<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-Q
For the Quarter Ended September 30, 2000 Commission File Number 1-5315
-------------------------------------
SPRINGS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
SOUTH CAROLINA 57-0252730
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
205 North White Street
Fort Mill, South Carolina 29715
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(803) 547-1500
-------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days.
Yes [X] No [ ]
-------------------------------------
As of November 8, 2000, there were 10,776,497 shares of Class A Common Stock and
7,154,763 shares of Class B Common Stock of Springs Industries, Inc.
outstanding.
-------------------------------------
There are 32 pages in the sequentially numbered, manually signed original of
this report.
The Index to Exhibits is on Page 22
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TABLE OF CONTENTS TO FORM 10-Q
PART I - FINANCIAL INFORMATION
<TABLE>
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ITEM PAGE
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<S> <C> <C>
1. FINANCIAL STATEMENTS 3
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 19
</TABLE>
PART II - OTHER INFORMATION
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ITEM PAGE
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6. EXHIBITS 20
SIGNATURES 21
EXHIBIT INDEX 22
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PART I - FINANCIAL INFORMATION
ITEM 1.- FINANCIAL STATEMENTS
SPRINGS INDUSTRIES, INC.
Condensed Consolidated Statement of Operations
and Retained Earnings
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
------------------------- -----------------------------
SEPT. 30, OCT. 2, SEPT.30, OCT. 2,
2000 1999 2000 1999
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS
Net sales ....................... $ 574,753 $ 562,897 $ 1,741,105 $ 1,691,806
Cost and expenses:
Cost of goods sold ............ 466,152 455,895 1,401,313 1,384,304
Selling, general and
administrative expenses ..... 69,837 70,677 217,101 209,491
Provision for uncollectible
receivables ................. 2,070 1,935 4,367 6,306
Restructuring and
realignment expenses ........ -- -- 2,890 --
Year 2000 expenses ............ -- 129 -- 844
Interest expense .............. 8,150 6,741 24,044 19,631
Other income, net ............. (186) (1,506) (129) (3,818)
--------- --------- ----------- -----------
Total ......................... 546,023 533,871 1,649,586 1,616,758
--------- --------- ----------- -----------
Income before income taxes ....... 28,730 29,026 91,519 75,048
Income tax provision ............. 10,633 11,038 33,871 28,522
--------- --------- ----------- -----------
Net income .................... $ 18,097 $ 17,988 $ 57,648 $ 46,526
========= ========= =========== ===========
Basic earnings per common
share ........................... $ 1.01 $ 1.01 $ 3.22 $ 2.61
========= ========= =========== ===========
Diluted earnings per common
share ........................... $ 1.00 $ .99 $ 3.16 $ 2.56
========= ========= =========== ===========
Cash dividends declared per
common share:
Class A common shares .......... $ .33 $ .33 $ .99 $ .99
========= ========= =========== ===========
Class B common shares .......... $ .30 $ .30 $ .90 $ .90
========= ========= =========== ===========
Basic weighted-average
common shares outstanding ....... 17,924 17,878 17,920 17,858
Dilutive effect of stock-
based compensation awards ....... 193 318 298 293
--------- --------- ----------- -----------
Diluted weighted-average
common shares outstanding ....... 18,117 18,196 18,218 18,151
========= ========= =========== ===========
RETAINED EARNINGS
Retained earnings at
beginning of period ............ $ 706,325 $ 649,126 $ 678,170 $ 631,943
Net income ...................... 18,097 17,988 57,648 46,526
Cash dividends declared ......... (5,700) (5,684) (17,096) (17,039)
--------- --------- ----------- -----------
Retained earnings at end of
period ......................... $ 718,722 $ 661,430 $ 718,722 $ 661,430
========= ========= =========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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SPRINGS INDUSTRIES, INC.
