1
12 EXHIBIT 13
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
The management of the Company is responsible for the preparation of the
consolidated financial statements and related financial information included in
this annual report. The statements, which include amounts based on management's
estimates, have been prepared in conformity with accounting principles generally
accepted in the United States of America.
In fulfilling the Company's responsibilities for maintaining the integrity of
financial information and for safeguarding assets, Springs relies upon internal
control systems designed to provide reasonable assurance that the Company's
records properly reflect business transactions and that these transactions are
in accordance with management's authorization. There are limitations inherent in
all systems of internal accounting controls based on the recognition that the
cost of such systems should not exceed the benefits to be derived. Springs
believes its systems provide this appropriate balance. The Company's internal
audit department tests, evaluates, and reports on the adequacy and effectiveness
of internal control systems and procedures.
Management also recognizes its responsibility for conducting the Company's
affairs in an ethical and socially responsible manner. Springs has communicated
to its associates its intentions to maintain high standards of ethical business
conduct in all of its activities. Ongoing review programs are carried out to
monitor compliance with this policy.
The Board of Directors pursues its oversight responsibility with respect to the
Company's systems of internal control and its financial statements, in part,
through an Audit Committee, which is composed solely of outside directors. The
Audit Committee meets regularly with Springs' management, the Director of
Internal Audit, and independent auditors. Both the independent auditors and the
Director of Internal Audit have access to and meet privately with this Committee
without the presence of management.
The Company's independent auditors, Deloitte & Touche LLP, rely on the Company's
internal control structure to the extent they deem appropriate and perform tests
and other procedures they deem necessary to express an opinion on the fairness
of the presentation of the financial statements, which management believes
provides an objective assessment of the degree to which management meets its
responsibility for fairness of financial reporting.
/s/ Jeffrey A. Atkins
- ----------------------------------
Jeffrey A. Atkins
Executive Vice President
and Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Springs Industries, Inc.
We have audited the accompanying consolidated balance sheets of Springs
Industries, Inc. (the Company) as of December 30, 2000, and January 1, 2000, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the three fiscal years in the period ended December 30, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 30, 2000,
and January 1, 2000, and the results of its operations and its cash flows for
each of the three fiscal years in the period ended December 30, 2000, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ DELOITTE & TOUCHE LLP
- ---------------------------------------
Charlotte, North Carolina
January 30, 2001 (February 20, 2001, as to the last paragraph in Note 15)
2
13
CONSOLIDATED STATEMENTS OF OPERATIONS
Springs Industries, Inc.
(In thousands except per share data)
For the Fiscal Years Ended December 30, 2000, January 1, 2000, and January 2,
1999
OPERATIONS 2000 1999 1998
NET SALES ............................................... $ 2,275,056 $ 2,220,403 $ 2,180,497
Cost and expenses:
Cost of goods sold ................................. 1,848,913 1,800,903 1,795,757
Selling, general and administrative expenses ....... 275,472 278,174 263,806
Provision for uncollectible receivables ................. 6,195 7,297 16,401
Restructuring and realignment expenses .................. 5,316 -- 19,948
Year 2000 expenses ...................................... -- 1,012 7,067
Interest expense ........................................ 31,984 26,520 25,069
Other income ............................................ (2,256) (8,497) (16,588)
Other expense ........................................... 2,833 3,766 10,258
- --------------------------------------------------------------------------------------------------------------
Total .......................................... 2,168,457 2,109,175 2,121,718
- --------------------------------------------------------------------------------------------------------------
Income before income taxes .............................. 106,599 111,228 58,779
Income tax provision .................................... 39,455 42,267 21,450
- --------------------------------------------------------------------------------------------------------------
NET INCOME ..................................... $ 67,144 $ 68,961 $ 37,329
- --------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER COMMON SHARE ......................... $ 3.75 $ 3.86 $ 2.01
==============================================================================================================
DILUTED EARNINGS PER COMMON SHARE ....................... $ 3.70 $ 3.80 $ 1.97
==============================================================================================================
CASH DIVIDENDS DECLARED PER COMMON SHARE:
Class A common shares .............................. $ 1.32 $ 1.32 $ 1.32
Class B common shares .............................. $ 1.20 $ 1.20 $ 1.20
==============================================================================================================
BASIC WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING ........ 17,923 17,869 18,549
Dilutive effect of stock-based compensation awards ...... 237 299 389
- --------------------------------------------------------------------------------------------------------------
DILUTED WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING ...... 18,160 18,168 18,938
==============================================================================================================
See Notes to Consolidated Financial Statements.
3
14
CONSOLIDATED BALANCE SHEETS
Springs Industries, Inc.
(In thousands except share data)
December 30, 2000 and January 1, 2000
2000 1999
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................................. $ 2,862 $ 4,210
Accounts receivable, net .................................................. 291,050 302,210
Inventories, net .......................................................... 508,067 479,328
Other ..................................................................... 34,386 37,669
- -------------------------------------------------------------------------------------------------------------------
Total current assets .................................................. 836,365 823,417
- -------------------------------------------------------------------------------------------------------------------
PROPERTY (AT COST):
Land and improvements ..................................................... 19,312 19,046
Buildings ................................................................. 257,229 239,968
Machinery and equipment ................................................... 1,201,400 1,193,863
- -------------------------------------------------------------------------------------------------------------------
Total ................................................................. 1,477,941 1,452,877
Accumulated depreciation .................................................. (860,019) (827,234)
- -------------------------------------------------------------------------------------------------------------------
Property, net ......................................................... 617,922 625,643
- -------------------------------------------------------------------------------------------------------------------
GOODWILL AND OTHER ASSETS, NET ................................................. 129,859 125,938
- -------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS .......................................................... $ 1,584,146 $ 1,574,998
===================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings ..................................................... $ 24,700 $ 35,450
Current maturities of long-term debt ...................................... 25,216 21,203
Accounts payable .......................................................... 106,728 106,569
Accrued wages and salaries ................................................ 9,431 11,190
Accrued incentive pay and benefit plans .................................. 28,735 42,702
Income taxes payable ...................................................... 7,879 18,101
Other accrued liabilities ................................................. 68,318 65,206
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities ............................................. 271,007 300,421
- -------------------------------------------------------------------------------------------------------------------
NONCURRENT LIABILITIES:
Long-term debt ............................................................ 283,280 283,534
Accrued benefits and deferred compensation ................................ 176,113 179,472
Other ..................................................................... 33,959 36,700
- -------------------------------------------------------------------------------------------------------------------
Total noncurrent liabilities .......................................... 493,352 499,706
- -------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Class A common stock- $.25 par value (10,867,988 and 10,844,536 shares
issued in fiscal 2000 and 1999, respectively) ........................... 2,717 2,712
Class B common stock - $.25 par value (7,154,763 and 7,156,663 shares
issued and outstanding in fiscal 2000 and 1999, respectively) ........... 1,789 1,789
Additional paid-in capital ................................................ 104,181 103,584
Retained earnings ......................................................... 722,515 678,170
Cost of Class A common stock in treasury (91,216 and 95,850 shares
in fiscal 2000 and 1999, respectively) .................................. (2,085) (2,181)
Accumulated other comprehensive loss ...................................... (9,330) (9,203)
- -------------------------------------------------------------------------------------------------------------------
Total shareholders' equity ............................................ 819,787 774,871
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............................ $ 1,584,146 $ 1,574,998
===================================================================================================================
See Notes to Consolidated Financial Statements.
4
15
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Springs Industries, Inc.
(In thousands) Accumulated Class A
Total Other Class A Class B Additional Stock
For the Fiscal Years Ended December 30, 2000, Shareholders' Retained Comprehensive Common Common Paid-In Held in
January 1, 2000, and January 2, 1999 Equity Earnings Income (Loss) Stock Stock Capital Treasury
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 3, 1998 .................... $ 804,598 $ 701,354 $ (8,132) $ 3,150 $ 1,818 $ 108,684 $(2,276)
Comprehensive income:
Net income ................................... 37,329 37,329 -- -- -- -- --
Other comprehensive income, before tax:
Foreign currency translation adjustment ..... (2,362) -- (2,362) -- -- -- --
Minimum pension liability adjustment ........ 465 -- 465 -- -- -- --
Income tax expense related to items
of other comprehensive income ............... (495) -- (495) -- -- -- --
---------
Total comprehensive income, net of tax ....... 34,937
---------
Exchange of Class B common stock
for Class A common stock ..................... -- -- -- 19 (19) -- --
Shares awarded under various employee plans ... 593 -- -- 3 -- 544 46
Exercise of stock options ..................... 2,441 -- -- 15 -- 2,426 --
Shares reacquired by the Company .............. (94,816) (83,103) -- (505) -- (11,208) --
Dividends declared ............................ (23,637) (23,637) -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 2, 1999 .................... $ 724,116 $ 631,943 $(10,524) $ 2,682 $ 1,799 $ 100,446 $(2,230)
Comprehensive income:
Net income ................................... 68,961 68,961 -- -- -- -- --
Other comprehensive income, before tax:
Foreign currency translation adjustment ..... 910 -- 910 -- -- -- --
Minimum pension liability adjustment ........ 689 -- 689 -- -- -- --
Income tax expense related to items
of other comprehensive income ............... (278) -- (278) -- -- -- --
---------
Total comprehensive income, net of tax ....... 70,282
---------
Exchange of Class B common stock
for Class A common stock ..................... -- -- -- 10 (10) -- --
Shares awarded under various employee plans ... 933 -- -- 6 -- 878 49
Exercise of stock options ..................... 2,274 -- -- 14 -- 2,260 --
Dividends declared ............................ (22,734) (22,734) -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 1, 2000 .................... $ 774,871 $ 678,170 $ (9,203) $ 2,712 $ 1,789 $ 103,584 $(2,181)
Comprehensive income:
Net income ................................... 67,144 67,144 -- -- -- -- --
Other comprehensive income, before tax:
Foreign currency translation adjustment ..... 341 -- 341 -- -- -- --
Minimum pension liability adjustment ........ (755) -- (755) -- -- -- --
Income tax benefit related to items
of other comprehensive income ............... 287 -- 287 -- -- -- --
---------
Total comprehensive income, net of tax ....... 67,017
---------
Shares awarded under various employee plans ... 579 -- -- 4 -- 479 96
Exercise of stock options ..................... 119 -- -- 1 -- 118 --
Dividends declared ............................ (22,799) (22,799) -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 30, 2000 .................. $ 819,787 $ 722,515 $ (9,330) $ 2,717 $ 1,789 $ 104,181 $(2,085)
===================================================================================================================================
See Notes to Consolidated Financial Statements.
5
16
CONSOLIDATED STATEMENTS OF CASH FLOWS
Springs Industries, Inc.
(In thousands)
For the Fiscal Years Ended December 30, 2000, January 1, 2000, and
January 2, 1999
OPERATING ACTIVITIES: 2000 1999 1998
Net income ................................................................ $ 67,144 $ 68,961 $ 37,329
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ......................................... 109,405 101,292 86,951
(Gains) losses on sales of businesses, property and other assets ...... 1,553 (2,989) (7,339)
Deferred income taxes ................................................. 5,346 (4,364) 3,542
Provision for restructuring ........................................... 5,316 -- 13,388
Provision for uncollectible receivables ............................... 6,195 7,297 16,401
Changes in operating assets and liabilities, net of effects
of business acquisitions and sales of businesses:
Accounts receivable ............................................... 1,795 (39,329) 11,316
Inventories ....................................................... (28,339) (72,293) 1,081
Accounts payable and other accrued liabilities .................... (24,391) 23,881 (10,592)
Accrued restructuring costs ....................................... (1,977) -- (7,305)
Other, net ........................................................ (18,237) (8,956) (13,218)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities ............................. 123,810 73,500 131,554
- ----------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property ..................................................... (93,310) (166,817) (115,033)
Business acquisitions, net of cash acquired ............................... (5,700) (52,513) --
Notes receivable .......................................................... -- (610) (40)
Principal collected on notes receivable ................................... 2,082 7,979 7,119
Net proceeds from sales of businesses, property and other assets .......... 1,432 67,860 39,686
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities ................................ (95,496) (144,101) (68,268)
- ----------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from (repayments of) short-term borrowings, net .................. (10,750) 34,229 (7,450)
Proceeds from long-term debt .............................................. 150,000 80,000 125,000
Repayments of long-term debt .............................................. (146,241) (66,911) (14,435)
Repurchase of Class A common shares ....................................... -- -- (96,206)
Proceeds from exercise of stock options ................................... 119 2,073 1,876
Payment of cash dividends ................................................. (22,790) (22,707) (24,317)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities .................. (29,662) 26,684 (15,532)
- ----------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........................... (1,348) (43,917) 47,754
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................................. 4,210 48,127 373
- ----------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR .............................. $ 2,862 $ 4,210 $ 48,127
============================================================================================================================
CASH PAID DURING THE YEAR FOR:
Interest .................................................................. $ 29,392 $ 21,433 $ 19,279
- ----------------------------------------------------------------------------------------------------------------------------
Income taxes .............................................................. $ 40,687 $ 36,024 $ 22,119
- ----------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
6
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Springs Industries, Inc.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial statements
include the accounts of Springs Industries, Inc. and its subsidiaries (Springs
or the Company). Intercompany balances and transactions are eliminated in
consolidation. Investments in businesses in which the Company has voting
interests ranging from 20 to 50 percent and which the Company does not
effectively control are accounted for using the equity method of accounting.
