1
14 INDUSTRY SEGMENT INFORMATION(1)
Springs Industries, Inc.
[SALES PER INDUSTRY
SEGMENT (In percent) PIE GRAPH]
Home Furnishings 82%
Specialty Fabrics 18%
[PROFIT FROM OPERATIONS
PER INDUSTRY SEGMENT (2) (In percent)
PIE GRAPH]
Home Furnishings 65%
Specialty Fabrics 35%
(In millions)
1996 1995 1994
TRADE SALES:
Home furnishings................. $ 1,830.6 $ 1,642.4 $ 1,460.1
Specialty fabrics................ 412.7 590.7 608.8
----------------------------------------------------------------------
TOTAL......................... $ 2,243.3 $ 2,233.1 $ 2,068.9
======================================================================
PROFIT FROM OPERATIONS:(2)
Home Furnishings................. $ 52.0 $ 89.6 $ 97.5
Specialty Fabrics................ 27.8 43.9 38.3
----------------------------------------------------------------------
TOTAL ........................ 79.8 133.5 135.8
----------------------------------------------------------------------
Interest expense ................... 22.1 32.0 29.2
Other income, net .................. (46.8) (9.4) (0.1)
----------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM............ $ 104.5 $ 110.9 $ 106.7
======================================================================
IDENTIFIABLE ASSETS AT YEAR END:
Home furnishings ................ $ 1,310.7 $ 1,263.1 $ 990.4
Specialty fabrics ............... 181.6 394.6 430.3
LIFO reserve .................... (125.0) (132.8) (132.5)
Corporate ....................... 30.7 2.6 .8
----------------------------------------------------------------------
TOTAL ........................ $ 1,398.0 $ 1,527.5 $ 1,289.0
======================================================================
CAPITAL EXPENDITURES:
Home furnishings ................ $ 66.3 $ 56.8 $ 69.1
Specialty fabrics ............... 8.8 18.4 23.5
----------------------------------------------------------------------
TOTAL ........................ $ 75.1 $ 75.2 $ 92.6
======================================================================
DEPRECIATION AND AMORTIZATION:
Home furnishings ................ $ 76.9 $ 77.5 $ 67.6
Specialty fabrics ............... 12.5 21.0 22.7
----------------------------------------------------------------------
TOTAL ........................ $ 89.4 $ 98.5 $ 90.3
======================================================================
(1) This schedule provides consolidated financial information by segment, but
not financial information of the segments as separate entities. See
the notes to the financial statements for further comments regarding
industry segments.
(2) Profit from operations represents sales less cost of goods sold, selling,
general and administrative expenses, and restructuring and realignment
expenses. Profit from operations for 1996 is net of a $33.9 million charge
for restructuring and realignment expenses, of which $33.3 million was
charged to the home furnishings segment and $.6 million to the specialty
fabrics segment.
2
CONSOLIDATED STATEMENT 15
OF OPERATIONS AND RETAINED EARNINGS
Springs Industries, Inc.
[DISTRIBUTION OF
THE SALES DOLLAR(1) (In percent)
PIE GRAPH]
Raw materials and purchased goods 31.3%
Wages, salaries and benefits 31.5%
Income taxes 1.4%
Cash dividends and retained earnings 2.9%
Other manufacturing, selling, general 32.9%
and administrative expenses
(1) Excludes restructuring and realignment expenses, a gain on the sale of
Clark-Schwebel, Inc., an extraordinary loss, and other write-offs.
(In thousands except per share data)
For the Fiscal Years Ended December 28, 1996,
December 30, 1995, and December 31, 1994
1996 1995 1994
OPERATIONS
NET SALES.............................. $2,243,327 $2,233,053 $2,068,911
- -------------------------------------------------------------------------
Cost and expenses:
Cost of goods sold ................. 1,830,249 1,828,542 1,650,743
Selling, general and
administrative expenses .......... 299,326 270,989 282,326
Restructuring and
realignment expenses.............. 33,926 - -
Interest expense.................... 22,064 32,035 29,253
Other income, net................... (46,757) (9,446) (123)
- -------------------------------------------------------------------------
Total .......................... 2,138,808 2,122,120 1,962,199
- -------------------------------------------------------------------------
Income before income taxes
and extraordinary item .............. 104,519 110,933 106,712
Income tax provision .................. 16,086 39,307 44,485
- -------------------------------------------------------------------------
Income before extraordinary item ...... 88,433 71,626 62,227
Extraordinary item:
Loss on extinguishment of debt, net
of income tax benefit of $2,176 .. 3,552 - -
- -------------------------------------------------------------------------
NET INCOME ..................... $ 84,881 $ 71,626 $ 62,227
=========================================================================
Per share:
Income before extraordinary item ...... $ 4.32 $ 3.71 $ 3.50
Extraordinary loss .................... .17 - -
- -------------------------------------------------------------------------
NET INCOME ..................... $ 4.15 $ 3.71 $ 3.50
=========================================================================
1996 1995 1994
RETAINED EARNINGS
RETAINED EARNINGS
AT BEGINNING OF YEAR .................. $ 616,347 $ 568,403 $ 526,428
Net income ............................ 84,881 71,626 62,227
Class A cash dividends declared ....... (16,650) (14,840) (11,758)
Class B cash dividends declared ....... (9,045) (8,842) (8,494)
- -------------------------------------------------------------------------
RETAINED EARNINGS
AT END OF YEAR.................. $ 675,533 $ 616,347 $ 568,403
=========================================================================
See Notes to Consolidated Financial Statements.
3
16 CONSOLIDATED BALANCE SHEET
Springs Industries, Inc.
(In thousands except share data)
December 28, 1996, and December 30, 1995
1996 1995
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................ $ 30,719 $ 2,606
Accounts receivable .................................................. 350,830 351,669
Inventories .......................................................... 370,896 384,730
Other. ............................................................... 37,177 30,300
- -------------------------------------------------------------------------------------------------
Total current assets .............................................. 789,622 769,305
- -------------------------------------------------------------------------------------------------
PROPERTY (AT COST):
Land and improvements ................................................ 18,559 18,723
Buildings ............................................................ 238,861 257,883
Machinery and equipment .............................................. 1,062,980 1,104,053
- -------------------------------------------------------------------------------------------------
Total ............................................................. 1,320,400 1,380,659
Accumulated depreciation ............................................. (785,836) (766,700)
- -------------------------------------------------------------------------------------------------
Property, net ..................................................... 534,564 613,959
OTHER ASSETS ............................................................ 73,770 144,280
- -------------------------------------------------------------------------------------------------
TOTAL ............................................................. $1,397,956 $1,527,544
=================================================================================================
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings ................................................ $ - $ 21,900
Current maturities of long-term debt ................................. 6,921 13,078
Accounts payable ..................................................... 103,841 103,737
Accrued wages and salaries ........................................... 21,827 10,407
Accrued incentive pay and benefit plans 31,771 34,051
Other accrued liabilities. ........................................... 88,129 79,817
- -------------------------------------------------------------------------------------------------
Total current liabilities ......................................... 252,489 262,990
- -------------------------------------------------------------------------------------------------
NONCURRENT LIABILITIES:
Long-term debt ....................................................... 177,640 326,949
Accrued benefits and deferred compensation ........................... 160,535 154,673
Deferred income taxes ................................................ 5,495 26,608
Other ................................................................ 21,018 21,802
- -------------------------------------------------------------------------------------------------
Total noncurrent liabilities ...................................... 364,688 530,032
- -------------------------------------------------------------------------------------------------
SHAREOWNERS' EQUITY:
Class A common stock- $.25 par value (12,746,374 and 12,642,903 shares
issued in 1996 and 1995, respectively)............................... 3,187 3,161
Class B common stock- $.25 par value (7,508,579 and 7,604,579 shares
issued in 1996 and 1995, respectively) .............................. 1,877 1,901
Additional paid-in capital ........................................... 110,352 109,840
Retained earnings .................................................... 675,533 616,347
Cost of Class A shares in treasury (106,739 and 110,526 shares
in 1996 and 1995, respectively) ..................................... (2,378) (2,449)
Currency translation adjustment and other ............................ (7,792) 5,722
- -------------------------------------------------------------------------------------------------
Total shareowners' equity ......................................... 780,779 734,522
- -------------------------------------------------------------------------------------------------
TOTAL ............................................................. $1,397,956 $1,527,544
=================================================================================================
See Notes to Consolidated Financial Statements.