Condensed Consolidated Balance Sheet
(In thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
SEPT. 30, JANUARY 1,
2000 2000
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................... $ 2,740 $ 4,210
Accounts receivable, net ....................... 327,999 302,210
Inventories, net ............................... 506,344 479,328
Other .......................................... 37,576 37,669
----------- -----------
Total current assets ......................... 874,659 823,417
----------- -----------
Property ......................................... 1,496,589 1,452,877
Accumulated depreciation ....................... (875,305) (827,234)
----------- -----------
Property, net ................................ 621,284 625,643
----------- -----------
Goodwill and other assets ........................ 131,175 125,938
----------- -----------
Total ........................................ $ 1,627,118 $ 1,574,998
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings .......................... $ 26,600 $ 35,450
Current maturities of long-term debt ........... 20,809 21,203
Accounts payable ............................... 96,824 106,569
Other accrued liabilities ...................... 134,584 137,199
----------- -----------
Total current liabilities .................... 278,817 300,421
----------- -----------
Noncurrent liabilities:
Long-term debt ................................. 321,502 283,534
Accrued benefits and deferred
compensation .................................. 176,192 179,472
Other .......................................... 36,857 36,700
----------- -----------
Total noncurrent liabilities ................. 534,551 499,706
----------- -----------
Shareholders' equity:
Class A common stock- $.25 par value
(10,860,891 and 10,844,536 shares
issued in fiscal 2000 and 1999,
respectively) ................................ 2,715 2,712
Class B common stock- $.25 par value
(7,154,763 and 7,156,663 shares issued and
outstanding in fiscal 2000 and 1999,
respectively) ................................ 1,789 1,789
Additional paid-in capital ..................... 103,953 103,584
Retained earnings .............................. 718,722 678,170
Cost of Class A common shares in treasury
(91,656 and 95,850 shares in fiscal 2000
and 1999, respectively) ...................... (2,094) (2,181)
Accumulated other comprehensive loss ........... (11,335) (9,203)
----------- -----------
Total shareholders' equity ................... 813,750 774,871
----------- -----------
Total ........................................ $ 1,627,118 $ 1,574,998
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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SPRINGS INDUSTRIES, INC.
Condensed Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
------------------------
SEPT. 30, OCT. 2,
2000 1999
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<S> <C> <C>
Operating activities:
Net income ........................................ $ 57,648 $ 46,526
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................... 78,948 74,944
Provision for restructuring and realignment
expenses ........................................ 2,890 --
Provision for uncollectible receivables .......... 4,367 6,306
(Gains)losses on sales of property ............... 927 (3,602)
Changes in working capital, net .................. (67,973) (85,388)
Other, net ....................................... (10,295) (8,735)
--------- ---------
Net cash provided by operating activities ..... 66,512 30,051
--------- ---------
Investing activities:
Purchases of property ............................. (70,188) (122,097)
Proceeds from sales of property ................... 753 32,222
Net proceeds from sales of businesses ............. -- 36,094
Business acquisitions, net of cash acquired ....... (5,700) (52,298)
Principal collected on notes receivable ........... 1,100 6,853
--------- ---------
Net cash used by investing activities ......... (74,035) (99,226)
--------- ---------
Financing activities:
Proceeds from (repayments of) short-term
borrowings, net .................................. (8,850) 35,929
Proceeds from long-term debt ...................... 150,000 70,000
Repayments of long-term debt ...................... (112,426) (62,954)
Proceeds from exercise of stock options ........... 119 1,258
Cash dividends paid ............................... (22,790) (22,706)
--------- ---------
Net cash provided by financing activities ..... 6,053 21,527
--------- ---------
Decrease in cash and cash equivalents ............... (1,470) (47,648)
Cash and cash equivalents at beginning of period .... 4,210 48,127
--------- ---------
Cash and cash equivalents at end of period .......... $ 2,740 $ 479
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Significant Accounting Policies:
The accompanying unaudited, condensed, consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United
States of America ("generally accepted accounting principles") for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) necessary for a
fair presentation have been included. Operating results for the
three-month and nine-month periods ended September 30, 2000, are not
necessarily indicative of the results that may be expected for the year
ending December 30, 2000. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
annual report on Form 10-K for the year ended January 1, 2000 (the
"1999 Annual Report") of Springs Industries, Inc. ("Springs" or the
"Company").
Use of Estimates: Preparation of the Company's condensed consolidated
financial statements in accordance 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. Actual results could differ from those
estimates and assumptions.
Reclassifications: Certain prior-year amounts have been reclassified to
conform with the fiscal 2000 presentation.
