1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 10-Q
For the Quarter Ended July 1, 1995 Commission File Number 1-5315
____________________________
SPRINGS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
SOUTH CAROLINA 57-0252730
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
205 North White Street
Fort Mill, South Carolina 29715
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(803) 547-1500
____________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days.
Yes X No
----- -----
____________________________
As of August 9, 1995, there were 12,335,748 shares of Class A Common Stock and
7,800,280 shares of Class B Common Stock of Springs Industries, Inc.
outstanding.
____________________________
There are 14 pages in the sequentially numbered, manually signed original of
this report.
2
TABLE OF CONTENTS TO FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM PAGE
---- ----
1. FINANCIAL STATEMENTS 3
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
PART II - OTHER INFORMATION
---------------------------
ITEM PAGE
---- ----
6. EXHIBITS 11
SIGNATURES 12
EXHIBIT INDEX 13
3
PART I
ITEM I - FINANCIAL STATEMENTS
SPRINGS INDUSTRIES, INC.
Consolidated Statement of Operations
and Retained Earnings
(In thousands except per share data)
(Unaudited)
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
----------------------------- --------------------------
JULY 1, JULY 2, JULY 1, JULY 2,
1995 1994 1995 1994
---------- ---------- ---------- -----------
OPERATIONS
Net sales . . . . . . . . . . . . . . . . . . . $ 532,672 $ 515,260 $1,015,808 $1,000,473
Cost of goods sold . . . . . . . . . . . . . 437,464 416,424 833,492 810,945
Selling, general and
administrative expenses . . . . . . . . . . 65,720 70,116 129,730 142,506
---------- ---------- ---------- ----------
Operating income . . . . . . . . . . . . . 29,488 28,720 52,586 47,022
Interest expense . . . . . . . . . . . . . . 7,888 7,254 15,140 14,433
Other (income) expense . . . . . . . . . . . (2,014) (1,346) (2,849) (582)
---------- ---------- ---------- ----------
Income before income taxes . . . . . . . . . . 23,614 22,812 40,295 33,171
Income taxes . . . . . . . . . . . . . . . . . 9,222 9,732 16,035 14,290
---------- ---------- ---------- ----------
Net income . . . . . . . . . . . . . . . . $ 14,392 $ 13,080 $ 24,260 $ 18,881
========== ========== ========== ==========
Per share:
Net income . . . . . . . . . . . . . . . . . $ .78 $ .73 $ 1.33 $ 1.06
========== ========== ========== ==========
Cash dividends - Class A shares . . . . . . . $ .30 $ .30 $ .60 $ .60
========== ========== ========== ==========
Cash dividends - Class B shares . . . . . . . $ .27 $ .27 $ .54 $ .54
========== ========== ========== ==========
Weighted average shares of
common stock . . . . . . . . . . . . . . . . 18,234 17,788
========== ==========
RETAINED EARNINGS
Retained earnings at beginning
of period . . . . . . . . . . . . . . . . . . $ 573,225 $ 527,188 $ 568,403 $ 526,428
Net income . . . . . . . . . . . . . . . . . . 14,392 13,080 24,260 18,881
Cash dividends . . . . . . . . . . . . . . . . (5,809) (5,039) (10,855) (10,080)
---------- ---------- ---------- ----------
Retained earnings at end of period . . . . . . $ 581,808 $ 535,229 $ 581,808 $ 535,229
========== ========== ========== ==========
See Notes to Condensed Consolidated Financial Statements
4
SPRINGS INDUSTRIES, INC.