4
CONSOLIDATED STATEMENT OF CASH FLOWS 17
Springs Industries, Inc.
(In thousands)
For the Fiscal Years Ended December 28, 1996,
December 30, 1995, and December 31, 1994
1996 1995 1994
OPERATING ACTIVITIES:
Net income ....................................................... $ 84,881 $ 71,626 $ 62,227
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................................ 89,422 98,514 90,290
Gain on sales of businesses .................................. (50,127) (4,296) (4,167)
Deferred income taxes ........................................ (13,738) 7,837 1,409
Provision for restructuring .................................. 30,375 - -
Loss on disposal of property, plant, and equipment ........... 6,179 1,012 3,139
Extraordinary loss on extinguishment of debt ................. 5,728 - -
Changes in operating assets and liabilities, excluding effects
of business acquisitions and sales of businesses:
Accounts receivable ....................................... (29,609) 20,906 (6,632)
Inventories ............................................... (17,840) (24,765) (5,556)
Accounts payable and other accrued liabilities ............ 21,081 (16,459) 37,709
Accrued restructuring costs ............................... (4,137) - (10,317)
Other, net (5,820) (16,867) (228)
- -----------------------------------------------------------------------------------------------------
Net cash provided by operating activities .................... 116,395 137,508 167,874
- -----------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment ....................... (75,131) (75,175) (92,642)
Business acquisitions, net of stock issued
and cash acquired, and other investments ....................... (1,900) (82,557) -
Proceeds from sales of businesses and other assets ............... 195,371 14,183 20,069
- -----------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities ............. 118,340 (143,549) (72,573)
- -----------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds (repayments) of short-term borrowings ................... (21,900) 10,800 (50,320)
Proceeds from long-term borrowings ............................... 2,834 99,719 1,896
Repayments of long-term debt ..................................... (161,861) (80,332) (28,732)
Cash dividends paid .............................................. (25,695) (22,309) (20,166)
- -----------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities ............. (206,622) 7,878 (97,322)
- -----------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................... 28,113 1,837 (2,021)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ...................... 2,606 769 2,790
- -----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ..................... $ 30,719 $ 2,606 $ 769
=====================================================================================================
See Notes to Consolidated Financial Statements.
5
18 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 20 to 50 percent owned
companies are accounted for using the equity method of accounting.
USE OF ESTIMATES: Preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles 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.
REVENUE RECOGNITION: Revenue from product sales is recognized at the time
ownership of the goods transfers to the customer.
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, generally, requires no collateral from its
customers. The reserve for doubtful accounts to provide for expected credit
losses was approximately $13,105,000 in 1996 and $9,904,000 in 1995.
INVENTORIES: Inventories are summarized as follows:
(in thousands)
1996 1995
Standard cost (which approximates
average cost) or average cost:
Finished goods ............... $ 242,650 $ 251,277
In process ................... 185,307 192,094
Raw materials and supplies ... 67,925 74,195
- -------------------------------------------------------------------------
495,882 517,566
Less LIFO reserve ............... (124,986) (132,836)
- -------------------------------------------------------------------------
Total ...................... $ 370,896 $ 384,730
=========================================================================
Inventories are valued at the lower of cost or market. Cost is determined using
the last-in, first-out method (LIFO) for approximately 84 percent of
inventories and the average cost method for all other inventories. Average
cost approximates current cost.
During 1996, certain inventory quantities were reduced resulting in a
liquidation of LIFOinventory quantities carried at higher costs prevailing in
1995. The effect of these reductions was to reduce net income by approximately
$1.3 million, or $.06 per share.
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 similar arrangements.
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 approach, which considers future tax
consequences associated with differences between financial accounting and tax
bases of assets and liabilities and gives immediate effect to changes in income
tax laws upon enactment.
EARNINGS PER SHARE: Per share amounts are based on the weighted average number
of shares of Class A and Class B common stock and common stock
equivalents outstanding. Such averages totaled 20,460,000 in 1996, 19,300,000
in 1995 and 17,793,000 in 1994. Certain common stock equivalents are not
included in the calculations because they are antidilutive.
RECLASSIFICATION: Certain prior year amounts have been reclassified to conform
with the 1996 presentation.
- --------------------------------------------------------------------------------
NOTE 2. INDUSTRY SEGMENT INFORMATION:
Springs operates in two industry segments: home furnishings and
specialty fabrics. The home furnishings segment manufactures, purchases for
resale, and markets home furnishing products, including sheets, pillowcases,
bedspreads, comforters, infant and toddler bedding, curtains, shower curtains
and accent bath rugs, towels, other bath fashion accessories, baby and health
care products, juvenile novelties, drapery hardware and decorative window
furnishings to all major channels of retail distribution and to institutional
customers. The specialty fabrics segment manufactures, finishes, purchases for
resale, and markets woven and non-woven fabrics, including apparel fabrics,
home-sewing fabrics, industrial fabrics, specialty fabrics, and protective and
fire retardant fabrics to manufacturers for use in a variety of end products.
Summarized segment information appears on page 14 and is an integral part of the
financial statements.
Sales for 1996, 1995, and 1994 include sales of $306.2 million, $266.9 million,
and $258.4 million, respectively, to one customer. The home furnishings segment
had sales of $248.4 million, $210.2 million, and $202.8 million for 1996, 1995,
and 1994, respectively, to this customer. Sales to this customer of $57.8
million, $56.7 million, and $55.6 million for 1996, 1995, and 1994,
respectively, are included in the specialty fabrics segment. Accounts
receivable at December 28, 1996, and December 30, 1995, included receivables
from this customer totaling $41.4 million and $41.5 million, respectively.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 19
Springs Industries, Inc.
