1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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F O R M 10-Q
For the Quarter Ended June 29, 1996 Commission File Number 1-5315
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S P R I N G S I N D U S T R I E S, I N C.
(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
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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
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As of August 8, 1996, there were 12,628,703 shares of Class A Common Stock and
7,518,579 shares of Class B Common Stock of Springs Industries, Inc.
outstanding.
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There are 14 pages in the sequentially numbered, manually signed original of
this report.
Page 1 of 14
The Index to Exhibits is on Page 13
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
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3
PART I
ITEM I - FINANCIAL STATEMENTS
SPRINGS INDUSTRIES, INC.
Condensed Consolidated Statement of Operations
and Retained Earnings
(In thousands except per share data)
(Unaudited)
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
-------------------------- --------------------------------
JUNE 29, JULY 1, JUNE 29, JULY 1,
1996 1995 1996 1995
-------- -------- ---------- ----------
OPERATIONS
Net Sales . . . . . . . . . . . . . . . . . . $545,019 $532,672 $1,128,512 $1,015,808
Cost and expenses:
Cost of goods sold . . . . . . . . . . . . . 439,223 437,464 916,978 833,492
Selling, general, &
administrative expenses . . . . . . . . . . 74,585 65,720 153,237 129,730
Restructuring &
realignment costs . . . . . . . . . . . . . 30,424 - 30,424 -
Interest expense . . . . . . . . . . . . . . 5,538 7,888 13,372 15,140
Other (income) expense . . . . . . . . . . . (42,542) (2,014) (43,481) (2,849)
-------- -------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . 507,228 509,058 1,070,530 975,513
-------- -------- ---------- ----------
Income before income taxes and
extraordinary item . . . . . . . . . . . . 37,791 23,614 57,982 40,295
Income tax provision (benefit)... . . . . . . (5,193) 9,222 2,692 16,035
-------- -------- ---------- ----------
Income before extraordinary item . . . . . . 42,984 14,392 55,290 24,260
Extraordinary item:
Loss on extinguishment of debt,
net of income tax benefit
of $2,176 . . . . . . . . . . . . . . . . . 3,552 - 3,552 -
-------- -------- ---------- ----------
Net Income . . . . . . . . . . . . . . . . . $ 39,432 $ 14,392 $ 51,738 $ 24,260
======== ======== ========== ==========
Per Share:
Income before extraordinary item . . . . . . $ 2.10 $ 0.78 $ 2.70 $ 1.33
Extraordinary loss from
extinguishment of debt . . . . . . . . . . (.17) - (.17) -
-------- -------- ---------- ----------
Net income . . . . . . . . . . . . . . . . . $ 1.93 $ 0.78 $ 2.53 $ 1.33
======== ======== ========== ==========
Cash dividends declared:
Class A shares . . . . . . . . . . . . . . . $ .33 $ .30 $ .66 $ .60
======== ======== ========== ==========
Class B shares . . . . . . . . . . . . . . . $ .30 $ .27 $ .60 $ .54
======== ======== ========== ==========
Weighted avg. shares of
common stock . . . . . . . . . . . . . . . . 20,441 18,234
========== ==========
RETAINED EARNINGS
Retained earnings at beginning
of period . . . . . . . . . . . . . . . . $622,236 $573,225 $ 616,347 $ 568,403
Net income . . . . . . . . . . . . . . . . . 39,432 14,392 51,738 24,260
Cash dividends declared . . . . . . . . . . (6,429) (5,809) (12,846) (10,855)
-------- -------- ---------- ----------
Retained earnings at end of
period . . . . . . . . . . . . . . . . . . $655,239 $581,808 $ 655,239 $ 581,808
======== ======== ========== ==========
See Notes to Condensed Consolidated Financial Statements.
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4
SPRINGS INDUSTRIES, INC.