Segment Reporting: The Company's operations have been aggregated into
one reportable segment in accordance with Financial Accounting
Standards Board ("FASB") Statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosures about Segments of an Enterprise and
Related Information." The Company evaluates its performance based on
profit from operations, which is defined as net sales less cost of
goods sold, selling, general, and administrative expenses, and the
provision for uncollectible receivables. Profit from operations and the
reconciliation to the Company's consolidated income before income taxes
for the three-month and nine-month periods ended September 30, 2000 and
October 2, 1999 were as follows: (in thousands)
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<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------- -----------------------
Sept. 30, Oct. 2, Sept. 30, Oct. 2,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Profit from operations $36,694 $34,390 $118,324 $91,705
Restructuring and
realignment expenses - - 2,890 -
Year 2000 expenses - 129 - 844
Interest expense 8,150 6,741 24,044 19,631
Other income, net (186) (1,506) (129) (3,818)
------ ------ ------- ------
Income before income
taxes $28,730 $29,026 $ 91,519 $75,048
======= ======= ======== =======
</TABLE>
Recently Issued Accounting Standards: In September 2000, the FASB
issued SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." This statement
revises the standards for accounting for securitizations and other
transfers of financial assets and collateral and requires certain
disclosures. SFAS No. 140 is effective for transactions after March 31,
2001, and is effective for recognition and disclosure for fiscal years
ending after December 15, 2000. The Company is currently reviewing this
guidance in order to determine the impact of this statement, if any, on
the consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which was amended in June 2000 by
the issuance of Statement No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities (an amendment of FASB
Statement No. 133)." This statement, as amended, will require the
Company to recognize all derivatives on the Consolidated Balance Sheet
at fair value, with changes in fair value recognized in earnings unless
specific criteria are met for derivatives in qualifying hedging
transactions. Changes in fair value of derivatives in qualifying
hedging transactions will be reflected in accumulated other
comprehensive income and reclassified into earnings at the time the
corresponding hedged transaction is reflected in earnings. The Company
will be required to adopt SFAS No. 133, as amended, beginning in its
2001 fiscal year.
The Company has appointed a cross-functional team to implement SFAS No.
133 and has been reviewing derivative strategies and policies,
inventorying freestanding derivatives, reviewing contracts for embedded
derivatives, and addressing various other SFAS No. 133 related issues.
Management has currently identified cotton futures contracts, natural
gas commodity swap contracts and interest rate swap contracts as its
only derivative contracts, and management believes these items will
qualify for hedge accounting treatment. As noted above, the Company is
still reviewing contracts for embedded derivatives, but none have been
identified to date. The Company estimates that, as of September 30,
2000, this statement, as amended, will not have a material impact on
the Company's consolidated results of operations, financial position,
or cash flows. The effect of SFAS No. 133 as of the implementation date
on January 1, 2001, however, cannot be determined with certainty at
this time because it is subject to the market values of derivative
instruments and related hedged items held at the implementation date,
as well as continuing interpretive guidance being issued by the FASB.
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2. Accounts Receivable:
The Company performs ongoing credit evaluations of its customers'
financial conditions and, typically, requires no collateral from its
customers. The Company's reserve for doubtful accounts was $11.4
million at September 30, 2000, compared to $9.7 million at January 1,
2000. The increase in the reserve for doubtful accounts at September
30, 2000, reflects a year-to-date provision for doubtful accounts of
$4.4 million and net write-offs of approximately $2.7 million for
previously reserved accounts. The Company's reserve for doubtful
accounts was $14.8 million at October 2, 1999, compared to $11.7
million at January 2, 1999. The increase in the reserve for doubtful
accounts at October 2, 1999, reflects a year-to-date provision for
doubtful accounts of $6.3 million and net write-offs of approximately
$3.2 million for previously reserved accounts.
3. Inventories:
Inventories are summarized as follows: (in thousands)
<TABLE>
<CAPTION>
Sept. 30, January 1,
2000 2000
--------- ---------
<S> <C> <C>
Standard cost (which approximates
current cost):
Finished goods $ 338,764 $ 328,383
In process 196,772 181,323
Raw materials and supplies 55,399 64,293
--------- ---------
590,935 573,999
Less LIFO reserve (84,591) (94,671)
--------- ---------
Total $ 506,344 $ 479,328
========= =========
</TABLE>
4. Acquisitions and Divestiture:
On August 7, 2000, the Company acquired certain assets and operations
of a Mexican maquiladora, which fabricates window blind treatments, and
a related U.S. facility. The purchase price was approximately $5.7
million. The acquisition was accounted for as a purchase in accordance
with Accounting Principles Board ("APB") Opinion No. 16, "Business
Combinations" ("APB 16"), and the operating results for the acquired
business have been included in the Company's consolidated financial
statements since the August 7, 2000, acquisition date. The purchase
price was allocated to the assets acquired based on their estimated
fair value at the date of acquisition.