- --------------------------------------------------------------------------------
NOTE 3. ACQUISITIONS AND DIVESTITURES:
On April 17, 1996, the Company sold Clark-Schwebel, Inc., a business in the
specialty fabrics segment, for $193 million in cash. A gain of $50.1 million
was included in other income for 1996. Through the date of sale,
Clark-Schwebel, Inc. had 1996 sales of $68.9 million and earnings before
interest and taxes of $11.3 million. In 1995, Clark-Schwebel, Inc. contributed
about 10 percent of the Company's sales of $2.233 billion and had record
earnings representing about 24 percent of Springs' earnings before interest
expense and taxes of $143 million. During the five years ended in 1995,
Clark-Schwebel, Inc.'s average contribution was 13 percent of Springs' sales
and 9 percent of its earnings before interest and taxes.
During 1995, the Company acquired three businesses in the home furnishings
segment. 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 as purchases, with the costs
allocated on the basis of the fair values of the assets acquired and liabilities
assumed. Liabilities assumed totaled $66.3 million, including $33.9 million of
long-term debt. The operating results of Dundee, Dawson and Nanik were included
in the Company's consolidated results of operations from their respective dates
of acquisition.
The following summary of unaudited pro forma results of operations presents
information as if the acquisitions had occurred at the beginning of 1995 and
1994. The pro forma earnings per share calculation treats the Springs Class A
common shares issued in the Dundee acquisition as having been outstanding
during all of 1994 and 1995. The pro forma information 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)
Year Ended Year Ended
Dec. 30, 1995 Dec. 31, 1994
------------- -------------
Net sales ........... $2,387,266 $2,450,964
Net income .......... 69,574 57,102
Earnings per share .. 3.42 2.82
===================================================
On December 29, 1995, the Company sold the assets of its Intek office panel
fabrics business. In connection with this sale, the Company received cash of
$13.2 million. On June 24, 1994, the Company sold all of the stock of
Clark-Schwebel Distribution Corp., a subsidiary of Clark-Schwebel, Inc. In
connection with this sale, the Company received cash of $19.1 million. The
gains on these transactions were included in other income.
- --------------------------------------------------------------------------------
NOTE 4. RESTRUCTURING AND REALIGNMENT EXPENSES:
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 closed three fabric manufacturing plants, added production in other
plants, and increased outside purchases of grey fabric. 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
three years, Springs plans to make capital investments of approximately $15.9
million and incur future expenses of approximately $19.5 million for equipment
relocation and other realignment expenses which do not qualify as "exit costs."
As of December 28, 1996, the Company has recorded approximately $4.1 million of
actual cash expenditures against the restructuring accrual, including $1.1
million of severance expense and $3.0 million for certain other expenses
associated with the plan. In addition, the Company has incurred $3.5 million
for equipment relocation and other realignment expenses and $1.4 million of
capital expenditures related to the plan.
7
20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Springs Industries, Inc.
NOTE 5. LONG-TERM DEBT:
Long-term debt consists of: (in thousands)
1996 1995
Commercial paper, average interest rate 6.1% in 1995 ................ $ - $ 69,825
Senior notes payable, effective interest rate of 10.0% .............. - 81,250
Notes payable at a variable market rate, 6.2% at December 30, 1995 .. - 5,218
Senior notes payable in annual installments of $5,000 in years 1997
through 2006, interest at 9.6% .................................... 50,000 50,000
Notes payable in quarterly installments of $2,857 from August
1998 through May 2005, effective interest rate of 6.7% ............ 80,000 80,000
Notes payable in quarterly installments of $714 from December
1998 through September 2005, effective interest at 6.7% ........... 20,000 20,000
Industrial Revenue Bond Obligations, payable in varying annual
amounts to 2019, interest at rates ranging from 2.5% to 8.3% ...... 31,456 32,243
Other ............................................................... 3,105 1,491
- -----------------------------------------------------------------------------------------
Total ............................................................. 184,561 340,027
Current maturities .................................................. (6,921) (13,078)
- -----------------------------------------------------------------------------------------
LONG-TERM DEBT .................................................... $177,640 $326,949
=========================================================================================
The Company recorded in 1996 an extraordinary charge of $3.5 million, net of an
income tax benefit of $2.2 million, incurred as a result of the early
extinguishment of $68.7 million of senior notes payable. The notes were due in
varying amounts through 2003 and had an effective interest rate of 10 percent.
The Company's access to the commercial paper market is facilitated by
committed long-term revolving credit agreements provided by several banks,
totaling $100.0 million. These revolving credit agreements carry no specific
expiration dates but would terminate thirteen months after notice from banks.
The Company pays an annual commitment fee on the unused portion of these
agreements.
In August 1996, the Company signed a one-year option agreement for an
additional $100 million long-term loan facility, which may be used to refinance
existing debt and for general corporate purposes. As of December 28, 1996, no
borrowings were outstanding under this agreement. The company incurred an
initial fee to enter into this agreement.
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
and/or redemption of stock. At December 28, 1996, under the most restrictive
of such requirements, retained earnings of approximately $142,000,000 were
available for dividends and/or the redemption of stock.
Scheduled annual maturities of long-term debt are: 1997 - $6,921,000; 1998 -
$13,897,000; 1999 - $20,857,000; 2000 -$20,514,000; 2001 - $20,207,000 and
varying amounts thereafter through 2019. Total interest payments in 1996,
1995, and 1994 were $23,973,000, $31,357,000 and $29,837,000, respectively.
The Company enters into interest rate swap agreements 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
believes its counterparty will perform. At December 28, 1996, and December 30,
1995, the notional amount of these agreements totaled $105,000,000 and
$113,000,000, respectively. The estimated fair value of these agreements at
December 28, 1996, was an unrealized gain of $1,655,000 based on market prices
for similar instruments.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 21
Springs Industries, Inc.
NOTE 6. SHAREOWNERS' EQUITY:
Changes in shareowners' equity, exclusive of retained earnings, are: (in
thousands)
Class A Class B Class A Currency
Common Stock Issued Common Stock Issued Additional Stock Held in Treasury Translation
-------------------- ------------------- ---------- ---------------------- -----------
Number Par Number Par Paid-In Number Adjustment
Of Shares Value Of Shares Value Capital Of Shares Cost And Other
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1994 ....... 9,858 $2,465 7,853 $1,963 $ 11,144 129 $2,785 $ 3,978
Exchange of Class B common stock
for Class A common stock ........ 23 5 (23) (5) - - - -
Shares awarded under various
employee plans .................. 3 1 - - 269 (9) (183) -
Currency translation adjustment .. - - - - - - - (1,530)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 ..... 9,884 $2,471 7,830 $1,958 $ 11,413 120 $2,602 $ 2,448
Exchange of Class B common stock
for Class A common stock ........ 225 57 (225) (57) - - - -
Shares awarded under various
employee plans .................. 20 5 - - 691 (9) (153) -
Shares issued in acquisition of
Dundee Mills, Incorporated ...... 2,514 628 - - 97,736 - - -
Currency translation adjustment .. - - - - - - - 4,801
Other ............................ - - - - - - - (1,527)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 30, 1995 ..... 12,643 $3,161 7,605 $1,901 $109,840 111 $2,449 $ 5,722
Exchange of Class B common stock
for Class A common stock ........ 96 24 (96) (24) - - - -
Shares awarded under various
employee plans .................. 7 2 - - 512 (4) (71) -
Effect of Clark-Schwebel, Inc.
disposition ..................... - - - - - - - (10,938)
Currency translation adjustment .. - - - - - - - (2,310)
Other ............................ - - - - - - - (266)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 28, 1996..... 12,746 $3,187 7,509 $1,877 $110,352 107 $2,378 $ (7,792)
====================================================================================================================================
As of December 28, 1996, 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, holders of Class B stock are entitled to four votes per share on
matters brought before shareowners of the Company, while holders of Class A
stock are entitled to one vote per share. Holders of Class A stock are entitled
to cash dividends which are at least 10 percent greater than cash dividends paid
on Class B stock.