USE OF ESTIMATES: Preparation of the Company's consolidated financial statements
in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosures relating to contingent
assets and liabilities, and the reported amounts of revenues and expenses.
Actual results could differ from those estimates.
REVENUE RECOGNITION: Revenue from product sales is recognized at the time goods
are delivered to the customer.
CASH AND CASH EQUIVALENTS: Cash equivalents consist of liquid investments with
original maturities of three months or less when purchased.
ACCOUNTS RECEIVABLE: The Company performs ongoing credit evaluations of its
customers' financial conditions and, typically, requires no collateral from its
customers. The Company's reserve for doubtful accounts was $9.4 million at
December 30, 2000, compared to $9.7 million at January 1, 2000. The decrease in
the reserve for doubtful accounts reflects a fiscal 2000 provision for doubtful
accounts of $6.2 million and net write-offs of approximately $6.5 million for
previously reserved accounts. The Company's reserve for doubtful accounts was
$9.7 million at January 1, 2000, compared to $11.7 million at January 2, 1999.
The decrease in the reserve for doubtful accounts reflects a fiscal 1999
provision for doubtful accounts of $7.3 million and net write-offs of
approximately $9.3 million for previously reserved accounts.
INVENTORIES: Inventories are valued at the lower of cost or market. Cost is
determined using the last-in, first-out method (LIFO) for approximately 71
percent and 69 percent of inventories at December 30, 2000 and January 1, 2000,
respectively. The first-in, first-out method (FIFO) is used for all other
inventories.
GOODWILL AND OTHER ASSETS: The cost of goodwill and other intangible assets is
amortized on a straight-line basis over the estimated periods benefited,
typically 20 years. Goodwill and other intangible assets are periodically
reviewed to assess recoverability. The Company's policy is to compare the
carrying value of goodwill with the expected undiscounted cash flows from
operations of the acquired business. Other intangible assets consist of trade
names, patents and copyrights.
PROPERTY: Depreciation is computed for financial reporting purposes on a
straight-line basis over the estimated useful lives of the related assets,
ranging from 10 to 20 years for land improvements, 20 to 40 years for buildings,
and 3 to 11 years for machinery and equipment. Certain of the Company's fixed
assets are leased through industrial revenue bond financings and other
arrangements with county and local authorities.
STOCK-BASED COMPENSATION: The Company measures stock-based compensation using
the intrinsic value method in accordance with Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees."
PURCHASE COMMITMENTS: Periodically the Company enters into forward delivery
contracts and futures contracts for the purchase of certain raw materials, which
the Company believes are consistent with the size of its business and the
expected volume of its future purchases, to reduce the Company's exposure to
price volatility. Unrealized gains and losses on outstanding futures contracts,
which were not material at December 30, 2000 and January 1, 2000, are deferred
and subsequently recognized in income as cost of goods sold in the same period
as the hedged item. The Company does not hold or issue derivative instruments
for trading purposes. See the Recently Issued Accounting Standards section of
this Note for further discussion of accounting for derivative instruments.
IMPAIRMENT OF LONG-LIVED ASSETS: Long-lived assets are reviewed for impairment
when events or changes in business conditions indicate that their full carrying
value may not be recoverable. The estimated future undiscounted cash flows
associated with such assets are compared to the assets' carrying values to
determine if write-downs are required. Pretax impairment charges of
approximately $1.6 million, $3.0 million and $6.0 million in 2000, 1999 and
1998, respectively, were recorded in the Other Expense line item in the
Consolidated Statements of Operations. See Note 4, Restructuring and Realignment
Expenses, for impairment charges related to restructuring plans.
INCOME TAXES: The provision for income taxes includes federal, state, and
foreign taxes currently payable and deferred taxes. Deferred taxes were
determined using the liability method, which considers future tax consequences
associated with differences between financial accounting and tax bases of assets
and liabilities and which gives immediate effect to changes in income tax laws
upon enactment.
RECLASSIFICATION: Certain prior years' amounts have been reclassified to conform
with the 2000 presentation.
RECENTLY ISSUED ACCOUNTING STANDARDS: Effective December 31, 2000 (fiscal 2001),
the Company adopted Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by Statement No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities (an amendment of FASB Statement No.
133)." This statement, as amended, requires the Company to recognize all
derivatives on the Consolidated Balance Sheets at fair value, with changes in
fair value recognized in earnings unless specific criteria are met for
derivatives in qualifying hedging transactions. Changes in fair value of
derivatives in qualifying hedging transactions will be reflected in accumulated
other comprehensive income and reclassified into earnings at the time the
corresponding hedged transaction is recognized in earnings.
The Company's derivatives consist of cotton futures contracts, a natural gas
commodity swap contract and interest rate swap contracts. These instruments will
be accounted for as cash flow hedges. As a result of the adoption of Statement
No. 133, the Company will record in the first quarter of fiscal 2001 a natural
gas commodity swap asset of $2.1 million, interest rate swap liabilities of $1.6
million, an immaterial cotton futures liability, and the cumulative effect of a
change in accounting adjustment to other comprehensive income of $0.5 million
($0.3 million net of taxes). The Company believes that Statement No. 133 will
not have a material impact on the consolidated results of operations, financial
position or cash flows in the future; however, the impact of this statement will
depend on the market values of derivative instruments and related hedged items
held in the future, and the effectiveness of those hedging relationships.
NOTE 2. REPORTABLE SEGMENT INFORMATION:
Springs is engaged in manufacturing, marketing, selling and distributing home
furnishings products. The Company's product line includes sheets, pillows,
pillowcases, bedspreads, comforters, mattress pads, baby bedding and infant
apparel, towels, shower curtains, bath and accent rugs, other bath fashion
accessories, over-the-counter home-sewing fabrics, drapery hardware, and hard
and soft decorative window fashions.
The Company's operations have been aggregated into one reportable segment based
on their similar products, production processes, customers and methods of
distribution, in accordance with Financial Accounting Standards Board Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company evaluates its performance based
on profit from operations, which is defined as net sales less cost of goods
sold, selling, general, and administrative expenses, and the provision for
uncollectible receivables. The Company's accounting policies are described in
Note 1, Summary of Significant Accounting Policies. Springs' principal markets
and operations are in the United States of America.
Prior to the first quarter of 1999, Springs had two reportable segments: home
furnishings and specialty fabrics. The home furnishings segment manufactures,
purchases for resale, and markets home furnishings products. The specialty
fabrics segment manufactured, finished, purchased for resale, and marketed woven
and non-woven fabrics. During 1998 and the first quarter of 1999, the Company
sold four of its specialty fabrics businesses. See Note 3, Acquisitions and
Divestitures, for additional discussion of businesses sold.
Following these divestitures, Springs realigned its internal organizational
structure during the first quarter of 1999 to reflect the Company's strategic
focus on the home furnishings market, resulting in one reportable segment, the
home furnishings segment. The segment's operating results have been restated to
include the Company's Retail and Specialty Fabrics unit's operating results,
which were previously included in the specialty fabrics segment.
7
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Springs Industries, Inc.
Based on the current organizational structure, sales and profit from operations
before unusual items for the reportable segments are as follows:
(in millions) 2000 1999 1998
NET SALES:
Home furnishings ............. $2,275.1 $2,220.4 $2,014.7
Specialty fabrics ............ -- -- 165.8
- -------------------------------------------------------------------------------
TOTAL ..................... $2,275.1 $2,220.4 $2,180.5
===============================================================================
PROFIT FROM OPERATIONS
BEFORE UNUSUAL ITEMS: (1)
Home furnishings ............. $ 144.5 $ 134.0 $ 88.9
Specialty fabrics ............ -- -- 15.6
- -------------------------------------------------------------------------------
Total ..................... 144.5 134.0 104.5
- -------------------------------------------------------------------------------
Restructuring and
realignment expenses (2) ..... 5.3 -- 19.9
Year 2000 expenses (2) ....... -- 1.0 7.1
Interest expense ............. 32.0 26.5 25.0
Other (income) expense,
net (3) ...................... 0.6 (4.7) (6.3)
- -------------------------------------------------------------------------------
INCOME BEFORE
INCOME TAXES .............. $ 106.6 $ 111.2 $ 58.8
===============================================================================
TOTAL ASSETS AT YEAR END:
Home furnishings ............. $1,584.1 $1,575.0 $1,326.6
Specialty fabrics ............ -- -- 50.8
Cash and cash
equivalents (4) .............. -- -- 48.1
- -------------------------------------------------------------------------------
TOTAL ..................... $1,584.1 $1,575.0 $1,425.5
===============================================================================
CAPITAL EXPENDITURES:
Home furnishings ............. $ 93.3 $ 166.8 $ 112.7
Specialty fabrics ............ -- -- 2.3
- -------------------------------------------------------------------------------
TOTAL ..................... $ 93.3 $ 166.8 $ 115.0
===============================================================================
DEPRECIATION AND AMORTIZATION:
Home furnishings ............. $ 109.4 $ 101.3 $ 82.4
Specialty fabrics ............ -- -- 4.6
- -------------------------------------------------------------------------------
TOTAL ..................... $ 109.4 $ 101.3 $ 87.0
===============================================================================
(1) Profit from operations before unusual items represents sales less cost
of goods sold, selling, general and administrative expenses, and
provision for uncollectible receivables.
(2) In 1998, restructuring and realignment expenses totaling $19.9 million
were charged to the home furnishings segment, and Year 2000 expenses
totaling $6.8 million and $0.3 million were charged to the home
furnishings segment and the specialty fabrics segment, respectively.
(3) In 1998, an impairment charge of $4.8 million was charged to the home
furnishings segment.
(4) In 2000 and 1999, all of the Company's assets, including cash and cash
equivalents, are reported in the home furnishings segment. In 1998,
cash and cash equivalents were not allocated to the reportable
segments.
Sales to the Company's top ten customers represented 64 percent, 59 percent and
49 percent of total sales in 2000, 1999, and 1998, respectively. Sales for 2000,
1999, and 1998 include sales of $622.4 million, $450.4 million, and $320.8
million, respectively, to Wal-Mart Stores, Inc. and are included in the home
furnishings segment. Accounts receivable at December 30, 2000, and January 1,
2000, included receivables from Wal-Mart Stores, Inc. totaling $93.1 million and
$47.2 million, respectively.
Sales by geographic area, as defined by customer location, are as follows:
(in millions)
2000 1999 1998
United States ......... $ 2,131.4 $ 2,072.0 $ 2,031.5
Canada ................ 113.1 117.7 113.3
Other ................. 30.6 30.7 35.7
- -------------------------------------------------------------------------
TOTAL .............. $ 2,275.1 $ 2,220.4 $ 2,180.5
=========================================================================
Company assets located outside the United States are not material for any of the
three years presented.
NOTE 3. ACQUISITIONS AND DIVESTITURES:
On August 7, 2000, the Company acquired certain assets and operations of a
Mexican maquiladora (a business enterprise which provides preferential import
and tax treatment for goods transferred between Mexico and the United States),
which fabricates window blinds, and a related U.S. distribution operation. The
purchase price was approximately $5.7 million. The acquisition was accounted for
as a purchase in accordance with Accounting Principles Board Opinion No. 16,
"Business Combinations" ("APB 16"), and the operating results for the acquired
business have been included in the Company's consolidated financial statements
since the August 7, 2000, acquisition date. The purchase price was allocated to
the assets acquired based on their estimated fair value at the date of
acquisition.
The excess of the purchase price over the fair value of the assets acquired,
which totaled $3.9 million, has been recorded as goodwill and is being amortized
on a straight-line basis over 20 years. The pro-forma impact on sales and
operating profits for 2000 and 1999 was not material.
On January 23, 1999, the Company acquired Regal Rugs, Inc. ("Regal"), an
importer and manufacturer of bath and accent rugs, for approximately $35
million. The acquisition was accounted for as a purchase in accordance with APB
16, and Regal's operating results have been included in the Company's
consolidated financial statements since the January 23, 1999, acquisition date.
The purchase price was allocated to the assets acquired and to the liabilities
assumed based on their estimated fair value at the date of acquisition.
On January 5, 1999, the Company acquired the remaining 50 percent interest in
American Fiber Industries, LLC ("AFI"), a manufacturer and distributor of bed
pillows, mattress pads, down comforters and comforter accessories. Springs
acquired its original 50 percent interest in AFI in February 1997 and had been
accounting for the original investment under the equity method. The purchase
price for the remaining interest totaled approximately $15 million. The Company
has accounted for the remaining interest as a step-acquisition in accordance
with APB 16, whereby the purchase price was allocated to the assets acquired and
to the liabilities assumed based on 50 percent of their estimated fair value on
the date of acquisition. In addition, AFI's operating results have been included
in the Company's consolidated financial statements since the January 5, 1999,
acquisition date.