Condensed Consolidated Balance Sheet
(In thousands except share data)
(Unaudited)
JULY 1, DECEMBER 31,
1995 1994
---------- ------------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . $ 2,684 $ 769
Accounts receivable . . . . . . . . . . . . . . . . . . 367,817 312,739
Inventories . . . . . . . . . . . . . . . . . . . . . . 407,951 264,161
Other . . . . . . . . . . . . . . . . . . . . . . . . . 33,042 39,335
----------- -----------
Total current assets . . . . . . . . . . . . . . . . 811,494 617,004
----------- -----------
Property, plant and equipment . . . . . . . . . . . . . . 1,351,910 1,253,060
Accumulated depreciation . . . . . . . . . . . . . . . (736,624) (697,810)
----------- -----------
Property, plant, and equipment, net . . . . . . . . . 615,286 555,250
----------- -----------
Other assets and deferred charges . . . . . . . . . . . . 126,774 116,789
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . $ 1,553,554 $ 1,289,043
=========== ===========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term borrowings . . . . . . . . . . . . . . . . . $ 42,200 $ 11,100
Current maturities of long-term debt . . . . . . . . . 21,219 21,318
Accounts payable . . . . . . . . . . . . . . . . . . . 91,456 83,232
Other accrued liabilities . . . . . . . . . . . . . . . 148,017 128,306
----------- -----------
Total current liabilities . . . . . . . . . . . . . . 302,892 243,956
----------- -----------
Noncurrent liabilities:
Long-term debt . . . . . . . . . . . . . . . . . . . . 349,994 265,384
Deferred compensation and benefit plans. . . . . . . . 150,248 144,967
Deferred income taxes and other deferred
credits . . . . . . . . . . . . . . . . . . . . . . . 51,448 50,645
----------- -----------
Total noncurrent liabilities . . . . . . . . . . . . 551,690 460,996
----------- -----------
Shareowners' equity:
Class A common stock- $.25 par value
(12,446,587 and 9,884,143 shares issued
in 1995 and 1994, respectively) . . . . . . . . . . . 3,112 2,471
Class B common stock- $.25 par value
(7,800,280 and 7,830,375 shares issued
in 1995 and 1994, respectively) . . . . . . . . . . . 1,950 1,958
Additional paid-in capital . . . . . . . . . . . . . . 109,826 11,413
Retained earnings . . . . . . . . . . . . . . . . . . . 581,808 568,403
Cost of Class A shares in treasury
(July 1, 1995-110,995 shares;
December 31, 1994 - 119,585 shares) . . . . . . . . (2,458) (2,602)
Currency translation adjustment . . . . . . . . . . . . 4,734 2,448
----------- -----------
Shareowners' equity . . . . . . . . . . . . . . . . . 698,972 584,091
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . $ 1,553,554 $ 1,289,043
=========== ===========
See Notes to Condensed Consolidated Financial Statements
5
SPRINGS INDUSTRIES, INC.
Condensed Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
TWENTY-SIX WEEKS ENDED
------------------------------------
JULY 1, JULY 2,
1995 1994
------------ ----------
CASH PROVIDED (USED) BY:
Operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,260 $ 18,881
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . 49,152 46,024
Changes in operating assets and liabilities,
net of effects of business acquisitions
and sale of business . . . . . . . . . . . . . . . . . . . . . (30,533) (33,509)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,665) (6,141)
---------- ---------
Net cash provided by operating activities . . . . . . . . . . 36,214 25,255
---------- ---------
Investing activities:
Purchase of property, plant and
equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . (39,636) (50,042)
Business acquisitions, net of stock issued
and cash acquired . . . . . . . . . . . . . . . . . . . . . . . (60,631) -
Proceeds from sales of assets . . . . . . . . . . . . . . . . . . 252 356
Proceeds from sale of business . . . . . . . . . . . . . . . . . - 17,813
---------- ---------
Net cash (used) by investing activities . . . . . . . . . . . (100,015) (31,873)
---------- ---------
Financing activities:
Proceeds from short-term borrowings . . . . . . . . . . . . . . . 31,100 44,680
Proceeds from commercial paper and long-term
debt borrowings . . . . . . . . . . . . . . . . . . . . . . . . 79,495 1,052
Payment of commercial paper and long-term debt . . . . . . . . . (28,899) (24,106)
Payment of dividends . . . . . . . . . . . . . . . . . . . . . . (15,980) (15,119)
---------- ---------
Net cash provided by financing activities
65,716 6,507
---------- ---------
Increase (decrease) in cash and cash equivalents . . . . . . . . . $ 1,915 $ (111)
========== =========
See Notes to Condensed Consolidated Financial Statements
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies:
These condensed consolidated financial statements should be read in
conjunction with the financial statements presented in the Springs
Industries, Inc. ("Springs" or "the Company") 1994 Annual Report on
Form 10-K.
In the opinion of the management of Springs, these unaudited condensed
consolidated financial statements contain all adjustments of a normal
recurring nature necessary for their fair presentation. The results for
interim periods reflect estimates for certain items which can be
definitively determined only on an annual basis. These items include the
valuation of a substantial portion of inventories on a LIFO cost basis and
the provision for income taxes. These interim financial statements reflect
applicable portions of the estimated annual amounts for such items.
The results of operations for interim periods are not necessarily
indicative of operating results to be expected for the remainder of the
year.
