATINGS
================================================================================
RATING PARAMETERS
- ----------------------=
BBB 46.4%
BB 58.5%
B 71.4%
CCC 79.4%
RATING PARAMETERS
- --------------------
BBB 6.3x
BB 3.9x
B 2.3x
CCC 0.2x
TOTAL DEBT/TOTAL CAPITAL
-------------------------------------------------------
2000 2001 2002 2003
---- ---- ---- ----
Springs Base 33% 29% 25% 19%
Springs Plus Pillowtex 55% 52% 48% 43%
Springs Plus Aggressive Sourcing Investment 45% 41% 37% 31%
Springs Plus Pillowtex Plus Sourcing Investment 60% 58% 54% 49%
Springs LBO 58% 56% 53% 47%
EBITDA INTEREST COVERAGE
-------------------------------------------------------
2000 2001 2002 2003
---- ---- ---- ----
Springs Base 8.1x 10.4x 12.9x 19.4x
Springs Plus Pillowtex 2.9x 3.8x 4.8x 5.7x
Springs Plus Aggressive Sourcing Investment 4.6x 5.7x 6.8x 9.1x
Springs Plus Pillowtex Plus Sourcing Investment 2.4x 3.1x 3.8x 4.5x
Springs LBO 2.6x 3.1x 3.4x 4.5x
POTENTIAL RATINGS IMPACT OF SELECTED STRATEGIES
-------------------------------------------------------
Springs Base BBB
Springs Plus Pillowtex BB-
Springs Plus Aggressive Sourcing Investment BB+
Springs Plus Pillowtex Plus Sourcing Investment B+
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- -----------
Note: Sourcing investment assumes $250 million of debt at 9.5%.
55
56
SPRINGS INDUSTRIES
IMPACT OF POTENTIAL DIVESTITURE OF * ON LEVERAGE FOR
SELECTED GROWTH STRATEGIES
================================================================================
- - ASSUMES SALE OF * FOR APPROXIMATELY * MILLION.
- - * IS NOT STRATEGIC -
- DIFFERENT CORE CUSTOMERS
*
DEBT LEVELS & DEBT/EBITDA
[BAR GRAPH]
Pro Forma Base
Plus Multiple
Base Plus Multiple Acquisition
Pro Forma Base Acquisition Strategy in Core
Base Plus Plus Pillowtex Post Strategy in Core Bed & Bath Post
Pillowtex Sale of Division Bed & Bath Sale of Division
--------- ---------------- ---------- ----------------
New Equity
Subordinated Debt $353 $146 $147
Senior Debt $668 $600 $614 $486
Pro Forma Base
Base Plus Multiple Plus Multiple
Acquisition Acquisition
Pro Forma Base Strategy in Core Strategy in Core
Base Plus Pillowtex Plus Pillowtex Plus Bed & Bath Plus Bed & Bath Plus
Plus Aggressive Aggressive Aggressive Sourcing
Sourcing Sourcing Post Sale Sourcing Investment Post
Investment of Division Investment Sale of Division
---------- ----------- ---------- ----------------
New Equity $250 $105 $90
Subordinated Debt $353 $297 $307 $196
Senior Debt $668 $594 $614 $540
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- -----------
* Omitted and filed separately with the Commission.
56
57
SPRINGS INDUSTRIES
SIGNIFICANT EQUITY WOULD BE REQUIRED TO SUPPORT A BROAD BASED DIVERSIFICATION
STRATEGY
================================================================================
- - ASSUMES NO ASSET
DIVESTITURES
[DEBT LEVELS & DEBT/EBITDA]
[BAR GRAPH]
Base + Multiple
Base + Multiple Strategy in Core
Acquisition Base + Pillowtex + Bed & Bath Plus
Strategy in Core Aggressive Aggressive
Springs Base Base + Pillowtex Bed & Bath Sourcing Sourcing
------------ ---------------- ---------- -------- --------
New Equity $250 $ 90
Subordinated Debt $359 $153 $353 $307
Senior Debt $410 $668 $614 $668 $614
Broad Based &
Base + Pillowtex + Diverse Acquisition
Base + Pillowtex + Broad Based & Diverse Acquisition Strategy +
Diverse Acquisition Diverse Acquisition + Aggressive Aggressive
Strategy Strategy Sourcing Sourcing
-------- -------- -------- --------
New Equity $341 $160 $601 $410
Subordinated Debt $414 $389 $414 $389
Senior Debt $828 $775 $828 $775
- ------------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- -----------
57
58
SPRINGS INDUSTRIES
COMPARISON OF ALTERNATIVE GROWTH STRATEGIES
================================================================================
- - SCALE CREATED COULD RESULT IN PURCHASING BENEFITS AND BETTER VISIBILITY IN
FINANCIAL MARKETS AS WELL AS SUBSTANTIALLY GREATER PLATFORM TO SUPPORT
INVESTMENT
REVENUES
--------
2000 2001 2002 2003
Base $2,331 $2,422 $2,574 $2,739
Base Plus Pillowtex $3,566 $3,747 $3,988 $4,252
Base Plus Pillowtex Plus Diversification $4,312 $4,541 $4,842 $5,166
Debt/EBITDA
-----------
2000 2001 2002 2003
Base 1.59x 1.22x 0.97x 0.06x
Base Plus Pillowtex 3.06x 2.35x 1.89x 1.56x
Base Plus Pillowtex Plus Diversification 3.78x 2.90x 2.43x 2.04x
EBITDA
------
2000 2001 2002 2003
Base $ 258 $ 301 $ 349 $ 408
Base Plus Pillowtex $ 334 $ 429 $ 514 $ 585
Base Plus Pillowtex Plus Diversification $ 414 $ 530 $ 617 $ 695
Debt/Total Capital
------------------
2000 2001 2002 2003
Base 0.33x 0.29x 0.25x 0.19x
Base Plus Pillowtex 0.55x 0.52x 0.48x 0.43x
Base Plus Pillowtex Plus Diversification 0.60x 0.57x 0.53x 0.48x
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- -----------
58
59
SPRINGS INDUSTRIES
POTENTIAL EQUITY SOURCES
================================================================================
ALTERNATIVE EQUITY SOURCES:
- - VESTAR
- - KELSO
- - FENWAY
- - CITICORP VENTURE CAPITAL
- - AEA
HEARTLAND INDUSTRIAL PARTNERS
- - $1.2 billion equity fund
- - Founded by David Stockman
BUSINESS APPROACH
- - Invest in fragmented industries which are ripe for consolidation
- - Invest equity to support multi-year consolidation and cap-ex investment
- - Seek synergy/savings at all stages of the supply chain through additional
scale and breadth of products
- - Position platform company to obtain materially better public market valuation
due to scale, as well as incremental growth
TRANSACTION APPROACH
- - Heartland seeks to partner with existing shareholders and management
- - Potential equity / quasi equity investment of @ $300 million
- - Meaningful board involvement
- - Contribution of Heartland management resources
- Acquisition expertise - IT expertise
- Supply chain expertise - Management expertise
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- -----------
59
60
SPRINGS INDUSTRIES
Appendix 1
Approach from Heartland Industrial Partners
- ------------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- ------------
61
HEARTLAND INDUSTRIAL PARTNERS
September, 2000
Detroit, Michigan New York, New York Greenwich, Connecticut
62
Section I
HEARTLAND INDUSTRIAL PARTNERS
1
63
Heartland Industrial Partners L.P. - Overview
- - Heartland is raising a $2 billion fund to consolidate, operationally
improve and grow a undervalued industrial companies:
- Nearly $1.2 billion committed to date; balance in progress
- 7 partners and 20 person organization in place
- Our $2 billion MascoTech transaction was announced within 90
days of the first close and was this year's second largest
buyout
- Several add-on deals for this metal forming and fabrication
platform are now in the pipeline
- - Heartland's investment strategy is based on a "buy, build and growth"
concept which avoids heavy leverage and excessive financial engineering
- - In addition to the metals platform already launched, Heartland is well
down the road on several additional large, high quality platforms where it
has an exclusive or proprietary angle:
- Home furnishings and domestics industry
- Automotive supply base
- Global fastener industry
- - Heartland will aggressively and consistently offer co-investment to its
Limited Partners at a 1:1 ratio alongside Fund commitments
2
64
FIVE LARGE SCALE PLATFORMS
- - Investments will be concentrated in five large scale industrial platform
buildups in sectors where Heartland can be the dominant consolidator and
growth capital provider
- - Heartland and its equity partners and co-investors would typically provide
$2-4 4 billion of financing (debt and equity) over 3-5 years to each
platform for:
- Consolidating acquisitions
- Factory floor investments
- Product expansion/innovation
- Information technology upgrades
- E-commerce initiatives
- Business model transformation
- - Heartland platform buildups will generate strong earnings and cash flow
growth due to:
- Initial consolidation savings and synergies
- Subsequent focus on business model transformation and capture of new
sales and value-added content
3
65
HEARTLAND'S ORGANIZATION
PARTNER ROLE EXPERIENCE LOCATION
David Stockman Buyout Partner Blackstone Founding Partner, Reagan Budget Director New York
Tim Leuliette Industrial Partner CEO/COO Penske Group, ITT, Siemen Detroit
Dan Tredwell Financial Partner Chase Managing Director, Leveraged Financings New York
Perry Lewis Investment Partner Smith Barney and Morgan, Lewis New York
Cindy Hess Operations Partner VP Quality/Engineering DaimlerChrysler Detroit
Gary Banks Info. Tech. Partner CIO, Xerox, Monsanto Detroit
Gerry McConnell Financing Partner Managing Director, Deutsche/Bankers Trust New York
5 PLATFORM COMPANY CEOS
20 Associates & Support Staff
Focused Consultants Advisory Committee Strategic Partners
4
66
OVERVIEW OF EXISTING COMMITMENTS
1. PUBLIC / PRIVATE PENSION FUNDS ( $ 470 Million)
*
2. FINANCIAL INSTITUTIONS ( $ 299 Million)
*
3. INSURANCE COMPANIES / FOUNDATIONS ( $ 125 Million)
*
4. ENTREPRENEURS / BUSINESSMEN ( $ 116 Million)
*
5. STRATEGIC PARTNERS / OTHER INVESTORS ( $ 135 Million)
*
TOTAL COMMITMENTS AS OF 9/20/00 -- $1,145 MILLION
* Omitted and filed separately with the Commission.
5
67
INVESTMENT CRITERIA
================================================================================
- - SECTORS TARGETED FOR POTENTIAL INVESTMENT WILL REQUIRE A HIGH QUALITY,
SECTOR LEADING COMPANY WHICH:
- CAN BE THE KEYSTONE FOR A GROWTH AND CONSOLIDATION PROGRAM
- HAS POTENTIAL FOR $4-8 BILLION IN SALES AFTER ACQUISITIONS,
OPERATIONAL SCALE-UP AND BUSINESS MODEL TRANSFORMATION
- CAN CAPTURE ECONOMIES-OF-SCALE IN SUPPLY BASE MANAGEMENT AND
SOURCING, PLANT OPERATIONS, DISTRIBUTION, CUSTOMER SERVICE AND
IN APPLICATION OF ADVANCED IT SYSTEMS
- HAS THE ABILITY TO ACHIEVE GROWTH OF 2X GDP OR BETTER
- CAN ACHIEVE #1 OR #2 MARKET POSITION IN ITS MAJOR PRODUCT
LINES
- HAS MANAGEMENT TEAMS INCENTIVIZED WITH LARGE NET WORTH
OPPORTUNITIES
- IS LED BY A WORLD CLASS CEO AND STRONG MANAGEMENT TEAM
================================================================================
6
68
TARGETED SECTORS
================================================================================
SECTORS INDUSTRIAL LOGIC
------- ----------------
AUTOMOTIVE MODULES/SYSTEMS $650 BILLION MARKET -- RAPID MOVE TO TIER 1
CONSOLIDATION AND MODULE OPPORTUNITIES; OEMS
ACCEPT ECONOMIC/TECHNICAL ADVANTAGES.
AEROSPACE MATERIAL/COMPONENTS FOLLOWING AUTO INDUSTRY CONSOLIDATION MODEL;
BOEING HAS MORE SUPPLIERS THAN GLOBAL AUTO
INDUSTRY.
METAL FORMING AND FABRICATION GLOBAL OEM'S DESIRE WORLD WIDE MATERIAL
SOLUTIONS WHICH INCLUDE MULTI-METAL (IRON,
ALUMINUM, STEEL, ETC.) AND MULTI-PROCESS
(FORGE, FOUNDRY, FASTENER) CAPABILITIES.
SPECIALTY CHEMICALS MAJOR, GLOBAL CHEMICAL COMPANIES HAVE BEEN
TRANSFORMED TO "LIFE SCIENCE" FOCUS; LEGACY
CHEMICAL BUSINESSES HAVE BEEN SOLD OR SPUN
OFF 3/4 LEAVING SUB-SCALE, UNDERVALUED
"ORPHANS."
HOME TEXTILES/FURNISHINGS IT AND "BIG BOX" RETAIL REVOLUTIONS CREATING
NEED FOR LARGE SCALE, BROAD PRODUCT LINE
SUPPLIERS.
MACHINE TOOLS FACTORY WIDE, FULL SYSTEM/FULL SERVICE
PROVIDERS WILL CREATE COMPETITIVE ADVANTAGE.
HEAVY EQUIPMENT CONSOLIDATE FRAGMENTED GLOBAL INFRASTRUCTURE
INDUSTRY.
================================================================================
7
69
DEEP VALUATION DISCOUNT FOR INDUSTRIAL COMPANIES
================================================================================
[Line Graph:
Annual Change
Stock Index 1997-1999
NASDAQ 52%
S&P 500 17%
Small/Midcap Industrials (6%)]
Small/Midcap
Industrials - Deep
Valuation Discounts
- TRADING @ 50 YEAR LOW RELATIVE PE'S
- SUFFERING FROM LIQUIDITY DRAIN TO NEW ECONOMY
- "CURRENCY" IS NOW TOO WEAK TO LEAD CONSOLIDATION PROCESS
- MUST BE SCALED-UP AND TRANSFORMED WITH PRIVATE EQUITY TO ONCE
AGAIN ATTRACT PUBLIC INVESTOR INTEREST
================================================================================
8
70
TWO TIER EQUITY MARKET
================================================================================
Industrial Company P/E Multiples:
2-Tier Market Based on Capitalization Scale
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
10.8x 10.2x 13.6x 14.3x 15.6x 12.0x 12.3x 13.4x 14.4x 12.8x 13.0x
11.0x 11.1x 15.2x 15.8x 16.6x 13.2x 14.3x 16.6x 16.9x 18.1x 20.7x
- IF INDUSTRIAL COMPANIES DO NOT HAVE AT LEAST $2.5 BILLION
EQUITY MARKET CAPS:
- LARGE FUNDS CAN NOT INVEST ($25-$50 MILLION "BITE SIZE").
- COMPANIES DO NOT PARTICIPATE IN INDEX FUNDS.
- RETAIL INTEREST IS REDUCED.
- ANALYST COVERAGE IS MINIMAL.
- FURTHER INVESTOR INTEREST IS COMPOUNDED BY ABOVE.
- THIS DIVERGENCE IS STRUCTURAL.
BOTTOM 300 S&P INDUSTRIAL COMPANIES:
MEDIAN CURRENT MARKET CAP.: $768 MM
MEDIAN CURRENT 5-YEAR GROWTH RATE: 12.3%
TOP 100 S&P INDUSTRIAL COMPANIES:
MEDIAN CURRENT MARKET CAP.: $7,956 MM
MEDIAN CURRENT 5-YEAR GROWTH RATE: 11.8%
================================================================================
9
71
HEARTLAND'S INVESTMENT SPACE IS LARGELY UNOCCUPIED
================================================================================
Industrial Company Share of Large LBO Deals
(Reported Transactions With TEV in Excess of $200 Million)
Megafund Industrial
Deals in Heartlands
Space*
KKR None
Warburg Pincus None
Greenwich Street None
Apollo None
T. H. Lee None
Welsh Carson None
Carlyle Group None
Cypress Group None
Texas Pacific None
Vestar None
1995 1996 1997 1998 1999
East 60% 43% 37% 28% 17%
Megafund Industrial Deals in
Heartlands Space*
Forstmann Little None
Hellman & Friedman None
Citicorp Venture None
Hicks Muse 1
Blackstone 1
CD&R 1
DLJ Merch. Bank 1
Madison Dearborn 1
Kelso 1
Investcorp 1
* INDUSTRIAL TRANSACTIONS WITH TEV OVER $500 MILLION IN LAST TWO YEARS.
================================================================================
10
72
SUMMARY OF INVESTMENT PERFORMANCE
================================================================================
The following summary describes the investment performance of the ten Blackstone
transactions in which Mr. Stockman had significant principal responsibility. All
results and valuations are as of December 31, 1999.
Transaction Date Date Realized/ Blackstone Realized/
($ in millions) Size Acquired Valued Equity Invested Unrealized Value(1)
- --------------- ---- -------- ------ --------------- -------------------
COMPANY
Realized and/or Publicly Traded Investments
Aristech Chemical Corporation $1,000 3/90 3/95 $3 $8
DeBartolo Corporation 110 12/93 4/94-5/97 108 222
LaSalle Re Holdings Limited 378 11/93 5/97-10/97 51 96
UCAR International, Inc. 1,230 1/95 3/96-4/97 187 862
American Axle and Manufacturing Inc. 928 10/97 9/99 113 353(3)
Collins & Aikman Group, Inc. 2,650 12/88 (4) 122 133(5)
SUBTOTAL $6,296 $584 $1,673
Unrealized Investments at Cost
Clark USA, Inc. $1,920(6) (6) NA $263 $263
Haynes International 241 1/97 NA 54 54
Republic Technologies International 1,100 (7) NA 172 172
Imperial Home Decor Group 418 3/98 NA 85 0(8)
SUBTOTAL $3,679 $574 $489
Gross Multiple of
($ in millions) IRR(2) Equity Invested
- --------------- ------ ---------------
COMPANY
Realized and/or Publicly Traded Investments
Aristech Chemical Corporation 22% 2.7X
DeBartolo Corporation 35 2.1
LaSalle Re Holdings Limited 25 1.9
UCAR International, Inc. 198 4.6
American Axle and Manufacturing Inc. 69 3.1
Collins & Aikman Group, Inc. 1 1.1
SUBTOTAL 78%* 2.9X
Unrealized Investments at Cost
Clark USA, Inc. NA NA
Haynes International NA NA
Republic Technologies International NA NA
Imperial Home Decor Group NA NA
SUBTOTAL NA NA
(1) Realized investments include investments that were sold, distributed or
taken public. Unrealized investments have been valued at cost.
(2) Individual deal IRRs are calculated based on daily cash flows with the
returns annualized, before carried interest and management fees.
(3) Valued at the 90-day average trading price ending December 31, 1999 of
$13.32 per share.
(4) Dates of realization/valuation are 12/89, 1/90, 3/90, 7/91 and 9/99.
(5) Valued at the 90-day average trading price ending December 31, 1999 of
$5.89 per share less $56 million margin loan.
(6) Includes follow-on $235 million investment in Lima, OH refinery (8/98)
and $833 million committed and funded investment in Port Arthur coker
project (8/99). Dates of acquisition and follow-on investments are
11/97, 8/98 and 8/99.
(7) Dates of acquisition and follow-on investments are 4/96, 9/97, 9/98 and
8/99.
(8) Due to recent weak results and a liquidity squeeze, Imperial filed for
bankruptcy under Chapter 11 on January 5, 2000. As of December 31,
1999, Blackstone had written off its investment in Imperial Home Decor
Group.
================================================================================
11
73
Executive Summary
- - Heartland believes the home textile sector may be ideal for its "buy,
build, and growth" investment model because:
- Two of the three largest companies in the industry are currently
not positioned to be aggressive consolidators or growth capital
providers.
- The next tier of 12 companies are narrow in product line and
sub-scale.
- Much of the industry is debt-burdened and has an all-time
historical low P/E, which has shut the door to new public equity
capital.
TOP THREE COMPANIES
West Point Stevens:
Failed Sale / LBO
Springs:
Strong, consistent operating
performance and balance sheet,
best positioned consolidator
Pillowtex:
Massive debt and
management turmoil
NEXT 12 COMPANIES
Sales Range:
$136 - 471 MM
$175 MM average
Frequency among top 5 suppliers in major product lines (15):
1 company..... 0/15
3 companies... 1/15
4 companies... 2/15
4 companies... 3/15
LOW P/ES (1)
Springs .................... 7.1x
Dan River .................. 5.2x
Pillowtex................... 2.0x(?)
WestPoint Stevens .......... 5.1x
(1) 2001 IBES estimates.
1
74
Executive Summary
- - Heartland has fashioned a multi-year consolidation and investment
scenario which would:
- Create a $4 to $6 billion mega-supplier --- capable of dominating the
$17 billion home textile sector and growing to 3X the size of
existing industry leaders.
- Aggregate a broad portfolio of Home Textile products, ranking #1
in 8 of the 15 product categories and ranking among the top three in
75% of the product categories.
- - The resulting company would be driven by INDUSTRIAL AND COMMERCIAL LOGIC
and capture substantial cost savings and earnings synergies.
- - Upon completion of the consolidation and build-up, the resulting platform
would have a $3 to $4 billion public equity market capitalization plus a
strong growth / sector dominance story. It should attract an active
investor base and broad equity research coverage, and also earn a
reasonable PE multiple (i.e. 10X or higher).
2
75
Executive Summary
- - The mega-supplier consolidation scenario is driven by industrial and
commercial logic providing the potential for synergy gains at all stages
of the supply chain:
- Purchasing leverage in the fibers, market yarns, dyes, chemicals,
and other inputs.
- Consolidation, re-loading, and targeted re-investment to achieve
"best-in-class" yarn mills and weaving, dyeing, and finishing
facilities from among selective assets of building block companies.
- Aggressive shift to off-shore sourcing of high labor-content
items with increased competence, clout, and efficiency.
- Full product-line and comprehensive price point range supplier to
all channels of trade.
- Supplier of choice to big box mass discounters, and national
specialty and department store chains.
- Systematic upgrade and scale-up of Information Technology (IT)
systems from cotton receiving docks to customer store doors.
- Investment in "state-of-the-art" distribution facilities and
customer service infrastructure for all models of product
delivery including customer DC's, retail store doors and consumer
direct.
- Vendor of choice for designer and licensed product.
3
76
Executive Summary
- - Heartland has developed an illustrative consolidation scenario, which is
open for extensive discussion and revision, but which also embodies key
ingredients and directions necessary for a viable transaction and
investment strategy:
- Springs and its management team would provide the FOUNDATION
PLATFORM.
- In phase I, Heartland would infuse $400 million of common equity
(or more) into the "New Springs" in connection with:
- A negotiated transaction or pre-pack with PTX
stakeholders, which would permit a "New Springs" takeover
of its assets and operations.
- Provide an exit opportunity at a significant premium
to the current share price for those Springs shareholders
who choose to exit (illustrative model assumes 40% share
buy-in at $40 per share via dutch tender).
- Agreement with Springs management on the general content
and strategy of a follow-on "phase II" consolidation plan
involving multiple acquisitions of additional smaller
industry suppliers.
- Establishment of a "private equity" type option plan for the
"New Springs" to provide management incentives and rewards for
successful execution of a huge, challenging, and multi-year
undertaking.
4
77
Executive Summary
- - "New Springs" stock would be issued to Heartland at a dutch tender price
(for illustrative purposes --- $40 per share).
- - The consolidation plan must be accretive for Springs shareholders after
year #1, and STRONGLY ACCRETIVE in out-years.
- - The phase II consolidation plan would be drawn from a menu of 20 or more
acquisition candidates, and also involve a commitment to significant
investment in targeted upgrades of factory floor equipment, IT systems,
and distribution facilities.
- - Phase II acquisitions would be funded with modest incremental leverage.
- - The end game objective would be to build a dominant Home Textile mega-
supplier with:
- $4 to $6 billion in sales.
- Ability to capture at least $200 million (3% of sales or 170 basis
points of market share) in synergies over five years.
- Post-synergy operating margins and ROCE at world class levels.
- - Mechanisms for orderly exit via secondary stock offering by Heartland
after buildup completed and "New Springs" hits financial performance
target levels.
5
78
Executive Summary
Home Textiles Served Market
USA MARKET BY PRODUCT LINE
($ millions)
Trend
1999 Shipments(1) Growth
Product Line Amount % Total Rate
- ------------ ------ ------- ----
1 Bath Towels .................. $ 2,482 14.6% 4.3%
2 Sheets / pillowcases ......... 2,463 14.5 3.5
3 Comforters / bedspreads ...... 1,717 10.1 5.0
4 Area scatter rugs ............ 1,487 8.7 7.0
5 Table linen .................. 1,352 8.0 4.0
6 Sleep pillows ................ 1,133 6.7 3.0
7 Ready-made window coverings .. 1,025 6.0 4.0
8 Bath rugs .................... 961 5.7 4.0
9 Blankets ..................... 739 4.3 4.0
10 Shower curtains ............. 589 3.5 3.0
11 Kitchen textiles ............ 540 3.2 3.0
12 Decorative pillows .......... 522 3.1 6.0
13 Down comforters ............. 432 2.5 5.0
14 Throws ...................... 350 2.1 0.0
15 Mattress pads ............... 341 2.0 4.0
------- ----- ---
sub total ............ 16,134 94.9 4.2
Other home textile products .... 866 5.1 4.0
------- ----- ---
TOTAL SERVED MARKET ....... $17,000 100% 4.2%
======= ===== ===
TOTAL HOME TEXTILE MARKET GROWTH(2)
1998 - 2005 CAGR
4.2%
1998 1999 2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ---- ---- ----
($ BILLIONS)
$16.3 $17.0 $17.7 $18.5 $19.2 $20.1 $20.9 $21.8
(1) Wholesale value including imports. Data estimates by KSA.
(2) KSA estimated growth rates.
79
Executive Summary
Industry Structure: Most of the industry is sub-scale(1)
(1999 Sales in Millions)
TIER I TIER II
- ----------------------------------------------------------------------------------------------------------------------------------
Springs WestPoint Pillowtex Mohawk Dan River Crown Craft Burlington Croscill PCF Glenoit Hollander Maples
- ------- --------- --------- ------ --------- ----------- ---------- -------- --- ------- --------- ------
$2,220 $1,868 $1,552 $470 $432 $310 $300 $283 $230 $222 $201 $160
TIER II
-------------------------------
Louisville Revman Sunbeam
---------- ------ -------
$156 $141 $136
(1) Home textile sales only, as per Home Textiles Today.