The Company has an incentive stock plan ("The Plan") designed to achieve the
objectives of the long-term component of the Company's compensation program.
The Plan provides for awards of stock options, deferred stock, performance
units, and stock appreciation rights. Each such stock appreciation right is to
terminate upon the forfeiture or exercise of any accompanying option. No stock
appreciation rights were awarded in 1996 or 1995.
Non-transferable restricted Class A common stock may also be awarded under the
Plan, subject to the conditions and restrictions as determined by the Company's
Management Compensation and Organization Committee ("Compensation Committee").
The purchase price, if any, of shares of restricted stock shall be determined
by the Company's Compensation Committee; however, if any purchases are payable
in an amount other than the par value of the shares, the purchase price shall
be equal to at least 50 percent of the fair market value of the common stock on
the award date.
Non-transferable stock options to purchase Class A shares of common stock may
be granted in accordance with the provisions of the Plan. The option price may
not be less than the fair market value of the shares on the date of grant, and
no portion of the grant may be exercised beyond ten years from
that date. Options become exercisable on the third anniversary of the grant
date or ratably over a two- to four-year period thereafter.
9
22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Springs Industries, Inc.
- --------------------------------------------------------------------------------
The table below is a summary of changes in Class A
common stock options:
Number Exercise Price Weighted Average
Of Shares Per Share Exercise Price
--------- --------- --------------
Outstanding
at Jan.1, 1994 .... 439,000 $29.00-46.38 $31.34
Granted ............ 62,000 34.33 34.33
Forfeited .......... (129,000) 29.00-46.38 31.21
------------------------------------------------------------------------
Outstanding
at Dec. 31, 1994 .. 372,000 29.00-46.38 31.88
Granted ............ 608,000 39.13-41.88 41.21
Forfeited .......... (40,000) 29.00-46.38 33.07
Exercised .......... (14,000) 29.00 29.00
------------------------------------------------------------------------
Outstanding
at Dec. 30, 1995 .. 926,000 29.00-46.38 37.99
Granted ............ 15,000 47.25 47.25
Forfeited .......... (58,500) 29.00-46.38 36.41
------------------------------------------------------------------------
Outstanding
at Dec. 28, 1996 .. 882,500 $29.00-47.25 $38.26
========================================================================
The following table summarizes information about the
fixed-price stock options outstanding at December 28, 1996:
Range Options Weighted Avg. Weighted Shares Weighted
of Outstanding Remaining Average Exercisable Average
Exercise at Contractual Exercise at Exercise
Prices 12/28/96 Life Price 12/28/96 Price
----------------------------------------------------------------------
$ 29.00 215,000 4.9years $29.00 129,000 $29.00
$ 34.33 42,500 7.3years $34.33 - -
$39.13-41.88 573,000 8.6years $41.26 - -
$46.38-47.25 52,000 7.2years $46.63 12,333 $46.38
At December 28, 1996, options for 141,333 shares were exercisable at a
weighted-average exercise price of $30.52. As of December 30, 1995, 94,000
options at an exercise price of $29.00 were exercisable.
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" in accounting for its stock-based
awards. The Company granted 15,000 options in 1996 and 608,000 options in 1995
with weighted-average grant-date fair values of $17.79 per share and $13.56 per
share, respectively. Deferred stock awards and performance units of 117,483
units and 69,636 units at weighted-average grant-date fair values of $44.81 and
$37.51 were granted during 1996 and 1995, respectively. Compensation cost
charged against income for such awards totaled approximately $1,098,000 and
$968,000 for the years ended December 28, 1996, and December 30, 1995,
respectively. 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 the Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," the Company's pro forma net income
would have been $83.5 million, or $4.08 per share, for 1996 and $71.2 million,
or $3.69 per share, for 1995.
The fair value of each option was estimated on the date of grant using the
Black-Scholes option-pricing model. The following assumptions were used for the
grant in 1996: dividend rate of $1.32; expected volatility of 30.0 percent;
risk-free interest rate of 6.9 percent; and an expected life of 10 years. For
1995, the weighted-average assumptions used were: dividend rate of $1.32;
expected volatility of 30.7 percent; risk-free interest rate of 6.4 percent;
and expected lives of 8 years.
- --------------------------------------------------------------------------------
NOTE 7. INCOME TAXES:
The following tables present the components of the provision for income taxes,
a reconciliation of the statutory U.S. income tax rate to the effective income
tax rate, and the principal items of deferred income taxes at the end of 1996
and 1995.
INCOME TAX PROVISION:
(in thousands)
1996 1995 1994
Current. .............. $ 29,824 $31,470 $43,076
Deferred .............. (13,738) 7,837 1,409
-----------------------------------------------------------
Total tax provision
on income before
extraordinary
item ............... $ 16,086 $39,307 $44,485
===========================================================
RECONCILIATION TO EFFECTIVE TAX RATES:
1996 1995 1994
Provision at statutory
U.S. tax rate ........ 35.0% 35.0% 35.0%
Effective state income
tax rate (excluding
sale of subsidiary) .. 2.6 3.9 4.6
Effect of sale of
subsidiary (including
state tax) ............ (18.2) 0.3 0.3
Changes in valuation
allowance ............ (1.4) (2.0) 0.1
Other ................. (2.6) (1.8) 1.7
----------------------------------------------------------
Total effective tax
rate on income before
extraordinary item .. 15.4% 35.4% 41.7%
==========================================================
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 23
Springs Industries, Inc.
- --------------------------------------------------------------------------------
Temporary differences which give rise to deferred income taxes and the
resulting assets and liabilities are as follows:
(in thousands) 1996 1995
Employee benefit accruals ........... $ 38,871 $ 40,233
Deferred compensation ............... 28,282 26,420
Restructuring reserves .............. 11,631 2,035
Equity investments .................. - 2,232
Accounts receivable reserves ........ 7,676 4,580
Environmental accruals .............. 5,041 5,594
Other items ......................... 16,751 15,161
----------------------------------------------------------
Subtotal. ......................... 108,252 96,255
Less valuation allowance ............ - (3,399)
----------------------------------------------------------
Total deferred tax assets ......... 108,252 92,856
----------------------------------------------------------
Property ............................ (76,290) (82,351)
Inventories ......................... (7,320) (11,610)
Equity investments .................. - (9,287)
Intangibles ......................... (1,331) (1,665)
Other items ......................... (5,335) (1,554)
----------------------------------------------------------
Total deferred tax liabilities .... (90,276) (106,467)
----------------------------------------------------------
Net deferred tax asset (liability) .. $ 17,976 $ (13,611)
==========================================================
Income before income taxes includes foreign income of $4,855,000 and $6,932,000
in 1996 and 1995, respectively. Foreign losses for 1994 were $295,000. The
provision for income taxes includes state income taxes of $1,482,000 in 1996,
$6,513,000 in 1995, and $7,711,000 in 1994. Springs made income tax payments of
approximately $32,226,000, $47,691,000, and $32,907,000 in 1996, 1995, and
1994, respectively.
