1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
For the Quarter Ended September 27, 1997 Commission File Number 1-5315
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SPRINGS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
SOUTH CAROLINA 57-0252730
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
205 North White Street
Fort Mill, South Carolina 29715
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(803) 547-1500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days.
Yes X No
----- -----
As of November 3, 1997, there were 12,890,251 shares of Class A Common Stock and
7,271,021 shares of Class B Common Stock of Springs Industries, Inc.
outstanding.
There are 19 pages in the sequentially numbered, manually signed original of
this report.
Page 1 of 19
The Index to Exhibits is on Page 14
2
TABLE OF CONTENTS TO FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM PAGE
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1. FINANCIAL STATEMENTS 3
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 9
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM PAGE
- ---- ----
6. EXHIBITS 12
SIGNATURES 13
EXHIBIT INDEX 14
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3
PART I
ITEM 1. - FINANCIAL STATEMENTS
SPRINGS INDUSTRIES, INC.
Consolidated Statement of Operations
and Retained Earnings
(In thousands except per share data)
(Unaudited)
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
------------------------ ---------------------------
SEPT. 27, SEPT. 28, SEPT. 27, SEPT. 28,
1997 1996 1997 1996
---------- --------- ----------- -----------
OPERATIONS
Net sales ........................ $ 579,236 $ 562,900 $ 1,651,176 $ 1,682,483
Cost and expenses:
Cost of goods sold ............. 470,802 455,668 1,348,387 1,372,646
Selling, general and
administrative expenses ...... 67,767 69,335 207,234 213,643
Restructuring and
realignment expenses ......... 2,329 309 7,313 30,733
Interest expense ............... 4,615 4,492 13,841 17,864
Other (income) expense ......... (7,169) (2,024) (7,018) (45,505)
--------- --------- ----------- -----------
Total ........................ 538,344 527,780 1,569,757 1,589,381
--------- --------- ----------- -----------
Income before income taxes and
extraordinary item ............. 40,892 35,120 81,419 93,102
Income tax provision ............. 13,493 12,503 27,682 15,195
--------- --------- ----------- -----------
Income before extraordinary item 27,399 22,617 53,737 77,907
Extraordinary item:
Loss on extinguishment of debt,
net of income tax benefit of
$2,176 ....................... -- -- -- 3,552
--------- --------- ----------- -----------
Net income ..................... $ 27,399 $ 22,617 $ 53,737 $ 74,355
========= ========= =========== ===========
Per share:
Income before extraordinary item $ 1.34 $ 1.11 $ 2.62 $ 3.81
Extraordinary loss from
extinguishment of debt ....... -- -- -- (.17)
--------- --------- ----------- -----------
Net income ..................... $ 1.34 $ 1.11 $ 2.62 $ 3.64
========= ========= =========== ===========
Cash dividends declared:
Class A shares ................. $ .33 $ .33 $ .99 $ .99
========= ========= =========== ===========
Class B shares ................. $ .30 $ .30 $ .90 $ .90
========= ========= =========== ===========
Weighted average shares of
common stock ................... 20,537 20,453
=========== ===========
RETAINED EARNINGS
Retained earnings at beginning
of period ...................... $ 689,000 $ 655,239 $ 675,533 $ 616,347
Net income ....................... 27,399 22,617 53,737 74,355
Cash dividends declared .......... (6,438) (6,425) (19,309) (19,271)
--------- --------- ----------- -----------
Retained earnings at end of
period ......................... $ 709,961 $ 671,431 $ 709,961 $ 671,431
========= ========= =========== ===========
See Notes to Condensed Consolidated Financial Statements.
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SPRINGS INDUSTRIES, INC.