The excess of the purchase price for the Regal and AFI acquisitions over the
fair value of net assets acquired totaled $34.3 million, which has been recorded
as goodwill and is being amortized on a straight-line basis over 20 years.
Because Regal and AFI were acquired in January, 1999, substantially all of their
1999 operating results have been included in Springs' 1999 Consolidated
Statement of Operations. The following unaudited pro forma financial information
presents the combined results
8
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Springs Industries, Inc.
of operations for Springs, Regal and AFI as if the acquisitions had been
effective as of the beginning of 1998, after giving effect to certain
adjustments, including amortization of goodwill, additional depreciation expense
and related income tax effects. The pro forma financial information does not
necessarily reflect the results of operations that would have occurred had
Springs, Regal and AFI constituted a single entity during 1998. Such pro forma
results would present net sales of $2.277 billion, net income of $39.7 million
and diluted earnings per share of $2.09 for 1998.
During 1999 and 1998, the Company sold four specialty fabrics businesses.
Effective March 31, 1999, the Company sold its UltraFabrics business, and there
was no material gain on the sale. The first quarter 1999 sales and earnings
before interest and taxes of the UltraFabrics business were not material.
Effective January 2, 1999, the Company disposed of the net assets of its
Springfield business in exchange for a $10 million preferred equity interest in
the divested business which is accounted for using the cost method, and cash of
$33 million. The Company has committed to provide the divested business with
certain commission finishing services through 2008. Springs does not believe
that the terms of this commitment will have a material impact on future
earnings. Effective December 19, 1998, the Company disposed of its Industrial
Products business in exchange for principally $18.5 million in cash and other
consideration in the form of notes receivable and a preferred equity interest in
the divested business which is accounted for using the cost method. Effective
August 7, 1998, the Company sold its UltraSuede business and certain related
assets of the UltraFabrics business in exchange for approximately $15 million in
cash. The combined effect of the 1998 transactions was a pretax gain of $8.4
million, which is included in Other Income in the accompanying Consolidated
Statements of Operations. The combined sales of the four specialty fabrics
businesses included in the Company's 1998 results were $165.8 million, and
after-tax earnings totaled approximately $9.5 million.
NOTE 4. RESTRUCTURING AND REALIGNMENT EXPENSES:
2000 RESTRUCTURINGS
In December 2000, the Company announced a restructuring plan to eliminate
certain production at its Katherine and Elliott bedding plants in South
Carolina, beginning in February 2001. The plan eliminates some narrow loom
weaving, which is not compatible with newer fabrication equipment, at the
Katherine plant and outdated yarn spinning at the Katherine and Elliott plants.
The Company recorded a charge of $2.4 million, which included a $1.1 million
accrual for severance costs arising from the elimination of an estimated 326
manufacturing positions and a $1.3 million impairment charge for disposal of
machinery and equipment. Impairment was determined by comparing the net book
value against estimated sales value less costs to sell. The restructuring plan
should be completed by mid-2001.
Changes in the restructuring accruals since the adoption of the plan are as
follows:
(in millions) Severance Asset
Accrual Impairment
- -------------------------------------------------------------------
Original accrual as of
December 6, 2000 ....................... $1.1 $1.3
Charged against assets ................. -- (1.3)
- -------------------------------------------------------------------
ACCRUAL BALANCE AS OF
DECEMBER 30, 2000 .................. $1.1 $0.0
===================================================================
In the second quarter of 2000, the Company adopted a plan to phase out
production and close plants in Griffin and Jackson, Georgia, which manufactured
certain baby products, and to phase out yarn production for terry towels at its
No. 2 plant in Griffin, beginning in August 2000. The Company recorded a charge
of $2.9 million, which included a $2.4 million accrual for severance costs
arising from the elimination of an estimated 426 manufacturing positions, a $0.3
million impairment charge for machinery and equipment to be sold, and a $0.2
million accrual for estimated idle plant costs. These charges relate primarily
to the baby products facilities since costs related to the terry yarn facility
were not significant. The restructuring plan is expected to be complete by the
end of the first quarter of fiscal 2001.
Changes in the restructuring accruals since the adoption of the plan are as
follows:
(in millions) Severance Asset Idle Plant
Accrual Impairment Costs
- --------------------------------------------------------------------------------
Original accrual as of
June 2, 2000 ...................... $2.4 $0.3 $0.2
Cash payments ..................... (1.8) -- (0.2)
Charged against assets ............ -- (0.3) --
- --------------------------------------------------------------------------------
ACCRUAL BALANCE AS OF
DECEMBER 30, 2000 ............. $0.6 $0.0 $0.0
================================================================================
1998 RESTRUCTURING
In the first quarter of 1998, the Company adopted a plan to close its Rock Hill,
South Carolina Printing and Finishing Plant. At that time, the Company recorded
a charge of $23.0 million, which included an $11.3 million write-off of
property, a $4.0 million accrual for anticipated severance costs arising from
the elimination of approximately 480 positions, and a $7.7 million accrual
primarily for idle plant and demolition costs.
Changes in the restructuring accruals since the adoption of the plan are as
follows:
Accrual
(in millions) Severance for Other
Accrual Expenses
- -----------------------------------------------------------------
Original accrual on
February 17, 1998 .................... $4.0 $7.7
Cash payments ........................ (3.0) (1.2)
Adjustments .......................... (1.0) (6.5)
- -----------------------------------------------------------------
ACCRUAL BALANCE ON
JANUARY 2, 1999 .................. $0.0 $0.0
=================================================================
The restructuring plan was completed during the fourth quarter of 1998. In 1998,
the severance accrual was reduced due to lower-than-expected costs per associate
and the accrual for other expenses was reduced, primarily due to the sale on
September 25, 1998, of the Rock Hill facility. As a result of the sale, which
management considered as an unlikely possibility at the time the plant was
closed, the Company reversed accruals relating to idle plant and demolition
costs by approximately $4.3 million.
In 1998, the Company incurred expenses of $1.3 million for equipment relocation
and other realignment expenses related to the 1998 plan which do not qualify as
"exit costs" as defined by Emerging Issues Task Force Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)."
NOTE 5. INVENTORIES:
Inventories are summarized as follows: (in thousands)
STANDARD COST (which approximates current cost): 2000 1999
Finished goods ..................... $ 314,629 $ 328,383
In process ......................... 213,855 181,323
Raw materials and supplies ......... 64,241 64,293
- -----------------------------------------------------------------------------
592,725 573,999
Less LIFO reserve .................. (84,658) (94,671)
- -----------------------------------------------------------------------------
TOTAL ........................... $ 508,067 $ 479,328
=============================================================================
The Company changed its policy related to accounting for certain manufacturing
supply parts inventories during 2000 at certain facilities to conform with the
method used predominantly throughout the Company, where such inventories are
capitalized and expensed when utilized. As a result of this change, $2.9 million
of supplies were capitalized during 2000, that would have been expensed under
the previous accounting policy. Retroactive application of this change would not
have a material effect on prior-year earnings.
9
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Springs Industries, Inc.
NOTE 6. GOODWILL:
The Company had net goodwill of $61.0 million and $60.2 million at December 30,
2000, and January 1, 2000, respectively. These amounts are net of accumulated
amortization of $16.7 million at December 30, 2000, and $13.6 million at January
1, 2000. See Note 3, Acquisitions and Divestitures, for a description of the
goodwill from the 2000 and 1999 acquisitions.
NOTE 7. ACCRUED BENEFITS AND DEFERRED COMPENSATION:
The long-term portion of accrued benefits and deferred compensation was
comprised of the following:
(in thousands) 2000 1999
Postretirement medical benefit obligation ...... $ 56,287 $ 62,097
Deferred compensation .......................... 65,681 68,132
Other employee benefit obligations ............. 54,145 49,243
- ------------------------------------------------------------------------------------
TOTAL ....................................... $176,113 $179,472
====================================================================================
The liabilities are long-term in nature and will be paid over time in accordance
with the terms of the plans.
NOTE 8. FINANCING ARRANGEMENTS:
The Company has access to short-term financing for operations through various
uncommitted credit facilities. At December 30, 2000, and January 1, 2000, the
Company had short-term borrowings of $24.7 million and $35.5 million outstanding
under these facilities at weighted-average interest rates of 7.2 percent and 6.3
percent, respectively.
LONG-TERM DEBT CONSISTS OF:
(in thousands) 2000 1999
Revolving credit agreement, due December 2002, interest payable at LIBOR-based
variable rates (7.0% at 12/30/2000) ................................................. $ 60,000 $ 35,000
Note payable in quarterly installments of $4,464 from November 2001 through
August 2008, interest payable at LIBOR-based variable rates (6.8% at 12/30/2000) .... 125,000 125,000
Senior notes payable in annual installments of $5,000 through July 2006,
interest rate at 9.6% ............................................................... 30,000 35,000
Notes payable in quarterly installments of $2,857 through May 2005, interest
payable at LIBOR-based variable rates (7.2% at 12/30/2000) .......................... 51,429 62,857
Notes payable in quarterly installments of $714 through September 2005, interest
payable at LIBOR-based variable rates (7.1% at 12/30/2000) .......................... 13,571 16,429
Industrial Revenue Bond Obligations, payable in varying annual
amounts through 2019, interest at rates ranging from 5.1% to 8.3% ................... 27,374 28,603
Other .................................................................................. 1,122 1,848
- -----------------------------------------------------------------------------------------------------------------------
Total ............................................................................... 308,496 304,737
Current maturities ..................................................................... (25,216) (21,203)
- -----------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT ...................................................................... $ 283,280 $ 283,534
=======================================================================================================================
The Company has the ability to obtain financing through the issuance of
commercial paper. The Company's access to the commercial paper market is
facilitated by a committed $225 million long-term revolving credit agreement
provided by several banks. This revolving credit agreement will expire on
December 16, 2002. The Company pays a 0.1 percent annual facility fee related to
this agreement. As of December 30, 2000, $60.0 million in borrowings were
outstanding under this agreement with $165.0 million of remaining availability.
The LIBOR-based weighted-average interest rate on the revolving credit agreement
was 7.0 percent as of December 30, 2000.
During 1998, the Company borrowed $125 million under a long-term credit facility
at a variable rate based on LIBOR, which was 6.8 percent at December 30, 2000.
During the third quarter of 1998, the Company entered into an interest rate swap
agreement for a notional amount of $60 million to effectively fix the interest
rate at 6.1 percent on $60 million of the $125 million note payable in August
2008. During the fourth quarter of 2000, the Company entered into another
interest rate swap agreement for a notional amount of $65 million to effectively
fix the interest rate at 6.5 percent on the remaining $65 million of the $125
million note.
In 1995, the Company entered into other interest rate swap agreements to reduce
the potential impact of increases in interest rates on floating-rate, long-term
debt. The interest rate swap agreements fix the interest rate at 6.8 percent on
the remaining balance of the notes payable in May 2005 and September 2005.
The spread to LIBOR for the interest rates on the notes payable in August 2008,
May 2005 and September 2005 is subject to adjustment at certain dates. As a
result, the effective fixed rate created by the interest rate swaps will change
by similar amounts.
The Company is exposed to credit losses in the event of nonperformance by the
counterparties to the swap agreements; however, the Company believes such
counterparties will perform. At December 30, 2000, and January 1, 2000, the
notional amount of these swap agreements totaled $190.0 million and $139.3
million, respectively.
Certain long-term debt agreements contain requirements concerning, among other
things: the maintenance of working capital and tangible net worth; limitations
on the incurrence of indebtedness; and restrictions on the payment of dividends,
sales of assets, and/or redemption of stock. The Company is in compliance with
the requirements of these agreements as of December 30, 2000. Under the most
restrictive requirements on the payment of dividends, retained earnings of
approximately $181.0 million were free of restrictions at December 30, 2000.
Scheduled annual maturities of long-term debt are as follows:
(in thousands)
FISCAL YEAR AMOUNT
2001.............................................. $ 25,216
2002.............................................. 98,477
2003.............................................. 38,228
2004.............................................. 38,003
2005 ............................................. 31,574
Thereafter........................................ 76,998
- ----------------------------------------------------------------
Total.......................................... $ 308,496
================================================================
10
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Springs Industries, Inc.
NOTE 9. LEASES:
The Company leases certain office space, facilities, and equipment under
operating leases. During 1999, the Company sold its New York City office
building for $29.5 million and leased back a portion of the building for a
ten-year term. The result of the sale-leaseback was a pretax gain of $1.5
million recorded in Other Income in the Consolidated Statements of Operations
and the deferral of an additional $17.8 million pretax gain, which is being
amortized over the operating lease term.
Total rent expense was $24.2 million in 2000, $21.3 million in 1999 and $19.0
million in 1998.