The excess of the purchase price over the fair value of the assets
acquired, which totaled $3.9 million, has been recorded as goodwill and
is being amortized on a straight-line basis over 20 years. The
pro-forma impact on sales and operating profits for the three-month and
nine-month periods ended September 30, 2000, and October 2, 1999, were
not material.
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During the first quarter of 1999, the Company completed two
acquisitions and one divestiture. Please refer to the 1999 Annual
Report for further discussion of the following transactions.
On January 23, 1999, the Company acquired Regal Rugs, Inc. ("Regal"),
an importer and manufacturer of bath and accent rugs. Regal's operating
results have been included in the Company's consolidated financial
statements beginning as of the January 23, 1999, acquisition date.
On January 5, 1999, the Company acquired the remaining 50% interest in
American Fiber Industries, LLC ("AFI"), a manufacturer and distributor
of bed pillows, mattress pads, down comforters and comforter
accessories. AFI's operating results have been included in the
Company's consolidated financial statements beginning as of the January
5, 1999, acquisition date.
Effective March 31, 1999, the Company sold its UltraFabrics business.
First-quarter 1999 sales and pretax operating profit for the
UltraFabrics business were not material.
5. Restructuring and Realignment Expenses:
In the second quarter of 2000, the Company adopted a plan to phase out
production and close plants in Griffin and Jackson, Georgia, which
manufactured certain baby products, and to phase out yarn production
for terry towels at its No. 2 plant in Griffin, beginning in August
2000. The Company recorded a pretax charge of $2.9 million, which
included a $2.4 million accrual for severance costs arising from the
elimination of an estimated 389 hourly and 37 salaried manufacturing
positions, a $0.3 million impairment charge for machinery and equipment
to be sold (impairment was determined by comparing the net book value
against estimated sales value less costs to sell), and a $0.2 million
accrual for estimated idle plant costs. These charges relate primarily
to the baby products facilities since costs related to the terry yarn
facility were not significant. The Company expects to complete the
restructuring plan by the end of the first quarter of fiscal 2001.
The following represents changes in the restructuring accruals since
the adoption of the plan: (in millions)
<TABLE>
<CAPTION>
Idle
Severance Asset Plant
Accrual Impairment Costs
------- ---------- -----
<S> <C> <C> <C>
Original accrual as of
July 1, 2000 $ 2.4 $ 0.3 $ 0.2
Cash payments (0.6) -- (0.2)
Charged against
assets -- (0.3) --
----- ----- -----
Accrual balance
as of September 30, 2000 $ 1.8 $ 0.0 $ 0.0
===== ===== =====
</TABLE>
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6. Goodwill:
The Company had net goodwill of $62.0 million and $60.2 million at
September 30, 2000, and January 1, 2000, respectively. These amounts
are net of accumulated amortization of $15.7 million at September 30,
2000, and $13.6 million at January 1, 2000. See Note 4, Acquisitions
and Divestiture, for a description of the goodwill from the fiscal 2000
acquisition.
7. Accrued Benefits and Deferred Compensation:
The long-term portion of accrued benefits and deferred compensation was
comprised of the following: (in thousands)
<TABLE>
<CAPTION>
Sept.30, January 1,
2000 2000
-------- --------
<S> <C> <C>
Postretirement medical benefit obligation $ 58,913 $ 62,097
Deferred compensation 66,372 68,132
Other employee benefit obligations 50,907 49,243
-------- --------
Total $176,192 $179,472
======== ========
</TABLE>
The liabilities are long term in nature and will be paid over time in
accordance with the terms of the plans.
8. Financing Arrangements:
For the nine-month period ended September 30, 2000, the Company
borrowed an additional $55.0 million through its existing long-term
revolving credit agreement, which will expire in December 2002. The
LIBOR-based weighted-average interest rate on this agreement was 6.9
percent as of September 30, 2000.
9. Comprehensive Income:
Comprehensive income was $16.7 million and $17.9 million for the
three-month periods and $55.5 million and $47.2 million for the
nine-month periods ended September 30, 2000, and October 2, 1999,
respectively. Net income differed from comprehensive income due to
foreign currency translation adjustments.
10. Income Taxes:
The Company's provision for income taxes for fiscal 2000 is based on an
estimated 37 percent effective tax rate, compared to 38 percent during
fiscal 1999. This change is due to the Company's ongoing tax planning
strategies and management of tax rates in various jurisdictions.
11. Contingencies:
As disclosed in its 1999 Annual Report, 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
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pollution and cleanup costs; the complexity and evolving nature of
governmental laws and regulations and their interpretations; the
timing, varying costs and effectiveness of alternative cleanup
technologies; the determination of the Company's liability in
proportion to other potentially responsible parties; and the extent, if
any, to which such costs are recoverable from insurers or other
parties.