2. Inventory:
Inventories are summarized as follows (in thousands):
July 1, December 31,
1995 1994
---------- ------------
Standard cost (which approximates
average cost) or average cost:
Finished goods . . . . . . . . . . . . . . . . . . . . $ 253,479 $ 173,729
In process . . . . . . . . . . . . . . . . . . . . . 222,533 166,347
Raw materials and supplies . . . . . . . . . . . . . 76,003 56,553
---------- ----------
552,015 396,629
Less LIFO reserve . . . . . . . . . . . . . . . . . . . (144,064) (132,468)
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . $ 407,951 $ 264,161
========== ==========
3. Commitments:
The Company enters into forward delivery contracts for certain raw material
purchases, consistent with the size of its business, to reduce the
Company's exposure to price volatility. The contracts are assessed on a
continuous basis to determine if contract prices will be recovered through
subsequent sales. At July 1, 1995, the market value of the contracts
exceeded the contract price.
4. Financial Instruments:
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. Interest rate swap
agreements are used to reduce the potential impact of increases in interest
rates on floating-rate long-term debt. The Company is exposed to credit
loss in the event of nonperformance by the counterparty to the interest
rate swap agreements. However, the Company does not anticipate
nonperformance by the counterparty.
7
5. Acquisitions:
On May 27, 1995, the Company purchased all of the outstanding stock of
Dundee Mills, Incorporated, a leading manufacturer of towels, infant and
toddler bedding, knitted infant apparel, and healthcare products. The
purchase price was approximately $119.6 million, which was funded with
$21.2 million of proceeds from a new debt issue and included the issuance
of 2,514,113 shares of Springs Class A common stock with a fair market
value of $98.4 million. The acquisition has been accounted for using the
purchase method of accounting and did not result in the recording of any
goodwill. The operating results of Dundee are included in the Company's
consolidated results of operations from the date of acquisition.
On May 27, 1995, the Company also purchased substantially all of the assets
of Dawson Home Fashions, Inc., a leading manufacturer of shower curtains
and bath fashions accessories. The purchase price was approximately $40
million but is subject to adjustment upon completion of audited financial
statements. The purchase price was funded with proceeds from a new debt
issue. The acquisition has been accounted for using the purchase method of
accounting and is not expected to result in the recording of any goodwill.
The operating results related to the Dawson assets are included in the
Company's consolidated results of operations from the date of acquisition.
The following summarized, unaudited pro forma presentation of results of
operations has been prepared as if the acquisition of Dundee had occurred
at the beginning of each fiscal year. The pro forma presentation is
provided for informational purposes only and is not indicative of results
which would have occurred or which may occur in the future (in thousands,
except per share amounts):
(Unaudited)
Six Months Ended
------------------------------------
July 1, July 2,
1995 1994
---------- ----------
Net sales $1,125,674 $1,133,428
Net income 17,826 20,257
Earnings per share .88 1.00
It is anticipated that the Dawson assets will generate annual revenues of
approximately $70 million. Due to the timing of receipt of financial
information for the five months ended May 27, 1995, and for the six months
ended July 2, 1994, Dawson was not included in the preceding pro forma
results of operations. However, management does not believe the operating
results related to the Dawson assets would have a material effect on the
pro forma financial information.
6. Accounting Change:
In the first quarter of 1995, the Company completed an evaluation of
indirect manufacturing costs that in 1994 and prior years were classified
as selling, general and administrative expenses. As a result of that
evaluation, the Company has made an accounting change to include in
inventoriable costs certain indirect manufacturing and
manufacturing-related information services costs. The Company believes
this accounting change is preferable and these costs are more appropriately
reflected as costs of goods sold due to changing technologies and
reengineering of the delivery process for indirect support services. No
material effect on inventory or net income resulted from the accounting
8
change. In addition, certain other costs relating to designs have been
reclassified in the prior year to conform to the 1995 presentation.
7. Legal and Environmental:
As disclosed in the 1994 Annual Report on Form 10-K, Springs is involved in
certain administrative proceedings alleging violations of environmental
laws and regulations, including proceedings under the Comprehensive
Environmental Response, Compensation, and Liability Act. In connection
with these proceedings, the Company has accrued an amount which represents
management's best estimate of Springs' probable liability.
Springs is also involved in various other legal proceedings and claims
incidental to its business. Springs is defending its position in all such
proceedings.
In the opinion of management, based on the advice of counsel, the
resolution of the above matters should not have a material adverse impact
on the financial condition nor the future results of operations of Springs.
9
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
The favorable effects of the Company's efforts to reduce operating expenses
were offset in large measure by increases in supply and raw material costs in
the second quarter of 1995. Price increases announced in March of 1995 will
become effective during the third quarter of 1995.
RESULTS OF OPERATIONS
Sales
Net sales for the second quarter were three percent greater than net sales
reported in the second quarter of 1994. Sales for the home furnishings
segment were ten percent higher than in the prior year due primarily to the
company's acquisitions of the stock of Dundee Mills, Incorporated and the
principal assets of Dawson Home Fashions, Inc. in the second quarter of 1995.