Future scheduled minimum lease payments under noncancelable operating leases are
as follows:
(in thousands)
FISCAL YEAR AMOUNT
2001.............................................. $ 15,032
2002.............................................. 12,104
2003.............................................. 9,569
2004.............................................. 6,751
2005.............................................. 4,796
Thereafter........................................ 11,167
- ----------------------------------------------------------------
TOTAL.......................................... $ 59,419
================================================================
NOTE 10. SHAREHOLDERS' EQUITY:
As of December 30, 2000, Springs had authorized 1,000,000 shares of $1.00 par
value, voting preferred stock, none of which was outstanding. Authorized common
stock consisted of 40,000,000 shares of $.25 par value Class A stock and
20,000,000 shares of $.25 par value Class B stock. Subject to certain
exceptions, owners of Class B stock are entitled to four votes per share on
matters brought before shareholders of the Company, while owners of Class A
stock are entitled to one vote per share. See Note 15, Other Matters, for a
description of related parties. Cash dividends per share declared on Class A
stock must equal at least 110 percent of cash dividends declared per share on
Class B stock.
In October of 1997, the Company's Board of Directors authorized the Company to
purchase, from time to time, up to 4 million shares of Class A common stock in
the open market and in private transactions. As of January 2, 1999, the Company
had repurchased 2.4 million shares pursuant to this authorization. No shares
were repurchased during 2000 or 1999.
Accumulated other comprehensive loss shown in the Consolidated Statements of
Shareholders' Equity consisted of foreign currency translation adjustments of
$8.2 million (net of tax) and a minimum pension liability of $1.1 million (net
of tax) in 2000; foreign currency translation adjustments of $8.5 million and a
minimum pension liability of $0.7 million (net of tax) in 1999; and foreign
currency translation adjustments of $9.5 million and a minimum pension liability
of $1.0 million (net of tax) in 1998.
NOTE 11. STOCK-BASED COMPENSATION:
The Company has a stock-based incentive plan ("the Plan") which is designed to
achieve the objectives of the long-term component of the Company's executive and
director compensation program. The Plan provides for various stock-based Class A
common stock awards, including stock options, deferred stock, restricted stock,
performance units, and stock appreciation rights.
Under the Plan, stock options have been granted with exercise prices equal to
the Company's stock price on the grant date. Generally, the options granted
cannot be exercised until at least three years after the grant date, and
generally expire ten years after the grant date.
The deferred stock awards typically vest over a five-year period. The
restrictions on restricted stock typically lapse over a two or three-year
period.
Performance units which have been granted are subject to a three-year
performance cycle and are accounted for as a variable plan. The number of units
ultimately earned is determined at the end of the three-year cycle based on the
Company's total shareholder return over the three-year cycle as compared to the
companies in the S&P 500 index.
A summary of the Company's stock options as of December 30, 2000, January 1,
2000, and January 2, 1999, and changes during the years ended on those dates is
presented below:
2000 1999 1998
------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Options Exercise Price Options Exercise Price Options Exercise Price
- ----------------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year ......... 2,000,008 $38.08 1,680,141 $38.11 1,127,500 $39.53
Granted .................................. 32,165 38.88 473,000 37.84 632,800 34.95
Forfeited ................................ (28,600) 34.67 (97,799) 39.01 (20,002) 38.32
Exercised ................................ (3,800) 31.39 (55,334) 35.37 (60,157) 31.18
- ----------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AT END OF YEAR ............ 1,999,773 $38.16 2,000,008 $38.08 1,680,141 $38.11
==================================================================================================================================
OPTIONS EXERCISABLE AT END OF YEAR .... 1,014,608 $40.71 822,904 $40.16 810,167 $40.05
==================================================================================================================================
The following table summarizes information about the stock options outstanding
at December 30, 2000:
Options Exercisable
-------------------------------
Weighted- Weighted- Weighted-
Range of Options Average Average Average
Exercise Outstanding Remaining Exercise Exercise
Prices at 12/30/00 Contractual Life Price at 12/30/00 Price
- ---------------------------------------------------------------------------------------------------------------------------
$ 28.00 to 29.00 144,065 1.2 years $ 28.97 139,400 $ 29.00
30.44 to 34.33 602,368 7.6 years 33.16 67,368 33.65
35.44 to 38.44 406,500 8.9 years 38.22 1,500 38.31
39.13 80,340 4.1 years 39.13 80,340 39.13
39.75 to 44.00 678,500 5.5 years 42.58 638,000 42.65
46.38 to 47.25 38,000 3.5 years 46.72 38,000 46.72
56.19 50,000 7.1 years 56.19 50,000 56.19
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL 1,999,773 1,014,608
===========================================================================================================================
11
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Springs Industries, Inc.
The options granted during 2000, 1999, and 1998 had a weighted-average fair
value of $13.80, $12.67, and $10.00, respectively. The fair value of each option
was estimated on the date of grant using the Black-Scholes option-pricing model
and the following weighted-average assumptions:
2000 1999 1998
Expected option lives .................. 10 years 10 years 10 years
Weighted-average
risk-free interest rate ................ 6.3% 6.2% 5.3%
Expected volatility .................... 33.9% 32.5% 28.6%
Expected dividend rate ................. $ 1.32 $ 1.32 $ 1.32
The Company granted deferred stock awards and restricted stock during 2000,
1999, and 1998 and performance unit awards during 1999 and 1998. Such grants
totaled 15,000 deferred and restricted shares in 2000, 21,380 deferred and
restricted shares, and 53,893 performance units in 1999, and 6,210 deferred and
restricted shares, and 35,677 performance units in 1998, at weighted-average
grant-date fair values of $36.42, $39.46 and $52.19, respectively. Compensation
expense (income) for deferred stock, restricted stock and performance unit
awards totaled approximately $391,000, $1,587,000 and $(80,000) for the years
ended December 30, 2000, January 1, 2000 and January 2, 1999, respectively. The
amounts of the Company's deferred compensation shown on the Company's
Consolidated Balance Sheets associated with these benefits, including interest
and dividend credits, were $6.0 million and $6.3 million as of December 30,
2000, and January 1, 2000, respectively.
The Company measures stock-based compensation using the intrinsic value method
in accordance with Accounting Principles Board Opinion No. 25 and Financial
Accounting Standards Board Interpretation No. 28. Had compensation cost for the
Company's stock-based compensation awards been determined at the grant dates
based on the fair value method described in Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," the Company's pro forma net income would have been $64.9 million,
or $3.57 per diluted share, for 2000, $67.1 million, or $3.69 per diluted share,
for 1999, and $34.7 million, or $1.83 per diluted share, for 1998.
NOTE 12. INCOME TAXES:
The following tables present the components of the provision for income taxes
and reconciliation of the statutory United States income tax rate to the
effective income tax rate during 2000, 1999, and 1998.
INCOME TAX PROVISION:
(in thousands) 2000 1999 1998
Current .......................................... $ 34,109 $ 46,631 $ 17,908
Deferred ......................................... 5,346 (4,364) 3,542
- ----------------------------------------------------------------------------------------------------
TOTAL ........................................ $ 39,455 $ 42,267 $ 21,450
====================================================================================================
RECONCILIATION TO EFFECTIVE TAX RATES:
2000 1999 1998
Provision at statutory
U.S. tax rate .................................. 35.0% 35.0% 35.0%
Effective state income
tax rate ....................................... 2.8 2.9 2.5
Other ............................................ (0.8) 0.1 (1.0)
- --------------------------------------------------------------------------------------------------
TOTAL ........................................ 37.0% 38.0% 36.5%
==================================================================================================
Income before income taxes includes foreign income of $2.8 million, $1.7
million, and $1.4 million, in 2000, 1999, and 1998, respectively. The provision
for income taxes includes state income taxes of $4.6 million, $5.0 million, and
$2.3 million in 2000, 1999, and 1998, respectively. Temporary differences which
give rise to deferred income taxes and the resulting assets and liabilities are
as follows:
(in thousands) 2000 1999
Employee benefit accruals ........................ $ 35,581 $ 36,242
Deferred compensation ............................ 36,510 34,784
Receivables reserves ............................. 9,326 11,443
Environmental accruals ........................... 3,026 3,964
Deferred income .................................. 5,980 6,703
Other items ...................................... 12,325 13,756
- ----------------------------------------------------------------------------------------
Total deferred tax assets ..................... 102,748 106,892
- ----------------------------------------------------------------------------------------
Property ......................................... (84,333) (85,378)
Inventories ...................................... (8,952) (8,129)
Intangibles ...................................... (1,026) (815)
Other items ...................................... (2,581) (1,368)
- ----------------------------------------------------------------------------------------
Total deferred tax liabilities ................ (96,892) (95,690)
- ----------------------------------------------------------------------------------------
NET DEFERRED TAX ASSET ........................ $ 5,856 $ 11,202
========================================================================================
NOTE 13. EMPLOYEE BENEFIT PLANS:
Substantially all associates of Springs are covered by defined contribution or
defined benefit retirement plans. The Company makes contributions to defined
contribution plans, and these contributions are computed as a percentage of each
participant's eligible compensation. In addition, in the event that eligible
participants contribute a percentage of their compensation to certain defined
contribution plans, the Company matches a portion of their contributions.
Company contributions to defined benefit plans are made in accordance with the
Employee Retirement Income Security Act, and benefits are generally based upon
the participant's years of service and compensation level. Assets in defined
benefit plans are invested in diversified equity securities, fixed income
securities (including United States government obligations), real estate and
money market securities. The Company also provides eligible executives
retirement benefits under nonqualified supplemental executive retirement plans
(SERP's). The Company also sponsors an unfunded, postretirement medical benefit
plan for eligible retirees. The Company and the retirees contribute to the plan,
with contributions adjusted periodically.
Defined contribution plan expenses for 2000, 1999, and 1998 were $21.5 million,
$21.7 million, and $19.0 million, respectively. The net assets available for
benefits under defined contribution plans had a market value of $741.5 million
as of December 30, 2000.
In 1999, the Company amended one of its SERP plans to cease future benefit
accruals and recognized a curtailment gain of $1.9 million. Regal, which the
Company acquired in 1999, has two defined benefit plans and a SERP plan. These
plans had a combined projected benefit obligation, accumulated benefit
obligation and fair value of plan assets of $6.8 million, $6.1 million, and $5.7
million as of January 1, 2000, respectively.
In 1998, the Company amended one of its defined benefit pension plans to cease
future benefit accruals. A curtailment loss of $0.5 million was recognized in
1998. During 1999, settlement payments of approximately $45.1 million were
distributed to participants in the plan.
During 2000, the Company changed its policy to a preferable method of accounting
for unrecognized gains and losses associated with its unfunded postretirement
medical benefit plan. Under the new method, any unrecognized gain or loss that
exceeds a specified percentage of the Company's accumulated postretirement
benefit obligation is recognized on an accelerated basis. As a result of this
accounting change, the Company recognized an additional $1.3 million of gain in
2000 that would not have been recognized under the previous accounting policy.
Retroactive application of this change in accounting policy has no effect on
prior-year earnings.
The Company amended its postretirement medical plan effective January 1, 1999,
to extend to retirees the managed care medical options that were previously
available only to active associates and to limit the Company's maximum per
capita cost for postretirement medical coverage to two times the Company's 1998
per capita cost. These amendments decreased the postretirement benefit
obligation by approximately $10 million. In addition, the Company amended the
plan to decrease the eligibility requirement from age 62 and at least 25 years
of service to age 60 and at least 10 years of service, resulting in an increase
in the postretirement benefit obligation of $4.1 million.
The following tables include summarized information on the Company's pension and
postretirement plans for the years ended December 30, 2000, and January 1,
2000:
12
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Springs Industries, Inc.