In connection with these proceedings, the Company estimates the range
of possible losses to be between $6.2 million and $14.4 million and has
accrued an undiscounted liability of approximately $10.0 million as of
September 30, 2000, which represents management's best estimate of
Springs' probable liability concerning all known environmental matters.
Management believes the $10.0 million will be paid out over the next 15
years. This accrual has not been reduced by any potential insurance
recovery to which the Company may be entitled regarding environmental
matters. Environmental matters include a site listed on the United
States Environmental Protection Agency's ("EPA") National Priority List
where Springs is the sole responsible party. Springs, the EPA and the
United States Department of Justice have executed a consent decree
related to this site. Soil cleanup was completed in 1993, subject to
final approval by the EPA, and the approved EPA groundwater remedy
began in 1996. There are no other known sites which the Company
presently believes may involve material expenditures.
Springs is also involved in various 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.
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<PAGE> 12
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Springs Industries, Inc. ("Springs" or "the Company") is engaged in
manufacturing, marketing and selling home furnishings products. The Company's
product line includes sheets, pillows, pillowcases, bedspreads, comforters,
mattress pads, baby bedding and infant apparel, towels, shower curtains, bath
and accent rugs, other bath fashion accessories, over-the-counter home-sewing
fabrics, drapery hardware, and hard and soft decorative window fashions.
The Company's emphasis on the home furnishings market has developed into three
strategic initiatives: focus on key accounts; brand investment and expansion;
and manufacturing and purchasing efficiencies. These initiatives commenced in
1998 and continue to be enhanced and expanded.
In June 2000, the Company announced a restructuring plan to reduce certain
production costs and in August 2000 began to phase out production and close
plants in Griffin and in Jackson, Georgia, which manufacture certain baby
products. The Company also began to phase out yarn production at the Griffin,
Georgia terry towel plant No. 2 in August 2000, and transfer that production to
the Company's Griffin plant No. 5 and Hartwell, Georgia facilities. As a result
of this plan, an after-tax restructuring charge of $1.8 million, or $0.10 per
diluted share, was recorded in June 2000, principally for severance and idle
plant costs. See RESTRUCTURING AND REALIGNMENT EXPENSES for additional
information.
Consistent with the Company's home furnishings market strategy, Springs acquired
two home furnishings businesses in the first quarter of 1999. On January 23,
1999, the Company acquired Regal Rugs, Inc. ("Regal"), an importer and
manufacturer of bath and accent rugs, for approximately $35 million. The
acquisition was accounted for as a purchase, and Regal's operating results have
been included in the Company's consolidated financial statements beginning as of
the January 23, 1999, acquisition date. On January 5, 1999, the Company acquired
the remaining 50 percent interest in American Fiber Industries, LLC ("AFI"), a
manufacturer and distributor of bed pillows, mattress pads, down comforters, and
comforter accessories, for approximately $15 million. The Company has accounted
for the remaining interest as a purchase, and AFI's operating results have been
included in the Company's consolidated financial statements since the January 5,
1999, acquisition date. Please refer to the Company's consolidated financial
statements and footnotes thereto included in the annual report on Form 10-K for
the year ended January 1, 2000 (the "1999 Annual Report") for additional
information.
RESULTS OF OPERATIONS
Sales
Net sales for the third quarter of 2000 were $574.8 million, up 2.1 percent from
the third quarter of 1999. This increase was principally driven by the Company's
key accounts, with continued sales growth of bedding and bath products to major
mass merchants and specialty stores and higher sales of
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<PAGE> 13
hard window fashions products to home improvement retailers. The Company
continues to benefit from incremental sales growth over the prior year resulting
from its decision to introduce the Springmaid(R) brand to mass merchants. The
AFI business also experienced strong increases in sales volume over the prior
year. These positive sales trends were partially offset by continued lower sales
to department stores and smaller specialty stores, and lower sales of hard
window fashions products to distributors and fabricators.
During the first nine months of 2000, the Company's net sales were $1.741
billion, up 2.9 percent from a year ago. The year-to-date increase reflects
higher sales of bed, bath and hard window fashions products to the Company's key
accounts, including higher sales from the AFI business. The growth in the key
accounts has been partially offset by lower levels of sales to department stores
and smaller specialty stores compared to prior-year periods.