Condensed Consolidated Balance Sheet
(In thousands except share data)
(Unaudited)
JUNE 29, DECEMBER 30,
1996 1995
---------- -----------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 79,195 $ 2,606
Accounts receivable . . . . . . . . . . . . . . . . . . . 330,663 351,669
Inventories . . . . . . . . . . . . . . . . . . . . . . . 380,247 384,730
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 29,574 30,300
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . 819,679 769,305
---------- ----------
Property, plant and equipment . . . . . . . . . . . . . . . 1,295,944 1,380,659
Accumulated depreciation . . . . . . . . . . . . . . . . (766,410) (766,700)
---------- ----------
Property, plant, and equipment, net . . . . . . . . . . 529,534 613,959
---------- ----------
Other assets and deferred charges . . . . . . . . . . . . . 75,976 144,280
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . $1,425,189 $1,527,544
========== ==========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term borrowings . . . . . . . . . . . . . . . . . . $ - $ 21,900
Current maturities of long-term debt . . . . . . . . . . 89,010 13,078
Accounts payable . . . . . . . . . . . . . . . . . . . . 78,304 103,737
Accrued restructuring costs . . . . . . . . . . . . . . . 12,600 -
Other accrued liabilities . . . . . . . . . . . . . . . . 109,424 124,275
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . 289,338 262,990
---------- ----------
Noncurrent liabilities:
Long-term debt . . . . . . . . . . . . . . . . . . . . . 177,281 326,949
Deferred compensation and benefit plans . . . . . . . . . 157,064 154,673
Deferred income taxes and other deferred
credits . . . . . . . . . . . . . . . . . . . . . . . . 39,417 48,410
---------- ----------
Total noncurrent liabilities . . . . . . . . . . . . . 373,762 530,032
---------- ----------
Shareowners' equity:
Class A common stock- $.25 par value
(12,735,692 and 12,642,903 shares
issued in 1996 and 1995, respectively) . . . . . . . . 3,184 3,161
Class B common stock- $.25 par value
(7,518,579 and 7,604,579 shares issued
in 1996 and 1995, respectively) . . . . . . . . . . . . 1,880 1,901
Additional paid-in capital . . . . . . . . . . . . . . . 110,252 109,840
Retained earnings . . . . . . . . . . . . . . . . . . . . 655,239 616,347
Cost of Class A shares in treasury
(107,218 and 110,526 shares
in 1996 and 1995, respectively) . . . . . . . . . . . . (2,388) (2,449)
Currency translation adjustment and other . . . . . . . . (6,078) 5,722
---------- ----------
Shareowners' equity . . . . . . . . . . . . . . . . . . 762,089 734,522
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . $1,425,189 $1,527,544
========== ==========
See Notes to Condensed Consolidated Financial Statements.
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5
SPRINGS INDUSTRIES, INC.
Condensed Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
TWENTY-SIX WEEKS ENDED
---------------------------------
JUNE 29, JULY 1,
1996 1995
---------- ---------
Operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 51,738 $ 24,260
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . 50,042 49,152
Gain on sale of businesses . . . . . . . . . . . . . . . . . . . (49,896) -
Provision for restructuring costs . . . . . . . . . . . . . . . 30,375 -
Loss on disposal of property, plant and
equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,241 172
Extraordinary loss on extinguishment of debt . . . . . . . . . . 5,728 -
Changes in operating assets and liabilities,
net of effects of business acquisitions and
sale of businesses . . . . . . . . . . . . . . . . . . . . . . (56,856) (30,533)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,100) (6,837)
--------- ---------
Net cash provided by operating
activities . . . . . . . . . . . . . . . . . . . . . . . . . 34,272 36,214
--------- ---------
Investing activities:
Purchases of property, plant and
equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . (35,510) (39,636)
Business acquisitions, net of stock issued
and cash acquired . . . . . . . . . . . . . . . . . . . . . . . (1,900) (60,631)
Proceeds from sales of businesses and other
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194,749 252
--------- ---------
Net cash provided (used) by investing
activities . . . . . . . . . . . . . . . . . . . . . . . . . 157,339 (100,015)
--------- ---------
Financing activities:
Proceeds (repayments) of short-term
borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . (21,900) 31,100
Proceeds from long-term borrowings . . . . . . . . . . . . . . . 2,261 79,495
Repayments of long-term debt . . . . . . . . . . . . . . . . . . (76,120) (28,899)
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . (19,263) (15,980)
--------- --------
Net cash provided (used) by financing
activities . . . . . . . . . . . . . . . . . . . . . . . . . (115,022) 65,716
--------- ---------
Increase in cash and cash equivalents . . . . . . . . . . . . . . . $ 76,589 $ 1,915
========= =========
See Notes to Condensed Consolidated Financial Statements.
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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") 1995 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):
June 29, Dec. 30,
1996 1995
---------- ---------
Standard cost (which approximates
average cost) or average cost:
Finished goods . . . . . . . . . . . . . . . . . . . $ 261,852 $ 251,277
In process . . . . . . . . . . . . . . . . . . . . . 178,157 192,094
Raw materials and supplies . . . . . . . . . . . . . 66,045 74,195
--------- ---------
506,054 517,566
Less LIFO reserve . . . . . . . . . . . . . . . . . . . (125,807) (132,836)
--------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . $ 380,247 $ 384,730
========= =========
3. Commitments:
The Company enters into forward delivery contracts and futures contracts
for raw material purchases, consistent with the size of its business, 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.