(in thousands) Defined Postretirement
Pension Benefits Medical Benefits
----------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION: 2000 1999 2000 1999
Benefit obligation at beginning of year ...................... $ 40,882 $ 80,585 $ 41,380 $ 46,617
Service cost ................................................. 686 701 858 1,538
Interest cost ................................................ 2,941 4,798 2,956 3,132
Participants' contributions .................................. -- -- 2,804 2,602
Actuarial (gains) losses ..................................... 2,449 (7,138) 499 (3,763)
Acquisition .................................................. -- 7,493 -- --
Plan amendments, divestitures, curtailments and settlements .. -- (43,239) -- --
Special termination benefits ................................. -- 478 -- --
Benefit payments ............................................. (3,478) (2,796) (9,435) (8,746)
- ----------------------------------------------------------------------------------------------------------------------------------
BENEFIT OBLIGATION AT END OF YEAR ......................... $ 43,480 $ 40,882 $ 39,062 $ 41,380
==================================================================================================================================
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year ............... $ 17,913 $ 57,733
Actual return on plan assets ................................. 397 596
Acquisition .................................................. -- 5,612
Employer contributions ....................................... 2,197 1,888
Benefit payments ............................................. (3,478) (2,796)
Settlements .................................................. -- (45,120)
- ---------------------------------------------------------------------------------------------------
FAIR VALUE OF PLAN ASSETS AT END OF YEAR .................. $ 17,029 $ 17,913
===================================================================================================
FUNDED STATUS:
Funded status at end of year ................................. $ (26,451) $ (22,969) $ (39,062) $ (41,380)
Unrecognized actuarial (gains) losses ........................ 1,168 (2,093) (17,346) (20,085)
Unrecognized prior service cost .............................. 2,506 3,035 (6,037) (6,607)
Unrecognized transition obligation ........................... (47) (86) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
NET AMOUNT RECOGNIZED ..................................... $ (22,824) $ (22,113) $ (62,445) $ (68,072)
==================================================================================================================================
AMOUNTS RECOGNIZED IN THE COMPANY'S BALANCE SHEETS:
Accrued benefit cost ......................................... $ (26,705) $ (24,757) $ (62,445) $ (68,072)
Intangible asset ............................................. 2,040 1,558 -- --
Accumulated other comprehensive loss ......................... 1,841 1,086 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
NET AMOUNT RECOGNIZED ..................................... $ (22,824) $ (22,113) $ (62,445) $ (68,072)
==================================================================================================================================
WEIGHTED-AVERAGE ASSUMPTIONS:
Discount rate ................................................ 7.25% 7.75% 7.25% 7.75%
Expected return on plan assets ............................... 8.50% 8.50% -- --
Rate of compensation increase ................................ 4.50% 4.50% -- --
Initial health care cost trend rate (1) (2) .................. -- -- 9.00% 8.00%
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost ................................................. $ 686 $ 701 $ 858 $ 1,538
Interest cost ................................................ 2,941 4,798 2,956 3,132
Actual return on assets ...................................... (1,191) (3,226) -- --
Amortization of prior service cost ........................... 528 521 -- --
Amortization of transition obligation ........................ (39) (39) -- --
Net amortization and deferral ................................ (18) 78 (2,810) (968)
Special termination benefit cost ............................. -- 478 -- --
Effect of curtailment/settlement ............................. -- (1,911) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
NET PERIODIC BENEFIT COST ................................. $ 2,907 $ 1,400 $ 1,004 $ 3,702
==================================================================================================================================
(1) Assumed to decrease gradually to 5.0 percent in 2008 and remain at that
level thereafter.
(2) 7.0 percent and 6.0 percent for HMO plans for 2000 and 1999,
respectively.
13
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Springs Industries, Inc.
The Company had unfunded defined benefit plans with a total projected benefit
obligation and accumulated benefit obligation of $32.0 million and $25.5 million
as of December 30, 2000, and $24.3 million and $23.6 million, as of January 1,
2000, respectively.
A one-percentage point change in assumed health care cost trend rates would have
the following effects on the Company's postretirement medical benefit plan:
(in thousands) One Percent One Percent
Increase Decrease
- ------------------------------------------------------------------------------------------
EFFECT ON TOTAL OF SERVICE
AND INTEREST COST COMPONENTS .................. $ 115 $ (112)
==========================================================================================
EFFECT ON POSTRETIREMENT
BENEFIT OBLIGATION ............................ $ 1,521 $ (1,464)
==========================================================================================
NOTE 14. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company has estimated the fair values of financial instruments using
available market information and appropriate valuation methodologies.
Considerable judgment, however, is required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Company would realize in
a current market exchange.
The carrying amounts of cash and cash equivalents, accounts receivable, certain
other assets, accounts payable, and short-term borrowings are reasonable
estimates of their fair value at December 30, 2000, and January 1, 2000. The
carrying value of notes receivable was $3.3 million and $3.7 million, compared
to estimated fair values of $2.6 million and $3.4 million at December 30, 2000,
and January 1, 2000, respectively, using interest rates based on the credit
worthiness of the customers. The carrying value of long-term investments is
$10.5 million at both December 30, 2000, and January 1, 2000. It was not
practicable to estimate the fair value of these long-term investments, given
that $10.1 million of these amounts consist of preferred equity investments in
divested specialty fabrics businesses, which are not publicly traded and quoted
market values for similar investments are not readily available.
Management has evaluated the financial condition of these businesses and has not
identified any impairment concerns.
The carrying value of long-term debt at December 30, 2000, was $308.5 million,
compared to an estimated fair value of $314.0 million. The carrying value of
long-term debt at January 1, 2000, was $304.7 million, compared to an estimated
fair value of $309.6 million. Fair value was estimated using interest rates that
were available to the Company at those dates for issuance of debt with similar
terms and remaining maturities. At December 30, 2000, and January 1, 2000, the
Company had interest rate swaps with notional amounts totaling $190.0 million
and $139.3 million, respectively. The estimated fair value of these agreements
was an unrealized loss of $1.6 million at December 30, 2000, and an unrealized
gain of $3.4 million at January 1, 2000, based on market prices for similar
instruments. The fair value of exchange-traded futures contracts held at
year-end 2000 and 1999 was not material. The fair value of the Company's natural
gas commodity swap contract at December 30, 2000, was a gain of approximately
$2.1 million.
NOTE 15. OTHER MATTERS:
TRANSACTIONS WITH RELATED PARTIES: The Company conducts business with other
companies or individuals which are considered related parties. Two members of
the Board of Directors, including the Chairman and Chief Executive Officer,
their family and related entities own approximately 99.9 percent of Springs'
Class B common stock and 1.0 percent of Class A common stock. Springs transacts
business with certain companies that are controlled by these persons and related
entities. In the opinion of Springs' management, the cost of services provided
by and to these companies is not material and the services have been obtained or
supplied at competitive prices or rates.
Management annually reviews its conclusions concerning related party
transactions with the Audit Committee of the Board of Directors.
COMMITMENTS: During 1999, the Company entered into a ten-year operating
agreement to provide certain commission finishing services to one of the
divested specialty fabrics businesses. This agreement specifies that Springs
provide the services to the divested specialty fabrics business at Springs'
cost, with a small premium over cost after the third year of the agreement. The
Company does not believe that this agreement will have a material impact on its
results of operations.
CONTINGENCIES: During the second quarter of 2000, Springs received a state sales
and use tax assessment in the amount of $3.0 million. The Company accrued a
significant portion of that assessment in the second quarter. The Company is
challenging this assessment and actual amounts paid to the state may differ.
Springs is involved in certain administrative proceedings governed by
environmental laws and regulations, including proceedings under the
Comprehensive Environmental Response, Compensation, and Liability Act. The
potential costs to the Company related to all of these environmental matters are
uncertain due to such factors as: the unknown magnitude of possible pollution
and cleanup costs; the complexity and evolving nature of governmental laws and
regulations and their interpretations; the timing, varying costs and
effectiveness of alternative cleanup technologies; the determination of the
Company's liability in proportion to other potentially responsible parties; and
the extent, if any, to which such costs are recoverable from insurers or other
parties.
In connection with these proceedings, the Company estimates the range of
possible losses for such matters to be between $5.0 million and $14.0 million,
and has accrued an undiscounted liability of approximately $8.0 million, which
represents management's best estimate of Springs' probable liability concerning
all known environmental matters.
Management believes the $8.0 million will be paid out over the next 15 years.
This accrual has not been reduced by any potential insurance recovery to which
the Company may be entitled regarding environmental matters. Environmental
matters include a site listed on the United States Environmental Protection
Agency's ("EPA") National Priority List where Springs is the sole responsible
party. Springs, the EPA and the United States Department of Justice have
executed a consent decree related to this site. Soil cleanup was completed in
1993, subject to final approval by the EPA, and the approved EPA groundwater
remedy began in 1996. There are no other known sites which the Company presently
believes may involve material amounts.
Springs is also involved in various other legal proceedings and claims
incidental to its business. Springs is protecting its interests in all such
proceedings.
In the opinion of management, based on the advice of counsel, the likelihood
that the resolution of the above matters would have a material adverse impact on
either the financial condition or the future results of operations of Springs is
remote.
SUBSEQUENT EVENT: On February 20, 2001, the Company received a proposal from the
Close family, which owns approximately 41 percent of Springs' common stock, and
Heartland Industrial Partners, L.P. ("Heartland"), to acquire all of the
outstanding common stock of the Company not owned by the Close family in a
recapitalization transaction for $44.00 per share in cash (the "Transaction").
The Transaction would be financed with $225 million in equity from Heartland and
borrowings under a senior credit facility for which a commitment has been
received from J.P. Morgan Chase & Co. If the Transaction is completed, the Close
family would own approximately 55 percent of Springs, with the balance owned by
Heartland.
The Company's Board of Directors has created a special committee composed of all
the independent directors of Springs to consider the proposal. This proposal is
subject to the execution of definitive merger and financing agreements, approval
of the Company's Board and shareholders and any necessary regulatory approvals.
There is no assurance that any transaction will be agreed upon or completed.
14
25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
Springs Industries, Inc.
A five-year summary of Selected Financial Data appears on pages 30 and 31.
RESULTS OF OPERATIONS
GENERAL
Springs Industries, Inc. ("Springs" or "the Company") is engaged in
manufacturing, marketing, selling and distributing home furnishings products.
The Company's product line includes sheets, pillows, pillowcases, bedspreads,
comforters, mattress pads, baby bedding and infant apparel, towels, shower
curtains, bath and accent rugs, other bath fashion accessories, over-the-counter
home-sewing fabrics, drapery hardware, and hard and soft decorative window
fashions. The Company's emphasis on the home furnishings market has developed
into the following strategic initiatives: focus on key accounts; brand
investment and expansion; manufacturing and purchasing efficiencies; supply
chain management and global sourcing.
Springs' strategic initiatives have helped the Company to achieve improvements
in both sales and income before unusual items for 2000, when compared to 1999.
The focus on key accounts and brand investment and expansion has allowed Springs
to increase market share and volume, despite the economic slowdown in the last
half of the year and aggressive inventory management by most retailers. Springs
continued to identify and recognize savings from manufacturing and purchasing
efficiencies during the year. In order to improve manufacturing productivity and
reduce manufacturing costs, the Company announced two separate restructuring
plans in 2000. In December, Springs announced that it would eliminate certain
production at its Katherine and Elliott bedding plants in South Carolina. The
plan eliminates some narrow loom weaving, which is not compatible with newer
fabrication equipment, at its Katherine plant and outdated yarn spinning at the
Katherine and Elliott plants. In June, the Company announced a plan to phase out
production and close plants in Georgia which manufactured certain baby apparel
products. The Company further announced that terry yarn production would be
phased out at its Griffin, Georgia plant No. 2 and transferred to its newer,
more cost effective facilities in Griffin and Hartwell, Georgia. See the
RESTRUCTURING AND REALIGNMENT section of Management's Discussion and Analysis of
Operations and Financial Condition for additional discussion.
2000 Compared with 1999
SALES
Net sales for 2000 were $2.275 billion, 2.5 percent higher than the prior year's
$2.220 billion. This increase was principally driven by sales to the Company's
key mass merchant, specialty store and home improvement accounts. Sales to the
Company's top ten customers were $1.449 billion in 2000, an increase of 11
percent compared to 1999. Increases in sales to key accounts during 2000 were
partially offset by lower overall sales to department stores, smaller specialty
stores and institutional customers, compared to the prior year. Bedding and bath
product sales, as well as sales of hard window fashions, increased 3.9 percent
when compared to the prior year. Growth in bedding and bath product sales
benefited from the introduction of the Springmaid(R) brand to the mass merchant
channel in the first quarter of 2000. Bedding sales also benefited from
continued growth of Springs' pillow business. The increases in bedding sales
were partially offset by lower sales of licensed juvenile products.
EARNINGS
Net income was $67.1 million, or $3.70 per diluted share, for 2000, compared to
$69.0 million, or $3.80 per diluted share, for 1999. Before the effects of the
$1.8 million and $1.5 million after-tax restructuring charges taken in the
second and fourth quarters of 2000, respectively, full-year net income would
have been $70.4 million, or $3.88 per diluted share. The only unusual item in
1999 was $0.6 million of after-tax expense related to the Year 2000 Computer
Issue. Excluding this item, full-year net income in 1999 would have been $69.6
million, or $3.83 per diluted share.
Operating earnings for 2000 increased over the prior year primarily due to the
increase in sales volume. The gross margin percentage decreased from 18.9
percent in 1999 to 18.7 percent in 2000. Several factors contributed to the
lower gross margin percentage in 2000. Sales in the last half of 2000 included a
higher level of off-quality and closeout goods, at higher losses, than 1999. The
fourth quarter of 1999 benefited from a decision to reduce the amount of
off-quality and closeout sales that would normally have been made in the
quarter, in anticipation of improving market conditions which did not
materialize in 2000. The Company also experienced increased customer claims in
2000 compared to the prior year. During the last half of the year, curtailment
of certain production processes to reduce inventory levels resulted in higher
period costs. These items were partially offset by lower market prices for raw
materials and from progress made toward purchasing and manufacturing
productivity initiatives. In addition to these factors, certain fourth-quarter
items contributed to the lower margins for 2000 compared to 1999.