7
80
Executive Summary
Industry Structure: Tier I companies have moderate shares in narrow product
portfolios --- with limited leverage on the total home textile market.
WESTPOINT
STEVENS SPRINGS
------- -------
Home Textile Sales $ 1,868 $ 2,220
Share Total of Home Textile Market..... 11% 13%
- -------------------------------------------------------------------------------------------------------------------
Among Top 5 Suppliers / # of Markets(1).. 4/15 5/15
- -------------------------------------------------------------------------------------------------------------------
"Top 5" Markets (ranking) Sheets / pillowcases (# 1) Comforters / bedspreads (# 1)
Bath towels (# 2) Shower curtains (# 1)
Comforters / bedspreads (# 3) Bath rugs (# 2)
Blankets (# 3) Sheets / pillowcases (# 2)
Bath towels (# 3)
Combined Share in "Top 5" Market:
Market Size $ 7,401 $ 8,212
Company Sales 1,628 1,415
- -------------------------------------------------------------------------------------------------------------------
% Share 22% 17%
- -------------------------------------------------------------------------------------------------------------------
Textile Markets Not Included Above:
Market Size $ 9,599 $ 8,788
Company Sales 240 805
- -------------------------------------------------------------------------------------------------------------------
% Share 3% 9%
- -------------------------------------------------------------------------------------------------------------------
PILLOWTEX
---------
Home Textile Sales $ 1,552
Share Total of Home Textile Market..... 9%
- ------------------------------------------------------------------------------
Among Top 5 Suppliers / # of Markets(1).. 8/15
- ------------------------------------------------------------------------------
"Top 5" Markets (ranking) Bath towels (# 1)
Blankets (# 1)
Down comforters (# 1)
Sleep pillows (# 1)
Mattress pads (# 2)
Bath rugs (# 3)
Sheets / pillowcases (# 3)
Comforters / bedspreads (# 5)
Combined Share in "Top 5" Market:
Market Size $ 10,268
Company Sales 1,552
- ------------------------------------------------------------------------------
% Share 15%
- ------------------------------------------------------------------------------
Textile Markets Not Included Above:
Market Size $ 15,448
Company Sales --
- ------------------------------------------------------------------------------
% Share 0%
- ------------------------------------------------------------------------------
- -------------
(1) Among Top 15 Home Textile Product Lines.
8
81
Executive Summary
INDUSTRY STRUCTURE: TIER II COMPANIES HAVE NARROW PRODUCT
PORTFOLIOS AND A TINY PRESENCE IN THE TOTAL HOME TEXTILE INDUSTRY.
Market Share in Top 5 Ranking
-----------------------------
Company Industry # of Top 5 Product Lines With Top 5 Ranking Industry Company Share
Ranking Rankings Sales Sales %
Mohawk Rug # 4 3/15 Area / scatter rugs (# 1), Bath rugs (# 1), $ 2,788 $ 488 17%
Throws (# 3)
Dan River # 5 2/15 Comforters / bedspreads (# 2), 4,180 395 9%
Sheets / pillowcases (# 4)
Crown Craft # 6 2/15 Comforters / bedspreads (# 4), Throws (# 1) 2,068 278 13%
Burlington Rug / Dom. # 7 2/15 Area / scatter rugs (# 4), 2,514 210 8%
Ready-made window coverings (# 1)
Croscill # 8 1/15 Ready-made window coverings (# 5) 1,027 67 7%
Pacific Coast Feather # 9 3/15 Down comforters (# 2), Mattress pads (# 4), 1,906 196 10%
Sleep pillows (# 2)
Glenoit # 10 3/15 Decorative pillows (# 4), Shower curtains (# 3), 2,463 105 4%
Table linen (# 5)
Hollander # 11 3/15 Down comforters (# 3), Mattress pads (# 5), 1,906 154 8%
Sleep pillows (# 3)
Maples Rugs # 12 2/15 Area / scatter rugs (# 3), Bath rugs (# 4), 2,448 160 7%
Louisville Bedding # 13 1/15 Mattress pads (# 1) 341 86 25%
Revman # 14 0/15
Sunbeam # 15 1/15 Blankets (# 2) 739 180 16%
Share of
Company Total Home
Textiles
Mohawk Rug 2.7%
Dan River 2.5%
Crown Craft 1.8%
Burlington Rug / Dom. 1.7%
Croscill 1.6%
Pacific Coast Feather 1.4%
Glenoit 1.3%
Hollander 1.1%
Maples Rugs 0.9%
Louisville Bedding 0.9%
Revman 0.8%
Sunbeam 0.8%
9
82
Executive Summary
Illustrative New Springs: Key Consolidation Principles
- - Initial New Springs / Pillowtex platform would create dominant market
shares over WestPoint Stevens in core sheets, sleep pillows, towels, bath
rugs, blankets and down comforter markets.
- - Add-on acquisitions should also provide New Springs with enhanced
presence in other home textile product lines --- area rugs, window
coverings, table linens, decorative pillows, etc.
- - Broad line home textile product portfolio should be positioned with a
wide range of price points and merchandise mix --- with capacity to serve
each channel including specialty stores, big box mass merchants, national
chains, etc. with appropriate product.
- - Expected sales and cost synergies (see below) should dramatically exceed
potential market push-back.
- - Target acquisition list should reflect:
- Strong commercial and industrial logic
- Primary targets that have plausible basis for a transaction at
reasonable valuations.
- Product markets and operational strategy, which could be achieved
with "second best" acquisition candidates, if necessary.
10
83
Executive Summary
New Springs Platform Build-up: Illustrative Acquisitions
CORE PLATFORM
-------------
SPRINGS
PILLOWTEX
POTENTIAL ACQUISITIONS WHICH ADD MARKET SHARE AND NEW PRODUCT LINES
Crown Craft Maples CHF Industries Pacific Coast Feather
Croscill Burlington House S. Lichtenberg Perfect Fit
Louisville Bedding Glenoit Allure Home Creation Thomaston Mills
Hollander Georgia Tufters Bardwill Industries Decorator Industries
Charles Owen Mfg. Barth & Dreyfuss Brentwood Originals Creative Bath Products
11
84
Executive Summary
New Springs: Impact On home Textile Industry Structure
(1999 Sales in Millions)
Current
-------
Springs $2,220 13%
WestPoint Stevens $1,868 11%
All Others + Imports $8,319 49%
Pillowtex $1,552 9%
Next 12 $3,041 18%
1999 Pro Forma New Springs
--------------------------
NEW SPRINGS (1) $4,741 28%
All Others + Imports $8,319 49%
WestPoint Stevens $1,868 11%
Next 8 $2,072 12%
(1) Springs, Pillowtex plus four follow-on acquisitions: Croscill, Glenoit,
Maples Rugs, and Pacific Coast Feather.
12
85
Executive Summary
New Springs: Impact On Product Line Market Shares
($ Millions)
COMFORTERS / BEDSPREADS
1999 Sales
---------------------
Current Pro Forma
------- ---------
New Springs ......... -- $ 699
Springs Industries .. 350 --
Dan River ........... 185 185
Westpoint Stevens ... 180 180
Crown Craft ......... 160 160
Pillowtex ........... 150 --
Croscill ............ 129 --
Glenoit ............. 70 --
Other Companies ..... 493 493
------ ------
Total ............. $1,717 $1,717
PRO FORMA MARKET SHARE
New Springs ..................... 41%
Dan River ....................... 11%
Westpoint Stevens ............... 10%
Others + Imports ................ 29%
------
Total ......................... 91%
SHEETS / PILLOWCASES
1999 Sales
-------------------
Current Pro Forma
------- ---------
New Springs ......... -- $910
Westpoint Stevens ... 698 698
Springs Industries .. 650 --
Pillowtex ........... 260 --
Dan River ........... 210 210
Thomaston Mills ..... 90 90
Crown Craft ......... 60 60
Other Companies ..... 495 495
------ ----
Total ............ $2,463 $2,463
PRO FORMA MARKET SHARE
New Springs ..................... 37%
Westpoint Stevens ............... 28%
Dan River ....................... 9%
Thomaston Mills ................. 4%
Others + Imports ................ 20%
----
Total ......................... 98%
BATH TOWELS
1999 Sales
---------------------
Current Pro Forma
------- ---------
New Springs ............. -- $ 875
Pillowtex ............... 660 --
Westpoint Stevens ....... 650 650
Springs Industries ...... 215 --
Santens of America ...... 45 45
1888 Group-Southern Terry 26 26
Other Companies ......... 886 886
------ ------
Total .................. $2,482 $2,482
PRO FORMA MARKET SHARE
New Springs ............. 35%
Westpoint Stevens ....... 26%
Santens of America ...... 2%
1888 Group-Southern Terry 1%
Others + Imports ........ 36%
------
Total ................. 100%
13
86
Executive Summary
New Springs: Impact On Product Line Market Shares
($ Millions)
DOWN COMFORTERS
1999 Sales
--------------------
Current Pro Forma
------- ---------
New Springs ......... -- $150
Pillowtex ........... 76 --
Pacific Coast Feather 74 --
Hollander ........... 40 40
Phoenix Down ........ 24 24
United Feather & Down 21 21
Other Companies ..... 197 197
---- ----
Total ............. $432 $432
PRO FORMA MARKET SHARE
New Springs ..................... 35%
Hollander ....................... 9%
Phoenix Down .................... 6%
Others + Imports ................ 50%
----
Total ......................... 100%
MATTRESS PADS
1999 Sales
-------------------
Current Pro Forma
------- ---------
Louisville Bedding .. $ 86 $102
New Springs ......... -- 71
Pillowtex ........... 71 --
Perfect Fit ......... 65 65
Pacific Coast Feather 16 --
Hollander ........... 14 14
Other Companies ..... 89 89
---- ----
Total ............. $341 $341
PRO FORMA MARKET SHARE
Louisville Bedding .............. 30%
New Springs ..................... 21%
Perfect Fit ..................... 19%
Others + Imports ................ 30%
----
Total ......................... 100%
SLEEP PILLOWS
1999 Sales
---------------------
Current Pro Forma
------- ---------
New Springs ......... -- $ 271
Pillowtex ........... 165 --
Pacific Coast Feather 106 --
Hollander ........... 100 100
American Fiber ...... 71 71
Liebhardt Mills ..... 51 51
Louisville Bedding .. 50 50
Other Companies ..... 590 590
------ ------
Total ............. $1,133 $1,133
PRO FORMA MARKET SHARE
New Springs ..................... 24%
Hollander ....................... 9%
American Fiber .................. 6%
Liebhardt Mills ................. 5%
Others + Imports ................ 56%
------
Total ......................... 100%
14
87
Executive Summary
New Springs: Impact On Product Line Market Shares
($ Millions)
AREA / SCATTER RUGS
1999 Sales
----------------------
Current Pro Forma
------- ---------
Mohawk Rug & Textiles ........ $ 237 $ 237
New Springs .................. -- 170
Beaulieu ..................... 120 120
Maples Industries ............ 115 --
Burlington House Floor Accents 90 90
Oriental Weavers ............. 60 60
Glenoit ...................... 55 --
Other Companies .............. 810 810
------ ------
Total ...................... $1,487 $1,487
PROFORMA MARKET SHARE
Mohawk Rug & Textiles ........ 16%
New Springs .................. 11%
Beaulieu ..................... 8%
Burlington House Floor Accents 6%
Others + Imports ............. 59%
------
Total ...................... 100%
BATH RUGS
1999 Sales
--------------------
Current Pro Forma
------- ---------
New Springs ..................... -- $230
Mohawk Rug & Textiles ........... 190 190
Springs Industries .............. 130 --
Pillowtex ....................... 55 --
Maples .......................... 45 --
Georgia Tufters ................. 35 35
Burlington House Floor Accents .. 25 25
Other Companies ................. 481 481
---- ----
Total ......................... $961 $961
PROFORMA MARKET SHARE
New Springs ..................... 24%
Mohawk Rug & Textiles ........... 20%
Georgia Tufters ................. 4%
Others + Imports ................ 53%
----
Total ......................... 100%
READY-MADE WINDOW COVERINGS
1999 Sales
---------------------
Current Pro Forma
------- ---------
Burlington Industries $ 120 $ 120
S. Lichtenberg ...... 115 115
CHF Industries ...... 97 97
Miller Curtain ...... 93 93
New Springs ......... -- 67
Croscill ............ 67 --
Other Companies ..... 535 535
------ ------
Total ............. $1,027 $1,027
PRO FORMA MARKET SHARE
Burlington Industries 12%
S. Lichtenberg ...... 11%
CHF Industries ...... 9%
Miller Curtain ...... 9%
New Springs ......... 7%
Others + Imports .... 52%
------
Total ............. 100%
15
88
Executive Summary
New Springs: Impact On Product Line Market Shares
($ Millions)
BLANKETS
Pro forma
----------------
Market
Sales Share
----- ------
New Springs ............. $121 16%
Sunbeam ................. 120 16%
Westpoint Stevens ....... 97 13%
Charles D. Owen Mfg. .... 90 12%
Chatham Consumer Products 20 3%
Other Companies ......... 291 39%
---- ---
Total ................. $739 100%
THROWS
Pro forma
----------------
Market
Sales Share
----- ------
Crown Crafts ............... 98 28%
Manual Woodworkers & Weavers 71 20%
Mohawk Rug & Textiles, GA .. 52 15%
Mohawk Rug & Textiles, MD .. 43 12%
The Northwest Co. .......... 21 6%
Other Companies ............ 65 19%
---- ---
Total .................... $350 100%
SHOWER CURTAINS
Pro forma
---------------
Market
Sales Share
----- ------
New Springs .......... $129 22%
Allure Home Creation . 65 11%
Creative Bath Products 29 5%
Maytex Mills ......... 25 4%
Other Companies ...... 341 58%
---- ---
Total .............. $589 100%
DECORATIVE PILLOWS
Pro forma
-----------------
Market
Sales Share
----- -----
Brentwood Originals $100 19%
Arlee ............. 50 10%
New Springs ....... 21 4%
Newport ........... 21 4%
Fashion Pillows ... 21 4%
Other Companies ... 309 59%
---- ---
Total ........... $522 100%
TABLE LINEN
Pro forma
------------------
Market
Sales Share
----- -----
Town & Country Living $ 90 7%
Bardwil Industries .. 50 4%
Avon Home Fashions .. 35 3%
Elrene Manufacturing 35 3%
New Springs ......... 25 2%
Other Companies ..... 1,117 83%
------ ---
Total ............. $1,352 100%
KITCHEN TEXTILES
Pro forma
-----------------
Market
Sales Share
----- ------
Barth & Dreyfuss $ 59 11%
Franco Mfg. ..... 45 8%
Cecil Saydah .... 44 8%
Charles Craft ... 18 3%
John Ritzenthaler 18 3%
Other Companies . 356 66%
---- ---
Total ......... $540 100%
16
89
Executive Summary
New Springs: Illustrative Acquisition Sequence
($ Millions)
Total Current Pre-Synergy
Enterprise Year Purchase
Initial Platform: Year-end Value EBITDA Multiple
----------------------------------------------
Pillowtex Recapitalization ... 2000 $ 822 $138 6.0x
Subsequent Acquisitions:
Glenoit....................... 2001 * * *
Croscill...................... 2001 * * *
Maples Rugs................... 2002 * * *
Pacific Coast Feather......... 2002 * * *
- ----------------------------------------------------------------------------------
Total New Springs Acquisitions -- $ * $ * *
- ----------------------------------------------------------------------------------
* Omitted and filed separately with the Commission.
17
90
Executive Summary
New Springs: Standalone Sales Growth and Margin Assumptions
($ Millions)
Historical Projected Standalone Case CAGR
-------------------------------- --------------------------------------------------- ----------------
Company .............. 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 1996-99 1999-05
- ---------------------------------------------------------------------------------------------------------------------------------
Springs ............... $2,221 $2,226 $2,181 $2,220 $2,307 $2,388 $2,484 $2,583 $2,686 $2,794 0.0% 3.9%
Pillowtex ............. 491 580 1,510 1,552 1,434 1,435 1,464 1,522 1,583 1,647 46.8% 1.0%
Croscill .............. 173 193 214 283 300 315 329 344 360 376 17.8% 4.8%
Glenoit ............... 122 147 172 296 305 308 309 312 285 299 34.5% 0.2%
Maples Rugs ........... 60 85 110 160 185 196 208 220 234 248 38.7% 7.6%
Pacific Coast Feather.. 125 150 175 230 250 270 290 310 325 342 22.5% 6.8%
- ---------------------------------------------------------------------------------------------------------------------------------
Total Standalone Sales $3,192 $3,381 $4,361 $4,742 $4,781 $4,912 $5,084 $5,291 $5,473 $5,705 14.1% 3.1%
Gross Profit ......... 695 755 976 1,028 1,067 1,109 1,152 1,202 1,242 1,298 13.9% 4.0%
SG&A ................. 380 414 506 559 544 552 573 596 619 643 13.7% 2.4%
- ---------------------------------------------------------------------------------------------------------------------------------
EBITDA ............... 315 338.1 461.5 480.2 523.1 556.8 579.3 605.8 622.8 654.6 15.1% 5.3%
- ---------------------------------------------------------------------------------------------------------------------------------
Margins
Gross Profit ......... 21.8% 22.3% 22.4% 21.7% 22.3% 22.6% 22.7% 22.7% 22.7% 22.7% -- --
SG&A ................. 11.9% 12.2% 11.6% 11.8% 11.4% 11.2% 11.3% 11.3% 11.3% 11.3% -- --
- ---------------------------------------------------------------------------------------------------------------------------------
EBITDA ............... 9.9% 10.0% 10.6% 10.1% 10.9% 11.3% 11.4% 11.4% 11.4% 11.5% -- --
- ---------------------------------------------------------------------------------------------------------------------------------
20
91
Executive Summary
New Springs: Key Cost Savings and Synergy Assumptions
- - After New Springs negotiated takeover of PTX in year 2001 --- 2 acquisitions
each year beginning in 2002 and 2003.
- - Sales Synergy: 170 bp of market share by year 5 (28.9% vs 27.2%).
- - Manufacturing / COGS Savings : 2.5% cost reduction by year 5 ($122 MM or 2% of
sales).
- - Selling Expense & Marketing: No savings from standalone level --- but better
deployment and leverage contribute to sales gains.
- - General and Administrative Expense: 20% savings from standalone level ($64 MM
or 1.1% of Sales).
- - Working Capital: 20 day reduction in inventory (102 days to 82 days) and small
improvement in payable leverage.
- - Capex: $175 million added capex for consolidation, equipment upgrades, and IT
system modernization; $80 million 5 year savings for reduced capex in closed
facilities and out-sourcing.
- - Combined Synergy Impact: Year 5 EBITDA improvement by $220 million (3.5% of
Sales) and cash flow improved by $372 million (including capex and w/c savings).
21
92
Executive Summary
New Springs: Sales Synergy Considerations
($ Millions)
Rationale for Market Share Gain
-------------------------------
-Full line supplier / shelf space leverage with chains.
-Superior IT and distribution systems.
-Enhanced capability for improved, innovative customer service support.
-Low cost supplier in nearly all product categories.
-Wide range at price points and product mix.
Sales Synergy Impact
2001 - 2006 CAGR
- ----------------
Standalone......10.5%
Post Synergy.....9.2%
[BAR CHART]
2001 2002 2003 2004 2005 2006
---- ---- ---- ---- ---- ----
$3,823 $4,586 $5,292 $5,473 $5,704 $5,931
$ 0 $ 39 $ 100 $ 167 $ 262 $ 371
$3,823 $4,624 $5,392 $5,641 $5,966 $6,302
Pro forma Market Share
---------------------
[LINE CHART]
2001 2002 2003 2004 2005 2006
---- ---- ---- ---- ---- ----
Standalone 26.3% 26.2% 26.2% 26.2% 26.2% 27.2%
Post Synergy 26.3% 26.4% 26.7% 27.0% 27.4% 28.9%
Actual Market Share With Build-up
---------------------------------
[LINE CHART]
2001 2002 2003 2004 2005 2006
---- ---- ---- ---- ---- ----
Standalone 20.7% 23.8% 26.4% 26.2% 26.2% 27.2%
Post Synergy 20.7% 24.0% 26.9% 27.0% 27.4% 28.9%
22
93
Executive Summary
New Springs: Manufacturing And COGS Cost Savings
($ Millions)
Rationale For COGS Savings
--------------------------
- -Increased material purchasing and supplier base leverage.
- -Systematic "make" vs "buy" analysis and improved off-shore sourcing.
- -Triage of "efficient" vs "obsolete" facilities and equipment from 5 acquired
companies.
- -Re-loading and specialization of mills to lower unit cost.
- -Common, upgraded IT platform to reduce infrastructure support cost and improve
mill scheduling.
- -Sharp reduction in handling and distribution costs due to substantial new capex
in world-scale facilities.
COGS Synergy Savings
--------------------
COGS Savings
% of Sales
- ----------
2001......0.0%
2002......1.0%
2003......1.5%
2004......2.0%
2005......2.5%
2006......2.5%
[BAR CHART]
2001 2002 2003 2004 2005 2006
---- ---- ---- ---- ---- ----
$0.0 $35.8 $62.5 $87.2 $115.2 $121.7
COGS % of Sales
---------------
[LINE CHART]
2001 2002 2003 2004 2005 2006
Post Synergy 78.6% 76.7% 76.1% 75.8% 75.3% 75.3%
Standalone 78.6% 77.5% 77.3% 77.3% 77.3% 77.3%
23
94
EXECUTIVE SUMMARY
NEW SPRINGS: G&A COST SYNERGIES
($ MILLIONS)
Key Assumptions
1. Historical sales expense, marketing, trade promotional, etc. maintained
at 8.0% of sales.
2. G&A expense at about 3% of sales would total about $190 million per year by
2006 for the 6 companies on a standalone basis.
Model assumes 20% cut ($64 million) due to:
- Single headquarters and one senior executive team.
- Financial function consolidation, commonalization, and downsizing
(with significant IT investment).
- Sharply reduced corporate office space and associated support cost.
- Consolidation of H.R., M.I.S., and other support functions.
- Improved corporate goods, and services "buy" --- i.e. insurance,
office equipment, lease, etc...
% Savings SG&A Savings
--------- ------------
2001 0.0%
2002 6.9%
2003 7.7%
2004 8.4%
2005 9.2%
2006 9.1%
[BAR CHART]
2001 2002 2003 2004 2005 2006
---- ---- ---- ---- ---- ----
$0.0 $35.8 $46.2 $52.9 $61.2 $63.5
Pro Forma SG&A Margin
---------------------
[LINE CHART]
2001 2002 2003 2004 2005 2006
---- ---- ---- ---- ---- ----
Post Synergy 10.3% 10.4% 10.3% 10.3% 10.1% 10.0%
Standalone 10.3% 11.2% 11.3% 11.3% 11.3% 11.2%
24
95
Executive Summary
New Springs: Total Synergies Summary
($ Millions)
2001 2002 2003 2004 2005 2006
---- ---- ---- ---- ---- ----
Synergy Impact:
---------------
Incremental Contribution - Added Sales (1) $ 0.0 $ 5.6 $ 14.8 $ 24.5 $ 38.7 $ 54.5
Manufacturing / COGS Savings ............. 0.0 35.8 62.5 87.2 115.2 121.7
SG&A Savings ............................. 0.0 35.9 46.2 52.8 61.2 63.6
Total Synergy Benefit .................... $ 0.0 $ 77.3 $ 123.5 $ 164.5 $ 215.1 $ 239.8
Post Synergy EBITDA ...................... $ 422.7 $ 597.8 $ 729.3 $ 787.5 $ 869.6 $ 921.5
Margin:
Synergy % of Sales ....................... 0.0% 1.7% 2.3% 2.9% 3.6% 3.8%
Post Synergy EBITDA % of Sales ........... 11.1% 12.9% 13.5% 14.0% 14.6% 14.6%
- ------------------
(1) Incremental sales less average COGS margin less 8% sales and marketing
margin.