In the specialty fabrics segment, excluding the effect of Clark-Schwebel
Distribution Corp., which was sold in June 1994, sales were two percent higher
than in the second quarter of 1994. This improvement was due to increased
volume in industrial fabrics, partially offset by weaker demand for finished
fabrics.
Year-to-date net sales improved one percent compared to the first six months of
1994. The acquisitions, which were effective on May 27, 1995, contributed to
a sales increase of eight percent in the home furnishings segment over last
year. Year-to-date specialty fabrics sales, excluding the effect of
Clark-Schwebel Distribution Corp., were slightly higher than in the first half
of 1994. This improvement was due to increased volume in industrial fabrics.
Earnings
Second quarter earnings of $14.4 million, or $.78 per share, represented a ten
percent increase from net income of $13.1 million, or $.73 per share, in 1994.
Operating income for the home furnishings segment improved substantially over
last year. This improvement was due to improved average selling prices and
cost reductions as well as the Dundee acquisition, which occurred in the second
quarter of 1995. In the specialty fabrics segment, operating profits were
considerably lower than in the prior year due to sales weakness and lower
margins in finished fabrics.
Year-to-date earnings of $24.3 million, or $1.33 per share, represented a 28
percent increase over 1994 first-half earnings of $18.9 million, or $1.06 per
share. The home furnishings segment's operating income improved substantially
over last year. The improvement was due to a general price increase for
bedding products, which became effective during the third quarter of 1994, and
cost reductions. Operating income in the specialty fabrics segment was lower
than a year ago due to sales weakness and lower margins in finished fabrics.
CAPITAL RESOURCES AND LIQUIDITY
On May 27, 1995, the Company purchased all of the outstanding stock of Dundee
Mills, Incorporated, a leading manufacturer of towels, infant and toddler
bedding, knitted infant apparel and healthcare products. The purchase price
was approximately $119.6 million, which was funded by the issuance of
approximately 2.5 million shares of Springs Class A common stock with a fair
10
market value of $98.4 million and additional long-term debt. In addition, the
Company purchased substantially all of the assets of Dawson Home Fashions,
Inc., a leading manufacturer of shower curtains and bath fashions accessories.
The purchase price is expected to be approximately $40 million but is subject
to adjustment upon completion of audited financial statements. Funding for
this transaction was provided through additional long-term borrowings.
In spite of the addition of approximately $95 million of new debt in connection
with the acquisitions, total debt has increased only $16.4 million from last
year due to increased operating cash flow. Capital expenditures for 1995 are
expected to approximate those of 1994. Cash needs for the remainder of 1995
are expected to be provided from operations and commercial paper and short-term
bank borrowings.
OTHER
The acquisitions have been accounted for using the purchase method of
accounting. Accordingly, the results of operations of each acquisition have
been included in the financial statements since the date of its acquisition.
The costs of the acquisitions have been allocated on the basis of the estimated
fair market values of assets acquired and liabilities assumed. The final
purchase price for the acquisition of the Dawson assets and the final
allocation of the purchase prices is expected to be completed during 1995 upon
receipt of final valuation information. No goodwill has been or is expected to
be recorded in connection with these transactions.
During the first quarter of 1995, the Company completed an evaluation of
indirect manufacturing costs that in 1994 and prior years were classified as
selling, general and administrative expenses. As a result of that evaluation,
the Company has made an accounting change to include in inventoriable costs
certain indirect manufacturing and manufacturing-related information services
costs. The Company believes this accounting change is preferable and these
costs are more appropriately reflected as cost of goods sold due to changing
technologies and reengineering of the delivery process for indirect support
services. No material effect on inventory or net income resulted from the
accounting change. In addition, certain other costs relating to designs have
been reclassified from selling, general and administrative expenses to cost of
goods sold and restated in the prior year to conform to the 1995 presentation.
The result of this accounting change and cost reclassification is to state
year-to-date 1995 selling, general and administrative expenses at approximately
12.8% of sales. Had prior year figures been restated for the accounting
change, selling, general and administrative expenses for the first half of 1994
under the preferred method of cost classification would have been equivalent
to 11.9% of sales.
11
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS
The following exhibits are filed as part of this report:
(27) Financial Data Schedule (for SEC purposes)
12
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, Springs
Industries, Inc. has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPRINGS INDUSTRIES, INC.
By: /s/James F. Zahrn
--------------------------------
James F. Zahrn
Senior Vice President and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
DATED: August 15, 1995