Condensed Consolidated Balance Sheet
(In thousands except share data)
(Unaudited)
SEPT. 27, DECEMBER 28,
1997 1996
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents ............... $ 680 $ 30,719
Accounts receivable ..................... 363,687 350,830
Inventories ............................. 401,304 370,896
Other ................................... 42,151 37,177
----------- -----------
Total current assets .................. 807,822 789,622
----------- -----------
Property, plant and equipment ............. 1,350,435 1,320,400
Accumulated depreciation ................ (815,806) (785,836)
----------- -----------
Property, plant and equipment, net .... 534,629 534,564
----------- -----------
Other assets .............................. 83,462 73,770
----------- -----------
Total ................................. $ 1,425,913 $ 1,397,956
=========== ===========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term borrowings ................... $ 18,850 $ --
Current maturities of long-term debt .... 9,626 6,921
Accounts payable ........................ 75,853 103,841
Other accrued liabilities ............... 147,493 141,727
----------- -----------
Total current liabilities ............. 251,822 252,489
----------- -----------
Noncurrent liabilities:
Long-term debt .......................... 168,835 177,640
Accrued benefits and deferred
compensation ........................... 168,182 160,535
Deferred income taxes and other deferred
credits ................................ 20,589 26,513
----------- -----------
Total noncurrent liabilities .......... 357,606 364,688
----------- -----------
Shareowners' equity:
Class A common stock- $.25 par value
(12,991,492 and 12,746,374 shares
issued in 1997 and 1996, respectively) 3,248 3,187
Class B common stock- $.25 par value
(7,271,021 and 7,508,579 shares issued
in 1997 and 1996, respectively) ....... 1,818 1,877
Additional paid-in capital .............. 110,769 110,352
Retained earnings ....................... 709,961 675,533
Cost of Class A shares in treasury
(101,477 and 106,739 shares
in 1997 and 1996, respectively) ....... (2,283) (2,378)
Currency translation adjustment and other (7,028) (7,792)
----------- -----------
Total shareowners' equity ............. 816,485 780,779
----------- -----------
Total ................................. $ 1,425,913 $ 1,397,956
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
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SPRINGS INDUSTRIES, INC.
Condensed Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
THIRTY-NINE WEEKS ENDED
-----------------------
SEPT. 27, SEPT. 28,
1997 1996
--------- ---------
Operating activities:
Net income ................................... $ 53,737 $ 74,355
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ............... 65,794 70,966
Gain on sale of businesses and other
investments ................................ (6,587) (49,896)
Provision for restructuring costs ........... -- 30,375
(Gain) loss on disposal of property, plant
and equipment .............................. (695) 5,997
Extraordinary loss on extinguishment of
debt ....................................... -- 5,728
Changes in operating assets and liabilities,
net of effects of business acquisitions and
sale of businesses ......................... (56,974) (57,589)
Other, net .................................. (2,834) (808)
-------- ---------
Net cash provided by operating activities 52,441 79,128
-------- ---------
Investing activities:
Purchases of property, plant and
equipment .................................. (64,943) (50,669)
Business acquisitions ........................ (6,429) (1,900)
Notes receivable funded ...................... (14,000) --
Principal collected on notes receivable ...... 2,638 --
Proceeds from sales of businesses and other
assets ..................................... 1,693 194,822
Proceeds from sale of investment ............. 12,017 --
-------- ---------
Net cash provided (used) by investing
activities .............................. (69,024) 142,253
-------- ---------
Financing activities:
Proceeds (repayments) of short-term
borrowings net ............................. 18,850 (21,900)
Proceeds from long-term borrowings ........... -- 2,261
Repayment of long-term debt .................. (6,573) (161,336)
Cash dividends paid .......................... (25,733) (25,688)
-------- ---------
Net cash used by financing activities .... (13,456) (206,663)
-------- ---------
Increase (decrease) in cash and cash
equivalents ................................... $(30,039) $ 14,718
======== =========
See Notes to Condensed Consolidated Financial Statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies:
The accompanying condensed consolidated financial statements should be
read in conjunction with the financial statements presented in the
Springs Industries, Inc. ("Springs" or the "Company") 1996 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. Inventories:
Inventories are summarized as follows (in thousands):
Sept. 27, Dec. 28,
1997 1996
---------- ----------
Standard cost (which approximates average cost) or average cost:
Finished goods ................................................ $ 266,258 $ 242,650
In process .................................................... 196,104 185,307
Raw materials and supplies .................................... 59,916 67,925
--------- ---------
522,278 495,882
Less LIFO reserve .............................................. (120,974) (124,986)
--------- ---------
Total ......................................................... $ 401,304 $ 370,896
========= =========
3. Reclassification:
Certain prior-year amounts have been reclassified to conform with the
1997 presentation, including classification in net sales of certain
promotional costs which were previously included in selling, general
and administrative expenses.
4. 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.
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5. Divestiture:
On April 17, 1996, the Company sold Clark-Schwebel, Inc., a business
formerly included in the specialty fabrics segment, for $193 million in
cash. A gain of $50.1 million was included in other (income) expense
for the nine months ended September 28, 1996. Through the date of sale,
Clark-Schwebel, Inc. had 1996 sales of $68.9 million and earnings
before interest expense and taxes 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
expense and taxes.
6. 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 closed three fabric
manufacturing plants, added production in other plants, and increased
outside purchases of grey fabric. A pretax restructuring charge of
$30.4 million was recorded during the second quarter of 1996 which
included a $16.3 million write-off of plant and equipment, a $6.6
million accrual for anticipated severance expense arising from the
elimination of approximately 850 positions, and a $7.5 million accrual
for certain other anticipated expenses associated with the plan.