96
EXECUTIVE SUMMARY
NEW SPRINGS: WORKING CAPITAL SAVINGS
($ MILLIONS)
2000 New Springs Post Synergy Case
-----------------------------
Operating Working Capital: Standalone 2001 2002 2003 2004 2005 2006
- -------------------------- ---------- ---- ---- ---- ---- ---- ----
Days Inventory in COGS ............. 103.8 98.1 95.4 91.4 86.4 81.5 81.5
Days Receivables in Sales .......... 53.2 53.9 52.7 52.9 53.1 53.1 53.1
Days Payables in COGS .............. 27.1 26.6 27.3 28.7 29.8 29.8 29.8
Operating W/C DS % of Sales ........ 30.9% 30.2% 28.9% 27.8% 26.5% 25.5% 25.5%
Working Capital Savings ($ millions)
Pre-Synergy W/C .................... -- $1,170.5 $1,383.0 $1,604.5 $1,661.8 $ 1,731 $1,801.0
Synergy Savings .................... -- $ 16.4 $ 47.2 $ 106.6 $ 164.3 $ 211.0 $ 194.2
-------- -------- -------- -------- -------- -------- --------
Post Synergy W/C ................... -- 1,154.1 1,335.8 1,497.9 1,497.5 1,520.3 1,606.8
Memo: Synergy Savings as a % of W/C. -- 1.4% 3.4% 6.6% 9.9% 12.2% 10.8%
26
97
EXECUTIVE SUMMARY
NEW SPRINGS: CAPITAL EXPENDITURES INVESTMENT AND SAVINGS
($ MILLIONS)
Standalone New Springs Synergy Case
------------------------
2000 2001 2002 2003 2004 2005 2006
---- ---- ---- ---- ---- ---- ----
Standalone CAPEX ................. $185.0 $155.0 $179.7 $210.3 $217.9 $227.1 $236.2
% of Sales ....................... 4.9% 4.1% 3.9% 3.9% 3.9% 3.8% 3.7%
Synergy Case
Front End Investment in .......... -- 20.0 40.0 30.0 10.0 0.0 0.0
IT and Equipment
Reduced Maintenance and .......... -- 0.0 (9.0) (15.8) (17.4) (18.2) (18.9)
Replacement CAPEX Due to
Facility Consolidation
Net Change ....................... -- $ 20.0 $ 31.0 $ 14.2 ($ 7.4) ($18.2) ($18.9)
------ ------ ------ ------ ------ ------ ------
Post Synergy CAPEX ............... 185.0 175.0 210.7 224.5 210.5 208.9 217.3
% of Sales ....................... 4.9% 4.6% 4.6% 4.2% 3.7% 3.5% 3.4%
Memo: Reduced Maintenance / ...... 0.0% 5.0% 7.5% 8.0% 8.0% 8.0% 8.0%
Replacement CAPEX Savings (%)
27
98
EXECUTIVE SUMMARY
NEW SPRINGS: POST SYNERGY FINANCIAL STATEMENT SUMMARY
New Springs Post Synergy CAGR
--------------------------------------------------------------------------
2001 2002 2003 2004 2005 2006 2001 - 2006
--------- --------- --------- --------- --------- --------- ---------
Net Sales $ 3,823.0 $ 4,624.3 $ 5,391.9 $ 5,640.6 $ 5,966.1 $6,301.6 10.5%
Gross Profit 817.8 1,078.1 1,286.7 1,366.8 1,472.2 1,553.6 13.7%
SG&A 395.1 480.3 557.5 579.3 602.6 632.1 9.9%
--------- --------- --------- --------- --------- --------- ---------
EBITDA(1) 421.7 596.8 728.3 786.5 868.6 921.5 16.9%
--------- --------- --------- --------- --------- --------- ---------
Depreciation and Amortization(2) 149.2 165.5 192.6 193.9 196.3 199.6 6.0%
EBIT 272.5 431.3 535.7 592.6 672.3 721.9 21.5%
Net Interest Expense 106.3 122.8 149.9 140.7 106.1 74.1 -7.0%
Taxable Income 164.9 307.2 384.5 450.6 564.9 646.5 31.4%
Taxable Provision 63.0 118.9 150.7 175.9 219.3 250.4 31.8%
Net Income 101.9 188.3 233.8 274.7 345.6 396.1 31.2%
Preferred Dividends 0.0 0.0 0.0 0.0 0.0 0.0
--------- --------- --------- --------- --------- --------- ---------
Net Income to Common $ 101.9 $ 188.3 $ 233.8 $ 274.7 $ 345.6 $ 396.1 31.2%
--------- --------- --------- --------- --------- --------- ---------
Fully Diluted Shares 23.0 23.2 23.5 23.7 23.9 23.9
EPS $ 4.43 $ 8.12 $ 9.95 $ 11.59 $ 14.46 $ 16.57 30.2%
Implied Share Price at 10.0x $ 81.16 $ 99.49 $ 115.91 $ 144.60 $ 165.73 $184.10 17.8%
Forward P/E
Net Debt and Credit Statistics
Senior Debt (Revolver and A&B
Loans) 933.5 933.5 884.5 616.3 296.1 0.0 --
Acquisition Facility 0.0 319.3 576.1 576.1 576.1 569.9 --
Sub Debt / Other 19.7 19.7 19.7 19.7 19.7 19.7 --
--------- --------- --------- --------- --------- --------- ---------
Total Debt 953.2 1,272.5 1,480.3 1,212.1 891.9 589.6 --
--------- --------- --------- --------- --------- --------- ---------
Total Debt / EBITDA 2.3x 2.1x 2.0x 1.5x 1.0x 0.6x --
--------- --------- --------- --------- --------- --------- ---------
- ----------
(1) EBITDA is less $1 million in non-compete expense per year from 2001 to 2005.
(2) Includes amortization of goodwill and transaction expense.
28
99
EXECUTIVE SUMMARY
NEW SPRINGS: ACCRETION / DILUTION IMPACT ON EXISTING
SPRINGS SHAREHOLDERS
IMPLIED NEW SPRINGS SHARE PRICE
PRICE AT 10X FORWARD P/E
6 YEAR CAGR VS $32.00/SHARE
34 %
[BAR GRAPH]
2000
Actual 2001 2002 2003 2004 2005 2006
------ ---- ---- ---- ---- ---- ----
$ 32.00 $ 81.11 $ 99.49 $115.91 $144.60 $165.73 $184.10
ACCRETION / DILUTION VS. SPRINGS
STANDALONE (MANAGEMENT PROJECTIONS)
[LINE GRAPH]
% Accretion/Dilution
--------------------
2001 (2.5%)
2002 65.1%
2003 88.7%
2004 104.6%
2005 137.3%
2006 155.7%
2001 2002 2003 2004 2005 2006
---- ---- ---- ---- ---- ----
SPRINGS STANDALONE $ 4.55 $ 4.91 $ 5.28 $ 5.67 $ 6.08 $ 6.47
NEW SPRINGS CASE $ 4.43 $ 8.11 $ 9.96 $11.59 $14.43 $16.55
29
100
SPRINGS INDUSTRIES
APPENDIX 2
PILLOWTEX RESEARCH
================================================================================
- ------------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- ------------
61
101
CREDIT RESEARCH & TRADING LLC
PILLOWTEX CORP.
Research Note Update -- April 28, 2000
Ethan Schwartz
Vice President
(203) 629-6461
eschwartz@crtllc.com
I. DESCRIPTION OF SECURITIES
($'s in millions except per share
data)(1)
Market
-----------------------
Security Maturity Ratings Amount Bid/Ask Value YTM
- -------- -------- ------- ---------- -------- --------- -------
Libor + 300 Rev. Credit Facility(2) 12/31/03 $ 259.8 85-8 $ 224.7 13.9%
Libor + 300 Term Loan(3) 12/31/03 120.0 85-8 103.8 16.3
Libor + 350 Term Loan(4) 12/31/03 221.5 85-8 191.6 14.9
Libor + 400 Promissory Note(5) 3/31/00 35.0 NA
---------
Total Secured Debt 636.3
9% Senior Subordinated Notes(6) 12/15/07 Ca/CC 185.0 39-41 $ 74.0 28.8%
10% Senior Subordinated Notes(7) 11/15/06 Ca/CC 125.0 39-41 50.0 32.8
6% Convertible Subord. Debentures(8) 100.2 28-30 29.1 25.4
Industrial Revenue Bonds 17.9 NA
Other 4.5 NA
---------
Total Debt Outstanding $ 1,068.9
=========
Convertible Preferred(9) $ 74.0
Common Stock 14.2 million shares 5 1/16-5 1/8 $ 72.3
- -----------
(1) Estimated as of January 1, 2000.
(2) Fully secured by all Pillowtex domestic assets and 65% of stock in foreign
subsidiaries. Covenant waiver to 3/31/00. Face amount excludes estimated $34.8
under letter of credits. Availability estimated at $55.4 million on January 1,
2000.
(3) Fully secured by all Pillowtex domestic assets and 65% of stock in foreign
subsidiaries. Covenant waiver to 3/31/00. Amortizing $3.75 million per quarter
in 2000, $6.25 million per quarter in 2001, $8.75 million per quarter in 2002
and $11.25 million per quarter in 2003. Payments due on 3/31, 6/30, 9/30 and
12/31.
(4) Fully secured by all Pillowtex domestic assets and 65% of stock in foreign
subsidiaries. Covenant waiver to 3/31/00. Amortizing $562.5 thousand per quarter
through 12/31/03, $53.13 million per quarter thereafter. Payments due on 3/31,
6/30, 9/30 and 12/31.
(5) Originally $20 million maximum advance, expanded to $35 million in July,
1999. Granted security interest in December.
(6) Guaranteed by Pillowtex and its domestic subsidiaries, including Fieldcrest
Cannon. Subordinate to senior indebtedness, including credit facilities. Coupon
June and December. Callable 12/15/02 @ 104.50.
(7) Guaranteed by Pillowtex and its domestic subsidiaries, including Fieldcrest
Cannon. Subordinate to senior indebtedness, including credit facilities. Coupon
May and November. Callable 11/15/01 at 105.00.
(8) $1,000 face amount convertible into 61% cash + 6.08 shares of PTX common
stock. Obligation of Fieldcrest Cannon subsidiary. Subordinate to Fieldcrest
guarantee of 9% and 10% Pillowtex Senior Subordinated Notes. However, 61% cash
obligation may be a general unsecured claims of Fieldcrest upon conversion.
(9) 10% dividend payable in kind as of 1/1/00, due to failure to meet EPS
targets. Convertible into common at $24/share.
The information in this report has been obtained from sources which Credit
Research & Trading LLC ("CRT") believes to be reliable. However, CRT does not
guarantee its accuracy, and such information may be incomplete or condensed.
Opinions in this report represent CRT's position as of this date and are subject
to change without notice. This report is for informational purposes only and is
not intended as an offer or solicitation in regard to the purchase or sale of
any security. CRT and/or its officers and employees may from time to time
acquire, hold, or sell a position in the securities mentioned herein. Upon
request, CRT will furnish specific information in this regard. If CRT is
involved in the purchase or sale of any security, CRT may act as principal for
its own account or as agent for both the buyer and the seller.
102
Pillowtex Corp. - April 28, 2000
II. DISCUSSION AND RECOMMENDATION
In our March 2, 2000 report on Pillowtex Corp. ("Pillowtex" or the
"Company"), we reviewed what we believe to be the important internal
difficulties and external pressures that have severely hampered Pillowtex's
performance over the past year. These pressures are likely to continue, we
asserted, making it extremely difficult for Pillowtex to achieve the working
capital and margin improvements necessary for the Company to perform through
2000 within the constraints of available liquidity. We therefore presented our
view that Pillowtex is likely to file for a financial restructuring before
year-end.
We have not changed this core point of view, and still find a filing
for bankruptcy protection by year end to be the most likely scenario, as a
result of operational and liquidity pressures. However, we have modified our
views somewhat regarding the optimal strategy that should be pursued by holders
of Pillowtex's 6% Convertible Subordinated Debentures due March 15, 2012.
In our March 2, 2000 report, we suggested that holders of the 6%
Convertibles should submit them for conversion, despite the company's refusal to
remit the associated cash component. Our logic was that the terms of the
Convertibles' indenture suggest that if the instruments are presented for
conversion and a bankruptcy scenario ensues, the unpaid 60% cash claim held by
the Convertibles' holder upon conversion could be lifted to the general
unsecured class. That would contrast with the subordinate status of the
Convertibles themselves. Given our belief that minimal value would be available
for the subordinate class upon a restructuring of Pillowtex - but that some
value (on the order of 35% of principal claim) could be available to the general
unsecured class, WE CONCLUDED THAT IT WOULD BE ADVANTAGEOUS FOR THE
CONVERTIBLES HOLDERS TO CONVERT IN ANTICIPATION OF BANKRUPTCY. WE ALSO NOTED
THAT GIVEN THEN-MARKET LEVELS, CONVERTIBLES HOLDERS SHOULD ALSO MAINTAIN A
HEDGED POSITION IN WHICH THEY ARE SHORT THE UNDERLYING EQUITY.
WE CONTINUE TO BELIEVE THAT HOLDERS OF THE CONVERTIBLES SHOULD MAINTAIN
A HEDGED POSITION AGAINST THE UNDERLYING EQUITY. However, further review of the
Convertibles' indenture has alerted us to some of the difficulties that
Convertibles holders could face if, following conversion of their securities,
they were to attempt to assert a general unsecured claim for the unpaid cash
portion of their claim. Specifically, we note the potential counter-arguments
that other creditor classes could assert by citing Section 1415(2) of the
indenture, which is embedded within the indenture's article on subordination.
Section 1415(2) states that "[f]or purposes of this Article [i.e., Article 14,
Subordination] only...the payment of cash...upon conversion of a [debenture]
shall be deemed to constitute payment on account of the principal of such
[debenture]." If, as this passage suggests, a right to payment of cash upon
conversion is in fact treated as a right to payment of principal under the
debenture, such right to payment of cash could be deemed to be subject to the
Article 14 subordination provisions governing payments of principal under the
debentures.
While we are in no way offering a legal opinion on the issue, WE DO
BELIEVE THAT THE COMPLEXITY OF THE MATTER, AND OUR INABILITY TO PREDICT THE
LIKELY LEGAL OUTCOME, WOULD MAKE
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
2
103
Pillowtex Corp. - April 28, 2000
IT PRUDENT FOR CONVERTIBLE HOLDERS NOT TO CONVERT IN ANTICIPATION OF A
RESTRUCTURING, BUT RATHER TO MAINTAIN A HEDGED POSITION.
There are, we believe, two optimal outcomes from the standpoint of a
Convertible holder. First, the Convertible holders could negotiate a settlement
with the Company whereby the Company would significantly increase the number
of shares received upon conversion, and hence, at current market value, the
value received by Convertible holders upon conversion. Such shares received as
part of a settlement could be used to close out an existing hedged position. In
the alternative, Convertible holders could short shares prior to conversion
under the terms of a settlement (particularly if an averaging period were used
to determine the Convertibles' exchange rate, as part of the settlement) or sell
shares immediately upon conversion.
Second, Convertible holders could maintain a hedged position going into
a restructuring, at which point we believe that Pillowtex shares would fall to
minimal value, allowing Convertible holders to recoup from the short position
any losses suffered regarding the Convertible position.
Our modified recommendation for Convertibles holders has two important
ramifications. First, to the extent that a high volume of conversions of the
Convertibles could have acted as a near-term trigger for a bankruptcy filing,
that risk may now be minimized if such conversions do not take place. However,
our belief that a restructuring will likely occur because of operational and
working capital pressures remains unchanged. Second, our worst case scenario for
the Senior Subordinate Notes - that they would receive only 35% future value
or 24% present value in a bankruptcy scenario, given a lifting of the
Convertibles to general unsecured status - now appears more questionable. As
we did in the March 2nd report, we continue to find a present value of 28-to-29%
for the Senior Subordinate Notes to be the most likely outcome, based on a
future recovery value of 40-to-42%. We therefore continue to find the Senior
Subordinate Notes overvalued at current market prices.
We continue to find no inherent value in Pillowtex equity. A hedged
position by Convertible holders, therefore, could ensure some value obtained
regardless of whether a settlement is reached prior to restructuring or not.
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
3
104
CREDIT RESEARCH & TRADING LLC
================================================================================
SPECIAL SITUATIONS RESEARCH
PILLOWTEX CORP.
Fixed Income, Convertible Debt and Equity Research Report
March 2, 2000
Ethan Schwartz
Vice President
(203) 629-6461
eschwartz@crtllc.com
================================================================================
ONE FAWCETT PLACE GREENWICH, CT 06830
TEL: 203-629-6400 FAX: 203-629-6499
105
PILLOWTEX CORP.
I. DESCRIPTION OF SECURITIES
($'s in millions except per share data)(1)
Market
-------------------
Security Maturity Ratings Amount Bid/Ask Value YTM
- --------------------------------- -------- ------- -------- ------- -------- ----
Libor + 300 Rev. Credit Facility(2) 12/31/03 $ 259.8 85-8 $ 224.7 13.9%
Libor + 300 Term Loan(3) 12/31/03 120.0 85-8 103.8 16.3
Libor + 350 Term Loan(4) 12/31/03 221.5 85-8 191.6 14.9
Libor + 400 Promissory Note(5) 3/31/00 35.0 NA
--------
Total Secured Debt 636.3
9% Senior Subordinated Notes(6) 12/15/07 Ca/CC 185.0 38-40 $ 72.2 29.2%
10% Senior Subordinated Notes(7) 11/15/06 Ca/CC 125.0 39-41 50.0 32.4
6% Convertible Subord. Debentures(8) 100.2 29-31 30.0 20.0
Industrial Revenue Bonds 17.9 NA
Other 4.5 NA
--------
Total Debt Outstanding $1,068.9
========
Convertible Preferred(9) $ 74.0
Common Stock 14.2 million shares 4 1/2-4 5/8 $ 64.8
(1) Estimated as of January 1, 2000.
(2) Fully secured by all Pillowtex domestic assets and 65% of stock in foreign
subsidiaries. Covenant waiver to 3/31/00. Face amount excludes estimated
$34.8 under letter of credits. Availability estimated at $55.4 million on
January 1, 2000.
(3) Fully secured by all Pillowtex domestic assets and 65% of stock in foreign
subsidiaries. Covenant waiver to 3/31/00. Amortizing $3.75 million per
quarter in 2000, $6.25 million per quarter in 2001, $8.75 million per
quarter in 2002 and $11.25 million per quarter in 2003. Payments due on
3/31, 6/30, 9/30 and 12/31.
(4) Fully secured by all Pillowtex domestic assets and 65% of stock in foreign
subsidiaries. Covenant waiver to 3/31/00. Amortizing $562.5 thousand per
quarter through 12/31/03, $53.13 million per quarter thereafter. Payments
due on 3/31, 6/30, 9/30 and 12/31.
(5) Originally $20 million maximum advance, expanded to $35 million in July,
1999. Granted security interest in December.
(6) Guaranteed by Pillowtex and its domestic subsidiaries, including Fieldcrest
Cannon. Subordinate to senior indebtedness, including credit facilities.
Coupon June and December. Callable 12/15/02 @ 104.50.
(7) Guaranteed by Pillowtex and its domestic subsidiaries, including Fieldcrest
Cannon. Subordinate to senior indebtedness, including credit facilities.
Coupon May and November. Callable 11/15/01 at 105.00.
(8) $1,000 face amount convertible into 61% cash + 6.08 shares of PTX common
stock. Obligation of Fieldcrest Cannon subsidiary. Subordinate to
Fieldcrest guarantee of 9% and 10% Pillowtex Senior Subordinated Notes.
However, 61% cash obligation may be a general unsecured claims of
Fieldcrest upon conversion.
(9) 10% dividend payable in kind as of 1/1/00, due to failure to meet EPS
targets. Convertible into common at $24/share.
II. CONCLUSION
This report presents the following core point of view: (a) we do not
expect Pillowtex to file for bankruptcy court protection within the next 5-to-6
months; (b) we believe it likely that a filing and financial restructuring will
occur before year-end; and (c) our estimate of the Company's total enterprise
value approximates $870 million. Our base scenario and valuation would leave (d)
the senior secured tier largely unimpaired; (e) the senior subordinated debt and
trade claim tiers deeply impaired (and fully equitized upon reorganization); (f)
the convertible subordinated debt tier with value only if submitted for
conversion prior to a bankruptcy filing (and then deeply impaired and fully
equitized upon reorganization); and (g) the preferred and common equity tier
with no allocated value. We find the subordinated debt securities to be
unattractive at current price levels, offering a positive risk/reward investment
profile at prices closer to 30% of par for the senior subordinated debt issues
and 13% of par for the convertible subordinated debt issue (presuming they are
submitted for conversion prior to a bankruptcy filing and successfully argue for
general unsecured status on their 60% cash claim).
- --------------------------------------------------------------------------------
The information in this report has been obtained from sources which Credit
Research & Trading LLC ("CRT") believes to be reliable. However, CRT does not
guarantee its accuracy, and such information may be incomplete or condensed.
Opinions in this report represent CRT's position as of this date and are subject
to change without notice. This report is for informational purposes only and is
not intended as an offer or solicitation in regard to the purchase or sale of
any security. CRT and/or its officers and employees may from time to time
acquire, hold, or sell a position in the securities mentioned herein. Upon
request, CRT will furnish specific information in this regard. If CRT is
involved in the purchase or sale of any security, CRT may act as principal for
its own account or as agent for both the buyer and the seller.
106
Pillowtex Corp. - March 2, 2000
Investors should recognize that the Pillowtex case presents a far
greater opportunity of varying from the core pathway outlined above than in the
typical situation - with that variance coming on both sides of the investment
equation. Active bankruptcy triggers do very much exist, posing the credible
potential for an accelerated filing over the near term. And, given certain
inherent strengths within the Company (e.g., it being in far sounder market and
manufacturing condition than, say, Fruit of the Loom) as well as certain
operational and capital structure considerations (e.g., with many of its past
problems being remediable; and with the secured banks being adequately secured
and the lead bank having a sizable additional exposure), a plausible scenario
can be reasonably drawn that would allow the Company to overcome the crisis in
liquidity and confidence we think likely later this year, materially delaying or
avoiding a financial restructuring. However, we believe our case does represent
the most likely pathway and, importantly, that the presence of the more adverse
accelerated bankruptcy scenario greatly diminishes the option value offered by
the most positive scenario.
III. SUMMARY AND INVESTMENT RECOMMENDATION
Pillowtex Corp. ("Pillowtex" or the "Company") is the second largest
producer of home fabrics in the United States. The Company is the leading maker
of bath towels (approximately 45% of sales) and, along with Westpoint Stevens,
Inc. ("Westpoint") and Springs Industries, Inc. ("Springs"), accounts for
approximately three-quarters of domestic bath towel sales by value, ranks third
in sheets and pillowcases (approximately 18% of sales), and is a leader, if not
the top supplier, in several other home textile segments including sleep pillows
(approximately 10% of sales), blankets (9%), comforters and bedspreads (11%) and
kitchen towels (7%).
Following a disastrous operating performance in 1999, Pillowtex is
facing severe liquidity pressures. Current waivers on the Company's recently
amended $650-plus million secured bank debt facility, set to expire on February
15th, have been extended and are now set to expire on March 31st. A $35 million
secured Promissory Note, also due on February 15th following an extension
received in December, now matures on March 31st. Pillowtex has, to date, refused
to honor the cash obligation associated with the conversion of the approximately
$100 million outstanding of 6% Convertible Subordinated Debentures (full
conversion would require a $60 million cash payment to holders). In our view,
that refusal leaves Pillowtex vulnerable to a declaration by holders of an event
of default and commencement of an involuntary bankruptcy proceeding. Pillowtex
has approximately $55 million available under its revolver. Capital spending
levels have been sharply reduced to conserve liquidity, though Pillowtex has
spent only approximately two-thirds of what the Company originally estimated to
be some $300 million needed to upgrade facilities. After having benefited from a
seasonal work down of inventory over recent months - and a radical effort to
clear inventory over Q4 - we anticipate associated cash demands to begin to be
felt by late Q2-early Q3 as Pillowtex builds inventory for the autumn selling
season. With operating cash flow by our forecast insufficient to support the
pending inventory cycle, we believe that new funding sources will be required.
OVER THE NEAR TERM. We believe PILLOWTEX HAS A REASONABLE LIKELIHOOD OF
AVOIDING A BANKRUPTCY FILING OVER THE NEXT 5-TO-6 MONTHS. Pillowtex is now in
the cash positive portion of its working capital cycle, and could benefit from a
$17 million positive cash swing over this
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
2
107
Pillowtex Corp. - March 2, 2000
quarter, by our estimate. Moreover, Pillowtex's secured lenders appear to be
comfortably over-secured, increasing the likelihood that they give Pillowtex
additional time so long as cash movements are positive.
We emphasize that Pillowtex's ability to avoid bankruptcy in the near-term
depends, in our view, on the successful negotiation of some form of standstill
or exchange offer with the approximately $100 million outstanding of 6%
Convertible Subordinate Debentureholders. While certain of the holders of the
Convertibles have requested conversion and to date the cash component of the
conversion has not been distributed to any such holder, conversations with major
holders are underway. We also believe, however, that a financial and legal
argument can be made that the Convertible holders would be better off converting
prior to bankruptcy, given that we believe conversion would give them a $60
million general unsecured claim against the Fieldcrest subsidiary (along with an
equity claim against the parent) rather than a $100 million deeply subordinated
claim. Given our view that Convertible holders do structurally possess the
ability to trigger an event of default, and that it could be in their interest
to convert and demand their cash prior to default, we believe that an event of
default and consequent filing for bankruptcy remains a fully available pathway
as long as the conversion issue remains in limbo.
OVER THE MEDIUM TERM. Looking out beyond six months, WE BELIEVE THERE IS A
SIGNIFICANT LIKELIHOOD THAT PILLOWTEX WILL BE REQUIRED TO COMMENCE A SUBSTANTIVE
FINANCIAL RESTRUCTURING BEFORE YEAR-END. As detailed in the report, WHILE WE DO
BELIEVE THAT SOME OF 1999'S ABYSMAL PERFORMANCE STEMMED FROM ONE-OFF EVENTS, WE
DO NOT EXPECT PILLOWTEX TO BE ABLE TO SHOW THE KIND OF NEAR-TO-MEDIUM TERM
OPERATING IMPROVEMENTS NEEDED TO MAINTAIN THE CURRENT CAPITAL STRUCTURE OVER THE
LONG-TERM. The cash flow margins anticipated by many creditors and investors
will not prove to be, in our judgement, achievable. We believe that Pillowtex
continues to face significant Company-specific hurdles including:
- loss of certain accounts with important customers,
- continued manufacturing weaknesses,
- financing constraints that leave Pillowtex unable to complete a
planned investment program (through Pillowtex has said upgrades are
now complete),
- significant management difficulties,
- an apparent greater dependence on mass-market discounters than its
competitors,
- a greater array of disparate products than its competitors,
- what we believe to be an inherently less efficient operating base
than competitors such as Westpoint, and
- higher exposure than competitors to certain low-margin products
(such as kitchen materials).
Underpinning our conclusion regarding the likelihood of a bankruptcy
filing is our view that Pillowtex's "normalized" EBITDA margin - barring
significant incremental capital expenditures -- is only in the 9.5-to-10.0%
range. WE DO NOT BELIEVE THE 13%-PLUS EBITDA MARGIN PILLOWTEX SHOWED IN 1998,
JUST ONE YEAR AFTER ACQUIRING FIELDCREST CANNON, INC. ("FIELDCREST") AND THE
LESHNER CORP. ("LESHNER"), IS A CREDIBLE INDICATOR OF TRUE PERFORMANCE. We are
concerned that the eventual recognition of this lower performance capacity may
act to
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
3
108
Pillowtex Corp. - March 2, 2000
erode the confidence of and support provided by key creditors, with the loss of
such support contributing to the pressures pushing the Company toward a
financial restructuring.
IMPORT AND PRICE PRESSURE. Additionally, while to date home fabric
manufacturers have been spared much of the severe import and pricing pressure
now seen in several apparel segments, WE BELIEVE THERE IS SIGNIFICANT EVIDENCE
THAT IMPORT PRICING AND DEMAND PRESSURE IS AFFECTING HOME FABRIC COMPANIES'
MARGINS AND THAT SUCH PRESSURE COULD SOON INCREASE TO A SIGNIFICANT DEGREE.