Earnings
Net income for the third quarter was $18.1 million, or $1.00 per diluted share,
compared to $18.0 million, or $0.99 per diluted share in the third quarter of
1999. Third quarter 1999 earnings included Year 2000 expenses of $0.1 million
and an after-tax gain on the sale-leaseback of the Company's New York office
building of $0.9 million. Third quarter 1999 net income excluding Year 2000
expenses and the New York office building gain would have been $17.2 million, or
$0.94 per diluted share.
Operating earnings for the third quarter of 2000 were $36.7 million, up 6.7
percent from $34.4 million in the third quarter of 1999. The improvement in
operating earnings was due primarily to the increase in sales volume and lower
selling, general and administrative expenses. Although operating earnings
improved, net income remained flat compared to the third quarter of last year
due to higher interest expense in 2000 and the New York office building gain in
1999.
The Company's gross margin for the third quarter decreased slightly, from 19.0
percent in 1999 to 18.9 percent in 2000. This decline resulted primarily from a
higher level of customer claims and continued efforts to reduce the Company's
inventory levels through increased sales of off-quality and closeout merchandise
and temporary production curtailments. These items were offset by improvements
from purchasing and manufacturing initiatives.
The Company's selling, general and administrative expenses for the third quarter
of 2000 decreased when compared to the third quarter of 1999. These expenses
were lower in the third quarter of 2000 due to a focus on cost containment, and
lower expenses for compensation incentives based on overall Company performance.
Selling, general and administrative expenses in the third quarter of 1999 also
included higher fees for management advisory services related to the Company's
development of its manufacturing and purchasing efficiency initiatives.
Net income for the first nine months of 2000 was $57.6 million, or $3.16 per
diluted share, compared to last year's $46.5 million, or $2.56 per diluted
share. Net income before the effects of the restructuring and realignment charge
in the second quarter of 2000, and Year 2000 expenses and the New York office
building gain in 1999, would have been $59.5 million, or $3.26
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<PAGE> 14
per diluted share, for the first nine months of 2000, compared to $46.1 million,
or $2.54 per diluted share, for the first nine months of 1999.
Operating earnings for the first nine months of 2000 were $118.3 million,
compared to $91.7 million in the prior year. This increase in operating earnings
was driven primarily by the increases in sales volumes and by improvements in
gross margin, from 18.2 percent in 1999 to 19.5 percent in 2000. This increase
resulted primarily from purchasing efficiencies and improved manufacturing
productivity. The gross margin for the first nine months of 2000 excludes the
impact of the second-quarter restructuring and realignment charge.
Selling, general and administrative expenses were higher in the first nine
months of 2000, compared to the first nine months of 1999, due to higher
spending for advertising, increased sales and marketing expenses to improve
customer service and focus on key accounts, and a second-quarter 2000 state
sales and use tax assessment. Selling, general and administrative expenses for
1999 reflect higher fees for management advisory services related to the
Company's development of its manufacturing and purchasing efficiency
initiatives. The provision for bad debts is lower in 2000 and reflects an
overall improvement in the credit quality of the Company's receivables.
Income Taxes
The Company's provision for income taxes for fiscal 2000 is based on an
estimated 37 percent effective tax rate, compared to 38 percent during fiscal
1999. This change is due to the Company's ongoing tax planning strategies and
management of tax rates in various jurisdictions and resulted in reductions in
the tax provisions of $0.3 million and $0.9 million for the third quarter and
first nine months of 2000, respectively.
OUTLOOK
The Company expects the current sales growth rate over the prior year to improve
slightly for the fourth quarter of 2000 through growth in the Company's key
accounts, the introduction of new programs in the quarter, and increased sales
of off-quality and closeout merchandise. Gross margins for the fourth quarter of
2000 are expected to decline from the third quarter of 2000 due to projected
higher sales of off-quality and closeout merchandise and continued curtailments
of inventory production. This projected decline in gross margins is expected to
be offset somewhat by lower levels of customer claims and the impact of the
ongoing manufacturing and purchasing initiatives. In addition to the impact of
the above-mentioned items, fourth quarter 2000 gross margins are expected to be
lower than the fourth quarter of 1999 due to the favorable impact of the
settlement of a $3.2 million business interruption insurance claim recorded in
the fourth quarter of 1999.