Through September 27, 1997, the Company has recorded cash expenditures
of approximately $3.8 million against the severance accrual and $4.6
million against the accrual for certain other expenses associated with
the plan. The severance accrual was also reduced by $0.2 million during
the third quarter of 1997. A decrease of $2.0 million, due to a
lower-than-expected average cost per associate, was offset
substantially by an increase of $1.8 million arising from the
elimination of approximately 320 positions at other manufacturing
facilities. In addition, through September 27, 1997, the Company has
incurred expenses of $11.1 million, including $2.5 million during the
third quarter, for equipment relocation and other realignment expenses
and has made capital investments of $4.4 million related to the plan.
7. Impact of Recently Issued Accounting Standards:
In February of 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share," which is required to be
adopted for both interim and year-end financial statements ending after
December 15, 1997. At that time, the Company will be required to change
the method currently used to compute earnings per share and to restate
all prior periods. The Company does not expect Statement No. 128 to
have a material effect on its financial statements.
8. Other:
Included in other (income) expense for the third quarter and first nine
months of 1997 was a $6.6 million gain on the sale of an investment.
Other (income) expense for the nine months ended September 28, 1996,
included a gain of $50.1 million on the sale of Clark-Schwebel, Inc.
and asset write-downs totaling approximately $5.5 million.
Certain Company information systems will require modification or
replacement over the next three years in order to render these systems
compliant with the year 2000. Information systems that will be affected
by the year 2000 issue have been identified, and the Company is
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8
developing and implementing plans to ensure compliance by the year
2000. The Company is in the process of estimating the financial impact
of its millennium solution.
9. Legal and Environmental:
As disclosed in the 1996 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 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.
10. Subsequent Event:
In October of 1997, the Company's Board of Directors approved the
purchase of up to 2 million shares of the Company's Class A common
stock. Management was authorized to begin buying the shares in the open
market and in private transactions.
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ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Sales
Net sales for the third quarter of 1997 were $579.2 million, up 3 percent from
the third quarter of 1996. The home furnishings segment produced a third-
quarter net sales increase of 3 percent. Third-quarter net sales for the
specialty fabrics segment were up 2 percent compared to 1996.
Year-to-date net sales were $1,651.2 million, down 2 percent compared to the
first nine months of 1996 due to the sale of Clark-Schwebel, Inc. Year-to- date
sales of home furnishings were 4 percent higher than during the first nine
months of 1996. Year-to-date net sales for the specialty fabrics segment were 26
percent lower than a year ago due to continued weak market demand and the 1996
divestiture of Clark-Schwebel, Inc.
Earnings
Net income for the third quarter of 1997 was $27.4 million, or $1.34 per share,
after the effect of realignment expenses associated with the Company's
restructuring of its fabric manufacturing operations announced in June of 1996
and a $6.6 million pretax gain on the sale of an investment. Without these
unusual items, net income for the third quarter of 1997 would have been $24.8
million, or $1.21 per share, compared to $22.8 million, or $1.11 per share, for
the third quarter of 1996. The Company has continued its efforts to expand
margins in its home furnishings business with a focus on improving operating
efficiency. The home furnishings segment achieved a 10 percent increase in
operating earnings compared to last year. Excluding realignment expenses,
operating earnings for the home furnishings segment increased approximately 16
percent over the third quarter of 1996. Operating earnings for the specialty
fabrics segment were significantly lower compared to the third quarter of 1996.
Weak market demand affecting certain portions of the specialty fabrics segment
contributed to the decline.
Earnings for the nine months ended September 27, 1997, were $53.7 million, or
$2.62 per share, compared to $74.4 million, or $3.64 per share, for the first
nine months of 1996. Year-to-date net income for 1997 included restructuring and
realignment charges of $7.3 million and a $6.6 million gain on the sale of an
investment. In 1996, earnings for the first nine months included restructuring
and realignment charges of $30.7 million, a $50.1 million gain on the sale of
Clark-Schwebel, Inc., asset write-downs totaling approximately $5.5 million, and
a $5.7 million extraordinary loss on the early extinguishment of debt. Excluding
these unusual items, net income for the nine months ended September 27, 1997
would have been $54.2 million, or $2.64 per share, compared to $51.0 million, or
$2.49 per share, for the nine months ended September 28, 1996. In the home
furnishings segment, earnings were higher than a year ago due to improved volume
and margin expansion in bed and bath. Year-to-date operating earnings for the
specialty fabrics segment were significantly lower than in the prior year due to
continued weak market demand for certain portions of its business and the sale
of Clark-Schwebel, Inc. in April of 1996.