Specifically:
- Imports have surged in key product segments such as sheets and
towels, and the latest government data suggest that trend is
unabated and may be accelerating. This supports what we have heard
from a wide array of retailers.
- There is significant evidence that a pricing squeeze is occurring in
towels and sheeting - not so much through a reduction in nominal
unit sales prices, but rather through a race by U.S. manufacturers
to move upstream and offer higher thread-count sheet and towel
products, which are more expensive to produce, for the same price as
lower-count offerings.
- According to government statistics, growth in home fabric
consumption appears to be weak, and may in fact be slipping for key
products on which Pillowtex depends, such as bathroom towels.
- Pillowtex's two main competitors, Springs and Westpoint, both
entered 2000 with significant inventory builds, suggesting
oversupply may dampen price in quarters to come.
As the limitations on Pillowtex's medium-term performance become
apparent to creditors and investors - as we believe they will - it could become
increasingly difficult for Pillowtex to find ways to fund what we believe will
be a liquidity shortfall in the $50-to-$60 million range over the third quarter
(excluding needs associated with the maturity of the Promissory Note and the
conversion of the 6% Debentures), as Pillowtex enters the inventory-building
portion of its selling cycle. The critical extension of waivers and debt
maturities, as well as the essential ongoing support of vendors, would also be
expected to become increasingly difficult to maintain. Vendors, suppliers and
factors, groups who have already been hit hard over recent months by sizable
failures in the industry may well prove to be far more cautious, restricting
credit exposure both more quickly and more sharply than might typically be the
case.
WHILE WE BELIEVE A MEDIUM-TERM BANKRUPTCY FILING TO BE MORE LIKELY THAN
NOT, INVESTORS SHOULD NOT LOSE SIGHT OF THE FACT THAT PILLOWTEX IS MEANINGFULLY
BETTER POSITIONED FROM A FUNDAMENTAL POINT OF VIEW THAN WERE OTHER TEXTILE
COMPANIES WHICH HAVE RECENTLY BEEN FORCED TO RESTRUCTURE, SUCH AS FRUIT OF THE
LOOM. Pillowtex over the past several quarters has spent significant sums of
money to improve its manufacturing base, and those efforts have born fruit.
While we believe that deficiencies still persist, they pale compared to those at
companies that had neglected manufacturing upgrades. While home textiles are
facing import and margin pressures, the pressures are to date not nearly as
severe as in the apparel sector. Despite what we believe are Pillowtex's
inherent cost and product-line disadvantages relative to its direct com-
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
4
109
Pillowtex Corp. - March 2, 2000
petitors, a significant portion of Pillowtex's 1999 difficulties stemmed from
relatively correctable issues - such as poor logistical and inventory planning,
management decisions, and the computer snafus. The Company does possess the
capacity to operationally perform over the longer term, it does possess
competitively attractive brands, and it does possess considerable inherent
enterprise value. The questions are, first, can that performance attain levels
sufficient to support the cash obligations associated with the business' needs
and the established capital structure? and, second, how well does that inherent
enterprise value match that capital structure?
Pillowtex's bank facility appears to be comfortably over-secured, and
participants may therefore be content to continue tightening covenants and
raising interest rates so long as interest payments remain current and
operational and cash flow expectations are satisfied. Meanwhile, Nationsbank, as
Administrative Agent on the bank facilities, has a powerful incentive to attempt
to keep the current capital structure sustainable in the hope of achieving a
paydown of its $35 million Promissory Note.
Finally, several of Pillowtex's competitors have made no secret of
their interest in acquiring pieces of Pillowtex's business. Pillowtex has
discrete product lines that could be sold, though not without significant
antitrust hurdles and potential harm to the Company's valuation as an integrated
home fabrics vendor.
For all of the above reasons, WE CAN ENVISION A "BEST CASE" SCENARIO
UNDER WHICH PILLOWTEX DOES MANAGE TO AVOID A BANKRUPTCY FILING FOR THE
FORESEEABLE FUTURE. Such a scenario would entail:
- marked improvement in working capital controls such that average
balances are reduced by $50-to-$60 million on a consistent basis;
- marked improvement in operating performance to support the
conclusion that double digit EBITDA margins can be attained on a
sustained basis;
- recovery of sales to above $1.5 billion historic levels, with signs
of consistent growth;
- receipt of amendments on the bank debt facility which would both
eliminate default risks and provide continued access to working
capital,
- completion of an exchange offer with the great majority of the 6%
Convertible Subordinated Debenture issue which would eliminate the
conversion overhang and near-term default trigger.
Other factors that could enhance Pillowtex's ability to avoid a filing
include:
- potential sale of certain product lines and associated manufacturing
facilities, closing near-term liquidity gaps,
- evidence that growth in imports is likely to continue at only a
gradual pace, or that Pillowtex can beneficially transition toward
greater reliance on foreign sourcing and manufacturing,
- continued solid growth in domestic consumption of home fabrics.
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
5
110
Pillowtex Corp. - March 2, 2000
WHILE THERE IS SOME REAL PROBABILITY THAT PILLOWTEX CAN OVERCOME ALL OF
THESE HURDLES, WE BELIEVE IT TO BE SIGNIFICANTLY MORE LIKELY THAT PILLOWTEX WILL
NOT.
As detailed elsewhere in this report, we estimate the total enterprise
value of Pillowtex to approximate $870 million. While in the event of a
bankruptcy filing, adequate protection would likely be available to the senior
secured bank facility, subordinated debt would be deeply impaired - and would be
subject to full equitization in a financial restructuring. NO VALUE ON A STRICT
PRIORITY BASIS WOULD BE AVAILABLE TO THE $100 MILLION CONVERTIBLE SUBORDINATED
DEBENTURE ISSUE AS CURRENTLY CONFIGURED UNLESS THEY HAD CONVERTED PRIOR TO
BANKRUPTCY AND SUCCESSFULLY ARGUED THAT THEIR $60 MILLION CASH CLAIM
REPRESENTED, IN FACT, A GENERAL UNSECURED CLAIM. THE $72 MILLION CONVERTIBLE
PREFERRED ISSUE AND THE COMMON STOCK, NOW TRADING WITH A MARKET VALUE OF NEARLY
$70 MILLION, WOULD BE EXPECTED TO BE ALLOCATED NO VALUE UNDER A BANKRUPTCY
SCENARIO.
Based upon our analysis, WE BELIEVE THE SENIOR SUBORDINATED NOTES WOULD
OFFER AN ATTRACTIVE RISK/REWARD INVESTMENT PROFILE AT A PRICE APPROXIMATING 30%
OF PAR. WITH A CURRENT MARKET PRICE OF THESE SECURITIES OF 40%, WE BELIEVE THE
SENIOR SUBORDINATED NOTES DO NOT OFFER ATTRACTIVE INVESTMENT VALUE.
In our view, the estimated value to be available to holders of the 6%
Convertible Subordinated Debentures falls within a very wide range, with the
specific available value being a function of the pathway followed. In a scenario
in which Pillowtex files for bankruptcy court protection and holders of the
Convertible Debentures have not submitted holdings to the Company for
conversion, that available value is estimated to be zero (reflecting the deep
impairment of the subordinated debt class and the subordination agreement which
exists between the Senior Subordinated Notes and the Convertible Debenture
issue). In a scenario in which Pillowtex files for bankruptcy but holders have
presented securities for conversion, the present value of the distribution made
to a Convertible Debentureholder (presumed to be new common stock) is esti-
mated to be equal to 13% of the principal amount (reflecting a full loss
associated with the 6.08 shares of common stock received upon conversion and the
lifting of the 60% cash claim to the general unsecured class having no
subordination agreement with the Senior Subordinated Notes). The third, and most
optimistic, case involves an exchange negotiated with the Company in an effort
to stave off bankruptcy in which a holder of the current Convertible Debenture
issue receives a security (e.g. common shares) which may then be liquidated into
the public market. Presumably the securities received would have a current
market value greater than today's market value of the Convertible of roughly
30%.
Given this range of alternatives, prudence would seem to suggest that
holders submit the 6% Convertibles for conversion; if a bankruptcy filing
ensues, a non-subordinated position is captured; if an exchange offer ensues,
such holder may withdraw the securities from the conversion process and
participate in the exchange. At current market levels, however, the risk/reward
profile of this investment strategy remains adverse. AS A RESULT, THE ONLY
POSITIVE INVESTMENT RECOMMENDATION WHICH CAN BE OFFERED IS A HEDGED POSITION IN
WHICH THE INVESTOR IS LONG THE CONVERTIBLE SECURITY AND SHORT THE UNDERLYING
EQUITY SECURITY. In light of the belief that an exchange offer would need to
extract a high proportion of the current market value of the common stock away
from stockholders, such a hedged position is viewed positively.
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
6
111
Pillowtex Corp. - March 2, 2000
While we believe the bank debt is oversecured, Pillowtex will continue
to face operating risks and market pressure throughout the bankruptcy process
and beyond. WE THEREFORE BELIEVE THAT A RATE OF RETURN IN THE HIGH-TEENS IS
APPROPRIATE FOR THE BANK DEBT. Current market levels in the mid-to-high 80s
imply a rate of return that could exceed 20% (given our assumption that the bank
facility is rolled into a debtor-in-possession facility, that the revolver will
be fully drawn at the time of filing, that there could be some pay-down of the
DIP toward the end of the bankruptcy, and that the Company takes only one year
to emerge from bankruptcy). WE THEREFORE FIND THE BANK DEBT ATTRACTIVE AT THESE
PRICE LEVELS.
IV. DISCUSSION
Pillowtex has grown by a factor of three over the past four years
through several acquisitions. A manufacturer of pillows and mattress pads with
$490 million of sales in 1996, the Company added approximately $1.1 billion in
annual sales in 1997 when it acquired towel and sheet giant Fieldcrest Cannon,
Inc. ("Fieldcrest"), a new industry segment for Pillowtex. The Company layered
on The Leshner Corporation ("Leshner"), a $100 million/year kitchen towel
producer, in 1998.
Fieldcrest was a large, troubled behemoth when Pillowtex bought it,
generally characterized as having outdated and poorly-designed manufacturing
sites (chiefly Kannapolis, North Carolina and Fieldale, Virginia), and a history
of EBITDA margins in only the mid-single digits - some 5-to-10 percentage points
behind competitors. Investment in Fieldcrest facilities had lagged for years. On
the sheeting side, Fieldcrest mills had not received significant new equipment
since the early 1980s, and were still operating looms only half as fast as the
air-jet machines that had become the industry norm. Towel manufacturing was
somewhat better, with one new mill - Phenix City, Alabama - having been built in
1996 to produce lower end product for the mass merchant channel.
Pillowtex Chairman and CEO Chuck Hansen vowed he would "fix" Fieldcrest
by both slashing costs and non-core operations and plowing $300 million of new
equipment into the antiquated Fieldcrest facilities. At first the turnaround
seemed to work. The merged Pillowtex-Fieldcrest entity attained an 11.3% EBITDA
margin for 1Q 98, compared to a pro-forma estimated 8.2% combined margin for the
two companies in 1997. With Leshner added in mid-1998, Pillowtex reached a
full-year EBITDA margin of 13.1% - roughly five percentage points higher than
the pro forma margin of the companies in the year before the mergers (as
estimated by CRT). Pillowtex, meanwhile, raised capital expenditures to 8.8% of
sales, nearly twice the combined pro-forma rate for the prior year, or $133.6
million compared to a pro forma level of approximately $84 million in the prior
year.
The situation began to deteriorate rapidly, however, beginning in 1Q
99. EBITDA margins slid from 11.3% in the first quarter to 6.3% by the third.
Working capital swung out of control, with days payables outstanding jumping to
53 days for 2Q compared to 26 in the prior year's period, accounts receivable
rising to 71 days in 3Q as compared to 60 in 3Q 1998, and days inventory soaring
by $100 million over the prior year's level, to 154 days of sales v. 135 days
for the second quarter, then falling dramatically to 113 days in the third
quarter. Retailers
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
7
112
Pillowtex Corp. - March 2, 2000
began reporting severe fulfillment and delivery problems, with orders going
unmet and the billing and fulfillment processes bogging down.
THE COMPANY'S EXPLANATION. Pillowtex has attributed the terrible 1999
performance to a variety of discrete one-time events: an unusual buildup in
blanket inventory; the failure of a contractor in Pakistan to deliver sheeting;
integration problems associated with new equipment; and Wal-Mart's decision to
eliminate Pillowtex's $40 million/year Sahara line of towels. However, the
Company has put the lion's share of the blame on what it says was a faulty
transition to a new computer system, a transition which purportedly wreaked
havoc on the Company's sourcing, manufacturing, inventory management, and
financial operations. For over a year Pillowtex management has asserted that
there is nothing fundamentally wrong with its manufacturing and fulfillment
operations - other than the computer snafus - and that the Company will be
returning to normalized performance and working capital management shortly.
The chief questions facing investors are:
i) can one reasonably rely on management's claims that the 1999
performance is attributable to one-off issues (including the
computer problems) and that a return to "normalized" performance
will be forthcoming very shortly?;
ii) if so, what is the level of "normalized" performance to which the
Company can rapidly return? Would such performance likely prove
sufficient to permit the Company to avoid a financial restructuring;
iii) if not, what is a reasonable estimate of the inherent enterprise
value which would be available to investors upon a financial
restructuring of Pillowtex?; and
iv) does the risk/reward profile created by the answers to these
questions provide investors with a positive or a negative investment
opportunity at current market levels?
After extensive interviews with Pillowtex equipment vendors, former
engineering and management executives, and customers, WE FIND LARGELY CREDIBLE
MANAGEMENT'S CLAIM THAT THE PAST YEAR WAS SOMETHING OF AN ABERRATION, AND THAT
THERE ARE NO SEVERE MANUFACTURING ISSUES THAT EITHER WOULD REQUIRE HIGH LEVELS
OF REMEDIAL CAPITAL SPENDING OR WOULD KEEP MARGINS AT DEPRESSED, SINGLE-DIGIT
LEVELS LONG-TERM. Importantly, we have also heard from a number of key Pillowtex
retail customers that, while fulfillment remains problematic, service has
improved noticeably from the severe weaknesses of the past year.
On the other hand, WE DO NOT FIND CREDIBLE THE VIEW THAT 1998'S 13%
EBITDA MARGIN IS INDICATIVE OF NORMALIZED PERFORMANCE FOR THE COMPANY. RATHER,
LEVELS CLOSER TO SPRING INDUSTRIES' 10% EBITDA MARGIN RANGE WOULD SEEM TO BE
MORE REASONABLY ATTAINABLE without inordinate amounts of additional capital
expenditures or a significant re-alignment of Pillowtex's operations. We have
reached that conclusion based on a variety of factors, including:
- OPERATIONAL AND PERFORMANCE WEAKNESSES DO REMAIN IN THE OLD
FIELDCREST FACILITIES DESPITE THE HEIGHTENED CAPITAL EXPENDITURE
PROGRAM. While roughly 80% of
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
8
113
Pillowtex Corp. - March 2, 2000
towel looms have been upgraded to rapid air-jet technology, we
believe that only about 20% of sheeting looms have been so replaced.
Certain yarn-spinning facilities, such as those at Kannapolis, are
also older generation and less automated than state-of-the-art
facilities. KANNAPOLIS ALSO RECENTLY BECAME ONE OF THE FEW UNIONIZED
HOME FABRIC PLANTS IN THE NATION. We estimate that the new
settlement should cost Pillowtex between $5-to-10 million a year in
additional wages and benefits.
- THE VERY REAL LIQUIDITY CONSTRAINTS NOW BEING FACED IMPEDE THE
COMPLETION BY PILLOWTEX OF ITS ORIGINAL CAPITAL EXPENDITURE PROGRAM.
The Company has pledged to hold capital spending down to $47 million
in 2000, though the Company remains some $75 to $100 million short
of the $300 million Mr. Hansen believed necessary to fix Fieldcrest
when he bought it in 1997.
- Company officials, however, assert that the original $300 million
target turned out to have been overstated.
- CERTAIN INHERENT DEFICIENCIES IN THE MANUFACTURING BASE ACQUIRED
FROM FIELDCREST PROBABLY CANNOT BE REPAIRED IN THE NEAR-TERM given
the cash constraints and grave shortness of time. Kannapolis and
Fieldale, for example, is a sprawling, multi-level plant that is
inherently complex to operate.
- Company officials describe Kannapolis and Fieldale as "among the
best mills of that age", though not as efficient as newer
facilities.
- WEAKNESSES PRESENT IN PILLOWTEX BUSINESS SEGMENTS WHICH ARE NOT
SHARED BY WESTPOINT AND SPRINGS, INCLUDING THE KITCHEN PRODUCTS
SEGMENT ACQUIRED FROM LESHNER, WILL ADVERSELY AFFECT COMPARISONS
WITH THOSE COMPANIES and would be expected to limit the level of
financial performance achieved over the intermediate term.
- PILLOWTEX'S APPARENTLY HIGHER RELIANCE ON LOW-MARGIN MASS RETAILERS
THAN WESTPOINT STEVENS AND, TO A LESSENED DEGREE, SPRINGS WILL
FURTHER DAMPEN COMPETITIVE MARGIN COMPARISONS. For example, Wal-Mart
accounted for 24% of Pillowtex sales in 1998 compared to only 15%
for Springs. Kmart took only 11% of Westpoint Stevens' sales in
1998, though Westpoint sold 13% of its product to Dayton Hudson,
including Target.
- It should be noted that Pillowtex officials dispute assertions
that mass retailers offer lower profit margins, claiming long
product runs recoup through efficiency any losses in price.
- CONTRACTS LOST OVER THE PAST YEAR WILL IMPEDE PILLOWTEX'S RECOVERY.
In addition to cutting Pillowtex's Sahara line, Wal-Mart recently
decided to replace its Select Editions line - formerly supplied by
both Springs and Pillowtex - with Springs' Springmaid brand. Dan
River was recently awarded an $80 million/year portion of K-Mart's
Martha Stewart line, formerly produced by both Pillowtex and
Springs.
- Pillowtex asserts it will recoup business with these retailers in
other programs so that sales to K-Mart will show single-digit
growth in 2000, while sales to Wal-Mart will be flat to only
slightly down.
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
9
114
Pillowtex Corp. - March 2, 2000
- PILLOWTEX RELIES MORE HEAVILY THAN COMPETITORS ON TOWEL PRODUCTS,
WHERE U.S. CONSUMPTION MAY BE WEAKENING. Bath towels make up
approximately 46% of Pillowtex's revenue versus approximately 36%
for Westpoint and approximately 10% for Springs. According to
Commerce Department figures reported with a two quarter lag, U.S.
TOWEL CONSUMPTION HAS FALLEN SIGNIFICANTLY, ON A YEAR-OVER-YEAR
BASIS, FOR THREE QUARTERS IN A ROW. A leading industry consultant
asserts that, while towel sales did grow by 7% in 1999, that rate of
growth will be cut in half this year. Pillowtex expects towel sales
to be flat at best in FY2000.
- Pillowtex's comparatively more complex and varied product line may
impose higher normalized operating costs relative to those faced by
competitors.
Finally, while not embedded within the manufacturing base itself, THERE
ARE A SERIES OF ADDITIONAL FACTORS AT HAND WHICH WE BELIEVE RESTRICT THE
LIKELIHOOD THAT PILLOWTEX'S PERFORMANCE CAN SNAP BACK TO NORMALIZED LEVELS
RAPIDLY ENOUGH TO AVOID A CONTINUATION OF THE LIQUIDITY CRISIS. Pillowtex
continues to face very real problems as it struggles to return to normal - most
notably:
- PILLOWTEX CONTINUES TO FACE IMPORTANT MANAGEMENT WEAKNESSES. Though
a superb salesman and enthusiastic leader, Chairman and CEO Chuck
Hansen had never run a Company as large as the current Pillowtex
before acquiring Fieldcrest and Leshner. There are indications that
over the past 2 years he has overruled experienced executives
regarding many critical decisions, and fired or lost key executives
who challenged his plans and expectations, including President of
Manufacturing Christopher Baker, head of towel manufacturing at
Phenix City, Bill Mooring, President and COO Jeff Cordesman, CFO Ron
Wehtje, as well as key members of the old Fieldcrest MIS team. One
bright-spot is that Joe McHugh, Pillowtex's acting CFO, earned a
solid reputation at the helm of Triangle Pacific.
- PILLOWTEX MAY CONTINUE TO EXPERIENCE DIFFICULTIES IN ABSORBING
SIGNIFICANT AMOUNTS OF MANUFACTURING EQUIPMENT INSTALLED OVER THE
PAST YEAR, particularly at the Phenix City, Alabama and Kannapolis,
North Carolina plants. Such difficulties may lead to continued
product shortfalls and working capital difficulties.
- THE ONGOING FINANCIAL SQUEEZE IS LIKELY TO CONTINUE TO HAMPER
OPERATIONAL RECOVERY. For example, we know of several key vendors
who have significantly tightened terms-of-payment for Pillowtex or
are holding up shipments, as well as industry factors who have
ceased supporting suppliers to the Company.
WERE PILLOWTEX'S REPORTED 1998 RESULTS REAL? If 9.5%-to-10% is
Pillowtex's normalized EBITDA margin, how did the Company suddenly surge to 13%
in 1998? It is difficult to believe that that the old Pillowtex plus a troubled
Fieldcrest (before the capex program on the old Fieldcrest facilities had truly
begun), could have improved EBITDA margins by some 300 basis points, or by
nearly $15 million per quarter, over the first three months following the
merger. 1998's EBITDA margins may have, in fact, been inflated well beyond
sustainable levels. Such excess over any short-term period could have been the
result of the accumulated effect of any number of factors. For instance, based
on flexibility in general accounting practices, costs tradi-
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
10
115
Pillowtex Corp. - March 2, 2000
tionally classified by Fieldcrest before the merger as operating expenses could
legitimately have been capitalized by Pillowtex following the merger.
In addition, we continue to have questions regarding how Pillowtex
accounts for doubtful accounts and for "deductions" - meaning returns and
allowances, as well as advertising discounts taken by customers, and deducted
from gross revenue to arrive at reported net revenue. Reserves for doubtful
accounts slipped from 7.5% of receivables to 5.1% of receivables from July 1998
to the end of the fiscal year - a $6.2 million swing. Allowances rose back to
7.9% through the third quarter of 1999. Meanwhile, deductions were some $25
million higher than Company projections in 1999 - with some portion of that
attributable to unauthorized advertising, and some portion attributable to
unforeseen returns and allowances claimed by customers for incorrect shipments.
Pillowtex management has said that it intends to clamp down on customer
deductions, but only 45% of protested deductions are normally taken as a reserve
to receivables. We therefore believe that Pillowtex could remain exposed to
receivables writedowns if the Company loses a greater percentage of disputes
than anticipated.
Whether because of the above accounting issues or other concerns, the
secured bank lenders are conducting an independent examination of Pillowtex
accounting practices.
V. INDUSTRY DYNAMICS
IMPORT PRESSURE. Historically, home textiles have not faced the same
degree of import pressure as has apparel - the difference being attributed to
quality constraints, shipping costs, and the fact that developing countries are
only beginning to adopt the large furniture, bed, and towel sizes that Americans
favor - and therefore are only beginning to invest in wide-loom equipment. We
believe the latter factor may have been the key brake on development of
competitive home fabric production in developing countries, meaning that such
producers can become competitive once they undertake required investments.
While import pressure in home textiles may have been relatively weak in
the past, trade figures and industry data now suggest HOME TEXTILE IMPORT
PRESSURE IS MOUNTING. The surge seems to be strongest in key bath and kitchen
towel areas upon which Pillowtex depends the most.
- U.S. Government trade data shows IMPORTS OF TOWELS GREW AN AVERAGE
OF 24% ANNUALLY BY VALUE FROM 1995 THROUGH 1999, AND 17% BY
QUANTITY. IMPORTS OF SHEETS GREW 24% BY VALUE AND 18% BY QUANTITY
ANNUALLY THROUGH 1998, and a further 23% year-over-year by both
value and by quantity over the first half of 1999.
- The share of total U.S. towel consumption held by imports has risen
from 15% in 1995 to 31% by value over the first half of 1999, and
from 37% to 56% by quantity over that period. The corresponding rise
for sheets was 12% to 21% and 15% to 23%.
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
11
116
Pillowtex Corp. - March 2, 2000
[BAR CHART: Towel Consumption and Imports by Quantity]
[BAR CHART: Towel Consumption and Imports by Value]
[BAR CHART: Linen Consumption and Imports by Quantity]
[BAR CHART: Linen Consumption and Imports by Value]
It appears direct import pressure to date has been strongest on
lower-end products. One major retailer, for example, told us that Chinese sheet
imports now account for 15%-to-18% of their sales, up from 5% three years ago.
Several mid-size, lower-end retailers told us they would increasingly source
terry and sheeting products in India and Pakistan if Pillowtex cannot correct
fulfillment problems shortly. Pillowtex's higher dependence on mass marketers
may increase its susceptibility to the pressures coming from imports, even on
the lower end. Exposure to this pressure may explain management's rush to
convert Phenix City from a mass market to a higher end plant - problems flowing
from this rush represent one of the forces underlying the Company's operating
and financial problems over recent quarters.
IMPORTANTLY, AVAILABLE TRADE STATISTICS ALSO SUGGEST THAT IMPORTS ARE
MAKING INROADS INTO THE MID AND UPPER-TIER SEGMENTS OF THE SHEET AND TOWEL
MARKET - segments that were once the exclusive province of U.S. manufacturers:
- THE AVERAGE VALUE PER TOWEL IMPORTED HAS RISEN BY 60%, VERSUS ONLY A
20% RISE IN THE VALUE PER TOWEL CONSUMED IN THE U.S. FROM 1994
THROUGH H1 OF 1999. THAT SUGGESTS THAT IMPORTS ARE INCREASINGLY
COMING IN THE FORM OF HIGHER-QUALITY, HIGHER-MARGIN PRODUCTS.
Similarly, the value of sheets imported has risen 16% per unit,
versus only an 8% rise in the value per unit of sheets consumed.
The statistics support much anecdotal evidence that import pressure is
spreading to value-added products. One major catalog vendor recently dropped
Pillowtex's upper tier Royal Velvet towels from its product offering, replacing
the line with high quality towels produced in Turkey for greater profit margin.