- 6 -
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4. Acquisitions and Divestiture:
Included in other (income) expense for the second quarter of 1996 was a
gain of $50.1 million on the sale of Fort Mill A Inc., whose sole asset
consisted of all of the outstanding stock of Clark-Schwebel, Inc.
(hereinafter collectively referred to as "Clark-Schwebel"). No tax
expense was recognized on the gain. On April 17, 1996, the Company sold
all of the outstanding stock of Clark-Schwebel to Clark-S Acquisition
Corporation, a Delaware Corporation. Clark-S Acquisition Corporation
elected to pay in cash the full purchase price of approximately $193
million. During the six months ended June 29, 1996, Clark-Schwebel
contributed about 6 percent of Springs' sales of $1.1 billion.
Clark-Schwebel had 1996 earnings before interest and taxes through the
date of sale of $11.3 million. During the five years ended in 1995,
Clark-Schwebel's average contribution was 13 percent of Springs' sales
and 9 percent of its earnings before interest and taxes.
The Company acquired three businesses during 1995. Effective 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 health care products. The purchase
price was $119.6 million, $21.2 million of which was paid in cash and
the remainder through the issuance of approximately 2.5 million shares of
Springs Class A common stock with a fair value as of the acquisition date
of $98.4 million. Effective May 28, 1995, the Company purchased
substantially all of the assets of Dawson Home Fashions, Inc., a leading
manufacturer of shower curtains and bath fashions accessories. Springs
paid $39 million in cash for the business. On July 28, 1995, the Company
purchased from Apogee Enterprises, Inc., substantially all of the assets
of its Nanik Window Coverings Group, a leading manufacturer of wood
window blinds and interior shutters. The acquisitions were accounted for
using the purchase method of accounting. The costs of the businesses
acquired were allocated on the basis of the fair value of the assets
acquired and liabilities assumed. The operating results of Dundee,
Dawson and Nanik are included in the Company's consolidated results of
operations from the dates of acquisition.
5. Restructuring and Realignment Costs:
During the second quarter of 1996, the Company adopted a plan to
consolidate and realign its fabric manufacturing operations. In
connection with this plan, the Company will close three fabric
manufacturing plants while adding production in other plants. A pretax
charge of $30.4 million was recorded in the second quarter, which
included $6.6 million for severance expense arising from the elimination
of approximately 850 positions, $16.3 million for write-offs of plant and
equipment, and $7.5 million for certain other expenses associated with
the plan. Over the next 24 months, Springs will also make capital
investments of $17.3 million and incur future expenses of approximately
$23 million for equipment relocation and other realignment costs which do
not qualify as "exit costs."
6. Extraordinary Charge:
The second quarter results also included an extraordinary charge of $3.5
million, net of an income tax benefit of $2.2 million, as a result of a
commitment to extinguish $68.7 million of senior notes payable on July 1,
1996. The notes had an effective interest rate of 10 percent.
- 7 -
8
7. Other:
Also included in other (income) expense were asset write-downs totaling
approximately $5 million.
8. Legal and Environmental:
As disclosed in the 1995 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
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.
- 8 -
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ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
Included in other (income) expense for the second quarter of 1996 was a gain of
$50.1 million on the sale of Fort Mill A Inc., whose sole asset consisted of
all the outstanding stock of Clark-Schwebel, Inc. (hereinafter collectively
referred to as "Clark-Schwebel"). On April 17, 1996, the Company sold all of
the outstanding stock of Clark-Schwebel to Clark-S Acquisition Corporation, a
Delaware corporation. Clark-S Acquisition Corporation elected to pay in cash
the full purchase price of approximately $193 million. During the six months
ended June 29, 1996, Clark-Schwebel contributed about 6 percent of Springs
sales of $1.1 billion. Clark-Schwebel had 1996 earnings before interest and
taxes through the date of sale of $11.3 million. During the five years ended
in 1995, Clark-Schwebel's average contribution was 13 percent of Springs' sales
and 9 percent of its earnings before interest and taxes. Also included in
other (income) expense were asset write-downs totaling approximately $5
million.
During the second quarter of 1996, the Company adopted a plan to consolidate
and realign its fabric manufacturing operations. In connection with this plan,
the Company will close three fabric manufacturing plants while adding
production in other plants. A pretax charge of $30.4 million was recorded in
the second quarter, which included $6.6 million for severance expense arising
from the elimination of approximately 850 positions, $16.3 million for
write-offs of plant and equipment, and $7.5 million for certain other expenses
associated with the plan. Over the next 24 months, Springs will also make
capital investments of $17.3 million and incur future expenses of approximately
$23 million for equipment relocation and other realignment costs which do not
qualify as "exit costs." This plan, when fully implemented, is expected to
increase the efficiency of the Company's fabric operations while adding to the
Company's ability to serve its customers and the consumer.