NOTE 8. EMPLOYEES' BENEFIT PLANS:
EMPLOYEES' PROFIT SHARING AND RETIREMENT PLANS
Substantially all associates of Springs are covered by defined
contribution plans or defined benefit plans. The Company makes contributions to
defined contribution plans, and these contributions are computed as a percentage
of each participant's base pay. In addition, in the event that eligible
participants contribute a percentage of their compensation to defined
contribution plans, the Company matches a portion of their contributions.
Company contributions to defined benefit plans are made in accordance with
ERISA, and benefits are generally based upon years of service. Assets in
defined benefit plans are invested in money market and other fixed income
securities (including United States government obligations) and in diversified
equity securities.
Defined contribution plan expenses for 1996, 1995, and 1994 were $22,334,000,
$22,538,000, and $24,721,000, respectively. The net assets available for
benefits under defined contribution plans had a market value of approximately
$601 million as of December 31, 1996.
Defined benefit retirement plan expenses were $3,240,000 in 1996, $2,772,000 in
1995, and $1,703,000 in 1994.
The following assumptions and components were used to develop the net pension
expense:
1996 1995 1994
ASSUMPTIONS:
Discount rate for obligations ................... $ 7.25% 7.00% 7.75%
Assumed rate of compensation increases (1) ...... 4.00 4.50 -
Expected long-term rate of return on assets ..... 7.50 7.50 7.50
COMPONENTS OF NET PENSION EXPENSE: (IN THOUSANDS)
Service cost .................................... $ 1,988 $ 1,598 $ 824
Interest cost on Projected Benefit Obligations .. 5,413 3,728 1,331
Actual return on assets ......................... (4,909) (3,737) 80
Net amortization and deferral ................... 748 1,183 (532)
- ------------------------------------------------------------------------------
Pension expense, net ............................ $ 3,240 $ 2,772 $1,703
==============================================================================
(1) Applicable only to certain plans of businesses acquired during 1995.
11
24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Springs Industries, Inc.
- --------------------------------------------------------------------------------
The following table sets forth the funding status of Springs' defined benefit
pension plans: (in thousands)
1996 1995
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
Benefits Exceed Assets Benefits Exceed Assets
------------------------------------------------------
Accumulated Benefit Obligation:
Vested .................................. $(29,602) $(25,462) $(22,435) $(45,841)
Non-vested .............................. (755) (52) (19) (1,731)
- --------------------------------------------------------------------------------------------------
Accumulated Benefit Obligation ........... $(30,357) $(25,514) $(22,454) $(47,572)
==================================================================================================
Effect of projected future compensation .. (6,682) (2,157) (2,014) (6,142)
Projected Benefit Obligation ............. (37,039) (27,671) (24,468) (53,714)
Plan assets at fair value ................ 42,576 4,704 26,526 31,039
- --------------------------------------------------------------------------------------------------
Excess (deficiency) of assets over
Projected Benefit Obligation ............ 5,537 (22,967) 2,058 (22,675)
Unrecognized (gain) loss and effects
of changes in assumptions ............... (4,938) 2,107 (402) 1,735
Additional minimum liability ............. - (2,011) - (2,363)
- --------------------------------------------------------------------------------------------------
Prepaid (accrued) pension cost recognized
in the balance sheet .................... $ 599 $(22,871) $1,656 $(23,303)
==================================================================================================
- --------------------------------------------------------------------------------
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company sponsors a defined benefit postretirement medical plan which covers
substantially all salaried and nonsalaried associates. The plan provides
medical benefits and is contributory, with retiree contributions adjusted
periodically.
Net postretirement medical benefit cost consisted of the following components:
(in thousands)
1996 1995 1994
Service cost -
benefits earned ........... $ 1,825 $1,145 $1,374
Interest cost on Accumulated
Postretirement Benefit
Obligation (APBO).......... 4,304 4,666 4,577
Amortization of
actuarial gain ............ (247) (768) (477)
Amortization of prior
service cost .............. 8 - -
Curtailment/settlement
gain from the sale
of a subsidiary ............ (4,452) - -
- ----------------------------------------------------------
Net postretirement
benefit cost ............... $ 1,438 $5,043 $5,474
==========================================================
The following table sets forth the status of Springs' obligation under its
postretirement medical plan at December 28, 1996, and December 30, 1995: (in
thousands)
1996 1995
Retirees ......................... $(30,295) $(46,009)
Fully eligible active plan
participants .................... (10,133) (4,934)
Other active plan participants ... (24,008) (22,326)
-------------------------------------------------------
APBO ............................. (64,436) (73,269)
-------------------------------------------------------
Unrecognized prior service cost .. 132 885
Unrecognized effects of
changes resulting from
experience different
from that assumed ............... (9,875) (7,102)
-------------------------------------------------------
Accrued Postretirement
Benefit Obligation recognized
in the balance sheet ............ $(74,179) $(79,486)
=======================================================
Net unrecognized actuarial gains at December 28, 1996, and December 30, 1995,
primarily resulted from lower health care cost inflation than assumed and
changes in the discount rate.
For measurement purposes, a 10.6 percent annual rate of increase in the
per capita cost of covered health care benefits was assumed for 1997; this 10.6
percent rate is assumed to decrease gradually to 5.5 percent by the year 2006
and remain at that level thereafter. If the health care cost trend rate were
increased by one percent, the APBO would increase by 9 percent and the aggregate
of the service and interest cost components of net postretirement medical
benefit cost would increase by 12 percent. The discount rates used in
determining the APBO at December 28, 1996, and December 30, 1995, were 7.25
percent and 7 percent, respectively.
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 25
Springs Industries, Inc.
- --------------------------------------------------------------------------------
NOTE 9. 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. However,
considerable judgment 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 28, 1996, and December 30,
1995. The estimated fair value of long-term debt at December 28, 1996,
approximated its carrying value. The estimated fair value of long-term debt at
December 30, 1995, was $358 million, compared to a carrying value of $340
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. See Note 5 for comments regarding the fair value of interest rate
swap agreements.
- --------------------------------------------------------------------------------
NOTE 10. OTHER MATTERS:
TRANSACTIONS WITH RELATED PARTIES: Two members of the Board of Directors,
their family and related entities own approximately 99 percent of Springs'
Class B 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 these companies is not
material, and the services have been obtained at competitive prices or rates.
Management annually reviews its conclusions with the Audit Committee of the
Board of Directors.
CONTINGENCIES: 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.