Gross margins for the fourth quarter of 2000 were 16.2 percent, compared to 21.2
percent in the fourth quarter of 1999. In addition to the effects of higher
off-quality and closeout inventory sales and the production curtailments
discussed above, the lower margins in the fourth quarter of 2000 also reflect an
increase in energy prices, primarily for natural gas. These items were partially
offset by lower expenses related to changes in accounting for the Company's
postretirement medical benefit plan and certain manufacturing supply inventories
in the amount of $1.3 million and $1.5 million, respectively. See the ACCOUNTING
CHANGES section of Management's Discussion and Analysis of Operations and
Financial Condition for additional information. The Company also received $3.3
million in insurance proceeds during the fourth quarter of 1999 from the
settlement of a business interruption insurance claim related to a warehouse
fire which occurred in the first quarter of 1999.
Selling, general and administrative expenses decreased in 2000 due primarily to
lower incentive compensation expenses which were $7.8 million lower in the
fourth quarter of 2000, and $9.4 million lower for the full year 2000, compared
to the same periods in 1999, as the Company did not meet its internal
performance goals. During 1999, selling, general and administrative expenses
included higher fees for management advisory services related to the Company's
development of its strategic initiatives. The impact of these items was
partially offset by higher spending on advertising during 2000 in connection
with the Company's brand investment and expansion initiative. During the second
quarter of 2000, Springs received a state sales and use tax assessment in the
amount of $3.0 million. The Company accrued a significant portion of that
assessment in the second quarter, although Springs is challenging the assessment
and actual amounts paid to the state may differ.
INTEREST EXPENSE
Interest expense was $32.0 million in 2000, compared to $26.5 million in 1999.
This increase reflects higher average borrowings for 2000, as well as an
increase in interest rates during the year.
OTHER INCOME AND EXPENSE
During the third quarter of 1999, the Company sold its New York City office
building for $29.5 million and leased back a portion of the building for a
ten-year term. The result of the sale-leaseback was a gain of $1.5 million
recorded in other income, and the deferral of an additional $17.8 million gain,
which is being amortized over the operating lease term. Other income for 1999
also included income of $4.3 million from the sale of previously closed
manufacturing facilities.
Other expense included impairment charges totaling approximately $1.6 million
and $3.0 million in 2000 and 1999, respectively, in connection with various
types of property that management identified for sale or other disposal.
INCOME TAXES
The Company's provision for income taxes for fiscal 2000 is based on a 37
percent effective tax rate, compared to 38 percent during fiscal 1999. This
change is due to the Company's ongoing tax planning strategies and management of
tax rates in various jurisdictions and resulted in a $1.1 million reduction in
the tax provision for 2000.
OUTLOOK
The Company expects the softness in the retail economy experienced during the
last half of 2000 to continue through the first half of 2001. Springs believes
that its focus on key accounts and brands, combined with a projected improvement
in market conditions in the last half of 2001, will result in a slight increase
in overall sales volume for 2001. Springs will continue to focus on achieving
improvements in purchasing efficiencies and manufacturing productivity, while
placing additional emphasis on supply-chain management and new sourcing
opportunities. These initiatives, combined with the benefits of the Company's
2000 restructuring activities and overall cost-containment efforts, are expected
to contribute to a moderate increase in 2001 operating earnings, compared to
2000.
15
26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
Springs Industries, Inc.
1999 Compared with 1998
SALES
Net sales for 1999 were $2.220 billion, 1.8 percent higher than 1998 net sales
of $2.180 billion. Net sales for 1998 included $165.8 million of sales from
divested specialty fabrics businesses. See the DIVESTITURES section of
Management's Discussion and Analysis of Operations and Financial Condition for
additional discussion of these businesses. Excluding the divested businesses,
sales for 1999 represent an increase of 10 percent over 1998 sales of $2.015
billion. The improvement in sales from 1999 reflects the contribution of $112.6
million in sales from the Company's acquisitions of Regal Rugs, Inc. ("Regal")
and American Fiber Industries, LLC ("AFI") (see the ACQUISITIONS section of
Management's Discussion and Analysis of Operations and Financial Condition),
stronger sales to mass merchants and specialty stores, and sales to one of the
Company's divested specialty fabrics businesses. These increases were partially
offset by lower sales of licensed juvenile and institutional products.
EARNINGS
Net income was $69.0 million, or $3.80 per diluted share, for 1999, compared to
$37.3 million, or $1.97 per diluted share, for 1998. Earnings in 1999 included
$0.6 million of after-tax Year 2000 Computer Issue costs, whereas 1998 earnings
included several unusual items, net of taxes: realignment expenses of $12.3
million associated with the Company's restructuring of its fabric manufacturing
operations and the closing of its Rock Hill, South Carolina Printing and
Finishing facility, an aggregate gain of $8.6 million on the sales of the
Company's UltraSuede business and its Rock Hill facility, Year 2000 Computer
Issue costs of $4.4 million, an impairment charge of $3.0 million recorded in
connection with the consolidation and modernization of terry manufacturing
operations, and aggregate losses of $1.7 million from the divestitures of the
Industrial Products and Springfield businesses. Excluding these items, net
income for 1999 would have been $69.6 million, or $3.83 per diluted share,
compared to $50.1 million, or $2.64 per diluted share, in 1998. Net income for
1998 included $9.5 million of after-tax operating earnings from the divested
specialty fabrics businesses.
Excluding the results of the divested specialty fabrics businesses and unusual
items, after-tax earnings were $69.6 million, or $3.83 per diluted share, in
1999, compared to $40.6 million, or $2.14 per diluted share, in 1998. The
improvement in 1999 earnings reflects the benefits of improved sales volume
noted above, ongoing cost-reduction initiatives and improved product mix due to
lower sales of off-quality and closeout goods during the fourth quarter of 1999.
Cost of goods sold for 1999 included the benefit of the previously mentioned
insurance proceeds of $3.3 million received during the fourth quarter. Net
income for 1998 included the impact of a third-quarter provision for employee
severance expenses of $5.4 million and a second-quarter charge for uncollectible
window fashions receivables of $7.5 million.
OTHER INCOME AND EXPENSE
Other income in 1999 included the previously mentioned $1.5 million gain on the
sale of the Company's New York City office building. Other income for 1999 also
included income of $4.3 million from the sale of previously closed manufacturing
facilities. Other income for 1998 included the previously mentioned gains on the
sales of the Company's UltraSuede business and Rock Hill facility.
Other expense included impairment charges totaling approximately $3.0 million
and $1.2 million in 1999 and 1998, respectively, in connection with various
types of property that management identified for sale or other disposal. In
1998, the Company recognized a $4.8 million impairment charge in connection with
the consolidation and modernization of terry manufacturing operations. The terry
manufacturing consolidation and modernization was completed in mid-2000. The
Company also recognized losses in 1998 totaling $2.7 million on the divestitures
of the Industrial Products and Springfield businesses. See the DIVESTITURES
section of Management's Discussion and Analysis of Operations and Financial
Condition for additional discussion.
INFLATION AND CHANGING PRICES
The replacement cost of property is generally greater than the historical cost
shown on the Consolidated Balance Sheets due to inflation that has occurred
since the property was placed in service.
Springs uses the last-in, first-out (LIFO) method of accounting for
approximately 71 percent of its inventories. Under this method, the cost of
goods sold reported in the Consolidated Statements of Operations generally
reflects current costs.
CAPITAL RESOURCES AND LIQUIDITY
The Company's overall cash needs for 2000 were provided from operations and
available credit facilities. Net cash provided by operating activities in 2000
was $50.3 million higher than 1999. During 1999, greater amounts of operating
cash flows were needed to fund increases in working capital, primarily accounts
receivable and inventories. Total debt, net of cash and cash equivalents, as a
percent of total capital was 28.7 percent at December 30, 2000, compared to 30.2
percent at January 1, 2000. In 2000, the Company utilized various credit
facilities consisting of a revolving credit agreement and uncommitted credit
facilities. At December 30, 2000, and January 1, 2000, borrowings of $60.0
million and $35.0 million, respectively, were outstanding under the revolving
credit agreement. The LIBOR-based weighted-average rates on these borrowings
were 7.0 percent and 6.4 percent at December 30, 2000 and January 1, 2000,
respectively. The Company had $165.0 million of remaining availability under its
revolving credit agreement at December 30, 2000. The Company had $24.7 million
and $35.5 million outstanding under the uncommitted credit facilities at
weighted-average rates of 7.2 percent and 6.3 percent at December 30, 2000 and
January 1, 2000, respectively.
The Company invested $93.3 million in new property during 2000, primarily in the
areas of manufacturing, distribution and information technology. This amount is
lower than previous years as the Company reduced spending in reaction to retail
market conditions and required a greater expected return on investment from new
capital spending. The Company expects capital expenditures for 2001 to be
approximately $110.0 million. Management expects that cash generated by
operations and borrowings from bank lines will adequately provide for the
Company's cash needs during 2001.
In October of 1997, the Company's Board of Directors authorized the Company to
purchase, from time to time, up to 4 million shares of Class A common stock in
the open market and in private transactions. As of January 2, 1999, the Company
had repurchased 2.4 million shares pursuant to this authorization. No shares
were repurchased during fiscal 2000 or 1999.
ACQUISITIONS
On August 7, 2000, the Company acquired certain assets and operations of a
Mexican maquiladora (a business enterprise which provides preferential import
and tax treatment for goods transferred between Mexico and the United States),
which fabricates window blinds, and a related U.S. distribution operation. The
purchase price was approximately $5.7 million. The acquisition was accounted for
as a purchase in accordance with Accounting Principles Board Opinion No. 16,
"Business Combinations" ("APB 16"), and the operating results for the acquired
business have been included in the Company's consolidated financial statements
since the August 7, 2000, acquisition date. The purchase price was allocated to
the assets acquired based on their estimated fair value at the date of
acquisition.
The excess of the purchase price over the fair value of the assets acquired,
which totaled $3.9 million, has been recorded as goodwill and is being amortized
on a straight-line basis over 20 years. The pro-forma impact on sales and
operating profits for 2000 and 1999, was not material.
On January 23, 1999, the Company acquired Regal, an importer and manufacturer of
bath and accent rugs, for approximately $35 million. The acquisition was
accounted for as a purchase in accordance with APB 16, and Regal's operating
results have been included in the Company's consolidated financial statements
since the January 23, 1999, acquisition date. The purchase price was allocated
to the assets acquired and to the liabilities assumed based on their estimated
fair value at the date of acquisition.
On January 5, 1999, the Company acquired the remaining 50 percent interest in
AFI, a manufacturer and distributor of bed pillows, mattress pads, down
comforters and comforter accessories. Springs acquired its original 50 percent
interest in AFI in February 1997 and had been accounting for the original
investment under the equity method. The purchase price for the remaining
interest totaled approximately $15 million. The Company has accounted for the
remaining interest as a step-acquisition in accordance with APB 16, whereby the
purchase price was allocated to the assets acquired and to the liabilities
assumed based on 50 percent of their estimated fair value on the date of
acquisition. In addition, AFI's operating results have been included in the
Company's consolidated financial statements since the January 5, 1999,
acquisition date.
The excess of the purchase price for the Regal and AFI acquisitions over the
fair value of net assets acquired totaled $34.3 million, which has been recorded
as goodwill and is being amortized on a straight-line basis over 20 years.
16
27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
Springs Industries, Inc.
Because Regal and AFI were acquired in January 1999, substantially all of their
1999 operating results have been included in Springs' 1999 Consolidated
Statement of Operations. The following unaudited pro forma financial information
presents the combined results of operations for Springs, Regal and AFI as if the
acquisitions had been effective as of the beginning of 1998, after giving effect
to certain adjustments, including amortization of goodwill, additional
depreciation expense and related income tax effects. The pro forma financial
information does not necessarily reflect the results of operations that would
have occurred had Springs, Regal and AFI constituted a single entity during
1998. Such pro forma results would present net sales of $2.277 billion, net
income of $39.7 million and diluted earnings per share of $2.09 for 1998.
DIVESTITURES
During 1999 and 1998, the Company sold four specialty fabrics businesses.
Effective March 31, 1999, the Company sold its UltraFabrics business, and there
was no material gain on the sale. The first quarter 1999 sales and earnings
before interest and taxes of the UltraFabrics business were not material.
Effective January 2, 1999, the Company disposed of the net assets of its
Springfield business in exchange for a $10 million preferred equity interest in
the divested business which is accounted for using the cost method, and cash of
$33 million. The Company has committed to provide the divested business with
certain commission finishing services through 2008. Springs does not believe
that the terms of this commitment will have a material impact on future
earnings.