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
12
117
Pillowtex Corp. - March 2, 2000
PRICING PRESSURE. While not as clear-cut as with apparel, there is
evidence that unit prices are trending lower in key home textile categories. A
leading industry consultant has for several months cited dozens of categories in
which competition is pushing prices lower, including cotton "Bed in the Bag"
sets that once sold for $150 but recently broke under the $100 mark. Wal-Mart,
typically a price-leader, has been implementing significant reductions on its
Jubilee towels, with bath prices falling to $3.50 from $3.88, and a $2.96 towel
scheduled for 2000. Wal-Mart 200 blend twin sheets are today priced at $3.77,
compared to $4.99 18 months ago. Macy's recently advertised Springs' Wamsutta
blended sheets for $9.99 per twin set, significantly below national retail
prices, "a sign that mill authority is lacking" according to one industry
observer.
THERE IS AN ADDITIONAL ADVERSE FORCE AT HAND ACTING TO COMPOUND THE
MARGIN PRESSURES COMING FROM UNIT PRICE DECLINES. OVER THE PAST YEAR, THE BIG
THREE HOME FABRIC MANUFACTURERS HAVE ENGAGED IN A RACE TO ESCAPE LOW-END IMPORTS
BY ELIMINATING LOW THREAD-COUNT PRODUCTS IN FAVOR OF HIGHER-COUNT, COTTON-RICH
LINES. But the higher-count lines, which are more expensive to produce, are
often selling near the old, lower-count prices. One retailer is now selling
220-count Egyptian cotton Pillowtex sheets for $7.99, $2 less than Springs' old
200-count sold recently. J.C. Penney recently closed out a 200-count
cotton-polyester blend line to replace it with a 230-count line containing more
cotton, to be sold at similar price points. We believe that THIS COMBINATION OF
IMPORT PRESSURE ON THE LOWER END AND THE CONSEQUENCE OF "MORE QUALITY FOR LESS"
ON THE HIGHER END WILL RESULT IN PERCEPTIBLE REVENUE AND MARGIN PRESSURE FOR ALL
BED AND BATH TEXTILE MAKERS IN COMING MONTHS. PILLOWTEX REMAINS PARTICULARLY
EXPOSED TO THESE BROAD INDUSTRY-BASED STANDARDS.
CAPITAL STRUCTURE AND LIQUIDITY
As of January 1, 2000 Pillowtex had an estimated $1,069 million in
debt, or 8.4x LTM EBITDA, excluding $74 million in Convertible Preferred Stock.
Availability under a $350 million secured Revolver was $55.5 million (with
$259.8 million drawn and an estimated $34.8 million outstanding under Letters of
Credit). The Revolver, a $120.0 million Tranche A Term Loan and a $221.5 million
Tranche B Term Loan are secured by all of Pillowtex's domestic assets and 65% of
the stock in foreign subsidiaries, as is a $35 million Promissory Note due March
31. Pillowtex has two Senior Subordinated Note issues guaranteed by
subsidiaries: $185 million 9% Senior Subordinated Notes due in 2007, with
coupons payable in June and December, and a $125 million 10% Senior Subordinated
Notes due in 2006, with coupons payable in May and November.
Pillowtex will enjoy some easing of liquidity pressure over Q1, with
only $20.5 million required for cash interest payments and amortizations
(compared to $33.5 million in Q4) and a relatively small incremental reduction
in payables needed to bring Pillowtex current (compared to $64 million needed
last quarter).
The Company faces an additional potential cash need of $60.1 million
associated with the conversion of the estimated $100.2 million in outstanding 6%
Convertible Subordinated Debentures, convertible into 60.1% cash and 6.08 shares
of Pillowtex per $1,000 face amount. Fearful that a conversion by the 6%
Convertible Subordinated Debentures could exhaust the Company's liquidity and
push it into bankruptcy, Pillowtex sent a letter to Debentureholders on November
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
13
118
Pillowtex Corp. - March 2, 2000
16th stating that, in the Company's view, the 6% Debentureholders would be
better off not converting even if the Company did subsequently go into
bankruptcy. Pillowtex argued that an unpaid 6% Debenture holder would have a
claim of 100% of principal against Fieldcrest, but that following submission of
the Debentures for conversion, the claim would consist of only a 60% claim
against Fieldcrest for the cash owed and 6.08 common shares of Pillowtex per
$1,000 original face. The Company has refused to pay a handful of 6%
Debentureholders who have submitted Debentures for conversion. The 6% Debenture
Trustee has argued that, under the Indenture, the Debentureholders are no longer
Debentureholders following such submission and, therefore, possess no rights
under the Indenture, including any right to compel the Trustee to declare a
default by Pillowtex.
We believe that Pillowtex is not correct in its argument that a holder
of the 6% Convertible Subordinated Debenture issue would be better off in a
bankruptcy scenario if such holder had not previously sought conversion - i.e.
that one is better off retaining a 100% subordinated debt claim rather than a
60% debt claim and common stock. We certainly do agree that transferring any
part of a debt claim to common stock is structurally adverse - indeed, we
believe the equity in a Pillowtex bankruptcy is likely to be attributed no
residual value in a reorganization. The difference in point of view is that we
believe the remaining 60% claim will actually increase in attributed recoverable
value, because the subordination agreement in place today between the senior
subordinated tier and convertible subordinated tier falls away upon submission
of a holding to the Company, and the 60% cash claim is lifted to the general
unsecured class, having no subordination agreement with the Senior Subordinated
Notes. We further believe that holders who have submitted Convertible
Subordinated Debentures to the Company for conversion, having followed a series
of appropriate steps, do possess the ability to declare that an event of default
has occurred if the cash portion of the conversion is not paid, effectively
pushing Pillowtex into bankruptcy.
VI. COMPARABLE COMPANIES AND TRADING MULTIPLES
Three public companies dominate the towel and sheet home textile
segments in the United States - Pillowtex, Westpoint, and Springs (see Exhibit
C). Pillowtex and Westpoint are #1 and #2 with $700 million and $640 million,
respectively, in 1998 bath towel sales, accounting for approximately two-thirds
of U.S. sales. Springs, having entered the towel market late through its
acquisition of Dundee Mills, Inc. in 1995, is a distant third, with $192 million
of sales in 1998. The next closest was Santens of America, Inc., with $40
million of sales.
The dominance is similar in sheeting, with Westpoint and Springs #1 and
#2 with $670 million and $625 million in 1998 sales, respectively, or some 30%
of the market, and Pillowtex a more distant third at $280 million, or
approximately a 10% share. Dan River was fourth with $210 million, followed by
Thomaston Mills, Inc. with $90 million.
For several years, Westpoint has been considered the standout performer
in the towel and sheet segments, attaining EBITDA margins in the high teens that
routinely have run 8-to-9 percentage points ahead of Springs, the second most
profitable of the group. Westpoint's higher performance would appear to be, at
least in part, a reflection of its higher capital spending as a
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
14
119
Pillowtex Corp. - March 2, 2000
percent of sales. Westpoint averaged 9.1% from 1996 through 1998, versus only
4.5% for Springs and, pro-forma for the mergers, 5.7% for Pillowtex over that
period (including 8.8% of sales in 1998).
Of the "big three" home fabric companies, Westpoint maintains the most
concentrated product line, with approximately one-third of revenue in sheets and
pillowcases, one-third in towels, and the remainder spread between non-down
comforters, blankets, and other items. The company acquired a small pillow
manufacturer, Liebhardt Mills, in 1999.
Springs' product line is somewhat more diverse, with significant bath
rug output (increased by the acquisition of Regal Rugs, Inc. in January 1999),
as well as non-down comforter and bedspread output which is some one-and-a-half
times larger than that of Pillowtex. Springs also increased its sleep pillow
output in 1999 by purchasing the remaining 50% of American Fiber Industries, LLC
not already own. Springs has retained a small specialty fabrics business.
Of the majors, Pillowtex maintains the broadest product line, with
sleep-pillow sales some three times those of each of Springs and Westpoint after
their 1999 acquisitions, down comforter sales that neither of the other two
have, significant mattress pad sales, and a presence in the kitchen through the
acquisition of Leshner. Despite its origins as a pillow and "on the bed"
company, Pillowtex remains weaker in basic sheeting and pillow cases, both as a
proportion of revenue and in the quality of its manufacturing.
VII. VALUATION
Pillowtex has given investors initial targets for 2000 performance of
2% sales growth, a 10% EBITDA margin (approximately $160 to $170 million), and
inventory control that would keep inventory no higher than $450 million (some
$60 million below peak 1999 levels). The Company has given no precise
explanation for how performance could improve so dramatically over 1999 results.
In-fact, on a recent conference call, Pillowtex officials said they could not
"normalize" Q4 results, given the long-list of operational issues, working
capital adjustments, and other special events.
Given the challenges facing Pillowtex, we have constructed a model
producing what we believe is attainable performance for Pillowtex:
- We project EBITDA margins of 8.1% on revenue of $1,544 million in FY
2000, with weakness concentrated in Q1 and Q2 of the year. EBITDA
would be down slightly from full year 1999 but up sharply compared
to the second half of 1999. Revenue would be down slightly compared
to 1999. We project EBITDA rising to a more normalized 10.1% of
$1,559 million in revenue the following year.
- We believe that working capital management can be improved compared
to 1999, but that the Company still requires an inventory build - to
135 days of sales in Q2 of 2000 and 2001, returning to 112 by the
end of the fiscal year. We would project inventory peaking at $499
in Q3 of 2000, or roughly $50 million above Pillowtex projections.
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
15
120
Pillowtex Corp. - March 2, 2000
- We assume payables are held at 30 days, and that days receivables
are cut to the low 60 days range.
Based on these parameters, we believe Pillowtex will be fully drawn on
its revolver by the end of Q2 2000, and will face a $57 million shortfall in Q3
- - assuming that the $35 million Promissory Note is rolled over yet again through
that period, and that the Convertible Subordinated Debentureholders do not
seek to convert and obtain up to $60 million in cash payments. Given the need to
find additional liquidity even with a rollover of the Promissory Note, and the
continual threat that the convert holders will try to remove $60 million of cash
from the Company, we think there is a high likelihood that Pillowtex will have
to file for bankruptcy by the end of this year. That likelihood could be
increased if, as we believe is likely, more negative news were to emerge -
either through the accounting analysis underway, because of continued
difficulties in righting the errors made by management over the past several
quarter, or because of general retail pressures.
Should Pillowtex file for bankruptcy, we believe the secured debt would
be rolled into a debtor-in-possession facility. We project a one-year
bankruptcy.
It is appropriate to value the Company, in our view, based on a
multiple of 2001 projected EBITDA ($158.2 million). Springs currently trades
at an LTM EBITDA multiple of only 4.1x, a function of Springs' flat sales
trajectory over the past several years and uninspiring EBITDA margin. Westpoint
has enjoyed consistent sales growth for several years, as well as an EBITDA
margin some 500-to-800 basis points higher than Springs. Westpoint trades at a
6.6x multiple of LTM EBITDA. Dan River is trading at what we believe is a
depressed multiple of 4.9x LTM EBITDA because of limited liquidity and continued
doubts regarding the wisdom of its Bibb acquisition (see Exhibit B). We believe
a range of 5x-to-6x 2001 EBITDA is therefore appropriate for valuing Pillowtex
when it emerges from restructuring, closer to the multiple applied to Springs,
rather than a segment-leading company such as Westpoint.
At a 5.5x multiple, Pillowtex would have a future enterprise value upon
emergence from bankruptcy of $870 million. While we believe the bank debt is
oversecured, Pillowtex will continue to face operating risks and market
pressure throughout the bankruptcy process and beyond. WE THEREFORE BELIEVE THAT
A RATE OF RETURN IN THE HIGH-TEENS IS APPROPRIATE FOR THE BANK DEBT. Current
market levels in the mid-to-high 80s imply a rate of return that could exceed
20% (given our assumption that the bank facility is rolled into a
debtor-in-possession facility, that the revolver will be fully drawn at the time
of filing, that there could be some pay-down of the DIP toward the end of the
bankruptcy, and that the Company takes only one year to emerge from bankruptcy).
WE THEREFORE FIND THE BANK DEBT ATTRACTIVE AT THESE PRICE LEVELS.
Given our projections for $712 million in DIP debt after bankruptcy,
some $158 million would be available for distribution to remaining impaired
creditors and equity claimants. We envision three scenarios:
i) Assuming that the Convertible Subordinated Debentures were to
remain outstanding (either due to the failure of holders to submit the
securities for conversion, or because they were exchanged in the interim for new
convertible debentures to escape today's conversion
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
16
121
Pillowtex Corp. - March 2, 2000
overhang), that $158 million would be shared by the $491 million of unsecured
claims (consisting of $310 Senior Subordinated Notes, $81 million of trade
claims, and $100 million of Convertible Subordinated Debentures), implying a
recovery of $0.32 per dollar of claim. Assuming strict priority due to the
subordination agreement between the Senior Subordinated Notes and the
Convertible Subordinated Debentures (which would remain in force), the value
attributed to the Convertible class would revert to the Senior Subordinated
Notes, providing the senior issues with $0.42 of value per principal dollar, and
the convertible issue with no available value. We believe that distribution
would take the form of equity which we discount at 35%, yielding a present value
of 27% of claim. Assuming one more coupon payment is made on each of the Senior
Subordinated issues (in May and June), they would each have an additional 2
cents in value (net of accrued interest), for a total present value of
approximately 29 percent of principal amount.
ii) Should the 6% Convertibles not remain outstanding at the time
of bankruptcy (due to an exchange offer that allowed them to convert into equity
at an increased rate, for example), the present value received by the Senior
Subordinated issues would be reduced to 28 percent of principal amount.
iii) finally, should the 6% Convertible Debentures convert, and
their 60% claim be adjudged a general unsecured claim, the distribution to the
unsecured claims would be $0.35 cents per principal dollar of claim, yielding a
present fair value (with coupon payment) of 24 percent of principal amount for
the Senior Subordinate issues. The Debentures would receive $0.35 cents per
principal dollar of their 60% claim, or 21 cents in future value per dollar
principal, and fair present value of 13 cents per principal dollar. (We are
assuming that although the Debentures claim is against Fieldcrest, a very large
portion of Pillowtex's overall value lies in the Fieldcrest subsidiary, so that
the distinction is not of great importance).
No value remains under our model for lower portions of the capital
structure, including the preferred and common equity. We note that even if one
accepts Pillowtex management's estimate of $170 million in potential EBITDA for
2000, and applies Westpoint's premium multiple of 6.6x LTM EBITDA, no value
would remain available for Pillowtex common stock given the $1.1 billion in debt
and preferred stock outstanding.
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
17
122
Pillowtex Corp. - March 2, 2000
VALUATION
CRT Projected FYR 2001
Sales $1,559.3
EBITDA 158.2
Margin 10.1%
EBITDA Multiple
----------------------------
5x 5.5x 6x
------ ------ ------
Enterprise Value $791.2 $870.4 $949.5
Secured Debt 712.8 712.8 712.8
------ ------ ------
Remaining Value $ 78.5 $157.6 $236.7
====== ====== ======
SCENARIO I: CONVERTIBLES REMAIN OUTSTANDING
Senior Sub Notes $310.0 $310.0 $310.0
6% Convertibles 100.2 100.2 100.2
Trade Debt 81.3 81.3 81.3
------ ------ ------
Total Unsecured Debt $491.5 $491.5 $491.5
====== ====== ======
Future Recovery Value to Unsec'd Claims 16% 32% 48%
Value from Cvts. To Sr. Sub 5 10 15
------ ------ ------
Future Recovery Senior Sub Notes 21% 42% 63%
====== ====== ======
Present Value Discounted @ 35% 13% 27% 40%
Present Value of May/June Coupons 2% 2% 2%
Present Value per Sr. Subordinate Note 15% 29% 42%
SCENARIO II: CONVERTIBLES EXCHANGED FOR EQUITY
Senior Sub Notes $310.0 $310.0 $310.0
Trade Debt 81.3 81.3 81.3
------ ------ ------
Total $391.3 $391.3 $391.3
====== ====== ======
Future Recovery Value to Unsec'd. Claims 20% 40% 60%
Present Value Discounted @ 35% 13 26 39
Present Value of May/June Coupons 2% 2% 2%
Present Value per Senior Subordinate Note 15% 28% 41%
SCENARIO III: CONVERTIBLES CONVERTED
Senior Sub Notes $310.3 $310.3 $310.3
6% Convertibles-Gen'l Unsec'd. Claim 60.1 60.1 60.1
Trade Debt 81.3 81.3 81.3
------ ------ ------
Total $451.7 $451.7 $451.7
====== ====== ======
Future Recovery Value to Unsec'd. Claims 17% 35% 52%
Present Value Discounted @ 35% 11 22 33
Present Value of May/June Coupons 2% 2% 2%
Present Value per Senior Subordinated Note 13% 24% 35%
Future Value to Convert 10% 21% 31%
Present Value Discounted @ 35% 6 13 20
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
18
123
Pillowtex Corp. - March 2, 2000
EXHIBIT A
($'s in millions except per share)
Historical CRT Projections
--------------------------------------------------------------- ------------------------
Fiscal Years Ended Fiscal Year
--------------------------------------------------------------- ------------------------
12/28/96 1/3/98(1) 1/3/98PF(2) 1/2/99(3) 1/1/00 2000 2001
--------- --------- ----------- --------- --------- --------- ---------
OPERATING RESULTS:
Net Sales $ 490.7 $ 580.0 $ 1,785.1 $ 1,509.8 $ 1,552.1 $ 1,543.9 $ 1,559.3
Cost of Goods Sold 411.0 485.7 1,524.4 1,234.9 1,354.1 1,365.1 1,361.5
--------- --------- --------- --------- --------- --------- ---------
Gross Profit 79.6 94.3 260.7 275.0 198.0 178.7 197.8
S,G&A 41.4 52.1 175.5 130.8 131.3 128.4 124.7
--------- --------- --------- --------- --------- --------- ---------
EBIT 38.2 42.2 85.2 144.2 66.7 50.3 73.0
Interest Expense 14.0 22.5 50.3 72.3 87.3 85.6 62.2
Restruct. Chg., Other Unusual Exp. -- 6.0 8.5 1.5 6.9 10.0 20.0
--------- --------- --------- --------- --------- --------- ---------
EBT 24.2 13.8 43.3 70.2 (27.4) (45.3) (9.2)
Income Tax 9.5 5.5 13.7 27.4 (7.9) (14.5) (2.9)
Extraordinary Item (after tax) (0.6) (0.9) (0.9) -- 0.0 0.0 0.0
--------- --------- --------- --------- --------- --------- ---------
Net Earnings 14.1 7.3 30.6 42.9 (19.5) (30.8) (6.3)
Preferred Dividends -- 0.1 (4.5) 2.1 12.3 7.7 8.5
--------- --------- --------- --------- --------- --------- ---------
Earnings Avail. for Common $ 14.1 $ 7.2 $ 26.1 $ 40.8 $ (31.8) $ (38.5) $ (14.7)
========= ========= ========= ========= ========= ========= =========
Weighted Avg. Com. 10.6 10.8 NMF 14.1 14.2 14.2 14.2
Weighted Avg. Com., Diluted 10.6 11.1 NMF 17.7 14.2 14.2 14.2
EPS Fully-Diluted $ 1.33 $ 0.65 NMF $ 2.31 $ (2.25) $ (2.71) $ (1.04)
MARGINS:
Gross Margin 16.2% 16.3% 14.6% 18.2% 12.8% 11.6% 12.7%
S,G&A % of Sales 8.4 9.0 9.8 8.7 8.5 8.3 8.0
EBIT Margin 7.8 7.3 4.8 9.5 4.3 3.3 4.7
EBITDA Margin 10.4 10.1 7.9 13.1 8.2 8.1 10.1
Capital Expen. % of Sales 4.3 3.5 4.7 8.8 5.8 3.0 4.5
EBIT $ 38.2 $ 42.2 $ 85.2 $ 144.1 $ 66.7 $ 50.3 $ 73.0
Deprec. & Amort. 12.8 16.1 56.4 54.0 60.1 74.2 85.2
--------- --------- --------- --------- --------- --------- ---------
EBITDA 50.9 58.3 141.6 198.1 126.8 124.6 158.2
Capital Expenditures 21.0 20.6 84.1 133.6 89.8 46.7 70.2
--------- --------- --------- --------- --------- --------- ---------
Free Cash Flow $ 29.9 $ 37.7 $ 57.5 $ 64.5 $ 37.0 $ 77.9 $ 88.1
========= ========= ========= ========= ========= ========= =========
INTEREST COVERAGE:
EBIT/Interest 2.7x 1.9x 1.7x 2.0x 0.8x 0.6x 1.2x
EBITDA/Interest 3.6 2.6 2.8 2.7 1.5 1.5 2.5
FCF/Interest 2.1 1.7 1.1 0.9 0.4 0.9 1.4
WORKING CAPITAL:
Days Payable 40 84 NMF 38 32 31 31
Days Receivables 58 139 NMF 60 63 64 62
Days Inventory 119 270 NMF 129 114 116 116
(1) Fiscal 1997 results include portion of Fieldcrest Cannon, Inc., acquired
in December 1997.
(2) Pro forma as if acquisitions of Fieldcrest Cannon, Inc. and The Leshner
Corporation had occurred on 12/29/96, as estimated by CRT.
(3) Fiscal 1998 results include portion of The Leshner Corporation, Inc.,
acquired in July, 1998. Fiscal 1998 unaudited results were restated by
PTX, increasing Cost of Goods sold and decreasing S,G&A by $8.6 million.
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
19
124
Pillowtex Corp. - March 2, 2000
EXHIBIT A (CONTINUED)
QUARTERLY HISTORICAL RESULTS
($ in millions except per share data)
Three Months Ended
-------------------------------------------------------------------------------------------
4/4/98 7/4/98 10/3/98 1/2/99 4/3/99 7/3/99 10/2/99 1/3/00
------- ------- ------- ------- ------- ------- ------- -------
Net Sales $ 366.3 $ 332.0 $ 419.8 $ 391.7 $ 368.5 $ 362.5 $ 415.8 $ 405.3
COGs 304.8 275.3 339.9 314.9 312.3 300.9 371.6 369.3
------- ------- ------- ------- ------- ------- ------- -------
Gross Profit 61.5 56.7 79.9 76.8 56.2 61.6 44.3 36.0
S,G&A 33.7 28.2 36.3 32.6 28.1 31.1 33.2 38.8
------- ------- ------- ------- ------- ------- ------- -------
EBIT 27.8 28.6 43.6 44.1 28.1 30.5 11.0 (2.8)
Interest Expense 16.8 17.0 19.1 19.4 19.5 19.7 21.3 26.8
Restruct. Charge, Other Unusual 1.5 0.0 0.0 0.0 0.0 0.0 6.9 0.0
Other Income 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
------- ------- ------- ------- ------- ------- ------- -------
EBT 9.5 11.6 24.4 24.8 8.6 10.7 (17.1) (29.6)
Income Tax 3.8 4.5 9.4 9.7 3.4 3.9 (6.1) (9.2)
Extraordinary Item (aft tax) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
------- ------- ------- ------- ------- ------- ------- -------
Net Earnings 5.6 7.1 15.0 15.1 5.3 6.8 (11.0) (20.5)
Preferred Dividends 0.5 0.5 0.5 0.5 0.5 0.5 9.6 1.7
------- ------- ------- ------- ------- ------- ------- -------
Earnings for Common $ 5.2 $ 6.6 $ 14.5 $ 14.6 $ 4.7 $ 6.2 $ (20.6) $ (22.2)
======= ======= ======= ======= ======= ======= ======= =======
Weighted Avg. Common 14.0 14.1 14.1 14.1 14.2 14.2 14.2 14.2
Weighted Avg. Common, Diluted 17.0 17.1 17.6 17.6 16.9 16.9 14.2 14.2
EPS - Diluted $ 0.30 $ 0.38 $ 0.82 $ 0.89 $ 0.28 $ 0.37 $ (1.45) $ (1.56)
Yr.-Over-Yr. Change Sales 0.6% 9.2% (1.0)% 3.5%
Gross Margin 16.8% 17.1% 19.0% 19.6% 15.3 17.0 10.6 8.9
S,G&A% of Sales 9.2 8.5 8.6 10.0 7.6 8.6 8.0 9.6
EBIT Margin 7.6 8.6 10.4 11.3 7.6 8.4 2.7 (0.7)
EBITDA Margin 11.4 12.9 13.2 14.8 11.3 12.3 6.3 3.5
Capex % of Sales 6.2 9.2 8.7 11.2 7.6 6.4 5.4 4.0
Allow. for Doubtful A/R% of A/R 6.2 7.5 5.8 5.1 7.6 7.8 7.9 NA
EBIT $ 27.8 $ 28.6 $ 43.6 $ 44.1 $ 28.1 $ 30.5 $ 11.0 $ (2.8)
Deprec. & Amort. 14.0 14.2 12.0 13.8 13.6 14.3 15.3 16.9
------- ------- ------- ------- ------- ------- ------- -------
EBITDA 41.8 42.8 55.5 58.0 41.7 44.7 26.3 14.1
Capex 22.6 30.4 36.6 44.0 28.0 23.1 22.5 16.1
------- ------- ------- ------- ------- ------- ------- -------
Free Cash Flow $ 19.2 $ 12.4 $ 18.9 $ 14.0 $ 13.7 $ 21.6 $ 3.8 $ (2.1)
======= ======= ======= ======= ======= ======= ======= =======
EBIT/Int. 1.7x 1.7x 2.3x 2.3x 1.4x 1.5x 0.5x (0.1)x
EBITDA/Int. 2.5 2.5 2.9 3.0 2.1 2.3 1.2 0.5
Free Cash Flow/Int. 1.1 0.7 1.0 0.7 0.7 1.1 0.2 (0.1)
Days Payable (COGs) 29 26 30 38 40 53 45 30
Days Receivable (Net) 58 57 60 57 64 66 71 60
Days Inventory (COGs) 115 135 112 128 141 154 113 105
(1) Numbers may not sum due to rounding.