The Company has accrued an undiscounted liability of approximately $13
million, which represents management's best estimate of Springs' probable
liability concerning all known environmental matters. Management believes the
$13 million will be paid out over the next 10 years. This accrual has not been
reduced by any potential insurance recovery to which the Company may be entitled
regarding environmental matters. A significant component of the Company's
accrued liability for environmental matters involves 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.
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.
COMMITMENTS: The Company enters into forward delivery contracts and futures
contracts for the purchase of certain raw materials, 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.
13
26 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 generally
accepted accounting principles.
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. An internal audit staff
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 financial statements through its
Audit Committee, which is composed solely of outside directors. The Audit
Committee meets regularly with Springs' management, internal auditors, and
independent auditors. Both the independent auditors and internal auditors 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 provide an objective assessment of the degree to which management
meets its responsibility for fairness of financial reporting.
/s/ James F. Zahrn
- ----------------------------------------------
James F. Zahrn
Senior Vice President--Chief Financial Officer
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Springs Industries, Inc.
We have audited the accompanying consolidated balance sheet of Springs
Industries, Inc. as of December 28, 1996 and December 30, 1995, and the related
consolidated statements of operations and retained earnings and of cash flows
for each of the three fiscal years in the period ended December 28, 1996. 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 generally accepted auditing
standards. 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 Springs Industries, Inc. at
December 28, 1996 and December 30, 1995, and the results of its operations and
its cash flows for each of the three fiscal years in the period ended December
28, 1996, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
Charlotte, North Carolina
January 27, 1997
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF 27
OPERATIONS AND FINANCIAL CONDITION
- --------------------------------------------------------------------------------
A ten-year summary of Selected Financial Data appears on pages 30 through 31. A
three-year analysis of industry segment information appears on page 14.
RESULTS OF OPERATIONS
GENERAL
During the three years ended 1996, the Company acquired three home furnishings
businesses and sold three businesses in the specialty fabrics segment.
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. The Company purchased on May 28, 1995, 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 Nanik Window Coverings Group, a leading
manufacturer of wood window blinds and interior shutters. The operating
results of Dundee, Dawson and Nanik were included in the Company's consolidated
results of operations from the dates of the acquisitions.
On April 17, 1996, the Company sold Clark-Schwebel, Inc., a business in the
specialty fabrics segment, for $193 million in cash. A gain of $50.1 million
was included in other income for 1996. Through the date of sale Clark-Schwebel,
Inc. had 1996 sales of $68.9 million and earnings before interest and taxes of
$11.3 million. In 1995, Clark-Schwebel, Inc. contributed about 10 percent of
the Company's sales of $2.233 billion and had record earnings representing
about 24 percent of Springs' earnings before interest expense and taxes of $143
million. During the five years ended in 1995, Clark-Schwebel, Inc.'s average
contribution was 13 percent of Springs' sales and 9 percent of its earnings
before interest and taxes. Effective December 29, 1995, the Company sold the
assets of its Intek office panel fabrics business and received cash of $13.2
million. On June 24, 1994, the Company sold all of the stock of Clark-Schwebel
Distribution Corp., a subsidiary of Clark-Schwebel, Inc. In connection with
this sale, the Company received cash of $19.1 million. Gains on these
transactions were included in other income.
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 closed three fabric manufacturing plants, added
production in other plants, and increased outside purchases of grey fabric. 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 three years, Springs plans to make capital investments of
approximately $15.9 million and incur future expenses of approximately $19.5
million for equipment relocation and other realignment expenses which do not
qualify as "exit costs."
As of December 28, 1996, the Company has incurred approximately $4.1 million of
actual cash expenditures against the restructuring accrual, including $1.1
million of severance expense and $3.0 million for certain other expenses
associated with the plan. In addition, the Company has incurred $3.5 million
for equipment relocation and other realignment expenses and $1.4 million of
capital expenditures related to the plan.
- --------------------------------------------------------------------------------
1996 Compared with 1995
SALES
Annual sales in 1996 of $2.243 billion exceeded the previous year's record mark
of $2.233 billion by less than one percent. Increased home furnishings sales
were partially offset by a reduction in specialty fabrics sales.
Home furnishings sales reached a record $1.831 billion for 1996, up 11 percent
over the previous year's sales of $1.642 billion. The increase from 1995 is a
result of three acquisitions completed in mid-1995 and internal growth in each
of the principal home furnishings businesses.
Sales for the specialty fabrics segment were $412.7 million for 1996, down
30 percent from the prior year. Excluding the sales of Clark-Schwebel, Inc.
from both years, specialty fabrics sales rose one percent.
EARNINGS
Net income for 1996 was $84.9 million, or $4.15 per share, and included an
after-tax gain on the sale of Clark-Schwebel, Inc. of $50.1 million, or $2.45
per share, as well as a restructuring charge, realignment expenses, and other
write-offs, which collectively reduced net income by $29.8 million, or $1.46
per share. Excluding these unusual items, net income for 1996 would have been
$64.6 million, or $3.16 per share, compared to $71.6 million, or $3.71 per
share, for 1995.
Operating profits of $79.8 million in 1996 were substantially lower than in
1995. Excluding the restructuring and realignment expenses and Clark-Schwebel,
Inc.'s results from both years, operating profits would have been $104.0
million in 1996 and $104.6 million in 1995. The home furnishings segment
reported operating profits of $52.0 million, substantially below the level
achieved in 1995. Excluding the restructuring and realignment expenses recorded
in 1996, operating profits for the home furnishings segment would have been
$85.3 million, compared to $89.6 million in 1995. Operating earnings of the
segment were adversely affected in
15
28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS AND FINANCIAL CONDITION
- --------------------------------------------------------------------------------
the fourth quarter by a highly promotional mix of shipments as well as
inefficiencies connected with major systems conversions and with ongoing
consolidations of facilities.
The specialty fabrics segment reported a substantial reduction in operating
earnings for 1996. Excluding the results of Clark-Schwebel, Inc. from both
years, the segment's operating earnings improved moderately over the prior
year.
The decrease in the effective income tax rate to 15.4 percent in 1996 compared
to 35.4 percent in 1995 is primarily the result of the absence of taxes
associated with the gain on sale of a subsidiary. A lower state effective
income tax rate also contributed to the reduction. See Note 7 to the
Consolidated Financial Statements.
- --------------------------------------------------------------------------------
1995 Compared with 1994
SALES
Record annual sales in 1995 of $2.233 billion exceeded the previous year's
record mark of $2.069 billion by eight percent. Increased home furnishings
sales were partially offset by a decline in specialty fabrics sales volume.
Home furnishings sales improved 12 percent to $1.642 billion as a result of the
three acquisitions completed during the year. Without the acquisitions, the
full year's sales of home furnishings would have been about equal to the prior
year in spite of a weakening of retail demand in November and December of 1995.
Sales for the specialty fabrics segment reached $590.7 million for 1995. This
represented a decline of three percent from the prior year. Adjusting for the
absence of Clark-Schwebel Distribution Corp., sold in June 1994, the 1995
specialty fabrics sales showed a gain of four percent over 1994 as a result of
strong demand for industrial fabrics.
EARNINGS
Net income for 1995 increased to $71.6 million, a 15 percent improvement over
1994 net income of $62.2 million. Earnings per share in 1995 rose six percent
to $3.71 from the $3.50 reported for 1994.