Effective December 19, 1998, the Company disposed of its Industrial Products
business in exchange for principally $18.5 million in cash and other
consideration in the form of notes receivable and a preferred equity interest in
the divested business which is accounted for using the cost method. Effective
August 7, 1998, the Company sold its UltraSuede business and certain related
assets of the UltraFabrics business in exchange for approximately $15 million in
cash. The combined effect of the 1998 transactions was a pretax gain of $8.4
million which is included in Other Income in the Consolidated Statement of
Operations. The combined sales of the four specialty fabrics businesses included
in the Company's 1998 results were $165.8 million, and after-tax earnings
totaled approximately $9.5 million.
RESTRUCTURING AND REALIGNMENT
2000 RESTRUCTURINGS
In December 2000, the Company announced a restructuring plan to eliminate
certain production at its Katherine and Elliott bedding plants in South
Carolina, beginning in February 2001. The plan eliminates some narrow loom
weaving, which is not compatible with newer fabrication equipment, at the
Katherine plant and outdated yarn spinning at the Katherine and Elliott plants.
The Company recorded a charge of $2.4 million, which included a $1.1 million
accrual for severance costs arising from the elimination of an estimated 326
manufacturing positions and a $1.3 million impairment charge for disposal of
machinery and equipment. Impairment was determined by comparing the net book
value against estimated sales value less costs to sell.
As a result of the plan, the Company expects that its annual operating costs
will be improved by approximately $3.5 million. Including one-time transition
costs and a partial-year benefit, operating costs in 2001 are expected to be
improved by approximately $1.7 million. The restructuring plan should be
completed by mid-2001.
Changes in the restructuring accruals since the adoption of the plan are as
follows:
Severance Asset
(in millions) Accrual Impairment
- --------------------------------------------------------------------------------
Original accrual as of December 6, 2000............. $ 1.1 $ 1.3
Charged against assets.............................. -- (1.3)
- --------------------------------------------------------------------------------
ACCRUAL BALANCE AS OF
DECEMBER 30, 2000............................... $ 1.1 $ 0.0
================================================================================
In the second quarter of 2000, the Company adopted a plan to phase out
production and close plants in Griffin and Jackson, Georgia, which manufactured
certain baby apparel products, and to phase out yarn production for terry towels
at its No. 2 plant in Griffin, Georgia beginning in August 2000. The Company has
replaced the baby products production by outsourcing from low-cost providers.
The terry yarn production at the Griffin No. 2 plant has been transferred to the
Company's Griffin No. 5 and Hartwell, Georgia plants, where recent investment in
new manufacturing technology allows terry yarn to be produced more
competitively.
In connection with this plan, the Company recorded a charge of $2.9 million,
which included a $2.4 million accrual for severance costs arising from the
elimination of an estimated 426 manufacturing positions, a $0.3 million
impairment charge for machinery and equipment to be sold, and a $0.2 million
accrual for estimated idle plant costs. These charges relate primarily to the
baby products facilities since costs related to the terry yarn facility were not
significant.
The expected benefits of this plan include lower product costs and better
utilization of existing capacity in other facilities. As a result, the Company
realized savings from lower product costs of approximately $2.1 million during
the second half of 2000, and expects to realize approximately $4.5 million of
savings in fiscal 2001. The restructuring plan is expected to be complete by the
end of the first quarter of fiscal 2001.
Changes in the restructuring accruals since the adoption of the plan are as
follows:
Idle
(in millions) Severance Asset Plant
Accrual Impairment Costs
- ------------------------------------------------------------------------------------------------
Original accrual as of June 2, 2000...................... $ 2.4 $ 0.3 $ 0.2
Cash payments............................................ (1.8) -- (0.2)
Charged against assets................................... -- (0.3) --
- ------------------------------------------------------------------------------------------------
ACCRUAL BALANCE AS OF
DECEMBER 30, 2000.................................... $ 0.6 $ 0.0 $ 0.0
================================================================================================
1998 RESTRUCTURING
In the first quarter of 1998, the Company adopted a plan to close its Rock Hill,
South Carolina Printing and Finishing Plant. At that time, the Company recorded
a charge of $23.0 million, which included an $11.3 million write-off of
property, a $4.0 million accrual for anticipated severance costs arising from
the elimination of approximately 480 positions, and a $7.7 million accrual
primarily for idle plant and demolition costs. The Company realized a reduction
in product costs as a result of closing the facility.
Changes in the restructuring accruals since the adoption of the plan are as
follows:
Severance Asset
(in millions) Accrual Impairment
- --------------------------------------------------------------------------------
Original accrual on February 17, 1998............... $ 4.0 $ 7.7
Cash payments....................................... (3.0) (1.2)
Adjustments......................................... (1.0) (6.5)
- --------------------------------------------------------------------------------
ACCRUAL BALANCE AS OF
JANUARY 2, 1999................................. $ 0.0 $ 0.0
================================================================================
The restructuring plan was completed during the fourth quarter of 1998. In 1998,
the severance accrual was reduced due to a lower-than-expected cost per
associate and the accrual for other expenses was reduced, primarily due to the
sale on September 25, 1998, of the Rock Hill facility. As a result of the sale,
which management considered as an unlikely possibility at the time the plant was
closed, the Company reversed accruals relating to idle plant and demolition
costs by approximately $4.3 million.
In 1998 the Company incurred expenses of $1.3 million for equipment relocation
and other realignment expenses related to the 1998 plan which do not qualify as
"exit costs" as defined by Emerging Issues Task Force Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)."
17
28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
Springs Industries, Inc.
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS
Refer to the RECENTLY ISSUED ACCOUNTING STANDARDS section of Management's
Discussion and Analysis of Operations and Financial Condition for a discussion
of the impact of Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," on market risk sensitive instruments and positions.
INTEREST RATE RISK- Springs is exposed to interest rate volatility with regard
to existing issuances of variable rate debt. The Company uses interest rate
swaps to reduce interest rate volatility and funding costs associated with
certain debt issues, and to achieve a desired proportion of variable versus
fixed-rate debt, based on current and projected market conditions. The table
below provides information for the Company's derivative financial instruments
and other financial instruments that are sensitive to changes in interest rates,
including interest rate swaps and debt obligations as of December 30, 2000, and
January 1, 2000. For debt obligations, the table presents principal cash flows
and related weighted-average interest rates by expected maturity dates. The
weighted-average variable interest rates at the respective expected maturity
dates are presented assuming that the projected weighted-average variable
interest rates will be the same as the weighted-average variable interest rates
as of December 30, 2000, and January 1, 2000, respectively, including the
effects of scheduled interest rate changes specified in the respective debt
agreements. For interest rate swaps, the table presents notional amounts and
weighted-average rates by expected maturity dates.
Expected Maturity Date Fair Value
December 30, 2000 ---------------------- ------------
December 30,
(in millions) 2001 2002 2003 2004 2005 Thereafter Total 2000
- ----------------------------------------------------------------------------------------------------------------------------------
Long-term debt:
Fixed rate instruments .............. $ 5.6 $ 5.5 $ 5.2 $ 5.0 $ 5.0 $ 19.4 $ 45.7 $ 51.2
Average interest rate ........... 9.5% 9.4% 9.4% 9.3% 9.2% 7.9%
Variable rate instruments ........... $ 19.6 $ 93.0 $ 33.0 $ 33.0 $ 26.6 $ 57.6 $ 262.8 $ 262.8
Average interest rate ........... 6.9% 6.9% 6.9% 6.9% 6.9% 6.9%
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL ....................... $ 308.5 $ 314.0
==================================================================================================================================
Interest rate swaps:
Pay fixed/receive variable
1995 notional amounts ............... $ 14.3 $ 14.3 $ 14.3 $ 14.3 $ 7.8 $ 0.0 $ 65.0 $ (0.8)
Average pay rate ................ 6.8% 6.8% 6.8% 6.8% 6.8%
1998 notional amounts ............... $ 2.1 $ 8.6 $ 8.6 $ 8.6 $ 8.6 $ 23.5 $ 60.0 $ 0.1
Average pay rate ................ 6.1% 6.3% 6.3% 6.3% 6.3% 6.3%
2000 notional amounts ............... $ 2.3 $ 9.3 $ 9.3 $ 9.3 $ 9.3 $ 25.5 $ 65.0 $ (0.9)
Average pay rate ................ 6.5% 6.7% 6.7% 6.7% 6.7% 6.7%
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL ....................... $ 190.0 $ (1.6)
==================================================================================================================================
Expected Maturity Date Fair Value
January 1, 2000 ---------------------- ----------
January 1,
(in millions) 2000 2001 2002 2003 2004 Thereafter Total 2000
- ----------------------------------------------------------------------------------------------------------------------------------
Long-term debt:
Fixed rate instruments .............. $ 5.7 $ 5.5 $ 5.6 $ 5.3 $ 5.0 $ 24.4 $ 51.5 $ 56.4
Average interest rate ........... 9.5% 9.4% 9.4% 9.4% 9.3% 8.3%
Variable rate instruments ........... $ 15.5 $ 24.1 $ 68.0 $ 33.0 $ 33.0 $ 79.6 $ 253.2 $ 253.2
Average interest rate ........... 6.4% 6.4% 6.4% 6.4% 6.4% 6.4%
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL ....................... $ 304.7 $ 309.6
==================================================================================================================================
Interest rate swaps:
Pay fixed/receive variable
1995 notional amounts ............... $ 14.3 $ 14.3 $ 14.3 $ 14.3 $ 14.3 $ 7.8 $ 79.3 $ 0.8
Average pay rate ................ 6.7% 6.7% 6.7% 6.7% 6.7% 6.7%
1998 notional amounts ............... $ 0.0 $ 2.1 $ 8.6 $ 8.6 $ 8.6 $ 32.1 $ 60.0 $ 2.6
Average pay rate ................ 6.1% 6.1% 6.1% 6.1% 6.1% 6.1%
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL ....................... $ 139.3 $ 3.4
==================================================================================================================================
18
29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
Springs Industries, Inc.
COMMODITY PRICE RISK- The Company is exposed to price fluctuations related to
anticipated purchases of certain raw materials, primarily cotton fiber. Springs
uses a combination of forward delivery contracts and exchange-traded futures
contracts, which the Company believes are consistent with the size of its
business and the expected volume of its purchases, to reduce the Company's
exposure to price volatility. Management assesses these contracts on a
continuous basis to determine if contract prices will be recovered through
subsequent sales. The fair value of exchange-traded futures contracts held at
year-end 2000 and 1999 was not material. Due to the duration of the Company's
contracts, near-term changes in the price of cotton fiber are not expected to
have a material impact on the Company's future earnings or cash flows.
The Company is also exposed to price fluctuations related to anticipated
purchases of natural gas. During the fourth quarter of 2000, Springs entered
into a commodity swap contract to fix the price it pays for natural gas for a
significant portion of its expected utilization during the first quarter of
2001. The fair value of the contract at December 30, 2000, was a gain of
approximately $2.1 million.
FOREIGN EXCHANGE RISK- The Company is exposed to foreign exchange risk to the
extent of adverse fluctuations in certain exchange rates, primarily the Canadian
dollar and Mexican peso. The Company does not believe that reasonably possible
near-term changes in foreign currencies will result in a material effect on
future earnings, financial position or cash flows of the Company.
ACCOUNTING CHANGES
During 2000, the Company changed its policy to a preferable method of accounting
for unrecognized gains and losses associated with its unfunded postretirement
medical benefit plan. Under the new method, any unrecognized gain or loss that
exceeds a specified percentage of the Company's accumulated postretirement
benefit obligation is recognized on an accelerated basis. As a result of this
accounting change, the Company recognized an additional $1.3 million of gain in
2000 that would not have been recognized under the previous accounting policy.
Retroactive application of this change in accounting policy has no effect on
prior-year earnings.
The Company also changed its policy related to accounting for certain
manufacturing supply parts inventories during the year at certain facilities to
conform with the method used predominantly throughout the Company, where such
inventories are capitalized and expensed when utilized. As a result of this
change, $0.9 million, $0.5 million and $1.5 million were capitalized during the
second, third and fourth quarters of 2000, respectively, that would have been
expensed under the previous accounting policy. Retroactive application of this
change would not have a material effect on prior-year earnings.
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective December 31, 2000 (fiscal 2001), the Company adopted Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended by
Statement No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities (an amendment of FASB Statement No. 133)." This statement, as
amended, requires the Company to recognize all derivatives on the Consolidated
Balance Sheets at fair value, with changes in fair value recognized in earnings
unless specific criteria are met for derivatives in qualifying hedging
transactions. Changes in fair value of derivatives in qualifying hedging
transactions will be reflected in accumulated other comprehensive income and
reclassified into earnings at the time the corresponding hedged transaction is
recognized in earnings.
The Company's derivatives consist of cotton futures contracts, a natural gas
commodity swap contract and interest rate swap contracts. These instruments will
be accounted for as cash flow hedges. As a result of the adoption of Statement
No. 133, the Company will record in the first quarter of fiscal 2001 a natural
gas commodity swap asset of $2.1 million, interest rate swap liabilities of $1.6
million, an immaterial cotton futures liability, and the cumulative effect of a
change in accounting adjustment to other comprehensive income of $0.5 million
($0.3 million net of taxes). The Company believes that Statement No. 133 will
not have a material impact on the consolidated results of operations, financial
position or cash flows in the future; however, the impact of this statement will
depend on the market values of derivative instruments and related hedged items
held in the future, and the effectiveness of those hedging relationships.