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
20
125
Pillowtex Corp. - March 2, 2000
EXHIBIT B
COMPARABLE COMPANY ANALYSIS
($ in millions, except per share data)
WESTPOINT(3) SPRINGS
PILLOWTEX(1) STEVENS INDUSTRIES
------------ ------------ ----------
Ticker Symbol PTX WXS SMI
LTM Period Ended 1/3/00 12/31/99 1/1/00
Stock Price as of 2/28/00 $4 5/8 $17 1/4 $34
52-week High/Low $ 25 3/4/ 2 3/4 $37 9/16/ 13 3/4 $44 1/2/ 27 1/16
Shares Outstanding (mm's) 14.2 49.4 17.9
CAPITALIZATION:
Cash & Equivalents $ 6.0 $ 0.2 $ 4.21
Total Debt 1,068.9 1,469.1 340.6
Equity Value 139.7 852.2 608.6
--------------- ---------------- ----------------
Total Enterprise Value ("TEV") $ 1,202.6 $ 2,321.1 $ 945.0
=============== ================ ================
REVENUES:
LTM $ 1,552.1 $ 1,883.3 $ 2,220.4
1998 1,509.8 1,779.0 2,180.5
1997 580.0 1,657.5 2,226.1
1996 490.7 1,501.8 2,221.0
EBITDA/MARGIN:
LTM $ 126.8 8.2% $ 352.1 18.7% $ 231.8 10.4%
1998 198.1 13.1 328.9 18.5 191.5 8.8
1997 58.3 10.1 292.1 17.6 213.6 9.6
1996 50.9 10.4 265.5 17.7 203.2 9.1
CAPITAL EXP./% OF SALES:
LTM $ 89.8 5.8% $ 148.6 7.9 $ 155.0(4) 7.0%
1998 133.6 8.8 147.5 8.3 120.5 5.5
1997 84.1(2) 4.7(2) 152.1 9.2 99.3 4.5
EARNINGS PER SHARE (FY ENDING):
LTM EPS $ (2.25) $ 1.84 $ 3.80
I/B/E/S Projected FY 2000 EPS 1.09 2.17 4.52
I/B/E/S Projected FY 2001 EPS 1.15 2.52 5.00
MARKET VALUATION:
TEV/LTM Revenue 0.8x 1.2x 0.4x
TEV/LTM EBITDA 9.5 6.6 4.1
LTM PRICE TO EARNINGS NMF 9.4x 8.9x
FY 2000E P/E 4.2x 7.9 7.5
FY 2001E P/E 4.0 6.8 6.8
Largest bathtowel and Largest sheet and pil- Second largest sheet
third largest sheet and lowcase producer and and pillowcase pro-
pillowcase producer in #2 bathtowel maker. ducer and #3 bathtowel
U.S. Also #1 in pil- Each line accounts for maker. Also bathrugs,
lows, mattress pads, one-third of sales. pillows (with acquisi-
blankets, down com- Also produces blan- tion of AFI), and other
forters and kitchen kets, comforters. products. Divested
towels, and #3 in several industrial
bathrugs. product and apparel
lines, but retains minor
non-home textile prod-
uct segment.
DAN RIVER
---------
Ticker Symbol DRF
LTM Period Ended 1/1/00
Stock Price as of 2/28/00 $5 1/2
52-week High/Low $10 7/16/ 4 3/8
Shares Outstanding (mm's) 23.2
CAPITALIZATION:
Cash & Equivalents $ 2.1
Total Debt 314.8
Equity Value 127.6
---------------
Total Enterprise Value ("TEV") $ 440.3
===============
REVENUES:
LTM $ 628.9
1998 517.4
1997 476.4
1996 379.6
EBITDA/MARGIN:
LTM $ 89.5 14.2%
1998 82.6 16.0
1997 77.6 16.3
1996 47.3 12.5
CAPITAL EXP./% OF SALES:
LTM $ 36.7 5.8%
1998 39.5 6.0
1997 35.7 5.1
EARNINGS PER SHARE (FY ENDING):
LTM EPS $ 0.51(5)
I/B/E/S Projected FY 2000 EPS 1.01
I/B/E/S Projected FY 2001 EPS 1.15
MARKET VALUATION:
TEV/LTM Revenue 0.7x
TEV/LTM EBITDA 4.9
LTM PRICE TO EARNINGS 10.8x
FY 2000E P/E 5.4
FY 2001E P/E 4.8
Fourth largest
sheet producer.
No towel produc-
tion. Also some
apparel and in-
dustrial fabrics.
(1) Equity value for Pillowtex includes $74.0 million of convertible preferred
stock. Cash is estimated.
(2) Pro forma including Leshner and Fieldcrest revenue and capital expenditures.
(3) Management has proposed a levered buyout at $21/share.
(4) LTM through 10/2/99.
(5) Excludes 12 cents non-recurring gain.
(C) 2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act
of 1976 prohibits the reproduction by photocopy machine or any other means of
all or a portion of this issue except with permission of the publisher. One
Fawcett Place, Greenwich, CT 06830.
21
126
Pillowtex Corp. -- March 2, 2000
EXHIBIT C
BATH RUGS
($ in millions)
1998
Sales
-----
1. Mohawk Industries $ 205
2. Springs Industries(1) 160
3. Pillowtex 45
4. Maples Industries 40
5. Georgia Tufters 30
(1) Includes Regal Rugs, acquired in 1999.
BLANKETS
($ in millions)
1998
Sales
-----
1. Pillowtex $ 155
2. Sunbeam 119
3. Charles D. Owen, Mfg. 84
4. Westpoint Stevens 80
5. Chatham Consumer Products 19
DOWN COMFORTERS
($ in millions)
1998
Sales
-----
1. Pillowtex $ 67
2. Pacific Coast Feather 50
3. Hollander 39
4. Phoenix Down 17
5. California Feather & Down 16
6. United Feather & Down 16
BATH TOWELS
($ in millions)
1998
Sales
-----
1. Pillowtex $ 700
2. Westpoint Stevens 640
3. Springs Industries 192
4. Santens of America 40
5. 1888 Group-Southern Terry 25
------
Total U.S. Consumption $1,987
======
NON-DOWN COMFORTERS/BEDSPREADS
($ in millions)
1998
Sales
-----
1. Springs Industries $ 290
2. Dan River 185
3. Westpoint Stevens 170
4. Pillowtex 120
5. Croscill 90
KITCHEN TEXTILES
($ in millions)
1998
Sales
-----
1. Pillowtex(1) $ 55
2. Barth & Dreyfuss 54
3. Franco Mfg. 40
4. Cecil Saydah 38
5. Town & Country 15
(1) Includes Leshner from July on.
SOURCE: HOME TEXTILES TODAY, U.S. CENSUS BUREAU
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
22
127
Pillowtex Corp. - March 2, 2000
EXHIBIT C (CONTINUED)
MATTRESS PADS
($ in millions)
1998
Sales
-----
1. Louisville Bedding $ 78
2. Pillowtex 70
3. Perfect Fit 60
4. Hollander 14
5. Pacific Coast Feather 11
SHOWER CURTAINS
($ in millions)
1998
Sales
-----
1. Springs Industries $ 75
2. Ex-Cell Home Fashions 55
3. Allure Home Creation 48
4. Maytex Mills 32
5. Creative Bath Products 24
SHEETS/PILLOWCASES
($ in millions)
1998
Sales
-----
1. Westpoint Stevens $ 670
2. Springs Industries 625
3. Pillowtex 280
4. Dan River 210
5. Thomaston Mills 90
------
Total U.S. Consumption 1998 $2,182
======
SLEEP PILLOWS
($ in millions)
1998
Sales
-----
1. Pillowtex $ 155
2. Hollander 92
2. Pacific Coast Feather 92
3. Spring Industries(1) 57
4. Westpoint Stevens(2) 43
(1) 1998 sales of AFI, purchased by Springs in 1999.
(2) 1998 sales of Liebhardt purchased by Westpoint in Mills 1999.
THROWS
($ in millions)
1998
Sales
-----
1. Crown Crafts $ 107
2. Manual Woodworkers & Weavers 66
3. Biederlack of America 43
4. American Weavers 40
5. Pillowtex 25
SOURCE: HOME TEXTILES TODAY, U.S. CENSUS BUREAU
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
23
128
SPRINGS INDUSTRIES
APPENDIX 3
GLENOIT RESEARCH
- -----------
GREENWICH
CREDIT
RESEARCH
& TRADING
CONNECTICUT
- -----------
62
129
CREDIT RESEARCH & TRADING LLC
GLENOIT CORPORATION
Research Notes - April 19, 2000
Ethan Schwartz
Vice President
(203) 629-6461
eschwartz@crtllc.com
I. DESCRIPTION OF SECURITIES
($'s in millions except per share data)
Market
------
Security Maturity Ratings Amount Bid/Ask Value YTM
-------- -------- ------- ------ ------- ----- ---
Libor+350 Working Capital(1)(2) 12/31/03 Caa1/D $ 48.0 68/78 $ 35.0 20.3%
Libor+350 Term A(1)(3) 12/31/03 Caa1/D 36.9 68/78 26.9 26.5
Libor+425 Term B(1)(4) 6/30/04 Caa1/D 68.2 68/78 49.8 20.1
---------
Total Secured Debt 153.1
11% Senior Sub. Notes(5) 4/15/07 Ca/D 95.0 5/10 $ 7.1 151.6%
---------
Total Debt Outstanding $ 248.1
==========
(1) Estimated as of April 17, 2000. Secured by most of Glenoit's assets.
(2) $65 million commitment, reduced to $48.3 million (including $3.3 million
for letters of credit) on March 16, 2000 with availability limited by a
borrowing base of inventory and receivables, prior to default.
(3) Amortizes at $1.5 million per quarter in 2000, $1.75 million in 2001,
$2.250 in 2002, and $3.75 million in 2003.
(4) Amortizes at 0.175 million per quarter through 2003, and $3.75 million in
Q1 2004, terminating in Q2, 2004.
(5) Guaranteed by Glenoit and most of its operating subsidiaries, including
APE and Ex-Cell. Coupons April 15th and November 15th.
II. SUMMARY AND INVESTMENT RECOMMENDATION
Glenoit Corporation's very highly levered capital structure (total debt
stands at some 7.5x LTM EBITDA) is in a state of collapse. After having amended
the terms of its bank debt facility five times over recent periods, the Company
failed to make a $2 million amortization payment to its bank group on February
23rd. The Company subsequently failed to make the April 15th cash coupon payment
due on its $95 million 11% Senior Subordinated Note issue, due 4/15/07 (the
"Notes"). We anticipate a bankruptcy filing to be made very shortly.
The Company is a designer, marketer and manufacturer of textile products
operating in two relatively distinct business segments: apparel fabrics and home
furnishing products. These two segments have experienced sharply divergent
fortunes over the past two years. Faced with a surge in imports of inexpensive
Asian polar-fleece and fleece garments, the apparel fabric segment has seen
sales and profit levels plummet. Largely reflecting the acquisitions in
late-1998 and early-1999 of two companies specializing in the import and
marketing of home furnishing items from low-cost countries, the home furnishing
segment has gained scale and has demonstrated positive performance and
improving levels of profitability. Importantly, we believe Glenoit's two
business segments should not only be evaluated and valued separately, but are,
in fact, operationally separable.
The information in this report has been obtained from sources which Credit
Research & Trading LLC ("CRT") believes to be reliable. However, CRT does not
guarantee its accuracy, and such information may be incomplete or condensed.
Opinions in this report represent CRT's position as of this date and are subject
to change without notice. This report is for informational purposes only and is
not intended as an offer or solicitation in regard to the purchase or sale of
any security. CRT and/or its officers and employees may from time to time
acquire, hold, or sell a position in the securities mentioned herein. Upon
request, CRT will furnish specific information in this regard. If CRT is
involved in the purchase or sale of any security, CRT may act as principal for
its own account or as agent for both the buyer and the seller.
130
Glenoit Corporation - April 19, 2000
In our view, Glenoit's comparatively sound and attractive home furnishings
business segment holds a capable competitive profile and meaningful enterprise
value - although the 2001 enterprise value we assign that segment ($140 million
- - utilizing a 5.5x multiple of projected EBITDA) falls well short of the balance
of total debt anticipated to be outstanding (in excess of $250 million). Indeed,
absent the addition of the cash build projected to occur during the antici-
pated one-year reorganization period ($17 million), the enterprise value we
assign to the home furnishings business is less than the balance of the debt
projected to be outstanding under the Company's senior secured bank debt
facility ($153 million, plus accrued interest of approximately $15.0 million
during restructuring).
The future and valuation of Glenoit's apparel fabrics business is far more
problematic. Given the severe competitive pressures facing, and small scale
(projected 2001 sales of $75 million) of, that segment, the scenario we
believe to have the greatest probability of occurring entails either its
closing (exerting a somewhat negative effect on total enterprise value) or its
sale (exerting at best a neutral effect on total enterprise value). We can
assign only a one-in-three probability that the apparel fabrics segment will be
operating profitably as a part of Glenoit in 2001, and, even then, only
marginally so with a continued adverse view of its prospects over the
intermediate and longer term.
As a result of our views of the prospects and values of the two business
segments, we are left evaluating the merits of an investment in Glenoit's
various tiers of securities based on the projected core enterprise value of the
home furnishings segment, with the apparel fabrics segment providing only an
element of speculative option value within that evaluation process.
Three considerations add significant adverse pressure to our investment
view and valuation of the outstanding senior secured bank debt. First, given
questions which could reasonably arise as to the adequacy of the security
supporting the senior secured facilities and the degree of impairment which
could occur, there is a notable risk that the senior facility may not be allowed
to accrue post-petition interest (much less receive adequate protection payments
along the way). Second, the senior facility is likely to be converted as a
result of the restructuring into a package of senior debt (35% of the recovery),
longer-dated subordinated debt (15%), and common equity (50%). And, third, given
the view that every tier of securities below the senior secured tier may be
extinguished without attributed value of any real consequence, the
reorganization process could prove to be a more difficult and protracted one
than the one-year period envisioned here. The consequence of these
considerations on the estimation of current investment value is the ap-
plication of a particularly high overall discount rate to projected enterprise
value (40% on the equity component; 30% on the subordinated debt component; and
20% on the senior debt component; produces a blended rate of return of 32%).
THE SUM OF OUR BASIC ASSESSMENTS IS THAT THE SENIOR BANK FACILITY PRESENTS
A POSITIVE RISK/REWARD INVESTMENT PROFILE ONLY WHEN PRICED AT OR BELOW THE
MID-70S, AND ONLY FOR THOSE
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
2
131
Glenoit Corporation - April 19, 2000
WILLING TO RECEIVE HIGHLY ILLIQUID EQUITY IN A RESTRUCTURING. THE SENIOR
SUBORDINATE TIER HAS, AT BEST, HIGHLY SPECULATIVE OPTION VALUE IN THE SINGLE
DIGITS.
The option value associated with the Notes, for those speculative
investors willing to pursue it, stems from four principal sources of
opportunity. FIRST, A STRONG PERFORMANCE IN THE INTERIM BY THE APPAREL FABRICS
SEGMENT COULD ESTABLISH A POSITIVE ENTERPRISE VALUATION TO BE ASSIGNED TO THAT
SEGMENT IN 2001 OF, ON THE HIGH SIDE, SOME $30 MILLION. As noted above, we think
that outcome is, at best, a one-in-three possibility. Second, Citicorp Venture
Capital, Glenoit's equity sponsor, could seek to overcome (or materially
offset the impact of) the pending financial collapse by injecting a significant
new equity investment sufficient to stabilize the bank debt facility and buyout
the Notes at a price level above their intrinsic worth on a stand alone basis.
Such a step by Citicorp Venture would boost the value of both the outstanding
bank debt (by reducing the degree of both impairment and equitization - and,
thereby, reduce the risk adjusted time value discount being applied) and the
Notes. Third, it would appear likely that the Notes would receive some level of
"performance equity" (e.g., warrants) designed to capture a degree of value if
the Company's restructured operation(s) were to perform at well above expected
levels over the long term. And, fourth, some level of "nuisance" value could
well reside with the subordinated debt tier - to the detriment of the senior
tier.
There is also some possibility that the home furnishing segment could be
sold as a part of the restructuring process. If such a sale were to occur
anywhere in the neighborhood of our enterprise estimate, the consequence on
the current value of the bank debt could be notably positive due to the
potential elimination or reduction of the severe discount rates being applied to
assess the package of securities expected to makeup the tier's investment value.
While it is hard to argue against the view that a certain level of
investment value resides in the bank debt and the Notes due to the above
"options", in whatever combination, we believe such value, at best, is very
speculative in nature and has little measurable present value, perhaps cents on
the dollar for the Notes. At the end of the day, the detrimental prospects of a
more contentious reorganization process and far longer restructuring window than
those envisioned outweigh the positive prospects associated with these options.
III. COMPANY OVERVIEW AND DISCUSSION
FABRIC PRODUCTS. Until late 1998, Glenoit was known predominantly as a
producer of knit pile fabrics made from sliver, or loose bundles of fibers
formed in a stage prior to fiber's conversion into yarn. Glenoit uses
predominantly acrylic slivers to produce berber-style pile fabrics for
outerwear and sportswear. Glenoit's fabrics compete with "polar"-style fleece
such as Polartec, produced by Malden Mills Industries, Inc., and fleece products
from Dyersburg Corporation. The surge in the popularity of polar fleece helped
Glenoit's fabric sales grow from $79.4 million in 1997 to $107.1 million the
following year.
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
3
132
Glenoit Corporation - April 19, 2000
In addition to polar-style pile fabrics, Glenoit also produces a
wide-range of imitation fur fabrics and higher-end synthetic fabrics for fashion
apparel, uniforms, and other apparel.
Glenoit's fabric sales hit a wall in 1998 - holding roughly flat at $106.7
million, with EBITDA margins deteriorating by 4 percentage points, to 23.1% from
27.4% in 1997. Sales dropped to $74.6 million for 1999, with EBITDA margins
falling further to 17.7% (excluding $13.1 million in restructuring charges).
Chief factors underpinning the fabric segment's difficulties include:
- - A SURGE IN LESS EXPENSIVE IMPORTS FROM ASIA: In only two years, Asian
imports arriving both as raw fabric and finished goods have come to
dominate the U.S. polar-fleece market. Several apparel manufacturers and
importers who were significant customers of Glenoit's in prior years told
us that they now purchase predominantly from Taiwanese and other Asian
manufacturers, whose products can cost up to 75% less than those from U.S.
producers such as Glenoit, Dyersburg, or Malden Mills.
- One fleecewear producer laid out swatches of polar-style fleece made
in mainland China next to Glenoit and Dyersburg swatches, and asked
us to tell the difference. We could not.
- - LOSS OF DESIGN AND TECHNOLOGICAL ADVANTAGE FOR PERFORMANCE AND ACTIVEWEAR:
As little as nine months ago, U.S. firms such as Dyersburg and Glenoit
asserted that they could protect market share against Asian firms through
innovation. That view has changed following the 1999-2000 winter.
Recently, an executive at one major U.S. fleecewear producer told us
that there was "nothing more" that his or other U.S. firms could do to
their poly-fleece to distinguish it from Asian product for the vast
majority of activewear end-uses.
- - FASHION MOVEMENT AWAY FROM GLENOIT'S BERBER-STYLE OF FLEECE: Glenoit has a
somewhat distinct line of "berber" style pile fabrics that can be
distinguished from Polartec-style fleece, and that in the past enjoyed
some fashion appeal. We've heard from several Glenoit customers that this
appeal has faded, as evidenced by The Gap's decision to downplay
berber-style products in this past winter's fashion lines.
- - NO BRAND-NAME ADVANTAGE BY GLENOIT: Glenoit's fabrics lack the
brand-recognition and advantage enjoyed by Malden Mills' Polartec line,
and have therefore been more easy to replace with generic, low-cost fleece
products.
Glenoit's Chief Executive, Tom O'Gorman, has acknowledged that the influx
of commodity fleece for most activewear garments is irreversible, and that
revenue is unlikely to climb back to levels enjoyed in 1998. In recognition of
the permanent impairment to fabric revenue, the Company in 1999 closed its
Tennessee production facility and reduced capacity by 1/3rd, a move that is
expected to yield approximately $5 million in annual savings, by Company esti-
mates. While EBITDA margins in the high 20s such as those enjoyed during
berber's hey-day appear very unlikely to repeat, the Company believes that
cost-cutting measures could allow the
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
4
133
Glenoit Corporation - April 19, 2000
fabric business to continue to enjoy mid-teen EBITDA margins. Q3 and Q4 1999
EBITDA margins did improve over fiscal 1998, despite the deterioration in
sales, following restructuring charges in Q1.
Glenoit asserts that after losing a large-slice of its activewear fleece
business, Glenoit can retain approximately $75 million in annual sales of faux
fur and other, more fashion-oriented sliver-pile fabrics. The argument is that
apparel manufacturers who work with these fabrics are less price-sensitive and
more reliant on design innovation and close collaboration with U.S.-based
fabric suppliers for continual fashion updates. We have spoken with several
Glenoit customers who believe that garment makers could continue to purchase a
core quantity of fabric from Glenoit for certain fashion products, particularly
for products for which response times are compressed and seasonal and design
needs change several times a year. The question is whether sales have now fallen
to that core level, or will continue to deteriorate to the point at which Gle-
noit's fabric business is no longer viable.
HOME PRODUCTS
Through Q3 of 1998, Glenoit had only about $40 million in annual home
product sales, largely of printed area rugs and mats - many of which were and
still are printed on Glenoit-manufactured fabric.
In October of 1998, the Company made the first of two acquisitions of
businesses with product lines and operating models that were very new for
Glenoit. American Pacific Enterprises, Inc. ("APE"), purchased for $57.8
million plus earn outs of $12 million in 1998, or approximately 1.0 x 1997
sales and 6.7 x EBITDA, is a designer, sourcer, and distributor of an array of
mostly "top of the bed" home products including quilts, comforters, shams and
pillowcases. Almost 100% of APE's product lines are imported from Asia.
In February of 1999 Glenoit purchased Ex-Cell Home Fashions, Inc.
("Ex-Cell") for $50 million, or approximately 0.7x FY1998 sales and 6.4x EBITDA.
Ex-Cell is the #2 distributor of shower curtains in the U.S. behind Springs
Industries, Inc., and is also a major vendor of decorative pillows and table
linens.
Pro-forma for the acquisitions, Glenoit's home furnishing sales grew 16%
to $229 million in 1999 from $198 million the year earlier. We believe that
both Ex-Cell and APE are positioned for continued growth in sales,
profitability and return on invested capital over the next few years, for a
variety of reasons:
- - APE AND EX-CELL ARE BOTH PREDOMINANTLY IMPORTERS OF PRODUCT: Among
Ex-Cell's and APE's greatest competitive advantage is that they are both
predominantly importers, rather than domestic producers, of the products
they sell. APE sources nearly all the quilts, bed-items and other products
that it distributes from low-cost Asian manufacturing facilities; Ex-Cell
imports some 60% of the value of its products from Asia and Eastern
Europe, sourcing in the U.S. only those items which are costly to
transport - such as heavy stuffing for decorative pillowcovers produced in
India, in order to complete production in the U.S. The specialization in
imports means that both companies are able to
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
5
134
Glenoit Corporation - April 19, 2000
take advantage of the surge in low-priced overseas goods that has driven
home textile prices down and threatened the margins available on U.S.
produced goods.
Most participants in the home textile trade believe that import
specialists such as Ex-Cell and APE will take an ever greater share of the
U.S. textile market by matching their design and distribution skills to
overseas manufacturing resources in order to offer items at prices that
U.S. makers will have difficulty matching. Some of the home textile indus-
try's most-respected businessmen, such as Bob Gehm, formerly President of
Domestic Sales at Westpoint Stevens, Inc., and Jim Fitzgibbons, formerly
Chairman and CEO of Fieldcrest, have recently left established U.S.
manufacturers to join smaller import specialists that follow business
models closer to APE's and Ex-Cell's.
- - APE AND EX-CELL MAINTAIN RELATIVELY FEW MANUFACTURING ASSETS: Both APE and
Ex-Cell are predominantly designers and distributors of product, sourcing
the items in their collections from overseas manufacturers. As such, they
concentrate on marketing and design strengths, which are their core
talents. They also operate with relatively low capital invested in their
businesses, avoiding some of the dangers of stranded assets and shifts in
market-share that have plagued U.S. home and apparel textile firms.
Capital expenditures have run just under 1% of sales for APE, and near
1.5% for Ex-Cell.
- In essence, both companies follow the "de-integrated" model that the
largest apparel firms, such as Sara Lee (Hanes) have pursued in
response to import and other challenges. Such challenges have to
date afflicted the apparel side of the textile business, but are
beginning to appear in home textiles.
- - HIGHLY RESPECTED MANAGEMENT TEAMS AND ORGANIZATIONS: Customers, former
employees and competitors with whom we have spoken have described both APE
and Ex-Cell as highly respected businesses which have pioneered profitable
shifts toward sophisticated U.S. design coupled with overseas sourcing.
Tom O'Gorman, Glenoit's Chairman and CEO, is also well respected.
- A key issue is whether Glenoit can retain key personnel in a
restructuring, or whether key personnel would remain with APE and
Ex-Cell if they were acquired.
- - APE AND EX-CELL ARE STEADILY ADVANCING THE QUALITY AND BREADTH OF THEIR
PRODUCTS: While originally focussed on more basic products, both companies
have shown an ability to develop mid-tier licensed product lines and more
substantial programs for important retailers. APE recently undertook to
provide the BEYOND private label program for Bed Bath & Beyond, and has
begun shipping the MATCHED LIVING program to Linen 'N Things. APE also has
penetrated Mervyn's, a unit of Target, with a "shabby chic" program, and
holds the license for Nautica bed products. Ex-Cell holds the license to
produce matching table linens for china manufacturer Pfaltzgraff.
In sum, APE and Ex-Cell have pioneered a nimble and flexible business
model - one that has attracted some of the industry's most savvy business people
over the past several years. De-
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
6
135
Glenoit Corporation - April 19, 2000
spite the successes achieved to date, the radical changes underway in the
textile industry mean that their ongoing success is not assured. We would note
several risks:
- - REDUCTIONS IN QUOTAS AND TARIFFS COULD INCREASE COMPETITION: As quotas in
products from WTO member countries are eliminated in 2004, more U.S. firms
may begin to develop low-cost overseas product, devaluing APE's and
Ex-Cell's import capabilities. A myriad of small, nimble firms
specializing in imports have cropped up in recent years - such as Davidson
Cotton Company, Franco Manufacturing (which holds the Hanes home textile
license) and Haywin Textile Products (which distributes product sourced
predominantly in Mexico under the Fruit of the Loom label). So far,
these firms appear to be taking market share away from higher-cost U.S.
manufacturers, rather than from one another.