Operating income of $133.5 million in 1995 was slightly below the prior year's
level of $135.8 million. A decline in the operating income of the home
furnishings segment was nearly offset by an increase in specialty fabrics
profits.
The home furnishings segment reported operating income of $89.6 million, which
was eight percent below the $97.5 million reported for 1994. The results of
the home furnishings segment reflected increased raw material and supply costs
as well as a weakening of retail demand in November and December of 1995.
Despite lower sales, the specialty fabrics segment reported operating income of
$43.9 million compared to $38.3 million in 1994. The strength of the segment's
industrial fabrics businesses more than offset the effect of sluggish markets
for finished fabrics for home sewing and apparel.
Other income benefited from higher equity investment income, interest income,
and a gain on the sale of the Company's Intek office panel fabrics business.
Lower effective state income tax rates and a reduction in the valuation
allowance associated with one of the company's foreign equity investments
contributed to a decrease in the effective tax rate to 35.4 percent in 1995
compared to 41.7 percent in 1994.
- --------------------------------------------------------------------------------
INFLATION AND CHANGING PRICES
The replacement cost of property, plant and equipment is generally greater than
the historical cost shown on the Balance Sheet due to inflation that has
occurred since the property was placed in service.
Springs uses the LIFO method of accounting for approximately 84 percent of its
inventories. Under this method, the cost of goods sold reported in the
Statement of Operations generally
reflects current costs.
- --------------------------------------------------------------------------------
CAPITAL RESOURCES AND LIQUIDITY
The Company's overall cash needs for 1996 were provided from operations. The
Company had short-term and commercial paper borrowings totaling approximately
$92 million at December 30, 1995, which were repaid in the second quarter of
1996 using proceeds from the sale of Clark-Schwebel, Inc. In addition, on July
1, 1996, the Company extinguished $68.7 million of senior notes having an
effective interest rate of 10 percent. In connection with this debt
extinguishment, the Company recorded an extraordinary charge of $3.5 million,
net of an income tax benefit of $2.2 million. In August 1996, the Company
signed a one-year option agreement for an additional $100 million long-term
loan facility, which may be used to refinance existing debt and for general
corporate purposes. As of December 28, 1996, no borrowings were outstanding
under this term loan agreement. Debt, net of cash, as a percent of total
capital was 21.7 percent at December 28, 1996, compared to 35.6 percent at
December 30, 1995. Expenditures for property, plant and equipment totaling $75
million were made in 1996.
The Company expects capital expenditures for 1997 to approximate $110 million.
Springs believes its 1997 cash needs will be adequately provided from
operations and borrowings from commercial paper and committed short-term lines.
- --------------------------------------------------------------------------------
OTHER
The Company enters into forward delivery contracts and futures contracts for
the purchase of certain raw materials, consistent with the size of its
business, to hedge 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.
16
QUARTERLY FINANCIAL DATA (UNAUDITED) 29
(In millions except per share data)
--------------------- 1996 ---------------------- --------------- 1995 ----------------------
QUARTER 1ST 2ND 3RD 4TH YEAR 1ST 2ND 3RD 4TH YEAR
Net sales. ............. $583.5 $545.0 $569.2 $545.6 $2,243.3 $483.1 $532.7 $623.8 $593.5 $2,233.1
Gross profit ........... 105.7 105.8 113.6 88.0 413.1 87.1 95.2 111.9 110.3 404.5
Income before
extraordinary item .... 12.3 43.0 22.6 10.5 88.4 9.9 14.4 21.3 26.0 71.6
Net income ............. 12.3 39.5 22.6 10.5 84.9 9.9 14.4 21.3 26.0 71.6
Net income,
as adjusted (1) ....... $ 12.3 $ 15.9 $ 22.8 $ 13.6 $ 64.6 $ 9.9 $ 14.4 $ 21.3 $ 26.0 $ 71.6
==========================================================================================================================
Per share:
Income before
extraordinary item ... $ .60 $ 2.10 $ 1.11 $ .51 $ 4.32 $ .55 $ .78 $ 1.08 $ 1.30 $ 3.71
Extraordinary loss from
extinguishment of debt - .17 - - .17 - - - - -
- --------------------------------------------------------------------------------------------------------------------------
Net Income ............. .60 1.93 1.11 .51 4.15 .55 .78 1.08 1.30 3.71
Net income,
as adjusted (1) ...... $ .60 $ .78 $ 1.11 $ .67 $ 3.16 $ .55 $ .78 $ 1.08 $ 1.30 $ 3.71
==========================================================================================================================
(1) Net income for 1996, adjusted to exclude the effects of restructuring and
realignment expenses, an after-tax gain on the sale of Clark-Schwebel, Inc.,
an extraordinary loss, and other write-offs.
DIVIDENDS AND PRICE RANGE OF COMMON STOCK
------------------------- 1996 ------------------------- -------------------- 1995 ------------------------
QUARTER 1ST 2ND 3RD 4TH YEAR 1ST 2ND 3RD 4TH YEAR
Per share:
Class A dividends
declared .......... $.33 $.33 $.33 $.33 $1.32 $.30 $.30 $.33 $.33 $1.26
Class B dividends
declared .......... .30 .30 .30 .30 1.20 .27 .27 .30 .30 1.14
====================================================================================================================================
Common stock prices:
High .............. 47 1/8 50 1/2 50 1/4 48 1/8 50 1/2 40 1/4 40 1/2 44 3/4 44 1/2 44 3/4
Low ............... 38 3/8 42 3/8 41 3/8 41 5/8 38 3/8 35 1/4 36 3/8 35 3/4 39 35 1/4
[PRICE RANGE OF COMMON STOCK
(by quarter) LINE GRAPH]
Line graph showing the high and low price of the Company's common stock by
quarter for 1995 and 1996.
[QUARTERLY INCOME COMPARISON
(per share) (1) BAR GRAPH]
Bar graph showing a quarterly comparison of earnings per share for 1995 and
1996.
(1) Net income for 1996, adjusted to exclude the effects of restructuring and
realignment expenses, an after-tax gain on the sale of Clark-Schwebel,
Inc. , an extraordinary loss, and other write-offs.
17
30 SELECTED FINANCIAL DATA
Springs Industries, Inc.