FORWARD-LOOKING INFORMATION
This Annual Report contains forward-looking statements that are based on
management's expectations, estimates, projections, and assumptions. Words such
as "expects," "believes," "estimates," "should," and variations of such words
and similar expressions are often used to identify such forward-looking
statements which include but are not limited to projections of sales,
expenditures, savings, completion dates, cash flows, and operating performance.
Such forward-looking statements are made pursuant to the safe-harbor provisions
of the Private Securities Litigation Reform Act of 1995. These statements are
not guaranties of future performance; instead, they relate to situations with
respect to which certain risks and uncertainties are difficult to predict.
Actual future results and trends, therefore, may differ materially from what is
predicted in forward-looking statements due to a variety of factors, including:
the health of the retail economy in general, competitive conditions and demand
for the Company's products; the unanticipated loss of a material customer;
progress toward the Company's manufacturing and purchasing efficiency
initiatives; unanticipated natural disasters; legal proceedings; labor matters;
and the availability and price of raw materials which could be affected by
weather, disease, energy costs, or other factors. The Company assumes no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise.
SUBSEQUENT EVENT
On February 20, 2001, the Company received a proposal from the Close family,
which owns approximately 41 percent of Springs' common stock, and Heartland
Industrial Partners, L.P. ("Heartland"), to acquire all of the outstanding
common stock of the Company not owned by the Close family in a recapitalization
transaction for $44.00 per share in cash (the "Transaction").
The Transaction would be financed with $225 million in equity from Heartland and
borrowings under a senior credit facility for which a commitment has been
received from J.P. Morgan Chase & Co. If the Transaction is completed, the Close
family would own approximately 55 percent of Springs, with the balance owned by
Heartland.
The Company's Board of Directors has created a special committee composed of all
the independent directors of Springs to consider the proposal. This proposal is
subject to the execution of definitive merger and financing agreements, approval
of the Company's Board and shareholders and any necessary regulatory approvals.
There is no assurance that any transaction will be agreed upon or completed.
19
30
SELECTED FINANCIAL DATA
Springs Industries, Inc.
2000 1999 1998 1997(d) 1996
- -----------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS: (in millions)
Net sales .......................................... $2,275.1 $2,220.4 $2,180.5 $2,226.1 $2,221.0
Income from continuing operations .................. 67.1 69.0 37.3 69.0 88.4(j)
Net income ......................................... 67.1(a) 69.0(b) 37.3(c) 69.0(e) 84.9(f)
Class A cash dividends declared .................... 14.2 14.1 14.9 16.9 16.7
Class B cash dividends declared .................... 8.6 8.6 8.7 8.8 9.0
- -----------------------------------------------------------------------------------------------------------------------------------
PER SHARE OF COMMON STOCK:
Income from continuing operations-diluted .......... $ 3.70 $ 3.80 $ 1.97 $ 3.34 $ 4.29(j)
Net income-diluted ................................. 3.70(a) 3.80(b) 1.97(c) 3.34(e) 4.12(f)
Class A cash dividends declared .................... 1.32 1.32 1.32 1.32 1.32
Class B cash dividends declared .................... 1.20 1.20 1.20 1.20 1.20
Shareholders' equity ............................... 45.72 43.28 40.62 40.69 38.75
Class A stock price range:
High ............................................ 48.81 43.63 61.00 54.75 50.50
Low ............................................. 22.63 27.06 31.75 41.00 38.38
- -----------------------------------------------------------------------------------------------------------------------------------
STATISTICAL DATA:
Net income to net sales ............................ 3.0%(a) 3.1%(b) 1.7%(c) 3.1%(e) 3.8%(f)
Net income to average shareholders' equity ......... 8.4%(a) 9.2%(b) 5.0%(c) 8.6%(e) 11.1%(f)
Operating return on assets employed(g) ............. 8.6% 9.1% 5.8% 8.6% 8.8%
Inventory turnover(h) .............................. 3.7 4.2 4.1 4.6 4.8
Accounts receivable turnover(i) .................... 7.1 6.9 6.6 6.4 6.4
Net sales divided by average assets ................ 1.4 1.5 1.5 1.6 1.5
Current ratio ...................................... 3.1 2.7 3.5 3.3 3.1
Capital expenditures (in millions) ................. $ 93.3 $ 166.8 $ 115.0 $ 99.3 $ 75.1
Depreciation (in millions) ......................... $ 98.0 $ 90.5 $ 81.9 $ 78.8 $ 80.8
Approximate number of shareholders ................. 2,459 2,548 2,636 2,856 3,000
Average number of associates ....................... 18,200 18,300 18,000 20,100 21,700
- -----------------------------------------------------------------------------------------------------------------------------------
SELECTED BALANCE SHEET DATA: (in millions)
Net working capital ................................ $ 565.4 $ 523.0 $ 555.8 $ 546.4 $ 537.4
Net property ....................................... 617.9 625.6 549.7 541.2 534.6
Total assets ....................................... 1,584.1 1,575.0 1,425.5 1,409.3 1,398.5
Long-term debt ..................................... 283.3 283.5 268.0 164.3 177.6
Shareholders' equity ............................... 819.8 774.9 724.1 804.6 780.8
- -----------------------------------------------------------------------------------------------------------------------------------
20
31
SELECTED FINANCIAL DATA
Springs Industries, Inc.
NOTES:
(a) Net of restructuring and realignment expenses of $3.3 million. Without
this unusual item, net income would have been $70.4 million, or $3.88
per diluted share, net income to sales would have been 3.1%, and return
on average shareholders' equity would have been 8.8%.
(b) Net of Year 2000 expenses of $0.6 million. Without this unusual item,
net income would have been $69.6 million, or $3.83 per diluted share,
net income to sales would have been 3.1 percent, and the return on
average shareholders' equity would have been 9.3 percent.
(c) Net of restructuring and realignment expenses of $12.3 million, Year
2000 expenses of $4.4 million, gains of $8.6 million on the Company's
sale of its UltraSuede business and its Rock Hill, South Carolina
facility, losses of $1.7 million on the Company's sale of its
Industrial Products and Springfield businesses, and an impairment
charge of $3.0 million recorded in connection with the Company's
decision to close a terry manufacturing facility. Without these unusual
items, net income would have been $50.1 million, or $2.64 per diluted
share, net income to net sales would have been 2.3 percent, and the
return on average shareholders' equity would have been 6.7 percent.
(d) Fiscal year 1997 includes 53 weeks, whereas all other years include 52
weeks.
(e) Net of restructuring and realignment expenses of $6.9 million, a $4.1
million gain on the sale of an investment, and Year 2000 expenses of
$1.7 million. Without these unusual items, net income would have been
$73.5 million, or $3.56 per diluted share, net income to net sales
would have been 3.3 percent, and the return on average shareholders'
equity would have been 9.2 percent.
(f) Net of restructuring and realignment expenses of $21.0 million, a gain
of $50.1 million on the sale of Clark-Schwebel, Inc., an extraordinary
loss, net of an income tax benefit of $2.2 million, of $3.6 million,
and other write-offs. Without these unusual items, net income would
have been $64.6 million, or $3.13 per diluted share, net income to net
sales would have been 2.9 percent, and the return on average
shareholders' equity would have been 8.5 percent.
(g) Pretax income before interest expense divided by average of month-end
total assets used in operations. For 2000, pretax income was net of
restructuring and realignment expenses. Without this unusual item,
operating return on assets employed would have been 8.9 percent. For
1999, pretax income was net of Year 2000 expenses. Without this unusual
item, operating return on assets employed would have been 9.2 percent.
For 1998, pre-tax income was net of restructuring and realignment
expenses, Year 2000 expenses, gains on the Company's sales of its
UltraSuede business and its Rock Hill, South Carolina facility, losses
on the Company's sales of its Industrial Products and Springfield
businesses, and an impairment charge in connection with the Company's
decision to close a terry manufacturing facility. Without these unusual
items, operating return on assets employed would have been 7.2 percent.
For 1997, pretax income was net of realignment expenses, a gain on the
sale of an investment, and Year 2000 expenses. Without these unusual
items, operating return on assets employed would have been 9.2 percent.
For 1996, pretax income was net of restructuring and realignment
expenses, a gain on the sale of Clark-Schwebel, Inc. and other
write-offs. Without these unusual items, operating return on assets
employed would have been 8.3 percent.
(h) Cost of goods sold divided by average of month-end inventories.
(i) Net sales divided by average of month-end receivables.
(j) Differs from net income by an extraordinary loss of $3.6 million due to
an early extinguishment of debt, net of an income tax benefit of $2.2
million, or $0.17 per diluted share.
NOTE: Selected Financial Data includes the following since their respective
dates of acquisition: American Fiber Industries, LLC, January 1999; and
Regal Rugs, Inc., January 1999. Selected Financial Data also includes
the following until their respective dates of disposition:
Clark-Schwebel, Inc., April 1996; the Company's UltraSuede business,
August 1998; the Company's Industrial Products business, December 1998;
the Company's Springfield business, December 1998; and the Company's
UltraFabrics business, March 1999.
21
32
QUARTERLY FINANCIAL DATA (UNAUDITED)
Springs Industries, Inc.
(In millions except per share data)
------------------ 2000 ------------------- ------------------- 1999 --------------------
QUARTER 1ST 2ND 3RD 4TH(A) YEAR 1ST 2ND 3RD 4TH YEAR
- -----------------------------------------------------------------------------------------------------------------------------
Net sales ............... $593.2 $573.1 $574.8 $534.0 $2,275.1 $584.0 $544.9 $562.9 $528.6 $2,220.4
Gross profit ............ 115.1 116.1 108.6 86.4 426.1 102.1 98.4 107.0 112.0 419.5
Income before
unusual items .......... 20.1 21.3 18.1 11.0 70.4 15.5 13.5 18.1 22.5 69.6
Year 2000 expenses ...... -- -- -- -- -- (0.3) (0.2) (0.1) -- (0.6)
Restructuring and
realignment ........... -- (1.8) -- (1.5) (3.3) -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
NET INCOME .......... $ 20.1 $ 19.4 $ 18.1 $ 9.5 $ 67.1 $ 15.2 $ 13.3 $ 18.0 $ 22.5 $ 69.0
=============================================================================================================================
EARNINGS PER COMMON
SHARE-DILUTED:
Net income before
unusual items ......... $ 1.10 $ 1.16 $ 1.00 $ 0.61 $ 3.88 $ 0.86 $ 0.74 $ 0.99 $ 1.23 $ 3.83
Year 2000 expenses ...... -- -- -- -- -- (0.02) (0.01) -- -- (0.03)
Restructuring and
realignment ........... -- (0.10) -- (0.09) (0.19) -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
NET INCOME .......... $ 1.10 $ 1.06 $ 1.00 $ 0.52 $ 3.70 $ 0.84 $ 0.73 $ 0.99 $ 1.23 $ 3.80
=============================================================================================================================
(a) Fourth quarter 2000 earnings were lower than the fourth quarter of 1999
due to several factors. Sales in the fourth quarter of 2000 included a
higher volume of off-quality and closeout inventory sales at greater
losses than the fourth quarter of 1999. Period costs in the fourth
quarter of 2000 were also higher due to the curtailment of certain
production processes to reduce inventory levels. Energy prices were
also higher in the fourth quarter of 2000, primarily for natural gas.
These factors were partially offset by the following items. Selling,
general and administrative expenses decreased due to incentive
compensation expenses which were $7.8 million lower in the fourth
quarter of 2000, compared to the fourth quarter of 1999. The fourth
quarter of 2000 also benefitted from lower expenses related to changes
in accounting for the Company's postretirement medical benefit plan and
certain manufacturing supply inventories in the amount of $1.3 million
and $1.5 million, respectively.
DIVIDENDS AND PRICE RANGE OF COMMON STOCK (CLOSING PRICE):
------------------ 2000 ------------------- ------------------- 1999 --------------------
QUARTER 1ST 2ND 3RD 4TH YEAR 1ST 2ND 3RD 4TH YEAR
- -----------------------------------------------------------------------------------------------------------------------------
(per share)
Class A dividends
declared ............. $ .33 $ .33 $ .33 $ .33 $ 1.32 $ .33 $ .33 $ .33 $ .33 $ 1.32
Class B dividends
declared ............. .30 .30 .30 .30 1.20 .30 .30 .30 .30 1.20
=============================================================================================================================
COMMON STOCK PRICES:
High ................. $39.94 $48.81 $34.06 $32.44 $ 48.81 $42.50 $43.63 $43.31 $43.44 $ 43.63
Low .................. 34.00 32.00 27.13 22.63 22.63 27.06 27.81 33.69 32.94 27.06
=============================================================================================================================