- - CHALLENGE TO MAJOR U.S. PRODUCERS COULD BACKFIRE: Faced with an onslaught
of imported product, major U.S. producers have themselves begun to turn
increasingly to imports to fill in their product lines. Springs
Industries, Inc. has begun sourcing some of its Springmaid towels for
Wal-Mart in India, for example, and Dan River, Inc. recently acquired an
Asian import specialist similar to APE. Most industry observers believe it
is inevitable that the majors' reliance on imports will accelerate as
quotas are removed and tariffs come down further. While that could lead to
more acquisitions of companies such as APE and Ex-Cell by the large U.S.
producers, it could also convince the larger firms to develop import
capacity on their own, and bring their scale and weight to bear against
smaller competitors.
- - QUOTAS AND TRADE BARRIERS CONTINUE TO POSE CHALLENGES: While quotas are
scheduled to come down for WTO member countries in 2004, the landscape is
not without risks. Where quotas remain, the right to use a quota to export
to the United States remains a hotly contested privilege. APE, for
example, has shifted some of its sourcing to Bangladesh from China
because of a loss of quota rights apportioned to the Chinese firms on
which APE had relied for product. As more U.S. firms import from countries
facing quotas, quota rights in those countries may become scarcer and more
difficult to obtain.
- Glenoit suffered some deterioration in its EBITDA margin over Q4
1999 due to the shift in sourcing to Bangladesh.
- - HOME TEXTILES REMAIN HIGHLY CYCLICAL: APE and Ex-Cell face all the risks
borne by most home textile companies associated with the fact that
spending on home textile items remains highly tied to the economic cycle.
In addition, to the extent that APE and Ex-Cell purchase most of their
product in foreign currencies, they could be exposed to any sharp
appreciation of Asian currencies.
- - UNCLEAR HOW APE AND EX-CELL WILL BE INTEGRATED WITHIN GLENOIT: To date,
Glenoit has taken an almost wholly hands-off approach to APE and Ex-Cell,
allowing each of them to be run almost entirely as separate operating
entities. Both APE and Ex-Cell have their own offices, showrooms, and
teams. It would seem inevitable that APE and Ex-Cell
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
7
136
Glenoit Corporation - April 19, 2000
would be integrated at some point to seize operating and strategic
synergies. How that could occur (and how an integrated business could
retain key personnel, including some of the businesses' founders) is
unclear.
IV. CAPITAL STRUCTURE AND LIQUIDITY
As of January 2, 2000 Glenoit had some $237.7 million in debt, or 7.5x LTM
EBITDA (excluding restructuring charges). LTM EBITDA excludes about one-month of
earnings from Ex-Cell. We estimate that $37.6 million was outstanding under the
Working Capital Facility, with $36.9 million outstanding under Term A and $68.2
million under Term B. A total of $142.7 million outstanding under these
facilities was secured by most of Glenoit's assets and those of its
subsidiaries, with the exclusion of certain Canadian assets. The Working Capital
Commitment and the Term A Loan were priced at Libor + 350; the Term B Loan is at
Libor + 425.
Officials at Glenoit have told us that borrowings stood at roughly $153
million on April 15, 2000, with $48 million outstanding under the Working
Capital Facility.
Glenoit failed to make a $2 million amortization payment on February 23,
2000, causing an event of default. The default was waived through April 10th.
The facility had already been amended five times, mostly recently in November,
due to repeated violations of leverage, coverage and other ratios.
The coupons on Glenoit's $95 million 11% Senior Sub Notes due April 15th,
2007 are payable each April and November 15th. The Notes are guaranteed by
Glenoit and most of its operating subsidiaries, including APE and Ex-Cell.
Glenoit failed to make a coupon payment on April 15, 2000, and is now within a
30-day grace period.
Glenoit is currently in discussions with its bank facility lenders
regarding the default. We understand that the bank group would like Citicorp
Venture Capital, Glenoit's principal equity sponsor, to contribute additional
equity in order to help Glenoit meet working capital needs for the second and
third quarter inventory build.
Glenoit's high degree of debt leverage (total debt stands at some 6.9x our
projected $35.2 million of FY2000 EBITDA if fabric remains a going concern)
would be expected to make the pending restructuring a difficult and painful
undertaking. Citicorp's chief remaining investment in Glenoit, other than equity
in a holding company that we believe has no value, is a $12 million junior
preferred instrument from the holding company. We believe that preservation of
that investment does not give Citicorp the incentive to inject additional
capital into the Company. The bank group is led by Banque Nationale de Paris
which, unlike other banks involved in textile lending, such as Nationsbank or
First Union, has little exposure to the textile business and, therefore,
little franchise to protect and incentive to help sustain Glenoit.
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
8
137
Glenoit Corporation - April 19, 2000
V. COMPARABLE COMPANIES AND TRADING MULTIPLES
Glenoit's home furnishings operations - APE, Ex-Cell, and the original
printed rug business - compete broadly against smaller product lines embedded
within the large, public home textile companies - Springs Industries, Inc.,
Westpoint Stevens, Inc., Dan River, Inc., Pillowtex Corporation, and to some
degree both Burlington Industries and Mohawk Industries in rugs. However, the
large companies are of a vastly larger scale than Glenoit, and have a sharply
differing operating model - relying to a far greater degree on U.S.-based
manufacturing. Glenoit's closest comparables on the home side are several
smaller companies that, like Glenoit, focus on niche product segments which they
source in part through imports. These include Davidson Cotton, Franco
Manufacturing, Haywin Textiles, Croscill, Veritex, and Crown Craft.
On the apparel side, Glenoit's closest competitor is Dyersburg
Corporation, which produces a polyester fleece product that competes with
Glenoit's berber lines. Dyersburg does not provide a clear multiple comparison
because it too faces a potential restructuring, with its equity trading below $1
per share and debt priced in the high 30s% to low 40s% of par. Broadly speaking,
Glenoit could also be compared to U.S.-based textile manufacturers such as Galey
& Lord, Inc. which produces denim, cotton casual, and other fabrics, and Cone
Mills Corporation, which produces denim and other fabrics. Burlington Industries
produces both apparel fabrics such as denim and worsteds, and a broad array of
home fabrics, including rugs and some bedding products which compete with
Glenoit.
Several of Glenoit's comparable companies - most noteably Pillowtex, Galey
& Lord, Cone Mills, and Burlington Industries, are trading at stressed or
distressed levels with deep discounts on their debt securities. Such
anticipation of restructuring makes direct valuation comparisons difficults.
Relatively healthy home textiles companies such as Springs, Westpoint and Dan
River are trading at an average 5.3x LTM EBITDA multiple, or 0.8x LTM Revenue.
Cone, Burlington and Galey are trading at an average 7.3x LTM EBITDA multiple if
debt is valued at par. However, given that much of Cone and Galey's capital
structures are trading at 30-40% of par value, actual market valuations would be
closer to 5.0x LTM EBITDA or lower.
VI. VALUATION
Our valuation assumes that Glenoit will be forced to file for a financial
restructuring shortly. Such a restructuring would take approximately one year,
by our estimate. We assume that special charges during that period would equal
approximately $17 million. We also project that working capital balances would
be sufficient to establish an adequate Debtor-in-Possession facility and that
cash flow during the period would be sufficient to allow the DIP to be worked
back to zero by the end of the restructuring and still leave a cash build of
some $17 million upon emergence from a restructuring.
Given the difficulties facing the fabric division, for our base case
valuation we assume that only the home division will continue to function as a
going concern upon emergence from bankruptcy. Our projections call for the home
division to produce $28.7 million in EBITDA in FY2000. The division would also
absorb some $3.4 million in corporate expenses, roughly half
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
9
138
Glenoit Corporation - April 19, 2000
the current level. We would value the division based on a 5.5x 2001 projected
EBITDA multiple. Enterprise value, before any cash build, would come to $139.2
million.
Including our projected cash build, total value available for distribution
to the prepetition secured debt would be $156.2 million, or roughly equal to
repetition secured debt of $153.1 million. Accrued interest to the
restructuring date would be approximately $15 million. We would discount the
distribution at 31%, to yield a fair present value of approximately $112.7, or
77.8% of estimated outstanding principal (31% represents the blended return for
a 20% discount on 35% secured debt received, 30% discount on 15% subordinated
debt received, and 40% on 50% equity received).
While we could envision a scenario under which the fabric business
continues as a going concern, the rapid fall-off in sales coupled with the speed
with which other fabric producers have disappeared over the past year makes such
an outcome difficult to predict, in our view. Were the fabric division to
continue to produce some $13.2 million in EBITDA, and after absorption of an
additional $3.4 million in corporate expenses, the division could add some $9.8
million in EBITDA to a post-restructured Glenoit. Valuing that EBITDA at a
depressed 3.5x EBITDA multiple yields an enterprise value of $34.3 million. Some
$5 million in debt at the non-guarantor subsidiary level would have to be
deducted from that figure, leaving $29.3 million in value for distribution to
the $95 million in Senior Subordinate Notes and an estimated $20 million in
additional trade debt. Discounting that value to the present at 40% yields a
fair value of $20.9 million, or roughly 18% of principal on the Senior
Subordinate Notes.
That recovery represents the very top-end of possible outcomes for the
Senior Subordinate Notes, in our view. It is equally likely that the business
will not be able to continue as a going concern. We therefore believe that at
best, the Senior Subordinate Notes possess only a few cents of essentially
option value.
There is both downside and upside potential to our evaluation. Our base
case valuation assumes that the fabric business can be shut down essentially
without incurring liabilities that exceed liquidation value. That may be overly
optimistic. On the other hand, it could be the case that the home furnishings
business would be an attractive acquisition for one of the larger home
furnishings manufacturers. The business could therefore have an acquisition
value somewhat greater than the multiple we have accorded to it, given likely
synergies from the elimination of corporate and other costs.
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
10
139
Glenoit Corporation - April 19, 2000
VALUATION ANALYSIS
I. BASE CASE
Home EBITDA $ 28.7
Corp. EBITDA (3.4)
Multiple 5.5x
Enterprise Value $ 139.2
Plus Cash Build 17.0
------------
Total $ 156.2
Discount Rate 31.0%
Present Value $ 119.2
Outstanding Bank Facility 153.1
Percent of Principal 77.8%
II. HIGH CASE: FABRIC CONTINUES
Fabric EBITDA $ 13.2
Corp. EBITDA (3.4)
Multiple 3.5x
Enterprise Value $ 34.3
Subsidiary Debt (5.0)
------------
Remaining Value $ 29.3
Discount Rate 40.0%
Present Value $ 20.9
Outstanding Sr. Sub Notes + Trade 115.0
Percent of Principal 18.2%
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
11
140
Glenoit Corporation - April 19, 2000
EXHIBIT A
COMPARABLE COMPANY ANALYSIS: HOME FURNISHINGS
($ in millions, except per share data)
WESTPOINT(3)
PILLOWTEX(1)* STEVENS**
------------ -------
Ticker Symbol PTX WXS
LTM Period Ended 1/3/00 12/31/99
Stock Price as of 4/13/00 $4 1/16 $17 1/16
52-week High/Low $19 7/16 /2 3/4 $37 9/16 /13 3/4
Shares Outstanding (mm's) 14.2 49.4
CAPITALIZATION:
Cash & Equivalents $ 6.0 $ 0.2
Total Debt 1,068.9 1,469.1
Equity Value 131.7 842.9
------------ --------
Total Enterprise Value ("TEV") $ 1,200.6 $2,311.8
============ ========
REVENUES:
LTM $ 1,552.1 $1,883.3
1998 1,509.8 1,779.0
1997 580.0 1,657.5
1996 490.7 1,501.8
EBITDA/MARGIN:
LTM $ 126.8 8.2% $ 352.1 18.7%
1998 198.1 13.1 328.9 18.5
1997 58.3 10.1 292.1 17.6
1996 50.9 10.4 265.5 17.7
CAPITAL EXP./% OF SALES:
LTM $ 89.8 5.8% $ 148.6 7.9
1998 133.6 8.8 147.5 8.3
1997 84.1(2) 4.7(2) 152.1 9.2
MARKET VALUATION:
TEV/LTM Revenue 0.8x 1.2x
TEV/LTM EBITDA 9.5 6.6
SPRINGS
INDUSTRIES*** DAN RIVER****
---------- ---------
Ticker Symbol SMI DRF
LTM Period Ended 1/1/00 1/1/00
Stock Price as of 4/13/00 $38 15/16 $ 5 3/8
52-week High/Low $44 1/2 / 28 11/16 $10 7/16 /4 3/8
Shares Outstanding (mm's) 17.9 23.2
CAPITALIZATION:
Cash & Equivalents $ 4.21 $ 2.1
Total Debt 340.6 314.8
Equity Value 697.0 124.7
---------- ---------
Total Enterprise Value ("TEV") $ 1,033.3 $ 437.4
========== =========
REVENUES:
LTM $ 2,220.4 $ 628.9
1998 2,180.5 517.4
1997 2,226.1 476.4
1996 2,221.0 379.6
EBITDA/MARGIN:
LTM $ 231.8 10.4% $ 89.5 14.2%
1998 191.5 8.8 82.6 16.0
1997 213.6 9.6 77.6 16.3
1996 203.2 9.1 47.3 12.5
Capital Exp./% of Sales:
LTM $ 155.0(4) 7.0% $ 36.7 5.8%
1998 120.5 5.5 39.5 6.0
1997 99.3 4.5 35.7 5.1
MARKET VALUATION:
TEV/LTM Revenue 0.5x 0.7x
TEV/LTM EBITDA 4.5 4.9
* Largest bath towel and third largest sheet and pillowcase producer in U.S.
Also #1 in pillows, mattress pads, blankets, down comforters and kitchen
towels, and #3 in bath rugs.
** Largest sheet and pillowcase producer and #2 bathtowel maker. Each line
accounts for one-third of sales. Also produces blankets, comforters.
*** Second largest sheet and pillowcase producer and #3 bathtowel maker. Also
bathrugs, pillows (with acquisition of AFI), and other products. Divested
several industrial product and apparel lines, but retains minor non-home
textile product segment.
**** Fourth largest sheet producer. No towel production. Also some apparel and
industrial fabrics.
(1) Equity value for Pillowtex includes $74.0 million of convertible preferred
stock. Cash is estimated.
(2) Pro forma including Leshner and Fieldcrest revenue and capital
expenditures.
(3) Management has proposed a levered buyout at $21/share.
(4) LTM through 10/2/99.
(5) Excludes 12 cents non-recurring gain.
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
12
141
Glenoit Corporation - April 19, 2000
EXHIBIT A (Continued)
COMPARABLE COMPANY ANALYSIS: APPAREL TEXTILES
($'s in millions, except per share data)
GALEY & BURLINGTON
LORD* INDUSTRIES** CONE MILLS(1)***
---- ---------- -------------
Ticker Symbol GNL/NYSE BUR/NYSE COE/NYSE
LTM Period Ended 1/1/00 1/1/00 1/2/00
Stock Price as of 4/13/00 1 15/16 3 6/8 4 3/8
52-Week High/Low $5.50/1.25 $10.25 / 2 9/16 $7 3/16 / 3 3/16
Shares Outstanding 11.9 53.2 25.5
CAPITALIZATION:
Cash & Equivalents $ (14.0) $ (32.4) $ (1.3)
Total Debt 668.1 904.9 179.8
Mkt. Equity Value 23.1 195.5 111.5
-------- ------------- --------------
Total Enterprise Value ("TEV") $ 677.2 $ 1,068.0 $ 290.0(1)
======== ============= ==============
REVENUES:
LTM $ 908.3 $ 1,615.6 $ 616.3
1999 953.1 1,651.7 616.3
1998 902.7 2,010.4 728.6
1997 493.4 2,090.7 716.9
EBITDA/Margin:
LTM $ 81.6 8.9% $ 153.6 9.5% $ 36.7(1) 5.8%
1999 88.6 9.2 168.9 10.2 36.7 5.8
1998 111.1 12.3 269.6 13.4 39.8 5.5
1997 49.8 10.1 249.7 11.9 25.6 3.6
MARKET VALUATION:
TEV/Revenue 0.75x 0.66x 0.47x
TEV/LTM EBITDA 8.3 6.95 7.9(1)
* 2d largest denim maker in world, and largest U.S. cotton casual fabric
maker. Also workwear plants in Europe & U.S., Mexican garment sewing.
** 3d largest denim manufacturer, also has significant worsted wool and
synthetic fabric divisions. Home fabric accounts for nearly 50% of
revenue.
*** Largest denim manufacturer, also produces cotton casual fabrics,
commissioned fabrics. Was the exclusive provider of fabric for Levi's 501
jeans.
(1) Cone LTM EBITDA includes $1.7 million in earnings from ParrasCone.
Subtracting approximately $20mm from Cone TEV for 18% ownership of Parras,
Cone's TEV/LTM EBITDA would be 7.4x. Yarn-dyed products had negative $4.8
million EBITDA for FY99. Excluding $4.8 million in losses from Cone's
LTM EBITDA (including ParrasCone) would result in a TEV/LTM EBITDA of
6.5x.
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
13
142
Glenoit Corporation - April 19, 2000
EXHIBIT B
AMERICAN PACIFIC ENTERPRISES, INC.
($'s in millions)
FISCAL YEAR ENDED 9 MONTHS
--------------------------- ENDED
1995 1996 1997 10/02/98
---- ---- ---- --------
Net Sales $ 56.5 $ 50.8 $57.9 $ 53.3
Cost of Sales 36.9 34.7 34.7 33.5
--------- -------- ----- ------------
Gross Profit 19.7 16.1 23.2 19.8
Operating Expenses 14.1 13.7 15.0 12.3
--------- -------- ----- ------------
EBIT 5.6 2.4 8.2 7.5
Interest Expense 1.7 0.9 0.7 0.6
Tax Expense 0.1 0.1 0.1 0.1
--------- -------- ----- ------------
Net Income $ 3.7 $ 1.4 $7.4 $ 6.7
======== ======= ==== ===========
EBIT $ 5.6 $ 2.4 $8.2 $ 7.5
Deprec. & Amort. 0.6 0.4 0.3 0.2
--------- -------- ----- ------------
EBITDA 6.2 2.8 8.5 7.7
CapEx 0.2 0.4 0.6 0.4
--------- -------- ----- ------------
Free Cash Flow $ 6.0 $ 2.4 $7.9 $ 7.3
======== ======= ==== ===========
EBITDA % of Sales 10.9% 5.5% 14.7% 14.5%
CapEx 0.3 0.7 1.1 0.7
FCF % of Sales 10.6 4.8 13.6 13.7
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
14
143
Glenoit Corporation - April 19, 2000
EXHIBIT C
EX-CELL HOME FASHIONS, INC.
($'s in millions)
6 Months
Year Ended Ended
6/30/98 12/31/98
------- --------
Net Sales $78.7 $44.1
Cost of Goods Sold 53.6 30.4
----- -----
Gross Profit 25.1 13.6
Marketing & Design 12.7 7.4
S,G&A 5.3 1.8
----- -----
EBIT 7.2 4.4
Interest & Financial Exp. 2.3 1.2
Tax Expense 1.8 1.2
----- -----
Net Income $ 3.0 $ 2.1
===== =====
EBIT $ 7.2 $ 4.4
Deprec. & Amort. 1.6 0.8
----- -----
EBITDA 8.7 5.2
CapEx 1.2 0.7
----- -----
Free Cash Flow $ 7.5 $ 4.5
===== =====
EBITDA % of Sales 11.1% 11.9%
CapEx % of Sales 1.5 1.6
FCF % of Sales 9.6 10.3
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
15
144
Glenoit Corporation - April 19, 2000
EXHIBIT D
GLENOIT CORPORATION
($'s in millions)
Quarters Ended
--------------
4/4/98 7/4/98 10/3/98 1/2/99 4/3/99 7/3/99 10/3/99 1/2/00
------ ------ ------- ------ ------ ------ ------- ------
Net Sales $38.8 $49.2 $ 45.1 $ 39.0 $ 54.9 $81.3 $86.0 $72.6
Cost of Sales 27.2 31.9 31.9 32.6 40.5 56.5 60.1 55.2
----- ----- ------ ------- ------ ----- ----- -----
Gross Profit 11.5 17.2 13.2 6.4 14.4 24.8 25.9 17.4
Selling Profit 3.4 3.8 3.9 3.9 4.9 6.6 6.5 5.9
Admin. Exp. 2.4 2.6 2.0 5.6 7.7 9.6 9.0 8.7
R&D 0.4 0.5 0.6 0.3 0.6 1.4 1.1 0.9
----- ----- ------ ------- ------ ----- ----- -----
Operating Profit, Cont. Op. 5.3 10.4 6.7 (3.4) 1.2 7.2 9.3 1.9
Restruc. Charge 0.0 0.0 0.0 3.5 13.1 0.0 0.0 0.0
Interest Exp. 3.0 3.3 3.3 4.3 5.1 6.3 6.6 7.1
Amort. of Def. Fin. 0.2 0.2 0.2 0.2 0.3 0.4 0.5 0.5
Other 0.0 0.0 0.2 0.2 1.0 (0.2) (1.0) (0.8)
----- ----- ------ ------- ------ ----- ----- -----
EBT 2.2 6.9 3.1 (11.7) (18.4) 0.7 3.2 (4.9)
Income Tax 0.8 2.5 1.1 (4.2) (6.8) 0.3 1.4 (0.9)
----- ----- ------ ------- ------ ----- ----- -----
Net Income, Cont. Op. $ 1.4 $ 4.4 $ 2.0 $ (7.4) $(11.6) $ 0.5 $ 1.8 $(4.0)
===== ===== ====== ======= ====== ===== ===== =====
Gross Margin 29.8% 35.1% 29.3% 16.3% 26.3% 30.5% 30.1% 24.0%
S,G&A % of Sales 15.0 13.0 13.1 24.4 23.0 19.9 18.0 20.1
R&D % of Sales 1.1 1.0 1.2 0.6 1.2 1.7 1.3 1.3
EBIT Margin 13.7 21.1 14.9 (8.7) 2.1 8.9 10.8 2.6
EBITDA Margin 16.6 24.0 18.3 (4.6) 6.7 12.7 14.2 7.7
CapEx % of Sales 16.1 9.5 5.0 12.1 4.8 2.2 2.4 1.5
EBIT 5.3 10.4 6.7 (3.4) 1.2 7.2 9.3 1.9
Deprec. & Amort. 1.1 1.5 1.5 1.6 2.5 3.1 2.9 3.7
----- ----- ------ ------- ------ ----- ----- -----
EBITDA 6.4 11.8 8.3 (1.8) 3.7 10.4 12.2 5.6
CapEx 6.2 4.7 2.2 4.7 2.6 1.8 2.1 1.1
----- ----- ------ ------- ------ ----- ----- -----
Free Cash Flow $ 0.2 $ 7.1 $ 6.0 $ (6.5) $ 1.1 $ 8.6 $10.2 $ 4.5
===== ===== ====== ======= ====== ===== ===== =====
EBIT/Interest 1.8x 3.1x 2.0x (0.8)x 0.2x 1.2x 1.4x 0.3x
EBITDA/Interest 2.1 3.6 2.5 (0.4) 0.7 1.7 1.8 0.8
FCF/Interest 0.1 2.2 1.8 (1.5) 0.2 1.4 1.5 0.6
Day Trade Rec. 82.3 81.9 106.9 69.5 54.9 54.0 51.3 34.7
Days Inventory 32.8 31.6 80.1 55.2 104.9 89.4 86.4 84.3
Days Acct. Payable 31.1 27.0 17.5 8.1 21.6 21.3 19.0 16.6
Fiscal Years Ended Projected(1)
------------------ ------------
1/4/97 1/3/98 1/2/99 1/2/00 FY2000
------ ------ ------ ------ ------
Net Sales $121.8 $146.9 $172.0 $294.7 $239.5
Cost of Sales 86.5 98.1 123.7 212.2 168.1
------ ------ ------ ------ -----
Gross Profit 35.2 48.9 48.3 82.6 71.4
Selling Profit 10.3 12.3 15.0 23.8 20.0
Admin. Exp. 5.6 8.8 12.6 35.1 31.0
R&D 2.1 1.8 1.7 4.1 2.0
------ ------ ------ ------ -----
Operating Profit, Cont. Op. 17.2 25.9 19.0 19.6 18.4
Restruc. Charge 0.0 0.0 3.5 13.1 17.0
Interest Exp. 9.1 10.9 13.9 25.1 2.0
Amort. of Def. Fin 0.6 0.6 0.7 1.7 1.7
Other (0.1) 4.5 0.3 (0.9) (0.9)
------ ------ ------ ------ -----
EBT 7.5 9.9 0.5 (19.3) (1.3)
Income Tax 3.4 3.9 0.2 (6.0) (0.4)
------ ------ ------ ------ ------
Net Income, Cont. Op. $ 4.1 $ 6.0 $ 0.3 $(13.3) $ (0.9)
====== ====== ====== ====== ======
Gross Margin 28.9% 33.3% 28.1% 28.0% 29.8%
S,G&A % of Sales 13.1 14.4 6.1 20.0 21.3
R&D % of Sales 1.8 1.3 1.0 1.4 0.8
EBIT Margin 14.1 17.6 11.0 6.7 7.7
EBITDA Margin 16.1 19.8 14.4 10.8 10.6
CapEx % of Sales 1.4 13.3 10.4 2.6 3.3
EBIT 17.2 25.9 19.0 19.6 18.4
Deprec. & Amort. 2.5 3.2 5.7 12.3 7.0
------ ------ ------ ------ -----
EBITDA 19.6 29.1 24.7 31.9 25.4
CapEx 1.7 19.6 17.9 7.5 8.0
------ ------ ------ ------ -----
Free Cash Flow $ 17.9 $ 9.5 $ 6.8 $ 24.4 $ 17.4
====== ====== ====== ====== =====
EBIT/Interest 1.9x 2.4x 1.4x 0.8x 9.2x
EBITDA/Interest 2.2 2.7 1.8 1.3 12.7
FCF/Interest 2.0 0.9 0.5 1.0 8.7
Day Trade Rec. 55.8 52.7 62.9 34.2 34.2
Days Inventory 31.8 25.8 58.2 87.7 87.7
Days Acct. Payable 12.6 22.2 8.5 17.3 17.3
(1) Assumes restructuring and discontinuation of the fabric division.