1996 1995 1994 1993 1992(c)
SUMMARY OF OPERATIONS: (in millions)
Net sales .......................................... $2,243.3 $2,233.1 $2,068.9 $2,022.8 $1,975.7
Income (loss) from continuing operations ........... 88.4(i) 71.6 62.2 47.2 44.5
Net income (loss) .................................. 84.9(d) 71.6 62.2 (25.3)(h) 44.5
Class A cash dividends declared. ................... 16.7 14.8 11.8 11.6 11.5
Class B cash dividends declared .................... 9.0 8.9 8.5 8.5 8.6
- ------------------------------------------------------------------------------ ----------- -------------------------
PER SHARE OF COMMON STOCK:
Income (loss) from continuing operations ........... 4.32(i) 3.71 3.50 2.65 2.50
Net income (loss) .................................. 4.15(d) 3.71 3.50 (1.42)(h) 2.50
Class A cash dividends declared .................... 1.32 1.26 1.20 1.20 1.20
Class B cash dividends declared .................... 1.20 1.14 1.08 1.08 1.08
Shareowners' equity ................................ 38.75 36.48 33.20 30.90 33.47
Class A stock price range:
High ............................................. 50 1/2 44 3/4 41 49 43 7/8
Low .............................................. 38 3/8 35 1/4 29 1/4 33 1/2 30 1/2
- -----------------------------------------------------------------------------------------------------------------------
STATISTICAL DATA:
Net income (loss) to net sales ..................... 3.8%(d) 3.2% 3.0% (1.3)%(h) 2.3%
Net income (loss) to average shareowners' equity. .. 11.1%(d) 10.8% 11.2% (4.7)%(h) 7.7%
Operating return on assets employed (e) ............ 8.8% 9.8% 10.4% 8.8 % 8.7%
Inventory turnover (f) ............................. 4.8 5.3 5.8 5.6 6.0
Accounts receivable turnover (g) ................... 6.5 6.6 6.5 6.5 6.5
Net sales divided by average assets ................ 1.6 1.5 1.6 1.6 1.6
Current ratio ...................................... 3.1 2.9 2.5 2.3 2.2
Capital expenditures (in millions) ................. $ 75.1 $ 75.2 $ 92.6 $ 88.3 $ 80.3
Depreciation (in millions) ......................... $ 80.8 $ 84.6 $ 79.7 $ 78.1 $ 77.7
Approximate number of shareowners .................. 3,000 3,200 3,200 3,200 3,300
Average number of associates ....................... 21,700 22,600 20,300 20,300 20,900
- ----------------------------------------------------------------------------------------------------------------------
SELECTED BALANCE SHEET DATA: (in millions)
Net working capital ................................ $ 537.1 $506.3 $ 373.0 $ 353.5 $ 328.2
Net property ....................................... 534.6 614.0 555.3 549.9 559.3
Total assets ....................................... 1,398.0 1,527.5 1,289.0 1,292.1 1,250.3
Long-term debt ..................................... 177.6 326.9 265.4 293.0 273.6
Shareowners' equity ................................ 780.8 734.5 584.1 543.2 588.1
- ----------------------------------------------------------------------------------------------------------------------
(a) Net of $70.0 million charge ($43.9 million after tax, or $2.46 per share)
for restructuring.
(b) Net of $18.0 million charge ($11.2 million after tax, or $.63 per share)
for restructuring.
(c) Fifty-three weeks.
(d) Net of restructuring and realignment expenses of $33.9 million, an
after-tax gain of $50.1 million on the sale of Clark-Schwebel, Inc.,
an extraordinary loss of $3.6 million, and other write-offs. Without these
unusual items, net income would have been $64.6 million,
or $3.16 per share, and the return on average shareowners' equity would have
been 8.5 percent.
(e) Pretax income before interest expense divided by average of month-end total
assets used in operations. For 1996, pretax income was net of restructuring
and realignment expenses, an after-tax 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%.
(f) Cost of goods sold divided by average of month-end inventories.
(g) Net sales divided by average of month-end receivables.
(h) Net of a charge of $72.5 million, net of income taxes, or $4.07 per share,
for cumulative effect of adoption of SFAS Nos. 106 & 109.
(i) Differs from net income by an extraordinary loss of $3.6 million, or $.17
per share.
18
SELECTED FINANCIAL DATA 31
Springs Industries, Inc.
1991 1990 1989 1988 1987
SUMMARY OF OPERATIONS: (in millions)
Net sales .......................................... $1,890.4 $1,878.0 $1,909.3 $1,824.8 $1,661.1
Income (loss) from continuing operations ........... 27.1 (6.8)(a) 64.9 52.8(b) 55.7
Net income (loss) .................................. 27.1 (6.8)(a) 64.9 52.8(b) 55.7
Class A cash dividends declared. ................... 11.4 11.6 11.5 14.7 14.5
Class B cash dividends declared .................... 8.7 8.7 8.7 2.8 -
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE OF COMMON STOCK:
Income (loss) from continuing operations ........... 1.53 (0.39)(a) 3.64 2.98(b) 3.13
Net income (loss) .................................. 1.53 (0.39)(a) 3.64 2.98(b) 3.13
Class A cash dividends declared .................... 1.20 1.20 1.20 1.01 0.82
Class B cash dividends declared .................... 1.08 1.08 1.08 0.27 -
Shareowners' equity ................................ 32.39 32.05 33.08 30.67 28.64
Class A stock price range:
High ............................................. 36 1/4 39 1/2 45 1/4 38 3/4 38 1/4
Low .............................................. 21 1/4 16 7/8 30 1/2 27 20 3/4
- ------------------------------------------------------------------------------------------------------------------------------------
STATISTICAL DATA:
Net income (loss) to net sales ..................... 1.4% (0.4)%(a) 3.4% 2.9%(b) 3.4%
Net income (loss) to average shareowners' equity. .. 4.9% (1.2)%(a) 11.6% 10.2%(b) 11.5%
Operating return on assets employed (e) ............ 6.6% 1.9 %(a) 11.2% 10.3%(b) 12.3%
Inventory turnover (f) ............................. 6.0 5.6 5.8 6.2 5.8
Accounts receivable turnover (g) ................... 6.3 6.2 6.4 6.4 6.5
Net sales divided by average assets ................ 1.5 1.6 1.7 1.7 1.6
Current ratio ...................................... 2.2 2.5 2.4 2.7 3.0
Capital expenditures (in millions) ................. $115.9 $117.8 $108.3 $77.1 $ 69.9
Depreciation (in millions) ......................... $75.2 $72.6 $67.5 $62.1 $ 57.8
Approximate number of shareowners .................. 3,500 3,400 3,500 3,700 3,400
Average number of associates ....................... 21,700 23,200 24,100 23,400 23,100
- ------------------------------------------------------------------------------------------------------------------------------------
SELECTED BALANCE SHEET DATA: (in millions)
Net working capital ................................ $329.7 $356.5 $354.9 $389.8 $ 428.1
Net property ....................................... 572.1 524.2 475.0 424.5 393.1
Total assets ....................................... 1,251.3 1,201.1 1,188.4 1,118.3 1,083.7
Long-term debt ..................................... 287.8 260.4 227.5 238.5 256.8
Shareowners' equity ................................ 568.9 560.9 585.1 541.6 505.0
- ------------------------------------------------------------------------------------------------------------------------------------
Note: Selected Financial Data includes the following since their respective
dates of acquisition: Uniglass, February 1988; Andre Richard, March
1988; Carey-McFall, March 1989; C. S. Brooks, April 1991; C. S. Brooks
Canada, August 1992; Griffiths-Kerr, October 1992; Dundee Mills,
Incorporated, May 1995; the principal assets of Dawson Home Fashions,
Inc., May 1995; and Nanik Window Coverings Group, July 1995. Selected
Financial Data also includes the following until their respective dates
of disposition: Clark-Schwebel Distribution Corp., June 1994; the
Company's Intek office panel fabrics business, December 1995; and
Clark-Schwebel, Inc., April 1996.