RESTRUCTURING AND REALIGNMENT EXPENSES
In the second quarter of 2000, the Company adopted a plan to phase out
production and close plants in Griffin and Jackson, Georgia, which manufactured
certain baby products, and to phase out yarn production for terry towels at its
No. 2 plant in Griffin, Georgia beginning in August 2000. The Company will
replace the baby products production by outsourcing from low-cost providers. The
terry yarn production at the Griffin No. 2 plant has been transferred to the
Company's Griffin No. 5 and Hartwell, Georgia,
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<PAGE> 15
plants, where recent investment in new manufacturing technology allows terry
yarn to be produced more competitively.
In connection with this plan, the Company recorded a pretax charge of $2.9
million, which included a $2.4 million accrual for severance costs arising from
the elimination of an estimated 389 hourly and 37 salaried manufacturing
positions, a $0.3 million impairment charge for machinery and equipment to be
sold (impairment was determined by comparing the net book value against
estimated sales value less costs to sell), and a $0.2 million accrual for
estimated idle plant costs. These charges relate primarily to the baby products
facilities since costs related to the terry yarn facility were not significant.
The expected benefits of this plan include lower product costs and better
utilization of existing capacity in other facilities. As a result, the Company
expects to realize after-tax savings from lower product costs of $0.9 million
for the second half of 2000, and $2.5 million in fiscal 2001. The restructuring
plan is expected to be complete by the end of the first quarter of fiscal 2001.
The following represents changes in the restructuring accruals since the
adoption of the plan: (in millions)
<TABLE>
<CAPTION>
Idle
Severance Asset Plant
Accrual Impairment Costs
------- ---------- -----
<S> <C> <C> <C>
Original accrual as of
July 1, 2000 $ 2.4 $ 0.3 $ 0.2
Cash payments (0.6) -- (0.2)
Charged against
assets -- (0.3) --
----- ----- -----
Accrual balance
as of September 30, 2000 $ 1.8 $ 0.0 $ 0.0
===== ===== =====
</TABLE>
CAPITAL RESOURCES AND LIQUIDITY
The Company decreased its short-term borrowings by $8.9 million and borrowed an
additional $55.0 million under its existing long-term revolving credit agreement
during the first nine months of 2000. These borrowings were used to fund higher
levels of accounts receivable and inventory and to reduce various current
liabilities. An increase in inventory by $27.0 million over prior year-end
occurred primarily as a result of higher levels of grey roll stock inventory and
off-quality and closeout merchandise. Accounts payable and other current
liabilities decreased by $12.4 million from the end of 1999.
The Company has reduced its revised estimate of capital expenditures for 2000
from $145 million to approximately $125 million. Management believes that cash
generated by operations and borrowings from bank lines will adequately provide
for the Company's cash needs during 2000.
ACQUISITION
On August 7, 2000, the Company acquired certain assets and operations of a
Mexican maquiladora, which fabricates window blind treatments, and a related
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<PAGE> 16
U.S. facility. The purchase price was approximately $5.7 million. The
acquisition was accounted for as a purchase in accordance with Accounting
Principles Board ("APB") Opinion No. 16, "Business Combinations" ("APB 16"), and
the operating results of the acquired business have been included in the
Company's consolidated financial statements since the August 7, 2000 acquisition
date. The purchase price was allocated to the assets acquired based on their
estimated fair value at the date of acquisition.
The excess of the purchase price over the fair value of the assets acquired,
which totaled $3.9 million, has been recorded as goodwill and is being amortized
on a straight-line basis over 20 years. The pro-forma impact on sales and
operating profits for the three-month and nine-month periods ended September 30,
2000 and October 2, 1999, were not material.
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS
Refer to NEW PRONOUNCEMENTS for a discussion of the impact of Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," on market risk sensitive instruments and
positions.
Interest Rate Risk: Springs is exposed to interest rate volatility with regard
to existing issuances of variable rate debt. The Company uses interest rate
swaps to reduce interest rate volatility and funding costs associated with
certain debt issues, and to achieve a desired proportion of variable versus
fixed-rate debt, based on current and projected market conditions. The fair
value of the Company's derivative financial instruments and other financial
instruments that are sensitive to changes in interest rates, including interest
rate swaps and debt obligations, has not changed materially as of September 30,
2000, relative to the fair value of such instruments at January 1, 2000.
Commodity Price Risk: The Company is exposed to price fluctuations related to
anticipated purchases of certain raw materials, primarily cotton fiber. Springs
uses a combination of forward delivery contracts and exchange-traded futures
contracts, 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. The number of futures contracts held and the fair value of
those contracts at September 30, 2000, were not material, and near-term changes
in the price of cotton fiber are not expected to have a material impact on the
Company's future earnings or cash flows.