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
16
145
Glenoit Corporation - April 19, 2000
EXHIBIT D (Continued)
GLENOIT CORPORATION
($'s in millions)
Quarters Ended
--------------
4/4/98 7/4/98 10/3/98 1/2/99 4/3/99 7/3/99 10/3/99 1/2/00
------ ------ ------- ------ ------ ------ ------- ------
SEGMENT RESULTS(1)
Home Sales $10.3 $11.3 $15.1 $ 28.6 $40.4 $56.4 $63.8 $61.2
Home EBIT 1.5 1.9 2.6 (3.3) 4.0 5.0 6.3 4.2
EBIT Margin 14.4% 17.2% 17.1% (11.5)% 10.0% 8.9% 9.9% 6.8%
Home D&A 0.2 0.2 0.2 0.6 0.9 1.6 1.7 1.7
Home EBITDA 1.7 2.2 2.8 (2.7) 5.0 6.6 8.0 5.8
EBITDA Margin 16.4% 19.0% 18.6% (9.6)% 12.3% 11.7% 12.6% 9.5%
Fabric Sales 28.5 37.9 30.0 10.3 14.5 25.6 22.8 11.7
Fabric EBIT 6.1 10.6 6.0 (1.6) (0.3) 4.6 5.2 (0.4)
EBIT Margin 21.3% 28.0% 20.1% (15.0)% (1.7)% 17.9% 22.7% (3.1)%
Fabric D&A 0.7 0.9 1.0 0.9 1.2 1.1 1.0 0.9
Fabric EBITDA 6.8 11.5 7.0 (0.7) 0.9 5.6 6.2 0.5
EBITDA Margin 23.9% 30.3% 23.3% (6.5)% 6.3% 22.0% 27.1% 4.4%
Fiscal Years Ended Projected
------------------ ---------
1/4/97 1/3/98 1/2/99 1/2/00 FY2000
------ ------ ------ ------ ------
SEGMENT RESULTS(1)
Home Sales $42.3 $ 39.8 $ 65.3 221.8 $239.5
Home EBIT 8.2 6.8 2.7 19.5 22.8
EBIT Margin 19.3% 17.0% 4.2% 8.8% 9.5%
Home D&A 0.6 0.7 1.2 5.9 5.9
Home EBITDA 8.8 7.5 3.9 25.5 28.7
EBITDA Margin 20.7% 18.8% 6.0% 11.5% 12.0%
Fabric Sales 79.4 107.1 106.7 74.7 0.0x
Fabric EBIT 15.1 27.8 21.2 9.2 0.0
EBIT Margin 19.0% 26.0% 19.8% 12.3% 0.0%
Fabric D&A 1.0 1.5 3.5 4.1 0.0
Fabric EBITDA 16.1 29.4 24.6 13.2 0.0
EBITDA Margin 20.3% 27.4% 23.1% 17.7% 0.0%
(1) Segment results exclude corporate expenses and restructuring charges.
(C)2000 Credit Research & Trading LLC. All rights reserved. The Copyright Act of
1976 prohibits the reproduction by photocopy machine or any other means of all
or a portion of this issue except with permission of the publisher. One Fawcett
Place, Greenwich, CT 06830.
17
146
SPRINGS INDUSTRIES
Appendix 4
Supporting Information
================================================================================
- ---------------
GREENWICH
CREDIT RESEARCH
& TRADING
CONNECTICUT
- ---------------
63
147
SPRINGS INDUSTRIES
Impact of Acquisitions - Hypothetical $200 Million Revenue Transaction
================================================================================
- - NOT MEANINGFULLY ACCRETIVE UNTIL YEAR 3, MEANINGFULLY DILUTIVE YEAR 1
- --------------------------------------------------------------------------------
ASSUMPTIONS REGARDING TARGET
- --------------------------------------------------------------------------------
2000 Revenues - $200 million
12% EBITDA Margin
PRICE of 6.0x EBITDA (6x$24 million = $144 MILLION)
Book Value Equals 50% of Purchase Price
Lose 5% of Revenues due to Merger w/Impact of 18% EBITDA
Margin
Spend 5% of Acquisition to Effect Synergies (2% expressed, 3%
capitalized)
Save 2% in SG&A Margin First Year
Save 1% in COGS Margin Second Year
Revenue Growth to Gain 200 basis pts From 5% to 7%
Cost of Borrowing -- Libor plus 300 pts.
15 Year Amortization of Goodwill
3% Transaction Fees
Year Year Year Year
1 2 3 4
----------------------------------------
Base Revenues $200.0
Loss due to Merger (10.0)
Pro forma Revenue 190.0 203.3 217.5 232.5
EBITDA Margin 12% 14% 15% 16%
Base EBITDA 24.0
Lost Revenue 1.8
Cost of Rationalization 2.9
----
19.3 28.5 32.6 34.9
Depreciation 5.0 5.0 5.0 5.0
Interest 14.5 14.3 14.0 13.5
---- ---- ---- ----
EBT (0.2) 9.2 13.6 16.4
Taxes (38%) (0.1) 3.5 5.2 6.2
Goodwill 4.8 4.8 4.8 4.8
---- ---- ---- ----
Net Income ($4.9) $ 0.9 $ 3.6 $ 5.4
===== ====== ====== ======
Change in W/C* 2.0 (2.3) (2.4) (2.6)
Capex 5.0 5.0 5.0 5.0
Change in Cash 1.9 3.4 6.0 7.6
- ---------------
GREENWICH
CREDIT RESEARCH
& TRADING
CONNECTICUT
- ---------------
64
148
SPRINGS INDUSTRIES
Potential Returns from Investments in Sourcing Capacity
================================================================================
RETURN ON INVESTMENT IN NEW SOURCING CAPABILITY -
PAYBACK OF 4.5 YEARS
12% RETURN ON INVESTMENT FIRST YEAR
24% RETURN ON INVESTMENT FOLLOWING YEARS
HYPOTHETICAL RETURNS FROM $100 MILLION INVESTED
2001 2002 2003 2004 2005
---- ---- ---- ---- ----
INVESTMENT: $100 MILLION
($millions)
Impact on EBITDA 00.0 $12.0 $24.0 $24.0 $24.0
Depreciation(1) 10.0 10.0 10.0 10.0
Cost of Debt 9.5 9.1 7.8 6.4
Pre-tax Income Effect (7.5) 4.9 6.3 7.6
Net Income Effect (5.4) 3.5 4.5 5.5
Cash Flow Effect 4.6 13.5 14.5 15.5
- ---------------
GREENWICH
CREDIT RESEARCH
& TRADING
CONNECTICUT
- ---------------
(1) Weighted average depreciation life of 10 years
65
149
SPRINGS INDUSTRIES
Product Portfolio
Competitive Product Mix
Dan Crown
Springs WPS PTX River Croscill Craft Burlington
Sheets & P/C(1) $544 $648 $235 $247 $ $ 34 $
Comforters & Bedspreads 275 210 117 40 96
BIAB * 48 151
Subtotal * 906 352 438 133 130 80
Down Comforters 70
Mattress Pads 3 70
Sleep Pillows * 54 160
Blankets 121 100
Throws 80
Decorative Pillows 60
Total Bath
Bath Towels * 650 700 20
Bath Rugs * 50 70
Scatter and Area Rugs *
Shower Curtains & Access. *
Window Coverings 34 67 120
Window Hardware 350
Table Linen
Kitchen Textiles 50
Infant Products 75 118
Carpet 253
Upholstery 115
Mattress Ticking 80
Fabrics 140 191 914
Other 140 152 23
Total 2,220 1,883 1,552 629 283 328 1,652
====== ====== ====== ==== ==== ==== ======
Maples MOH Glenoit PCF Hollander Louisville Keeco
Sheets & P/C(1) $ $ $ $ $ $ $ 9
Comforters & Bedspreads 76
BIAB
Subtotal 0 66 0 46 0 84
Down Comforters 74 40
Mattress Pads 16 14 86
Sleep Pillows 106 100 44
Throws 52
Decorative Pillows 21 10
Total Bath
Bath Towels 45 135
Bath Rugs 115 237 55
Scatter and Area Rugs
Shower Curtains & Access. 75
Window Coverings 21
Window Hardware
Table Linen 25
Kitchen Textiles 11
Infant Products 1
Carpet 2,659
Upholstery
Mattress Ticking
Fabrics 75
Other 34 26 5
Total 160 3,083 317 230 200 156 133
==== ====== ==== ==== ==== ==== ====
SOURCES: HTT, ED HAYES, SPRINGS
(1) Springs numbers include estimate for wholesale, institutional and Custom
Designs. Canada is excluded.
- ---------------
GREENWICH
CREDIT RESEARCH
& TRADING
CONNECTICUT
- ---------------
* Omitted and filed separately with the Commission.
66
150
PROJECT SNUG
Recapitalization Transaction Summary ($ in millions)
Post Meeting Case
3.5x Debt to EBITDA
<Table>
<Caption>
Acquisition Price Per Share
- -----------------------------------------
Stock Price 10/03/00 $ 27.88
Acquisition Premium 61.4%
Acquisition Price/Share $ 45.00
Total Shares plus Options (MM) 17.92
Implied Equity Value $ 806.6
Shares Purchased 10.77
Equity Purchase Price 484.6
</Table>
<Table>
<Caption>
Rate Spreads
- ------------------------------------------
3-Month LIBOR 6.656%
10-Year Treasury 5.829%
Revolver 2.750%
Bank Debt 2.750%
Other Debt 0.000%
High Yield 13.000%
</Table>
<Table>
<Caption>
Sources & Uses
- -------------------------------------------------------------------------------------
Sources Uses
- -------------------------------------------------------------------------------------
Amount % Rate Amount %
Revolver $ 0.0 0.0% 0.000% Purchase Equity 484.6 40.8%
Bank Debt $ 500.0 42.1% 9.406% Option Proceeds 0.0 0.0%
Other Debt $ 0.0 0.0% 0.000% Retire Existing Debt 302.0 25.4%
High Yield $ 366.0 30.8% 13.000% Retire Revolver 56.4 4.7%
-------- Cash 0.0 0.0%
Total Debt 866.0 Rollover Equity 322.0 27.1%
Rollover Eq.(1) 322.0 27.1% Fees 23.0 1.9%
New Equity 0.0 0.0% ----------------
--------------- Total $1,188.0 100%
Total $1,188.0 100% ----------------
--------------
</Table>
<Table>
<Caption>
5-Year Return on Equity Investment
- ---------------------------------------------------------
Trailing
EBITDA Aggregate Equity
Multiple Value Value Returns
- -------- --------- ------ -------
6.0 $2,718.0 $2,269.3 47.8%
5.5 2,491.5 2,042.8 44.7%
5.0 2,265.0 1,816.3 41.3%
4.5 2,038.5 1,589.8 37.6%
4.0 1,812.0 1,363.3 33.5%
</Table>
<Table>
<Caption>
Acquisition EBITDA Multiples
- ------------------------------------------
Implied Equity Value 806.6
Implied Aggregate Value 1,165.0
Aggregate Value/2000 EBITDA 4.6x
</Table>
<Table>
<Caption>
Debt Paydown
- ------------------------------------------------
Parity Check Balanced
8-Year Cum. Free Cash Flow $1,038.4
85% 8-Year Cum. Free Cash Flow $ 882.6
Senior Debt Paid Down 6 years
Bond Debt Paid Down + 7 years
</Table>
<Table>
<Caption>
Actual PF Mgmt. Projections
- --------------------------------------------------------------------------------------------------------------------------
1998 1999 2000 2000 2001 2002 2003 2004 2005
- --------------------------------------------------------------------------------------------------------------------------
1 2 3 4 5
Operating Statistics
Sales $2,180.5 $2,220.4 $2,331.0 $2,331.0 $2,421.9 $2,574.5 $2,739.3 $2,876.2 $3,020.0
% Growth -- 1.8% 5.0% 5.0% 3.9% 6.3% 6.4% 5.0% 5.0%
EBITDA 207.9 242.6 256.0 256.0 295.5 342.4 399.9 425.7 453.0
% Margin 9.5% 10.9% 11.0% 11.0% 12.2% 13.3% 14.6% 14.8% 15.0%
EBIT 120.9 141.3 152.0 152.0 182.1 213.6 257.9 273.5 291.6
% Margin 5.5% 6.4% 6.5% 6.5% 7.5% 8.3% 9.4% 9.5% 9.7%
Net Income 74.4 72.5 73.7 32.4 51.6 72.8 104.6 121.3 141.7
% Growth -- -2.5% 1.7% -55.4% -30.0% 41.1% 43.7% 15.9% 16.8%
% Margin 3.4% 3.3% 3.2% 1.4% 2.1% 2.8% 3.8% 4.2% 4.7%
CapEx 115.0 166.8 145.0 145.0 157.4 141.6 131.5 106.4 106.9
% Sales 5.3% 7.5% 6.2% 6.2% 6.5% 5.5% 4.8% 3.7% 3.5%
Dividends 24.3 22.7 23.0 0.0 0.0 0.0 0.0 0.0 0.0
Credit Statistics
- ------------------------------------------------------------------------------------------------------------------
Cash Interest
EBITDA/Interest 2.64x 3.06x 3.63x 4.53x 5.50x 7.18x
EBITDA-CapEx/Interest 1.14 1.43 2.13 3.04 4.13 5.49
EBITDA-CapEx-WC/Int. 0.41 1.41 1.86 2.74 3.73 4.93
EBIT/Interest 1.57 1.89 2.26 2.92 3.54 4.62
Total Interest
EBITDA/Interest 2.54x 2.95x 3.50x 4.35x 5.26x 6.80x
EBITDA-CapEx/Interest 1.10 1.38 2.05 2.92 3.94 5.19
EBITDA-CapEx-WC/Int. 0.39 1.36 1.79 2.63 3.56 4.67
EBIT/Interest 1.51 1.82 2.18 2.81 3.38 4.38
Coverage
Senior Deta/EBITDA 1.95x 1.66x 1.32x 0.90x 0.52x 0.12x
Total Debt/EBITDA 3.50 3.00 2.48 1.89 1.45 1.00
Total Debt/Book Capitalization 58.3% 56.2% 52.6% 46.5% 38.3% 28.5%
FFO/Total Debt 15.5% 19.0% 24.2% 33.1% 45.0% 67.9%
Paydown
Funds from Operations $ 138.7 $168.5 $205.3 $250.2 $207.1 $306.7
Free Operating Cash Flow NA 9.0 38.2 91.9 139.8 164.6
Cumulative Free Operating Cash Flow NA 9.0 47.2 139.1 278.9 443.4
</Table>
<Table>
<Caption>
MSDW Projections '00-'05 '05-'10
- ---------------------------------------------------------------------------------------
2006 2007 2008 2009 2010 CAGR CAGR
- ----------------------------------------------------------------------------------------------------------------
6 7 8 9 10
Operating Statistics
Sales $3,155.9 $3,297.9 $3,446.4 $3,601.4 $3,763.5 5.3% 4.5%
% Growth 4.5% 4.5% 4.5% 4.5% 4.5%
EBITDA 492.3 514.5 537.6 561.8 587.1 12.1% 5.3%
% Margin 15.6% 15.6% 15.6% 15.6% 15.6%
EBIT 306.3 320.1 334.5 349.5 365.3 13.9% 4.6%
% Margin 9.7% 9.7% 9.7% 9.7% 9.7%
Net Income 160.3 186.3 208.4 225.1 242.5 14.0% 11.3%
% Growth 13.1% 16.2% 11.8% 8.0% 7.8%
% Margin 5.1% 5.7% 6.0% 6.2% 6.4%
CapEx 143.1 149.5 156.3 163.3 170.7
% Sales 4.5% 4.5% 4.5% 4.5% 4.5%
Dividends 0.0 0.0 0.0 0.0 0.0
Credit Statistics
- ----------------------------------------------------------------------------------------
Cash Interest
EBITDA/Interest 10.81x 22.37x 220.53x NM NM
EBITDA-CapEx/Interest 7.67 15.86 156.43 NM NM
EBITDA-CapEx-WC/Int. 7.00 14.30 141.04 NM NM
EBIT/Interest 6.72 13.91 137.20 NM NM
Total Interest
EBITDA/Interest 9.50x 21.17x 143.91x NM NM
EBITDA-CapEx/Interest 6.74 15.02 102.08 NM NM
EBITDA-CapEx-WC/Int. 6.15 13.54 92.04 NM NM
EBIT/Interest 5.91 13.17 89.53 NM NM
Coverage
Senior Deta/EBITDA NM NM NM NM NM
Total Debt/EBITDA 0.55 0.15 NM NM NM
Total Debt/Book Capitalization 17.4% 4.9% NM NM NM
FFO/Total Debt 129.5% 504.9% NM NM NM
Paydown
Funds from Operations $352.6 $ 382.0 $ 412.8 $439.7 $ 464.6
Free Operating Cash Flow 179.3 196.6 219.0 237.2 253.0
Cumulative Free Operating Cash Flow 622.7 819.3 1,038.4 1,275.6 1,528.6
- ----------------------------------------------------------------------------------------
Notes (1)Roll Equity calculated as 39.9% of implied equity value
SOURCE: MORGAN STANLEY DEAN WITTER
</Table>
151
PROJECT SNUG
- -------------------------------------------------------------------------------
RECAPITALIZATION TRANSACTION SUMMARY ($ IN MILLIONS)
POST MEETING CASE
3.5x DEBT TO EBITDA
ACQUISITION PRICE PER SHARE
<Table>
- ---------------------------------------
Stock Price 10/03/00 $27.88
Acquisition Premium 61.4%
Acquisition Price/Share $45.00
Tool Shares plus Options (MM) 17.92
Implied Equity Value $806.6
Shares Purchased 10.77
Equity Purchase Price 484.6
- ---------------------------------------
</Table>
RATE SPREADS
<Table>
- ---------------------------------------
3-Month LIBOR 6.656%
10-Year Treasury 5.829%
Revolver 2.750%
Bank Debt 2.750%
Other Debt 0.000%
High Yield 13.000%
- ---------------------------------------
</Table>
SOURCES OF USES
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------
SOURCES USES
- ----------------------------------------------------- -------------------------------------------------
AMOUNT % RATE AMOUNT %
-------- ----- -------- -------- ------
Revolver $0.0 0.0% 0.000% Purchase Equity $484.6 40.9%
Bank Debt $862.2 72.8% 9.406% Option Proceeds 0.0 0.0%
Other Debt $0.0 0.0% 0.000% Retire Existing Debt 302.0 25.5%
High Yield $0.0 0.0% 13.000% Retire Revolver 56.4 4.8%
------ ----- ------- Cash 0.0 0.0%
Total Debt 862.2 Rollover Equity 322.0 27.2%
Fees 19.2 1.6%
Rollover Eq.(1) 322.0 27.2%
New Equity 0.0 0.0%
-------- ----- -------- -------- ------
Total $1,184.2 100% Total $1,184.2 100%
======== ===== ======== ======== ======
- ---------------------------------------------------------------------------------------------------------
</Table>
5-YEAR RETURN ON EQUITY INVESTMENT
<Table>
<Caption>
- -------------------------------------------------------
TRAILING
EBITDA AGGREGATE EQUITY
MULTIPLE VALUE VALUE RETURNS
- -------- --------- -------- -------
6.0 $2,718.0 $2,321.9 48.5%
5.5 2,491.5 2,095.4 45.4%
5.0 2,265.0 1,868.9 42.2%
4.5 2,038.5 1,642.4 38.5%
4.0 1,812.0 1,415.8 34.5%
- -------------------------------------------------------
</Table>
ACQUISITION EBITDA MULTIPLES
<Table>
- ---------------------------------------
Implied Equity Value 806.6
Implied Aggregate Value 1,165.0
Aggregate Value/2000 EBITDA 4.6x
- ---------------------------------------
</Table>
DEBT PAYDOWN
<Table>
- -------------------------------------------
Parity Check Balanced
8 Year Cum. Free Cash Flow $1,109.5
85% 8 Year Cum. Free Cash Flow $943.1
Senior Debt Paid Down 8 years
Bond Debt Paid Down + 0 years
- -------------------------------------------
</Table>
<Table>
<Caption>
ACTUAL PF MGMT. PROJECTIONS
---------------------------- -------- ------------------------------------------------
1998 1999 2000 2000 2001 2002 2003 2004 2005
-------- -------- -------- -------- -------- -------- -------- -------- --------
1 2 3 4 5
Operating Statistics
Sales $2,180.5 $2,220.4 $2,331.0 $2,331.0 $2,421.9 $2,574.5 $2,739.3 $2,876.2 $3,020.0
% of Growth -- 1.8% 5.0% 5.0% 3.9% 6.3% 6.4% 5.0% 5.0%
EBITDA 207.9 242.6 256.0 256.0 295.5 342.4 399.9 425.7 453.0
% Margin 9.5% 10.9% 11.0% 11.0% 12.2% 13.9% 14.6% 14.8% 15.0%
EBIT 120.9 141.3 152.0 152.0 182.1 213.6 257.9 273.5 291.6
% Margin 5.5% 6.4% 6.5% 6.5% 7.5% 8.3% 9.4% 9.5% 9.7%
Net Income 74.4 72.5 73.7 41.1 60.6 82.4 114.7 132.0 151.0
% Growth -- -2.5% 1.7% -43.3% -17.8% 35.0% 39.3% 15.1% 15.9%
% Margin 3.4% 3.3% 3.2% 1.8% 2.5% 3.2% 4.2% 4.6% 5.1%
CapEx 115.0 166.8 145.0 145.0 157.4 141.6 131.5 106.4 106.9
% Sales 5.3% 7.9% 6.2% 6.2% 6.5% 5.5% 4.8% 3.7% 3.5%
Dividends 24.3 22.7 23.0 0.0 0.0 0.0 0.0 0.0 0.0
Credit Statistics
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Interest
EBITDA/Interest 3.07x 3.57x 4.30x 5.51x 7.00x 9.96x
EBITDA-CapEx/Interest 1.33 1.67 2.52 3.70 5.25 7.61
EBITDA-CapEx-W/Int. 0.47 1.64 2.80 3.33 4.74 6.84
EBIT/Interest 1.82 2.20 2.68 3.56 4.50 6.41
Total Interest
EBITDA/Interest 2.95x 3.44x 4.13x 5.27x 6.65x 9.31x
EBITDA-CapEx/Interest 1.28 1.61 2.42 3.54 4.99 7.11
EBITDA-CapEx-W/Int. 0.46 1.58 2.12 3.19 4.51 6.39
EBIT/Interest 1.75 2.12 2.58 3.40 4.27 5.99
Coverage
Senior Debt/EBITDA 3.37x 2.86x 2.33x 1.7x 1.28x 0.82x
Total DEBT/EBITDA 3.48 2.96 2.41 1.81 1.35 0.83
Total Debt/Book Capitalization 52.2% 55.9% 51.3% 44.7% 35.8% 25.2%
FFO/Total Debt 16.9% 20.3% 26.0% 35.9% 50.0% 79.6%
Paydown
Funds from Operations $147.0 $177.2 $214.4 $259.9 $287.4 $317.7
Free Operating Cash Flow NA 17.6 47.4 101.6 180.1 173.5
Cumulative Free Operating Cash Flow NA 17.6 65.0 166.6 316.7 492.2
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
Notes (1) Roll Equity calculated as 39.9% of implied equity value
<Table>
<Caption>
MSDW PROJECTIONS
------------------------------------------------ '00-'05 '05-'10
2006 2007 2008 2009 2010 CAGR CAGR
-------- -------- -------- -------- -------- -------- --------
6 7 8 9 10
Operating Statistics
Sales $3,155.9 $3,297.9 $3,446.4 $3,601.4 $3,763.5 5.3% 4.5%
% of Growth 4.5% 4.5% 4.5% 4.5% 4.5%
EBITDA 492.3 514.5 537.6 561.8 587.1 12.1% 5.3%
% Margin 15.6% 15.6% 15.6% 15.6% 15.6%
EBIT 306.3 320.1 334.5 349.5 365.3 13.9% 4.6%
% Margin 9.7% 9.7% 9.7% 9.7% 9.7%
Net Income 173.7 193.8 209.7 228.3 244.5 15.7% 9.8%
% Growth 13.5% 11.6% 8.2% 8.9% 7.1%
% Margin 5.5% 5.9% 6.1% 6.3% 6.5%
CapEx 143.1 149.5 156.3 163.3 170.7
% Sales 4.5% 4.5% 4.5% 4.5% 4.5%
Dividends 0.0 0.0 0.0 0.0 0.0
Credit Statistics
- ----------------------------------------------------------------------------------------------------------------
Cash Interest
EBITDA/Interest 17.15x 48.61x NM NM NM
EBITDA-CapEx/Interest 12.16 34.48 NM NM NM
EBITDA-CapEx-W/Int. 11.11 31.09 NM NM NM
EBIT/Interest 10.67 30.24 NM NM NM
Total Interest
EBITDA/Interest 16.07x 41.13x 320.16x NM NM
EBITDA-CapEx/Interest 11.40 29.18 227.10 NM NM
EBITDA-CapEx-W/Int. 10.41 26.31 204.76 NM NM
EBIT/Interest 10.00 25.59 119.18 NM NM
Coverage
Senior Debt/EBITDA 0.43x 0.01x NM NM NM
Total DEBT/EBITDA 0.43 0.01 NM NM NM
Total Debt/Book Capitalization 13.4% 0.4% NM NM NM
FFO/Total Debt 171.6% 6,413.3% NM NM NM
Paydown
Funds from Operations $361.6 $390.1 $418.2 $440.8 $466.5
Free Operating Cash Flow 188.3 204.7 224.4 238.2 254.9
Cumulative Free Operating Cash Flow 680.5 885.1 1,109.5 1,247.9 1,602.8
- ----------------------------------------------------------------------------------------------------------------
</Table>
Notes (1) Roll Equity calculated as 39.9% of implied equity value
SOURCE: MORGAN STANLEY DEAN WITTER