RESULTS OF OPERATIONS
Sales
Net sales for the second quarter were $545.0 million, up two percent from sales
of $532.7 million in the second quarter of 1995. The home furnishings segment
produced a second-quarter sales increase of 15 percent due primarily to the
Company's acquisitions during May 1995 of the stock of Dundee Mills,
Incorporated and the principal assets of Dawson Home Fashions, Inc. In the
specialty fabrics segment, sales for the three months ending in June 1996 fell
32 percent due to the Company's sale of Clark-Schwebel on April 17, 1996.
Year-to-date net sales improved 11 percent compared to the first six months of
1995. The Dundee and Dawson acquisitions, which occurred in the second quarter
of 1995, substantially contributed toward a six-month sales increase of 20
percent in the home furnishings segment over last year. Year-to-date specialty
fabrics sales were 12 percent lower than the prior year. Excluding the effects
of Clark-Schwebel and the Company's Intek office panel fabrics business, sold
in April 1996 and December 1995, respectively, year-to-date specialty fabrics
sales increased 7 percent over the first six months of 1995. This increase was
due to stronger demand in the Company's finished fabrics markets.
- 9 -
10
Earnings
Net income for the second quarter of 1996 was $39.4 million, or $1.93 per
share, and included an after-tax gain on the sale of Clark-Schwebel of $50.1
million, or $2.45 per share, as well as a restructuring charge and other
write-offs which reduced net income by $26.6 million, or $1.30 per share.
Without these unusual items, net income for the second quarter of 1996 would
have been $15.9 million, or $.78 per share, compared to last year's $14.4
million, or $.78 per share. Including the effect of the $30.4 million
restructuring charge, the home furnishings segment recognized an operating loss
for the quarter. Without the restructuring charge, the home furnishings
segment achieved a moderate increase in operating earnings during the quarter.
In the specialty fabrics segment, in spite of the absence of Clark-Schwebel
for most of the quarter, the segment generated operating earnings approximately
equal to those of a year ago as the performance of its finished fabrics
businesses improved.
Earnings for the six months ended June 29, 1996, were $51.7 million, or $2.53
per share. Excluding the aforementioned unusual items, net income for the six
months ended June 29, 1996, would have been $28.2 million, or $1.38 per share,
compared to $24.3 million, or $1.33 per share, for the six months ended July 1,
1995. The improvement came on the strength of specialty fabrics earnings as the
home furnishings segment encountered a sluggish retail market at the beginning
of the year. The home furnishings segment's earnings were slightly lower than
the prior year due primarily to the mix of sales. In the specialty fabrics
segment, in spite of the absence of Clark-Schwebel for most of the second
quarter of 1996, the segment generated operating earnings for the six months
ended June 29, 1996, substantially higher than in the prior year due to the
stronger demand for finished fabrics.
For the second quarter of 1996, the Company recognized a tax benefit equivalent
to 13.7 percent of pretax income, compared to 39.1 percent tax expense for the
second quarter of 1995. Included in the Company's net income for the second
quarter of 1996 was a gain of $50.1 million on the sale of Clark-Schwebel for
which no tax expense was recognized. The Company's effective tax rate for the
six months ended June 29, 1996, excluding the gain on the sale of
Clark-Schwebel, was approximately 38 percent.
CAPITAL RESOURCES AND LIQUIDITY
Management expects to spend approximately $54 million on capital expenditures
during the last six months of 1996. The Company had short-term and commercial
paper borrowings totaling approximately $92 million at December 30, 1995, which
was repaid in the second quarter using proceeds from the sale of
Clark-Schwebel. Management expects that cash from operations and borrowings
from commercial paper and committed short-term bank lines will adequately
provide for the Company's 1996 operating cash needs.
The second-quarter results also included an extraordinary charge of $3.5
million, net of an income tax benefit of $2.2 million, as a result of a
commitment to extinguish $68.7 million of senior notes payable on July 1, 1996.
The notes had an effective interest rate of 10 percent.
- 10 -
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ITEM 6 - EXHIBITS
The following exhibits are filed as part of this report:
(27) Financial Data Schedule (for SEC use only).
- 11 -
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 13, 1996
- 12 -
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EXHIBIT INDEX
Item Page
- ---- ----
(27) Financial Data Schedule (for SEC purposes) 14
- 13 -