The Company is also exposed to price fluctuations related to anticipated
purchases of natural gas. During the third quarter of 2000, Springs entered into
a commodity swap contract to fix the price it pays for natural gas for a portion
of its expected utilization during the fourth quarter of 2000. The fair value of
the contract at September 30, 2000 was not material.
Foreign Exchange Risk: The Company is exposed to foreign exchange risks to the
extent of adverse fluctuations in certain exchange rates, primarily the Canadian
dollar and Mexican peso. The Company does not believe that reasonably possible
near-term changes in foreign currencies will result in a material impact on
future earnings or cash flows.
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<PAGE> 17
NEW PRONOUNCEMENTS
In September 2000, the Financial Accounting Standards Board ("FASB"), issued
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." This statement revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures. SFAS No. 140 is effective for
transactions after March 31, 2001, and is effective for recognition and
disclosure for fiscal years ending after December 15, 2000. The Company is
currently reviewing this guidance in order to determine the impact of this
statement, if any, on the consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which was amended in June 2000 by the
issuance of Statement No. 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities (an amendment of FASB Statement No. 133)." This
statement, as amended, will require the Company to recognize all derivatives on
the Consolidated Balance Sheet at fair value, with changes in fair value
recognized in earnings unless specific criteria are met for derivatives in
qualifying hedging transactions. Changes in fair value of derivatives in
qualifying hedging transactions will be reflected in accumulated other
comprehensive income and reclassified into earnings at the time the
corresponding hedged transaction is reflected in earnings. The Company will be
required to adopt SFAS No. 133, as amended, beginning in its 2001 fiscal year.
The Company has appointed a cross-functional team to implement SFAS No. 133 and
has been reviewing derivative strategies and policies, inventorying freestanding
derivatives, reviewing contracts for embedded derivatives, and addressing
various other SFAS No. 133 related issues. Management has currently identified
cotton futures contracts, natural gas commodity swap contracts and interest rate
swap contracts as its only derivative contracts, and management believes these
items will qualify for hedge accounting treatment. As noted above, the Company
is still reviewing contracts for embedded derivatives, but none have been
identified to date. The Company estimates that, as of September 30, 2000, this
statement, as amended, will not have a material impact on the Company's
consolidated results of operations, financial position, or cash flows. The
effect of SFAS No. 133 as of the implementation date on January 1, 2001,
however, cannot be determined with certainty at this time because it is subject
to the market values of derivative instruments and related hedged items held at
the implementation date, as well as continuing interpretive guidance being
issued by the FASB.
FORWARD LOOKING INFORMATION
This Form 10-Q report contains forward-looking statements that are based on
management's expectations, estimates, projections, and assumptions. Words such
as "expects," "believes," "estimates," and variations of such words and similar
expressions are often used to identify such forward-looking statements which
include but are not limited to projections of sales, expenditures, savings,
completion dates, cash flows, and operating performance. Such forward-looking
statements are made pursuant to the safe-harbor provisions of the Private
Securities Litigation Reform Act of 1995. These statements are not guaranties of
future performance; instead, they relate to situations with respect to which
certain risks and uncertainties are difficult to predict. Actual future results
and trends, therefore, may
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<PAGE> 18
differ materially from what is predicted in forward-looking statements due to a
variety of factors, including: the health of the retail economy in general,
competitive conditions and demand for the Company's products; progress toward
the Company's manufacturing and purchasing efficiency initiatives; unanticipated
natural disasters; legal proceedings; labor matters; and the availability and
price of raw materials which could be affected by weather, disease, energy
costs, or other factors.
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<PAGE> 19
ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by this item is incorporated by reference from this
Form 10-Q under the caption "Market Risk Sensitive Instruments and Positions" of
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations."
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<PAGE> 20
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS
The following exhibits are filed as part of this report:
(3) Articles of Incorporation and Bylaws
(a) Springs Industries, Inc.'s Bylaws, amended and restated as
of July 13, 2000.
(27) Financial Data Schedule (for SEC purposes)
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<PAGE> 21
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/Jeffrey A. Atkins
-----------------------------
Jeffrey A. Atkins
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
DATED: November 13, 2000
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<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Item Page No.
---- --------
<S> <C> <C> <C>
(3) Articles of Incorporation and Bylaws
(a) Springs Industries, Inc.'s Bylaws, amended and
restated as of July 13, 2000, filed herewith (9 pages). 23
(27) Financial Data Schedule (for SEC purposes) 32
</TABLE>
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