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CAPITAL RESOURCES AND LIQUIDITY
As of September 27, 1997, the Company's debt, net of cash, represented 23.1% of
total capital. This compares to 21.7% at December 28, 1996. A seasonal increase
in accounts receivable and inventory resulted in increased short-term
borrowings. On August 11, 1997, the Company renewed for one year its $100
million long-term loan facility, dated August 12, 1996, which may be used to
refinance existing debt and for general corporate purposes. Management expects
to spend approximately $30 million on capital expenditures during the fourth
quarter of 1997. These investments will focus on manufacturing equipment,
distribution facilities and information systems.
In October of 1997 the Company's Board of Directors approved the purchase of up
to 2 million shares of the Company's Class A common stock. Management was
authorized to begin buying the shares in the open market and in private
transactions. Management expects that cash from operations and borrowings from
commercial paper and committed short-term bank lines will adequately provide for
the remainder of the Company's 1997 operating cash needs and for the Company's
1997 repurchase of shares.
OTHER
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 restructuring
charge of $30.4 million was recorded during the second quarter of 1996, which
included a $16.3 million write-off of plant and equipment, a $6.6 million
accrual for anticipated severance expense arising from the elimination of
approximately 850 positions, and a $7.5 million accrual for certain other
anticipated expenses associated with the plan.
Through September 27, 1997, the Company has recorded cash expenditures of
approximately $3.8 million against the severance expense accrual and $4.6
million against the accrual for certain other expenses associated with the plan.
The severance accrual was also reduced by $0.2 million during the third quarter
of 1997. A decrease of $2.0 million, due to a lower-than-expected average cost
per associate, was offset substantially by an increase of $1.8 million arising
from the elimination of approximately 320 positions at other manufacturing
facilities. In addition, through September 27, 1997, the Company has incurred
expenses of $11.1 million, including $2.5 million during the third quarter, for
equipment relocation and other realignment expenses and has made capital
investments of $4.4 million related to the plan. Over the next 27 months,
Springs plans to make future capital investments of $12.9 million and incur
future expenses of approximately $12.0 million for equipment relocation and
other realignment costs which do not qualify as "exit costs."
On April 17, 1996, the Company sold Clark-Schwebel, Inc., a business formerly
included in the specialty fabrics segment, for $193 million in cash. A gain of
$50.1 million was included in other (income) expense for the nine months ended
September 28, 1996. Through the date of sale, Clark-Schwebel, Inc. had 1996
sales of $68.9 million and earnings before interest expense and taxes 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 expense and taxes.
Certain prior year amounts have been reclassified to conform with the 1997
presentation, including classification in net sales of certain promotional
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11
costs which were previously included in selling, general and administrative
expenses.
Certain Company information systems will require modification or replacement
over the next three years in order to render these systems compliant with the
year 2000. Information systems that will be affected by the year 2000 issue have
been identified, and the Company is developing and implementing plans to ensure
compliance by the year 2000. The Company is in the process of estimating the
financial impact of its millennium solution.
This report contains or may contain forward-looking statements that reflect
management's current assumptions and estimates of future performance and
economic conditions. The Company cautions investors that any forward-looking
statement is subject to risks and uncertainties that may cause actual results
to vary significantly from those projected, stated, or implied by the
forward-looking statement. Factors that could cause actual results to differ,
in addition to those discussed in the Company's most recently filed 10-K,
include the health of the retail economy, progress toward our cost reduction
goals and our year 2000 compliance plans, and the success of efforts aimed at
improving the operating performance of our specialty fabrics segment.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February of 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share," which is required to be adopted for both interim
and year-end financial statements ending after December 15, 1997. At that time,
the Company will be required to change the method currently used to compute
earnings per share and to restate all prior periods. The Company does not expect
Statement No. 128 to have a material effect on its financial statements.
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ITEM 6. - EXHIBITS
The following exhibits are filed as part of this report:
(10) Material Contracts
Second Amendment dated August 11, 1997, to $100,000,000
Wachovia Bank of Georgia, N.A., Term Loan Credit Agreement
dated August 12, 1996
(27) Financial Data Schedule
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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
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
DATED: November 10, 1997
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EXHIBIT INDEX
Item Page
- ---- ----
(10) Material Contracts
Second Amendment dated August 11, 1997, to 15
$100,000,000 Wachovia Bank of Georgia, N.A., Term
Loan Credit Agreement dated August 12, 1996
(4 pages)
(27) Financial Data Schedule (for SEC purposes) 19
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